SUBSCRIPTION CONTRACTS AND PURCHASE AGREEMENTS

SEC. 59. Subscription Contract. – Any contract for the acquisition of unissued stock in an existing corporation
or a corporation still to be formed shall be deemed a subscription within the meaning of this Title,
notwithstanding the fact that the parties refer to it as a purchase or some other contract.

SEC. 71. Rights of Unpaid Shares, Nondelinquent. – Holders of subscribed shares not fully paid which are not
delinquent shall have all the rights of a stockholder.

-DEFINITION OF OUTSTANDING CAPITAL STOCK

SEC. 173. Outstanding Capital Stock Defined. – The term “outstanding capital stock”, as used in this Code, shall
mean the total shares of stock issued under binding subscription contracts to subscribers or stockholders,
whether fully or partially paid, except treasury shares.

CASE:

TRILLANA VS QUEZON COLLEGE

Facts:

Damasa Crisostomo subscribed 200 shares of capital stock with a par value of P100 each through a
letter sent to the 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 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.

Issue:

Whether or not the condition entered into by both parties are valid.

Ruling:

There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment
suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during
her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the
form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to
express its agreement to Damasa's offer in order to bind the latter.

The relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the
preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form letter,
and Damasa applied for subscription fixing her own plan of payment, — a relation, in the absence as in the
present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not
ripened into an enforceable contract.

Under article 1115 of the old Civil Code which provides as follows: "If the fulfillment of the condition
should depend upon the exclusive will of the debtor, the conditional obligation shall be void.”
 BAYLA VS SILANG TRAFFIC

Facts:

Petitioners purchased the following:

Sofronio T. Bayla....... 8 shares P360

Venancio
8 shares 375
Toledo........

Josefa Naval.............. 15 shares 675

The purchase price to be paid 5% upon the execution of the contract and the remainder in installments 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 rescinding the agreement

Petitoners 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 individually agreed to take and pay for
under certain conditions.

The Silang raised 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 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

ISSUES:

W/N the subsequent BOD resolution is valid

W/N under the contract between the parties the failure of the purchaser to pay any of the quarterly
installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and
the reversion of the shares to the corporation
HELD: NO. CA reversed. Silang Traffic to pay petitioners

1. NO. The noted agreement is entitled "Agreement for Installment Sale of Shares in the Silang Traffic
Company, Inc.,"; that while the purchaser is designated as "subscriber," the corporation is described as
"seller".

Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon
its terms and the intention of the parties

A subscription is mutual agreement of the subscribers to take and pay for the stock of a corporation. A
purchase is an independent agreement between the individual and the corp. to buy shares of stock from it at
stipulated price. The rules governing subscriptions and sales of shares are different

The Corporation Law regarding calls for unpaid subscription and assessment of stock (sections 37-50) do not
apply to a purchase of stock. A 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 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. The 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

Under 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.

1. TRUST FUND DOCTRINE:

The capital stock, property and other assets of a corporation are regarded as equity in trust for the
payment of corporate creditors. The reason is that creditors of a corporation are preferred over the
stockholders in the distribution of corporate assets. There can be no distribution of assets among the
stockholders without first paying corporate creditors. Hence, any disposition of corporate funds to the
prejudice of creditors is null and void. Creditors of a corporation have the right to assume that so long as
there are outstanding debts and liabilities, the board of directors will not use the assets of the corporation to
purchase its own stock.
CASE:

PHIL TRUST VS RIVERA

Facts:

The Cooperativa Naval Filipina was duly incorporated with a capital of 100k divided into 1k shares of
a par value of 100 pesos each. Mariano Rivera as an incorporator subscribed for 450 shares representing a
value of 45k.

The company became insolvent and went into the hands of Phil. Trust Co., as assigne in bankcruptcy,
and was instituted to recover ½ of the stock subscription of Rivera which was never paid.

Rivera claims that he did not pay because not long after the incorporation, a stockholders meeting
occurred at which the capital should be reduced by 50% and the subscribers released from the obligation to
pay any unpaid balance of their subscription in excess of 50% of the same.

As a result of the resolution, the supposed subscription of the various shareholders had been
cancelled to the extend stated and fully paid certificates were issued to each shareholders for ½ of the
subscription.

It does not appear that the formalities prescribed in section 17 of corpo law relative to the reduction
of capital stock in corporations were observed, and in particular it does not appear that any certificates was
at any time filed in the Bureau of Commerce and Industry, showing such reduction.

Issues:

Whether or not the reduction of capital by 50% is valid to release Rivera from his obligation to pay
the remaining balance of his subscription

Held:

The resolution relied upon the defendant was without effect and that the defendant was still liable
for the unpaid balance of his subscription.

It is established doctrine that subscription to the capital of a corporation constitute a find to which
creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain
an action upon any unpaid stock subscription in order to realize assets for the payment of its debts.

A corporation has no power to release an original subscriber to its capital stock from the obligation
of paying for his shares, without a valuable consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner an under the conditions prescribed by the
statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory
regulations is necessary.

2. PRE-INCORPORATION SUBSCRIPTION

SEC. 60. Pre-incorporation Subscription. – A subscription of shares in a corporation still to be formed

shall be irrevocable for a period of at least six (6) months from the date of subscription, unless all of the other
subscribers consent to the revocation, or the corporation fails to incorporate within the same period or
within a longer period stipulated in the contract of subscription. No pre-incorporation subscription may be
revoked after the articles of incorporation is submitted to the Commission.

OFFER THEORY-

CONTRACT THEORY-

3. RELEASE FROM SUBSCRIPTION OBLIGATION

CASE:

VELASCO VS POIZAT

Facts:

It appears that the plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company"
(Ltd.) is seeking to recover of 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 company had its principal place of business,
with a capital of P50,000, divided into 500 shares. The defendant subscriber for 20 shares of the stock of the
company, and 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.

The defendant was a stockholder 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.

There is a proposal that the directors, or shareholders, of the company should make good by new
subscription, in proportion to their respective holdings, 15 shares which had been surrendered in 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. The other proposition was to the effect that Juan 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 such payment, the
management of the corporation should be authorized to undertake judicial proceedings against him.

The company soon went into voluntary insolvency, Velasco being named as the assignee to collect
the unpaid shares of Poizat.

Issue:

Whether or not Poizat is liable to pay subscription

Held:

Poizat is liable upon this subscription. A stock subscription is a contract between the corporation on
one side, and the subscriber on the other, and courts will enforce it for or against either. It is a rule, accepted
by the Supreme Court of the United States, that a subscription for shares of stock does not require an express
promise to pay the amount subscribed, as the law implies a promise to pay on the part of the subscriber.
Section 36 of the Corporation Law clearly recognizes that a stock subscription is a 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 a much bound to pay the
amount of the share subscriber 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 give recognition to 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 sections 38 to 48, inclusive, of the Corporation Law are applicable and must be followed. The
other remedy is by action in court.

When insolvency supervenes upon a corporation and the court assumes jurisdiction to wind it 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. When insolvency supervenes all unpaid subscription become at
once due and enforceable.

PNB VS BITULOK SAWMILL

Facts:

The Philippine National Bank, as creditor, and therefore the real party in interest, was allowed by the
lower court to substitute the receiver of the Philippine Lumber Distributing Agency in these respective
actions for the recovery from defendant lumber producers the balance of their stock subscriptions. (Bitulok
Sawmill, Inc.; Dingalan Lumber Co., Inc., Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks,
Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Insular Lumber Co., Inc.; Anakan
Lumber Co., Inc.; and Cantilan Lumber Co., Inc.)

The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized
sometime in the early part of 1947 upon the initiative and insistence of the late President Manuel Roxas of the
Republic of the Philippines who for the purpose, had called several conferences between him and the
subscribers and organizers of the Philippine Lumber Distributing Agency, Inc.” The purpose was
praiseworthy, to insure a steady supply of lumber, which could be sold at reasonable prices to enable the war
sufferers to rehabilitate their devastated homes. He convinced the lumber producers to form a lumber
cooperative and to pool their sources together in order to wrest, particularly, the retail trade from aliens who
were acting as middlemen in the distribution of lumber as an inducement he promised and agreed to finance
the agency by making the Government invest P9.00 by way of counterpart for every peso that the members
would invest therein.

The late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary and Chairman of
the Board of Directors of the Philippine National Bank, for the latter to grant said agency an overdraft in the
original sum of P250,000.00 which was later increased to P350,000.00, which was approved by said Board of
Directors of the Philippine National Bank with interest at the rate of 6% per annum, and secured by the
chattel mortgages on the stock of lumber of said agency." The Philippine Government did not invest the P9.00
for every peso coming from defendant lumber producers. The loan extended to the Philippine Lumber
Distributing Agency by the Philippine National Bank was not paid.
 The lower court, the above facts sufficed for their dismissal because the legislature had not
appropriated any amount for such counterpart.

Issue:

Would the non-compliance of the payment of the lumber companies in their balance in the
subscription be justified?

Held:

Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look
for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid
stock subscription in order to realize assets for the payment of its debt. A corporation has no power to release
an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable
consideration for such release; and as against creditors a reduction of the capital stock can take place only in
the manner and under the conditions prescribed by the statute or the charter or the articles of incorporation.
Moreover, strict compliance with the statutory regulations is necessary.

FORMALITIES IN ORGANIZING

A. Generally

CASE:

GOVERNMENT VS MANILA RAILROAD

Facts:

To compel the Manila Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph
poles of said company with crosspieces for six telegraph wires belonging to the Government, which, it is
alleged, are necessary for public service between said municipalities.

The petitioner relies upon the provisions of section 84 of Act No. 1459. Act No. 1459 is the general
Corporation Law

Section 84 of 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 crosspieces 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.

Plaintiff contends that under said section 84 the defendant company is required to erect and maintain posts
for its telegraph wires, of sufficient length and strength, and equipped with sufficient crosspieces to carry the
number of wires which the Government may consider... necessary for the public service, and that six wires
are now necessary for the public service.

Respondents answered by a general and special defense. In their special defense they contend that section 84
of Act No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of the United States Philippine
Commission 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.
Act No. 1510 is the charter of the Manila Railroad Company.

As has been said, Act No. 1459 is a general law applicable to corporations generally, while Act No. 1510 is the
charter of the Manila Railroad Company and constitutes a contract between it and the Government.

Issues:

Whether section 84 of Act No. 1459 is applicable to the Manila Railroad Company, or whether the Manila
Railroad Company is governed by section 1, paragraph 8, of Act No. 1510.

Ruling:

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 railroads 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.

The question is not whether Act No. 1510 repealed Act No. 1459; but, whether, after the adoption of Act No.
1510, the respondents are obliged to comply with the special provision above mentioned, contained in Act
No. 1459. We must answer that question in the negative. Both laws are still in force, unless otherwise
repealed. Act No. 1510 is applicable to respondents upon the question before us, while Act No. 1459 is not
applicable.

RURAL BANK VS SALINAS

Facts:

Clemente Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney
in favor of his wife, Melania, giving and granting the latter full power of authority to sell or otherwise dispose
of and/or mortgage 473 shares of stock of the Bank registered in his name.

Before the death of Clemente, Melania, pursuant to the said SPA, executed Deed of Assignments for the shares
of stock in favor of private respondents. After the death of Clemente, Melania proceeded in presenting the
said Deeds and 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 cancelation of stock certificates in the name of Clemente and the issuance of
new stock certificates in the name of the new owners thereof.

The Bank however denied the request. Melania then filed with SEC an action for Mandamus against Rural
Bank of Salinas, its President and Secretary. The latter bank contended in its answer that the shares of
Guerrero became the property of his estate and thus must be first settled and liquidated before distribution.

Issue:

1. Whether SEC has jurisdiction over the matter.

2. Whether petitioner may restrict the registration of shares of stock or its transfer.
RULING:

1. YES. Sec. 5 (b) of PD 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide cases
involving intracorporate controversies. An intracorporate controversy has been defined as one which arises
between a stockholder and the corporation. There is no distinction, qualification, not any exception
whatsoever. The case at bar involves shares of stock, their registration, cancellation and issuances thereof by
petitioner.

2. NO. Sec. 63 of the Corporation Code provides that the shares of stock 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.

A corporation either by its Board, its by-laws, or the act of its officers, cannot create restrictions in stock
transfer. The Restrictions in the transfer 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. The right to transfer
shares is inherent from the stockholders ownership of the same, thus whenever a corporation refuses to
transfer and register stocks, mandamus will lie to compel the officers of the corporation to transfer said
stocks to the books of the corporation.

B. ARTICLES OF INCORPORATION

1. PROCEDURE AND DOCUMENTARY REQUIREMENTS

CONTENTS AND FORMS-

CORPORATE NAME-

SEC. 17. Corporate Name. – No corporate name shall be allowed by the Commission if it is not distinguishable
from that already reserved or registered for the use of another corporation, or if such name is already
protected by law, or when its use is contrary to existing law, rules and regulations.

A name is not distinguishable even if it contains one or more of the following:

(a) The word “corporation”, “company”, “incorporated”, “limited”, “limited liability”, or an abbreviation of one
of such words; and

(b) Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different tenses, spacing, or
number of the same word or phrase.

The Commission, upon determination that the corporate name is: (1) not distinguishable from a name already
reserved or registered for the use of another corporation; (2) already protected by law; or (3) contrary to law,
rules and regulations, may summarily order the corporation to immediately cease and desist from using such
name and require the corporation to register a new one. The Commission shall also cause the removal of all
visible signages, marks, advertisements, labels, prints and other effects bearing such corporate name. Upon
the approval of the new corporate name, the Commission shall issue a certificate of incorporation under the
amended name.
If the corporation fails to comply with the Commission’s order, the Commission may hold the corporation and
its responsible directors or officers in contempt and/or hold them administratively, civilly and/or criminally
liable under this Code and other applicable laws and/or revoke the registration of the corporation.

CASE:

REDLINE TRANSIT VS RURAL TRANSIT

Facts:

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 adequate service.
They also argued that granting Rural Transit’s application would constitute a ruinous competition over said
route

On Dec. 21, 1932, Public Service Commission approved Rural Transit’s application, with the condition that "all
the other terms and conditions of the various certificates of public convenience of the herein applicant and
herein incorporated are made a part hereof."

A motion for rehearing and reconsideration was filed by Red Line since Rural Transit has a pending
application before the Court of First Instance for voluntary dissolution of the corporation. A motion for
postponement was filed by Rural Transit as verified by M. Olsen who swears "that he was the secretary of the
Rural Transit Company, Ltd. During the hearing before the Public Service Commission, the petition for
dissolution and the CFI’s decision decreeing the dissolution of Rural Transit were admitted without objection

At the trial of this case before the Public Service Commission an issue was raised as to who was the real 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.

Issue:

Can the Public Service Commission authorize a corporation to assume the name of another corporation as a
trade name?

Ruling: NO

· The Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the
very law of their creation and continued existence requires each to adopt 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 implied authority to assume another name that is unappropriated:
still less that of another corporation, which is expressly set apart for it and protected by the law. If any
corporation could assume at pleasure as an unregistered trade name the name of another corporation, this
practice would result in confusion and open the door to frauds and evasions and difficulties of administration
and supervision.

In this case, the order of the commission authorizing the Bachrach Motor Co., Incorporated, to assume the
name of the Rural Transit Co., Ltd. likewise incorporated, as its trade name being void. Accepting the order of
December 21, 1932, at its face as granting a certificate of public convenience to the applicant Rural Transit
Co., Ltd., the said order last mentioned is set aside and vacated on the ground that the Rural Transit Company,
Ltd., is not the real party in interest and its application was fictitious

PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue using Rural Transit’s
name as its trade name 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

PHILIPPINE FIRST INSURANCE COMPANY VS MARIA HARTIGAN

Facts:

Plaintiff was originally organized as an insurance corporation under the name of ‘The Yek Tong Lin
Fire and Marine Insurance Co., Ltd.,’ in 1953. But on 26 May 1961, its Articles of Incorporation were amended
changing the name of the corporation to ‘Philippine First Insurance, Co., Inc.’.

The case arose when plaintiff, acting in the name of Yek Tong, signed as co-maker together with defendants, a
promissory note in favor of China Banking Corporation. Subsequently, as form of security, defendants signed
an indemnity agreement in favor of plaintiff in case damages or loses arises thereof.

Defendant Hartigan failed to pay, hence, the complaint for collection of sum of money with interest and other
fees. Defendants deny the allegations, claiming, among others that there is no privity of contract between
them and plaintiff since the plaintiff did not conduct its business under the name of Yek Tong Insurance,
hence not entitled to the indemnification agreement which is named in favor of Yek Tong.

Decision of the CFI: The Court of First Instance of Manila dismissed the action against plaintiff PFIC, based on
the following grounds, among others:

The change of name of the Yek Tong Lin Fire & Marine Insurance Co. to PFIC is of dubious validity, because
such change in effect dissolved the original corporation by a process of dissolution not authorized by the
Corporation Law; Assuming the change is valid, Yek Tong is considered dissolved, hence, at the time the
indemnity agreement was signed, it has no capacity to enter into such agreement anymore; Assuming further
that the chance is valid, Yek Tong is deemed as continuing as a body corporate for three (3) years for the
purpose of prosecuting and defending suits, hence, Yek Tong should be the proper party in interest.

Its Motion for Reconsideration having been denied, the plaintiff filed this present case.

ISSUE: Whether or not a Philippine Corporation may change its name and still retain its original personality
and individuality?
RULING: YES.

Under section 18 of the Corporation Code, the law authorizes corporations to amend their charter, its
procedure and restrictions for such amendments. There is restriction on the term of their existence and the
increase or decrease of the capital stock but there is no prohibition against the change of name.

The general rule as to corporations is that each corporation shall have a name by which it is to sue and be
sued and do all legal acts. The name of a corporation in this respect designates the corporation in the same
manner as the name of an individual designates 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.

Further, the Court held that a change of corporate name is not against public policy. As such, what is held to
be contrary to public policy is the use by one corporation of the name of another corporation as its trade
name.

Likewise, it was ruled that change of name does not result in a corporation’s dissolution. In settled
jurisprudence, the Court held that an authorized change in the name of a corporation has no more effect upon
its identity as a corporation than a change of name of a natural person has upon his identity. It does not affect
the rights of the corporation or lessen or add to its obligations. After a corporation has effected a change in its
name it should sue and be sued in its new name.

From the foregoing, the Court believes that the lower court erred in holding that plaintiff is not the right party
in interest to sue defendants-appellees. 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. Hence, the lower court likewise erred in dismissing
appellant’s complaint.

*In redline - What is contrary to public policy is the use by one corporation of the name of another
corporation as its trade name.

UNIVERSAL MILLS VS UNIVERSAL TEXTILE

Facts:

The Universal Textile Mills, Inc. was organ on December 29, 1953, as a textile manufacturing firm for
which it was issued a certificate of registration on January 8, 1954. The Universal Mills Corporation, on the
other hand, was registered in this Commission on October 27, 1954, under its original name, Universal
Hosiery Mills Corporation, having as its primary purpose the "manufacture and production of hosieries and
wearing apparel of all kinds” For which this Commission issued the certificate of approval on June 10, 1963.

The occurrence of a fire which gutted Universal Mills Corporation spinning mills in Pasig, Rizal.
Universal Textile Mills alleged that as a result of this fire and because of the similarity of respondent's name
to that of herein complainant, the news items appearing in the various metropolitan newspapers carrying
reports on the fire created uncertainty and confusion among its bankers, friends, stockholders and customers
prompting petitioner to make announcements, clarifying the real Identity of the corporation whose property
was burned.

Universal Mills Corporation position is that the names of the two corporations are not similar and
even if there be some similarity, it is not confusing or deceptive; that the only reason that respondent
changed its name was because it expanded its business to include the manufacture of fabrics of all kinds; and
that the word 'textile' in petitioner's name is dominant and prominent enough to distinguish the two. That the
only supposed confusion proved by complainant arose out of an extraordinary occurrence of fire.

ISSUE:

Whether or not petioner’s trade name is confusingly similar with that of respondent’s

HELD:

The corporate names in question are not Identical, but they are indisputably so similar that even
under the test of "reasonable care and observation as the public generally are capable of using and may be
expected to exercise", We are apprehensive confusion will usually arise, considering that under the second
amendment of its articles of incorporation on August 14, 1964, appellant included among its primary
purposes the "manufacturing, dyeing, finishing and selling of fabrics of all kinds" in which respondent had
been engaged for more than a decade ahead of petitioner.

Factually, the Commission found existence of such confusion, and there is evidence to support its conclusion.
We cannot perceive why of all names, it had to choose a name already being used by another firm engaged in
practically the same business for more than a decade enjoying well earned patronage and goodwill, when
there are so many other appropriate names it could possibly adopt without arousing any suspicion as to its
motive and, more importantly, any degree of confusion in the mind of the public which could mislead even its
own customers, existing or prospective.

AS TO PURPOSE- (b) The specific purpose or purposes for which the corporation is being formed.
Where a corporation has more than one stated purpose, the articles of incorporation shall indicate the
primary purpose and the secondary purpose or purposes: Provided, That a nonstock corporation may not
include a purpose which would change or contradict its nature as such;

CASE:

UY SIULIONG VS DIRECTOR

Facts:

1. That prior to the presentation of the petition the Uy Siuliong had been associated together as partners,
which partnership was known as "mercantil regular colectiva, under the style and firm name of "Siuliong y
Cia."

2. That the petitioners herein, who had theretofore been members of said partnership of "Siuliong y Cia.,"
desired to dissolve said partnership and to form a corporation composed of the same persons as
incorporators, to be known as "Siulong y Compañia, Incorporada;"

3. That the purpose of said corporation, "Siuliong y Cia., Inc.," is (a) to acquire the business of the partnership
theretofore known as Siuliong & Co., and (b) to continue said business with some of its objects or purposes;

4. That an examination of the articles of incorporation of the said "Siuliong y Compañia, Incorporada" shows
that it is to be organized for the following purposes:

(a) The purchase and sale, importation and exportation, of the products of the country as well as of foreign
countries;
(b) To discount promissory notes, bills of exchange, and other negotiable instruments;

(c) The purchase and sale of bills of exchange, bonds, stocks, or "participaciones de sociedades mercantiles e
industriales [joint account of mercantile and industrial associations]," and of all classes of mercantile
documents; "comisiones [commissions];" "consignaciones [consignments];"

(d) To act as agents for life, marine and fire insurance companies; lawphi1.net

(e) To purchase and sell boats of all classes and

(f) To purchase and sell industrial and mercantile establishments

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

Issue:

Whether or not the proposed articles of incorporation of "Siuliong y Cia., Inc.," permits it to engage in
a business with more than one purpose.

Held:

We find that its purpose is to engage in a business with but one principal purpose. The principal
purpose of said corporation is to engage in a mercantile business, with the power to do and perform the
particular acts. A corporation may be organized under the laws of the Philippine Islands for mercantile
purposes, and to engage in such incidental business as may be necessary and advisable to give effect to,
and aid in, the successful operation and conduct of the principal business.1awp

We do not mean to be understood as having decided that corporations under the laws of the Philippine
Islands may not engage in a business with more than one purpose. Such an interpretation might work a great
injustice to corporations organized under the Philippine laws. Such an interpretation would give foreign
corporations, which are permitted to be registered under the laws here and which may be organized for more
than one purpose, a great advantage over domestic corporations.

AS TO PRINCIPAL OFFICE- c) The place where the principal office of the corporation is to be located,
which must be within the Philippines;

CASE:

CLAVECILLA VS ANTILLON

Facts:

New Cagayan Grocery filed a complaint for damages against Clavecilla Radio System. They alleged
that Clavecilla omitted the word NO in the letter addressed to NECAGRO for transmittal at Clavecillo Cagayan
de Oro Branch wherein it altered the contents causing damage to NECAGRO.

Clavecilla filed a motion to dismiss for failure to state cause of action and improper venue. In
dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where
it has its principal office or in Cagayan de Oro City where it may be served, as in fact it was served, with
summons through the Manager of its branch office in said city. In other words, the court upheld the authority
of the city court to take cognizance of the case.

Issue:

Whether or not the case against Clavecilla should be in Manila where it holds its principal office.

Held:

It is clear that the case for damages filed with the city court is based upon tort and not upon a written
contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in inferior courts, provides
in its paragraph (b) (3) that when "the action is not upon a written contract, then in the municipality where
the defendant or any of the defendants resides or may be served with summons."

Settled is the principle in corporation law that the residence of a corporation is the place where its
principal office is established. Since it is not disputed that the Clavecilla Radio System has its principal office
in Manila, it follows that the suit against it may properly be filed in the City of Manila.

Court has already held in the case of Cohen vs. Benguet Commercial Co., Ltd., that the term "may be served
with summons" does not apply when the defendant resides in the Philippines for, in such case, he may be
sued only in the municipality of his residence, regardless of the place where he may be found and served with
summons. As any other corporation, the Clavecilla Radio System maintains a residence which is Manila in this
case, and a person can have only one residence at a time.

AS TO CORPORATE TERM- SEC. 11. Corporate Term. – A corporation shall have perpetual existence unless its
articles of incorporation provides otherwise.

Corporations with certificates of incorporation issued prior to the effectivity of this Code, and which continue
to exist, shall have perpetual existence, unless the corporation, upon a vote of its stockholders representing a
majority of its outstanding capital stock, notifies the Commission that it elects to retain its specific corporate
term pursuant to its articles of incorporation: Provided, That any change in the corporate term under this
section is without prejudice to the appraisal right of dissenting stockholders in accordance with the
provisions of this Code.

A corporate term for a specific period may be extended or shortened by amending the articles of
incorporation: Provided, That no extension may be made earlier than three (3) years prior to the original or
subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined
by the Commission: Provided, further, That such extension of the corporate term shall take effect only on the
day following the original or subsequent expiry date(s).

A corporation whose term has expired may apply for a revival of its corporate existence, together with all the
rights and privileges under its certificate of incorporation and subject to all of its duties, debts and liabilities
existing prior to its revival. Upon approval by the Commission, the corporation shall be deemed revived and a
certificate of revival of corporate existence shall be issued, giving it perpetual existence, unless its application
for revival provides otherwise.

No application for revival of certificate of incorporation of banks, banking and quasibanking institutions,
preneed, insurance and trust companies, non-stock savings and loan associations (NSSLAs), pawnshops,
corporations engaged in money service business, and other financial intermediaries shall be approved by the
Commission unless accompanied by a favorable recommendation of the appropriate government agency.
CASE:

ALHAMBRA CIGAR AND CIGARETTE VS SEC

Facts:

Alhambra Cigar is incorporated under PH laws on Jan 1912 and it was to exist for 50 yrs and its term
of existence expired on Jan 1962 wherein it ceased transacting and entered into a state of liquidation.

They created a new corporation (ALHAMBRA INDUSTRIES INC) to carry on the business of
Alhambra.

In 1963 (within Alhambra’s 3 year statutory period for liquidation) RA 3531 was enacted sec 18 of
corpo law- to empower domestic private corporations to extend life beyond period fixed in AOI for a term not
to exceed 50yrs.

In a board meeting it amended the AOI to extend its corporate life for an additional 50 yrs and 2/3
voted for its amendment wherein they filed with SEC but SEC returned the amended AOI because it cannot
avail such extension because its existence had already expired when 3531 took effect and has no retroactive
effect.

Issue:

Whether or not a corporation under liquidation may still amend its article of incorporation to extend
its lifespan

Held:

it was in the midst of the three-year grace period statutorily fixed in Section 77 of the Corporation
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.

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.

It says that before cessation of its corporate life, it could not have extended the same, for the simple reason
that Republic Act 3531 had not then become law. It must be remembered that Republic Act 3531 took effect
on June 20, 1963, while the original term of Alhambra's existence expired before that date — on January 15,
1962. The mischief that flows from this theory is at once apparent. It would certainly open the gates for all
defunct corporations — whose charters have expired even long before Republic Act 3531 came into being —
to resuscitate their corporate existence.
To be observed is that the foregoing statute — unlike Republic Act 3531 — expressly authorizes domestic
insurance corporations to extend their corporate existence "on or before the expiration of the term" fixed in
their articles of incorporation. Republic Act 1932 was approved on June 22, 1957, long before the passage of
Republic Act 3531 in 1963. Congress, Alhambra points out, must have been aware of Republic Act 1932 when
it passed Republic Act 3531. Since the phrase "on or before", etc., was omitted in Republic Act 3531, which
contains no similar limitation, it follows, according to Alhambra, that it is not necessary to extend corporate
existence on or before the expiration of its original term.

That Republic Act 3531 stands mute as to when extention of corporate existence may be made, assumes no
relevance. We have already said, in the face of a familiar precept, that a defunct corporation is bereft of any
legal faculty not otherwise expressly sanctioned by law.

BENGUET CONSOLIDATED VS PINEDA

Facts:

Benguet Consolidated Mining Company was organized in 1093 under the Spanish Code of Commerce
of 1886 as a SOCIEDAD ANONIMA. It was agreed by the incorporators that Benguet Mining was to exist
further for not less than 20 but not more than 50 years.

In 1906, Act 1459 (Corpo 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 SEC 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 Sec 18 of the Corpo 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.

Benguet Contented that they have a vested right under the Code of Commerce of 1886 because they
were organized under the 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 Sec 18 of the Corpo 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.

Issue:

Whether or not Benguet Mining is correct

Held:

No. BENGUET MIING HAS NO VESTED RIGHT TO EXTEND ITS LIFE. It is a well settled rule that no
person has a vested rightin any rule of law entitling him to insist that it shall remain unchanged for his own
benefit. Had Benguet Mining Agreed to extend its life prior to the passage of the Corporation Code of 196 such
right would have vested. But when the law was passed in 1906, Benguet was already deprived of such right.

To allow Benguet to extend its life will be inimical to the purpose of the law which sought to render
obsolete sociedades anonimas. If this is allowed, Benguet will unfairly do something which new corporations
organized under the new Corporation Law can’t do to exist beyond 50 years. Plus, it would have reaped the
benefits of sociedad anonima and later on of being a corporation. Further, under the CORPO CODE OF 1906,
existing SOCIEDADES ANONIMAS during the enactment of the law must choose whether to continue as such
or be organized as a corporation under the new law. Once SA chooses one of these, it is already proscribed
from choosing the other.

AS TO QUALIFICATIONS OF INCORPORATORS- Any person, partnership, association or corporation,

singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any
lawful purpose or purposes: Provided, That natural persons who are licensed to practice a profession, and
partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to
organize as a corporation unless otherwise provided under special laws. Incorporators who are natural
persons must be of legal age. Each incorporator of a stock corporation must own or be a subscriber to at least
one (1) share of the capital stock. A corporation with a single stockholder is considered a One Person
Corporation as described in Title XIII, Chapter III of this Code.

AS TO NO MINIMUM CAPITALIZATION- SEC. 12. Minimum Capital Stock Not Required of Stock
Corporations. – Stock corporations shall not be required to have a minimum capital stock, except as otherwise
specifically provided by special law.

THE 25-25 RULE-

2. GROUNDS FOR DISAPPROVAL-

CASE:

ASUNCION VS DE YRIATE

Facts:

The proposed incorporators began an action in the CFI to compel the chief of the division of archives
to receive and register said articles of incorporation and to do any and all acts necessary for the complete
incorporation of the persons named in the articles.

The court below found in favor of the defendant and refused to order the registration of the articles
mentioned, maintaining and holding that the defendant, under the Corporation Law, had authority to
determine both the sufficiency of the form of the articles and the legality of the object of the proposed
corporation. This appeal is taken from that judgment. The chief of the division of archives, the respondent,
refused to file the articles of incorporation, upon the ground that the object of the corporation, as stated in the
articles, was not lawful and that, in pursuance of section 6 of Act No. 1459, they were not registerable. Hence,
this action to obtain a writ of mandamus.

Issue:

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

Held:

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

The chief did his function to disapprove the said AOI because the grounds for disapproval is valid.
The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a) to
organize and regulate the management, disposition, administration and control which the barrio of Pulo or
San Miguel or its inhabitants or residents have over the common property of said residents or inhabitants or
property belonging to the whole barrio as such; and (b) to use the natural products of the said property for
institutions, foundations, and charitable works of common utility and advantage to the barrio or its
inhabitants.

The object of the proposed corporation, as appears from the articles offered for registration, is to
make of the barrio of Pulo or San Miguel a corporation which will become the owner of and have the right to
control and administer any property belonging to the municipality of Pasig found within the limits of that
barrio. This clearly cannot be permitted. Otherwise municipalities as now established by law could be
deprived of the property which they now own and administer. Each barrio of the municipality would become
under the scheme proposed, a separate corporation, would take over the ownership, administration, and
control of that portion of the municipal territory within its limits. This would disrupt, in a sense, the
municipalities of the Islands by dividing them into a series of smaller municipalities entirely independent of
the original municipality.

The object of the proposed corporation is clearly repugnant to the provisions of the Municipal Code and the
governments of municipalities as they have been organized thereunder.

3. COMMENCEMENT OF CORPORATE EXISTENCE-

C: BY LAWS

ADOPTION PROCEDURE-

CONTENTS-

AMENDMENTS-

CASE:

LOYOLA GRAND VILLAS VS CA

Facts:

Loyola Grand Villas Homeowners Associatio, Inc. was organized on February 8, 1983 as the
registered sole homeowner’s association for Loyola Grand Villas with the Home Financing Corporation, which
later became Home Insurance Guarantee Corporation (HIGC). However, the association was not able to file its
corporate by-laws in the prescribed date as stated in the Corporation Code Sec. 46, Adoption of by-laws, “Ever
corporation formed under this code MUST within 1 month after receipt of official notice of the issuance of its
certificate of incorporation by SEC, adopt a code of by-laws for its government not inconsistent with this
Code.”

They then discovered that there were other homeowners’ organization within the subdivision – the
North and South Association, and upon inquiry by the LGVHAI to HIGC, it was discovered that LGVHAI was
dissolved for its failure to submit its by-laws within the period required by the Corporation Code. These
paved the way for the formation of the two other associations. LGVHAI then lodged a complaint and
questioned the revocation with the HIGC Hearing Officer Javier. Hearing Officer Javier ruled in favor of
LGVHAI and revoked the registration of the North and South Associations.

Petitioner South Association appealed the ruling contending that LGVHAI failure to file automatically
dissolved the corporation.

Issue:

Is the failure to file LGVHAI’s by-laws within the period prescribed by Sec. 46 of the Corporation
Code had the effect of automatically dissolving the said corporation.

Held:

No, ordinarily the word “must” connotes imposition of duty which must be enforced however, the
word “must” in a statute, (like “shall”) is not always imperative. It may be consistent with an exercise of
discretion. If the language of a statute, considered as a whole with due regard to its nature and object, reveals
that the legislature intended to use the words “shall” and “must” to be directory, they should be given that
meaning.

ByLaws 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.

Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided
that the powers of the corporation would cease if it did not formally organize and commence the transaction
of its business or the continuation of its works within two years from date of its incorporation. Section 20,
which has been reproduced with some modifications in Section 46 of the Corporation Code, expressly
declared that "every corporation formed under this Act, must within one month after the filing of the articles
of incorporation with the Securities and Exchange Commission, adopt a code of by-laws." Whether this
provision should be given mandatory or only directory effect remained a controversial question until it
became academic with the adoption of PD 902-A. Under this decree, it is now clear that the failure to file by-
laws within the required period is only a ground for suspension or revocation of the certificate of registration
of corporations.

PMI COLLEGES VS NLRC

Facts:

In 1991, PMI Colleges hired the services of Alejandro 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 NLRC. On appeal,
PMI reiterated, among others, that the employment of Galvan is void because it dit 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.

ISSUE:
 Whether the By-laws of PMI affect 3rd persons.

HELD:

No.

PMI Colleges never even presented a copy of the by-laws to prove the existence of such 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 corporations, 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.

PENA VS CA

Facts:

PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the three lots in dispute. PAMBUSCO
mortgaged the lots to the Development Bank of the Philippines (DBP), which were later on foreclosed.

Rosita Peña was awarded the lots in a foreclosure sale for being the highest bidder. The certificate of sale was
later issued to her and registered in her name.

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

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

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

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

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

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

CFI ruled in favor of Petitioner Peña, but the same was overturned by the CA.
Issue: W/N there Peña is entitled to the lots.

Ruling: Yes.

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

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

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

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

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

Further, under the Corporation Law, the sale or disposition of any and/or substantially all properties of the
corporation 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.
RECOGNITION AND DISREGARD OF CORPORATENESS

1. SEPARATE JURIDICAL PERSONALITY

CASE:

SANTOS VS NLRC

Facts:
Melvin D. Millenawas hired to be the project accountant for Mana Mining and Development Corporation's
(MMDC) mining operations in Sorsogon. Millena sent to Mr. Gil Abaño, the MMDC corporate treasurer, a
memorandum calling the latter's attention to the failure of the company to comply with the withholding tax
requirements of, and to make the corresponding monthly remittances to, the Bureau of Internal Revenue
(BIR) on account of delayed payments of accrued salaries to the company's laborers and employees.

Abaño advised Millena that it was the board's decision that it stop operation in Sorsogon due to the upcoming
rainy seasons; 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.

Millena filed with the NLRC 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 Millena
alleged, among other things, that his dismissal was merely an offshoot of his letter to Abaño about the
company's inability to pay its workers and to remit withholding taxes to the BIR. Labor Arbiter finding no
valid cause for terminating complaint's employment, ruled that 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. Alleging abuse of discretion by the Labor
Arbiter, the company and its co-respondents filed a "motion for reconsideration and /or appeal." The
motion/appeal was forthwith indorsed to the Executive Director of the NLRC in Manila. 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. The NLRC dismissed the motion for reconsideration.
Santos filed the petition for certiorari.

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

Held:
A corporation is a juridical entity with legal personality separated and distinct from those acting for and in its
behalf and, in general, from the people comprising it.
The rule is that obligations incurred by the corporation, acting through its directors, officers and employees,
are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist
to warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate veil.

As a rule, this situation might arise a corporation is used to evade a just and due obligation or to justify a
wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable aims or intentions, or as a
subterfuge to commit injustice and so circumvent the law.

Without necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully
attach to a corporate director, trustee or officer; to wit: When (1) He assents (a) to a patently unlawful act of
the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (b) for conflict of interest,
resulting in damages to the corporation, its stockholders or other persons; (2) He consents to the issuance of
watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto; (3) He agrees to hold himself personally and solidarily liable with the corporation;
or (4) He is made, by a specific provision of law, to personally answer for his corporate action.

The case of Santos is way of these exceptional instances. It is not even shown that Santos has had a direct
hand in the dismissal of Millena enough to attribute to Santos a patently unlawful act while acting for the
corporation. Neither can Article 289 of the Labor Code be applied since this specifically refers only to the
imposition of penalties under the Code.

It is undisputed that the termination of Millena's employment has, instead, been due, collectively, to the need
for a further mitigation of losses, the onset of the rainy season, the insurgency problem, in Sorsogon and the
lack of funds to further support the mining operation in Gatbo. It is basic that a corporation is invested by law
with a personally separate and distinct from those of the persons composing it as well as from that of any,
other legal entity to which it may be related. Mere ownership by a single stockholder or by another
corporation of all nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personally. Similar to the case of Sunio vs. National Labor Relations
Commission, Santos should not have been made personally answerable for the payment of Millena's back
salaries.

STOCKHOLDERS OF GUANZON AND SONS VS RD OF MANILA

FACTS:
Guanzon and sons executed a certificate of liquidation of the assets of the corporation that according
to the resolution of the stockholders in dissolving the corporation the distribution of the liquidated dividends
shall be in proportion to their shareholdings including real properties.
RD of Manila denied registration on grounds : the parcels of land not certified; the registration fee
needs to be paid; doc stamp; and judgment of the court approving dissolution and directing the disposition of
the assets of the corp. need to be presented.
Comm. Of Land Registration overruled last but sustained the others.
Guanzon contends that the cert. of liquidation is not a conveyance but a transfer because it is merely
a distribution of the assets of the corporation which has been dissolved
Comm. Had a different opinion wherein he concurred that it is a transfer
ISSUE:
Whether or not that the certificate merely involves a distribution of the corporations assets or should
be considered a transfer or conveyance
HELD:
A corporation is a juridical person distinct from the members composing it. Properties registered in
the name of the corp. are owned by it as an entity separate and distinct from its members.
It is clear that the act of liquidation made by the stockholders of Guanzon of their assets is not and
cannot be considered a partition of community of property, but a transfer or conveyance of the title of its
assets to the individual stockholders. Since the purpose of liquidation is to transfer their title from the
corporation to the stockholders in proportion to their shareholdings.

MANILA GAS CORPORATION VS THE COLLECTOR OF INTERNAL REVENUE

FACTS:
This is an action brought by Manila Gas against CIR for recovery of an amount wherein Manila Gas
was required by CIR to deduct and withhold from various sums paid to foreign corporations as dividends and
interest on bonds and other indebtedness and which Manila Gas paid under protest.
Manila Gas is a corporation organized under PH laws wherein it operated gas plant in Manila City and
gas service to the people by virtue of a franchise granted by PH gov’t. Associated with it is Island Gas and
Electric Company domiciled in New York and Gen. Finance Company domiciled in Zurich, Switzerland not
resident of PH.
Manila Gas paid amounts to Island Gas wherein withholding income taxes were paid to CIR. Interest
on bonds also paid to Islang Gas wherein withholding income taxes were paid to CIR. Interest on other
indebtedness was paid by Manila Gas and Gen. Finance ipon which same was paid to CIR.
ISSUE:
Whether or not the dividends paid by Manila Gas to its stockholders were not subject to tax to be
imposed in the corporation.
HELD:
Citing Philippine Telephone and Telegraph Co. vs CIR. In this view we concur. It is true that the tax
exemption provision relating to the Manila Gas Corporaton hereinbefore quoted differs in phraseology from
the tax exemption provision to be found in the franchise of the Telephone Company, but the ratio decidendi
are substantially the same.
A corporation has a personality distinct from the that of its stockholders, enabling the taxing power
to reach the latter when they receive dividends from the corporation. It must be considered as settled in this
jurisdiction that dividends of a domestic corporation, which are paid and delivered in cash to foreign
corporations as stockholders, are subject to the payment in the income tax, the exemption clause in the
charter of the corporation notwithstanding.

MAGSAYSAY-LABRADOR VS CA
FACTS:
Adelaida Magsaysay filed an action against SUBIC to annul the deed of assignment and deed of
mortgage executed in favor of SUBIC by her husband Senator Genaro Magsaysay.
Adelaida alleged that the subject land of the 2 deeds was acquired through conjugal funds. Since her
consent to the disposition was not obtained, she claimed that the acts of assignment and mortgage were done
to defraud conjugal partnership. She further contended that the same were done without consideration and
hence null and void.
Sisters of the deceased filed a motion for intervention on the ground that their brother conveyed to
them ½ of his shareholdings in SUBIC or about 41%.
The trial court denied the motion for intervention ruling that the sisters have no legal interest
because SUBIC has a personality separate and distinct from its stockholders.
CA confirmed the denial on appeal
ISSUE:
Whether or not the sisters as stockholders of SUBIC, have a legal interest in the action for annulment
of the deed of assignment and deed of mortgage in favor of the corporation.
HELD:
NO. The interest which entitles person to intervene in a suit between other parties must be in the
matter in litigation and of such direct and immediate character that the intervenor will either gain or lose by
the direct legal operation and effect of the judgment. In the petition, it was said that the interest if it exists at
all, of the sisters is indirect, contingent, remote, conjectural, consequential and collateral.
At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the
management of the corporation and to share in the profits thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner with any legal right or title to any of the property, his interest in the
corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.
 GOOD EARTH VS CA
FACTS:
A lease contract, was entered into by and between Roces-Reyes Realty Inc. as lessor, and Good Earth
Emporium Inc. (GEE) as lessee for a term of three at a monthly rental of Php65,000. The building which was
the subject of the contract of lease is a five story building located at the corner of Rizal Avenue and Bustos
Street in Sta. Cruz, Manila.
A complaint was filed, the lessee had defaulted in the payment of rentals, as a consequence of which,
private respondent Roces-Reyes Realty Inc. filed an ejectment case against herein petitioners, Good Earth
Emporium Inc. and Lim Ka Ring. After the latter had tendered their responsive pleading, the lower court on
motion of Roces rendered judgement on the pleadings to which petitioners were ordered to vacate the
premises and surrender the same to the plaintiffs.
Roces filed a motion for execution which was opposed by GEE simultaneous with the latter’s filing of
a notice of appeal. However GEE thru counsel filed a motion to withdraw said appeal citing as reason that
they are satisfied with the decision of the lower court.
ISSUE:
Whether or not the payment made by GEE to the Roces brothers constitute payment to private
respondent corporation which would result to the extinguishment of the obligation.

HELD:
No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the person in
whose favor the obligation has been constituted, on his successor in interest or any person authorized to
receive it.
In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its
successors in interest nor is there positive evidence that payment was made to a person authorized to receive
it. No such proof was submitted but merely inferred by the RTC from Marcos Roces having signed the lease
contract as President which was witnessed by Jesus Marcos Roces. The later, however, was no longer
President or even an officer of the Roces-Realty Inc at the time he received the money and signed the sale
with pacto de retro. He, in fact denied being in possession of authority to receive payment for the respondent
corporation nor does the receipt show that he signed in the same capacity as he did in the lease contract at a
time when he was President for respondent corporation.
A corporation has a personality distinct and separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not make one’s property also of the corporation, and
vice-versa, for they are separate entities. Share owners are in no legal sense the owners corporate property
which is owned by the corporation as a distinct legal person. As a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is
the stockholder’s debt or credit that of the corporation.

2. DEFECTIVE INCORPORATION
1. DE JURE

2. DE FACTO- 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.

I RATIONALE OF THE DOCTRINE

CASE:
TAYKO VS CAPISTRANO
FACTS:

Tayko et al. alleges that Capistrano was appointed as a judge of CFI of oriental negros, to hold office
during good behavior and until he should reach the age of 65 yrs. He now has reached that age and therefore,
under the provisions of the Admin Code is disqualified from acting as a judge of the CFI.
In view of the many election protests and criminal cases for violation of the election law filed in the
CFI of Negros arising 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 and criminal
actions from the last general election, and Capistrano would try and hear ordinary cases pending
notwithstanding the understanding.
Capistrano tried and is still trying to take cognizance of the election and criminal actions in said court
for the reason that de la Costa refused to try on the ground that the preliminary investigations were held
before him, when in truth de la Costa did not make the statement imputed to him and was and is willing to try
the cases for violation of the election law pending in the court.
Capistrano also appointed a deputy fiscal, who then filed the proper information, when the provincial
fiscal refused to file charges against Tayko for violation of the election law for lack of sufficient evidence to
sustain the same.
Capistrano is neither a judge de jure nor de facto, but that he continues to hold office of judge and
pretends to be duly qualified and acting judge of the said province and to act as a judge.

ISSUE:
Whether or not Capistrano is a de facto or de jure judge
HELD:

Briefly defined, a de facto judge is one who exercises the duties of a judicial office under color of an
appointment or election thereto. He differs, on the one hand, from a mere usurper who undertakes to act
officially without any color of right, and on the other hand, from a judge de jure who is in all respects legally
appointed and qualified and whose term of office has not expired.

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. When a judge in good faith remains in office after his title has ended, he is a de
facto officer.

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.

A judge de facto assumes the exercise of a part of the prerogative of sovereignty, and the legality of that
assumption is open to the attack of the sovereign power alone. Accordingly, it is a well established principle,
dating from the earliest period and repeatedly confirmed by an unbroken current of decisions, that the official
acts of a de facto judge are just as valid for all purposes as those of a de jure judge, so far as the public or third
persons who are interested therein are concerned.

The rule is the same in civil criminal cases. 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. The official acts of a de facto justice cannot b attacked collaterally.

An exception to the general rule that the title of a person assuming to act as judge cannot be questioned in a
suit before him is generally recognized in the case of a special judge, and it is held that a party to an action
before a special judge may question his title to the office of a judge on the proceedings before him, and that
the judgment will be reversed on appeal, where proper exceptions are taken, if the person assuming to act as
special judge is not a judge de jure.

The title of a de facto officer cannot be indirectly questioned in a proceeding to obtain a writ of prohibition to
prevent him from doing an official act nor in a suit to enjoin the collection of a judgment rendered by him.
Having at least colorable right to the office his title can be determined only in a quo warranto proceeding or
information in the nature of a quo warranto at suit of the sovereign."

II REQUISITES:

CASES:
FERNANDEZ VS CUERVA
FACTS:
Federico Fernandez was employed as salesman by P. Cuerva & Co.from March, 1949 to October,
1959. After his separation from the service, he filed a claim against P. Cuerva before the Regional Office of
DOLE to recover unpaid salaries and commissions, and separation pay (July 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 his monthly salary and 10%
commission were not actually received by him.
Apparently, 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. 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. 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 in so
far as his claim for refund of unauthorized deductions and withheld commissions was concerned. To this, P.
Cuerva contends that in as much 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.

ISSUE:

Did the filing by plaintiff of that claim with the DOLE RO suspend the running of the period of
prescription?

HELD:

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

[t]here are several instances wherein courts, out of equity, have relaxed its operation or qualified its
effects "since the actual existence of a statute prior to such declaration is an operative fact, and may
have consequences which cannot justly be ignored" and a realistic approach is eroding the general
doctrine.

HALL VS PICCIO

FACTS:

Petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma Brown,
Hipolita 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, etc. Immediately after the execution of said articles of
incorporation, the corporation proceeded to do business with the adoption of by-laws and the election of its
officers.

On December 2, 1947, the said articles of incorporation were filed in the office of the Securities and
Exchange Commissioner, for the issuance of the corresponding certificate of incorporation. Pending action on
the articles of incorporation by the aforesaid governmental office, the respondents Fred Brown, Emma
Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance of Leyte the civil
case alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered
partnership; that they wished to have it dissolved because of bitter dissension among the members,
mismanagement and fraud by the managers and heavy financial losses.

C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court's jurisdiction and
the sufficiently of the cause of action. After hearing the parties, the Hon. Edmund S. Piccio ordered the
dissolution of the company; and at the request of plaintiffs, appointed of the properties thereof.

The Hall offered to file a counter-bond for the discharge of the receiver, but the respondent judge
refused to accept the offer and to discharge the receiver.

ISSUE:

Can they claim good faith to be a corporation

Can a de jure/ de facto corporation be dissolved in a private suit between stockholders

HELD:

All the parties are informed that the Securities and Exchange Commission has not, so far, issued the
corresponding certificate of incorporation. All of them know, or sought to know, that the personality of a
corporation begins to exist only from the moment such certificate is issued — not before. The complaining
associates have not represented to the others that they were incorporated any more than the latter had made
similar representations to them. And as nobody was led to believe anything to his prejudice and damage, the
principle of estoppel does not apply. Obviously this is not an instance requiring the enforcement of
contracts with the corporation through the rule of estoppel.

The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and
Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore the court
had not jurisdiction to take cognizance of said civil case. Section 19 reads as follows:

The due incorporation of any corporations claiming in good faith to be a corporation under this Act
and its right to exercise corporate powers shall not be inquired into collaterally in any private suit to
which the corporation may be a party, but such inquiry may be had at the suit of the Insular
Government on information of the Attorney-General.

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

Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of 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.

There might be room for argument on the right of minority stockholders to sue for dissolution; 1 but that
question does not affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on
appeal. Which brings us to one principal reason why this petition may not prosper, namely: the petitioners
have their remedy by appealing the order of dissolution at the proper time.

There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that
receivership is proper in proceedings for dissolution of a company or corporation, and it was no error to
reject the counter-bond, the court having declared the dissolution. As to the amount of the bond to be
demanded of the receiver, much depends upon the discretion of the trial court, which in this instance we do
not believe has been clearly abused.

BENGUET CONSOLIDATED VS PINEDA

FACTS:

Benguet Consolidated Mining Company was organized in 1093 under the Spanish Code of Commerce
of 1886 as a SOCIEDAD ANONIMA. It was agreed by the incorporators that Benguet Mining was to exist
further for not less than 20 but not more than 50 years.

In 1906, Act 1459 (Corpo 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 SEC 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 Sec 18 of the Corpo 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.

Benguet Contented that they have a vested right under the Code of Commerce of 1886 because they
were organized under the 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 Sec 18 of the Corpo 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.

Issue:

Whether or not Benguet Mining is correct

Held:

No. BENGUET MIING HAS NO VESTED RIGHT TO EXTEND ITS LIFE. It is a well settled rule that no
person has a vested rightin any rule of law entitling him to insist that it shall remain unchanged for his own
benefit. Had Benguet Mining Agreed to extend its life prior to the passage of the Corporation Code of 196 such
right would have vested. But when the law was passed in 1906, Benguet was already deprived of such right.

To allow Benguet to extend its life will be inimical to the purpose of the law which sought to render
obsolete sociedades anonimas. If this is allowed, Benguet will unfairly do something which new corporations
organized under the new Corporation Law can’t do to exist beyond 50 years. Plus, it would have reaped the
benefits of sociedad anonima and later on of being a corporation. Further, under the CORPO CODE OF 1906,
existing SOCIEDADES ANONIMAS during the enactment of the law must choose whether to continue as such
or be organized as a corporation under the new law. Once SA chooses one of these, it is already proscribed
from choosing the other.

3. CORPORATION BY ESTOPPEL - All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising
as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use its lack of
corporate personality as a defense. Anyone who assumes an obligation to an ostensible corporation as such
cannot resist performance thereof on the ground that there was in fact no corporation.

I RATIONALE FOR THE DOCTRINE

CASE:

ASIA BANKING VS STANDARD PRODUCTS

FACTS:

Action to recover the sum of 24k on the promissory note totaling to 37k wherein Standard Products
failed to pay the amount to Asia Banking.

Asia banking failed to prove the corporate existence of the parties

ISSUE:

Whether or not Asia Banking has a corporate existence

HELD:

The general rule is that in the absence of fraud a person who has contracted or otherwise dealt with
an association in such a way as to recognize and in effect admit its legal existence as a corporate body is
thereby estopped to deny its corporate existence in any action leading out of or involving such contract or
dealing, unless its existence is attacked for cause which have arisen since making the contract or other
dealing relied on as an estoppel and this applies to foreign as well as to domestic corporations.

The defendant having recognized the corporate existence of the plaintiff by making a promissory
note in its favor and making partial payments on the same is therefore estopped to deny said plaintiff's
corporate existence. It is, of course, also estopped from denying its own corporate existence. Under these
circumstances it was unnecessary for the plaintiff to present other evidence of the corporate existence of
either of the parties. It may be noted that there is no evidence showing circumstances taking the case out of
the rules stated.

VDA DE SALVATIERRA VS GARLITOS

FACTS:

Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at Maghobas,
Poblacion, Burauen, Leyte. Vda-landholder entered into a contract of lease with the Philippine Fibers
Producers Co., Inc., allegedly a corporation "duly organized and existing under the laws of the
Philippines, domiciled at Burauen, Leyte, Philippines, and with business address therein, represented in
this instance by Mr. Segundino Q. Refuerzo, the President". It was provided in said contract, among other
things, that the lifetime of the lease would be for a period of 10 years; that the lessor would be entitled to 30
per cent of the net income accruing from the harvest of any, crop without being responsible for the cost of
production thereof; and that after every harvest, the lessee was bound to declare at the earliest possible time
the income derived therefrom and to deliver the corresponding share due the lessor.

For failure of the corporation to comply with the terms and conditions agreed upon with
Manuela, plaintiff Alanuela T. Vda, de Salvatierra filed with the CFI of Leyte a complaint against the
Philippine Fibers and Segundino Q. Refuerzo, for accounting, rescission and damages. The lower Court
rendered judgment in favor of plaintiff. No appeal therefrom having been perfected within the reglementary
period, the Court, upon motion of plaintiff, issued a writ of execution, in virtue of which the Provincial Sheriff
of Leyte caused the attachment of 3 parcels of land registered in the name of Segundino Refuerzo.

Defendant filed a motion claiming that the decision rendered in said Civil Case was null and void with
respect to him, there being no allegation in the complaint pointing to his personal liability for while it was
stated therein that he was a signatory to the lease contract, he did so in his capacity as president of the
corporation and that an order be issued limiting such liability to defendant Corporation. The Court granted
the same andordered the Provincial Sheriff of Leyte to release all properties belonging to the movant that
might have already been attached.

Action of Manuela asserting that the trial Judge in issuing the order complained of acted
with grave abuse of discretion and prayed that same be declared a nullity. She contended that her failure to
specify defendant's personal liability was due to the fact that all the time she was under the impression that
the Philippine Fibers Producers Co., Inc., represented by Refuerzo was a duly registered corporation as
appearing in the contract, but a subsequent inquiry from the SEC yielded otherwise.

ISSUE: Whether or not Segundino Q. Refuerzo in his capacity as president of the corporation shall be
personally liable for the contract of lease entered into.

RULING:

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, (Asia Banking Corporation vs. Standard Products Co., 46 Phil., 114;), yet this doctrine
may not be held to be applicable where fraud takes a part in the said transaction. In the instant case, on
plaintiff's charge that she was unaware of the fact that the Philippine Fibers Producers Co., Inc., had no
juridical personality, defendant Refuerzo gave no confirmation or denial and the circumstances surrounding
the execution of the contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra
was really made to believe that such corporation was duly organized in accordance with law.

There can be no question that a corporation with 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 be, the corporation in
excess of his unpaid subscription. But this rule is understood to refer merely to registered corporations and
cannot be made applicable to the liability of members of an unincorporated association.

The reason behind this doctrine is obvious-since an organization which before the law is non-
existent has no personality and would be incompetent to act and appropriate for itself the powers and
attribute of a corporation as provided by law; it cannot create agents or confer authority on another to act in
its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed of all the rights and subject to
all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and comes personally liable for contracts entered into
or for other acts performed as such, agent.

Considering that defendant Refuerzo, as president of the unregistered corporation Philippine Fibers
Producers Co., Inc., was the moving spirit behind the consummation of the lease agreement by acting as its
representative, his liability cannot be limited or restricted that imposed upon corporate shareholders. In
acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the
consequential damages or resultant rights, if any, arising out of such transaction.

MARIANO ALBERT VS UNIVERSITY PUBLISHING CO. INC.

FACTS:

15 years ago, Mariano Albert entered into a contract with University Publishing Co., Inc. through Jose
M. Aruego, its President, whereby University would pay plaintiff for the exclusive right to publish his revised
Commentaries on the Revised Penal Code. The contract stipulated that failure to pay one installment would
render the rest of the payments due. When University failed to pay the second installment, Albert sued for
collection and won.

However, upon execution, it was found that the records of this Commission do not show the registration of
UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership. Albert petitioned for a writ of
execution against Jose M. Aruego as the real defendant. University opposed, on the ground that Aruego was
not a party to the case.

Issue:

Whether or not the non-registration of University Publishing Co., Inc. in the SEC is an existing
corporation with an independent juridical personality.

Held: No.

On account of the non-registration it cannot be considered a corporation, not even a corporation de

facto (Hall vs. Piccio). It has therefore no personality separate from Jose M. Aruego; it cannot be sued
independently.

In the case at bar, Aruego represented a non-existent entity and induced not only Albert but the court
to believe in such representation. He signed the contract as “President” of “University Publishing Co., Inc.,”
stating that this was “a corporation duly organized and existing under the laws of the Philippines”. One who
has induced another to act upon his wilful 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
(Salvatiera vs. Garlitos)

“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.”

Aruego, acting as representative of such non-existent principal, was the real party to the contract
sued upon, and thus assumed such privileges and obligations and became personally liable for the contract
entered into or for other acts performed as such agent.

The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set up
against Albert since it was Aruego who had induced him to act upon his (Aruego’s) willful representation that
University had been duly organized and was existing under the law.

LIM TONG LIM VS PHILIPPINE FISHING GEAR INDUSTRIES

FACTS:

Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial fishing with him. The
three agreed to purchase two fishing boats but since they do not have the 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.
However, they were unable to pay PFGI and hence were sued in their own names as Ocean Quest Fishing
Corporation wherein it 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.
ISSUE: Whether Lim Tong Lim is not liable under the corporation by estoppel

HELD:
Yes. It is apparent from the factual milieu that the 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 to Lim as he contend because Peter and
Antonio only presented themselves as the corporation. But the court ruled that 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. It is true that petitioner did not directly act on behalf of the corporation. Having reaped the
benefits of the contract entered into by persons with whom he previously had an existing relationship, he is
deem to be part of said association and covered by the scope of the doctrine of corporation by estoppel.
Hence, the question as to whether such non-existent corporation was legally formed for unknown reasons is
immaterial to the case.

3. PIERCING THE VEIL OF CORPORATE FICTION

CASE:

UMALI VS CA

FACTS:

Castillo family are the owners of parcels of land in Lucena City which was given as security for a loan
from Development Bank of the Philippines. For failure to pay the amortization foreclosure of the property
was to be initiated.

The problem was made known to Rivera (nephew of de Castillo) who proposed them the converson
of the land into subdivision (4 parcels of land) to raise funds. A memorandum of agreement was executed
between Castillo family and Slobec Realty and Development Inc. (President is Rivera) wherein Rivera obliged
to pay to Castillo family after the properties has been converted into a subdivision.

Rivera approached Modesto Cervantes (President of Bormaheco) to purchase 2 tractors. Slobec

(Rivera) executed in favor of Bormaheco a chattel mortgage over the equipments for security of the payment
of the balance.

Slobec obtained from Insurance Corporation of the PH a surety bond with ICP as surety and Slobec as
principal (favor of bormaheco). Surety bond shall be secured by agreement of counter-guaranty with REM
executed by Rivera (pres. Of slobec ) and Castillo family as mortgagors and ICP as mortgagee. ICP in
guaranteeing the obligation of Slobec the Castillo family is required to mortgage the properties to them.

The properties were foreclosed for the violation of such agreement wherein ICP was the highest
bidder and Cert of Sale was issued to them. ICP sold the lots to Phil. Machinery Parts Manufacturing Co. by the
deed of conveyance.
 Umali as the administratix of the properties filed an annulment of title in CFI wherein they contend
that the transactions (start from counter-agreement) are void being entered into in fraud and without
approval of CFI.

ISSUE:

Whether or not the foreclosure is proper so as to apply the doctrine of piercing the veil of corporate
entity.

HELD:

Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the
legal fiction that a corporation is an entity with a juridical personality separate and 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, or 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 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 the 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.

In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation. In the instant case, petitioners do not seek to
impose a claim against the individual members of the three corporations involved; on the contrary, it is these
corporations which desire to enforce an alleged right against petitioners.

Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the mortgaged
properties, this fact alone is not, under the circumstances, sufficient to justify the piercing of the corporate
fiction, since petitioners do not intend to hold the officers and/or members of respondent corporations
personally liable therefor. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale,
which relief may be obtained without having to disregard the aforesaid corporate fiction attaching to
respondent corporations. Secondly, petitioners failed to establish by clear and convincing evidence that
private respondents were purposely formed and operated, and thereafter transacted with petitioners, with
the sole intention of defrauding the latter.

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

Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a valid title over
the subject properties. The submission is without merit and the conclusion is specious

We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case.
However, its inapplicability has no bearing on the good faith or bad faith of private respondent PM Parts. It
must be noted that Modesto N. Cervantes served as Vice-President of Bormaheco and, later, as President of
PM Parts. On this fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several
transactions executed between Bormaheco and petitioners. These facts were admitted without qualification
in the stipulation of facts submitted by the parties before the trial court. Hence, the defense of good faith may
not be resorted to by private respondent PM Parts which is charged with knowledge of the true relations
existing between Bormaheco, ICP and herein petitioners. Accordingly, the transfer certificates of title issued
in its name, as well as the certificate of sale, must be declared null and void since they cannot be considered
altogether free of the taint of bad faith.

KOPPEL VS YATCO

FACTS:

Koppel Philippines Inc. (KPI) has a capital stock divided into thousand (1,000) shares of P100 each.

The Koppel Industrial Car and Equipment Company (KICEC) owns 995 shares of the total capital stock. KICEC
is organized under US laws and not licensed to do business in the Philippines. The remaining five (5) shares
only were and are owned one each by officers of the KPI.

They have the following business process:

(1) "When a local buyer was interested in the purchase of railway materials, machinery, and supplies, it asked
for price quotations from KPI";

(2) "KPI then cabled for the quotation desired from Koppel Industrial Car and Equipment Company";

(3) "KPI, however, quoted to the purchaser a selling price above the figures quoted by Koppel Industrial Car
and Equipment Company";

(4) "On the basis of these quotations, orders were placed by the local purchasers

· KPI paid under protest the P64,122.51 demanded by the CIR of the 1% of the Total Profit.

It appears that KICEC is the only foreign principal of KPI.

The KPI corporation bore alone incidental expenses - as, for instance, cable expenses-not only those of its
own cables but also those of its "principal" .

The KPI's "share in the profits" realized from the transactions in which it intervened was left virtually in the
hands of KICEC

· Where drafts were not paid by the purchasers, the local banks were instructed not to protest them but to
refer them to KPI which was fully empowered by KICEC to instruct the banks with regards to disposition of
the drafts and documents

· Where the goods were European origin, consular invoices, bill of lading, and, in general, the
documents necessary for clearance were sent directly to KPI

· If the KPI had in stock the merchandise desired by local buyers, it immediately filled the orders of
such local buyersand made delivery in the Philippines without the necessity of cabling its principal in
America either for price quotations or confirmation or rejection of that agreed upon between it and the buyer

Whenever the deliveries made by KICEC were incomplete or insufficient to fill the local buyer's orders, KPI
used to make good the deficiencies by deliveries from its own local stock, but in such cases it charged its
principal only the actual cost of the merchandise thus delivered by it from its stock and in such transactions
KPI did not realize any profit

CFI ruled that KPI is a mere branch of KICEC. They did not deny the legal personality to Koppel PH for any and
all purposes but in effect its conclusion was that, in the transactions involved, THE PUBLIC INTEREST AND
CONVENIENCE WOULD BE DEFEATED AND WHAT WOULD AMOUNT TO TAX EVASION PERPETRATED,
UNLESS RESORT IS HAD TO THE DOCTRINE OF DISREGARD OF CORPORATE FICTION.

ISSUE:

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

HELD:

KPI’s contention is that its corporate existence cannot be collaterally attacked and that the
Government is estopped from doing so.

The SC ruled that Koppel (Philippines), Inc. was a mere branch or agency or dummy ("hechura") of
Koppel Industrial Car and Equipment Co. The lower court did not hold that the corporate personality of KPI
would also be disregarded in other cases or for other purposes. It would have had no power to so hold. The
courts' action in this regard must be confined to the transactions involved in the case at bar "for the purpose
of adjudging the rights and liabilities of the parties in the case. They have no jurisdiction to do more."

United States vs. Milwaukee Refrigeration Transit

o General Rule: a corporation will be looked upon as a legal entity as a general rule, and until sufficient
reason to the contrary appears;

o Exception: 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.

· Manifestly, the principle is the same whether the "person" be natural or artificial.

· A very numerous and growing class of cases wherein the corporate entity is disregarded is that (it is so
organized and controlled, and its affairs are so conducted, as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation)."

· Where it appears that two business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal
fiction that two corporations are distinct entities, and treat them as identical. (Abney vs. Belmont Peaches
Country Club Properties, Inc., 279 Pac., 829.) #bebegurrpeaches

· The fact that KPI is a mere branch is conclusively borne out by the fact, among others, that the amount
of the so-called "share in the profits" of KPI was ultimately left to the sole, unbridled control of KICEC. If KPI
was intended to function as a bona fide separate corporation, we cannot conceive how this arrangement
could have been adopted.

· No group of businessmen could be expected to organize a mercantile corporation if the amount of that
profit were to be subjected to such a unilateral control of another corporation, unless indeed the former has
previously been designed by the incorporators to serve as a mere subsidiary, branch or agency of the latter.
· KPI charged the parent corporation no more than actual cost - without profit whatsoever - for
merchandise allegedly of its own to complete deficiencies of shipments made by said parent corporation.

TANTONGCO VS KAISAHAN

FACTS:

La Campana Starch Factory and La Campana Coffee Factory are two separate entities run by a single
management under the leadership of Ramon Tantongco. Kaisahan ng mga Manggagawa sa La Campana), on
the other hand, is a labor union with members from the two companies.

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 only14 employees in said factory. This
was done in light of the requirement that at least 31employees 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. 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
that La Campana and RamonTantongco 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 LaCampana
already ceased to exist, the CIR no longer has jurisdiction over it. The claims should have been filed with the
probate court.

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

ISSUE:

Whether or not La Campana ceased to exist upon the death of Ramon Tantongco;
Whether or not the Doctrine of Piercing the Veil of Corporate Existence applies

HELD:

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

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.

ROBLEDO VS NLRC

FACTS:

Petitioners were former employees of Bacani Security and Protective Agency (BPSA). They were
employed as security guards at different time when BPSA ceased to operate. BPSA was a single proprietorship
owned, managed, and operated by the late Felipe Bacani. Bacani retired the business name and BSPA ceased
to operate effective on that day.

Felipe Bacani died. An intestate proceeding was instituted for the settlement of his estate before
Pasig-RTC. Respondent Bacani Security and Allied Services Co., Inc. (BASEC) had been organized and
registered as a corporation with SEC. Several of the incorporator (3) surnamed Bacani, and that includes the
daughter of the late Felipe Bacani.

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. Labor Arbiter rendered a decision upholding the right of petitioners,
finding the complainants entitled to their money claims to be paid by all the respondents’ solidarily. On
appeal, the NLRC reversed the decision declaring that the Labor Arbiter is without jurisdiction and instead
suggested that petitioners file their claims with Pasig-RTC where an intestate proceeding of Bacani’s estate
was pending. Petitioners moved for reconsideration but their motion was denied for lack of merit. The case
was elevated to the SC and was treated as a special civil action of certiorari to determine whether the NLRC
committed a grave abuse of discretion in reversing the Labor Arbiter’s decision.
ISSUE
Whether Bacani Security and Allied Services, Inc. (BASEC) can be held liable for claims of petitioners against
Bacani Security and Protective Agency (BSPA).

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

FRAUD CASES
CASES:

GREGORIO ARANETA INC VS TUAZON

FACTS:

Paz Tuason de Paterno is the registered owner of certain portions (approximately 40,703 square
meters) of a big block of residential land in the district of Santa Mesa, Manila. The land was subdivided into
city lots most of which were occupied by lessees who had contracts of lease which were to expire on
December 31, 1952. A salient stipulation in the contracts was 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. Smaller lots were occupied by tenants without formal contract.

In 1940 and 1941 Paz De Paterno obtained from Jose Vidal several loans amounting to P90,098 and
constituted a first mortgage on the aforesaid property to secure the debt. In January and April, 1943, she
obtained additional loans of P30,000 and P20,000 upon the same security. In each of these two, the previous
contract of mortgage was renewed and the amounts received were consolidated. In the first novated contract
the time of payment was fixed at two years and in the second and last at four years.

1943- Paz decided to sell the entire property for P400,000 and entered into negotiations with
Gregorio Araneta, Inc. They executed a contract called "Promesa de Compra y Venta" or Promise to Buy and
Sell (Exhibit 1). The contract indicated that subject to the preferred right of the lessees and that of Jose Vidal
as mortgagee, Paz De Paterno would sell to Gregorio Araneta, Inc. and the latter would buy for the said
amount of P400,000 the entire estate under these terms.

Letters were sent the lessees giving them until August 31, 1943, an option to buy the lots they
occupied. Some of the lessees bought their part of the property and were given their deeds of conveyance. De
Paterno and Araneta executed a deed of absolute deed of sale (Exhibit A) over Lots 1, 8-16 and 18 which have
an aggregate area of 14,810.20 square meters with the exclusion of the lots sold to tenants and those which
were mortgaged to Vidal.

A day before the execution of the said deed of absolute sale, a day after the signing of the agreement
to buy and sell between De Paterno and Araneta, De Paterno had offered to Vidal the check for P143,150 to
settle her mortgage obligation. Vidal refused to receive that check or to cancel the mortgage, contending that
by the separate agreement before, payment of mortgage was not to be effected totally or partially before the
end of four years from April, 1943. This prompted De Paterno to file an action against Vidal but this never
came to trial and the record and the checks were destroyed during the war operations.

Araneta then, filed an action against De Paterno to compel the latter to deliver to him a clear title to
the lots and a deed of cancellation of Vidal’s mortgage. Vidal filed a cross-claim against De Paterno for the
foreclosure of the mortgage

ISSUE: Whether or not there had been an absolute deed of sale between Araneta and De Paterno

HELD: Yes. There was an absolute sale between Paterno and Araneta. Exhibit A (Deed of Sale) is valid and

enforceable.

The contemplated execution of an absolute deed of sale was not contingent on the cancellation of Vidal's
mortgage therefore, there was no need to settle the mortgage first. The agreement only provided that such
deed of absolute sale should be executed upon the determination of the specific lots to be sold to Araneta. The
said lots became definite when the tenants’ option to buy expired.

Vidal's mortgage was not an obstacle to the sale. An amount had been set aside to take care of it, and the
parties, it would appear, were confident that the suit against the mortgagee would succeed.

The charge that Araneta was in a rush in the sale of the lands cannot be gleaned from the facts. The fact that
simultaneously with the agreement with Araneta, similar deeds were given the lessees who had elected to
buy their leaseholds, which comprise an area about twice as big as the lots described in said agreement, and
the further fact that the sale to the lessees have never been questioned and the proceeds thereof have been
received by the defendant, should add to dispel any suspicion of bad faith on the part of the plaintiff.

If anyone was in a hurry it could have been the defendant. De Paterno was pressed for cash and that the
payment of the mortgage was only an incident, or a necessary means to effectuate the sale. She could have
settled her mortgage obligation merely by selling a portion of her estate. Araneta and de Paterno were at
perfect liberty to make a new agreement different from or even contrary to the provisions of the promise to
buy and sell. 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.

2ND ISSUE: Whether or not De Paterno can claim fraud as defense.

Held: No.

De Paterno alleges that her attorneys, Attorneys Salvador Araneta and J. Antonio Araneta who had drawn
Exhibit A (deed of sale), did not inform her or had misinformed her about the contents of the deed and that it
was in English, that’s why she did not read it. She would not have affixed her signature in a one-sided
contract. She alleges that the discrepancies in Exhibit 1 and Exhibit A are evidence of fraud.
SC: there were two documents involved in the case. One was the Promise to Buy and Sell (Exhibit 1) and the
Absolute Deed of Sale (Exhibit A).

The first provision which was not in Exhibit 1 but was in Exhibit A:

The provision that 10 per cent of the purchase price should be paid only after Vidal's mortgage
should have been cancelled is not onerous or unusual. The stipulation that a vendee should withhold a
relatively small portion of the purchase price before all the impediments to the final consummation of the
sale had been removed is valid. The tenants who had bought their lots had been granted the privilege to
deduct as much as 40 per cent of the stipulated price pending discharge of the mortgage, although his
percentage was later reduced to 10 as in the case of Gregorio Araneta, Inc. It has also been that the validity of
the sales to the tenants has not been contested; that these sales embraced in the aggregate 24,245.40 square
meters for P260,916.68 as compared to 14,811.20 square meters sold to Gregorio Araneta, Inc. for
P139,083.32.

The second stipulation in Exhibit A which had no counterpart in Exhibit 1 was that by which Gregorio Araneta
Inc. would hold Paz Tuason liable for the lost checks and which, as stated, appeared to be at the root of the
whole trouble between the plaintiff and the defendant.

“In view of the foregoing liquidation, the Vendor acknowledges fully and unconditionally, having

received the sum of 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 two of the checks paid to
her by the Vendee were used in favor of Jose Vidal and the latter has, up to the present time, not yet collected
the same.”

SC: It is difficult to believe that the defendant was deceived into signing Exhibit A. Intelligent and well
educated who had been managing her affairs, she had an able attorney who was assisting her in the suit
against Vidal, a case which was instituted precisely to carry into effect Exhibit A or Exhibit 1, and a son who is
leading citizen and a business-man and knew the English language very well if she did not. If the defendant
signed Exhibit A without being apprised of its import, it can hardly be conceived that she did not have her
attorney or her son read it to her afterward. She denied the existence of Exhibit A at first and afterwards,
alleged fraud in its execution. It would look as if she gambled on the chance that no signed copy of the deed
had been saved from the war.

PALACIO VS FELY TRANSPORTATION

FACTS:

In their complaint, the Palacio alleged that Fely hired Alfredo Canillo as driver who negligently run
over a child (Mario). Gregorio , the father of Mario is a welder and in the account of his child's injuries has
abandoned his shop which is the family's source of income.

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 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.

ISSUE: Whether Fely Transportation can be held subsidiary liable for the damages.

HELD:

The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant Fely Transportation
may be regarded as one and the 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.

The defendant corporation should not be heard to say that it has a personality separate and distinct from its
members when to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to
further an end subversive of justice. (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa)

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.

PALAY INC VS CLAVE

FACTS:

Petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private respondent,
Nazario Dumpit, a Contract to Sell a parcel of Land owned by said corporation. The contract expressly
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, but failed to pay the balance. 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. However,
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.

Respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an
alternative prayer for refund. NHA finds the rescission void in the absence of either judicial or notarial
demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and
severally, to refund immediately to Nazario Dumpit. Petitioners appealed but subsequently denied for lack of
merit. Thus, the present petition.

ISSUE:

If Albert Onstott is liable as the President of Palay Inc.

HELD:

It is basic that a corporation is invested by law with a personality separate and distinct from those of
the persons composing it as wen as from that of any other legal entity to which it may be related. As a general
rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal
entities to which it may be connected and vice versa. 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 perpetuate fraud or confuse legitimate issues; or to circumvent the law or perpetuate
deception 16; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders.

We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6
(supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and had
sold it to a third person.

In this case, petitioner Onstott was made liable because he was then the President of the corporation and he a
to be the controlling stockholder. No sufficient proof exists on record that said petitioner used the
corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he
"appears to be the controlling stockholder". Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for disregarding the separate corporate personality. 18 In this
respect then, a modification of the Resolution under review is called for.

PABALAN VS NLRC

FACTS:

84 workers of the Philippine Inter-Fashion (PIF) filed a 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 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.

Issue: Whether or not petitioners as officers may be held jointly and severally liable with the corporation for
its liability.

Ruling: NO. The settled rule is that the corporation is vested by law with a personality separate and distinct
from the persons composing it, including its officers as well as from that of any other legal entity to which 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.
 DEL ROSARIO VS NLRC
FACTS:
The POEA promulgated a decision dismissing the complaint for money claims for lack of merit. The
decision was appealed to the NLRC, which reversed the POEA decision and ordered Philsa Construction and
Trading Co., Inc., the recruiter and Arieb Enterprises, the foreign employer to jointly and severally pay private
respondent their salary differentials and vacation leave benefits.
A writ of execution was issued by the POEA but it was returned unsatisfied as Philsa was no longer
operating and was financially incapable of satisfying the judgment. Private respondent moved for the
issuance of an alias writ agains tthe officers of Philsa. This motion was opposed by the officers, led by
petitioner, the president and general manager of the corporation.
Petitioner appealed to the NLRC dismissed the appeal on the theory that the corporate personality of
Philsa should be disregarded. According to the NLRC, Philsa Construction & TradingCo., Inc. and Philsa
International Placement & Services Corp are one and the same because both corporations has the same set of
directors and officers. Petitioner's motion for reconsideration was denied. Thus, this petition was filed,
alleging that the NLRC gravely abused its discretion.

ISSUE:
Whether the action of the NLRC affirming the issuance of an alias writ ofexecution against petitioner,
on the theory that the corporate personality of Philsa should be disregarded.

HELD:

YES. Under the law a corporation is bestowed juridical personality, separate and distinct from its
stockholders. But when the juridical personality of the corporation is used to defeat public convenience,
justify wrong, protect fraud or defend crime, the corporation shall be considered as a mere association of
persons and its responsible officers and/or stockholders shall be held individually liable.

For the same reasons, a corporation shall be liable for the obligations of a stockholder, or
a corporation and its successor-in-interest shall be considered as one and the liability of the former shall
attach to the latter. But for the separate juridical personality of a corporation to be disregarded, the
wrongdoing 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 delisted in
1986, there was yet no judgment in favor of private respondent. An intent to evade payment of his claims
cannot therefore be implied from the expiration of Philsa's license and its delisting.

Likewise, substantial identity of the incorporators of the two corporations does not necessarily imply
fraud. In this case, not only has there been a failure to establish fraud, but it has also not been shown that
petitioner is the corporate officer responsible for private Respondent's predicament. It must be emphasized
that the claim for differentials and benefits was actually directed against the foreign employer.Philsa became
liable only because of its undertaking to be jointly and severally bound with the foreign employer, an
undertaking required by the rules of the POEA, together with the filing of cash and surety bonds, in order to
ensure thatoverseas workers shall find satisfaction for awards in their favor.

VILLA REY TRANSIT VS FERRER

FACTS:

Jose villarama was an operator of a bus transportation (2 certs of public convenience) wherein he
sold the certificates to Pantranco with the condition that the seller (VILLARAMA) shall not for a period of 10
yhears apply for any TPU service identical or competing with the buyer.
 3 months thereafter, a corporation called VILLA REY TRANSIT INC., was organized. After its
registration, the Corporation bought 5 certificates of public convenience and buses to Fernando.

The 2 out of 5 certificates were levied in favor of Ferrer wherein a public sale was conducted and
ferrer was the highest bidder. Ferrer sold the 2 certificates to PANTRANCO.

The Corporation filed a 3rd party-complaint against Villarama, alleging that Villarama and the
corporation was disqualified from operation the 2 certificates by virtue of the agreement.

ISSUE:

Is the stipulation between Villarama and PANTRANCO binds Villa Rey Transit Inc.

HELD:

The agreement in the contract entered into by Villarama and Pantranco is enforceable and binding
against the Corporation. The rule is that the seller may not make use of the corporate entity as a means of
evading his obligation. The evidence disclosed wherein Villarama was not an incorporator or a stockholder of
the Corporation, his wife, however was an incorporator and was elected treasurer of the Corporation. It
further shows that the initial cash capitalization of the corporation was mostly financed by Villarama: He
supplied the organization expenses and assets of the Corporation (trucks and equipment); and there was no
actual payment by the original subscribers as appearing in the books; Villarama also made use of the money
of the Corporation and deposited them to his private accounts; and the Corporation paid his personal
accounts.

It only shows that Villarama is involved in the affairs of the Corporation to negate his claim that he
was onlu a part-time general manager.

It shows beyond doubt that the Corporation is his alter ego. 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 such 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 a 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.
B. ALTER EGO CASES

CASE:

ARNOLD VS WILLETS AND PATERSON, LTD.

FACTS:

Arnold and the firm WILLITS & PATTERSON in SAN FRANCISCO entered into a 1 st written contract by
which ARNOLD was employed as the agent of the firm in the Philippines for the operation of an oil mill for 5
years (200 dollars per month if business was at loss 400 dollars)

Patterson retired. WILLITS became sole owner of its assets, he organized a new corporation by the
same name in San Francisco wherein it acquired all the assets of the former firm. He came to Manila and
organized a corporation WILLITS & PATTERSON, LTD., wherein he subscribed for all the capital stock except
the nominal shares necessary to qualify directors. The San Francisco Corporation took over and acquired all
the assets and liabilities of the Manila Corporation.

Willits signed a 2nd new contract wherein it is to clearly define and specify the compensation which
Arnold was to receive for his services.

An accounting was done and showed that the corporation was due and owing Arnold under second
contract. San Francisco corporation became involved in financial trouble and all of its assets were turned over
to creditors’ committee.

Arnold filed a complaint and contended that the signing of the second contract was ratified and in
legal effect became binding upon WILLETS AND PATTERSON LTD. WILLETS LTD contended that the second
contract was signed but without authority by the same. It also alleged that Arnold owed them some money.

CFI decided ordered Arnold to return the money to the corporation.

ISSUE:

If Arnold can collect from WILLETS AND PATTERSON LTD

HELD:

Yes. The proposition that a corporation has an existence separate and distinct from its membership
has its limitations. The separate existence is for particular purposes. There can be no corporate existence
without persons to compose it.

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 reorganized and accepted
his services.

It was a one man corporation, and WILLITS as the owner of all 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. Statement of account made by the accountant had no
objection made by anyone.

“Where the stock of a corporation is owned by 1 person whereby the corporation functions only for
the benefit of such individual owner, the corporation and the individual should be deemed to be the same.”

The corporation are under Willits. When the second contract was signed, Willits recognized that
Arnold’s services were to be performed by its terms. When the new corporation was organized and created, it
still treated Arnold as its agent in the same manner as the first one. Corporation was bound by the contract
made under the corporation.

LA CAMPANA COFFEE VS KAISAHAN

FACTS:

Tan Tong has been engaged in buying and selling gaugau under the trade name LA CAMPANA
GAUGAU PACKING. Tan Tong and members of his family organized the family corporation, LA CAMPANA
COFFEE FACTORY with its principal office located in gaugau packing.

Tan Tong entered into a CBA with the labor union of LA CAMPANA GAUGAU. Later on, his employees
formed KAISAHAN with an authorization from DOLE to become affiliate of the larger union.

KAISAHAN with 66 members presented a demand for higher wages to LA CAMPANA STARCH AND
COFFEE FACTORY. It was not granted and the DOLE certified the issue to CIR. LA CAMPANA filed a motion to
dismiss wherein the action was directed against 2 different entities with distinct personalities.

ISSUE:

If the gaugau and the coffee factory has a separate and distinct personality

HELD:
LA CAMPANA GAUGAU and LA CAMPANA FACTORY are operating under one single 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 person 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 specially if the stockholders or officers of the 2 corporations are the
same or their system 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 and same place of business.

The attempt to make the 2 factories appears as 2 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 GAUGAU only
has 14 employees and only 5 were members of KAISAHAN.
 YUTIVO SONS HARDWARE VS CTA

FACTS;
Yutivo is a domestic corporation engaged in importation and sale of hardware supplies and
equipment. After the world war it resumed its business and bought number of cars and trucks from GENERAL
MOTORS (GM) an American corporation doing business in PH. As importer, GM paid sales tax on the basis of
its selling price to Yutivo. Yutivo paid no further sales tax on its sales to the public.

SOUTHERN MOTORS (SM) was organized to engage in the business of selling trucks and spare parts.
One of its major subscribers is Yu Tiong Yee founder of YUTIVO. After the incorporation of SM and until the
withdrawal of GM from PH, the cars and trucks were purchased by YUTIVO from GM then sold by Yutivo to
SM and then SM to the public.

The same way that GM used to pay taxes on the basis of its sales to Yutivo, Yutivo paid taxes on 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. SM contested
before CTA and it ruled that SM is a mere subsidiary or instrumentality of Yutivo, hence its separate
corporate existence must be disregarded.

ISSUE:

Whether or not the corporate personality of SM could be disregarded for the purpose of imposing tax

HELD:
other Yes. A corporation is an entity separate and distinct from its stockholders and from
Yes. A corporation is an entity separate and distinct from its stockholders and from other
corporations 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. When the corporation is a
mere alter ego or business conduit of a person, it may be disregarded.

SC ruled that CTA was not justified in finding that SM was organized to defraud the Government. SM
was organized in June 1946, from that date until June 30, 1947, GM was the importer of the cars and trucks
sold to Yutivo, which in turn was sold to SM. GM, as importer was the one solely liable for sales taxes. Neither
Yutivo nor SM was subject to the sales taxes. Yutivos liability arose only until July 1, 1947 when it became the
importer. Hence, there was no tax to evade.

However, SC agreed with the respondent court that SM was actually owned and controlled by
petitioner. Consideration of various circumstances indicate that Yutivo treated SM merely as its department
or adjunct.

a. The founders of the corporation are closely related to each other by blood and affinity.

b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare
parts, hardware supplies and equipment.

c. The accounting system maintained by Yutivo shows that it maintained high degree of control over
SM accounts.
 d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely use
forms or stationery of Yutivo.

e. All cash collections of SMs branches are remitted directly to Yutivo.

f. The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM.

g. The principal officers of both corporations are identical. Both corporations have a common
comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivos president, Yu Khe Thai.

h. Yutivo, financed principally the business of SM and actually extended all the credit to the latter not
only in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly
sold by Yutivo to SM.

LIDDELL & CO VS COLLECTOR

FACTS:

Liddell & Co is a domestic corporation wherein it is 98% owned by Frank Liddell and it has a
business of selling Oldsmobile and Chevrolet cars and GMC and Chevrolet Trucks

Liddell Motors Inc was organized by Frank Liddell and his wife as sole incorporator. Court found
eventually that she does not have enough funds and it is Frank who really owns LMI. Irene does not really
participate in LMI affairs and her salary is deposited into Frank’s account

The former employees of LC resigned from LC to work for LMI. LC stopped retailing cars to the public
and LC would convey the cars and trucks to LMI, which would in turn sell the vehicles to the public with a
steep mark-up.

LC paid taxes on its sales to LMI, identifying said sales as original sales.

CIR determined that LMI was the alter ego of LC for sales tax purposes, the sale of LMI to the public
should be considered as the taxable original sale. So for tax deficiency, CIR demanded payment from LMI.

ISSUE:

Whether or not LMI is the alter ego of LC

HELD:

Yes. The mere fact LC and LMI are corporations owned by Frank is not by itself sufficient to justify
the disregard of the separate corporate identity of one from the other. However, LMI was a medium created
by LC to reduce tax liability, given the progressive rate of sales tax (high price high rate)

It is lawful to obtain a corporation charter, even with a single substantial stockholder, to engage in a
specific activity, and such activities may co-exist with other private activities of the stockholder. The general
rule is there is respect separate identity if it is conducted lawfully except when there is fraud.

Where a corporation is a dummy, and serves no business purpose, and is intended only as a blind, the
corporate form may be ignored for the law cannot countenance a form that is bald and mischievous fiction. A
corporation must not be a medium for tax evasion by an individual
 RAMIREZ TELEPHONE VS BANK OF AMERICA

FACTS:

Herbosa owned a building in sta mesa which he leased to Ruben Ramirez (the president of RAMIREZ
TELCO). The building was the workshop of the corporation, despite the head office being in Escolta. The rent
was not paid wherein Herbosa filed an eviction claim against Ramirez and upon reaching the CFI of Manila he
was able to obtain a favorable decision. The Sheriff served a garnishment order upon the Bank of America.

The bank replied that it did not hold any money for Ruben but it was found out that the money was in
the name of Ramire telco. The bank was willing to comply with the order.

The money then was given to Herbosa because of the garnishment order. The following day Ruben
issued a check in favor of Ray electronics wherein it was rejected by Bank of America for insufficiency of
funds.

The lawyer or Ramirez Telco initiated an action stating that the bank should have known that Ruben
has no personal deposit in the Bank of America and that the Ramirez telco is an entirely distinct and separate
entity regardless of the fact that Ruben happens to be its President and General manager.

In turn, the bank filed counterclaim and a complaint against Sheriff.

CFI: Ramirez won ordered Bank of America to pay

CA reversed CFI wherein Herbosa stated that, although it was Ruben who was his lessee, the one who
actually occupied the space was Ramirez Telco; that Ruben Ramirez used to pay rent with checks from
Ramirez Telco. CA ruled that as it can be concluded that Ruben had funds that were deposited in the Bank of
America under the name of Ramirez Telco, which were in fact his own funds as well as the company’s; 75% of
the shares of the company belonged to Ramirez and his wife; all but justify the conclusion that the seizure of
the Ramirez Telco funds was an act of justice in favor of Herbosa as creditor.

ISSUE: whether or not RAMIREZ TELCO’s corporate personality shall be disregarded

HELD:

Petitioner's main grievance in the first assigned error is that the Court of Appeals disregarded its
corporate personality; it relies on the general principle "that the corporate entity will not be disregarded no
matter how large the holding a particular stockholder may have in the corporation.” Petitioner would thus
maintain that the personality as an entity separate and distinct from its major stockholders, Ruben R.
Ramirez and his wife, was not to be disregarded even if they did own 75% of the stock of the corporation.

"Even with regard to corporations duly organized and existing under the law, we have in many a
case pierced the veil of corporate fiction to administer the ends of justice."

GUATSON INTERNATIONAL VS NLRC

FACTS:

Guatson Travel and Tours, Philippine Integrated Labor Assistance Corporation (PHILAC) and
Mercury Express International Courier Services (MEREX) assailed the decision by NLRC wherein it denied
their MR and reversing the decision of the Labor arbiter who finds that Jolly Almoradie was not forced to
resign in said 3 sister companies.

From the records, it appears that Almoradie was first employed by MEREX as a messenger. When
MEREX close its operation, he was absorbed by PHILAC also as a messenger. He was transferred to Guatson
also a sister company of MEREX and PHILAC, as a Liaison officer and was promoted as a sales representative.

Almoradie was reverted to the position of messenger, yet he was again given the position of Account
Executive (same as a sales representative). He was summoned by Henry Ocier VP of Guatson and forced by
Ocier to resign. If he will not resign he will file charges against Almoradie and would adversely affect his
chances of getting a job in the future, hence he was forced to sign the resignation letter.

Almoradie filed a complaint for illegal dismissal to the Labor Arbiter which was dismissed. Appeal
NLRC reversed decision of LA.

ISSUE: whether or not said sister companies are liable for the separation pay of Almoradie who was illegally
dismissed wherein the companies having separate and distinct legal personalities with that of the others

HELD:

Court upheld the decision of NLRC. The 3 companies are owned by 1 family, such that majority of the
officers of the companies are the same. The companies are located in one building and use the same
messengerial servides. Moreover, there was no showing that Almoradie was paid separation pay when he
was absorbed by PHILAC nor was there evidence that he resigned from PHILAC when he transferred to
Guatson. Hence, under the doctrine of piercing the veil of corporate fiction, when valid ground exist, the legal
fiction maybe disregarded, as in the case of the 3 companies at bar, they may be regarded as one single entity
in so far as the case is concerned.

CONCEPT BUILDERS VS NLRC

FACTS:

Concept Builders (CBI) is a domestic corporation engaged in the construction business while the
private respondents were employed by said company as laborers, carpenters and riggers. Private
respondents were served individual written notices of termination of employment by CPI. It was stated that
their contracts of employment had expired and the project in which they were hired had not yet been finished
and completed. CBI had to engage the services of sub-contractors whose workers performed the functions of
private respondents. Aggrieved, they filed a complaint for illegal dismissal.

LA ordered CBI to reinstate private respondents. NLRC dismissed the MR of CBI. LA issued a writ of
execution directing sheriff to execute decision. It was partially satisfied through garnishment of sums from
CBI’s debtor, the Metropolitan Waterworks and Sewerage Authority wherein it was turned over to the cashier
of NLRC.

An Alias Writ of Execution was issued by LA for the remaining balance of the judgment award. The
sheriff reported that he tried to serve the alias writ through the security guard on duty but the service was
refused on the ground that CBI no longer occupied the premises. A second Alias Writ of Execution was also
not enforced by the special sheriff because all the employees inside CBI’s premises claimed that they were
employees of HYDRO PIPES PHILIPPINES INC (HPPI) and not by CBI. A levy was made upon personal
properties he found in the premises and that the guards prevented him from removing the properties. The
special sheriff recommended a “BREAK OPEN ORDER” to enable him to enter CBI’s premises to proceed with
the public auction sale of the properties.
 Cuyegkeng filed a third party complaint wherein the properties sought to be levied are
owned by HPPI of which he is a VP. Private Respondents filed motion for issuance of break open order
alleging that HPPI and CBI were owned by same incorporator/stockholders. They also alleged that CBI
temporarily suspended its business operations to evade legal obligations.

LA denied motion for break open order. NLRC issued the order and directed sheriff to
proceed with auction sale of the properties already levied upon.

ISSUE:

Whether NLRC was correct in issuing the break open order to levy the HPPI properties located at
CBI/HPPI premises

HELD:

Yes, the NLRC was correct in issuing the order.

It is a fundamental principle of corporation law that 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 facts and circumstances of each
case. No hard and fast rule can be accurately laid down, but there are factors that will justify the application of
the piercing the veil of corporate fiction: 1) stock ownership by 1 or common ownership of both corporations;
2) identity of directors or officers; 3) manner of keeping corporate books and records; and 4) methods of
conducting business.

The test in determining the applicability of the such piercing is 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 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; 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 vale.

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.
Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation is one pure
fact.

In the case at bar, while CBI claimed that it ceased its business operations, it filed an information
sheet with SEC stating its office address. On the other hand, HPPI the 3 rd party claimant, submitted on the
same day, a similar information sheet stating that its office address is same with CBI. Further, both info sheets
were filed by the same Virgilio Casino as the corporate secretary of both corporations. Both corporations had
the same president, same BOD, same corporate officers, sae subscribers.

It appears that CB and HPPI shared the same address. It cannot be said that the property levied upon
by the sheriff were not of CBI’s. HPPI is obviously a business conduit of CBI and its emergence was skillfully
orchestrated to avoud financial liability that already attached to CBI.
c. EQUITY CASES

CASES:

TESCO VS WORKMEN’S COMPENSATION COMMISSION

FACTS:

Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment.

It has a sister company, the Utilities Management Corporation (UMACOR), with offices in the same location.
UMACOR is also under the management of Jose Luis Santiago.

UMACOR employed the late Pacifica L. Gatus as Purchasing Agent. Then was detailed with petitioner
company. He reported back to UMACOR and after 2 years he contracted illness and died.

Respondent Leonila S. Gatus, filed a "Notice and Claim for Compensation" with Workmen's
Compensation Commission sub-office, alleging therein that her deceased husband was an employee of TESCO,
and that he died of liver cirrhosis. Office wrote petitioner transmitting the Notice and for Compensation, and
requiring it to submit an Employer's Report of Accident or Sickness pursuant to Section 37 of the Workmen's
Compensation Act (Act No. 3428). An "Employer's Report of Accident or Sickness" was thus submitted with
UMACOR indicated as the employer of the deceased. The Report was signed by Jose Luis Santiago. In answer,
the employer stated that it would not 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.

ISSUE: Whether or not TESCO is liable for the death claim of the deceased.

HELD:

Viewed in the light of these criteria, we note that it is only in this Petition before us that petitioner
denied, for the first time, the employer-employee relationship. Although respect for the corporate personality
as such, is the general rule, there are exceptions. In appropriate cases, the veil of corporate fiction may be
pierced as when the same is made as a shield to confuse the legitimate issues.

While, indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCO'S denial at
this stage that it is the employer of the deceased is obviously an afterthought, a devise to defeat the law and
evade its obligations. This denial also constitutes a change of theory on appeal which is not allowed in this
jurisdiction. Moreover, issues not raised before the Workmen's Compensation Commission cannot be raised
for the first time on appeal. For that matter, a factual question may not be raised for the first time on appeal to
the Supreme Court.

WHEREFORE, this Petition is hereby dismissed.

 A.D. SANTOS INC VS VENTURA VASQUEZ

FACTS:

Respondent Ventura Vasquez was petitioner's taxi driver and while driving petitioner's taxicab, he
vomitted blood. He reported to petitioner the fact of his having vomitted blood. He was sent to petitioner
company's physician who treated him and sent him to Sto. Tomas Hospital where he was confined for six
days. Thereafter, he was admitted at the Quezon Institute. There he stayed and diagnosed his ailment as
pulmonary tuberculosis, moderately advanced in both lungs. Upon his discharge he was clinically improved.
His X-ray examination. He has not resumed work.

Offshoot of the foregoing is respondent's claim filed with the Workmen's Compensation Commission and
affirmed the decision and petitioner should pay the amounts.

The case is now before us on review.

ISSUE: (1) respondent's claim should have been dismissed for his failure to file the notice of injury and claim
for compensation required by Section 24 of the Workmen's Compensation Act; and

(2) the claim for compensation is directed against Amador Santos, not against petitioner.

HELD:

1. Sickness manifested itself on December 22 or 23, 1961. Claim was filed on May 9, 1962. Petitioner
argues that by Section 24 of the Workmen's Compensation Act, the claim should be thrown out of court.
Because, according to petitioner, such claim was not filed within two months following illness.

Petitioner's case must fail. Stabilized jurisprudence is that failure of the employer to file with the
Commission notice of controversion set forth in the second paragraph of Section 45 of the Workmen's
Compensation Act is a waiver of the defense that the claim for compensation was not filed within the
statutory period and a forfeiture of the employer's right to controvert the claim. Petitioner here knew of
respondent's illness. Yet, it did not controvert respondent's right to compensation. Constructively, such
failure is an admission that the claim is compensable. 2

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 is 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, 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."

4. DUE PROCESS

CASE:
 McCONNEL VS CA

FACTS:

Park RITE Co. (PRC) leased from Rafael Rosales y Samanillo a vacant lot on Juan Luna which it used
for parking motor vehicles for a consideration. It turned out that in operating its parking business, PRC
occupied and used not only the lot it had leased but also an adjacent lot belonging to Padilla, without the
owners’ knowledge and consent. When Padilla discovered the truth they demanded payment for the use and
occupation of the lot.

A judgment was rendered ordering Park Rite Co to pay until return of the lot. As restitution was not
made, the entire judgment amounted to 11k. Upon execution, the corporation was found without any assets
other than the 550 deposited in court. After their application to the judgment credit, there remained a balance
which is unsatisfied.

The judgment creditors then filed suit in CFI of Manila against the corporation and its past and
present stockholders, to recover from them, jointly and severally, the unsatisfied balance of the judgment. CFI
denied recovery; but on appeal, CA reversed, finding that the corporation was a mere alter ego or business
conduit of the principal stockholders. That they controlled it for their own benefit and adjudged them
responsible for the amounts demanded by the lot owners.

ISSUE:

Whether the individual stockholders may be held liable for obligations contracted by PRC,
disregarding its corporate entity.

HELD:

Yes. Wherever circumstances have shown that the corporate entity is being used as an alter ego or
business conduit for the sole benefit of the stockholders, or else to defeat public convenience, justify wrong,
protect fraud, or defend crime.

In the case at bar, the SC summarized the expressed findings of the CA which is as follows:

Defendants Cirilo Paredes and Ursula Tolentino purchased 1,496 shares of the said corporation from
the original incorporators [M. McConnel, W. P. Cochrane, Ricardo Rodriguez, Benedicto M. Dario and
Aurea Ordrecio]. The remaining four shares were acquired by Bienvenido J. Claudio, Quintin C.
Paredes, Segundo Tarictican, and Paulino Marquez at one share each. It is obvious that the last four
shares bought by these four persons were merely qualifying shares. It is Tolentino and Paredes who
composed the so-called Park Rite Co., Inc.

That the corporation was a mere extension of their personality is shown by the fact that the office of
Cirilo Paredes and that of Park Rite Co., Inc. were located in the same building, in the same floor and
in the same room — at 507 Wilson Building.

The fact that the funds of the corporation were kept by Cirilo Paredes in his own name. The
corporation itself had no visible assets, except perhaps the toll house, the wire fence around the lot
and the signs thereon.
 Based on such facts, the corporation is a mere instrumentality of the individual stockholder's, hence
the latter must individually answer for the corporate obligations. To hold the stockholder’s [Tolentino and
Parades] liable for the corporation's obligations is not to ignore the corporation's separate entity, but merely
to apply the established principle that such entity cannot be invoked or used for purposes that could not have
been intended by the law that created that separate personality.

Note:

Qualifying share -- The number of shares that a member of the board needs to own to qualify to be on the
board of directors of a company. If not enough shares are owned the person does not qualify to be on the
board.

EMILIO CANO ENTERPRISES VS CIR

FACTS:

Honorata Cruz was terminated by Emilio Cano Enterprises Inc (ECEI). She then filed a complaint for
unfair labor practice against Emilio Cano (pres.) and Rodolfo Cano (manager). Cruz won and the Court of
Industrial Relations ordered the Cano’s to reinstate Cruz plus pay her backwages with interest.

The Cano’s appealed to CIR but while on appeal Emilio died. The Cano’s lost on appeal and an order
of execution was levied against ECEI’s property. ECEI filed an ex parte motion to quash the writ as ECEI avers
that it is a corporation with a separate and distinct personality from the Cano’s. Their motion was denied and
ECEI filed a petition for certiorari with SC.

ISSUE: Whether or not the judgment of the CIR is correct

HELD:

Yes. This is an instance where the corporation and its members can be considered as one. ECEI is a
close family corporation- incorporators are members of the Cano family. Further, the Cano’s were sued in
their capacity as officers of ECEI not in their private capacity.

Having been sued officially, their connection with the case must be deemed to be impressed with the
representation of the corporation. The judgment against the Cano’s has a direct bearing to ECEI. Verily, the
order against them is in effect against the corporation. Further still, even if this technicality be strictly
observed, what will simply happen is for this case to be remanded, change the name of the party, but the
judgment will still be the same- there can be no real benefit and will only subversive to the ends of justice.

In this case, to hold ECEI liable is not to ignore the legal fiction but merely to give meaning to the
principle that such fiction cannot be invoked if its purpose is to use it as a shield to further an end subversive
of justice.

NATIONAL MARKETING CORPORATION (NAMARCO) VS ASSOCIATED FINANCE COMPANY INC

FACTS:

NAMARCO entered into an agreement with AFCI. NAMARCO was represented by its General Manager
Benjamin Estrella. AFCI was represented by its President Francisco Sycip. The agreement was that NAMARCO
will deliver raw sugar to AFCI, in exchange, AFCI will deliver refined sugar to NAMARCO. NAMARCO delivered
the raw sugar but AFCI failed to comply with its obligation. NAMARCO then demanded AFCI to comply or if
not pay the amount of the raw sugar delivered (400k). AFCI was not able to do it either hence, NAMARCO
sued AFCI and Sycip.

ISSUE: Whether or not Sycip should be held jointly and severally liable with AFCI

HELD:

Yes. In this case, it is proper to pierce the veil of corporate fiction. It was proven that during the time
of the agreement, AFCI was already insolvent. Such fact was already known to Sycip. He knew that AFCI was
not in a position to transact with NAMARCO because it could not possibly comply with its obligation. Sycip’s
assurances that AFCI can deliver said refined sugar products is obviously to defraud NAMARCO into
delivering the raw sugar to AFCI.

Consequently, Sycip cannot now seek refuge behind the general principle that a corporation has a
personality distinct and separate from that of its stockholders and that the latter are not personally liable for
the corporate obligations. He is therefore liable jointly and severally with AFCI to pay the amount claimed for
the raw sugar plus damages.

A stockholder is guilty of fraud where, through false representation, he succeeded in inducing

another corporation to enter into an exchange agreement with the corporation he represented and over
whose business he had absolute control and where it further appears that said stockholder had full
knowledge of the fact that his corporation was in no position to comply with the obligation which he had
caused it to assume.

Said stockholder cannot seek refuge behind the general principle that a corporation has a personality
distinct and separate from that of its stockholders and that the latter are not personally liable for the
corporate obligations. The court is justified in piercing the veil of corporate fiction and in holding said
stockholder solidarily liable with the corporation for the sums of money adjudged in favor of the
aggrieved corporation. When the corporation is the mere alter ego of a person, the corporate fiction may be
disregarded; the same being true when the corporation is controlled, and its affairs are so conducted as to
make it merely an instrumentality, agency or conduit of another.

JACINTO VS CA

FACTS:

In the case of Metropolitan Bank vs Inland Industries and Roberto Jacinto, Roberto Jacinto on appeal
assails that he cannot be solidarily liable together with Inland because such company is a separate and
juridical entity and he just signs documents as President and General Manager of Inland.

Defendant Roberto Jacinto, tried to escape liability and shift the entire blame under the trust receipts
solely and exclusively on defendant-appellant corporation. He asserted that he cannot be held solidarily liable
with the latter (defendant corporation) because he just signed said instruments in his official capacity as
president of Inland Industries, Inc. and the latter (defendant corporation) has a juridical personality distinct
and separate from its officers and stockholders. It is likewise asserted, citing an American case, that the
principle of piercing the fiction of corporate entity should be applied with great caution and not precipitately,
because a dual personality by a corporation and its stockholders would defeat the principal purpose for
which a corporation is formed. Upon the other hand, plaintiff-appellee reiterated its allegation in the
complaint that defendant corporation is just a mere alter ego of defendant Roberto Jacinto who is its
President and General Manager, while the wife of the latter owns a majority of its shares of stock.
 As could be expected, Roberto Jacinto in his direct testimony presented a different corporate
scenario regarding Inland Industries, Inc. and vehemently declared that it is Bienvenida Catabas who is its
President, while Aurora Heresa is its Chairman of the Board. His assertion on this point, however, is not
convincing in view of his admission in the same breath, that his wife, Hedy U. Jacinto, own with him 52% of
the shares of stock of said corporation. Indeed, this circumstance –– even if standing alone –– cannot but
engender in the most unprejudiced mind doubt and misgiving why Catabas and Heresa would be defendant
corporation's President and Chairman of the Board, respectively.

The conflicting statements by defendant Jacinto place in extreme doubt his credibility anent his
alleged participation in said transactions and We are thus persuaded to agree with the findings of the lower
court that the latter (Roberto Jacinto) was practically the corporation itself. Indeed, a painstaking
examination of the records show that there is no clear-cut delimitation between the personality of Roberto
Jacinto as an individual and the personality of Inland Industries, Inc. as a corporation.

The circumstances aforestated lead Us to conclude that the corporate veil that en-shrouds defendant
Inland Industries, Inc. could be validly pierced, and a host of cases decided by our High Court is supportive of
this view. Thus it held that "when the veil of corporate fiction is made as a shield to perpetuate fraud and/or
confuse legitimate issues, the same should be pierced." Where a corporation is merely an adjunct, business
conduit or alter ego, the fiction of separate and distinct corporate entity should be disregarded.

ISSUE: WHETHER OR NOT JACINTO IS TO BE LIABLE

HELD:

The conflicting statements by defendant Jacinto place in extreme doubt his credibility anent his
alleged participation in said transactions and We are thus persuaded to agree with the findings of the lower
court that the latter (Roberto Jacinto) was practically the corporation itself. Indeed, a painstaking
examination of the records show that there is no clear-cut delimitation between the personality of Roberto
Jacinto as an individual and the personality of Inland Industries, Inc. as a corporation.

The circumstances aforestated lead Us to conclude that the corporate veil that en-shrouds defendant
Inland Industries, Inc. could be validly pierced, and a host of cases decided by our High Court is supportive of
this view. Thus it held that "when the veil of corporate fiction is made as a shield to perpetuate fraud and/or
confuse legitimate issues, the same should be pierced." Where a corporation is merely an adjunct, business
conduit or alter ego, the fiction of separate and distinct corporate entity should be disregarded.

While on the face of the complaint there is no specific allegation that the corporation is a mere alter
ego of petitioner, subsequent developments, from the stipulation of facts up to the presentation of evidence
and the examination of witnesses, unequivocally show that respondent Metropolitan Bank and Trust
Company sought to prove that petitioner and the corporation are one or that he is the corporation. No serious
objection was heard from petitioner.

ARCILLA VS CA

FACTS:

The Arcilla, taking advantage of his close friendship with the Rudolfo, succeeded in securing on credit
from the Rudolfo, various items, cash and checks which the Acilla encashed, which the plaintiff willingly
extended because of the representations of the defendant that he was a successful financial consultant of local
and international businessmen;

That Arcilla’s indebtedness is shown and described in thirty (30) "vales" signed by him or by persons
authorized by him, all of which documents are in the possession of the plaintiff for being unredeemed or
unpaid. That commencing with the summer months up to the time immediately before the filing of this
complaint, the Rudolfo had made numerous demands for payment but the respondent acted in gross and
evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim;

That the Rudolfo is left without any recourse other than to enforce his claim in court.

In his Answer, Arcilla does not deny having had business transactions with the Rudolfo but alleges
that it began only when he "was looking for a "pro-forma" invoice to support his loan with the Kilusang
Kabuhayan at Kaunlaran (KKK) under the Ministry of Human Settlement (sic)." He explicitly admits that
"His loan was in the same of his family corporation, CSAR Marine Resources,
Inc.;" however, the "vales", of the complaint, "were liquidated in the bank loan releases." It is thus clear that
his main defense is payment; he did not interpose any other affirmative defense.

Arcilla contended that, he already paid Rudolfo. It could not have been in payment of the "vales"
considering that the "vales" remained in the possession of the Rudolfo, they are presumed to remain unpaid;
in fact, private respondent so testified that they were not paid at all. The court therefore ordered petitioner to
pay private respondent:

Petitioner appealed this decision to the CA.

Arcilla filed a motion to reconsider the aforesaid decision alleging that (a) the evidence showing
payment of the "vales" is "uncontroverted", hence the presumption that they were not paid simply because
they remain in the possession of the creditor cannot arise; (b) the alleged non-payment of the "vales" could
have been further explained if the trial court gave the appellant the opportunity to present sur-rebuttal
witness and documentary evidence; besides, he has newly discovered evidence — invoked in a prayer for a
new trial that was nevertheless denied by the lower court — which consists of a letter, signed by Rafael
Rodulfo, General Manager of the private respondent and addressed to Brig. Gen. Clemente Racela, then KKK
General Action Officer, categorically stating that "the account of CSAR Marine Resources, Inc. c/o Atty. Calvin
Arcilla"; and (c) the evidence presented by both parties disclosure that "the subject account are all in the
name of CSAR MARINE RESOURCES, INC., a corporation separate and distinct from the Arcilla

ISSUE: Whether or not Arcilla as the President of CSAR MARINE RESOURCES INC is liable

HELD:

Yes. The veil of corporate fiction should be pierced in this case since Arcilla did not raise the issue of
separate corporate identity in the pleadings in the trial court or in his Brief, he cannot raise it for the first time
in a Motion for Clarificatory Judgment.He admits that it was he and not his corporation who transacted
business with the private respondent; and the "vales" refer not only to construction materials for which the
loan to Csar Marine Resources, Inc. was supposed to be used, but also to consumables such as salt, rice, food
seasoning, cigarettes, coffee, etc.; this indicates that Arcilla himself did not seriously treat the corporate
affairs of Csar Marine Resources, Inc. as separate and distinct from his own.

On the contrary, the pleadings lead Us to the inescapable conclusion that the petitioner, who is
himself a lawyer, is merely taking advantage of the use of the innocuous phrase "in his capacity as President"
found in the dispositive portion of the challenged Amended Decision — making the same a sanctuary for a
defense which he, as hereinafter discussed, had long since abandoned or waived either deliberately or
through his obliviscence. His sole purpose, of course, is to avoid complying with the liability adjudged against
him by the public respondent; such avoidance is premiered on the so-called newly discovered evidence
offered after the public respondent had bent over backwards to grant him a new trial despite the availability
of such evidence during pendency of the proceedings before the trial court. It is to be noted that he failed to
assign as error in his Brief the denial by the said court of his motion for new trial on the basis thereof.
 Even if We are to assume that the obligation was incurred in the name of the corporation, the
petitioner would still be personally liable therefor because for all legal intents and purposes, he and the
corporation are one and the same. Csar Marine Resources, Inc. is nothing more than his business conduit and
alter ego. The fiction of a separate juridical personality conferred upon such corporation by law should be
disregarded. Significantly, petitioner does not seriously challenge the public respondent's application of the
doctrine which permits the piercing of the corporate veil and the disregarding of the fiction of a separate
juridical personality; this is because he knows only too well that from the very beginning, he merely used the
corporation for his personal purposes.

AC RANSOM LABOR UNION VS NLRC

FACTS:

Employees of AC RANSOM PHILIPPINE CORPORATION (RANSOM) went on strike. The said strike
was lifted however 22 strikers were refused reinstatement. The Court of Industrial Relations ordered
RANSOM to reinstate the said strikers. However, RANSOM said that it did not have the necessary funds for the
employees earnings. RANSOM then filed an application for clearance to cease operations and terminate
employment because of financial difficulties.

Although RANSOM had assumed financial difficulty; its officers and principal stockholders had
organized a new corporation, the ROSARIO INDUSTRIAL CORPORATION (ROSARIO). The closed corporation
was engaged in the same line of business as RANSOM with the same Hernandez Family as owners, the same
officers, the same president, same counsel, using same equipment, personnel, business stocks and same place
of business. RANSOM declared that ROSARIO is a distinct and separate corporation, which was organized long
before the cases were decided against RANSOM.

UNION filed another case against the officers/agents of RANSOM and for payment of backwages. It
was granted by LA but reversed by NLRC

ISSUE: Whether or not the ROSARIO and RANSOM are distinct and separate corporate entities.

HELD:

No. Sale of corporate assets to another corporation organized previously by the same officers as the
vendor and engaged in the same line of business, using same equipment of the vendor in the same factory is
an instance where corporate veil should be pierced.

Aggravating RANSOM’s clear evasion of payment of its financial obligations is the organization of a
run-away corporation, ROSARIO, at the time the unfair labor practice case was pending before the CIR by the
same persons who were the officers and stockholders of RANSOM, engaged in the same line of business as
RANSOM, same products, same compound, same equipment, buildings, laboratory, bodega and sales and
accounts departments used by RANSOM, which is still in existence.

Both corporations were close corporations owned and managed by members of the same family. Its
organization proved to be a convenience instrument to avoid payment of backwages of the workers. This is
another instance where the fiction of separate and distinct corporate entities should be disregarded.

LIM VS NLRC

FACTS:
 Victoria Calsado was hired by Sweet Lines as Senior Branch Officer of its International Accounts
department. After tendering her resignation to accept another offer of employment she was persuaded to
remain with Sweet Lines with an offer of a promotion to Manager of the Department with increase of
compensation and she even bought a second hand car (half paid by her and half by the company).

Afterwards, relations began to sour, she repeatedly asked for payments of the commissions. Samuel
Casas Lim served a letter to Calsado informing her that her employment with Sweet Lines would terminate.

Calsado filed a complaint against Sweet Lines and Lim for illegal dismissal.

LA decided against Sweet and Lim. NLRC affirmed.

ISSUE:

Whether or not Lim can be held personally liable together with Sweet Lines

HELD:

Lim cannot be held personally liable with Sweet Lines for merely having signed the letter informing
Calsado ofher separation. No evidence that he acted with malice or bad faith and that he acted within the
scope of his authority. The letter informed her not only of her separation but also the benefits because of her
termination.

It is basic that a corporation is invested by law with a personality separate and distinct from those of
the persons composing it as well as from that of any other entity to which it may be related. Mere ownership
by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not
of itself sufficient ground for disregarding the separate corporate personality. Petitioner Sunio, therefore,
should not have been made personally answerable for the payment of private respondents' back salaries.

DE GUZMAN VS NLRC

FACTS:

Arturo de Guzman was the general manager of the Manila office of the AFFILIATED MACHINERIES
AGENCY LTD which is based in Hongkong. He received a message from the managing director of AMAL in its
main office advising him of the closure of the company.

De Guzman notified all the personnel of the Manila office. Employees sent a letter to AMAL accepting
its decision to close but payment of the salaries should be made but it was heeded. The employees filed a
complaint with the NLRC against AMAL through and de Guzman for illegal dismissal.

De Guzman sold AMAL’s assets and applied the proceeds and the remaining assets to the payment of
his claims against the company. He organized SUSARCO INC and he as the president with the same business
and clients as that of AMAL PH. SUSARCO and its officers were impleaded with the complaint of the
employees as well as the resident agents of AMAL in the Philippines.

De Guzman filed his own complaint against AMAL and latter was ordered to pay former. In the case
of the Employees AMAL and De Guzman was made jointly and severally liable to the employees.

ISSUE:

Whether or not De Guzman shall be held jointly liable with AMAL

HELD:

De Guzman cannot be held directly liable for the decision of the company to close business that
decision came directly and exclusively from AMAL. The participation of De Guzman was limited to the
enforcement of the decision in line with his duties as general manager of the company.

But the manner and the means by which De Guzman satifisfied his claims are evidently characterized
by bad faith on his part. De Guzman took advantage of his position as general manager and arrogated to
himself the right to retain possession and ownership of all properties owned and left by AMAL in the
Philippines even if he knew that the employees have similar valid claims from AMAL.

It is not disputed that De Guzman had his own claims against AMAL and had some right over the
assets however such right ceased to exist when knowing fully that the employees have similar claims.

Although De Guzman cannot be made solidarily liable with AMAL for the monetary demand of the
employees, he is directly liable to them for the bad faith he manifested in attempting to deprive them of their
just share in the assets of AMAL. De Guzman’s liability to the employees is a direct liability in the form of
moral and exemplary damages and not a solidary liability with AMAL. He is being held liable not because he is
the general manager of AMAL but because he took advantage of his position by applying the properties of
AMAL to the payment of his own claims to the detriment of other employees.

5. ANTI-TRUST ISSUES

CASES:

GARCIA VS EXECUTIVE SECRETARY

FACTS:

After years of imposing significant controls over the downstream oil industry in the Philippines,
the government decided in March 1996 to pursue a policy of deregulation by enacting Republic Act No.
8180 (R.A. No. 8180) or the “Downstream Oil Industry Deregulation Act of 1996.”
Struck down the law as invalid because the three key provisions intended to promote free
competition were shown to achieve the opposite result; contrary to its intent, R.A. No. 8180’s provisions
on tariff differential, inventory requirements, and predatory pricing inhibited fair competition,
encouraged monopolistic power, and interfered with the free interaction of market forces.

R.A. No. 8180 needs provisions to vouchsafe free and fair competition. The need
for these vouchsafing provisions cannot be overstated. Before deregulation,
PETRON, SHELL and CALTEX had no real competitors but did not have a free run of
the market because government controls both the pricing and non-pricing aspects
of the oil industry. After deregulation, PETRON, SHELL and CALTEX remain
unthreatened by real competition yet are no longer subject to control by
government with respect to their pricing and non-pricing decisions. The aftermath
of R.A. No. 8180 is a deregulated market where competition can be corrupted and
where market forces can be manipulated by oligopolies.[3][3]
Notwithstanding the existence of a separability clause among its provisions, we struck down R.A. No.
8180 in its entirety because its offensive provisions permeated the whole law and were the principal
tools to carry deregulation into effect.

Congress responded to our Decision in Tatad by enacting on February 10, 1998 a new oil deregulation
law, R.A. No. 8479. This time, Congress excluded the offensive provisions found in the invalidated
law. Nonetheless, petitioner Garcia again sought to declare the new oil deregulation law
unconstitutional on the ground that it violated Article XII, Section 19 of the Constitution.[4][4] He
specifically objected to Section 19 of R.A. No. 8479 which, in essence, prescribed the period for removal
of price control on gasoline and other finished petroleum products and set the time for the full
deregulation of the local downstream oil industry. The assailed provision reads:

SEC. 19. Start of Full Deregulation. – Full deregulation of the Industry shall start five (5)
months following the effectivity of this Act: Provided, however, That when the public interest
so requires, the President may accelerate the start of full deregulation upon the
recommendation of the DOE and the Department of Finance (DOF) when the prices of crude
oil and petroleum products in the world market are declining and the value of the peso in
relation to the US dollar is stable, taking into account relevant trends and
prospects: Provided, further, That the foregoing provision notwithstanding, the five (5)-
month Transition Phase shall continue to apply to LPG, regular gasoline and kerosene as
socially-sensitive petroleum products and said petroleum products shall be covered by the
automatic pricing mechanism during the said period

Provided, however, That in case full deregulation is started by the President in the exercise of the
authority provided in this Section, the foregoing laws shall continue to be in force and effect with
respect to LPG, regular gasoline and kerosene for the rest of the five (5)-month period.
Petitioner Garcia contended that implementing full deregulation and removing price control at a time
when the market is still dominated and controlled by an oligopoly[5][5] would be contrary to public
interest, as it would only provide an opportunity for the Big 3 to engage in price-fixing and
overpricing. He averred that Section 19 of R.A. No. 8479 is “glaringly pro-oligopoly, anti-competition,
and anti-people,” and thus asked the Court to declare the provision unconstitutional.

On December 17, 1999, in Garcia vs. Corona (1999 Garcia case),[6][6] we denied petitioner Garcia’s plea
for nullity. We declined to rule on the constitutionality of Section 19 of R.A. No. 8479 as we found the
question replete with policy considerations; in the words of Justice Ynares-Santiago, the ponente of the
1999 Garcia case:

It bears reiterating at the outset that the deregulation of the oil industry is a policy
determination of the highest order. It is unquestionably a priority program of
Government. The Department of Energy Act of 1992 expressly mandates that the
development and updating of the existing Philippine energy program “shall include
a policy direction towards deregulation of the power and energy industry.”
 Be that as it may, we are not concerned with whether or not there should be
deregulation. This is outside our jurisdiction. The judgment on the issue is a
settled matter and only Congress can reverse it.

xxx xxx xxx

Reduced to its basic arguments, it can be seen that the challenge in this petition is
not against the legality of deregulation. Petitioner does not expressly challenge
deregulation. The issue, quite simply, is the timeliness or the wisdom of the date
when full deregulation should be effective.

In this regard, what constitutes reasonable time is not for judicial

determination. Reasonable time involves the appraisal of a great variety of
relevant conditions, political, social and economic. They are not within the
appropriate range of evidence in a court of justice. It would be an extravagant
extension of judicial authority to assert judicial notice as the basis for the
determination. [Emphasis supplied.]

Undaunted, petitioner Garcia is again before us in the present petition for certiorari seeking a
categorical declaration from this Court of the unconstitutionality of Section 19 of R.A. No. 8479.

THE PETITION

Petitioner Garcia does not deny that the present petition for certiorari raises the same issue of the
constitutionality of Section 19 of R.A. No. 8479, which was already the subject of the 1999 Garcia
case. He disagrees, however, with the allegation that the prior rulings of the Court in the two oil
deregulation cases[7][7] amount to res judicata that would effectively bar the resolution of the present
petition. He reasons that res judicata will not apply, as the earlier cases did not completely resolve the
controversy and were not decided on the merits. Moreover, he maintains that the present case involves
a matter of overarching and overriding importance to the national economy and to the public and
cannot be sacrificed for technicalities like res judicata.[8][8]

To further support the present petition, petitioner Garcia invokes the following additional grounds to
nullify Section 19 of R.A. No. 8479:
1. Subsequent events after the lifting of price control in 1997 have confirmed the continued
existence of the Big 3 oligopoly and its overpricing of finished petroleum products;

2. The unabated overpricing of finished petroleum products by the Big 3 oligopoly is gravely and
undeniably detrimental to the public interest;

3. No longer may the bare and blatant constitutionality of the lifting of price control be glossed over
 through the expediency of legislative wisdom or judgment call in the face of the Big 3
oligopoly’s characteristic, definitive, and continued overpricing;

4. To avoid declaring the lifting of price control on finished petroleum products as unconstitutional is
to consign to the dead letter dustbin the solemn and explicit constitutional command for the
regulation of monopolies/oligopolies.[9][9]

THE COURT’S RULING

We resolve to dismiss the petition.

In asking the Court to declare Section 19 of R.A. No. 8479 as unconstitutional for contravening Section
19, Article XII of the Constitution, petitioner Garcia invokes the exercise by this Court of its power of
judicial review, which power is expressly recognized under Section 4(2), Article VIII of the
Constitution.[10][10] The power of judicial review is the power of the courts to test the validity of
executive and legislative acts for their conformity with the Constitution.[11][11] Through such power, the
judiciary enforces and upholds the supremacy of the Constitution.[12][12] For a court to exercise this
power, certain requirements must first be met, namely:

(1) an actual case or controversy calling for the exercise of judicial power;

(2) the person challenging the act must have “standing” to challenge; he must have a
personal and substantial interest in the case such that he has sustained, or will
sustain, direct injury as a result of its enforcement;

(3) the question of constitutionality must be raised at the earliest possible opportunity; and

(4) the issue of constitutionality must be the very lis mota of the case.[13][13]

Actual Case Controversy

Susceptible of Judicial Determination

The petition fails to satisfy the very first of these requirements – the existence of an actual case or
controversy calling for the exercise of judicial power. An actual case or controversy is one that involves a
conflict of legal rights, an assertion of opposite legal claims susceptible of judicial resolution; the case
must not be moot or academic or based on extra-legal or other similar considerations not cognizable
by a court of justice. Stated otherwise, it is not the mere existence of a conflict or controversy that will
authorize the exercise by the courts of its power of review; more importantly, the issue involved must
be susceptible of judicial determination. Excluded from these are questions of policy or wisdom,
otherwise referred to as political questions:

As Tañada vs. Cuenco puts it, political questions refer “to those questions which,
 under the Constitution, are to be decided by the people in their sovereign capacity,
or in regard to which full discretionary authority has been delegated to the
legislative or executive branch of government.” Thus, if an issue is clearly
identified by the text of the Constitution as matters for discretionary action by a
particular branch of government or to the people themselves then it is held to be
a political question. In the classic formulation of Justice Brennan in Baker vs. Carr,
“[p]rominent on the surface of any case held to involve a political question is found
a textually demonstrable constitutional commitment of the issue to a coordinate
political department; or a lack of judicially discoverable and manageable
standards for resolving it; or the impossibility of deciding without an initial policy
determination of a kind clearly for non-judicial discretion; or the impossibility of a
court’s undertaking independent resolution without expressing lack of the respect
due coordinate branches of government; or an unusual need for unquestioning
adherence to a political decision already made; or the potentiality of
embarrassment from multifarious pronouncements by various departments on the
one question.”[14][14] [Emphasis supplied.]

Petitioner Garcia’s issues fit snugly into the political question mold, as he insists that by adopting a
policy of full deregulation through the removal of price controls at a time when an oligopoly still exists,
Section 19 of R.A. No. 8479 contravenes the Constitutional directive to regulate or prohibit
monopolies[15][15] under Article XII, Section 19 of the Constitution. This Section states:

The State shall regulate or prohibit monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall be
allowed.

Read correctly, this constitutional provision does not declare an outright prohibition of monopolies. It
simply allows the State to act “when public interest so requires”; even then, no outright prohibition is
mandated, as the State may choose to regulate rather than to prohibit. Two elements must concur
before a monopoly may be regulated or prohibited:

1. There in fact exists a monopoly or an oligopoly, and

2. Public interest requires its regulation or prohibition.

Whether a monopoly exists is a question of fact. On the other hand, the questions of (1) what public
interest requires and (2) what the State reaction shall be essentially require the exercise of discretion on
the part of the State.

Stripped to its core, what petitioner Garcia raises as an issue is the propriety of immediately and fully
deregulating the oil industry. Such determination essentially dwells on the soundness or wisdom of the
timing and manner of the deregulation Congress wants to implement through R.A. No. 8497. Quite
clearly, the issue is not for us to resolve; we cannot rule on when and to what extent deregulation
should take place without passing upon the wisdom of the policy of deregulation that Congress has
decided upon. To use the words of Baker vs. Carr,[16][16] the ruling that petitioner Garcia asks requires
“an initial policy determination of a kind clearly for non-judicial discretion”; the branch of government
that was given by the people the full discretionary authority to formulate the policy is the legislative
department.

Directly supporting our conclusion that Garcia raises a political question is his proposal to adopt instead
a system of partial deregulation – a system he presents as more consistent with the Constitutional
“dictate.” He avers that free market forces (in a fully deregulated environment) cannot prevail for as
long as the market itself is dominated by an entrenched oligopoly. In such a situation, he claims that
prices are not determined by the free play of supply and demand, but instead by the entrenched and
dominant oligopoly where overpricing and price-fixing are possible.[17][17] Thus, before full
deregulation can be implemented, he calls for an indefinite period of partial deregulation through
imposition of price controls.[18][18]

Petitioner Garcia’s thesis readily reveals the political,[19][19] hence, non-justiciable, nature of his
petition; the choice of undertaking full or partial deregulation is not for this Court to make. By enacting
the assailed provision – Section 19 – of R.A. No. 8479, Congress already determined that the problems
confronting the local downstream oil industry are better addressed by removing all forms of prior
controls and adopting a deregulated system. This intent is expressed in Section 2 of the law:

SEC. 2. Declaration of Policy. – It shall be the policy of the State to liberalize and
deregulate the downstream oil industry in order to ensure a truly competitive
market under a regime of fair prices, adequate and continuous supply of
environmentally-clean and high-quality petroleum products. To this end, the State
shall promote and encourage the entry of new participants in the downstream oil
industry, and introduce adequate measures to ensure the attainment of these
goals.

In Tatad, we declared that the fundamental principle espoused by Section 19, Article XII of the
Constitution is competition.[20][20] Congress, by enacting R.A. No. 8479, determined that this objective
is better realized by liberalizing the oil market, instead of continuing with a highly regulated system
enforced by means of restrictive prior controls. This legislative determination was a lawful exercise of
Congress’ prerogative and one that this Court must respect and uphold. Regardless of the individual
opinions of the Members of this Court, we cannot, acting as a body, question the wisdom of a co-equal
department’s acts. The courts do not involve themselves with or delve into the policy or wisdom of a
statute;[21][21] it sits, not to review or revise legislative action, but to enforce the legislative
will.[22][22] For the Court to resolve a clearly non-justiciable matter would be to debase the principle of
separation of powers that has been tightly woven by the Constitution into our republican system of
government.
This same line of reasoning was what we used when we dismissed the first Garcia case. The petitioner
correctly noted that this is not a matter of res judicata (as the respondents invoked), as the application
of the principle of res judicata presupposes that there is a final judgment or decree on the merits
rendered by a court of competent jurisdiction. To be exact, we are simply declaring that then, as now,
and for the same reasons, we find that there is no justiciable controversy that would justify the grant of
the petition.
CONCLUSION

To summarize, we declare that the issues petitioner Garcia presented to this Court are non-justiciable
matters that preclude the Court from exercising its power of judicial review. The immediate
implementation of full deregulation of the local downstream oil industry is a policy determination by
Congress which this Court cannot overturn without offending the Constitution and the principle of
separation of powers. That the law failed in its objectives because its adoption spawned the evils
petitioner Garcia alludes to does not warrant its nullification. In the words of Mr. Justice Leonardo A.
Quisumbing in the 1999 Garcia case, “[a] calculus of fear and pessimism xxx does not justify the remedy
petitioner seeks: that we overturn a law enacted by Congress and approved by the Chief Executive.

STANDARD OIL CO VS US

FACTS:
CORPORATE POWERS

1. SOURCES OF CORPORATE POWERS

A. CORPORATE POWERS AND CAPACITY

1. EXPRESS POWERS

SEC. 35. Corporate Powers and Capacity. – Every corporation incorporated under this Code has the
power and capacity:

(a) To sue and be sued in its corporate name;

(b) To have perpetual existence unless the certificate of incorporation provides otherwise;

(c) To adopt and use a corporate seal;

(d) To amend its articles of incorporation in accordance with the provisions of this Code;

(e) To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal the same in
accordance with this Code;

(f) In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock
corporation;

(g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal
with such real and personal property, including securities and bonds of other corporations, as the transaction
of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;

(h) To enter into a partnership, joint venture, merger, consolidation, or any other commercial
agreement with natural and juridical persons;

(i) To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Provided, That no foreign corporation shall give donations in aid
of any political party or candidate or for purposes of partisan political activity;

(j) To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers,
and employees; and

(k) To exercise such other powers as may be essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation.

2. IMPLIED POWERS

3. INCIDENTAL POWERS- SEC. 2. Corporation Defined. – A corporation is an artificial being created

by operation of law, having the right of succession and the powers, attributes, and properties expressly
authorized by law or incidental to its existence.

B. SPECIFIED POWERS

1. POWER TO SUE AND BE SUED (SECTION 35 (A) OF THE RCC)

CASE:

BS SAVINGS BANK VS SIA

FACTS:

The Court of Appeals issued a Resolution denying due course to a Petition for Certiorari filed by BA
Savings Bank, on the ground that "the Certification on anti-forum shopping incorporated in the petition was
signed not by the duly authorized representative of the petitioner, as required under Supreme Court Circular
No. 28-91, but by its counsel, in contravention of said circular." A Motion for Reconsideration was
subsequently filed by BA Savings Bank, attached to which was a BA Savings Bank Corporate Secretary's
Certificate. The Certificate that BA Savings Bank's Board of Directors approved a Resolution, authorizing the
bank's lawyers to represent it in any action or proceeding before any court, tribunal or agency; and to sign,
execute and deliver the Certificate of Non-forum Shopping, among others.

The Motion for Reconsideration was denied by the Court of Appeals on the ground that Supreme
Court Revised Circular 28-91 "requires that it is the petitioner, not the counsel, who must certify under oath
to all of the facts and undertakings required therein." The bank appealed.

ISSUE: Whether the certificate of non-forum shopping can be signed by the corporate counsel, not necessarily
by the corporate officers alone.

HELD:
A corporation has no powers except those expressly conferred on it by the Corporation Code and
those that are implied by or are incidental to its existence. In turn, a corporation exercises said powers
through its board of directors and/or its duly authorized officers and agents.
Physical acts, like the signing of documents, can be performed only by natural persons duly
authorized for the purpose by corporate bylaws or by a specific act of the board of directors. "All acts within
the powers of a corporation may be performed by agents of its selection; and, except so far as limitations or
restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general
principles of law which govern the relation of agency for a natural person govern the officer or agent of a
corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents once
appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are
agents of individuals and private persons."
Herein, the corporation's board of directors issued a Resolution specifically authorizing its lawyers
"to act as their agents in any action or proceeding before the Supreme Court, the Court of Appeals, or any
other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings,
motions, verification, affidavit of merit, certificate of non-forum shopping and other instruments necessary
for such action and proceeding."
The Resolution was sufficient to vest such persons with the authority to bind the corporation and
was specific enough as to the acts they were empowered to do. In the case of natural persons, Circular 28-91
requires the parties themselves to sign the certificate of non-forum shopping. However, such requirement
cannot be imposed on artificial persons, like corporations, for the simple reason that they cannot personally
do the task themselves. As already stated, corporations act only through their officers and duly authorized
agents. In fact, physical actions, like the signing and the delivery of documents, may be performed, on behalf
of the corporate entity, only by specifically authorized individuals.
It is noteworthy that the Circular does not require corporate officers to sign the certificate. More
important, there is no prohibition on against authorizing agents to do so. In fact, not only was BA Savings
Bank authorized to name an agent to sign the certificate; it also exercised its appointing authority reasonably
well. For who else knows of the circumstances required in the Certificate but its own retained counsel. Its
regular officers, like its board chairman and president, may not even know the details required therein.
Circular 28-91 was prescribed by the Supreme Court to prohibit and penalize the evils of forum shopping. We
see no circumvention of this rationale if the certificate was signed by the corporation's specifically authorized
counsel, who had personal knowledge of the matters required in the Circular.
2. POWER TO EXTEND OR SHORTEN CORPORATE TERM

SEC. 36. Power to Extend or Shorten Corporate Term. – A private corporation may extend or shorten its term
as stated in the articles of incorporation when approved by a majority vote of the board of directors or
trustees, and ratified at a meeting by the stockholders or members representing at least two-thirds (2/3) of
the outstanding capital stock or of its members. Written notice of the proposed action and the time and place
of the meeting shall be sent to stockholders or members at their respective place of residence as shown in the
books of the corporation, and must either be deposited to the addressee in the post office with postage
prepaid, served personally, or when allowed in the bylaws or done with the consent of the stockholder, sent
electronically in accordance with the rules and regulations of the Commission on the use of electronic data
messages. In case of extension of corporate term, a dissenting stockholder may exercise the right of appraisal
under the conditions provided in this Code.

SEC. 81. How Right is Exercised. – The dissenting stockholder who votes against a proposed corporate action
may exercise the right of appraisal by making a written demand on the corporation for the payment of the fair
value of shares held within thirty (30) days from the date on which the vote was taken: Provided, That failure
to make the demand within such period shall be deemed a waiver of the appraisal right. If the proposed
corporate action is implemented, the corporation shall pay the stockholder, upon surrender of the certificate
or certificates of stock representing the stockholder’s shares, the fair value thereof as of the day before the
vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action.

If, within sixty (60) days from the approval of the corporate action by the stockholders, the withdrawing
stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and
appraised by three (3) disinterested persons, one of whom shall be named by the stockholder, another by the
corporation, and the third by the two (2) thus chosen. The findings of the majority of the appraisers shall be
final, and their award shall be paid by the corporation within thirty (30) days after such award is made:
Provided, That no payment shall be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover such payment: Provided, further, That upon payment by
the corporation of the agreed or awarded price, the stockholder shall forthwith transfer the shares to the
corporation.

3. POWER TO INCREASE OR DECREASE CAPITAL STOCK

CASE:

MADRIGAL & CO VS ZAMORA

FACTS:

Respondent Madrigal Central Office Employees Union sought for the renewal of their CBA with
petitioner as well as an increase in their wage, allowance and other benefits. Petitioner however requested
deferment in the negotiations and later on reduced its authorized capitalization on two occasions.
Respondent Union commenced a complaint for unfair labor practice and illegal lockout against petitioner.
Petitioner alleges it sustained operational losses and further, that whatever profits it earned is in the nature
of dividends which cannot be disposed to meet employees’ economic demands. Petitioner motions for
reconsideration and appeal proved futile.

ISSUE:

Whether or not the dividends earned by petitioners can be used to satisfy the employees’ claims.
HELD: YES.

We agree with the National Labor Relations Commission that “[t]he dividends received by the company are
corporate earnings arising from corporate investment.” Indeed, as found by the Commission, the petitioner
had entered such earnings in its financial statements as profits, which it would not have done if they were not
in fact profits.

Moreover, it is incorrect to say that such profits — in the form of dividends — are beyond the reach of the
petitioner’s creditors since the petitioner had received them as compensation for its management services in
favor of the companies it managed as a shareholder thereof. As such shareholder, the dividends paid to it
were its own money, which may then be available for wage increments. It is not a case of a corporation
distributing dividends in favor of its stockholders, in which case, such dividends would be the absolute
property of the stockholders and hence, out of reach by creditors of the corporation. Here, the petitioner was
acting as stockholder itself, and in that case, the right to a share in such dividends, by way of salary increases,
may not be denied its employees.

4. POWER TO DENY PRE-EMPTIVE RIGHTS - SEC. 38. Power to Deny Preemptive Right. – All stockholders of a
stock corporation shall enjoy preemptive right to subscribe to all issues or disposition of shares of any class,
in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation or
an amendment thereto: Provided, That such preemptive right shall not extend to shares issued in compliance
with laws requiring stock offerings or minimum stock ownership by the public; or to shares issued in good
faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock, in
exchange for property needed for corporate purposes or in payment of a previously contracted debt.

CASE:

DATU VS SEC

FACTS:

 February 6, 1959: Articles of Incorporation (AIC) of Jamiatul Philippine-Al Islamia, Inc.

(Jamiatul) (originally Kamilol Islam Institute, Inc.) were filed with the SEC
 December 14, 1962: approved AIC
 The corporation had an authorized capital stock of P200K divided into 20K shares at a par value of P10
each. Of the authorized capital stock, 8,058 shares worth P80,580.00 were subscribed and fully paid for
 Datu Tagoranao Benito subscribed to 460 shares worth P4,600
 October 28, 1975: filed a certificate of increase of its capital stock from P200K to P1M
 November 25, 1975: stockholders meeting was held were P191,560.00 worth of shares were represented
 P110,980 worth of shares were subsequently issued by the corporation from the unissued portion of the
authorized capital stock of P200,000
 Of the increased capital stock of P1M0, P160K worth of shares were subscribed by Mrs. Fatima A. Ramos,
Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto.
 November 18, 1976: Datu Tagoranao filed with SEC a petition alleging that the additional issue (worth
P110,980) was made in violation of his pre-emptive right to said additional issue and that the increase in
the authorized capital stock was illegal considering that the stockholders of record were not notified of
the meeting wherein the proposed increase was in the agenda
 SEC:
 issuance by the corporation of its unissued shares was validly made and was not subject to the pre-
emptive rights of stockholders
 directed Jamiatul to allow petitioner to subscribe thereto, at par value, proportionate to his present
shareholdings, adding thereto the 2,540 shares transferred to him by Mr. Domocao Alonto and Mrs.
Moki-in Alonto
ISSUES:
1. W/N the issuance of the P110,980 of authorized capital stock of P200,000 is in violation of pre-emptive
right - NO
2. W/N the issuance of the increase in the authorized capital stock is in violation of pre-emptive right
HELD: Dismissed for lack of merit
1. NO
 GR: pre-emptive right is recognized only with respect to new issue of shares, and not with respect to
additional issues of originally authorized shares
 Theory: when a corporation at its inception offers its first shares, it is presumed to have offered all of
those which it is authorized to issue
 original subscriber is deemed to have taken his shares knowing that they form a definite proportionate
part of the whole number of authorized shares
 When the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest.
2. NO
 stockholders' meeting was held which included the increase of its capital stock from P200,000.00 to
P1,000,000.00
 he was not notified of said meeting and that he never attended the same as he was out of the country at
the time
 administrative bodies will not be interfered with by the courts in the absence of grave abuse of discretion
on the part of said agencies, or unless the aforementioned findings are not supported by substantial
evidence

GOKONGWEI VS SEC

FACTS:
John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with the Securities and Exchange
Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing
of amended by-laws, injunction and damages with prayer for a preliminary injunction" against the majority of
the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. As a first cause
of action, Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel,
Antonio Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws
of the corporation, basing their authority to do so on a resolution of the stockholders adopted on 13 March
1961, when the outstanding capital stock of the corporation was only P70,139.740.00, divided into 5,513,974
common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares totalled 30,127,043, with a total par value of
P301,270,430.00.

It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the
corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of
Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and
paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the
capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization,
Gokongwei contended that the Board acted without authority and in usurpation of the power of the
stockholders. As a second cause of action, it was alleged that the authority granted in 1961 had already been
exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of action,
Gokongwei averred that the membership of the Board of Directors had changed since the authority was given
in 1961, there being 6 new directors. As a fourth cause of action, it was claimed that prior to the questioned
amendment, Gokogwei had all the qualifications to be a director of the corporation, being a substantial
stockholder thereof; that as a stockholder, Gokongwei had acquired rights inherent in stock ownership, such
as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws,
Soriano, et. al. purposely provided for Gokongwei's disqualification and deprived him of his vested right as
afore-mentioned, hence the amended by-laws are null and void. As additional causes of action, it was alleged
that corporations have no inherent power to disqualify a stockholder from being elected as a director and,
therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while
representing other corporations, entered into contracts (specifically a management contract) with the
corporation, which was avowed because the questioned amendment gave the Board itself the prerogative of
determining whether they or other persons are engaged in competitive or antagonistic business; that the
portion of the amended by-laws which states that in determining whether or not a person is engaged in
competitive business, the Board may consider such factors as business and family relationship, is
unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws which
requires that "all nominations for election of directors shall be submitted in writing to the Board of Directors
at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive.
It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing
thereof be cancelled, and that Soriano, et. al. be made to pay damages, in specified amounts, to Gokongwei. On
28 October 1976, in connection with the same case, Gokongwei filed with the Securities and Exchange
Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of
the corporation refused to allow him to inspect its records despite request made by Gokongwei for
production of certain documents enumerated in the request, and that the corporation had been attempting to
suppress information from its stockholders despite a negative reply by the SEC to its query regarding their
authority to do so.

The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer, and their
opposition to the petition, respectively. Meanwhile, on 10 December 1976, while the petition was yet to be
heard, the corporation issued a notice of special stockholders' meeting for the purpose of "ratification and
confirmation of the amendment to the By-laws", setting such meeting for 10 February 1977. This prompted
Gokongwei to ask the SEC for a summary judgment insofar as the first cause of action is concerned, for the
alleged reason that by calling a special stockholders' meeting for the aforesaid purpose, Soriano, et. al.
admitted the invalidity of the amendments of 18 September 1976. The motion for summary judgment was
opposed by Soriano, et. al. Pending action on the motion, Gokongwei filed an "Urgent Motion for the Issuance
of a Temporary Restraining Order", praying that pending the determination of Gokongwei's application for
the issuance of a preliminary injunction and or Gokongwei's motion for summary judgment, a temporary
restraining order be issued, restraining Soriano, et. al. from holding the special stockholders' meeting as
scheduled. This motion was duly opposed by Soriano, et. al. On 10 February 1977, Cremation issued an order
denying the motion for issuance of temporary restraining order. After receipt of the order of denial, Soriano,
et. al. conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. On
14 February 1977, Gokongwei filed a consolidated motion for contempt and for nullification of the special
stockholders' meeting. A motion for reconsideration of the order denying Gokongwei's motion for summary
judgment was filed by Gokongwei before the SEC on 10 March 1977.

[SEC Case 1423] Gokongwei alleged that, having discovered that the corporation has been investing corporate
funds in other corporations and businesses outside of the primary purpose clause of the corporation, in
violation of section 17-1/2 of the Corporation Law, he filed with SEC, on 20 January 1977, a petition seeking
to have Andres M. Soriano, Jr. and Jose M. Soriano, as well as the corporation declared guilty of such violation,
and ordered to account for such investments and to answer for damages. On 4 February 1977, motions to
dismiss were filed by Soriano, et. al., to which a consolidated motion to strike and to declare Soriano, et. al. in
default and an opposition ad abundantiorem cautelam were filed by Gokongwei. Despite the fact that said
motions were filed as early as 4 February 1977, the Commission acted thereon only on 25 April 1977, when it
denied Soriano, et. al.'s motions to dismiss and gave them two (2) days within which to file their answer, and
set the case for hearing on April 29 and May 3, 1977. Soriano, et. al. issued notices of the annual stockholders'
meeting, including in the Agenda thereof, the "reaffirmation of the authorization to the Board of Directors by
the stockholders at the meeting on 20 March 1972 to invest corporate funds in other companies or
businesses or for purposes other than the main purpose for which the Corporation has been organized, and
ratification of the investments thereafter made pursuant thereto." By reason of the foregoing, on 28 April
1977, Gokongwei filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to
restrain Soriano, et. al. from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting
that the same be set for hearing on 3 May 1977, the date set for the second hearing of the case on the merits.
The SEC, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17,
1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act,
Gokongwei filed an urgent manifestation on 3 May 1977, but this notwithstanding, no action has been taken
up to the date of the filing of the instant petition.

Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for issuance of
writ of preliminary injunction, with the Supreme Court, alleging that there appears a deliberate and concerted
inability on the part of the SEC to act.

Issue:
1. Whether the corporation has the power to provide for the (additional) qualifications of its
directors.
2. Whether the disqualification of a competitor from being elected to the Board of Directors is a
reasonable exercise of corporate authority.
3. Whether the SEC gravely abused its discretion in denying Gokongwei's request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel
Corporation.
4. Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel
Corporation to ratify the investment of corporate funds in a foreign corporation.
Held:

1. It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws 'for its
internal government, and to regulate the conduct and prescribe the rights and duties of its members towards
itself and among themselves in reference to the management of its affairs.'" In this jurisdiction under section
21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and
compensation of directors, officers and employees." This must necessarily refer to a qualification in addition
to that specified by section 30 of the Corporation Law, which provides that "every director must own in his
right at least one share of the capital stock of the stock corporation of which he is a director." Any person
"who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of
the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within
the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." To this extent,
therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate
the disposition of his property which he has invested in the capital stock of the corporation, and surrendered
it to the will of the majority of his fellow incorporators. It can not therefore be justly said that the contract,
express or implied, between the corporation and the stockholders is infringed by any act of the former which
is authorized by a majority." Pursuant to section 18 of the Corporation Law, any corporation may amend its
articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the
subscribed capital stock of the corporation. If the amendment changes, diminishes or restricts the rights of
the existing shareholders, then the dissenting minority has only one right, viz.: "to object thereto in writing
and demand payment for his share." Under section 22 of the same law, the owners of the majority of the
subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore,
that Gokongwei has a vested right to be elected director, in the face of the fact that the law at the time such
right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall
be subject to amendment, alteration and modification.

2. Although in the strict and technical sense, directors of a private corporation are not regarded as trustees,
there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the
stockholders as a body are concerned. As agents entrusted with the management of the corporation for the
collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of
trust." "The ordinary trust relationship of directors of a corporation and stockholders is not a matter of
statutory or technical law. It springs from the fact that directors have the control and guidance of corporate
affairs and property and hence of the property interests of the stockholders. Equity recognizes that
stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof."
A director is a fiduciary. Their powers are powers in trust. He who is in such fiduciary position cannot serve
himself first and his cestuis second. He cannot manipulate the affairs of his corporation to their detriment and
in disregard of the standards of common decency. He cannot by the intervention of a corporate entity violate
the ancient precept against serving two masters. He cannot utilize his inside information and strategic
position for his own preferment. He cannot violate rules of fair play by doing indirectly through the
corporation what he could not do so directly. He cannot violate rules of fair play by doing indirectly through
the corporation what he could not do so directly. He cannot use his power for his personal advantage and to
the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no
matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the
equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the
fiduciary to the exclusion or detriment of the cestuis. The doctrine of "corporate opportunity" is precisely a
recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for
two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when
the interest of the corporation justly calls for protection. It is not denied that a member of the Board of
Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as:
(a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and
development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other
firms. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual or corporate interests to the prejudice of
San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made.
Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not
impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both
corporations and place the performance of his corporation duties above his personal concerns. The offer and
assurance of Gokongwei that to avoid any possibility of his taking unfair advantage of his position as director
of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be
discussed, would not detract from the validity and reasonableness of the by-laws involved. Apart from the
impractical results that would ensue from such arrangement, it would be inconsistent with Gokongwei's
primary motive in running for board membership — which is to protect his investments in San Miguel
Corporation. More important, such a proposed norm of conduct would be against all accepted principles
underlying a director's duty of fidelity to the corporation, for the policy of the law is to encourage and enforce
responsible corporate management.

3. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business
transactions of the corporation and minutes of any meeting shall be open to the inspection of any director,
member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of the
corporation's books and records is based upon their ownership of the assets and property of the corporation.
It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be
termed an equitable ownership, a beneficial ownership, or a quasi-ownership. This right is predicated upon
the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by
statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest
as a stockholder and for some purpose germane thereto or in the interest of the corporation. In other words,
the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful
in character and not inimical to the interest of the corporation. The "general rule that stockholders are
entitled to full information as to the management of the corporation and the manner of expenditure of its
funds, and to inspection to obtain such information, especially where it appears that the company is being
mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the
stockholders to the exclusion of others." While the right of a stockholder to examine the books and records of
a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the books and
records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing.
Stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct
of the management, determine the financial condition of the corporation, and generally take an account of the
stewardship of the officers and directors. herein, considering that the foreign subsidiary is wholly owned by
San Miguel Corporation and, therefore, under Its control, it would be more in accord with equity, good faith
and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records
of the corporation as extending to books and records of such wholly owned subsidiary which are in the
corporation's possession and control.

4. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or
business or for any purpose other than the main purpose for which it was organized" provided that its Board
of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to
exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate
purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done
solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the
stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. As
stated by the corporation, the purchase of beer manufacturing facilities by SMC was an investment in the
same business stated as its main purpose in its Articles of Incorporation, which is to manufacture and market
beer. It appears that the original investment was made in 1947-1948, when SMC, then San Miguel Brewery,
Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and
marketing of San Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the
organization of SMI in Bermuda as a tax free reorganization. Assuming arguendo that the Board of Directors
of SMC had no authority to make the assailed investment, there is no question that a corporation, like an
individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or
other agents. This is true because the questioned investment is neither contrary to law, morals, public order
or public policy. It is a corporate transaction or contract which is within the corporate powers, but which is
defective from a purported failure to observe in its execution the requirement of the law that the investment
must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. This
requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was
enacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defect
which it may have had at the outset. Besides, the investment was for the purchase of beer manufacturing and
marketing facilities which is apparently relevant to the corporate purpose. The mere fact that the corporation
submitted the assailed investment to the stockholders for ratification at the annual meeting of 10 May 1977
cannot be construed as an admission that the corporation had committed an ultra vires act, considering the
common practice of corporations of periodically submitting for the ratification of their stockholders the acts
of their directors, officers and managers.

5. POWER TO SELL OR DISPOSE ASSETS

CASE:
PENA VS CA
FACTS:

PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the three lots in dispute. PAMBUSCO
mortgaged the lots to the Development Bank of the Philippines (DBP), which were later on foreclosed.

Rosita Peña was awarded the lots in a foreclosure sale for being the highest bidder. The certificate of sale was
later issued to her and registered in her name.

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

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

Meanwhile, a case involving the validity of the sale to the spouses Yap was pending, and despite the
protestations of Peña as to validity of the PAMBUSCO's assignment of the right of redemption, the lots were
somehow registered in the name of spouses Yap. Despite the registration of the lots to spouses Yap, Peña
retained possession of the property.
Spouses Yap sought to recover the possession of the lots from Peña. The latter countered that she is now the
legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by
the DBP against PAMBUSCO and no valid redemption having been effected within the period provided by
law.

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

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

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

Issue: W/N there Peña is entitled to the lots.

Ruling: Yes.

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

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

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

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

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

Further, under the Corporation Law, the sale or disposition of any and/or substantially all properties of the
corporation 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.

ISLAMIC DIRECTORATE VS CA
FACTS:
1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES ("IDP") was incorporated with the primary
purpose of establishing a mosque, school, and other religious infrastructures in Quezon City.

IDP purchased a 49,652-square meter lot in Tandang Sora, QC, which was covered by TCT Nos. RT-26520
(176616) and RT-26521 (170567).

When President Marcos declared martial law in 1972, most of the members of the 1971 Board of Trustees
("Tamano Group")flew to the Middle East to escape political persecution.

Thereafter, two contending groups claiming to be the IDP Board of Trustees sprung: the Carpizo group and
Abbas group.

In a suit between the two groups, SEC rendered a decision in 1986 declaring both groups to be null and void.
SEC recommeded that the a new by-laws be approved and a new election be conducted upon the approval of
the by-laws. However, the SEC recommendation was not heeded.

In 1989, the Carpizo group passed a Board Resolution authorizing the sale of the land to Iglesia Ni Cristo
("INC"), and a Deed of Sale was eventually executed.

In 1991, the Tamano Group filed a petition before the SEC questioning the sale.

Meanwhile, INC filed a suit for specific performance before RTC Branch 81 against the Carpizo group. INC also
moved to compel a certain Leticia Ligon (who is apparently the mortgagee of the lot) to surrender the title.

The Tamano group sought to intervene, but the intervention was denied despite being informed of the
pending SEC case. In 1992, the Court subsequently ruled that the INC as the rightful owner of the land, and
ordered Ligon to surrender the titles for annotation. Ligon appealed to CA and SC, but her appeals were
denied.

In 1993, the SEC ruled that the sale was null and void . On appeal CA reversed the SEC ruling.

ISSUE: W/N the sale between the Carpizo group and INC is null and void.

HELD: YES.

Since the SEC has declared the Carpizo group as a void Board of Trustees, the sale it entered into with INC is
likewise void. Without a valid consent of a contracting party, there can be no valid contract.

In this case, the IDP, never gave its consent, through a legitimate Board of Trustees, to the disputed Deed of
Absolute Sale executed in favor of INC. Therefore, this is a case not only of vitiated consent, but one where
consent on the part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale
is void and produces no effect whatsoever.

Further, the Carpizo group failed to comply with Section 40 of the Corporation Code, which provides that: " ...
a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage,
pledge or otherwise dispose of all or substantially all of its property and assets... when authorized by the vote
of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-
stock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholders' or members'
meeting duly called for the purpose...."

The subject lot constitutes the only property of IDP. Hence, its sale to a third-party is a sale or disposition of
all the corporate property and assets of IDP. For the sale to be valid, the majority vote of the legitimate Board
of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have
been obtained. These twin requirements were not met in the case at bar.

6. POWER TO PURCHASE OWN SHARES

SEC. 40. Power to Acquire Own Shares. – Provided that the corporation has unrestricted retained earnings in
its books to cover the shares to be purchased or acquired, a stock corporation shall have the power to
purchase or acquire its own shares for a legitimate corporate purpose or purposes, including the following
cases: (a) To eliminate fractional shares arising out of stock dividends; (b) To collect or compromise an
indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase
delinquent shares sold during said sale; and (c) To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code.

CASE:
BOMAN ENVIRONMENTAL VS CA
FACTS:

Respondent Fajilan offered in writing to resign as President of petitioner BEDECO and to sell to the
company all his shares, rights, and interests therein plus the transfer to him of the company’s Isuzu truck
which he had been using. The Board of Directors approved his resignation and promised to pay him on a
staggered basis. BEDECO was able to pay twice but defaulted in paying the balance. Respondent Fajilan then
filed a complaint for collection which the trial court dismissed ruling that the controversy arose out of intra-
corporate relations hence SEC has jurisdiction. On appeal, CA ruled for respondent Fajilan.

ISSUE:

Whether or not SEC has jurisdiction in the exercise of respondent’s appraisal right.

HELD: YES.

Fajilan’s suit against the corporation to enforce the latter’s promissory note or compel the corporation to pay
for his shareholdings is cognizable by the SEC alone which shall determine whether such payment will not
constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation.
The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation
has unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a
legitimate corporate purpose as provided in Sections 41 and 122 of the Corporation Code.

The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine
which means that the capital stock, property and other assets of a corporation are regarded as equity in trust
for the payment of corporate creditors. The reason is that creditors of a corporation are preferred over the
stockholders in the distribution of corporate assets. There can be no distribution of assets among the
stockholders without first paying corporate creditors. Hence, any disposition of corporate funds to the
prejudice of creditors is null and void.

7. POWER TO INVEST CORPORATE FUNDS IN ANOTHER CORPORATION OR BUSINESS OR FOR ANY OTHER
PURPOSE
SEC. 41. Power to Invest Corporate Funds in Another Corporation or Business or for Any Other Purpose. –
Subject to the provisions of this Code, a private corporation may invest its funds in any other corporation,
business, or for any purpose other than the primary purpose for which it was organized, when approved by a
majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, or by at least two thirds (2/3) of the members in the case of nonstock
corporations, at a meeting duly called for the purpose. Notice of the proposed investment and the time and
place of the meeting shall be addressed to each stockholder or member at the place of residence as shown in
the books of the corporation and deposited to the addressee in the post office with postage prepaid, served
personally, or sent electronically in accordance with the rules and regulations of the Commission on the use
of electronic data message, when allowed by the bylaws or done with the consent of the stockholders:
Provided, That any dissenting stockholder shall have appraisal right as provided in this Code: Provided,
however, That where the investment by the corporation is reasonably necessary to accomplish its primary
purpose as stated in the articles of incorporation, the approval of the stockholders or members shall not be
necessary.

CASE:
DELA RAMA VS MA-AO SUGAR
FACTS:
 Ramon De la Rama and others are suing the Ma-ao Sugar Coporation as stockholders on their own
behalf for alleged illegal ultravires acts, gross mismanagement, forfeiture of corporate rights
warranting dissolution and damages.
 After trial, lower court rendered decision in which not all the prayers were granted. One such prayer
is to hold the defendants the corporation, Amado Araneta and others liable for their ultra vires acts of
investing in Philippine Fiber Corporation, a company engaged in managing sugar bags.
 Lower court rendered decision in favor of Dela Rama stating that under sec 17 of corpo code before
investment it needs 2/3 vote of the stockholders, if the purpose of the corporation in which
investment is made is foreign to the purpose of the investing corporation.
 Corporation on the other hand contends that under corpo code sec 13, corp has the power to enter
into any obligation essential to the proper administration of corporate affairs and in pursuance of its
successful operation.
Issue:

w/n lower court is correct in favoring Dela rama

Held: Yes.

SC explained by quoting Professor Guevarra of UP college of law:

“[Sec. 13] Power to acquire or dispose of shares or securities. — A private corporation, in order to accomplish
its purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation
Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other
evidences of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the
corporate purpose, does not need the approval of the stockholders; but when the purchase of shares of
another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the
vote of approval of the stockholders is necessary. In any case, the purchase of such shares or securities must
be subject to the limitations established by the Corporation Law

“[Sec. 17-½] Power to invest corporate funds. — A private corporation has the power to invest its corporate
funds in any other corporation or business, or for any purpose other than the main purpose for which it was
organized, provided that 'its board of directors has been so authorized in a resolution by the affirmative vote
of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting
power on such a proposal at a stockholders' meeting called for that purpose,' and provided further, that no
agricultural or mining corporation shall in anywise be interested in any other agricultural or mining
corporation. When the investment is necessary to accomplish its purpose or purposes as stated in it
articles of incorporation, the approval of the stockholders is not necessary.”

Therefore, the SC agrees with the lower court ruling. The investment by a sugar central in the equity of a
sugar bag manufacturing company falls within the implied powers of the sugar central as part of its primary
purpose and does not need ratification by the stockholders.

1. Power to declare dividends (sec 42 of RCC)

2. Power to enter into a management contract (sec 43 rcc)

1. Ultra Vires Acts (section 44 of the RCC)

a. Types of Ultra Vires Acts
b. Test to Determine Ultra Vires
Montelibano v. Bacolod-Murcia 1962

Facts:

 Montelibano et al. are sugar planters adhered to the Bacolod-Murcia Milling Co., Inc’s sugar central
mill under identical milling contracts originally executed in 1919. In 1936, it was proposed to execute
amended milling contracts, increasing the planters’ share of the manufactured sugar, besides other
concessions. To this effect, a printed AmendedMilling Contract form was drawn up.
 The Board of Directors of Bacolod-Murcia Milling Co., Inc. adopted a resolution granting further
concessions to the planters over and above those contained in the printed Amended Milling Contract
on August 10, 1936.
 The printed Amended Milling Contract was signed by the Appellants on September 10, 1936, but a
copy of the resolution was not attached to the printed contract until April 17, 1937.
 In 1953, the appellants initiated an action, contending that 3 Negros sugar centrals had already
granted increased participation to their planters, and that under paragraph 9 of the resolution of
August 20, 1936, the appellee had become obligated to grant similar concessions to the appellants
herein.
 The Bacolod-Murcia Milling Co., inc., resisted the claim, urging that the resolution in question was
null and void ab initio, being in effect a donation that was ultra vires and beyond the powers of the
corporate directors to adopt.
Issue: was the act of the BOD ultra vires?

Held: NO.

The test to be applied is whether the act in question is in direct and immediate furtherance of the
corporation's business, fairly incident to the express powers and reasonably necessary to their exercise. If so,
the corporation has the power to do it; otherwise, not.

(The Bacolod-Murcia Milling Co., Inc. is ordered to pay appellants the increase of participation in the milled
sugar in accordance with paragraph 9 of the Resolution of August 20, 1936.)

As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and
whether or not it will cause losses or decrease the profits of the central, the court has no authority to review
them.
Xx It is a well-known rule of law that questions of policy or of management are left solely to the honest
decision of officers and directors of a corporation, and the court is without authority to substitute its
judgment of the board of directors; the board is the business manager of the corporation, and so long as it
acts in good faith its orders are not reviewable by the courts.

It must be remembered that the controverted resolution was adopted by appellee corporation as a
supplement to, or further amendment of, the proposed milling contract, and that it was approved on August
20, 1936, twenty-one days prior to the signing by appellants on September 10, of the Amended Milling
Contract itself; so that when the Milling Contract was executed, the concessions granted by the disputed
resolution had been already incorporated into its terms.

c. Cases
Pirovano v. De La Rama Streamship 1954

Facts:

Plaintiffs herein are the minor children of the late Enrico Pirovano represented by their mother and judicial
guardian Estefania R. Pirovano. They seek to enforce certain resolutions adopted by the Board of Directors
and stockholders of the defendant company giving to said minor children of the proceeds of the insurance
policies taken on the life of their deceased father Enrico Pirovano with the company as beneficiary. Defendant
is a corporation duly organized in accordance with law with an authorized capital of P500,000, divided into
5,000 shares, with a par value of P100 each share. Enrico Pirovano became the president of the defendant
company and under his management the company grew and progressed until it became a multimillion
corporation by the time Pirovano was executed by the Japanese during the occupation.

In the meantime, Don Esteban de la Rama, who practically owned and controlled the stock of the defendant
corporation, distributed his shareholding among his five daughters. One of the daughters was married to
Enrico Pirovano. Meanwhile, a grant was made in favour of the Pirovano children which constitutes the
proceeds of the insurance policies taken on his life by the defendant company. Out of the proceeds of these
policies the sum of P400,000 be set aside for the minor children of the deceased, said sum of money to be
convertible into 4,000 shares of the stock of the Company, at par, or 1,000 shares for each child. However,
members of the family and Don Esteban did not realize that they would be actually giving to the Pirovano
children more than what they intended to give. If the Pirovano children would be given shares of stock in lieu
of the amount to be donated, the voting strength of the five daughters of Don Esteban in the company would
be adversely affected in the sense that Mrs. Pirovano would have a voting power twice as much as that of her
sisters.

The Board of Directors of the De la Rama company, as a consequence of the change of attitude of Don Esteban,
adopted a resolution changing the form of the donation to the Pirovano children from a donation of 4,000
shares of stock as originally planned into a renunciation in favor of the children of all the company's "right,
title, and interest as beneficiary in and to the proceeds of the abovementioned life insurance policies", subject
to the express condition that said proceeds should be retained by the company as a loan.
On March 8, 1951, at a stockholders' meeting convened and majority of the stockholders' voted to revoke the
resolution approving the donation to the Pirovano children.

Issue:

Can defendant corporation give by way of donation the proceeds of said insurance policies to the minor
children of the late Enrico Pirovano under the law or its articles of corporation, or is that donation an ultra
vires act?

Held: no it is not ultra vires.

We find that the corporation was given broad and almost unlimited powers to carry out the purposes for
which it was organized among them, (1) "To invest and deal with the moneys of the company not
immediately required, in such manner as from time to time may be determined" and, (2) "to aid in any other
manner any person, association, or corporation of which any obligation or in which any interest is held by
this corporation or in the affairs or prosperity of which this corporation has a lawful interest."

The world deal is broad enough to include any manner of disposition, and refers to moneys not immediately
required by the corporation, and such disposition may be made in such manner as from time to time may be
determined by the corporations. Under the second broad power, that is, to aid in any other manner any
person in the affairs and prosperity of whom the corporation has a lawful interest, the record of this case is
replete with instances which clearly show that the corporation knew well its scope and meaning so much so
that, with the exception of the instant case, no one has lifted a finger to dispute their validity.

It may perhaps be argued that the donation given to the children of the late Enrico Pirovano is so large and
disproportionate that it can hardly be considered a pension of gratuity that can be placed on a par with the
instances above mentioned, but this argument overlooks one consideration: the gratuity here given was not
merely motivated by pure liberality or act of generosity, but by a deep sense of recognition of the valuable
services rendered by the late Enrico Pirovano which had immensely contributed to the growth of the
corporation to the extent that from its humble capitalization it blossomed into a multi-million corporation
that it is today. Said donation was given not only because the company was so indebted to him that it saw fit
and proper to make provisions for his children, but it did so out of a sense of gratitude. Another is that Enrico
Pirovano was not only a high official of the company but was at the same time a member of the De la Rama
family, and the recipients of the donation are the grandchildren of Don Esteban de la Rama. This we, may say,
is the motivating root cause behind the grant of this bounty.

We do not see much difference between this definition of gratuity and a remunerative donation contemplated
in the Civil Code. In essence they are the same. A distinction should be made between corporate acts or
contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an
act which is contrary to law, morals, or public policy or public duty, and are, like similar transactions between
the individuals void. On the other hand, an ultra vires act is one outside the scope of the power conferred by
the legislature, and although the term has been used indiscriminately, it is properly distinguishable from acts
which are illegal, in excess or abuse of power, or executed in an unauthorized manner, or acts within
corporate powers but outside the authority of particular officers or agents.

Since it is not contended that the donation under consideration is illegal we cannot but logically conclude,
that said donation, even if ultra vires in the supposition we have adverted to, is not void, and if voidable its
infirmity has been cured by ratification and subsequent acts of the defendant corporation. The defendant
corporation, therefore, is now prevented or estopped from contesting the validity of the donation. To allow
the corporation to undo what it has done would only be most unfair but would contravene the well-settled
doctrine that the defense of ultra vires cannot be set up or availed of in completed transactions.

Luneta Motors v. AD Santos 1962

Facts:

 Nicolas Concepcion has a certificate of Public convenience acquired before the war to operate 27
units of taxicab in Manila. Concepcion has a loan with Luneta and he mortgage the certificate to
Luneta. However concepcion acquired a second loan with Rehabilitation Finance and mortgage the
same certificate.
 On the 2nd loan, upon failure to pay, this was sold to AD santos at public auction. Subsequently, the
first loan also failed and the lower court sold the same certificate thru public auction to Luneta
motors.
 Luneta motors applied for the approval of sale. However, AD santos opposed primarily arguing that
Luneta is not authorized to engage in the taxicab buinsess as a common carrier.
 The commission denied the application. Under AOI of luneta, it had no authority to engage in taxicab
business or operate as a common carrier.
Issue:

w/n luneta corporation can acquire the certificate and operate as a common carrier?

Held:

No.

Under the Corporation Law, , a corporation may purchase, hold, etc., and otherwise deal in such real and
personal property is the purpose for which the corporation was formed may permit, and the transaction of its
lawful business may reasonably and necessarily require. Luneta Motor’s Corporate purposes basically allow it
to operate and otherwise deal in automobiles and automobile accessories. Although it may also engage in the
transportation of persons by water, this does not mean that it may engage in the business of land
transportation, which is an entirely different line of business. Contrary to Luneta Motor’s contentions, its
Articles of Incorporation is precisely the best evidence that it has no authority at all to engage in the business
of land transportation and operate a taxicab service. As such it follows that it may not acquire an CPC to
operate a taxicab service.
Republic v. Acoje Mining 1963

Facts:

 On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of Posts requesting the opening
of a post, telegraph and money order offices at its mining camp at Sta. Cruz, Zambales, to service its
employees and their families that were living in said camp.
 The Director of Posts acted on their request, and required that the company assume direct
responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any
act of dishonesty, carelessness or negligence on the part of the employee of the company who is
assigned to take charge of the post office.
 The Board of Directors of Acoje passed a resolution stating that: “"That the requirement of the
Bureau of Posts that the Company should accept full responsibility for all cash received by the
Postmaster be complied with, and that a copy of this resolution be forwarded to the Bureau of Posts."
 The post office branch was opened on Oct. 13, 1949.
 . On May 11, 1954, the postmaster, an employee of Acoje, went on a 3 day leave and never returned
 Acoje informed the Manila Post Office and upon auditing, it was found that P13,867.24 was missing.
 The post office demanded payment and filed a suit with the CFI of Manila for the amount but Acoje
denied liability alleging that the Board of Directors’ act in assigning a postmaster was ultra vires;
also, the company alleged that their liability was merely that of a guarantor.
 CFI of Manila ruled in favor of the Post Office but only to the amount of P9,515.25 (since they could
only present evidence for such amount)
 Acoje appealed to SC
Issue;

w/n the BOD acts were ultra vires?

Held:

No. The act covers a subject which concerns the benefit, convenience, and welfare of the company’s
employees and their families. There are certain corporate acts that may be performed outside of the scope of
the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation.

The claim that the resolution adopted by the board of directors of appellant company is an ultra vires act
cannot also be entertained it appearing that the same covers a subject which concerns the benefit,
convenience and welfare of its employees and their families.

Here it is undisputed that the establishment of the local post office is a reasonable and proper adjunct to the
conduct of the business of appellant company.

There are certain corporate acts that may be performed outside of the scope of the powers expressly
conferred if they are necessary to promote the interest or welfare of the corporation.
What is an ultra vires act? an ultra vires act is one committed outside the object for which a corporation is
created as defined by the law of its organization and therefore beyond the powers conferred upon it by law.

An ultra vires act is merely voidable. It can be enforced or validated if there are equitable grounds for taking
such action. Here it is fair that the resolution be upheld at least on the ground of estoppel.

Crisologo Jose v. CA 1989

Facts:

Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of marketing and sales; and
the president of the said corporation was Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in
accommodation of his clients, the spouses Jaime and Clarita Ong, a check drawn against Traders Royal Bank,
dated June 14, 1980, in the amount of P45,000.00 payable to Ernestina Crisologo-Jose. Since the check was
under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z.
Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of Mover
Enterprises was not available, Atty. Benares prevailed upon Santos, Jr., to sign the aforesaid check as an
alternate signatory, who did sign the same.

It appears that the check to Crisologo-Jose in consideration of the waiver or quitclaim by said defendant over
a certain property which the Government Service Insurance System (GSIS) agreed to sell to the clients of Atty.
Oscar Benares, the spouses Jaime and Clarita Ong, with the understanding that upon approval by the GSIS of
the compromise agreement with the spouses Ong, the check will be encashed accordingly. However, since the
compromise agreement was not approved within the expected period of time, the aforesaid check was
replaced by Atty. Benares with another Traders Royal Bank check dated August 10, 1980, in the same
amount. This replacement check was also signed by Atty. Benares and by Santos, Jr. When Jose deposited
this replacement check with her account, it was dishonored for insufficiency of funds. A subsequent
redepositing of the said check was likewise dishonored by the bank for the same reason.

Issue:

w/n mowers enterprises is liable for the bounced checks in favor of Crisologo

Held:

No.

The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on
the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be
only an accommodation party, does not include nor apply to corporations which are accommodation
parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration
and for the accommodation of another is ultra vires. Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an
accommodation party.

By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a
negotiable paper in the name of the corporation for the accommodation of a third person only if specifically
authorized to do so. Corollarily, corporate officers, such as the president and vice-president, have no power to
execute for mere accommodation a negotiable instrument of the corporation for their individual debts or
transactions arising from or in relation to matters in which the corporation has no legitimate concern. Since
such accommodation paper cannot thus be enforced against the corporation, especially since it is not
involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in logic
is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from
their acts in connection therewith.

Instead, Jose should direct her claim against Banares and Santos. Santos, however, is exculpated from
criminal liability under BP 22 for he successfully and legally consigned the amount of the check with the
Court within the reglementary period.

d. Ratification of Ultra Vires Acts

Carlos v. Mindoro Sugar 1932

Facts:

The Mindoro Sugar Company is a corporation constituted in accordance with the laws of the country and
registered on July 30, 1917. The Philippine Trust Company is another domestic corporation, registered on
October 21, 1917. In its articles of incorporation, some of its purposes are expressed thus:

"To acquire by purchase, subscription, or otherwise, and to invest in, hold, sell, or otherwise dispose of stocks,
bonds, mortgages, and other securities, or any interest in either, or any obligations or evidences of
indebtedness, of any other corporation or corporations, domestic or foreign.

On November 17, 1917, the board of directors of the Philippine Trust Company, adopted a resolution
authorizing its president, among other things, to purchase at par bonds in the value of P3,000,000 that the
Mindoro Sugar Company was about to issue, and to resell them, with or without the guarantee of said trust
corporation, at a price not less than par, and to guarantee to the Philippine National Bank the payment of the
indebtedness to said bank by the Mindoro Sugar Company up to P2,000,000.

In pursuance of this resolution, on December 21, 1917, the Mindoro Sugar Company executed in favor of the
Philippine Trust Company the deed of trust transferring all of its property to it in consideration of the bonds
it had issued to the value of P3,000,000. In consequence of this transaction, the bonds, with their coupons
were placed on the market and sold by the Philippine Trust Company. The Philippine Trust Company paid the
appellant, upon presentation of the coupons, the stipulated interest from the date of their maturity until the
1st of July, 1928, when it stopped payments; and thenceforth it alleged that it did not deem itself bound to pay
such interest or to redeem the obligation because the guarantee given for the bonds was illegal and void.

Issue: Whether the Philippine Trust Company acquired the four bonds in question, and whether as such it

bound itself legally and acted within its corporate powers in guaranteeing them.

Ruling:

This question was answered in the affirmative. It is not ultra vires for a corporation to enter into contracts of
guaranty or suretyship where it does so in the legitimate furtherance of its purposes and business. And it is
well settled that where a corporation acquires commercial paper or bonds in the legitimate transaction of its
business it may sell them, and in furtherance of such a sale it may, in order to make them the more readily
marketable, indorse or guarantee their payment.

"Whenever a corporation has the power to take and dispose of the securities of another corporation, of
whatsoever kind, it may, for the purpose of giving them a marketable quality, guarantee their payment, even
though the amount involved in the guaranty may subject the corporation to liabilities in excess of the limit of
indebtedness which it is authorized to incur. A corporation which has power by its charter to issue its own
bonds has power to guarantee the bonds of another corporation, which has been taken in payment of a debt
due to it, and which it sells or transfers in payment of its own debt, the guaranty being given to enable it to
dispose of the bond to better advantage. And so guaranties of payment of bonds taken by a loan and trust
company in the ordinary course of its business, made in connection with their sale, are not ultra vires, and are
binding.

When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it
was made, it will, in the absence of proof to the contrary, be presumed to be valid. Corporations are presumed
to contract within their powers. The doctrine of ultra vires, when invoked for or against a corporation, should
not be allowed to prevail where it would defeat the ends of justice or work a legal wrong. It has been
intimated according to section 121 of the Corporation Law, the Philippine Trust Company, as a banking
institution, could not guarantee the bonds to the value of P3,000,000 because this amount far exceeds its
capital of P1,000,000 of which only one-half has been subscribed and paid.

This difficulty is easily obviated by bearing in mind that the banking operations are not the primary aim of
said corporation, which is engaged essentially in the trust business, and that the prohibition of the law is not
applicable to the Philippine Trust Company, for the evidence shows that Mindoro Sugar Company transferred
all its real property, with the improvements, to it, and the value of both, which surely could not be less than
the value of the obligation guaranteed, became a part of its capital and assets; in other words, with the value
of the real property transferred to it, the Philippine Trust Company had enough capital and assets to meet the
amount of the bonds guaranteed with interest thereon.
 2. Liability of Torts or Crimes
a. For torts
PNB v. CA 1978

Facts:

Plaintiff, Philam gen as surety, issued a bond in favor of Tapnio, to secure the latter’s obligation to PNB
2371.79 plus 12% interest. Philamgen paid the said amount to PNB and seek indemnity from Tapnio. Tapnio
refused to pay alleging that he was not liable to the bank because due to the negligence of the latter the
contract of lease w/ Tuazon was rescind which amounts to 2800.

Tapnio mortgage his standing crops and sugar quota to PNB. Tapnio agreed to leased the sugar quota, in
excess of his need to Tuazon which was approved by the branch and vice president of the PNB in the amount
of P2.80 per picul. However, the bank’s board of directors disapproved the lease, stating that the amount
should be P3.00 per picul, its market value. Tuazon ask for reconsideration to the board which was not acted
by the board, so the lease was not consummated resulting to the loss of P2,800, which could have been
earned by Tapnio.

The Trial court and CA ruled that the bank was liable to Tapnio. Thus this petition

Issue : WON PNB is liable to tapnio

Held:

Yes pnb is liable to Tapnio.

PNB argue that it has a right both under its own Charter and under the Corporation Law, to approve or
disapprove the said lease of sugar quota and in the exercise of that authority.

The SC said that time is of the essence in the approval of the lease of sugar quota allotments, since the same
must be utilized during the milling season. There was no proof that there was any other person at that time
willing to lease the sugar quota allotment of private respondents for a price higher than P2.80 per picul. Also,
Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on
standing crops, assignment of leasehold rights and interests on her properties, and surety bonds and that she
had apparently "the means to pay her obligation to the Bank, there was NO REASONABLE BASIS for the Board
of Directors of petitioner to have rejected the lease agreement.
While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota
was mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the
protection of the interest of private respondents. The law makes it imperative that every person "must in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith. Certainly, it knew that the agricultural year was about to expire, that by its
disapproval of the lease private respondents would be unable to utilize the sugar quota in question.

Under Article 21 of the New Civil Code, "any person who wilfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the latter for the damage." This
grants adequate legal remedy for the untold number of moral wrongs which is impossible for human
foresight to specifically provide in the statutes.

b. Criminal Liability
People v. Tan Boon Kong 1930

Facts:

On and during the four quarters of the year 1924, in Municipality of Iloilo, Province of Iloilo, the defendant
Tan Boon Kong, as manager of the Visayan General Supply Co., Inc., a corporation organized under the laws of
the Philippine Islands and engaged in the purchase and sale of sugar, `bayon,’ coprax, and other native
products and as such subject to the payment of internal-revenue taxes upon its sales, declared in 1924 for
purpose of taxation only the sum of P2,352,761.94, when in truth and in fact, and the accused knew that the
total gross sales of said corporation during that year amounted to P2,543,303.44, thereby failing to declare
P190,541.50, and voluntarily not paying the percentage taxes the sum of P2,960.12, corresponding to 1½ per
cent of said undeclared sales.

Issue: WON the defendant, as manager of the corporation, is criminally liable for violation of the tax law for
the benefit of said corporation

Held:

A corporation can act only through its officers and agents, and where the business itself involves a violation of
the law, all who participate in it are liable

In case of State vs. Burnam (71 Wash., 199), the court hold that the manager of a dairy corporation was
criminally liable for the violation of a statute by the corporation though he was not present when the offense
was committed.

In the present case the information alleges that the defendant was the manager of a corporation which was
engaged in business as a merchant, and as such manager, he made a false return, for purposes of taxation, of
the total amount of sales made by said corporation during the year 1924. As the filing of such false return
constitutes a violation of law, the defendant, as the author of the illegal act, must necessarily answer for its
consequences, provided that the allegations are proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case
will be returned to said court for further proceedings not inconsistent with our view as hereinbefore stated.

Sia v. People 1983

Facts:

Petitioner, Jose O. Sia, was the president and general manager of Metal Manufacturing of the Philippines
(MEMAP). He was convicted of estafa for his failure to return the cold rolled steel sheets or account for the
proceeds of those which were sold, to Continental Bank, herein complainant. Petitioner contended that he
cannot be made liable for the crime charged as he only acted for and in behalf of MEMAP as its president.

ISSUE: Whether petitioner could be held liable for estafa.

Held:

The Court ruled in the negative.

The case of People vs. Tan Boon Kong (54 Phil. 607) provides for the general principle that for crimes
committed by a corporation, the responsible officers thereof would personally bear the criminal liability as a
corporation is an artificial person, an abstract being. However, the Court ruled that such principle is not
applicable in this case because the act alleged to be a crime is not in the performance of an act directly
ordained by law to be performed by the corporation. The act is imposed by agreement of parties, as a practice
observed in the usual pursuit of a business or a commercial transaction. The offense may arise, if at all, from
the peculiar terms and condition agreed upon by the parties to the transaction, not by direct provision of the
law. In the absence of an express provision of law making the petitioner liable for the criminal offense
committed by the corporation of which he is a president as in fact there is no such provisions in the Revised
Penal Code under which petitioner is being prosecuted, the existence of a criminal liability on his part may
not be said to be beyond any doubt. In all criminal prosecutions, the existence of criminal liability for which
the accused is made answerable must be clear and certain. Further, the civil liability imposed by the trust
receipt is exclusively on the Metal Company. Speaking of such liability alone, the petitioner was never
intended to be equally liable as the corporation. Without being made so liable personally as the corporation
is, there would then be no basis for holding him criminally liable, for any violation of the trust receipt.

c. Moral Damages
ABS-CBN v. CA 1999
Facts:

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby VIVA gave ABS-CBN an exclusive
right to exhibit some VIVA films. According to the agreement, ABS-CBN shall have the right of first refusal to
the next 24 VIVA films for TV telecast under such terms as may be agreed upon by the parties, however, such
right shall be exercised by ABS-CBN from the actual offer in writing.

Sometime in December 1991, VIVA, through Vicente Del Rosario (Executive Producer), offered ABS-CBN
through VP Charo Santos-Concio, a list of 3 film packages from which ABS-CBN may exercise its right of first
refusal. ABS-CBN, however through Mrs. Concio, tick off only 10 titles they can purchase among which is the
film “Maging Sino Ka Man” which is one of the subjects of the present case, therefore, it did not accept the said
list as per the rejection letter authored by Mrs. Concio sent to Del Rosario.

Subsequently, Del Rosario approached Mrs. Concio with another list consisting of 52 original movie titles and
104 re-runs, proposing to sell to ABS-CBN airing rights for P60M (P30M in cash and P30M worth of television
spots). Del Rosario and ABS-CBN’s General Manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant
in QC to discuss the package proposal but to no avail.

Four days later, Del Rosario and Mr. Graciano Gozon, Senior VP of Finance of Republic Broadcasting
Corporation (RBS/Channel 7) discussed the terms and conditions of VIVA’s offer. A day after that, Mrs. Concio
sent the draft of the contract between ABS-CBN and VIVA which contained a counter-proposal covering 53
films for P35M. VIVA’s Board of Directors rejected the counter-proposal as it would not sell anything less than
the package of 104 films for P60M. After said rejection, ABS-CBN closed a deal with RBS including the 14 films
previously ticked off by ABS-CBN.

Consequently, ABS-CBN filed a complaint for specific performance with prayer for a writ of preliminary
injunction and/or TRO against RBS, VIVA and Del Rosario. RTC then enjoined the latter from airing the
subject films. RBS posted a P30M counterbond to dissolve the injunction. Later on, the trial court as well as
the CA dismissed the complaint holding that there was no meeting of minds between ABS-CBN and VIVA,
hence, there was no basis for ABS-CBN’s demand, furthermore, the right of first refusal had previously been
exercised.

Hence, the present petition, ABS-CBN argued that an agreement was made during the meeting of Mr. Lopez
and Del Rosario jotted down on a “napkin” (this was never produced in court). Moreover, it had yet to fully
exercise its right of first refusal since only 10 titles were chosen from the first list. As to actual, moral and
exemplary damages, there was no clear basis in awarding the same.

Issue: WON a contract was perfected between ABS-CBN and VIVA and WON moral damages may be awarded
to a corporation
Held: Both NO.

Ratio: Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of
payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and
without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired
which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the offer.

After Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN to discuss the package of films, ABS-CBN, sent
through Ms. Concio, counter-proposal in the form a draft contract. This counter-proposal could be nothing
less than the counteroffer of Mr. Lopez during his conference with Del Rosario. Clearly, there was no
acceptance of VIVA’s offer, for it was met by a counter-offer which substantially varied the terms of the offer.

In the case at bar, VIVA through its Board of Directors, rejected such counter-offer. Even if it be conceded
arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no
proof whatsoever that Del Rosario had the specific authority to do so.

Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the
power to enter into contracts, are exercised by the Board of Directors. However, the Board may
delegate such powers to either an executive committee or officials or contracted managers. The
delegation, except for the executive committee, must be for specific purposes. Delegation to officers
makes the latter agents of the corporation; accordingly, the general rules of agency as to the binding effects of
their acts would apply. For such officers to be deemed fully clothed by the corporation to exercise a power of
the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to
accept ABS-CBN’s counter-offer was best evidenced by his submission of the draft contract to VIVA’s
Board of Directors for the latter’s approval. In any event, there was between Del Rosario and Lopez III
no meeting of minds.

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed
to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding
agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board
of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever
agreement Lopez and Del Rosario arrived at could not ripen into a valid contact binding upon Viva.

However, the Court find for ABS-CBN on the issue of damages. Moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.
The award of moral damages cannot be granted in favor of a corporation because, being an artificial
person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It
cannot, therefore, experience physical suffering and mental anguish, which can be experienced only
by one having a nervous system. The statement that a corporation may recover moral damages if it “has a
good reputation that is debased, resulting in social humiliation” is an obiter dictum. On this score alone the
award for damages must be set aside, since RBS is a corporation.

Filipinas Broadcasting v. AMEC-BCCM 2005

Facts:

Expos is a radio documentary program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre
(Alegre). Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
(FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol areas.

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from
students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of
Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita
Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for damages against FBNI, Rima and
Alegre on 27 February 1990.

The complaint further alleged that AMEC is a reputable learning institution. With the supposed expose, FBNI,
Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago)
reputation. AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the
selection and supervision of its employees, particularly Rima and Alegre.

On 14 December 1992, the trial court rendered a Decision] finding FBNI and Alegre liable for libel except
Rima. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the
selection and supervision of its employees.

The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima
solidarily liable with FBNI and Alegre.

Issue:

w/n the broadcasts are libelous

w/n AMEC is entitled to moral damages

Held:

Yes libelous. Had the comments been an expression of opinion based on established facts, it is immaterial that
the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts. However, the
comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and
remain libelous per se.

Second issue:

FBNI contends that AMEC is not entitled to moral damages because it is a corporation.

A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the award of moral
damages. However, the Courts statement in Mambulao that a corporation may have a good reputation which,
if besmirched, may also be a ground for the award of moral damages is an obiter dictum.

Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any other form of defamation and
claim for moral damages.

Moreover, where the broadcast is libelous per se, the law implies damages. In such a case, evidence of an
honest mistake or the want of character or reputation of the party libeled goes only in mitigation of
damages.[46] Neither in such a case is the plaintiff required to introduce evidence of actual damages as a
condition precedent to the recovery of some damages. In this case, the broadcasts are libelousper se. Thus,
AMEC is entitled to moral damages.

However, we find the award of P300,000 moral damages unreasonable. The record shows that even though
the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its
reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000.

FINANCIAL STRUCTURE

Debt Security

Lirag textile Mills v. SSS 1987

Facts:
  SSS respondent and Lirag petitioner entered into a purchased agreement which Respondent agreed
to purchase preferred stocks of petitioner worth 1M subject to certain conditions.
 Basilio Lirag, president of Lirag signed the agreement as a surety to guarantee the redemption of the
stocks, the payment of dividends and other obligations.
 Pursuant to the agreement, SSS paid Lirag 500k on two occasions and Lirag issued 5k preferred
stocks with a par value of 100 pesos.
 After sending SSS sent demand letters, Lirag and Basilio still made no redemption nor made dividend
payments.
 SSS filed an action for specific performance and damges
 Lirag contends that there is no obligation on their part to redeem the stock certificates since SSS is
still a preferred stockholder of the company and such redemption is dependent upon the financial
ability of the company.
 On the part of Basilio, he contends that his liability only arises if the company is liable and does not
perform its obligations under the agreement.
Issue:

w/n the purchase agreement entered into is a debt instrument

Held:

Yes.

The purchase agreement is a debt nstrument. The terms and conditions show that parties intended the
repurchase of preferred shares on the respective scheduled dates to be an absolute obligation, which does not
depend on the financial ability of the corporation.

The absolute obligation of the corporation is manifested on the fact that a surety was required to see to it that
the obligation is fulfilled in the event the principal debtor’s inability to do so.

It cannot be said that SSS is a preferred stockholder. The rights given by the purchase agreement to SSS are
not rights enjoyed by ordinary stockholders. Since there was condition that failure to repurchase the stocks
on the scheduled dates renders the entire obligation due and demandable with interest. These features
clearly show that intent of the parties to be bound therein as debtor and creditor and not as a corporation and
stockholder.

Equity Security

Doctrine: The shares of a banking corporation do not constitute an indebtedness of the corporation to the
stockholder and, therefore, the stockholder is not a creditor of the bank for such shares. The indebtedness of
a shareholder to a banking corporation cannot be compensated with the amount of his shares, there being no
relation of creditor and debtor with respect to such shares

Garcia v. Lim Chu Sing

Facts:
Lim Chu Sing is the owner of shares of stock of the Mercantile Bank of China amounting to P10,000. The bank
is now under liquidation.

Lim Chu Sing is a surety of Lim Cuan Sy. The principal Lim Cuan Sy had an account with the bank in the form
of trust receipts, which were guaranteed by Lim Chu Sing as surety and with chattel mortgage securities.

Since Lim Cuan Sy failed to comply with his obligations with the bank, Lim Chu Sing, as a surety, was required
to sign a promissory note.

On June 20, 1930, Lim Chu Sing executed a promissory note in the amount of P19,605.17, with interest at 6
percent per annum, in favor of Mercantile Bank of China.

Lim Chu Sing made several partial payments, but left an unpaid balance of P9,105.17

The bank foreclosed the chattel mortgages and privately sold the property without Lim Chu Sing’

s knowledge andconsent. The proceeds of the sale of the mortgaged chattels together with other payments
were applied to theamount of the promissory note, leaving the balance which the plaintiff now seeks to
collect.

Lim Chu Sing is alleging that the debt of P9,106.17 may be compensated with his credit amounting to
P10,000with the Mercantile Bank of China.

Issue: w/n the 10k representing Lim Chu Sing’s value of the shares of stock with the bank may be used to
compensate the debt of 9,105.17?

Held:

No. The shaes of stock may not be used to compensate for the debt since there is no creditor-debtor
relationship with respect to the shares.

The shares of a banking corporation do not constitute an indebtedness of the corporation to the
stockholder and, therefore, the stockholder is not a creditor of the bank for such shares.
The indebtedness of a shareholder to a banking corporation cannot be compensated with the amount
of his shares, there being no relation of creditor and debtor with respect to such shares.

A share of stock is not an indebtedness to the owner nor evidence of indebtedness, therefore, it is not a credit.

Stockholders, as such, are not creditors of the corporation. It is the prevailing doctrine of the American courts,
repeatedly asserted in the broadest terms, that the capital stock of a corporation is a trust fund to be used
more particularly for the security of creditors of the corporation, who presumably deal with it on the credit of
its capital stock.

Therefore, the defendant-appellant Lim Chu Sing not being a creditor of the Mercantile Bank of China,
although the latter is a creditor of the former, there is no sufficient ground to justify a compensation. It is only
Lim Chu Sing who is the debtor of the bank, not the other way around.

(As to the difference of debt and equity instruments)

Roy III v. Herbosa 2016

DOCTRINE: Section 11, Article XII of the Constitution, which provides: "No franchise, certificate, or any other
form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines
or to corporations or associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens.”

FACTS:

Petitioner Jose M. Roy III sought the reversal and setting aside of the Decision dated November 22, 2016,
which denied his petition, and declared that the Securities and Exchange Commission (SEC) did not commit
grave abuse of discretion in issuing Memorandum Circular No. 8, Series of 2013 (SEC-MC No. 8) as the same
was in compliance with, and in fealty to, the decision of the Court in Gamboa v. Finance Secretary Teves and
the resolution denying the Motion for Reconsideration therein. The grounds raised by movant are: He has the
requisite standing because this case is one of transcendental importance; The Court has the constitutional
duty to exercise judicial review over any grave abuse of discretion by any instrumentality of government; (3)
He did not rely on an obiter dictum; and The Court should have treated the petition as the appropriate device
to explain the Gamboa Decision.

The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution, which
provides: "No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of whose capital is owned by such citizens xxx."
ISSUE: Should the Motion for Reconsideration be granted?

RULING: No. The Court ruled that petitioners (movant and petitioners-in-intervention) failed to sufficiently
allege and establish the existence of a case or controversy and locus standi on their part to warrant the
Court's exercise of judicial review; the rule on the hierarchy of courts was violated; and petitioners failed to
implead indispensable parties such as the Philippine Stock Exchange, Inc. and Shareholders' Association of
the Philippines, Inc. Other than PLDT, the petitions failed to join or implead other public utility corporations
subject to the same restriction imposed by Section 11, Article XII of the Constitution. They should be afforded
due notice and opportunity to be heard, lest they be deprived of their property without due process.

The Court disposed of the issue on whether the SEC gravely abused its discretion in ruling that respondent
PLDT is compliant with the limitation on foreign ownership under the Constitution and other relevant laws as
without merit. The Court reasoned that what the Constitution requires is "[f]ull [and legal] beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights xxx
must rest in the hands of Filipino nationals xxx."And, precisely that is what SEC-MC No. 8 provides, viz.: "xxx
For purposes of determining compliance [with the constitutional or statutory ownership], the required
percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock
entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether
or not entitled to vote xxx."

In construing "full beneficial ownership, the Implementing Rules and Regulations of the Foreign Investments
Act of 1991 (FIA-IRR) provides: For stocks to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the
stocks, coupled with appropriate voting rights is essential. It bears repeating here that the Court in the
Gamboa Decision adopted the foregoing definition of the term "capital" in Section 11, Article XII of the 1987
Constitution in express recognition of the sensitive and vital position of public utilities both in the national
economy and for national security, so that the evident purpose of the citizenship requirement is to prevent
aliens from assuming control of public utilities, which may be inimical to the national interest. So long as
Filipinos have controlling interest of a public utility corporation, their decision to declare more dividends for
a particular stock over other kinds of stock is their sole prerogative - an act of ownership that would
presumably be for the benefit of the public utility corporation itself. Thus, as explained in the Decision:

In this regard, it would be apropos to state that since Filipinos own at least 60% of the outstanding shares of
stock entitled to vote directors, which is what the Constitution precisely requires, then the Filipino
stockholders control the corporation, i.e., they dictate corporate actions and decisions, and they have all the
rights of ownership including, but not limited to, offering certain preferred shares that may have greater
economic interest to foreign investors as the need for capital for corporate pursuits (such as expansion), may
be good for the corporation that they own. Surely, these "true owners" will not allow any dilution of their
ownership and control if such move will not be beneficial to them.
WHEREFORE, the subject Motion for Reconsideration is hereby DENIED WITH FINALITY. No further
pleadings or motions shall be entertained in this case. Let entry of final judgment be issued immediately