CASE TITLE FACTS ISSUE RULING

IN RELATION TO THE STATE: PRIVATE

The plaintiff corporation was created on the 10th Whether or not Yes. The plaintiff is a private corporation. The mere fact that the
day of March 1917, by Act No. 2705, for the plaintiff is a government happens to the majority stockholder does not make it a
purpose of developing the coal industry in the private public corporation. Act 2705, as amended by Act 2822, makes it subject
Philippine Islands, in harmony with the general corporation. to all the provisions of the corporation law, in so far as they are not
plan of the government to encourage the inconsistent with said act. No provisions of Act 2705 are found to be
development of natural resources of the country, inconsistent with the provisions of the corporation law. As a private
and to provide facilities therefore. By the said act, corporation, it has no greater rights, powers or privileges than any
the company was granted the general powers of a other corporation which might be organized for the same purpose
corporation and such other powers as may be under the corporation law, and certainly it was not the intention of the
necessary to enable it to prosecute the business legislature to give it a preference or right or privilege over other
of developing coal deposits in the Philippine legitimate private corporations in the mining of coal. While it is true that
National Coal Islands of mining, extracting, transporting, and said proclamation no. 39 withdrew from settlement entry, sale or other
Company vs selling the coal contained in said deposits. By the disposition of coal-bearing public lands within the province of
Collector of same law, the government of the Philippine Zamboanga, and the islands of Polillo, it made no provision for the
Internal Revenue Islands is made the majority stockholder, occupation and operation by the plaintiff, to the exclusion of other
46 Phil 583 [GR evidently in order to ensure proper government persons or corporations who might under proper permission, enter
No. L-22619 supervision and control and thus to place the upon to operate the coal mines.
December 2, 1924] government in a position to render all possible
encouragement, assistance, and help in the
prosecution and furtherance of the company’s
business. On May 14, 1917, two months after the
passage of Act no. 2705, creating the national
coal company, the Philippine legislature passed
Act 2719, “to provide for the leasing and
development of coal lands in the Philippine
islands.” On October 18, 1917, upon petition of
the national coal company, the governor-general,
by proclamation no. 39, withdrew from
settlement, entry, sale or other deposition, all
coal-bearing public lands within the province of
Zamboanga, Department of Mindanao and Sulu,
and the island of Polillo, Province of Tayabas.
Almost immediately after the issuance of said
proclamation the national coal company took
possession of the coal lands within the said
reservation with an area of about 400 hectares,
without any further formality, contract of lease. Of
 the 30,000 shares of stock issued by the
company, the government of the Philippine islands
is the owner of 29,809 shares, that is, of 99 1/3
per centum of the whole capital stock.
PHILIPPINE The petitioner was incorporated as a juridical
SOCIETY FOR THE entity over one hundred years ago by virtue of Act
PREVENTION OF No. 1285, enacted on January 19, 1905, by the
CRUELTY TO Philippine Commission. The petitioner, at the time
ANIMALS vs. COA. it was created, was composed of animal
G.R. No. 169752 aficionados and animal propagandists. The
September 25, objects of the petitioner, as stated in Section 2 of
2007 its charter, shall be to enforce laws relating to
cruelty inflicted upon animals or the protection of
animals in the Philippine Islands, and generally, to
do and perform all things which may tend in any
way to alleviate the suffering of animals and
promote their welfare.
At the time of the enactment of Act No. 1285, the
original Corporation Law, Act No. 1459, was not
yet in existence. Act No. 1285 antedated both the
Corporation Law and the constitution of the SEC.
For the purpose of enhancing its powers in
promoting animal welfare and enforcing laws for
the protection of animals, the petitioner was
initially imbued under its charter with the power to
apprehend violators of animal welfare laws. In
addition, the petitioner was to share 1/2 of the
fines imposed and collected through its efforts for
violations of the laws related thereto.
Subsequently, however, the power to make
arrests as well as the privilege to retain a portion
of the fines collected for violation of animal-
related laws were recalled by virtue of C.A. No.
148. Whereas, the cruel treatment of animals is
now an offense against the State, penalized under
our statutes, which the Government is duty bound
to enforce;
When the COA was to perform an audit on them
they refuse to do so, by the reason that they are a
private entity and not under the said commission.
It argued that COA covers only government
entities. On the other hand the COA decided that
WON the said YES. First, the Court agrees with the petitioner that the “charter test”
petitioner is a cannot be applied. Essentially, the “charter test” provides that the test
private entity. to determine whether a corporation is government owned or controlled,
or private in nature is simple. Is it created by its own charter for the
exercise of a public function, or by incorporation under the general
corporation law? Those with special charters are government
corporations subject to its provisions, and its employees are under the
jurisdiction of the CSC, and are compulsory members of the GSIS.
And since the “charter test” had been introduced by the 1935
Constitution and not earlier, it follows that the test cannot apply to the
petitioner, which was incorporated by virtue of Act No. 1285, enacted
on January 19, 1905. Settled is the rule that laws in general have no
retroactive effect, unless the contrary is provided. All statutes are to be
construed as having only a prospective operation, unless the purpose
and intention of the legislature to give them a retrospective effect is
expressly declared or is necessarily implied from the language used. In
case of doubt, the doubt must be resolved against the retrospective
effect.
Second, a reading of petitioner’s charter shows that it is not subject to
control or supervision by any agency of the State, unlike GOCCs. No
government representative sits on the board of trustees of the
petitioner. Like all private corporations, the successors of its members
are determined voluntarily and solely by the petitioner in accordance
with its by-laws, and may exercise those powers generally accorded to
private corporations, such as the powers to hold property, to sue and
be sued, to use a common seal, and so forth. It may adopt by-laws for
its internal operations: the petitioner shall be managed or operated by
its officers “in accordance with its by-laws in force.”
Third. The employees of the petitioner are registered and covered by
the SSS at the latter’s initiative, and not through the GSIS, which
should be the case if the employees are considered government
employees. This is another indication of petitioner’s nature as a private
entity.
Fourth. The respondents contend that the petitioner is a “body politic”
because its primary purpose is to secure the protection and welfare of
animals which, in turn, redounds to the public good. This argument, is
not tenable. The fact that a certain juridical entity is impressed with
public interest does not, by that circumstance alone, make the entity a
 it is a government entity.
WON the said petitioner is a private entity.
public corporation, inasmuch as a corporation may be private although
its charter contains provisions of a public character, incorporated solely
for the public good. This class of corporations may be considered
quasi-public corporations, which are private corporations that render
public service, supply public wants, or pursue other eleemosynary
objectives. While purposely organized for the gain or benefit of its
members, they are required by law to discharge functions for the public
benefit. Examples of these corporations are utility, railroad,
warehouse, telegraph, telephone, water supply corporations and
transportation companies. It must be stressed that a quasi-public
corporation is a species of private corporations, but the qualifying factor
is the type of service the former renders to the public: if it performs a
public service, then it becomes a quasi-public corporation.
Authorities are of the view that the purpose alone of the corporation
cannot be taken as a safe guide, for the fact is that almost all
corporations are nowadays created to promote the interest, good, or
convenience of the public. A bank, for example, is a private
corporation; yet, it is created for a public benefit. Private schools and
universities are likewise private corporations; and yet, they are
rendering public service. Private hospitals and wards are charged with
heavy social responsibilities. More so with all common carriers. On the
other hand, there may exist a public corporation even if it is endowed
with gifts or donations from private individuals.
The true criterion, therefore, to determine whether a corporation is
public or private is found in the totality of the relation of the
corporation to the State. If the corporation is created by the State as
the latter’s own agency or instrumentality to help it in carrying out its
governmental functions, then that corporation is considered public;
otherwise, it is private. Applying the above test, provinces, chartered
cities, and barangays can best exemplify public corporations. They are
created by the State as its own device and agency for the
accomplishment of parts of its own public works.
Fifth. The respondents argue that since the charter of the petitioner
requires the latter to render periodic reports to the Civil Governor,
whose functions have been inherited by the President, the petitioner is,
therefore, a government instrumentality.
This contention is inconclusive. By virtue of the fiction that all
corporations owe their very existence and powers to the State, the
reportorial requirement is applicable to all corporations of whatever
nature, whether they are public, quasi-public, or private corporations—
as creatures of the State, there is a reserved right in the legislature to
investigate the activities of a corporation to determine whether it acted

IN RELATION TO THE STATE: QUASI PUBLIC
Feliciano vs. COA A special audit team from COA Regional office no.
(G.R. No. 147402, VIII audited the accounts of LMWD. Subsequently,
January 14, 2004 LMWD received a letter from COA dated July 19,
1999 requesting payment of auditing fees. As
general manager of LMWD, petitioner sent a reply
dated October 12, 1999 informing COA’s regional
director that the water district could not pay the
auditing fees. Petitioner cited as basis for his
action section 6 and 20 of Presidential Decree no.
198 as well as section 18 of RA 6758. The regional
director referred petitioner to reply o the COA
Chairman on October 18, 1999. On October 19,
1999, petitioner wrote COA through the Regional
Director asking for refund of all auditing fees
LMWD previously paid to COA. On March 16,
2000, petitioner received COA Chairman Celso D.
Gangans resolution dated January 3, 2o00
denying his requests. Petitioner filed a motion for
reconsideration on March 31, 2000, which COA
denied on January 30, 2001.
within its powers. In other words, the reportorial requirement is the
principal means by which the State may see to it that its creature acted
according to the powers and functions conferred upon it.
Whether or not No. Private corporations may exist only under a general law. If the
petitioner LMWD corporation is private, it must necessarily exist under a general law.
is a private Stated differently, only corporations created under a general law can
corporation qualify as private corporations under existing laws, that general law is
exempt from the the corporation code, except that the cooperative code governs the
auditing incorporation of cooperatives.
jurisdiction of
COA.
Obviously, LWDs are not private corporations because they are not
created under the corporation code. LWDs are registered with the
Securities and Exchange Commission (SEC). Section 14 of the
corporation code states that all corporations under this code shall file
with the SEC articles of incorporation. LWDs have no articles of
incorporation, no incorporators and no stockholders or members. There
are no stockholders or members to elect the board of directors of LWDs
as in the case of all corporations registered with the SEC. The local
mayor or the provincial governor appoints the directors of LWDs for a
fixed term of office. This court has ruled that LWDs are not created
under the corporation code.
The determining factor of COA’s audit jurisdiction is government
ownership or control of the corporation. The criterion of ownership and
control is more important than the issue of original charter.
Certainly, the government owns and controls LWDs. The government
organizes LWDs in accordance with a specific law, PD 198. There is no
private party involved as co-owner in the creation of and LWD. Just
prior to the creation of LWDs, the national or local government owns
and controls all their assets. The government controls LWDs because
under PD 198 the municipal or city mayor, or the provincial governor,
appoints all the board of directors of an LWD for a fixed term of six (6)
years. The board of directors of LWDs are not co-owners of the LWDs.
LWD have no private stockholders or members. The board of directors
and other personnel of LWDs are government employees subject to civil
 service laws, anti-graft laws.

Section 18 of RA 6758 prohibits COA Personnel from receiving any kind

of compensation from any government except compensation paid
directly by COA out of its appropriations and contributions. Thus, RA
6758 itself recognizes an exception to the statutory ban by COA
personnel receiving compensation from GOCCs.

Liban v. Gordon Dante V. Liban, together with other petitioners,
G.R. 175352 petitioned in Court to declare Richard J. Gordon as
July 15, 2009 “having forfeited his seat in the Senate.” The
petitioners were officers of the Board of Directors
of the Quezon City Red Cross Chapter, while
respondent is Chairman of the Philippine National
Red Cross (PNRC) Board of Governors.
During Gordon’s incumbency as a member of the
Senate of the Philippines, he was elected
Chairman of the PNRC during the February 23,
2006 meeting of the PNRC Board of Governors, in
which the petitioners alleged that by accepting the
responsibility, Gordon deemed ceased to be a
member of the Senate as provided in Sec. 13,
Article VI of the Constitution:
No. The Philippine National Red Cross is a private organization
By accepting the performing public functions. It does not have government assets and
PNRC Chair, did does not receive any appropriation from the Philippine Congress. The
Gordon forfeit his PNRC is financed primarily by contributions from private individuals and
Senate Seat? private entities obtained through solicitation campaigns organized by its
Board of Governors. Apart from that, PNRC must not only be, but must
also be seen to be, autonomous, neutral and independent to be able to
conduct its activities in accord to their fundamental principles of
humanity, impartiality, neutrality, independence, voluntary service,
unity, and universality. Hence, Article VI, Section 13 could not apply to
Gordon’s case, in accepting the position in the PNRC. The petition was
deemed to have no merit.

Sec. 13. No Senator or Member of the House of

Representatives may hold any other office or
employment in the Government, or any
subdivision, agency, or instrumentality thereof,
including government-owned or controlled
corporations or their subsidiaries, during his term
without forfeiting his seat….

Respondent contested that the petitioners’ citation

of a constitutional provision had no basis, since
PNRC is not a government-owned or controlled
corporation. Thus, prohibition under Sec. 13, Art.
VI of the Constitution did not apply to his case.
Furthermore, service rendered in PNRC is a
 volunteer service to which is neither an office nor
an employment.
DANTE V. LIBAN, Respondent filed a motion for partial
et al. v. RICHARD reconsideration on a Supreme Court decision
J. GORDON 2011 which ruled that being chairman of the Philippine
National Red Cross (PNRC) did not disqualify him
from being a Senator, and that the charter
creating PNRC is unconstitutional as the PNRC is a
private corporation and the Congress is precluded
by the Constitution to create such. The Court then
ordered the PNRC to incorporate itself with the
SEC as a private corporation. Respondent takes
exception to the second part of the ruling, which
addressed the constitutionality of the statute
creating the PNRC as a private corporation.
Respondent avers that the issue of
constitutionality was only touched upon in the
issue of locus standi. It is a rule that the
constitutionality will not be touched upon if it is
not the lis mota of the case.
EXPLOITATION OF NATURAL RESOURCES
REGISTER OF A Filipino citizen executed a deed of donation in
DEEDS vs UNG SIU favor of the Ung Siu Si Temple, an unregistered
SI TEMPLE religious organization that operated through three
GR. No. L-6776 trustees all of Chinese nationality. The Register of
May 21,1955 Deeds refused to record the deed of donation
executed in due form arguing that the Consitution
Was it proper for In the case at bar, the constitutionality of the PNRC statute was raised
the Court to have in the issue of standing. As such, the Court should not have declared
ruled on the certain provisions of such as unconstitutional. On the substantive issue,
constitutionality of the PNRC is sui generis. It is unlike the private corporations that the
the PNRC statute? Constitution wants to prevent Congress from creating. First, the PNRC
is not organized for profit. It is an organization dedicated to assist
victims of war and administer relief to those who have been devastated
by calamities, among others. It is entirely devoted to public service. It
is not covered by the prohibition since the Constitution aims to
eliminate abuse by the Congress, which tend to favor personal gain.
Secondly, the PNRC was created in order to participate in the mitigation
of the effects of war, as embodied in the Geneva Convention. The
creation of the PNRC is compliance with international treaty obligations.
Lastly, the PNRC is a National Society, an auxiliary of the government.
It is not like government instrumentalities and GOCC. The PNRC is
regulated directly by international humanitarian law, as opposed to local
law regulating the other mentioned entities. As such, it was improper
for the Court to have declared certain portions of the PNRC statute as
unconstitutional. However, it is the stand of Justice Carpio that there is
no mandate for the Government to create a National Society to this
effect. He also raises the fact that the PNRC is not sui generis in being
a private corporation organized for public needs. Justice Abad is of the
opinion that the PNRC is neither private or governmental, hence it was
within the power of Congress to create.
It has been consistently held in Jurisprudence that the Court should
exercise judicial restraint when it comes to issues of constitutionality
where it is not the lis mota of the case.
Sec. 5, Art. 13 of the Constitution provides that save in cases of
Whether a deed of hereditary succession, no private agricultural land shall be
donation of a transferred or assigned except to individuals, corporations, or
parcel of land associations qualified to hold lands of the public domain in the
executed in favor Philippines. The Constitution does not make any exception in
of a religious favor of religious associations.
 provides that acquisition of land is limited to organization
Filipino citizens, or to corporations or associations whose founder, The fact that appellant has no capital stock does not exempt it from the
at least 60% of which is owned by such citizens. trustees and Constitutional inhibition, since its member are of foreign nationality.
administrator are The purpose of the 60% requirement is to ensure that corporations or
Chinese citizens associations allowed to acquire agricultural lands or to exploit natural
should be resources shall be controlled by Filipinos; and the spirit of the
registered or not. Constitution demands that in the absence of capital stock,
controlling membership should be composed of Filipino
citizens.

As to the complaint that the disqualification under Art. 13 of the

Constitution violated the freedom of religion, the Court was not
convinced that land tenure is indispensable to the free exercise and
enjoyment of religious profession or worship.

PUBLIC UTILITIES
People v. Quasha ● William H. Quasha
(1953) ▪ a member of the Philippine bar,
committed a crime of falsification of a
public and commercial document for
G.R. No. L-6055 causing it to appear that Arsenio
June 12, 1953 Baylon, a Filipino citizen, had subscribed be organized with
to and was the owner of 60.005 % of
the subscribed capital stock of Pacific
Airways Corp. (Pacific) when in reality
the money paid belongs to an American
citizen whose name did not appear in
the article of incorporation,
o to circumvent the constitutional
mandate that no corp. shall be
authorize to operate as a public
utility in the Philippines unless 60%
of its capital stock is owned by
Filipinos.
▪ Found guilty after trial and sentenced to
a term of imprisonment and a fine
● Quasha appealed to this Court
● Primary purpose: to carry on the business of
a common carrier by air, land or water
● Baylon did not have the controlling vote
because of the difference in voting power
For a corporation No. For a corporation to be entitled to operate a public utility it is not
to be entitled to necessary that it be organized with 60 per cent of its capital owned by
operate a public Filipinos from the start. A corporation formed with capital that is
utility is it entirely alien may subsequently change the nationality of its capital
necessary that it through transfer of shares to Filipino citizens. Conversely, a corporation
originally formed with Filipino capital may subsequently change the
60 per cent of its national status of said capital through transfer of shares to foreigners.
capital owned by What need is there then for a corporation that intends to operate a
Filipinos from the public utility to have, at the time of its formation, 60 per cent of its
start? capital owned by Filipinos alone? That condition may anytime be
attained thru the necessary transfer of stocks. The moment for
determining whether a corporation is entitled to operate as a public
utility is when it applies for a franchise, certificate, or any other form of
authorization for that purpose. And that can be done after the
corporation has already come into being and not while it is still being
formed. And at that moment, the corporation must show that it has
complied not only with the requirement of the Constitution as to the
nationality of its capital, but also with the requirements of the Civil
Aviation Law if it is a common carrier by air, the Revised Administrative
Code if it is a common carrier by water, and the Public Service Law if it
is a common carrier by land or other kind of public service.
 between the preferred shares and the
common shares
FILIPINAS On October 1, 1941, the respondent corporation,
COMPANIA DE Christern Huenefeld and Co., Inc., after payment
SEGUROS vs. of corresponding premium, obtained from the
CHRISTERN petitioner, Filipinas Cia de Seguros fire policy
HUENEFELD and covering merchandise contained in a building
CO., INC. 89 Phil located at Binondo, Manila. On February 27, 1942
54 or during the Japanese military occupation, the
building and insured merchandise were burned. In
due time, the respondent submitted to the
petitioner its claim under the policy. The petitioner
refused to pay the claim on the ground that the
policy in favor of the respondent that ceased to be
a force on the date the United States declared war
against Germany, the respondent corporation
(through organized under and by virtue of the
laws of Philippines) being controlled by German
subjects and the petitioner being a company
under American jurisdiction when said policy was
issued on October 1, 1941. The theory of the
petitioner is that the insured merchandise was
burned after the policy issued in 1941 had ceased
to be effective because the outbreak of the war
between United States and Germany on December
10, 1941, and that the payment made by the
petitioner to the respondent corporation during
the Japanese military occupation was under
pressure.
CORPORATION SOLE
Roman Catholic On October 4, 1954, Mateo L. Rodis, a Filipino
Apostolic citizen and resident of the City of Davao, executed
Administrator of a deed of sale of a parcel of land located in the
Davao, Inc. v. The same city covered by Transfer Certificate No.
Land Registration 2263, in favor of the Roman Catholic Apostolic
Commission and Administrator of Davao Inc.,(RCADI) is corporation
the Register of sole organized and existing in accordance with
Deeds of Davao Philippine Laws, with Msgr. Clovis Thibault, a
WARTIME-TEST
Whether or not Since the majority of stockholders of the respondent corporation were
the respondent German subjects, the respondent became an enemy of the state upon
corporation is a the outbreak of the war between US and Germany. The English and
corporation of American cases relied upon by the Court of Appeals lost in force upon
public enemy. the latest decision of the Supreme Court of US in which the control test
has adopted.
Since World War I, the determination of enemy nationality of
corporations has been discussed in many countries, belligerent and
neutral. A corporation was subject to enemy legislation when it was
controlled by enemies, namely managed under the influence of
individuals or corporations themselves considered as enemies…
The Philippine Insurance Law (Act No 2427, as amended), in Section 8,
provides that “anyone except a public enemy may be insured”. It
stands to reason that an insurance policy ceases to be allowable as
soon as an insured becomes a public enemy.
The respondent having an enemy corporation on December 10, 1941,
the insurance policy issued in its favor on October 1, 1941, by the
petitioner had ceased to be valid and enforceable, and since the insured
good were burned during the war, the respondent was not entitled to
any indemnity under said policy from the petitioner. However,
elementary rule of justice (in the absence of specific provisions in the
Insurance Law) require that the premium paid by the respondent for
the period covered by its policy from December 11, 1941, should be
returned by the petitioner.
Whether or not RCADI is qualified.
the Universal While it is true and We have to concede that in the profession of their
Roman Catholic faith, the Roman Pontiff is the supreme head; that in the religious
Apostolic Church matters, in the exercise of their belief, the Catholic congregation of the
in the Philippines, faithful throughout the world seeks the guidance and direction of their
or better still, the Spiritual Father in the Vatican, yet it cannot be said that there is a
corporation sole merger of personalities resultant therein. Neither can it be said that the
named the Roman political and civil rights of the faithful, inherent or acquired under the
City, G.R. No. L- Canadian citizen, as actual incumbent. Registry of
8451, December Deeds Davao (RD) required RCADI to submit
20,1957 affidavit declaring that 60% of its members were
Filipino Citizens. As the RD entertained some
doubts as to the registerability of the deed of sale,
the matter was referred to the Land Registration
Commissioner (LRC) en consulta for resolution.
LRC hold that pursuant to provisions of sections 1
and 5 of Article XII of the Philippine Constitution,
RCADI is not qualified to acquire land in the
Philippines in the absence of proof that at leat
60% of the capital, properties or assets of the
RCADI is actually owned or controlled by Filipino
citizens. LRC also denied the registration of the
Deed of Sale in the absence of proof of
compliance with such requisite. RCADI’s Motion
for Reconsideration was denied. Aggrieved, the
latter filed a petition for mandamus.
Catholic Apostolic laws of their country, are affected by that relationship with the Pope.
Administrator of The fact that the Roman Catholic Church in almost every country
Davao, Inc., is springs from that society that saw its beginning in Europe and the fact
qualified to that the clergy of this faith derive their authorities and receive orders
acquire private from the Holy See do not give or bestow the citizenship of the Pope
agricultural lands upon these branches. Citizenship is a political right which cannot be
in the Philippines acquired by a sort of “radiation”. We have to realize that although there
pursuant to the is a fraternity among all the catholic countries and the dioceses therein
provisions of all over the globe, the universality that the word “catholic” implies,
Article XIII of the merely characterize their faith, a uniformity in the practice and the
Constitution. interpretation of their dogma and in the exercise of their belief, but
certainly they are separate and independent from one another in
jurisdiction, governed by different laws under which they are
incorporated, and entirely independent on the others in the
management and ownership of their temporalities. To allow theory that
the Roman Catholic Churches all over the world follow the citizenship of
their Supreme Head, the Pontifical Father, would lead to the absurdity
of finding the citizens of a country who embrace the Catholic faith and
become members of that religious society, likewise citizens of the
Vatican or of Italy. And this is more so if We consider that the Pope
himself may be an Italian or national of any other country of the world.
The same thing be said with regard to the nationality or citizenship of
the corporation sole created under the laws of the Philippines, which is
not altered by the change of citizenship of the incumbent bishops or
head of said corporation sole.
We must therefore, declare that although a branch of the Universal
Roman Catholic Apostolic Church, every Roman Catholic Church in
different countries, if it exercises its mission and is lawfully incorporated
in accordance with the laws of the country where it is located, is
considered an entity or person with all the rights and privileges granted
to such artificial being under the laws of that country, separate and
distinct from the personality of the Roman Pontiff or the Holy See,
without prejudice to its religious relations with the latter which are
governed by the Canon Law or their rules and regulations.
It has been shown before that: (1) the corporation sole, unlike the
ordinary corporations which are formed by no less than 5 incorporators,
is composed of only one persons, usually the head or bishop of the
diocese, a unit which is not subject to expansion for the purpose of
determining any percentage whatsoever; (2) the corporation sole is
only the administrator and not the owner of the temporalities located in
the territory comprised by said corporation sole; (3) such temporalities
are administered for and on behalf of the faithful residing in the diocese

AS TO EXISTENCE OF SHARES: NON STOCK
Republic v. Lots Nos. 568 and 569, located at Barrio Dampol,
Villanueva Plaridel, Bulacan, with an area of 313 square
meters and an assessed value of P1,350 were
acquired by INC on January 9, 1953 from Andres
Perez in exchange for a lot with an area of 247
square meters owned by the said church.
The said lots were already possessed by Perez in
1933. They are not included in any military
reservation. They are inside an area which was
certified as alienable or disposable by the Bureau
of Forestry in 1927. The lots are planted to santol
and mango trees and banana plants. A chapel
exists on the said land. The land had been
declared for realty tax purposes. Realty taxes had
been paid therefor.
On September 13, 1977, INC filed with the CFI
Bulacan an application for the registration of the
two lots. It alleged that it and its predecessors-in-
interest had possessed the land for more than
thirty years.
The trial court ordered the registration of the two
lots.
or territory of the corporation sole; and (4) the latter, as such, has no
nationality and the citizenship of the incumbent Ordinary has nothing to
do with the operation, management or administration of the
corporation sole, nor effects the citizenship of the faithful connected
with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem
obvious that when the specific provision of the Constitution invoked by
respondent Commissioner (section 1, Art. XIII), was under
consideration, the framers of the same did not have in mind or
overlooked this particular form of corporation. If this were so, as the
facts and circumstances already indicated tend to prove it to be so,
then the inescapable conclusion would be that this requirement of at
least 60 per cent of Filipino capital was never intended to apply to
corporations sole, and the existence or not a vested right becomes
unquestionably immaterial.
Whether or not Section 11, Article XIV of the Constitution stated that "no private
the trial court corporation or association may hold alienable lands of the public
erred in ordering domain except by lease not to exceed one thousand hectares in area".
the registration of
two lots. INC, as a corporation sole or a juridical person, is disqualified to acquire
or hold alienable lands of the public domain, like the two lots in
question, because of the constitutional prohibition already mentioned
and because the said church is not entitled to avail itself of the benefits
of section 48(b) which applies only to Filipino citizens or natural
persons. A corporation sole has no nationality (Roman Catholic
Apostolic Adm. of Davao, Inc. vs. Land Registration Commission, 102
Phil. 596. See Register of Deeds vs. Ung Siu Si Temple, 97 Phil. 58 and
sec. 49 of the Public Land Law).
The contention in the comments of the INC that the two lots are private
lands, following the rule laid down in Susi vs. Razon and Director of
Lands, 48 Phil. 424, is not correct. What was considered private land in
the Susi case was a parcel of land possessed by a Filipino citizen since
time immemorial, as in Cariño vs. Insular Government, 212 U.S. 449,
53 L. ed. 594, 41 Phil. 935 and 7 Phil. 132. The lots sought to be
registered in this case do not fall within that category. They are still
public lands. A land registration proceeding under section 48(b)
"presupposes that the land is public" (Mindanao vs. Director of Lands,
L-19535, July 10, 1967, 20 SCRA 641, 644).

Collector of As found by the Court of Tax Appeals, the "Club
Internal Revenue Filipino, Inc. de Cebu," (Club, for short), is a civic
vs. Club Filipino corporation organized under the laws of the
Inc. De Cebu Philippines with an original authorized capital
stock of P22,000. 00, which was subsequently
increased to P200,000. 00.
The Club owns and operates a club house, a
bowling alley, a golf course (on a lot leased from
the government), and a bar-restaurant where it
sells wines and liquors, soft drinks, meals and
short orders to its members and their guests. The
bar-restaurant was a necessary incident to the
operation of the club and its golf-course. The club
is operated mainly with funds derived from
membership fees and dues. In 1951. as a result of
a capital surplus, arising from the re-valuation of
its real properties, the value or price of which
increased, the Club declared stock dividends; but
no actual cash dividends were distributed to the
stockholders. In 1952, a BIR agent discovered
that the Club has never paid percentage tax on
the gross receipts of its bar and restaurant,
As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that
were not acquired from the Government, either by purchase or by
grant, belong to the public domain. An exception to the rule would be
any land that should have been in the possession of an occupant and of
his predecessors-in-interest since time immemorial, for such possession
would justify the presumption that the land had never been part of the
public domain or that it had been a private property even before the
Spanish conquest."
In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an
occupant of public agricultural land to obtain a confirmation of his title
under section 48(b) of the Public Land Law is a "derecho dominical
incoativo" and that before the issuance of the certificate of title the
occupant is not in the juridical sense the true owner of the land since it
still pertains to the State.
The lower court's judgment is reversed and set aside. The application
for registration of INC is dismissed with costs against said applicant.
Whether or not For a stock corporation to exist, two requisites must be complied with,
the Club is a to wit: (1) a capital stock divided into shares and (2) an authority to
stock-corporation? distribute to the holders of such shares, dividends or allotments of the
If so, can it be surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In
subject to tax the case at bar, nowhere in its articles of incorporation or by-laws could
be found an authority for the distribution of its dividends or surplus
profits.
Strictly speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation law. The bar
and restaurant are necessary adjuncts of the Club to foster its purposes
and the profits derived therefrom are necessarily incidental to the
primary object of developing and cultivating sports for the healthful
recreation and entertainment of the stockholders and members. Having
arrived at the conclusion that respondent Club is not engaged in the
business as an operator of a bar and restaurant, and therefore, not
liable for fixed and percentage taxes, it follows that it is not liable for
any penalty, much less of a compromise penalty.
 although it secured B-4, B-9(a) and B-7 licenses.
In a letter dated December 22, 1852, the Collector
of Internal Revenue assessed against and
demanded from the Club
CLOSE CORPORATION: NO NECESSITY OF BOARD
DULAY Dulay Enterprises, Inc., a domestic corporation
ENTERPRISES, with the following as members of its Board of
INC. vs. COURT OF Directors: Manuel R. Dulay designated as
APPEALS FACTS president, treasurer and general manager; Atty.
Virgilio E. Dulay designated as vice-president;
Linda E. Dulay; Celia Dulay-Mendoza and Atty.
Plaridel C. Jose designated as secretary, owned a
property known as Dulay Apartment located at
Seventh Street (now Buendia Extension) and F. B.
Harrison Street, Pasay City. The corporation
through its president, Manuel Dulay, obtained
various loans for the construction of its hotel
project, Dulay Continental Hotel (now Frederick
Hotel). It even had to borrow money from Virgilio
Dulay to be able to continue the hotel project.
As a result of said loan, Virgilio Dulay occupied
one of the unit apartments of the subject property
since 1973 while at the same time managing the
Dulay Apartment as his shareholdings in the
corporation was subsequently increased by his
father. Manuel Dulay by virtue of Board Resolution
18 of the corporation sold the subject property to
spouses Maria Theresa and Castrense Veloso.
Subsequently, Manuel Dulay and the spouses
Veloso executed a Memorandum to the Deed of
Absolute Sale, giving Manuel Dulay within 2 years
to repurchase the subject property which was,
however, not annotated. Maria Veloso, without
the knowledge of Manuel Dulay, mortgaged the
subject property to Manuel A. Torres.
Upon the failure of Maria Veloso to pay Torres,
the subject property was sold to Torres as the
highest bidder in an extrajudicial foreclosure sale
Whether the sale Section 101 of the Corporation Code of the Philippines provides that
of the subject "When board meeting is unnecessary or improperly held. Unless the by-
property between laws provide otherwise, any action by the directors of a close
spouses Veloso corporation without a meeting shall nevertheless be deemed valid if:
and Manuel Dulay (1) Before or after such action is taken, written consent thereto is
has no binding signed by all the directors; or (2) All the stockholders have actual or
effect on the implied knowledge of the action and make no prompt objection thereto
corporation as in writing; or (3) The directors are accustomed to take informal action
Board Resolution with the express or implied acquiesce of all the stockholders; or (4) All
18 which the directors have express or implied knowledge of the action in
authorized the question and none of them makes prompt objection thereto in writing.
sale of the subject
property was If a directors' meeting is held without proper call or notice, an action
resolved without taken therein within the corporate powers is deemed ratified by a
the approval of all director who failed to attend, unless he promptly files his written
the members of objection with the secretary of the corporation after having knowledge
the board of thereof. " Herein, the corporation is classified as a close corporation
directors and said and consequently a board resolution authorizing the sale or mortgage
Board Resolution of the subject property is not necessary to bind the corporation for the
was prepared by a action of its president. At any rate, a corporate action taken at a board
person not meeting without proper call or notice in a close corporation is deemed
designated by the ratified by the absent director unless the latter promptly files his written
corporation to be objection with the secretary of the corporation after having knowledge
its secretary. of the meeting which, in this case, Virgilio Dulay failed to do.
The corporation's claim that the sale of the subject property by its
president, Manuel Dulay, to spouses Veloso is null and void as the
alleged Board Resolution 18 was passed without the knowledge and
consent of the other members of the board of directors cannot be
sustained. Virgilio E. Dulay's protestations of complete innocence to the
effect that he never participated nor was even aware of any meeting or
resolution authorizing the mortgage or sale of the subject premises is
difficult to believe. On the contrary, he is very much privy to the
transactions involved. To begin with, he is an incorporator and one of
the board of directors designated at the time of the organization of
 as evidenced by the Certificate of Sheriff's Sale.
Maria Veloso executed a Deed of Absolute
Assignment of the Right to Redeem in favor of
Manuel Dulay assigning her right to repurchase
the subject property from Torres as a result of the
extrajudicial sale. As neither Maria Veloso nor her
assignee Manuel Dulay was able to redeem the
subject property within the one year statutory
period for redemption, Torres filed an Affidavit of
Consolidation of Ownership with the Registry of
Deeds of Pasay City. Torres filed a petition for the
issuance of a writ of possession against spouses
Veloso and Manuel Dulay in LRC.
Manuel R.
Dulay Enterprises, Inc. In ordinary parlance, the said entity is loosely
referred to as a "family corporation. " The nomenclature, if imprecise,
however, fairly reflects the cohesiveness of a group and the parochial
instincts of the individual members of such an aggrupation of which
Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its
incorporators being close relatives namely, 3 children and their father
whose name identifies their corporation. Besides, the fact that Virgilio
Dulay on 24 June 1975 executed an affidavit that he was a signatory
witness to the execution of the post-dated Deed of Absolute Sale of the
subject property in favor.

However, when Virgilio Dulay appeared in court to

intervene in said case alleging that Manuel Dulay
was never authorized by the corporation to sell or
mortgage the subject property, the trial court
ordered Torres to implead the corporation as an
indispensable party but the latter moved for the
dismissal of his petition which was granted. Torres
and Edgardo Pabalan, real estate administrator of
Torres, filed an action against the corporation,
Virgilio Dulay and Nepomuceno Redovan, a tenant
of Dulay Apartment for the recovery of
possession, sum of money and damages with
preliminary injunction. The corporation filed an
action against spouses Veloso and Torres for the
cancellation of the Certificate of Sheriff's Sale.

Pabalan and Torres filed an action against spouses

Florentino and Elvira Manalastas, a tenant of
Dulay Apartment, with the corporation as
intervenor for ejectment Metropolitan Trial Court
of Pasay City which rendered a decision in favor of
Pabalan, et al. , ordering the spouses Manalastas
and all persons claiming possession under them to
vacate the premises; and to pay the rents until
they shall have vacated the premises with interest
at the legal rate; and to pay attorney's fees as
other expenses of litigation and for them to pay
the costs of the suit. Thereafter, the corporation
and Virgilio Dulay filed an action against the
 presiding judge of the Metropolitan Trial Court of
Pasay City, Pabalan and Torres for the annulment
of said decision with the Regional Trial Court of
Pasay.

Thereafter, the 3 cases were jointly tried and the

trial court rendered a decision in favor of Pabalan
and Torres. The corporation, et al. filed the
petition for review on certiorari. During the
pendency of the petition, Torres died and named
Torres-Pabalan Realty & Development Corporation
as his heir in his holographic will.

CLOSE CORPORATION: WITHDRAWL AND DISSOLUTION

FINANCING ● Lizares et al., in their own behalf and in
CORPORATION OF behalf of the other minority stockholders of appointment of
THE PHILIPPINES the Financing Corporation of the Philippines
v. TEODORO sued the Corporation and J Amado Araneta,
G.R. No. L-4900; its President and GM, alleging gross
August 31, 1953; mismanagement and fraudulent conduct of
Montemayor, J. the corporate affairs by Araneta and asking
Digest prepared by that (1) the corporation be dissolved, (2)
Jackie Canlas Araneta be declared personally accountable
for the unauthorized and fraudulent
disbursements of the corporate assets and
violations of the Corporation Law and the by-
laws of the Corporation, and (3) the best
means to protect and preserve the assets of
Corporation is the appointment of a receiver.
● Among the allegations specified in the
complaint were:
1. wrongful and unauthorized diversion
from corporate purposes and use for
personal benefit;
2. unauthorized and profitless pledging of
securities owned by Corporation to
secure obligations amounting to
P588,645.34 of another corporation
controlled by Araneta;
3. unauthorized and profitless using of the
name of the Corporation in the shipping
of sugar belonging to other corporations
WON the YES.
PETITION DENIED. WRIT OF PRELIMINARY INJUCTION
a receiver by DISSOLVED.
the lower court
was proper? ● GENERAL RULE: Minority shareholders of a corporation cannot sue
and demand dissolution in a private suit. The action should be
brought by the Government through its legal officer, via a quo
warranto proceeding.
o EXCEPTION: cases wherein the intervention of the State
cannot be obtained because the complaint is a matter strictly
between the shareholders and the corporation and does not
involve issues which involve acts/omissions warranting a quo
warranto.
o When such action is brought, the trial court has jurisdiction
and has discretion to grant the prayer or not. Having such
jurisdiction, the appointment of a receiver pendente lite is left
to the sound discretion of the trial court.
o The appointment of a receiver upon petition by the minority
shareholders is a power that must be exercised with great
caution, and should be exercised when necessary to protect
their rights, especially when they cannot obtain redress
through or within the corporation.
 controlled by Araneta to the benefit of
said corporations in the amount of at
least P104,343.36;
4. refusal by Araneta to endorse to the
Corporation shares of stock and other
securities belonging to it but which are
still in his name;
5. negligent failure to endorse other shares
of stock belonging to Corporation but still
in the names of the respective vendors;
and
6. illegal and unauthorized transfer and
deposit in the US of 6,426,281 shares of
the Atok-Big Wedge Mining Company;
7. refusal to allow minority stockholders to
examine the books and records of the
Corporation;
8. failure to call and hold stockholders' and
directors' meetings;
9. virtual disregard and ignoring of the
board of directors who has been and is
conducting the affairs of the Corporation
under his absolute control and for his
personal benefit and for the benefit of
the corporations controlled by him; and
10. irregularity in the keeping and errors and
omissions in the books and failure of the
same to reflect the real and actual
transactions of the Corporation.
● Judge Teodoro granted petition for
appointment of a receiver (Yulo).
● The Corporation filed the present petition for
certiorari with preliminary injunction to revoke
and set aside the order appointing a receiver,
alleging that:
1. The appointment of a receiver was
merely an auxiliary remedy;
2. The principal remedy sought by
Lizares et al. was dissolution;
3. A suit for the dissolution of a
corporation can be brought and
maintained only by the State
 through its legal counsel, and Lizares
et al., much less the minority
shareholders, have no right or
personality to maintain the action for
dissolution.
4. Since the action cannot be
maintained legally by Lizares et al.,
the auxiliary remedy of appointment
of a receiver has no basis.
● The lower court granted the writ of
preliminary injunction upon the filing of a
bond by the Corporation.
 CASE TITLE FACTS
Organizing the Corporation Promoters (Section 2 [r] of the Revised Securities Act [BP 178])
(Sections 60 and 61 of the Corporation Code)
CAGAYAN FISHING Manuel Tabora is the registered owner of four parcels of
DEVELOPMENT CO., INC., land and he wanted to build a Fishery. He loaned from PNB
vs.TEODORO SANDIKO G.R. P8, 000 and to guarantee the payment of the loan, he
No. 43350 December 23, mortgaged the said parcels of land. Three subsequent
1937 Corporation, mortgages were executed in favor of the same bank and to
Incorporation, Promoters of Severina Buzon, whom Tabora is indebted to.
Corporation
Tabora sold the four parcels of land to the plaintiff
company, said to be under process of incorporation, in
consideration of one peso (P1) subject to the mortgages in
favor of PNB and Severina Buzon and, to the condition that
the certificate of title to said lands shall not be transferred
to the name of the plaintiff company until the latter has
fully and completely paid Tabora’s indebtedness to PNB.
The articles of incorporation were filed and the company
sold the parcels of land to Sandiko on the reciprocal
obligation that Sandiko will shoulder the three mortgages. A
deed of sale executed before a notary public by the terms
of which the plaintiff sold, ceded and transferred to the
defendant all its rights, titles and interest in and to the four
parcels of land.
He executed a promissory note that he shall be 25,300
after a year with interest and on the promissory notes, the
parcels were mortgage as security.
A promissory note for P25,300 was drawn by the defendant
in favor of the plaintiff, payable after one year from the
date thereof. Further, a deed of mortgage executed before
a notary public in accordance with which the four parcels of
land were given as security for the payment of the said
promissory note. All these three instruments were dated
ISSUE
1. Whether Cagayan
Fishing Dev’t. has
juridical capacity to enter
into the contract.
2. Can promoters of a
corporation act as agents
of a corporation?
RULING
1. The transfer made by Tabora to the Cagayan
Fishing Development Co., Inc., plaintiff herein,
was effected on May 31, 1930 and the actual
incorporation of said company was effected later
on October 22, 1930. In other words, the transfer
was made almost five months before the
incorporation of the company.
A duly organized corporation has the power to
purchase and hold such real property as the
purposes for which such corporation was formed
may permit and for this purpose may enter into
such contracts as may be necessary. But before a
corporation may be said to be lawfully organized,
many things have to be done. Among other
things, the law requires the filing of articles of
incorporation. Although there is a presumption
that all the requirements of law have been
complied with, in the case before us it cannot be
denied that the plaintiff was not yet incorporated
when it entered into the contract of sale.
The contract itself referred to the plaintiff as “una
sociedad en vias de incorporacion.” It was not
even a de facto corporation at the time. Not being
in legal existence then, it did not possess juridical
capacity to enter into the contract.
“Corporations are creatures of the law, and can
only come into existence in the manner prescribed
by law. As has already been stated, general laws
authorizing the formation of corporations are
general offers to any persons who may bring
themselves within their provisions; and if
conditions precedent are prescribed in the statute,
February 15, 1932.
Sandiko failed to pay, thus the action for payment. The
lower court held that deed of sale was invalid.
The corporation filed a motion for reconsideration.
or certain acts are required to be done, they are
terms of the offer, and must be complied with
substantially before legal corporate existence can
be acquired.”
“That a corporation should have a full and
complete organization and existence as an entity
before it can enter into any kind of a contract or
transact any business, would seem to be self-
evident. A corporation, until organized, has no
being, franchises or faculties. Nor do those
engaged in bringing it into being have any power
to bind it by contract, unless so authorized by the
charter. Until organized as authorized by the
charter there is not a corporation, nor does it
possess franchises or faculties for it or others to
exercise, until it acquires a complete existence.”
2. The contract here was entered into not only
between Manuel Tabora and a non-existent
corporation but between Manuel Tabora as owner
of four parcels of land on the one hand and the
same Manuel Tabora, his wife and others, as
mere promoters of a corporation on the other
hand. For reasons that are self-evident, these
promoters could not have acted as agents for a
projected corporation since that which had no
legal existence could have no agent. A
corporation, until organized, has no life and
therefore no faculties. It is, as it were, a child in
ventre sa mere. This is not saying that under no
circumstances may the acts of promoters of a
corporation be ratified by the corporation if and
when subsequently organized. There are, of
course, exceptions, but under the peculiar facts
and circumstances of the present case we decline
to extend the doctrine of ratification which would
result in the commission of injustice or fraud to
the candid and unwary.

25 SCRA 285 - RIZAL 1. Morong Electric applied for a CPCN with the PSC to
LIGHT & ICE CO., INC. vs. provide for electric service in Morong, Rizal.
PSC and Morong Elec. Co. 2. In May 1962, Morong Electric was granted a franchise.
(1968) PSC found that “Morong Electric is a corporation duly
organized and existing under the laws of the
Philippines, the stockholders of which are Filipino
citizens, that it is financially capable of operating an
electric light, heat and power service, and that at the
time the decision was rendered there was absence of
electric service in Morong, Rizal”
3. It was only on October 17 of the same year that the
SEC issued Morong Electric’s certificate of
incorporation.
4. Rizal Light, a prior operator, contends that Morong
should not have been granted the CPCN because:
o it did not have a corporate personality at the time
it was granted a franchise and when it applied for
said certificate
o it is not financially capable of undertaking an
electric service
o petitioner was rendering efficient service before its
electric plant was burned, and therefore, being a
prior operator its investment should be protected
and no new party should be granted a franchise
and certificate of public convenience and necessity
to operate an electric service in the same locality.
The transfer by Manuel Tabora to the Cagayan
Fishing Development Company, Inc. was null
because at the time it was effected the
corporation was non-existent, we deem it
unnecessary to discuss this point.
WON the franchise Petitioner: until a corporation has come into
granted to Morong being, in this jurisdiction, by the issuance of a
Electric is valid despite certificate of incorporation by the SEC, it cannot
the fact that such was enter into any contract as a corporation. The
granted before Morong franchise was granted to Morong Electric when it
Electric’s certificate of was not yet in esse is null and void
incorporation was issued SC: Petitioner's contention that Morong Electric
by the SEC – did not yet have a legal personality when a
municipal franchise was granted to it is correct.
The juridical personality and legal existence of
Morong Electric began only when its certificate of
incorporation was issued by the SEC.
o Before that date, or pending the issuance
of said certificate of incorporation, the
incorporators cannot be considered as de
facto corporation, but the fact that
Morong Electric had no corporate
existence on the day the franchise
was granted in its name does not
render the franchise invalid, because
later Morong Electric obtained its
certificate of incorporation and then
accepted the franchise in accordance
with tshe terms and conditions thereof.
This view is sustained by eminent
American authorities (see doctrine)
Thus, the incorporation of Morong Electric on
October 17, 1962 and its acceptance of the
franchise as shown by its action in prosecuting the
application filed with the Commission for the
approval of said franchise 1) perfected a contract
between the respondent municipality and Morong
Electric and 2) cured the deficiency pointed out by
the petitioner in the application of Morong
EIectric.
The conclusion regarding the validity of the
franchise granted to Morong Electric is not
incompatible with the holding of this Court in
Cagayan Fishing Development Co., Inc. vs.
Teodoro Sandiko wherein Court held that a
corporation should have a full and complete
organization and existence as an entity before it
can enter into any kind of a contract or transact
any business.
o this Court did not say in that case that
the rule is absolute or that under no
circumstances may the acts of
promoters of a corporation be
ratified or accepted by the
corporation if and when
subsequently organized
o there are exceptions such as the fact
that American courts generally hold that
a contract made by the promoters of a
corporation on its behalf may be
adopted, accepted or ratified by the
corporation when organized. PSC
decision affirmed.

McQuillin: “The fact that a company is not

completely incorporated at the time the grant is
made to it by a municipality to use the streets
does not, in most jurisdictions, affect the validity
of the grant. But such grant cannot take effect
until the corporation is organized…”

Fletcher: “While a franchise cannot take

effect until the grantee corporation is
organized, the franchise may, nevertheless,
be applied for before the company is fully
organized. A grant of a street franchise is
valid although the corporation is not
created until afterwards.”

Thompson (explains reason for these rules^):

“…an ordinance granting a privilege to a
corporation is not void because the beneficiary of
the ordinance is not fully organized at the time of

FERMIN CARAM, JR. and 1. The services of Barretto was requested to initiate
ROSE DE CARAM v. CA and the incorporation of Filipinas Orient Airways (FOA).
ALBERTO V. ARELLANO 2. Barretto was referred to as the “moving spirit” of
151 SCRA 372 (June 30, said corporation because it was through his effort
1987) that it was created. Before FOA’s creation though,
CRUZ, J. Barretto contracted with a third party, Alberto
Arellano, for the latter to prepare a project study
for the feasibility of creating a corporation like
FOA.
3. The project study was then presented to the
would-be incorporators and investors.
4. On the basis of said project study, Fermin Caram,
Jr. and Rosa Caram agreed to be incorporators of
FOA. Later however, Arellano filed a collection suit
against FOA, Barretto, and the Carams.
5. Arellano claims that he was not paid for his work
on the project study.
6. Lower Court: Orders the Carams to jointly and
severally pay Arellano P50,000.00 for the
preparation of the project study and his technical
the introduction of the ordinance. It is enough
that organization is complete prior to the passage
and acceptance of the ordinance. The reason is
that a privilege of this character is a mere
license to the corporation until it accepts
the grant and complies with its terms and
conditions.”
xxx
[IMPT] The ruling that a corporation should have
a full and complete organization and existence as
an entity before it can enter into any kind of a
contract or transact any business is NOT
ABSOLUTE. Under American jurisprudence, a
contract made by the promoters of a
corporation on its behalf may be adopted,
accepted or ratified by the corporation
when organized.
Whether or not GRANTED. Petitioners are not liable.
petitioners themselves The petitioners were not really involved in the
are also personally liable initial steps that finally led to the incorporation of
for such expenses and, if FAO, which were being directed by Barretto as the
so, to what extent? NO. main promoter. It was he who was putting all the
The petitioners did not pieces together. The airline was eventually
contract the services of organized on the basis of the project study with
Arellano. It was only the the petitioners as major stockholders and,
results of such services together with Barretto and Garcia, as principal
that Barretto and Garcia officers. The petitioners were merely among the
presented to them and financiers whose interest was to be invited and
which persuaded them who were in fact persuaded, on the strength of
to invest in the proposed the project study, to invest in the proposed
airline. airline.
There was no showing that FAO was a fictitious
corporation and did not have a separate juridical
personality, to justify making the petitioners, as
principal stockholders thereof, responsible for its
obligations. As a bona fide corporation, FAO
should alone be liable for its corporate acts as
duly authorized by its officers and directors.
 services that led to the organization of the The petition is rather hazy and seems to be
defendant corporation, plus P10,000.00 attorney’s flawed by an ambiguous ambivalence. It is
fees unnecessary to examine at this time the rules on
- It was upon the request of Barretto and solidary obligations, which the parties-needlessly,
Garcia that Arellano handled the preparation as it turns out have belabored unto death.
of the project study which project study was
presented to Caram so the latter was DOCTRINE:
convinced to invest in the proposed airlines. Corporation Law; A bona fide corporation should
- The project study was revised for purposes of alone be liable for its corporate acts duly
presentation to financiers and the banks. It authorized by its officers and directors.
was on the basis of this study that defendant
corporation was actually organized and Petitioners cannot be held personally liable for the
rendered operational. compensation claimed by private respondent for
services performed by him in the organization of
- Garcia and Caram, and Barretto became the corporation since petitioners did not contract
members of the Board and/or officers of
such services.
defendant corporation
- All the other defendants who were involved in
the preparatory stages of the incorporation
must be liable
7. The petitioners claim that this order has no
support in fact and law because they had no
contract whatsoever with the private respondent
regarding the above-mentioned services.
8. Their position is that as mere subsequent investors
in the corporation that was later created, they
should not be held solidarily liable with FOA, a
separate juridical entity, and with Barretto and
Garcia (their co-defendants in the lower court)
who were the ones who requested the said
services from Arellano.

Subscription Contracts
(Sections 60 and 72 of the Corporation Code)

Trillana vs. Quezon Damasa Crisostomo subscribed 200 shares of capital stock
College, Inc. 93 Phil., 383 , with a par value of P100 each through a letter sent to the
June 27, 1953 Board of Trustees of the Quezon College, enclosed with the
letter are a sum of money as her initial payment and her
assurance of full payment after she harvested fish. On
October 26, 1948, Damasa Crisostomo passed away. As no
Whether or not the No, Under article 1115 of the old Civil Code which
condition entered into by provides as follows: "If the fulfillment of the
both parties are valid. condition should depend upon the exclusive will of
the debtor, the conditional obligation shall be
void.

Bayla v. Silang Traffic Co.
(1942)
payment appears to have been made on the subscription
mentioned in the foregoing letter, the Quezon College, Inc.
presented a claim before the CFI of Bulacan in her testate
proceeding, for the collection of the sum of P20,000,
representing the value of the subscription to the capital
stock of the Quezon College, Inc. which was then opposed
by the administrator of the estate.
Petitioners purchased the following:
Sofronio T. Bayla....... 8 shares P360
Venancio
8 shares 375
Toledo........
Josefa
15 shares 675
Naval..............
purchase price to be paid 5% upon the execution of the
contract and the remainder in instalments of 5%, payable
within the 1st month of each and every quarter starting July
1, 1935, w/ interest on deferred payments at 6%/annum
until paid
They also agreed to forfeit in favor of seller in case of
default w/o court proceedings
BOD resolution Aug 1, 1937: rescinding the agreement
Petitioners filed an action in the CFI against Silang Traffic
Co. Inc to recover certain sum of money w/c they had paid
severally to the corp. on account of shares of stock they
indiv. agreed to take and pay for under certain conditions
Defenses:
That the resolution is not applicable to the petitioners
Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on
the date thereof "their subscribed shares of stock had
already automatically reverted to the defendant, and the
As the appellant offered its stock for subscription
on the term stated in a form letter, and Damasa
Crisostomo (D.C.) applied for subscription fixing
her own plan of payment, the relation, in the
absence of acceptance by the appellant of the
counter offer of D.C., had not ripened into an
enforceable contract. There was imperative need
for express acceptance on appellant's part,
because the proposal of D. C. to pay the value of
the subscription after she had harvested fish, was
a condition obviously dependent upon her sole will
and, therefore, facultative in nature, rendering the
obligation void under article 1115 of the old Civil
Code.”
W/N the subsequent NO. CA reversed. Silang Traffic to pay petitioners
BOD resolution is valid
1. NO
W/N under the contract ▪ noted agreement is entitled "Agreement for
between the parties the Installment Sale of Shares in the Silang
failure of the purchaser Traffic Company, Inc.,"; that while the
to pay any of the purchaser is designated as "subscriber," the
quarterly installments on corporation is described as "seller"
the purchase price ▪ Whether a particular contract is a
automatically gave rise subscription or a sale of stock is a matter of
to the forfeiture of the construction and depends upon its terms and
amounts already paid the intention of the parties
and the reversion of the ▪ subscription - mutual agreement of the
shares to the corporation subscribers to take and pay for the stock of a
corporation
▪ purchase - independent agreement bet. the
individual and the corp. to buy shares of
stock from it at stipulated price
▪ rules governing subscriptions and sales of
shares are different
▪ Corporation Law regarding calls for unpaid
subscription and assessment of stock
(sections 37-50) do not apply to a purchase
of stock
▪ corporation has no legal capacity to release
an original subscriber to its capital stock from
the obligation to pay for his shares, is
inapplicable to a contract of purchase of
installments paid by them had already been forfeited"
that said resolution of August 1, 1937, was revoked and
cancelled by a subsequent resolution
RTC: absolved defendant. BOD resolution cancelled
Petitioners appealed
Subscription Contracts
(Sections 60 and 72 of the Corporation Code)
shares.
▪ The contract in question being one of
purchase and not subscription as we have
heretofore pointed out, we see no legal
impediment to its rescission by agreement of
the parties
▪ We may add that there is no intimation in
this case that the corporation was insolvent,
or that the right of any creditor of the same
was in any way prejudiced by the rescission.
▪ The attempted revocation of said rescission
by the resolution of August 22, 1937, was
invalid, it not having been agreed to by the
petitioners.
2. NO
▪ The provision regarding interest on deferred
payments would not have been inserted if it
had been the intention of the parties to
provide for automatic forfeiture and
cancelation of the contract
▪ contract did not expressly provide that the
failure of the purchaser to pay any
installment would give rise to forfeiture and
cancelation without the necessity of any
demand from the seller
▪ Art. 1100 of the Civil Code: persons obliged
to deliver or do something are not in default
until the moment the creditor demands of
them judicially or extrajudicially the
fulfillment of their obligation, unless
(1) the obligation or the law expressly
provides that demand shall not be necessary
in order that default may arise
(2) by reason of the nature and
circumstances of the obligation it shall appear
that the designation of the time at which that
thing was to be delivered or the service
rendered was the principal inducement to the
creation of the obligation.
 Release from subscription obligation
VELASCO VS. POIZAT The plaintiff, as assignee in insolvency of "The Philippine
Chemical Product Company" (Ltd.) is seeking to recover of
G.R. No. L-11528 the defendant, Jean M. Poizat, the sum of P1,500, upon a
subscription made by him to the corporate stock of said
company. It appears that the corporation in question was
originally organized by several residents of the city of
Manila, where the company had its principal place of
business, with a capital of P50,000, divided into 500 shares.
The defendant subscribed for 20 shares of the stock of the
company, an paid in upon his subscription the sum of P500,
the par value of 5 shares . The action was brought to
recover the amount subscribed upon the remaining shares.
It appears that the defendant was a stock holder in the
company from the inception of the enterprise, and for
sometime acted as its treasurer and manager. While serving
in this capacity he called in and collected all subscriptions to
the capital stock of the company, except the aforesaid 15
shares subscribed by himself and another 15 shares owned
by Jose R. Infante.
A meeting of the board of directors of the company was
held at which a majority of the stock was presented. Upon
this occasion two resolutions were adopted. The first was a
proposal that the directors, or shareholders, of the
company should make good by new subscriptions, in
proportion to their respective holdings, 15 shares which had
been surrendered by Infante. It seems that this shareholder
had already paid 25 per cent of his subscription upon 20
shares, leaving 15 shares unpaid for, and an understanding
had been reached by him and the management by which
he was to be released from the obligation of his
subscription, it being understood that what he had already
paid should not be refunded. Accordingly the directors
present at this meeting subscribed P1,200 toward taking up
his shares, leaving a deficiency of P300 to be recovered by
voluntary subscriptions from stockholders not present at the
meeting. The other proposition was o the effect that Juan
[Jean] M. Poizat, who was absent, should be required to
pay the amount of his subscription upon the 15 shares for
which he was still indebted to the company. The resolution
further provided that, in case he should refuse to make
WON Poizat is liable Poizat is liable upon his subscription. Section 36 of
upon this subscription? the Corporation Law clearly recognizes that a
stock subscription is subsisting liability from the
time the subscription is made, since it requires the
subscriber to pay interest quarterly from that date
unless he is relieved from such liability by the by-
laws of the corporation. The subscriber is as much
bound to pay the amount of the share subscribed
by him as he would be to pay any other debt, and
the right of the company to demand payment is
no less incontestable. The provisions of the
Corporation Law (Act No. 1459) given recognition
of two remedies for the enforcement of stock
subscriptions. The first and most special remedy
given by the statute consists in permitting the
corporation to put up the unpaid stock for sale
and dispose of it for the account of the delinquent
subscriber. In this case the provisions of section
38 to 48, inclusive, of the Corporation Law are
applicable and must be followed. Nothing in this
Act shall prevent the directors from collecting, by
action in any court of proper jurisdiction, the
amount due on any unpaid subscription, together
with accrued interest and costs and expenses
incurred. The assignee of the insolvent
corporation succeeds to all the corporate rights of
action vested in the corporation prior to its
insolvency; and the assignee therefore has the
same freedom with respect to suing upon the
stock subscription as the directors themselves
would have had under section 49 above cited.
There is another reason why the present plaintiff
must prevail in this case. That reason is this:
When insolvency supervenes upon a corporation
and the court assumes jurisdiction to wind up, all
unpaid stock subscriptions become payable on
demand, and are at once recoverable in an action
instituted by the assignee or receiver appointed
by the court. It is now quite well settled that
when the corporation becomes insolvent, with
such payment, the management of the corporation should
be authorized to undertake judicial proceedings against
him. When notification of this resolution reached Poizat
through the mail it evoked from him a manifestation of
surprise and pain, which found expression in a letter written
by him in reply, dated July 27, 1914, and addressed to
Velasco, as treasurer and administrator. In this letter Poizat
states that he had been given to understand by some
member of the board of directors that he was to be relieved
from his subscription upon the terms conceded to Infante.
The company soon went into voluntary insolvency, Velasco
being named as the assignee. At the hearing of the Court of
First Instance, judgment was rendered in favor of the
defendant, and the complaint was dismissed. From this
action the plaintiff has appealed.
proceedings instituted by creditors to wind up and
distribute its assets, no call or assessment is
necessary before the institution of suits to collect
unpaid balances on subscription. It evidently
cannot be permitted that a subscriber should
escape from his lawful obligation by reason of the
failure of the officers of the corporation to
perform their duty in making a call; and when the
original model of making the call becomes
impracticable, the obligation must be treated as
due upon demand. The better doctrine is that
when insolvency supervenes all unpaid
subscriptions become at once due and
enforceable.
The circumstance that the board of directors in
their meeting of July 13, 1914, resolved to release
Infante from his obligation upon a subscription for
15 shares is no wise prejudicial to the right of the
corporation or its assignee to recover from Poizat
upon a subscription made by him. In releasing
Infante the board transcended its powers, and he
no doubt still remained liable on such of his
shares as were not taken up and paid for by other
persons.The general doctrine is that the
corporation has no legal capacity to release an
original subscriber to its capital stock from the
obligation of paying for his shares, in whole or in
part.The suggestion contained in Poizat's letter of
July 27, 1914, to the effect that he understood
that he was to be relieved upon the same terms
as Infante is, for the same reason, of no merit as
matter of defense, even if an agreement to that
effect had been duly proved.
Doctrines
A stock subscription is a contract between the
corporation and the subscriber, and courts will
enforce it for or against either. No express
promise to pay is necessary to make the
subscriber liable.

The corporation has two remedies against the

subscriber to the corporate shares, namely (1) to
sell the stock for the account of the delinquent
subscriber, and (2) to bring a legal action against
him for the amount due.

A corporation has no legal capacity to release a

subscriber to its capital stock from the obligation
to pay for his shares; and any agreement to this
effect is invalid.
Philippine National Bank vs. The Philippine Lumber Distributing Agency, Inc., according Whether or not the non- NO.
Bitulok Sawmill, Inc. to the lower court, "was organized sometime in the early compliance with a plain It would be unwarranted to ascribe to the late
23 SCRA 1366 (1968) part of 1947 upon the initiative and insistence of the late statutory command, President Roxas the view that the payment of the
President Manuel Roxas of the Republic of the Philippines considering the stock subscriptions, as thus required by law, could
who for the purpose, had called several conferences persuasiveness of the be condoned in the event that the counterpart
between him and the plea that defendants- fund to be invested by the Government would not
subscribers and organizers of the Philippine Lumber appellees would "not be available. Even if such were the case, however,
Distributing Agency, Inc." The purpose was praiseworthy, have subscribed to the and such a promise were
to insure a steady supply of lumber, which could be sold at capital stock" of the in fact made, to further the laudable purpose to
reasonable prices to enable the war sufferers to rehabilitate Philippine Lumber which the proposed corporation would be devoted
their devastated homes. At the beginning, the lumber Distributing and the possibility that the lumber producers
producers were reluctant to organize the cooperative Agency "were it not for would lose
agency as they believed that it would not be easy to the assurance of the money in the process, still the plain and specific
eliminate from the retail trade the alien middlemen who had then President of the wording of the applicable legalprovision as
been in this Republic that interpreted by this Court must be controlling. It is
business from time immemorial, but because the late the Government would a well-settled
President Roxas made it clear that such a cooperative back it up by investing principle that with all the vast powers lodged in
agency would not be successful without substantial working P9.00 for every peso" the Executive, he is still devoid of the prerogative
capital which the lumber producers could not entirely subscribed, of suspending the operation of any statute or any
shoulder, and as an inducement he promised and agreed to a condition which was of its terms.
finance the agency by making the Government invest P9.00 not fulfilled, such
by way of counterpart for every peso that the members commitment not having DOCTRINES
would invest therein." Accordingly, "the late President been complied
It is an established doctrine that subscriptions to
Roxas instructed the Hon. Emilio Abello, then Executive with, be justified.
the capital of a corporation constitute a fund to
Secretary and Chairman of the Board of Directors of the
which creditors have a right to look for
Philippine National Bank, for the latter to grant saidagency
satisfaction of their claims and that the assignee
an overdraft in the original sum of P250,000.00 which was
in insolvency can maintain an action upon any
later increased to P350,000.00, which was approved by said
unpaid stock subscription in order to realize assets
Board of Directors of the
for the payment of its debts.
Philippine National Bank on July 28, 1947, payable on or
before April 30, 1958, with interest at the rate of 6% per A corporation has no power to release an original
annum, and secured by the chattel mortgages on the stock subscriber to its capital stock from the obligation
of lumber of said agency." The Philippine Government did of paying for his shares, without a valuable
not invest the P9.00 for every peso coming from defendant consideration for such release; and as against
lumber producers. The loan extended to the Philippine creditors a reduction of the capital stock can take
Lumber Distributing Agency by the Philippine National Bank place only in the manner and under the conditions
was not paid. prescribed by the statute or the charter or the
articles of incorporation

Formalities in Organizing
Generally
Government of the PI vs. This is a petition in the Supreme Court of the extraordinary Whether or not the Inasmuch as Act No. 1510 is the charter of Manila
Manila Railroad, 103 PHIL 757
(1929)
legal writ of mandamus presented by the Government of
the Philippine Islands, praying that the writ be issued to
compel the Manila Railroad Company and Jose Paez, as its
manager, to provide and equip the telegraph poles of said
company between the municipality of Paniqui, Province of
Tarlac, and the Municipality of San Fernando, Province of La
Union, with crosspieces for six telegraph wires belonging to
the Government, which, it is alleged, are necessary for
public service between said municipalities. The government
of the Philippines entered into a contract with the manila
rail road company under a special charter act no. 1510. The
government of the Philippines is now demanding from the
defendant that it should provide and equip its telegraph
poles with crosspieces to carry six telegraph wires of the
Government. This claim is based on the provisions of
section 84 of act No. 1459. Act No. 1459 is the General
Corporation Law and was adopted by the United States
Philippine Commission on March 1, 1906. (Vol. 5, Pub.
Laws, pp. 224-268.) Section 84 of the said Act provides:
The railroad corporation shall establish along the
whole length of the road a telegraph line for the
use of the railroad. The posts of this line may be
used for Government wires and shall be of
sufficient length and strength and equipped with
sufficient crosspiece to carry the number of wires
which the Government may consider necessary for
the public service. The establishment, protection,
and maintenance of the wires and stations
necessary for the public service shall be at the cost
of the Government. (Vol. 5, P. L., p. 247.)
The defense of the defendant is that it is not bound by the
provisions of the corporation code because it has a charter
of his own Act. No 1510. Under that act the government is
entitled to place on the poles of the company four wires
only.
provisions of the Railroad Company and constitute a contract
corporation law apply between it and the Governmemnt, it would seem
between the parties. that the company is governd by its contract and
not by the provisions of any general law upon
questions covered by said contract. From a
reading of the said charter or contract it would be
seen that there is no indication that the
Government intended to impose upon said
company any other conditions as obligations not
expressly found in said charter or contract. If that
is true, then certainly the Government cannot
impose upon said company any conditions or
obligations found in any general law, which does
not expressly modify said contract.
Section 84 of the Corporation Law (Act No. 1459)
was intended to apply to all railways in the
Philippine Islands which did not have a special
charter contract. Act No. 1510 applies only to the
Manila Railroad Company, one of the respondents,
and being a special charter of said company, its
adoption had the effect of superseding the
provisions of the general Corporation Law which
are applicable to railraods in general. The special
charter (Act No. 1510) had the effect of
superseding the general Corporation Law upon all
matters covered by said special charter. Said Act,
inasmuch as it contained a special provision
relating to the erection of telegraph and telephone
poles, and the number of wires which the
Government might place thereon, superseded the
general law upon that question.
Act No. 1510 of the United States Philippine
Commission (vol. 5, P. L., pp. 350-358), and that
under the provisions of said Act No. 1510 the
Government is entitled to place on the poles of
the company four wires only.
Rural Bank of Salinas, Inc. Clemente G. Guerrero, President of the Rural Bank of
v. CA Salinas, Inc., executed a Special Power of Attorney in favor
210 SCRA 510 of his wife, Melania to sell or otherwise dispose of and/or
mortgage 473 shares of stock of the Bank registered in his
name (represented by the Bank's stock certificates nos. 26,
49 and 65), to execute the proper documents therefor, and
to receive and sign receipts for the dispositions. Melania, as
Attorney-in-Fact, executed a Deed of Assignment for 472
shares out of the 473 shares, in favor of private
respondents Luz Andico (457 shares), Wilhelmina Rosales
(10 shares) and Francisco Guerrero, Jr. (5 shares). Melania
Guerrero presented to Rural Bank of Salinas the 2 Deeds of
Assignment for registration with a request for the transfer
in the Bank's stock and transfer book of the 473 shares of
stock so assigned, the cancellation of stock certificates in
the name of Clemente, and the issuance of new stock
certificates in the name of the new owners thereof., Rural
Bank denied such request. Melania filed with the SEC an
action for mandamus against Rural Bank of Salinas, its
President and Corporate Secretary.
The Bank in their Answer with counterclaim alleged that
upon the death of Clemente, his 473 shares of stock
became the property of his estate, and his property and
that of his widow should first be settled and liquidated in
accordance with law before any distribution can be effected
so that petitioners may not be a party to any scheme to
evade payment of estate or inheritance tax and in order to
avoid liability to any third persons or creditors of the late
Clemente.
Maripol Guerrero filed a motion for intervention (legally
adopted daughter of the late Clemente and Melanie) stating
that a Petition for the administration of the estate of
Clemente had been filed but her motion was denied. She
then filed before the CFI of Rizal, against Melanie for the
annulment of the Deeds of Assignment for being fictitious,
void or simulated. The Bank then filed a motion to
dissmiss/suspend hearing pending resolution of the case for
annulment. However, SEC denied such motion.
SEC rendered a Decision granting the writ of Mandamus
and directing petitioners to cancel stock certificates of the
Bank, and to issue new certificates in the names of private
respondents, except Melania Guerrero. Appealed to the CA
1. WON SEC has the 1. Section 5 (b) of P.D. No. 902-A grants to the
power to adjudicate the SEC the original and exclusive jurisdiction to hear
case. -Yes and decide cases involving intracorporate
2. WON corporatons controversies. An intracorporate controversy has
may by its board, its by- been defined as one which arises between a
laws, or the act of its stockholder and the corporation. There is no
officers create distinction, qualification, nor any exception
restrictions in stock whatsoever (Rivera vs. Florendo, 144 SCRA 643
transfers.No. [1986]). The case at bar involves shares of stock,
3. WON the Bank being their registration, cancellation and issuances
a corporation may refuse thereof by petitioner Rural Bank of Salinas. It is
to transfer and register therefore within the power of respondent SEC to
stocks. No. adjudicate.
2. A corporation, either by its board, its by-laws,
or the act of its officers, cannot create restrictions
in stock transfers, because:. . Restrictions in the
traffic of stock must have their source in
legislative enactment, as the corporation itself
cannot create such impediment. By-laws are
intended merely for the protection of the
corporation, and prescribe regulation, not
restriction; they are always subject to the charter
of the corporation. The corporation, in the
absence of such power, cannot ordinarily inquire
into or pass upon the legality of the transactions
by which its stock passes from one person to
another, nor can it question the consideration
upon which a sale is based. . . . (Tomson on
Corporation Sec. 4137, cited in Fleisher vs.
Nolasco, Supra).
The only limitation imposed by Section 63 of the
Corporation Code is when the corporation holds
any unpaid claim against the shares intended to
be transferred, which is absent here.
3. The right of a transferee/assignee to have
stocks transferred to his name is an inherent right
flowing from his ownership of the stocks.
Respondent SEC correctly ruled in favor of the
registering of the shares of stock in question in
private respondent's names. Such ruling finds
support under Section 63 of the Corporation Code,

Articles of Incorporation, Procedure and Documentary Requirements, As to corporate name (Section 18)
Red Line Transportation Thi
Co. vs. Rural Transit Co.
GR No. 41570 | Sept. 6,
1934
but CA affirmed the decision of SEC.
Formalities in Organizing
This is a petition for review of an order of the Public Service
Commission granting to the Rural Transit Company, Ltd., a
certificate of public convenience to operate a transportation
service between Ilagan in the Province of Isabela and
Tuguegarao in the Province of Cagayan, and additional trips
in its existing express service between Manila Tuguegarao.
On June 4, 1932, Rural Transit filed an application for
certification of a new service between Tuguegarao and
Ilagan with the Public Company Service Commission (PSC),
since the present service is not sufficient Rural Transit
further stated that it is a holder of a certificate of public
convenience to operate a passenger bus service between
Manila and Tuguegarao. Red Line opposed said application,
arguing that they already hold a certificate of public
convenience for Tuguegarao and Ilagan, and is rendering
to wit:
Sec. 63. . . . Shares of stock so issued are
personal property and may be transferred by
delivery of the certificate or certificates indorsed
by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No
transfer, however, shall be valid, except as
between the parties, until the transfer is recorded
in the books of the corporation . . .
The corporation's obligation to register is
ministerial.
In transferring stock, the secretary of a
corporation acts in purely ministerial
capacity, and does not try to decide the
question of ownership. (Fletcher, Sec.
5528, page 434).
The duty of the corporation to transfer is
a ministerial one and if it refuses to make
such transaction without good cause, it
may be compelled to do so by
mandamus. (See. 5518, 12 Fletcher 394)
Can the Public Service NO
Commission authorize a The Rural Transit Company, Ltd., and the
corporation to assume Bachrach Motor Co., Inc., are Philippine
the name of another corporations and the very law of their creation
corporation as a trade and continued existence requires each to adopt
name? and certify a distinctive name
The incorporators "constitute a body politic and
corporate under the name stated in the
certificate."
A corporation has the power "of succession by
its corporate name." It is essential to its existence
and cannot change its name except in the manner
provided by the statute. By that name alone is it
authorized to transact business.
The law gives a corporation no express or
 adequate service. They also argued that granting Rural implied authority to assume another name that is
Transit’s application would constitute a ruinous competition unappropriated: still less that of another
over said route. On Dec. 21, 1932, Public Service corporation, which is expressly set apart for it and
Commission approved Rural Transit’s application, with the protected by the law. If any corporation could
condition that "all the other terms and conditions of the assume at pleasure as an unregistered trade
various certificates of public convenience of the herein name the name of another corporation, this
applicant and herein incorporated are made a part hereof." practice would result in confusion and open the
A motion for rehearing and reconsideration was filed by door to frauds and evasions and difficulties of
Red Line since Rural Transit has a pending application administration and supervision.
before the Court of First Instance for voluntary dissolution In this case, the order of the commission
of the corporation. authorizing the Bachrach Motor Co., Incorporated,
A motion for postponement was filed by Rural Transit as to assume the name of the Rural Transit Co., Ltd.
verified by M. Olsen who swears "that he was the secretary likewise incorporated, as its trade name being
of the Rural Transit Company, Ltd. void. Accepting the order of December 21, 1932,
During the hearing before the Public Service at its face as granting a certificate of public
Commission, the petition for dissolution and the CFI’s convenience to the applicant Rural Transit Co.,
decision decreeing the dissolution of Rural Transit were Ltd., the said order last mentioned is set aside
admitted without objection and vacated on the ground that the Rural Transit
At the trial of this case before the Public Service Company, Ltd., is not the real party in interest
Commission an issue was raised as to who was the real and its application was fictitious.
party in interest making the application, whether the Rural
Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using
name of the Rural Transit Company, Ltd., as a trade name.
However, PSC granted Rural Transit’s application for
certificate of public convenience and ordered that a
certificate be issued on its name. PSC relied on a Resolution
in case No. 23217, authorizing Bachrach Motor to continue
using Rural Transit’s name as its tradename in all its
applications and petitions to be filed before the PSC. Said
resolution was given a retroactive effect as of the date of
filing of the application or April 30, 1930.

On June 1, 1953, plaintiff was originally named as May a Philippine YES. As can be gleaned under Sections 6 and 18
PHILIPPINE FIRST 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd’ an corporation change its of the Corporation Law, the name of a corporation
INSURANCE COMPANY, insurance corp. duly presented with the Security and name and still retain its is peculiarly important as necessary to the very
INC. Exchange Commissioner and before a Notary Public as original personality and existence of a corporation. The general rule as to
vs. provided in their articles of incorporation. Later amended its individuality as such? corporations is that each corporation shall have a
MARIA CARMEN articles of incorporation and changed its name on May 26, name by which it is to sue and be sued and do all
HARTIGAN, CGH, and O. 1961 as ‘Philippine First Insurance Co., Inc.’ pursuant to a legal acts. The name of a corporation in this
ENGKEE certificate of the Board of Directors. respect designates the corporation in the same
The complaint alleges that: Philippine First manner as the name of an individual designates
Insurance Co., Inc., doing business under the name of 'The
Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as
co-maker together with defendant Maria Carmen Hartigan,
CGH, to which a promissory note was made in favour of
China Banking. Said defendant failed to pay in full despite
renewal of such note. The complaint ends with a prayer for
judgment against the defendants, jointly and severally, for
the sum of P4,559.50 with interest at the rate of 12% per
annum from November 23, 1961 plus P911.90 by way of
attorney's fees and costs.
Defendants admitted the execution of the
indemnity agreement but they claim that they signed said
agreement in favor of the Yek Tong Lin Fire and Marine
Insurance Co., Ltd.' and not in favor of the plaintiff
Philippine Insurance. They likewise admit that they failed to
pay the promissory note when it fell due but they allege
that since their obligation with the China Banking
Corporation based on the promissory note still subsists, the
surety who co-signed the promissory note is not entitled to
collect the value thereof from the defendants otherwise
they will be liable for double amount of their obligation,
there being no allegation that the surety has paid the
obligation to the creditor. In their special defense,
defendants claim that there is no privity of contract
between the plaintiff and the defendants and consequently,
the plaintiff has no cause of action against them,
considering that the complaint does not allege that the
plaintiff and the 'Yek Tong Lin Fire and Marine Insurance
Co., Ltd.' are one and the same or that the plaintiff has
acquired the rights of the latter.
the person." Since an individual has the right to
change his name under certain conditions, there is
no compelling reason why a corporation may not
enjoy the same right. There is nothing sacrosanct
in a name when it comes to artificial beings. The
sentimental considerations which individuals
attach to their names are not present in
corporations and partnerships. Of course, as in
the case of an individual, such change may not be
made exclusively. by the corporation's own act. It
has to follow the procedure prescribed by law for
the purpose; and this is what is important and
indispensably prescribed — strict adherence to
such procedure.
A general power to alter or amend the
charter of a corporation necessarily includes the
power to alter the name of the corporation.
Hence, a mere change in the name of a
corporation, either by the legislature or by the
corporators or stockholders under legislative
authority, does not, generally speaking, affect the
identity of the corporation, nor in any way affect
the rights, privileges, or obligations previously
acquired or incurred by it. Indeed, it has been
said that a change of name by a corporation has
no more effect upon the identity of the
corporation than a change of name by a natural
person has upon the identity of such person. The
corporation, upon such change in its name, is in
no sense a new corporation, nor the successor of
the original one, but remains and continues to be
the original corporation. It is the same corporation
with a different name, and its character is in no
respect changed. ... (6 Fletcher, Cyclopedia of the
Law of Private Corporations, 224-225, citing
cases.)
As correctly pointed out by appellant, the
approval by the stockholders of the amendment of
its articles of incorporation changing the name
"The Yek Tong Lin Fire & Marine Insurance Co.,
Ltd." to "Philippine First Insurance Co., Inc." on
March 8, 1961, did not automatically change the
 name of said corporation on that date. To be
effective, Section 18 of the Corporation Law,
earlier quoted, requires that "a copy of the articles
of incorporation as amended, duly certified to be
correct by the president and the secretary of the
corporation and a majority of the board of
directors or trustees, shall be filed with the
Securities & Exchange Commissioner", and it
is only from the time of such filing, that "the
corporation shall have the same powers and it
and the members and stockholders thereof shall
thereafter be subject to the same liabilities as if
such amendment had been embraced in the
original articles of incorporation." It goes without
saying then that appellant rightly acted in its old
name when on May 15, 1961, it entered into the
indemnity agreement, Annex A, with the
defendant-appellees; for only after the filing of
the amended articles of incorporation with the
Securities & Exchange Commission on May 26,
1961, did appellant legally acquire its new name;
and it was perfectly right for it to file the present
case In that new name on December 6, 1961.
Such is, but the logical effect of the change of
name of the corporation upon its actions.
Therefore, actions brought by a
corporation after it has changed its name should
be brought under the new name although for the
enforcement of rights existing at the time the
change was made. The change in the name of
the corporation does not affect its right to bring
an action on a note given to the corporation under
its former name.

Universal Mills
● This is an appeal from the order of the Securities and Whether or not he corporate names in question are not identical,
Corporation vs. Universal Exchange Commission granting a petition by the petioner’s trade name is but they are indisputably so similar that even
Textile Mills respondent to have the petitioner’s corporate name be confusingly similar with under the test of reasonable care and observation
78 SCRA 62 (1977) changed as it is “confusingly and deceptively similar” to that that of respondent’s as the public generally are capable of using and
of the former. may be expected to exercise” invoked by
appellant. We are apprehensive confusion will
 "Universal Textile Mills" was organized on Dec 1953 usually arise, considering that x x x appellant
● Another company, "Universal Hosiery Mills Corporation" included among its primary purposes the
(organized Oct 1954) manufactured hosiery and wearing manufacturing, dyeing, finishing and selling of
apparel. It amended its articles of incorporation changing fabrics of all kinds” which respondent had been
its name to Universal Mills Corporation engaged for more than a decade ahead of
● Fire razed Universal Textile Mills' factory in Pasig. petitioner.
● Petitioner Universal Mills alleged that as a result of the fire
and because of news items appearing in various
newspapers, it created uncertainty and confusion among its
bankers, stockholders and customers. Petitioner filed said
complaint to change corporate name.

➢ SEC: Ordered Universal Mills to change its name on

ground of being confusingly and deceptively similar. Going
further:

"This SEC further takes cognizance of the fact that when the
company filed the amendment changing its name to
Universal Mills Corporation, it filed a written undertaking..
signed by its President, Mr. Cokiat, promising to change its
name in the event that there is another person, firm or
entity who has obtained a prior right to the use of such
name or one similar to it. That promise is still binding upon
the corporation & its responsible officers
G.R. No. Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Whether or not Yes. The SEC has the authority to de-register at
137592 December Suhay ng Katotohanan (Church of God in Christ Jesus, the petitioner corporation's all times and under all circumstances corporate
12, 2001 Pillar and Ground of Truth), is a non-stock religious society (Ang Mga Kaanib) names which in its estimation are likely to spawn
or corporation registered in 1936. Sometime in 1976, one corporate name is confusion. It is the duty of the SEC to prevent
ANG MGA KAANIB SA Eliseo Soriano and several other members of respondent identical or confusingly confusion in the use of corporate names not only
IGLESIA NG DIOS KAY corporation disassociated themselves from the latter and or deceptively similar to for the protection of the corporations involved but
KRISTO HESUS, H.S.K. SA succeeded in registering in 1977 a new non-stock religious that of respondent more so for the protection of the public.
BANSANG PILIPINAS, society or corporation, named Iglesia ng Dios Kay Kristo corporation's (Iglesia ng
INC., petitioner, Hesus, Haligi at Saligan ng Katotohanan. Dios Kay Cristo Jesus) Section 18 of the Corporation Code provides:
vs. corporate name. Corporate Name. — No
IGLESIA NG DIOS KAY Consequently, respondent corporation (Iglesia ng Dios Kay corporate name may be allowed
CRISTO JESUS, HALIGI AT Cristo Jesus) filed with the SEC a petition to compel the by the Securities and Exchange
SUHAY NG Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Commission if the proposed
KATOTOHANAN, Katotohanan to change its corporate name, which petition name is identical or deceptively
respondent. was docketed as SEC Case No. 1774. or confusingly similar to that of
any existing corporation or to
The SEC rendered judgment in favor of respondent any other name already
corporation (Iglesia ng Dios Kay Cristo Jesus), ordering the protected by law or is patently
Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng deceptive, confusing or is
Katotohanan to change its corporate name to another name contrary to existing laws. When
that is not similar or identical to any name already used by a change in the corporate name
a corporation, partnership or association registered with the is approved, the Commission
Commission. shall issue an amended
certificate of incorporation
It appears that during the pendency of SEC Case No. under the amended name.
1774, Soriano, et al., caused the registration in 1980 of
petitioner corporation, Ang Mga Kaanib sa Iglesia ng Dios Corollary thereto, the pertinent portion of the SEC
Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas. The acronym Guidelines on Corporate Names states:
"H.S.K." stands for Haligi at Saligan ng Katotohanan. (d) If the proposed name
contains a word similar to a
Subsequently, respondent corporation (Iglesia ng Dios Kay word already used as part of
Cristo Jesus) filed before the SEC a petition praying that the firm name or style of a
petitioner corporation (Ang Mga Kaanib) be compelled to registered company, the
change its corporate name and be barred from using the proposed name must contain
same or similar name on the ground that the same causes two other words different from
confusion among their members as well as the public. the name of the company
already registered;
The SEC rendered a decision ordering petitioner corporation
(Ang Mga Kaanib) to change its corporate name. Parties organizing a corporation must choose a
name at their peril; and the use of a name similar
Petitioner corporation (Ang Mga Kaanib) appealed to the to one adopted by another corporation, whether a
SEC En Banc. business or a nonprofit organization, if misleading
or likely to injure in the exercise of its corporate
The SEC En Banc affirmed the above decision, upon a functions, regardless of intent, may be prevented
finding that petitioner corporation's (Ang Mga Kaanib) by the corporation having a prior right, by a suit
corporate name was identical or confusingly or deceptively for injunction against the new corporation to
similar to that of respondent corporation's (Iglesia ng Dios prevent the use of the name.
Kay Cristo Jesus) corporate name.
In the case at bar, the additional words "Ang
Petitioner corporation (Ang Mga Kaanib) filed a petition for Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in
review with the CA. petitioner corporation's (Ang Mga Kaanib) name
are, as correctly observed by the SEC, merely
The CA affirmed the decision of the SEC En Banc. descriptive of and also referring to the members,
or kaanib, of respondent corporation (Iglesia ng
Petitioner corporation (Ang Mga Kaanib) claims that it Dios Kay Cristo Jesus) who are likewise residing in
complied with the aforecited SEC guideline by adding not the Philippines. These words can hardly serve as
only two but eight words to their registered name, to wit: an effective differentiating medium necessary to
"Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.," which, avoid confusion or difficulty in distinguishing
petitioner corporation (Ang Mga Kaanib) argues, effectively petitioner from respondent. This is especially so,
distinguished it from respondent corporation (Iglesia ng since both petitioner and respondent corporations
 Dios Kay Cristo Jesus). are using the same acronym — H.S.K.; not to
mention the fact that both are espousing religious
beliefs and operating in the same place.
Parenthetically, it is well to mention that the
acronym H.S.K. used by petitioner corporation
(Ang Mga Kaanib) stands for "Haligi at Saligan ng
Katotohanan."

Significantly, the only difference between the

corporate names of petitioner and respondent are
the words SALIGAN and SUHAY. These words are
synonymous — both mean ground, foundation or
support. Hence, this case is on all fours with
Universal Mills Corporation v. Universal Textile
Mills, Inc., where the Court ruled that the
corporate names Universal Mills Corporation and
Universal Textile Mills, Inc., are undisputably so
similar that even under the test of "reasonable
care and observation" confusion may arise.

Formalities in Organizing
Articles of Incorporation, As to Purpose (Section 14 [2])
G.R. No. L-15429 December The purpose of this action is to obtain the writ Whether or not a YES. Considering the purposes and objects of the
1, 1919 of mandamus to require the respondent to file and register, corporation organized proposed articles of incorporation which are
upon the payment of the lawful fee, articles of for commercial enumerated, we are of the opinion that it contains
UY SIULIONG, MARIANO incorporation, and to issue to the petitioners as the purposes in the nothing which violates in the slightest degree any
LIMJAP, GACU UNG JIENG, incorporators of a certain corporation to be known as Philippine Islands can be of the provisions of the laws of the Philippine
EDILBERTO CALIXTO and UY "Siuliong y Compañia, Inc.," a certificate under the seal of organized for more than Islands, and the petitioners are, therefore, entitled
CHO YEE, petitioners, the office of said respondent, certifying that the articles of one purpose? to have such articles of
vs. incorporation have been duly filed and registered in his incorporation filed and registered as prayed for by
THE DIRECTOR OF office in accordance with the law. That prior to the them and to have issued to them
COMMERCE AND presentation of the petition, petitioners associated together a certificate under the seal of the office of the
INDUSTRY, respondent. as partners, which partnership was known as "mercantil respondent, setting forth that such articles of
regular colectiva, under the name of "Siuliong y Cia.;" incorporation have been duly filed in his office.
Petitioners have been members of said partnership of (Sec. 11, Act No. 1459.)
"Siuliong y Cia.," desired to dissolve the partnership and to
form a corporation composed of the same persons as Therefore, the petition prayed for is hereby
incorporators, to be known as "Siulong y Compañia, granted, and without any finding as to costs, it is
Incorporada;" That the purpose of said corporation, so ordered.
"Siuliong y Cia., Inc.," is to acquire the business of the
Doctrine
partnership theretofore known as Siuliong & Co., and to
 continue said business with some of its objects or purposes; That under the laws of the Philippine Islands, a
An examination of the articles of incorporation of the said corporation may be organized for "mercantile
"Siuliong y Compañia, Incorporada" (Exhibit A) shows that purposes" and to engage in such incidental
it is to be organized for the purchase and sale, importation business as may be necessary and advisable to
and exportation, of the products of the country as well as of give effect to, and aid in, the successful operation
foreign countries; To discount promissory notes, bills of and conduct of the principal business; that all of
exchange, and other negotiable instruments; The purchase the power and authority included in the articles of
and sale of bills of exchange, bonds, stocks, or joint incorporation of Siuliong & Co., Inc., were only
account of mercantile and industrial associations and of all incidental to the' principal purpose of its proposed
classes of mercantile documents; commissions, incorporation, to wit: "mercantile business."
consignments;"xxx.. The respondent contends (a) that the
proposed articles of incorporation presented for file and
registry permitted the petitioners to engage in a business
which had for its end more than one purpose; (b) that it
permitted the petitioners to engage in the banking
business, and (c) to deal in real estate, in violation of the
Act of Congress of July 1, 1902. The petitioners, insisted
that said proposed articles of incorporation do not permit it
to enter into the banking business nor to engage in the
purchase and sale of real estate in violation of said Act of
Congress, expressly renounced in open court their right to
engage in such business under their articles of
incorporation, even though said articles might be
interpreted in a way to authorize them to so to do.

Formalities in Organizing
Articles of Incorporation, As to principal office (Section 14 [3])

No. L-22238. February 18, 1. New Cagayan Grocery (NECAGRO) filed a complaint for WON the present case It is clear that the case from damages is based
1967. damages against Clavecilla Radio system. They alleged against Clavecilla should upon a written contract.
CLAVECILLA RADIO that Clavecilla omitted the word “NOT” in the letter be filed in Manila where Under par. (b)(3) Sec. 1 Rule 4 of the New Rules
SYSTEM, petitioner and it holds its principal of Court, when an action is not upon a written
addressed to NECAGRO for transmittal at Clavecilla
appellant, vs. HON. office. contract then the case should be filed in the
AGUSTIN ANTILLON, as Cagayan de Oro Branch. municipality where the defendant or any of the
City Judge of the 2. NECAGRO alleged that the omission of the word “not” defendant resides or maybe served upon with
Municipal Court of between the word WASHED and AVAILABLE altered the summons.
Cagayan de Oro City and contents of the same causing them to suffer from In corpo. Law, the residence of the corporation is
NEW CAGAYAN GROCERY, damages. the place where the principal office is established.
respondents and 3. Clavecilla filed a motion to dismiss on the ground of Since Clavecilla’s principal office is in Manila, then
appellees. the suit against it may properly be file in the City
failure to state a cause of action and improper venue.
of Manila.
4. City Judge of CDO denied the MTD. Clavecilla filed a As stated in Evangelista v. Santos, the laying of
petition for prohibition with preliminary Injunction with the venue of an action is not left to plaintiff’s
 the CFI praying that the City Judge be enjoined from
further proceeding with the case because of improper
venue.
5. CFI – dismissed the case and held that Clavecilla may
be sued either in Manila (principal office) or in CDO
(branch office).
6. Clavecilla appealed to the SC contending that the suit
against it should be filed in Manila where it holds its
principal office.
Formalities in Organizing
Articles of Incorporation, As to Corporate Term (Section 11)
Petitioner Alhambra Cigar and Cigarette Manufacturing
Company, Inc. (hereinafter referred to simply as Alhambra)
was duly incorporated under Philippine laws on January 15,
1912. By its corporate articles it 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, 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. It
amended Section 18 of the Corporation Law; it empowered
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.
Previous to Republic Act 3531, the maximum non-
extendible term of such corporations was fifty years. On
July 15, 1963, at a special meeting, Alhambra’s board of
directors resolved to amend paragraph “Fourth” of its
articles of incorporation to extend its corporate life for an
caprice because the matter is regulated by the
Rules of Court.
Doctrines
The residence of a corporation is the place where
its principal office is established. It can be sued in
that place, not in the place where its branch office
is located.
Where the action filed against a corporation in the
inferior court is based on tort, it should be filed in
the place where the corporation has its principal
office, not in the place where it has its branch
office. To allow an action against a corporation to
be instituted in any place where a corporate entity
has its branch offices would create confusion and
work untold inconvenience to the corporation.
Whether or not the No. The common law rule, at the beginning, was
corporate life of a rigid and inflexible in that upon its dissolution, a
corporation be extended corporation became legally dead for all purposes.
during the period of Statutory authorizations had to be provided for its
winding up or after it’s continuance after dissolution “for limited and
charter has already specified purposes incident to complete liquidation
expired. of its affairs”. Thus, the moment a corporation’s
right to exist as an “artificial person” ceases, its
corporate powers are terminated “just as the
powers of a natural person to take part in
mundane affairs cease to exist upon his death”.
There is nothing left but to conduct, as it were,
the settlement of the estate of a deceased
juridical person.
From July 15 to October 28, 1963, when
Alhambra made its attempt to extend its
corporate existence, its original term of fifty years
had already expired (January 15, 1962); it was in
the midst of the three-year grace period
statutorily fixed in Section 77 of the Corporation
additional fifty years, or a total of 100 years from its
incorporation. On August 26, 1963, Alhambra’s
stockholders, representing more than two-thirds of its
subscribed capital stock, voted to approve the foregoing
resolution. On October 28, 1963, Alhambra’s articles of
incorporation as so amended certified correct by its
president and secretary and a majority of its board of
directors, were filed with respondent Securities and
Exchange Commission (SEC). On November 18, 1963, SEC,
however, returned said amended articles of incorporation to
Alhambra’s counsel with the ruling that Republic Act 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.”
Law, thus: .
SEC. 77. Every corporation whose charter expires
by its own limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for
three years after the time when it would have
been so dissolved, for the purpose of prosecuting
and defending suits by or against it and of
enabling it gradually to settle and close its affairs,
to dispose of and convey its property and to
divide its capital stock, but not for the purpose of
continuing the business for which it was
established.
Plain from the language of the provision is its
meaning: 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.
Silence of the law on the matter is not hard to
understand. Specificity is not really necessary. The
authority to prolong corporate life was inserted by
Republic Act 3531 into a section of the law that
deals with the power of a corporation to amend
its articles of incorporation. (For, the manner of
prolongation is through an amendment of the
articles.) And it should be clearly evident that
under Section 77 no corporation in a state of
liquidation can act in any way, much less amend
its articles, “for the purpose of continuing the

Benguet Consolidated Benguet Consolidated Mining Company was organized in
Mining Co. vs. Pineda 98 1903 under the Spanish Code of Commerce of 1886 as a
Phil. 711 , March 28, 1956 sociedad anonima. It was agreed by the incorporators that
Benguet Mining was to exist for 50 years. In 1906, Act 1459
(Corporation Law) was enacted which superseded the Code
of Commerce of 1886. Act 1459 essentially introduced the
American concept of a corporation. The purpose of the
law, among others, is to eradicate the Spanish Code and
make sociedades anonimas obsolete. In 1953, the board of
directors of Benguet Mining submitted to the Securities and
Exchange Commission an application for them to be
allowed to extend the life span of Benguet Mining . Then
Commissioner Mariano Pineda denied the application as it
ruled that the extension requested is contrary to Section 18
of the Corporation Law of 1906 which provides that the life
of a corporation shall not be extended by amendment
beyond the time fixed in their original articles.
CONTENTION oF BENGUET: Benguet Mining contends that
business for which it was established”.
All these dilute Alhambra’s position that it could
revivify its corporate life simply because when it
attempted to do so, Alhambra was still in the
process of liquidation. It is surely impermissible
for us to stretch the law — that merely empowers
a corporation to act in liquidation — to inject
therein the power to extend its corporate
existence.
The pari materia rule of statutory construction, in
fact, commands that statutes must be harmonized
with each other. So harmonizing, the conclusion is
clear that Section 18 of the Corporation Law, as
amended by Republic Act 3531 in reference to
extensions of corporate existence, is to be read in
the same light as Republic Act 1932. Which means
that domestic corporations in general, as with
domestic insurance companies, can extend
corporate existence only on or before the
expiration of the term fixed in their charters.
Whether or not Benguet The prohibition contained in section 18 of Act No.
Mining is correct. 1459, against extending the period of corporate
existence by amendment of the original articles,
was intended to apply, and does apply, to
sociedades anonimas, already formed, organized
and existing at the time of the effectivity of the
Corporation Law (Act 1459) in 1906. The
aforesaid statutory prohibition is valid and impairs
no vested rights or constitutional inhibition where
no agreement to extend the original period of
corporate life was perfected before the enactment
of the Corporation Law. A sociedad anónima,
existing before the Corporation Law, that
continues to do business as such for a reasonable
time after its enactment, is deemed to have made
its election and may not subsequently claim to
reform into a corporation under section 75 of Act
No. 1459. Particularly should this be the case
 they have a vested right under the Code of Commerce of
1886 because they were organized under said law; that
under said law, Benguet Mining is allowed to extend its life
by simply amending its articles of incorporation; that the
prohibition in Section 18 of the Corporation Code of 1906
does not apply to sociedades anonimas already existing
prior to the Law’s enactment; that even assuming that the
prohibition applies to Benguet Mining, it should be allowed
to be reorganized as a corporation under the said
Corporation Law.
Formalities in Organizing
Articles of Incorporation, Grounds for Disapproval (Section 17)
Asuncion vs. De Yriate, 28 This is an action to obtain a writ of mandamus to compel
PHIL 67 (1914) the chief of the division of archives of the Executive Bureau
to file certain articles of incorporation.
The chief of the division of archives, the
respondent, refused to file the articles of incorporation,
hereinafter referred to, 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.
It is strongly urged on the part of the appellants that
the duties of the defendant are purely ministerial and that
he has no authority to pass upon the lawfulness of the
object for which the incorporators propose to organize.
where it has asserted its privileges as such
sociedad anónima before invoking its alleged right
to ref orm into a corporation.
whether or not the chief What the law does not permit cannot be
of the division of obtained by indirection. The object of the
archives has authority, proposed corporation is clearly repugnant to the
under the Corporation provisions of the Municipal Code and the
Law, on being presented governments of municipalities as they have been
with articles of organized thereunder. ('Act No. 82, Philippine
incorporation for Commission.)
registration, to decide The judgment appealed from is affirmed, with
not only as to the costs against appellants.
sufficiency of the form of D.; MUNICIPALITIES; ORGANIZATION OF
the articles, but also as BARRIO INTO SEPARATE CORPORATION.—
to the lawfulness of the When articles of incorporation presented for
purposes of the registration show that the object of incorporators is
proposed corporation. to organize a pueblo or barrio of a given
municipality into a separate corporation for the
purpose of taking possession and having control
of all municipal property within the pueblo or barrio
so incorporated, and administer it exclusively for
the benefit of the residents of that pueblo or
barrio, said articles of incorporation show upon
their face that the object of the incorporation is
unlawful in that it seeks to deprive the municipality
in which the pueblo or barrio is situated of its
property and its citizens of the right of enjoying the
same and would, if permitted, disrupt and destroy
the government of the municipalities of the Islands
and abrogate the laws relating- to the formation
and government of municipalities
 Formalities in Organizing
BY LAWS
LOYOLA GRAND VILLAS W/N LGVHAI's failure to No.
HOMEOWNERS (SOUTH) Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) file its by-laws within the
ASSOCIATION, INC., was organized on 8 February 1983 as the homeoenwers' period prescribed by The pertinent provision of the Corporation Code
petitioner, vs. HON. COURT association for Loyola Grand Villas. It was also registered as Section 46 of the that is the focal point of controversy in this case
OF APPEALS, HOME the sole homeowners' association in the said village with Corporation Code had states:
INSURANCE AND GUARANTY the Home Financing Corporation (which eventually became the effect of
CORPORATION, EMDEN Home Insurance Guarantee Corporation ["HIGC"]). automatically dissolving Sec. 46. Adoption of by-laws. - Every corporation
ENCARNACION and HORATIO However, the association was not able file its corporate by- the said corporation. formed under this Code, must within one (1)
AYCARDO, respondents. laws. month after receipt of official notice of the
issuance of its certificate of incorporation by the
G.R. No. 117188 August 7, The LGVHAI officers then tried to registered its By-Laws in Securities and Exchange Commission, adopt a
1997 1988, but they failed to do so. They then discovered that code of by-laws for its government not
there were two other homeowners' organizations within the inconsistent with this Code.
subdivision - the Loyola Grand Villas Homeowners (North)
Ordinarily, the word "must" connotes an
Association, Inc. [North Association] and herein Petitioner
imposition of duty which must be enforced.
Loyola Grand Villas Homeowners (South) Association,
However, the word "must" in a statute, like
Inc.["South Association].
"shall," is not always imperative. It may be
consistent with an ecercise of discretion. If the
Upon inquiry by the LGVHAI to HIGC, it was discovered that
language of a statute, considered as a whole with
LGVHAI was dissolved for its failure to submit its by-laws
due regard to its nature and object, reveals that
within the period required by the Corporation Code and for
the legislature intended to use the words "shall"
its non-user of corporate charter because HIGC had not
and "must" to be directory, they should be given
received any report on the association's activities. These
that meaning.
paved the way for the formation of the North and South
Associations.
The legislative deliberations of the Corporation
Code reveals that it was not the intention of
LGVHAI then lodged a complaint with HIGC Hearing Officer
Congress to automatically dissolve a corporation
Danilo Javier, and questioned the revocation of its
for failure to file the By-Laws on time.
registration. Hearing Officer Javier ruled in favor of
LGVHAI, revoking the registration of the North and South
Moreover, By-Laws may be necessary to govern
Associations.
the corporation, but By-Laws are still subordinate
to the Articles of Incorporation and the
Petitioner South Association appealed the ruling, contending
Corporation Code. In fact, there are cases where
that LGVHAI's failure to file its by-laws within the period
By-Laws are unnecessary to the corporate
prescribed by Section 46 of the Corporation Code effectively
existence and to the valid exercise of corporate
automatically dissolved the corporation. The Appeals Board
powers.
of the HIGC and the Court of Appeals both rejected the
contention of the Petitioner affirmed the decision of Hearing
The Corporation Code does not expressly provide
Officer Javier.
for the effects of non-filing of By-Laws. However,
these have been rectified by Section 6 of PD 902-

PMI Colleges v. NLRC 277 In 1991, PMI Colleges hired the services of Alejandro
Scra 462 (1997) Galvan for the latter to teach in said institution. However,
for unknown reasons, PMI defaulted from paying the
remunerations due to Galvan. Galvan made demands but
were ignored by PMI. Eventually, Galvan filed a labor case
against PMI. Galvan got a favorable judgment from the
Labor Arbiter; this was affirmed by the National Labor
Relations Commission. On appeal, PMI reiterated, among
others, that the employment of Galvan is void because it
did not comply with its by-laws. Apparently, the by-laws
require that an employment contract must be signed by the
Chairman of the Board of PMI. PMI asserts that Galvan’s
employment contract was not signed by the Chairman of
the Board.
Pena vs. CA, 193 SCRA PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the
7117 (1991) 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.
A which provides that SEC shall possess the
power to suspend or revoke, after proper notice
and hearing, the franchise or certificate of
registration of corporations upon failure to file By-
Laws within the required period.
This shows that there must be notice and hearing
before a corporation is dissolved for failure to file
its By-Laws. Even assuming that the existence of
a ground, the penalty is not necessarily
revocation, but may only be suspension.
By-Laws are indispensable to corporations, since
they are required by law for an orderly
management of corporations. However, failure to
file them within the period prescribed does not
equate to the automatic dissolution of a
corporation.
Whether or not Galvan’s No. PMI Colleges never even presented a copy of
employment contract is the by-laws to prove the existence of such
void. provision. But even if it did, the employment
contract cannot be rendered invalid just because
it does not bear the signature of the Chairman of
the Board of PMI. 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. In this case, PMI was not able to
prove that Galvan knew of said provision in the
by-laws when he was employed by PMI.
W/N there Peña is Yes.
entitled to the lots.
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.
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.
Main Case:
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.
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
their to qualify as director of a corporation.

RECOGNITION AND DISREGARD OF CORPORATENESS
Separate Juridical Personality
Santos vs. National Labor Melvin D. Millena, on 1 October 1985, was hired to be the
Relations Commission project accountant for Mana Mining and Development
[GR 101699, 13 March Corporation's (MMDC) mining operations in Gatbo, Bacon,
1996] 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
Further, under the Corporation Law, the sale or
disposition of any and/or substantially all
properties of the corporation requires, 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.
Whether Santos should A corporation is a judicial entity with legal
be made solidarily liable personality separated and distinct from those
with MMDC. 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
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
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
 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.
Stockholders of F. Sept 19, 1960: 5 stockholders of F Guanzon executed a
Guanzon and Sons, Inc v. certificate of liquidation of the assets of the corporation. By
Register of Deeds of virtue of a resolution dissolving the corporation, they wish
Manila (1962) to distribute as liquidated dividends among themselves and
in proportion to their shareholdings, the assets of the
corporation, which includes real estate properties in Manila.
The Register of Deeds however, upon presentment of the
certificate of liquidation by the 5 stockholders, denied
registration of the properties to be distributed on 7
grounds, 3 of which were questioned by the stockholders:
(1) no statement of the # of parcels of land to be
distributed (2) registration fees iao P430.50 (3) doc stamp
tax iao P940.45 (4) court judgment approving the
dissolution and directing disposition of the assets. The
stockholders claim that the certificate of liquidation merely
partitions/distributes the corporate assets among them
because the corporation has already been dissolved. Hence
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.
W/N the certificate of It is a transfer/conveyance of property. A
liquidation involves a corporation is a juridical person separate and
mere distribution of distinct from the stockholders. Properties
corporate assets or a registered in the name of the corporation are
transfer or conveyance owned by it as a separate entity. The shares held
of property. by stockholders are their personal property and
not the corporation, and it only typifies an aliquot
part of the corporation’s property or the right to
share in the proceeds. The holder of such share is
not the owner of any part of the capital of the
corporation, nor is he entitled to possession of
any definite portion of its assets, neither is he a
co-owner. Liquidation by stockholders after a
corporation’s dissolution is not mere partitioning
of community property, but already a conveyance
or transfer of title to them from the corporation.
 they need not comply with the requirements imposed by The distribution of the corporate properties to the
the Register of Deeds and the Land Registration Authority. SHs was deemed not in the nature of a partition
The LRA counters that the distribution of the corporate among co-owners, but rather a disposition by the
assets upon dissolution of the corporation, is ultimately a corporation to the SHs as opposite parties to a
transfer/conveyance of property to the stockholders. contract
Properties registered in the name of the
corporation are owned by it as an entity separate
and distinct from its members;
shares of stock are personal property, and NOT
corporate property
share of stock typifies an aliquot part of the
corporation’s property, or the right to share in the
proceeds to that extent when distributed
holder of shares is not the owner of any part of
the capital of the corporation, nor is he entitled to
the possession of any definite portion of its
property or assets

Manila Gas vs. CIR, 62 The plaintiff is a corporation organized under the laws of 1. Appellant first 1. The trial judge was of the opinion that
PHIL 895 the Philippine Islands. It operates a gas plant in the City of contends that the the instant case was governed by our previous
Manila and furnishes gas service to the people of the dividends paid by it to its decision in the case of Philippine Telephone and
metropolis and surrounding municipalities by virtue of stockholders, the Islands Telegraph Co. vs. Collector of Internal Revenue
a franchise granted to it by the Gas and Electric ([1933], 58 Phil., 639). In this view we concur. It
Philippine Government. Associated with the plaintiff are the Company, were not is true that the tax exemption provision relating
islands Gas and Electric Company domiciled in New York, subject to tax because to to the Manila Gas Corporation herein
United States, and the General Finance Company domiciled impose a tax thereon before quoted differs in
in Zurich, Switzerland. Neither of these last mentioned would be to do so on the phraseology from the tax
corporations is resident in the Philippines. plaintiff corporation, in exemption provision to be found in the franchise
violation of the terms of of the Telephone and Telegraph Company, but
For the years 1930, 1931, and 1932, dividends in the sum its franchise and would, the ratio decideridi of the two cases is
of P1, 348,847.50 were paid by the plaintiff to the Islands moreover, be oppressive substantially the same. As there held and as
Gas and Electric Company in the capacity of stockholders and inequitable. now confirmed, a corporation has a personality
upon which withholding income taxes were paid to the distinct from that of its stockholders, enabling the
defendant totalling P40, 460.03 For the same years 2. Appellant contends taxing power to reach the latter when they
interest on bonds in the sum of P411, 600 was paid by the that, as the Islands Gas receive dividends from the corporation. It
plaintiff to the Islands Gas and Electric Company upon and Electric Company must be considered as settled in this jurisdiction
which withholding income taxes were paid to the defendant and the General Finance that dividends of a domestic corporation, which
totalling P12, 348. Finally for the stated time period, Company are domiciled are paid and delivered in cash to foreign
interest on other indebtedness in the sum of P131, in the United corporations as stockholders, are subject to the
644:90 was paid by the plaintiff to the Islands Gas and States and payment of the income tax, the exemption clause
Electric Company and the General Finance Company Switzerland respectively, in the charter of the corporation notwithstanding.
respectively upon which withholding income taxes were and as the interest on
paid to the defendant totalling P3, 949.34. the bonds and other For the foregoing reasons, we are
indebtedness earned by led to sustain the decision of the trial court and
said corporations has to overrule appellant's first assigned error.
Some uncertainty existing regarding the place of payment, been paid in their
we will not go into this factor of the case at this point, respective domiciles, this
2. The Solicitor-General answers
except to remark that the bonds and other tokens of is not
with the observation that the cited decisions
indebtedness are not to be found in the record. However, income from Philippine
interpreted the Income Tax Law before it was
Exhibits E, F, and G, certified correct by the treasurer of the sources within the
amended by Act No. 3761 to cover the interest on
Manila Gas Corporation, purport to prove that the place of meaning of the
bonds and other obligations or securities
payment was the United States and Switzerland. Philippine Income Tax
paid "within or without the
Law. Citing sections
Philippine Islands." Appellant rebuts this
10 (a) and 13 (e) of Act
argument by "assuming, for the sake of the
No. 2833, the Income
argument, that by the amendment introduced to
Tax Law,
section 13 of Act No. 2833 by Act No. 3761 the
Legislature intended that interest received
by non-residents is to be considered income
from Philip- pine sources and so is subject
to tax," but with the necessary sequel that the
amendatory statute is invalid and unconstitutional
as being beyond the power of the Legislature to
enact.

Taking first under observation the 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. (Cadwallader-
Gibson Lumber Co. vs. Del Rosario [1913], 26
Phil,, 192; Macondray & 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 case 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 limits 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; Buck vs. Beach [1907],
206 U. S., 392; State ex rel. Manitowoc Gas Go.
vs. Wis. Tax Comm. [1915], 161 Wis., Ill; 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 & Commonwealth
having the status of the Philippines.

Pushing to one side that portion of Act No. 8761

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 the 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

Magsaysay-Labrador vs. Adelaida Rodriguez-Magsaysay was the widow of Senator
CA (1989) 180 SCRA 266 Genaro Magsaysay and the special administratix of his
estate brought before the CFI of Olongapo in an action
against Artemio Panganiban, Subic Land Corporation
(SUBIC), Filipinas Manufacturer’s Bank (FILIMANBANK) and
the Register of Deeds of Zambales. She alleged in her
complaint that she and her husband acquired thru conjugal
funds a parcel of land with improvements known as
“Pequena Island” covered by TCT No. 3258. After the death
of her husband, she discovered annotations at the back of
the TCT. The first was that the land was acquired by her
husband from his separate capital. Second was that there
was also a registration of a Deed of Assignment in 1976
purportedly executed by the late Senator in favor of SUBIC.
As a result, TCT 3258 was cancelled and TCT 22431 was
issued in the name of SUBIC. And the third was a
registration of Deed of Mortgage dated 1977 in the amount
of P2.7M was executed by SUBIC in favor of FILMANBANK.
Adelaida contended that the acts were void and
done in an attempt to defraud the conjugal partnership
considering that the land is conjugal. Her marital consent
was not obtained to the annotation in the TCT3258. She
also contended that the Register of Deeds changed the title
without the approval of the Commissioner of Land
Registration and that the late Senator did not gave his
consent to the Deed of Assignment, and if he did, it was
thru mistake, violence and intimidation. She further alleged
that the assignment in favor of SUBIC was without
consideration and consequently null and void.
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 costs of this
instance assessed against the appellant.
Whether or not No. The interest which entitles a person to
petitioners as intervene in a suit between other parties must be
stockholders has the in the matter in litigation and of such direct and
right to intervene. immediate character that the intervenor will either
gain or lose by the direct legal operation and
effect of judgment. Here, the interest of the
petitioners, if exists at all, is indirect, contingent,
remote, conjectural, consequential and collateral.
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.
It was found also that no transfer
transpired between petitioners and the late
Senator. The transfer must be registered in the
books of the corporation to affect third persons.
And even assuming the arguendo that there was a
valid transfer, petitioners are nonetheless barred
from intervening inasmuch as their rights can be

Good Earth vs. CA, 194 SCRA
544 (1991)
Herein petitioners are the sisters of the late
senator and filed a motion for intervention on the ground
that their brother conveyed to them half of his
shareholdings in SUBIC and as assignees of around 41% of
the total outstanding shares of stocks, they have a
substantial and legal interest in the subject matter of
litigation and the success of the suit with respect to SUBIC.
The court denied the motion contending that they had no
legal interest and that SUBIC has a personality separate
and distinct from its stockholders.
On appeal, the CA affirmed the findings of the
lower court, stating further that whatever claims the
petitioner have against the late Senator or against SUBIC
can be ventilated in a separate proceeding.
A lease contract was entered into between ROCES and
Good Earth Emporioum (GEE). A five-storey building was
the subject of the said contract, which upon failure of the
latter to pay its rentals, ROCES filed an ejectment case
against the petitioner. The MTC of Manila rendered a
decision ordering GEE and all persons under him to vacate
the premises and surrender the same to ROCES and pay
the plaintiffs the rental.
GEE filed a motion to quash the writ of execution but the
same was denied by the MTC for lack of merit. In 1987 the
RTC of Manila reversed the decision of the MTC finding that
the amount of P1 million evidenced by Exhibit "I" and
another P1 million evidenced by the pacto de retro sale
instrument were in full satisfaction of the judgment
obligation.
On further appeal, the CA reversed the decision of the RTC
and reinstated the Resolution of the MTC of Manila. GEE’s
m/r was denied, hence this petition.
ventilated and amply protected in another
proceeding.
Doctrine: Shareholders are in no legal sense the
owners of corporate property, which is owned by
the corporation as a distinct legal person.
Whether or not there There is no indication in the receipt, that it was in
was full satisfaction of payment, full or partial, of the judgment
the judgment debt in obligation. Likewise, there is no indication in
favor of respondent the pacto de retro sale which was drawn in favor
corporation. of Jesus Marcos Roces and Marcos V. Roces and
not the respondent corporation, that the
obligation embodied therein had something to do
with petitioners' judgment obligation with
respondent corporation.
Article 1240 of the Civil Code of the Philippines
provides that: “Payment shall be made to the
person in whose favor the obligation has been
constituted, or 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
successor in interest nor is there positive evidence
that the payment was made to a person
authorized to receive it. No such proof was
submitted but merely inferred by the Regional
Trial Court from Marcos Roces having signed the
Lease Contract as President which was witnessed
by Jesus Marcos Roces. On the other hand, Jesus
Marcos Roces testified that the amount of P1
million evidenced by the receipt is the payment
for a loan extended by him and Marcos Roces in
favor of Lim Ka Ping. The assertion is home by the
 receipt itself whereby they acknowledged
payment of the loan in their names and in no
other capacity. A corporation has a personality
distinct and separate from its individual
stockholders or members. 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.

The fact that at the time payment was made to

the two Roces brothers, GEE was also indebted to
respondent corporation for a larger amount, is not
supportive of the Regional Trial Court's
conclusions that the payment was in favor of the
latter, especially in the case at bar where the
amount was not receipted for by respondent
corporation and there is absolutely no indication in
the receipt from which it can be reasonably
inferred, that said payment was in satisfaction of
the judgment debt. Likewise, no such inference
can be made from the execution of the pacto de
retro sale which was not made in favor of
respondent corporation but in favor of the two
Roces brothers in their individual capacities
without any reference to the judgment obligation
in favor of respondent corporation.

DOCTRINE: 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. Shareowners are in
no legal sense the owners of corporate property
(or credits) which is owned by the corporation as
a distinct legal person.

Defective Incorporation.
 De facto (Section 20 of the Corporation Code)
Rationale for the doctrine
FELIPE TAYKO vs. This is a petition for a writ of prohibition enjoining the
NICOLAS CAPISTRANO respondent judge from making cognizance of certain civil
G.R. No. L-30188, October and criminal election cases in which the petitioners are
2, 1928 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
informations, when the provincial fiscal refused to file
criminal charges against the petitioners for violation of the
Whether or not Briefly defined, a de facto judge is one who
Capistrano, upon exercises the duties of a judicial office under color
reaching the age of 65, of an appointment or election thereto (Brown vs.
can still continue public O'Connell, 36 Conn., 432). He differs, on the one
office? Is he considered hand, from a mere usurper who undertakes to act
a de facto judge? 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 elction 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
 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.
Defective Incorporation.
De facto (Section 20 of the Corporation Code)
REQUISITES
G.R. No. L-21114 Federico Fernandez was employed as salesman by P.
November 28, 1967 Cuerva & Co. from March, 1949 to October, 1959. After his
FEDERICO FERNANDEZ, separation from the service, he filed a claim against P.
plaintiff-appellant, vs. P. Cuerva before the Regional Office of DOLE to recover
CUERVA and CO., unpaid salaries and commissions, and separation pay (July
defendant-appellee. 26, 1960).
During the pendency of said case, Fernandez again
instituted a similar complaint with the CFI (December 17,
1962) alleging, among others, that the agreed upon
increase of P100.00 a month in his salary (P200 -> P300)
and 10% commission were not actually received by him.
Apprently, there was a verbal understanding between him
and P. Cuerva that the same would be retained by the latter
as bond or deposit for the goods being handled by
Fernandez. All in all, the total sum sought to be recovered
by Fernandez is P11,570.00.
Did the filing by plaintiff
of that claim with the
DOLE RO suspend the
running of the period of
prescription?
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.
YES
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 same sense of the term
"judicial demand" because the same was not
instituted in a court of justice. However, pursuant
to Reorganization Plan No. 20-A, each regional
office of the Department of Labor was vested with
original and exclusive jurisdiction over all cases
affecting all money claims arising from violations of
labor standards on working conditions to the
exclusion of courts. Consequently, when Fernandez
wanted to enforce his claim after his dismissal from
the service, RO 4 of the DOLE was empowered to
take cognizance of the claim. He could not institute
the action to recover his claim in the court of
CFI dismissed the case mainly on the ground of
prescription. Under the Minimum Wage Law, the action to
recover the withheld commissions was already barred
inasmuch as it was not brought within 3 years from the
time the right of action accrued (Sec. 17).
On his part, Fernandez mainly argue that the fact that his
having filed a similar claim with Regional Office No. 4 of the
Department of Labor had suspended the running of the
prescriptive period insofar as his claim for refund of
unauthorized deductions and withheld commissions was
concerned. To this, P. Cuerva 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 judicial demand that would suspend
the running of the prescriptive period.
justice.
We believe that the filing of a claim before an
administrative agency which is vested with
authority to decide said claim would produce 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.
NOTE: While the said Sec. 25 of the reorganization
plan was declared unconstitutional, Fernandez had
filed his claim about one year before said
declaration of unconstitutionality. The actual
existence of a statute prior to such declaration is
an operative fact, and may have consequences
which cannot justly be ignored.
It was precisely because Section 25 of
Reorganization Plan No. 20-A was declared
unconstitutional that Fernandez, without awaiting
the action of Regional Office No. 4 of the
Department of Labor on the claim that he filed on
July 26, 1960, instituted his action in the CFI. The
move of plaintiff was precisely intended to protect
his right of action from the adverse effect of the
decision of this Court.
Considering that the running of prescriptive period
was deemed interrupted, it is clear that
Fernandez's action to enforce his claim was not yet
barred by the statute of limitations when he filed
his complaint in the CFI. Plaintiff's action may be
considered as brought before the court still within
the period of three years from the time his right of
action accrued in accordance with the provisions of
theMinimum Wage Law. And considering further
that the amount sought to be recovered in the
complaint is more than P10,000.00 (NOTE:
P10,070.00), it follows that the CFI has the
exclusive and original jurisdiction to entertain the
action.
NOTE: law applicable is the Minimum Wage Law

HALL v PICCIO On May 28, 1947, petitioners C. Arnold Hall and Bradley P.
86 Phil 603, GR No L- Hall, and respondents Fred Brown, Emma Brown, Hipolita
2598, June 29, 1950 D. Chapman and Ceferino S. Abella, 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, . 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. The said
articles of incorporation was filed in the office of SEC.
Pending action of the articles of incorporation by SEC, the
because the bond or deposit sought to be
recovered by Fernandez was actually the sum total
of the unauthorized deductions from his salaries
and withheld commissions under Section 10
thereof.
NOTE: A right of action accrues only from the
moment the right to commence the action comes
into existence, and prescription begins to run from
that time.
NOTE: while the amounts withheld by P. Cuerva
were actually deductions from plaintiff's salaries
and unpaid 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. It was, therefore, not
feasible for Fernandez to demand every month or
every payday, or during the period of his
employment the return or refund of those amounts
withheld, 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.
W/N the court had Yes, the court has jurisdiction to take cognizance of
jurisdiction to decree the case!
the dissolution of the
company, because it Section 20 of the Corporation Law does not apply
being a de facto in this situation
corporation, dissolution
thereof may only be First, not having obtained the certificate of
ordered in a quo incorporation, the Far Eastern Lumber and
warranto proceeding Commercial Co. — even its stockholders — may
instituted in accordance not probably claim "in good faith" to be a
with section 19 of the corporation. (Under our statue it is to be noted
Corporation Law. (Corporation Law, sec. 11) that it is the issuance of
 respondents filed a civil case against the petitioners alleging
that Far Eastern Lumber and Commercial Co was an
unregistered partnership and that they wished it dissolved
because of bitter dissension among the members,
mismanagement and fraud by the managers and heavy
financial losses. The court (thru Judge Piccio) ordered the
dissolution of the company. Halls offered to file a counter
bond for the discharge of the receiver but the judge refused
to accept the offer and discharge the receiver.
Benguet Consolidated Benguet Consolidated Mining Company was organized in
Mining Co. vs. Pineda 98 1903 under the Spanish Code of Commerce of 1886 as a
Phil. 711 , March 28, 1956 sociedad anonima. It was agreed by the incorporators that
Benguet Mining was to exist for 50 years. In 1906, Act 1459
(Corporation Law) was enacted which superseded the Code
of Commerce of 1886. Act 1459 essentially introduced the
American concept of a corporation. The purpose of the
law, among others, is to eradicate the Spanish Code and
make sociedades anonimas obsolete. In 1953, the board of
directors of Benguet Mining submitted to the Securities and
Exchange Commission an application for them to be
a certificate of incorporation by the Director of the
Bureau of Commerce and Industry 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." )
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.
SECTION 20
Sec. 20. De facto corporations. The due
incorporation of any corporation claiming in good
faith to be a corporation under this Code, and its
right to exercise corporate powers, shall not be
inquired into collaterally in any private suit to which
such corporation may be a party. Such inquiry may
be made by the Solicitor General in a quo warranto
proceeding.
Whether or not Benguet The prohibition contained in section 18 of Act No.
Mining is correct. 1459, against extending the period of corporate
existence by amendment of the original articles,
was intended to apply, and does apply, to
sociedades anonimas, already formed, organized
and existing at the time of the effectivity of the
Corporation Law (Act 1459) in 1906. The aforesaid
statutory prohibition is valid and impairs no vested
rights or constitutional inhibition where no
agreement to extend the original period of
corporate life was perfected before the enactment
 allowed to extend the life span of Benguet Mining . Then of the Corporation Law. A sociedad anónima,
Commissioner Mariano Pineda denied the application as it existing before the Corporation Law, that continues
ruled that the extension requested is contrary to Section 18 to do business as such for a reasonable time after
of the Corporation Law of 1906 which provides that the life its enactment, is deemed to have made its election
of a corporation shall not be extended by amendment and may not subsequently claim to reform into a
beyond the time fixed in their original articles. corporation under section 75 of Act No. 1459.
CONTENTION oF BENGUET: Benguet Mining contends that Particularly should this be the case where it has
they have a vested right under the Code of Commerce of asserted its privileges as such sociedad anónima
1886 because they were organized under said law; that before invoking its alleged right to ref orm into a
under said law, Benguet Mining is allowed to extend its life corporation.
by simply amending its articles of incorporation; that the
prohibition in Section 18 of the Corporation Code of 1906
does not apply to sociedades anonimas already existing
prior to the Law’s enactment; that even assuming that the
prohibition applies to Benguet Mining, it should be allowed
to be reorganized as a corporation under the said
Corporation Law.
Corporation by estoppel (Sec 21 of the Corporation Code)
Rationale for the doctrine

Asia Banking Corporation 1. The Stadard Products Co., Inc executed a promissory WON the judgment of - The general rule is that in the absence of
v. Standard Products Co. note through its president George H. Seaver in favour the lower court is a fraud, a person who has contracted or
(1924) of Asia Banking Corporation or order. reversible error despite otherwise dealt with an association in such a
2. This is an action brought by Asia Banking Corporation Asia Baking’s failure to way as to recognize and in effect admit its
to recover the sum of P24, 736.47 which is the balance present evidence of its legal existence as a corporate body is thereby
due on such note. corporate existence estopped to deny its corporate existence in
(NO) any action leading out of or involving such
Lower Court: Rendered judgment in favour of plaintiff for the sum contract or dealing, unless its existence is
demanded in the complaint, with interest on the sum of attacked for causes which have arisen since
P24, 147.34 from November 1, 1923 at the rate of 10% per making the contract or other dealing relied on
annum, and the costs. From this judgment, the defendant as an estoppel.
appeals to this court. - This doctrine applies to domestic as well as
foreign corporations.
At the trial, plaintiff failed to prove affirmatively the corporate - Since Standard Products has recognized the
existence of the parties, and Standard Products Co. argues corporate existence of Asia Banking by making
that the lower court erred in finding that the parties were a promissory note in its favour and making
corporations with judicial personality. partial payments on the same, it is estopped
from denying Asia Banking’s corporate
Doctrine: The general rule is that in the absence of fraud, existence.
a person who has contracted or otherwise dealt with an - It is also denied from denying its own
association in such a way as to recognize and in effect corporate existence.
admit its legal existence as a corporate body is thereby - Under these circumstances, it was
 estopped to deny its corporate existence in any action
leading out of or involving such contract or dealing, unless
its existence is attacked for causes which have arisen since
making the contract or other dealing relied on as an
estoppel.
Vda. De Salvatierra v. Hon. Vda. De Salvatierra owned a parcel of land in Leyte. She
Garlitos and Refuerzo entered into a contract of lease with the Philippine Fibers
(1958) – Felix, J. Producers Co., Inc., allegedly a corporation “duly organized
and represented by Segundino Refuerzo, the
President.”Several obligations were provided in the
contract, but these obligations were not complied with
because Salvatierra filed with the CFI of Leyte a complaint
against Philippine Fibers and Refuerzo for accounting,
rescission and damages. She alleged that the defendants
planted kenaf on 3 hectares of the leased property, and
refused to render an accounting of income derived and to
deliver her share. Such were in violation of the terms of
their covenant.
The defendants were declared in default for failure
to file an answer. The lower Court granted Salvatierra’s
prayer. The Court, upon motion of Salvatierra, issued a writ
of execution. The Provincial Sheriff caused the attachment
of 3 parcels of land in the name of Refuerzo. No property of
the Philippine Fibers was found available for attachment.
Refuerzo later filed a motion claiming that the decision was
null and void with respect to him, there being no allegation
in the complaint pointing to his personal liability. He prayed
than an order be issued limiting such liability to the
corporation. The lower Court granted it and ordered the
sheriff to release all properties belonging to Refuerzo that
might have already been attached. Salvatierra’s petition for
relief was denied. She then instituted this petition for
certiorari asking to nullify the order of the judge.
Doctrines: 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 part in the said transaction.
unnecessary for Asia Banking to present other
evidence of the corporate existence of either
of the parties.
DISPOSITIVE: Judgment appealed from is
affirmed, with costs against appellant.
1. WON Refuerzo RATIO:
must be 1. While as a general rule a person who has
exonerated contracted or dealt with an association in
from any such a way as to recognize its existence as a
liability for the corporate body is estopped from denying the
non-fulfillment same in an action arising out of such
of obligation transaction or dealing, yet this doctrine may
imposed on not be held to be applicable where fraud
the takes part in the said transaction.
corporation. - On plaintiff’s charge that she was unaware of
(NO) the fact that Philippine Fibers had no juridical
2. WON personality, Refuerzo gave no confirmation or
Refuerzo’s denial and the circumstances surrounding the
motion was execution of the contract lead to the
filed within the inescapable conclusion that Salvatierra was
prescriptive really made to believe that such corporation
period. (NO) was duly organized in accordance with law.
- A corporation when registered has a juridical
personality separate and distinct from its
component members or stockholders and
officers 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 by the corporation in
excess of his unpaid subscription.
o But this rule refers merely to registered
corporations and cannot be made
applicable to the liability of members of
an unincorporated association.
o Reason: since an organization which
before the law is non-existent ahs no
personality and would be incompetent to
act and appropriate for itself the powers
 and attribute of a corporation as provided
A corporation when registered has a juridical personality by law; it cannot create agents or confer
separate and distinct from its component members or authority on another to act in its behalf.
stockholders and officers such that a corporation cannot be Thus, those who act or purport to act as
held liable for the personal indebtedness of a stockholder its representatives or agents do so
even if he should be its president and conversely, a without authority and at their own risk
stockholder or member cannot be held personally liable for o A person who acts as an agent without
any financial obligation by the corporation in excess of his authority or without a principal is himself
unpaid subscription. But this rule refers merely to registered regarded as the principal, possessed of
corporations and cannot be made applicable to the liability all the rights and subject to all the
of members of an unincorporated association. liabilities of a principal. Thus 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.
- Refuerzo, as president of the unregistered
corporation was the moving spirit behind the
consummation of the lease agreement by
acting as its representative, his liability cannot
be limited or restricted to 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
arising out of such transaction.

2. The decision was rendered June 8, 1955

whereas the motion filed by Refuerzo was
dated January 31, 1956, or after the lapse of
7 months and 23 days, which is beyond the
prescriptive period provided by Rule 38.
- Rule 38, Sec. 3. When petition filed; contents
and verification. – “A petition provided for in
either of the preceding sections of this rule
must be verified, filed within sixty days after
the petitioner learns of the judgment, order or
other proceeding to be set aside, and not
more than six months after such judgment or
order was entered, or such proceeding was
taken…”

G.R. No. L- The University Publishing Co. Inc. through its
19118 January 30, President Jose Aruego entered into a contract with
1965 Mariano Albert whereby the corporation agreed to pay a
MARIANO A. certain sum in installments for the exclusive right to
ALBERT, plaintiff- publish his revised commentaries in the RPC and for his
appellant, share in the previous sale of the book’s first edit edition.
vs. The corporation failed to pay the second installment
UNIVERSITY PUBLISHING thereby making the whole amount due and demandable
CO., INC., defendant- (i.e. there was an acceleration clause). Albert then sued the
appellee. corporation.
Uy & Artiaga and Antonio The lower court rendered judgment in favor of
M. Molina for plaintiff- Albert and a writ of execution was issued against the
appellant. corporation. Albert however, petitioned for a writ of
Aruego, Mamaril & execution against Aruego, as the real defendant, stating
Associates for defendant- that there is no such entity as University Publishing Co.
appellees. Inc. Albert annexed to his petition a certification from
the SEC saying that their records contain no such registered
corporation.
The corporation countered by saying that
Aruego is not a party to this case and that, therefore,
Albert’s petition should be denied. The corporation
countered by saying that Aruego is not a party to this case,
and that therefore, Albert’s petition should be denied.
The corporation, actually did not want Aruego to be
declared a party to the present case is because there
would be no need to institute a separate action against
Aruego to be declared a party to the present case is
because there would then be a need to institute a separate
- The provision treats of 2 periods i.e. 60 days
after petitioner learns of the judgment, and
not more than 6 months after judgment or
order was rendered, both of which must be
satisfied.
- The nature of the relief and the purpose
behind it, the periods fixed by the rule are not-
extendible and never interrupted; nor could it
be subjected to any condition or contingency
because it is of itself devised to meet a
condition or contingency.
DISPOSITIVE: Order set aside and nullified.
Can the corporation 1.) The corporation cannot invoke the doctrine
invoke the doctrine of of estoppel. The fact of non-registration of the
estoppel? corporation has not been disputed because the
corporation only raised the point that it and not
Aruego is the party defendant thereby
assuming that the corporation is an existing
corporation with an independent juridical
personality. HOWEVER, precisely on account of
non- registration, it cannot be considered a
corporation not even a corporation de facto. It
has therefore no personality separate from Aruego;
it cannot be sued independently. The estoppel
doctrine has not been invoked and even if it had
been, it is not applicable to the case at bar: (a)
Aruego had represented a non-existing entity
and induced not only Albert but also the court to
believe in such representation (b) He signed
the contract as president of the corporation
stating that this was a corporation duly organized
and existing under the laws of the Philippines.
One who induced another to act upon his willful
misrepresentation that a corporation was duly
organized and existing under the law, cannot
thereafter set up against his victim the principle of
corporation by estoppel.
2.) Aruego is the real defendant as he had control
over the proceedings. Had Aruego been named as
 action against Aruego; and if this is done, Aruego can set
up the defense of prescription under the Statute of
Limitations.
Lim vs. Philippine Fishing Lim Tong Lim requested Peter Yao and Antonio Chuato
Gear Industries Inc. [GR engage in commercial fishing with him. The three agreed to
136448, 3 November purchase two fishing boats but since they do not have the
1999] money they borrowed from one Jesus Lim the brother of
Lim Tong Lim. Subsequently, they again borrowed money
for the purchase of fishing nets and other fishing
equipments. Yao and Chua represented themselves as
acting in behalf of “Ocean Quest Fishing Corporation”
(OQFC) and they contracted with Philippine Fishing Gear
Industries (PFGI) for the purchase of fishing nets
amounting to more than P500k. However, they were unable
to pay PFGI and hence were sued in their own names as
Ocean Quest Fishing Corporation is a non-existent
corporation. Chua admitted his liability while Lim Tong Lim
refused such liability alleging that Chua and Yao acted
without his knowledge and consent in representing
themselves as a corporation.
party defendant instead of or together with the
corporation, there would be no room for debate
as to his personal liability. Since he was not so
named, matters of due process have arisen.
Parties to a suit are persons who have a right to
control the proceedings, to make defense, to
adduce and crossexamine witnesses and to appeal
from a decision. In the case at bar, Aruego, was
and in reality, the one who answered and litigated
through his own firm as counsel. He was in fact,
if not on name, the defendant. Clearly then
Aruego had his day in court as the real defendant
and due process of law has been substantially
observed.
3.) Aruego is the real party in interest because he
reaped the benefits from the contract.
Whether Lim Tong Lim Yes. It is apparent from the factual milieu that the
is liable as a partner three decided to engage in a fishing business.
Moreover, their Compromise Agreement had
revealed their intention to pay the loan with the
proceeds of the sale and to divide equally among
them the excess or loss. The boats and equipment
used for their business entails their common fund.
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. The
principle of corporation by estoppel cannot apply in
the case as Lim Tong Lim also benefited from the
use of the nets in the boat, which was an asset of
the partnership. Under the law on estoppel, those
acting in behalf of a corporation and those
benefited by it, knowing it to be without valid
existence are held liable as general partners.
Hence, the question as to whether such was legally
formed for unknown reasons is immaterial to the
case.
 Piercing the veil of corporate fiction
Umali vs Court of Appeals Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia
189 SCRA 529 [GR No. Mur Vda. de Castillo. The Castillo family are the owners of
89561 September 13, parcel of land located in Lucena City which was given as
1990] security for a loan from the development Bank of the
Philippines (DBP) 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 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 Castillo family. In this agreement, Santiago
Rivera obliged himself to pay the Castillo family the sum of
P70,000 immediately after the execution of the agreement
and to pay additional amount of P40,000 after the property
has been converted into a subdivision. Rivera, with
agreement approached Mr. Modesto Cervantes, president of
defendant Bormaheco and proposed to purchase from
Bormaheco two tractors model D7 and D8 subsequently a
sales agreement was executed on December 28, 1970. On
January 3, 1971, Slobec, through Rivera, executed in favor
of Bormaheco a chattel mortgage over the said equipment
as security for the payment of the aforesaid balance of
P180,000. As further security of the aforementioned unpaid
balance, Slobec obtained from insurance corporation of the
Philippines a security bond, with Insurance Corporation of
the Philippines (ICP) as surety and Slobec as principal, in
favor of Bormaheco, as borne out of by Exhibit 8. The
aforesaid surety bond was in turn secured by an agreement
of counter-guaranty with real estate mortgage executed by
Rivera as President of Slobec and Mauricia Mur Vda. de
Castillo, Buenaflor Castillo Umali, Bertilla Castillo-Rada,
Victoria Castillo, Marietta Castillo and Leovina Castillo
Jalbuena as mortgagors and insurance corporation of the
Philippines as mortgagee. In this agreement, ICP
guaranteed the obligation of Slobec with Bormaheco in the
amount of P180,000. In giving the bond, ICP required that
the Castillos mortgage to them the properties in question,
Whether or not the No. Under the doctrine of piercing the veil of
foreclosure is proper so corporate entity, when valid grounds therefore
as to apply the doctrine exists, the legal fiction that a corporation is an
of piercing the veil of entity with a juridical personality separate and
corporate entity. distinct from its members or stockholders may be
disregarded. In such cases, the corporation will be
considered as a mere association of persons. The
members or stockholders of the corporation will be
considered as the corporation, that is, liability will
attach directly to the officers and stockholders. The
doctrine applies when the corporate fiction is used
to defeat public convenience, justify wrong, protect
fraud, or defend crime, on when it is made as a
shield to confuse the legitimate issues or where a
corporation is the mere alter ego or business
conduit of a person, or where the corporation 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.
In the case at bar, 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
while we do not discount the possibility of
existence of fraud in the foreclosure proceeding,
neither are we inclined to apply the doctrine
invoked by petitioners in granting the relief sought.
It is our considered opinion that piercing the veil of
corporate entity is not the proper remedy in order
that the foreclosure proceeding may be declared a
nullity under the circumstances obtaining in the
legal case at bar.
The mere fact, therefore, that the business of two
or more corporations are interrelated is not a
justification for disregarding their separate
personalities, absent sufficient showing that the

Koppel (Phil) vs. Yatco, 77
PHIL 496 (1946)
RICARDO TANTONGCO,
petitioner, v. KAISAHAN NG
MGA MANGGAGAWA SA LA
CAMPANA (KKM) and THE
HONORABLE COURT OF
INDUSTRIAL RELATIONS,
respondents
namely, four parcels of land covered by TCT in the name of
the aforementioned mortgagors, namely TCT no. 13114,
13115, 13116, and 13117 all of the Register of Deeds of
Lucena City. Meanwhile, for violation of the terms and
conditions of the counter-guaranty agreement, the
properties of the Castillos were foreclosed by ICP as the
highest bidder with a bid of P285,212, a certificate of sale
was issued by the provincial sheriff of Lucena City and TCT
over the subject parcels of land were issued.
Koppel Industrial Car and Equipment company (KICE), a
foreign company not doing business in the Philippines,
owned 995 shares out of the 1000 shares that comprise the
capital stock of KPI, a domestic corporation licensed as
commercial broker in the Philippines. The remaining 5
shares were owned by each of the officers of KPI. KICE is
in the business of selling railway materials, machineries and
supplies. Buyers in the Philippines, when interested, asked
for price quotations from KPI, and KPI then cabled for the
quotation desired from KICE. However, KPI quoted to the
purchaser a selling price above the figures quoted by KICE.
On the basis of these quotations, orders were placed by the
local buyers. Between KICE and KPI, the arrangement
nonetheless was that KICE controls how much share of the
profits goes to KPI. For these transactions, the BIR treated
KPI as a subsidiary of KICE and collected from KPI the
merchants’ sales tax, which was a revenue law in force at
the time the sales took place.
KPI paid the taxes under protest, demanded for refund and
contended that KPI could not be liable for merchants’ sales
tax because it was only acting as broker between KICE and
the local buyers. The lower court dismissed the complaint
and ruled in favor of the government.
The present case is a petition for Certiorari and prohibition
with prayer for the issuance of a writ of preliminary 1.
injunction to prohibit the respondent Court of Industrial
Relations from proceeding with the hearing of the contempt
proceedings.
2.
FACTS La Campana Starch Factory and La Campana Coffee
Factory (La Campana for Brevity) are two separate entities
corporate entity was purposely used as a shield to
defraud creditors and third persons of their rights.
1. W/N KPI did business 1. Yes. The facts that KICE unilaterally controls
with the local buyers as the amount of so-called “share in the profits”
an agent of KICE and of KPI and that KICE owns an overwhelming
not as broker majority (99.5%) of the capital stock of the
2. W/N the application KPI are sufficient to conclude that the latter is
of “piercing the a mere dummy, agent or wholly-owned
corporate veil” doctrine subsidiary of KICE. Such conclusion is based
is proper on the doctrine that courts may ‘pierce the
corporate veil’ to uncover the true intents of
these corporations.
2. Yes. With regards only to the transactions
involved, KPI and KICE were treated as one and
the same so that taxes could be rightly collected.
The court has to disregard this “corporate fiction”
to prevent KICE / KPI from evading its taxes by
contravening the local internal revenue laws.
The court did not deny legal personality to KPI; in
fact, it had no power to hold so. The doctrine was
used only to adjudge the rights and liabilities of
each parties in these kind of transactions.
ISSUE RULING The Supreme Court DENIED the Petition
1. WON La Campana for Certiorari and Prohibition. It ruled that La
ceased to exist upon Camapana continued to exist despite the death of
the death of Ramon Ramon Tantongco. It further ruled that the
Tantongco; Doctrine of Piercing the Veil of Corporate Existence
2. WON the Doctrine of is not applicable in the present case. Finally, it
Piercing the Veil of allowed the CIR to proceed with the contempt
Corporate Existence hearing.
GR No. L-13119 || September run by a single management under the leadership of
22, 1959 Ramon Tantongco. Kaisahan ng mga Manggagawa sa La
Campana (Kaisahan for brevity), on the other hand, 3. 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. 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
applies to the present
case; and
3. WON the contempt
1 and 2
of court proceedings in
the CIR should proceed.
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.
3. 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.
 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.
QUINTIN ROBLEDO, Robledo ET. Al. filed a Petition for Review of the Decision of
MARIO SINLAO, NLRC, setting aside the decision of the Labor Arbiter, which
LEONARDO SAAVEDRA, held private respondents jointly and severally liable to the
VICENTE SECAPURI, petitioners for overtime and legal holiday pay.
DANIEL AUSTRIA, ET Petitioners were former employees of Bacani Security and
AL., petitioners, vs. THE Protective Agency (BPSA). They were employed as security
NATIONAL LABOR guards at different times during the period 1969 to
RELATIONS COMMISSION, December 1989 when BPSA ceased to operate. BPSA was a
BACANI SECURITY AND single proprietorship owned, managed, and operated by the
ALLIED SERVICES CO., late Felipe Bacani. On December 31, 1989, Felipe Bacani
INC., AND BACANI retired the business name and BSPA ceased to operate
SECURITY AND effective on that day. On Jan. 15, 1990 Felipe Bacani died.
PROTECTIVE AGENCY An intestate proceeding was instituted for the settlement of
AND/OR ALICIA his estate before Pasig-RTC. Earlier, on Oct. 26, 1989,
BACANI, respondents. respondent Bacani Security and Allied Services Co., Inc.
Ponente: Mendoza, J. (BASEC) had been organized and registered as a
corporation with SEC. The following were the incorporators
with their respective shareholdings:
ALICIA BACANI — 25,250 shares
LYDIA BACANI — 25,250 shares
AMADO P. ELEDA — 25,250 shares
VICTORIA B. AURIGUE — 25,250 shares
FELIPE BACANI — 20,000 shares
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.
Whether Bacani No. Petitioners contend that public respondent,
Security and Allied NLRC, erred in setting aside the Labor Arbiter’s
Services, Inc. (BASEC) judgment on the ground that BASEC is the same
can be held liable for entity as BSPA the latter being owned and
claims of petitioners controlled by one and the same family, the Bacani
against Bacani Security family. For this reason they urge that corporate
and Protective Agency fiction should be disregarded and BASEC should be
(BSPA). 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.
The rule is settled that unless expressly assumed
labor contracts are not enforceable against the
transferee of an enterprise. The reason for this is
that labor contracts are in
personam. Consequently, it has been held that
claims for backwages earned from the former
employer cannot be filed against the new owners
of an enterprise. 3Nor is the new operator of a
business liable for claims for retirement pay of
employees.
It is apparent, therefore, that the doctrine of
piercing the corporate veil has no application to
this case where the purpose is not to hold the
individual stockholders liable for the obligations of
the corporation but, on the contrary, to hold the
corporation liable for the obligations of a
stockholder or stockholders. Piercing the veil of
 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.
Corporation Law: The doctrine of piercing the veil of
corporate entity is used whenever a court finds that the
corporate fiction is being used to defeat public convenience,
justify wrong, protect fraud, or defend crime, or to confuse
legitimate issues, or that a corporation is the mere alter ego
or business conduit of a person or where the corporation 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.
Piercing the veil of corporate fiction
Fraud cases
Gregorio Araneta, Paz Tuason de Paterno is the registered owner of a 40,703
sq.m. big block of residential land in the district of Santa
Inc. vs. Tuazon, 91 Mesa, Manila which was subdivided into city lots.
PHIL 786 (1952) Most of these lots were occupied by lessees who had
contracts of lease which were to expire on Dec. 31,1952,
and carried a stipulation that in the event the owner and
lessor should decide to sell the property, the lessees were
to be given priority over other buyers if they should desire
to buy their leaseholds.
Paz Tuason obtained from Jose Vidal several loans totalling
P90,098 and constituted a first mortgage on the aforesaid
property to secure the debt. She obtained additional loans
of P30,000 and P20,000 upon the same security.
Each time, the previous contract of mortgage was renewed
and the amounts received were consolidated.
In the first novated contract (Jan. 1943), the time of
payment was fixed at 2 years and in the second (April
1943) at 4 years.
corporate entity means looking through the
corporate form to the individual stockholders
composing it. Here there is no reason to pierce the
veil of corporate entity because there is no
question that petitioners' claims, assuming them to
be valid, are the personal liability of the late Felipe
Bacani. It is immaterial that he was also a
stockholder of BASEC.
Indeed, the doctrine is stood on its head when
what is sought is to make a corporation liable for
the obligations of a stockholder. But there are
several reasons why BASEC is not liable for the
personal obligations of Felipe Bacani. For one,
BASEC came into existence before BSPA was
retired as a business concern. BASEC was
incorporated on October 26, 1989 and its license to
operate was released on May 28, 1990, while BSPA
ceased to operate on December 31, 1989. Before,
BSPA was retired, BASEC already existed. It is,
therefore, not true that BASEC is a mere continuity
of BSPA.
MAIN ISSUE 1: Whether
the deed of sale RATIO 1:
(Exhibit A) is valid Exhibit A Valid Despite Non-Cancellation of
despite: Mortgage
The alleged agreement LC: Contract was invalid based on Exhibit 1, par. 8
in the Promise to Buy that there was to be no absolute sale to Gregorio
and Sell (Exhibit 1, par. Araneta, Inc., unless Vidal's mortgage was
8) that there was to be cancelled.
no execution of the SC: The contemplated execution of an absolute
deed of absolute sale to deed of sale was not contingent on the cancellation
Gregorio Araneta, Inc., of Vidal's mortgage but as provided “once
unless Vidal's mortgage determined by Paz Tuason, may sell to Gregorio
was cancelled? (Wrong Araneta, Inc."
interpretation, Deed of The lots which could be sold to Gregorio Araneta,
Sale Valid) Inc. were definitely known by the expiry of the
Discrepancies between tenants' option to buy. Exhibit A was then in a
the Promise to Buy and condition to be made.
Sell and the Deed of Vidal's mortgage was not an obstacle to the sale.
There was also a separate written agreement entitled
"Penalidad del Documento de Novacion de Esta Fecha"
("Penalty Document Novation of This Date) which, unlike
the principal contracts, was not registered.
Paz Tuason decided to sell the entire property for the net
amount of P400,000 and entered into negotiations with
Gregorio Araneta, Inc. for this purpose.
Oct. 19, 1943: Contract called "Promesa de Compra y
Venta" ("Promise to Buy and Sell" also Exhibit 1) was
executed. It provided that subject to the preferred right of
the lessees and that of Jose Vidal as mortgagee, Paz
Tuason would sell to Gregorio Araneta, Inc. and the latter
would buy for the said amount of P400,000 the entire
estate under these terms.
For the Tenants:
40% paid together with the letter of acceptance of the
tenant
20 % at the execution of deed of sale agreement (Contract
to Sell??)
40% at the execution of deed of final sale, which will be
granted after the mortgage has been canceled
Par. 8: 5% commission corresponding to Jose Araneta will
be paid at the execution of the deed of sale agreement
He was referred to as defendant's agent or broker "who
acts in this transaction" and who as such was to receive a
commission of 5 per cent, although the commission was to
be charged to the purchasers
Par. 13: Paz Tuason promised, in consideration of Jose
Araneta's services rendered to her, to assign to him all her
right, title and interest to and in certain lots not embraced
in the sales to Gregorio Araneta, Inc. or the tenants
At the expiry of the period (Dec. 31,1952), Paz Tuason will
grant the corresponding deeds of sale to tenants who have
decided to buy their lots.
Any tenant who decides to buy the lot may choose to order
the immediate execution in his favor of Deed of Final Sale if
50% of the price besides the 40% included in his letter of
acceptance was paid and the remaining 10% paid
immediately after mortgage was canceled
For Gregorio Araneta Inc:
Paz Tuason, acknowledges receipt of P190, 000 as an
advance of the sale price from Gregorio Araneta, Inc.
Sale and allegations of An amount had been set aside to take care of it,
fraud in the execution and the parties were confident that the suit against
of the Deed of Absolute the mortgagee would succeed. The only doubt in
Sale? (YES, no fraud) their minds was in the amount to which Vidal was
Being a sale between entitled. The failure of the court to try and decide
the agent and his the case was not foreseen either.
principal? (Jose Araneta There was no undue rush on the part of Gregorio
is not an agent of Inc., to push across the sale. The fact that similar
Tuason but a BROKER, deeds were given to the lessees who bought their
Deed of Sale valid) leaseholds and these were never questioned by
Being drawn by lawyers Tuason dispels any suspicion of bad faith on
of the buyer who are at Gregorio Inc.
the same time lawyers If anyone was in a hurry it could have been Paz
of the seller? (Araneta Tuason as she was pressed for cash. The payment
firm is not the lawyer of of the mortgage was only an incident, or a
Tuazon, Deed of sale necessary means to effectuate the sale. Otherwise
valid) she could have settled her mortgage obligation
merely by selling a portion of her estate.
Whatever the terms of Exhibit 1, Tuason and
Gregorio Araneta Inc. were at perfect liberty to
make a new agreement different from or even
contrary to the provisions of that document. The
validity of the subsequent sale must of necessity
depend on what it said and not on the provisions
of the promise to buy and sell.
Exhibit A Valid: No Fraud, Substantial Compliance
with Exhibit 1
Except in two particulars, Exhibit A was a
substantial compliance with Exhibit 1 in furtherance
of which Exhibit A was made.
FIRST DIFFERENCE: 10 % of the purchase price
should be paid only after Vidal's mortgage should
have been cancelled.
It is not onerous or unusual that the vendee should
withhold a small portion of the purchase price
before all the impediments to the final
consummation of the sale had been removed.
The tenants who had bought their lots had been
granted the privilege to deduct as much as 40%
Seller has already received from the tenant
purchasers 90% of the purchase money.
Had Gregorio Araneta, Inc. not insisted on charging
The amount that Paz Tuason receives in this act will be
applied to pay her debt to Jose Vidal
The lots which were not bought by the lessees will
immediately be sold in favor of Gregorio Araneta, Inc.
Gregorio Araneta, Inc., to pay the sale price as follows:
90% of upon execution of Deed of Final Sale discounting
P190,000 already paid at the Execution of this Contract.
Remaining 10% will be paid once the mortgage over
property was canceled
If P190, 000 exceeds the 90% of the price to be paid by
Gregorio Araneta Inc., the balance will be paid immediately
by Paz Tuazon, taking it from the amounts received from
tenants on the sale of the lots
Letters were sent the lessees giving them until Aug. 31,
1943, an option to buy the lots they occupied, at the price
and terms stated in said letters. Most took advantage of the
opportunity and after making the stipulated payments were
given their deeds of conveyance.
In the end, Lots 1, 8-16 and 18 (aggregate area of
14,810.20 sq.m.) remained unencumbered, except for the
mortgage to Jose Vidal.
Dec. 2, 1943: Paz Tuason and Gregorio Araneta, Inc.
executed with regard to these lots an ABSOLUTE?? DEED
OF SALE (Exhibit A) the terms of which, except in two
respects, were similar to those of the sale to the lessees
Price: P139,083.32 (90% is P125,174.99)
Paz (Vendor) having received P190,000 from Gregorio, Inc
(Vendee) upon the execution of "Promesa de Compra y
Venta, returned the excess balance of P64,825.01
P190,000 was delivered by the Vendee to the Vendor by
virtue of 4 checks issued by the Gregorio Inc. against BPI –
1 in favor of Paz (P13,476.62), 2 in favor of Jose Vidal
(P143,150 + 30,000), 1 in favor of City Treasurer
(3,373.38)
Nov. 2, 1943: The return of P64,825.01 was made by Paz
to Gregorio Inc. liquidated as follows: Payments from
tenants Dumas, Sycip, Pabalan, del Rosario amounted to
P68,563.21 from which 5% commissions of de Pabalan,
Tuason, Dumas amounting to 3,244.97 and check to Paz
amounting to 493.23 were deducted
In view of the foregoing liquidation, the vendor
acknowledges fully and unconditionally, having received
to Tuason the loss of the checks deposited with the
court, the sale in question would have gone the
smooth way of the sales to the tenants as declared
by Dindo Gonzales, Paz's son in his testimony.
SECOND DIFFERENCE: The stipulation by which
Gregorio Araneta Inc. would hold Paz Tuason liable
for the lost checks. (See above in Exhibit A-bold
and underline)
Difficult to believe that Paz Tuason was deceived
into signing Exhibit A, in spite of the provision of
which she and her son complain of.
Paz Tuason had an able attorney (JPEnrile) who
was assisting her in the suit against Vidal and a
son (Dindo Gonzales) who is leading citizen and a
business-man and knew the English language very
well if she did not.
She denied or at least pretended in her answer to
be ignorant of the existence of Exhibit A, and only
after she was confronted with the signed copy of
the document on the witness did she spring up the
defense of fraud. It would look as if she gambled
on the chance that no signed copy of the deed had
been saved from the war.
From the unreasonableness and inequity of Exhibit
A it is not to be presumed that she did not
understand it.
JOSE ARANETA: NOT AGENT BUT BROKER
Paz Tuazon: Gregorio Inc.’s President, Jose
Araneta is Tuazon’s agent and applying the
principle stated in 18 C.J.S. 380: "The courts, at
law and in equity, will disregard the fiction of
corporate entity apart from the members of the
corporation when it is attempted to be used as a
means of accomplishing a fraud or an illegal act”,
Jose Araneta and Gregorio Inc. is one and the
same. Thus, Gregorio cannot buy Tuazon’s
property.
TC: Jose Araneta, Gregorio Inc’s President, was not
Paz Tuason's agent or broker. However,
hypothetically admitting the existence of an agency
relation between Paz Tuason and Jose Araneta,
Gregorio Araneta, Inc. was the purchaser and not
P125,174.99 of the present legal currency and hereby
expressly declares that she will not hold the Vendee
responsible for any loss that she might suffer due to the
fact that 2 of the checks paid to her by the Vendee were
issued in favor of Jose Vidal and the latter has, up to the
present time, not yet collected the same.
10% balance of the purchase price (P13,908.33) not yet
paid will be paid by the Vendee to the Vendor when the
existing mortgage over the property sold by the Vendor to
the Vendee is duly cancelled in the office of the Register of
Deeds, or sooner at the option of the Vendee.
Oct. 20, 1943: Before the execution of this Absolute deeds
of Sale, Paz Tuason had already offered to Vidal the check
for P143,150 mentioned in Exhibit A, in full settlement of
her mortgage obligation
Vidal refused to receive that check or to cancel the
mortgage, contending that by the separate agreement
before mentioned payment of the mortgage was not to be
effected totally or partially before the end of 4 years from
April, 1943.
Oct.-Nov. 1943: Paz Tuason, through Atty. Enrile,
commenced an action against Vidal but the record of that
case was destroyed and no copy of the complaint was
presented in evidence.
They deposited with the clerk of court a check for P143,150
previously turned down by Vidal, another certified check for
P12,932.61, also drawn by Gregorio Araneta, Inc., in favor
of Vidal, and one ordinary check for P30,000 issued by Paz
Tuazon.
3 checks were supposed to cover the whole indebtedness
to Vidal including the principal and interest up to that time
and the penalty provided in the separate agreement.
The action against Vidal never came on for trial and the
record and the checks were destroyed during the war
operations in Jan. or Feb., 1945; and neither was the case
reconstituted afterward.
This failure of the suit for the cancellation of Vidal's
mortgage, coupled with the destruction of the checks
tendered to the mortgagee, the nullification of the bank
deposit on which those checks had been drawn, and the
tremendous rise of real estate value following the
termination of the war, gave occasion to the breaking off
Jose Araneta citing the well-known distinction
between the corporation and its stockholders. The
sale to Gregorio Araneta, Inc. was not a sale to
Jose Araneta, the agent or broker.
SC as to TC Ruling: TC disregarded evidence. In
par. 8 of Exhibit 1, Jose Araneta was referred to as
Tuason’s agent or broker "who acts in this
transaction" and who as such was to receive a
commission of 5 %, while in par. 13, Tuason
promised, in consideration of Jose Araneta's
services rendered to her, to assign to him all her
right, title and interest to and in certain lots not
embraced in the sales to Gregorio Araneta, Inc. or
the tenants.
SC as to Corporate Theory: This principle does not
fit in with the facts of the case. Gregorio Araneta,
Inc. entered into the contract for itself and for its
benefit as a corporation. The contract and the roles
of the parties who participated therein were exactly
as they purported to be and were fully revealed to
the seller. There is no pretense, nor is there reason
to suppose, that if Paz Tuason had known Jose
Araneta to be Araneta, Inc's president, she would
not have gone ahead with the deal. It would have
made no difference, except for the brokerage fee,
whether Gregorio Araneta, Inc. or Jose Araneta
was the purchaser.
SC Relation bet. Tuason&Araneta: Not w/n Art.
1459: Granting Jose & G.A.Inc. were identical and
that the acts of one where the acts of the other,
the relation between Tuason and Jose Araneta did
not fall within the purview of article 1459 of the
Spanish Civil Code.
Art. 1459. The following persons cannot take by
purchase, even at a public or judicial auction,
either in person or through the mediation of
another: An agent, any property of which the
management or sale may have been intrusted to
him
Agency is defined in article 1709 in broad terms,
and we have not come across any commentary or
decision dealing directly with the precise meaning
the schemes outlined in Exhibits 1 and A
Paz Tuason, after liberation, repudiated them for certain
reasons. She alleges that Exhibit A is not valid because:
There are discrepancies between the Promise to Buy and
Sell (Exhibit 1) and Absolute Deed of Sale (Exhibit A)
Exhibit 1, under par. 8, there was to be no absolute sale to
Gregorio Araneta, Inc., unless Vidal's mortgage was
cancelled.
Exhibit A had no counterpart in Exhibit 1 by which Gregorio
Araneta Inc. would hold Paz Tuason liable for the lost
checks. No person in his or her right senses would
knowingly have agreed to a covenant so iniquitous and
unreasonable.
There was undue rush on the part of Gregorio Inc., to push
across the sale.
Paz Tuason was deceived into signing
Attys. Salvador Araneta and J. Antonio Araneta of Araneta
& Araneta, who had drawn Exhibit A, did not inform her
about its contents
Being English, she had not read the deed of sale; that if she
had not trusted the said attorneys she would not have been
so foolish as to affix her signature to a contract so one-
sided.
Technical objections are made against the deed of sale.
Jose Araneta, since deceased, was defendant's agent and
at the same time the president of Gregorio Araneta, Inc.
The law firm of Araneta & Araneta who represent Gregorio
Araneta, Inc. were her attorneys also.
Gregorio Araneta, Inc. thus filed an action to compel Paz
Tuason to deliver to the plaintiff a clear title to the lots
described in Exhibit A free from all liens and encumbrances,
and a deed of cancellation of the mortgage to Vidal.
Vidal was summoned by order of the court, and filed a
cross-claim against Paz Tuazon to foreclose his mortgage.
of agency as employed in article 1459.
Manresa’s Opinion: Agent, in the sense there used,
is one who accepts another's representation to
perform in his name certain acts of more or less
transcendency.
Scaevola’s Opinion: The agent's incapacity to buy
his principal's property rests in the fact that the
agent and the principal form one juridicial person.
In this connection, the fear that greed might get
the better of the sentiments of loyalty and
disinterestedness which should animate an
administrator or agent, is the reason underlying
various classes of incapacity enumerated in article
1459.
American Courts: The law does not trust human
nature to resist the temptations likely to arise of
antogonism between the interest of the seller and
the buyer.
The ban of par. 2 of Art. 1459 connotes the idea of
trust and confidence; and so where the relationship
does not involve considerations of good faith and
integrity the prohibition should not and does not
apply. To come under the prohibition, the agent
must be in a fiduciary with his principal.
CASE AT BAR (Parang what is a broker):
Tested by this standard, Jose Araneta was not an
agent within the meaning of article 1459. He was
to be nothing more than a go-between or
middleman between the defendant and the
purchaser, bringing them together to make the
contract themselves. There was no confidence to
be betrayed.
Jose Araneta was not authorized to make a binding
contract for the defendant. He was not to sell and
he did not sell the defendant's property. He was to
look for a buyer and the owner herself was to
make, and did make, the sale.
He was not to fix the price of the sale because the
price had been already fixed in his commission. He
was not to make the terms of payment because
these, too, were clearly specified in his
commission.

G.R. No. L-15121, August In their complaint, the Palacio alleged that Fely hired
31, 1962 Alfredo Canillo as driver who negligently run over a child
Gregorio Palacio and (Mario). Gregorio , the father of Mario is a welder and in
Mario Palacio (minor) the account of his child's injuries has abandoned his shop
vs Fely Transportation which is the family's source of income.
Company
Ponente: Regala Fely filed a motion to dismiss on the grounds that there is
no cause of action against the company and that the cause
of action is barred by prior judgment. But the court
deferred the determination of the grounds alleged in the
motion to dismiss until the trial of the case.
The defendant then alleges (1) that complaint states no
cause of action against defendant, and (2) that the sale and
transfer of the jeep AC-687 by Isabelo Calingasan to the
Fely Transportation was made on December 24, 1955, long
after the driver Alfredo Carillo of said jeep had been
convicted and had served his sentence.
In fine, Jose Araneta was left no power or
discretion whatsoever, which he could abuse to his
advantage and to the owner's prejudice.
Araneta&Araneta: Not Tuason’s Lawyers
Since attorney Ponce Enrile was the defendant's
lawyer in the suit against Vidal, it was not likely
that she employed Atty. Salvador Araneta and J.
Antonio Araneta as her attorneys in her dealings
with Gregorio Araneta, Inc., knowing their identity
with the buyer.
The fact that Attys. Salvador and Araneta and J.
Antonio Araneta drew Exhibits 1 and A could very
well have been written in furtherance of Gregorio
Araneta's own interest.
Granting that Attorney Araneta and Araneta were
attorneys for the Tuason, yet they were not
forbidden to buy the property in question.
Attorneys are only prohibited from buying their
client's property which is the subject of litigation.
(Art. 1459, No. 5, Spanish Civil Code) The
questioned sale was effected before the subject
thereof became involved in the present action.
Whether Fely The Court agrees with this contention of the
Transportation can be plaintiffs. Isabelo Calingasan and defendant Fely
held liable for the Transportation may be regarded as one and the
damages. same person. It is evident that Isabelo Calingasan's
main purpose in forming the corporation was to
evade his subsidiary civil liability resulting from the
conviction of his driver, Alfredo Carillo. This
conclusion is borne out by the fact that the
incorporators of the Fely Transportation are Isabelo
Calingasan, his wife, his son, Dr. Calingasan, and
his two daughters.
Accordingly, defendants Fely Transportation and
Isabelo Calingasan should be held subsidiarily liable
for P500.00 which Alfredo Carillo was ordered to
pay in the criminal case and which amount he
could not pay on account of insolvency.
 In view of the evidence presented, the lower court barred
the judgment in the criminal case and held that the person
subsidiarily liable to pay damages is Isabel Calingasan, the
employer.
PALAY, INC. vs. CLAVE ON March 28, 1965, petitioner Palay, Inc., through its
G.R.No. L-56076 President, Albert Onstott executed in favor of private
respondent, Nazario Dumpit, a Contract to sell a parcel of
Land in Antipolo, Rizal owned by said corporation. The sale
price was P23, 300.00 with 9% interest per annum, payable
with a down payment of P4, 660.00 and monthly
installments of P246.42 until fully paid.
Paragraph 6 of the contract provided for automatic
extrajudicial rescission upon default in payment of any
monthly installment after the lapse of 90 days from the
expiration of the grace period of one month, without need
of notice and with forfeiture of all installments paid.
Respondent Dumpit paid the down payment and several
installments amounting to P13, 722.50. The last payment
was made on December 5, 1967 for installments up to
September 1967.
On May 10, 1973, or almost six (6) years later, private
respondent wrote petitioner offering to update all his
overdue accounts with interest, and seeking its written
consent to the assignment of his rights to a certain Lourdes
Dizon. In response, petitioners informed respondent that
his Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had already
been resold.
A complaint was filed by the respondent with the NHA for
conveyance with an alternative prayer for refund. The NHA,
in its resolution, ordered Palay, Inc. and Alberto Onstott in
his capacity as President of the corporation, jointly and
severally, to refund immediately to respondent the amount
paid with 12% interest from the filing of complaint.
Respondent Presidential Executive Assistant Clave affirmed
the NHA resolution.
Pabalan and Lagdameo v. 84 workers of the Philippine Inter-Fashion (PIF) filed a
NLRC (G.R. No. 89879) complaint against the latter for illegal transfer simultaneous
with illegal dismissal in violation of the Labor Code. PIF was
notified about the complaint and summons but hearings
1. Whether the doctrine The doctrine of piercing the veil of corporate fiction
of piercing the veil of has no application to the case. Consequently,
corporate fiction has petitioner Onstott cannot be held solidarity liable
application to the case. with petitioner Corporation for the refund of the
2. Whether petitioner installment payments made by respondent Dumpit.
On Stott can be held A corporation is invested by law with a personality
solidarity liable with separate and distinct from those of the persons
petitioner Corporation composing it. As a general rule, a corporation may
for the refund of the not be made to answer for acts or liabilities of its
installment payments stockholders or those of the legal entities to which
made by respondent it may be connected and vice versa.
Dump it. However, the veil of corporate fiction may be
pierced when: it is used as a shield to further an
end subversive of justice; or for purposes that
could not have been intended by the law that
created it; or to defeat public convenience, justify
wrong, protect fraud, or defend crime; or to
perpetrate fraud or con fuse legitimate issues; or
to circumvent the law or perpetuate deception; or
as an alter ego, adjunct or business conduit for the
sole benefit of the stockholders. In this case
however, there are no badges of fraud on the part
of the petitioners. They had literally relied,
although mistakenly, on paragraph 6 of the
contract with respondent when they rescinded the
contract to sell extra judicially.
Although On Stott appears to be the controlling
stockholder, there being no fraud, he cannot be
made personally liable.
Whether or not NO.
petitioners as officers The settled rule is that the corporation is vested by
may be held jointly and law with a personality separate and distinct from
severally liable with the the persons composing it, including its officers as
 were continually re-set for failure of its officers (petitioners
herein) to appear. Complainant workers thus moved to
implead petitioners as officers of PIF in the complaint for
their illegal transfer to a new firm. The Labor Arbiter ruled
in favor of workers holding petitioners-officers jointly and
severally liable with PIF to pay them their benefits.
Petitioners’ appeal was dismissed.
Del Rosario vs National In POEA case no. 85-06-0394, the Philippine Overseas
Labor Relations Employment Administration (POEA) promulgated a decision
Commission on February 4,1986 dismissing the complaint for money
187 SCRA 777 [GR No. claims for lack of merit. The decision was appealed to the
85416 July 24, 1990] NLRC, which on April 30, 1987 reversed the POEA decision
and ordered Philsa Construction and Trading Co.Ind and
Ariel Enterprises (the foreign employer) to jointly and
severally pay private respondent the peso equivalent of
$16,039,000 salary differentials and $2,420.03 as vacation
leave benefits. A writ of execution was issued by the POEA
but it was returned unsatisfied incapable of satisfying the
judgement. Private respondent moved for the issuance of
an alias writ against the officers of Philsa. This motion was
corporation for its well as from that of any other legal entity to which
liability. it may be related. Thus, a company manager
acting in good faith within the scope of his
authority in terminating the services of certain
employees cannot be held personally liable for
damages. However, the legal fiction that a
corporation has a personality separate and distinct
from stockholders and members may be
disregarded when the notion of legal entity is used
as a means to perpetrate fraud or an illegal act or
as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, and or
(to) confuse legitimate issues the veil which
protects the corporation will be lifted.
In this particular case complainants did not allege
or show that petitioners, as officers of the
corporation deliberately and maliciously designed
to evade the financial obligation of the corporation
to its employees, or used the transfer of the
employees as a means to perpetrate an illegal act
or as a vehicle for the evasion of existing
obligations, the circumvention of statutes, or to
confuse the legitimate issues.
Not one of the above circumstances has been
shown to be present. Hence petitioners cannot be
held jointly and severally liable with the PIF
corporation under the questioned decision and
resolution of the public respondent.
Whether or not the No. Under the law, a corporation is bestowed
POEA resolution is juridical personality, separate and distinct from its
proper. stockholders. But when the juridical personality of
the corporation is used to defeat public
convenience, justify wrong, protect or defend
crime, the corporation shall be considered as a
mere association of persons and its responsible
officers and/or stockholders shall be individually
liable. For the same reasons, a corporation shall be
liable for obligations of a stockholder or a
corporation and its successor-in-interest shall be
considered as one and the liability of the former

Villa Rey Transit vs. Ferrer
[GR L-23893, 29 October
1968]
opposed by the officers led by petitioners, the president
and general manager of the corporation. However, POEA
issued a resolution ordering the sheriff to execute against
the properties of the petitioner and if insufficient, against
the cash and/or surety bond of bonding company
concerned for the full satisfaction of the judgement
awarded.
[preceding case] Prior to 1959, Jose M. Villarama was an
operator of a bus transportation, under the business name
of Villa Rey Transit, pursuant to certificates of public
convenience granted him by the Public Service Commission
(PSC) in Cases 44213 and 104651, which authorized him to
operate a total of 32 units on various routes or lines from
Pangasinan to Manila, and vice-versa. On 8 January 1959,
he sold the two certificates of public convenience to the
Pangasinan Transportation Company, Inc. (Pantranco), for
P350,000.00 with the condition, among others, that the
seller (Villarama) "shall not for a period of 10 years from
shall attach to the latter.
But for the separate juridical personality of a
corporation to be disregarded, the wrong doing
must be clearly and convincingly established. It
cannot be presumed.
Thus, at the time Philsa allowed its license to lapse
in 1985 and even at the time it was delivered in
1986, there was yet no judgement in favor of
private respondent. An intent to evade payment of
his claims cannot therefore be implied from the
expiration of Phila’s license and its delisting.
Neither will the organization of Philsa International
Placement and Services Corp. and its registration
with the POEA as a private employment agency
imply fraud since it was organized and registered in
1981, several years before private respondent filed
his complaint with the POEA in 1985. The creation
of the second anticipation of private respondent’s
money claims and the consequent adverse
judgement against Philsa.
Likewise, substantially identity of the incorporators
of the two corporations does not necessarily imply
fraud.
Whether the stipulation, Villarama supplied the organization expenses and
"SHALL NOT FOR A the assets of the Corporation, such as trucks and
PERIOD OF 10 YEARS equipment; there was no actual payment by the
FROM THE DATE OF original subscribers of the amounts of P95,000.00
THIS SALE, APPLY FOR and P100,000.00 as appearing in the books;
ANY TPU SERVICE Villarama made use of the money of the
IDENTICAL OR Corporation and deposited them to his private
COMPETING WITH THE accounts; and the Corporation paid his personal
BUYER" in the contract accounts. Villarama himself admitted that he
between Villarama and mingled the corporate funds with his own money.
Pantranco, binds the These circumstances are strong persuasive
the date of this sale, apply for any TPU service identical or
competing with the buyer."
Barely 3 months thereafter, or on 6 March 1959: a
corporation called Villa Rey Transit, Inc. (the Corporation)
was organized with a capital stock of P500,000.00 divided
into 5,000 shares of the par value of P100.00 each;
P200,000.00 was the subscribed stock; Natividad R.
Villarama (wife of Jose M. Villarama) was one of the
incorporators, and she subscribed for P1,000.00; the
balance of P199,000.00 was subscribed by the brother and
sister-in-law of Jose M. Villarama; of the subscribed capital
stock, P105,000.00 was paid to the treasurer of the
corporation, who was Natividad R. Villarama. In less than a
month after its registration with the Securities and
Exchange Commission (10 March 1959), the Corporation,
on 7 April 1959, bought 5 certificates of public convenience,
49 buses, tools and equipment from one Valentin Fernando,
for the sum of P249,000.00, of which P100,000.00 was paid
upon the signing of the contract; P50,000.00 was payable
upon the final approval of the sale by the PSC; P49,500.00
one year after the final approval of the sale; and the
balance of P50,000.00 "shall be paid by the BUYER to the
different suppliers of the SELLER."
The very same day that the contract of sale was executed,
the parties thereto immediately applied with the PSC for its
approval, with a prayer for the issuance of a provisional
authority in favor of the vendee Corporation to operate the
service therein involved. On 19 May 1959, the PSC granted
the provisional permit prayed for, upon the condition that
"it may be modified or revoked by the Commission at any
time, shall be subject to whatever action that may be taken
on the basic application and shall be valid only during the
pendency of said application." Before the PSC could take
final action on said application for approval of sale,
however, the Sheriff of Manila, on 7 July 1959, levied on 2
of the five certificates of public convenience involved
therein, namely, those issued under PSC cases 59494 and
63780, pursuant to a writ of execution issued by the Court
of First Instance of Pangasinan in Civil Case 13798, in favor
of Eusebio E. Ferrer against Valentin Fernando. The Sheriff
Corporation (the Villa evidence showing that Villarama has been too
Rey Transit, Inc.). much involved in the affairs of the Corporation to
altogether negative the claim that he was only a
part-time general manager. They show beyond
doubt that the Corporation is his alter ego. The
interference of Villarama in the complex affairs of
the corporation, and particularly its finances, are
much too inconsistent with the ends and purposes
of the Corporation law, which, precisely, seeks to
separate personal responsibilities from corporate
undertakings. It is the very essence of
incorporation that the acts and conduct of the
corporation be carried out in its own corporate
name because it has its own personality. The
doctrine that a corporation is a legal entity distinct
and separate from the members and stockholders
who compose it is recognized and respected in all
cases which are within reason and the law. When
the fiction is urged as a means of perpetrating a
fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention
of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery
or crime, the veil with which the law covers and
isolates the corporation from the members or
stockholders who compose it will be lifted to allow
for its consideration merely as an aggregation of
individuals. Hence, the Villa Rey Transit, Inc. is an
alter ego of Jose M. Villarama, and that the
restrictive clause in the contract entered into by
the latter and Pantranco is also enforceable and
binding against the said Corporation. For the rule is
that a seller or promisor may not make use of a
corporate entity as a means of evading the
obligation of his covenant. Where the Corporation
is substantially the alter ego of the covenantor to
the restrictive agreement, it can be enjoined from
competing with the covenantee.
made and entered the levy in the records of the PSC. On 16
July 1959, a public sale was conducted by the Sheriff of the
said two certificates of public convenience. Ferrer was the
highest bidder, and a certificate of sale was issued in his
name. Thereafter, Ferrer sold the two certificates of public
convenience to Pantranco, and jointly submitted for
approval their corresponding contract of sale to the PSC.
Pantranco therein prayed that it be authorized provisionally
to operate the service involved in the said two certificates.

The applications for approval of sale, filed before the PSC,

by Fernando and the Corporation, Case 124057, and that of
Ferrer and Pantranco, Case 126278, were scheduled for a
joint hearing. In the meantime, to wit, on 22 July 1959, the
PSC issued an order disposing that during the pendency of
the cases and before a final resolution on the aforesaid
applications, the Pantranco shall be the one to operate
provisionally the service under the two certificates
embraced in the contract between Ferrer and Pantranco.
The Corporation took issue with this particular ruling of the
PSC and elevated the matter to the Supreme Court, which
decreed, after deliberation, that until the issue on the
ownership of the disputed certificates shall have been
finally settled by the proper court, the Corporation should
be the one to operate the lines provisionally.

[present case] On 4 November 1959, the Corporation filed

in the Court of First Instance of Manila, a complaint for the
annulment of the sheriff's sale of the aforesaid two
certificates of public convenience (PSC Cases 59494 and
63780) in favor of Ferrer, and the subsequent sale thereof
by the latter to Pantranco, against Ferrer, Pantranco and
the PSC. The Corporation prayed therein that all the orders
of the PSC relative to the parties' dispute over the said
certificates be annulled. The CFI of Manila declared the
sheriff's sale of two certificates of public convenience in
favor of Ferrer and the subsequent sale thereof by the
latter to Pantranco null and void; declared the Corporation
to be the lawful owner of the said certificates of public
convenience; and ordered Ferrer and Pantranco, jointly and
severally, to pay the Corporation, the sum of P5,000.00 as
and for attorney's fees. The case against the PSC was
 dismissed. All parties appealed.
Piercing the veil of corporate fiction
Alter ego
G. C. ARNOLD vs. WILLITS Arnold and Willits and Patterson, Ltd. entered into a
& PATTERSON, LTD contract by which plaintiff was appointed agent for a period
44 Phil 634 (1923) of 5 years. A dispute arose as to the amount which plaintiff
should receive for his services. Patterson retired and Willits
became the sole owner of the assets of the firm. Willits
then organized a corporation. He became exclusive owner
except for a few stocks (nominal shares to qualify the
directors) for organizational purposes. Another instrument
was executed between Arnold and Willits. Such defined and
specified the compensation of Arnold. Nothing shows that
such was formally ratified or approved by the corporation. A
statement of the corporation's account showed that there
was due and owing the plaintiff a sum of money. The
corporation's creditor's committee protested against such
amount. Arnold filed suit to collect. Willits argued that the
document was signed without the authority of the
defendant corporation and also filed a counterclaim.
Whether plaintiff may Yes.
collect from defendant The proposition that a corporation has an existence
corporation. separate and distinct from its membership has its
limitations. It must be noted that this separate
existence is for particular purposes. It must also be
remembered that there can be no corporate
existence without persons to compose it; there can
be no association without associates.
This separate existence is to a certain extent a
legal fiction. Whenever necessary for the interests
of the public or for the protection or enforcement
of the rights of the membership, courts will
disregard this legal fiction and operate upon both
the corporation and the persons composing it.
He continued his employment and rendered his
services after the corporation was organized and
the second document was signed just the same as
he did before, and both corporations recognized
and accepted his services.
It was a one man corporation, and Willits, as the
owner of all of the stock, was the force and
dominant power which controlled them. After the
document was signed it was recognized by Willits
that the plaintiff's services were to be performed
and measured by its term and provisions, and
there never was any dispute between plaintiff and
Willits upon that question.
Statements of account were made and prepared by
the accountant on the assumption that the
document was in full force and effect as between
the plaintiff and the defendant. Previous financial
statements show upon their face that the account
of plaintiff was credited with several small items on
the same basis, and it was not until the 23d of
March, 1921, that any objection was ever made by
anyone.

LA CAMPANA COFFEE Tan Tong since 1932 has been engaged in the buying and
FACTORY v KAISAHAN NG selling gawgaw under the trade name La Campana Gawgaw
MANGGAGAWA Packing. In 1950, Tan Tong and members of his family
G.R. L-5677, May 25, 1953 organized the family corporation. La Campana Coffee
Factory with its principal office located in Gawgaw
Packing. Prior to said information, Tan Tong entered into a
CBA with the labor union of La Campana Gawgaw. Later on,
his employees formed Kaisahan ng mga Manggagawa ng La
Campana with an authorization from the DOLE to become
an affiliate of the larger union.
Kaisahan with 66 members presented a demand for higher
wages and more privileges to La Campana Starch and
Coffee Factory. The demand was not granted and the DOLE
certified the issue to the CIR. La Campana filed a motion to
dismiss alleging that the action was directed against two
different entities with distinct personalities. This was
denied, hence this petition.
The SC reverses. Arnold entitled to 68K plus half of
75K, representing PNs.
Both Corp’s organized by Willits were a One Man
Corporation. After the 2nd contract was signed it
was recognized by Willits that Arnold’s services
were to be performed by its terms and there never
was any dispute between Arnold and Willits.
Although a new corp was created, the new corp
dealt with and treated Arnold as its agent in the
same manner as the previous corp had, thus the
new corp is bound by the contract which the old
firm made. In fact, the 2nd contract protected
Willits from a larger claim, which the accountant
said, would be over 160K.
Where a stock of a corporation is owned by one
person whereby the corp functions only for the
benefit of such individual owner, the corp and the
individual should be deemed to be the same. Thus
the corp is bound by the contract.
W/N the CIR has YES. La Compana Gawgaw and La Campana
jurisdiction over the Factory are operating under one single
case. management or as one business though with two
trade names. The coffee factory is a corporation
and by legal fiction, an entity separate and apart
from the persons composing it namely, Tan Tong
and his family.
However, the concept of separate corporate
personality cannot be extended to a point beyond
reason and policy when invoked in support of an
end subversive of this policy and will be
disregarded by the courts.
A subsidiary company which is created merely as
an agent for the latter may sometimes be regarded
as identical with the parent corporation especially if
the stockholders or officers of the two corporations
are substantially the same or their systems of
operation unified. The facts showed that they had
one management, one payroll prepared by the
same person, Laborers were interchangeable, there
is only one entity as shown by the signboard ad in
trucks, packages and delivery forms and the same

Yutivo Sons Hardware Co vs
Yutivo is a domestic corporation engaged in importation
CTA1 SCRA 160 (1961)
and sale of hardware supplies and equipment. After the
liberation in 1946, resumed its business and until 1946 bout
a number of cars and trucks from General Motors (GM), an
American corporation doing business in the Philippines. As
importer, GM paid sales tax prescribed by the Tax Code on
the basis of its selling price to Yutivo. Yutivo paid no further
sales tax on its sales to the public.
In June 1946, Southern Motors (SM) organized to engage in
the business of selling cars, trucks and spare parts. One of
its major subscribers is Yu Tiong Yee, a founder of Yutivo.
After the incorporation of SM and until the withdrawal of
GM from Phil, the cars and trucks were purchased by Yutivo
from GM then sold by Yutivo to Sm and then SM sold these
to the public.
The same way that GM used to pay taxes on the basis of its
sales to Yutivo, Yutivo paid taxes on the basis of its sales to
SM. SM paid no taxes on its sales to the public.
CIR made an assessment and charged Yutivo 1.8M as
deficiency tax plus surcharge. Petitioner contested before
CTA. CTA ruled that SM is a mere subsidiary or
instrumentality of Yutivo, hence, its separate corporate
existence must be disregarded.
place of business.
The attempt to make the two factories appear as
two separate businesses when in reality
they are but one, is but a device to defeat the ends
of the law and should not be permitted to prevail.
WHY PIERCE? So that La Campana cannot evade
the jurisdiction of CIR since La Campana Gawgaw
has only 14 employees and only 5 are members of
Kaisahan.
Yes.
WON Yutivo and SM are
It is an elementary and fundamental principle of
two separate entities.
corporation law that a corporation is an entity
separate and distinct from its stockholders and
from other corporation petitions to which it may be
connected. However, "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, or in the case of two corporations merge
them into one. Another rule is that, when the
corporation is the "mere alter ego or business
conduit of a person, it may be disregarded.
However, the Court here held that they are inclined
to rule that the Court of Tax Appeals was not
justified in finding that SM was organized for no
other purpose than to defraud the Government of
its lawful revenues. In the first place, this
corporation was organized in June, 1946 when it
could not have caused Yutivo any tax savings.
From that date up to June 30, 1947, or a period of
more than one year, GM was the importer of the
cars and trucks sold to Yutivo, which, in turn resold
them to SM. During that period, it is not disputed
that GM as importer, was the one solely liable for
sales taxes. Neither Yutivo or SM was subject to
the sales taxes on their sales of cars and trucks.
The sales tax liability of Yutivo did not arise until
July 1, 1947 when it became the importer and
simply continued its practice of selling to SM. The
decision, therefore, of the Tax Court that SM was

Lidell & Co. vs. Collector, 2
SCRA 632 (1961)
The case is an appeal from the decision of the Court of Tax
Appeals imposing a tax deficiencyliability of P1,317,629.61
on Liddell & Co., Inc.The petitioner, Liddell & Co. Inc.,
(Liddell & Co. for short) is a domestic corporation establish
inthe Philippines on February 1, 1946. From 1946 until
November 22, 1948 when the purpose clause of the Articles
of Incorporation of Liddell & Co. Inc., was amended so as
to limit its business activities toimportations of automobiles
and trucks, Liddell & Co. was engaged in business as an
importer and at thesame time retailer of Oldsmobile and
Chevrolet passenger cars and GMC and Chevrolet trucks.On
December 20, 1948, the Liddell Motors, Inc. was organized
and registered with the Securitiesand Exchange Commission
with an authorized capital stock of P100,000 of which
P20,000 wassubscribed and paid for as follows: Irene
Liddell wife of Frank Liddell 19,996 shares and Messrs.
MarcialP. Lichauco, E. K. Bromwell, V. E. del Rosario and
Esmenia Silva, 1 share each.Beginning January, 1949,
Liddell & Co. stopped retailing cars and trucks; it conveyed
theminstead to Liddell Motors, Inc. which in turn sold the
vehicles to the public with a steep mark-up. Sincethen,
Liddell & Co. paid sales taxes on the basis of its sales to
Liddell Motors Inc. considering said sales asits original
sales.The Collector of Internal Revenue argued that the
Lidell Motors, Inc. was but an alter ego of Liddell & Co. and
concluded that for sales tax purposes, those sales made by
Liddell Motors, Inc. to thepublic were considered as the
original sales of Liddell & Co. hence the imposition of tax
deficiency. The CTA upheld the position taken by the
Collector. Hence, this petition
organized purposely as a tax evasion device runs
counter to the fact that there was no tax to evade.
Whether or not Lidell The Court held that Lidell Motors, Inc. is an alter
Motors, Inc. is an alter ego of Lidell& Co. hence making it liable for tax
ego of Lidell & Co. deficiency .Liddell & Co. is wholly owned by Frank
making it liable for the Liddell. As of the time of its organization, 98% of
said tax deficiency? the capital stock belonged to Frank Liddell. The
20% paid-up subscription with which the company
began its business was paid by him. The
subsequent subscriptions to the capital stock were
made by him and paid with his own money. As to
Liddell Motors, Inc. SC is fully persuaded that Frank
Liddell also owned it. He supplied the original
capital funds. It is not proven that his wife Irene,
ostensibly the sole incorporator of Liddell Motors,
Inc. had money of her own to pay for her P20,000
initial subscription. Her income in the United States
in the years 1943 and 1944 and the savings
therefrom could not be enough to cover the
amount of subscription, much less to operate an
expensive trade like the retail of motor vehicles.
The alleged sale of her property in Oregon might
have been true, but the money received therefrom
was never shown to have been saved or deposited
so as to be still available at the time of the
organization of the Liddell Motors, Inc.The
evidence at hand also shows that Irene Liddell had
scant participation in the affairs of Liddell Motors,
Inc.
There are quite a series of conspicuous
circumstances that militate against the separate
and distinct personality of Liddell Motors, Inc. from
Liddell & Co.8 SC notice that the bulk of the
business of Liddell & Co. was channeled through
Liddell Motors, Inc. On the other hand, Liddell
Motors, Inc. pursued no activities except to secure
cars, trucks, and spare parts from Liddell & Co.
Inc. and then sell them to the general public.
These sales of vehicles by Liddell & Co. to Liddell
Motors, Inc. for the most part were shown to have
taken place on the same day that Liddell Motors,
Inc. sold such vehicles to the public. We may even
say that the cars and trucks merely touched the
hands of Liddell Motors, Inc. as a matter of
formality.
During the first six months of 1949, Liddell & Co.
issued ten (10) checks payable to Frank Liddell
which were deposited by Frank Liddell in his
personal account with the Philippine National Bank.
During this time also, he issued in favor of Liddell
Motors, Inc. six (6) checks drawn against his
personal account with the same bank. The checks
issued by Frank Liddell to the Liddell Motors, Inc.
were significantly for the most part issued on the
same day when Liddell & Co. Inc. issued the
checks for Frank Liddell9 and for the same
amounts.
It is of course accepted that the mere fact that one
or more corporations are owned and controlled by
a single stockholder is not of itself sufficient ground
for disregarding separate corporate entities.
Authorities10 support the rule that it is lawful to
obtain a corporation charter, even with a single
substantial stockholder, to engage in a specific
activity, and such activity may co-exist with other
private activities of the stockholder. If the
corporation is a substantial one, conducted lawfully
and without fraud on another, its separate identity
is to be respected.
Accordingly, the mere fact that Liddell & Co. and
Liddell Motors, Inc. are corporations owned and
controlled by Frank Liddell directly or indirectly is
not by itself sufficient to justify the disregard of the
separate corporate identity of one from the other.
There is, however, in this instant case, a peculiar
consequence of the organization and activities of
Liddell Motors, Inc.
Consistently with this view, the United States
Supreme Court held that "a taxpayer may gain
advantage of doing business thru a corporation if
he pleases, but the revenue officers in proper
cases, may disregard the separate corporate entity
where it serves but as a shield for tax evasion and

Ramirez Telephone vs. Bank
of America
Guatson International vs. Petitioners Guatson Travel and Tours, Inc. (hereinafter
NLRC referred to as Guatson Travel), Philippine Integrated Labor
Assistance Corp. (Philac) and Mercury Express International
Courier Services, Inc. (MEREX) assail the Decision, rendered
by the National Labor
Relations Commission entitled “Jolly M. Almoradie vs.
Guatson’s Travel Company, Philac and MEREX. In the
questioned decision, the NLRC found that Mr. Henry Ocier’s
(Vice-President and General Manager of petitioner Guatson
Travel) actuation of threatening and forcing private
respondent, Jolly M. Almoradie, to resign amounted to
illegal dismissal and thus ordered petitioners to pay private
respondent backwages.
Jolly M. Almoradie was first employed by Mercury Express
International Courier Service, Inc. (MEREX) in October,
1983 as Messenger. When it closed its operations,
Almoradie was absorbed by MEREX’s sister company
Philippine Integrated Labor Assistance Corp. (Philac),
likewise as Messenger.
treat the person who actually may take the
benefits of the transactions as the person
accordingly taxable."
Thus, to allow a taxpayer to deny tax liability on
the ground that the sales were made through
another and distinct corporation when it is proved
that the latter is virtually owned by the former or
that they are practically one and the same is to
sanction a circumvention of our tax laws.
The decision appealed is modified. Lidell& Co. is
declared liable only for the amount of Php 426,
811.67 with 25% surcharge for late payment and
6% interest thereon from the time the judgment
becomes final. As it appears that, during the
pendency of this litigation, appellant paid under
protest the Govt, the total amount assessed by the
Collector, the latter is hereby required to return the
excess to the petitioner.
Whether Jolly Almoradie The petition is hereby DISMISSED for lack of
was indeed illegally merit.
dismissed by being
forced to resign. YES The SC agreed with the finding of NLRC that Jolly’s
resignation was not voluntary.
When Almoradie was promoted as Sales
Representative he had caught the ire of
management, so much so that he was issued no
less than three memoranda in one day ordering
him to answer certain charges. Why he was again
promoted to the position of Account Executive after
he was reverted back to the rank of a messenger
from being a Sales Representative is rather
intriguing, unless it was a scheme of management
to really rid him from the company. Apparently,
Almoradie is not cut out for a sales job, and hence
could be dismissed or forced to resign for failing to
make good on his job in sales. On the other hand,
it would be difficult to dismiss him while being a
messenger since he is a permanent employee and
In September, 1986, Almoradie was transferred to Guatson
Travel, allegedly also a sister company of MEREX and
Philac, as Liaison Officer. Thereafter, he was promoted to
the position of Sales Representative. Almoradie was issued
three separate memoranda asking him to explain the
reason why he didn’t want to sell but he answered that it
was not true. He said that he was hampered in his sales
promotion and solicitation of customer, due to financial
constraint considering that the kind and nature of work
entails much expenses for which he shouldered with his
personal money. He also stated that he liked her position as
a messenger and preferred to be returned to his messenger
position.
Almoradie was reverted to the position of Messenger, yet
sometime in September, 1988, he was again given the
position of Account Executive, the nature of work of which
is similar to that of a sales representative. Almoradie
accepted the transfer with the understanding that he will
solely discharge the duties of an account executive and will
no longer be required to do messengerial work.
On October 1, 1988, Almoradie was allegedly summoned by
Henry Ocier to his office and was there and then forced by
the latter to resign. Ocier taunted Almoradie with threats
that it he will not resign, he will file charges against him
which would adversely affect his chances of getting
employed in the future. Ocier allegedly even provided the
pen and paper on which Almoradie wrote and signed the
resignation letter dictated by Ocier himself. Subsequently,
Almoradie filed a complaint for Illegal Dismissal.
The Labor Arbiter, however Dismissed. Upon Almoradie’s
appeal, the NLRC reversed the decision of the Labor Arbiter
on his finding that complainant was not forced to resign,
anchoring its conclusion to the fact that Almoradie was a
permanent employee who has been working for the Ocier’s
for five long years; that he was receiving a fairly good
salary considering that he is single; that he had no potential
employer at the time of his resignation; that there was no
evidence to show that Mr. Henry Ocier was indeed not in
town on October 1, 1988, when he allegedly forced
there would not be enough basis to make him
resign Henry Ocier did not only say that he will file
charges against Almoradie and that he has a good
lawyer but he even threatened to block his future
employment should the latter not file his
resignation. This threat is not farfetched.
We uphold the NLRC. The three companies are
owned by one family, such that majority of the
officers of these companies are the same. The
companies are located in one building and use the
same messengerial service. Moreover, there was
no showing that private respondent was paid
separation pay when he was absorbed by Philac
upon closure of Merex; nor was there evidence
that he resigned from Philac when he transferred
to Guatson Travel. Under the doctrine of piercing
the veil of corporate fiction, when valid ground
exists, the legal fiction that a corporation is an
entity with a juridical personality separate and
distinct from its members or stockholders may be
disregarded.
Where there is a finding of illegal dismissal, the
employee is entitled to both reinstatement and
award of backwages from the time the
compensation was withheld, in this case in 1988,
up to a maximum of three years.
The Decision of the NLRC is hereby MODIFIED to
the extent that the award of backwages should be
computed based on a three-year period, while the
separation pay of one month for every year of
service should be computed from the time
petitioner was
employed by Merex and should include the three-
year period as backwages.
 Almoradie to resign.
Concept Builders vs NLRC Petitioner Concept Builders, Inc., a domestic corporation
engaged in the construction business. Private respondents
were employed by said company as laborers, carpenters
GR 108734; 29 May 1996 and riggers. However, they were illegally dismissed.
Aggrieved, private respondents filed a complaint for illegal
dismissal. The Labor Arbiter rendered judgment ordering
petitioner to reinstate private respondents and to pay them
back wages. It became final and executory.
The alias Writ of Execution cannot be enforced by the
sheriff because all the employees inside petitioner’s
premises at 355 Maysan Road, Valenzuela, Metro Manila,
claimed that they were employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by petitioner. Thus, NLRC
issued a break-open order against Concept Builders and
HPPI.
Whether the piercing Yes.
the veil of corporate It is a fundamental principle of corporation law that
entity is proper a corporation is an entity separate and distinct
from its stockholders and from other corporations
to which it may be connected. But, this separate
and distinct personality of a corporation is merely a
fiction created by law for convenience and to
promote justice. So, when the notion of separate
juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation
may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation
is merely an adjunct, a business conduit or an alter
ego of another corporation.
The conditions under which the juridical entity may
be disregarded vary according to the peculiar facts
and circumstances of each case. No hard and fast
rule can be accurately laid down, but certainly,
there are some probative factors of identity that
will justify the application of the doctrine of
piercing the corporate veil, to wit:
1. Stock ownership by one or common
ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and
records.
4. Methods of conducting the business.
The SEC en banc explained the “instrumentality
rule” which the courts have applied in disregarding
the separate juridical personality of corporations as
follows:
Where one corporation is so organized and
controlled and its affairs are conducted so that it is,
in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the
“instrumentality” may be disregarded. The control
necessary to invoke the rule is not majority or even
complete stock control but such domination of
instances, policies and practices that the controlled
corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for
its principal. It must be kept in mind that the
control must be shown to have been exercised at
the time the acts complained of took place.
Moreover, the control and breach of duty must
proximately cause the injury or unjust loss for
which the complaint is made.
The test in determining the applicability of the
doctrine of piercing the veil of corporate fiction is
as follows:
1. Control, not mere majority or complete stock
control, but complete domination, not only of
finances but of policy and business practice in
respect to the transaction attacked so that the
corporate entity as to this transaction had at
the time no separate mind, will or existence of
its own;
2. Such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or
other positive legal duty or dishonest and
unjust act in contravention of plaintiff’s legal
rights; and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements
prevents “piercing the corporate veil.” In applying
the “instrumentality” or “alter ego” doctrine, the
courts are concerned with reality and not form,
with how the corporation operated and the
individual defendant’s relationship to that
operation.
Clearly, petitioner ceased its business operations in
order to evade the payment to private respondents
of back wages and to bar their reinstatement to
their former positions. HPPI is obviously a business
conduit of petitioner corporation and its emergence
was skillfully orchestrated to avoid the financial
liability that already attached to petitioner
 corporation.

Piercing the veil of corporate fiction

Equity cases
G.R. No. L-28694 May 13, Petitioner is a domestic corporation engaged in the business Whether or not TESCO Viewed in the light of these criteria, we note that it
1981 TELEPHONE of manufacturing telephone equipment. It has a sister is liable for the death is only in this Petition before us that petitioner
ENGINEERING & SERVICE company, the Utilities Management Corporation (UMACOR), claim of the deceased. denied, for the first time, the employer-employee
COMPANY, INC., with offices in the same location. UMACOR is also under the relationship. Although respect for the corporate
petitioner, vs. management of Jose Luis Santiago. UMACOR employed the personality as such, is the general rule, there are
WORKMEN'S late Pacifica L. Gatus as Purchasing Agent. Then was exceptions. In appropriate cases, the veil of
COMPENSATION detailed with petitioner company. He reported back to corporate fiction may be pierced as when the same
COMMISSION, UMACOR and after 2 years he contracted illness and died of is made as a shield to confuse the legitimate
PROVINCIAL SHERIFF OF "liver cirrhosis with malignant degeneration." Respondent issues. While, indeed, jurisdiction cannot be
RIZAL and LEONILA Leonila S. Gatus, filed a "Notice and Claim for conferred by acts or omission of the parties,
SANTOS GATUS, for Compensation" with Workmen's Compensation Commission TESCO'S denial at this stage that it is the employer
herself and in behalf of sub-office, alleging therein that her deceased husband was of the deceased is obviously an afterthought, a
her minor children, an employee of TESCO, and that he died of liver cirrhosis. devise to defeat the law and evade its obligations.
Teresita, Antonina and On August 9, 1967, and Office wrote petitioner transmitting This denial also constitutes a change of theory on
Reynaldo, all surnamed the Notice and for Compensation, and requiring it to submit appeal which is not allowed in this jurisdiction.
GATUS, respondents an Employer's Report of Accident or Sickness pursuant to Moreover, issues not raised before the Workmen's
Section 37 of the Workmen's Compensation Act (Act No. Compensation Commission cannot be raised for the
3428). An "Employer's Report of Accident or Sickness" was first time on appeal. For that matter, a factual
thus submitted with UMACOR indicated as the employer of question may not be raised for the first time on
the deceased. The Report was signed by Jose Luis appeal to the Supreme Court. 20 WHEREFORE, this
Santiago. In answer, the employer stated that it would not Petition is hereby dismissed.
controvert the claim for compensation, and admitted that
the deceased employee contracted illness "in regular
occupation." On the basis of this Report, the Acting Referee
awarded death benefits plus burial expenses in favor of the
heirs of Gatus. TESCO filed its "Motion for Reconsideration
and/or Petition to Set Aside Award" alleging as grounds
therefor, that the admission made in the "Employer's
Report of Accident or Sickness" was due to honest mistake
and/or excusable negligence on its part, and that the illness
for which compensation is sought is not an occupational
disease, hence, not compensable under the law. The Motion
for Reconsideration was denied. Meanwhile, the Provincial
Sheriff of Rizal levied on and attached the properties of
TESCO and scheduled the sale of the same at public
auction. Thus petition for "Certiorari with Preliminary
Injunction" seeking to annul the award and to enjoin the
Sheriff from levying and selling its properties at public
auction.
 Respondent Ventura Vasquez was petitioner's taxi (1) Respondent's claim 1. Sickness manifested itself on December 22 or
driver. Sometime on December 22 or 23, 1961, at about should have been 23, 1961. Claim was filed on May 9,
[ GR No. L-23586, Mar 20,
11:00 a.m., while driving petitioner's taxicab, he vomitted dismissed for his failure 1962. Petitioner argues that by Section 24 of the
1968 ]
blood. Aside from his hemoptysis, he suffered back pains, to file the notice of Workmen's Compensation Act, the claims should
fever and headache. He reported to petitioner the fact of injury and claim for be thrown out of court. Because, according to
A. D. SANTOS v. VENTURA his having vomitted blood. He was sent to petitioner compensation required petitioner, such claim was not filed within two
VASQUEZ company's physician, Dr. Roman, who treated him and sent by Section 24 of the months following illness.
him to Sto. Tomas Hospital where he was confined for six Workmen's
days. Thereafter, he was admitted at the Quezon Compensation Act; and Petitioner's case must fail. Stabilized jurisprudence
Institute. There he stayed until March 19, 1962 under the is that failure of the employer to file with the
medical care of Dr. Mario Lirag. Dr. Lirag diagnosed his (2) The claim for Commission notice of controversion set forth in the
ailment as pulmonary tuberculosis, moderately advanced in compensation is second paragraph of Section 45 of the Workmen's
both lungs. Upon his discharge on March 19, 1962, he was directed against Compensation Act is a waiver of the defense that
clinically improved. His X-ray examination, however, Amador Santos, not the claim for compensation was not filed within the
showed the same finding, i.e., PTB, moderately against petitioner. statutory period and a forfeiture of the employer's
advanced. He has not resumed work. right to controvert the claim. Petitioner here knew
of respondent's illness. Yet, it did not controvert
Offshoot of the foregoing is respondent's claim filed on May respondent's right to
9, 1962 with the Workmen's Compensation Commission. compensation. Constructively, such failure is an
The hearing officer affirmed the his claim and order the admission that the claim is compensable.
petitioner to pay all his claims.
2. Petitioner's averment that respondent driver had
no cause of action against petitioner is equally
without merit. Respondent's claim for
compensation herein is directed against petitioner
A.D. Santos, Inc. Petitioner, in answer to the claim,
categorically admitted that claimant was its taxi
driver. Add to this the fact that the claimant
contracted pulmonary tuberculosis by reason of his
said employment. And respondent's cause of
action against petitioner is complete.

But petitioner cites the fact that respondent driver,

in the course of his testimony, mentioned that he
worked for the City Cab operated by Amador
Santos. This will not detract from the validity of
respondent's right to compensation. For, the truth
is that really at one time Amador Santos was the
sole owner and operator of the City Cab. It was
subsequently transferred to petitioner A.D. Santos,
Inc. in which Amador Santos was an officer. The
mention by respondent of Amador Santos as his
employer in the course of his testimony, in the
words of this Court in Sugay vs. Reyes, G.R. No. L-
20451, December 28, 1964, "should not be allowed
to confuse the facts relating to employer-employee
relationship," for "when the veil of corporate fiction
is made as a shield to perpetrate a fraud and/or
confuse legitimate issues (here, the relation of
employer-employee), the same should be pierced."
The Court of Appeals found that the Park Rite Co., Inc., a Philippine whether the individual stockholders
corporation, was originally organized on or about April 15, 1947, with maybe held liable for
a capital stock of 1,500 shares at P1.00 a share. The corporation obligations contracted by
leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan the corporation.
Luna street (Manila) which it used for parking motor vehicles for
a consideration.

It turned out that in operating its parking business, the corporation occupied
and used not only the Samanillo lot it had leased but also an
adjacent lot belonging to the respondents-appellees Padilla,
without the owners' knowledge and consent.

When the latter discovered the truth around October of 1947, they demanded
payment for the use and occupation of the lot.

The corporation (then controlled by petitioners Cirilo Parades and Ursula

Tolentino, who had purchased and held 1,496 of its 1,500 shares)
disclaimed liability, blaming the original incorporators,
McConnel, Rodriguez and Cochrane.

Whereupon, the lot owners filed against it a complaint for forcible entry in the
Municipal Court of Manila on 7 October 1947 (Civil Case No. 4031).

RTC- Judgment was rendered in due course on 13 November 1947, ordering the
Park Rite Co., Inc. to pay P7,410.00 plus legal interest as damages
from April 15, 1947 until return of the lot. Restitution not having
been made until 31 January 1948, the entire judgment amounted to
P11,732.50. Upon execution, the corporation was found without any
assets other than P550.00 deposited in Court. After their application
to the judgment credit, there remained a balance of P11,182.50
outstanding and unsatisfied.

Now the judgment creditors then filed suit in the Court of First Instance of
Manila against the corporation and its past and present
stockholders, to recover from them, jointly and severally, the
unsatisfied balance of the judgment, plus legal interest and
costs.

RTC- The Court of First Instance denied recovery;

CA- Court of Appeals (CA-G.R. No. 8434-R) reversed, finding that the
corporation was a mere alter ego or business conduit of the
principal stockholders that controlled it for their own benefit,
and adjudged them responsible for the amounts demanded by the lot
owners,

Defendant-appellee RICARDO RODRIGUEZ is hereby ordered to pay to the

plaintiffs-appellants Dominga de los Reyes and Sabino Padilla the
sum of P1,742.64 with legal interest thereon from the time of the
filing of the complaint and until it is fully paid. In addition thereto the
defendants-appellees Cirilo Paredes, Ursula Tolentino and Ricardo
Rodriguez shall pay the costs proportionately in both instances.