PIERCING THE VEIL OF CORPORATE ENTITY:
his personal capacity
1. Benny Hung vs. BPI Finance
Corporation,G.R.No.182398,July20,2010
PEREZ, J.:
FACTS:
This instant petition for review by certiorari assails the Decision
of the Court of Appeals finding petitioner Benny Hung liable to
respondent BPI Card Finance Corporation (BPI for brevity) for
the satisfaction of the RTCs 24 June 2002 Decision against B &
R Sportswear Distributor, Inc.
Guess? Footwear and BPI Express Card Corporation entered
into two merchant agreements. Guess? Footwear agreed to
honor validly issued BPI Express Credit Cards presented by
cardholders in the purchase of its goods and services. In the first
agreement, petitioner Benny Hung signed as owner and
manager of Guess? Footwear. He signed the second
agreement as president of Guess? Footwear which he also
referred to as B & R Sportswear Enterprises.
· From May 1997 to January 1999, respondent BPI mistakenly
credited, through three hundred fifty-two (352) checks, Three
Million Four Hundred Eighty Thousand Four Hundred Twenty-
Seven Pesos and 23/100 (P3,480,427.23) to the account of
Guess? Footwear. When informed of the overpayments,
petitioner Benny Hung transferred Nine Hundred Sixty-Three
Thousand Six Hundred Four Pesos and 03/100 (P963,604.03)
from the bank account of B & R Sportswear Enterprises to BPIs
account as partial payment.
· In a letter dated 27 September 1999, BPI demanded the
balance payment amounting to Two Million Five Hundred
Sixteen Thousand Eight Hundred Twenty-Six Pesos and 68/100
(P2,516,826.68), but Guess? Footwear failed to pay.
· BPI filed a collection suit before the RTC of Makati City naming
as defendant B & R Sportswear Distributor, Inc.[8]Although the
case was against B & R Sportswear Distributor, Inc., it was B &
R Footwear Distributors, Inc., that filed an answer, appeared
and participated in the trial.
· RTC:
rendered a decision ordering defendant B & R
Sportswear Distributor, Inc., to pay the plaintiff
(BPI) P2,516,826.68 with 6% interest from 4 October
1999. The RTC ruled that the overpayment
of P3,480,427.43 was proven by checks credited to the
account of Guess? Footwear and the P963,604.03
partial payment proved that defendant ought to
pay P2,516,826.68 more.
· During the execution of judgment, it was discovered
that B & R Sportswear Distributor, Inc., is a non-
existing entity. Thus, the trial court failed to execute
the judgment. Consequently, respondent filed a
Motionto pierce the corporate veil of B & R Footwear
Distributors, Inc. to hold its stockholders and
officers, including petitioner Benny Hung, personally
liable. In its 30 November 2004 Order, the RTC ruled
that petitioner is liable for the satisfaction of the
judgment, since he signed the merchant agreements in
· Court of Appeals:
affirmed the order and dismissed petitioners appeal. It
ruled that since B & R Sportswear Distributor, Inc. is
not a corporation, it therefore has no personality
separate from petitioner Benny Hung who induced
the respondent BPI and the RTC to believe that it is a
corporation.
ISSUE: Whether petitioner can be held liable for the satisfaction
of the RTCs Decision against B & R Sportswear Distributor, Inc.
HELD: Yes, the petitioner is liable
· Petitioner is the proper defendant because his sole
proprietorship B & R Sportswear Enterprises has no juridical
personality apart from him.
· Petitioner cannot complain of non-service of summons upon
his person. Suffice it to say that B & R Footwear Distributors,
Inc. or Guess? Footwear which is also B & R Sportswear
Enterprises had answered the summons and the complaint and
participated in the trial.
· We find petitioner liable to respondent and we affirm, with the
foregoing clarification, the finding of the RTC that he signed the
second merchant agreement in his personal capacity.
· The correction on the name of the defendant has rendered
moot any further discussion on the doctrine of piercing the veil
of corporate fiction. In any event, we have said that whether
the separate personality of a corporation should be pierced
hinges on facts pleaded and proved. In seeking to pierce
the corporate veil of B & R Footwear Distributors, Inc.,
respondent complained of deceit, bad faith and illegal
scheme/maneuver. As stated earlier, respondent has
abandoned such accusation.
And respondents proof the SEC certification that B & R
Sportswear Distributor, Inc. is not an existing corporation
would surely attest to no other fact but the inexistence of a
corporation named B & R Sportswear Distributor, Inc. as such
name only surfaced because of its own error.
Hence, we cannot agree with the Court of Appeals that petitioner
has represented a non-existing corporation and induced the
respondent and the RTC to believe in his representation.
1
 2. FVR Skills & Services Exponents, Inc. (Skillex) et.
at. vs. Seva, et al. GRN. 200857-October 22, 2014
BRION, J.:
We resolve in this petition for review on certiorari.
Factual Antecedents:
The twenty-eight (28) respondents in this case were employees
of petitioner FVR Skills and Services Exponents, Inc.
(petitioner), an independent contractor engaged in the business
of providing janitorial and other manpower services to its
clients.
As early as 1998, some of the respondents had already been
under the petitioner’s employ.
On April 21, 2008, the petitioner entered into a Contract of
Janitorial Service8 (service contract) with Robinsons Land
Corporation (Robinsons). Both agreed that the petitioner shall
supply janitorial, manpower and sanitation services to
Robinsons Place Ermita Mall for a period of one year - from
January 1, 2008 to December 31, 2008.
Pursuant to this, the respondents were deployed to Robinsons.
Halfway through the service contract, the petitioner asked the
respondents to execute individual contracts which stipulated
that their respective employments shall end on December 31,
2008, unless earlier terminated.10 The petitioner and
Robinsons no longer extended their contract of janitorial
services.
Consequently, the petitioner dismissed the respondents as
they were project employees whose duration of employment
was dependent on the petitioner’s service contract with
Robinsons.
The respondents responded to the termination of their
employment by filing a complaint for illegal dismissal with the
NLRC. They argued that they were not project employees; they
were regular employees who may only be dismissed for just or
authorized causes.
The respondents also asked for payment of their unpaid wage
differential, 13th month pay differential, service incentive leave
pay, holiday pay and separation pay.
The Labor Arbitration Rulings
The LA ruled in the petitioner’s favor. He held that the
respondents were not regular employees. They were
project employees whose employment was dependent
on the petitioner’s service contract with Robinsons.
Since this contract was not renewed, the respondents’
employment contracts must also be terminated. But
respondents are entitled to their wage differential.
The NLRC: which reversed the LA’s ruling, and held that they
were regular employees. The NLRC considered that the
respondents had been under the petitioner’s employ for more
than a year already, some of them as early as 1998 and may
only be dismissed for just causes.
The CA’s Ruling:
The CA dismissed the petitioner’s certiorari petition
and affirmed the NLRC’s decision.
 The CA held that petitioners (Rana) and Burgos
(Burgos), the president and general manager of FVR
Skills and Services Exponents, Inc., respectively, are
solidarily liable with the corporation for the payment
of the respondents’ monetary awards.
 As corporate officers, they acted in bad faith when
they intimidated the respondents in the course of
asking them to sign their individual employment
contracts.
ISSUE: WON the petitioners and owner and managers are
solidarily liable with the corporation respondents’ monetary
awards.
HELD: NO. SC modified CA’s ruling and held that
petitioners are not solidarily liable.
SC Solidary liability of the petitioner’s officers:
 Finally, we modify the CA’s ruling that Rana and
Burgos, as the petitioner’s president and general
manager, should be held solidarily liable with the
corporation for its monetary liabilities with the
respondents.
A corporation is a juridical entity with legal personality separate
and distinct from those acting for and in its behalf and, in
general, from the people comprising it.
GENERAL RULE: The general rule is that, obligations
incurred by the corporation, acting through its directors,
officers and employees, are its sole liabilities.39
EXCEPTION: A director or officer shall only be personally liable
for the obligations of the corporation, if the following conditions
concur:
(1) the complainant alleged in the complaint that the director
or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross
negligence or bad faith; and
(2) the complainant clearly and convincingly proved such
unlawful acts, negligence or bad faith.40
In the present case, the respondents failed to show the
existence of the first requisite.
They did not specifically allege in their complaint that Rana and
Burgos willfully and knowingly assented to the petitioner’s
patently unlawful act of forcing the respondents to sign the
dubious employment contracts in exchange for their salaries.
2

The respondents also failed to prove that Rana and Burgos had
been guilty of gross negligence or bad faith in directing the
affairs of the corporation.
To hold an officer personally liable for the debts of the
corporation, and thus pierce the veil of corporate fiction, it
is necessary to clearly and convincingly establish the bad
faith or wrongdoing of such officer, since bad
faith is never presumed.
Because the respondents were not able to clearly show the
definite participation of Burgos and Rana in their illegal
dismissal, we uphold the general rule that corporate officers are
not personally liable for the money claims of the discharged
employees, unless they acted with evident malice and bad faith
in terminating their employment.42
3. G.R. No. 198436
PIONEER INSURANCE SURETY CORPORATION, Petitioner,
vs.
MORNING STAR TRAVEL & TOURS, INC
LEONEN, J.:
As a general rule, a corporation has a separate and distinct
personality from those who represent it.1 Its officers are
solidarily liable only when exceptional circumstances exist,
such as cases enumerated in Section 31 of the Corporation
Code.2The liability of the officers must be proven by
evidence sufficient to overcome the burden of proof borne
by the plaintiff.
This case originated from a Complaint3 for Collection of
Sum of Money and Damages filed by Pioneer Insurance &
Surety Corporation (Pioneer) against Morning Star Travel &
Tours, Inc. (Morning Star) for the amounts Pioneer paid the
International Air Transport Association under its credit
insurance policy.
Defendant: Morning Star is a travel and tours agency with
Benny Wong, Estelita Wong, Arsenio Chua, Sonny Chua, and
Wong Yan Tak as shareholders and members of the board
of directors.9
Plaintiff: International Air Transport Association is a Canadian
corporation licensed to do business in the Philippines "to
promote safe, regular and economical air transport for all
people, among others."10
International Air Transport Association appointed Morning Star
as an accredited travel agent.11 Morning Star "avail[ed] of the
privilege of getting on credit . . . air transport tickets from various
airline companies [to be sold] to passengers at prices fixed by
the airline companies[.]"12
Morning Star and International Air Transport Association
entered a Passenger Sales Agency Agreement such that
Morning Star must report all air transport ticket sales to
International Air Transport Association and account all
payments received through the centralized system called Billing
and Settlement Plan.13 Morning Star only holds in trust all
monies collected as these belong to the airline companies.14
International Air Transport Association obtained a Credit
Insurance Policy from Pioneer to assure itself of payments by
accredited travel agents for ticket sales and monies due to the
airline companies under the Billing and Settlement Plan.15 The
policy was for the period from November 1, 2001 to December
31, 2002, renewed for the period from January 1, 2003 to
December 31, 2003.16
The policy was made known to the accredited travel agents.
Morning Star, through its President, Benny Wong, was among
those that declared itself liable to indemnify Pioneer for any and
all claims under the policy. He executed a registration form
under the Credit Insurance Program for BSP-Philippines
Agents.17
Morning Star had an accrued billing of P49,051,641.80 and
US$325,865.35 for the period from December 16, 2002 to
December 31, 2002. It failed to remit these amounts.
Morning Star, Benny Wong, and Estelita Wong were served with
summons and a copy of the Complaint on November 22, 2005,
while Arsenio Chua, Sonny Chua, and Wong Yan Tak were
unserved.24
RTC:
ruled in favor of Pioneer and ordered respondents to
jointly and severally pay Pioneer:
CA:
affirmed the trial court with modification in that only
Morning Star was liable to pay petitioner:
ISSUE: WON the doctrine of piercing the corporate veil applies
to hold the individual respondents solidarily liable with
respondent Morning Star Travel and Tours, Inc. to pay the award
in favor of petitioner Pioneer Insurance & Surety Corporation.
HELD: NO. respondents not solidarily liable.
SC affirmed CA with modification as to legal interest.
The law vests corporations with a separate and distinct
personality from those that represent these corporations.
A separate corporate personality shields corporate officers
acting in good faith and within their scope of authority from
personal liability except for situations enumerated by law and
jurisprudence,64 thus:
Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly
attach, as a rule, only when —
‘1. He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its
stockholders or other persons;
‘2. He consents to the issuance of watered stocks or
who, having knowledge thereof, does not forthwith file
3
 with the corporate secretary his written objection
thereto;
‘3. He agrees to hold himself personally and solidarily
liable with the corporation; or
‘4. He is made, by a specific provision of law, to
personally answer for his corporate action.’65
The first exception comes from Section 31 of the Corporation
Code:
SECTION 31. Liability of Directors, Trustees or
Officers. —
Directors or trustees who wilfully and knowingly vote
for or assent to patently unlawful acts of the corporation
or 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. (Emphasis supplied)
Petitioner imputes gross negligence and bad faith on the part of
the individual respondents for incurring the huge indebtedness
to International Air Transport Association.
Bad faith "imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, not simply bad judgment or
negligence."67 "[I]t means breach of a known duty through some
motive or interest or ill will; it partakes of the nature of fraud."68
The trial court gave weight to its finding that respondent Morning
Star still availed itself of loans and/or obligations with
International Air Transport Association despite its financial
standing of operating at a loss:
On the other hand, the Court of Appeals ruled that the general
rule on separate corporate personality and against personal
liability by corporate officers applies since petitioner failed to
prove bad faith amounting to fraud by the corporate officers:
The mere fact that Morning Star has been incurring huge
losses and that it has no assets at the time it contracted
large financial obligations to IATA, cannot be considered
that its officers, Defendants-Appellants Estelita Co Wong,
Benny H. Wong, Arsenio Chua, Sonny Chua and Wong Yan
Tak, acted in bad faith or such circumstance would amount to
fraud, warranting personal and solidary liability of its corporate
officers.
Piercing the corporate veil in order to hold corporate officers
personally liable for the corporation’s debts requires that "the
bad faith or wrongdoing of the director must be established
clearly and convincingly [as] [b]ad faith is never
presumed."71
First, petitioner failed to substantiate the fourth badge of fraud
on "[e]vidence of large indebtedness or complete insolvency."
Second, petitioner failed to substantiate the fifth badge of fraud
on the "transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed
financially."85
Mere allegations that Morning Star Management Ventures
Corporation and Pic ‘N Pac Mart, Inc. "were doing relatively well
during the time that respondent Morning Star was incurring huge
losses"86 do not establish bad faith or fraud by the individual
respondents. Neither does the allegation that Morning Star
Management Ventures Corporation has title over the land and
building where the offices can be found establish bad faith or
fraud. Petitioner did not show that this title was originally in
respondent Morning Star’s name and was later transferred to
respondent Morning Star.
This court has held that the "existence of interlocking
directors, corporate officers and shareholders is not
enough justification to pierce the veil of corporate fiction in
the absence of fraud or other public policy considerations."
Third, petitioner also failed to substantiate the sixth badge of
fraud that "the transfer is made between father and son, when
there are present other of the above circumstances.”
IMPORTANT: In any event, petitioner failed to plead and prove
the circumstances that would pass the following control test for
the operation of the alter ego doctrine:
(1) Control, not mere majority or complete stock
control, but complete domination, not only of finances
but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will
or existence of its own;
(2) Such control must have been used by the
defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiff’s
legal right; and
(3) The aforesaid control and breach of duty must
[have] proximately caused the injury or unjust loss
complained of.91
The records do not show that the individual respondents
controlled Morning Star Tour Planners, Inc. and that such
control was used to commit fraud against petitioner.
Neither does this suspicion support petitioner’s position
that the individual respondents were in bad faith or gross
negligence in directing the affairs of respondent Morning
Star.
WHEREFORE, the Petition is DENIED. The Court of Appeals
Decision is AFFIRMED with MODIFICATION in that legal
interest is 6% per annum from September 23, 2003 until fully
paid.
4.Bank of Commerce vs. Marilyn P. Nite GRN.
211535. July 22, 2015
CARPIO, Acting C.J.:
FACTS: Before the Court is a petition for review on certiorari.
4
Respondent Marilyn Nite (Nite) was charged, together with
Nunelon Bradley (Bradley) and Victoria Magalona-Escalambre
(Escalambre), with violation of Section 19 of Batas Pambansa
Bilang 1785 (BP Blg. 178) in an Information that reads:
That on or about April 25, 1994, in the Municipality of Makati,
Metro Manila, and within the jurisdiction of the Honorable Court,
the above-named accused, doing business under the name
and style of Bancapital Development Corporation (Bancap)
did then and there, willfully and feloniously engage in the
business of selling securities, particularly treasury bills (T-bills)
with Bank of Commerce (Bancom) in the amount of ₱250 Million
without having been registered as a broker, dealer or salesman
with the Securities and Exchange Commission, in violation of
said law.
Nite was also charged, together with Bradley, Escalambre, and
Eugene Yang (Yang), with Estafa.
The case was docketed as Criminal Case No. 94-5268. The two
cases were tried jointly.
In Criminal Case No. 94-5267, the thrust of the prosecution’s
argument was that Nite, as President of Bancapital
Development Corporation (Bancap), violated Section 19 of BP
Blg. 178 when Bancap sold ₱250 million worth of treasury bills
to Bank of Commerce (Bancom) without being registered as
broker, dealer, or salesman of securities.
In Criminal Case No. 94-5268, the prosecution alleged that Nite
defrauded Bancom by falsely pretending to posses and own
₱250 million worth of treasury bills that Bancap supposedly
sold to Bancom when none of the treasury bills described in
the Confirmation of Sale and Letter of Undertaking issued by
Bancap were ever delivered to Bancom.
The prosecution alleged that Bancom paid Bancap the amount
of ₱243,215,972.52 as payment for the treasury bills but Bancap
only delivered substitute bills in the amount of ₱88 million.
RTC:
accused MARILYN NITE is hereby ACQUITTED of the
charge of violating Sec. 19 of Batas Pambansa Bilang
178 and likewise acquitted of the charge of Estafa .
She, however, is hereby ordered to pay BANK OF COMMERCE
the amount of Php162 million, representing the civil obligation of
BANCAPITAL.
According to the RTC, the prosecution was not able to
establish that Bancap acted as a primary dealer that needed
to be accredited. Accordingly, Bancap acted as a secondary
dealer and did not buy the treasury bills directly from the Central
Bank. In Criminal Case No. 9405268, the trial court ruled that
the element of deceit was non-existent and that at the time of
the transaction, Bancom was aware that Bancap was not in
physical possession of the treasury bills subject of the sale.
However, the trial court ruled that Nite, being a responsible
officer of Bancap, was civilly liable to Bancom in the amount
of ₱162 million which represented the treasury bills that Bancap
undertook to deliver to Bancom since only ₱88 million worth
substitute treasury bills had been delivered to and accepted by
Bancom.
CA:
affirmed the trial court’s Order
The Court of Appeals agreed with the trial court that Bancap was
only a secondary dealer and as such, there was no need for
it to secure the license required for primary dealers under BP
Blg. 178.
The Court of Appeals ruled that it could not automatically
make Bancap’s contractual obligation as the contractual
obligation of Nite.
Further, the doctrine of piercing the veil of corporate fiction
imposed the burden of the corporatio’s obligations on its erring
officers and shareholders. In this case, none of Bancap’s offer
officers, and not even the corporation itself, were impleaded,
and thus, the Court of Appeals could not make a complete
determination of the corporation’s liability. According to the
Court of Appeals, the remedy of Bancom was to file a civil action
impleading all the parties to the contract.
ISSUES:
I. WON The Court of Appeals gravely erred in ruling
that the civil liability was only attributable to
Bancap and not to respondent Nite despite the latter’s
active participation in the commission of patently
unlawful acts against petitioner Bancom.
II. WON The Court of Appeals erred in not piercing
the corporate veil of Bancap even though the same
was being used to perpetuate fraud.
HELD:
NO. Bancom cited Section 31 of the Corporation Code. We do
not agree.
General rule: is that a corporation is invested by law with a
personality separate and distinct from that of the persons
composing it, or from any other legal entity that it may be related
to. The obligations of a corporation, acting through its directors,
officers, and employees, are its own sole liabilities.
Therefore, the corporation’s directors, officers, or employees
are generally not personally liable for the obligations of the
corporation.
IMPORTANT:
To hold a director or officer personally liable for
corporate obligations, two requisites must concur:
(1) complainant must allege in the complaint that
the director or officer assented to patently unlawful
acts of the corporation, or that the officer was guilty
of gross negligence or bad faith; and
(2) complaint must clearly and convincingly prove
such unlawful acts, negligence or bad faith. To hold
a director personally liable for debts of the corporation,
and thus pierce the veil of corporate fiction, the bad
faith or wrongdoing of the director must be
established clearly and convincingly.
It is settled that the transaction between Bancom and Bancap is
an ordinary sale. We give weight to the finding of both the trial
court and the Court of Appeals that Bancap’s liability arose from
its contractual obligation to Bancom.
The trial court and the Court of Appeals found that Bancom and
Bancap had been dealing with each other as seller and buyer
of treasury bills from December 1992 until the transaction
5
subject of this case on 25 April 1994, which was no different from
their previous transactions.
Nite, as Bancap’s President, cannot be held personally
liable for Bancap’s obligation unless it can be shown that
she acted fraudulently.
However, the issue of fraud had been resolved with finality
when the trial court acquitted Nite of estafa on the ground
that the element of deceit is non-existent in the case
Base on the foregoing, we cannot hold Nite Personally
liable for Bancap’s corporate liability.
5. Ching vs. Sec. of Justice, 481 SCRA 602 (2006)
CALLEJO, SR., J.:
FACTS:
Sept-Oct 1980: 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.
Office of CP: probable cause to charge petitioner with violating
P.D. No. 115, as petitioner’s liability was only civil, not criminal,
having signed the trust receipts as surety
DOJ: RCBC appealed the resolution to the Department of
Justice (DOJ) via petition for review: reversed the assailed
resolution of the City Prosecutor execution of said receipts is
enough to indict the Ching as the official responsible for violation
of P.D. No. 115
CA: dismissed the petition for lack of merit and on procedural
grounds Ching filed a petition for certiorari, prohibition and
mandamus with the CA
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
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.
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
rationale: 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
6
 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.
In this case, petitioner signed the trust receipts in question.
He cannot, thus, hide behind the cloak of the separate corporate
personality of PBMI. In the words of Chief Justice Earl Warren,
a corporate officer cannot protect himself behind a corporation
where he is the actual, present and efficient actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED
for lack of merit. Costs against the petitioner.
6. G.R. No. 199481 December 3, 2012
ILDEFONSO S. CRISOLOGO,
vs.
PEOPLE OF THE PHILIPPINES and CHINA BANKING
CORPORATION,
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari
The Factual Antecedents:
Sometime in January and February 1989, petitioner, as
President of Novachemical Industries, Inc. (Novachem),
applied for commercial letters of credit from private
respondent China Banking Corporation (Chinabank) to
finance the purchase of 1,600 kgs. of amoxicillin trihydrate
micronized from Hyundai Chemical Company based in Seoul,
South Korea and glass containers from San Miguel Corporation
(SMC).
Subsequently, Chinabank issued Letters of Credit in the
respective amounts of US$114,400.007 (originally
US$135,850.00). After petitioner received the goods, he
executed for and in behalf of Novachem the corresponding
trust receipt agreements in favor of Chinabank.
Chinabank, through its Staff Assistant, Ms. Maria Rosario De
Mesa (Ms. De Mesa), filed before the City Prosecutor's Office of
Manila a Complaint-Affidavit charging petitioner for violation of
P.D. No. 115 in relation to Article 315 1(b) of the RPC for his
purported failure to turn-over the goods or the proceeds
from the sale thereof, despite repeated demands.
It averred that the latter, with intent to defraud, and with
unfaithfulness and abuse of confidence, misapplied,
misappropriated and converted the goods subject of the trust
agreements, to its damage and prejudice.
Petitioner claimed that as a regular client of Chinabank,
Novachem was granted a credit line and letters of credit (L/Cs)
secured by trust receipt agreements.
The City Prosecutor found probable cause to indict
petitioner as charged and filed the corresponding.
RTC:
acquitting petitioner of the criminal charges for
failure of the prosecution to prove his guilt beyond
reasonable doubt. It, however, adjudged him civilly
liable to Chinabank, without need for a separate civil
action.
CA:
the CA affirmed the RTC Decision holding petitioner
civilly liable. It noted that petitioner signed the
"Guarantee Clause" of the trust receipt agreements in
his personal capacity and even waived the benefit
of excussion against Novachem. As such, he is
personally and solidarily liable with Novachem.
ISSUE: WON the CA erred in declaring him civilly liable under
the subject L/Cs which are corporate obligations of
Novachem.
HELD: NO.
The assailed Decision of the Court of Appeals is AFFIRMED
with the modification absolving petitioner lldefonso S.
Crisologo from any civil liability to private respondent
China Banking Corporation.
Section 13 of the Trust Receipts Law explicitly provides that
if the violation or offense is committed by a corporation, as
in this case, the penalty provided for under the law shall be
imposed upon the directors, officers, employees or other
officials or person responsible for the offense, without
prejudice to the civil liabilities arising from the criminal
offense.
In this case, petitioner was acquitted of the charge for violation
of the Trust Receipts Law in relation to Article 315 1(b) 13 of
the RPC. As such, he is relieved of the corporate criminal
liability as well as the corresponding civil liability arising
therefrom.
General rule: Settled is the rule that debts incurred by directors,
officers, and employees acting as corporate agents are not their
direct liability but of the corporation they represent,
EXCEPT if they contractually agree/stipulate or assume to be
personally liable for the corporation’s debts, as in this case.
The RTC and the CA adjudged petitioner personally and
solidarily liable with Novachem for the obligations secured by
the subject trust receipts based on the finding that he signed the
guarantee clauses therein in his personal capacity and even
waived the benefit of excussion. However, a review of the
records shows that petitioner signed only the guarantee clauses
of the Trust Receipt datedand the corresponding Application
and Agreement for Commercial Letter of Credit.
7
With respect to the Trust Receipt17 dated August 31, 1989 and
Irrevocable Letter of Credit18 No. L/C No. DOM-33041 issued to
SMC for the glass containers, the second pages of these
documents that would have reflected the guarantee clauses
were missing and did not form part of the prosecution's formal
offer of evidence. A perusal of the said page, however,
reveals that the same does not bear the signature of the
petitioner in the guarantee clause. Hence, it was error for the
CA to hold petitioner likewise liable for the obligation secured by
the said trust receipt (L/C No. DOM-33041).
Neither was sufficient evidence presented to prove that
petitioner acted in bad faith or with gross negligence as
regards the transaction that would have held him civilly liable
for his actions in his capacity as President of
Novachem.1âwphi1
7. Philippine National Bank vs. Merelo Aznar,et.al,
GRN 171805, May 30, 2011
LEONARDO-DE CASTRO, J.:
Before the Court are two petitions for review
on certiorari under Rule 45 of the Rules of Court both seeking to
annul and set aside the Decision[1] dated September 29, 2005
as well as the Resolution[2] dated March 6, 2006 of the Court of
Appeals in CA-G.R. CV No. 75744, entitled Merelo B. Aznar,
Matias B. Aznar III, Jose L. Aznar (deceased) represented by his
heirs, Ramon A. Barcenilla (deceased) represented by his heirs,
Rosario T. Barcenilla, Jose B. Enad (deceased) represented by
his heirs, and Ricardo Gabuya (deceased) represented by his
heirs v. Philippine National Bank, Jose Garrido and Register of
Deeds of Cebu City. The September 29, 2005 Decision of the
Court of Appeals set aside the Decision[3] dated November 18,
1998 of the Regional Trial Court (RTC) of Cebu City, Branch 17,
in Civil Case No. CEB-21511. Furthermore, it ordered the
Philippine National Bank (PNB) to pay Merelo B. Aznar; Matias
B. Aznar III; Jose L. Aznar (deceased), represented by his heirs;
Ramon A. Barcenilla (deceased), represented by his heirs;
Rosario T. Barcenilla; Jose B. Enad (deceased), represented by
his heirs; and Ricardo Gabuya (deceased), represented by his
heirs (Aznar, et al.), the amount of their lien based on the
Minutes of the Special Meeting of the Board of
Directors[4] (Minutes) of the defunct Rural Insurance and Surety
Company, Inc. (RISCO) duly annotated on the titles of three
parcels of land, plus legal interests from the time of PNBs
acquisition of the subject properties until the finality of the
judgment but dismissing all other claims of Aznar, et al. On the
other hand, the March 6, 2006 Resolution of the Court of
Appeals denied the Motion for Reconsideration subsequently
filed by each party.
The facts of this case, as stated in the Decision dated
September 29, 2005 of the Court of Appeals, are as follows:
In 1958, RISCO ceased operation due to business
reverses. In plaintiffs desire to rehabilitate RISCO, they
contributed a total amount of P212,720.00 which was
used in the purchase of the three (3) parcels of land
described as follows:
A parcel of land (Lot No. 3597 of the Talisay-
Minglanilla Estate, G.L.R.O. Record No.
3732) situated in
the Municipality of Talisay, Province of Cebu,
Island of Cebu. xxx containing an area of
SEVENTY[-]EIGHT THOUSAND ONE
HUNDRED EIGHTY[-]FIVE SQUARE
METERS (78,185) more or less. x x x covered
by Transfer Certificate of Title No. 8921 in the
name of Rural Insurance & Surety Co., Inc.
A parcel of land (Lot 7380 of the Talisay
Minglanilla Estate, G.L.R.O. Record No.
3732), situated in
the Municipality of Talisay, Province of Cebu,
Island of Cebu. xxx containing an area of
THREE HUNDRED TWENTY[-]NINE
THOUSAND FIVE HUNDRED FORTY[-
]SEVEN SQUARE METERS (329,547), more
or less. xxx covered by Transfer Certificate of
Title No. 8922 in the name of Rural Insurance
& Surety Co., Inc. and
A parcel of land (Lot 1323 of the subdivision
plan Psd-No. 5988), situated in the District of
Lahug, City of Cebu, Island of Cebu. xxx
containing an area ofFIFTY[-
]FIVE THOUSAND SIX HUNDRED FIFTY[-
]THREE (55,653) SQUARE METERS, more
or less. covered by Transfer Certificate of Title
No. 24576 in the name of Rural Insurance &
Surety Co., Inc.
After the purchase of the above lots, titles were issued
in the name of RISCO. The amount contributed by
plaintiffs constituted as liens and encumbrances on the
aforementioned properties as annotated in the titles of
said lots. Such annotation was made pursuant to
the Minutes of the Special Meeting of the Board of
Directors of RISCO (hereinafter referred to as the
Minutes) on March 14, 1961, pertinent portion of which
states:
xxxx
3. The President then explained that in a
special meeting of the stockholders
previously called for the purpose of putting up
certain amount of P212,720.00 for the
rehabilitation of the Company, the following
stockholders contributed the amounts
indicated opposite their names:
CONTRIBUTED SURPLUS x x x x
And that the respective contributions above-
mentioned shall constitute as their lien or
interest on the property described above, if
and when said property are titled in the name
8
of RURAL INSURANCE & SURETY CO.,
INC., subject to registration as their adverse
claim in pursuance of the Provisions of Land
Registration Act, (Act No. 496, as amended)
until such time their respective contributions
are refunded to them completely.x x x x
Thereafter, various subsequent annotations
were made on the same titles, including the
Notice of Attachment and Writ of Execution
both dated August 3, 1962 in favor of herein
defendant PNB, to wit:
On TCT No. 8921 for Lot 3597:
Entry No. 7416-V-4-D.B. Notice of
Attachment By the Provincial Sheriff of Cebu,
Civil Case No. 47725, Court of First Instance
of Manila, entitled Philippine National Bank,
Plaintiff, versus Iluminada Gonzales, et al.,
Defendants, attaching all rights, interest and
participation of the defendant Iluminada
Gonzales and Rural Insurance & Surety Co.,
Inc. of the two parcels of land covered by
T.C.T. Nos. 8921, Attachment No. 330 and
185.
xxxx
As a result, a Certificate of Sale was
issued in favor of Philippine National Bank,
being the lone and highest bidder of the three
(3) parcels of land known as Lot Nos. 3597
and 7380, covered by T.C.T. Nos. 8921 and
8922, respectively, both situated at Talisay,
Cebu, and Lot No. 1328-C covered by T.C.T.
No. 24576 situated at Cebu City, for the
amount of Thirty-One Thousand Four
Hundred Thirty Pesos (P31,430.00).
Thereafter, a Final Deed of Sale dated May
27, 1991 in favor of the Philippine National
Bank was also issued and Transfer Certificate
of Title No. 24576 for Lot 1328-C (corrected
to 1323-C) was cancelled and a new
certificate of title, TCT 119848 was issued in
the name of PNB on August 26, 1991.
This prompted plaintiffs-appellees to
file the instant complaint seeking the quieting
of their supposed title to the subject
properties, declaratory relief, cancellation of
TCT and reconveyance with temporary
restraining order and preliminary injunction.
Plaintiffs alleged that the subsequent
annotations on the titles are subject to the
prior annotation of their liens and
encumbrances. Plaintiffs further contended
that the subsequent writs and processes
annotated on the titles are all null and void for
want of valid service upon RISCO and on
them, as stockholders. They argued that the
Final Deed of Sale and TCT No. 119848 are
null and void as these were issued only after
28 years and that any right which PNB may
have over the properties had long become
stale.
Defendant PNB on the other hand
countered that plaintiffs have no right of action
for quieting of title since the order of the court
directing the issuance of titles to PNB had
already become final and executory and their
validity cannot be attacked except in a direct
proceeding for their annulment. Defendant
further asserted that plaintiffs, as mere
stockholders of RISCO do not have any legal
or equitable right over the properties of the
corporation. PNB posited that even if plaintiffs
monetary lien had not expired, their only
recourse was to require the reimbursement or
refund of their contribution.[5]
Aznar, et al., filed a Manifestation and Motion for Judgment on
the Pleadings[6] on October 5, 1998. Thus, the trial court
rendered the November 18, 1998 Decision, which ruled against
PNB on the basis that there was an express trust created over
the subject properties whereby RISCO was the trustee and the
stockholders, Aznar, et al., were the beneficiaries or the cestui
que trust. The dispositive portion of the said ruling reads:
WHEREFORE, judgment is hereby
rendered as follows:
a) Declaring the Minutes of the Special Meeting
of the Board of Directors of RISCO approved
on March 14, 1961 (Annex E, Complaint)
annotated on the titles to subject properties
on May 15, 1962 as an express trust whereby
RISCO was a mere trustee and the above-
mentioned stockholders as beneficiaries
being the true and lawful owners of Lots 3597,
7380 and 1323;
b) Declaring all the subsequent annotations of
court writs and processes, to wit: Entry No.
7416-V-4-D.B., 7417-V-4-D.B., 7512-V-4-
D.B., and 7513-V-4-D.B. in TCT No. 8921 for
Lot 3597 and TCT No. 8922 for Lot 7380;
Entry No. 1660-V-7-D.B., Entry No. 1661-V-7-
D.B., Entry No. 1861-V-7-D.B., Entry No.
1862-V-7-D.B., Entry No. 4329-V-7-D.B.,
Entry No. 3761-V-7-D.B. and Entry No. 26522
v. 34, D.B. on TCT No. 24576 for Lot 1323-C,
and all other subsequent annotations thereon
in favor of third persons, as null and void;
c) Directing the Register of Deeds of the
9
 Province of Cebu and/or the Register of
Deeds of Cebu City, as the case may be, to
cancel all these annotations mentioned in
paragraph b) above the titles;
d) Directing the Register of Deeds of the
Province of Cebu to cancel and/or annul TCTs
Nos. 8921 and 8922 in the name of RISCO,
and to issue another titles in the names of the
plaintiffs; and
e) Directing Philippine National Bank to
reconvey TCT No. 119848 in favor of the
plaintiffs.[7]
PNB appealed the adverse ruling to the Court of
Appeals which, in its September 29, 2005 Decision, set aside
the judgment of the trial court. Although the Court of Appeals
agreed with the trial court that a judgment on the pleadings was
proper, the appellate court opined that the monetary
contributions made by Aznar, et al., to RISCO can only be
characterized as a loan secured by a lien on the subject
lots, rather than an express trust. Thus, it directed PNB to pay
Aznar, et al., the amount of their contributions plus legal interest
from the time of acquisition of the property until finality of
judgment. The dispositive portion of the decision reads:
WHEREFORE, premises
considered, the assailed Judgment is hereby
SET ASIDE.
A new judgment is rendered
ordering Philippine National Bank to pay
plaintiffs-appellees the amount of their lien
based on the Minutes of the Special Meeting
of the Board of Directors duly annotated on
the titles, plus legal interests from the time of
appellants acquisition of the subject
properties until the finality of this judgment.
All other claims of the plaintiffs-
appellees are hereby DISMISSED.[8]
Both parties moved for reconsideration but these were
denied by the Court of Appeals. Hence, each party filed with this
Court their respective petitions for review on certiorari under
Rule 45 of the Rules of Court, which were consolidated in a
Resolution[9] dated October 2, 2006.
In PNBs petition, docketed as G.R. No. 171805, the
following assignment of errors were raised:
I pleadings can be found in Section 1, Rule 34 of the Rules of
THE COURT OF APPEALS ERRED IN
AFFIRMING THE FINDINGS OF THE TRIAL
COURT THAT A JUDGMENT ON THE
PLEADINGS WAS WARRANTED DESPITE
THE EXISTENCE OF GENUINE ISSUES OF
FACTS ALLEGED IN PETITIONER PNBS
ANSWER.
II
THE HONORABLE COURT OF APPEALS
ERRED IN HOLDING THAT THE RIGHT OF
RESPONDENTS TO REFUND OR
REPAYMENT OF THEIR CONTRIBUTIONS
HAD NOT PRESCRIBED AND/OR THAT
THE MINUTES OF THE SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
RISCO CONSTITUTED AS AN EFFECTIVE
ADVERSE CLAIM.
III
THE COURT OF APPEALS ERRED IN NOT
CONSIDERING THE DISMISSAL OF THE
COMPLAINT ON GROUNDS OF RES
JUDICATA AND LACK OF CAUSE OF
ACTION ALLEGED BY PETITIONER IN ITS
ANSWER.[10]
On the other hand, Aznar, et al.s petition, docketed as
G.R. No. 172021, raised the following issue:
THE COURT OF APPEALS ERRED IN
CONCLUDING THAT THE
CONTRIBUTIONS MADE BY THE
STOCKHOLDERS OF RISCO WERE
MERELY A LOAN SECURED BY THEIR LIEN
OVER THE PROPERTIES, SUBJECT TO
REIMBURSEMENT OR REFUND, RATHER
THAN AN EXPRESS TRUST.[11]
Anent the first issue raised in G.R. No. 171805, PNB
argues that a judgment on the pleadings was not proper
because its Answer,[12] which it filed during the trial court
proceedings of this case, tendered genuine issues of fact since
it did not only deny material allegations in Aznar, et al.s
Complaint[13] but also set up special and affirmative
defenses. Furthermore, PNB maintains that, by virtue of the trial
courts judgment on the pleadings, it was denied its right to
present evidence and, therefore, it was denied due process.
The contention is meritorious.
The legal basis for rendering a judgment on the
Court which states that [w]here an answer fails to tender an
issue, or otherwise admits the material allegations of the
10
adverse partys pleading, the court may, on motion of that party,
direct judgment on such pleading. x x x.
Judgment on the pleadings is, therefore, based
exclusively upon the allegations appearing in the pleadings of
the parties and the annexes, if any, without consideration of any
evidence aliunde.[14] However, when it appears that not all the
material allegations of the complaint were admitted in the
answer for some of them were either denied or disputed, and
the defendant has set up certain special defenses which, if
proven, would have the effect of nullifying plaintiffs main cause
of action, judgment on the pleadings cannot be rendered.[15]
defendants contention that the money
contributed by plaintiffs was in fact a loan from
the stockholders, reference can be made to
the Minutes of the Special Meeting of the
Board of Directors, from which plaintiffs-
appellees anchored their complaint, in order
to ascertain the true nature of their claim over
the properties. Thus, the issues raised by the
parties can be resolved on the basis of their
respective pleadings and the annexes
attached thereto and do not require further
presentation of evidence aliunde.[16]

In the case at bar, the Court of Appeals justified the trial

courts resort to a judgment on the pleadings in the following However, a careful reading of Aznar, et al.s Complaint
manner: and of PNBs Answer would reveal that both parties raised
Perusal of the complaint, several claims and defenses, respectively, other than what was
particularly, Paragraph 7 thereof reveals: cited by the Court of Appeals, which requires the presentation
7. That in their of evidence for resolution, to wit:
desire to rehabilitate Complaint (Aznar, et al.) Answer (PNB)
RISCO, the above-named 11. That these subsequent 10) Par. 11 is denied as the
stockholders contributed a annotations on the titles of loan from the stockholders
total amount of the properties in question are to pay part of the purchase
PhP212,720.00 which was subject to the prior annotation price of the properties was a
used in the purchase of the of liens and encumbrances of personal obligation of
above-described parcels of the above-named RISCO and was thus not a
land, which amount stockholders per Entry No. claim adverse to the
constituted liens and 458-V-7-D.B. inscribed on ownership rights of the
encumbrances on subject TCT No. 24576 on May 15, corporation;
properties in favor of the 1962 and per Entry No. 6966-
above-named stockholders V-4-D.B. on TCT No. 8921
as annotated in the titles and TCT No. 8922 on May
adverted to above, 15, 1962;
pursuant to the Minutes of 12. That these writs and 11) Par. 12 is denied as in
the Special Meeting of the processes annotated on the fact notice to RISCO had
Board of Directors of titles are all null and void for been sent to its last known
RISCO approved on March total want of valid service address at Plaza
14, 1961, a copy of which is upon RISCO and the above- Goite, Manila;
hereto attached as Annex named stockholders
E. considering that as early as
sometime in 1958, RISCO
On the other hand, defendant in its Answer, ceased operations as earlier
admitted the aforequoted allegation with the stated, and as early as May
qualification that the amount put up by the 15, 1962, the liens and
stockholders was used as part payment for encumbrances of the above-
the properties. Defendant further averred that named stockholders were
plaintiffs liens and encumbrances annotated annotated in the titles of
on the titles issued to RISCO constituted as subject properties;
loan from the stockholders to pay part of the 13. That more particularly, 12) Par. 13 is denied for no
purchase price of the properties and was a the Final Deed of Sale law requires the final deed of
personal obligation of RISCO and was thus (Annex G) and TCT No. sale to be executed
not a claim adverse to the ownership rights of 119848 are null and void as immediately after the end of
the corporation. With these averments, We do these were issued only after the redemption period.
not find error on the part of the trial court in 28 years and 5 months (in the Moreover, another court of
rendering a judgment on the pleadings. For case of the Final Deed of competent jurisdiction has
one, the qualification made by defendant in its Sale) and 28 years, 6 months already ruled that PNB was
answer is not sufficient to controvert the and 29 days (in the case of
allegations raised in the complaint. As to
11
 TCT 119848) from the invalid entitled to a final deed of At the outset, the Court agrees with the Court of
auction sale on December sale; Appeals that the agreement contained in the Minutes of the
27, 1962, hence, any right, if Special Meeting of the RISCO Board of Directors held on March
any, which PNB had over 14, 1961 was a loan by the therein named stockholders to
subject properties had long RISCO. We quote with approval the following discussion from
become stale; the Court of Appeals Decision dated September 29, 2005:
14. That plaintiffs continue to 13) Par. 14 is denied as
have possession of subject plaintiffs are not in actual Careful perusal of the Minutes relied
properties and of their possession of the land and if upon by plaintiffs-appellees in their claim,
corresponding titles, but they they were, their possession showed that their contributions shall
never received any process was as trustee for the constitute as lien or interest on the property if
concerning the petition filed creditors of RISCO like and when said properties are titled in the
by PNB to have TCT 24576 PNB; name of RISCO, subject to registration of their
over Lot 1323-C surrendered adverse claim under the Land Registration
and/or cancelled; Act, until such time their respective
15. That there is a cloud 14) Par. 15 is denied as the contributions are refunded to them
created on the court orders directing the completely.
aforementioned titles of issuance of titles to PNB in
RISCO by reason of the lieu of TCT 24576 and TCT It is a cardinal rule in the
annotate writs, processes 8922 are valid judgments interpretation of contracts that if the terms of
and proceedings caused by which cannot be set aside in a contract are clear and leave no doubt upon
Jose Garrido and PNB which a collateral proceeding like the intention of the contracting parties, the
were apparently valid or the instant case.[18] literal meaning of its stipulation shall control.
effective, but which are in When the language of the contract is explicit
truth and in fact invalid and leaving no doubt as to the intention of the
ineffective, and prejudicial to drafters thereof, the courts may not read into
said titles and to the rights of it any other intention that would contradict its
the plaintiffs, which should be plain import.
removed and the titles
quieted.[17] The term lien as used in the Minutes
is defined as a discharge on property usually
for the payment of some debt or obligation. A
Furthermore, apart from refuting the aforecited material lien is a qualified right or a proprietary interest
allegations made by Aznar, et al., PNB also indicated in its which may be exercised over the property of
Answer the special and affirmative defenses of (a) prescription; another. It is a right which the law gives to
(b) res judicata; (c) Aznar, et al., having no right of action for have a debt satisfied out of a particular thing.
quieting of title; (d) Aznar, et al.s lien being ineffective and not It signifies a legal claim or charge on property;
binding to PNB; and (e) Aznar, et al.s having no personality to whether real or personal, as a collateral or
file the suit.[19] security for the payment of some debt or
obligation. Hence, from the use of the word
From the foregoing, it is indubitably clear that it was lien in the Minutes, We find that the money
error for the trial court to render a judgment on the pleadings contributed by plaintiffs-appellees was in the
and, in effect, resulted in a denial of due process on the part of nature of a loan, secured by their liens and
PNB because it was denied its right to present evidence. A interests duly annotated on the titles. The
remand of this case would ordinarily be the appropriate course annotation of their lien serves only as
of action. However, in the interest of justice and in order to collateral and does not in any way vest
expedite the resolution of this case which was filed with the trial ownership of property to
court way back in 1998, the Court finds it proper to already plaintiffs.[20] (Emphases supplied.)
resolve the present controversy in light of the existence of legal
grounds that would dispose of the case at bar without necessity
of presentation of further evidence on the other disputed factual We are not persuaded by the contention of Aznar, et
claims and defenses of the parties. al., that the language of the subject Minutes created an express
trust.
A thorough and comprehensive scrutiny of the records
would reveal that this case should be dismissed because Trust is the right to the beneficial enjoyment of
Aznar, et al., have no title to quiet over the subject properties property, the legal title to which is vested in another. It is a
and their true cause of action is already barred by prescription. fiduciary relationship that obliges the trustee to deal with the
property for the benefit of the beneficiary. Trust relations
12
between parties may either be express or implied. An express
trust is created by the intention of the trustor or of the parties. An
implied trust comes into being by operation of law.[21]
Express trusts, sometimes referred to as direct trusts,
are intentionally created by the direct and positive acts of the
settlor or the trustor - by some writing, deed, or will or oral
declaration. It is created not necessarily by some written words,
but by the direct and positive acts of the parties.[22] This is in
consonance with Article 1444 of the Civil Code, which states that
[n]o particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended.
In other words, the creation of an express trust must be
manifested with reasonable certainty and cannot be inferred
from loose and vague declarations or from ambiguous
circumstances susceptible of other interpretations. [23]
No such reasonable certitude in the creation of an
express trust obtains in the case at bar. In fact, a careful scrutiny
of the plain and ordinary meaning of the terms used in the
Minutes does not offer any indication that the parties thereto
intended that Aznar, et al., become beneficiaries under an
express trust and that RISCO serve as trustor.
Indeed, we find that Aznar, et al., have no right to ask
for the quieting of title of the properties at issue because they
have no legal and/or equitable rights over the properties that are
derived from the previous registered owner which is RISCO, the
pertinent provision of the law is Section 2 of the Corporation
Code (Batas Pambansa Blg. 68), which states that [a]
corporation is an artificial being created by operation of law,
having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its
existence.
As a consequence thereof, a corporation has a
personality separate and distinct from those of its stockholders
and other corporations to which it may be connected.[24]Thus,
we had previously ruled in Magsaysay-Labrador v. Court of
Appeals[25] that the interest of the stockholders over the
properties of the corporation is merely inchoate and therefore
does not entitle them to intervene in litigation involving corporate
property, to wit:
Here, 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.[26]
In the case at bar, there is no allegation, much less any
proof, that the corporate existence of RISCO has ceased and
the corporate property has been liquidated and distributed to the
stockholders. The records only indicate that, as per Securities
and Exchange Commission (SEC) Certification[27] dated June
18, 1997, the SEC merely suspended RISCOs Certificate of
Registration beginning on September 5, 1988 due to its non-
submission of SEC required reports and its failure to operate for
a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO,
cannot claim ownership over the properties at issue in this case
on the strength of the Minutes which, at most, is merely evidence
of a loan agreement between them and the company. There is
no indication or even a suggestion that the ownership of said
properties were transferred to them which would require no less
that the said properties be registered under their names. For this
reason, the complaint should be dismissed since Aznar, et al.,
have no cause to seek a quieting of title over the subject
properties.
At most, what Aznar, et al., had was merely a right to
be repaid the amount loaned to RISCO. Unfortunately, the right
to seek repayment or reimbursement of their contributions used
to purchase the subject properties is already barred by
prescription.
Section 1, Rule 9 of the Rules of Court provides that
when it appears from the pleadings or the evidence on record
that the action is already barred by the statute of limitations, the
court shall dismiss the claim, to wit:
Defenses and objections not
pleaded either in a motion to dismiss or in the
answer are deemed waived. However, when
it appears from the pleadings or the evidence
on record that the court has no jurisdiction
over the subject matter, that there is another
action pending between the same parties for
the same cause, or that the action is barred
by a prior judgment or by statute of
limitations, the court shall dismiss the claim.
(Emphasis supplied.)
In Feliciano v. Canoza,[28] we held:
We have ruled that trial courts have authority
and discretion to dismiss an action on the
ground of prescription when the parties
13
 pleadings or other facts on record show it to
be indeed time-barred x x x; and it may do so
on the basis of a motion to dismiss, or an
answer which sets up such ground as an
affirmative defense; or even if the ground is
alleged after judgment on the merits, as in a
motion for reconsideration; or even if the
defense has not been asserted at all, as
where no statement thereof is found in the
pleadings, or where a defendant has been
declared in default. What is essential only,
to repeat, is that the facts demonstrating
the lapse of the prescriptive period, be
otherwise sufficiently and satisfactorily
apparent on the record; either in the
averments of the plaintiffs complaint, or
otherwise established by the
evidence.[29] (Emphasis supplied.)
The pertinent Civil Code provision on prescription
which is applicable to the issue at hand is Article 1144(1), to wit:
The following actions must be
brought within ten years from the time the
right of action accrues:
1. Upon a written
contract;
2. Upon an obligation
created by law;
3. Upon a judgment.
(Emphasis supplied.)
Moreover, in Nielson & Co., Inc. v. Lepanto
Consolidated Mining Co.,[30] we held that the term
written contract includes the minutes of the meeting of
the board of directors of a corporation, which minutes
were adopted by the parties although not signed by
them, to wit:
Coming now to the question of prescription
raised by defendant Lepanto, it is contended
by the latter that the period to be considered
for the prescription of the claim regarding
participation in the profits is only four years,
because the modification of the sharing
embodied in the management contract is
merely verbal, no written document to that
effect having been presented. This contention
is untenable. The modification appears in the
minutes of the special meeting of the Board of
Directors of Lepanto held on August 21, 1940,
it having been made upon the authority of its
President, and in said minutes the terms of
modification had been specified. This is
sufficient to have the agreement considered,
for the purpose of applying the statute of
limitations, as a written contract even if the
minutes were not signed by the parties (3
A.L.R., 2d, p. 831). It has been held that a
writing containing the terms of a contract if
adopted by two persons may constitute a
contract in writing even if the same is not
signed by either of the parties (3 A.L.R., 2d,
pp. 812-813). Another authority says that an
unsigned agreement the terms of which are
embodied in a document unconditionally
accepted by both parties is a written contract
(Corbin on Contracts, Vol. I, p. 85).[31]
Applied to the case at bar, the Minutes which
was approved on March 14, 1961 is considered as a
written contract between Aznar, et al., and RISCO for
the reimbursement of the contributions of the
former. As such, the former had a period of ten (10)
years from 1961 within which to enforce the said written
contract. However, it does not appear that Aznar, et al.,
filed any action for reimbursement or refund of their
contributions against RISCO or even against
PNB. Instead the suit that Aznar, et al., brought before
the trial court only on January 28, 1998 was one to
quiet title over the properties purchased by RISCO with
their contributions. It is unmistakable that their right of
action to claim for refund or payment of their
contributions had long prescribed. Thus, it was
reversible error for the Court of Appeals to order PNB
to pay Aznar, et al., the amount of their liens based on
the Minutes with legal interests from the time of PNBs
acquisition of the subject properties.
In view of the foregoing, it is unnecessary for
the Court to pass upon the other issues raised by the
parties.
WHEREFORE, the petition of Aznar, et al., in G.R. No.
172021 is DENIED for lack of merit.
14
 8. RYUICHI YAMAMOTO v. NISHINO LEATHER
INDUSTRIES, INC. and IKUO NISHINO 551 SCRA
447 (2008)
To disregard the separate juridical personality of a corporation,
the wrongdoing or unjust act in contravention of a plaintiff’s legal
rights must be clearly and convincingly established. Also,
without acceptance, a mere offer produces no obligation.
Ryuichi Yamamoto and Ikuo Nishino agreed to enter into a
joint venture wherein Nishino would acquire such number of
shares of stock equivalent to 70% of the authorized capital stock
of the corporation.
However, Nishino and his brother Yoshinobu Nishino acquired
more than 70% of the authorized capital stock. Negotiations
subsequently ensued in light of a planned takeover by Nishino
who would buy-out the shares of stock of Yamamoto who was
advised through a letter that he may take all the equipment/
machinery he had contributed to the company (for his own use
and sale) provided that the value of such machines is
deducted from the capital contributions which will be paid
to him.
However, the letter requested that he give his “comments on
all the above, soonest”.
On the basis of the said letter, Yamamoto attempted to
recover the machineries but Nishino hindered him to do so,
drawing him to file a Writ of Replevin.
RTC: The Trial Court issued the writ.
CA: However, on appeal, Nishino claimed that the properties
being recovered were owned by the corporation and the above-
said letter was a mere proposal which was not yet authorized by
the Board of Directors. Thus, the Court of Appeals reversed the
trial court’s decision despite Yamamoto’s contention that the
company is merely an instrumentality of the Nishinos.
ISSUE:
Whether or not Yamamoto can recover the properties he
contributed to the company in view of the Doctrine of Piercing
the Veil of Corporate Fiction and Doctrine of Promissory
Estoppel.
HELD:
One of the elements determinative of the applicability of the
doctrine of piercing the veil of corporate fiction is that control
must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in
contravention of the plaintiff’s legal rights.
To disregard the separate juridical personality of a corporation,
the wrongdoing or unjust act in contravention of a plaintiff’s legal
rights must be clearly and convincingly established; it cannot be
presumed. Without a demonstration that any of the evils sought
to be prevented by the doctrine is present, it does not
apply. Estoppel may arise from the making of a promise.
However, it bears noting that the letter was followed by a request
for Yamamoto to give his “comments on all the above, soonest.”
What was thus proffered to Yamamoto was not a promise, but a
mere offer, subject to his acceptance. Without acceptance, a
mere offer produces no obligation. Thus, the machineries and
equipment, which comprised Yamamoto’s investment, remained
part of the capital property of the corporation.
It is settled that the property of a corporation is not the property
of its stockholders or members.
Under the trust fund doctrine, the capital stock, property, and
other assets of a corporation are regarded as equity in trust for
the payment of corporate creditors which are preferred over the
stockholders in the distribution of corporate assets.
The distribution of corporate assets and property cannot be
made to depend on the whims and caprices of the stockholders,
officers, or directors of the corporation unless the indispensable
conditions and procedures for the protection of corporate
creditors are followed.
WHEREFORE, the petition is DENIED
9) First Lepanto-Taisho Insurance Corp. (now known as
FLT Insurance Corporation vs. Chevron Philippines, Inc.
(formerly known as Caltex Philippines,Inc.) GRN. 177839, Janj.
18, 2012
GR. No. 177839 January 18, 2012
VILLARAMA, JR., J.:
Before this Court is a Rule 45 Petition assailing the
Decision1 dated November 20, 2006 and Resolution2 dated May
8, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86623,
which reversed the Decision3 dated August 5, 2005 of the
Regional Trial Court (RTC) of Makati City, Branch 59 in Civil
Case No 02-857.
Respondent Chevron Philippines, Inc., formerly Caltex
Philippines, Inc., sued petitioner First Lepanto-Taisho
Insurance Corporation (now known as FLT Prime Insurance
Corporation) for the payment of unpaid oil and petroleum
purchases made by its distributor Fumitechniks
Corporation (Fumitechniks).
Fumitechniks, represented by Ma. Lourdes Apostol, had applied
for and was issued Surety Bond FLTICG (16) No. 01012 by
petitioner for the amount of ₱15,700,000.00. As stated in the
attached rider, the bond was in compliance with the requirement
for the grant of a credit line with the respondent "to guarantee
payment/remittance of the cost of fuel products withdrawn within
the stipulated time in accordance with the terms and conditions
of the agreement." The surety bond was executed on October
15, 2001 and will expire on October 15, 2002.4
Fumitechniks defaulted on its obligation. The check dated
December 14, 2001 it issued to respondent in the amount of
₱11,461,773.10, when presented for payment, was dishonored
for reason of "Account Closed." In a letter dated February 6,
2002, respondent notified petitioner of Fumitechniks’ unpaid
purchases in the total amount of ₱15,084,030.30. In its letter-
reply dated February 13, 2002, petitioner through its counsel,
requested that it be furnished copies of the documents such as
delivery receipts.5 Respondent complied by sending copies of
invoices showing deliveries of fuel and petroleum products
between November 11, 2001 and December 1, 2001.
15
Simultaneously, a letter6 was sent to Fumitechniks demanding
that the latter submit to petitioner the following: (1) its comment
on respondent’s February 6, 2002 letter; (2) copy of the
agreement secured by the Bond, together with copies of
documents such as delivery receipts; and (3) information on the
particulars, including "the terms and conditions, of any
arrangement that [Fumitechniks] might have made or any
ongoing negotiation with Caltex in connection with the
settlement of the obligations subject of the Caltex letter."
In its letter dated March 1, 2002, Fumitechniks through its
counsel wrote petitioner’s counsel informing that it cannot
submit the requested agreement since no such agreement was
executed between Fumitechniks and respondent. Fumitechniks
also enclosed a copy of another surety bond issued by CICI
General Insurance Corporation in favor of respondent to secure
the obligation of Fumitechniks and/or Prime Asia Sales and
Services, Inc. in the amount of ₱15,000,000.00.7 Consequently,
petitioner advised respondent of the non-existence of the
principal agreement as confirmed by Fumitechniks. Petitioner
explained that being an accessory contract, the bond cannot
exist without a principal agreement as it is essential that the copy
of the basic contract be submitted to the proposed surety for the
appreciation of the extent of the obligation to be covered by the
bond applied for.8
On April 9, 2002, respondent formally demanded from petitioner
the payment of its claim under the surety bond. However,
petitioner reiterated its position that without the basic contract
subject of the bond, it cannot act on respondent’s claim;
petitioner also contested the amount of Fumitechniks’ supposed
obligation.9
Alleging that petitioner unjustifiably refused to heed its demand
for payment, respondent prayed for judgment ordering petitioner
to pay the sum of ₱15,080,030.30, plus interest, costs and
attorney’s fees equivalent to ten percent of the total obligation.10
Petitioner, in its Answer with Counterclaim,11 asserted that the
Surety Bond was issued for the purpose of securing the
performance of the obligations embodied in the Principal
Agreement stated therein, which contract should have been
attached and made part thereof.
After trial, the RTC rendered judgment dismissing the complaint
as well as petitioner’s counterclaim. Said court found that the
terms and conditions of the oral credit line agreement between
respondent and Fumitechniks have not been relayed to
petitioner and neither were the same conveyed even during trial.
Since the surety bond is a mere accessory contract, the RTC
concluded that the bond cannot stand in the absence of the
written agreement secured thereby. In holding that petitioner
cannot be held liable under the bond it issued to Fumitechniks,
the RTC noted the practice of petitioner, as testified on by its
witnesses, to attach a copy of the written agreement (principal
contract) whenever it issues a surety bond, or to be submitted
later if not yet in the possession of the assured, and in case of
failure to submit the said written agreement, the surety contract
will not be binding despite payment of the premium.
Respondent filed a motion for reconsideration while petitioner
filed a motion for partial reconsideration as to the dismissal of its
counterclaim. With the denial of their motions, both parties filed
their respective notice of appeal.
The CA ruled in favor of respondent, the dispositive portion of
its decision reads:
WHEREFORE, the appealed Decision is REVERSED and SET
ASIDE. A new judgment is hereby entered ORDERING
defendant-appellant First Lepanto-Taisho Insurance
Corporation to pay plaintiff-appellant Caltex (Philippines) Inc.
now Chevron Philippines, Inc. the sum of P15,084,030.00.
SO ORDERED.12
According to the appellate court, petitioner cannot insist on the
submission of a written agreement to be attached to the surety
bond considering that respondent was not aware of such
requirement and unwritten company policy. It also declared that
petitioner is estopped from assailing the oral credit line
agreement, having consented to the same upon presentation by
Fumitechniks of the surety bond it issued. Considering that such
oral contract between Fumitechniks and respondent has been
partially executed, the CA ruled that the provisions of the Statute
of Frauds do not apply.
With the denial of its motion for reconsideration, petitioner
appealed to this Court raising the following issues:
I. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN ITS INTERPRETATION OF THE
PROVISIONS OF THE SURETY BOND WHEN IT HELD THAT
THE SURETY BOND SECURED AN ORAL CREDIT LINE
AGREEMENT NOTWITHSTANDING THE STIPULATIONS
THEREIN CLEARLY SHOWING BEYOND DOUBT THAT
WHAT WAS BEING SECURED WAS A WRITTEN
AGREEMENT, PARTICULARLY, THE WRITTEN
AGREEMENT A COPY OF WHICH WAS EVEN REQUIRED TO
BE ATTACHED TO THE SURETY BOND AND MADE A PART
THEREOF.
II. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN NOT STRIKING OUT THE
QUESTIONED RESPONDENT’S EVIDENCE FOR BEING
CONTRARY TO THE PAROL EVIDENCE RULE, IMMATERIAL
AND IRRELEVANT AND CONTRARY TO THE STATUTE OF
FRAUDS.
III. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN NOT STRIKING OUT THE
RESPONDENT’S MOTION FOR RECONSIDERATION OF
THE RTC DECISION FOR BEING A MERE SCRAP OF PAPER
AND PRO FORMA AND, CONSEQUENTLY, IN NOT
DECLARING THE RTC DECISION AS FINAL AND
EXECUTORY IN SO FAR AS IT DISMISSED THE
COMPLAINT.
IV. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN REVERSING THE RTC DECISION AND
IN NOT GRANTING PETITIONER’S COUNTERCLAIM.13
The main issue to be resolved is one of first impression: whether
a surety is liable to the creditor in the absence of a written
contract with the principal.
Section 175 of the Insurance Code defines a suretyship as a
contract or agreement whereby a party, called the surety,
guarantees the performance by another party, called the
principal or obligor, of an obligation or undertaking in favor of a
third party, called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued under Act 536,14 as
amended. Suretyship arises upon the solidary binding of a
16
person – deemed the surety – with the principal debtor, for the
purpose of fulfilling an obligation.15 Such undertaking makes a
surety agreement an ancillary contract as it presupposes the
existence of a principal contract. Although the contract of a
surety is in essence secondary only to a valid principal
obligation, the surety becomes liable for the debt or duty of
another although it possesses no direct or personal interest over
the obligations nor does it receive any benefit therefrom. And
notwithstanding the fact that the surety contract is secondary to
the principal obligation, the surety assumes liability as a regular
party to the undertaking.16
The extent of a surety’s liability is determined by the language
of the suretyship contract or bond itself. It cannot be extended
by implication, beyond the terms of the contract.17 Thus, to
determine whether petitioner is liable to respondent under the
surety bond, it becomes necessary to examine the terms of the
contract itself.
Surety Bond FLTICG (16) No. 01012 is a standard form used by
petitioner, which states:
That we, FUMITECHNIKS CORP. OF THE PHILS. of #154
Anahaw St., Project 7, Quezon City as principal and First
Lepanto-Taisho Insurance Corporation a corporation duly
organized and existing under and by virtue of the laws of the
Philippines as Surety, are held firmly bound unto CALTEX
PHILIPPINES, INC. of ______ in the sum of FIFTEEN MILLION
SEVEN HUNDRED THOUSAND
ONLY PESOS (P15,700,000.00), Philippine Currency, for the
payment of which sum, well and truly to be made, we bind
ourselves, our heirs, executors, administrators, successors, and
assigns, jointly and severally, firmly by these presents:
The conditions of this obligation are as follows:
WHEREAS, the above-bounden principal, on 15th day
of October, 2001 entered into [an] agreement with CALTEX
PHILIPPINES, INC. of ________________ to fully and faithfully
a copy of which is attached hereto and made a part hereof:
WHEREAS, said Obligee__ requires said principal to give a
good and sufficient bond in the above stated sum to secure the
full and faithful performance on his part of said agreement__.
NOW THEREFORE, if the principal shall well and truly perform
and fulfill all the undertakings, covenants, terms, conditions, and
agreements stipulated in said agreement__ then this obligation
shall be null and void; otherwise it shall remain in full force and
effect.
The liability of First Lepanto-Taisho Insurance Corporation
under this bond will expire on October 15, 2002__.
x x x x18 (Emphasis supplied.)
The rider attached to the bond sets forth the following:
WHEREAS, the Principal has applied for a Credit Line in the
amount of PESOS: Fifteen Million Seven Hundred thousand
only (₱15,700,000.00), Philippine Currency with the Obligee for
the purchase of Fuel Products;
WHEREAS, the obligee requires the Principal to post a bond to
guarantee payment/remittance of the cost of fuel products
withdrawn within the stipulated time in accordance with terms
and conditions of the agreement;
IN NO CASE, however, shall the liability of the Surety hereunder
exceed the sum of PESOS: Fifteen million seven hundred
thousand only (₱15,700,000.00), Philippine Currency.
NOW THEREFORE, if the principal shall well and truly perform
and fulfill all the undertakings, covenants, terms and conditions
and agreements stipulated in said undertakings, then this
obligation shall be null and void; otherwise, it shall remain in full
force and effect.
The liability of FIRST LEPANTO-TAISHO INSURANCE
CORPORATION, under this Bond will expire on 10.15.01_.
Furthermore, it is hereby understood that FIRST LEPANTO-
TAISHO INSURANCE CORPORATION will not be liable for any
claim not presented to it in writing within fifteen (15) days from
the expiration of this bond, and that the Obligee hereby waives
its right to claim or file any court action against the Surety after
the termination of fifteen (15) days from the time its cause of
action accrues.19
Petitioner posits that non-compliance with the submission of the
written agreement, which by the express terms of the surety
bond, should be attached and made part thereof, rendered the
bond ineffective. Since all stipulations and provisions of the
surety contract should be taken and interpreted together, in this
case, the unmistakable intention of the parties was to secure
only those terms and conditions of the written agreement. Thus,
by deleting the required submission and attachment of the
written agreement to the surety bond and replacing it with the
oral credit agreement, the obligations of the surety have been
extended beyond the limits of the surety contract.
On the other hand, respondent contends that the surety bond
had been delivered by petitioner to Fumitechniks which paid the
premiums and delivered the bond to respondent, who in turn,
opened the credit line which Fumitechniks availed of to
purchase its merchandise from respondent on credit.
Respondent points out that a careful reading of the surety
contract shows that there is no such requirement of submission
of the written credit agreement for the bond’s effectivity.
Moreover, respondent’s witnesses had already explained that
distributorship accounts are not covered by written distribution
agreements. Supplying the details of these agreements is
allowed as an exception to the parol evidence rule even if it is
proof of an oral agreement. Respondent argues that by
introducing documents that petitioner sought to exclude, it never
intended to change or modify the contents of the surety bond but
merely to establish the actual terms of the distribution
agreement between Fumitechniks and respondent, a separate
agreement that was executed shortly after the issuance of the
surety bond. Because petitioner still issued the bond and
allowed it to be delivered to respondent despite the fact that a
copy of the written distribution agreement was never attached
thereto, respondent avers that clearly, such attaching of the
copy of the principal agreement, was for evidentiary purposes
only. The real intention of the bond was to secure the payment
of all the purchases of Fumitechniks from respondent up to the
maximum amount allowed under the bond.
A reading of Surety Bond FLTICG (16) No. 01012 shows that it
secures the payment of purchases on credit by Fumitechniks in
accordance with the terms and conditions of the "agreement" it
entered into with respondent. The word "agreement" has
reference to the distributorship agreement, the principal contract
and by implication included the credit agreement mentioned in
the rider. However, it turned out that respondent has executed
17
written agreements only with its direct customers but not
distributors like Fumitechniks and it also never relayed the terms
and conditions of its distributorship agreement to the petitioner
after the delivery of the bond. This was clearly admitted by
respondent’s Marketing Coordinator, Alden Casas Fajardo, who
testified as follows:
Atty. Selim:
Q : Mr. Fajardo[,] you mentioned during your cross-
examination that the surety bond as part of the
requirements of [Fumitechniks] before the
Distributorship Agreement was approved?
A : Yes Sir.
xxxx
Q : Is it the practice or procedure at Caltex to reduce
distributorship account into writing?
xxxx
A : No, its not a practice to make an agreement.
xxxx
Atty. Quiroz:
Q : What was the reason why you are not reducing your
agreement with your client into writing?
A : Well, of course as I said, there is no fix pricing in
terms of distributorship agreement, its usually with
regards to direct service to the customers which have
direct fixed price.
xxxx
Q : These supposed terms and conditions that you
agreed with [Fumitechniks], did you relay to the
defendant…
A : Yes Sir.
xxxx
Q : How did you relay that, how did you relay the terms
and conditions to the defendant?
A : I don’t know, it was during the time for collection
because I collected them and explain the terms and
conditions.
Q : You testified awhile ago that you did not talk to the
defendant First Lepanto-Taisho Insurance
Corporation?
A : I was confused with the question. I’m talking about
Malou Apostol.
Q : So, in your answer, you have not relayed those
terms and conditions to the defendant First Lepanto,
you have not?
A : Yes Sir.
Q : And as of this present, you have not yet relayed the
terms and conditions?
A : Yes Sir.
x x x x 20
Respondent, however, maintains that the delivery of the bond
and acceptance of premium payment by petitioner binds the
latter as surety, notwithstanding the non-submission of the oral
distributorship and credit agreement which understandably
cannot be attached to the bond.
The contention has no merit.
The law is clear that a surety contract should be read and
interpreted together with the contract entered into between the
creditor and the principal. Section 176 of the Insurance
Code states:
Sec. 176. The liability of the surety or sureties shall be joint and
several with the obligor and shall be limited to the amount of the
bond. It is determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the
obligor and the obligee. (Emphasis supplied.)
A surety contract is merely a collateral one, its basis is the
principal contract or undertaking which it secures.21Necessarily,
the stipulations in such principal agreement must at least be
communicated or made known to the surety particularly in this
case where the bond expressly guarantees the payment of
respondent’s fuel products withdrawn by Fumitechniks in
accordance with the terms and conditions of their agreement.
The bond specifically makes reference to a written agreement.
It is basic that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.22 Moreover, being an
onerous undertaking, a surety agreement is strictly construed
against the creditor, and every doubt is resolved in favor of the
solidary debtor.23 Having accepted the bond, respondent as
creditor must be held bound by the recital in the surety bond that
the terms and conditions of its distributorship contract be
reduced in writing or at the very least communicated in writing
to the surety. Such non-compliance by the creditor (respondent)
impacts not on the validity or legality of the surety contract but
on the creditor’s right to demand performance.
It bears stressing that the contract of suretyship imports entire
good faith and confidence between the parties in regard to the
whole transaction, although it has been said that the creditor
does not stand as a fiduciary in his relation to the surety. The
creditor is generally held bound to a faithful observance of the
rights of the surety and to the performance of every duty
necessary for the protection of those rights.24 Moreover, in this
jurisdiction, obligations arising from contracts have the force of
law between the parties and should be complied with in good
faith.25Respondent is charged with notice of the specified form
of the agreement or at least the disclosure of basic terms and
conditions of its distributorship and credit agreements with its
client Fumitechniks after its acceptance of the bond delivered by
the latter. However, it never made any effort to relay those terms
and conditions of its contract with Fumitechniks upon the
commencement of its transactions with said client, which
obligations are covered by the surety bond issued by petitioner.
Contrary to respondent’s assertion, there is no indication in the
records that petitioner had actual knowledge of its alleged
business practice of not having written contracts with
distributors; and even assuming petitioner was aware of such
practice, the bond issued to Fumitechniks and accepted by
respondent specifically referred to a "written agreement."
As to the contention of petitioner that respondent’s motion for
reconsideration filed before the trial court should have been
deemed not filed for being pro forma, the Court finds it to be
without merit. The mere fact that a motion for reconsideration
reiterates issues already passed upon by the court does not, by
itself, make it a pro forma motion. Among the ends to which a
motion for reconsideration is addressed is precisely to convince
the court that its ruling is erroneous and improper, contrary to
18
the law or evidence; the movant has to dwell of necessity on
issues already passed upon.26 1avvphi1
Finally, we hold that the trial court correctly dismissed
petitioner’s counterclaim for moral damages and attorney’s fees.
The filing alone of a civil action should not be a ground for an
award of moral damages in the same way that a clearly
unfounded civil action is not among the grounds for moral
damages.27 Besides, a juridical person is generally not entitled
to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish or moral
shock.28 Although in some recent cases we have held that the
Court may allow the grant of moral damages to corporations, it
is not automatically granted; there must still be proof of the
existence of the factual basis of the damage and its causal 10. FILIPINAS BROADCASTING NETWORK,
relation to the defendant’s acts. This is so because moral INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL
damages, though incapable of pecuniary estimation, are in the CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE,
category of an award designed to compensate the claimant (AMEC-BCCM) and ANGELITA F. AGO,respondents. G.R.
for actual injury suffered and not to impose a penalty on the No. 141994. January 17, 2005
wrongdoer.29There is no evidence presented to establish the
factual basis of petitioner’s claim for moral damages. Facts:
Petitioner is likewise not entitled to attorney’s fees. The settled Rima & Alegre were host of FBNI radio program “Expose”.
rule is that no premium should be placed on the right to litigate Respondent Ago was the owner of the Medical & Educational
and that not every winning party is entitled to an automatic grant center, subject of the radio program “Expose”. AMEC claimed
of attorney’s fees.30 In pursuing its claim on the surety bond, that the broadcasts were defamatory and owner Ago and school
respondent was acting on the belief that it can collect on the AMEC claimed for damages. The complaint further alleged that
obligation of Fumitechniks notwithstanding the non-submission AMEC is a reputable learning institution. With the supposed
of the written principal contract. expose, FBNI, Rima and Alegre “transmitted malicious
WHEREFORE, the petition for review on certiorari is PARTLY imputations and as such, destroyed plaintiff’s reputation. FBNI
GRANTED. The Decision dated November 20, 2006 and was included as defendant for allegedly failing to exercise due
Resolution dated May 8, 2007 of the Court of Appeals in CA- diligence in the selection and supervision of its employees. The
G.R. CV No. 86623, are REVERSED and SET ASIDE. The trial court found Rima’s statements to be within the bounds of
Decision dated August 5, 2005 of the Regional Trial Court of freedom of speech and ruled that the broadcast was libelous. It
Makati City, Branch 59 in Civil Case No. 02-857 dismissing ordered the defendants Alegre and FBNI to pay AMEC 300k for
respondent’s complaint as well as petitioner’s counterclaim, is moral damages.”
hereby REINSTATED and UPHELD.
ISSUE: Whether or not AMEC is entitled to moral damages.

RULING: YES.
A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish or moral shock. Nevertheless,
AMEC’s claim, or moral damages fall under item 7 of Art – 2219
of the NCC.
This provision expressly authorizes the recovery of moral
damages in cases of libel, slander or any other form of
defamation. Art 2219 (7) does not qualify whether the plaintiff is
a natural or juridical person. Therefore, a juridical person such
as a corporation can validly complain for libel or any other form
of defamation and claim for moral damages. Moreover, where
the broadcast is libelous per se, the law implied damages. In
such a case, evidence of an honest mistake or the want of
character or reputation of the party libeled goes only in mitigation
of damages. In this case, the broadcasts are libelous per se.
thus, AMEC is entitled to moral damages. However, we find the
award P500,000 moral damages unreasonable. The record
shows that even though the broadcasts were libelous, per se,
19
AMEC has not suffered any substantial or material damage to
its reputation. Therefore, we reduce the award of moral
damages to P150k.
11) Marissa R. Unchuan vs. Antonio J.P. Lozada, Anita
Lozada and the Register of Deeds of Cebu City, G.R. No.
172671, April 16, 2009
Facts:
Sisters Anita Lozada Slaughter and Peregrina Lozada
Saribay were the registered co-owners of Lots in Cebu City. The
sisters, who were based in the United States, sold the lots to
their nephew Antonio J.P. Lozada (Antonio) under a Deed of
Sale. Peregrina went to the house of their brother, Dr. Antonio
Lozada (Dr. Lozada) and the latter agreed to advance the
purchase price for Antonio, his nephew.
Pending registration of the deed, petitioner Marissa R. Unchuan
caused the annotation of an adverse claim on the lots. Marissa
claimed that Anita donated an undivided share in the lots to her
under an unregistered Deed of Donation.
Antonio and Anita brought a case against Marissa for
quieting of title with application for preliminary injunction and
restraining order. Marissa for her part, filed an action to declare
the Deed of Sale void.
At the trial, respondents presented a notarized and duly
authenticated sworn statement, and a videotape where Anita
denied having donated land in favor of Marissa. Dr. Lozada testified
that he agreed to advance payment for Antonio in preparation for
their plan to form a corporation. The lots are to be eventually infused
in the capitalization of Damasa Corporation, where he and Antonio
are to have 40% and 60% stake, respectively.
RTC held that Antonio J.P. Lozada is declared the absolute
owner of the properties in question and the Deed of Donation is
declared null and void.
On respondents’ MR, the RTC reinstate the decision. Petitioner
appealed to CA, and affirmed the decision.
Issue: WoN the Court of Appeals erred in upholding
the Decision of the RTC which declared Antonio J.P. Lozada the
absolute owner of the questioned properties.
Held: No
The court found nothing to show that the sale between
the sisters Lozada and their nephew Antonio violated the public
policy prohibiting aliens from owning lands in
the Philippines. Even as Dr. Lozada advanced the money for the
payment of Antonios share, at no point were the lots registered in
Dr. Lozadas name. Nor was it contemplated that the lots be under
his control for they are actually to be included as capital of
Damasa Corporation. According to their agreement, Antonio and
Dr. Lozada are to hold 60% and 40% of the shares in said
corporation, respectively.
Under Republic Act No. 7042, particularly Section 3, a
corporation organized under the laws of the Philippines of which
at least 60% of the capital stock outstanding and entitled to vote
is owned and held by citizens of the Philippines, is considered a
Philippine National. As such, the corporation may acquire
disposable lands in the Philippines. Neither did petitioner present
proof to belie Antonios capacity to pay for the lots subjects of this
case.
12) J.G Summit Holdings, Inc vs. CA,
et al, G.R.No.124293|2005-01-31
Illustrative Cases (2.5) Control Test
FACTS:
The National Investment and Development
Corporation (NIDC), a government corporation, entered into a
Joint Venture Agreement (JVA) with Kawasaki Heavy Industries,
Ltd. for the construction, operation and management of the
Subic National Shipyard, Inc., later became the Philippine
Shipyard and Engineering Corporation (PHILSECO). Under the
JVA, NIDC and Kawasaki would maintain a shareholding
proportion of 60%-40% and that the parties have the right of first
refusal in case of a sale.
Through a series of transfers, NIDC’s rights, title and
interest in PHILSECO eventually went to the National
Government. In the interest of national economy, it was decided
that PHILSECO should be privatized by selling 87.67% of its
total outstanding capital stock to private entities. After
negotiations, it was agreed that Kawasaki’s right of first refusal
under the JVA be “exchanged” for the right to top by five percent
the highest bid for said shares. Kawasaki that Philyards
Holdings, Inc. (PHI), in which it was a stockholder, would
exercise this right in its stead.
During bidding, Kawasaki/PHI Consortium is the
losing bidder. Even so, because of the right to top by 5% percent
the highest bid, it was able to top JG Summit’s bid. JG Summit
protested, contending that PHILSECO, as a shipyard is a public
utility and, hence, must observe the 60%-40% Filipino-foreign
capitalization. By buying 87.67% of PHILSECO’s capital stock
at bidding, Kawasaki/PHI in effect now owns more than 40% of
the stock.
ISSUE: Whether or not Kawasaki/PHI can purchase beyond
40% of PHILSECO’s stocks
HELD: NO.
A shipyard such as PHILSECO being a public utility
as provided by law is therefore required to comply with the 60%-
20
40% capitalization under the Constitution. Likewise, the JVA
between NIDC and Kawasaki manifests an intention of the
parties to abide by this constitutional mandate. Thus, under the
JVA, should the NIDC opt to sell its shares of stock to a third
party, Kawasaki could only exercise its right of first refusal to the
extent that its total shares of stock would not exceed 40% of the
entire shares of stock. The NIDC, on the other hand, may
purchase even beyond 60% of the total shares. As a
government corporation and necessarily a 100% Filipino-owned
corporation, there is nothing to prevent its purchase of stocks
even beyond 60% of the capitalization as the Constitution clearly
limits only foreign capitalization.

Kawasaki was bound by its contractual obligation

under the JVA that limits its right of first refusal to 40% of the
total capitalization of PHILSECO. Thus, Kawasaki cannot
purchase beyond 40% of the capitalization of the joint venture
on account of both constitutional and contractual proscriptions.

12) Wilson P. Gamboa vs. Finance Secretary Margarito

Teves, et.al., GRN 176579, June28, 2011 (discussion on the
types of shares)

TOPIC: CONTROL TEST

CARPIO, J.:
FACTS:
· On 28 November 1928, 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
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 stockholdersRamon 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 20 November 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 to be conducted on 4 December
2006. Subsequently, the public bidding was reset to 8 December
2006, and only 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.

21
· 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.
· Public respondents Finance Secretary Margarito B. Teves,
Undersecretary John P. Sevilla, and PCGG Commissioner
Ricardo Abcede allege the following relevant facts:
On 31 January 2007, the House of Representatives (HR)
Committee on Good Government conducted a public hearing on
the particulars of the then impending sale of the 111,415 PTIC
shares. Respondents Teves and Sevilla were among those who
attended the public hearing. The HR Committee Report No.
2270 concluded that: (a) the auction of the governments
111,415 PTIC shares bore due diligence, transparency and
conformity with existing legal procedures; and (b) First Pacifics
intended acquisition of the governments 111,415 PTIC
shares resulting in First Pacifics 100% ownership of PTIC
will not violate the 40 percent constitutional limit on foreign
ownership of a public utility since PTIC holds only 13.847
percent of the total outstanding common shares of
PLDT.5 On 28 February 2007, First Pacific completed the
acquisition of the 111,415 shares of stock of PTIC.
· Respondent Manuel V. Pangilinan admits the following facts:
(a) the IPC conducted a public bidding for the sale of 111,415
PTIC shares or 46 percent of the outstanding capital stock of
PTIC (the remaining 54 percent of PTIC shares was already
owned by First Pacific and its affiliates); (b) Parallax offered the
highest bid amounting to P25,217,556,000; (c) pursuant to the
right of first refusal in favor of PTIC and its shareholders granted
in PTICs Articles of Incorporation, MPAH, a First Pacific affiliate,
exercised its right of first refusal by matching the highest bid
offered for PTIC shares on 13 February 2007; and (d) on 28
February 2007, the sale was consummated when MPAH paid
IPC P25,217,556,000 and the government delivered the
certificates for the 111,415 PTIC shares.
Respondent Pangilinandenies the other allegations of facts of
petitioner.
· On 28 February 2007, petitioner filed the instant petition for
prohibition, injunction, declaratory relief, and declaration of
nullity of sale of the 111,415 PTIC shares. Petitioner claims,
among others, that the sale of the 111,415 PTIC shares would
result in an increase in First Pacifics common shareholdings in
PLDT from 30.7 percent to 37 percent, and this, combined with
Japanese NTT DoCoMos common shareholdings in PLDT,
would result to a total foreign common shareholdings in PLDT
of 51.56 percent which is over the 40 percent constitutional limit.
ISSUE: Whether 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 (combined total of
common and non-voting preferred shares) of PLDT, a
public utility.
HELD: The term capital in Section 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to vote
in the election of directors. In the present case only to
common shares, and not to the total outstanding capital stock
(common and non-voting preferred shares).
· Section 11, Article XII (National Economy and Patrimony) of
the 1987 Constitution mandates the Filipinization of public
utilities, to wit:
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital
is owned by such citizens xxx
· Father Joaquin G. Bernas, S.J: The provision is [an
express] recognition of the sensitive and vital position of
public utilities both in the national economy and for
national security.26 The evident purpose of the citizenship
requirement is to prevent aliens from assuming control of public
utilities, which may be inimical to the national interest. This
specific provision explicitly reserves to Filipino citizens control of
public utilities, pursuant to an overriding economic goal of the
1987 Constitution: to conserve and develop our patrimony and
ensure a self-reliant and independent national
economy effectivelycontrolled by Filipinos.
· 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,41 and not to the total outstanding capital stock
comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines classifies shares as
common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock
corporations may be divided into classes or series of shares, or
both, any of which classes or series of shares may have such
rights, privileges or restrictions as may be stated in the articles
of incorporation: Provided, That no share may be deprived of
voting rights except those classified and issued as
preferred or redeemable shares, unless otherwise provided
in this Code xxx
· Indisputably, one of the rights of a stockholder is the right to
participate in the control or management of the
corporation.43 This is exercised through his vote in the election
22
 of directors because it is the board of directors that controls or
manages the corporation. In the absence of provisions in the
articles of incorporation denying voting rights to preferred
shares, preferred shares have the same voting rights as
common shares. However, preferred shareholders are often
excluded from any control, that is, deprived of the right to vote
in the election of directors and on other matters, on the theory
that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders. In
fact, under the Corporation Code only preferred or redeemable
shares can be deprived of the right to vote. Common shares
cannot be deprived of the right to vote in any corporate meeting,
and any provision in the articles of incorporation restricting the
right of common shareholders to vote is invalid.
· 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.
· This interpretation is consistent with the intent of the framers
of the Constitution to place in the hands of Filipino citizens the
control and management of public utilities. As revealed in the
deliberations of the Constitutional Commission, capital refers to
the voting stock or controlling interest of a corporation, to wit:
xxx
MR. AZCUNA. But the control can be with the foreigners
even if they are the minority. Let us say 40 percent of the
capital is owned by them, but it is the voting capital,
whereas, the Filipinos own the nonvoting shares. So we can
have a situation where the corporation is controlled by
foreigners despite being the minority because they have
the voting capital. That is the anomaly that would result
here.
MR. BENGZON. No, the reason we eliminated the word
stock as stated in the 1973 and 1935 Constitutions is that
according to Commissioner Rodrigo, there are
associations that do not have stocks. That is why we say
CAPITAL.
MR. AZCUNA. We should not eliminate the phrase
controlling interest.
MR. BENGZON. In the case of stock corporations, it is
assumed.
· In this case, Holders of PLDT preferred shares are explicitly
denied of the right to vote in the election of directors. PLDTs
Articles of Incorporation expressly state that the holders of
Serial Preferred Stock shall not be entitled to vote at any
meeting of the stockholders for the election of directors or
for any other purpose or otherwise participate in any action
taken by the corporation or its stockholders, or to receive notice
of any meeting of stockholders.
On the other hand, holders of common shares are granted the
exclusive right to vote in the election of directors. PLDTs Articles
of Incorporation52 state that each holder of Common Capital
Stock shall have one vote in respect of each share of such stock
held by him on all matters voted upon by the stockholders,
and the holders of Common Capital Stock shall have the
exclusive right to vote for the election of directors and for
all other purposes.53
In short, only holders of common shares can vote in the election
of directors, meaning only common shareholders exercise
control over PLDT. Conversely, holders of preferred shares,
who have no voting rights in the election of directors, do not have
any control over PLDT. In fact, under PLDTs Articles of
Incorporation, holders of common shares have voting rights for
all purposes, while holders of preferred shares have no voting
right for any purpose whatsoever.
Filipinos hold less than 60 percent of the voting stock, and
earn less than 60 percent of the dividends, of PLDT. This
directly contravenes the express command in Section 11, Article
XII of the Constitution that [n]o franchise, certificate, or any other
form of authorization for the operation of a public utility shall be
granted except to x x x corporations x x x organized under the
laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens x x x.
To repeat, (1) foreigners own 64.27% of the common shares of
PLDT, which class of shares exercises the sole right to vote in
the election of directors, and thus exercise control over PLDT;
(2) Filipinos own only 35.73% of PLDTs common shares,
constituting a minority of the voting stock, and thus do not
exercise control over PLDT; (3) preferred shares, 99.44%
owned by Filipinos, have no voting rights; (4) preferred shares
earn only 1/70 of the dividends that common shares earn; (5)
preferred shares have twice the par value of common shares;
and (6) preferred shares constitute 77.85% of the authorized
capital stock of PLDT and common shares only 22.15%. This
kind of ownership and control of a public utility is a mockery of
the Constitution.
xxx
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
States 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, such as the exploitation of natural resources
as well as the ownership of land, educational institutions and
advertising businesses. 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. The Court must perform its solemn duty to
defend and uphold the intent and letter of the Constitution to
ensure, in the words of the Constitution, a self-reliant and
23
 independent national economy effectively controlled by
Filipinos.
Section 11, Article XII of the Constitution, like other provisions
of the Constitution expressly reserving to Filipinos specific areas
of investment, such as the development of natural resources
and ownership of land, educational institutions and advertising
business, is self-executing. There is no need for legislation to
implement these self-executing provisions of the Constitution.
· Under Section 17(4)70 of the Corporation Code, the SEC has
the regulatory function to reject or disapprove the Articles of
Incorporation of any corporation where the required
percentage of ownership of the capital stock to be owned
by citizens of the Philippines has not been complied with
as required by existing laws or the Constitution. Thus, the
SEC is the government agency tasked with the statutory duty to
enforce the nationality requirement prescribed in Section 11,
Article XII of the Constitution on the ownership of public utilities.
This Court, in a petition for declaratory relief that is treated as a
petition for mandamus as in the present case, can direct the
SEC to perform its statutory duty under the law, a duty that the
SEC has apparently unlawfully neglected to do based on the
2010 GIS that respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the
SEC is vested with the power and function to suspend or
revoke, after proper notice and hearing, the franchise or
certificate of registration of corporations, partnerships or
associations, upon any of the grounds provided by law. The
SEC is mandated under Section 5(d) of the same Code with the
power and function to investigate x x x the activities of
persons to ensure compliance with the laws and regulations
that SEC administers or enforces. The GIS that all corporations
are required to submit to SEC annually should put the SEC on
guard against violations of the nationality requirement
prescribed in the Constitution and existing laws. This Court can
compel the SEC, in a petition for declaratory relief that is treated
as a petition for mandamus as in the present case, to hear and
decide a possible violation of Section 11, Article XII of the
Constitution in view of the ownership structure of PLDTs voting
shares, as admitted by respondents and as stated in PLDTs
2010 GIS that PLDT submitted to SEC.
14) Collector of Internal revenue v. Club Filipino, Inc. de
Cebu, 5 SCRA 321 (1962)
G.R. No. L-12719 [5 SCRA 321]
FACTS:
Club Filipino, Inc. de Cebu is a civic corporation with an original
authorized capital stock of P22,000.00, which was subsequently
increased to P200,000.00, among others, to it “provide, operate,
and maintain x x x all sorts of games not prohibited under
general laws and general ordinances; and develop and cultivate
sports of every kind and any denomination for recreation and
healthy training of its members and shareholders.”
The Club owns and operates a club house, a bowling alley, a
golf course, and a bar-restaurant for its members and their
guests, which was a necessary incident to the operation of the
club. The club is operated mainly with funds derived from
membership fees and dues.
As a result of a capital surplus, arising from the increased value
due to the revaluation of its real properties, the Club declared
stock dividends; but no actual cash dividends were distributed
to the stockholders.
A BIR agent discovered that the Club has never paid percentage
tax on the gross receipts of its bar and restaurant. The Collector
of Internal Revenue assessed against and demanded from the
Club the unpaid percentage tax on the gross receipts plus
surcharges. The Club requested for the cancellation of the
assessment. The request having been denied, the Club filed the
instant petition for review.
ISSUE:
Whether or not Club Filipino is a stock corporation.
HELD:
NO. It is a non-stock corporation.
The fact that the capital stock of the respondent Club is divided
into shares does not detract from the finding of the trial court that
it is not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the Club is
engaged in such business is its object or purpose, as stated in
its articles and by-laws. It is a familiar rule that the actual
purpose is not controlled by the corporate form or by the
commercial aspect of the business prosecuted, but may be
shown by extrinsic evidence, including the by-laws and the
method of operation. From the extrinsic evidence adduced, the
Tax Court concluded that the Club is not engaged in the
business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must
be complied with, to wit: (1) a capital stock divided into shares
and (2) an authority to distribute to the holders of such shares,
dividends or allotments of the surplus profits on the basis of the
shares held (sec. 3, Act No. 1459). In the case at bar, nowhere
in its articles of incorporation or by-laws could be found an
authority for the distribution of its dividends or surplus profits.
Strictly speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation law.
24