Corporation Law

(Case Digests)

Submitted by:
John Lawrence P. Ramas

Submitted to:
Atty. Victor F. Nierre
Title: Gamboa v. Teves
Citation: G.R. No. 176579; June 28, 2011

FACTS:
On1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise
and the right to engage in telecommunications business. In 1969, General Telephone
and Electronics Corporation (GTE), an American company and a major PLDT stockholder,
sold 26 percent of the outstanding common shares of PLDT to Philippine
Telecommunications Investment Corporation (PTIC). In 1977, Prime Holdings, Inc. (PHI)
was incorporated by several persons, including Roland Gapud and Jose Campos, Jr.
Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of
three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis
Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered
by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of PTIC, were
later declared by this Court to be owned by the Republic of the Philippines.

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired

the remaining 54 percent of the outstanding capital stock of PTIC. On 2006, the Inter-
Agency Privatization Council (IPC) of the Philippine Government announced that it
would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of
PTIC, through a public bidding . There were two bidders, Parallax Venture Fund XXVII
(Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of
P25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC
stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax.
However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and
instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to
buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH,
entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or
46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government
for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28
February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125
percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3
percent of the outstanding common shares of PLDT. With the sale, First Pacifics
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This
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 percent.

ISSUES:
Whether or not the sale violated the foreign ownership limit for public utilities
prescribed by the Constitution.
Whether or not the term “capital” in Section 11, Article XII of the Constitution refers to
the total common shares only or to the total outstanding capital stock?

HELD:
1. Yes.
The sale violated the foreign ownership limit in PLDT. The term capital refers only to
common shares entitled to vote.
Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term “capital” in
Section 11, Article XII of the Constitution refers only to common shares. However, if the
preferred shares also have the right to vote in the election of directors, then the term
“capital” shall include such preferred shares because the right to participate in the
control or management of the corporation is exercised through the right to vote in the
election of directors. In short, the term “capital” in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of directors.

2. 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, and thus in the present case only to
common shares, and not to the total outstanding capital stock comprising both
common and non-voting preferred shares.
Indisputably, construing the term “capital” in Section 11, Article XII of the Constitution to
include both voting and non-voting shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a clear abdication of the
State’s constitutional duty to limit control of public utilities to Filipino citizens. Such an
interpretation certainly runs counter to the constitutional provision reserving certain
areas of investment to Filipino citizens. The Court should never open to foreign control
what the Constitution has expressly reserved to Filipinos for that would be a betrayal of
the Constitution and of the national interest. Moreover, the SEC defined “capital” as to
include both voting and non-voting in the determination of the nationality of a
corporation, to wit: In view of the foregoing, it is opined that the term “capital” denotes
the sum total of the shares subscribed and paid by the shareholders, or secured to be
paid, irrespective of their nomenclature to be issued by the corporation in the conduct
of its operation. Hence, non-voting preferred shares are considered in the computation
of the 60-40% Filipino-alien equity requirement of certain economic activities under the
Constitution.
Title: Livesey vs. Binswanger Philippines, Inc. and Keith Elliot
Citation: G.R. No. 177493, 19 March 2014

FACTS:
Petitioner Livesey filed a complaint for illegal dismissal with money claims against
Chesterton Blumenauer Binswanger Philippines Strategic Property Services, Inc. (CBB)
and Keith Elliot. CBB was a domestic corporation engaged in real estate brokerage and
Keith Elliot was its President. Livesey alleged that CBB failed to pay him a significant
portion of his salary. For this reason, he was compelled to resign. He claimed CBB owed
him unpaid salaries. CBB denied liability. It alleged that it engaged Livesey as a
corporate officer. It claimed that Livesey was later designated as Managing Director
when it became an extension office of its principal in Hongkong. CBB posited that the
labor arbiter (LA) had no jurisdiction as the complaint involved an intra–corporate
dispute. LA ordered CBB to reinstate Livesey to his former position as Managing Director
and to pay him US$23,000.00 in accrued salaries.
The parties entered into a compromise agreement. Under the agreement, Livesey was to
receive US$31,000.00. Further, the agreement provided that unless and until the
agreement is fully satisfied, CBB shall not sell, alienate, or otherwise dispose of all or
substantially all of its assets or business; suspend its business operations; substantially
change the nature of its business; and declare bankruptcy or insolvency.
CBB made an initial payment to Livesey but not the next two installments as the
company ceased operations. Livesey moved for the issuance of a writ of execution. He
learned that CBB, in a clear and willful attempt to avoid their liabilities to complainant x
x x have organized another corporation, [Binswanger] Philippines. He claimed that there
was evidence showing that CBB and Binswanger Philippines, Inc. (Binswanger) are one
and the same corporation. Invoking the doctrine of piercing the veil of corporate fiction,
Livesey prayed that an alias writ of execution be issued against respondents Binswanger
and Keith Elliot, CBB’s former President.
LA denied Livesey’s motion for an alias writ of execution. He explained that the
stockholders of the two corporations were not the same. Livesey filed an appeal which
the NLRC granted, reversing the LA Laderas’ order. The Binswanger and Elliot moved for
reconsideration. The NLRC denied the motion. They then sought relief from the CA
through a petition for certiorari. The CA granted the petition and reversed the NLRC
decision. Livesey moved for reconsideration, but the CA denied the motion. Hence, this
petition.
ISSUE:
Whether the doctrine of piercing the veil of corporate fiction is applicable.

HELD:
The court ruled that it has long been settled that the law vests a corporation with a
personality distinct and separate from its stockholders or members. In the same vein, a
corporation, by legal fiction and convenience, is an entity shielded by a protective
mantle and imbued by law with a character alien to the persons comprising it.
Nonetheless, the shield is not at all times impenetrable and cannot be extended to a
point beyond its reason and policy. Circumstances might deny a claim for corporate
personality, under the “doctrine of piercing the veil of corporate fiction.”
Piercing the veil of corporate fiction is an equitable doctrine developed to address
situations where the separate corporate personality of a corporation is abused or used
for wrongful purposes. Under the doctrine, the corporate existence may be disregarded
where the entity is formed or used for non-legitimate purposes, such as to evade a just
and due obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out
similar or inequitable considerations, other unjustifiable aims or intentions, in which
case, the fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical.
In the present case, the Court sees an indubitable link between CBB’s closure and
Binswanger’s incorporation. CBB ceased to exist only in name; it re–emerged in the
person of Binswanger for an urgent purpose — to avoid payment by CBB of the last two
installments of its monetary obligation to Livesey, as well as its other financial liabilities.
It was not just coincidence that Binswanger is engaged in the same line of business CBB
.
While the ostensible reason for Binswanger’s establishment is to continue CBB’s
business operations in the Philippines, which by itself is not illegal, the close proximity
between CBB’s disestablishment and Binswanger’s coming into existence was to evade
CBB’s unfulfilled financial obligation to Livesey under the compromise agreement.
Thus, applying the “doctrine of piercing the veil of corporate fiction”, the Court finds
Elliot as liable as Binswanger for CBB’s unfulfilled obligation to Livesey.
 Title: Narra Nickel Mining and Development Corp. vs. Redmont Consolidated Mines Corp.
Citation: G.R. No. 195580, April 21, 2014

FACTS:
Sometime in December 2006, respondent Redmont Consolidated Mines Corp.
(Redmont), a domestic corporation organized and existing under Philippine laws, took
interest in mining and exploring certain areas of the province of Palawan. The areas
where it wanted to undertake exploration and mining activities where already covered
by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra,
Tesoro and McArthur.
Petitioner McArthur Narra and Tesoro, filed an application for an MPSA and Exploration
Permit (EP) which was subsequently issued. On the otherhand, Redmont filed a denial on
their application. Redmont alleged that at least 60% of the capital stock of McArthur,
Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100%
Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder
of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the
areas covered by applications since it knows that it can only participate in mining
activities through corporations which are deemed Filipino citizens. Redmont argued that
given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise
disqualified from engaging in mining activities through MPSAs, which are reserved only
for Filipino citizens.
McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation
(Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian)
owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of
Madridejos Mining Corporation;
Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie
Mining, Inc. (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc.
(Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000
shares of Sara Marie Mining, Inc.;
Narra Nickel Mining and Development Corporation, is composed, among others, by
Patricia Louise Mining & Development Corporation (Filipino) owning 5,997 out of 10,000
shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI
also owns 3,396 out of 10,000 shares of Patricia Louise Mining & Development
Corporation;
Petitioners averred that they were qualified persons under Section 3 of Republic Act No.
(RA) 7942 or the Philippine Mining Act of 1995. They stated that their nationality as
applicants is immaterial because they also applied for Financial or Technical Assistance
Agreements (FTAA) which are granted to foreign-owned corporations. Nevertheless,
they claimed that the issue on nationality should not be raised since McArthur, Tesoro
and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of
the Philippines.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from
gaining MPSAs. The POA considered petitioners as foreign corporations being
"effectively controlled" by MBMI, a 100% Canadian company and declared their MPSAs
null and void.
CA found that there was doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation composed of 100%
Canadians. Pursuant to the first sentence of paragraph 7 of Department of Justice (DOJ)
Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the exploitation of natural
resources, the CA used the "grandfather rule" to determine the nationality of petitioners.
In determining the nationality of petitioners, the CA looked into their corporate
structures and their corresponding common shareholders. Using the grandfather rule,
the CA discovered that MBMI in effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of other majority shareholders of
petitioners through joint venture agreements. The CA found that through a "web of
corporate layering, it is clear that one common controlling investor in all mining
corporations involved is MBMI." Thus, it concluded that petitioners McArthur, Tesoro
and Narra are also in partnership with, or privies-in-interest of, MBMI.

ISSUES:
1. Whether or not petitioner corporations are Filipino and can validly be issued MPSA.
2. Whether or not the Court of Appeals’ ruling that Narra, Tesoro and McArthur are
foreign corporations based on the "Grandfather Rule" is contrary to law, particularly the
express mandate of the Foreign Investments Act of 1991, as amended, and the FIA
Rules.

HELD:
1. NO. There are two acknowledged tests in determining the nationality of a
corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion
No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the controlling interests
in enterprises engaged in the exploitation of natural resources owned by Filipino
citizens, provides:
 Shares belonging to corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as of Philippine nationality
(CONTROL TEST), but if the percentage of Filipino ownership in the corporation
or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality (GRANDFATHER RULE).
2. NO. "Corporate layering" is admittedly allowed by the FIA; but if it is used to
circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the
pronouncement of petitioners that the grandfather rule has already been abandoned
must be discredited for lack of basis.
Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. The
"control test" is still the prevailing mode of determining whether or not a corporation is
a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled
to undertake the exploration, development and utilization of the natural resources of
the Philippines. When in the mind of the Court there is doubt, based on the attendant
facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the
corporation, then it may apply the "grandfather rule."
Title: Philippine National Bank vs. Court of Appeals, Rita Gueco Tapnio, Cecilio Gueco And
The Philippine American General Insurance Company, Inc.
Citation: G.R. No. L-27155 May 18, 1978

FACTS:
Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her sugar
crops about to be harvested including her export quota allocation worth 1,000 piculs.
The said export quota was later dealt by Tapnio to a certain Jacobo Tuazon at P2.50 per
picul or a total of P2,500. The branch manager of PNB recommended that the price
should be at P2.80 per picul which was the prevailing minimum amount allowable.
Tapnio and Tuazon agreed to the said amount and the bank recommended such to their
BOD. However, the Board of Directors wanted to raise the price to P3.00 per picul. This
Tuazon does not want hence he backed out from the agreement. This resulted to Tapnio
not being able to realize profit and at the same time rendered her unable to pay her
P2,000.00 crop loan which would have been covered by her agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and Tapnio filed a third party
complaint against PNB where she alleged that her failure to pay her debts was because
of PNB’s negligence and unreasonableness. The Court of Appeals held that failure of the
negotiation for the lease of the sugar quota allocation of Rita Gueco Tapnio to Tuazon
was due to the fault of the directors of the Philippine National Bank. The refusal on the
part of the bank to approve the lease at the rate of P2.80 per picul which, as stated
above, would have enabled Rita Gueco Tapnio to realize the amount of P2,800.00 which
was more than sufficient to pay off her indebtedness to the Bank, and its insistence on
the rental price of P3.00 per picul thus unnecessarily increasing the value by only a
difference of P200.00. inevitably brought about the rescission of the lease contract to
the damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00.
ISSUE:
Whether or not PNB is liable to Tapnio?
HELD:
Yes. The court ruled that a corporation is civilly liable in the same manner as natural
persons for torts, because “generally speaking, the rules governing the liability of a
principal or master for a tort committed by an agent or servant are the same whether
the principal or master be a natural person or a corporation, and whether the servant or
agent be a natural or artificial person. All of the authorities agree that a principal or
master is liable for every tort which he expressly directs or authorizes, and this is just as
true of a corporation as of a natural person.
In the case at bar, while petitioner had the ultimate authority of approving or
disapproving the proposed lease since the quota was mortgaged to the Bank, the latter
certainly cannot escape its responsibility of observing, for the protection of the interest
of private respondents, that degree of care, precaution and vigilance which the
circumstances justly demand in approving or disapproving the lease of said sugar quota.
The law makes it imperative that every person “must in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.”4 This petitioner failed to do. Certainly, it knew that the
agricultural year was about to expire, that by its disapproval of the lease private
respondents would be unable to utilize the sugar quota in question.
Title: Reynoso vs Court of Appeals
Citation: 345 SCRA 335 [GR No. 116124-25 November 23, 2000]

FACTS:
In early 1960s, the Commercial Credit Corporation (CCC), a financing company and
investment firm, decided to organize franchise companies in different parts of the
country, wherein it shall hold 30% equity. Employees of the CCC were designated as
resident managers of the franchise companies. Petitioner Bibiano O. Reynoso IV was
designated as the resident manager of the franchise in Quezon City, known as the
Commercial Credit Corporation of Quezon City (CCC-QC).
CCC-QC entered into an exclusive agreement management contract with CCC whereby
the latter was granted the management and full control of the business activities of the
former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables to
CCC. Subsequently, however, this discounting arrangement was discontinued pursuant
to the so called DOSRI rule, prohibiting the lending of funds by corporations to its
directors, officers, stockholders and other persons with related interest therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the
DOSRI rule, CCC decided to form CCC Equity Corporation, a wholly-owned subsidiary, to
which CCC transferred its 30% equity in CCC-QC, together with 2 seats in the latter’s
Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including
petitioner Reynoso, became employees of CCC-Equity. Although an employee of CCC-
Equity, petitioner, as well as all employees of CCC-QC, became qualified members of the
Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and
supervised its employees. The business activities of CCC-QC pertain to the acceptance of
funds from depositors who are issued interest-bearing promissory notes. The amounts
deposited are then loaned out to various borrowers. Petitioner, in order to boost the
business activities of CCC-QC, deposited his personal funds in the company. In return,
CCC-QC issued to him its interest-bearing promissory notes.
A complaint for sum of money with preliminary attachment was filed by CCC-equity
against petitioner and the latter was also dismissed from employment to which the
lower court’s decision was rendered in favor of the petitioner and the same has become
final and executory. CCC changed its name to General Credit Corporation (GCC).
ISSUE:
Whether or not the judgement in favor of the petitioner may be executed against
respondent General Credit Corporation.

HELD:
Yes.
The court ruled that when the corporate fiction is used to perpetrate fraud or promote
injustice, the law steps in to remedy the problem. When that happens, the corporate
character is not necessarily abrogated. It continues for legitimate objective. However, it
is pierced in order to remedy injustice.
In the case at bar, it is obvious that the use by CCC-QC of the same name of Commercial
Credit Corporation was intended to publicly identify it as a component of the CCC group
of companies engaged in one and the same business, i.e., investment and financing.
Aside from CCC-Quezon City, other franchise companies were organized such as CCC-
North Manila and CCC-Cagayan Valley. The organization of subsidiary corporations as
what was done here is usually resorted to for the aggrupation of capital, the ability to
cover more territory and population, the decentralization of activities best decentralized,
and the securing of other legitimate advantages. But when the mother corporation and
its subsidiary cease to act in good faith and honest business judgment, when the
corporate device is used by the parent to avoid its liability for legitimate obligations of
the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote
injustice, the law steps in to remedy the problem. When that happens, the corporate
character is not necessarily abrogated. It continues for legitimate objectives. However, it
is pierced in order to remedy injustice, such as that inflicted in this case.
Title: SAW VS. COURT OF APPEAL
Citation: G.R. No. 90580. April 8, 1991

FACTS:
Acollection suit with preliminary attachment was filed by Equitable Banking Corporation
against Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The
petitioners moved to intervene, alleging that (1) the loan transactions between Saw
Chiao Lian and Equitable Banking Corp. were not approved by the stockholders
representing at least 2/3 of corporate capital; (2) Saw Chiao Lian had no authority to
contract such loans; and (3) there was collusion between the officials of Freeman, Inc.
and Equitable Banking Corp. in securing the loans. The motion to intervene was denied,
and the petitioners appealed to the Court of Appeals. Meanwhile, Equitable and Saw
Chiao Lian entered into a compromise agreement which they submitted to and was
approved by the lower court. But because it was not complied with, Equitable secured a
writ of execution, and two lots owned by Freeman, Inc. were levied upon and sold at
public auction to Freeman Management and Development Corp.
The Court of Appeals sustained the denial of the petitioners' motion for intervention,
holding that "the compromise agreement between Freeman, Inc., through its President,
and Equitable Banking Corp. will not necessarily prejudice petitioners whose rights to
corporate assets are at most inchoate, prior to the dissolution of Freeman, Inc. . . . And
intervention under Sec. 2, Rule 12 of the Revised Rules of Court is proper only when
one's right is actual, material, direct and immediate and not simply contingent or
expectant."

ISSUE:
Is the denial of motion for intervention made by the courts proper?

HELD:
Yes.
In the case of Batama Farmers’ Cooperative Marketing Association, Inc. v. Rosal, we held:
“As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to
intervene in a pending action, the party must have a legal interest in the matter in
litigation, or in the success of either of the parties or an interest against both, or he must
be so situated as to be adversely affected by a distribution or other disposition of the
property in the custody of the court or an officer thereof.”
To allow intervention, [a] it must be shown that the movant has legal interest in the
matter in litigation, or otherwise qualified; and [b] consideration must be given as to
whether the adjudication of the rights of the original parties may be delayed or
prejudiced, or whether the intervenor’s rights may be protected in a separate
proceeding or not. Both requirements must concur as the first is not more important
than the second. The interest which entitles a person to intervene in a suit between
other parties must be in the matter in litigation and of such direct and immediate
character that the intervenor will either gain or lose by the direct legal operation and
effect of the judgment. Otherwise, if persons not parties of the action could be allowed
to intervene, proceedings will become unnecessarily complicated, expensive and
interminable. The words “an interest in the subject” mean a direct interest in the cause
of action as pleaded, and which would put the intervenor in a legal position to litigate a
fact alleged in the complaint, without the establishment of which plaintiff could not
recover.
In the present case, the interest, if it exists at all, of petitioners/movants is indirect,
contingent, remote, conjectural, consequential and collateral. At the very least, their
interest is purely inchoate, or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the properties and assets thereof
on dissolution, after payment of the corporate debts and obligations. While a share of
stock represents a proportionate or aliquot interest in the property of the corporation, it
does not vest the owner thereof with any legal right or title to any of the property, his
interest in the corporate property being equitable or beneficial in nature. Shareholders
are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.
Title: Sia vs. Court of Appeals
Citation: 166 SCRA 263

FACTS:
Jose O. Sia (appellant herein), President and General Manager of the Metal
Manufacturing of the Philippines, Inc. for and in its behalf, applied for and was granted a
Letter of Credit with the Continental Bank, Manila to cover the importation of One
Hundred (100) pieces of Safe Deposit Locks No. 4440. A marginal deposit was made
with the Bank and the Letter of Credit was confirmed with its foreign correspondent.
Thereafter, appellant, for and in behalf of the Metal Manufacturing of the Philippines,
Inc., executed a trust receipt in favor of the Continental Bank. When the said trust
receipt became due and demandable, the Metal Manufacturing of the Philippines, Inc.
failed to pay or deliver the merchandise to the Bank despite the latter’s demands.
Consequently,an information for estafa was filed against petitioner for violation of the
trust receipt agreement executed by him in his capacity as President and General
Manager of Metal Manufacturing of the Philippines, Inc. in favor of Continental Bank.

ISSUE:
Whether or not petitioner Sia, as President and General Manager of Metal
Manufacturing of the Phil., Inc. having acted for and on its behalf in executing the Trust
Receipt Agreement in favor of the Continental Bank may be held liable for the crime
charged.

HELD:
No.
The court ruled that if the acts herein involved occurred after 29 January 1975, petitioner
would be criminally liable for estafa under paragraph 1(b), Article 315 of the Revised
Penal Code, pursuant to the following provisions of PD 115 covered by a trust receipt to
the extent of the amount owing to the entruster or as appears in the trust receipt or to
return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three hundred and fifteen, paragraph one(b)
of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise
known as the Revised Penal Code. If the violation or offense is committed by a
corporation, partnership, association or other juridical entities, the penalty provided for
in this Decree shall be imposed upon the direc-tors, officers, employees or other officials
or persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense.