Topic: General Principles, Attributes of Corporation which includes a discussion on the Doctrine of

Limited Liability

Case No. 7

Petron vs. NCBA

G.R. No. 155683. February 16, 2007

FACTS:

The V. Mapa properties owned by Felipe and Enrique Monserrat, Jr., were mortgaged to DBP as part
of the security for the loan of P5.2 million by MYTC and Monserrat Co. MYTC mortgaged four parcels
of land located in Manila. One-half of Felipe’s undivided interest in the V. Mapa properties was levied
upon in execution of a money judgment rendered by the RTC in the Manila case. DBP challenged the
levy through a third-party claim asserting that the V. Mapa properties were mortgaged to it and
were, for that reason, exempt from levy or attachment. The RTC quashed it. MYTC and the
Monserrats got DBP to accept a dacion en pago arrangement whereby MYTC conveyed to the bank
the four mortgaged Quiapo properties as full settlement of their loan obligation. But despite this
agreement, DBP did not release the V. Mapa properties from the mortgage. Felipe, acting for
himself and as Enrique’s attorney-in-fact, sold the V. Mapa properties to respondent NCBA. The
Monserrats failed to comply with this undertaking. This instigated the civil action filed by NCBA.

During the pendency of the case, ½ of Enrique’s undivided interest in the V. Mapa properties was
levied on in execution of a judgment of the Makati case holding him liable to Petron on a 1972
promissory note. Petron, the highest bidder, acquired both Felipe’s and Enrique’s undivided interests
in the property. Petron intervened in the NCBA case.

ISSUE:

Whether or not Petron should be held liable for exemplary damages and attorney’s fees.

HELD:

NO.

Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad faith to
satisfy another’s plainly valid, just and demandable claim, compelling the latter needlessly to seek
redress from the courts. In such a case, the law allows recovery of money the plaintiff had to spend
for a lawyer’s assistance in suing the defendant – expenses the plaintiff would not have incurred if
not for the defendant’s refusal to comply with the most basic rules of fair dealing. It does not mean,
however, that the losing party should be made to pay attorney’s fees merely because the court finds
his legal position to be erroneous and upholds that of the other party, for that would be an
intolerable transgression of the policy that no one should be penalized for exercising the right to
have contending claims settled by a court of law. In fact, even a clearly untenable defense does not
justify an award of attorney’s fees unless it amounts to gross and evident bad faith.
No gross and evident bad faith could be imputed to Petron merely for intervening in NCBA’s suit
against DBP and the Monserrats in order to assert what it believed and had good reason to believe.
The rule in this jurisdiction is that the plaintiff must show that he is entitled to moral, temperate or
compensatory damages before the court may even consider the question of whether exemplary
damages should be awarded. No exemplary damages may be awarded without the plaintiff’s right
to moral, temperate, liquidated or compensatory damages having first been established.
Topic: Nationality of Corporations

Case No. 26

Heirs of Wilson P. Gamboa vs. Teves

G.R. No. 176579, June 28, 2011

FACTS:

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment
Corporation (PTIC) by the government of the Republic of the Philippines, acting through the Inter-
Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First
Pacific Company Limited (First Pacific), a Hong Kong-based investment management and holding
company and a shareholder of the Philippine Long Distance Telephone Company (PLDT). The
petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares
(or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First
Pacific. With the this sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent
to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT to about
81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987 Philippine
Constitution which limits foreign ownership of the capital of a public utility to not more than 40%.

ISSUE:

Whether or not the term “capital” in Section 11, Article XII of the Constitution refer to the total
common shares only, or to the total outstanding capital stock (combined total of common and non-
voting preferred shares) of PLDT, a public utility.

HELD:

NO.

The Court partly granted the petition and held that the term “capital” in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the election of directors of a public
utility, i.e., to the total common shares in PLDT.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common
shares of PLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS), which is a document
required to be submitted annually to the Securities and Exchange Commission, foreigners hold
120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares. In
other words, foreigners hold 64.27% of the total number of PLDT’s common shares, while Filipinos
hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that
foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable
40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII
of the Constitution.

As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00
per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred
shares have twice the par value of common shares but cannot elect directors and have only 1/70 of
the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos
while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares
constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only
22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred
shares but with the common shares, blatantly violating the constitutional requirement of 60 percent
Filipino control and Filipino beneficial ownership in a public utility.
Topic: Doctrine of Separate Juridical Personality / Doctrine of Corporate Entity

Case No. 45

Ching vs. Secretary of Justice

G. R. No. 164317 February 6, 2006

FACTS:

PBMI, through Ching, Senior VP of Philippine Blooming Mills, Inc. (PBMI), applied with the Rizal
Commercial Banking Corporation (RCBC) for the issuance of commercial letters of credit to finance
its importation of assorted goods. RCBC approved the application, and irrevocable letters of credit
were issued in favor of Ching. The goods were purchased and delivered in trust to PBMI. Ching
signed 13 trust receipts as surety, acknowledging delivery of the goods. Under the receipts, Ching
agreed to hold the goods in trust for RCBC, with authority to sell but not by way of conditional sale,
pledge or otherwise. In case such goods were sold, to turn over the proceeds thereof as soon as
received, to apply against the relative acceptances and payment of other indebtedness to
respondent bank. In case the goods remained unsold within the specified period, the goods were to
be returned to RCBC without any need of demand. Goods, manufactured products or proceeds
thereof, whether in the form of money or bills, receivables, or accounts separate and capable of
identification - RCBC’s property

When the trust receipts matured, Ching failed to return the goods to RCBC, or to return their value
amounting toP6,940,280.66 despite demands. RCBC filed a criminal complaint for estafa against
petitioner in the Office of the City Prosecutor of Manila.

ISSUE:

W/N Ching should be held criminally liable.

HELD:

YES. DENIED for lack of merit

There is no dispute that it was the Ching executed the 13 trust receipts. The law points to him as the
official responsible for the offense. Since a corporation CANNOT be proceeded against criminally
because it CANNOT commit crime in which personal violence or malicious intent is required, criminal
action is limited to the corporate agents guilty of an act amounting to a crime and never against the
corporation itself. The execution by Ching of receipts is enough to indict him as the official
responsible for violation of PD 115. RCBC is estopped to still contend that PD 115 covers only goods
which are ultimately destined for sale and not goods, like those imported by PBM, for use in
manufacture.

Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil
liabilities arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs.
Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115. Ching’s
being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any
liability. The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under
paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be
committed by a corporation or other juridical entity or by natural persons. However, the penalty for
the crime is imprisonment for the periods provided in said Article 315.
The law specifically makes the officers, employees or other officers or persons responsible for the
offense, without prejudice to the civil liabilities of such corporation and/or board of directors,
officers, or other officials or employees responsible for the offense

Officers or employees are vested with the authority and responsibility to devise means necessary to
ensure compliance with the law and, if they fail to do so, are held criminally accountable; thus, they
have a responsible share in the violations of the law. If the crime is committed by a corporation or
other juridical entity, the directors, officers, employees or other officers thereof responsible for the
offense shall be charged and penalized for the crime, precisely because of the nature of the crime
and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be
penalized for a crime punishable by imprisonment. However, a corporation may be charged and
prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both fine and
imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined. When
a criminal statute designates an act of a corporation or a crime and prescribes punishment therefor,
it creates a criminal offense which, otherwise, would not exist and such can be committed only by
the corporation. But when a penal statute does not expressly apply to corporations, it does not
create an offense for which a corporation may be punished. On the other hand, if the State, by
statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor
to be suffered by the officers, directors, or employees of such corporation or other persons
responsible for the offense, only such individuals will suffer such penalty. Corporate officers or
employees, through whose act, default or omission the corporation commits a crime, are themselves
individually guilty of the crime. The principle applies whether or not the crime requires the
consciousness of wrongdoing. It applies to those corporate agents who themselves commit the
crime and to those, who, by virtue of their managerial positions or other similar relation to the
corporation, could be deemed responsible for its commission, if by virtue of their relationship to the
corporation, they had the power to prevent the act. Benefit is not an operative fact.
Topic: Doctrine of Piercing the Veil of Corporate Fiction

Case No. 64

MR Holdings Ltd. Vs. Sheriff Carlos P. Bajar

G.R. No. 138104 April 11, 2002

FACTS:

ADB extended a loan to Marcopper under a Principal Loan Agreement and Complementary Loan
Agreement. A Support and Standby Credit Agreement was also executed between ADB and Placer
Dome (owner of 40% of Marcopper), whereby the latter agreed to provide with a cash flow support
for the payment of its obligations to ADB. Marcopper also executed a Deed of Real Estate and
Chattel Mortgage in favor of ADB covering all its assets in Marinduque. Marcopper defaulted in its
payment. Thus, MR Holding, LTD (placer Dome’s subsidiary corporation) assumed Marcopper’s
obligation to ADB. Marcopper likewise executed a Deed of assignment in favor of petitioner.

It appeared that SolidBank Corporation obtained a partial judgment against Marcopper in a case filed
with the RTC. A writ of execution was issued and then an auction sale was scheduled. This event
prompted petitioner to serve an "Affidavit of Third-Party Claim" upon respondent sheriffs, asserting
ownership over all the assets of Marcopper by virtue of the Deed of Assignment. The RTC of Manila
denied the affidavit.

Petitioner filed with the RTC of Boac, Marinduque a complaint for reivindication of properties with
prayer for preliminary injunction and temporary restraining order against respondents. The
application for writ of preliminary injunction was denied.

ISSUE:

Whether or not petitioner is doing business in the Philippines.

HELD:

NO.

There are other statutes defining the term "doing business" in the same tenor as those above-
quoted, and as may be observed, one common denominator among them all is the concept of
"continuity."

The expression "doing business" should not be given such a strict and literal construction as to make
it apply to any corporate dealing whatever. At this early stage and with petitioner’s acts or
transactions limited to the assignment contracts, it cannot be said that it had performed acts
intended to continue the business for which it was organized. It may not be amiss to point out that
the purpose or business for which petitioner was organized is not discernible in the records. No
effort was exerted by the Court of Appeals to establish the nexus between petitioner’s business and
the acts supposed to constitute "doing business." Thus, whether the assignment contracts were
incidental to petitioner’s business or were continuation thereof is beyond determination.
Significantly, a view subscribed upon by many authorities is that the mere ownership by a foreign
corporation of a property in a certain state, unaccompanied by its active use in furtherance of the
business for which it was formed, is insufficient in itself to constitute doing business.

In the final analysis, we are convinced that petitioner was engaged only in isolated acts or
transactions. Single or isolated acts, contracts, or transactions of foreign corporations are not
regarded as a doing or carrying on of business. Typical examples of these are the making of a single
contract, sale, sale with the taking of a note and mortgage in the state to secure payment therefor,
purchase, or note, or the mere commission of a tort. In these instances, there is no purpose to do
any other business within the country.
Topic: Doctrine of Piercing the Veil of Corporate Fiction

Case No. 83

Delpher Trades vs. IAC

G.R. No. L-69259. January 26, 1988

FACTS:

Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of real estate property. The said co-
owners leased to Construction Components International Inc. the same property and providing that
during the existence or after the term of this lease the lessor should he decide to sell the property
leased shall first offer the same to the lessee and the letter has the priority to buy under similar
conditions. Subsequently, lessee assigned its rights and obligations under the contract of lease in
favor of Hydro Pipes Philippines, Inc.

A deed of exchange was executed between Delfin and Pelagia Pacheco and defendant Delpher
Trades Corporation whereby the former conveyed to the latter the leased property for 2,500 shares
of stock of defendant corporation with a total value of P1,500,000.00. On the ground that it was not
given the first option to buy the leased property pursuant to the proviso in the lease agreement,
respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of the
property in its favor under conditions similar to those whereby Delpher Trades Corporation acquired
the property from Pelagia Pacheco and Delphin Pacheco.

Respondents on the other hand stated that there was no transfer of ownership over the properties.

ISSUE:

Whether or not there was an effective transfer of property in this case.

HELD:

NO.

After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing

stock directly from the corporation or from individual owners thereof. In the case at bar, in exchange
for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of
the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the
corporation by subscription "The essence of the stock subscription is an agreement to take and pay
for original unissued shares of a corporation, formed or to be formed.” It is significant that the
Pachecos took no par value shares in exchange for their properties.

It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have
control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who
also belong to the same family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did
was to invest their properties and change the nature of their ownership from unincorporated to
incorporated form by organizing Delpher Trades Corporation to take control of their properties and
at the same time save on inheritance taxes.

The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot
be considered a contract of sale. There was no transfer of actual ownership interests by the
Pachecos to a third party. The Pacheco family merely changed their ownership from one form to
another. The ownership remained in the same hands. Hence, the private respondent has no basis for
its claim of a light of first refusal under the lease contract.
Topic: Doctrine of Piercing the Veil of Corporate Fiction

Case No. 102

San Miguel Corporation Employees Union vs. Confessor

G.R. No. 111262. September 19, 1996

FACTS:
SMC management informed its employees in a letter dated August 13, 1991[2]that the company which
was composed of four operating divisions namely: (1) Beer, (2) Packaging, (3) Feeds and Livestocks,
(4) Magnolia and Agri-business would undergo a restructuring. Magnolia and Feeds and Livestock
Division were spun-off and became two separate and distinct corporations: Magnolia Corporation
(Magnolia) and San Miguel Foods, Inc. (SMFI). Notwithstanding the spin-offs, the CBA remained in
force and effect. the CBA was renegotiated in accordance with the terms of the CBA and Article 253-
A of the Labor Code. During the negotiations, the petitioner-union insisted that the bargaining unit
of SMC should still include the employees of the spun-off corporations: Magnolia and SMFI; and that
the renegotiated terms of the CBA shall be effective only for the remaining period of two years or
until June 30, 1994.
SMC, on the other hand, contended that the members/employees who had moved to Magnolia and
SMFI, automatically ceased to be part of the bargaining unit at the SMC.
ISSUE:
1) Whether or not the duration of the renegotiated terms of the CBA is to be effective for three
years or for only two years; and
2) Whether or not the bargaining unit of SMC includes also the employees of Magnolia and
SMFI.
HELD:
In the instant case, it is not difficult to determine the period of effectivity for the non-representation
provisions of the CBA. Taking it from the history of their CBAs, SMC intended to have the terms of
the CBA effective for three (3) years reckoned from the expiration of the old or previous CBA which
was on June 30, 1989. With respect to the second issue, there is, likewise, no merit in petitioner-
unions assertion that the employees of Magnolia and SMFI should still be considered part of the
bargaining unit of SMC.
Magnolia and SMFI were spun-off to operate as distinct companies on October 1, 1991. Management
saw the need for these transformations in keeping with its vision and long term strategy.
Undeniably, the transformation of the companies was a management prerogative and business
judgment which the courts can not look into unless it is contrary to law, public policy or
morals. Neither can we impute any bad faith on the part of SMC so as to justify the application of the
doctrine of piercing the corporate veil. Ever mindful of the employees interests, management has
assured the concerned employees that they will be absorbed by the new corporations without loss
of tenure and retaining their present pay and benefits according to the existing CBAs. They were
advised that upon the expiration of the CBAs, new agreements will be negotiated between the
management of the new corporations and the bargaining representatives of the employees
concerned.
Topic: Incorporation and Organization Proper
Case No. 121

Lyceum of the Philippines, Inc. vs. CA

G.R. No. 101897 March 5, 1993

FACTS:

Lyceum of the Philippines is an educational institution duly registered with the Securities and
Exchange Commission. Petitioner instituted proceedings before the SEC to compel the private
respondents, which are also educational institutions, to delete the word "Lyceum" from their
corporate names and permanently to enjoin them from using "Lyceum" as part of their respective
names. The SEC hearing officer rendered a decision sustaining petitioner's claim to an exclusive right
to use the word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of Baguio,
Inc. case and held that the word "Lyceum" was capable of appropriation and that petitioner had
acquired an enforceable exclusive right to the use of that word.

On appeal, however, by private respondents the SEC En Banc did not consider the word "Lyceum" to
have become so identified with petitioner as to render use thereof by other institutions as
productive of confusion about the identity of the schools concerned in the mind of the general
public. Unlike its hearing officer, the SEC En Banc held that the attaching of geographical names to
the word "Lyceum" served sufficiently to distinguish the schools from one another, especially in view
of the fact that the campuses of petitioner and those of the private respondents were physically
quite remote from each other.

ISSUE:

Whether or not the word Lyceum has not acquired a secondary meaning.

HELD:

NO.

The Articles of Incorporation of a corporation must, among other things, set out the name of the
corporation. The policy underlying the prohibition in Section 18 against the registration of a
corporate name which is "identical or deceptively or confusingly similar" to that of any existing
corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws,"
is the avoidance of fraud upon the public which would have occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the reduction of difficulties of
administration and supervision over corporations.

"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise
descriptive might nevertheless have been used so long and so exclusively by one producer with
reference to this article that, in that trade and to that group of the purchasing public, the word or
phrase has come to mean that the article was his produce. The appellant failed to satisfy the
requisites. No evidence was ever presented in the hearing before the Commission which sufficiently
proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant.
Topic: Incorporation and Organization Proper; Capital Structure

Case No. 140

PLDT vs. NTC

G.R. No. 152685, 4 December 2007

FACTS:

Case pertains to Section 40 (e) the Public Service Act (PSA), as amended on March 15, 1984, pursuant
to Batas Pambansa Blg This. 325, which authorized the NTC to collect from public
telecommunications companies Supervision and Regulation Fees (SRF) of PhP 0.50 for every PhP 100
or a fraction of the capital and stock subscribed or paid for of a stock corporation, partnership or
single proprietorship of the capital invested, or of the property and equipment, whichever is higher.
Under Section 40 (e) of the PSA, the NTC sent SRF assessments to petitioner Philippine Long
Distance Telephone Company (PLDT) starting sometime in 1988. The SRF assessments were based
on the market value of the outstanding capital stock, including stock dividends, of PLDT. PLDT
protested the assessments contending that the SRF ought to be based on the par value of its
outstanding capital stock. Its protest was denied by the NTC and likewise, its motion for
reconsideration. PLDT appealed before the CA. The CA modified the disposition of the NTC by
holding that the SRF should be assessed at par value of the outstanding capital stock of PLDT,
excluding stock dividends.

ISSUE:

Whether or not the value transferred from the unrestricted retained earnings of PLDT to the capital
stock account pursuant to the issuance of stock dividends is the proper basis for the assessment of
the SRF.

HELD:

NO.

In the case of stock dividends, it is the amount that the corporation transfers from its surplus profit
account to its capital account. It is the same amount that can be loosely termed as the "trust fund"
of the corporation. The "Trust Fund" doctrine considers this subscribed capital as a trust fund for the
payment of the debts of the corporation, to which the creditors may look for satisfaction. Until the
liquidation of the corporation, no part of the subscribed capital may be returned or released to the
stockholder (except in the redemption of redeemable shares) without violating this principle. Thus,
dividends must never impair the subscribed capital; subscription commitments cannot be condoned
or remitted; nor can the corporation buy its own shares using the subscribed capital as the
considerations therefore.

When stock dividends are distributed, the amount declared ceases to belong to the corporation but
is distributed among the shareholders. Consequently, the unrestricted retained earnings of the
corporation are diminished by the amount of the declared dividend while the stockholders equity is
increased. Furthermore, the actual payment is the cash value from the unrestricted retained earnings
that each shareholder foregoes for additional stocks/shares which he would otherwise receive as
required by the Corporation Code to be given to the stockholders subject to the availability and
conditioned on a certain level of retained earnings.

essence, therefore, the stockholders by receiving stock dividends are forced to exchange the
monetary value of their dividend for capital stock, and the monetary value they forego is considered
the actual payment for the original issuance of the stocks given as dividends. Therefore, stock
dividends acquired by shareholders for the monetary value they forego are under the coverage of
the SRF and the basis for the latter is such monetary value as declared by the board of directors.
Topic: Incorporation and Organization Proper; Adoption of By-Laws

Case No. 159

Loyola Grand Villas Homeowners [South] Assoc., Inc. vs. CA

G.R. No. 117188 August 7, 1997

FACTS:

Loyola Grand Villas Homeowners Association (LGVHA) was organized on February 8, 1983 as the
association of homeowners and residents of the Loyola Grand Villas. It was registered with the Home
Financing Corporation, the predecessor of herein respondent Home Insurance and Guaranty
Corporation (HIGC), as the sole homeowners' organization in the said subdivision. It was organized
by the developer of the subdivision and its first president was Victorio V. Soliven, himself the owner
of the developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws but failed to do so. Then the
officers that there were two other organizations within the subdivision the Loyola Grand Villas
homeowners North Association Incorporated (North Association) and the Loyola Grand Villas
homeowners South Association Incorporated (South Association). According to private respondents,
a non-resident and Soliven himself, respectively headed these associations. They also discovered that
these associations had five (5) registered homeowners each who were also the incorporators,
directors and officers thereof. None of the members of the LGVHAI was listed as member of the
North Association while three (3) members of LGVHAI were listed as members of the South
Association. When Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head
of the legal department of the HIGC, informed him that LGVHAI had been automatically dissolved
because it did not submit its by-laws within the period required by the Corporation Code and there
was non-user of corporate charter because HIGC had not received any report on the association's
activities. Apparently, this information resulted in the registration of the North and South
Association.

ISSUE:

Whether or not failure of LGVHAI to file its by-laws within one month from the date of its
incorporation result in its automatic dissolution.

HELD:

NO.

The Supreme Court ruled that the non-filing of the by-laws within the period of 1 month from the
issuance by SEC of the Certificate of Incorporation will not result to the automatic dissolution of the
corporation because the word “MUST” in Sec 46 of the Corporation Code is merely directory not
mandatory in meaning. In fact the second paragraph allows the filing of by-laws even prior to
incorporation.

This provision of the Code rules out mandatory compliance with the requirement of filing the by-laws
"within one (1) month after receipt of official notice of the issuance of its certificate of incorporation
by the Securities and Exchange Commission." It necessarily follows that failure to file the by-laws
within that period does not imply the "demise" of the corporation. By-laws may be necessary for the
"government" of the corporation but these are subordinate to the articles of incorporation as well as
to the Corporation Code and related statutes.
Topic: Corporate Powers; Other Cases

Case No. 178

Powers vs. Marshall

G.R. No. L-48064. May 9, 1988

FACTS:

On July 16, 1975, the fourteen (14) plaintiffs, all associate members of the International School, Inc.,
brought an action for injunction against the ten (10) members of the Board of Trustees of the school,
praying that said Trustees be enjoined from collecting a "development fee" of P2,625.00 per child-
enrollee per school year for a period of twelve (12) years, beginning with the school year 1975-1976,
as a pre-requisite for re-enrollment in said school.

The suit was precipitated by a letter addressed to the parents of the students, giving notice that the
Board of Trustees had decided to embark on a program to construct new buildings and remodel
existing ones. The Board intended to raise the needed funds primarily through subscriptions to
capital notes and prepayment certificates, and any deficiency from these sources would be covered
by collecting a so-called "development fees" of P2,625 from each enrollee starting with the school
year 1975-1976 and continuing up to the school year 1986-1987.

The trial court issued an order temporarily restraining the defendants or their authorized
representatives and agents from executing and/or enforcing in any manner the development
program and after the submission of the parties' memoranda the trial court issued an order
dismissing the complaint for lack of valid cause of action

ISSUE:

Whether or not the Board of Trustees of the International School was authorized to adopt the
development plan for which the disputed fee was being collected from the students.

HELD:

YES.

Section 2 of Article 3 of the By-Laws of the International School, Inc. provides: The Board of Trustees,
in addition to the powers conferred by these By-Laws, shall have the right to such powers and do
such acts as may be lawfully exercised or performed by the corporation, subject to applicable laws
and to the provisions of the articles of incorporation and the By-Laws.

Section 2 (b) of P.D. No. 732 granting certain rights to the International School, Inc., expressly
authorized the Board of Trustees, upon consultation with the Secretary of Education and Culture, to
determine the amount of fees and assessments which may be reasonably imposed upon its students,
to maintain or conform to the school standard of education." Such consultation had been made with
the Secretary of Education and Culture who expressed his conformity with the reasonableness of the
assessment of P2,625.00 per student for the whole school year to carry out its development
program. Since the collection of the development fee had been approved by the Board of Trustees
of the International School, Inc., it was a valid exercise of corporate power by the Board, and said
assessment was binding upon all the members of the corporation.
Topic: Corporate Powers; Specific Powers

Case No. 197

PNB v. Andrada Electric

G.R. No. 142936 April 17, 2002

FACTS:

The plaintiff alleged that it is a partnership duly organized, existing, and operating under the laws of
the Philippines, with office and principal place of business at Nos. 794-812 Del Monte Avenue,
Quezon City, while the Philippine National Bank (herein referred to as PNB), is a semi-government
corporation duly organized, existing and operating under the laws of the Philippines, with office and
principal place of business at Escolta Street, Sta. Cruz, Manila; whereas, the other defendant, the
National Sugar Development Corporation, is also a semi-government corporation and the sugar arm
of the PNB, with office and principal place of business at the 2nd Floor, Sampaguita Building.

The plaintiff and the defendant PASUMIL entered into a contract.That out of the total obligation of
P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of
June 27, 1973, amounting to P527,263.80, as shown in the Certification of the chief accountant of the
PNB, a machine copy of which is appended as Annex ‘C’ of the complaint; that out of said unpaid
balance of P527,263.80, the defendant PASUMIL made a partial payment to the plaintiff of
P14,000.00, in broken amounts, covering the period from January 5, 1974 up to May 23, 1974, leaving
an unpaid balance of P513,263.80; that the defendant PASUMIL and the defendant PNB, and now the
defendant NASUDECO, failed and refused to pay the plaintiff their just, valid and demandable
obligation; that the President of the NASUDECO is also the Vice-President of the PNB, and this official
holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff besought this official to pay
the outstanding obligation of the defendant PASUMIL, inasmuch as the defendant PNB and
NASUDECO now owned and possessed the assets of the defendant PASUMIL, and these defendants
all benefited from the works, and the electrical, as well as the engineering and repairs, performed by
the plaintiff; that because of the failure and refusal of the defendants to pay their just, valid, and
demandable obligations, plaintiff suffered actual damages in the total amount of P513,263.80; and
that in order to recover these sums, the plaintiff was compelled to engage the professional services
of counsel, to whom the plaintiff agreed to pay a sum equivalent to 25% of the amount of the
obligation due by way of attorney’s fees.

ISSUE:

Whether or not PNB liable for the unpaid debts of PASUMIL to respondent.

HELD:

NO.

A consolidation is the union of two or more existing entities to form a new entity called the
consolidated corporation. A merger, on the other hand, is a union whereby one or more existing
corporations are absorbed by another corporation that survives and continues the combined
business.
The merger, however, does not become effective upon the mere agreement of the constituent
corporations. Since a merger or consolidation involves fundamental changes in the corporation, as
well as in the rights of stockholders and creditors, there must be an express provision of law
authorizing them. For a valid merger or consolidation, the approval by the Securities and Exchange
Commission (SEC) of the articles of merger or consolidation is required. These articles must likewise
be duly approved by a majority of the respective stockholders of the constituent corporations.

In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and
PNB. The procedure prescribed under Title IX of the Corporation Code was not followed.
Topic: Corporate Powers; Specific Powers

Case No. 216

Aurbach vs. Sanitary Wares

G.R. No. 75951 December 15, 1989

FACTS:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went
abroad to look for foreign partners, European or American who could help in its expansion plans.

On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an
Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed
to participate in the ownership of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares. The
parties agreed that the business operations in the Philippines shall be carried on by an incorporated
enterprise in the name of "Sanitary Wares Manufacturing Corporation."

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the
Board of Investments for availment of incentives with the condition that at least 60% of the capital
stock of the corporation shall be owned by Philippine nationals.

ISSUES:

Whether or not the ASI group may vote their additional equity during elections of Saniwares' board
of directors.

HELD:

YES.

In regard to the question as to whether or not the ASI group may vote their additional equity during
elections of Saniwares' board of directors. As in other joint venture companies, the extent of ASI's
participation in the management of the corporation is spelled out in the Agreement. Section 5(a)
hereof says that three of the nine directors shall be designated by ASI and the remaining six by the
other stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is imperative that the parties should
honor and adhere to their respective rights and obligations thereunder. Appellants seem to contend
that any allocation of board seats, even in joint venture corporations, are null and void to the extent
that such may interfere with the stockholder's rights to cumulative voting as provided in Section 24
of the Corporation Code.
On the one hand, the clearly established minority position of ASI and the contractual allocation of
board seats cannot be disregarded. On the other hand, the rights of the stockholders to cumulative
voting should also be protected.
Topic: Corporate Powers; Non-user of Charters v. Continuous Inoperation

Case No. 235

Loyola Grand Villas v. CA

1997 Aug 7, G.R. No. 117188

FACTS:

LGVHAI was organized as the association of homeowners and residents of the Loyola Grand Villas. It
was registered with the Home Financing Corporation. For unknown reasons, however, LGVHAI did
not file its corporate by-laws. Sometime in 1988, the officers of the LGVHAI tried to register its by-
laws. They failed to do so. They later discovered that there were two other organizations within the
subdivision the North Association and the South Association. According to private respondents, a
non-resident and Soliven himself respectively headed these associations. They also discovered that
these associations had five (5) registered homeowners each who were also the incorporators,
directors and officers thereof. None of the members of the LGVHAI was listed as member of the
North Association while three (3) members of LGVHAI were listed as members of the South
Association. When they inquired as to the status of LGVHAI, the head of the legal department of the
HIGC, informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not
submit its by-laws within the period required by the Corporation Code and, second, there was non-
user of corporate charter because HIGC had not received any report on the association's activities.
These prompted the LGVHAI to lodge complaint with HIGC questioning its act of revoking its
certificate of registration without due notice and hearing and concomitantly prayed for the
cancellation of the certificates of registration of the North and South Associations by reason of the
earlier issuance of a certificate of registration in favor of LGVHAI.

ISSUE:

Whether or not the failure of a corporation to file its by-laws within one month from the date of its
incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic
dissolution.

HELD:

NO.

Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the
consequences of the non-filing of the same within the period provided for in Section 46. Even under
the express grant of power and authority under Presidential Decree No. 902-A, there can be no
automatic corporate dissolution simply because the incorporators failed to abide by the required
filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright "demise" of
corporate existence. Proper notice and hearing are cardinal components of due process in any
democratic institution, agency or society. In other words, the incorporators must be given the
chance to explain their neglect or omission and remedy the same.
Topic: Board of Directors and Trustees; Compensation

Case No. 254

Lingayen Gulf vs. Baltazar

G.R. No. L-4824, June 30, 1953

FACTS:

The respondent subscribed stocks of the petitioner. After paying several amount, the respondent
failed to pay its outstanding balance, even after a demand made by the corporation. The latter hence
opted to collect the unpaid balance of the subscription made. However, the respondent refused to
pay on the contention that he has been released from his liability under Resolution No. 17.
Furthermore, he countered that, as the President of the corporation, he was entitled to
compensation.
The trial court rendered judgment in favor of respondent.

ISSUE:

Whether or not the respondent is entitled to compensation.

HELD:

NO.

It is clear that he is not entitled to the same. The by-laws of the company are silent as to the salary of
the President. And, while resolutions of the incorporators and stockholders provide salaries for the
general manager, secretary-treasurer and other employees, there was no provision for the salary of
the President. On the other hand, other resolutions provide for per diems to be paid to the President
and the directors of each meeting attended, P10 for the President and P8 for each director, which
were later increased to P25 and P15, respectively. This leads to the conclusions that the President and
the board of directors were expected to serve without salary, and that the per diems paid to them
were sufficient compensation for their services. Furthermore, for defendant's several years of
service as President and up to the filing of the action against him, he never filed a claim for salary.
Topic: Board of Directors and Trustees; Delegation of Authority to Corporate Officers

Case No. 273

E.B. Villarosa and Partner vs. Benito

G.R. No. 136426, August 6, 1999

FACTS:

Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership. Petitioner and private respondent
executed a Deed of Sale with Development Agreement wherein the former agreed to develop
certain parcels of land belonging to the latter into a housing subdivision for the construction of low
cost housing units. They further agreed that in case of litigation regarding any dispute arising
therefrom, the venue shall be in the proper courts of Makati. Subsequently, a complaint for breach
of contract was filed by the respondent against the plaintiff allegedly for failure of the latter to
comply with its contractual obligation in that, other than a few unfinished low cost houses, there
were no substantial developments. Summons, together with the complaint, were served upon the
defendant, through its Branch Manager Engr. Wendell Sabulbero. The respondent moved for
dismissal on the ground that there was improper service of summons.
The trial court rendered decision denying the motion to dismiss. Hence this petition.

ISSUE:

Whether or not there was imporoper service of summons.

HELD:

YES.

Section 13, Rule 14 of the Rules of Court which provided that: Service upon private domestic
corporation or partnership, If the defendant is a corporation organized under the laws of the
Philippines or a partnership duly registered, service may be made on the president, manager,
secretary, cashier, agent, or any of its directors.

The Court ruled that under such provision, it is clear upon whom the service of summons should be
made. The designation of persons or officers who are authorized to accept summons for a domestic
corporation or partnership is now limited and more clearly specified. The rule now states "general
manager" instead of only "manager"; "corporate secretary" instead of "secretary"; and "treasurer"
instead of "cashier." The phrase "agent, or any of its directors" is conspicuously deleted in the new
rule. In this case, since the summons was served upon a branch manager, who is not authorized to
accept the same, there was improper service of summons.
Topic: Board of Directors and Trustees; Other Cases

Case No. 232

Spouses David and Coordinated Group, Inc. vs. CIAC and Spouses Quiambao

GR No 159795, July 30, 2004

FACTS:

The spouses Quiambao engaged the services of the petitioner for the construction of a five-storey
building. In the performance of the project, the petitioner allegedly deviated from the original plan
without the approval of Spouses Quiambao. The latter therefore decided to rescind the contract and
hired the services of another contractor. When a definitive finding that indeed there was deviation
on the structural plan, Quiambao sued for damages impleading the officers of the construction
company, among them Engr. David, who is also an officer of the Company. The officer contended
that he cannot be made personally liable for what appears to be a corporate act by virtue of the
doctrine of corporate entity.

ISSUE:

Whether or not Engr. David is personally liable to the Spouses Quiambao.

HELD:

The SC held that an exception to the doctrine of corporate entity is when there is bad faith in the
performance of the duty of the officer. In the instant case, bad faith was proven when Engr. David
categorically admitted that the company deviated from the original structural plan in order to lower
the cost of construction. By his act, Engr. David violated Sec 31 of the Corporation Code which
provides that directors or trustees who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as
such directors or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons. Therefore, the SC
deemed that equity demand that he should be liable to Spouses Quiambao.
Topic: Three-Fold Duties of Directors and Officers; Personal Liability of Directors and Officers

Case No. 311

Cojuangco v. Republic

GR 166859, 12 April 2011

FACTS:

Danding Cojuangco is being accused of using public funds to finance his acquisition of shares in the
San Miguel Corporation. Through the coconut levy fund, was is being accused of buying out
shareholders in the corporation in order to become a substantial shareholder himself. To carry out
his scheme, he used dummy shareholders who shall be trustors of the shares on his behalf.

Contention rises on his culpability as a public official during the time that he bought the shares. It is
claimed by the Sandiganbayan that he was able to amass vast shares of the corporation through the
use of the coconut levy fund, which is public in nature. Therefore, it but apparent that he be held
liable for his actions in taking control of the corporation.

ISSUE:

Whether or not Conjuangco illegally used ill-gotten wealth to buy shares of SMC.

HELD:

NO.

The funds are in fact loaned from UCPB, which was organized as a depositary of the coconut levy
funds of the corporation. Also, the Government failed to adduce substantial evidence linking
Cojuangco to the use of Marcos ill-gotten wealth.

All these judicial pronouncements demand two concurring elements to be present before assets or
properties were considered as ill-gotten wealth, namely: (a) they must have “originated from the
government itself,” and (b) they must have been taken by former President Marcos, his immediate
family, relatives, and close associates by illegal means.

But settling the sources and the kinds of assets and property covered by E.O. No. 1 and related
issuances did not complete the definition of ill-gotten wealth. The further requirement was that the
assets and property should have been amassed by former President Marcos, his immediate family,
relatives, and close associates both here and abroad. In this regard, identifying former President
Marcos, his immediate family, and relatives was not difficult, but identifying other persons who
might be the close associates of former President Marcos presented an inherent difficulty, because it
was not fair and just to include within the term close associates everyone who had had any
association with President Marcos, his immediate family, and relatives.

It does not suffice, as in this case, that the respondent is or was a government official or employee
during the administration of former Pres. Marcos. There must be a prima facie showing that the
respondent unlawfully accumulated wealth by virtue of his close association or relation with former
Pres. Marcos and/or his wife. This is so because otherwise the respondent’s case will fall under
existing general laws and procedures on the matter.
Topic: Three-Fold Duties of Directors and Officers; Personal Liability of Directors and Officers

Case No. 330

Llamado vs. CA

GR 99032, 26 March 1997

FACTS:

Private complainant, Leon Gaw, delivered to accused the amount of P180,000.00, with the assurance
of Aida Tan, the secretary of the accused in the corporation, that it will be repaid on 4 November
1983. Upon delivery of the money, accused Ricardo Llamado took it and placed it inside a deposit
box. Accused Jacinto Pascual and Ricardo Llamado signed Philippine Trust Company Check No.
047809, postdated 4 November 1983, in the amount of P186,500.00 in the presence of private
complainant.

The aforesaid check was issued in payment of the cash money delivered to the accused by private
complainant, plus interests thereon for sixty (60) days in the amount of P6,500.00.

On 4 November 1983, private complainant deposited the check in his current account with the
Equitable Banking Corporation which later informed the complainant that said check was dishonored
by the drawee bank because payment was stopped, and that the check was drawn against
insufficient funds. Private complainant was also notified by the Equitable Banking Corporation that
his current account was debited for the amount of P186,500.00 because of the dishonor of the said
check.

Private complainant returned to Aida Tan to inform her of the dishonor of the check. Aida Tan
received the check from private complainant with the assurance that she will have said check
changed with cash. However, upon his return to Aida Tan, the latter informed him that she had
nothing to do with the check.

Llamado alleges that he should not be held personally liable for the amount of the check because it
was a check of the Pan Asia Finance Corporation and he signed the same in his capacity as Treasurer
of the corporation.

ISSUE:

Whether or not Llamado should be held liable under BP 22.

HELD:

YES.

He is mere act of signing the check held him liable under BP 22. Where the check is drawn by a
corporation, company or entity, the person or persons who actually signed the check in behalf of
such drawer shall be liable under this Act.
Topic: Three-Fold Duties of Directors and Officers; Doctrine of Corporate Opportunity

Case No. 349

Gokongwei vs. SEC

GR L-45911, 11 April 1979

FACTS:

Gokonwei alleged that on September 18, 1976, individual respondents amended by bylaws of San
Miguel Corporation, basing their authority to do so on a resolution of the stockholders adopted on
March 13, 1961, when the outstanding capital stock of respondent corporation was only
P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred
shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares
totalled 30,127,043, with a total par value of P301,270,430.00. It was contended that according to
section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to
amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the
affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital
stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at
the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner
contended that the Board acted without authority and in usurpation of the power of the
stockholders.

It was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a
director of respondent corporation, being a substantial stockholder thereof; that as a stockholder,
petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted
upon in the election of directors; and that in amending the by-laws, respondents purposely provided
for petitioner's disqualification and deprived him of his vested right as afore-mentioned, hence the
amended by-laws are null and void.

ISSUE:

Whether or not SMC’s BoD acted in bad faith in making the amendment which disqualified
Gokongwei from being elected as Director.

HELD:

NO.

SMC is merely protecting its interest from Gokongwei, who owns companies in direct competition
with SMC’s business. Although in the strict and technical sense, directors of a private corporation
are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary
insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with
the management of the corporation for the collective benefit of the stockholders, they occupy a
fiduciary relation, and in this sense the relation is one of trust. It springs from the fact that directors
have the control and guidance of corporate affairs and property; hence of the property interests of
the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests
and are ultimately the only beneficiaries thereof
It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking advantage of
the information which he acquires as director to promote his individual or corporate interests to the
prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-
laws was made.

Certainly, where two corporations are competitive in a substantial sense, it would seem improbable,
if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to
both corporations and place the performance of his corporation duties above his personal concerns.
Topic: Three-Fold Duties of Directors and Officers; Derivative Suit

Case No. 368

Reyes vs. Tan

G.R. No. L-16982. September 30, 1961

FACTS:

The corporation, Roxas-Kalaw Textile Mills, Inc., was organized on June 5, 1954 by defendants Cesar
K. Roxas, Adelia K. Roxas, Benjamin M. Roxas, Jose Ma. Barcelona and Morris Wilson, for and on
behalf of the following primary principals with the following shareholdings: Adelia K. Roxas, 1200
Class A shares; I. Sherman, 900 Class A shares; Robert W. Born, 450 Class A shares and Morris Wilson,
450 Class A shares; that the respondent holds both Class A and Class B shares and number and value
thereof are is follows: Class A — 50 shares, Class B — 1,250 shares.

On May 8, 1957, the Board of Directors approved a resolution designating one Dayaram as co-
manager and Morris Wilson was likewise designated as co-manager with responsibilities for the
management of the factory only’. An office in New York was opened for the purpose of supervising
purchases, which purchases must have the unanimous agreement of Cesar K. Roxas, New York
resident member of the board of directors, Robert Born and Wadhumal Dalamal or their respective
representatives. Several purchases aggregating $289,678.86 were made in New York for raw
materials and shipped to the Philippines, which shipment were found out to consist not of raw
materials but already finished products, for which reasons the Central Bank of the Philippines
stopped all dollar allocations for raw materials for the corporation which necessarily led to the
paralyzation of the operation of the textile mill and its business.

ISSUES:

Whether or not a derivative suit will prosper.

HELD:

NO.

The claim that respondent Justiniani did not take steps to remedy the illegal importation for a period
of two years is without merit. During that period of time respondent had the right to assume and
expect that the directors would remedy the anomalous situation of the corporation brought about
by their own wrong doing. Only after such period of time had elapsed could respondent conclude
that the directors were remiss in their duty to protect the corporation property and business. The
fraud consisted in importing finished textile instead of raw cotton for the textile mill; the fraud,
therefore, was committed by the manager of the business and was consented to by the directors,
evidently beyond reach of respondent as treasurer for that period.
The directors permitted the fraudulent transaction to go unpunished and nothing appears to
have been done to remove the erring purchasing managers. In a way the appointment of a receiver
may have been thought of by the court below so that the dollar allocation for raw material may be
revived and the textile mill placed on an operating basis.