Commercial Law

19/02/19 Lecture

UY SIULIONG vs. DIRECTOR OF COMMERCE AND INDUSTRY

G.R. No.L-15429. December 1, 1919

FACTS:
Prior to the presentation of the petition the petitioners had been associated together as partners,
which partnership was known as "mercantil regular colectiva, under the style and firm name of
"Siuliong y Cia. That the petitioners herein, who had theretofore been members of said partnership
of "Siuliong y Cia.," desired to dissolve said partnership and to form a corporation composed of the
same persons as incorporators, to be known as "Siulong y Compañia, Incorporada.

While the articles of incorporation of "Siuliong y Cia., Inc." states that its purpose is to acquire and
continue the business, with some of its objects or purposes, of Siuliong & Co., it will be found upon
an examination of the purposes enumerated in the proposed articles of incorporation of "Siuliong
y Cia., Inc.," that some of the purposes of the original partnership of "Siuliong y Cia." have been
omitted.

ISSUE:
Whether or not a corporation can engage in other purposes other than that stated in the purpose
clause of its articles of incorporation.

RULING:
YES. A corporation may be organized under the laws of the Philippine Islands for mercantile
purposes, and to engage in such incidental business as may be necessary and advisable to give
effect to, and aid in, the successful operation and conduct of the principal business. All of the
power and authority included in the articles of incorporation of "Siuliong y Cia., Inc.," enumerated
above in paragraph 4 of the Articles of Incorporation are only incidental to the principal purpose of
said proposed incorporation, to wit: "mercantile business." The purchase and sale, importation
and exportation of the products of the country, as well as of foreign countries, might make it
necessary to purchase and discount promissory notes, bills of exchange, bonds, negotiable
instruments, stock, and interest in other mercantile and industrial associations. It might also
become important and advisable for the successful operation of the corporation to act as agent for
insurance companies as well as to buy, sell and equip boats and to buy and sell other
establishments, and industrial and mercantile businesses. The proposed articles of incorporation
do not authorize the petitioners to engage in a business with more than one purpose, the Court do
not mean to be understood as having decided that corporations under the laws of the Philippine
Islands may not engage in a business with more than one purpose. Such an interpretation might
work a great injustice to corporations organized under the Philippine laws. Such an interpretation
would give foreign corporations, which are permitted to be registered under the laws here and
which may be organized for more than one purpose, a great advantage over domestic corporations.
It was not the intention of the legislature to give foreign corporations such an advantage over
domestic corporations.
CLAVECILLIA vs. ANTILLON
G.R. No.L-22238.February 18, 1967

FACTS:
On June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System
alleging, in effect, that on March 12, 1963, the following message, addressed to the former, was
filed at the latter's Bacolod Branch Office for transmittal thru its branch office at Cagayan de Oro:
“NECAGRO CAGAYAN DE ORO (CLAVECILLA): REURTEL WASHED NOT AVAILABLE REFINED TWENTY
FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG.” The Cagayan de Oro branch office having
received the said message omitted, in delivering the same to the New Cagayan Grocery, the word
"NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the contents and
purport of the same and causing the said addressee to suffer damages. After service of summons,
the Clavecilla Radio System filed a motion to dismiss the complaint on the grounds that it states no
cause of action and that the venue is improperly laid. The New Cagayan Grocery interposed an
opposition to which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on
September 18, 1963, denied the motion to dismiss for lack of merit and set the case for hearing.

Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with
the Court of First Instance praying that the City Judge, Honorable Agustin Antillon, be enjoined
from further proceeding with the case on the ground of improper venue. The respondents filed a
motion to dismiss the petition but this was opposed by the petitioner. Later, the motion was
submitted for resolution on the pleadings.

ISSUE:
Whether or not the place is the proper venue to sue Clavecilla Radio System?

RULING:
NO. In this case, the suit for damages filed with the city court is based upon tort and not upon a
written contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in
inferior courts, provides in its paragraph (b)(3) that when "the action is not upon a written contract,
then in the municipality where the defendant or any of the defendants resides or may be served
with summons." Settled is the principle in corporation law that the residence of a corporation is
the place where its principal office is established. Since it is not disputed that the Clavecilla Radio
System has its principal office in Manila, it follows that the suit against it may properly be filed in
the City of Manila.

The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue
was properly laid on the principle that the appellant may also be served with summons in that city
where it maintains a branch office. The term "may be served with summons" does not apply when
the defendant resides in the Philippines for, in such case, he may be sued only in the municipality
of his residence, regardless of the place where he may be found and served with summons. As any
other corporation, the Clavecilla Radio System maintains a residence which is Manila in this case,
and a person can have only one residence at a time (See Alcantara vs. Secretary of the Interior, 61
Phil. 459; Evangelists vs. Santos, 86 Phil. 387). The fact that it maintains branch offices in some
parts of the country does not mean that it can be sued in any of these places. To allow an action
to be instituted in any place where a corporate entity has its branch offices would create confusion
and work untold inconvenience to the corporation.
ALHAMBRA CIGAR vs. SECURITIES & EXCHANGE COMMISSION
G.R. No. L-23606.July 29, 1968

FACTS:
Incorporated under Philippine laws on January 15, 1912, petitioner Alhambra Cigars Mfg. Co
(ACCMI) was to exist for fifty (50) years from incorporation. Its term of existence expired on January
15, 1962. On that date, it ceased transacting business and entered into a state of liquidation.

Thereafter, a new corporation — Alhambra Industries, Inc. was formed to carry on the business of
Alhambra. On May 1, 1962, Alhambra's stockholders, by resolution, named Angel S. Gamboa
trustee to take charge of its liquidation. On June 20, 1963,within Alhambra's three-year statutory
period for liquidation — Republic Act 3531 was enacted into law amending Section 18 of the
Corporation Law and enabling domestic private corporations to extend their corporate life beyond
the period fixed by the articles of incorporation for a term not to exceed fifty years in any one
instance.

On July 15, 1963 Alhambra's board of directors resolved to amend paragraph "Fourth" of its articles
of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from
its incorporation. Its stockholders, representing more than two-thirds of its subscribed capital
stock, voted to approve the foregoing resolution. SEC, however, returned said amended articles of
incorporation with the ruling that RA 3531 which took effect only on June 20, 1963, cannot be
availed of by the said corporation, for the reason that its term of existence had already expired
when the said law took effect; in short, said law has no retroactive effect."

ISSUE:
Whether or not a corporation may extend its life by amendment of its articles of incorporation
effected during the three-year statutory period for liquidation when its original term of existence
had already expired.

RULING:
NO. Provided by Section 77 of the Corporation Law, the continuance of a "dissolved" corporation
as a body corporate for three years has for its purpose the final closure of its affairs, and no other;
the corporation is specifically enjoined from continuing the business for which it was established.
The liquidation of the corporation's affairs set forth in Section 77 became necessary precisely
because its life had ended. For this reason alone, the corporate existence and juridical personality
of that corporation to do business may no longer be extended. The provisions of RA 3531 merely
empower a corporation to act in liquidation, and not to extend its corporate existence.

NORBERTO ASUNCION, ET AL. vs. MANUEL DE YRIARTE

G.R. No. 9321. September 24, 1914

FACTS:
The proposed incorporators began an action in the CFI to compel the chief of the division of
archives to receive and register said articles of incorporation and to do any and all acts necessary
for the complete incorporation of the persons named in the articles. The court below found in favor
of the defendant and refused to order the registration of the articles mentioned, maintaining and
holding that the defendant, under the Corporation Law, had authority to determine both the
sufficiency of the form of the articles and the legality of the object of the proposed corporation.
This appeal is taken from that judgment.

The chief of the division of archives, the respondent, refused to file the articles of incorporation,
upon the ground that the object of the corporation, as stated in the articles, was not lawful and
that, in pursuance of section 6 of Act No. 1459, they were not registerable. Hence, this action to
obtain a writ of mandamus.

ISSUE: Whether or not the chief of the division of archives has authority, under the Corporation
Law, on being presented with articles of incorporation for registration, to decide not only as to the
sufficiency of the form of the articles, but also as to the lawfulness of the purposes of the proposed
corporation.

RULING:
YES. CORPORATION LAW; POWERS AND DUTIES OF CHIEF OF DIVISION OF ARCHIVES, EXECUTIVE
BUREAU. — The chief of the division of archives, for and on behalf of the division, has authority
under the Corporation Law (Act No. 1459) to determine the sufficiency of the form of articles of
incorporation offered for registration with the division.

Section 6 of the Corporation Law reads in part as follows:

“Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine
Islands, may form a private corporation for any lawful purpose by filing with the division of archives,
patents, copyrights, and trademarks of the Executive Bureau articles of incorporation duly executed
and acknowledged before a notary public, . . .”

Simply because the duties of an official happen to be ministerial, it does not necessarily follow that
he may not, in the administration of his office, determine questions of law. We are of the opinion
that it is the duty of the division of archives, when articles of incorporation are presented for
registration, to determine whether the objects of the corporation as expressed in the articles are
lawful. We do not believe that, simply because articles of incorporation presented for registration
are perfect in form, the division of archives must accept and register them and issue the
corresponding certificate of incorporation no matter what the purpose of the corporation may be
as expressed in the articles. The chief of the division of archives, on behalf of the division, has also
the power and duty to determine from the articles of incorporation presented for registration the
lawfulness of the purposes of the proposed corporation and whether or not those purposes bring
the proposed corporation within the purview of the law authorizing corporations for given
purposes.

MANDAMUS TO COMPEL HIM TO PERFORM DUTIES. — The duties of the chief of the division of
archives, so far as relates to the registration of articles of incorporation, are purely ministerial and
not discretional; and mandamus will lie to compel him to perform his duties under the Corporation
Law if, in violation of law, he refused to perform them.

On the contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial
and that he has no authority to exercise discretion in receiving and registering articles of
incorporation. He may exercise judgment — that is, the judicial function — in the determination of
the question of law referred to, but he may not use discretion. The question whether or not the
objects of a proposed corporation are lawful is one that can be decided one way only. If he err in
the determination of that question and refuse to file articles which should be filed under the law,
that decision is subject to review and correction and, upon proper showing, he will be ordered to
file the articles.

Discretion, it may be said generally, is a faculty conferred upon a court or other official by which he
may decide a question either way and still be right. The power conferred upon the division of
archives with respect to the registration of articles of incorporation is not of that character. It is of
the same character as the determination of a lawsuit by a court upon the merits. It can be decided
only one way correctly.

LOYOLA GRAND VILLAS vs. CA

1997 Aug 7, G.R. No. 117188

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

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

RULING:
NO. Although the Corporation Code requires the filing of by-laws, it does not expressly provide for
the consequences of the non-filing of the same within the period provided for in Section 46. Even
under the express grant of power and authority under Presidential Decree No. 902-A, there can be
no automatic corporate dissolution simply because the incorporators failed to abide by the
required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright
"demise" of corporate existence. Proper notice and hearing are cardinal components of due
process in any democratic institution, agency or society. In other words, the incorporators must be
given the chance to explain their neglect or omission and remedy the same.
PMI COLLEGES vs. NLRC
G.R. No. 121466. August 15, 1997

FACTS:
On July 7, 1991, petitioner, an educational institution offering courses on basic seaman's training
and other marine-related courses, hired private respondent as contractual instructor with an
agreement that the latter shall be paid at an hourly rate of P30.00 to P50.00, depending on the
description of load subjects and on the schedule for teaching the same. Pursuant to this
engagement, private respondent then organized classes in marine engineering.

Initially, private respondent and other instructors were compensated for services rendered during
the first three periods of the abovementioned contract. However, for reasons unknown to private
respondent, he stopped receiving payment for the succeeding rendition of services. This claim of
non-payment was embodied in a letter dated March 3, 1992, written by petitioner's Acting
Director, Casimiro A. Aguinaldo, addressed to its President, Atty. Santiago Pastor, calling attention
to and appealing for the early approval and release of the salaries of its instructors including that
of private respondent.

Private respondent's claims, were resisted by petitioner. Later in the proceedings, PMI Colleges
manifested that Mr. Tomas Cloma Jr., a member of the board of trustees write a letter to the
Chairman of the Board, clarifying the case of Galvan and stating therein, inter alia, that under PMI’s
by-laws only the Chairman is authorized to sign any contract and that Galvan, in any event, failed
to submit documents on the alleged shipyard and plant visits in Cavite Naval Base.

ISSUE:
Whether or not the contract of employment of Galvan valid even if the signatory therein was not
the Chairman of the Board.

RULING:
YES. The contract of employment is valid. The contract remained valid even if the signatory thereon
was not the chairman of the board which allegedly violated petitioner’s by-laws. Since by-laws
operate merely as internal rules among the stockholders, they cannot affect or prejudice third
persons who deal with the corporation, unless they have knowledge of the same. No proof appears
on record that private respondent ever knew anything about the provisions of the said by-laws. In
fact, petitioner itself merely asserts the same without even bothering to attach a copy or excerpt
thereof to show that there is such provision. That this allegation has never been denied to private
respondent nor necessarily signify admission of its existence because technicalities of law and
procedure and the rules obtaining in the courts of law do not strictly apply to proceeding of this
nature.

PEÑA vs. CA
G.R. No. 91478 February 7, 1991

FACTS:
PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the three lots in dispute. PAMBUSCO
mortgaged the lots to the Development Bank of the Philippines (DBP), which were later on
foreclosed.
Rosita Peña was awarded the lots in a foreclosure sale for being the highest bidder. The certificate
of sale was later issued to her and registered in her name.

Subsequently, the Board of Directors of PAMBUSCO, through three out of its five directors, issued
a resolution to assign its right of redemption over the lots in favor of any interested party. The right
of redemption was later on assigned to Marcelino Enriquez, who redeemed the property.

Enriquez then sold the lots to spouses Rising T. Yap and Catalina Lugue-Yap.

Meanwhile, a case involving the validity of the sale to the spouses Yap was pending, and despite
the protestations of Peña as to validity of the PAMBUSCO's assignment of the right of redemption,
the lots were somehow registered in the name of spouses Yap. Despite the registration of the lots
to spouses Yap, Peña retained possession of the property.

Spouses Yap sought to recover the possession of the lots from Peña. The latter countered that she
is now the legitimate owner of the subject lands for having purchased the same in a foreclosure
proceeding instituted by the DBP against PAMBUSCO and no valid redemption having been
effected within the period provided by law.

The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez
was void ab initio for being an ultra vires act of its board of directors and for being without any
valuable consideration, it could not have had any legal effect.

(It should be noted that the by-laws of PAMBUSCO provide that four out of five directors must be
present in a special meeting of the board to constitute a quorum, and that the corporation has
already ceased to operate.)

CFI ruled in favor of Petitioner Peña, but the same was overturned by the CA.

ISSUE:
Whether or not there Peña is entitled to the lots.

RULING:
Yes. The by-laws of a corporation are its own private laws which substantially have the same effect
as the laws of the corporation. They are in effect, written, into the charter. In this sense they
become part of the fundamental law of the corporation with which the corporation and its
directors and officers must comply.

Apparently, only three (3) out of five (5) members of the board of directors of respondent
PAMBUSCO convened by virtue of a prior notice of a special meeting. There was no quorum to
validly transact business since it is required under its by-laws that at least four (4) members must
be present to constitute a quorum in a special meeting of the board of directors.

Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-
laws of the corporation may fix a greater number than the majority of the number of board
members to constitute the quorum necessary for the valid transaction of business. Any number
less than the number provided in the articles or by-laws therein cannot constitute a quorum and
any act therein would not bind the corporation; all that the attending directors could do is to
adjourn.

Moreover, the records show that respondent PAMBUSCO ceased to operate for about 25 years
prior to the board meeting. Being a dormant corporation for several years, it was highly irregular,
for a group of three (3) individuals representing themselves to be the directors of respondent
PAMBUSCO to pass a resolution disposing of the only remaining asset of the corporation in favor
of a former corporate officer.

As a matter of fact, the three (3) alleged directors who attended the special meeting on November
19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general information
sheet. Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the SEC does
not show that the said alleged directors were among the stockholders of respondent PAMBUSCO,
in contravention of the rule requiring a director to own one (1) share in them to qualify as director
of a corporation.

Further, under the Corporation Law, the sale or disposition of any and/or substantially all
properties of the corporation require, in addition to a proper board resolution, the affirmative
votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation
in a meeting duly called for that purpose. This was not complied with in the case at bar.

At the time of the passage of the questioned resolution, respondent PAMBUSCO was insolvent and
its only remaining asset was its right of redemption over the subject properties. Since the
disposition of said redemption right of respondent PAMBUSCO by virtue of the questioned
resolution was not approved by the required number of stockholders, the said resolution, as well
as the subsequent assignment and sale, were null and void.

Lastly, for lack of consideration, the assignment should be construed as a donation. Under Article
725 of the Civil Code, in order to be valid, such a donation must be made in a public document and
the acceptance must be made in the same or in a separate instrument. In the latter case, the donor
shall be notified of the acceptance in an authentic form and such step must be noted in both
instruments. Since assignment to Enriquez shows that there was no acceptance of the donation in
the same and in a separate document, the said deed of assignment is thus void ab initio.

SANTOS vs. NLRC

GR 101699, 13 March 1996

FACTS:
Melvin D. Millena, on 1 October 1985, was hired to be the project accountant for Mana Mining and
Development Corporation's (MMDC) mining operations in Gatbo, Bacon, Sorsogon. On 12 August
1986, Millena sent to Mr. Gil Abaño, the MMDC corporate treasurer, a memorandum calling the
latter's attention to the failure of the company to comply with the withholding tax requirements
of, and to make the corresponding monthly remittances to, the Bureau of Internal Revenue (BIR)
on account of delayed payments of accrued salaries to the company's laborers and employees. In
a letter, dated 8 September 1986, Abaño advised Millena that it was the board's decision that it
stop porduction (operation) in Sorsogon due to the upcoming rainy seasons and the deterioration
of the peace and order in the said area; that the corporation will undertake only necessary
maintenance and repair work and will keep overhead down to the minimum manageable level; and
that the corporation will not need a project accountant until the corporaton resumes full-scale
operations. Millena expressed "shock" over the termination of his employment.

He complained that he would not have resigned from the Sycip, Gores & Velayo accounting firm,
where he was already a senior staff auditor, had it not been for the assurance of a "continuous job"
by MMDC's Eng. Rodillano E. Velasquez. Millena requested that he be reimbursed the "advances"
he had made for the company and be paid his "accrued salaries/claims." The claim was not heeded.
On October 1986, Millena filed with the NLRC Regional Arbitration, Branch No. V, in Legazpi City, a
complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime pay, separation pay and
incentive leave pay against MMDC and its two top officials, namely, Benjamin A Santos (the
President) and Rodillano A. Velasquez (the executive vice-president). In his complaint-affidavit
(position paper), submitted on 27 October 1986, Millena alleged, among other things, that his
dismissal was merely an offshoot of his letter of 12 August 1986 to Abaño about the company's
inability to pay its workers and to remit withholding taxes to the BIR. On 27 July 1988, Labor Arbiter
Fructouso T. Aurellano, finding no valid cause for terminating complaint's employment, ruledthat
a partial closure of an establishment due to losses was a retrenchment measure that rendered the
employer liable for unpaid salaries and other monetary claims.

The Labor Arbiter ordered Santos, et. al. to pay Millena the amount of P37,132.25 corresponding
to the latter's unpaid salaries and advances: P5,400.00 for petitioner's 13th month pay; P3,340.95
as service incentive leave pay; and P5, 400.00 as separation pay. Santos, et. al. were further ordered
to pay Millena 10% of the monetary awards as attorney's fees. Alleging abuse of discretion by the
Labor Arbiter, the company and its co-respondents filed a "motion for reconsideration and /or
appeal." 8 The motion/appeal was forthwith indorsed to the Executive Director of the NLRC in
Manila. In a resolution, dated 04 September 1989, the NLRC affirmed the decision of the Labor
Arbiter. A writ of execution correspondingly issued; however, it was returned unsatisfied for the
failure of the sheriff to locate the offices of the corporation in the addressed indicated. Another
writ of execution and an order of garnishment was thereupon served on Santos at his residence.
Contending that he had been denied due process, Santos filed a motion for reconsideration of the
NLRC's resolution along with a prayer for the quashal of the writ of execution and order of
garnishment. He averred that he had never received any notice, summons or even a copy of the
complaint; hence, he said, the Labor Arbiter at no time had acquired jurisdiction over him. On 16
August 1991, the NLRC dismissed the motion for reconsideration. Santos filed the petition for
certiorari.

ISSUE:
Whether Santos should be made solidarily liable with MMDC.

RULING:
A corporation is a judicial entity with legal personality separated and distinct from those acting for
and, in its behalf, and, in general, from the people comprising it. The rule is that obligations incurred
by the corporation, acting through its directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant,
albeit done sparingly, the disregard of its independent being and the lifting of the corporate veil.
As a rule, this situation might arise a corporation is used to evade a just and due obligation or to
justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the law. Without necessarily
piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a
corporate director, trustee or officer; to wit: 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 (b) 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 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. The case of Santos is way of these exceptional instances. It is not
even shown that Santos has had a direct hand in the dismissal of Millena enough to attribute to
Santos a patently unlawful act while acting for the corporation. Neither can Article 289 of the Labor
Code be applied since this specifically refers only to the imposition of penalties under the Code. It
is undisputed that the termination of Millena's employment has, instead, been due, collectively, to
the need for a further mitigation of losses, the onset of the rainy season, the insurgency problem,
in Sorsogon and the lack of funds to further support the mining operation in Gatbo. It is basic that
a corporation is invested by law with a personally separate and distinct from those of the persons
composing it as well as from that of any, other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all nearly all of the capital stock of
a corporation is not of itself sufficient ground for disregarding the separate corporate personally.
Similar to the case of Sunio vs. National Labor Relations Commission, Santos should not have been
made personally answerable for the payment of Millena's back salaries.

Stockholders of F. Guanzon And Sons, Inc V. Register Of Deeds Of Manila

G.R. No. L-18216, October 30, 1962

FACTS:
Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation
of the assets of the corporation, dissolution and distribution among themselves in proportion to
their shareholdings, as liquidating dividends, corporate assets, including real properties.

Register of Deeds of Manila denied the registration of the certificate of liquidation:

1. The number of parcels not certified to in the acknowledgment;
2. P430.50 Reg. fees need be paid;
3. P940.45 documentary stamps need be attached to the document;
4. The judgment of the Court approving the dissolution and directing the disposition of the
assets of the corporation need be presented

Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5
and 6. Stockholders appealed. They contend that the certificate of liquidation is not a conveyance
or transfer but merely a distribution of the assets of the corporation which has ceased to exist for
having been dissolved.

ISSUE:
Whether or not a certificate merely involves a distribution of the corporation's assets (or should be
considered a transfer or conveyance)

RULING:
NO. affirm the resolution appealed from.
Corporation - juridical person distinct from the members composing it. Properties registered in the
name of the corporation are owned by it as an entity separate and distinct from its members. While
shares of stock constitute personal property, they do not represent property of the corporation.

A share of stock only typifies an aliquot part of the corporation's property, or the right to share in
its proceeds to that extent when distributed according to law and equity but its holder is NOT the
owner of any part of the capital of the corporation nor entitled to possession. The stockholder is
not a co-owner or tenant in common of the corporate property.

MANILA GAS vs. COLLECTOR OF INTERNAL REVENUE

G.R. No. L-42780, January 17, 1936

DECISION:
This is an action brought by the Manila Gas Corporation against the Collector of Internal Revenue
for the recovery of P56,757.37, which the plaintiff was required by the defendant to deduct and
withhold from the various sums paid it to foreign corporations as dividends and interest on bonds
and other indebtedness and which the plaintiff paid under protest. On the trial court dismissing the
complaint, with costs, the plaintiff appealed assigning as the principal errors alleged to have been
committed the following:

1. The trial court erred in holding that the dividends paid by the plaintiff corporation were subject
to income tax in the hands of its stockholders, because to impose the tax thereon would be to
impose a tax on the plaintiff, in violation of the terms of its franchise, and would, moreover, be
oppressive and inequitable.

2. The trial court erred in not holding that the interest on bonds and other indebtedness of the
plaintiff corporation, paid by it outside of the Philippine Islands to corporations not residing therein,
were not, on the part of the recipients thereof, income from Philippine sources, and hence not
subject to Philippine income tax.

The facts, as stated by the appellant and as accepted by the appellee, may be summarized as
follows: The plaintiff is a corporation organized under the laws of the Philippine Islands. It operates
a gas plant in the City of Manila and furnishes gas service to the people of the metropolis and
surrounding municipalities by virtue of a franchise granted to it by the Philippine Government.
Associated with the plaintiff are the Islands Gas and Electric Company domiciled in New York,
United States, and the General Finance Company domiciled in Zurich, Switzerland. Neither of these
last-mentioned corporations is resident in the Philippines.

For the years 1930, 1931, and 1932, dividends in the sum of P1,348,847.50 were paid by the
plaintiff to the Islands Gas and Electric Company in the capacity of stockholders upon which
withholding income taxes were paid to the defendant totalling P40,460.03 For the same years
interest on bonds in the sum of P411,600 was paid by the plaintiff to the Islands Gas and Electric
Company upon which withholding income taxes were paid to the defendant totalling P12,348.
Finally for the stated time period, interest on other indebtedness in the sum of P131,644,90 was
paid by the plaintiff to the Islands Gas and Electric Company and the General Finance Company
respectively upon which withholding income taxes were paid to the defendant totalling P3,949.34.
Some uncertainty existing regarding the place of payment, we will not go into this factor of the
case at this point, except to remark that the bonds and other tokens of indebtedness are not to be
found in the record. However, Exhibits E, F, and G, certified correct by the Treasurer of the Manila
Gas Corporation, purport to prove that the place of payment was the United States and
Switzerland.

The appeal naturally divides into two subjects, one covered by the first assigned error, and the
other by the second assigned error. We shall discuss these subjects and errors in order.

1. Appellant first contends that the dividends paid by it to its stockholders, the Islands Gas and
Electric Company , were not subject to tax because to impose a tax thereon would be to do so on
the plaintiff corporation, in violation of the terms of its franchise and would, moreover, be
oppressive and inequitable. This argument is predicated on the constitutional provision that no law
impairing the obligation of contracts shall be enacted. The particular portion of the franchise which
is invoked provides:

The grantee shall annually on the fifth day of January of each year pay to the City of Manila and the
municipalities in the Province of Rizal in which gas is sold, two and one half per centum of the gross
receipts within said city and municipalities, respectively, during the preceding year. Said payment
shall be in lieu of all taxes, Insular, provincial and municipal, except taxes on the real estate,
buildings, plant, machinery, and other personal property belonging to the grantee.

The trial judge was of the opinion that the instant case was governed by our previous decision in
the case of Philippine Telephone and Telegraph Co., vs. Collector of Internal Revenue ([1933], 58
Phil. 639). In this view we concur. It is true that the tax exemption provision relating to the Manila
Gas Corporation hereinbefore quoted differs in phraseology from the tax exemption provision to
be found in the franchise of the Telephone and Telegraph Company, but the ratio decidendi of the
two cases is substantially the same. As there held and as now confirmed, a corporation has a
personality distinct from that of its stockholders, enabling the taxing power to reach the latter
when they receive dividends from the corporation. It must be considered as settled in this
jurisdiction that dividends of a domestic corporation, which are paid and delivered in cash to
foreign corporations as stockholders, are subject to the payment in the income tax, the exemption
clause in the charter of the corporation notwithstanding.

For the foreign reasons, we are led to sustain the decision of the trial court and to overrule
appellant's first assigned error.

2. In support of its second assignment of error, appellant contends that, as the Islands Gas and
Electric Company and the General Finance Company are domiciled in the United States and
Switzerland respectively, and as the interest on the bonds and other indebtedness earned by said
corporations has been paid in their respective domiciles, this is not income from Philippine sources
within the meaning of the Philippine Income Tax Law. Citing sections 10 (a) and 13 (e) of Act No.
2833, the Income Tax Law, appellant asserts that their applicability has been squarely determined
by decisions of this court in the cases of Manila Railroad Co. vs. Collector of Internal Revenue (No.
31196, promulgated December 2, 1929, nor reported), and Philippine Railway Co. vs. Posadas (No.
38766, promulgated October 30, 1933 [58 Phil., 968]) wherein it was held that interest paid to non-
resident individuals or corporations is not income from Philippine sources, and hence not subject
to the Philippine Income Tax. The Solicitor-General answers with the observation that the cited
decisions interpreted the Income Tax Law before it was amended by Act No. 3761 to cover the
interest on bonds and other obligations or securities paid "within or without the Philippine Islands."
Appellant rebuts this argument by "assuming, for the sake of the argument, that by the amendment
introduced to section 13 of Act No. 2833 by Act No. 3761 the Legislature intended the interest from
Philippine sources and so is subject to tax," but with the necessary sequel that the amendatory
statute is invalid and unconstitutional as being the power of the Legislature to enact.

Taking first under observation that last point, it is to be observed that neither in the pleadings, the
decision of the trial court, nor the assignment of errors, was the question of the validity of Act No.
3761 raised. Under such circumstances, and no jurisdictional issue being involved, we do not feel
that it is the duty of the court to pass on the constitutional question, and accordingly will refrain
from doing so. (Cadwaller-Gibson Lumber Co. vs. Del Rosario [1913], 26 Phil., 192; Macondray and
Co. vs. Benito and Ocampo, P. 137, ante; State vs. Burke [1912], 175 Ala., 561.)

As to the applicability of the local cases cited and of the Porto Rican case of Domenech vs. United
Porto Rican Sugar co. ([1932], 62 F. [2d], 552), we need only observe that these cases announced
good law, but that each he must be decided on its particular facts. In other words, in the opinion
of the majority of the court, the facts at bar and the facts in those cases can be clearly
differentiated. Also, in the case at bar there is some uncertainty concerning the place of payment,
which under one view could be considered the Philippines and under another view the United
States and Switzerland, but which cannot be definitely determined without the necessary
documentary evidence before, us.

The approved doctrine is that no state may tax anything not within its jurisdiction without violating
the due process clause of the constitution. The taxing power of a state does not extend beyond its
territorial limits, but within such it may tax persons, property, income, or business. If an interest in
property is taxed, the situs of either the property or interest must be found within the state. If an
income is taxed, the recipient thereof must have a domicile within the state or the property or
business out of which the income issues must be situated within the state so that the income may
be said to have a situs therein. Personal property may be separated from its owner, and he may be
taxed on its account at the place where the property is although it is not the place of his own
domicile and even though he is not a citizen or resident of the state which imposes the tax. But
debts owing by corporations are obligations of the debtors, and only possess value in the hands of
the creditors. (Farmers Loan Co. vs. Minnesota [1930], 280 U.S., 204; Union Refrigerator Transit
Co. vs. Kentucky [1905], 199 U.S., 194 State Tax on Foreign held Bonds [1873, 15 Wall., 300; Bick
vs. Beach [1907], 206 U. S., 392; State ex rel. Manitowoc Gas Co. vs. Wig. Tax Comm. [1915], 161
Wis., 111; United States Revenue Act of 1932, sec. 143.)

These views concerning situs for taxation purposes apply as well to an organized, unincorporated
territory or to a Commonwealth having the status of the Philippines.

Pushing to one side that portion of Act No. 3761 which permits taxation of interest on bonds and
other indebtedness paid without the Philippine Islands, the question is if the income was derived
from sources within the Philippine Islands.

In the judgment of the majority of the court, the question should be answered in the affirmative.
The Manila Gas Corporation operates its business entirely within the Philippines. Its earnings,
therefore come from local sources. The place of material delivery of the interest to the foreign
corporations paid out of the revenue of the domestic corporation is of no particular moment. The
place of payment even if conceded to be outside of tho country cannot alter the fact that the
income was derived from the Philippines. The word "source" conveys only one idea, that of origin,
and the origin of the income was the Philippines.

In synthesis, therefore, we hold that conditions have not been provided which justify the court in
passing on the constitutional question suggested; that the facts while somewhat obscure differ
from the facts to be found in the cases relied upon, and that the Collector of Internal Revenue was
justified in withholding income taxes on interest on bonds and other indebtedness paid to non-
resident corporations because this income was received from sources within the Philippine Islands
as authorized by the Income Tax Law. For the foregoing reasons, the second assigned error will be
overruled.

Before concluding, it is but fair to state that the writer's opinion on the first subject and the first
assigned error herein discussed is accurately set forth, but that his opinion on the second subject
and the second assigned error is not accurately reflected, because on this last division his views
coincide with those of the appellant. However, in the interest of the prompt disposition of this case,
the decision has been written up in accordance with instructions received from the court.

Judgment affirmed, with the cost of this instance assessed against the appellant.

MAGSAYSAY-LABRADOR vs. COURT OF APPEALS

G.R. No. 58168 December 19, 1989

FACTS:
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate
of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo
an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's
Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint, she alleged that in
1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements,
known as "Pequena Island", covered by TCT No. 3258; that after the death of her husband, she
discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired by her
husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25,
1976 purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258
was cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of
Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of
FILMANBANK; that the foregoing acts were void and done in an attempt to defraud the conjugal
partnership considering that the land is conjugal, her marital consent to the annotation on TCT No.
3258 was not obtained, the change made by the Register of Deeds of the titleholders was effected
without the approval of the Commissioner of Land Registration and that the late Senator did not
execute the purported Deed of Assignment or his consent thereto, if obtained, was secured by
mistake, violence and intimidation. She further alleged that the assignment in favor of SUBIC was
without consideration and consequently null and void. She prayed that the Deed of Assignment
and the Deed of Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT
No. 22431 and to issue a new title in her favor.

ISSUE:
Whether or not petitioner’s ownership in the outstanding capital stock of SUBIC entitles them to a
significant vote in the corporate affairs.

RULING:
NO. The words "an interest in the subject" mean a direct interest in the cause of action as pleaded,
and which would put the intervenor in a legal position to litigate a fact alleged in the complaint,
without the establishment of which plaintiff could not recover.

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.

GOOD EARTH EMPORIUM vs. COURT OF APPEALS

194 SCRA 544, GR No. 82797, February 27, 1991

Facts:
A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes Realty
Inc. as lessor, and Good Earth Emporium Inc. (GEE) as lessee for a term of three years beginning
November 1, 1981 and ending October 31, 1984 at a monthly rental of Php65,000. The building
which was the subject of the contract of lease is a five story building located at the corner of Rizal
Avenue and Bustos Street in Sta. Cruz, Manila. From March 1983 up to the complaint was filed, the
lessee had defaulted in the payment of rentals, as a consequence of which, private respondent
Roces-Reyes Realty Inc. filed on October 14, 1984 an ejectment case against herein petitioners,
Good Earth Emporium Inc. and Lim Ka Ring. After the latter had tendered their responsive pleading,
the lower court on motion of Roces rendered judgement on the pleadings dated April 17, 1984 to
which petitioners were ordered to vacate the premises and surrender the same to the plaintiffs.
On May 16, 1984, Roces filed a motion for execution which was opposed by petitioners on May 28,
1984 simultaneous with the latter’s filing of a notice of appeal. However, on August 15, 1984, GEE
thru counsel filed a motion to withdraw said appeal citing as reason that they are satisfied with the
decision of the lower court.

Issue:
Whether or not the payment made by GEE to the Roces brothers constitute payment to private
respondent corporation which would result to the extinguishment of the obligation.

Ruling:
No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the person
in whose favor the obligation has been constituted, on his successor in interest or any person
authorized to receive it.
In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its
successors in interest nor is there positive evidence that payment was made to a person authorized
to receive it. No such proof was submitted but merely inferred by the RTC from Marcos Roces
having signed the lease contract as President which was witnessed by Jesus Marcos Roces. The
later, however, was no longer President or even an officer of the Roces-Realty Inc at the time he
received the money and signed the sale with pacto de retro. He, in fact denied being in possession
of authority to receive payment for the respondent corporation nor does the receipt show that he
signed in the same capacity as he did in the lease contract at a time when he was President for
respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not make one’s property also of the
corporation, and vice-versa, for they are separate entities. Share owners are in no legal sense the
owner’s corporate property which is owned by the corporation as a distinct legal person. As a
consequence of the separate juridical personality of a corporation, the corporate debt or credit is
not the debt or credit of the stockholder, nor is the stockholder’s debt or credit that of the
corporation.

FELIPE TAYKO vs. NICOLAS CAPISTRANO

G.R. No. L-30188, October 2, 1928

FACTS:
This is a petition for a writ of prohibition enjoining the respondent judge from making cognizance
of certain civil and criminal election cases in which the petitioners are parties.

The petitioners allege that Capistrano was appointed judge of the CFI of Oriental Negros, to hold
office during good behavior and until he should reach the age of 65 years; that he now has reached
that age and, therefore, under the provisions of section 148 of the Administrative Code as
amended, is disqualified from acting as a judge of the Court of First Instance. The petitioners further
allege that in view of the many election protests and criminal cases for violation of the election law
filed in the CFI of Oriental Negros arising in the from the last election, de la Costa was duly
designated and acted as auxiliary judge. There was an understanding that de la Costa would hear
and take cognizance of all election protests and criminal actions then pending or to filed arising
from the said last general election, and that Capistrano would try and hear the ordinary cases
pending. Notwithstanding the understanding, Capistrano tried and is still trying to take cognizance
of the election protests an criminal actions in said court; declared in open court that he will try the
criminal cases for the reason that de la Costa refused to try the same on the ground that the
preliminary investigations were held before him, when, in truth and in fact, the d la Costa did not
make the statement imputed to him and was and is still willing to try the election protests and
criminal cases for violation of the election law pending in the court. Additionally that Capistrano, in
spite of the fact that he was holding and is now pretending to hold the office of judge took great
interest and active part in the filing of criminal charges against the petitioners to the unjustifiable
extent of appointing a deputy fiscal, who then filed the proper information, when the provincial
fiscal refused to file criminal charges against the petitioners for violation of the election law for lack
of sufficient evidence to sustain the same. Finally, that Capistrano is neither a judge de jure nor de
facto, but that he continues to hold the office of judge and pretends to be duly qualified and acting
judge of the said province; and that he has tried, and continues to try, to act as such judge. Hence
this petition.
ISSUE:
Whether or not Capistrano, upon reaching the age of 65, can still continue public office? Is he
considered a de facto judge?

RULING:
Briefly defined, a de facto judge is one who exercises the duties of a judicial office under color of
an appointment or election thereto (Brown vs. O'Connell, 36 Conn., 432). He differs, on the one
hand, from a mere usurper who undertakes to act officially without any color of right, and on the
other hand, from a judge de jure who is in all respects legally appointed and qualified and whose
term of office has not expired (State vs. Carroll, 38 Conn., 449; Denny vs. Matton, 2 Allen [Mass.],
361; Van Slyke vs. Farmers' Mut. Fire Ins. Co., 39 Wis., 390). Apart from any constitutional or
statutory regulation on the subject there seems to be a general rule of law that an incumbent of
an office will hold over after the conclusion of his term until the election and qualification of a
successor (22 R. C. L., pp. 554-5). When a judge in good faith remains in office after his title has
ended, he is a de facto officer (Sheehan's Case, 122 Mass., 445).

Applying the principles stated to the facts set forth in the petition before us, we cannot escape the
conclusion that, on the assumption that said facts are true, the respondent judge must be
considered a judge de facto. His term of office may have expired, but his successor has not been
appointed, and as good faith is presumed, he must be regarded as holding over in good faith. The
contention of counsel for the petitioners that the auxiliary judge present in the district must be
considered the regular judge seems obviously erroneous. Accordingly, it is a well-established
principle, dating from the earliest period and repeatedly confirmed by an unbroken current of
decisions, that the official acts of a de facto judge are just as valid for all purposes as those of a de
jure judge, so far as the public or third persons who are interested therein are concerned. The
principle is one founded in policy and convenience, for the right of no one claiming a title or interest
under or through the proceedings of an officer having an apparent authority to act would be safe,
if it were necessary in every case to examine the legality of the title of such officer up to its original
source, and the title or interest of such person were held to be invalidated by some accidental
defect or flaw in the appointment, election or qualification of such officer, or in the rights of those
from whom his appointment or election emanated; nor could the supremacy of the laws be
maintained, or their execution enforced, if the acts of the judge having a colorable, but not a legal
title, were to be deemed invalid. As in the case of judges of courts of record, the acts of a justice
de facto cannot be called in question in any suit to which he is not a party. Petition is sustained.

FERNANDEZ vs. P. CUERVA

GR No. L-21114, Nov 28, 1967

DECISION
This is an appeal from the order of the Court of First Instance of Manila, dated January 29, 1963, in
its Civil Case No. 52946, dismissing the complaint upon the ground that the action in the first two
causes of action had prescribed and that it had no jurisdiction over the third cause of action.

It appears that plaintiff Federico Fernandez was employed as salesman by defendant P. Cuerva &
Co. from March, 1949 to October, 1959. After his separation from the service, plaintiff filed a claim,
on July 26, 1960, before Regional Office No. 4 of the Department of Labor, docketed as L. S. Case
No. 2940, to recover un-paid salaries and commissions, and separation pay.
During the pendency of said case, or on December 17, 1962, plaintiff again instituted a similar
complaint against the same defendant with the Court of First Instance of Manila (Civil Case No.
52946) alleging, among others, that he was employed by defendant company as salesman in
March, 1949 with a salary of P200.00 per month; that beginning June, 1955 until the termination
of his services in October, 1959, his salary was in-creased to P300.00 monthly and was given, in
addition, a commission of 10% on his sales; that the increase of P100.00 a month and the 10%
commission were not actually received by him as there was a verbal understanding be-tween him
and defendant company that the same would be retained by the latter as bond or deposit for the
goods being handled by the former; and that because plaintiff was separated from service in
October, 1959, he sought to recover the sum of P5,300.00 representing the P100.00 monthly
deductions from his salary; P4,770.00 cor-responding to his 10% commissions that were withheld,
and P1,500.00 as separation pay, or the total sum of P11,570.00. These three items were
respectively the subject mat-ter of the first, second and third causes of action of the complaint.

On January 2, 1963, defendant filed a motion to dismiss the complaint upon the grounds that the
actions had prescribed and that the court had no jurisdiction over the case. The court below, after
allowing the par-ties to submit their respective memorandum on the ques-tions of prescription and
jurisdiction, dismissed the case, in an order issued on January 29, 1963, holding that because the
claim of plaintiff in the first two causes of action amounting to P10,070.00 represented the sum
total of unauthorized deductions from his salaries and withheld commissions, under Section 10,
paragraph (f) of Republic Act No. 602, otherwise known as the Mini-mum Wage Law, the action to
recover the same was already barred under Section 17 of said Act inasmuch as it was not brought
within three years from the time the right of action accrued; and that because the remaining claim
of plaintiff was limited to his separation pay amounting only to P1,500.00, the action to collect the
same was not within the original jurisdiction of the court.

On February 1, 1963, plaintiff moved to reconsider the above-mentioned order, advancing as his
main argument the fact that his having filed a similar claim with Regional Office No. 4 of the
Department of Labor had sus-pended the running of the prescriptive period insofar as his claim for
refund of unauthorized deductions and with-held commissions was concerned - which were the
subject matters of the first and second causes of action that were dismissed by the court. The
defendant filed an opposition to the motion for reconsideration. In an order dated February 15,
1963, the court denied plaintiff's motion for reconsideration. Hence this appeal by the plaintiff
direct to this Court on purely questions of law.

We are in accord with the court a quo that the law applicable to the case at bar is Republic Act 602
because the bond or deposit sought to be recovered by appellant was actually the sum total of the
unauthorized deductions from his salaries and withheld commissions under Section 10 thereof.
Under Section 17 of said law, "any action * * * to enforce any cause of action under this Act may
be commenced within three years after the cause of action accrued, and every such action shall be
for-ever barred unless commenced within three years after the cause of action accrued." Since a
right of action ac-crues only from the moment the right to commence the ac-tion comes into
existence, and prescription begins to run from that time, the question to be resolved is: When did
the right of action of plaintiff accrue?

To answer the foregoing query, it is meet to recall that while the amounts withheld by defendant
were actually deductions from plaintiff's salaries and un-paid commissions, they were, however,
constituted as a bond or a deposit to answer for any liability that he might incur in connection with
the goods handled by him. The bond and/or deposit was thus answerable for mer-chandise
entrusted to plaintiff during the period of his employment with defendant. It was, therefore, not
fea-sible for plaintiff to demand every month or every payday, or during the period of his
employment with the com-pany the return or refund of those amounts withheld as contended by
defendant, because the undertaking for which the bond or deposit was constituted was still
subsisting. And so, the right of plaintiff to commence an action for the return or refund of the
amounts representing such bond or deposit would accrue only when the same was no longer
needed, and the time when it was no longer needed only came in October, 1959 when plaintiff was
separated from the service. Having ceased to be employed by the defendant, the bond put up by
plaintiff thereby became unnecessary or useless.

It would seem, however, that even if We count from October, 1959 in computing the prescriptive
period, plain-tiff's action to recover the amount held by defendant as bond is already barred
because more than three years had elapsed by the time plaintiff instituted the present case in the
court below on December 17, 1962. The record, how-ever, shows that on July 26, 1960, plaintiff
filed a si-milar claim against the defendant with Regional Office No. 4 of the Department of Labor.

At this juncture, the question posed is: Did the filing by plaintiff of that claim with the regional
of-fice of the Department of Labor suspend the running of the period of prescription?

Defendant answers the question in the negative. While defendant does not question the
applicability to the case at bar of Article 1155 of the Civil Code, which provides that the
"prescription of actions is interrupted when they are filed before the Court," nevertheless, it
contends that inasmuch as plaintiff's claim was lodged with the regional office of the Department
of Labor, which is not a court, the same could not be considered a judi-cial demand that would
suspend the running of the pres-criptive period.

We do not agree with defendant. It is true that the claim filed by plaintiff with the regional office
of the Department of Labor is not a judicial demand in the strict sense of the term "judicial demand"
because the same was not instituted in a court of justice. Judicial notice, however, should be taken
that on December 10, 1956, Reorganization Plan No. 20-A was promulgated pursuant to Republic
Act 997, and under Section 25 of said reorganiza-tion plan each regional office of the Department
of Labor was vested with original and exclusive jurisdiction over all cases affecting all money claims
arising from viola-tions of labor standards on working conditions such as unpaid wages,
underpayment, overtime and separation pay, etc., to the exclusion of courts.[3] Consequently,
when plaintiff wanted to enforce his claim after his dismissal from the service in October, 1959, he
had no choice but to file the same with regional Office No. 4 of the Department of Labor which was
the agency then empowered to take cognizance of the claim. He could not institute the action to
recover his claim in the court of justice because of the provisions of Reorganization Plan No. 20-A.
At least it may be said that on July 26, 1960, when plaintiff filed his claim with Regional Office No.
4 of the Department of Labor, he acted in accordance with the procedure that was then prescribed
under authority of law. Under the circumstances, we believe that the filing by plaintiff of his claim
before the regional office of the Department of La-bor had the attributes of a judicial demand. And
We say this because under the provisions of Section 25 of Reorganization Plan No. 20-A each
regional office of the Department of Labor was invested with jurisdiction, similar to that of a court,
to receive, determine, and adjudicate money claims arising out of employer-employee relations as
specified in said section. We quote Section 25 of Reorganization Plan No. 20-A:
"Each Regional Office shall have original and exclusive jurisdiction over all cases affecting all money
claims arising from violations of labor standards on working conditions, including but not restrictive
to: unpaid wages, underpayment, overtime, separation pay, and maternity leave of
employees/laborers, and unpaid wages, overtime, separa-tion pay, vacation pay, and payment for
medical services of domestic held." (Em-phasis supplied)
It can be gathered from a reading of the above-quoted Section 25 of Reorganization Plan No. 20-A
that some sort of judicial powers was conferred upon the regional offices of the Department of
Labor over money claims mentioned in said section. Certainly, it can be considered that filing a
money claim before a regional office of the Department of Labor pursuant to Section 25 of
Reorganization Plan No. 20-A is like filing a complaint in court to enforce said money claim. We
believe that the filing of a claim before an administrative agency which is vested with authority to
decide said claim would pro-duce the effect of a judicial demand for the purpose of interrupting
the running of the period of prescription. The purpose of the law on prescription and the statute
of limitations is to protect the person who is diligent and vigilant in asserting his right, and
conversely to punish the person who sleeps on his right.[4] Indeed, it cannot be said that in the
case before Us the plaintiff had slept on his right, because shortly after he was separated from the
service by the defendant he filed his claim before the agency of the government that was at the
time clothed with exclusive authority to pass upon his claim.

We have taken note of the fact that on June 30, 1961, Section 25 of Reorganization Plan No. 20-A
had been declared unconstitutional by this Court in the case of Corominas, et al. v. The Labor
Standards Commission, et al., supra. It appears, however, that the plaintiff had filed his claim
before Regional Office No. 4 of the Department of Labor on July 26, 1960, or about one year before
said Section 25 had been declared unconstitutional. The circumstance that Section 25 of
Reorganization Plan No. 20-A had been declared unconstitutional should not be counted against
the defendant in the present case. In the case of Manila Motor Co., Inc. v. Flores, 99 Phil., 738, this
Court upheld the right of a party under the Moratorium Law which had accrued in his favor before
said law was declared unconstitutional by this Court in the case of Rutter v. Esteban, 93 Phil., 68.
This Court, in its decision in the Manila Motor case, quoted the following doctrine:

"[t]here are several instances wherein courts, out of equity, have relaxed its operation (cf. notes in
Cooley's Consti-tutional Limitations 8th ed., p. 383 and Notes 53 A.L.R., 273) or qualified its effects
'since the actual existence of a statute prior to such declaration is an operative fact, and may have
consequences which cannot justly be ignored' (Chicot County vs. Baster, 308 U.S., 371) and a
realistic approach is eroding the general doctrine (Warring vs. Colpoys, 136 Am. Law Rep., 1025,
1030)."
We believe that it is only fair and just that the fore-going doctrine should be applied in favor of the
plain-tiff in the present case.

We have noted in the record that it was precisely because Section 25 of Reorganization Plan No.
20-A was declared unconstitutional by this Court on June 30, 1961 that the plaintiff, without
awaiting the action of Region-al Office No. 4 of the Department of Labor on the claim that he filed
on July 26, 1960, instituted his action in the present case in the court below on December 17, 1962.
The move of plaintiff was precisely intended to protect his right of action from the adverse effect
of the deci-sion of this Court. The Regional Office No. 4 of the Department of Labor dismissed
plaintiff's claim on Jan-uary 16, 1963 upon the ground that it had no more juris-diction to pass upon
the claim as a result of the ruling of this Court in the Corominas case.
Considering that from October, 1959 when plaintiff was separated from the service up to July 26,
1960 when he filed his claim with Regional Office No. 4 of the De-partment of Labor only eight
months had elapsed, and that since July 26, 1960 until the filing of the complaint in the court below
on December 17, 1962 the running of pres-criptive period was deemed interrupted, it is clear that
plaintiff's action to enforce his claim was not yet bar-red by the statute of limitations when he filed
his com-plaint in the court below. Plaintiff's action may be considered as brought before the court
still within the period of three years from the time his right of ac-tion accrued in accordance with
the provisions of Sec-tion 17 of Republic Act 602 (Minimum Wage Law). Only about nine months
of the three-year period provided in Section 17 of Republic Act 602 may be considered as hav-ing
lapsed when plaintiff commenced his action in the court below. And considering further that the
amount sought to be recovered in the complaint is more than P10,000.00, it follows that the court
a quo has the exclusive and original jurisdiction to entertain the action of the plaintiff. The lower
court, therefore, erred when it dismissed plaintiff's complaint.

WHEREFORE, the order appealed from is set aside, and this case is remanded to the court below
for further proceedings, with costs against the defendant-appellee.

IT IS SO ORDERED.

HALL vs. PICCIO

G.R. No. L-2598. June 29, 1950

FACTS:
In 1947, the petitioners and the respondents signed and acknowledged in Leyte, the article of
incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general
lumber business to carry on as general contractors, operators and managers, etc. Attached to the
article was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and
fully paid with certain properties transferred to the corporation described in a list appended
thereto.

Immediately after the execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.

In 1947, the said articles of incorporation were filed in the office of the SEC for the issuance of the
corresponding certificate of incorporation. Thereafter, pending action on the articles of
incorporation by the SEC, the respondents filed before the Court of First Instance of Leyte a civil
case, alleging among other things that the Far Eastern Lumber and Commercial Co. was an
unregistered partnership; that they wished to have it dissolved because of bitter dissension among
the members, mismanagement and fraud by the managers and heavy financial losses. The
petitioners alleged that the court had no jurisdiction over the civil case decree the dissolution of
the company, because it being a de facto corporation, dissolution thereof may only be ordered in
a quo warranto proceeding instituted in accordance with section 19 of the Corporation Law.

ISSUES:
Whether or not the Far Eastern Lumber and Commercial Co., Inc. is a de facto corporation.

RULING:
NO. Inasmuch as the Far Eastern Lumber and Commercial Co., is a de facto corporation, section 19
of the Corporation Law applies, and therefore the court had not jurisdiction to take cognizance of
said civil case.

There are least two reasons why this section does not govern the situation. (1) First, not having
obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its
stockholders — may not probably claim "in good faith" to be a corporation.

Under our statue it is to be noted that it is the issuance of a certificate of incorporation by the
Director of the Bureau of Commerce and Industry (now SEC) which calls a corporation into being.
The immunity if collateral attack is granted to corporations "claiming in good faith to be a
corporation under this act." Such a claim is compatible with the existence of errors and
irregularities; but not with a total or substantial disregard of the law. Unless there has been an
evident attempt to comply with the law the claim to be a corporation "under this act" could not be
made "in good faith."

(2) Second, this is not a suit in which the corporation is a party. This is a litigation between
stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the
existence of a de jure corporation may be terminated in a private suit for its dissolution between
stockholders, without the intervention of the state.

ASIA BANKING CORPORATION vs. STANDARD PRODUCTS, CO., INC

G.R. No. 22106, September 11, 1924

FACTS:
Standard Products, Co., Inc., was indebted to Asia Banking Corporation for the amount of
P37,757.22. To secure its indebtedness, it executed a promissory note in favor of plaintiff-appellee.
Upon demand for the balance due, the respondent-appellant failed to pay. Hence an action was
brought by plaintiff-appellee to recover the sum of P24,736.47. The court rendered judgment in
favor of the plaintiff-appellee for the sum demanded in the complaint, with interest on the sum of
P24,147.34 from November 1, 1923, at the rate of 10 per cent per annum, and the costs. Hence
this appeal by the respondent-appellant. At the trial of the case the plaintiff failed to prove
affirmatively the corporate existence of the parties and the appellant insists that under these
circumstances the court erred in finding that the parties were corporations with juridical
personality and assigns same as reversible error.

ISSUE:
Whether or not respondent is estopped from denying the corporate existence of the plaintiff.

RULING:
The general rule is that in the absence of fraud a person who has contracted or otherwise dealt
with an association in such a way as to recognize and in effect admit its legal existence as a
corporate body is thereby estopped to deny its corporate existence in any action leading out of or
involving such contract or dealing, unless its existence is attacked for cause which have arisen since
making the contract or other dealing relied on as an estoppel and this applies to foreign as well as
to domestic corporations. The defendant having recognized the corporate existence of the plaintiff
by making a promissory note in its favor and making partial payments on the same is therefore
estopped to deny said plaintiff's corporate existence. It is, of course, also estopped from denying
its own corporate existence. Under these circumstances it was unnecessary for the plaintiff to
present other evidence of the corporate existence of either of the parties. It may be noted that
there is no evidence showing circumstances taking the case out of the rules stated.

SALVATIERRA v GARLITOS
103 Phil 757, GR No L-11442, May 23, 1958

Facts:
Manuela T. Vda. de Salvatierra is the owner of a parcel of land located at Maghobas, Poblacion,
Burauen, Teyte. On March 7, 1954, Salvatierra entered into a contract of lease with the Philippine
Fibers Producers Co., Inc., allegedly a corporation "duly organized and existing under the laws of
the Philippines, with business address in Burauen, Leyte, and represented by Mr. Segundino Q.
Refuerzo, the President". The contract provided that the lifetime of the lease would 10 years, that
the land will be planted with kenaf, ramie or other crops suitable to the soil; that the lessor would
be entitled to 30% of the net income from the harvest of any, crop without being responsible for
the cost of production thereof; and that after every harvest, the lessee was bound to declare at
the earliest possible time the income derived and to deliver the corresponding share due the lessor.
However, the obligations imposed were not complied with by the alleged corporation. Salvatierra
filed for accounting, rescission and damages. She claimed that the defendant corporation planted
the land with kenaf but it refused to render an accounting of the income it derived and to deliver
the lessor's share (estimated gross income was P4,500 and the deductible expenses amounted to
P1,000).

The court granted plaintiff's prayer and required defendants to render a complete accounting of
the harvest of the land and to deliver 30% of the net income realized from the last harvest. If the
defendant’s fail to abide by this rule, the gross income would be fixed at P4,200 or a net income of
P3,200 after deducting the expenses for production, 30% of which or P960 was due the plaintiff
pursuant to the contract of lease, which was declared rescinded.

The court then issued a issued a writ of execution causing the attachment of 3 parcels of land
registered in the name of Segundino Refuerzo as there was no available property of the Philippine
Fibers Producers Co., Inc., for attachment. Refuerzo claimed that the decision was null and void
with respect to him, there being no allegation in the complaint pointing to his personal liability and
that the liability be limited to the defendant corporation. The court then ordered the release of all
properties belonging to Refuerzo.

Issue:
Whether or not Refuerzo should be held liable to Salvatierra?

Ruling:
Refuerzo is liable to Salvatierra. Refuerzo, as president of the unregistered corporation Philippine
Fibers Producers Co., Inc., was the moving spirit behind the consummation of the lease agreement
by acting as its representative. His liability cannot be limited or restricted that imposed upon
corporate shareholders. In acting on behalf of a corporation which he knew to be unregistered, he
assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of
such transaction.
Refuerzo’s defense is premised on the fact that the complaint contained no allegation which holds
him personally liable, for while he was a signatory to the contract, he did so in his capacity as
president of the corporation. Salvatierra, on the other hand, contends that her failure to specify
Refuerzo’s personal liability was because she was under the impression that the Philippine Fibers
Producers Co., Inc., represented by Refuerzo was a duly registered corporation as appearing in the
contract, but a subsequent inquiry from the Securities and Exchange Commission yielded
otherwise.

While as a general rule a person who has contracted or dealt with an association in such a way as
to recognize its existence as a corporate body is estopped from denying the same in an action
arising out of such transaction or dealing, yet this doctrine may not be held to be applicable where
fraud takes a part in the said transaction. In the instant case, on plaintiff's charge that she was
unaware of the fact that the Philippine Fibers Producers Co., Inc., had no juridical personality,
defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the
execution of the contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de
Salvatierra was really made to believe that such corporation was duly organized in accordance with
law.

A registered corporation has a juridical personality separate and distinct from its component
members such that a corporation cannot be held liable for the personal indebtedness of a
stockholder even if he should be its president and conversely, a stockholder or member cannot be
held personally liable for any financial obligation of the corporation in excess of his unpaid
subscription. But this rule is understood to refer merely to registered corporations and cannot be
made applicable to the liability of members of an unincorporated association. The reason behind
this doctrine is obvious - since an organization which before the law is non-existent has no
personality and would be incompetent to act and appropriate for itself the powers and attribute
of a corporation as provided by law; it cannot create agents or confer authority on another to act
in its behalf; thus, those who act or purport to act as its representatives or agents do so without
authority and at their own risk. And as it is an elementary principle of law that a person who acts
as an agent without authority or without a principal is himself regarded as the principal, possessed
of all the rights and subject to all the liabilities of a principal, a person acting or purporting to act
on behalf of a corporation which has no valid existence assumes such privileges and obligations
and comes personally liable for contracts entered into or for other acts performed as such, agent.

ALBERT vs. UNIVERSITY PUBLISHING CO., INC.

G.R. No. L-19118, January 30, 1965

FACTS:
In the original case, the court had awarded P P15,000.00 in favor of the petitioner for damages
arising out of a breach of contract. Such breach of contract arose when the publishing company
failed to pay the petitioner the agreed amount for latter to have the exclusive right to publish his
revised Commentaries on the Revised Penal Code and for his share in previous sales of the book's
first edition. The order became final and executory. A writ of execution was issued against the
company, however the petitioner petitioned for a writ of execution against Jose M. Aruego, as the
real defendant stating, plaintiff's counsel and the Sheriff of Manila discovered that there is no such
entity as University Publishing Co., Inc. and no such entity is registered with the SEC.
This case asks the court whether or not the judgment may be executed against Jose M. Aruego,
supposed President of University Publishing Co., Inc., as the real defendant.

ISSUE:
Whether or not the judgment may be executed against Jose M. Aruego, supposed President of
University Publishing Co., Inc., as the real defendant.

RULING:
NO. The Court ruled that the doctrine of corporation by estoppel was not applicable. Although the
rule is that a person acting or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent, in this case, Aruego was not named as a
defendant. Since he was not named, he could not be served and be made liable for the claim
because to do so would violate his right to due process. He was not given the chance to defend
himself and be heard during trial.

Wherefore, the order was reversed and set aside and was remanded lower court to hold
supplementary proceedings for the purpose of carrying the judgment into effect against University
Publishing Co., Inc. and/or Jose M. Aruego.

LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.

G.R. No. 136448, November 3, 1999

FACTS:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries,
Inc. They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. They, however, failed to pay; hence, private
respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a
writ of preliminary attachment. The suit was brought against the three in their capacities as general
partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation
Yao and Chua admitted liability while Lim filed his answer. Trial court rendered decision ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and
Lim, as general partners, were jointly liable to pay respondent.

ISSUE:
Whether or not Lim should be made jointly liable with Yao and Chua.

RULING:
YES. Lim asserts that he should not be made liable because there was no partnership existing
between them.

The court ruled that there exists a partnership between them. It is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the
sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase
and the repair of which were financed with borrowed money, fell under the term "common fund"
under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also shows that they had indeed
formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also
to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded.

UMALI vs. COURT OF APPEALS

G.R. No. 89561. September 13, 1990

FACTS:
Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo family is the
owners of a parcel of land located in Lucena City which was given as security for a loan from the
Development Banks of the Philippines. For their failure to pay the amortization, foreclosure of the
said property was about to be initiated. This problem was made known to Santiago Rivera, who
proposed to them the conversion into subdivision of the four (4) parcels of land adjacent to the
mortgaged property to raise the necessary fund. The idea was accepted by the Castillo family and
to carry out the project, a Memorandum of Agreement was executed by and between Slobec Realty
and Development, Inc., represented by its President Santiago Rivera and the Castillo family. In this
agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of P70,000.00
immediately after the execution of the agreement and to pay the additional amount of
P400,000.00 after the property has been converted into a subdivision. Rivera, armed with the
agreement, approached Mr. Modesto Cervantes, President of defendant Bormaheco, and
proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8. Subsequently, a Sales
Agreement was executed on December 28, 1970, which was accepted by the latter and executed
Sales Agreement. The balance of the consideration was secured by a surety bond from ICP
(Insurance Corporation of the Phil.) which was in turn secured by a mortgage, the properties of the
Castillos.

ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction is applicable.

RULING:
NO. Petitioners seek to pierce the veil of corporate entity of Bormaheco, ICP and PM Parts, alleging
that these corporations employed fraud in causing the foreclosure and subsequent sale of the real
properties belonging to petitioners.

In the instant case, petitioners do not seek to impose a claim against the individual members of the
three corporations involved; on the contrary, it is these corporations which desire to enforce an
alleged right against petitioners. Assuming that petitioners were indeed defrauded by private
respondents in the foreclosure of the mortgaged properties, this fact alone is not, under the
circumstances, sufficient to justify the piercing of the corporate fiction, since petitioners do not
intend to hold the officers and/or members of respondent corporations personally liable therefore.
Petitioners are merely seeking the declaration of the nullity of the foreclosure sale; which relief
may be obtained without having to disregard the aforesaid corporate fiction attaching to
respondent corporations. Secondly, petitioners failed to establish by clear and convincing evidence
that private respondents were purposely formed and operated, and thereafter transacted with
petitioners, with the sole intention of defrauding the latter.

The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, absent sufficient showing that the
corporate entity was purposely used as a shield to defraud creditors and third persons of their
rights.

KOPPEL (PHILIPPINES), INC. vs. YATCO

G.R. No. L-47673, October 10, 1946

FACTS:
Plaintiff is a corporation duly organized and existing under and by virtue of the laws of the
Philippines, with principal office in Manila, the capital stock of which is divided into 1,000 shares of
P100 each. The Koppel Industrial Car and Equipment company, a corporation organized and
existing under the laws of the State of Pennsylvania, United States of America, and not licensed to
do business in the Philippines, owned nine hundred and 995 shares out of the total capital stock of
the plaintiff. The remaining 5 shares only were and are owned one each by officers of the plaintiff
corporation. That plaintiff, at all times material to this case, was and now is duly licensed to engage
in business as a merchant and commercial broker in the Philippines; and was and is the holder of
the corresponding merchant's and commercial broker's privilege tax receipts.

Exhibited H of the evidence: It is clearly understood that the intent of this contract is that the broker
shall perform only the functions of a broker as set forth above, and shall not take possession of any
of the materials or equipment applying to said orders or perform any acts or duties outside the
scope of a broker; and in no sense shall this contract be construed as granting to the broker the
power to represent the principal as its agent or to make commitments on its behalf. The Court of
First Instance held for the defendant and dismissed plaintiff's complaint with costs to it.

ISSUE:
Whether or not Koppel Philippines is a domestic corporation distinct and separate from, and not a
mere branch of Koppel Industrial Car and Equipment Co.

RULING:
Koppel Philippines is a mere branch, subsidiary or agency of the latter. A corporation will be looked
upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but,
when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud,
or defend crime, the law will regard the corporation as an association of persons. The corporate
entity is disregarded where it is so organized and controlled, and its affairs are so conducted, as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.

SC reasoned that, in so far as the sales involved herein are concerned, Koppel Philippines, Inc., and
Koppel Industrial Car and Equipment company are to all intents and purposes one and the same;
or, to use another mode of expression, that, as regards those transactions, the former corporation
is a mere branch, subsidiary or agency of the latter. This is conclusively borne out by the fact, among
others, that the amount of the so-called "share in the profits" of Koppel (Philippines), Inc., was
ultimately left to the sole, unbridled control of Koppel Industrial Car and Equipment Company. No
group of businessmen could be expected to organize a mercantile corporation — the ultimate end
of which could only be profit — if the amount of that profit were to be subjected to such a unilateral
control of another corporation, unless indeed the former has previously been designed by the
incorporators to serve as a mere subsidiary, branch or agency of the latter. Evidently, Koppel
Industrial Car and Equipment Company made us of its ownership of the overwhelming majority —
99.5% — of the capital stock of the local corporation to control the operations of the latter to such
an extent that it had the final say even as to how much should be allotted to said local entity in the
so-called sharing in the profits. SC further ruled that, it cannot overlook the fact that in the practical
working of corporate organizations of the class to which these two entities belong, the holder or
holders of the controlling part of the capital stock of the corporation, particularly where the control
is determined by the virtual ownership of the totality of the shares, dominate not only the selection
of the Board of Directors but, more often than not, also the action of that Board. Philippine
corporation could not possibly contravene with the American corporation in this case under Exhibit
H. This fact necessarily leads to the inference that the corporation had at least a Vice-President,
and presumably also a President, who were not resident in the Philippines but in America, where
the parent corporation is domiciled. If Koppel (Philippines), Inc., had been intended to operate as
a regular domestic corporation in the Philippines, where it was formed, the record and the
evidence do not disclose any reason why all its officers should not reside and perform their
functions in the Philippines.

TANTONGCO vs. KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA

G.R. No. L-13119, September 22, 1959

FACTS:
La Campana Starch Factory and La Campana Coffee Factory (La Campana for Brevity) are two
separate entities run by a single management under the leadership of Ramon Tantongco. Kaisahan
ng mga Manggagawa sa La Campana (Kaisahan for brevity), on the other hand, is a labor union with
members from the two companies. Sometime in June, 1951, representatives of Kaisahan
approached the management of La Campana to demand higher wages and more benefits. A
deadlock ensued since none of the parties is willing to give concessions. The dispute was certified
to the Court of Industrial Relations (CIR). La Campana filed a motion to dismiss before the CIR
claiming that the CIR has no jurisdiction because only those from the coffee factory were
presenting the demands there were only 14 employees in said factory. This was done in light of the
requirement that at least 31 employees should present the demands. The motion was denied by
the CIR. According to the CIR, the Kaisahan was the one that presented the demands and not just
the workers in the coffee factory. The Supreme Court affirmed the order of the CIR citing that
although the two entities are separate, there is only one management. The entire membership of
the Kaisahan is therefore to be counted and not simply those employed in the coffee factory.

On June 12, 1956, a partial decision was rendered in the main case No. 584-V, which partial decision
was elevated to us and is still pending appeal. On February 18, 1957, the Court of Industrial
Relations issued an order in incidental Cases No. 584-V(1), V(2), V(5) and V(6), directing the
"management of the respondent company and or the administrator of the Estate of Ramon
Tantongco", to reinstate the dismissed laborers mentioned therein with back wages. This order of
February 18, 1957, as well as the order directing the inclusion of the administrator of the estate of
Ramon Tantongco as additional respondent in the incidental cases, and the order denying the
petition of the administrator to dismiss said incidental cases were appealed to this tribunal though
certiorari. Additional incidental cases were filed by Kaisahan before the CIR including a petition for
the reinstatement of some employees. Ramon Tantongco died some time in 1956. The
administrator of the estate of Ramon Tantongco, herein petitioner Ricardo Tantongco, was ordered
included as respondent in the cases pending before the CIR. The CIR rendered a decision on the
incidental cases and ordered the reinstatement of the dismissed employees. When the employees
reported to work, the management refused them admittance. Kaisahan then filed a petition to cite
the management in contempt before the CIR. Hence this petition.
Contentions

Petitioner: The two companies ceased to exist upon the death of Ramon Tantongco. . The Supreme
Court held in GR No. L-5677 that La Campana and Ramon Tantongco are one based on the doctrine
of piercing the veil of corporate existence. Therefore, the death of Ramon Tantongco meant the
death of La Campana. Since La Campana already ceased to exist, the CIR no longer has jurisdiction
over it. The claims should have been filed with the probate court.

Defendant: La Campana continues to exist despite the death of Ramon Tantongco. The CIR
therefore has jurisdiction when it rendered its decision on the incidental cases. The non-
compliance by La Campana therefore amounted to contempt of court.

ISSUE:
1. Did La Campana ceased to exist upon the death of Ramon Tantongco?
2. Is the Doctrine of Piercing the Veil of Corporate Existence applicable to the present case?
3. Should the contempt of court proceedings in the CIR should proceed?

RULING:
The Supreme Court DENIED the Petition for Certiorari and Prohibition. It ruled that La Camapana
continued to exist despite the death of Ramon Tantongco. It further ruled that the Doctrine of
Piercing the Veil of Corporate Existence is not applicable in the present case. Finally, it allowed the
CIR to proceed with the contempt hearing.

On the first and second issues: The death of Ramon Tantongco did not end the existence of La
Campana. The Supreme Court applied the Doctrine of Piercing the Veil of Corporate Existence in
GR no. L-5677 to avoid the use of technicality to defeat the jurisdiction of the CIR. In the said case,
the Court determined that although La Campana are two separate companies, they are being
managed by only one management. Furthermore, the workers of both factories were
interchangeably assigned. In the present case, however, the Court ruled that despite the obvious
fact that La Campana was run by the same people, they still are two different companies with
separate personalities from Ramon Tantongco. La Campana was owned not only by Ramon but
others as well including Ricardo Tantongco. Lastly, the Court ruled that petitioner is under estoppel
and cannot claim that La Campana and Ramon are one and the same since he has represented La
Campana as separate entities in numerous dealings.

On the third issue: Ricardo Tantongco should still face the contempt proceedings because under
Section 6 of Commonwealth Act No. 143, “In case the employer (or landlord) committing any such
violation or contempt is an association or corporation, the manager or the person who has the
charge of the management of the business of the association or corporation and the officers of
directors thereof who have ordered or authorized the violation of contempt shall be liable. . . .”
Since Tantongco is the General Manager of La Campana, he is still obliged to appear at the
contempt proceedings.

ROBLEDO vs. NLRC

G.R. No. 110358, Nov. 9, 1994

FACTS:
Robledo ET. Al. filed a Petition for Review of the Decision of NLRC, setting aside the decision of the
Labor Arbiter, which held private respondents jointly and severally liable to the petitioners for
overtime and legal holiday pay.

Petitioners were former employees of Bacani Security and Protective Agency (BPSA). They were
employed as security guards at different times during the period 1969 to December 1989 when
BPSA ceased to operate. BPSA was a single proprietorship owned, managed, and operated by the
late Felipe Bacani. On December 31, 1989, Felipe Bacani retired the business name and BSPA
ceased to operate effective on that day. On Jan. 15, 1990 Felipe Bacani died. An intestate
proceeding was instituted for the settlement of his estate before Pasig-RTC. Earlier, on Oct. 26,
1989, respondent Bacani Security and Allied Services Co., Inc. (BASEC) had been organized and
registered as a corporation with SEC. Several of the incorporator (3) surnamed Bacani, and that
includes the daughter of the late Felipe Bacani. On July 5, 1990, the petitioners filed a complaint
with the DOLE for underpayment of wages and nonpayment of overtime pay and other accrued
benefits, and for the return of their cash bond, which they posted, with BPSA. Made respondents
were BSPA and BASEC. On March 1, 1992, the Labor Arbiter rendered a decision upholding the
right of petitioners, finding the complainants entitled to their money claims to be paid by all the
respondents’ solidarily. On appeal, the NLRC reversed the decision declaring that the Labor Arbiter
is without jurisdiction and instead suggested that petitioners file their claims with Pasig-RTC where
an intestate proceeding of Bacani’s estate was pending. Petitioners moved for reconsideration but
their motion was denied for lack of merit. The case was elevated to the SC and was treated as a
special civil action of certiorari to determine whether the NLRC committed a grave abuse of
discretion in reversing the Labor Arbiter’s decision.

ISSUE:
Whether Bacani Security and Allied Services, Inc. (BASEC) can be held liable for claims of petitioners
against Bacani Security and Protective Agency (BSPA).

RULING:
No. Petitioners contend that public respondent, NLRC, erred in setting aside the Labor Arbiter’s
judgment on the ground that BASEC is the same entity as BSPA the latter being owned and
controlled by one and the same family, the Bacani family. For this reason, they urge that corporate
fiction should be disregarded and BASEC should be held liable for the obligations of the defunct
BSPA. As correctly found by the NLRC, BASEC is an entity separate and distinct from that of BSPA.
BSPA is a single proprietorship owned and operated by Felipe Bacani. Hence, its debts and
obligations were the personal obligations of its owner. Petitioner’s claims, which are based on
these debts and personal obligations, did not survive the death of Felipe Bacani on Jan. 15, 1990
and should have been filed instead in the intestate proceedings involving his estate.