CORPORATION LAW – SECOND SET CASE DIGEST
iii. POWER TO DENY PRE-EMPTIVE RIGHTS
1. Benito vs. SEC
G.R. No. L-56655 July 25, 1983
NATURE: Petition for review by way of appeal from the
decision of the Securities and Exchange Commission
FACTS:
The Articles of Incorporation of the Jamiatul Philippine-
Al Islamia, Inc. (originally Kamilol Islam Institute,
Inc.), the private respondent, were filed in the SEC in
February 1959 and were approved in December 1964.
It had an authorized capital stock of P200,000 divided
into 20,000 shares at par value of P10 each. Of the
authorized capital stock, 8,058 shares worth
P80,580.00 were subscribed and fully paid for. The
petitioner, Datu Tagoranao Benito, subscribed to 460
shares worth P4,600.00.
On October 1975, the respondent corporation filed a
certificate of increase of capital stock from P200,0000
to P1M. The certificate states that P 191,560.00 worth
of shares were represented in the stockholders'
meeting held on November 25, 1975 at which time the
increase was approved and P110,980.00 worth of
shares were subsequently issued by the corporation
from the unissued portion of the authorized capital
stock of P200,000.00. Of the increased capital stock of
P1,000,000.00, P160,000.00 worth of shares were
subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A.
Lucman and Mrs. Moki-in Alonto.
On November 1976, Benito filed with the SEC a
petition alleging that the additional issue (worth
P110,980.00) of previously subscribed shares of the
corporation was made in violation of his pre-emptive
right to the additional issue and that the increase in
the authorized capital stock of the corporation from
P200,000.00 to P1,000,000.00 was illegal considering
that the stockholders of record were not notified of the
meeting where the proposed increase was in the
agenda. Petitioner wants to:
1. That the additional issue of shares of previously
authorized capital stock as well as the shares
issued from the increase in capital stock of
respondent corporation be cancelled;
2. That the secretary of respondent corporation be
ordered to register the 2,540 shares acquired by
him (petitioner) from Domocao Alonto and Moki-in
Alonto; and
3. That the corporation be ordered to render an
accounting of funds to the stockholders.
The respondent company denied the allegations of the
petitioner, claiming that that petitioner has no cause of
ac
tion and that the stock certificates covering the shares
alleged to have been sold to petitioner were only given
to him as collateral for the loan of Domocao Alonto and
Moki-in Alonto.
In 1980, the SEC renders their decision that:
1. That the issuance by the corporation of its
unissued shares was validly made and was not
subject to the pre-emptive rights of stockholders,
including the petitioner, herein;
|1
2. That there is no sufficient legal basis to set aside the
certificate issued by this Commission authorizing the
increase in capital stock of respondent corporation
from P200,000.00 to Pl,000,000.00.
3. Considering, however, that petitioner has not
waived his pre-emptive right to subscribe to the
increased capitalization, respondent corporation is
hereby directed 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
Hence this petition.
ISSUE:
1. Whether the issuance of the 11,098 shares without
the consent of the stockholders or the Board of
Directors, and in the absence of consideration is null
and void.
2. Whether the increase in the authorized capital stock
from P200,000.00 to P1,000,000.00 without the
consent or express waiver of the stockholders, is null
and void
RULING:
1. No.
The Court, repeating the decision of the SEC, states:
“…the questioned issuance of the unsubscribed portion
of the capital stock worth P110,980.00 is ' not invalid
even if assuming that it was made without notice to
the stockholders as claimed by petitioner. The power
to issue shares of stocks in a corporation is lodged in
the board of directors and no stockholders' meeting is
necessary to consider it because additional issuance of
shares of stocks does not need approval of the
stockholders. The by-laws of the corporation itself
states that 'the Board of Trustees shall, in accordance
with law, provide for the issue and transfer of shares
of stock of the Institute and shall prescribe the form of
the certificate of stock of the Institute. x x x
The general rule is that pre-emptive right is recognized
only with respect to new issue of shares, and not with
respect to additional issues of originally authorized
shares. This is on the theory that 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.
An 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.
With respect to the claim that the increase in the
authorized capital stock was without the consent,
expressed or implied, of the stockholders, it was the
finding of the Securities and Exchange Commission that a
stockholders' meeting was held on November 25,1975,
presided over by Mr. Ahmad Domocao Alonto, Chairman
of the Board of Trustees and, among the many items
taken up then were the change of name of the corporation
from Kamilol Islam Institute Inc. to Jamiatul Philippine-Al
Islamia, Inc., the increase of its capital stock from
P200,000.00 to P1,000,000.00, and the increase of the
number of its Board of Trustees from five to nine.
"Despite the insistence of petitioner, this
 CORPORATION LAW
Commission is inclined to believe that there was a
stockholders' meeting on November 25, 1975 which
approved the increase.
The petitioner had not sufficiently overcome the
evidence of respondents that such meeting was in fact
held. What petitioner successfully proved, however,
was the fact that he was not notified of said meeting
and that he never attended the same as he was out of
the country at the time (he was attending a Mecca
pilgrimage when the meeting was held in 1975).
Another thing that petitioner was able to disprove was
the allegation in the certificate of increase (Exh. 'E-l')
that all stockholders who did not subscribe to the
increase of capital stock have waived their pre-emptive
right to do so. As far as the petitioner is concerned, he
had not waived his pre-emptive right to subscribe as
he could not have done so for the reason that he was
not present at the meeting and had not executed a
waiver, thereof. Not having waived such right and for
reasons of equity, he may still be allowed to subscribe
to the increased capital stock proportionate to his
present shareholdings
Well-settled is the rule that the findings of facts of
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
Petition is dismissed for lack of merit.
iv. POWER TO SELL OR DISPOSE OF CORPORATE
ASSETS
1. G.R. No. 207161, September 08, 2015
Y-I LEISURE PHILIPPINES, INC., YATS
INTERNATIONAL LTD. AND Y-I CLUBS AND
RESORTS, INC., Petitioners, v. JAMES YU,
Respondent.
FACT:
James Yu was a businessman, interested in
purchasing golf and country club shares from Mt.
Arayat Development Co., Inc. (MADCI) which was a
real estate development corporation. MADCI offered
for sale shares of a golf and country club located in the
vicinity of Mt. Arayat in Arayat, Pampanga, for the
price of P550.00 per share. Relying on the
representation of MADCI's brokers and sales agents,
Yu bought 500 golf and 150 country club shares for a
total price of P650,000.00 which he paid by
installment. Upon full payment of the shares to MADCI,
Yu visited the supposed site of the golf and country
club and discovered that it was non-existent.
Yu filed with the RTC a complaint for collection of sum
of money and damages with prayer for preliminary
attachment against MADCI and its president Rogelio
Sangil (Sangil) to recover his payment. In his
transactions with MADCI, Yu alleged that he dealt with
Sangil, who used MADCI's corporate personality to
defraud him.
RTC ruled that because MADCI did not deny its
contractual obligation with Yu, it must be liable for the
return of his payments. The trial court also ruled that
Sangil should be solidarily liable with MADCI because he
used the latter as a mere alter ego or business conduit.
– SECOND SET CASE DIGEST |2
In two separate appeals, the parties elevated the case
to the CA.
The CA partly granted the appeals and modified
the RTC decision by holding YIL and its
companies, YILPI and YICRI, jointly and
severally, liable for the satisfaction of Yu's claim.
The CA held that the sale of lands between MADCI and
YIL must be upheld because Yu failed to prove that it
was simulated or that fraud was employed.
The CA explained that YIL, YILPI and YICRI could not
escape liability by simply invoking the provision in the
MOA that Sangil undertook the responsibility of paying
all the creditors' claims for refund. The provision was,
in effect, a novation under Article 1293 of the Civil
Code, specifically the substitution of debtors.
Considering that Yu, as creditor of MADCI, had no
knowledge of the "change of debtors," the MOA could
not validly take effect against him. Accordingly, MADCI
remained to be a debtor of Yu.
Anent Sangil's liability, the CA ruled that he could not
use the separate corporate personality of MADCI as a
tool to evade his existing personal obligations under
the MOA.
YIL and its companies, YILPI and YICRI, moved for
reconsideration, but their motion was denied by the CA
ISSUE:
Whether or not the Court of Appeals erred in ruling
that the petitioners YATS Group should be held jointly
and severally liable to respondent Yu despite the
absence of fraud in the sale of assets and bad faith on
the part of petitioner YATS Group.
RULING:
The petition lacks merit.
Upon Yu’s demand of return of his payment, MADCI
could not return it anymore because all its assets had
been transferred. Through the acts of YIL, MADCI sold
all its lands to YILPI and, subsequently to YICRI. Thus,
Yu now claims that the petitioners inherited the
obligations of MADCI. On the other hand, the
petitioners counter that they did not assume such
liabilities because the transfer of assets was not
committed in fraud of the MADCI's creditors. Hence,
the issue at hand presents a complex question of law -
whether fraud must exist in the transfer of all the
corporate assets in order for the transferee to assume
the liabilities of the transferor. To resolve this issue, a
review of the laws and jurisprudence concerning
corporate assumption of liabilities must be undertaken.
Background on the corporate assumption of
liabilities
In the 1965 case of Nell v. Pacific Farms, Inc., the
Court first pronounced the rule regarding the transfer
of all the assets of one corporation to another
(hereafter referred to as the Nell Doctrine) as follows:
Generally, where one corporation sells or otherwise
transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the
transferor, except:
1. Where the purchaser expressly or impliedly
agrees to assume such debts;
 CORPORATION LAW
2. Where the transaction amounts to a
consolidation or merger of the corporations;
3. Where the purchasing corporation is merely a
continuation of the selling corporation; and
4. Where the transaction is entered into
fraudulently in order to escape liability for such debts.
The Nell Doctrine states the general rule that the
transfer of all the assets of a corporation to another
shall not render the latter liable to the liabilities of the
transferor. If any of the above-cited exceptions are
present, then the transferee corporation shall assume
the liabilities of the transferor.
Legal bases of the Nell Doctrine
An evaluation of our contract and corporation laws
validates that the Nell Doctrine is fully supported by
Philippine statutes. The general rule expressed by the
doctrine reflects the principle of relativity under Article
1311 of the Civil Code. Contracts, including the rights
and obligations arising therefrom, are valid and binding
only between the contracting parties and their
successors-in-interest. Thus, despite the sale of all
corporate assets, the transferee corporation cannot be
prejudiced as it is not in privity with the contracts
between the transferor corporation and its creditors.
Jurisprudential recognition of the business-
enterprise transfer
Jurisprudence has held that in a business-enterprise
transfer, the transferee is liable for the debts and
liabilities of his transferor arising from the business
enterprise conveyed. Many of the application of the
business-enterprise transfer have been related by the
Court to the application of the piercing doctrine.
While the Corporation Code allows the transfer of all or
substantially all the properties and assets of a
corporation, the transfer should not prejudice the
creditors of the assignor. The only way the transfer can
proceed without prejudice to the creditors is to hold
the assignee liable for the obligations of the assignor.
The acquisition by the assignee of all or substantially
all of the assets of the assignor necessarily includes
the assumption of the assignor's liabilities, unless the
creditors who did not consent to the transfer choose to
rescind the transfer on the ground of fraud. To allow
an assignor to transfer all its business, properties and
assets without the consent of its creditors and without
requiring the assignee to assume the assignor's
obligations will defraud the creditors. The assignment
will place the assignor's assets beyond the reach of its
creditors.
Fraud is not an essential consideration in a
business-enterprise transfer
Notably, an evaluation of the relevant jurisprudence
reveals that fraud is not an essential element for the
application of the business-enterprise transfer which the
court disagrees. The exception of the Nell doctrine
provides that the transferee corporation assumes the
debts and liabilities of the transferor corporation because
it is merely a continuation of the latter's business. A
cursory reading of the exception shows that it does not
require the existence of fraud against the creditors before
it takes full force and effect. Indeed, under the Nell
Doctrine, the transferee corporation may inherit the
liabilities of the transferor despite the lack of fraud due to
the continuity of the latter's business.
– SECOND SET CASE DIGEST |3
The purpose of the business-enterprise transfer is to
protect the creditors of the business by allowing them
a remedy against the new owner of the assets and
business enterprise. Otherwise, creditors would be left
"holding the bag," because they may not be able to
recover from the transferor who has "disappeared with
the loot," or against the transferee who can claim that
he is a purchaser in good faith and for value. Based on
the foregoing, as the exception of the Nell doctrine
relates to the protection of the creditors of the
transferor corporation, and does not depend on any
deceit committed by the transferee -corporation, then
fraud is certainly not an element of the business
enterprise doctrine.
Applicability of the business-enterprise transfer
in the present case
Bearing in mind that fraud is not required to apply the
business-enterprise transfer, the next issue to be
resolved is whether the petitioners indeed became a
continuation of MADCI's business. Synthesizing Section
40 and the previous rulings of this Court, it is apparent
that the business-enterprise transfer rule applies when
two requisites concur: (a) the transferor corporation
sells all or substantially all of its assets to another
entity; and (b) the transferee corporation continues
the business of the transferor corporation. Both
requisites are present in this case.
MADCI was a development company which acquired
properties in Magalang, Pampanga to be developed
into a golf course however, was then sold to YILPI, and
then transferred to YICRI. Its sale to the petitioners
rendered it incapable of continuing its intended golf
and country club business.
The MOA cannot prejudice respondent
The MOA, which contains a provision that Sangil
undertook to redeem MADCI proprietary shares sold to
third persons or settle in full all their claims for refund
of payments, should not prejudice respondent Yu. The
CA correctly ruled that such provision constituted
novation under Article 1293 of the Civil Code. When
there is a substitution of debtors, the creditor must
consent to the same; otherwise, it shall not in any way
affect the creditor. In this case, it was established that
Yu's consent was not secured in the execution of the
MOA. Thus, insofar as the respondent was concerned,
the debtor remained to be MADCI. And given that the
assets and business of MADCI have been transferred to
the petitioners, then the latter shall be liable.
Free and Harmless Clause
The petitioners, however, are not left without recourse
as they can invoke the free and harmless clause under
the MOA. In business-enterprise transfer, it is possible
that the transferor and the transferee may enter into a
contractual stipulation stating that the transferee shall
not be liable for any or all debts arising from the
business which were contracted prior to the time of
transfer. Such stipulations are valid, but only as to the
transferor and the transferee. These stipulations,
though, are not binding on the creditors of the
business enterprise who can still go after the
transferee for the enforcement of the liabilities.
In the present case, the MOA stated that Sangil undertook
to redeem MADCI proprietary shares sold to third persons
or settle in full all their claims for refund of payments.
While this free and harmless clause cannot affect
respondent as a creditor, the petitioners may
 CORPORATION LAW
resort to this provision to recover damages in a third-
party complaint. Whether the petitioners would act
against Sangil under this provision is their own option.
ACT No. 3952
THE BULK SALES LAW (as amended)
AN ACT TO REGULATE THE SALE, TRANSFER,
MORTGAGE OR ASSIGNMENT OF GOODS,
WARES, MERCHANDISE, PROVISIONS OR
MATERIALS, IN BULK, AND PRESCRIBING
PENALTIES FOR THE VIOLATION OF THE
PROVISIONS THEREOF
Section 1. This Act shall be known as "The Bulk
Sales Law."
Sec. 2. Sale and transfer in bulk. — Any sale,
transfer, mortgage or assignment of a stock of
goods, wares, merchandise, provisions, or materials
otherwise than in the ordinary course of trade and
the regular prosecution of the business of the
vendor, mortgagor, transferor, or assignor, or sale,
transfer, mortgage or assignment of all, or
substantially all, of the business or trade theretofore
conducted by the vendor, mortgagor, transferor, or
assignor, or of all, or substantially all, of the fixtures
and equipment used in and about the business of
the vendor, mortgagor, transferor, or assignor, shall
be deemed to be a sale and transfer in bulk, in
contemplation of this Act: Provided, however, That if
such vendor, mortgagor, transferor or assignor,
produces and delivers a written waiver of the
provisions of this Act from his creditors as shown by
verified statements, then, and in that case, the
provisions of this section shall not apply.
Sec. 3. Statement of creditors. — It shall be the
duty of every person who shall sell, mortgage, transfer,
or assign any stock of goods, wares, merchandise,
provisions or materials in bulk, for cash or on credit,
before receiving from the vendee, mortgagee, or his, or
its agent or representative any part of the purchase
price thereof, or any promissory note, memorandum,
or other evidence therefor, to deliver to such vendee,
mortgagee, or agent, or if the vendee, mortgagee, or
agent be a corporation, then to the president, vice-
president, treasurer, secretary or manager of said
corporation, or, if such vendee or mortgagee be a
partnership firm, then to a member thereof, a written
statement, sworn to substantially as hereinafter
provided, of the names and addresses of all creditors to
whom said vendor or mortgagor may be indebted,
together with the amount of indebtedness due or
owing, or to become due or owing by said vendor or
mortgagor to each of said creditors, which statement
shall be verified by an oath to the following effect:
PHILIPPINE ISLANDS PROVINCE OR CITY OF
_________________}
Before me, the undersigned authority, personally
appeared __________________ (vendor, mortgagor,
agent or representative, as the case may be), bearing
cedula No. ____________ issued at
___________ on the day of _____________ who, by
me being first duly sworn, upon his oath, deposes and
states that the foregoing statement contains the names
of all of the creditors of ________________
(vendor, or mortgagor) together with their
addresses, and that the amount set opposite each of
said respective names, is the amount now due and
owing, and which shall become due and owing by
_____________ (vendor or mortgagor) to such
creditors, and that there are no creditors holding
claims due or which shall become due, for or on
account of goods, wares, merchandise, provisions or
– SECOND SET CASE DIGEST |4
materials purchased upon credit or on account of
money borrowed, to carry on the business of which
said goods, wares, merchandise, provisions or
materials are a part, other than as set forth in said
statement.
______________________
Subscribed and sworn to before me this _______
day of ______, 19___, at ________
Sec. 4. Fraudulent and void sale, transfer or
mortgage. — Whenever any person shall sell,
mortgage, transfer, or assign any stock of goods,
wares, merchandise, provisions or materials, in
bulk, for cash or on credit, and shall receive any
part of the purchase price, or any promissory note,
or other evidence of indebtedness for said purchase
price or advance upon mortgage, without having
first delivered to the vendee or mortgagee or to his
or its agent or representative, the sworn statement
provided for in section three hereof, and without
applying the purchase or mortgage money of the
said property to the pro rata payment of the bona
fide claim or claims of the creditors of the vendor or
mortgagor, as shown upon such sworn statement,
he shall be deemed to have violated this Act, and
any such sale, transfer or mortgage shall be
fraudulent and void.
Sec. 5. Inventory. — It shall be the duty of every
vendor, transferor, mortgagor, or assignor, at least
ten days before the sale, transfer or execution of a
mortgage upon any stock of goods, wares,
merchandise, provisions or materials, in bulk, to
make a full detailed inventory thereof and to
preserve the same showing the quantity and, so far
as is possible with the exercise of reasonable
diligence, the cost price to the vendor, transferor,
mortgagor or assignor of each article to be included
in the sale, transfer or mortgage, and notify every
creditor whose name and address is set forth in the
verified statement of the vendor, transferor,
mortgagor, or assignor, at least ten days before
transferring possession thereof, personally or by
registered mail, of the price, terms conditions of the
sale, transfer, mortgage, or assignment.
Sec. 6. Any vendor, transferor, mortgagor or
assignor of any stock of goods, wares, merchandise,
provisions or materials, in bulk, or any person acting
for, or on behalf of any such vendor, transferor,
mortgagor, or assignor, who shall knowingly or
willfully make, or deliver or cause to be made or
delivered, a statement, as provided for in section
three hereof, which shall not include the names of
all such creditors, with the correct amount due and
to become due to each of them, or shall contain any
false or untrue statement, shall be deemed to have
violated the provisions of this Act.
Sec. 7. It shall be unlawful for any person, firm or
corporation, as owner of any stock of goods, wares,
merchandise, provisions or materials, in bulk, to
transfer title to the same without consideration or
for a nominal consideration only.
Sec. 8. Nothing in this Act contained shall apply to
executors, administrators, receivers, assignees in
insolvency, or public officers, acting under judicial
process.
Sec. 9. The sworn statement containing the names
and addresses of all creditors of the vendor or
mortgagor provided for in section three of this Act,
shall be registered in the Bureau of Commerce. For
the registration of each such sworn statement a fee
of five pesos shall be charged to the vendor or
 CORPORATION LAW
mortgagor of the stock of goods, wares,
merchandise, provisions or materials, in bulk.
Sec. 10. The provisions of this Act shall be
administered by the Director of the Bureau of
Commerce and Industry, who is hereby empowered,
with the approval of the Department Head, to
prescribe and adopt from time to time such rules
and regulations as may be deemed necessary for
the proper and efficient enforcement of the
provisions of this Act.
Sec. 11. Any person violating any provision of this
Act shall, upon conviction thereof, be punished by
imprisonment not less than six months, nor more
than five years, or fined in sum not exceeding five
thousand pesos, or both such imprisonment and
fine, in the discretion of the court.
Sec. 12. This Act shall take effect on its approval.
Approved: 01 December 1972
vi. POWER TO INVEST CORPORATE FUNDS IN
ANOTHER CORPORATION OR BUSINESS
1. De la Rama vs. Ma-Ao Sugar Central Co., Inc.
February 28, 1969
Topic and Relevant Provision: Control and
Management of Corporation – Investment in another
corporation or business
Both under the Corporation
Law SEC. 17-½:
No corporation organized under this act shall invest its
funds in any other corporation or business, or for any
purpose other than the main purpose for which it was
organized, unless 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 proposal at a stockholders' meeting
called for the purpose
SEC. 13. — Every corporation has the power:
(9) To enter into any obligation or contract essential
to the proper administration of its corporate affairs or
necessary for the proper transaction of the business or
accomplishment of the purpose for which the
corporation was organized;
(10) Except as in this section otherwise provided, and
in order to accomplish its purpose as stated in the
articles of incorporation, to acquire, hold, mortgage,
pledge or dispose of shares, bonds, securities and
other evidences of indebtedness of any domestic or
foreign corporation.
FACTS
Representative or derivative suit by 4 minority
stockholders against the Ma-Ao Sugar, and Amado
Araneta and 3 other directors of the corporation.
The complaint comprising the period November, 1946
to October, 1952, stated five causes of action, the
most relevant being:
1) for alleged illegal and ultra-vires acts consisting of
self-dealing irregular loans, and unauthorized
investments
– SECOND SET CASE DIGEST |5
In 1950 the Ma-ao Sugar Central Co., Inc., through its
President, J. Amado Araneta,, subscribed for
P300,000.00 worth of capital stock of the Philippine
Fiber Processing Co. Inc. Payments on the subscription
were made on September 20, 1950, for P150,000.00;
on April 30, 1951, for P50,000.00; and on March 6,
1952, for P100,000.00. At the time the first two
payments were made there was no board resolution
authorizing the investment; and that it was only on
November 26, 1951, that the President of Ma-ao Sugar
Central Co., Inc., was so authorized by the Board of
Directors.
Additionally, 355,000 shares of stock of the same
Philippine Fiber Processing Co., Inc., owned by Luzon
Industrial, corporation were transferred on May 31, 1952,
to Ma-ao Sugar Central Co., Inc., with a valuation of
P355,000.00 on the basis of P1.00 par value per share.
Again the "investment" was made without prior board
resolution, the authorizing resolution having been
subsequently approved only on June 4, 1952.
De la Rama et. al. contend that even assuming, arguendo,
that the said Board Resolutions are valid, the transaction,
is still wanting in legality, because no resolution has been
approved by the affirmative vote of 2/3 of the
stockholders holding shares in the corporation as required
in Sec. 17-½ of the Corporation Law.
ISSUE
Whether or not the affirmative vote of 2/3 of the
stockholders is needed for the “investment” made by
Ma-Ao.
RULING
NO. We therefore agree with the finding of the Lower
Court that the investment in question does not fall under
the purview of Sec. 17- ½ of the Corporation Law.
Dispositive: IN VIEW OF ALL THE FOREGOING, that
part of the judgment which orders the Ma-ao Sugar
Central Co., Inc. "to refrain from making investments
in Acoje Mining, Mabuhay Printing, and any other:
company whose purpose is not connected with the
sugar central business," is reversed. The other parts of
the judgment are, affirmed. No special pronouncement
as to costs.
The Court cited a book entitled “The Philippine
Corporation Law” by Prof. Sulpicio Guevara of the UP
College of Law.
“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; namely,
(a) that no agricultural or mining corporation shall in
anywise be interested in any other agricultural or mining
corporation; or (b) that a non-agricultural or non-mining
corporation shall be restricted to own not more than 15%
of the voting stock of any agricultural or mining
 CORPORATION LAW
corporation; and (c) that such holdings shall be solely
for investment and not for the purpose of bringing
about a monopoly in any line of commerce or
combination in restraint of trade.”
“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.”
2. Gokongwei vs. SEC, 89 SCRA 336
(1979) Facts:
Petitioner, stockholder of San Miguel Corp. filed a
petition with the SEC for the declaration of nullity of
the by-laws etc. against the majority members of the
BOD and San Miguel.
It is stated in the by-laws that the amendment or
modification of the by-laws may only be delegated to
the BODs upon an affirmative vote of stockholders
representing not less than 2/3 of the subscribed and
paid up capital stock of the corporation, which 2/3
could have been computed on the basis of the
capitalization at the time of the amendment.
Petitioner contends that the amendment was based on the
1961 authorization, the Board acted without authority and
in usurpation of the power of the stockholders n amending
the by-laws in 1976. He also contends that the 1961
authorization was already used in 1962 and 1963. He also
contends that the amendment deprived him of his right to
vote and be voted upon as a stockholder (because it
disqualified competitors from nomination and election in
the BOD of SMC), thus the amended by-laws were null
and void.
While this was pending, the corporation called for a
stockholder’s meeting for the ratification of the
amendment to the by-laws. This prompted petitioner
to seek for summary judgment. This was denied by the
SEC.
In another case filed by petitioner, he alleged that the
corporation had been using corporate funds in other
corps and businesses outside the primary purpose
clause of the corporation in violation of the Corporation
Code.
ISSUE:
Whether or not the amendments are valid.
RULING:
YES. The validity and reasonableness of a by-law is
purely a question of law. Whether the by-law is in
conflict with the law of the land, or with the charter of
– SECOND SET CASE DIGEST |6
the corporation or is in legal sense unreasonable and
therefore unlawful is a question of law.
However, this is limited where the reasonableness of a by-
law is a mere matter of judgment, and one upon which
reasonable minds must necessarily differ, a court would
not be warranted in substituting its judgment instead of
the judgment of those who are authorized to make by-
laws and who have exercised authority.
The Court held that a corporation has authority
prescribed by law to prescribe the qualifications of
directors. It 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.
A corporation, under the Corporation law, may
prescribe in its by-laws the qualifications, duties and
compensation of directors, officers, and employees.
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 he impliedly contracts
that the will of the majority shall govern in all matters
within the limits of the acts of incorporation and
lawfully enacted by-laws and not forbidden by law.
Any corporation may amend its by-laws by the owners
of the majority of the subscribed stock. It cannot thus
be said that petitioners has the vested right, as a stock
holder, to be elected director, in the face of the fact
that the law at the time such stockholder's right was
acquired contained the prescription that the corporate
charter and the by-laws shall be subject to
amendment, alteration and modification.
A Director stands in a fiduciary relation to the
corporation and its shareholders, which is
characterized as a trust relationship. An amendment to
the corporate by-laws which enders a stockholder
ineligible to be director, if he be also director in a
corporation whose business is in competition with that
of the other corporation, has been sustained as valid.
This is based upon the principle that where the director
is employed in the service of a rival company, he
cannot serve both, but must betray one or the other.
The amendment in this case serves to advance the
benefit of the corporation and is good. Corporate
officers are also not permitted to use their position of
trust and confidence to further their private needs, and
the act done in furtherance of private needs is deemed
to be for the benefit of the corporation. This is called
the doctrine of corporate opportunity.
vii. POWER TO DECLARE DIVIDENDS
1. Nielson and Co, Inc vs Lepanto Consolidated
Mining Co, 26 SCRA 542
FACTS:
On January 30, 1937, the parties have entered into an
operating agreement wherein Nielson & Co. would
operate and manage the mining properties owned by
Lepanto Consolidated Mining Co. for a period of five
years. Before the lapse of the five year period, the
parties have renewed the contract for another five
years with modifications made by Lepanto on the
management fee.
On its modified contract Nielson will receive (1) 10% of
the dividends declared and paid, when and as paid during
the period of the contract and at the end of each
 CORPORATION LAW
year, (2) 10% of any depletion reserve that may set
up, and (3) 10% of any amount expended during the
year out of surplus earnings for capital account.
In January, 1942 operation of the mining properties
was disrupted on account of the war. The Japanese
forces thereafter occupied the mining properties,
operated the mines during the continuance of the war,
and who were ousted from the mining properties only
in August of 1945.
After the mining properties were liberated from the
Japanese forces, Lepanto took possession thereof and
embarked in rebuilding and reconstructing the mines
and mill. The restoration lasted for nearly three years
and the mines have resumed its operation under the
exclusive management of Lepanto.
Shortly after the mines were liberated from the
Japanese invaders in 1945, a disagreement arose
between NIELSON and LEPANTO over the status of the
operating contract in question which as renewed
expired in 1947.
ISSUE:
Whether or not Nielson is entitled to his share in the
stock dividends.
RULING:
Stock dividends cannot be issued to a person who is
not a stockholder in payment of services rendered.
Section 16 of the Corporation Law, in part,
provides a follows:
No corporation organized under this Act shall create or
issue bills, notes or other evidence of debt, for
circulation as money, and no corporation shall issue
stock or bonds except in exchange for actual cash paid
to the corporation or for: (1) property actually received
by it at a fair valuation equal to the par or issued value
of the stock or bonds so issued; and in case of
disagreement as to their value, the same shall be
presumed to be the assessed value or the value
appearing in invoices or other commercial documents,
as the case may be; and the burden or proof that the
real present value of the property is greater than the
assessed value or value appearing in invoices or other
commercial documents, as the case may be, shall be
upon the corporation, or for (2) profits earned by it but
not distributed among its stockholders or members;
Provided, however, That no stock or bond dividend
shall be issued without the approval of stockholders
representing not less than two-thirds of all stock then
outstanding and entitled to vote at a general meeting
of the corporation or at a special meeting duly called
for the purpose.
In the case at bar Nielson cannot be paid in shares of
stock which form part of the stock dividends of Lepanto
for services it rendered under the management contract.
We sustain the contention of Lepanto that the
understanding between Lepanto and Nielson was simply
to make the cash value of the stock dividends declared as
the basis for determining the amount of compensation
that should be paid to Nielson, in the proportion of 10% of
the cash value of the stock dividends declared. In other
words, Nielson must still be paid his 10% fee using as the
basis for computation the cash value of the stock
dividends declared.
Moreover, from the above-quoted provision of Section
16 of the Corporation Law, the consideration for which
– SECOND SET CASE DIGEST |7
shares of stock may be issued are: (1) cash; (2) property;
and (3) undistributed profits. Shares of stock are given
the special name “stock dividends” only if they are issued
in lieu of undistributed profits. If shares of stocks are
issued in exchange of cash or property then those shares
do not fall under the category of “stock dividends”. A
corporation may legally issue shares of stock in
consideration of services rendered to it by a person not a
stockholder, or in payment of its indebtedness. A share of
stock issued to pay for services rendered is equivalent to
a stock issued in exchange of
property, because services is equivalent to property.14
Likewise a share of stock issued in payment of
indebtedness is equivalent to issuing a stock in
exchange for cash. But a share of stock thus issued
should be part of the original capital stock of the
corporation upon its organization, or part of the stocks
issued when the increase of the capitalization of a
corporation is properly authorized. In other words, it is
the shares of stock that are originally issued by the
corporation and forming part of the capital that can be
exchanged for cash or services rendered, or property;
that is, if the corporation has original shares of stock
unsold or unsubscribed, either coming from the
original capitalization or from the increased
capitalization. Those shares of stock may be issued to
a person who is not a stockholder, or to a person
already a stockholder in exchange for services
rendered or for cash or property. But a share of stock
coming from stock dividends declared cannot be issued
to one who is not a stockholder of a corporation.
A “stock dividend” is any dividend payable in shares of
stock of the corporation declaring or authorizing such
dividend.
So, a stock dividend is actually two things: (1) a
dividend, and (2) the enforced use of the dividend
money to purchase additional shares of stock at par.16
When a corporation issues stock dividends, it shows
that the corporation’s accumulated profits have been
capitalized instead of distributed to the stockholders or
retained as surplus available for distribution, in money
or kind, should opportunity offer. Far from being a
realization of profits for the stockholder, it tends rather
to postpone said realization, in that the fund
represented by the new stock has been transferred
from surplus to assets and no longer available for
actual distribution.17 Thus, it is apparent that stock
dividends are issued only to stockholders. This is so
because only stockholders are entitled to dividends.
They are the only ones who have a right to a
proportional share in that part of the surplus which is
declared as dividends. A stock dividend really adds
nothing to the interest of the stockholder; the
proportional interest of each stockholder remains the
same.18If a stockholder is deprived of his stock
dividends – and this happens if the shares of stock
forming part of the stock dividends are issued to a
non-stockholder — then the proportion of the
stockholder’s interest changes radically. Stock
dividends are civil fruits of the original investment, and
to the owners of the shares belong the civil fruits.
2. Aranas vs Tutaan, 127 SCRA
828 FACTS:
On May 3, 1971 the lower court declared that Petitioner
Luisa Quijencio (and by her spouse Jose Arañas) was the
owner of 400 shares including the stock dividends that
accrued to said shares, of respondent Universal Textile
Mills, Inc. (UTEX) as defendant and Gene Manuel
 CORPORATION LAW
and B. R. Castañeda as co-defendants, and
subsequently ordered UTEX to cancel said certificates
and issue new ones in the name of Plaintiff and to
deliver all dividends appertaining to the same, whether
in cash or in stocks.
UTEX filed a motion for clarification whether the phrase
“to deliver to her all dividends appertaining to the same,
whether in cash or in stocks” meant dividends properly
pertaining to plaintiffs after the court’s declaration of
plaintiff ownership of said 400 shares of stock.
Defendant UTEX has always maintained it would
rightfully abide by whatever decision may be rendered
since such would be the logical consequence after the
ruling in respect to the rightful ownership of said
shares of stock. The motion was granted which ruled
against UTEX, ordering it to pay plaintiff the cash
dividends, which accrued to the stocks in question
after rendition of its current decision excluding cash
dividends already paid to Gene Manuel and B. R.
Castañeda which accrued before its decision.
UTEX alleged that the cash dividends had already been
paid thereby absolving it from payment thereof.
ISSUE:
Whether or not the contention of UTEX, alleging that
the cash dividends of stock had already been paid and
thereby absolving it from any further payment, valid.
RULING:
NO. The final and executory judgment against UTEX
declared petitioners as the owners of the questioned
UTEX shares of stock against its co-defendants. It was
further made clear in the motion for clarification that
all dividends accruing to the said shares after the
rendition of the decision of Aug. 7, 1971 rightfully
belonged to petitioners.
If UTEX nevertheless chose to pay the wrong parties,
notwithstanding its full knowledge and understanding
of the final judgment, it was still liable to pay the
petitioners as the lawful declared owners of the
questions shares of stocks. The burden of recovering
the supposed payment of the cash dividends made by
UTEX to the wrong parties Castañeda and Manuel falls
upon itself by its own action and cannot be passed by
it to the petitioner as the innocent parties.
It is elementary that payment made by a
judgment debtor to a wrong party cannot
extinguish the judgment obligation of such
debtor to its creditor.
ix. ULTRA VIRES ACTS
1. G.R. Nos. 194964-65. January 11, 2016
UNIVERSITY OF MINDANAO, INC., petitioner, vs.
BANGKO SENTRAL NG PILIPINAS, ET AL.,
respondents.
DOCTRINE: Acts of an officer that are not authorized
by the board of directors/trustees do not bind the
corporation unless the corporation ratifies the acts or
holds the officer out as a person with authority to
transact on its behalf.
FACTS:
University of Mindanao is an educational institution.
For the year 1982, its Board of Trustees was chaired
by Guillermo B. Torres. His wife, Dolores P. Torres,
sat as University of Mindanao's Assistant Treasurer.
– SECOND SET CASE DIGEST |8
Before 1982, Guillermo B. Torres and Dolores P.
Torres incorporated and operated two (2) thrift
banks: (1) First Iligan Savings & Loan Association,
Inc. (FISLAI); and (2) Davao Savings and Loan
Association, Inc. (DSLAI). Guillermo B. Torres chaired
both thrift banks. He acted as FISLAI's President,
while his wife, Dolores P. Torres, acted as DSLAI's
President and FISLAI's Treasurer. 6
Upon Guillermo B. Torres' request, Bangko Sentral ng
Pilipinas issued a P1.9 million standby emergency
credit to FISLAI. The release of standby emergency
credit was evidenced by three (3) promissory notes
which were all signed by Guillermo B. Torres, and
were co-signed by either his wife, Dolores P. Torres,
or FISLAI's Special Assistant to the President,
Edmundo G. Ramos, Jr. 7
On May 25, 1982, University of Mindanao's Vice
President for Finance, Saturnino Petalcorin, executed
a deed of real estate mortgage over University of
Mindanao's property in CDO in favor of BSP.
As proof of his authority thereof, Petalcorin showed a
Secretary's Certificate signed by University of
Mindanao's Corporate Secretary, Aurora de Leon.
An additional loan of P620,700.00 was granted by BSP
to FISLAI.
Saturnino Petalcorin executed another deed of real
estate mortgage, allegedly on behalf of University of
Mindanao, over its two properties in Iligan City as
additional security for FISLAI's loans.
On January 11, 1985, FISLAI, DSLAI, and Land Bank
of the Philippines entered into a Memorandum of
Agreement intended to rehabilitate the thrift banks.
Among the terms of the agreement was the merger of
FISLAI and DSLAI, with DSLAI as the surviving
corporation. DSLAI later became known as Mindanao
Savings and Loan Association, Inc. (MSLAI). 21
MSLAI failed to recover from its losses and was
liquidated. 23
On June 18, 1999, Bangko Sentral ng Pilipinas sent a
letter to University of Mindanao, informing it that the
bank would foreclose its properties if MSLAI's total
outstanding obligation of P12,534,907.73 remained
unpaid. 24
In its reply, University of Mindanao, through its Vice
President for Accounting, Gloria E. Detoya, denied
that University of Mindanao's properties were
mortgaged. It also denied having received any loan
proceeds from Bangko Sentral ng Pilipinas. 25
On July 16, 1999, UM filed two Complaints for
nullification and cancellation of mortgage.
University of Mindanao also alleged that Aurora de
Leon's certification was anomalous. That, it never
authorized Saturnino Petalcorin to execute real estate
mortgage contracts involving its properties to secure
FISLAI's debts. That it never ratified the execution of
the mortgage contracts. Moreover, as an educational
institution, it cannot mortgage its properties to secure
another person's debts. 28
RTC CDO- in favor of UM
RTC Iligan- in favor of UM
CA- in favor of BSP
ISSUE:
 CORPORATION LAW
WON University of Mindanao is bound by the real estate
mortgage contracts executed by Saturnino Petalcorin?
RULING: NO.
The mortgage contracts executed in favor of
respondent do not bind petitioner. They were
executed without authority from petitioner.
Petitioner must exercise its powers and conduct its
business through its Board of Trustees. Section 23 of
the Corporation Code provides:
SEC. 23. The board of directors or trustees. — Unless
otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be
exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from
among the members of the corporation, who shall
hold office for one (1) year and until their successors
are elected and qualified.
Being a juridical person, petitioner cannot conduct its
business, make decisions, or act in any manner
without action from its Board of Trustees. The Board
of Trustees must act as a body in order to exercise
corporate powers. Individual trustees are not clothed
with corporate powers just by being a trustee. Hence,
the individual trustee cannot bind the corporation by
himself or herself.
The corporation may, however, delegate through a
board resolution its corporate powers or functions to a
representative, subject to limitations under the law
and the corporation's articles of incorporation. 112
The relationship between a corporation and its
representatives is governed by the general principles
of agency. 113 Article 1317 of the Civil Code provides
that there must be authority from the principal before
anyone can act in his or her name:
ART. 1317. No one may contract in the name of
another without being authorized by the latter, or
unless he has by law a right to represent him.
Hence, without delegation by the board of directors or
trustees, acts of a person — including those of the
corporation's directors, trustees, shareholders, or
officers — executed on behalf of the corporation are
generally not binding on the corporation. 114
Contracts entered into in another's name without
authority or valid legal representation are generally
unenforceable.
The unenforceable status of contracts entered into by
an unauthorized person on behalf of another is based
on the basic principle that contracts must be
consented to by both parties. 115 There is no
contract without meeting of the minds as to the
subject matter and cause of the obligations created
under the contract.116
Consent of a person cannot be presumed from
representations of another, especially if obligations
will be incurred as a result. Thus, authority is required
to make actions made on his or her behalf binding on
a person. Contracts entered into by persons without
authority from the corporation shall generally be
considered ultra vires and unenforceable 117 against
the corporation.
– SECOND SET CASE DIGEST |9
However, personal liabilities may be incurred by
directors who assented to such unauthorized act 121
and by the person who contracted in excess of the
limits of his or her authority without the corporation's
knowledge. 122
2. G.R. No. 211485, May 30, 2016
MAGALLANES WATERCRAFT ASSOCIATION, INC.,
AS REPRESENTED BY ITS BOARD OF TRUSTEES,
NAMELY: EDILBERTO M. BAJAO, GERARDO O.
PLAZA, ISABELITA MULIG, EDNA ABEJAY,
MARCELO DONAN, NENITA O. VARQUEZ, MERLYN
ALVAREZ, EDNA EXCLAMADOR, AND CESAR
MONSON, Petitioner, v. MARGARITO C. AUGUIS
AND DIOSCORO C. BASNIG, Respondents.
DOCTRINE: A corporation may exercise its powers only
within those definitions. Corporate acts that are outside
those express definitions under the law or articles of
incorporation or those "committed outside the object for
which a corporation is created" are ultra vires.
FACTS:
Petitioner Magallanes Watercraft Association, Inc. (MWAI)
is a local association of motorized banca owners and
operators ferrying cargoes and passengers from
Magallanes, Agusan del Norte, to Butuan City and back.
Respondents Margarito C. Auguis (Auguis) and Dioscoro
C. Basnig (Basnig) were members and officers of MWAI
3
-
vice-president and secretary, respectively.
The Board of Trustees (Board) of MWAI passed
Resolution No. 1, Series of 2003, and thereafter issued
Memorandum No. 001 suspending the rights and
privileges of Auguis and Basnig as members of the
association for thirty (30) days for their refusal to pay
their membership dues and berthing fees because of
their pending oral complaint and demand for financial
4
audit of the association funds.
In spite of the suspension of their privileges as members,
Auguis and Basnig still failed to settle their obligations
with MWAI. For said reason, the latter issued
Memorandum No. 002, Series of 2004, suspending their
5
rights and privileges for another thirty (30) days.
Respondents filed an action for damages and attorney's
fees with a prayer for the issuance of a writ of preliminary
injunction before the RTC. The trial court ordered Auguis
and Basnig to pay their unpaid accounts. It, nonetheless,
required MWAI to pay them actual
6
damages and attorney's fees.
Aggrieved, MWAI appealed before the CA. The CA
affirmed the decision of the RTC.According to the
appellate court, the RTC correctly held that MWAI was
guilty of an ultra vires act. The CA noted that neither
MWAI's Articles of Incorporation nor its By-Laws
7
contained any provision that expressly and/or impliedly
vested power or authority upon its Board to recommend
the imposition of disciplinary sanctions on its delinquent
officers and/or members. It further noted that MWAI
lacked the authority to suspend the right of the
respondents to operate their bancas, which was granted
through a Certificate of Public Convenience. Hence, the CA
concluded that MWAI acted beyond the scope of its
powers when it suspended the rights of Auguis and Basnig
as members of MWAI to berth on the seaport of
Magallanes and operate their bancas.
ISSUE:
 CORPORATION LAW
Whether or not petitioner was guilty of an ultra vires act
when it suspended respondents' berthing rights because
its by-laws obliged Auguis and Basnig as members to:
(1) obey and comply with the bylaws, rules and
regulations that may be promulgated by the
association from time to time; and
(2) to pay its membership dues and other assessments.
RULING:
YES.
The petition is meritorious.
Corporate powers include implied and incidental powers
If the suspension of rights and privileges of members is
not among the corporate powers granted to MWAI, then
the same is an ultra vires act which exposes MWAI to
possible liability.
Section 45 of the Corporation Code provides for the
powers possessed by a corporation, to wit:
Sec. 45. Ultra vires acts of corporations. - No
corporation under this Code shall possess or exercise
any corporate powers except those conferred by this
Code or by its articles of incorporation and except such
as are necessary or incidental to the exercise of the
powers so conferred.
From a reading of the said provision, it is clear that a
corporation has: (1) express powers, which are
bestowed upon by law or its articles of incorporation;
and (2) necessary or incidental powers to the exercise
of those expressly conferred. An act which cannot fall
under a corporation's express or necessary or
incidental powers is an ultra vires act.
A corporation may exercise its powers only
within those definitions. Corporate acts that are
outside those express definitions under the law
or articles of incorporation or those "committed
outside the object for which a corporation is
created" are ultra vires.
The CA concluded that the suspension by MWAI of
respondents' rights as members for their failure to
settle membership dues was an ultra vires act as
MWAFs articles of incorporation and by-laws were
bereft of any provision that expressly and impliedly
vested power or authority upon its Board to
recommend the imposition of disciplinary actions on its
delinquent officers and/or members.
The Court disagrees.
Under Section 3(a) and Section 3(c) Article V of
MWAI's By-Laws, its members are bound "[t]o obey
and comply with the by-laws, rules and regulations
that may be promulgated by the association from time
to time" and "[t]o pay membership dues and other
13
assessments of the association." Thus, the
respondents were obligated to pay the membership
dues of which they were delinquent. MWAI could not
be faulted in suspending the rights and privileges of its
delinquent members.
The fact alone that neither the articles of incorporation nor
the by laws of MWAI granted its Board the authority to
discipline members does not make the suspension of the
rights and privileges of the respondents ultra vires.
– SECOND SET CASE DIGEST | 10
The only exception to this rule is when acts are
necessary and incidental to carry out a corporation's
purposes, and to the exercise of powers conferred
by the Corporation Code and under a corporation's
articles of incorporation. xxx
Based on the foregoing, MWAI can properly impose
sanctions on Auguis and Basnig for being delinquent
members considering that the payment of membership
dues enables MWAI to discharge its duties and
functions enumerated under its charter. Moreover,
respondents were obligated by the by-laws of the
association to pay said dues. The suspension of their
rights and privileges is not an ultra vires act as it is
reasonably necessary or proper in order to further the
interest and welfare of MWAI.
3. Atrium Management Corporation vs Court of
Appeals 353 SCRA 23, February 28, 2001
FACTS:
In 1981, Hi-Cement Corporation through Lourdes De
Leon (its Treasurer) and Antonio De Las Alas (its
Chairman, now deceased) issued four postdated
checks to E.T. Henry and Co. The checks amount to P2
million. The checks are crossed checks and are only
made payable to E.T. Henry’s account. However, E.T.
Henry still indorsed the checks to Atrium Management
Corporation (AMC). AMC then made sure that the
checks were validly issued by requesting E.T. Henry to
get some confirmation from Atrium. Interestingly, De
Leon confirmed the checks and advised that the checks
are okay to be rediscounted by AMC notwithstanding
the fact that the checks are crossed checks payable to
no other accounts but that of E.T. Henry. So when
AMC presented the check, it was dishonored because
Hi-Cement stopped payment. Eventually, AMC sued Hi-
Cement, E.T. Henry, and De Leon. The trial court ruled
in favor of AMC and made all the respondents liable.
On appeal, Hi-Cement averred that De Leon’s act in
signing the check was ultra vires hence De Leon should
be personally liable for the check. De Leon, on the
other hand, insisted that the checks were authorized
by the corporation.
ISSUE:
Whether or not De Leon’s act of signing the check
constitutes an ultra vires act hence making her
personally liable.
RULING:
No, the act is not ultra vires but De Leon is still
personally liable. The act is not ultra vires because the
act of issuing the checks was well within the ambit of a
valid corporate act. De Leon as treasurer is authorized
to sign checks. When the checks were issued, Hi-
Cement has sufficient funds to cover the P2 million.
As a rule, there are four instances that will make a
corporate director, trustee or officer along (although
not necessarily) with the corporation personally liable
to certain obligations. They are:
1. He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for
 CORPORATION LAW
conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;
2. He consents to the issuance of watered down
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.
In the case at bar, De Leon is negligent. She was
aware that the checks were only payable to E.T.
Henry’s account yet she sent a confirmation to Atrium
to the effect that the checks can be negotiated to them
(Atrium) by E.T. Henry. Therefore, she may be held
personally liable along with E.T. Henry (but not with
Hi-Cement where she is an officer).
4. Republic of the Phils. V Acoje Mining Co., Inc.
7 SCRA 361
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 the SC.
ISSUES:
1. Whether or not the board of directors’ acts was ultra
vires?
2. Whether or not its liability was that of a mere
guarantor?
RULING:
1. No. The act covers a subject which concerns the
benefit, convenience, and welfare of the company’s
– SECOND SET CASE DIGEST | 11
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.
In the present case, 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.
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.
2. No. The phraseology and the terms employed are so
clear and sweeping. "A mere reading of the resolution
of the Board of Directors dated August 31, 1949, upon
which the plaintiff based its claim would show that the
responsibility of the defendant company is not just that
of a guarantor. Notice that the phraseology and the
terms employed are so clear and sweeping and that
the defendant assumed 'full responsibility for all cash
received by the Postmaster.' Here the responsibility of
the defendant is not just that of a guarantor. It is
clearly that of a principal."
G. BOARD OF DIRECTORS AND TRUSTEES
1. G.R. No. 174909, January 20, 2016
MARCELINO M. FLORETE, JR., MARIA ELENA F.
MUYCO AND RAUL A.
MUYCO, Petitioners, v. ROGELIO M. FLORETE,
IMELDA C. FLORETE, DIAMEL CORPORATION,
ROGELIO C. FLORETE JR., AND MARGARET RUTH
C. FLORETE, Respondents.
G.R. NO. 177275
ROGELIO M. FLORETE SR., Petitioner, v.
MARCELINO M. FLORETE, JR., MARIA ELENA F.
MUYCO AND RAUL A.
MUYCO, Respondents.
FACTS:
This resolves consolidated cases involving a Complaint
for Declaration of Nullity of Issuances, Transfers and
Sale of Shares in People's Broadcasting Service, Inc.
and All Posterior Subscriptions and Increases thereto
2
with Damages. The Complaint did not implead as
parties the concerned corporation, some of the
transferees, transferors and other parties involved in
3
the assailed transactions. The Petition docketed as
G.R. No. 174909 assails the Court of Appeals Decision
affirming the dismissal of the Complaint and sustaining
the award of P25,000,000.00 as moral damages and
P5,000,000.00 as exemplary damages in favor of
4
Rogelio Florete, Sr. The Petition docketed as G.R. No.
177275 assails the Court of Appeals Decision that
disallowed the immediate execution of the same award
of damages.
 CORPORATION LAW
Spouses Marcelino Florete, Sr. and Salome Florete
(now both deceased) had four (4) children: Marcelino
Florete, Jr. (Marcelino, Jr.), Maria Elena Muyco (Ma.
Elena), Rogelio Florete, Sr. (Rogelio, Sr.), and Teresita
5 People' Broadcasting's different boards of directors is a
Menchavez (Teresita), now deceased.
People's Broadcasting Service, Inc. (People's
Broadcasting) is a private corporation authorized to
operate, own, maintain, install, and construct radio
6
and television stations in the Philippines. In its
7
incorporation on March 8, 1966, it had an authorized
capital stock of P250,000.00 divided into 2,500 shares
8 violations of and liabilities arising from the Corporation
at PI00.00 par value per share.
Twenty-five percent (25%) of the corporation's
authorized capital stock were then subscribed to as
follows:
Stockholder Number of Shares
Marcelino Florete, Sr. 250 shares
(Marcelino, Sr.)
Salome Florete (Salome) 100 shares
Ricardo Berlin (Berlin) 50 shares
Pacifico Sudario (Sudario) 50 shares
10
Atty. Santiago Divinagracia 50 shares
9 121
(Divinagracia), now deceased
On November 17, 1967, Berlin and Sudario resigned
from their positions as General Manager and Station
11
Supervisor, respectively. Berlin and Sudario each
transferred 20 shares to Raul Muyco and Estrella
12
Mirasol.
Movement of shares transpired but There were no
other transactions affecting the interest of the
beneficial stockholders up to October 31, 1993 except
transfers to and from designated nominees.
On November 2, 1994, Sycip Gorres Velayo and Co.
submitted a... report detailing the movements of the
corporation's shares from November 23, 1967 to
December 8, 1989.
On February 1, 1997, the Board of Directors of
People's Broadcasting approved Sycip Gorres Velayo
and Co.'s report.
In the meantime, Rogelio, Sr. transferred a portion of his
shareholdings to the members of his immediate family,
namely: Imelda Florete, Rogelio Florete, Jr., and Margaret
Ruth Florete, as well as to Diamel Corporation, a
corporation owned by Rogelio, Sr.'s family.
On June 23, 2003, Marcelino, Jr., Ma. Elena, and Raul
Muyco (Marcelino, Jr. Group) filed before the Regional
Trial Court a Complaint
25
for Declaration of Nullity of
Issuances, Transfers and Sale of Shares in People's
Broadcasting Service, Inc. and All Posterior
26
Subscriptions and Increases thereto with Damages
against Diamel Corporation, Rogelio, Sr., Imelda
Florete, Margaret Florete, and Rogelio Florete, Jr.
(Rogelio, Sr. Group).
Regional Trial Court issued a Decision (which it called a
"Placitum") dismissing the Marcelino, Jr. Group's
Complaint.
The Court of Appeals denied the Marcelino, Jr. Group's
Petition and affirmed the trial court Decision.
The Court of Appeals denied the Marcelino, Jr. Group's
Motion for Reconsideration.
– SECOND SET CASE DIGEST | 12
ISSUE:
Whether or not the corporate acts undertaken by
sufficient cause for the reversal of such acts.
HELD:
YES.
the Marcelino, Jr. Group anchored their Complaint on
114
Code, specifically: Section 23 (on corporate decision-
making being vested in the board of directors), Section
115
25 (quorum requirement for the transaction of
116 117
corporate business), Sections 39 and 102 (both on
118
stockholders' preemptive rights), Section 62
(stipulating the consideration for which stocks must be
119
issued), Section 63 (stipulating that no transfer of
shares "shall be valid, except as between the parties,
until the transfer is recorded in the books of the
120
corporation"), and Section 65 (on liabilities of
directors and officers "to the corporation and its
creditors" for the issuance of watered stocks) in
relation to provisions in People's Broadcasting's Articles
of Incorporation and By-Laws as regards conditions for
issuances of and subscription to shares. The Marcelino,
Jr. Group ultimately prays that People's Broadcasting's
entire capital structure be reconfigured to reflect a
status quo ante. chanroblesvirtuallawlibrary
As with Ching and Wellington, the actions being assailed
by the Marcelino, Jr. Group pertain to parties that are not
extraneous to People's Broadcasting. They assail and seek
to nullify acts taken by various iterations of People's
Broadcasting's Board of Directors. All these acts and
incidents concern the capital structure of People's
Broadcasting. These acts reconfigured, through
redistribution and enlargement, the structure of People's
Broadcasting's equity ownership. These acts also admitted
into People's Broadcasting new equity holders such as
Consolidated Broadcasting System, Inc. and Newsounds
Broadcasting Network, Inc.
As Ching and Wellington exemplifies, the action should be
a proper derivative suit even if the assailed acts do not
pertain to a corporation's transactions with third persons.
Cua, Jr. established that the pivotal consideration is
whether the wrong done as well as the cause of action
arising from it accrues to the corporation itself or to the
whole body of its stockholders. Ching and Wellington
states that if "[t]he causes of action pleaded
... do not accrue to a single shareholder or a class of
122
shareholders but to the corporation itself," the action
should be deemed a derivative suit. Also, in Go, an action
"seeking to nullify and invalidate the duly constituted acts
[of a corporation]" entails a cause of action that "rightfully
pertains to [the corporation itself and which stockholders]
cannot exercise . . . except through a derivative
123
suit." chanroblesvirtuallawlibrary
These are the same conditions in this case. What the
Marcelino, Jr. Group asks is the complete reversal of a
number of corporate acts undertaken by People'
Broadcasting's different boards of directors. These
boards supposedly engaged in outright fraud or, at the
very least, acted in such a manner that amounts to
wanton mismanagement of People's Broadcasting's
affairs. The ultimate effect of the remedy they seek is
the reconfiguration of People's Broadcasting's capital
structure.
The remedies that the Marcelino, Jr. Group seeks are
for People's Broadcasting itself to avail. Ordinarily,
these reliefs may be unavailing because objecting
stockholders such as those in the Marcelino, Jr. Group
 CORPORATION LAW
do not hold the controlling interest in People's
Broadcasting. This is precisely the situation that the rule
permitting derivative suits contemplates: minority
shareholders having no other recourse "whenever the
directors or officers of the corporation refuse to sue to
vindicate the rights of the corporation or are the ones to
be sued and are in control of the
corporation."
124
chanroblesvirtuallawlibrary
The Marcelino, Jr. Group points to violations of specific
provisions of the Corporation Code that supposedly
attest to how their rights as stockholders have been
besmirched. However, this is not enough to sustain a
claim that the Marcelino, Jr. Group initiated a valid
individual or class suit. To reiterate, whether
stockholders suffer from a wrong done to or involving
a corporation does not readily vest in them a sweeping
license to sue in their own capacity.
The specific provisions adverted to by the Marcelino, Jr.
Group signify alleged wrongdoing committed against the
corporation itself and not uniquely to those stockholders
who now comprise the Marcelino, Jr. Group. A violation of
Sections 23 and 25 of the Corporation Code—on how
decision-making is vested in the board of directors and on
the board's quorum requirement—implies that a decision
was wrongly made for the entire corporation, not just with
respect to a handful of stockholders. Section 65
specifically mentions that a director's or officer's liability
for the issuance of watered stocks in violation of Section
62 is solidary "to the corporationand its creditors," not to
any specific stockholder. Transfers of shares made in
violation of the registration requirement in Section 63 are
invalid and, thus, enable the corporation to impugn the
transfer. Notably, those in the Marcelino, Jr. Group have
not shown any specific interest in, or unique entitlement
or right to, the shares supposedly transferred in violation
of Section 63.
Also, the damage inflicted upon People's
Broadcasting's individual stockholders, if any, was
indiscriminate. It was not unique to those in the
Marcelino, Jr. Group. It pertained to "the whole body of
125
[People's Broadcasting's] stock." Accordingly, it was
upon People's Broadcasting itself that the causes of
action now claimed by the Marcelino Jr. Group accrued.
While stockholders in the Marcelino, Jr. Group were
permitted to seek relief, they should have done so not
in their unique capacity as individuals or as a group of
stockholders but in place of the corporation itself
through a derivative suit. As they, instead, sought
relief in their individual capacity, they did so bereft of a
cause of action. Likewise, they did so without even the
slightest averment that the requisites for the filing of a
derivative suit, as spelled out in Rule 8, Section 1 of
the Interim Rules of Procedure for Intra -Corporate
Controversies, have been satisfied. Since the
Complaint lacked a cause of action and failed to
comply with the requirements of the Marcelino, Jr.
Group's vehicle for relief, it was only proper for the
Complaint to have been dismissed.
2. G.R. No. 215764, July 06, 2015
RICHARD K. TOM, Petitioner, v. SAMUEL N.
RODRIGUEZ, Respondent.
FACTS:
Golden Dragon International Terminals, Inc. (GDITI) is
the exclusive Shore Reception Facility (SRF) Service
Provider of the Philippine Ports Authority (PPA) tasked
to collect, treat, and dispose of all ship-generated oil
wastes in all bases and private ports under the PPA’s
jurisdiction.
Fidel Cu (Cu) sold via Deed of Conditional Sale his
17,237 shares of stock in GDITI to Virgilio S. Ramos
– SECOND SET CASE DIGEST | 13
5
(Ramos) and Cirilo C. Basalo, Jr. (Basalo). When the
latter failed to pay the purchase price, Cu sold 15,233
of the same shares through a Deed of Sale in favor of
Edgar D. Lim (Lim), Eddie C. Ong (Ong), and Arnold
Gunnacao (Gunnacao), who also did not pay the
consideration therefor.
The following were elected as officers of GDITI: Lim as
President and Chairman of the Board, Basalo as Vice
President for Visayas and Mindanao, Ong as Treasurer
and Vice President for Luzon, and Gunnacao as
Director, among others.
7
8
However, a group led by Ramos composed of
individuals who were not elected as officers of GDITI –
which included Tom – forcibly took over the GDITI
offices and performed the functions of its officers. This
prompted GDITI, through its duly-elected Chairman
and President, Lim, to file an action for injunction and
damages against Ramos, et al.,
Pending the injunction case, Cu resold his shares of
stock in GDITI to Basalo for a consideration of
60,000,000.00, as evidenced by an Agreement. Under
the said agreement, Cu sold not only his remaining
1,997 shares of stock in GDITI, but also the shares of
stock subject of the previously-executed Deed of
Conditional Sale in favor of Ramos, as well as the Deed
of Sale in favor of Lim, Ong, and Gunnacao, where the
11
respective considerations were not paid.
As such, Cu intervened in the injunction case claiming
that, as an unpaid seller, he was still the legal owner of
the shares of stock subject of the previous contracts he
12
entered into with Ramos, Lim, Ong, and Gunnacao.
RTC-Manila granted Cu’s application for Preliminary
Mandatory and Preliminary Prohibitory Injunctions, and
thereafter issued corresponding writs therefor on
14
October 20, 2010, which, inter alia, directed the
original parties (plaintiff Lim and those acting under his
authority, and defendants Ramos, et al.) to cease and
desist from performing or causing the performance of
any and all acts of management and control over
GDITI, and to give Cu, as intervenor, the authority to
put in order GDITI’s business operations.
In view of his successful intervention in the injunction
case, Cu executed a Special Power of Attorney 16 (SPA)
dated October 18, 2010 in favor of Cezar O. Mancao II
(Mancao) constituting the latter as his duly authorized
representative to exercise the powers granted to him in
the October 11, 2010 Order, and to perform all acts of
management and control over GDITI.
Thereafter, herein respondent Samuel N.
Rodriguez (Rodriguez) filed a Complaint-in-
23
Intervention, alleging that in a Memorandum of
24
Agreement (MOA) dated May 2, 2012, Basalo
authorized him to take over, manage, and control the
operations of GDITI in the Luzon area, and, in such
regard, effectively revoked whatever powers Basalo had
previously given to Mancao. In the said MOA, Basalo and
Rodriguez agreed to divide between them the monthly net
profit of GDITI equally. However, as Basalo purportedly
refused to honor the terms and conditions of the MOA
25
despite demand, Rodriguez sought to intervene in the
specific performance case to compel Basalo to faithfully
comply with his undertaking.
Basalo failed to present any evidence to contradict
Rodriguez’s allegations, despite having been given the
opportunity to do so.
RTC-Nabunturan granted Rodriguez’s application for the
issuance of a writ of preliminary mandatory injunction,
 CORPORATION LAW
conditioned on the filing of a bond in the amount of
P1,000,000.00.
CA denied Tom’s prayer for the issuance of a TRO
and/or writ of preliminary injunction.
ISSUE:
Whether or not Rodriguez has the powers of
management and control over Golden Dragon
International Terminals, Inc.
RULING:
NO.
It is a well-entrenched rule that a corporation
exercises its powers through its board of directors
and/or its duly authorized officers and agents, except
in instances where the Corporation Code requires
46
stockholders’ approval for certain specific acts. As
statutorily provided for in Section 23 of Batas
47
Pambansa Bilang 68, otherwise known as “The
Corporation Code of the Philippines”.
SEC. 23. The board of directors or trustees. – Unless
otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be
exercised, all business conducted and all property of
such corporations controlled and held by the board
of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for
one (1) year until their successors
are elected and qualified.
Every director must own at least one (1) share of the
capital stock of the corporation of which he is a
director, which share shall stand in his name on the
books of the corporation. Any director who ceases to
be the owner of at least one (1) share of the capital
stock of the corporation of which he is a director shall
thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. A majority of
the directors or trustees of all corporations organized
under this Code must be residents of the Philippines.
(Emphasis and underscoring supplied)
Accordingly, it cannot be doubted that the
management and control of GDITI, being a stock
corporation, are vested in its duly elected Board of
Directors, the body that: (1) exercises all powers
provided for under the Corporation Code; (2) conducts
all business of the corporation; and (3) controls and
holds all property of the corporation. Its members
have been characterized as trustees or directors
clothed with a fiduciary character.
In the present case, Rodriguez is just a mere
intervenor, on the basis of a MOA between the latter
and Basalo, in violation of the foregoing provision of
the Corporation Code.
49
It likewise appears from the records that pending
these proceedings, Tom has been elected as a member
of the current Board of Directors of GDITI, hence, the
injunctive writ must issue in line with the above-
disquisition, without prejudice to the resolution on the
merits of the specific performance case pending before
the RTC-Nabunturan of which the the instant petition is
but a mere incident.
3.[G.R. No. 204261. October 5, 2016.
EDWARD C. DE CASTRO and MA. GIRLIE F.
PLATON, petitioners, vs. COURT OF APPEALS,
NATIONAL LABOR RELATIONS COMMISSION,
– SECOND SET CASE DIGEST | 14
SILVERICON, INC., and/or NUVOLAND PHILS.,
INC., and/or RAUL MARTINEZ, RAMON
BIENVENIDA, and the BOARD OF DIRECTORS OF
NUVOLAND, responden ts.
FACTS:
Nuvoland, a corporation formed primarily "to own, use,
improve, develop, subdivide, sell, exchange, lease and
hold for investment or otherwise, real estate ofall kinds,
including buildings, houses, apartments and other
structures," was registered with the Securities and
Exchange Commission (SEC) on August 9,
2006. 6Respondent Ramon Bienvenida (Bienvenida)
was the principal stockholder and member of the
Board of Directors while Raul Martinez (Martinez) was
its President.
Silvericon, on the other hand, was registered with the
SEC on December 19, 2006. Its Articles of
Incorporation described it as a "corporation organized
'to own, use, improve, develop, subdivide, sell,
exchange, lease and hold for investment or
otherwise, real estate of all kinds, including buildings,
houses, apartments and other structures.'" 7
In 2007, Martinez recruited petitioner Edward de Castro
(De Castro), a sales and marketing professional. De
Castro was made to sign a Memorandum of Agreement
(MOA), denominated as Shareholders Agreement, 8
wherein Martinez proposed to create a new corporation,
through which the latter's compensation, benefits and
commissions, including those of other sales personnel,
would be coursed. It was stipulated that the new
corporation 9would have an authorized capital stock of
P4,000,000.00, of which P1,000,000.00 was subscribed
and paid equally by the Martinez Group and the De
Castro Group. 10
As it turned out, the supposedly new corporation
contemplated was Silvericon with De Castro as
President and majority stockholder while Bienvenida
and Martinez were named as stockholders and
incorporators thereof, each owning one (1) share of
subscribed capital stock.
In the same MOA, Martinez was designated as
Chairman to whom De Castro, as President and Chief
Operating Officer, would directly report. Martinez was
to receive a monthly allowance of P125,000.00, while
De Castro's monthly salary was P400,000.00, with car
plan and project income bonus, among other perks.
Both Martinez and De Castro were stipulated to
receive override commissions at 1% each, based on
the net contract price of each condominium unit sold.
During De Castro's tenure as Chief
Operating Officer of the newly created Silvericon,
he recruited forty (40) sales and marketing
personnel. One of them was petitioner Ma. Girlie F.
Platon (Platon) who occupied the position of
Executive Property Consultant.
Thereafter, a Sales and Marketing
Agreement 12 (SMA) was purportedly executed by
Nuvoland and Silvericon, stipulating that all
payments made for the condominium projects of
Nuvoland were to be given directly to it. Clients
secured by the sales and marketing personnel
would issue checks payable to Nuvoland while the
cash payments, as the case may be, were
deposited to Nuvoland's account.
Meanwhile, the corresponding sales commission of
the sales personnel were issued to them by
Nuvoland, with Martinez signing on behalf of the
said company.
In a Letter, 13 dated December 12, 2008 and
signed by Bienvenida, Nuvoland terminated the
 CORPORATION LAW
SMA on the ground that Silvericon personnel
committed an unauthorized walkout and
abandonment of the Nuvo City Showroom for two
(2) days.
Aggrieved, De Castro and Platon filed a
complaint for illegal dismissal.
The Ruling of the Labor Arbiter- in favor of De
Castro and Platon. He concluded that Silvericon
was a mere labor-only contractor and, therefore, a
mere agent of Nuvoland.
The Ruling of the NLRC- reversed the LA decision,
finding that Silvericon was an independent
contractor, thus, the direct employer of De Castro
and Platon.
The Ruling of the CA- affirmed the findings of the
NLRC
ISSUE:
WON the two corporations should be treated as
one? YES
RULING:
The conclusion that Silvericon was a mere
labor-only contractor and a business conduit of
Nuvoland warrants the piercing of its corporate
veil.
As ruled in Prince Transport, Inc. v. Garcia,
27 it is the act of hiding behind the separate and
distinct personalities of juridical entities to
perpetuate fraud, commit illegal acts and evade
one's obligations, that the equitable piercing
doctrine was formulated to address and prevent.
Consequently, the piercing of the corporate
veil disregards the seemingly separate and distinct
personalities of Nuvoland and Silvericon with the
aim ofpreventing the anomalous situation abhorred
by prevailing labor laws. That Silvericon was
independent from Nuvoland's personality could not
be given legal imprimatur as the same would pave
the way for Nuvoland's complete exoneration from
liability after a circumvention of the law. Besides, a
contrary proposition would leave the petitioners
without any recourse notwithstanding the
unquestioned fact that Nuvoland eventually
assented to the settlement of all the sales and
marketing personnel's commissions and wages
before the LA, except the petitioners. The
respondents in their comment were strikingly silent
on this point.
In the interest of justice and equity, that veil
of corporate fiction must be pierced, and Nuvoland
and Silvericon be regarded as one and the same
entity to prevent a denial of what the petitioners are
entitled to. In a situation like this, an employer-
employee relationship between the principal and the
dismissed employees arises by operation of law.
Silvericon being merely an agent, its employees were
in fact those of Nuvoland. Stated
differently, Nuvoland was the principal employer of
the petitioners.
ISSUES:
What is the 1) corporate liability of Nuvoland as the
principal employer of the petitioners; and 2)
individual liabilities of the respondents, as officers
thereof, if any.
– SECOND SET CASE DIGEST | 15
RULING:
Solidary liability is imposed by law on the principal
who is deemed as the direct employer of the
employees.
Thus, Nuvoland is solidarily liable with Silvericon for
the monetary claims of the petitioners who were
clearly their employees. Further, the application of
law and jurisprudence on illegal dismissal becomes
relevant. In Skippers United Pacific, Inc. v. Doza, 38
the Court held that for a worker's dismissal to be
considered valid, it must comply with both
procedural and substantive due process.
Corporate Directors and Officers, Not Liable
A corporation, being a juridical entity, may act only
through its directors, officers and employees.
Obligations incurred by them, acting as such
corporate agents, are not theirs but the direct
accountabilities of the corporation they represent. 42
Pursuant to this principle, a director, officer or
employee of a corporation is generally not held
personally liable for obligations incurred by the
corporation; it is only in exceptional circumstances
that solidary liability will attach to them. 43Thus, in
labor cases, the Court has held that corporate
directors and officers are solidarily liable with the
corporation for the employee's termination only
when the same is done with malice or in bad faith.
The records are bereft of any evidence at all that
respondents Martinez and Bienvenida acted with
malice, ill will or bad faith when the SMA was
terminated. Hence, the said individual officers cannot
be held solidarily liable for the money claims due the
petitioners.
4. [G.R. No. 213939. October 12, 2016.]
LYLITH B. FAUSTO, JONATHAN FAUSTO, RICO
ALVIA, ARSENIA TOCLOY, LOURDES ADOLFO and
ANECITA MANCITA, petitioners, vs. MULTI AGRI-
FOREST AND COMMUNITY DEVELOPMENT
COOPERATIVE (formerly MAF CAMARINES SUR
EMPLOYEES COOPERATIVE, INC.), respondent.
FACTS:
Multi Agri-Forest and Community Development
Cooperative 4 (respondent) is a registered credit
cooperative wherein Lylith Fausto (Lylith), Jonathan
Fausto(Jonathan), Rico Alvia (Rico), Arsenia Tocloy
(Arsenia), Lourdes Adolfo (Lourdes) and Anecita
Mancita (Anecita) 5 (collectively, the petitioners) are
active members. 6
On September 10, 1998, Lylith obtained a loan from the
respondent in the amount of P80,000.00, with due date
on January 8, 1999. 7 Subsequently, she secured
another loan in the amount of P50,000.00 which will fall
due on March 14, 1999. 8 Shortly thereafter, she
procured a third loan from the respondent also in the
amount of P50,000.00. 9 All of the mentioned
transactions were evidenced by separate promissory
notes, with Anecita and Lourdes signing as co -makers in
the first and second loans, and Rico and Glicerio Barce
(Glicerio) in the third loan.
Similarly, on October 27, 1998, Jonathan obtained a loan
from the respondent in the amount of P60,000.00 to fall
due on February 24, 1999, with Lylith and Glicerio as co-
makers. 10 Thereafter, he obtained a second loan in the
amount of P100,000.00, with Lylith and Arsenia as his
co-makers. 11 All five loans obtained by Lylith and
Jonathan were imposed with an interest of 2.3% per
month, with surcharge of 2% in
 CORPORATION LAW
case of default in payment of any installment due.
SDHTEC
Lylith and Jonathan, however, failed to pay their
loans. Thus, the respondent, through its Acting
Manager Ma. Lucila G. Nacario (Nacario), filed five
separate complaints 12 for Collection of Sum of
Money before the Municipal Trial Court in Cities
(MTCC) of Naga City against the petitioners.
After the respondent rested its case, Rico, Glicerio,
Lourdes, Arsenia and Anecita filed a motion to dismiss
by way of a demurrer to evidence on the ground of
lack of authority of Nacario to file the complaints and
to sign the verification against forum shopping.
MTCC- denied the demurrer to evidence and held the
petitioners liable for the payment of specified amount
of loans, which include interests, penalties and
surcharges, plus 12% interest thereon.
RTC- affirmed with modification the decision of the
MTCC. It reverted the liability of the petitioners to
the original amount of the loan stated in the
promissory notes and reduced the interest and
surcharge to 12% per annum, respectively.
CA- affirmed the decision of the RTC
*As regards the authority of Nacario to initiate the
filing of the complaints, the same had been
confirmed by a board resolution recognizing her
authority to do so.
ISSUE:
WON Nacario had the authority to file the
complaints? YES
RULING:
The Board of Directors (BOD)
ratified the acts of Nacario.
The petitioners asseverate that Nacario has no
authority to file the complaints on behalf of the
respondent. They argue that it is only by the
authority of a board resolution that Nacario may be
able to validly pursue acts in representation of the
cooperative. They also contend that the applicable
law is R.A. No. 6938 or the Cooperative Code of the
Philippines (Cooperative Code) 37 and not the
Corporation Code of the Philippines (Corporation
Code).
That the applicable law should be the Cooperative Code
and not the Corporation Code is not sufficient to warrant
a different resolution of this case. Verily, both codes
recognize the authority of the BOD, through a duly-
issued board resolution, to act and represent the
corporation or the cooperative, as the case maybe, in
the conduct of official business. In Section 23 38 of the
Corporation Code, it is provided that all corporate
powers of all corporations formed under the Code shall
be exercised by the BOD. All businesses are conducted
and all properties of corporations are controlled and
held by the same authority. In the same manner, under
Section 39 of the Cooperative Code, the BOD is given
the power to direct and supervise the business,
manages the property of the cooperative and may, by
resolution, exercise all such powers of the cooperative.
The BOD, however, may authorize a responsible officer
to act on its behalf through the issuance of a board
resolution attesting to its consent to the representation
and providing for the scope of authority.
– SECOND SET CASE DIGEST | 16
Nevertheless, there were instances when the Court
recognized the authority of some officers to file a
case on behalf of the corporation even without the
presentation of the board resolution. In Cagayan
Valley Drug Corporation v. Commissioner of Internal
Revenue, 39 it was noted, thus:
In a slew of cases, however, we have recognized the
authority of some corporate officers to sign the
verification and certification against forum shopping.
InMactan-Cebu International Airport Authority v. CA, we
recognized the authority of a general manager or acting
general manager to sign the verification and certificate
against forum shopping; in Pfizer v. Galan, we upheld
the validity of a verification signed by an "employment
specialist" who had not even presented any proof of her
authority to represent the company; in Novelty
Philippines, Inc. v. CA, we ruled that a personnel officer
who signed the petition but did not attach the authority
from the company is authorized to sign the verification
and non-forum shopping certificate; and in Lepanto
Consolidated Mining Company v. WMC Resources
International Pty. Ltd. (Lepanto), we ruled that the
Chairperson of the Board and President of the Company
can sign the verification and certificate against non-
forum shopping even without the submission of the
board's authorization.
In sum, we have held that the following officials
or employees of the company can sign the
verification and certification without need of a
board resolution: (1) the Chairperson of the Board of
Directors, (2) the President of a corporation, (3) the
General Manager or Acting General Manager,
(4) Personnel Officer, and (5) an Employment
Specialist in a labor case. 40 (Citation omitted and
emphasis ours)
In the abovementioned cases, however, the Court
clarified that the determination of the sufficiency of
the authority of the concerned officers was done on a
case to case basis. The rationale in justifying the
authority of corporate officers or representatives of
the corporation to sign the verification or certificate
against forum shopping is that they are in the best
position to verify the truthfulness and correctness of
the allegations in the petition. 41 Nonetheless, this
was not meant to trump the established rule of
issuing a board resolution and appending a copy
thereof to the complaint or petition so as to preclude
any question on the authority to file the petition,
particularly in signing the verification and
certification against forum shopping.
Apart from the foregoing, the lack of authority of a
corporate officer to undertake an action on behalf of
the corporation or cooperative may be cured by
ratification through the subsequent issuance of a
board resolution, recognizing the validity of the
action or the authority of the concerned officer.
In this case, the respondent expressly recognized the
authority of Nacario to file the complaints in Resolution
No. 47, Series of 2008, 44 in which the BOD resolved to
recognize, ratify and affirm as if the same were fully
authorized by the BOD, the filing of the complaints
before the MTCC of Naga City by Nacario. In a similar
issue raised in Swedish Match Philippines, Inc. v. The
Treasurer of the City of Manila, 45 the Court upheld the
subsequent issuance of a board resolution recognizing
the authority of the corporation's finance manager as
sufficient to acknowledge the authority of the said
officer to file a petition with the RTC on behalf of the
corporation. It ratiocinated that, by virtue of the
issuance of the board resolution, the corporation ratified
the authority of the concerned corporate officer to
represent it in the petition filed before the RTC and
consequently to
 CORPORATION LAW
sign the verification and certification of non-forum
shopping on behalf of the corporation. 46Here,
considering that Nacario's authority had been ratified
by the BOD, there is no reason for the Court not to
uphold said authority.
5. G.R. Nos. 188642 & 189425. October 17,
2016.
AGDAO LANDLESS RESIDENTS ASSOCIATION,
INC., et al. vs. ROLANDO MARAMION, et al.
[G.R. Nos. 188888-89. October 17, 2016.]
ROLANDO MARAMION, et
al. vs. AGDAO LANDLESSRESIDENTS
ASSOCIATION, INC., et al.
FACTS:
The Parties
Pet. are Agdao Landless Residents Association, Inc.
(ALRAI), a non-stock, non-profit corporation duly
organized and existing under and by virtue of the laws
of the Republic of the Philippines, 4 and its board of
directors, 5 namely, Armando Javonillo (Javonillo), Ma.
Acelita Armentano (Armentano), Alex Josol, Salcedo de
la Cruz, Jr., Claudio Lao, Antonia Amorada, Julius
Alinsub, Pompeniano Espinosa, Consorcio Delgado,
Romeo Cabillo, Benjamin Lamigo, Ricardo Bacong,
Rodolfo Galenzoga, and Asuncion Alcantara (Alcantara).
6 Respondents are allegedly ousted members of ALRAI,
namely, Rolando Maramion, Leonidas Jamisola, Virginia
Canoy (Canoy), Elizabeth Gonzales, Crispiniano Quire-
Quire, Ernestino Dunlao, Ella Demandante, Ella Ria
Demandante, Elgin Demandante, Saturnina Witara
(Witara), Virgilio Dayondon (Dayondon), Melencia
Maramion, Angelica Penkian (Penkian), Presentacion
Tan, Hernani Gregory (Gregory), Rudy Gimarino
(Gimarino), Valentin Cameros, Rodel Cameros
(Cameros), Zoilo Jabonete, Luisito Tan (Tan), Joseph
Quire-Quire, Ernestino Dunlao, Jr., Fred Dunlao, Liza
Maramion, Clarita Robilla (Robilla), Renato Dunlao and
Prudencio Juariza, Jr. (Juariza). 7
The Antecedents
Dakudao & Sons, Inc. (Dakudao) executed six Deeds
of Donation 8 in favor of ALRAI covering 46 titled
lots (donated lots). 9 One Deed of Donation 10
prohibits ALRAI, as donee, from partitioning or
distributing individual certificates of title of the
donated lots to its members, within a period of five
years from execution, unless a written authority is
secured from Dakudao. 11 A violation of the
prohibition will render the donation void, and title to
and possession of the donated lot will revert to
Dakudao. 12 The other five Deeds of Donation do
not provide for the five-year restriction.
In the board of directors and stockholders meetings
held on January 5, 2000 and January 9, 2000,
respectively, members of ALRAI resolved to directly
transfer 10 of the donated lots to individual members
and non-members of ALRAI. 13
Respondents thus filed a Complaint 15 against
petitioners alleging that petitioners expelled them as
members of ALRAI, and that petitioners are abusing
their powers as officers. 16 Respondents further
alleged that petitioners were engaged in the
following anomalous and illegal acts: (1) requiring
ALRAI's members to pay exorbitant arrear fees when
ALRAI's By-Laws only set membership dues at P1.00
per month; 17 (2) partially distributing the lands
donated by Dakudao to some officers of ALRAI and
to some non-members in violation of the Deeds of
– SECOND SET CASE DIGEST | 17
Donation; 18 (3) illegally expelling them as
members of ALRAI without due process; 19 and (4)
being unable to show the books of accounts of
ALRAI. 20 They also alleged that Loy (who bought
one of the donated lots from Alcantara) was a buyer
in bad faith, having been aware of the status of the
land when she bought it. 21
RTC- in favour of the complainants
The court a quo treated the case as an intra-
corporate dispute. 29 It found respondents to be
bona fide members of ALRAI. 30 Being bona fide
members, they are entitled to notices of meetings
held for the purpose of suspending or expelling them
from ALRAI. 31 The court a quo however found that
respondents were expelled without due process. 32
It also annulled all transfers of the donated lots
because these violated the five-year prohibition
under the Deeds of Donation. 33 It also found Loy a
purchaser in bad faith. 34
CA- affirmed with modification the court a quo's
Decision
Under Section 2, Article III of ALRAI's Amended
Constitution and By -Laws (ALRAI Constitution), the
corporate secretary should give written notice of all
meetings to all members at least three days before
the date of the meeting. 40 The CA found that
respondents were not given notices of the meetings
held for the purpose of their termination from ALRAI
at least three days before the date of the meeting.
41 Being existing members of ALRAI, respondents
are entitled to inspect corporate books and demand
accounting of corporate funds in accordance with
Section 1, Article VII and Section 6, Article V of the
ALRAI Constitution. 42
ISSUES:
1. Whether respondents were illegally dismissed from
ALRAI? YES
2. Whether the transfers of the donated lots are valid?
NO
RULING:
I. Legality of respondents' termination
The court a quo held that respondents are bona fide
members of ALRAI. 55 This finding was not
disturbed by the CA because it was not raised as an
issue before it and thus, is binding and conclusive on
the parties and upon this Court. 56 In addition, both
the court a quo and the CA found that respondents
were illegally removed as members of ALRAI. Both
courts found that in terminating respondents from
ALRAI, petitioners deprived them of due process. 57
Section 91 58 of the Corporation Code of the
Philippines (Corporation Code) 59 provides that
membership in a non-stock, non-profit corporation
(as in petitioner ALRAI in this case) shall be
terminated in the manner and for the cases provided
in its articles of incorporation or the by-laws.
In turn, Section 5, Article II of the ALRAI
Constitution 60 states:
Sec. 5. Termination of Membership. — Membership
may be lost in any of the following: a) Delinquent
in the payment of monthly dues; b) failure to
[attend] any annual or special meeting of the
association for three consecutive times without
justifiable cause, and c) expulsion may be exacted
 CORPORATION LAW
by majority vote of the entire members, on causes
which herein enumerated: 1) Act and utterances
which are derogatory and harmful to the best
interest of the association; 2) Failure to attend any
annual or special meeting of the association for six
(6) consecutive months, which shall be construed as
lack of interest to continue his membership, and 3)
any act to conduct which are contrary to the
objectives, purpose and aims of the association as
embodied in the charter[.] 61
Petitioners allege that the membership of
respondents in ALRAI was terminated due to (a) non-
payment of membership dues and (b) failure to
consecutively attend meetings. 62 However,
petitioners failed to substantiate these allegations. In
fact, the court a quo found that respondents
submitted several receipts showing their compliance
with the payment of monthly dues. 63 Petitioners
likewise failed to prove that respondents' absences
from meetings were without any justifiable grounds to
result in the loss of their membership in ALRAI.
Even assuming that petitioners were able to
prove these allegations, the automatic termination of
respondents' membership in ALRAI is still not
warranted. As shown above, Section 5 of the ALRAI
Constitution does not state that the grounds relied
upon by petitioners will cause the automatic
termination of respondents' membership. Neither
can petitioners argue that respondents'
memberships in ALRAI were terminated under
letter (c) of Section 5, to wit:
. . . c) expulsion may be exacted by
majority vote of the entire members, on causes
which herein enumerated: 1) Act and utterances
which are derogatory and harmful to the best
interest of the association; 2) Failure to attend any
annual or special meeting of the association for six
(6) consecutive months, which shall be construed
as lack of interest to continue his membership, and
3) any act to conduct which are contrary to the
objectives, purpose and aims of the association as
embodied in the charter; . . . 64
Although termination of membership from ALRAI
may be made by a majority of the members, the
court a quo found that the "guideline (referring to
Section 2, Article III of the ALRAI Constitution) was
not followed, hence, complainants' ouster from the
association was illegally done." 65 The court a quo
cited Section 2, Article III of the ALRAI Constitution
which provides, thus:
Sec. 2. Notice. — The Secretary shall give or cause to
be given written notice of all meetings, regular or
special to all members of the association at least three
(3) days before the date of each meetings either by
mail or personally. Notice for special meetings shall
specify the time and the purposes or purpose for
which it was called; . . . 66
The CA concurred with the finding of the court a quo.
67 The CA noted that the evidence presented revealed
that the General Meeting for the termination of
membership was to be held on July 29, 2001, at 2
o'clock in the afternoon; but the Notice to all officers
and members of ALRAI informing them about the
General Meeting appeared to have been signed by
ALRAI's President only on July 27, 2001. 68 Thus, the
CA held that the "notice for the July 29, [2001] meeting
where the general membership of ALRAI approved the
expulsion of some of the respondents was short of the
three (3)-day notice requirement. More importantly, the
petitioners have failed to adduce evidence showing that
the expelled members were indeed notified of any
meeting or investigation proceeding where they are
given the opportunity to
– SECOND SET CASE DIGEST | 18
be heard prior to the termination of their
membership." 69
The requirement of due notice becomes more
essential especially so since the ALRAI Constitution
provides for the penalties to be imposed in cases
where any member is found to be in arrears in
payment of contributions, or is found to be absent
from any meeting without any justifiable cause.
Section 3, Article II and Section 3, Article III of the
ALRAI Constitution provide, to wit:
Article II
Sec. 3. Suspension of members. — Any member who
shall be six (6) months in arrears in the payment of
monthly dues or additional contributions or
assessments shall be automatically suspended and
may be reinstated only upon payment of the
corresponding dues in arrears or additional
contributions and after approval of the Board of
Directors. 70
Article III
Sec. 3. Any member who shall be absent from any
meeting without justifiable causes shall be liable to a
fine of Two Pesos (P2.00); 71
Clearly, members proved to be in arrears in the
payment of monthly dues, contributions, or
assessments shall only be automatically suspended;
while members who shall be absent from any meeting
without any justifiable cause shall only be liable for a
fine. Nowhere in the ALRAI Constitution does it say that
the foregoing actions shall cause the automatic
termination of membership. Thus, the CA correctly ruled
that, "respondents' expulsion constitutes an
infringement of their constitutional right to due process
of law and is not in accord with the principles
established in Article 19 of the Civil Code, . . . ." 72
II. On the validity of the donated lots
The TCTs issued in the names of Javonillo, Armentano
and Alcantara are void. 100 We modify the ruling of the
CA insofar as we rule that the TCTs issued in the names
of Dela Cruz and Loy are also void. 101
One of the primary purposes of ALRAI is the giving of
assistance in uplifting and promoting better living
conditions to all members in particular and the public
in general. 102 One of its objectives includes "to
uplift and promote better living condition, education,
health and general welfare of all members in
particular and the public in general by providing its
members humble shelter and decent housing." 103
Respondents maintain that it is pursuant to this
purpose and objective that the properties subject of
this case were donated to ALRAI. 104
Section 36, paragraphs 7 and 11 of the Corporation
Code provide:
Sec. 36. Corporate powers and capacity. — Every
corporation incorporated under this Code has the
power and capacity:
xxx xxx xxx
7. 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. xxx xxx xxx
 CORPORATION LAW
11. 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.
105
The Corporation Code therefore tells us that the
power of a corporation to validly grant or convey
any of its real or personal properties is
circumscribed by its primary purpose. It is therefore
important to determine whether the grant or
conveyance is pursuant to a legitimate corporate
purpose, or is at least reasonable and necessary to
further its purpose.
Based on the records of this case, we find that the
transfers of the corporate properties to Javonillo,
Armentano, Dela Cruz, Alcantara and Loy are bereft of
any legitimate corporate purpose, nor were they
shown to be reasonably necessary to further ALRAI's
purposes. This is principally because, as respondents
argue, petitioners "personally benefitted themselves by
allocating among themselves vast track of lands at the
dire expense of the landless general membership of
the Association." 106
The lack of legitimate corporate purpose is even
more emphasized when Javonillo and Armentano,
as a director and an officer of ALRAI, respectively,
violated the fiduciary nature 130 of their positions
in the corporation.
Section 32 of the Corporation Code provides, thus:
Sec. 32. Dealings of directors, trustees or officers with
the corporation. — A contract of the corporation with
one or more of its directors or trustees or officers is
voidable, at the option of such corporation, unless all
of the following conditions are present:
1. That the presence of such director or trustee in
the board meeting in which the contract was
approved was not necessary to constitute a quorum
for such meeting;
2. That the vote of such director or trustee was not
necessary for the approval of the contract;
3. That the contract is fair and reasonable under
the circumstances; and
4. That in case of an officer, the contract has been
previously authorized by the board of directors.
Where any of the first two conditions set forth in
the preceding paragraph is absent, in the case of a
contract with a director or trustee, such contract
may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds
(2/3) of the members in a meeting called for the
purpose: Provided, That full disclosure of the
adverse interest of the directors or trustees
involved is made at such meeting: Provided,
however, That the contract is fair and reasonable
under the circumstances.
Being the corporation's agents and therefore,
entrusted with the management of its affairs, the
directors or trustees and other officers of a
corporation occupy a fiduciary relation towards it,
and cannot be allowed to contract with the
corporation, directly or indirectly, or to sell property
to it, or purchase property from it, where they act
both for the corporation and for themselves. 131
6. G.R. No. 201298. February 5, 2014. RAUL C.
COSARE, petitioner, vs. BROADCOM ASIA, INC.
and DANTE AREVALO, respondents.
– SECOND SET CASE DIGEST | 19
FACTS:
The case stems from a complaint 4 for constructive
dismissal, illegal suspension and monetary claims filed
with the National Capital Region Arbitration Branch of
the National Labor Relations Commission (NLRC) by
Cosare against the respondents.
Cosare claimed that sometime in April 1993, he was
employed as a salesman by Arevalo, who was then in the
business of selling broadcast equipment needed by
television networks and production houses. In December
2000, Arevalo set up the company Broadcom, still to
continue the business of trading communication and
broadcast equipment. Cosare was named an incorporator
of Broadcom, having been assigned 100 shares of stock
with par value of P1.00 per share. 5 In October
2001,Cosare was promoted to the position of Assistant
Vice President for Sales (AVP for Sales) and Head of the
Technical Coordination, having a monthly basic net salary
and average commissions of P18,000.00 and P37,000.00,
respectively. 6
Sometime in 2003, Alex F. Abiog (Abiog) was
appointed as Broadcom's Vice President for Sales and
thus, became Cosare's immediate superior. On March
23, 2009,Cosare sent a confidential memo 7 to Arevalo
to inform him of the following anomalies which were
allegedly being committed by Abiog against the
company: (a) he failed to report to work on time, and
would immediately leave the office on the pretext of
client visits; (b) he advised the clients of Broadcom to
purchase camera units from its competitors, and
received commissions therefor; (c) he shared in the
"under the-table dealings" or "confidential
commissions" which Broadcom extended to its clients'
personnel and engineers; and (d) he expressed his
complaints and disgust over Broadcom's uncompetitive
salaries and wages and delay in the payment of other
benefits, even in the presence of office staff. Cosare
ended his memo by clarifying that he was not
interested in Abiog's position, but only wanted Arevalo
to know of the irregularities for the corporation's sake.
Apparently, Arevalo failed to act on Cosare's
accusations. Cosare claimed that he was instead called
for a meeting by Arevalo on March 25, 2009, wherein
he was asked to tender his resignation in exchange for
"financial assistance" in the amount of P300,000.00. 8
Cosare refused to comply with the directive, as
signified in a letter9 dated March 26, 2009 which he
sent to Arevalo.
On March 30, 2009, Cosare received from Roselyn
Villareal (Villareal), Broadcom's Manager for Finance
and Administration, a memo 10 signed by Arevalo,
charging him of serious misconduct and willful breach
of trust.
Cosare was given forty-eight (48) hours from the date
of the memo within which to present his explanation
on the charges. He was also "suspended from having
access to any and all company files/records and use of
company assets effective immediately." 12 Thus,
Cosare claimed that he was precluded from reporting
for work on March 31, 2009, and was instead
instructed to wait at the office's receiving section.
Upon the specific instructions of Arevalo, he was also
prevented by Villareal from retrieving even his
personal belongings from the office.
On April 1, 2009, Cosare was totally barred from
entering the company premises.
 CORPORATION LAW
LA - dismissed the complaint on the ground of
Cosare's failure to establish that he was dismissed,
constructively or otherwise, from his employment.
NLRC- found respondents guilty of Illegal
Constructive Dismissal.
CA- reversed the NLRC decision; it dismissed the
labor complaint on the ground of lack of jurisdiction
ISSUE:
WON the LA has jurisdiction over the
complaint? YES
RULING:
It is the LA, and not the regular courts, which has
the original jurisdiction over the subject controversy.
An intra-corporate controversy, which falls within the
jurisdiction of regular courts, has been regarded in its
broad sense to pertain to disputes that involve any of
the following relationships: (1) between the corporation,
partnership or association and the public;
(2) between the corporation, partnership or
association and the state in so far as its franchise,
permit or license to operate is concerned; (3) between
the corporation, partnership or association and its
stockholders, partners, members or officers; and (4)
among the stockholders, partners or associates,
themselves. 29 Settled jurisprudence, however,
qualifies that when the dispute involves a charge of
illegal dismissal, the action may fall under the
jurisdiction of the LAs upon whose jurisdiction, as a
rule, falls termination disputes and claims for damages
arising from employer-employee relations as provided in
Article 217 of the Labor Code. Consistent with this
jurisprudence, the mere fact that
Cosare was a stockholder and an officer of Broadcom
at the time the subject controversy developed failed
to necessarily make the case an intra-corporate
dispute.
In Matling Industrial and Commercial Corporation v.
Coros, 30 the Court distinguished between a "regular
employee" and a "corporate officer" for purposes of
establishing the true nature of a dispute or complaint
for illegal dismissal and determining which body has
jurisdiction over it. Succinctly, it was explained that
"[t]he determination of whether the dismissed officer
was a regular employee or corporate officer unravels
the conundrum" of whether a complaint for illegal
dismissal is cognizable by the LA or by the RTC. "In
case of the regular employee, the LA has jurisdiction;
otherwise, the RTC exercises the legal authority to
adjudicate. 31
Applying the foregoing to the present case, the
LA had the original jurisdiction over the complaint for
illegal dismissal because Cosare, although an officer of
Broadcom for being its AVP for Sales, was not a
"corporate officer" as the term is defined by law. We
emphasized in Real v. Sangu Philippines, Inc. 32 the
definition of corporate officers for the purpose of
identifying an intra-corporate controversy. Citing
Garcia v. Eastern Telecommunications Philippines, Inc.,
33 we held:
"'Corporate officers' in the context of
Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the
Corporation Code or by the corporation's by-
laws. There are three specific officers whom a
corporation must have under Section 25 of the
Corporation Code. These are the president, secretary
and the treasurer. The number of officers is
– SECOND SET CASE DIGEST | 20
not limited to these three. A corporation may have
such other officers as may be provided for by its by-
laws like, but not limited to, the vice-president,
cashier, auditor or general manager. The number of
corporate officers is thus limited by law and by the
corporation's by-laws." 34 (Emphasis ours)
In Tabang v. NLRC, 35 the Court also made
the following pronouncement on the nature of
corporate offices:
It has been held that an "office" is created by
the charter of the corporation and the officer is elected
by the directors and stockholders. On the other hand,
an "employee" usually occupies no office and generally
is employed not by action of the directors or
stockholders but by the managing officer of the
corporation who also determines the compensation to
be paid to such employee. 36 (Citations omitted)
As may be deduced from the foregoing, there
are two circumstances which must concur in order for
an individual to be considered a corporate officer, as
against an ordinary employee or officer, namely: (1)
the creation of the position is under the corporation's
charter or by-laws; and (2) the election of the officer is
by the directors or stockholders. It is only when the
officer claiming to have been illegally dismissed is
classified as such corporate officer that the issue is
deemed an intra-corporate dispute which falls within
the jurisdiction of the trial courts.
Finally, the mere fact that Cosare was a
stockholder of Broadcom at the time of the case's filing
did not necessarily make the action an intra-corporate
controversy. "[N]ot all conflicts between the stockholders
and the corporation are classified as intra-corporate.
There are other facts to consider in determining whether
the dispute involves corporate matters as to consider
them as intra-corporate controversies." 42 Time and
again, the Court has ruled that in determining the
existence of an intra-corporate dispute, the status or
relationship of the parties and the nature of the question
that is the subject of the controversy must be taken into
account. 43Considering that the pending dispute
particularly relates to Cosare's rights and obligations as a
regular officer of Broadcom, instead of as a stockholder of
the corporation, the controversy cannot be deemed intra-
corporate. This is consistent with the "controversy test"
explained by the Court in Reyes v. Hon. RTC, Br. 142, 44
to wit:
Under the nature of the controversy test, the
incidents of that relationship must also be considered for
the purpose of ascertaining whether the controversy itself
is intra-corporate. The controversy must not only be
rooted in the existence of an intra-corporate relationship,
but must as well pertain to the enforcement of the parties'
correlative rights and obligations under the Corporation
Code and the internal and intra-corporate regulatory rules
of the corporation. If the relationship and its incidents are
merely incidental to the controversy or if there will still be
conflict even if the relationship does not exist, then no
intra-corporate controversy exists. 45(Citation omitted)
It bears mentioning that even the CA's finding
46 that Cosare was a director of Broadcom when the
dispute commenced was unsupported by the case
records, as even the General Information Sheet of
2009 referred to in the CA decision to support such
finding failed to provide such detail.
All told, it is then evident that the CA erred in
reversing the NLRC's ruling that favored Cosare solely on
the ground that the dispute was an intra-corporate
controversy within the jurisdiction of the regular courts.
 CORPORATION LAW
7. LABORTE vs PAGSANJAN TOURISM
CONSUMERS COOPERATIVE
FACTS:
Petitioner Philippine Tourism Authority (PTA) is a
government-owned and controlled corporation that
administers tourism zones as mandated by Presidential
Decree (P.D.) No. 564 and later amended by P.D. No.
1400. PTA used to operate the Philippine Gorge Tourist
Zone (PGTZ) Administration Complex (PTA Complex),
a declared tourist zone in Pagsanjan, Laguna.
Respondent Pagsanjan Tourism Consumers’
Cooperative (PTCC) is a cooperative organized since
1988 under Republic Act No. 6938, or the "Cooperative
Code of the Philippines." The other individual
respondents are PTCC employees, consisting of
restaurant staff and boatmen at the PTA Complex.
In 1989, in order to help the PTCC as a cooperative,
the PTA allowed it to operate a restaurant business
located at the main building of the PTA Complex and
the boat ride services to ferry guests and tourists to
and from the Pagsanjan Falls, paying a certain
percentage of its earnings to the PTA.
In 1993, the PTA implemented a reorganization and
reshuffling in its top level management. Herein
petitioner Rodolfo Laborte (Laborte) was designated as
Area Manager, CALABARZON area with direct
supervision over the PTA Complex and other entities at
the Southern Luzon. Laborte served a written notice
upon the respondents to cease the operations of the
latter’s restaurant business and boat ride services in
view of the rehabilitation, facelifting and upgrading
project of the PTA Complex.
Consequently, on November 9, 1993, the PTCC filed a
Complaint for Prohibition, Injunction and Damages
with Temporary Restraining Order (TRO) and
Preliminary Injunction against Laborte, docketed as
Civil Case No. 3150. The PTCC also sought from the
court the award of moral and exemplary damages,
attorney’s fees and costs of suit. It also prayed for the
issuance of a TRO or writ of preliminary injunction to
prohibit Laborte from causing the PTCC to cease the
operations of the restaurant and boat ride services and
from evicting the PTCC’s restaurant from the main
building of the PTA Complex.
TC: issued the TRO prayed for, prohibiting Laborte from
(a) causing the PTCC to cease operations; (b) doing
the threatened act of closing the operation of the
PTCC’s restaurant and other activities; (c) evicting the
PTCC’s restaurant from the main building of the PTA
Complex; and (d) demolishing the said building.
Laborte opposed the issuance of the TRO and averred
that the PTCC does not own the restaurant facility as it
was only tolerated to operate the same by the PTA as
a matter of lending support and assistance to the
cooperative in its formative years. It has neither been
granted any franchise nor concession to operate the
restaurant nor any exclusive franchise to handle the
boating operations in the complex. Since the PTCC had
no contract, concession, or exclusive franchise to
operate the restaurant business and the boating
services in the PTA Complex, no existing right has
been allegedly violated by the petitioners.
ISSUE:
WON the closure of PTCC's restaurant and boatride
business was a valid and lawful exercise of PTA's
management prerogative
– SECOND SET CASE DIGEST | 21
RULING:
Yes.
The PTA is a government owned and controlled
corporation which was mandated to administer tourism
zones. Based on this mandate, it was the PTA’s obligation
to adopt a comprehensive program and project to
rehabilitate and upgrade the facilities of the PTA Complex
as shown in Annexes "H-2" to "H-4" of the petition. The
Court finds that there was indeed a renovation of the
Pagsanjan Administration Complex which was sanctioned
by the PTA main office; and such renovation was done in
good faith in performance of its mandated duties as
tourism administrator. In the exercise of its management
prerogative to determine what is best for the said agency,
the PTA had the right to terminate at any moment the
PTCC’s operations of the restaurant and the boat ride
services since the PTCC has no contract, concession or
franchise from the PTA to operate the above-mentioned
businesses. As shown by the records, the operation of the
restaurant and the boat ride services was merely
tolerated, in order to extend financial assistance to its PTA
employee -members who are members of the then
fledging PTCC.
Except for receipts for rents paid by the PTCC to the
PTA, the respondents failed to show any contract,
concession agreement or franchise to operate the
restaurant and boat ride services.1âwphi1 In fact, the
PTCC initially did not implead the PTA in its Complaint
since it was well aware that there was no contract
executed between the PTCC and the PTA. While the
PTCC has been operating the restaurant and boat ride
services for almost ten (10) years until its closure, the
same was by mere tolerance of the PTA.67 In the
consolidated case of Phil. Ports Authority v. Pier 8
Arrastre & Stevedoring Services, Inc.,68 the Court
upheld the authority of government agencies to
terminate at any time hold-over permits.69 Thus,
considering that the PTCC’s operation of the restaurant
and the boat ride services was by mere tolerance, the
PTA can, at any time, terminate such operation.
The CA ruled that "the closure of the restaurant and
boat ride business within the PTA Complex was tainted
with bad faith on the part of [the] defendants-
appellants."70 It referred to the Sheriff’s Report dated
January 19, 1994, which stated that no such repairs
and rehabilitation were actually undertaken. Further,
the petitioners engaged the services of a new
restaurant operator (the New Selecta Restaurant) after
the closure of the restaurant per official receipts
showing that the new operator of the restaurant paid
PTA commissions for its catering services from March
1994 to April 1994.71
The Court disagrees. The records disclose that
sufficient notice was given by the PTA for the
respondents to vacate the area. The Sheriff’s Report
dated January 19, 1994, alleging that there were, in
fact, no repairs and rehabilitation undertaken in the
area at the time of inspection cannot be given weight.
It must be noted that the RTC had issued on
November 11, 1993 a TRO enjoining the petitioners
from pursuing its actions. Thus, the absence of any
business activity in the premises is even proof of the
petitioner’s compliance to the order of the trial court.
Furthermore, the Sheriff’s Report was executed only
about a month after the announced construction or
development; thus, it cannot be expected that the
petitioners would immediately go full-blast in the
implementation of the repair and renovation.
As to the alleged engagement of the services of a new
restaurant operator, the Court agrees with the
petitioners that the engagement of New Selecta
 CORPORATION LAW
Restaurant was temporary and due only to the
requests of the guests who needed catering services
for the duration of their stay. The evidence offered by
the respondents which were receipts issued to New
Selecta Restaurant on different dates even emphasize
this point. From the foregoing, the Court concludes
that the engagement of New Selecta Restaurant is not
continuous but on contingency basis only.
With respect to Laborte's liability in his official and
personal capacity, the Court finds that Laborte was simply
implementing the lawful order of the PTA Management. As
a general rule the officer cannot be held personally liable
with the corporation, whether civilly or otherwise, for the
consequences of his acts, if acted for and in behalf of the
corporation, within the scope of his authority and in good
faith. Furthermore, the Court also notes that the charges
against petitioners Laborte and the PTA for grave coercion
and for the violation of R.A. 6713 have all been
dismissed.75 Thus, the Court finds no basis to hold
petitioner Laborte liable.
8. G.R. No. 171626, August 06, 2014
OLONGAPO CITY, Petitioner, v. SUBIC WATER AND
SEWERAGE CO., INC., Respondent.
FACTS:
8 The trial court denied Subic Water’s special appearance,
On May 25, 1973, Presidential Decree No. 198 (PD
198) took effect. This law authorized the creation of
local water districts which may acquire, install,
maintain and operate water supply and distribution
systems for domestic, industrial, municipal and
9 11
agricultural uses. cralawredPD 198, as amended,
allows local water districts (LWDs) which have acquired
an existing water system of a local government unit
(LGU) to enter into a contract to pay the concerned
LGU. In lieu of the LGU’s share in the acquired water
utility plant, it shall be paid by the LWD an amount not
exceeding three percent (3%) of the LWD’s gross
12
receipts from water sales in any year. cra
lawred
On October 24, 1990, petitioner filed a complaint for
sum of money and damages against OCWD. Among
others, petitioner alleged that OCWD failed to pay its
electricity bills to petitioner and remit its payment
under the contract to pay, pursuant to OCWD’s
acquisition of petitioner’s water system. Petitioner
prayed for the following reliefs:
(a)pay the amount of P26,798,223.70 plus legal
interests from the filing of the Complaint to actual
full payment;
(b)pay the amount of its in lieu share representing
three percent of the defendant’s gross receipts from
water sales starting 1981 up to present;
(c)pay the amount of P1,000,000 as moral damages;
and
1 for the filing of a valid motion for issuance of a
(d)pay the cost of suit and other litigation expenses.”
14
In its answer, OCWD posed a counterclaim against
petitioner for unpaid water bills amounting to
15
P3,080,357.00.
cralawred
On November 24, 1996, Subic Water was granted the
franchise to operate and to carry on the business of
providing water and sewerage services in the Subic
Bay Free Port Zone, as well as in Olongapo City. To
finally settle their money claims against each other,
petitioner and OCWD entered into a compromise
20
agreement on June 4, 1997. In this agreement,
petitioner and OCWD offset their respective claims and
counterclaims. the parties submitted the compromise
agreement to RTC Olongapo for approval.
Pursuant to the compromise agreement and in payment of
OCWD’s obligations to petitioner, petitioner and
– SECOND SET CASE DIGEST | 22
OCWD executed a Deed of Assignment on November 24,
23
1997. OCWD assigned all of its rights in the JVA in favor
of the petitioner, including but not limited to the
assignment of its shares, lease payments, regulatory
assistance fees and other receivables arising out of or
related to the Joint Venture Agreement and the Lease
24
Agreement. On December 15, 1998, OCWD was
judicially dissolved. to enforce the compromise
agreement, the petitioner filed a motion for the issuance
26
of a writ of execution with the trial court. In its July 23,
27
1999 order, the trial court granted the motion, but did
not issue the corresponding writ of execution.
The petitioner, through its new counsel, filed a notice
28
of appearance with urgent motion/manifestation and
prayed again for the issuance of a writ of execution
against OCWD. A certain Atty. Segundo Mangohig,
claiming to be OCWD’s former counsel, filed a
manifestation alleging that OCWD had already been
dissolved and that Subic Water is now the former
29
OCWD.
The trial court granted the motion for execution and
directed its issuance against OCWD and/or Subic Water.
Because of this unfavorable order, Subic Water filed a
special appearance with motion to: (1) reconsider order
dated July 29, 2003; and (2) quash writ of execution
32
dated July 31, 2003. cralawred
motion for reconsideration, and its motion to quash. Subic
33
Water then filed a petition for certiorari with the CA,
imputing grave abuse of discretion amounting to lack or
excess of jurisdiction to RTC Olongapo for issuing its July
29, 2003 and October 7, 2003 orders as well as the writ
of execution dated July 31, 2003.
ISSUE:
1. Whether or not the compromise agreement is
immediately executory and is considered to
have been entered on the date it was approved
by the trial court.
2. Whether or not the compromise agreement
was signed by Mr. Noli R. Aldip, then Subic
Water’s chairman, signifying Subic Water’s
consent to the agreement.
RULING:
1. Yes. A judgment on a compromise agreement
is immediately executory and is considered to
have been entered on the date it was approved
36
by the trial court. Since the compromise
agreement was approved and adopted by the
trial court on June 13, 1997, this should be the
reckoning date for the counting of the period
writ of execution. The CA further remarked
that while it was true that a motion for
execution was filed by petitioner on May 7,
1999, and the same was granted by the trial
37
court in its July 23, 1999 order, no writ of
execution was actually issued.
As the CA looked at the case, petitioner, instead
of following up with the trial court the issuance of
the writ of execution, did not do anything to
secure its prompt issuance.
The petitioner received the CA’s assailed resolution
denying its motion for reconsideration on January 9,
2006. Following Rule 45, Section 2 of the Rules of
48
Court, the petitioner had until January 24, 2006 to
file its petition for review. It could have even filed a
motion for a 30-day extension of time, a motion that
49
this Court grants for justifiable reasons. But all of
these, it failed to do. Thus, the
 CORPORATION LAW
assailed CA rulings became final and executory and
could no longer be the subject of an appeal.
2. No. An officer’s actions can only bind the
corporation if he had been authorized to do so. An
examination of the compromise agreement reveals that it
was not accompanied by any document showing a grant
of authority to Mr. Noli Aldip to sign on behalf of
Subic Water.
Subic Water is a corporation. A corporation, as a juridical
entity, primarily acts through its board of directors, which
exercises its corporate powers. In this capacity, the
general rule is that, in the absence of authority from the
board of directors, no person, not even its officers, can
62
validly bind a corporation. Section
23 of the Corporation Code provides:
Section 23. The board of directors or trustees. –
Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this
Code shall be exercised, all business conducted
and all property of such corporations controlled
and held by the board of directors or trustees to
be elected from among the holders of stocks, or where
there is no stock, from among the members of the
corporation, who shall hold office for one (1) year until
their successors are elected and qualified. (28a
Mr. Noli Aldip signed the compromise agreement purely in
his own capacity. Moreover, the compromise agreement
did not expressly provide that Subic Water consented to
become OCWD’s co-maker. As worded, the compromise
agreement merely provided that both parties [also]
request Subic Water, Philippines, which took over the
operations of Olongapo City Water District be made as co-
maker [for the obligations above-cited]. This request was
never forwarded to Subic Water’s board of directors. Even
if due notification had been made (which does not appear
in the records), Subic Water’s board does not appear to
have given any approval to such request. No document
such as the minutes of Subic Water’s board of directors’
meeting or a secretary’s certificate, purporting to be an
authorization to Mr. Aldip to conform to the compromise
agreement, was ever presented. In effect, Mr. Aldip’s act
of signing the compromise agreement was outside of his
authority to undertake.
9. G.R. No. 174938 October 1, 2014
GERARDO LANUZA, JR. AND ANTONIO O.
OLBES, Petitioners, vs. BF CORPORATION,
SHANGRI-LA PROPERTIES, INC., ALFREDO C.
RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO
III, AND BENJAMIN C. RAMOS
FACTS:
BF Corporation filed a collection complaint with the
RTC against Shangri-La and the members of its board
of directors: Alfredo C. Ramos, Rufo B.Colayco,
Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G.
Licauco III, and Benjamin C. Ramos.
BF Corporation alleged in its complaint that on
December 1989 and May 1991, it entered into
agreements with Shangri-La wherein it undertook to
construct for Shangri-La a mall and a multilevel
parking structure along EDSA. Shangri-La had been
consistent in paying BF Corporation in accordance with
its progress billing statements. However, by October
1991, Shangri-La started defaulting in payment.
– SECOND SET CASE DIGEST | 23
BF Corporation alleged that Shangri-La induced BF
Corporation to continue with the construction of the
buildings using its own funds and credit despite
Shangri-La’s default. According to BF Corporation,
Shangri-La misrepresented that it had funds to pay for
its obligations with BF Corporation, and the delay in
payment was simply a matter of delayed processing of
BF Corporation’s progress billing statements. BF
Corporation eventually completed the construction of
the buildings. Shangri-La allegedly took possession of
the buildings while still owing BF Corporation an
outstanding balance.
BF Corporation alleged that despite repeated demands,
Shangri -La refused to pay the balance owed to it. It also
alleged that the Shangri-La’s directors were in bad faith in
directing Shangri-La’s affairs. Therefore, they should be
held jointly and severally liable with Shangri-La for its
obligations as well as for the damages that BF Corporation
incurred as a result of Shangri-La’s default.
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B.
Colayco, Maximo G. Licauco III, and Benjamin C. Ramos
filed a motion to suspend the proceedings in view of BF
Corporation’s failure to submit its dispute to arbitration, in
accordance with the arbitration clause provided in its
contract, quoted in the motion as follows:
35. Arbitration
(1) Provided always that in case any dispute or
difference shall arise between the Owner or
the Project Manager on his behalf and the
Contractor, either during the progress or after
the completion or abandonment of the Works
as to the construction of this Contract or as to
any matter or thing of whatsoever nature
arising there under or inconnection therewith
(including any matter or thing left by this
Contract to the discretion of the Project
Manager or the withholding by the Project
Manager of any certificate to which the
Contractor may claim to be entitled or the
measurement and valuation mentioned in
clause 30(5)(a) of these Conditions or the
rights and liabilities of the parties under
clauses 25, 26, 32 or 33 of these Conditions),
the owner and the Contractor hereby agree to
exert all efforts to settle their differences or
dispute amicably. Failing these efforts then
such dispute or difference shall be referred to
arbitration in accordance with the rules and
procedures of the Philippine Arbitration Law.
xxx xxx xxx
(6) The award of such Arbitrators shall be final
and binding on the parties. The decision of the
Arbitrators shall be a condition precedent to
any right of legal action that either party may
have against the other. . . .
Petitioners filed their comment on Shangri-La’s and BF
Corporation’s motions, praying that they be excluded
from the arbitration proceedings for being non-parties
to Shangri-La’s and BF Corporation’s agreement.
ISSUE:
Whether or not petitioners as directors of Shangri-La
are personally liable for the contractual obligations
entered into by the corporation.
RULING: NO.
 CORPORATION LAW
As petitioners point out, their personalities as directors
of Shangri-La are separate and distinct from Shangri-
La.
A corporation is an artificial entity created by fiction of
76
law. This means that while it is not a person,
naturally, the law gives it a distinct personality and
treats it as such. A corporation, in the legal sense,
is an individual with a personality that is distinct
and separate from other persons including its
77
stockholders, officers, directors, representatives,
and other juridical entities. The law vests in
corporations rights, powers, and attributes as if they were
natural persons with physical existence and capabilities to
78
act on their own. For instance, they have the power to
sue and enter into transactions or contracts. Section 36 of
the Corporation Code enumerates some of a corporation’s
powers, thus:
Section 36. Corporate powers and capacity.– Every
corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the
period of time stated in the articles of
incorporation and the certificate
ofincorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law,
morals, or public policy, and to amend or
repeal the same in accordance with this Code;
6. 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;
7. 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;
8. To enter into merger or consolidation with
other corporations as provided in this Code;
9. To make reasonable donations, including
those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar
purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid
of any political party or candidate or for
purposes of partisan political activity;
10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees,
officers and employees; and
11. To exercise such other powers asmay be
essential or necessary to carry out its purpose
or purposes as stated in its articles of
incorporation. (13a)
– SECOND SET CASE DIGEST | 24
Because a corporation’s existence is only by fiction of
law, it can only exercise its rights and powers through
itsdirectors, officers, or agents, who are all natural
persons. A corporation cannot sue or enter into
contracts without them. A consequence of a
corporation’s separate personality is that consent by a
corporation through its representatives is not consent
of the representative, personally. Its obligations,
incurred through official acts of its representatives, are
its own. A stockholder, director, or representative does
not become a party to a contract just because a
corporation executed a contract through that
stockholder, director or representative. Hence, a
corporation’s representatives are generally not
bound by the terms of the contract executed by
the corporation. They are not personally liable
for obligations and liabilities incurred on or in
behalf of the corporation.
As a general rule, therefore, a corporation’s
representative who did not personally bind
himself or herself to an arbitration agreement
cannot be forced to participate in arbitration
proceedings made pursuant to an agreement
entered into by the corporation. He or she is
generally not considered a party to that agreement.
However, there are instances when the distinction
between personalities of directors, officers, and
representatives, and of the corporation, are
disregarded. We call this piercing the veil of corporate
fiction.
Piercing the corporate veil is warranted when
"[the separate personality of a corporation] 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, or to
85
confuse legitimate issues." It is also warranted in
alter ego cases "where a corporation is merely a farce
since it is a 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
86
adjunct of another corporation."
When corporate veil is pierced, the corporation and
persons who are normally treated as distinct from the
corporation are treated as one person, such that when
the corporation is adjudged liable, these persons, too,
become liable as if they were the corporation.
Among the persons who may be treatedas the
corporation itself under certain circumstances are its
directors and officers. Section 31 of the Corporation
Code provides the instances when directors,
trustees, or officers may become liable for
corporate acts:
Sec. 31. Liability of directors, trustees or officers. -
Directors or trustees who willfully and knowingly vote
for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders
or members and other persons.
When a director, trustee or officer attempts to acquire or
acquires, in violation of his duty, any interest adverse to
the corporation in respect of any matter which has been
reposed inhim in confidence, as to which equity imposes a
disability upon him to deal in his own behalf, he shall be
liable as a trustee for the corporation and
 CORPORATION LAW
must account for the profits which otherwise would
have accrued to the corporation. (n)
Based on the above provision, a director, trustee, or
officer of a corporation may be made solidarily liable
with it for all damages suffered by the corporation, its
stockholders or members, and other persons in any of
the following cases:
a) The director or trustee willfully and
knowingly voted for or assented to a patently
unlawful corporate act;
b) The director or trustee was guilty of gross
negligence or bad faith in directing corporate
affairs; and
c) The director or trustee acquired personal or
pecuniary interest in conflict with his or her
duties as director or trustee.
Solidary liability with the corporation will also attach in
the following instances:
a) "When a director or officer has consented to
the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with
the corporate secretary his written objection
thereto";
b) "When a director, trustee or officer has
contractually agreed or stipulated to hold
himself personally and solidarily liable with the
88
corporation"; and
c) "When a director, trustee or officer is made,
by specific provision of law, personally liable
for his corporate action."
When there are allegations of bad faith or malice
against corporate directors or representatives, it
becomes the duty of courts or tribunals to
determine if these persons and the corporation
should be treated as one. Without a trial, courts
and tribunals have no basis for determining
whether the veil of corporate fiction should be
pierced. Courts or tribunals do not have such prior
knowledge. Thus, the courts or tribunals must first
determine whether circumstances exist towarrant the
courts or tribunals to disregard the distinction between
the corporation and the persons representing it. The
determination of these circumstances must be made
by one tribunal or court in a proceeding participated in
by all parties involved, including current
representatives of the corporation, and those persons
whose personalities are impliedly the sameas the
corporation. This is because when the court or tribunal
finds that circumstances exist warranting the piercing
of the corporate veil, the corporate representatives are
treated as the corporation itself and should be held
liable for corporate acts. The corporation’s distinct
personality is disregarded, and the corporation is seen
as a mere aggregation of persons undertaking a
business under the collective name of the corporation.
When the courts disregard the corporation’s distinct and
separate personality from its directors or officers, the
courts do not say that the corporation, in all instances and
for all purposes, is the same as its directors, stockholders,
officers, and agents. It does not result in an absolute
confusion of personalities of the corporation and the
persons composing or representing it. Courts merely
discount the distinction and treat them as one, in relation
to a specific act, in order to extend the terms
– SECOND SET CASE DIGEST | 25
of the contract and the liabilities for all damages to
erring corporate officials who participated in the
corporation’s illegal acts. This is done so that the legal
fiction cannot be used to perpetrate illegalities and
injustices.
Thus, in cases alleging solidary liability with the
corporation or praying for the piercing of the
corporate veil, parties who are normally treated
as distinct individuals should be made to
participate in the arbitration proceedings in order
to determine if such distinction should indeed be
disregarded and, if so, to determine the extent of
their liabilities.
10. G.R. No. 200857, October 22, 2014
FVR SKILLS AND SERVICES EXPONENTS, INC.
(SKILLEX), FULGENCIO V. RANA AND MONINA R.
BURGOS, Petitioners, v. JOVERT SEVA, JOSUEL V.
VALENCERINA, JANET ALCAZAR, ANGELITO
AMPARO, BENJAMIN ANAEN, JR., JOHN HILBERT
BARBA, BONIFACIO BATANG, JR., VALERIANO
BINGCO, JR., RONALD CASTRO, MARLON
CONSORTE, ROLANDO CORNELIO, EDITO
CULDORA, RUEL DUNCIL, MERV1N FLORES, LORD
GALISIM, SOTERO GARCIA, JR., REY GONZALES,
DANTE ISIP, RYAN ISMEN, JOEL JUNIO, CARLITO
LATOJA, ZALDY MARRA, MICHAEL PANTANO,
GLENN PILOTON, NORELDO QUIRANTE, ROEL
RANCE, RENANTE ROSARIO AND LEONARDA
TANAEL, Respondents.
FACTS:
The twenty-eight (28) respondents in this case were
employees of petitioner FVR Skills and Services
Exponents, Inc. (petitioner ), an independent
contractor engaged in the business of providing
janitorial and other manpower services to its clients.
As early as 1998, some of the respondents had
already been under the petitioner's employ.
On 2008, the petitioner entered into a Contract of
Janitorial Service (service contract) with Robinsons
Land Corporation (Robinsons). Both agreed that the
petitioner shall supply janitorial, manpower and
sanitation services to Robinsons Place Ermita Mall for a
period of one year -from January 1, 2008 to December
9
31, 2008. Pursuant to this, the respondents were
deployed to Robinsons.
Halfway through the service contract, the petitioner asked
the respondents to execute individual contracts which
stipulated that their respective employments shall end on
December 31, 2008, unless earlier terminated.
10
The petitioner and Robinsons no longer extended their
contract of janitorial services. Consequently, the
petitioner dismissed the respondents as they were
project employees whose duration of employment was
dependent on the petitioner's service contract with
Robinsons.
The respondents responded to the termination of their
employment by filing a complaint for illegal dismissal
with the NLRC. They argued that they were not project
employees; they were regular employees who may
11
only be dismissed for just or authorized causes. The
respondents also asked for payment of their unpaid
th
wage differential, 13 month pay differential, service
12
incentive leave pay, holiday pay and separation pay.
The LA ruled in the petitioner's favor. He held that the
 CORPORATION LAW
respondents were not regular employees. They were
project employees whose employment was dependent
on the petitioner's service contract with Robinsons.
Since this contract was not renewed, the respondents'
13
employment contracts must also be terminated.
The respondents disagreed with the LA and appealed
to the NLRC, which reversed the LA's ruling, and held
that they were regular employees.
The CA noted that the continuing need for the
respondents' services, which lasted for more than a
year, validated that the respondents were regular and
not project employees. Lastly, the CA held that
petitioners Fulgencio V. Rana (Rana) and Monina
R. Burgos (Burgos), the president and general
manager of FVR Skills and Services Exponents,
Inc., respectively, are solidarily liable with the
corporation for the payment of the respondents'
monetary awards. As corporate officers, they
acted in bad faith when they intimidated the
respondents in the course of asking them to sign
their individual employment contracts.
ISSUE:
Whether petitioners Fulgencio V. Rana (Rana) and
Monina R. Burgos (Burgos), the president and general
manager of FVR Skills and Services Exponents, Inc.,
are solidarily liable with the corporation for the
payment of the respondents' monetary awards.
RULING: NO.
The respondents are regular employees, not
project employees. Thus, the respondents were
illegally dismissed. By law, the petitioner must bear
the legal consequences of its violation of the
respondents' right to security of tenure. The facts of
this case show that since the respondents' hiring, they
had been under the petitioner's employ as janitors,
service crews and sanitation aides. Their services
had been continuously provided to the petitioner
without any gap. Notably, the petitioner never
refuted this allegation of the respondents.
Solidary liability of the petitioner's officers
Finally, we modify the CA's ruling that Rana and Burgos,
as the petitioner's president and general manager, should
be held solidarity liable with the corporation for its
monetary liabilities with the respondents.
A corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it.
The general rule is that, obligations incurred by the
corporation, acting through its directors, officers
and employees, are its sole liabilities.
A director or officer shall only be personally liable for
the obligations of the corporation, if the following
conditions concur:
(1) The complainant alleged in the complaint that the
director or officer assented to patently unlawful acts of
the corporation, or that the officer was guilty of gross
negligence or bad faith; and
(2) The complainant clearly and convincingly
proved such unlawful acts, negligence or bad faith.
In the present case, the respondents failed to show the
existence of the first requisite. They did not specifically
– SECOND SET CASE DIGEST | 26
allege in their complaint that Rana and Burgos willfully
and knowingly assented to the petitioner's patently
unlawful act of forcing the respondents to sign the
dubious employment contracts in exchange for their
salaries. The respondents also failed to prove that
Rana and Burgos had been guilty of gross negligence
or bad faith in directing the affairs of the corporation.
To hold an officer personally liable for the debts
of the corporation, and thus pierce the veil of
corporate fiction, it is necessary to clearly and
convincingly establish the bad faith or
wrongdoing of such officer, since bad faith is
never presumed. Because the respondents were not
able to clearly show the definite participation of Burgos
and Rana in their illegal dismissal, we uphold the
general rule that corporate officers are not personally
liable for the money claims of the discharged
employees, unless they acted with evident malice and
bad faith in terminating their employment.
11. G.R. No. 208890 December 8, 2014
JOEL N. MONTALLANA, Petitioner, vs.
LA CONSOLACION COLLEGE MANILA, SR. IMELDA A.
MORA, and ALBERT D. MANALILI,* Respondents.
FACTS:
Montallana was a faculty member of La Consolacion’s
College of Arts and Sciences.
On January 16, 2009, Mrs. NerissaD. Del Fierro- Juan
(Juan), the Assistant Dean of the College of Arts and
Sciences and the immediate superior of Montallana,
7
filed a formal administrative complaint with La
8
Consolacion against Montallana, charging him of: (a)
oral defamation (or slander); (b) disorderly conduct in
the school premises; and (c) discourteous/indecent
behavior or using profane or obscene language in
addressing co-employees, superiors, or anybody within
the school premises.
The said complaint arose from an incident that
occurred in the faculty room on January 12, 2009 while
Dean’s Secretary Ann Ruiz (Ruiz) and student assistant
Kathlyn Saez (Saez) were numbering the lockers,
10
pursuant to a policy implemented by Juan. At that
time, Montallana was conversing with a co-faculty
member, Dr. Beatriz V. Pabito (Pabito), when the latter
11
asked Ruiz and Saez what they were doing. Upon
learning of the reassignment of lockers of faculty
members through drawing of lots, Pabito commented,
12
saying "para naman tayong bata nyan," to which
Montallana followed suit and, in a loud voice, remarked
"oo nga naman para tayong mga grade one nyan,
13
anong kabubuhan ng grade one yan." Juan heard
Montallana’s remark and confronted him, resulting in a
heated altercation that ended with the latter walking
14
out of the room while Juan was still talking to him.
After due investigation, La Consolacion’s fact-finding
committee found Montallana guilty of serious misconduct
in making derogatory and insulting remarks about his
superior, aggravated by the fact that he made such
15
remarks in a loud voice so that Juan would hear them.
While noting that the foregoing may be considered as a
just cause for Montallana’s termination, the committee
observed that it was his first offense and stressed on the
16
reformative and redemptive facets of the case. In fine,
Montallana was only meted the penalty of suspension
without pay for a period of two
 CORPORATION LAW
(2) months and directed him to submit a written public
apology to Juan in a tenor satisfactory to her and La
17
Consolacion’s Human Resource Department (HRD).
18
In a letter dated April 22, 2009, Montallana sought
reconsideration of his suspension and explained that a
written public apology was inappropriate at that time
19
in view of the pendency of a criminal complaint for
grave oral defamation filed by Juan against him before
the City Prosecutor’s Office.
The request having been denied by La Consolacion’s
President, respondent Sr. Imelda A. Mora (Mora), in
21
her letter dated May 12, 2009, Montallana filed a
complaint for illegal suspension and unfair labor
practice, with prayer for payment of salaries during the
period of suspension, and moral and exemplary
damages against respondents La Consolacion and Mora
before the NLRC, docketed as NLRC NCR Case No. 05-
22
07667-09 (illegal suspension case).
23
In a Decision dated April 15, 2010, the Labor Arbiter
(LA) ruled in favor of Montallana, holding that his actions
24
did not constitute serious misconduct. Hence,
Montallana’s suspension from employment was declared
illegal and respondents La Consolacion and Mora were
ordered to pay Montallana the amount of ₱48,000.00 as
25
his salary during the period of suspension.
26 27
On appeal, however, the NLRC disagreed with the
findings of the LA and found Montallana’s acts to be
constitutive of serious misconduct and against the rule
28
of honor and decency expected of any teacher. While
it found sufficient basis to impose the penalty of
termination, the NLRC nonetheless sustained the two
(2)-month suspension in deference to the school’s
29
prerogative to discipline its employees. Montallana
30
moved for reconsideration but was denied by the
31
NLRC in a Decision dated February 7, 2011.
Montallana no longer elevated the matter to the CA
and the NLRC’s decision became final and executory on
32
February 28, 2011.
Thereafter, on June 1, 2011, La Consolacion, through its
HRD Director, respondent Albert D. Manalili (Manalili),
directed Montallana to explain in writing why he should
not be dismissed for failure to submit his written public
apology which formed part of the disciplinary sanction
33
that was sustained with finality by the NLRC.
Asserting that his dismissal for failure to submit a
written public apology was unjustified and was, in fact,
connected to his position as an officer of La
Consolacion’s newly formed and recognized Union,
36
Montallana filed a complaint for illegal dismissal with
money claims against respondents La Consolacion,
Mora, and Manalili (respondents), docketed as NLRC
NCR Case No. 06-09263-11.
In respondents’ defense,
37
they contended that since
the directive to apologize was part of the penalty
imposed on Montallana, his refusal and/or failure to
38
comply merited further sanctions. They denied
having dismissed Montallana for his union activities,
pointing out that even the Union President agreed to
39
his suspension for his misbehavior.
40
In a Decision dated November 14, 2011, the LA
dismissed Montallana’s complaint.
44
In a Decision dated July 31, 2012, the NLRC reversed
and set aside the LA’s verdict, and thus, ordered
respondents to reinstate Montallana and to pay him
– SECOND SET CASE DIGEST | 27
backwages from the time he was illegally dismissed up
to his reinstatement.
CA agreed with the LA that La Consolacion, as an
educational institution, has the right to maintain and
expect a certain standard of behavior from its faculty,
60
as they serve as role models for its students. All told,
the CA was satisfied that Montallana’s employment
was terminated for a just and legal cause.
ISSUE:
Whether Montallana’s termination from work was
lawful and justified.
RULING: NO.
It is well to stress that it is the employer who bears
the burden of proving, through substantial evidence,
that the aforesaid just cause – or any other authorized
cause for that matter – forms the basis of the
68
employee’s dismissal from work. Failing in which, the
dismissal should be adjudged as illegal.
In the case at bar, respondents failed to prove, by
substantial evidence, that Montallana’s non-compliance
with respondents’ directive to apologize was "willful or
intentional." The Court finds itself in complete
agreement with the NLRC that the disobedience
attributed to Montallana could not be justly
characterized as "willful" within the contemplation of
Article 296 of the Labor Code, in the sense above-
described.
ISSUE:
Whether Mora and Manalili are liable for Montallana's
backwages.
RULING: NO.
In fine, since respondents failed to prove, by
substantial evidence, that Montallana's dismissal was
based on a just or authorized cause under the Labor
Code or was clearly warranted under La Consolacion's
Administrative Affairs Manual, the Court rules that the
dismissal was illegal.
Consequently, the NLRC's identical ruling, which was
erroneously reversed by the CA on certiorari, must be
reinstated with the modification, however, in that the
order for respondents Mora and Manalili to pay
73
Montallana backwages should be deleted.
It is a rule that personal liability of corporate
directors, trustees or officers attaches only when:
(a) they assent to a patently unlawful act of the
corporation, or when they are guilty of bad
faith or gross negligence in directing its affairs,
or when there is a conflict of interest resulting
in damages to the corporation, its stockholders
or other persons;
(b) they consent to the issuance of watered down
stocks or when, having knowledge of such
issuance, do not forthwith file with the
corporate secretary their written objection;
(c) they agree to hold themselves personally and
solidarily liable with the corporation; or
(d) they are made by specific provision of law
personally answerable for their corporate
action.
 CORPORATION LAW
None of these circumstances, in so far as Mora and
Manalili are concerned, were shown to be present in
this case; hence, there is no reason for them to be
held liable for Montallana's backwages.
12. G.R. No. 166282 February 13, 2013
HEIRS OF FE TAN UY (Represented by her heir,
Mauling Uy Lim), Petitioners, vs.
INTERNATIONAL EXCHANGE BANK, Respondent.
x-----------------------x
G.R. No. 166283
GOLDKEYDEVELOPMENT
CORPORATION, Petitioner, vs.
INTERNATIONAL EXCHANGE BANK, Respondent.
FACTS:
On several occasions, from June 23, 1997 to
September 3, 1997, respondent International
Exchange Bank (iBank), granted loans to Hammer
Garments Corporation (Hammer), covered by
promissory notes and deeds of assignment.
4
These were made pursuant to the Letter-Agreement,
dated March 23, 1996, between iBank and Hammer,
represented by its President and General Manager,
Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong,
5 juridical entity which is vested with a legal personality
granting Hammer a P 25 Million-Peso Omnibus Line.
The loans were secured by a P 9 Million-Peso Real
6
Estate Mortgage executed on July 1, 1997 by Goldkey
Development Corporation (Goldkey) over several of its
7
properties and a P 25 Million-Peso Surety Agreement
signed by Chua and his wife, Fe Tan Uy (Uy), on April
15, 1996.
As of October 28, 1997, Hammer had an outstanding
8 an illegal act, or as a vehicle for the evasion of an existing
obligation of ₱25,420,177.62 to iBank. Hammer
defaulted in the payment of its loans, prompting iBank
to foreclose on Goldkey’s third-party Real Estate
Mortgage. The mortgaged properties were sold for P
12 million during the foreclosure sale, leaving an
9
unpaid balance of P 13,420,177.62.
For failure of Hammer to pay the deficiency, iBank
10
filed a Complaint for sum of money on
December 16, 1997 against Hammer, Chua, Uy,
and Goldkey before the Regional Trial Court,
11
Makati City (RTC).
Despite service of summons, Chua and Hammer did
not file their respective answers and were declared in
default.
In her separate answer, Uy claimed that she was
not liable to iBank because she never executed a
surety agreement in favor of iBank.
Goldkey, on the other hand, also denies liability,
averring that it acted only as a third-party mortgagor
and that it was a corporation separate and distinct
12
from Hammer.
15
The RTC, in its Decision, dated December 27, 2000,
ruled in favor of iBank. While it made the pronouncement
that the signature of Uy on the Surety Agreement was a
forgery, it nevertheless held her liable
– SECOND SET CASE DIGEST | 28
for the outstanding obligation of Hammer because she
was an officer and stockholder of the said corporation.
Uy, as an officer and stockholder of Hammer and
Goldkey, was found liable to iBank together with
Chua, Hammer and Goldkey for the deficiency of
₱13,420,177.62.
Aggrieved, the heirs of Uy and Goldkey (petitioners)
elevated the case to the CA. On August 16, 2004, it
promulgated its decision affirming the findings of the
RTC.
ISSUE:
Whether Uy can be held liable to iBank for the loan
obligation of Hammer as an officer and stockholder of
the said corporation.
RULING: Uy is not liable; The piercing of the veil
of corporate fiction is not justified
The heirs of Uy argue that the latter could not be held
liable for being merely an officer of Hammer and
Goldkey because it was not shown that she had
committed any actionable wrong
22
or that she had
participated in the transaction between Hammer and
iBank. They further claim that she had cut all ties with
Hammer and her husband long before the execution of
23
the loan.
The Court finds in favor of Uy.
Basic is the rule in corporation law that a corporation is a
separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it.
Following this principle, obligations incurred by the
corporation, acting through its directors, officers
and employees, are its sole liabilities. A director,
officer or employee of a corporation is generally not
held personally liable for obligations incurred by the
24
corporation. Nevertheless, this legal fiction may be
disregarded if it is used as a means to perpetrate fraud or
obligation, the circumvention of statutes, or to confuse
25
legitimate issues. This is consistent with the provisions
of the Corporation Code of the Philippines, which states:
Sec. 31. Liability of directors, trustees or officers. –
Directors or trustees who wilfully and knowingly vote
for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders
or members and other persons.
Solidary liability will then attach to the directors,
officers or employees of the corporation in certain
circumstances, such as:
1. When directors and trustees or, in appropriate
cases, the officers of a corporation: (a) vote for or
assent to patently unlawful acts of the corporation; (b)
act in bad faith or with gross negligence in directing
the corporate affairs; and (c) are guilty of conflict of
interest to the prejudice of the corporation, its
stockholders or members, and other persons;
 CORPORATION LAW
2. When a director or officer has consented to the
issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate
secretary his written objection thereto;
3. When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and
solidarily liable with the corporation; or
4. When a director, trustee or officer is made,
by specific provision of law, personally liable
26
for his corporate action.
Before a director or officer of a corporation can be
held personally liable for corporate obligations,
however, the following requisites must concur:
(1) the complainant must allege in the
complaint that the director or officer assented
to patently unlawful acts of the corporation, or
that the officer was guilty of gross negligence
or bad faith; and
(2) the complainant must clearly and
convincingly prove such unlawful acts, negligence or
27
bad faith.
While it is true that the determination of the existence
of any of the circumstances that would warrant the
piercing of the veil of corporate fiction is a question of
fact which cannot be the subject of a petition for
review on certiorari under Rule 45, this Court can take
cognizance of factual issues if the findings of the lower
court are not supported by the evidence on record or
28
are based on a misapprehension of facts.
In this case, petitioners are correct to argue that it was
not alleged, much less proven, that Uy committed an act
as an officer of Hammer that would permit the piercing of
the corporate veil. A reading of the complaint reveals that
with regard to Uy, iBank did not demand that she be held
liable for the obligations of Hammer because she was a
corporate officer who committed bad faith or gross
negligence in the performance of her duties such that the
lifting of the corporate mask would be merited. What the
complaint simply stated is that she, together with her
errant husband Chua, acted as surety of Hammer, as
evidenced by her signature on the Surety Agreement
which was later found by the RTC to have been forged.
29
Considering that the only basis for holding Uy liable for
the payment of the loan was proven to be a falsified
document, there was no sufficient justification for the
RTC to have ruled that Uy should be held jointly and
severally liable to iBank for the unpaid loan of
Hammer. Neither did the CA explain its affirmation of
the RTC’s ruling against Uy. The Court cannot give
credence to the simplistic declaration of the RTC that
liability would attach directly to Uy for the sole reason
that she was an officer and stockholder of Hammer.
At most, Uy could have been charged with negligence in
the performance of her duties as treasurer of Hammer by
allowing the company to contract a loan despite its
precarious financial position. Furthermore, if it was true,
as petitioners claim, that she no longer performed the
functions of a treasurer, then she should have formally
resigned as treasurer to isolate herself from any liability
that could result from her being an officer of the
corporation. Nonetheless, these shortcomings of Uy are
not sufficient to justify the piercing of the corporate veil
which requires that the negligence of the officer must be
so gross that it could amount to bad faith and must
– SECOND SET CASE DIGEST | 29
be established by clear and convincing evidence. Gross
negligence is one that is characterized by the lack of
the slightest care, acting or failing to act in a situation
where there is a duty to act, wilfully and intentionally
with a conscious indifference to the consequences
30
insofar as other persons may be affected.
It behooves this Court to emphasize that the piercing
of the veil of corporate fiction is frowned upon
and can only be done if it has been clearly
established that the separate and distinct
personality of the corporation is used to justify a
wrong, protect fraud, or perpetrate a
31
deception. As aptly explained in Philippine National
32
Bank v. Andrada Electric & Engineering Company:
Hence, any application of the doctrine of piercing the
corporate veil should be done with caution. A court
should be mindful of the milieu where it is to be
applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or
crime was committed against another, in disregard of
its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may
33
result from an erroneous application.
Indeed, there is no showing that Uy committed
gross negligence. And in the absence of any of
the aforementioned requisites for making a
corporate officer, director or stockholder
personally liable for the obligations of a
corporation, Uy, as a treasurer and stockholder
of Hammer, cannot be made to answer for the
unpaid debts of the corporation.
ISSUE:
Whether Goldkey can be held liable for the obligation
of Hammer for being a mere alter ego of the latter.
RULING: Goldkey is a mere alter ego of Hammer.
Goldkey contends that it cannot be held responsible for
34
the obligations of its stockholder, Chua. Moreover, it
theorizes that iBank is estopped from expanding
35
Goldkey’s liability beyond the real estate mortgage.
It adds that it did not authorize the execution of the
36
said mortgage. Finally, it passes the blame on to
iBank for failing to exercise the requisite due diligence
in properly evaluating Hammer’s creditworthiness
37
before it was extended an omnibus line.
The Court disagrees with Goldkey.
There is no reason to discount the findings of the CA
that iBank duly inspected the viability of Hammer and
satisfied itself that the latter was a good credit risk
based on the Financial Statement submitted. In
addition, iBank required that the loan be secured by
Goldkey’s Real Estate Mortgage and the Surety
Agreement with Chua and Uy. The records support the
factual conclusions made by the RTC and the CA.
To the Court’s mind, Goldkey’s argument, that iBank is
barred from pursuing Goldkey for the satisfaction of
the unpaid obligation of Hammer because it had
already limited its liability to the real estate mortgage,
is completely absurd. Goldkey needs to be reminded
that it is being sued not as a consequence of the real
estate mortgage, but rather, because it acted as an
alter ego of Hammer. Accordingly, they must be
treated as one and the same entity, making Goldkey
accountable for the debts of Hammer.
 CORPORATION LAW
In fact, it is Goldkey who is now precluded from denying
the validity of the Real Estate Mortgage. In its Answer
with Affirmative Defenses and Compulsory
Counterclaim, dated January 5, 1998, it already
admitted that it acted as a third-party mortgagor to
38
secure the obligation of Hammer to iBank. Thus, it
cannot, at this late stage, question the due execution
of the third-party mortgage.
Similarly, Goldkey is undoubtedly mistaken in claiming
that iBank is seeking to enforce an obligation of Chua.
The records clearly show that it was Hammer, of which
Chua was the president and a stockholder, which
contracted a loan from iBank. What iBank sought was
redress from Goldkey by demanding that the veil of
corporate fiction be lifted so that it could not raise the
defense of having a separate juridical personality to
evade liability for the obligations of Hammer.
Under a variation of the doctrine of piercing the
veil of corporate fiction, when 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
parties, disregard the legal fiction that two
corporations are distinct entities and treat them
39
as identical or one and the same.
While the conditions for the disregard of the juridical
entity may vary, the following are some probative
factors of identity that will justify the application of the
doctrine of piercing the corporate veil, as laid down in
40
Concept Builders, Inc. v NLRC:
(1) Stock ownership by one or common
ownership of both corporations;
(2) Identity of directors and officers;
(3) The manner of keeping corporate books
and records, and
41
(4) Methods of conducting the business.
These factors are unquestionably present in the case of
Goldkey and Hammer, as observed by the RTC, as
follows:
1. Both corporations are family corporations of
defendants Manuel Chua and his wife Fe Tan Uy. The
other incorporators and shareholders of the two
corporations are the brother and sister of Manuel Chua
(Benito Ng Po Hing and Nenita Chua Tan) and the
sister of Fe Tan Uy, Milagros Revilla. The other
incorporator/share holder is Manling Uy, the daughter
of Manuel Chua Uy Po Tiong and Fe Tan Uy.
The stockholders of Hammer Garments as of March 23,
1987, aside from spouses Manuel and Fe Tan Uy are:
Benito Chua, brother Manuel Chua, Nenita Chua Tan,
sister of Manuel Chua and Tessie See Chua Tan. On March
8, 1988, the shares of Tessie See Chua Uy were assigned
to Milagros T. Revilla, thereby consolidating the shares in
the family of Manuel Chua and Fe Tan Uy.
2. Hammer Garments and Goldkey share the same
office and practically transact their business from the
same place.
3. Defendant Manuel Chua is the President and Chief
Operating Officer of both corporations. All business
transactions of Goldkey and Hammer are done at the
– SECOND SET CASE DIGEST | 30
instance of defendant Manuel Chua who is authorized
to do so by the corporations.
The promissory notes subject of this complaint are
signed by him as Hammer’s President and General
Manager. The third-party real estate mortgage of
defendant Goldkey is signed by him for Goldkey to
secure the loan obligation of Hammer Garments with
plaintiff "iBank". The other third-party real estate
mortgages which Goldkey executed in favor of the
other creditor banks of Hammer are also assigned by
Manuel Chua.
4. The assets of Goldkey and Hammer are co-mingled.
The real properties of Goldkey are mortgaged to secure
Hammer’s obligation with creditor banks.
The proceed of at least two loans which Hammer obtained
from plaintiff "iBank", purportedly to finance its export to
Wal-Mart are instead used to finance the purchase of a
manager’s check pa yable to Goldkey. The defendants’
claim that Goldkey is a creditor of Hammer to justify its
receipt of the Manager’s check is not substantiated by
evidence. Despite subpoenas issued by this Court,
Goldkey thru its treasurer, defendant Fe Tan Uy and or its
corporate secretary Manling Uy failed to produce the
Financial Statement of Goldkey.
5. When defendant Manuel Chua "disappeared", the
defendant Goldkey ceased to operate despite the claim
that the other "officers" and stockholders like Benito
Chua, Nenita Chua Tan, Fe Tan Uy, Manling Uy and
Milagros T. Revilla are still around and may be able to
continue the business of Goldkey, if it were different or
distinct from Hammer which suffered financial set
42
back.
Based on the foregoing findings of the RTC, it was
apparent that Goldkey was merely an adjunct of
Hammer and, as such, the legal fiction that it has a
separate personality from that of Hammer should be
brushed aside as they are, undeniably, one and the
same.
13. G.R. No. 186433 November 27, 2013
NUCCIO SAVERIO and NS INTERNATIONAL INC.,
Petitioners, vs. ALFONSO G. PUYAT, Respondent.
FACTS:
On July 22, 1996, the respondent granted a loan to
NSI. The loan was made pursuant to the Memorandum
of Agreement and Promissory Note (MOA) between the
respondent and NSI, represented by Nuccio. It was
agreed that the respondent would extend a credit line
with a limit of ₱500,000.00 to NSI, to be paid within
thirty (30) days from the time of the signing of the
document. The loan carried an interest rate of 17% per
annum, or at an adjusted rate of 25% per annum if
payment is beyond the stipulated period. The
petitioners received a total amount of ₱300,000.00 and
certain machineries intended for their fertilizer
processing plant business (business). The proposed
business, however, failed to materialize.
On several occasions, Nuccio made personal payments
amounting to ₱600,000.00. However, as of December 16,
1999, the petitioners allegedly had an outstanding
balance of ₱460,505.86. When the petitioners defaulted in
the payment of the loan, the respondent filed a collection
suit with the RTC, alleging mainly that the petitioners still
owe him the value of the machineries as shown by the
Breakdown of Account he presented.
The petitioners refuted the respondent’s allegation and
insisted that they have already paid the loan, evidenced
 CORPORATION LAW
by the respondent’s receipt for the amount of
₱600,000.00. They submitted that their remaining
obligation to pay the machineries’ value, if any, had
long been extinguished by their business’ failure to
materialize. They posited that, even assuming without
conceding that they are liable, the amount being
claimed is inaccurate, the penalty and the interest
imposed are unconscionable, and an independent
accounting is needed to determine the exact amount of
their liability.
RTC: The RTC thus ruled that the payment of
₱600,000.00 did not completely extinguish the
petitioners’ obligation. The RTC also found merit in the
respondent’s contention that the petitioners are one
and the same. Based on Nuccio’s act of entering a loan
with the respondent for purposes of financing NSI’s
proposed business and his own admission during
cross-examination that the word "NS" in NSI’s name
stands for "Nuccio Saverio," the RTC found that the
application of the doctrine of piercing the veil of
corporate fiction was proper.
CA: The CA affirmed the RTC ruling that petitioners are
one and the same for the following reasons: (1) Nuccio
owned forty percent (40%) of NSI; (2) Nuccio personally
entered into the loan contract with the respondent
because there was no board resolution from NSI; (3) the
petitioners were represented by the same counsel; (4) the
failure of NSI to object to Nuccio’s acts shows the latter’s
control over the corporation; and (5) Nuccio’s control over
NSI was used to commit a wrong or fraud. It further
adopted the RTC’s findings of bad faith and willful breach
of obligation on the petitioners’ part, and affirmed its
award of attorney’s fees.
The petitioners submit that the CA gravely erred in
ruling that a proper accounting was not necessary.
They argue that the Breakdown of Account - which the
RTC used as a basis in awarding the claim, as affirmed
by the CA - is hearsay since the person who prepared
it, Ramoncito P. Puyat, was not presented in court to
authenticate it. They also point to the absence of the
award’s computation in the RTC ruling, arguing that
assuming they are still indebted to the respondent, the
specific amount of their indebtedness remains
undetermined, thus the need for an accounting to
determine their exact liability.
They further question the CA’s findings of solidary liability.
They submit that in the absence of any showing that
corporate fiction was used to defeat public convenience,
justify a wrong, protect fraud or defend a crime, or where
the corporation is a mere alter ego or business conduit of
a person, Nuccio’s mere ownership of forty percent (40%)
does not justify the piercing of the separate and distinct
personality of NSI.
The respondent counters that the issues raised by the
petitioners in the present petition – pertaining to the
correctness of the calibration of the documentary and
testimonial evidence by the RTC, as affirmed by the CA, in
awarding the money claims – are essentially factual, not
legal. These issues, therefore, cannot, as a general rule,
be reviewed by the Supreme Court in an appeal by
certiorari. In other words, the resolution of the assigned
errors is beyond the ambit of a Rule 45 petition.
ISSUE:
Whether RTC and CA were correct in applying the
piercing of the corporate veil doctrine and in holding
Nuccioand NSI solidarily liable for the P460k allegedly
owed to Puyat?
RULING: NO
Piercing the veil of corporate fiction is not justified. The
petitioners are not one and the same.
– SECOND SET CASE DIGEST | 31
At the outset, we note that the question of whether NSI is
an alter ego of Nuccio is a factual one. This is also true
with respect to the question of whether the totality of the
evidence adduced by the respondent warrants the
application of the piercing the veil of corporate fiction
doctrine. As we did in the issue of accounting, we hold
that the Court may properly wade into the piercing the
veil issue although purely factual questions are involved.
After a careful study of the records and the findings of
both the RTC and the CA, we hold that their
conclusions, based on the given findings, are not
supported by the evidence on record.
The rule is settled that a corporation is vested by law
with a personality separate and distinct from the
persons composing it. Following this principle, a
stockholder, generally, is not answerable for the acts
or liabilities of the corporation, and vice versa. The
obligations incurred by the corporate officers, or other
persons acting as corporate agents, are the direct
accountabilities of the corporation they represent, and
not theirs. A director, officer or employee of a
corporation is generally not held personally liable for
obligations incurred by the corporation and while there
may be instances where solidary liabilities may arise,
these circumstances are exceptional.
Incidentally, we have ruled that mere ownership by a
single stockholder or by another corporation of all or
nearly all of the capital stocks of the corporation is not,
by itself, a sufficient ground for disregarding the
separate corporate personality. Other than mere
ownership of capital stocks, circumstances showing
that the corporation is being used to commit fraud or
proof of existence of absolute control over the
corporation have to be proven. In short, before the
corporate fiction can be disregarded, alter-ego
elements must first be sufficiently established.
In Hi-Cement Corporation v. Insular Bank of Asia and
America (later PCI-Bank, now Equitable PCI-Bank), we
refused to apply the piercing the veil doctrine on the
ground that the corporation was a mere alter ego
because mere ownership by a stockholder of all or
nearly all of the capital stocks of a corporation does
not, by itself, justify the disregard of the separate
corporate personality. In this cited case, we ruled that
in order for the ground of corporate ownership to
stand, the following circumstances should also be
established: (1) that the stockholders had control or
complete domination of the corporation’s finances and
that the latter had no separate existence with respect
to the act complained of; (2) that they used such
control to commit a wrong or fraud; and (3) the
control was the proximate cause of the loss or injury.
Applying these principles to the present case, we opine
and so hold that the attendant circumstances do not
warrant the piercing of the veil of NSI’s corporate fiction.
Aside from the undisputed fact of Nuccio’s 40%
shareholdings with NSI, the RTC applied the piercing the
veil doctrine based on the following reasons. First, there
was no board resolution authorizing Nuccio to enter into a
contract of loan. Second, the petitioners were represented
by one and the same counsel. Third, NSI did not object to
Nuccio’s act of contracting the loan.
Fourth, the control over NSI was used to commit a
wrong or fraud. Fifth, Nuccio’s admission that "NS" in
the corporate name "NSI" means "Nuccio Saverio."
We are not convinced of the sufficiency of these cited
reasons. In our view, the RTC failed to provide a clear
and convincing explanation why the doctrine was
applied. It merely declared that its application of the
doctrine of piercing the veil of corporate fiction has a
basis, specifying for this purpose the act of Nuccio’s
 CORPORATION LAW
entering into a contract of loan with the respondent
and the reasons stated above.
The records of the case, however, do not show that
Nuccio had control or domination over NSI’s finances.
The mere fact that it was Nuccio who, in behalf of the
corporation, signed the MOA is not sufficient to prove
that he exercised control over the corporation’s
finances. Neither the absence of a board resolution
authorizing him to contract the loan nor NSI’s failure to
object thereto supports this conclusion. These may be
indicators that, among others, may point the proof
required to justify the piercing the veil of corporate
fiction, but by themselves, they do not rise to the level
of proof required to support the desired conclusion. It
should be noted in this regard that while Nuccio was
the signatory of the loan and the money was delivered
to him, the proceeds of the loan were unquestionably
intended for NSI’s proposed business plan. That the
business did not materialize is not also sufficient proof
to justify a piercing, in the absence of proof that the
business plan was a fraudulent scheme geared to
secure funds from the respondent for the petitioners’
undisclosed goals.
Considering that the basis for holding Nuccio liable for
the payment of the loan has been proven to be
insufficient, we find no justification for the RTC to hold
him jointly and solidarily liable for NSI’s unpaid loan.
Similarly, we find that the CA ruling is wanting in
sufficient explanation to justify the doctrine’s
application and affirmation of the RTC’s ruling. With
these points firmly in mind, we hold that NSI’s liability
should not attach to Nuccio.
14. G.R. No. 177783 : January 23, 2013
HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D.
IGNACIO-MANALO, MILFA D. IGNACIO-MANALO
AND FAUSTINO D. IGNACIO, Petitioners, v. HOME
BANKERS SAVINGS AND TRUST COMPANY,
SPOUSES PHILLIP AND THELMA RODRIGUEZ,
CATHERINE, REYNOLD & JEANETTE, all surnamed
ZUNIGA, Respondent.
FACTS:
In August 1981, petitioner Fausto C. Ignacio mortgaged
two parcels of land (These properties which are located in
Cabuyao, Laguna) to Home Savings Bank and Trust
Company, the predecessor of respondent Home Bankers
Savings and Trust Company, as security for the
P500,000.00 loan extended to him by said bank.
When petitioner defaulted in the payment of his loan
obligation, respondent bank proceeded to foreclose the
real estate mortgage. At the foreclosure sale held on
January 26, 1983, respondent bank was the highest
bidder for the sum of P764,984.67. On February 8,
1983, the Certificate of Sale issued to respondent bank
was registered with the Registry of Deeds of Calamba,
Laguna. With the failure of petitioner to redeem the
foreclosed properties within one year from such
registration, title to the properties were consolidated in
favor of respondent bank.
Despite the lapse of the redemption period and
consolidation of title in respondent bank, petitioner
offered to repurchase the properties. While the
respondent bank considered petitioner's offer to
repurchase, there was no repurchase contract executed.
The present controversy was fuelled by petitioner's stance
that a verbal repurchase/compromise agreement was
actually reached and implemented by the parties.
– SECOND SET CASE DIGEST | 32
In a letter addressed to respondent bank dated July
25, 1989, petitioner expressed his willingness to pay
the amount of P600,000.00 in full, as balance of the
repurchase price, and requested respondent bank to
release to him the remaining parcels of land covered
by TCT Nos. 111058 and T-154658 ("subject
7
properties"). Respondent bank however, turned down
his request. This prompted petitioner to cause the
annotation of an adverse claim on the said titles on
8
September 18, 1989. ?r?l1 Prior to the annotation of
the adverse claim, on August 24, 1989, the property
covered by TCT No. 154658 was sold by respondent
bank to respondent spouses Phillip and Thelma
Rodriguez, without informing the petitioner. On
October 6, 1989, again without petitioner's knowledge,
respondent bank sold the property covered by TCT No
T-111058 to respondents Phillip and Thelma
Rodriguez, Catherine M. Zuñiga, Reynold M. Zuñiga
and Jeannette M. Zuñiga. ?r?l1
9
On December 27, 1989, petitioner filed an action for
specific performance and damages in the RTC against
the respondent bank. For failure of respondent bank to
appear during the pre-trial conference, it was declared
as in default and petitioner was allowed to present his
evidence ex parte on the same date (September 3,
1990).
The trial court granted the motion for intervention filed by
respondents Phillip and Thelma Rodriguez, Catherine
Zuñiga, Reynold Zuñiga and Jeannette Zuñiga. Said
intervenors asserted their status as innocent purchasers
for value who had no notice or knowledge of the claim or
interest of petitioner when they bought the properties
already registered in the name of respondent bank. Aside
from a counterclaim for damages against the petitioner,
intervenors also prayed that in the event respondent bank
is ordered to reconvey the properties, respondent bank
should be adjudged liable to the intervenors and return all
13
amounts paid to it.
The trial court rendered its Decision in favor of the
petitioner. The trial court found that respondent bank
deliberately disregarded petitioner's substantial
payments on the total repurchase consideration.
Reference was made to the letter dated March 22,
16
1984 (Exhibit "I") as the authority for petitioner in
making the installment payments directly to the
Universal Properties, Inc. (UPI), respondent bank's
collecting agent.
Respondent bank appealed to the CA which reversed the
trial court's ruling. The CA held that by modifying the
terms of the offer contained in the March 22, 1984 letter
of respondent bank, petitioner effectively rejected the
original offer with his counter-offer. There was also no
written conformity by respondent bank's officers to the
amended conditions for repurchase which were
unilaterally inserted by petitioner. Consequently, no
contract of repurchase was perfected and respondent
bank acted well within its rights when it sold the subject
properties to herein respondents-intervenors.
ISSUE:
Whether the bank officer or employee whom petitioner
claimed he had talked to regarding the March 22, 1984
letter had acceded to his own modified terms for the
repurchase, their supposed verbal exchange bind
respondent bank in view of its corporate nature.
RULING:
 CORPORATION LAW
No. the bank officer or employee whom petitioner
claimed he had talked to regarding the March 22, 1984
letter had acceded to his own modified terms for the
repurchase, their supposed verbal exchange did not
bind respondent bank in view of its corporate nature.
There was no evidence that said Mr. Lazaro or Mr.
Fajardo was authorized by respondent bank's Board of
Directors to accept petitioner's counter-proposal to
repurchase the foreclosed properties at the price and
terms other than those communicated in the March 22,
1984 letter. As this Court ruled in AF Realty &
Development, Inc. v. Dieselman Freight Services,
32
Co. ?r?l1
Section 23 of the Corporation Code expressly provides
that the corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural
person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers
or agents appointed by it. Thus, contracts or acts of a
corporation must be made either by the board of directors
or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that
the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of
33
such director, are held not binding on the corporation.
Thus, a corporation can only execute its powers and
transact its business through its Board of Directors and
through its officers and agents when authorized by a
34
board resolution or its by-laws.
In the absence of conformity or acceptance by properly
authorized bank officers of petitioner's counter-
proposal, no perfected repurchase contract was born
out of the talks or negotiations between petitioner and
Mr. Lazaro and Mr. Fajardo. Petitioner therefore had no
legal right to compel respondent bank to accept the
P600,000 being tendered by him as payment for the
supposed balance of repurchase price.
A contract of sale is consensual in nature and is
perfected upon mere meeting of the minds. When
there is merely an offer by one party without
35
acceptance of the other, there is no contract. When
the contract of sale is not perfected, it cannot, as an
independent source of obligation, serve as a binding
36
juridical relation between the parties.
15. ABBOTT LABORATORIES VS ALCARAZ 701
SCRA 602
FACTS: Petitioner Abbott Laboratories, Philippines
(Abbott) caused the publication in a major broadsheet
newspaper of its need for a Medical and Regulatory
Affairs Manager. Alcaraz - who was then a Regulatory
Affairs and Information Manager at Aventis Pasteur
Philippines, Incorporated (another pharmaceutical
company like Abbott) showed interest and submitted
her application.
In Abbotts offer sheet, it was stated that Alcaraz was to
be employed on a probationary basis. Later that day, she
accepted the said offer and received an electronic mail (e-
mail) from Abbotts Recruitment Officer, petitioner Teresita
C. Bernardo (Bernardo), confirming the same. Attached to
Bernardos e-mail were Abbotts organizational chart and a
job description of Alcarazs work. During Alcarazs pre-
employment orientation, petitioner Allan G. Almazar
(Almazar), Hospiras Country Transition Manager, briefed
her on her duties and
– SECOND SET CASE DIGEST | 33
responsibilities as Regulatory Affairs Manager.
Petitioner Kelly Walsh (Walsh), Manager of the
Literature Drug Surveillance Drug Safety of Hospira,
will be her immediate supervisor. Petitioner Maria
Olivia T. Yabut-Misa (Misa), Abbotts Human Resources
(HR) Director, sent Alcaraz an e-mail which contained
an explanation of the procedure for evaluating the
performance of probationary employees.
During the course of her employment, Alcaraz noticed
that some of the staff had disciplinary problems. Thus,
she would reprimand them for their unprofessional
behavior such as non-observance of the dress code,
moonlighting, and disrespect of Abbott officers.
However, Alcarazs method of management was
considered by Walsh to be "too strict." Alcaraz was
called to a meeting with Walsh and Terrible, Abbotts
former HR Director, where she was informed that she
failed to meet the regularization standards for the
position of Regulatory Affairs Manager. Walsh,
Almazar, and Bernardo personally handed to Alcaraz a
letter stating that her services had been terminated
effective May 19, 2005. The letter detailed the reasons
for Alcarazs termination. Alcaraz felt that she was
unjustly terminated from her employment and thus,
filed a complaint for illegal dismissal and damages
against Abbott and its officers, namely, Misa,
Bernardo, Almazar, Walsh, Terrible, and Feist. She
claimed that she should have already been considered
as a regular and not a probationary employee given
Abbotts failure to inform her of the reasonable
standards for her regularization upon her engagement
as required under Article 295of the Labor Code. LA
dismissed Alcarazs complaint for lack of merit. The LA
rejected Alcarazs argument that she was not informed
of the reasonable standards to qualify as a regular
employee. The NLRC reversed the findings of the LA
and ruled that there was no evidence showing that
Alcaraz had been apprised of her probationary status
and the requirements which she should have complied
with in order to be a regular employee. On appeal, CA
affirmed the NLRC decision. Hence, this petition.
ISSUE:
Whether or not Alcaraz was illegally dismissed?
RULING:
The probationary employee may also be
terminated for failure to qualify as a regular
employee in accordance with the reasonable
standards made known by the employer to the
employee at the time of the engagement. A
probationary employee, like a regular employee,
enjoys security of tenure. However, in cases of
probationary employment, aside from just or
authorized causes of termination, an additional ground
is provided under Article 295 of the Labor Code, i.e.,
the probationary employee may also be terminated for
failure to qualify as a regular employee in accordance
with the reasonable standards made known by the
employer to the employee at the time of the
engagement. Thus, the services of an employee who
has been engaged on probationary basis may be
terminated for any of the following: (a) a just or (b) an
authorized cause; and (c) when he fails to qualify as a
regular employee in accordance with reasonable
standards prescribed by the employer.
A punctilious examination of the records reveals that
Abbott had indeed complied with the above-stated
requirements. This conclusion is largely impelled by the
 CORPORATION LAW
fact that Abbott clearly conveyed to Alcaraz her duties
and responsibilities as Regulatory Affairs Manager prior
to, during the time of her engagement, and the
incipient stages of her employment. On this score, the
Court finds it apt to detail not only the incidents which
point out to the efforts made by Abbott but also those
circumstances which would show that Alcaraz was
well-apprised of her employers expectations that
would, in turn, determine her regularization.
Abbott caused the publication in a major broadsheet
newspaper of its need for a Regulatory Affairs Manager,
indicating therein the job description for as well as the
duties and responsibilities attendant to the aforesaid
position. In Abbotts December 7, 2004 offer sheet, it was
stated that Alcaraz was to be employed on a probationary
status. On the day Alcaraz accepted Abbotts employment
offer, Bernardo sent her copies of Abbotts organizational
structure and her job description through e-mail. Alcaraz
was made to undergo a pre-employment orientation
where Almazar informed her that she had to implement
Abbotts Code of Conduct and office policies on human
resources and finance and that she would be reporting
directly to Walsh. Alcaraz received copies of Abbotts Code
of Conduct and Performance Modules from Misa who
explained to her the procedure for evaluating the
performance of probationary employees; she was further
notified that Abbott had only one evaluation system for all
of its employees. Considering the totality of the above-
stated circumstances, it cannot, therefore, be doubted
that Alcaraz was well-aware that her regularization would
depend on her ability and capacity to fulfill the
requirements of her position as Regulatory Affairs
Manager and that her failure to perform such would give
Abbott a valid cause to terminate her probationary
employment. An employer who terminates an
employee for a valid cause but does so through
invalid procedure is liable to pay the latter nominal
damages. Despite the existence of a sufficient ground to
terminate Alcarazs employment and Abbotts compliance
with the Labor Code termination procedure, it is readily
apparent that Abbott breached its contractual obligation to
Alcaraz when it failed to abide by its own procedure in
evaluating the performance of a probationary employee.
Records show that Abbotts PPSE procedure mandates,
inter alia, that the job performance of a probationary
employee should be formally reviewed and discussed with
the employee at least twice: first on the third month and
second on the fifth month from the date of employment.
Abbott is also required to come up with a Performance
Improvement Plan during the third month review to
bridge the gap between the employees performance and
the standards set, if any. In addition, a signed copy of the
PPSE form should be submitted to Abbotts HRD as the
same would serve as basis for recommending the
confirmation or termination of the probationary
employment.
In this case, it is apparent that Abbott failed to follow
the above-stated procedure in evaluating Alcaraz. For
one, there lies a hiatus of evidence that a signed copy
of Alcarazs PPSE form was submitted to the HRD. It
was not even shown that a PPSE form was completed
to formally assess her performance. Neither was the
performance evaluation discussed with her during the
third and fifth months of her employment. Nor did
Abbott come up with the necessary Performance
Improvement Plan to properly gauge Alcarazs
performance with the set company standards. In this
light, while there lies due cause to terminate Alcarazs
probationary employment for her failure to meet the
– SECOND SET CASE DIGEST | 34
standards required for her regularization, and while it
must be further pointed out that Abbott had satisfied its
statutory duty to serve a written notice of termination, the
fact that it violated its own company procedure renders
the termination of Alcarazs employment procedurally
infirm, warranting the payment of nominal damages. A
further exposition is apropos.
It bears mentioning that the performance
standard contemplated by law should not, in all cases,
be contained in a specialized system of feedbacks or
evaluation. The Court takes judicial notice of the fact
that not all employers, such as simple businesses or
small-scale enterprises, have a sophisticated form of
human resource management, so much so that the
adoption of technical indicators as utilized through
"comment cards" or "appraisal" tools should not be
treated as a prerequisite for every case of probationary
engagement. In fact, even if a system of such kind is
employed and the procedures for its implementation
are not followed, once an employer determines that
the probationary employee fails to meet the standards
required for his regularization, the former is not
precluded from dismissing the latter. The rule is that
when a valid cause for termination exists, the
procedural infirmity attending the termination only
warrants the payment of nominal damages. GRANTED.
16. POLYMER RUBBER CORP V SALAMUDING 702
SCRA 153
FACTS:
Bayolo Salamuding, Mariano Gulanan and Rodolfo Raif
were employees of Polymer Rubber Corporation
dismissed after allegedly committing certain
irregularities against Polymer. Salamuding et al filed
a complaint for Unfair Labor Practive and Illegal
Dismissal, non-payment of overtime and 13th month
against Polymer and its director Joseph Ang, highest
ranking officer. Labor arbited decided that NO Unfair
Labor Practie but there was Illegal Dismissal. Ordered
the reinstatement and back wages, 13th month, OT
pay, moral and exemplary damages and atty’s fees. A
writ of execution was subsequently issued to
implement said judgment. Polymer appealed to the
NLRC which affirmed the decision with modifications.
The NLRC deleted the award of moral and exemplary
damages, SIL pay, and modified the computation of
13th month pay. A writ of execution was subsequently
issued based on the NLRC decision. The case was
elevated to the SC. On September 29, 1993, the SC
affirmed the disposition of the NLRC but modified by
deleting the overtime pay. On September 30, Polymer
ceased its operations.
In 1994, the LA issued a writ of execution based on the
SC resolution. It was returned unsatisfied. Another alias
writ of execution was issued in 1997. In the latter part of
2004, Polymer with all its improvements in the premises
was gutted by fire. On December 2004, Salamuding et al
filed a Motion for Recomputation and Issuance of 5th Alias
Writ of Execution. The Research and Computation Unit of
NLRC came up with the total amount of P2.9M Due to the
failure of Polymer to comment or oppose despite notice,
the LA approved said amount. On April 2005, the LA
issued the 5th Alias Writ of Execution, commanding the
sheriff to collect the amount. In its implementation, the
shares of stock of Joseph Ang at USA Resources
Corporation was levied. Polymer and Ang moved to quash
the writ and to lift the notice of garnishment. They alleged
that: a) Ang should not be held solidarily liable with
Polymer since it was only the latter which was held liable
in the decision
 CORPORATION LAW
of the LA, NLRC and the SC. b) The computation of
monetary award in favor of the complainants amounting
to P2.9M was erroneous c) The decision sought to be
enforced by mere motion is already barred by the statute
of limitations. LA granted the motion, and ordered the
quashal and recall of the writ of execution, as well as
lifting the notice of levy on Ang’s shares of stock. It ruled
that the previous decision did not contain any
pronouncement that Ang was also liable. To hold him
liable at this stage when the decision had long become
final and executory will vary the tenor of the judgment, or
in excess of its terms. As to the extent of the computation
of the backwages, the same must only cover the period
during which the company was in actual operation.
Moreover, the motion to execute was already barred by
the statute of limitations. NLRC affirmed the findings but
modified the decision stating that the Salamuding et al
are not barred by the statute of limitations. Salamuding et
al filed a Petition for Certiorari before the CA. CA found
merit with the petition, stating that there has to be a
responsible person working in the interest of Polymer who
may also be considered as the employer. Since Ang as the
director of Polymer was considered the highest ranking
officer, he was therefore properly impleaded and may be
held solidarily liable for the obligations of Polymer to its
dismissed employees. CA imputed bad faith when Polymer
ceased its operations the day after the promulgation of
the SC resolution, allegedly to evade liability. CA found it
necessary to pierce the corporate
fiction and make Ang liable. CA ordered the
reinstatement of the writ of execution and the notice of
levy on the shares of stocks owned by Ang. Polymer
and Ang filed a petition claiming that: 1. Upon finality
of decision, the same can no longer be altered or
modified; 2. Officer cannot be personally held liable
and be made to pay the liability of the corporation 3.
Polymer cannot be made to pay salaries beyond the
existence of the company 4. Separation pay is only
half month salary for every year of service.
ISSUE:
Whether or not Ang may be made liable.
RULING:
NO. Obligations incurred as a result of the directors’ or
officers’ acts as corporate agents are not their personal
liability but that of the corporation. They are only held
solidarily liable with the corporation for the illegal
termination of services of Employees if they acted with
malice or bad faith. 2 Requisites: (1) it must be
alleged in the complaint that the officer was guilty of
gross negligence or bad faith; and (2) there must be
proof that the officer acted in Bad Faith.
There is solidary liability when the obligation expressly
so states, when the law so provides, or when the
nature of the obligation so requires. MAM Realty
Development Corporation v. NLRC, on solidary liability
of corporate officers in labor disputes, enlightens:
xxx
A corporation being a juridical entity, may act only
through its directors, officers and employees.
Obligations incurred by them, acting as such corporate
agents are not theirs but the direct accountabilities of
the corporation they represent. True solidary liabilities
may at times be incurred but only when exceptional
circumstances warrant such as, generally, in the
following:
– SECOND SET CASE DIGEST | 35
1. When directors and trustees or, in appropriate
cases, the officers of a corporation:
(a) Vote for or assent to patently unlawful acts of the
corporation;
(b) Act in bad faith or with gross negligence in
directing the corporate affairs;
xxxx
In labor cases, for instance, the Court has held
corporate directors and officers solidarily liable with
the corporation for the termination of employment of
employees done with malice or in bad faith.”
In the present case, aside from the assertion that the
closure was meant to evade liability, there was no
evidence showing that Ang was responsible for the acts
complained of. Moreover, it was highly improbable that
the corporation would cease its operations if only to evade
the payment of the monetary awards in favor of 3
employees. Ang is merely one of the incorporators and to
single him out and require him to personally answer for
the liabilities is without basis. In the absence of a finding
that he acted with malice or BF, it was error for the CA to
hold him responsible. Moreover, the judgment of LA,
affirmed by the NLRC and later the SC which had no
pronouncement as to the liability of Ang, became final and
executory and can no longer be altered even if it was
meant to correct what is perceived to be an erroneous
conclusion of fact or law. Computation of separation pay is
only until the time Polymer ceased operations. Petition is
granted.
17. MONTELIBANO VS. BACOLOD-MUIRCIA
MILLING CO., INC. 5 SCRA 36
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 Amended Milling 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:
WON the board resolution is an ultra vires act and in
effect a donation from the board of directors?
RULING:
No. There can be no doubt that the directors of the
appellee company had authority to modify the proposed
terms of the Amended Milling Contract for the purpose
 CORPORATION LAW
of making its terms more acceptable to the other
contracting parties. The logical relation of the act to
the corporate purpose expressed in the charter. If that
act is one which is lawful in itself, and not otherwise
prohibited, is done for the purpose of serving corporate
ends, and is reasonably tributary to the promotion of
those ends, in a substantial, and not in a remote and
fanciful sense, it may fairly be considered within
charter powers. 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.
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. Whether the business of a corporation
should be operated at a loss during depression, or
close down at a smaller loss, is a purely business and
economic problem to be determined by the directors of
the corporation and not by the court. The appellee
Bacolod-Murcia Milling Company is, under the terms of
its Resolution of August 20, 1936, duty bound to grant
similar increases to plaintiffs-appellants herein.
18. SAN JUAN STRUCTURAL & STEEL
FABRICATORS, INC. VS. CA, 296 SCRA 631
FACTS:
San Juan Structural and Steel Fabricators, Inc. alleged
that it entered into an agreement with defendant
Motorich Sales Corporation for the transfer to it of a
parcel of land identified as Lot 30, Block 1 of the
Acropolis Greens Subdivision located in the District of
Murphy, Quezon City. Metro Manila. As stipulated in
their Agreement, plaintiff paid the downpayment of
P100,000.00, the balance to be paid on or before
March 2, 1989. On March 1, 1989. Mr. Andres T. Co,
president of plaintiff corporation, wrote a letter to
defendant Motorich Sales Corporation requesting for a
computation of the balance to be paid and that said
letter was coursed through defendant’s broker, Linda
Aduca, who wrote the computation of the balance.
On March 2, 1989, plaintiff was ready with the amount
corresponding to the balance, covered by Metrobank
Cashier's Check No. 004223, payable to defendant
Motorich Sales Corporation. Plaintiff and defendant
Motorich Sales Corporation were supposed to meet in
the office of plaintiff but defendant’s treasurer, Nenita
Lee Gruenberg, did not appear. Motorich Sales
Corporation despite repeated demands and in utter
disregard of its commitments had refused to execute
the Transfer of Rights/Deed of Assignment which is
necessary to transfer the certificate of title.
On April 6, 1989, defendant ACL Development
Corporation and Motorich Sales Corporation entered
into a Deed of Absolute Sale whereby the former
transferred to the latter the subject property. By
reason of said transfer, the Registry of Deeds of
Quezon City issued a new title in the name of Motorich
Sales Corporation, represented by defendant Nenita
Lee Gruenberg and Reynaldo L. Gruenberg.
ISSUE:
Whether or not the corporate treasurer, by herself and
without any authorization from the board of directors,
validly sell a parcel of land owned by the corporation
– SECOND SET CASE DIGEST | 36
RULING:
No, the corporate treasurer Gruenberg cannot bind the
corporation with regard to the sale of the parcel of land.
San Juan Structural and Steel Fabricators, Inc. alleges
that it entered through its president, Andres Co, into the
disputed Agreement with Motorich Sales Corporation,
which was in turn allegedly represented by its treasurer,
Nenita Lee Gruenberg. Petitioner insists that "[w]hen
Gruenberg and Co affixed their signatures on the contract
they both consented to be bound by the terms thereof."
Ergo, petitioner contends that the contract is binding on
the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989,
the Agreement, according to which a lot owned by
Motorich Sales Corporation was purportedly sold. Such
contract, however, cannot bind Motorich, because it
never authorized or ratified such sale.
A corporation is a juridical person separate and distinct
from its stockholders or members. Accordingly, the
property of the corporation is not the property of its
stockholders or members and may not be sold by the
stockholders or members without express
authorization from the corporation's board of directors.
Indubitably, a corporation may act only through its
board of directors or, when authorized either by its
bylaws or by its board resolution, through its officers
or agents in the normal course of business. The
general principles of agency govern the relation
between the corporation and its officers or agents,
subject to the articles of incorporation, bylaws, or
relevant provisions of law. Thus, this Court has held
that "a corporate officer or agent may represent and
bind the corporation in transactions with third persons
to the extent that the authority to do so has been
conferred upon him, and this includes powers which
have been intentionally conferred, and also such
powers as, in the usual course of the particular
business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers
as the corporation has caused persons dealing with the
officer or agent to believe that it has conferred."
Furthermore, the Court has also recognized the rule
that "persons dealing with an assumed agent, whether
the assumed agency be a general or special one bound
at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to
establish it. Unless duly authorized, a treasurer, whose
powers are limited, cannot bind the corporation in a
sale of its assets.
In the case at bar, Motorich categorically denies that it
ever authorized Nenita Gruenberg, its treasurer, to sell
the subject parcel of land. Consequently, petitioner
had the burden of proving that Nenita Gruenberg was
in fact authorized to represent and bind Motorich in the
transaction. Petitioner failed to discharge this burden.
It has not shown any provision of said respondent's
articles of incorporation, bylaws or board resolution to
prove that Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does
not free petitioner from the responsibility of ascertaining
the extent of her authority to represent the corporation.
Petitioner cannot assume that she, by virtue of her
 CORPORATION LAW
position, was authorized to sell the property of the
corporation. Selling is obviously foreign to a corporate
treasurer's function, which generally has been
described as "to receive and keep the funds of the
corporation, and to disburse them in accordance with
the authority given him by the board or the properly
authorized officers."
Neither was such real estate sale shown to be a normal
business activity of Motorich. The primary purpose of
Motorich is marketing, distribution, export and import in
relation to a general merchandising business. 18
Unmistakably, its treasurer is not cloaked with actual or
apparent authority to buy or sell real property, an activity
which falls way beyond the scope of her general authority.
Petitioner further contends that Motorich has ratified said
contract of sale because of its "acceptance of benefits," as
evidenced by the receipt issued by Gruenberg. Petitioner
is clutching at straws. As a general rule, the acts of
corporate officers within the scope of their authority are
binding on the corporation. But when these officers
exceed their authority, their actions "cannot bind the
corporation, unless it has ratified such acts or is estopped
from disclaiming them."
In this case, there is a clear absence of proof that
Motorich ever authorized Nenita Gruenberg, or made it
appear to any third person that she had the authority, to
sell its land or to receive the earnest money. Neither was
there any proof that Motorich ratified, expressly or
impliedly, the contract. Petitioner rests its argument on
the receipt which, however, does not prove the fact of
ratification. The document is a hand-written one, not a
corporate receipt, and it bears only Nenita Gruenberg's
signature. Certainly, this document alone does not prove
that her acts were authorized or ratified by Motorich.
Because Motorich had never given a written authorization
to Respondent Gruenberg to sell its parcel of land, we
hold that the February 14, 1989 Agreement entered into
by the latter with petitioner is void under Article 1874 of
the Civil Code. Being inexistent and void from the
beginning, said contract cannot be ratified.
Piercing the Corporate Veil Not Justified
We stress that the corporate fiction should be set aside
when it becomes a shield against liability for fraud,
illegality or inequity committed on third persons. The
question of piercing the veil of corporate fiction is
essentially, then, a matter of proof. In the present
case, however, the Court finds no reason to pierce the
corporate veil of Respondent Motorich. Petitioner
utterly failed to establish that said corporation was
formed, or that it is operated, for the purpose of
shielding any alleged fraudulent or illegal activities of
its officers or stockholders; or that the said veil was
used to conceal fraud, illegality or inequity at the
expense of third persons, like petitioner.
19. AGUENZA VS. METROPOLITAN BANK AND
TRUST CO., 271 SCRA 1
FACTS:
On March 21, 1978, private respondents Vitaliado
Arrieta, VP of Intertrade and Lilia P. Perez, a
bookkeeper in the employ of intertrade, obtained a Php
500,000.00 loan from private respondent Mtrobank.
Both executed a Promissory Note in favor of said bank
in the amount of Php 500,000.00. Under said note,
private respondents Arrieta and Perez promised to pay
said amount, jointly and severally, in twenty five (25)
equal instalments of Php 20,000.00 each starting on
April 20, 1979 with interest of 18.704% per annum,
and in case of default, a further 8% per annum.
– SECOND SET CASE DIGEST | 37
Private respondents Arrieta and Perez defaulted in the
payment of several instalments, thus resulting in the
entire obligation becoming due and demandable. In
1979, private respondent Metrobank instituted suit
against intertrade. Vitaliado Arrieta, Lilia Perez and her
husband, Patricio Perez, to collect not only the unpaid
principal obligation, but also interest, fees and
penalties, exemplary damages, as well as attorney’s
fees and costs of suit.
More than a year after private respondent Metrobank filed
it original complaint, it filed an Amended Complaint dated
August 30, 1980 for the sole purpose of impleading
petitioner as liable for the load made by private
respondents Arrieta and Perez on March 21, 1978,
notwithstanding the fact that such liability is being
claimed on account of a continuing suretyship agreement
dated March 14, 1977 executed by petitioner and private
respondent Arrieta specifically to guarantee the credit line
applied for by and granted to, Intertrade, through
petitioner and private respondent Arrieta who were
specially given authority by Intertrade on February 28,
1977 to open credit lines with private respondent
Metrobank. The obligations incurred by the Intertrade
under suct credit lines were completely paid as evidence
by private rerspondent Metrobank’s debit memo in the full
amount o Php 562,443.46
RTC ruled that petitioner and Intertrade are not liable for
the promissory note executed by Arrieta and Lilia Perez in
the amount of Php 500,000.00 as the same was the
personal liability of the latter. CA reversed the trial court
and ordered Intertrade and Marketing Co., Inc and J.
Antonio Aguenza to pay, jointly, and severally, the
promissory note contracted by Arreita and Lilia Perez.
ISSUE: Was the promissory note date 21 March 1978
secured and signed by Arrieta and Lilia Perez a
corporate liability of Intertrade and Aguenza?
RULING:
No. Arrieta and Perez were never authorized by
intertrade through a board resolution of the Board of
Directors of Intertrade authorizing the former to
transact said loan for and in behalf of the corporation.
It is a well-settled rule that a corporation transacts its
business only through its officer or agents. And the
authority of such officers or agents is derived from the
BOD or other governing body unless conferred by the
charter of the coporationg. It is to be noted that the
promissory note dated 21 March 1977 was signed by
Arrieta and Lilia Perez only with no indication as to
what capacity the two signatories had in affixing their
signatures thereon. There is no record that Intertrade
through its BOD, conferred upon Arrieta and Lilia Perez
the authority to contract a loan with Metrobank and
execute the promissory note as a security therefor.
Metrobank in turn never presented a board resolution
nor a stockholder’s resolution showing that Arrieta and
Lilia Perez were empowered by Intertrade to execute
the promissory note. Being that the promissory note
was not the responsibility of Intertrade, it follows that
the same was not covered by the Continuing
Suretyship Agreement. CA decision is reversed and
trail court decision is reinstated.
When the counsel representing the corporation in a
collection suit admits on behalf of the corporation that
the latter admitted culpability for personal loans
obtained by its corporate officers, such admission
cannot be given legal effect to the detriment of the
corporation. The admission made in the answer by the
counsel for the corporation was “without any enabling
 CORPORATION LAW
act or attendant ratification of corporate act,” as would
authorize or even ratify such admission. In the absence of
such ratification or authority, such admission does not
bind the corporation. Also, the letter issued by the
corporate officers who obtained the loan “as indicating the
corporate liability of the corporation,” cannot also serve to
make the corporation liable. The documents and
admissions cannot have the effect of a ratification of an
unauthorized act. Ratification can never be made on the
part of the corporation by the same persons who
wrongfully assume the power to make the contract, but
the ratification must be by the officers as governing body
having authority to make such contract.
20. AF REALTY & DEVELOPMENT INC. VS.
DIESELMAN FREIGHT SERVICES 373 SCRA 385
FACTS:
1988, Manuel Cruz, Jr., a board member of Dieselman
Freight Services, Co. (DFS) authorized Cristeta Polintan to
sell a 2,094 sq. m. parcel of land owned by DFS. Polintan
in turn authorized Felicisima Noble to sell the same lot.
Noble then offered AF Realty & Development, Co.,
represented by Zenaida Ranullo, the land at the rate of
P2,500.00 per sq. m. AF Realty accepted the offer and
issued a P300,000 check as downpayment.
However, it appeared that DFS did not authorize Cruz,
Jr. to sell the said land. Nevertheless, Manuel Cruz, Sr.
(father) and president of DFS, accepted the check but
modified the offer. He increased the selling price to
P4,000.00 per sq. m. AF Realty, in its response, did
not exactly agree nor disagree with the counter-offer
but only said it is willing to pay the balance (but was
not clear at what rate). Eventually, DFS sold the
property to someone else.
Now AF Realty is suing DFS for specific performance. It
claims that DFS ratified the contract when it accepted
the check and made a counter-offer.
ISSUE:
Whether or not the sale made through an agent was
ratified.
RULING:
No. There was no valid agency created. The Board of
Directors of DFS never authorized Cruz, Jr. to sell the
land. Hence, the agreement between Cruz, Jr. and
Polintan, as well as the subsequent agreement
between Polintan and Noble, never bound the
corporation. Therefore the sale transacted by Noble
purportedly on behalf of Polintan and ultimately
purportedly on behalf of DFS is void.
Section 23 of the Corporation Code expressly provides
that the corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural
person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers
or agents appointed by it. Thus, contracts or acts of a
corporation must be made either by the board of directors
or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that
the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of
such director, are held not binding on the corporation.
In the instant case, it is undisputed that respondent Cruz,
Jr. has no written authority from the board of directors of
respondent Dieselman to sell or to negotiate the sale of
the lot, much less to appoint other persons for the same
purpose. Respondent Cruz, Jr.'s lack of such authority
precludes him from conferring any
– SECOND SET CASE DIGEST | 38
authority to Polintan involving the subject realty.
Necessarily, neither could Polintan authorize Felicisima
Noble. Clearly, the collective acts of respondent Cruz,
Jr., Polintan and Noble cannot bind Dieselman in the
purported contract of sale.
Being a void sale, it cannot be ratified even if Cruz, Sr.
accepted the check and made a counter-offer. (Cruz,
Sr. returned the check anyway). Under Article 1409 of
the Civil Code, void transactions can never be ratified
because they were void from the very beginning.
21. G.R. No. 149252. April 28, 2005
DONALD KWOK, Petitioners, vs. PHILIPPINE
CARPET MANUFACTURING CORPORATION,
Respondents.
FACTS: In 1965, petitioner Donald Kwok and his father-
in-law Patricio L. Lim, along with some other stockholders,
established a corporation, the respondent Philippine
Carpet Manufacturing Corporation (PCMC). The Kwok
became its general manager, executive vice-president and
chief operations officer. Lim, on the other hand, was its
president and chairman of the board of directors. When
Kwok retired, he was receiving a monthly salary of
₱160,000.00. He demanded the cash equivalent of what
he believed to be his accumulated vacation and sick leave
credits during the entire length of his service with PCMC,
i.e., from November 16, 1965 to October 31, 1996, in the
total amount of ₱7,080,546.00 plus interest. However,
PCMC refused to accede to the Kwok’s demands, claiming
that the latter was not entitled thereto.
Kwok filed a complaint against PCMC for the payment
of his accumulated vacation and sick leave credits
before the NLRC. He claimed that Lim made a verbal
promise to give him unlimited sick leave and vacation
leave benefits and its cash conversion upon his
retirement or resignation without the need for any
application therefor. In addition, Lim also promised to
grant him other benefits, such as golf and country club
membership; the privilege to charge the PCMC’s
account; 6% profit-sharing in the net income of PCMC
(while Lim got 4%); and other corporate perquisites.
According to Kwok, all of these promises were
complied with, except for the grant of the cash
equivalent of his accumulated vacation and sick leave
credits upon his retirement.
PCMC denied all these, claiming that upon Kwok’s
retirement, he received the amount of ₱6,902,387.19
representing all the benefits due him. Despite this, the
petitioner again demanded ₱7,080,546.00, which
demand was without factual and legal basis. PCMC
asserted that the chairman of its board of directors and
its president/vice-president had unlimited discretion in
the use of their time, and had never been required to
file applications for vacation and sick leaves; as such,
said officers were not entitled to vacation and sick
leave benefits. PCMC, likewise, pointed out that even if
Kwok was entitled to the said additional benefits, his
claim had already prescribed. It further averred that it
had no policy to grant vacation and sick leave credits
to the petitioner.
In his Affidavit , Lim denied making any such verbal
promise to his son-in- law on the grant of unlimited
vacation and sick leave credits and the cash conversion
thereof. Lim averred that Kwok had received vacation
and sick leave benefits from 1994 to 1996. Moreover,
assuming that he did make such promise to the
 CORPORATION LAW
petitioner, the same had not been confirmed or
approved via resolution of PCMC’s board of directors.
It was further pointed out that as per the
Memorandum dated November 6, 1981, only regular
employees and managerial and confidential employees
falling under Category I were entitled to vacation and
sick leave credits. Kwok, whose position did not fall
under Category I, was, thus, not entitled to the
benefits under the said memorandum. PCMC alleged
that this was admitted by Kwok himself and affirmed
by Raoul Rodrigo, its incumbent executive vice-
president and general manager.
The Labor Arbiter ruled in favor of Kwok and ordering
PCMC to pay him the sum of ₱7,080,546.00, plus ten
percent (10%) thereof as and for attorney’s fees.
PCMC appealed the decision to the NLRC, alleging that
there is no basis for the award of ₱7,080,546.00.
For his part, PCMC made the following averments in his
memorandum:
The non-performance by PCMC of this
particular promise to convert in cash all of his
unused cash (sic) and sick leave credits was
precipitated by the falling out of the marriage
between Mr. Kwok and his wife, the daughter
of Mr. Lim. In fact, even while Mr. Kwok was
still the Executive Vice-President and General
Manager of PCMC, when the falling out of the
said marriage became apparent, the other
benefits or perquisites which Mr. Kwok used to
enjoy were immediately curtailed by Mr. Lim to
the prejudice of Mr. Kwok.
The NLRC rendered judgment granting the appeal,
reversing and setting aside the decision of the LA. The
NLRC ordered the dismissal of the complaint.
Aggrieved, Kwok filed a petition for review with the CA.
The CA rendered judgment affirming the decision of
the NLRC and dismissing the petition, thus, the instant
petition.
Kwok posits that he had adduced substantial evidence
to prove that Lim, as president and chairman of
PCMC’s board of directors, made a verbal promise to
give him the cash conversion of his accumulated
vacation and sick leave credits upon his retirement
(that is, benefits at par with the number of days to
which the officer next in rank to him was entitled).
According to Kwok, his claim is fortified by the fact that
his successor, Raoul Rodrigo, has unlimited vacation
and sick leave credits. Kwok further asserts that he
would not have accepted the positions in PCMC without
such benefit, especially since his subordinates were
also enjoying the same. He posits that he was entitled
to the said privilege because of his rank.
Kwok further argues that his complaint was not time-
barred since he filed it on December 5, 1996. Even if
this were so, he is, nevertheless, entitled to the cash
value of his vacation and sick leave credits for three
years before his retirement. Moreover, the evidence on
record shows that officers belonging to Category I had
been granted the cash conversion of their earned leave
credits after the lapse of three years.
PCMC, for its part, asserts even if Lim had made such
verbal promise to Kwok, the same is not binding on
PCMC absent its conformity through board resolution.
Moreover, Kwok is not covered by the Memorandum
– SECOND SET CASE DIGEST | 39
dated November 6, 1981 because he had unlimited
leave credits; hence, it cannot be gainsaid that he still
had unused leave credits to be converted.
ISSUE: Whether or not grant Kwok is entitled to the
cash value of his vacation and sick leave credits in the
total amount of ₱7,080,546.00
RULING: No. The resolution of the issue is riveted to
our resolution of whether the petitioner’s mainly
testimonial evidence of an alleged verbal promise
made by a corporate officer to grant him the privilege
of converting accumulated vacation and sick leave
credits after retirement or separation from
employment is entitled to probative weight.
While Kwok was unequivocal in claiming that PCMC,
through its president and chairman of the board of
directors, obliged itself, as a matter of policy, to grant
him the cash value of his vacation and sick leave
credits upon his retirement, he was burdened to prove
his claim by substantial evidence. The petitioner failed
to discharge this burden.
We agree with Kwok’s contention that for a contract to be
binding on the parties thereto, it need not be in writing
unless the law requires that such contract be in some
form in order that it may be valid or enforceable or that it
be executed in a certain way, in which case that
requirement is absolute and independent. Indeed,
corporate policies need not be in writing. Contracts
entered into by a corporate officer or obligations or
prestations assumed by such officer for and in behalf of
such corporation are binding on the said corporation only
if such officer acted within the scope of his authority or if
such officer exceeded the limits of his authority, the
corporation has ratified such contracts or obligations.
In the present case, Kwok relied principally on his
testimony to prove that Lim made a verbal promise to
give him vacation and sick leave credits, as well as the
privilege of converting the same into cash upon
retirement. The Court agrees that those who belong to
the upper corporate echelons would have more
privileges. However, the Court cannot presume the
existence of such privileges or benefits. Kwok was
burdened to prove not only the existence of such
benefits but also that he is entitled to the same,
especially considering that such privileges are not
inherent to the positions occupied by the petitioner in
the respondent corporation, son-in-law of its president
or not.
The CA disbelieved Kwok’s testimony and gave credence
and probative weight to the collective testimonies of
PCMC’s witnesses, who were its employees and officers,
including Lim, whom the petitioner presented as a hostile
witness. We agree with the appellate court’s analysis of
the evidence on record:
Except for his bare assertions, petitioner has not
adduced sufficient evidence to support his claim
that he was, indeed, promised the cash
conversion of his unused vacation and sick leaves
upon retirement. Petitioner harps on what he calls
the prevalent practice in PCMC of giving him
benefits, such as the use of golf and country club
facilities, salary increases, the use of the
company vehicle and driver, and sharing in
PCMC’s annual net income, without either a
written contract or a Board resolution to back it
up. Respondent PCMC denies all these, however.
According to respondent, petitioner’s share in the
income of the company is actually part of the
consultancy fee which PCMC pays DK
 CORPORATION LAW
Management Services, Inc., a firm owned by
petitioner’s company. PCMC adds that the
yearly salary increases of corporate officers
were always with the prior approval of the
Board.
Nevertheless, assuming that Kwok was, indeed, given the
benefits which he so claimed, it does not necessarily
follow that among those is the cash conversion of his
accumulated leaves. It is a basic rule in evidence that
each party must prove his affirmative allegation. Kwok, in
the case at bar, has failed to discharge this burden.
The CA made short shift of the claim of the petitioner
that per Memorandum dated November 6, 1981, he
was not entitled to the benefits of the company policy
of commutation of leave credits. Indeed, the company
policy of conversion into equivalent cash of unused
vacation and sick leave credits applied only to its
regular employees. The petitioner failed to offer
evidence to rebut the testimony of Nel Gopez, Chief
Accountant of the respondent, that the petitioner was
not among the regular employees covered by the
policy for the simple reason that he had unlimited
vacation leave benefits. As stated by the CA, the
petitioner no less corroborated the testimony of Gopez.
In all respects, therefore, Kwok, by virtue of his
position as Executive Vice-President, is not covered by
the November 6, 1981 Memorandum granting PCMC
employees the conversion of their unused vacation and
sick leaves into cash.
We have reviewed the records and found no evidence
to controvert the following findings of the CA and its
ratiocinations on its resolution of the petitioner’s
submissions:
Third, and this is of primordial importance,
there is no proof that petitioner has filed
vacation and sick leaves with PCMC’s personnel
department. Without a record of petitioner’s
absences, there is no way to determine the
actual number of leave credits he is entitled to.
The ₱7,080,546.00 figure arrived at by
petitioner supposedly representing the cash
equivalent of his earned sick and vacation
leaves is thus totally baseless.
And, fourth, even assuming that PCMC President
Patricio Lim did promise petitioner the cash
conversion of his leaves, we agree with
respondent that this cannot bind the company in
the absence of any Board resolution to that
effect. We must stress that the personal act
of the company president cannot bind the
corporation. As explicitly stated by the Supreme
Court in People’s Aircargo and Warehousing Co.,
Inc. v. Court of Appeals:
"The general rule is that, in the absence of
authority from the board of directors, no
person, not even its officers, can validly bind a
corporation. A corporation is a juridical person,
separate and distinct from its stockholders and
members, ‘having xxx powers, attributes and
properties expressly authorized by law or
incident to its existence.’
"… the power and the responsibility to decide
whether the corporation should enter into a
contract that will bind the corporation is lodged
in the board, subject to the articles of
– SECOND SET CASE DIGEST | 40
incorporation, by-laws, or relevant provisions
of law."
Kwok maintains that the PCMC Board of Directors has
granted its President, Patricio Lim, awesome powers to
grant benefits to its employees, adding that the Board
has always given its consent to the way Lim ran the
affairs of the company especially on matters relating to
the benefits that its corporate officers enjoyed.
True, jurisprudence holds that the president of a
corporation possesses the power to enter into a
contract for the corporation when "the conduct
on the part of both the president and corporation
[shows] that he had been in the habit of acting in
similar matters on behalf of the company and
that the company had authorized him so to act
and had recognized, approved and ratified his
former and similar actions."
In the case at bar, however, there is no showing
that PCMC had either recognized, approved or
ratified the cash conversion of petitioner’s leave
credits as purportedly promised to him by Lim.
On the contrary, PCMC has steadfastly
maintained that "the Company, through the
Board, has long adopted the policy of granting its
earlier mentioned corporate officers unlimited
leave benefits denying them the privilege of
converting their unused vacation or sick leave
benefits into their cash equivalent."
As to the last assigned error, Kwok faults the NLRC for
holding as applicable to petitioner, the April 26, 1997
Memorandum issued by PCMC to Raoul Rodrigo,
Donald Kwok’s successor as company executive vice-
president. The said memo granted Rodrigo unlimited
sick and vacation leave credits but disallowed the cash
conversion thereof. Before he became executive vice-
president, Rodrigo was senior vice-president and
enjoyed the commutation of his unused vacation and
sick leaves.
We note that the April 26, 1997 memo was issued to
Rodrigo when petitioner was already retired from
PCMC. While said memorandum was particularly
directed to Rodrigo, however, this does not necessarily
mean that petitioner, as former executive vice-
president, was then not prohibited from converting his
earned vacation and sick leaves into cash since he was
not issued a similar memo. On the contrary, the memo
simply affirms the long -standing company practice of
excluding PCMC’s top two positions, that of president
and executive vice-president, from the commutation of
leaves. As heretofore discussed, among the perks of
those occupying these posts is the privilege of having
unlimited leaves, which is totally incompatible with the
concept of converting unused leave credits into their
cash equivalents.
We are not convinced by the petitioner’s claim that Lim
capriciously deprived him of his entitlement to the cash
conversion of his accumulated vacation and sick leave
credits simply because of his estrangement from his wife,
who happens to be Lim’s daughter. The petitioner did not
adduce any evidence to show that he appealed to the
respondent corporation’s board of directors for the
implementation of the said privilege which was allegedly
granted to him. Even if Lim was the president and
chairman of the respondent corporation’s board of
directors, the rest of the membership of the board could
have overruled him and granted to the petitioner his claim
if, indeed, the latter was entitled thereto. Indeed, even
the petitioner admitted that, after his retirement, the
board of directors granted to him salary increase for
 CORPORATION LAW
two years prior to his retirement. If the claim of the
petitioner had been approved by the board of
directors, for sure, it would have approved the same
despite his falling out with the daughter of Lim.
22. G.R. No. 142316 November 22, 2001
FRANCISCO A.G. DE LIANO, ALBERTO O. VILLA-
ABRILLE, JR., and SAN MIGUEL CORPORATION,
petitioners, vs. HON. COURT OF APPEALS and
BENJAMIN A. TANGO, respondents.
FACTS: The case involves the cancellation of two (2)
real estate mortgages in favor of petitioner San Miguel
Corporation (SMC) executed by private respondent
Benjamin Tango over his house and lot in Quezon City.
The mortgages were third party or accommodation
mortgages on behalf of the spouses Bernardino and
Carmelita Ibarra who were dealers of SMC products in
Aparri, Cagayan. Other defendants in the case were
Francisco A.G. De Liano and Alberto O. Villa-Abrille,
Jr., who are senior executives of petitioner SMC.
The RTC ordered San Miguel Corporation to release to
the plaintiff the owner's duplicate copy of TCT No.
299551 in the name of Benjamin A. Tango; to release
to plaintiff the originals of the REM contracts; and to
pay moral damages and attorney’s fees.
SMC, De Liano and Abrille appealed the aforesaid
decision to the Court of Appeals. In due time, their
counsel, Atty. Edgar B. Afable, filed an Appellants'
Brief which failed to comply with Section 13, Rule 44 of
the Rules of Court. The appellee (herein private
respondent) was quick to notice these deficiencies, and
accordingly filed a "Motion to Dismiss Appeal" dated
March 8, 1999. Required to comment, the appellants
averred that their brief had substantially complied with
the contents as set forth in the rules. They proffered
the excuse that the omissions were only the result of
oversight or inadvertence and as such could be
considered "harmless" errors. They prayed for liberality
in the application of technical rules, adding that they
have a meritorious defense.
The CA dismissed the appeal and held that:
As pointed out by plaintiff-appellee, the Brief
does not contain a Subject Index nor a Table
of Cases and Authorities, with page references.
Moreover, the Statement of the Case,
Statement of Facts, and Arguments in the Brief
has no page reference to the record. These
procedural lapses justify the dismissal of the
appeal.
Finally, defendants-appellants, despite having
been notified of such defects, still failed to
amend their Brief to conform to the Rules, and
instead, argues that these are mere "harmless
errors."
Having ruled as such, the Court need not
resolve plaintiff- appellee's contention that the
issues raised in the appeal are mere questions
of law.
From the denial of their motion for reconsideration,
only petitioner SMC interposed the instant petition. As
grounds for allowance, petitioner contends that:
– SECOND SET CASE DIGEST | 41
1. The CA erred in dismissing SMC's appeal on the
basis of pure technicalities and even after SMC
has corrected the technical defect of its appeal.
2. The court of appeals erred in dismissing SMC's
appeal without considering its merits.
ISSUE: Whether or not SMC is bound by the
negligence of its counsel, Atty. Afable.
RULING: Yes.
The premise that underlies all appeals is that they are
merely rights which arise from statute; therefore, they
must be exercised in the manner prescribed by law.
Relative thereto, Section 13, Rule 44 of the Revised
Rules of Court governs the format to be followed by
the appellant in drafting his brief.
On closer scrutiny, the amended brief was as defective
as the first. Where the first brief lacked an assignment
of errors but included a statement of issues, the
amended brief suffered a complete reversal: it had an
assignment of errors but no statement of issues. The
"statement of facts" lacked page references to the
record, a deficiency symptomatic of the first.
Authorities were cited in an improper manner, that is,
the exact page of the report where the citation was
lifted went unspecified. The amended brief did not
even follow the prescribed order: the assignment of
errors came after the statement of the case and the
statement of facts. No one could be expected to ignore
such glaring errors, as in the case at bar. The half-
hearted attempt at submitting a supposedly amended
brief only serves to harden our resolve to demand a
strict observance of the rules.
We remind members of the bar that their first duty is
to comply with the rules, not to seek exceptions.
Anent the second issue, it may prove useful to elucidate
on the processing of appeals in the Court of Appeals.
The Rules of Court prescribe two (2) modes of appeal
from decisions of the Regional Trial Courts to the Court
of Appeals. When the trial court decides a case in the
exercise of its original jurisdiction, the mode of review
is by an ordinary appeal in accordance with Section
2(a) of Rule 41. In contrast, where the assailed
decision was rendered by the trial court in the exercise
of its appellate jurisdiction, the mode of appeal is via a
petition for review pursuant to Rule 42. We are more
concerned here about the first mode since the case at
bar involves a decision rendered by the Regional Trial
Court exercising its original jurisdiction.
Cases elevated to the Court of Appeals are treated
differently depending upon their classification into one
of three (3) categories: appealed civil cases, appealed
criminal cases, and special cases. Be it noted that all
cases are under the supervision and control of the
members of the Court of Appeals in all stages, from
the time of filing until the remand of the cases to the
courts or agencies of origin. Ordinary appealed civil
cases undergo two (2) stages. The first stage consists
of completion of the records. The second stage is for
study and report, which follows when an appealed case
is deemed submitted for decision.
The aforesaid distinction has a bearing on the case at
bar. It becomes apparent that the merits of the appeal
can only be looked into during the second stage. The
Justice in- charge of completion exceeds his province
should he examine the merits of the case since his
 CORPORATION LAW
function is to oversee completion only. The prerogative
of determining the merits of an appeal pertains
properly to the Justice to whom the case is raffled for
study and report.
The case at bar did not reach the second stage; it was
dismissed during completion stage pursuant to Section
1 (f) of Rule 50. Consequently, petitioner's contention
that the appellate court should have considered the
substance of the appeal prior to dismissing it due to
technicalities does not gain our favor.
Generally, the negligence of counsel binds his client.
Actually, Atty. Afable is also an employee of
petitioner San Miguel Corporation. Yet even this
detail will not operate in petitioner's favor. A
corporation, it should be recalled, is an artificial
being whose juridical personality is only a fiction
created by law. It can only exercise its powers and
transact its business through the
instrumentalities of its board of directors, and
through its officers and agents, when authorized
by resolution or its by-laws.
x x x Moreover, " . x x x a corporate officer or
agent may represent and bind the corporation
in transactions with third persons to the extent
that authority to do so has been conferred
upon him, and this includes powers which have
been intentionally conferred, and also such
powers as, in the usual course of the particular
business, are incidental to, or may be implied
from, the powers intentionally conferred,
powers added by custom and usage, as usually
pertaining to the particular officer or agent,
and such apparent powers as the corporation
has caused persons dealing with the officer or
agent to believe that it has conferred.
That Atty. Afable was clothed with sufficient
authority to bind petitioner SMC is undisputable.
Petitioner SMC's board resolution of May 5, 1999
attests to that. Coupled with the provision of law
that a lawyer has authority to bind his client in
taking appeals and in all matters of ordinary
judicial procedure, a fortiori then, petitioner SMC
must be held bound by the actuations of its
counsel of record, Atty. Afable.
23. G.R. No. 148444, July 14, 2008
ASSOCIATED BANK (now UNITED OVERSEAS
BANK [PHILS.]), Petitioner, vs. SPOUSES RAFAEL
and MONALIZA PRONSTROLLER, Respondents.
FACTS: On April 21, 1988, the spouses Eduardo and
Ma. Pilar Vaca (spouses Vaca) executed a Real Estate
Mortgage (REM) in favor of the petitioner Associated
Bank over their parcel of residential land with an area
of 953 sq. m. and the house constructed thereon,
located at No. 18, Lovebird Street, Green Meadows
Subdivision 1, Quezon City (herein referred to as the
subject property). For failure of the spouses Vaca to
pay their obligation, the subject property was sold at
public auction with the petitioner as the highest bidder.
The Transfer Certificate of Title in the name of spouses
Vaca, was cancelled and a new one was issued in the
name of the petitioner.
The spouses Vaca, however, commenced an action for
the nullification of the REM and the foreclosure sale.
Petitioner, on the other hand, filed a petition for the
issuance of a writ of possession which was denied by
the RTC. Petitioner, thereafter, obtained a favorable
– SECOND SET CASE DIGEST | 42
judgment when the CA granted its petition but the
spouses Vaca questioned the CA decision before this
Court.
During the pendency of the aforesaid cases, petitioner
advertised the subject property for sale to interested
buyers for ₱9,700,000.00. Respondents Rafael and
Monaliza Pronstroller offered to purchase the property
for ₱7,500,000.00. Said offer was made through Atty.
Jose Soluta, Jr. (Atty. Soluta), petitioner’s Vice-
President, Corporate Secretary and a member of its
Board of Directors. Petitioner accepted respondents’
offer of ₱7.5 million. Consequently, respondents paid
petitioner ₱750,000.00, or 10% of the purchase price,
as down payment.
Petitioner, through Atty. Soluta, and respondents,
executed a Letter-Agreement setting forth therein the
terms and conditions of the sale, to wit:
1. Selling price shall be at ₱7,500,000.00 payable as
follows:
a. 10% deposit and balance of ₱6,750,000.00
to be deposited under escrow agreement. Said
escrow deposit shall be applied as payment
upon delivery of the aforesaid property to the
buyers free from occupants.
b. The deposit shall be made within ninety (90)
days from date hereof. Any interest earned on
the aforesaid investment shall be for the
buyer’s account. However, the 10% deposit is
non-interest earning.
Prior to the expiration of the 90 -day period within
which to make the escrow deposit, in view of the
pendency of the case between the spouses Vaca and
petitioner involving the subject property, respondents
requested that the balance of the purchase price be
made payable only upon service on them of a final
decision or resolution of this Court affirming
petitioner’s right to possess the subject property. Atty.
Soluta referred respondents’ proposal to petitioner’s
Asset Recovery and Remedial Management Committee
(ARRMC) but the latter deferred action thereon.
A month after they made the request and after the
payment deadline had lapsed, respondents and Atty.
Soluta, acting for the petitioner, executed another
Letter-Agreement allowing the former to pay the
balance of the purchase price upon receipt of a final
order from this Court (in the Vaca case) and/or the
delivery of the property to them free from occupants.
Towards the end of 1993, or in early 1994, petitioner
reorganized its management. Atty. Braulio Dayday (Atty.
Dayday) became petitioner’s Assistant Vice-President and
Head of the Documentation Section, while Atty. Soluta
was relieved of his responsibilities. Atty. Dayday reviewed
petitioner’s records of its outstanding accounts and
discovered that respondents failed to deposit the balance
of the purchase price of the subject property. He, likewise,
found that respondents requested for an extension of time
within which to pay. The matter was then resubmitted to
the ARRMC during its meeting on March 4, 1994, and it
was disapproved. ARRMC, thus, referred the matter to
petitioner’s Legal Department for rescission or cancellation
of the contract due to respondents’ breach thereof.
On May 5, 1994, Atty. Dayday informed respondents
that their request for extension was disapproved by
ARRMC and, in view of their breach of the contract,
 CORPORATION LAW
petitioner was rescinding the same and forfeiting their
deposit. Petitioner added that if respondents were still
interested in buying the subject property, they had to
submit their new proposal. Respondents went to the
petitioner’s office, talked to Atty. Dayday and gave him
the Letter-Agreement of July 14, 1993 to show that
they were granted an extension. However, Atty.
Dayday claimed that the letter was a mistake and that
Atty. Soluta was not authorized to give such extension.
On June 6, 1994, respondents proposed to pay the
balance of the purchase price as follows: ₱3,000,000.00
upon the approval of their proposal and the balance after
six (6) months. However, the proposal was disapproved
by the petitioner’s President. In a letter dated June 9,
1994, petitioner advised respondents that the former
would accept the latter’s proposal only if they would pay
interest at the rate of 24.5% per annum on the unpaid
balance. Petitioner also allowed respondents a refund of
their deposit of ₱750,000.00 if they would not agree to
petitioner’s new proposal.
For failure of the parties to reach an agreement,
respondents, through their counsel, informed
petitioner that they would be enforcing their
agreement dated July 14, 1993. Petitioner
countered that it was not aware of the existence
of the July 14 agreement and that Atty. Soluta
was not authorized to sign for and on behalf of
the bank.
On July 14, 1994, in the Vaca case, this Court upheld
petitioner’s right to possess the subject property.
On July 28, 1994, respondents commenced the instant
suit by filing a Complaint for Specific Performance
before the RTC of Antipolo, Rizal.
During the pendency of the case, petitioner sold the
subject property to the spouses Vaca, who eventually
registered the sale; and on the basis thereof, TCT No.
52593 was cancelled and TCT No. 158082 was issued
in their names. As new owners, the spouses Vaca
started demolishing the house on the subject property
which, however, was not completed by virtue of the
writ of preliminary injunction issued by the court.
The RTC resolved the matter in favor of respondents,
and that the bank is hereby ordered to accept
plaintiffs’ payment of the balance of the purchase price
in the amount of Six Million Seven Hundred Fifty
Thousand Pesos (₱6,750,000.00) and to deliver the
title and possession to subject property, free from all
liens and encumbrances upon receipt of said payment.
Applying the rule of "apparent authority," the court
upheld the validity of the July 14, 1993 Letter-
Agreement where the respondents were given an
extension within which to make payment.
Consequently, respondents did not incur in delay, and
thus, the court concluded that the rescission of the
contract was without basis and contrary to law.
On appeal, the CA affirmed the RTC decision and
upheld Atty. Soluta’s authority to represent the
petitioner. It further ruled that petitioner had no right
to unilaterally rescind the contract; otherwise, it would
give the bank officers license to continuously review
and eventually rescind contracts entered into by
previous officers.
ISSUES: Whether or not the petitioner bound by the
July 14, 1993 Letter-Agreement signed by Atty. Soluta
under the doctrine of apparent authority?
– SECOND SET CASE DIGEST | 43
RULING: Yes.
The Court notes that the March 18, 1993 Letter-
Agreement was written on a paper with petitioner’s
letterhead. It was signed by Atty. Soluta with the
conformity of respondents. The authority of Atty.
Soluta to act for and on behalf of petitioner was not
reflected in said letter or on a separate paper attached
to it. Yet, petitioner recognized Atty. Soluta’s authority
to sign the same and, thus, acknowledged its binding
effect. On the other hand, the July 14, 1993 letter was
written on the same type of paper with the same
letterhead and of the same form as the earlier letter. It
was also signed by the same person with the
conformity of the same respondents. Again, nowhere
in said letter did petitioner specifically authorize Atty.
Soluta to sign it for and on its behalf. This time,
however, petitioner questioned the validity and binding
effect of the agreement, arguing that Atty. Soluta was
not authorized to modify the earlier terms of the
contract and could not in any way bind the petitioner.
We beg to differ.
The general rule is that, in the absence of authority
from the board of directors, no person, not even its
officers, can validly bind a corporation. The power and
responsibility to decide whether the corporation should
enter into a contract that will bind the corporation is
lodged in the board of directors. However, just as a
natural person may authorize another to do certain
acts for and on his behalf, the board may validly
delegate some of its functions and powers to officers,
committees and agents. The authority of such
individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the
board, either expressly or impliedly, by habit, custom,
or acquiescence, in the general course of business.
The authority of a corporate officer or agent in dealing
with third persons may be actual or apparent. The
doctrine of "apparent authority," with special reference
to banks, had long been recognized in this jurisdiction.
Apparent authority is derived not merely from practice.
Its existence may be ascertained through 1) the
general manner in which the corporation holds out an
officer or agent as having the power to act, or in other
words, the apparent authority to act in general, with
which it clothes him; or 2) the acquiescence in his acts
of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his
ordinary powers.
Accordingly, the authority to act for and to bind a
corporation may be presumed from acts of
recognition in other instances, wherein the power
was exercised without any objection from its board
or shareholders. Undoubtedly, petitioner had
previously allowed Atty. Soluta to enter into the
first agreement without a board resolution
expressly authorizing him; thus, it had clothed him
with apparent authority to modify the same via the
second letter-agreement. It is not the quantity of
similar acts which establishes apparent authority,
but the vesting of a corporate officer with the power
to bind the corporation.
Naturally, the third person has little or no information
as to what occurs in corporate meetings; and he must
necessarily rely upon the external manifestations of
corporate consent. The integrity of commercial
transactions can only be maintained by holding the
corporation strictly to the liability fixed upon it by its
agents in accordance with law. What transpires in the
corporate board room is entirely an internal matter.
 CORPORATION LAW
Hence, petitioner may not impute negligence on the
part of the respondents in failing to find out the scope
of Atty. Soluta’s authority. Indeed, the public has the
right to rely on the trustworthiness of bank officers and
their acts.
As early as June 1993, or prior to the 90-day period within
which to make the full payment, respondents already
requested a modification of the earlier agreement such
that the full payment should be made upon receipt of this
Court’s decision confirming petit ioner’s right to the
subject property. The matter was brought to the
petitioner’s attention and was in fact discussed by the
members of the Board. Instead of acting on said request
(considering that the 90-day period was about to expire),
the board deferred action on the request. It was only after
one year and after the bank’s reorganization that the
board rejected respondents’ request. We cannot therefore
blame the respondents in relying on the July 14, 1993
Letter-Agreement. Petitioner’s inaction, coupled with the
apparent authority of Atty. Soluta to act on behalf of the
corporation, validates the July 14 agreement and thus
binds the corporation. All these taken together, lead to no
other conclusion than that the petitioner attempted to
defraud the respondents. This is bolstered by the fact that
it forged another contract involving the same property,
with another buyer, the spouses Vaca, notwithstanding
the pendency of the instant case.
We would like to emphasize that if a corporation
knowingly permits its officer, or any other agent,
to perform acts within the scope of an apparent
authority, holding him out to the public as
possessing power to do those acts, the
corporation will, as against any person who has
dealt in good faith with the corporation through
such agent, be estopped from denying such
authority.
Petitioner further insists that specific performance is
not available to respondents because the Letter-
Agreements had already been rescinded --- the March
18 agreement because of the breach committed by the
respondents; and the July 14 letter because of the new
offer of the respondents which was not approved by
petitioner.
Again, the argument is misplaced.
Basic is the rule that a contract constitutes the law
between the parties. Concededly, parties may validly
stipulate the unilateral rescission of a contract. This is
usually in the form of a stipulation granting the seller the
right to forfeit installments or deposits made by the buyer
in case of the latter’s failure to make full payment on the
stipulated date. While the petitioner in the instant case
may have the right, under the March 18 agreement, to
unilaterally rescind the contract in case of respondents’
failure to comply with the terms of the contract, the
execution of the July 14 Agreement prevented petitioner
from exercising the right to rescind. This is so because
there was in the first place, no breach of contract, as the
date of full payment had already been modified by the
later agreement.
Neither can the July 14, 1993 agreement be considered
abandoned by respondents’ act of making a new offer,
which was unfortunately rejected by petitioner. A careful
reading of the June 6, 1994 letter of respondents impels
this Court to believe that such offer was made only to
demonstrate their capacity to purchase the subject
property. Besides, even if it was a valid new offer, they
did so only due to the fraudulent misrepresentation made
by petitioner that their earlier
– SECOND SET CASE DIGEST | 44
contracts had already been rescinded. Considering
respondents’ capacity to pay and their continuing
interest in the subject property, to abandon their right
to the contract and to the property, absent any form of
protection, is contrary to human nature. The
presumption that a person takes ordinary care of his
concerns applies and remains unrebutted. Obviously
therefore, respondents made the new offer without
abandoning the previous contract. Since there was
never a perfected new contract, the July 14, 1993
agreement was still in effect and there was no
abandonment to speak of.
24. G.R. No. 190408
BENJIE B. GEORG represented by BENJAMIN C.
BELARMINO, JR., Petitioner, vs. HOLY TRINITY
COLLEGE, INC., Respondent.
FACTS: The Holy Trinity College Grand Chorale and
Dance Company (the Group) was organized in 1987 by
Sister Teresita Medalle (Sr. Medalle), the President of
respondent Holy Trinity College in Puerto Princesa City.
The Grand Chorale and Dance Company were two
separate groups but for the purpose of performing
locally or abroad, they were usually introduced as one
entity. The Group was composed of students from Holy
Trinity College.
In 2001, the Group was slated to perform in Greece,
Italy, Spain and Germany.
Respondent Sr. Medalle was allegedly represented by
Edward Enriquez and contacted Petitioner Benjie Georg
to seek assistance for payment of the Group's
international airplane tickets. Petitioner is the Filipino
wife of a German national Heinz Georg. She owns a
German travel agency named D'Travellers Reiseburo
Georg. Petitioner, in tum, requested her brother, Atty.
Benjamin Belarmino, Jr. (Atty. Belarmino), to
represent her in the negotiation with Enriquez.
The parties then executed a Memorandum of Agreement
with the assurance from the respondent that there was a
confirmed allocation of funds for the payment of the plane
tickets for the group. However, it was not paid and
refused to be paid by the foundation-grantor who is one of
the parties to the MOA executed by the parties.
Hence, the case for Sum of Money with Damages was
filed before the RTC.
RTC RULING: The Respondents were ordered to pay
the jointly and severally to the plaintiff.
CA RULING: This decision was sustained by the Court
of Appeals.
On 9 January 2007, respondent filed a notice of
appeal. In a Decision dated 17 November 2009, the
Court of Appeals relieved respondent of any liability for
petitioner's monetary claims.
The Court of Appeals held that petitioner failed to exercise
reasonable diligence in ascertaining the existence and
extent of Enriquez's authority to act for and in behalf of
the Group or for that matter, respondent. The Court of
Appeals noted the absence of respondent's name in the
MOA, thus it concluded that respondent was clearly not a
party to the MOA. The Court of Appeals took exception to
the trial court's ruling that respondent admitted the
genuineness and due execution of the MOA when it failed
to deny the same
 CORPORATION LAW
under oath. The Court of Appeals also pointed out that
Sr. Medalle affixed her thumbmark on the MOA under
the mistaken belief that said agreement would
facilitate the release of the donation from the
foundation-grantor. The Court of Appeals added that
the trial court should have considered that Sr. Medalle
was confined at the hospital at that time. In addition,
the Court of Appeals ruled that there was no showing
that Sr. Medalle was duly authorized by respondent to
enter into the subject MOA. According to the Court of
Appeals, the Group's general affiliation with
respondent cannot be used by petitioner to justify her
failure to exercise reasonable diligence in the conduct
of her own travel agency business. The doctrine of
corporation by estoppel cannot apply to respondent in
absence of any showing that it was complicit to or had
benefited from said misrepresentations.
ISSUE: Whether or not Sr. Medalle is authorized by
respondent to enter into the MOA.
RULING: No, Sr. Medalle, as President of Holy Trinity, is
clothed with sufficient authority to enter into a loan
agreement. As held by the trial court, the Holy Trinity
College's Board of Trustees never contested the standing
of the Dance and Chorale Group and had in fact lent its
support in the form of sponsoring uniforms or freely
allowed the school premises to be used by the group for
their practice sessions. In addition, petitioner was correct
in citing snippets of Sr. Navarro's testimony to prove that
the Board of Trustees, the administration, as well as the
congregation to which they belong have consented or
ratified the actions of Sr. Medalle.
Assuming arguendo that Sr. Medalle was not
authorized by the Holy Trinity College Board, the
doctrine of apparent authority applies in this case.
The doctrine of apparent authority provides that
a corporation will be estopped from denying the
agent's authority if it knowingly permits one of
its officers or any other agent to act within the
scope of an apparent authority, and it holds him
out to the public as possessing the power to do
those acts.
The existence of apparent authority may be ascertained
through (1) the general manner in which the corporation
holds out an officer or agent as having the power to act
or, in other words, the apparent authority to act in
general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual
or constructive knowledge thereof, whether within or
beyond the scope of his ordinary powers.
In this case, Sr. Medalle formed and organized the
Group. She had been giving financial support to the
Group, in her capacity as President of Holy Trinity
College. Sr. Navarro admitted that the Board of
Trustees never questioned the existence and activities
of the Group. Thus, any agreement or contract entered
into by Sr. Medalle as President of Holy Trinity College
relating to the Group bears the consent and approval
of respondent. It is through these dynamics that we
cannot fault petitioner for relying on Sr. Medalle's
authority to transact with petitioner.
Finding that Sr. Medalle possessed full mental faculty
in affixing her thumbmark in the MOA and that
respondent is hereby bound by her actions, we reverse
the ruling of the Court of Appeals.
25. G.R. No. 140667, August 12, 2004
– SECOND SET CASE DIGEST | 45
WOODCHILD HOLDINGS, INC., petitioner, vs.
ROXAS ELECTRIC AND CONSTRUCTION
COMPANY, INC., respondent.
FACTS: The respondent Roxas Electric and
Construction Company, Inc. (RECCI), formerly the
Roxas Electric and Construction Company, was the
owner of two parcels of land, identified as Lot No. 491-
A-3-B-1 covered by Transfer Certificate of Title (TCT)
No. 78085 and Lot No. 491-A-3-B-2 covered by TCT
No. 78086. A portion of Lot No. 491-A-3-B-1 which
abutted Lot No. 491-A-3-B-2 was a dirt road accessing
to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondent
RECCI's Board of Directors approved a resolution
authorizing the corporation, through its president,
Roberto B. Roxas, to sell Lot No. 491-A-3-B-2, with an
area of 7,213 square meters, at a price and under such
terms and conditions which he deemed most
reasonable and advantageous to the corporation; and
to execute, sign and deliver the pertinent sales
documents and receive the proceeds of the sale for
and on behalf of the company.
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy
Lot No. 491-A-3-B-2 on which it planned to construct its
warehouse building, and a portion of the adjoining lot, Lot
No. 491-A-3-B-1, so that its 45-foot container van would
be able to readily enter or leave the property. In a Letter
to Roxas dated June 21, 1991, WHI President Jonathan Y.
Dy offered to buy Lot No. 491-A-3-B-2 under stated terms
and conditions for P1,000 per square meter or at the price
of P7,213,000. One of the terms incorporated in Dy's offer
was the following provision:
5. This Offer to Purchase is made on the
representation and warranty of the
OWNER/SELLER, that he holds a good and
registrable title to the property, which shall be
conveyed CLEAR and FREE of all liens and
encumbrances, and that the area of 7,213
square meters of the subject property already
includes the area on which the right of way
traverses from the main lot (area) towards the
exit to the Sumulong Highway as shown in the
location plan furnished by the Owner/Seller to
the buyer. Furthermore, in the event that the
right of way is insufficient for the buyer's
purposes (example: entry of a 45-foot
container), the seller agrees to sell additional
square meter from his current adjacent
property to allow the buyer to full access and
full use of the property.
Roxas indicated his acceptance of the offer on page 2
of the deed. Less than a month later, Roxas, as
President of RECCI, as vendor, and Dy, as President of
WHI, as vendee, executed a contract to sell in which
RECCI bound and obliged itself to sell to Dy Lot No.
491-A-3-B-2 for P7,213,000. On September 5, 1991, a
Deed of Absolute Sale in favor of WHI was issued,
under which Lot No. 491-A-3-B-2 was sold for
P5,000,000, receipt of which was acknowledged by
Roxas under the following terms and conditions:
The Vendor agree (sic), as it hereby agrees
and binds itself to give Vendee the beneficial
use of and a right of way from Sumulong
Highway to the property herein conveyed
consists of 25 square meters wide to be used
as the latter's egress from and ingress to and
an additional 25 square meters in the corner of
Lot No. 491-A-3-B-1, as turning and/or
maneuvering area for Vendee's vehicles.
 CORPORATION LAW
The Vendor agrees that in the event that the
right of way is insufficient for the Vendee's use
(ex entry of a 45-foot container) the Vendor
agrees to sell additional square meters from its
current adjacent property to allow the Vendee
full access and full use of the property.
… from notice thereof, otherwise the appropriate action
The Vendor hereby undertakes and agrees, at its
account, to defend the title of the Vendee to the
parcel of land and improvements herein
conveyed, against all claims of any and all
persons or entities, and that the Vendor hereby
warrants the right of the Vendee to possess and
own the said parcel of land and improvements
thereon and will defend the Vendee against all
present and future claims and/or action in relation
thereto, judicial and/or administrative. In
particular, the Vendor shall eject all existing
squatters and occupants of the premises within
two (2) weeks from the signing hereof. In case of
failure on the part of the Vendor to eject all
occupants and squatters within the two-week
period or breach of any of the stipulations,
covenants and terms and conditions herein
provided and that of contract to sell dated 1 July
1991, the Vendee shall have the right to cancel
the sale and demand reimbursement for all
payments made to the Vendor with interest
thereon at 36% per annum.
On September 10, 1991, the Wimbeco Builder's, Inc.
(WBI) submitted its quotation for P8,649,000 to WHI
for the construction of the warehouse building on a
portion of the property with an area of 5,088 square
meters. WBI proposed to start the project on October
1, 1991 and to turn over the building to WHI on
February 29, 1992.
In a Letter dated September 16, 1991, Ponderosa
Leather Goods Company, Inc. confirmed its lease
agreement with WHI of a 5,000-square-meter portion
of the warehouse yet to be constructed at the rental
rate of P65 per square meter. Ponderosa emphasized
the need for the warehouse to be ready for occupancy.
WHI accepted the offer. However, WBI failed to
commence the construction of the warehouse because
of the presence of squatters in the property and
suggested a renegotiation of the contract after the
squatters shall have been evicted. Subsequently, the
squatters were evicted from the property.
On March 31, 1992, WHI and WBI executed a Letter-
Contract for the construction of the warehouse building
for P11,804,160. The contractor started construction in
April 1992 even before the building officials of Antipolo
City issued a building permit on May 28, 1992. After
the warehouse was finished, WHI issued on March 21,
1993 a certificate of occupancy by the building official.
Earlier, or on March 18, 1993, WHI, as lessor, and
Ponderosa, as lessee, executed a contract of lease over
a portion of the property for a monthly rental of
P300,000 for a period of three years from March 1,
1993 up to February 28, 1996.
In the meantime, WHI complained to Roberto Roxas that
the vehicles of RECCI were parked on a portion of the
property over which WHI had been granted a right of way.
Roxas promised to look into the matter. Dy and Roxas
discussed the need of the WHI to buy a 500-square-meter
portion of Lot No. 491-A -3-B-1 78085 as provided for in
the deed of absolute sale. However, Roxas died soon
thereafter. On April 15, 1992, the WHI wrote the RECCI,
reiterating its verbal requests to
– SECOND SET CASE DIGEST | 46
purchase a portion of the said lot as provided for in the
deed of absolute sale, and complained about the
latter's failure to eject the squatters within the three-
month period agreed upon in the said deed.
The WHI demanded that the RECCI sell a portion of Lot
No. 491-A-3-B-1 for its beneficial use within 72 hours
would be filed against it. RECCI rejected the demand
of WHI.
WHI filed a complaint against the RECCI with the RTC
of Makati, for specific performance and damages,
In its answer to the complaint, the RECCI alleged that
it never authorized its former president, Roberto
Roxas, to grant the beneficial use of any portion of Lot
No. 491-A-3-B-1, nor agreed to sell any portion
thereof or create a lien or burden thereon. It alleged
that, under the Resolution approved on May 17, 1991,
it merely authorized Roxas to sell Lot No. 491-A-3-B-2.
As such, the grant of a right of way and the agreement
to sell a portion of Lot No. 491-A-3-B-1 in the said
deed are ultra vires. The RECCI further alleged that
the provision therein that it would sell a portion of Lot
No. 491-A-3-B-1 to the WHI lacked the essential
elements of a binding contract.
In its amended answer to the complaint, the RECCI
alleged that the delay in the construction of its
warehouse building was due to the failure of the WHI's
contractor to secure a building permit thereon.
During the trial, Dy testified that he told Roxas that
the petitioner was buying a portion of Lot No. 491 -A-
3-B-1 consisting of an area of 500 square meters, for
the price of P1,000 per square meter.
The RTC rendered judgment in favor of the WHI.
The trial court ruled that the RECCI was estopped from
disowning the apparent authority of Roxas under the
May 17, 1991 Resolution of its Board of Directors. The
court reasoned that to do so would prejudice the WHI
which transacted with Roxas in good faith, believing
that he had the authority to bind the WHI relating to
the easement of right of way, as well as the right to
purchase a portion of Lot No. 491-A-3-B-1.
The CA reversed the decision of the RTC and ruled
that, under the resolution of the Board of Directors of
the RECCI, Roxas was merely authorized to sell Lot No.
491-A-3-B-2, but not to grant right of way in favor of
the WHI over a portion of Lot No. 491-A-3-B-1, or to
grant an option to the petitioner to buy a portion
thereof. The appellate court also ruled that the grant of
a right of way and an option to the respondent were so
lopsided in favor of the respondent because the latter
was authorized to fix the location as well as the price
of the portion of its property to be sold to the
respondent. Hence, such provisions contained in the
deed of absolute sale were not binding on the RECCI.
The appellate court ruled that the delay in the
construction of WHI's warehouse was due to its fault.
The petitioner avers that the respondent authorized
Roxas, then its president, to grant a right of way over a
portion of Lot No. 491 -A-3-B-1 in favor of the petitioner,
and an option for the respondent to buy a portion of the
said property. The petitioner contends that when the
respondent sold Lot No. 491-A-3-B-2, it (respondent) was
well aware of its obligation to provide the petitioner with a
means of ingress to or egress from the property to the
Sumulong Highway, since the latter had no
 CORPORATION LAW
adequate outlet to the public highway. It contends that
the respondent never objected to Roxas' acceptance of its
offer to purchase the property and the terms and
conditions therein; the respondent even allowed Roxas to
execute the deed of absolute sale in its behalf. The
petitioner asserts that the respondent even received the
purchase price of the property without any objection to
the terms and conditions of the said deed of sale. The
petitioner claims that it acted in good faith, and contends
that after having been benefited by the said sale, the
respondent is estopped from assailing its terms and
conditions. The petitioner notes that the respondent's
Board of Directors never approved any resolution rejecting
the deed of absolute sale executed by Roxas for and in its
behalf. As such, the respondent is obliged to sell a portion
of Lot No. 491-A-3-B-1 covered by TCT No. 78085 with an
area of 500 square meters at the price of P1,000 per
square meter.
For its part, the respondent posits that Roxas was not so
authorized under the May 17, 1991 Resolution of its Board
of Directors to impose a burden or to grant a right of way
in favor of the petitioner on Lot No. 491-A-3-B-1, much
less convey a portion thereof to the petitioner. Hence, the
respondent was not bound by such provisions contained in
the deed of absolute sale. Besides, the respondent
contends, the petitioner cannot enforce its right to buy a
portion of the said property since there was no agreement
in the deed of absolute sale on the price thereof as well as
the specific portion and area to be purchased by the
petitioner.
ISSUE: Whether the respondent is bound by the
provisions in the deed of absolute sale granting to the
petitioner beneficial use and a right of way over a
portion of Lot No. 491-A-3-B-1 accessing to the
Sumulong Highway and granting the option to the
petitioner to buy a portion thereof.
RULING: No. We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v.
Court of Appeals, we held that:
A corporation is a juridical person separate and
distinct from its stockholders or members.
Accordingly, the property of the corporation is not
the property of its stockholders or members and
may not be sold by the stockholders or members
without express authorization from the
corporation's board of directors. Section 23 of BP
68, otherwise known as the Corporation Code of
the Philippines, provides:
"SEC. 23. The Board of Directors or
Trustees. – Unless otherwise provided
in this Code, the corporate powers of
all corporations formed under this Code
shall be exercised, all business
conducted and all property of such
corporations controlled and held by the
board of directors or trustees to be
elected from among the holders of
stocks, or where there is no stock,
from among the members of the
corporation, who shall hold office for
one (1) year and until their successors
are elected and qualified."
Indubitably, a corporation may act only through
its board of directors or, when authorized either
by its by-laws or by its board resolution, through
its officers or agents in the normal course of
business. The general principles of agency govern
the relation between the corporation and
– SECOND SET CASE DIGEST | 47
its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions
of law.
Generally, the acts of the corporate officers
within the scope of their authority are binding on
the corporation. However, under Article 1910 of
the New Civil Code, acts done by such officers
beyond the scope of their authority cannot bind
the corporation unless it has ratified such acts
expressly or tacitly, or is estopped from denying
them:
Art. 1910. The principal must comply with all
the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Thus, contracts entered into by corporate
officers beyond the scope of authority are
unenforceable against the corporation unless
ratified by the corporation.
In BA Finance Corporation v. Court of Appeals, we also
ruled that persons dealing with an assumed agency,
whether the assumed agency be a general or special
one, are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency
but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon
them to establish it.
In this case, the respondent denied authorizing
its then president Roberto B. Roxas to sell a
portion of Lot No. 491-A-3-B-1 covered by TCT
No. 78085, and to create a lien or burden
thereon. The petitioner was thus burdened to
prove that the respondent so authorized Roxas to
sell the same and to create a lien thereon.
Central to the issue at hand is the May 17, 1991
Resolution of the Board of Directors of the respondent,
which is worded as follows:
RESOLVED, as it is hereby resolved, that the
corporation, thru the President, sell to any
interested buyer, its 7,213-sq.-meter property
at the Sumulong Highway, Antipolo, Rizal,
covered by Transfer Certificate of Title No. N-
78086, at a price and on terms and conditions
which he deems most reasonable and
advantageous to the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B.
ROXAS, President of the corporation, be, as he
is hereby authorized to execute, sign and
deliver the pertinent sales documents and
receive the proceeds of sale for and on behalf
of the company.
Evidently, Roxas was not specifically authorized under the
said resolution to grant a right of way in favor of the
petitioner on a portion of Lot No. 491-A-3-B-1 or to agree
to sell to the petitioner a portion thereof. The authority of
Roxas, under the resolution, to sell Lot No. 491 -A-3-B-2
covered by TCT No. 78086 did not include the authority to
sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or
to create or convey real rights thereon. Neither may such
authority be implied from the authority granted to Roxas
to sell Lot No. 491-A-3-B-2
 CORPORATION LAW
to the petitioner "on such terms and conditions which
he deems most reasonable and advantageous."
Under paragraph 12, Article 1878 of the New Civil
Code, a special power of attorney is required to convey
real rights over immovable property. Article 1358 of
the New Civil Code requires that contracts which have
for their object the creation of real rights over
immovable property must appear in a public
document. The petitioner cannot feign ignorance of the
need for Roxas to have been specifically authorized in
writing by the Board of Directors to be able to validly
grant a right of way and agree to sell a portion of Lot
No. 491-A-3-B-1. The rule is that if the act of the
agent is one which requires authority in writing, those
dealing with him are charged with notice of that fact.
Powers of attorney are generally construed strictly and
courts will not infer or presume broad powers from deeds
which do not sufficiently include property or subject under
which the agent is to deal. The general rule is that the
power of attorney must be pursued within legal strictures,
and the agent can neither go beyond it; nor beside it. The
act done must be legally identical with that authorized to
be done. In sum, then, the consent of the respondent to
the assailed provisions in the deed of absolute sale was
not obtained; hence, the assailed provisions are not
binding on it.
We reject the petitioner's submission that, in allowing
Roxas to execute the contract to sell and the deed of
absolute sale and failing to reject or disapprove the
same, the respondent thereby gave him apparent
authority to grant a right of way over Lot No. 491-A-3-
B-1 and to grant an option for the respondent to sell a
portion thereof to the petitioner. Absent estoppel or
ratification, apparent authority cannot remedy the lack
of the written power required under the statement of
frauds.
It bears stressing that apparent authority is based on
estoppel and can arise from two instances: first, the
principal may knowingly permit the agent to so hold
himself out as having such authority, and in this way, the
principal becomes estopped to claim that the agent does
not have such authority; second, the principal may so
clothe the agent with the indicia of authority as to lead a
reasonably prudent person to believe that he actually has
such authority. There can be no apparent authority of an
agent without acts or conduct on the part of the principal
and such acts or conduct of the principal must have been
known and relied upon in good faith and as a result of the
exercise of reasonable prudence by a third person as
claimant and such must have produced a change of
position to its detriment. The apparent power of an agent
is to be determined by the acts of the principal and not by
the acts of the agent.
For the principle of apparent authority to apply, the
petitioner was burdened to prove the following: (a) the
acts of the respondent justifying belief in the agency
by the petitioner; (b) knowledge thereof by the
respondent which is sought to be held; and, (c)
reliance thereon by the petitioner consistent with
ordinary care and prudence. In this case, there is no
evidence on record of specific acts made by the
respondent showing or indicating that it had full
knowledge of any representations made by Roxas to
the petitioner that the respondent had authorized him
to grant to the respondent an option to buy a portion
of Lot No. 491-A-3-B-1 covered by TCT No. 78085, or
to create a burden or lien thereon, or that the
respondent allowed him to do so.
– SECOND SET CASE DIGEST | 48
The petitioner's contention that by receiving and
retaining the P5,000,000 purchase price of Lot No.
491-A-3-B-2, the respondent effectively and impliedly
ratified the grant of a right of way on the adjacent lot,
Lot No. 491-A-3 -B-1, and to grant to the petitioner an
option to sell a portion thereof, is barren of merit. It
bears stressing that the respondent sold Lot No. 491-
A-3-B-2 to the petitioner, and the latter had taken
possession of the property. As such, the respondent
had the right to retain the P5,000,000, the purchase
price of the property it had sold to the petitioner.
For an act of the principal to be considered as an
implied ratification of an unauthorized act of an agent,
such act must be inconsistent with any other
hypothesis than that he approved and intended to
adopt what had been done in his name. Ratification is
based on waiver – the intentional relinquishment of a
known right. Ratification cannot be inferred from acts
that a principal has a right to do independently of the
unauthorized act of the agent.
Moreover, if a writing is required to grant an authority
to do a particular act, ratification of that act must also
be in writing. Since the respondent had not ratified the
unauthorized acts of Roxas, the same are
unenforceable.
Hence, by the respondent's retention of the amount, it
cannot thereby be implied that it had ratified the
unauthorized acts of its agent, Roberto Roxas.
26. G.R. No. 144661 and 144797, June 15, 2005
DEVELOPMENT BANK OF THE PHILIPPINES,
petitioner, vs. SPOUSES FRANCISCO ONG and
LETICIA ONG, respondents.
FACTS: Petitioner’s foreclosed asset, formerly owned
by one Enrique Abada under TCT No. T-4786 and
located at Corrales Extension, Cagayan de Oro City is
the subject of this controversy. On May 25, 1988,
respondent Francisco Ong with the conformity of his
wife Leticia Ong, addressed a written offer to petitioner
thru its branch manager at Cagayan de Oro City to buy
the subject property on a negotiated sale basis.
The foregoing offer was duly "NOTED" by petitioner’s
branch head at its Cagayan de Oro City Branch, Jose
Z. Lagrito and Official Receipt No. 3081947 was issued
for the amount of ₱14,000.00 as respondents’ deposit.
In a letter dated October 21, 1988, sent to
respondents via registered mail, Lagrito informed the
spouses that the bank recently received an offer from
another interested third-party-buyer of the same
property at the same price and term, "but better and
more advantageous to the Bank considering that the
buyer will assume the responsibility at her expense for
the ejectment of present occupants in the said
property". Nonetheless, respondents were given in the
same letter three (3) days within which "to match the
said offer", failing in which the Bank "will immediately
award the said property to the other buyer", in which
event respondents’ deposit of ₱14,000.00 shall be
refunded to them upon surrender of O.R. No. 3081947.
In yet another written offer dated October 28, 1988 ,
4
respondents matched the said offer of the second
interested buyer by assuming the responsibility "at
my/our own expense for the ejection of
squatters/occupants, if any, on the property".
 CORPORATION LAW
On April 7, 1989, there was a conference between
respondents, together with their counsel, and the bank
whereat respondents were informed why the sale could
not be awarded to them. Thereafter, in a letter dated
5 CA RULING: Affirmed in toto the decision of RTC.
September 6, 1990 , respondents were notified that
the property would instead be offered for public
bidding on September 24, 1990 at ten 10:00 o’clock in
the morning.
Feeling aggrieved by such turn of events, respondents
filed with the Regional Trial Court at Cagayan de Oro
City a complaint for breach of contract and/or specific
performance against petitioner.
In a decision dated April 25, 1995, the trial court
dismissed the complaint finding that there was "no
perfected contract of sale" between the parties, hence,
"there is no breach to speak of since there was no
contract from the very beginning".
However, upon respondents’ motion for reconsideration,
the trial court vacated its judgment and set the case for
the reception of evidence. This time, only the respondents
adduced their evidence consisting of the lone testimony of
respondent Francisco Ong and the documents identified
by him in the course thereof.
In his testimony, Ong gave the respondents’ version of
what supposedly transpired in their transaction with
petitioner. According to him, he and his wife went to
the bank branch at Cabayan de Oro City and looked for
Roy Palasan, a bank clerk thereat and told the latter
that they were interested to buy two (2) lots. Palasan
went to talk to Lagrito, the branch manager. Palasan
returned to the spouses and informed them that the
branch manager agreed to sell the property to them.
Palasan further told them that they will be required to
pay ten (10%) percent of the purchase price as
downpayment, adding that if they were to pay the
purchase price in cash, they would be entitled to a ten
(10%) percent discount. After some computations,
respondents rounded up the purchase price at
₱136,000.00 and pegged the downpayment therefor at
₱14,000.00. They were then required by Palasan to
sign a bank form supposedly to express their firm offer
to purchase the subject property. But since the form
signed by them contains the statement that the
approval of higher authorities of the bank is required
to close the deal, respondents queried Palasan about
it. Palasan, however, told them that the documents
were only for formality purposes, and further assured
them that the branch manager has already agreed to
sell the subject property to them.
RTC RULING: On September 26, 1996, the trial court
came out with a new decision, this time rendering
judgment for the respondents, as follows:
WHEREFORE, by reason of preponderance of evidence,
the Court hereby finds in favor of the plaintiffs as against
the defendant and hereby orders the defendant:
1. To execute a final sale of the lot subject
matter of the contract of sale at the original
agreed price of ₱136,000.00;
2. Defendant to accept the balance of the
purchase price from the plaintiffs;
3. Defendant to pay moral damages in the
amount of ₱30,000.00;
4. Defendant to refund the amount of
₱10,000.00 actual litigation expenses; and to
– SECOND SET CASE DIGEST | 49
pay attorney’s fees in the amount of
₱20,000.00.
ISSUE: Whether or not there actually was a perfected
contract of sale between petitioner and respondents,
for which the Court may compel petitioner to issue a
board resolution approving the sale and to execute the
final deed of sale in respondents’ favor, and/or hold
petitioner liable for a breach thereof.
RULING: NO, judging from the findings of the two (2)
courts below and the testimony of respondent
Francisco Ong himself, it appears clear to us that the
transaction between the respondents and the
petitioner was limited to Palasan, one of the clerks of
petitioner’s branch in Cagayan de Oro City. Lagrito, the
branch manager, had no personal or direct
communication with respondents to express his alleged
consent to the sale transaction. Thus, the undisputed
evidence showed that it was Palasan, a mere bank
clerk, and not the branch manager himself who
assured respondents that theirs was a closed deal.
We are very much aware of our pronouncement in Rural
11
Bank of Milaor vs. Ocfemia, involving a mandamus suit
where the supposed buyer of a foreclosed property from a
bank sought a court order to compel the bank to issue the
required board resolution confirming the sale between the
parties therein. There, this Court, speaking thru Mr.
Justice Artemio Panganiban, stated:
Notwithstanding the putative authority of the manager
to bind the bank in the Deed of Sale, petitioner has
failed to file an answer to the Petition below within the
reglementary period, let alone present evidence
controverting such authority. Indeed, when one of
herein respondents, Marife S. Niño, went to the bank
to ask for the board resolution, she was merely told to
bring the receipts. The bank failed to categorically
declare that Tena had no authority. This Court stresses
the following:
". . . Corporate transactions would speedily come to a
standstill were every person dealing with a corporation
held duty-bound to disbelieve every act of its responsible
officers, no matter how regular they should appear on
their face. This Court has observed in Ramirez vs.
Orientalist Co., 38 Phil. 634, 654-655, that —
As already observed, it is familiar doctrine that if a
corporation knowingly permits one of its officers, or any
other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as
possessing power to do those acts, the corporation will, as
against anyone who has in good faith dealt with the
corporation through such agent, be estopped from
denying his authority; and where it is said 'if the
corporation permits this means the same as 'if the thing is
permitted by the directing power of the corporation.’"
In this light, the bank is estopped from
questioning the authority of the bank manager to
enter into the contract of sale. If a corporation
knowingly permits one of its officers or any other
agent to act within the scope of an apparent
authority, it holds the agent out to the public as
possessing the power to do those acts; thus, the
corporation will, as against anyone who has in
good faith dealt with it through such agent, be
estopped from denying the agent's authority.
 CORPORATION LAW
Unquestionably, petitioner has authorized Tena to
enter into the Deed of Sale. Accordingly, it has a clear
legal duty to issue the board resolution sought by
respondents. Having authorized her to sell the
property, it behooves the bank to confirm the Deed of
Sale so that the buyers may enjoy its full use.
There is, however, a striking and very material
difference between the aforecited case and the
one at bar. For, unlike in Milaor where it was the
branch manager who approved the sale for and
in behalf of the bank, here, there is absolutely no
approval whatsoever by any responsible bank
officer of the petitioner. True it is that the
signature of branch manager Lagrito appears
below the typewritten word "NOTED" at the
bottom of respondents’ offer to purchase dated
14
May 25, 1988. By no stretch of imagination,
however, can the mere "NOTING" of such an
offer be taken to mean an approval of the
supposed sale. Quite the contrary, the very
circumstance that the offer to purchase was
merely "NOTED" by the branch manager and not
"approved", is a clear indication that there is no
perfected contract of sale to speak of.
The representation of Roy Palasan, a mere clerk at
petitioner’s Cagayan de Oro City branch, that the
manager had already approved the sale, even if true,
cannot bind the petitioner bank to a contract of sale
with respondents, it being obvious to us that such a
clerk is not among the bank officers upon whom such
putative authority may be reposed by a third party.
There is, thus, no legal basis to bind petitioner into any
valid contract of sale with the respondents, given the
absolute absence of any approval or consent by any
responsible officer of petitioner bank.
And because there is here no perfected contract of sale
between the parties, respondents’ action for breach of
contract and/or specific performance is simply without
any leg to stand on and must therefore fall.
We also disagree with the Court of Appeals that the
encashment of the check representing the ₱14,000.00
deposit in relation to respondents’ offer to purchase is
an indication or proof of perfection of a contract of
sale. It must be noted that the very documents signed
by the respondents as their offer to purchase
unmistakably state that the deposit shall only form
part of the purchase price if the offer to purchase is
approved, "it being expressly understood xxx that the
same (i.e., the deposit) does not bind DBP to the offer
until my/our receipt of its approval by higher
authorities of the bank". It may be so that the official
receipt issued therefor by the petitioner termed such
deposit as a "downpayment". But the very written
offers of the respondents unequivocably and invariably
speak of such amount as "deposit", "above deposit",
"we are depositing the amount of ₱14,000.00". Since
there never was any approval or acceptance by the
higher authorities of petitioner of respondents’ offer to
purchase, the encashment of the check cannot in any
way represent partial payment of any purchase price.
With the hard reality that no approval or acceptance of
respondents’ offer to buy exists in this case, any
independent transaction between petitioner and another
third-party, like the one involving respondents’ sister,
would be irrelevant and immaterial insofar as
respondents’ own transaction with the petitioner is
concerned. Besides, apart from saying that respondents’
sister "made a similar offer to the [petitioner] under the
same terms and conditions as to that of the
[respondents], and was likewise assured by the same
– SECOND SET CASE DIGEST | 50
bank personnel that her offer xxx was already
approved", which eventually resulted into a
"consummated sale between (the sister) and DBP", the
Court of Appeals made no finding that the sister’s
transaction with the petitioner was made exactly under
the same circumstances obtaining in the present case.
In any event, petitioner’s favorable action on the offer
of respondents’ sister is hardly, if ever, relevant and
determinative in the resolution of the legal issue
presented in this case.
27. G.R. No. 176986, January 13, 2016
NISSAN CAR LEASE PHILS., INC., Petitioner, v. LICA
MANAGEMENT, INC. AND PROTON PILIPINAS,
INC., Respondents.
JARDELEZA, J.:
DOCTRINE: As a rule, a corporation has a separate
and distinct personality from its directors and officers
and can only exercise its corporate powers through its
board of directors.
FACTS:
LMI is the absolute owner of a property located at
Pasong Tamo Extension, Makati City. It entered into a
contract with NCLPI for the latter to lease the property
for a term of ten (10) years with a monthly rental of
₱308,000.00.
Subsequently, NCLPI became delinquent in paying the
monthly rent. Nissan and Lica verbally agreed to
convert the arrearages into a debt to be covered by a
promissory note and twelve (12) postdated checks
each amounting to ₱162,541.95 as monthly payments
starting June 1996 until May 1997.
While NCLPI was able to deliver the postdated checks per
its verbal agreement with LMI, it failed to sign the
promissory note and pay the checks for June to October
1996. Thus, in a letter dated October 16, 1996, LMI
informed NCLPI that it was terminating their Contract of
Lease due to arrears in the payment of rentals.
It also demanded that NCLPI (1) pay the amount of
₱2,651,570.39 for unpaid rentals and (2) vacate the
premises within five (5) days from receipt of the notice.
In the meantime, Proton sent NCLPI an undated
request to use the premises as a temporary display
center for "Audi" brand cars for a period of ten (10)
days. NCLPI entered into a Memorandum of Agreement
with Proton whereby the former agreed to allow Proton
"to immediately commence renovation work even prior
to the execution of the Contract of Sublease. LMI
entered into a Contract of Lease with Proton over the
subject premises.
NCLPI demanded Proton to vacate the leased premises.
However, Proton replied that it was occupying the
property based on a lease contract with LMI.
In a letter of even date addressed to LMI, NCLPI
asserted that its failure to pay rent does not
automatically result in the termination of the Contract
of Lease nor does it give LMI the right to terminate the
same.
 CORPORATION LAW
TECHINICAL ISSUE:
According to LMI, NCLPI's petition must be denied
outright on the ground that Luis Manuel T. Banson
(Banson), who caused the preparation of the petition
and signed the Verification and Certification against
Forum Shopping, was not duly authorized to do so. His
apparent authority was based, not by virtue of any
NCLPl Board Resolution, but on a Special Power of
Attorney (SPA) signed only by NCLPI's Corporate
53
Secretary Robel C. Lomibao.
ISSUE: Whether or not Luis Manuel T. Banson,
who caused the preparation of the petition and
signed the Verification and Certification against
Forum Shopping was duly authorized to do so
RULING: - YES
As a rule, a corporation has a separate and distinct
personality from its directors and officers and can only
exercise its corporate powers through its board of
directors. Following this rule, a verification and
certification signed by an individual corporate officer is
defective if done without authority from the
54
corporation's board of directors.
The requirement of verification being a condition
affecting only the form of the pleading, this Court has,
in a number of cases, held that:
[T]he following officials or employees of the
company can sign the verification and
certification without need of a board resolution:
(1) the Chairperson of the Board of Directors,
(2)the President of a corporation,
(3) the General Manager or Acting General Manager,
(4) Personnel Officer, and
(5) an Employment Specialist in a labor case.
[T]he determination of the sufficiency of the authority
was done on a case to case basis. The rationale
applied in the foregoing cases is to justify the
authority of corporate officers or representatives
of the corporation to sign xxx, being "in a
position to verify the truthfulness and
correctness of the allegations in the petition."
In this case, Banson was President of NCLPI at the
57
time of the filing of the petition. Thus, and applying
the foregoing ruling, he can sign the verification and
certification against forum shopping in the petition
58
without the need of a board resolution.
28. [G.R. No. 125778. June 10, 2003]
INTER-ASIA INVESTMENTS INDUSTRIES, INC.,
petitioner, vs. COURT OF APPEALS and ASIA
INDUSTRIES, INC., respondents.
CARPIO-MORALES, J.:
DOCTRINE:
Aircargo and Warehousing Co., Inc. v. Court of Appeals:
GENERAL RULE: in the absence of authority from the
board of directors, no person, not even its officers, can
validly bind a corporation.
– SECOND SET CASE DIGEST | 51
Reason: A corporation is a juridical person, separate
and distinct from its stockholders and members,
having powers, attributes and properties expressly
authorized by law or incident to its existence.
Being a juridical entity, a corporation may act through
its board of directors, which exercises almost all
corporate powers, lays down all corporate business
policies and is responsible for the efficiency of
management, as provided in Section 23 of the
Corporation Code of the Philippines.
Under this provision, the power and responsibility to
decide whether the corporation should enter into a
contract that will bind the corporation is lodged in the
board, subject to the articles of incorporation, bylaws,
or relevant provisions of law.
EXCEPTION:
However, just as a natural person may authorize
another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its
functions and powers to officers, committees or
agents. The authority of such individuals to bind the
corporation is generally derived from law, corporate
bylaws or authorization from the board, either
expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz:
A corporate officer or agent may represent and bind
the corporation in transactions with third persons to
the extent that [the] authority to do so has been
conferred upon him, and this includes powers as, in
the usual course of the particular business, are
incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation
has caused person dealing with the officer or agent to
believe that it has conferred.
[A]pparent authority is derived not merely from
practice. Its existence may be ascertained through (1)
the general manner in which the corporation holds out
an officer or agent as having the power to act or, in
other words the apparent authority to act in general,
with which it clothes him; or
(2) the acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, within
or beyond the scope of his ordinary powers. It requires
presentation of evidence of similar act(s) executed
either in its favor or in favor of other parties. It is not
the quantity of similar acts which establishes apparent
authority, but the vesting of a corporate officer with
power to bind the corporation.
FACTS:
On 1 September 1978, Inter-Asia Industries, Inc.
(Inter-Asia), by a Stock Purchase Agreement (the
Agreement), sold to Asia Industries, Inc. (Asia
Industries) for and in consideration of the sum of
P19,500,000.00 all its right, title and interest in and to
all the outstanding shares of stock of FARMACOR, INC.
(FARMACOR). The Agreement was signed by Leonides
P. Gonzales and Jesus J. Vergara, presidents of Inter-
Asia and Asia Industries, respectively.
Under paragraph 7 of the Agreement, Inter-Asia as seller
made warranties and representations. The Agreement was
later amended with respect to the "Closing Date,"
originally set up at 10:00 a.m. of 30 September 1978,
which was moved to 31 October 1978, and to the mode of
payment of the purchase price.
 CORPORATION LAW
The Agreement, as amended, provided that pending
submission by SGV of FARMACOR's audited financial
statements as of 31 October 1978, Asia Industries may
retain the sum of P7,500,000.00 out of the stipulated
purchase price of P19,500,000.00; that from this
retained amount of P7,500,000.00, Asia Industries
may deduct any shortfall on the Minimum Guaranteed
Net Worth of P12,000,000.00; and that if the amount
retained is not sufficient to make up for the deficiency
in the Minimum Guaranteed Net Worth, Inter-Asia shall
pay the difference within 5 days from date of receipt of
the audited financial statements. Asia Industries paid
Inter-Asia a total amount of P12,000,000.00:
P5,000,000.00 upon the signing of the Agreement, and
P7,000,000.00 on 2 November 1978. From the
STATEMENT OF INCOME AND DEFICIT attached to the
financial report dated 28 November 1978 submitted by
SGV, it appears that FARMACOR had, for the 10 months
ended 31 October 1978, a deficit of P11,244,225.00.
Since the stockholder's equity amounted to
P10,000,000.00, FARMACOR had a net worth deficiency of
P1,244,225.00. The guaranteed net worth shortfall thus
amounted to P13,244,225.00 after adding the net worth
deficiency of P1,244,225.00 to the Minimum Guaranteed
Net Worth of P12,000,000.00. The adjusted contract
price, therefore, amounted to P6,225,775.00 which is the
difference between the contract price of P19,500,000.00
and the shortfall in the guaranteed net worth of
P13,224,225.00. Asia Industries having already paid
Inter-Asia P12,000,000.00, it was entitled to a refund of
P5,744,225.00.
Inter-Asia thereafter proposed, by letter of 24 January
1980, signed by its president, that Asia Industries’
claim for refund be reduced to P4,093,993.00, it
promising to pay the cost of the Northern Cotabato
Industries, Inc. (NOCOSII) superstructures in the
amount of P759,570.00. To the proposal respondent
agreed. Inter-Asia, however, welched on its promise.
Inter-Asia's total liability thus stood at P4,853,503.00
(P4,093,993.00 plus P759,570.00) exclusive of
interest. On 5 April 1983, Asia Industries filed a
complaint against Inter-Asia with the Regional Trial
Court of Makati, one of two causes of action of which
was for the recovery of above-said amount of
P4,853,503.00 17 plus interest.
Denying Asia Industries's claim, Inter-Asia countered
that Asia Industries failed to pay the balance of the
purchase price and accordingly set up a counterclaim.
Finding for Asia Industries, the trial court rendered on
27 November 1991 a Decision, ordering Inter-Asia to
pay Asia Industries the sum of P4,853,503.00 plus
interest thereon at the legal rate from the filing of the
complaint until fully paid, the sum of P30,000.00 as
attorney's fees and the costs of suit; and dismissing
the counterclaim.
On appeal to the Court of Appeals, and by Decision of
25 January 1996, the Court of Appeals affirmed the
trial court's decision.
Inter-Asia's motion for reconsideration of the decision
having been denied by the Court of Appeals by
Resolution of 11 July 1996, Inter-Asia filed the petition
for review on certiorari.
Petitioner’s Argument: THE RESPONDENT COURT
ERRED IN NOT HOLDING THAT THE LETTER OF THE
PRESIDENT OF THE PETITIONER IS NOT BINDING ON
THE PETITIONER BEING ULTRA VIRES.
ISSUE:
– SECOND SET CASE DIGEST | 52
Whether the 24 January 1980 letter signed by
Inter-Asia’s president is valid and binding.
RULING:
YES, The January 24, 1980 letter signed by petitioners
president is valid and binding.
The case of Peoples Aircargo and Warehousing Co., Inc.
v. Court of Appeals19 instructs:
The general rule is that, in the absence of authority
from the board of directors, no person, not even its
officers, can validly bind a corporation. A corporation is
a juridical person, separate and distinct from its
stockholders and members, having x x x powers,
attributes and properties expressly authorized by law
or incident to its existence.
Being a juridical entity, a corporation may act through
its board of directors, which exercises almost all
corporate powers, lays down all corporate business
policies and is responsible for the efficiency of
management, as provided in Section 23 of the
Corporation Code of the Philippines:
SEC. 23. The Board of Directors or Trustees. - Unless
otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be
exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees x x x.
Under this provision, the power and responsibility to
decide whether the corporation should enter into a
contract that will bind the corporation is lodged in the
board, subject to the articles of incorporation, bylaws,
or relevant provisions of law. However, just as a
natural person may authorize another to do certain
acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to
officers, committees or agents. The authority of such
individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the
board, either expressly or impliedly by habit, custom
or acquiescence in the general course of business, viz:
A corporate officer or agent may represent and bind
the corporation in transactions with third persons to
the extent that [the] authority to do so has been
conferred upon him, and this includes powers as, in
the usual course of the particular business, are
incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation
has caused person dealing with the officer or agent to
believe that it has conferred.
{A]pparent authority is derived not merely from practice.
Its existence may be ascertained through (1) the general
manner in which the corporation holds out an officer or
agent as having the power to act or, in other words the
apparent authority to act in general, with which it clothes
him; or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof,
within or beyond the scope of his ordinary powers. It
requires presentation of evidence of similar act(s)
executed either in its favor or in favor of other parties. It
is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate officer
with power to bind the corporation.
x x x (Emphasis and underscoring supplied)
 CORPORATION LAW
As correctly argued by private respondent, an officer of a
corporation who is authorized to purchase the stock of
another corporation has the implied power to perform all
other obligations arising therefrom, such as payment of
the shares of stock. By allowing its president to sign the
Agreement on its behalf, petitioner clothed him with
apparent capacity to perform all acts which are expressly,
impliedly and inherently stated therein.[21]
29. [G.R. No. 105774. April 25, 2002]
GREAT ASIAN SALES CENTER CORPORATION and
TAN CHONG LIN, petitioners, vs. THE COURT OF
APPEALS and BANCASIA FINANCE AND
INVESTMENT CORPORATION, respondents.
CARPIO, J.:
FACTS:
Great Asian is engaged in the business of buying and
selling general merchandise, in particular household
appliances. On March 17, 1981, the board of directors
of Great Asian approved a resolution authorizing its
Treasurer and General Manager, Arsenio Lim Piat, Jr.
(Arsenio for brevity) to secure a loan from Bancasia in
an amount not to exceed P1.0 million. The board
resolution also authorized Arsenio to sign all papers,
documents or promissory notes necessary to secure
the loan.
On February 10, 1982, the board of directors of Great
Asian approved a second resolution authorizing Great
Asian to secure a discounting line with Bancasia in an
amount not exceeding P2.0 million. The second board
resolution also designated Arsenio as the authorized
signatory to sign all instruments, documents and checks
necessary to secure the discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety
Agreement in favor of Bancasia to guarantee,
solidarily, the debts of Great Asian to Bancasia. On
January 29, 1982, Tan Chong Lin signed a
Comprehensive and Continuing Surety Agreement in
favor of Bancasia to guarantee, solidarily, the debts of
Great Asian to Bancasia. Thus, Tan Chong Lin
signed two surety agreements (Surety
Agreements for brevity) in favor of Bancasia.
Great Asian, through its Treasurer and General Manager
Arsenio, signed four (4) Deeds of Assignment of
Receivables, assigning to Bancasia fifteen (15) postdated
checks. Nine of the checks were payable to Great Asian,
three were payable to New Asian Emp., and the last three
were payable to cash. Various customers of Great Asian
issued these postdated checks in payment for appliances
and other merchandise.
(1) Great Asian and Bancasia signed the first Deed of
Assignment on January 12, 1982 covering four postdated
checks with a total face value of P244,225.82, with
maturity dates not later than March 17, 1982. Of these
four postdated checks, two were dishonored.
(2) Great Asian and Bancasia signed the second Deed
of Assignment also on January 12, 1982 covering four
postdated checks with a total face value of
P312,819.00, with maturity dates not later than April
1, 1982. All these four checks were dishonored.
(3) Great Asian and Bancasia signed the third Deed of
Assignment on February 11, 1982 covering eight
postdated checks with a total face value of
P344,475.00, with maturity dates not later than April
30, 1982. All these eight checks were dishonored.
– SECOND SET CASE DIGEST | 53
(4)Great Asian and Bancasia signed the fourth Deed of
Assignment on March 5, 1982 covering one postdated
check with a face value of P200,000.00, with maturity
date on March 18, 1982. This last check was also
dishonored.
Great Asian assigned the postdated checks to Bancasia
at a discount rate of less than 24% of the face value of
the checks.
Arsenio endorsed all the fifteen dishonored checks by
signing his name at the back of the checks. Eight of
the dishonored checks bore the endorsement of
Arsenio below the stamped name of Great Asian Sales
Center, while the rest of the dishonored checks just
bore the signature of Arsenio. The drawee banks
dishonored the fifteen checks on maturity when
deposited for collection by Bancasia, with any of the
following as reason for the dishonor: account closed,
payment stopped, account under garnishment, and
insufficiency of funds. The total amount of the fifteen
dishonored checks is P1,042,005.00.
Bancasia referred the matter to its lawyer, Atty. Eladia
Reyes, who sent by registered mail to Tan Chong Lin a
letter dated March 18, 1982, notifying him of the
dishonor and demanding payment from him.
Subsequently, Bancasia sent by personal delivery a
letter dated June 16, 1982 to Tan Chong Lin, notifying
him of the dishonor of the fifteen checks and
demanding payment from him. Neither Great Asian nor
Tan Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then Court
of First Instance of Manila a petition for insolvency,
verified under oath by its Corporate Secretary, Mario
Tan. Attached to the verified petition was a Schedule
and Inventory of Liabilities and Creditors of Great
Asian Sales Center Corporation, listing Bancasia as one
of the creditors of Great Asian in the amount of
P1,243,632.00.
On June 23, 1982, Bancasia filed a complaint for
collection of a sum of money against Great Asian and
Tan Chong Lin. Bancasia impleaded Tan Chong Lin
because of the Surety Agreements he signed in favor
of Bancasia.
In its answer, Great Asian denied the material
allegations of the complaint claiming and unlawfully
instituted since there was already a pending insolvency
proceedings, although Great Asian subsequently
withdrew its petition for voluntary insolvency. Great
Asian further raised the alleged lack of authority
of Arsenio to sign the Deeds of Assignment as
well as the absence of consideration and consent
of all the parties to the Surety Agreements
signed by Tan Chong Lin.
Ruling of the Trial Court
In favor of the plaintiff and against the two (2)
defendants ordering the latter, jointly and severally, to
pay the plaintiff.
Ruling of the Court of Appeals
On appeal, the Court of Appeals sustained the decision
of the lower court.
 CORPORATION LAW
Petitioner’s Argument: The respondent Court erred
in its appreciation and interpretation of the effect and
legal consequences of the signing of the deeds of
assignment and the subsequent indorsement of the
checks by Arsenio Lim Piat, Jr. in his individual and
personal capacity and without stating or indicating the
name of his supposed principal.
ISSUE:
WHETHER ARSENIO HAD AUTHORITY TO
EXECUTE THE DEEDS OF ASSIGNMENT AND THUS
BIND GREAT ASIAN;
RULING:
Authority of Arsenio to Sign the Deeds of
Assignment
Great Asian asserts that Arsenio signed the Deeds of
Assignment and indorsed the checks in his personal
capacity. The primordial question that must be
resolved is whether Great Asian authorized Arsenio to
sign the Deeds of Assignment. If Great Asian so
authorized Arsenio, then Great Asian is bound by the
Deeds of Assignment and must honor its terms.
The Corporation Code of the Philippines vests in the
board of directors the exercise of the corporate powers
of the corporation, save in those instances where the
Code requires stockholders approval for certain specific
acts. Section 23 of the Code provides:
SEC. 23. The Board of Directors or Trustees. Unless
otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be
exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees x x x.
In the ordinary course of business, a corporation can
borrow funds or dispose of assets of the corporation
only on authority of the board of directors. The board
of directors normally designates one or more corporate
officers to sign loan documents or deeds of assignment
for the corporation.
To secure a credit accommodation from Bancasia, the
board of directors of Great Asian adopted two board
resolutions on different dates, the first on March 17,
1981, and the second on February 10, 1982. These
two board resolutions, as certified under oath by Great
Asians Corporate Secretary Mario K. Tan.
The first board resolution expressly authorizes Arsenio,
as Treasurer of Great Asian, to apply for a loan
accommodation or credit line with Bancasia for not
more than P1.0 million. Also, the first resolution
explicitly authorizes Arsenio to sign any document,
paper or promissory note, including mortgage deeds
over properties of Great Asian, to secure the loan or
credit line from Bancasia.
The second board resolution expressly authorizes Great
Asian to secure a discounting line from Bancasia for not
more than P2.0 million. The second board resolution also
expressly empowers Arsenio, as the authorized signatory
of Great Asian, to sign, execute and deliver any and all
documents, checks x x x necessary or incidental to secure
the discounting line. The second board resolution
specifically authorizes Arsenio to secure the discounting
line under such terms and conditions as (he) x x x may
deem fit and proper.
– SECOND SET CASE DIGEST | 54
As plain as daylight, the two board resolutions clearly
authorize Great Asian to secure a loan or discounting line
from Bancasia. The two board resolutions also
categorically designate Arsenio as the authorized
signatory to sign and deliver all the implementing
documents, including checks, for Great Asian. There is
no iota of doubt whatsoever about the purpose of
the two board resolutions, and about the authority
of Arsenio to act and sign for Great Asian.
Arsenio had all the proper and necessary authority
from the board of directors of Great Asian to sign
the Deeds of Assignment and to endorse the fifteen
postdated checks. Arsenio signed the Deeds of
Assignment as agent and authorized signatory of
Great Asian under an authority expressly granted by
its board of directors. The signature of Arsenio on
the Deeds of Assignment is effectively also the
signature of the board of directors of Great Asian,
binding on the board of directors and on Great Asian
itself. Evidently, Great Asian shows its bad faith in
disowning the Deeds of Assignment signed by its
own Treasurer, after receiving valuable
consideration for the checks assigned under the
Deeds.
30. [G.R. No. 123892. May 21, 2001]
JASMIN SOLER, petitioner, vs. COURT OF
APPEALS, COMMERCIAL BANK OF MANILA, and
NIDA LOPEZ, respondents.
PARDO, J.:
FACTS:
Petitioner Jazmin Soler is a Fine Arts graduate of the
University of Sto. Tomas, Manila. She is a well known
licensed professional interior designer. In November
1986, her friend Rosario Pardo asked her to talk to
Nida Lopez, who was manager of the COMBANK Ermita
Branch for they were planning to renovate the branch
offices.
During their meeting, petitioner was hesitant to accept the
job because of her many out of town commitments, and
also considering that Ms. Lopez was asking that the
designs be submitted by December 1986, which was such
a short notice. Ms. Lopez insisted, however, because she
really wanted petitioner to do the design for renovation.
Petitioner acceded to the request. Ms. Lopez assured her
that she would be compensated for her services.
Petitioner even told Ms. Lopez that her professional fee
was ten thousand pesos (P10,000.00), to which Ms. Lopez
acceded.[3]
During the November 1986 meeting between petitioner
and Ms. Lopez, there were discussions as to what was
to be renovated. Ms. Lopez again assured petitioner
that the bank would pay her fees.[4]
After a few days, petitioner requested for the blueprint of
the building so that the proper design, plans and
specifications could be given to Ms. Lopez in time for the
board meeting in December 1986. Petitioner then asked
her draftsman Jackie Barcelon to go to the jobsite to
make the proper measurements using the blue print.
Petitioner also did her research on the designs and
individual drawings of what the bank wanted. Petitioner
hired Engineer Ortanez to make the electrical layout,
architects Frison Cruz and De Mesa to do the drafting. For
the services rendered by these individuals, petitioner paid
the engineer P4,000.00, architects Cruz and de Mesa
P5,000.00 and architect Barcelon
 CORPORATION LAW
P6,000.00. Petitioner also contacted the suppliers of
the wallpaper and the sash makers for their quotation.
So come December 1986, the lay out and the design
were submitted to Ms. Lopez. She even told petitioner
that she liked the designs.[5]
Subsequently, petitioner repeatedly demanded
payment for her services but Ms. Lopez just ignored
the demands. In February 1987, by chance petitioner
and Ms. Lopez saw each other in a concert at the
Cultural Center of the Philippines. Petitioner inquired
about the payment for her services, Ms. Lopez curtly
replied that she was not entitled to it because her
designs did not conform to the banks policy of having a
standard design, and that there was no agreement
between her and the bank.[6]
To settle the controversy, petitioner referred the
matter to her lawyers, who wrote Ms. Lopez on May
20, 1987, demanding payment for her professional
fees in the amount of P10,000.00 which Ms. Lopez
ignored. Hence, on June 18, 1987, the lawyers wrote
Ms. Lopez once again demanding the return of the
blueprint copies petitioner submitted which Ms. Lopez
refused to return.[7]
On October 13, 1987, petitioner filed at the Regional
Trial Court of Pasig, Branch 153 a complaint against
COMBANK and Ms. Lopez for collection of professional
fees and damages.[8]
In its answer, COMBANK stated that there was no
contract between COMBANK and petitioner;[9] that
Ms. Lopez merely invited petitioner to participate in a
bid for the renovation of the COMBANK Ermita Branch;
that any proposal was still subject to the approval of
the COMBANKs head office.[10]
Ruling of the RTC
A judgment is hereby rendered in favor of plaintiff and
against defendants, ordering defendants jointly and
severally, to pay plaintiff.
In the appeal, COMBANK reiterated that there was no
contract between petitioner, Nida Lopez and the bank.
[15] Whereas, petitioner maintained that there was a
perfected contract between her and the bank which
was facilitated through Nida Lopez. According to
petitioner there was an offer and an acceptance of the
service she rendered to the bank.[16]
Ruling of the CA
The appealed decision is REVERSED.
Petitioner forwards the argument that:
1. The Court of Appeals erred in ruling that there was
no contract between petitioner and respondents, in the
absence of the element of consent;
2. The Court of Appeals erred in ruling that respondents
merely invited petitioner to present her proposal;
3. The Court of Appeals erred in ruling that petitioner
knew that her proposal was still subject to bidding and
approval of the board of directors of the bank;
4. The Court of Appeals erred in reversing the decision
of the trial court.
ISSUE:
– SECOND SET CASE DIGEST | 55
Whether or not Nida Lopez, the manager of the bank
branch, had authority to bind the bank in the
transaction.
RULING:
The discussions between petitioner and Ms. Lopez was
to the effect that she had authority to engage the
services of petitioner. During their meeting, she even
gave petitioner specifications as to what was to be
renovated in the branch premises and when petitioners
requested for the blueprints of the building, Ms. Lopez
supplied the same.
Ms. Lopez was aware that petitioner hired the services
of people to help her come up with the designs for the
December, 1986 board meeting of the bank. Ms. Lopez
even insisted that the designs be rushed in time for
presentation to the bank. With all these discussion and
transactions, it was apparent to petitioner that Ms.
Lopez indeed had authority to engage the services of
petitioner.
ISSUE:
whether there was a perfected contract between
petitioner and the Bank.
A contract is a meeting of the minds between two persons
whereby one binds himself to give something or to render
some service to bind himself to give something to render
some service to another for consideration. There is no
contract unless the following requisites concur: 1. Consent
of the contracting parties;
2. Object certain which is the subject matter of the
contract; and 3. Cause of the obligation which is
established.[19]
A contract undergoes three stages:
(a) preparation, conception, or generation, which is the
period of negotiation and bargaining, ending at the
moment of agreement of the parties;
(b) perfection or birth of the contract, which is the
moment when the parties come to agree on the terms
of the contract; and
(c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract.
[20]
In the case at bar, there was a perfected oral contract.
When Ms. Lopez and petitioner met in November 1986,
and discussed the details of the work, the first stage of
the contract commenced. When they agreed to the
payment of the ten thousand pesos (P10,000.00) as
professional fees of petitioner and that she should give
the designs before the December 1986 board meeting
of the bank, the second stage of the contract
proceeded, and when finally petitioner gave the
designs to Ms. Lopez, the contract was consummated.
Petitioner believed that once she submitted the
designs she would be paid her professional fees. Ms.
Lopez assured petitioner that she would be paid.
It is familiar doctrine that if a corporation
knowingly permits one of its officers, or any other
agent, to act within the scope of an apparent
authority, it holds him out to the public as
possessing the power to do those acts; and thus,
the corporation will, as against anyone who has in
good faith dealt with it through such agent, be
estopped from denying the agents authority.[21]
 CORPORATION LAW
Also, petitioner may be paid on the basis of quantum
meruit. It is essential for the proper operation of the
principle that there is an acceptance of the benefits by
one sought to be charged for the services rendered
under circumstances as reasonably to notify him that
the lawyer performing the task was expecting to be
paid compensation therefor. The doctrine of quantum
meruit is a device to prevent undue enrichment based
on the equitable postulate that it is unjust for a person
to retain benefit without paying for it.[22]
We note that the designs petitioner submitted to Ms.
Lopez were not returned. Ms. Lopez, an officer of the
bank as branch manager used such designs for
presentation to the board of the bank. Thus, the
designs were in fact useful to Ms. Lopez for she did not
appear to the board without any designs at the time of
the deadline set by the board.
31. G.R. No. 172843, September 24, 2014
ALFREDO L. VILLAMOR, JR., Petitioner, v. JOHN S.
UMALE, IN SUBSTITUTION OF HERNANDO F.
BALMORES, Respondent.
G.R. NO. 172881
RODIVAL E. REYES, HANS M. PALMA AND DOROTEO M.
PANGILINAN, Petitioners, v. HERNANDO F. BALMORES,
Respondent.
LEONEN, J.:
FACTS:
MC Home Depot occupied a prime property (Rockland
area) in Pasig. The property was part of the area owned
by Mid-Pasig Development Corporation (Mid-Pasig).5
On March 1, 2004, PPC obtained an option to lease
portions of Mid-Pasig's property, including the
Rockland area.6
On November 11, 2004, PPC's board of directors
issued a resolution waiving all its rights, interests, and
participation in the option to lease contract in favor o£
the law firm of Atty. Alfredo Villamor, Jr. (Villamor),
petitioner in G.R. No. 172843. PPC received no
consideration for this waiver in favor of Villamor's law
firm.
On November 22, 2004, PPC, represented by Villamor,
entered into a memorandum of agreement (MOA) with
MC Home Depot.9 Under the MO A, MC Home Depot
would continue to occupy the area as PPC's sub-lessee
for four (4) years, renewable for another four (4)
years, at a monthly rental of P4,500,000.00 plus
goodwill of P18,000,000.00.10
In compliance with the terms of the MOA, MC Home
Depot issued 20 post-dated checks representing rental
payments for one year and the goodwill money. The
checks were given to Villamor who did not turn these
or the equivalent amount over to PPC, upon
encashment.11
Hernando Balmores, respondent in G.R. No. 172843
and G.R. No. 172881 and a stockholder and director of
PPC,12 wrote a letter addressed to PPJC's directors,
petitioners in G.R. No. 172881, on April 4, 2005.13 He
informed them that Villamor should be made to deliver
to PPC and account for MC Home Depot's checks or
their equivalent value.14
– SECOND SET CASE DIGEST | 56
Due to the alleged inaction of the directors, respondent
Balmores filed with the Regional Trial Court an intra-
corporate controversy complaint under Rule 1, Section
1(a)(1) of the Interim Rules for Intra-Corporate
Controversies15 (Interim Rules) against petitioners for
their alleged devices or schemes amounting to fraud or
misrepresentation "detrimental to the interest of the
Corporation and its stockholders."16
Respondent Balmores alleged in his complaint that
because of petitioners' actions, PPC's assets were ". . .
not only in imminent danger, but have actually been
dissipated, lost, wasted and destroyed."17
Respondent Balmores prayed that a receiver be
appointed from his list of nominees.18 He also prayed
for petitioners' prohibition from "selling, encumbering,
transferring or disposing in any manner any of [PPC's]
properties, including the MC Home [Depot] checks
and/or their proceeds."19 He prayed for the accounting
and remittance to PPC of the MC Home Depot checks
or their proceeds and for the annulment of the board's
resolution "vaiving PPC's rights in favor of Villamor's
law firm.20
Ruling of the Regional Trial Court
In its resolution21 dated June 15, 2005, the Regional
Trial Court denied respondent Balmores' prayer for the
appointment of a receiver or the creation of a
management committee.
Ruling of the Court of Appeals
In the decision promulgated on March 2, 2006, the Court
of Appeals gave due course to respondent Balmores'
petition. It reversed the trial court's decision, and issued a
new order placing PPC under receivership and creating an
interim management committee.
In justifying its decision to place PPC under
receivership and to create a management committee,
the Court of Appeals stated that the board's waiver of
PPC's rights in favor of Villamor's law firm without any
consideration and its inaction on Villamor's failure to
turn over the proceeds of rental payments to PPC
warrant the creation of a management committee.39
The circumstances resulted in the imminent danger of
loss, waste, or dissipation of PPC's assets.40
ISSUE:
Whether the Court of Appeals correctly
characterized respondent Balmores' action as a
derivative suit
RULING:
Respondent Balmores' action in the trial court is
not a derivative suit
A derivative suit is an action filed by stockholders to
enforce a corporate action.56 It is an exception to the
general rule that the corporation's power to sue57 is
exercised only by the board of directors or trustees.58
Individual stockholders may be allowed to sue on behalf of
the corporation whenever the directors or officers of the
corporation refuse to sue to vindicate the rights of the
corporation or are the ones to be sued and are in control
of the corporation.59 It is allowed when the "directors [or
officers] are guilty of breach of . . . trust, [and] not of
mere error of judgment."60 In derivative suits, the real
party in interest is the corporation, and
 CORPORATION LAW
the suing stockholder is a mere nominal party.61 Thus,
this court noted:
The Court has recognized that a stockholder's right to
institute a derivative suit is not based on any express
provision of the Corporation Code, or even the
Securities Regulation Code, but is impliedly recognized
when the said laws make corporate directors or officers
liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties. In
effect, the suit is an action for specific performance of
an obligation, owed by the corporation to the
stockholders, to assist its rights of action when the
corporation has been put in default by the wrongful
refusal of the directors or management to adopt
suitable measures for its protection.62chanrobleslaw
Rule 8, Section 1 of the Interim Rules of Procedure for
Intra-Corporate Controversies (Interim Rules) provides
the five (5) requisites63 for filing derivative suits:
SECTION 1. Derivative action. - A stockholder or
member may bring an action in the name of a
corporation or association, as the case may be,
provided, that:
(1) He was a stockholder or member at the time
the acts or transactions subject of the action occurred
and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges
the same with particularity in the complaint, to
exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he
desires;
(3) No appraisal rights are available for the act or
acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall
forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not
included in the enumeration, is implied in the first
paragraph of Rule 8, Section 1 of the Interim Rules: The
action brought by the stockholder or member must be "in
the name of [the] corporation or association. ..." This
requirement has already been settled in jurisprudence.
Thus, in Western Institute of Technology, Inc., et al v.
Solas, et al,64 this court said that "[a]mong the basic
requirements for a derivative suit to prosper is that the
minority shareholder who is suing for and on behalf of
the corporation must allege in his complaint before the
proper forum that he is suing on a derivative cause of
action on behalf of the corporation and all other
shareholders similarly situated who wish to join
[him]."65 This principle on derivative suits has been
repeated in, among other cases, Tarn Wing Tak v.
Hon. Makasiar and De Guia66 and in Chua v. Court of
Appeals,67 which was cited in Hi-Yield Realty,
Incorporated v. Court of Appeals.68
Moreover, it is important that the corporation be made
a party to the case.69
This court explained in Asset Privatization Trust v.
Court of Appeals70 why it is a condition sine qua non
that the corporation be impleaded as party in
derivative suits. Thus:
– SECOND SET CASE DIGEST | 57
Not only is the corporation an indispensible party, but it is
also the present rule that it must be served with process.
The reason given is that the judgment must be made
binding upon the corporation in order that the corporation
may get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the same
cause of action. In other words the corporation must be
joined as party because it is its cause of action that is
being litigated and because judgment must be a res
judicata against it.71chanrobleslaw
In the same case, this court enumerated the reasons
for disallowing a direct individual suit.
The reasons given for not allowing direct individual suit
are:
(1) . . . "the universally recognized doctrine that a
stockholder in a corporation has no title legal or
equitable to the corporate property; that both of. these
are in the corporation itself for the benefit of the
stockholders." In other words, to allow shareholders to
sue separately would conflict with the separate
corporate entity principle;
(2) . . . that the prior rights of the creditors may be
prejudiced. Thus, our Supreme Court held in the case of
Evangelista v. Santos, that 'the stockholders may not
directly claim those damages for themselves for that
would result in the appropriation by, and the distribution
among them of part of the corporate assets before the
dissolution of the corporation and the liquidation of its
debts and liabilities, something which cannot be legally
done in view of Section 16 of the Corporation Law. . .";
(3) the filing of such suits would conflict with the
duty of the management to sue for the protection of all
concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect
of partial recovery by an individual on the damages
recoverable by the corporation for the same act.72
While it is true that the basis for allowing stockholders
to file derivative suits on behalf of corporations is
based on equity, the above legal requisites for its filing
must necessarily be complied with for its institution.73
Respondent Balmores' action in the trial court
failed to satisfy all the requisites of a derivative
suit.
Respondent Balmores failed to exhaust all available
remedies to obtain the reliefs he prayed for. Though he
tried to communicate with PPC's directors about the
checks in Villamor's possession before he filed an
action with the trial court, respondent Balmores was
not able to show that this comprised -all the remedies
available under the articles of incorporation, by-laws,
laws, or rules governing PPC.
An allegation that appraisal rights were not available
for the acts complained of is another requisite for filing
derivative suits under Rule 8, Section 1(3) of the
Interim Rules.
Section 81 of the Corporation Code provides the
instances of appraisal right:
SEC. 81. Instances of appraisal right.— Any
stockholder of a corporation shah1 have the right to
dissent and demand payment of the fair value of his
shares in the following instances:
 CORPORATION LAW
In case any amendment to the articles of incorporation
has the effect of changing or restricting the rights of
any stockholders or class of shares, or of authorizing
preferences in any respect superior to those of
outstanding shares of any class, or of extending or
shortening the term of corporate existence;
In case of sale, lease, exchange, transfer, mortgage,
pledge or other disposition of all or substantially all of
the corporate property and assets as provided in this
Code; and
In case of merger or consolidation.
Section 82 of the Corporation Code provides that the
stockholder may exercise the right if he or she voted
against the proposed corporate action and if he made a
written demand for payment on the corporation within
thirty (30) days after the date of voting.
Respondent Balmores complained about the alleged
inaction of PPC's directors in his letter informing them
that Villamor should be made to deliver to PPC and
account for MC Home Depot's checks or their
equivalent value. He alleged that these are devices or
schemes amounting to fraud or misrepresentation
detrimental to the corporation's and the stockholders'
interests. He also alleged that the directors' inaction
placed PPC's assets in imminent and/or actual
dissipation, loss, wastage, and destruction.
Granting that (a) respondent Balmores' attempt to
communicate with the other PPC directors already
comprised all the available remedies that he could
have exhausted and (b) the corporation was under full-
control of petitioners that exhaustion of remedies
became impossible or futile,74 respondent Balmores
failed to allege that appraisal rights were not available
for the acts complained of here.
Neither did respondent Balmores implead PPC as party
in the case nor did he allege that he was filing on
behalf of the corporation.
The non-derivative character of respondent Balmores'
action may also be gleaned from his allegations in the trial
court complaint. In the complaint, he described the nature
of his action as an action under Rule 1, Section l(a)(l) of
the Interim Rules, and not an action under Rule 1, Section
l(a)(4) of the Interim Rules, which refers to derivative
suits. Thus, respondent Balmores said:
1.1 This is an action under Section 1 (a) (1), Rule 1 of
the Interim Rules of Procedure for Intra-corporate
Controversies, involving devices or schemes employed
by, or acts of, the defendants as board of directors,
business associates and officers of Pasig Printing
Corporation (PPC), amounting to fraud or
misrepresentation, which are detrimental to the
interest of the plaintiff as stockholder of PPC.75
(Emphasis supplied)
Rule 1, Section 1 (a)(1) of the Interim Rules refers to
acts of the board, associates, and officers, amounting
to fraud or misrepresentation, which may be
detrimental to the interest of the stockholders. This is
different from a derivative suit.
While devices and schemes of the board of directors,
business associates,-or officers amounting to fraud
under Rule 1, Section l(a)(l) of the Interim Rules are
causes of a derivative suit, it is not always the case
that derivative suits are limited to such causes or that
they are necessarily derivative suits. Hence, they are
– SECOND SET CASE DIGEST | 58
separately enumerated in Rule 1, Section 1 (a) of the
Interim Rules:
SECTION 1. (a) Cases covered. - These Rules shall
govern the procedure to be observed in civil cases
involving the following:
(1) Devices or schemes employed by, or any act
of, the board of directors, business associates, officers
or partners, amounting to fraud or misrepresentation
which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of
any corporation, partnership, or association;
(2) Controversies arising out of intra-corporate,
partnership, or association relations, between and
among stockholders, members, or associates; and
between, any or all of them and the corporation,
partnership, or association of which they are
stockholders, members, or associates, respectively;
(3) Controversies in the election or appointment of
directors, trustees, officers, or managers of
corporations, partnerships, or associations;
(4) Derivative suits; and
(5)Inspection of corporate books. (Emphasis supplied)
Stockholder/s' suits based on fraudulent or wrongful
acts of directors, associates, or officers may also be
individual suits or class suits.
Individual suits are filed when the cause of action
belongs to the individual stockholder personally, and
not to the stockholders as a group or to the
corporation, e.g., denial of right to inspection and
denial of dividends to a stockholder.76 If the cause of
action belongs to a group of stockholders, such as
when the rights violated belong to preferred
stockholders, a class or representative suit may be
filed to protect the stockholders in the group.77
In this case, respondent Balmores filed an individual
suit. His intent was very clear from his manner of
describing the nature of his action:
1.1 This is an action under Section 1 (a) (1), Rule 1 of
the Interim Rules of Procedure for Intra-corporate
Controversies, involving devices or schemes employed
by, or acts of, the defendants as board of directors,
business associates and officers of Pasig Printing
Corporation (PPC), amounting to fraud or
misrepresentation, which are detrimental to the
interest of the plaintiff as stockholder of PPC.78
(Emphasis supplied)
His intent was also explicit from his prayer:
WHEREFORE, plaintiff respectfully prays that the
Honorable Court -
2. After notice and due proceedings -
Declare that the acts of defendant Directors in allowing
defendant VILLAMOR to retain custody of the MC Home
checks and encash them upon maturity, as well as their
refusal or failure to take any action against defendant
VILLAMOR to make him account and deliver the MC Home
checks and/or their proceeds to Pasig Printing Corporation
are devices, schemes or acts amounting to fraud that are
detrimental to plaintiff's interest as a stockholder of
PPC;79 (Emphasis supplied)
 CORPORATION LAW
Respondent Balmores did not bring the action for the
benefit of the corporation. Instead, he was alleging
that the acts of PPC's directors, specifically the waiver
of rights in favor of Villamor's law firm and their failure
to take back the MC Home Depot checks from Villamor,
were detrimental to his individual interest as a
stockholder. In filing an action, therefore, his intention
was to vindicate his individual interest and not PPC's or
a group of stockholders'.
The essence of a derivative suit is that it must be filed
on behalf of the corporation. This is because the cause
of action belongs, primarily, to the corporation. The
stockholder who sues on behalf of a corporation is
merely a nominal party.
Respondent Balmores' intent to file an individual suit
removes it from the coverage of derivative suits.
Respondent Balmores has no cause of action that
would entitle him to the reliefs sought
Corporations have a personality that is separate and
distinct from their stockholders and directors. A wrong
to the corporation does not necessarily create an
individual cause of action. "A cause of action is the act
or omission by which a party violates the right of
another."80 A cause of action must pertain to
complainant if he or she is to be entitled to the reliefs
sought.
Thus, in Cua v. Tan,81 this court emphasized:
. . . where the acts complained of constitute a wrong to
the corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or
member. Although in most every case of wrong to the
corporation, each stockholder is necessarily affected
because the value of his interest therein would be
impaired, this fact of itself is not sufficient to give him an
individual cause of action since the corporation is a person
distinct and separate from him, and can and should itself
sue the wrongdoer. Otherwise, not only would the theory
of separate entity be violated, but there would be
multiplicity of suits as well as a violation of the priority
rights of creditors. Furthermore, there is the difficulty of
determining the amount of damages that should be paid
to each individual stockholder.82
In this case, respondent Balmores did not allege any
cause of action that is personal to him. His allegations are
limited to the facts that PPC's directors waived their rights
to rental income in favor of Villamor's law firm without
consideration and that they failed to take action when
Villamor refused to turn over the amounts to PPC. These
are wrongs that pertain to PPC. Therefore, the cause of
action belongs to PPC — not to respondent Balmores or
any stockholders as individuals.
For this reason, respondent Balmores is not entitled to the
reliefs sought in the complaint. Only the corporation, or
arguably the stockholders as a group, is entitled to these
reliefs, which should have been sought in a proper
derivative suit filed on behalf of the corporation.
PPC will not be bound by a decision granting the
application for the appointment of a receiver or
management committee. Since it was not impleaded in
the complaint, the courts did not acquire jurisdiction
over it. On this matter, it is an indispensable party,
without which, no final determination can be had.
Hence, it is not only respondent Balmores' failure to
implead PPC that is fatal to his action, as petitioners
– SECOND SET CASE DIGEST | 59
point out. It is the fact that he alleged no cause of
action that pertains personally to him that disqualifies
him from the reliefs he sought in his complaint.
32. G.R. NO. 201675, June 19, 2013
JUANITO ANG, FOR AND IN BEHALF OF SUNRISE
MARKETING (BACOLOD), INC.,*Petitioner, v.
SPOUSES ROBERTO AND RACHEL ANG,
Respondents.
CARPIO, J.:
DOCTRINE:
A derivative suit is an action brought by a stockholder
on behalf of the corporation to enforce corporate rights
against the corporation’s directors, officers or other
insiders.
FACTS:
Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly
registered corporation owned by the Ang family.4 Its
current stockholders and their respective stockholdings
are as follows:
Stockholder Number of Shares
Juanito Ang 8,750
Anecita Ang 1,250
Jeannevie Ang 2,500
Roberto Ang 8,750
Rachel Ang 3,750
Total 25,000
Juanito Ang and Roberto Ang are siblings. Anecita
Limoco-Ang is Juanito’s wife and Jeannevie is their
daughter. Roberto was elected President of SMBI,
while Juanito was elected as its Vice President. Rachel
Lu-Ang and Anecita are SMBI’s Corporate Secretary
and Treasurer, respectively.
On 31 July 1995, Nancy Ang (Nancy), the sister of Juanito
and Roberto, and her husband, Theodore Ang (Theodore),
agreed to extend a loan to settle the obligations of SMBI
and other corporations owned by the Ang family,
specifically Bayshore Aqua Culture Corporation, Oceanside
Marine Resources and JR Aqua Venture.6 Nancy and
Theodore issued a check in the amount of $1,000,000.00
payable to “Juanito Ang and/or Anecita Ang and/or
Roberto Ang and/or Rachel Ang.” Nancy was a former
stockholder of SMBI, but she no longer appears in SMBI’s
General Information Sheets as early as 1996. Nancy and
Theodore are now currently residing in the United States.
There was no written loan agreement, in view of the close
relationship between the parties. Part of the loan was also
used to purchase real properties for SMBI, for Juanito,
and for Roberto.8
On 22 December 2005, SMBI increased its authorized
capital stock to P10,000,000.00. The Certificate of
Increase of Capital Stock was signed by Juanito,
Anecita, Roberto, and Rachel as directors of SMBI.9
Juanito claimed, however, that the increase of SMBI’s
capital stock was done in contravention of the
Corporation Code.10 According to Juanito, when he
and Anecita left for Canada:
Sps. Roberto and Rachel Ang took over the active
management of [SMBI]. Through the employment of
sugar coated words[,] they were able to successfully
 CORPORATION LAW
manipulate the stocks sharings between themselves at
50-50 under the condition that the procedures
mandated by the Corporation Code on increase of
capital stock be strictly observed (valid Board
Meeting). No such meeting of the Board to increase
capital stock materialized. It was more of an
accommodation to buy peace.
Juanito claimed that payments to Nancy and Theodore
ceased sometime after 2006. On 24 November 2008,
Nancy and Theodore, through their counsel here in the
Philippines, sent a demand letter to “Spouses Juanito L.
Ang/Anecita L. Ang and Spouses Roberto L. Ang/Rachel L.
Ang” for payment of the principal amounting to
$1,000,000.00 plus interest at ten percent (10%) per
annum, for a total of $2,585,577.37 within ten days from
receipt of the letter.12 Roberto and Rachel then sent a
letter to Nancy and Theodore’s counsel on 5 January
2009, saying that they are not complying with the
demand letter because they have not personally
contracted a loan from Nancy and Theodore.
On 8 January 2009, Juanito and Anecita executed a
Deed of Acknowledgment and Settlement Agreement
(Settlement Agreement) and an Extra-Judicial Real
Estate Mortgage (Mortgage). Under the foregoing
instruments, Juanito and Anecita admitted that they,
together with Roberto and Rachel, obtained a loan
from Nancy and Theodore for $1,000,000.00 on 31
July 1995 and such loan shall be secured by:
a) Juanito and Anecita’s fifty percent share over a
parcel of land registered in the name of SMBI;
b) a parcel of land registered in the name of
Juanito Ang;
c) Juanito’s fifty percent share in 7 parcels of land
registered in his and Roberto’s name;
d) a parcel of land registered in the name of
Roberto;
e) a parcel of land registered in the name of
Rachel; and
f) Roberto and Rachel’s fifty percent share in 2
parcels of land registered in the name of their son,
Livingstone L. Ang (Livingstone), and in another lot
registered in the name of Livingstone and Alvin Limoco
Ang.13
A certain Kenneth C. Locsin (Locsin) signed on behalf
of Nancy and Theodore, under a Special Power of
Attorney which was not attached as part of the
Settlement Agreement or the Mortgage, nor included in
the records of this case.
Thereafter, Juanito filed a “Stockholder Derivative Suit
with prayer for an ex-parte Writ
Attachment/Receivership” (Complaint) before the RTC
Bacolod on 29 January 2009. He alleged that “the
intentional and malicious refusal of defendant Sps.
Roberto and Rachel Ang to [settle] their 50% share x x
x [of] the total obligation x x x will definitely affect the
financial viability of plaintiff SMBI.”14 Juanito also
claimed that he has been “illegally excluded from the
management and participation in the business of
[SMBI through] force, violence and intimidation” and
that Rachel and Roberto have seized and carted away
SMBI’s records from its office.15
On 29 January 2009, the RTC Bacolod issued an
Order16 granting the application for an ex-parte writ of
attachment and break open order. Atty. Jerry Basiao,
– SECOND SET CASE DIGEST | 60
who filed an application for appointment as Receiver of
SMBI, was directed by the RTC Bacolod to furnish the
required Receivership Bond.17 On the same date,
Roberto and Rachel moved to quash the writ of
attachment and set aside the break open order and
appointment of receiver.18 They claimed that these
were issued in violation of their right to due process.
In her Verified Answer Ad Cautelam which was filed on 10
February 2009, Rachel prayed that the Complaint be
dismissed as it was not a bona fide derivative suit as
defined under the Interim Rules of Procedure for Intra-
Corporate Controversies20 (Interim Rules). According to
Rachel, the Complaint, although labelled as a derivative
suit, is actually a collection suit since the real party in
interest is not SMBI, but Nancy and Theodore:
[T]he cause of action does not devolve on the corporation
as the alleged harm or wrong pertains to the right of the
Sps. Theodore and Nancy Ang, as creditors, to collect the
amount allegedly owed to them. x x x
That the instant suit is for the benefit of a non-
stockholder and not the corporation is obvious when
the primary relief prayed for in the Complaint which is
for the defendants “to pay the amount of Php
60,114,673.62 plus interest which is 50% of the loan
obligations of plaintff [SMBI] to its creditor Sps.
Theodore and Nancy Ang.” Otherwise stated, the
instant suit is nothing but a complaint for sum of
money shamelessly masked as a derivative suit.21
The Ruling of the RTC Bacolod
The court hereby rules that the present action is a
DERIVATIVE SUIT and [the] Motion to Dismiss based
on Affirmative Defenses raised by defendants is
DENIED for lack of merit.27
The RTC Bacolod found that the issuance of the checks to
settle the purported obligations to Rachel’s relatives, as
well as the removal of Nancy as a stockholder in SMBI’s
records as filed with the SEC, shows that Rachel and
Roberto committed fraud. The Order likewise stated that
the requirement of exhaustion of intra-corporate remedies
is no longer necessary since Rachel and Roberto exercised
complete control over SMBI.
The Ruling of the CA-Cebu
Reversed and set aside the Order of the RTC Bacolod
dated 27 September 2010.
According to the CA-Cebu, the Complaint filed by
Juanito should be dismissed because it is a harassment
suit, and not a valid derivative suit as defined under
the Interim Rules. The CA-Cebu also found that Juanito
failed to exhaust intra-corporate remedies and that the
loan extended by Nancy and Theodore was not SMBI’s
of
corporate obligation. There is nothing on record to
show that non-payment of the loan will result in any
damage or prejudice to SMBI.
ISSUE:
Whether based on the allegations of the
complaint, the nature of the case is one of a
derivative suit or not.
RULING:
We uphold the CA-Cebu’s finding that the
Complaint is not a derivative suit.
 CORPORATION LAW
A derivative suit is an action brought by a stockholder
on behalf of the corporation to enforce corporate rights
against the corporation’s directors, officers or other
insiders.29
Under Sections 2330 and 3631of the Corporation
Code, the directors or officers, as provided under the
by-laws,32 have the right to decide whether or not a
corporation should sue. Since these directors or
officers will never be willing to sue themselves, or
impugn their wrongful or fraudulent decisions,
stockholders are permitted by law to bring an action in
the name of the corporation to hold these directors
and officers accountable.33 In derivative suits, the real
party in interest is the corporation, while the
stockholder is a mere nominal party.
This Court, in Yu v. Yukayguan,34 explained:
The Court has recognized that a stockholder’s right to
institute a derivative suit is not based on any express
provision of the Corporation Code, or even the
Securities Regulation Code, but is impliedly recognized
when the said laws make corporate directors or officers
liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties.
Hence, a stockholder may sue for mismanagement,
waste or dissipation of corporate assets because of a
special injury to him for which he is otherwise without
redress. In effect, the suit is an action for specific
performance of an obligation owed by the corporation
to the stockholders to assist its rights of action when
the corporation has been put in default by the wrongful
refusal of the directors or management to make
suitable measures for its protection. The basis of a
stockholder’s suit is always one in equity. However, it
cannot prosper without first complying with the legal
requisites for its institution. (Emphasis in the original)
Section 1, Rule 8 of the Interim Rules imposes the
following requirements for derivative suits:
(1) [The person filing the suit must be] a stockholder or
member at the time the acts or transactions subject of the
action occurred and the time the action was filed;
(2) [He must have] exerted all reasonable efforts, and
alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he
desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
Applying the foregoing, we find that the Complaint is not a
derivative suit. The Complaint failed to show how the acts
of Rachel and Roberto resulted in any detriment to SMBI.
The CA-Cebu correctly concluded that the loan was not a
corporate obligation, but a personal debt of the Ang
brothers and their spouses. The check was issued to
“Juanito Ang and/or Anecita Ang and/or Roberto Ang
and/or Rachel Ang” and not SMBI. The proceeds of the
loan were used for payment of the obligations of the other
corporations owned by the Angs as well as the purchase
of real properties for the Ang brothers. SMBI was never a
party to the Settlement Agreement or the Mortgage. It
was never named as a co-debtor or guarantor of the loan.
Both instruments were executed by Juanito and Anecita in
their personal capacity, and not in their capacity as
directors or officers
– SECOND SET CASE DIGEST | 61
of SMBI. Thus, SMBI is under no legal obligation to
satisfy the obligation.
The fact that Juanito and Anecita attempted to constitute
a mortgage over “their” share in a corporate asset cannot
affect SMBI. The Civil Code provides that in order for a
mortgage to be valid, the mortgagor must be the
“absolute owner of the thing x x x mortgaged.”35
Corporate assets may be mortgaged by authorized
directors or officers on behalf of the corporation as owner,
“as the transaction of the lawful business of the
corporation may reasonably and necessarily require.”36
However, the wording of the Mortgage reveals that it was
signed by Juanito and Anecita in their personal capacity as
the “owners” of a pro-indiviso share in SMBI’s land and
not on behalf of SMBI.
Juanito and Anecita, as stockholders of SMBI, are not co-
owners of SMBI assets. They do not own pro-indiviso
shares, and therefore, cannot mortgage the same except
in their capacity as directors or officers of SMBI.
Since damage to the corporation was not
sufficiently proven by Juanito, the Complaint
cannot be considered a bona fide derivative suit.
A derivative suit is one that seeks redress for injury to
the corporation, and not the stockholder. No such
injury was proven in this case.
33. G.R. No. 123553 July 13, 1998
(CA-G.R. No. 33291) July 13, 1998
NORA A. BITONG, petitioner, vs. COURT OF
APPEALS (FIFTH DIVISION), EUGENIA D.
APOSTOL, JOSE A. APOSTOL, MR. & MS.
PUBLISHING CO., LETTY J. MAGSANOC, AND
ADORACION G. NUYDA, respondents.
(CA-G.R. No. 33873) July 13, 1998 NORA A.
BITONG, petitioner, vs. COURT OF APPEALS
(FIFTH DIVISION) and EDGARDO B. ESPIRITU,
respondents.
FACTS:
These twin cases originated from a derivative suit 1
filed by petitioner Nora A. Bitong before the Securities
and Exchange Commission (SEC hereafter) allegedly
for the benefit of private respondent Mr. & Ms.
Publishing Co., Inc. (Mr. & Ms. hereafter), among
others, to hold respondent spouses Eugenia D. Apostol
and Jose A. Apostol 2 liable for fraud,
misrepresentation, disloyalty, evident bad faith,
conflict of interest and mismanagement in directing the
affairs of Mr. & Ms. to the damage and prejudice of Mr.
& Ms. and its stockholders, including petitioner.
Alleging before the SEC that she had been the Treasurer
and a Member of the Board of Directors of Mr. & Ms. from
the time it was incorporated on 29 October 1976 to 11
April 1989, and was the registered owner of 1,000 shares
of stock out of the 4,088 total outstanding shares,
petitioner complained of irregularities committed from
1983 to 1987 by Eugenia D. Apostol, President and
Chairperson of the Board of Directors. Petitioner claimed
that except for the sale of the name Philippine Inquirer to
Philippine Daily Inquirer (PDI hereafter) all other
transactions and agreements entered into by Mr. & Ms.
with PDI were not supported by any bond and/or
stockholders' resolution. And, upon instructions of Eugenia
D. Apostol, Mr. & Ms. made several cash advances to PDI
on various occasions
 CORPORATION LAW
amounting to P3.276 million. On some of these
borrowings PDI paid no interest whatsoever. Despite
the fact that the advances made by Mr. & Ms. to PDI
were booked as advances to an affiliate, there existed
no board or stockholders' resolution, contract nor any
other document which could legally authorize the
creation of and support to an affiliate.
Petitioner further alleged that respondents Eugenia and
Jose Apostol were stockholders, directors and officers
in both Mr. & Ms. and PDI. In fact on 2 May 1986
respondents Eugenia D. Apostol, Leticia J. Magsanoc
and Adoracion G. Nuyda subscribed to PDI shares of
stock at P50,000.00 each or a total of P150,000.00.
The stock subscriptions were paid for by Mr. & Ms. and
initially treated, as receivables from officers and
employees. But, no payments were ever received from
respondents, Magsanoc and Nuyda.
Private respondents Apostol spouses, Magsanoc,
Nuyda, and Mr. & Ms., on the other hand, refuted the
allegations of petitioner by starting with a narration of
the beginnings of Mr. & Ms. They recounted that on 9
March 1976 Ex Libris Publishing Co., Inc. (Ex Libris
hereafter) was incorporated for the purpose of
publishing a weekly magazine. Its original principal
stockholders were spouses Senator Juan Ponce Enrile
(then Minister of National Defense) and Cristina Ponce
Enrile through Jaka Investments Corporation (JAKA
hereafter), and respondents Eugenia and Jose Apostol.
When Ex Libris suffered financial difficulties, JAKA and
the Apostols, together with new investors Luis
Villafuerte and Ramon Siy, restructured Ex Libris by
organizing a new corporation known as Mr. & Ms.
The original stockholders of Mr. & Ms., i.e., JAKA, Luis
Villafuerte, Ramon Siy, the Apostols and Ex Libris
continued to be virtually the same up to 1989.
Thereafter it was agreed among them that, they being
close friends, Mr. & Ms. would be operated as a
partnership or a close corporation; respondent Eugenia
D. Apostol would manage the affairs of Mr. & Ms.; and,
no shares of stock would be sold to third parties
without first offering the shares to the other
stockholders so that transfers would be limited to and
only among the original stockholders.
ISSUE:
Whether petitioner can file a derivative suit as a
stockholder.
RULING:
No. As found by the Hearing Panel and affirmed by
respondent Court of Appeals, there is overwhelming
evidence that despite what appears on the certificate of
stock and stock and transfer book, petitioner was not a
bona fide stockholder of Mr. & Ms. before March 1989 or
at the time the complained acts were committed to qualify
her to institute a stockholder's derivative suit against
private respondents. Aside from petitioner's own
admissions, several corporate documents disclose that the
true party-in-interest is not petitioner but JAKA.
That JAKA retained its ownership of its Mr. & Ms. shares
was clearly shown by its receipt of the dividends issued in
December 1986. 32 This only means, very obviously, that
Mr. & Ms. shares in question still belonged to JAKA and
not to petitioner. For, dividends are distributed to
stockholders pursuant to their right to share in corporate
profits. When a dividend is declared, it belongs to the
person who is the substantial and
– SECOND SET CASE DIGEST | 62
beneficial owner of the stock at the time regardless of
when the distribution profit was earned.
There is no doubt that petitioner was an employee of
JAKA as its managing officer, as testified to by Senator
Enrile himself. 36 However, in the absence of a special
authority from the board of directors of JAKA to
institute a derivative suit for and in its behalf,
petitioner is disqualified by law to sue in her own
name. The power to sue and be sued in any court by a
corporation even as a stockholder is lodged in the
board of directors that exercises its corporate powers
and not in the president or officer thereof. 37
It is well settled in this jurisdiction that where corporate
directors are guilty of a breach of trust, not of mere error
of judgment or abuse of discretion, and intracorporate
remedy is futile or useless, a stockholder may institute a
suit in behalf of himself and other stockholders and for the
benefit of the corporation, to bring about a redress of the
wrong inflicted directly upon the corporation and indirectly
upon the stockholders. 38The stockholder's right to
institute a derivative suit is not based on any express
provision of The Corporation Code but is impliedly
recognized when the law makes corporate directors or
officers liable for damages suffered by the corporation and
its stockholders for violation of their fiduciary duties.
Hence, a stockholder may sue for mismanagement,
waste or dissipation of corporate assets because of a
special injury to him for which he is otherwise without
redress. 39 In effect, the suit is an action for specific
performance of an obligation owed by the corporation
to the stockholders to assist its rights of action when
the corporation has been put in default by the wrongful
refusal of the directors or management to make
suitable measures for its protection. 40
34. G.R. No. 172843 September 24, 2014
ALFREDO L. VILLAMOR, JR., Petitioner, vs. JOHN
S. UMALE, in substitution of HERNANDO F.
BALMORES, Respondent.
x-----------------------
x G.R. No. 172881
ODIVAL E. REYES, HANS M. PALMA and DOROTEO
M. PANGILINAN, Petitioners, vs. HERNANDO F.
BALMORES, Respondent.
FACTS:
MC Home Depot occupied a prime property (Rockland
area) in Pasig. The property was part of the area owned
by Mid-Pasig Development Corporation (Mid-Pasig).5
On March 1, 2004, (PASIG PRINTING CORP) PPC
obtained an option to lease portions of MidPasig’s
property, including the Rockland area.6
On November 11, 2004, PPC’s board of directors
issued a resolution7 waiving all its rights, interests,
and participation in the option to lease contract in
favor of the law firm of Atty. Alfredo Villamor, Jr.
(Villamor), petitioner in G.R. No. 172843. PPC received
no consideration for this waiver in favor of Villamor’s
law firm.8
On November 22, 2004, PPC, represented by Villamor,
entered into a memorandum of agreement (MOA) with
MC Home Depot.9 Under the MOA, MC Home Depot
would continue to occupy the area as PPC’s sublessee
 CORPORATION LAW
for four (4) years, renewable for another four (4)
years, at a monthly rental of ₱4,500,000.00 plus
goodwill of ₱18,000,000.00.10
In compliance with the terms of the MOA, MC Home
Depot issued 20 post-dated checks representing
rentalpayments for one year and the goodwill money.
The checks were given to Villamor who did not turn
these or the equivalent amount over to PPC, upon
encashment.11
Hernando Balmores, respondent inG.R. No. 172843
and G.R. No. 172881 and a stockholder and director of
PPC,12wrote a letter addressed to PPC’s directors,
petitioners inG.R. No. 172881, on April 4, 2005.13 He
informed them that Villamor should bemade to deliver
to PPC and account for MC Home Depot’s checks or
their equivalent value.14
Due to the alleged inaction of the directors, respondent
Balmores filed with the Regional Trial Court an intra-
corporate controversy complaint.
The Regional Trial Court denied respondent Balmores’
prayer for the appointment of a receiver or the
creation of a management committee.
The Court of Appeals ruled that the case filed by
respondent Balmores with the trial court "[was] a
derivative suit because there were allegations of fraud
or ultra vires acts . . . by [PPC’s directors]."
ISSUE:
Whether the action filed by respondent Balmores was a
derivative suit
RULING:
NO. A derivative suit is an action filed by stockholders to
enforce a corporate action.56 It is an exception to the
general rule that the corporation’s power to sue57 is
exercised only by the board of directors or trustees.58
Individual stockholders may be allowed to sue on
behalf of the corporation whenever the directors or
officers of the corporation refuse to sue to vindicate
the rights of the corporation or are the ones to be sued
and are in control of the corporation.59 It is allowed
when the "directors [or officers] are guilty of breach
of . . . trust, [and] not of mere error of judgment."60
In derivative suits, the real party in interest is the
corporation, and the suing stockholder is a mere
nominal party.61
Thus, this court noted:
The Court has recognized that a stockholder’s right to
institute a derivative suit is not based on any express
provision of the Corporation Code, or even the
Securities Regulation Code, but is impliedly recognized
when the said laws make corporate directors or officers
liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties. In
effect, the suit isan action for specific performance of
an obligation, owed by the corporation to the
stockholders, to assist its rights of action when the
corporation has been put in default by the wrongful
refusal of the directors or management to adopt
suitable measures for its protection.62
Rule 8, Section 1 of the Interim Rules of Procedure for
Intra Corporate Controversies (Interim Rules) provides
the five (5) requisites63 for filing derivative suits:
– SECOND SET CASE DIGEST | 63
SECTION 1. Derivative action. – A stockholder or
member may bring an action in the name of a
corporation or association, as the case may be,
provided, that:
(1) He was a stockholder or member at the time the
acts or transactions subject of the action occurred and
at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, toexhaust all
remedies available under the articles of incorporation,
by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall
forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not
included in the enumeration, is implied in the first
paragraph of Rule 8, Section 1 of the Interim Rules:
The action brought by the stockholder or member must
be "in the name of [the] corporation or
association. . . ." This requirement has already been
settled in jurisprudence.
Respondent Balmores’ action in the trial court failed to
satisfy all the requisites of a derivative suit.
Respondent Balmores failed to exhaust all available
remedies to obtain the reliefs he prayed for. Though he
tried to communicate with PPC’s directors about the
checks in Villamor’s possession before he filed an
action with the trial court, respondent Balmores was
not able to show that this comprised all the remedies
available under the articles of incorporation, bylaws,
laws, or rules governing PPC.
An allegation that appraisal rights were not available
for the acts complained of is another requisite for filing
derivative suits under Rule 8, Section 1(3) of the
Interim Rules.
Section 81 of the Corporation Code provides the
instances of appraisal right:
SEC. 81. Instances of appraisal right.— Any
stockholder of a corporation shall have the right to
dissent and demand payment of the fair value of his
shares in the following instances:
1. In case any amendment to the articles of
incorporation has the effect of changing or restricting the
rights of any stockholders or class of shares, or of
authorizing preferences in any respect superior to those of
outstanding shares of any class, or of extending or
shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer,
mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets
as provided in this Code; and
3. In case of merger or consolidation.
Section 82 of the Corporation Codeprovides that the
stockholder may exercise the right if he or she voted
against the proposed corporate action and if he made a
written demand for payment on the corporation within
thirty (30) days after the date of voting.
 CORPORATION LAW
Granting that (a) respondent Balmores’ attempt to
communicate with the other PPC directors already
comprised all the available remedies that he could
have exhausted and (b) the corporation was under full
control of petitioners that exhaustion of remedies
became impossible or futile,74 respondent Balmores
failed toallege that appraisal rights were not available
for the acts complained of here.
Neither did respondent Balmores implead PPC as party
in the case nor did he allege that he was filing on
behalf of the corporation.
35. G.R. No. L-22399 March 30, 1967
REPUBLIC BANK, represented in this action by
DAMASO P. PEREZ, etc., plaintiff-appellant, vs.
MIGUEL CUADERNO, BIENVENIDO DIZON, PABLO
ROMAN, THE BOARD OF DIRECTORS OF THE
REPUBLIC BANK AND THE MONETARY BOARD OF
THE CENTRAL BANK OF THE PHILIPPINES,
defendants-appellees.
FACTS:
In the Court below, Damaso Perez, a stockholder of
the Republic Bank, a Philippine banking corporation
domiciled in Manila, instituted a derivative suit for and
in behalf of said Bank, against Miguel Cuaderno,
Bienvenido Dizon, the Board of Directors of the
Republic Bank, and the Monetary Board of the Central
Bank of the Philippines.
For a cause of action plaintiff alleged, inter alia, that
Damaso Perez had complained to the Monetary Board of
the Central Bank against certain frauds allegedly
committed by defendant Pablo Roman, in that being
chairman of the Board of Directors of the Republic Bank,
and of its Executive Loan Committee, in 1957 to 1959, "in
grave abuse of his fiduciary duty and taking advantage of
his said positions and in connivance with other officials of
the Republic Bank", Roman had fraudulently granted or
caused to be granted loans to fictitious and non-existing
persons and to their close friends, relatives and/or
employees, who were in reality their dummies, on the
basis of fictitious and inflated appraised values of real
estate properties; that said loans amounted to almost 4
million pesos; that acting upon the complaint, Miguel
Cuaderno (then Governor of the Central Bank) and the
Monetary Board ordered an investigation, which was
carried out by Bank Examiners; that they and the
Superintendent of Banks of the Central Bank reported that
certain mortgage loans amounting to P2,303,400.00 were
granted in violation of sections 77, 78 and 88 of the
General Banking Act; that acting on said reports, the
Monetary Board, of which defendant Cuaderno was a
member, ordered a new Board of Directors of the Republic
Bank to be elected, which was done, and subsequently
approved by the Monetary Board; that on January 5,
1960, the latter accepted the offer of Pablo Roman to put
up adequate security for the questioned loans made by
the Republic Bank, and such security was made a
condition for the resumption of the Bank's normal
operations; that subsequently, the Central Bank through
its Governor, Miguel Cuaderno, referred to special
prosecutors of the Department of Justice on July 22,
1960, the banking frauds and violations of the Banking
Act, reported by the Superintendent of Banks, for
investigation and prosecution, but no information was
filed up to the time of the retirement of Cuaderno in
1961; that other similar frauds were subsequently
discovered; that to neutralize the impending action
against him, Pablo Roman
– SECOND SET CASE DIGEST | 64
engaged Miguel Cuaderno as technical consultant at a
compensation of P12,500.00 per month, and selected
Bienvenido Dizon as chairman of the Board of Directors of
the Republic Bank; that the Board of Directors composed
of individuals personally selected and chosen by Roman,
connived and confederated in approving the appointment
and selection of Cuaderno and Dizon; that such action was
motivated by bad faith and without intention to protect
the interest of the Republic Bank but were prompted to
protect Pablo Roman from criminal prosecution; that the
appointment of Cuaderno and his acceptance of the
position of technical consultant are immoral, anomalous
and illegal, and his compensation highly unconscionable,
because court actions involving the actuations of
Cuaderno as Governor and Member or Chairman of the
Monetary Board are still pending in court; that as member
of the Monetary Board from 1961 to 1962, Bienvenido
Dizon exercised supervision over the Republic Bank; that
the selection of Dizon as chairman of the Board of the
Republic Bank after he was forced to resign from the
presidency of the Philippine National Bank and from
membership of the Monetary Board and within one year
thereafter is in violation of option 3, sub-paragraph (d) of
the Anti-Graft and Corrupt Practices Act; that both
Cuaderno and Dizon were alter egos of Pablo Roman; that
the Monetary Board was about to approve the
appointment of Cuaderno and Dizon and would do so
unless enjoined.
ISSUE:
Whether there was a cause of action for the application
of the derivative suit by petitioner
RULING:
YES. They mainly controvert the right of plaintiff to
question the appointment and selection of defendants
Cuaderno and Dizon, which they contend to be the result
of corporate acts with which plaintiff, as stockholder,
cannot interfere. Normally, this is correct, but Philippine
jurisprudence is settled that an individual stockholder is
permitted to institute a derivative or representative suit
on behalf of the corporation wherein he holds stock in
order to protect or vindicate corporate rights, whenever
the officials of the corporation refuse to sue, or are the
ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real party in
interest (Pascual vs. Del Saz Orozco, 19 Phil. 82, 85;
Everett vs. Asia Banking Corp., 45 Phil. 518; Angeles vs.
Santos, 64 Phil. 697; Evangelista vs. Santos, 86 Phil.
388). Plaintiff-appellant's action here is precisely in
conformity, with these principles. He is neither alleging
nor vindicating his own individual interest or prejudice,
but the interest of the Republic Bank and the damage
caused to it. The action he has brought is a derivative
one, expressly manifested to be for and in behalf of the
Republic Bank, because it was futile to demand action by
the corporation, since its Directors were nominees and
creatures of defendant Pablo Roman (Complaint, p. 6).
The frauds charged by plaintiff are frauds against the
Bank that redounded to its prejudice.
The complaint expressly pleads that the appointment of
Cuaderno as technical consultant, and of Bienvenido Dizon
to head the Board of Directors of the Republic Bank, were
made only to shield Pablo Roman from criminal
prosecution and not to further the interests of the Bank,
and avers that both men are Roman's alter egos. There is
no denying that the facts thus pleaded in the complaint
constitute a cause of action for the bank:
 CORPORATION LAW
if the questioned appointments were made solely to
protect Roman from criminal prosecution, by a Board
composed by Roman's creatures and nominees, then
the moneys disbursed in favor of Cuaderno and Dizon
would be an unlawful wastage or diversion of corporate
funds, since the Republic Bank would have no interest
in shielding Roman, and the directors in approving the
appointments would be committing a breach of trust;
the Bank, therefore, could sue to nullify the
appointments, enjoin disbursement of its funds to pay
them, and recover those paid out for the purpose, as
prayed for in the complaint in this case (Angeles vs.
Santos, supra.).
The case is remanded to the court of origin with
instructions to overrule the motions to dismiss and
require the defendants to answer the complaint.
36. G.R. No. 174353 September 10, 2014 NESTOR
CHING and ANDREW WELLINGTON, Petitioners,
vs. SUBIC BAY GOLF AND COUNTRY CLUB, INC.,
HU HO HSIU LIEN alias SUSAN HU, HU TSUNG
CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG
TZU and REYNALD R. SUAREZ, Respondents.
FACTS:
Petitioners Nestor Ching and Andrew Wellington filed a
Complaint3 with the RTC of Olongapo City on behalf of the
members of Subic Bay Golf and Country Club, Inc.
(SBGCCI) against the said country club and its Board of
Directors and officers under the provisions of Presidential
Decree No. 902-A in relation to Section 5.2 of the
Securities Regulation Code. The Subic Bay Golfers and
Shareholders Incorporated (SBGSI), a corporation
composed of shareholders of the defendant corporation,
was also named as plaintiff. The officers impleaded as
defendants were the following: (1) its President, Hu Ho
Hsiu Lien alias Susan Hu; (2) its treasurer, Hu Tsung
Chieh alias Jack Hu; (3) corporate secretary Reynald
Suarez; and (4) directors Hu Tsung Hui and Hu Tsung
Tzu. The case was docketed as Civil Case No. 03-001. The
complaint alleged that the defendant corporation sold
shares to plaintiffs at US$22,000.00 per share, presenting
to them the Articles of Incorporation which contained the
following provision:
No profit shall inure to the exclusive benefit of any of
its shareholders, hence, no dividends shall be declared
in their favor. Shareholders shall be entitled only to a
pro-rata share of the assets of the Club at the time of
its dissolution or liquidation.4
However, on June 27, 1996, an amendment to the
Articles of Incorporation was approved by the
Securities and Exchange Commission (SEC), wherein
the above provision was changed as follows:
No profit shall inure to the exclusive benefit of any of
its shareholders, hence, no dividends shall be declared
in their favor. In accordance with the Lease and
Development Agreement by and between Subic Bay
Metropolitan Authority and The Universal International
Group of Taiwan, where the golf course and clubhouse
component thereof was assigned to the Club, the
shareholders shall not have proprietary rights or
interests over the properties of the Club.5x x x.
(Emphasis supplied.)
Petitioners claimed in the Complaint that defendant
corporation did not disclose to them the above
amendment which allegedly makes the shares non-
proprietary, as it takes away the right of the
shareholders to participate in the pro-rata distribution
of the assets of the corporation after its dissolution.
ISSUE:
Whether the Complaint is indeed a derivative suit
– SECOND SET CASE DIGEST | 65
RULING:
NO. "Suits by stockholders or members of a corporation
based on wrongful or fraudulent acts of directors or other
persons may be classified into individual suits, class suits,
and derivative suits. Where a stockholder or member is
denied the right of inspection, his suit would be individual
because the wrong is done to him personally and not to
the other stockholders or the corporation. Where the
wrong is done to a group of stockholders, as where
preferred stockholders’ rights are violated, a class or
representative suit will be proper for the protection of all
stockholders belonging to the same group. But where the
acts complained of constitute a wrong to the corporation
itself, the cause of action belongs to the corporation and
not to the individual stockholder or member. Although in
most every case of wrong to the corporation, each
stockholder is necessarily affected because the value of
his interest therein would be impaired, this fact of itself is
not sufficient to give him an individual cause of action
since the corporation is a person distinct and separate
from him, and can and should itself sue the wrongdoer.
Otherwise, not only would the theory of separate entity be
violated, but there would be multiplicity of suits as well as
a violation of the priority rights of creditors. Furthermore,
there is the difficulty of determining the amount of
damages that should be paid to each individual
stockholder.
Section 1, Rule 8 of the Interim Rules of Procedure
Governing IntraCorporate Controversies imposes the
following requirements for derivative suits:
(1) He was a stockholder or member at the time the
acts or transactions subject of the action occurred and
at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust all
remedies available under the articles of incorporation,
by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
The RTC dismissed the Complaint for failure to comply
with the second and fourth requisites above.
Upon a careful examination of the Complaint, this Court
finds that the same should not have been dismissed on
the ground that it is a nuisance or harassment suit.
Although the shareholdings of petitioners are indeed only
two out of the 409 alleged outstanding shares or 0.24%,
the Court has held that it is enough that a member or a
minority of stockholders file a derivative suit for and in
behalf of a corporation.25
With regard, however, to the second requisite, we find
that petitioners failed to state with particularity in the
Complaint that they had exerted all reasonable efforts
to exhaust all remedies available under the articles of
incorporation, by-laws, and laws or rules governing the
corporation to obtain the relief they desire. The
Complaint contained no allegation whatsoever of any
effort to avail of intra-corporate remedies. Indeed,
even if petitioners thought it was futile to exhaust
intra-corporate remedies, they should have stated the
same in the Complaint and specified the reasons for
such opinion. Failure to do so allows the RTC to
dismiss the Complaint, even motu proprio, in
accordance with the Interim Rules. The requirement of
this allegation in the Complaint is not a useless
formality which may be disregarded at will.
37. [G.R. No. 150793. November 19, 2004]
 CORPORATION LAW
FRANCIS CHUA, petitioner, vs. HON. COURT OF
APPEALS and LYDIA C. HAO, respondents.
FACTS:
Private respondent Lydia Hao, treasurer of Siena
Realty Corporation, filed a complaint-affidavit with the
City Prosecutor of Manila charging Francis Chua and
his wife, Elsa Chua, of four counts of falsification of
public documents pursuant to Article 172[3] in relation
to Article 171[4] of the Revised Penal Code. The
charge reads:
That on or about May 13, 1994, in the City of Manila,
Philippines, the said accused, being then a private
individual, did then and there willfully, unlawfully and
feloniously commit acts of falsification upon a public
document, to wit: the said accused prepared, certified,
and falsified the Minutes of the Annual Stockholders
meeting of the Board of Directors of the Siena Realty
Corporation, duly notarized before a Notary Public, Atty.
Juanito G. Garcia and entered in his Notarial Registry as
Doc No. 109, Page 22, Book No. IV and Series of 1994,
and therefore, a public document, by making or causing it
to appear in said Minutes of the Annual Stockholders
Meeting that one LYDIA HAO CHUA was present and has
participated in said proceedings, when in truth and in fact,
as the said accused fully well knew that said Lydia C. Hao
was never present during the Annual Stockholders
Meeting held on April 30, 1994 and neither has
participated in the proceedings thereof to the prejudice of
public interest and in violation of public faith and
destruction of truth as therein proclaimed.
Petitioner had argued before the Court of Appeals that
respondent had no authority whatsoever to bring a suit
in behalf of the Corporation since there was no Board
Resolution authorizing her to file the suit.
ISSUE:
Whether Lydia Haos filing of criminal case no. 285721
was in the nature of a derivative suit.
RULING:
NO. Among the basic requirements for a derivative suit to
prosper is that the minority shareholder who is suing for
and on behalf of the corporation must allege in his
complaint before the proper forum that he is suing on a
derivative cause of action on behalf of the corporation and
all other shareholders similarly situated who wish to join. .
. .This was not complied with by the petitioners either in
their complaint before the court a quo nor in the instant
petition which, in part, merely states that this is a petition
for review on certiorari on pure questions of law to set
aside a portion of the RTC decision in Criminal Cases Nos.
37097 and 37098 since the trial courts judgment of
acquittal failed to impose civil liability against the private
respondents. By no amount of equity considerations, if at
all deserved, can a mere appeal on the civil aspect of a
criminal case be treated as a derivative suit.
Under Section 36[13] of the Corporation Code, read in
relation to Section 23, where a corporation is an
injured party, its power to sue is lodged with its board
of directors or trustees.[15] An individual stockholder
is permitted to institute a derivative suit on behalf of
the corporation wherein he holds stocks in order to
protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the
ones to be sued, or hold the control of the corporation.
In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real party in
interest.[16]
– SECOND SET CASE DIGEST | 66
A derivative action is a suit by a shareholder to enforce
a corporate cause of action. The corporation is a
necessary party to the suit. And the relief which is
granted is a judgment against a third person in favor
of the corporation. Similarly, if a corporation has a
defense to an action against it and is not asserting it, a
stockholder may intervene and defend on behalf of the
corporation.
However, the board of directors of the corporation in this
case did not institute the action against petitioner. Private
respondent was the one who instituted the action. Private
respondent asserts that she filed a derivative suit in
behalf of the corporation. This assertion is inaccurate. Not
every suit filed in behalf of the corporation is a derivative
suit. For a derivative suit to prosper, it is required that the
minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing
on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated
who may wish to join him in the suit.[20] It is a condition
sine qua non that the corporation be impleaded as a party
because not only is the corporation an indispensable
party, but it is also the present rule that it must be served
with process. The judgment must be made binding upon
the corporation in order that the corporation may get the
benefit of the suit and may not bring subsequent suit
against the same defendants for the same cause of action.
In other words, the corporation must be joined as party
because it is its cause of action that is being litigated and
because judgment must be a res adjudicata against it.
[21]
In the criminal complaint filed by herein respondent,
nowhere is it stated that she is filing the same in
behalf and for the benefit of the corporation. Thus, the
criminal complaint including the civil aspect thereof
could not be deemed in the nature of a derivative suit.
38. [G.R. No. 138343. February 19, 2001]
GILDA C. LIM, WILHELMINA V. JOVEN and DITAS
A. LERIOS, petitioners, vs. PATRICIA LIM-YU, in
her capacity as a minority stockholder of LIMPAN
INVESTMENT CORPORATION, respondent.
FACTS:
"At a special meeting on 07 October 1994, the Board
of Directors of Limpan Investment Corporation
(LIMPAN) approved a resolution of the following tenor:
RESOLVED that the corporation make a partial payment
[for] the legal services of Gilda C. Lim in the handling of
various cases on behalf of, or involving the corporation in
the amount of P1,551,500.00 to be paid in equivalent
value in shares of stock of the corporation totaling 15,515
shares, the same being found to be reasonable, and there
being no available funds to pay the same.
RESOLVED FURTHER, that the Corporate Secretary be
authorized, as he is hereby authorized, to secure and
comply with necessary requirements of the law for the
issuance of said shares.
On 18 October 1994, the Corporate Secretary Jaime G.
Manzano filed a request before the Corporate and Legal
Affairs Department of the SEC asking for the exemption of
the 15,515 shares from the registration requirements of
the Revised Securities Act; the request was granted in a
Resolution dated 14 November 1994. Due to the issuance
of the unsubscribed shares to the petitioner GILDA C. LIM
(LIM), all of LIMPANs authorized capital stock became
fully subscribed, with LIM ending up controlling 62.5% of
the shares.
In July 1996, the private respondent PATRICIA LIM YU
(YU), a sister of the petitioner, LIM, filed a complaint
against the members of the Board of Directors of
LIMPAN who approved the aforesaid resolution (GILDA
 CORPORATION LAW
C. LIM, WILHELMINA V. JOVEN, DITAS A. LERIOS,
AUGUSTO R. BUNDANG, TERESITA C. VELEZ and
JAIME MANZANO). The action was docketed as SEC
Case No. 07-95-5114.
Demetrio M. Batario, Jr., issued an Order, the relevant
portion of which enjoined YU from entering into, or
signing, contracts or documents on her behalf or on
behalf of others. The High Court issued a Resolution
giving due course to YUs petition. It likewise issued a
temporary restraining order.
ISSUE:
Whether respondent’s suit is characterized as
derivative.
RULING:
NO. If the suit filed by respondent was indeed
derivative in character, then respondent may not have
the capacity to sue. The reason is that she would be
acting in representation of the corporation, an act
which the TRO enjoins her from doing.
We hold, however, that the suit of respondent cannot
be characterized as derivative, because she was
complaining only of the violation of her preemptive
right under Section 39 of the Corporation Code.[11]
She was merely praying that she be allowed to
subscribe to the additional issuances of stocks in
proportion to her shareholdings to enable her to
preserve her percentage of ownership in the
corporation. She was therefore not acting for the
benefit of the corporation. Quite the contrary, she was
suing on her own behalf, out of a desire to protect and
preserve her preemptive rights. Unquestionably, the
TRO did not prevent her from pursuing that action.
To repeat, the TRO issued by this Court had two
components: (1) it allowed respondent to enter into
agreements on her own behalf; and (2) it clarified that
respondents acts could not bind or affect the interests
of her parents, brothers or sisters, or Limpan. In other
words, respondent was, as a rule, allowed to act; but,
as an exception, was prohibited from doing anything
that would bind the corporation or any of the above-
named persons.
In this light, the TRO did not prohibit respondent from
filing, on and in her own behalf, a suit for the alleged
violation of her preemptive rights to purchase
additional stock subscriptions. In other words, it did
not restrain respondent from acting and enforcing her
own rights. It merely barred her from acting in
representation of the corporation.
39. VISAYAN V. NLRC, 196 SCRA
410 FACTS:
Private respondent Fujiyama Hotel & Restaurant, Inc.
was formally organized in April, 1978 with Aquilino
Rivera holding a majority interest in the corporation.
The rest of the four (4) incorporators composed the
minority stockholders of respondent corporation.
Upon organization in 1978, respondent corporation
immediately opened a Japanese establishment, known
as Fujiyama Hotel & Restaurant, located at 1413 M.
Adriatico St., Ermita, Manila. In order to fully offer an
authentic Japanese cuisine and traditional Japanese
style of service, private respondent hired the services
of Isamu Akasako as its chef and restaurant
supervisor. (Private respondent's memorandum, p. 4).
– SECOND SET CASE DIGEST | 67
In June, 1980, Lourdes Jureidini and Milagros Tsuchiya,
allegedly pretending to be stockholders of the corporation,
filed a case with the then Court of First Instance of Manila,
Branch XXXVI against Rivera and Akasako to wrest control
over the establishment. In June, 1981, the said court
issued a writ of preliminary mandatory injunction
transferring possession of all the assets of the company
and the management thereof to Jureidini and Tsuchiya.
The stockholders and directors of the corporation were
thereby excluded from the management and operation of
the restaurant.
Upon assuming management, Jureidini and Tsuchiya
replaced almost all of the existing employees with new
ones, majority of whom are the present petitioners in
the instant case. Apparently, the new employees were
extended probationary appointments for six (6)
months from December 15, 1981 to June 1 5, 1982.
In the meantime, Rivera and the rest of the stockholders
elevated the civil case to the Supreme Court through a
petition for certiorari assailing the ground for the issuance
of the writ of preliminary mandatory injunction by the said
Court of First Instance, which case was entitled Aquilino
Rivera, et al. vs. Hon. Alfredo C. Florendo, et al., docketed
as G.R. No. 57586. On motion of Rivera, et al. in the said
case, this Court on August 21, 1981 issued a writ of
preliminary injunction to enjoin enforcement of the June
23, 1981 writ of preliminary mandatory injunction issued
by the said Court of First Instance. Since Jureidini and
Tsuchiya disregarded the writ We had previously issued,
We issued another resolution on May 26, 1982 directing
both Jureidini and Tsuchiya to strictly and immediately
comply with the Court's injunction. Thus, this Court
ordered Jureidini and Tsuchiya, "their agents,
representatives, and/or any person or persons acting
upon their orders or in their place or stead to refrain from
further managing and/or interfering with the management
of the business and assets of petitioner corporation and . .
. . to turn over all assets and the management of
petitioner corporation, Fujiyama Hotel & Restaurant, Inc.,
to Aquilino Rivera and Isamu Akasako." (NLRC,
Resolution, p. 4; Rollo, p. 116).
Rivera and Akasako regained control and management
of Fujiyama Hotel & Restaurant, Inc. Immediately upon
assumption of the management of the corporation,
Rivera et al., refused to recognize as employees of the
corporation all persons that were hired by Jureidini and
Tsuchiya during the one-year period that the latter had
operated the company and reinstated the employees
previously hired by them. This gave rise to the filing of
the present case by the dismissed employees hired by
Jureidini and Tsuchiya (some of whom had allegedly
been hired by Rivera and Akasako even before
Jureidini and Tsuchiya assumed management of the
corporation) against Fujiyama Hotel & Restaurant, Inc.
for illegal dismissal.
On motion of private respondent corporation, the
Labor Arbiter included Jureidini and Tsuchiya as third-
party respondents therein. Thereafter, the parties,
except Jureidini and Tsuchiya, submitted their
respective position papers and affidavits in support of
their contentions. On the basis of said position papers
and affidavits, the Labor Arbiter rendered a decision on
September 21, 1982 ordering respondent company
and/or Akasako, Jureidini and Tsuchiya to reinstate all
the complainants to their former positions plus
backwages and to pay jointly and severally the
complainants their unpaid wages plus their share in
the service charges.
 CORPORATION LAW
On December 28, 1983, the NLRC resolved to deny the
appeal of private respondent for having been filed out
of time.1âwphi1 Subsequently, a motion for
reconsideration was seasonably filed by private
respondent which became the basis of another
resolution dated January 15, 1985 issued by the NLRC
setting aside its previous resolution of December 28,
1983 as well as the Labor Arbiter's decision dated
September 21, 1982.
ISSUE:
Whether all acts done by Jureidini and Tsuchiya is for
and in behalf of respondent corporation. NO.
RULING:
Section 23 of B.P. 68, otherwise known as the
"Corporation Code of the Philippines," expressly
provides as follows:
Unless otherwise provided in this Code, the
corporate powers of all corporations formed under
this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among
the members of the corporation, who shall hold
office for one (1) year and until their successors
are elected and qualified. . . .
It is clear from the above-quoted provision that a
corporation can act only through its board of directors.
"The law is settled that contracts between a
corporation and third persons must be made by or
under the authority of its board of directors and not by
its stockholders. Hence, the action of the stockholders
in such matters is only advisory and not in any wise
binding on the corporation."
A corporation, like a natural person who may authorize
another to do certain acts for and in his behalf,
through its board of directors, may legally delegate
some of its functions and powers to its officers,
committees or agents appointed by it. (Campos &
Campos, The Corporation Code-Comments, Notes, and
Selected cases, 1981 ed., p. 253). In the absence of
an authority from the board of directors, no person,
not even the officers of the corporation, can validly
bind the corporation.
In the case at bar, all acts done solely by Jureidini and
Tsuchiya allegedly, for and in behalf of private
respondent during the period from June, 1981 up to
May 31, 1982 were not binding upon respondent
corporation.
It is not denied by both parties that the operation and
management of the Fujiyama Hotel & Restaurant
Corporation, including the control and possession of all
its assets, were forcibly taken by Jureidini and
Tsuchiya from the owners thereof by virtue of a writ of
preliminary mandatory injunction issued by then Court
of First Instance of Manila.
These owners, the Rivera-Akasako group, composed
the board of directors of respondent corporation during
the one (1) year period that Jureidini and Tsuchiya
controlled the respondent corporation, the former
managed and operated the latter apparently without
any authority from the latter's board of directors. As
– SECOND SET CASE DIGEST | 68
alleged by Rivera, et al., Jureidini and Tsuchiya were
not even officers of respondent corporation as to be
considered its agents, which act prompted this tribunal
to order said persons, under pain of contempt, to turn
over the management and assets of respondent
corporation to Rivera et al., as shown by this Court's
resolution. Thus, all acts done by Jureidini and
Tsuchiya for and in behalf of respondent corporation,
having been made without the requisite authority from
the board of directors, were not binding upon the said
corporation. One of these unauthorized acts was the
unwarranted termination of the original employees of
respondent corporation who were validly hired by its
board of directors, vis -a-vis, the hiring of new
employees, the petitioners in the case at bar, to
replace the said original employees. Since said acts
were not binding upon the corporation, no employer-
employee existed between the Fujiyama Hotel &
Restaurant, Inc. and the herein petitioners.
We agree with private respondent that the act of the
Rivera-Akasako group in admitting the original
employees of respondent corporation after regaining
control and management of the latter on May 31,
1982, having been made by the corporation's board of
directors, was valid. Even if Jureidini and Tsuchiya took
over the management and control of respondent
corporation, the employer-employee relationship
between the corporation and its original employees has
not been severed for lack of authority on the part of
Jureidini and Tsuchiya to dismiss said employees.
Consequently, petitioners' claim of illegal dismissal is
entirely mistaken as they were not hired by respondent
corporation or its duly authorized officers or agents,
hence, no employer-employee relationship ever existed
between them. Jureidini and Tsuchiya, the persons who
hired petitioners' services, are to be considered their
employer, and not the private respondents.
Neither may petitioners claim good faith or ignorance
of the lack of authority on the part of Jureidini and
Tsuchiya to legally hire them and bind the corporation
because they were all informed by Isamu Tatewaki
respondent corporation's Assistant Manager, of such
fact at the time they were hired. (Reply Brief of Isamu
Tatewaki Annex "10"). Besides, it was clearly shown
that the appointments of the petitioners were on a
probationary basis.
Further, it will be recalled that on August 21, 1981,
this Court issued a writ of preliminary injunction in the
case of Rivera, et al. vs. Judge Alfredo C. Florendo, et
al., G.R. No. 57586, promulgated October 8, 1986,
enjoining the enforcement of the writ of preliminary
mandatory injunction issued by respondent judge
therein. Despite the issuance of said writ, Jureidini and
Tsuchiya refused to return the management of the
corporation but continued managing and operating
respondent corporation and in fact terminated the
original employees of respondent corporation and hired
new ones in place of those dismissed.
40. ARGUENZA V. METROPOLITAN BANK & TRUST
CO., 271 SCRA 1 G.R. No. 74336, 4/7/1997
FACTS: On March 21, 1978, private respondents Vitaliado
Arrieta, VP of Intertrade and Lilia P. Perez, a bookkeeper
in the employ of Intertrade, obtained a P500,000.00 loan
from private respondent Metrobank. Both executed a
Promissory Note in favor of said bank in the amount of
P500,000.00. Under said note, private respondents Arrieta
and Perez promised to pay said amount, jointly and
severally, in twenty five (25) equal
 CORPORATION LAW
installments of P20,000.00 each starting on April 20,
1979 with interest of 18.704% per annum, and in case
of default, a further 8% per annum.
Private respondents Arrieta and Perez defaulted in the
payment of several installments, thus resulting in the
entire obligation becoming due and demandable. In
1979, private respondent Metrobank instituted suit
against Intertrade, Vitaliado Arrieta, Lilia Perez and her
husband, Patricio Perez, to collect not only the unpaid
principal obligation, but also interests, fees and
penalties, exemplary damages, as well as attorney's
fees and costs of suit.
More than a year after private respondent Metrobank filed
its original complaint, it filed an Amended Complaint
dated August 30, 1980 for the sole purpose of impleading
petitioner as liable for the loan made by private
respondents Arrieta and Perez on March 21, 1978,
notwithstanding the fact that such liability is being
claimed on account of a Continuing Suretyship Agreement
dated March 14, 1977 executed by petitioner and private
respondent Arrieta specifically to guarantee the credit line
applied for by and granted to, Intertrade, through
petitioner and private respondent Arrieta who were
especially given authority by Intertrade on February 28,
1977 to open credit lines with private respondent
Metrobank. The obligations incurred by Intertrade under
such credit lines were completely paid as evidenced by
private respondent Metrobank's debit memo in the full
amount of P562,443.46.
RTC ruled that petitioner and Intertrade are not liable
for the promissory note executed by Arrieta and Lilia
Perez in the amount of ₱ 500,000 as the same was the
personal liability of the latter.
CA reversed the trial court and ordered Intertrade and
Marketing Co., Inc. and J. Antonio Aguenza to pay,
jointly and severally, the promissory note contracted
by Arrieta and Lilia Perez.
ISSUE: Whether the promissory note dated 21 March
1978 secured and signed by Arrieta and Lilia Perez a
corporate liability of Intertrade and Aguenza?
RULING: NO.
Here, the Supreme Court held that Arrieta and Perez
were never authorized by Intertrade through a board
resolution of the Board of Directors of Intertrade
authorizing the former to transact said loan for and in
behalf of the corporation. It is a well-settled rule that a
corporation transacts its business only through its
officers or agents. And the authority of such officers or
agents is derived from the BOD or other governing
body unless conferred by the charter of the
corporation. It is to be noted that the promissory note
dated 21 March 1977 was signed by Arrieta and Lilia
Perez only with no indication as to what capacity the
two signatories had in affixing their signatures
thereon. There is no record that Intertrade through its
BOD, conferred upon Arrieta and Lilia Perez the
authority to contract a loan with Metrobank and
execute the promissory note as a security therefor.
Metrobank, in turn never presented a board resolution
nor a stockholder's resolution showing that Arrieta and
Lilia Perez were empowered by Intertrade to execute
the promissory note. Being that the promissory note
was not the responsibility of Intertrade, it follows that
the same was not covered by the Continuing
Suretyship Agreement.
– SECOND SET CASE DIGEST | 69
CA decision is reversed and trial court decision is
REINSTATED.
3. DOCTRINE OF APPARENT AUTHORITY
1. Georg v. Holy Trinity College, Inc., G.R. No.
190408, July 20, 2016
FACTS: The Holy Trinity College Grand Chorale and
Dance Company was organized in 1987 by Sister
Teresita Medalle (Sr. Medalle), the President of
respondent Holy Trinity College in Puerto Princesa City.
In 2001, the Group was slated to perform in Greece,
Italy, Spain and Germany.
Edward Enriquez (Enriquez), who allegedly represented
Sr. Medalle, contacted petitioner Benjie B. Georg to
seek assistance for payment of the Group's
international airplane tickets.
Petitioner is the Filipino wife of a German national
Heinz Georg. She owns a German travel agency named
DTravellers Reiseburo Georg. Petitioner, in turn,
requested her brother, Atty. Benjamin Belarmino, Jr.
(Atty. Belarmino), to represent her in the negotiation
with Enriquez.
On 24 April 2001, MOA was executed between
petitioner, represented by Atty. Belarmino, as first
party-assignee; the Group, represented by Sr. Medalle,
O.P. and Attorney-in-Fact Enriquez as second-party
assignor, and S.C. Roque Group of Companies Holding
Limited Corporation and S.C. Roque Foundation
Incorporated, represented by Violeta P. Buenaventura,
as foundation-grantor.
Under the said Agreement, petitioner, through her
travel agency, will advance the payment of
international airplane tickets in favor of the Group on
the assurance of the Group represented by Sr. Medalle
through Enriquez that there is a confirmed financial
allocation from the foundation-grantor. The second-
party assignor assigned said amount in favor of
petitioner. Petitioner paid for the Group's domestic and
international airplane tickets.
Petitioner claimed that the second-party
assignor/respondent and the foundation-grantor have not
paid and refused to pay their obligation under the MOA.
Petitioner prayed that they be ordered to solidarily pay
the amount representing the principal amount mentioned
in the Agreement, moral, exemplary, and actual damages,
legal fees, and cost of suit.
Respondent argued that the MOA on which petitioner
based its cause of action does not state that respondent is
a party. Neither was respondent obligated to pay the
amount for the European Tour of the Group nor did it
consent to complying with the terms of the MOA.
Respondent asserted that the thumbmark of Sr. Medalle
was secured without her consent. Respondent maintained
that since it was not a party to the MOA, it is not bound
by the provisions stated therein.
RTC reconsidered its Order and issued a Writ of
Attachment against respondent. In their Answer with
Counterclaim,
Court of Appeals relieved respondent of any liability
for petitioner's monetary claims.
ISSUE:
Whether the doctrine of apparent authority applies in
this case. YES.
 CORPORATION LAW
RULING:
The Supreme Court said that assuming arguendo that
Sr. Medalle was not authorized by the Holy Trinity
College Board, the doctrine of apparent authority
applies in this case.
The doctrine of apparent authority provides that a
corporation will be estopped from denying the agent's
authority if it knowingly permits one of its officers or
any other agent to act within the scope of an apparent
authority, and it holds him out to the public as
possessing the power to do those
acts.25cralawredchanrobleslaw
The existence of apparent authority may be
ascertained through (1) the general manner in which
the corporation holds out an officer or agent as having
the power to act or, in other words, the apparent
authority to act in general, with which it clothes him;
or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof,
whether within or beyond the scope of his ordinary
powers.26chanrobleslaw
In this case, Sr. Medalle formed and organized the
Group. She had been giving financial support to the
Group, in her capacity as President of Holy Trinity
College. Sr. Navarro admitted that the Board of
Trustees never questioned the existence and activities
of the Group. Thus, any agreement or contract entered
into by Sr. Medalle as President of Holy Trinity College
relating to the Group bears the consent and approval
of respondent. It is through these dynamics that we
cannot fault petitioner for relying on Sr. Medalle's
authority to transact with petitioner.
Finding that Sr. Medalle possessed full mental faculty
in affixing her thumbmark in the MOA and that
respondent is hereby bound by her actions. Thus, the
SC reversed the ruling of the Court of Appeals.
2. Woodchild Holdings v. Roxas Electric
G.R. No. 140667, August 12, 2004
FACTS: The respondent Roxas Electric and
Construction Company, Inc. (RECCI), formerly the
Roxas Electric and Construction Company, was the
owner of two parcels of land. A portion of one Lot
which abutted the other Lot was a dirt road accessing
to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the
respondent's Board of Directors approved a resolution
authorizing the corporation, through its president,
Roberto B. Roxas, to sell the Lots, at a price and under
such terms and conditions which he deemed most
reasonable and advantageous to the corporation; and
to execute, sign and deliver the pertinent sales
documents and receive the proceeds of the sale for
and on behalf of the company.
Petitioner Woodchild Holdings, Inc. (WHI) wanted to
buy the Lot on which it planned to construct its
warehouse building, and a portion of the adjoining lot,
so that its 45-foot container van would be able to
readily enter or leave the property.
On September 5, 1991, a Deed of Absolute Sale in
favor of WHI was issued, under which the Lot was sold
for P5,000,000, receipt of which was acknowledged by
Roxas under the following terms and conditions:
– SECOND SET CASE DIGEST | 70
The Vendor agree (sic), as it hereby agrees and binds
itself to give Vendee the beneficial use of and a right of
way from Sumulong Highway to the property herein
conveyed consists of 25 square meters wide to be used
as the latter's egress from and ingress to and an
additional 25 square meters in the corner of Lot No.
491-A-3-B-1, as turning and/or maneuvering area for
Vendee's vehicles.
The Vendor agrees that in the event that the right of way
is insufficient for the Vendee's use (ex entry of a 45-foot
container) the Vendor agrees to sell additional square
meters from its current adjacent property to allow the
Vendee full access and full use of the property.
the respondent posits that Roxas was not so
authorized under the May 17, 1991 Resolution of its
Board of Directors to impose a burden or to grant a
right of way in favor of the petitioner on Lot No. 491-
A-3-B-1, much less convey a portion thereof to the
petitioner. Hence, the respondent was not bound by
such provisions contained in the deed of absolute sale.
ISSUE:
Whether the doctrine of apparent authority applies in
this case.
RULING: No.
Generally, the acts of the corporate officers within the
scope of their authority are binding on the corporation.
However, under Article 1910 of the New Civil Code,
acts done by such officers beyond the scope of their
authority cannot bind the corporation unless it has
ratified such acts expressly or tacitly, or is estopped
from denying them.
Thus, contracts entered into by corporate officers beyond
the scope of authority are unenforceable against the
corporation unless ratified by the corporation.
Evidently, Roxas was not specifically authorized under
the said resolution to grant a right of way in favor of
the petitioner on a portion of Lot No. 491-A-3-B-1 or to
agree to sell to the petitioner a portion thereof. The
authority of Roxas, under the resolution, to sell Lot No.
491-A-3-B-2 covered by TCT No. 78086 did not include
the authority to sell a portion of the adjacent lot, Lot
No. 491-A-3-B-1, or to create or convey real rights
thereon. Neither may such authority be implied from
the authority granted to Roxas to sell Lot No. 491-A-3-
B-2 to the petitioner "on such terms and conditions
which he deems most reasonable and advantageous."
The general rule is that the power of attorney must be
pursued within legal strictures, and the agent can neither
go beyond it; nor beside it. The act done must be legally
identical with that authorized to be done. In sum, then,
the consent of the respondent to the assailed provisions in
the deed of absolute sale was not obtained; hence, the
assailed provisions are not binding on it.
There can be no apparent authority of an agent
without acts or conduct on the part of the principal and
such acts or conduct of the principal must have been
known and relied upon in good faith and as a result of
the exercise of reasonable prudence by a third person
as claimant and such must have produced a change of
position to its detriment.
The apparent power of an agent is to be determined by
the acts of the principal and not by the acts of the agent.
 CORPORATION LAW
The SC rejected the petitioners submission that, in
allowing Roxas to execute the contract to sell and the
deed of absolute sale and failing to reject or
disapprove the same, the respondent thereby gave
him apparent authority to grant a right of way over Lot
No. 491-A-3-B-1 and to grant an option for the
respondent to sell a portion thereof to the petitioner.
Absent estoppel or ratification, apparent authority
cannot remedy the lack of the written power required
] FACTS:
under the statement of frauds. In addition, the
petitioners fallacy is its wrong assumption of the
unproved premise that the respondent had full
knowledge of all the terms and conditions contained in
the deed of absolute sale when Roxas executed it.
It bears stressing that apparent authority is based on
estoppel and can arise from two instances: first, the
principal may knowingly permit the agent to so hold
himself out as having such authority, and in this way, the
principal becomes estopped to claim that the agent does
not have such authority; second, the principal may so
clothe the agent with the indicia of authority as to lead a
reasonably prudent person to believe that he actually has
such authority. There can be no apparent authority of an
agent without acts or conduct on the part of the principal
and such acts or conduct of the principal must have been
known and relied upon in good faith and as a result of the
exercise of reasonable prudence by a third person as
claimant and such must have produced a change of
position to its detriment. The apparent power of an agent
is to be determined by the acts of the principal and not by
the acts of the agent.
For the principle of apparent authority to apply, the
petitioner was burdened to prove the following: (a) the
acts of the respondent justifying belief in the agency
by the petitioner; (b) knowledge thereof by the
respondent which is sought to be held; and, (c)
reliance thereon by the petitioner consistent with
ordinary care and prudence.
In this case, there is no evidence on record of specific
[35]
acts made by the respondent showing or indicating
that it had full knowledge of any representations made
by Roxas to the petitioner that the respondent had
authorized him to grant to the respondent an option to
buy a portion of Lot No. 491-A-3-B-1 covered by TCT
No. 78085, or to create a burden or lien thereon, or
that the respondent allowed him to do so.
The petitioners contention that by receiving and retaining
the P5,000,000 purchase price of Lot No. 491-A-3-B-2,
the respondent effectively and impliedly ratified the grant
of a right of way on the adjacent lot, Lot No. 491-A-3-B-1,
and to grant to the petitioner an option to sell a portion
thereof, is barren of merit. It bears stressing that the
respondent sold Lot No. 491-A-3-B-2 to the petitioner,
and the latter had taken possession of the property. As
such, the respondent had the right to retain the
P5,000,000, the purchase price of the property it had sold
to the petitioner. For an act of the principal to be
considered as an implied ratification of an unauthorized
act of an agent, such act must be inconsistent with any
other hypothesis than that he approved and intended to
adopt what had been done in his name. Ratification is
based on waiver the intentional relinquishment of a known
right. Ratification cannot be inferred from acts that a
principal has a right to do independently of the
unauthorized act of the agent. Moreover, if a writing is
required to grant an authority to do a particular act,
ratification of that act must also be in writing. Since the
respondent had not
– SECOND SET CASE DIGEST | 71
ratified the unauthorized acts of Roxas, the same are
unenforceable. Hence, by the respondents retention of
the amount, it cannot thereby be implied that it had
ratified the unauthorized acts of its agent, Roberto
Roxas.
3. BPI FAMILY SAVINGS V. FIRST METRO
INVESTMENT (G.R. NO. 132390)
Respondent First Metro Investment Corp. an
investment house, through its Executive Vice President
Ong, opened a current account amounting P100M with
petitioner’s San Francisco Del Monte branch upon the
request of his friend which is a close acquaintance of
said bank’s branch manager with the latter’s aim of
increasing the deposit level in his branch. Petitioner
through its SFDM branch manager guaranteed the
payment of deposit by the FMIC with interest on the
condition that the interest is to be paid in advance.
An agreement was reached between the parties and
subsequently petitioner paid FMIC upon clearance of
the latter’s check deposit. However, on the basis of an
Authority to Debit signed by the EVP and Senior
Manager of FMIC, petitioner transferred P80M from
FMCI’s current account to the savings account of one
Tevesteco, a stevedoring company. FMIC denied
having authorized the transfer of its funds claiming
that the signatures were falsified. In order to recover
immediately its deposit, FMCI issued a check payable
to itself and drawn on its deposit but was dishonored
upon upon presentation for payment. Thus, FMIC filed
a complaint with the RTC which then ruled in their
favor. CA affirmed.
ISSUE:
Whether BPI FB CLOTHED ITS BRANCH MANAGER
WITH APPARENT AUTHORITY.
RULING:
YES.
Petitioner maintains that respondent should have first
inquired whether the deposit of P100 Million and the
fixing of the interest rate were pursuant to its
(petitioner’s) internal procedures. The court ruled that
the petitioner’s stance is a futile attempt to evade an
obligation clearly established by the intent of the
parties.
What transpires in the corporate board room is entirely an
internal matter. Hence, petitioner may not impute
negligence on the part of respondent’s representative in
failing to find out the scope of authority of petitioner’s
Branch Manager. Indeed, the public has the right to rely
on the trustworthiness of bank managers and their acts.
Obviously, confidence in the banking system, which
necessarily includes reliance on bank managers, is vital in
the economic life of our society.
Significantly, the transaction was actually acknowledged
and ratified by petitioner when it paid respondent in
advance the interest for one year. Thus, petitioner is
estopped from denying that it authorized its Branch
Manager to enter into an agreement with respondents
Executive Vice President concerning the deposit with the
corresponding 17% interest per annum.
Thus, the court upheld the finding of both lower courts
that petitioner failed to exercise that degree of
diligence required by the nature of its obligations to its
 CORPORATION LAW
depositors. A bank is under obligation to treat the
accounts of its depositors with meticulous care,
whether such account consists only of a few hundred
pesos or of million of pesos. Here, petitioner cannot
claim it exercised such a degree of care required of it
and must, therefore, bear the consequence.
4. YAO KA SIN V. CA, 209 SCRA 763,
FACTS:
In 1973, Constancio Maglana, president of Prime White
Cement Corporation, sent an offer letter to Yao Ka Sin
Trading. The offer states that Prime White is willing to sell
45,000 bags of cement at P24.30 per bag. The offer letter
was received by Yao Ka Sin’s manager, Henry Yao. Yao
accepted the letter and pursuant to the letter, he sent a
check in the amount of P243,000.00 equivalent to the
value of 10,000 bags of cement. However, the Board of
Directors of Prime White rejected the offer letter sent by
Maglana but it considered Yao’s acceptance letter as a
new contract offer hence the Board sent a letter to Yao
telling him that Prime White is instead willing to sell only
10,000 bags to Yao Ka Sin and that he has ten days to
reply; that if no reply is made by Yao then they will
consider it as an acceptance and that thereafter Prime
White shall deposit the P243k check in its account and
then deliver the cements to Yao Ka Sin. Henry Yao never
replied.
Later, Yao Ka Sin sued Prime White to compel the
latter to comply with what Yao Ka Sin considered as
the true contract, i.e., 45,000 bags at P24.30 per bag.
Prime White in its defense averred that although
Maglana is empowered to sign contracts in behalf of
Prime White, such contracts are still subject to
approval by Prime White’s Board, and then it still
requires further approval by the National Investment
and Development Corporation (NIDC), a government
owned and controlled corporation because Prime White
is a subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a
binding contract because it was made under the
apparent authority of Maglana. The trial court ruled in
favor of Yao Ka Sin. The Court of Appeals reversed the
trial court.
ISSUE:
Whether the president of a corporation is clothed with
apparent authority to enter into binding contracts with
third persons without the authority of the Board.
HELD:
No. The Board may enter into contracts through the
president. The president may only enter into contracts
upon authority of the Board. Hence, any agreement
signed by the president is subject to approval by the
Board. Unlike a general manager (like the case of
Francisco vs GSIS), the president has no apparent
authority to enter into binding contracts with third
persons. Further, if indeed the by-laws of Prime White
did provide Maglana with apparent authority, this was
not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the
general manner, by which the corporation holds out an
officer or agent as having power to act or, in other words,
the apparent authority with which it clothes him to act in
general or (2) acquiescence in his acts of a particular
nature, with actual or constructive knowledge
– SECOND SET CASE DIGEST | 72
thereof, whether within or without the scope of his
ordinary powers. These are not present in this case.
Also, the subsequent letter by Prime White to Yao Ka
Sin is binding because Yao Ka Sin’s failure to respond
constitutes an acceptance, per stated in the letter itself
– which was not contested by Henry Yao during trial.
5. TENURE, QUALIFICATIONS AND
DISQUALIFICATIONS OF DIRECTORS OR
TRUSTEES
1. GOKONGWEI vs
CA FACTS:
This is a petition for “declaration of nullity of amended
by-laws, cancellation of certificate of filing of amended
by-
laws and damages” filed by petitioner John Gokongwei
against the majority of the members of the Board of
Directors. He has the ff causes of action:
1. that the Board in amending the by-laws, had
no authority to do so because it was based on
the a 1961authorization and the amendment
being contested was in 1976, and the
authorization should have been based on votes
made according to the 1976 shares, not the
1961 shares,
2. the authority granted in 1961 had already
been exercised in 1962 and 1963, after which
the authority of the Board ceased to exist,
3. membership of the Board changed since 1961,
there are 6 new directors,
4. that prior to the amendment of the by-laws, he
had all the qualifications to be a director (he
was a substantial stockholder) and the
amended by-laws disqualified him and
deprived him of a vested right to be voted,5.
5. that the corporation has no inherent power to
disqualify a stockholder from being elected and
therefore it is an ultra vires and void act.
Petitioner also wanted to inspect records and
documents of San Miguel Corporation but the request
was denied because the request was said to have been
made in bad faith.
Respondents filed their answer to the petition,
denying the substantial allegations therein and stating,
by way of affirmative defenses that “the action taken
by the Board of Directors on September 18, 1976
resulting in the amendments is valid and legal because
the power to ‘amend, modify, repeal or adopt new By-
laws was delegated to said Board on March 13,
1961and long prior thereto has never been revoked,
withdrawn or otherwise nullified by the stockholders of
SMC”. Also the power of the Board to amend the by-
laws are broad, subject only to existing laws.
August 1972, the Universal Robina Corporation
(URC), a corporation engaged in business competitive
to that of respondent corporation, began acquiring
shares amounting to 622,987 shares. In October 1972,
the Consolidated Foods Corporation (CFC) likewise
began acquiring shares in respondent corporation that
amounted to P543,959.00. On January 12,1976,
petitioner, who is president and controlling shareholder
of URC and CFC (both closed corporations) purchased
5,000shares of stock of respondent corporation, and
thereafter, in behalf of himself, CFC and URC,
 CORPORATION LAW
“conducted malevolent and malicious publicity
campaign against SMC” to generate support from the
stockholder “in his effort to secure for himself and in
representation of URC and CFC interests, a seat in the
Board of Directors of SMC”.
Petitioner was rejected by the stockholders in his bid
to secure a seat in the Board of Directors on the basic
issue that petitioner was engaged in an antagonistic
business and his securing a seat would have subjected
respondent corporation to grave disadvantages.
On May 6, 1977, a temporary restraining order
restraining private respondents from disqualifying or
preventing petitioner from running or from being voted as
director of respondent corporation and from submitting for
ratification or confirmation or from causing the ratification
or confirmation of the amendment. SEC held that
petitioner should be allowed to run as a director but that
he should not sit as such until SEC has decided on the
validity of the by-laws in dispute. Respondents reasoned
out that petitioner is engaged in businesses competitive
and antagonistic to that of respondent SMC and that the
Board realized the clear and present danger in
competitors being directors because they would have easy
and direct access to SMC’s business and trade secrets.
ISSUE:
W/N the amended by-laws of SMC disqualifying a
competitor from nomination or election to the Board of
Directors of SMC are valid and reasonable. – YES
HELD: Amendments are valid.
The validity or reasonableness of a by-law of a
corporation is purely a question of law. Petitioner claims
that the amended by-laws are invalid and unreasonable
because they were tailored to suppress the minority and
prevent them from having representation in the Board”, at
the same time depriving petitioner of his “vested right” to
be voted for and to vote for a person of his
choice as 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.”
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
petitioner 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.
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
– SECOND SET CASE DIGEST | 73
stockholders as a body are concerned. As agents
entrusted with the management of the corporation, they
should act for the collective benefit of the stockholders.
It is a settled state law in the United States that
corporations have the power to make by-laws declaring a
person employed in the service of a rival company to be
ineligible for the corporation’s Board of Directors. “.
. . (A)n amendment which renders ineligible, or if
elected, subjects to removal, a director if he be also a
director in a corporation whose business is in
competition with or is antagonistic to the other
corporation is valid.” This is based upon the principle
that where the director is so employed in the service of
a rival company, he cannot serve both, but must
betray one or the other. Such an amendment
“advances the benefit of the corporation and is good.”
The doctrine of “corporate opportunity” is
precisely a recognition that fiduciary standards could
not be upheld where the fiduciary was acting for two
entities with competing interests. 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.
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.
In the absence of any legal prohibition or
overriding public policy, wide latitude may be accorded to
the corporation in adopting measures to protect legitimate
corporate interests. The test must be whether the
business does in fact compete, not whether it is capable of
an indirect and highly unsubstantial duplication of an
isolated or non-characteristic activity.
2. GRACE CHRISTIAN HIGHSCHOOL vs CA
FACTS: Grace Christian High School (GCHS) is an
educational institution in Grace Village. Grace Village
Association, Inc. (GVAI) is the homeowners association in
Grace Village. GVAI has an existing by-laws which was
already in effect since 1968. But in 1975, the board of
directors made a draft amending the by-laws whereby the
representative of GCHS shall have a permanent seat in
the 15-seat board. The draft however was never
presented to the general membership for approval. But
nevertheless, the representative of GCHS held a seat in
the board for 15 years until in 1990 when a proposal was
made to the board to reconsider the practice of allowing
the GCHS representative in taking a permanent seat.
Thereafter, an election was scheduled for the 15 seat in
the board. GCHS opposed the election as it insists that the
election should only be for 14 directors because it has a
permanent seat. GVAI argued that GCHS claim has no
basis because the 1975 proposed amendment was never
ratified. GCHS averred that it was ratified when it was
allowed to take the seat for 15 years and as such its right
has already vested.
 CORPORATION LAW
ISSUE:
Whether or not the representative from Grace
Christian High School should be allowed to have a
permanent seat in the board of directors. – NO
HELD:
No. The Corporation Code is clear when it provides that
members of the board of a corporation must be elected
by the stockholders (stock corporation) or the members
(non-stock corporation). Admittedly, there are
corporations who allow some of their directors to sit in the
board without being elected – but such practice cannot
prevail over provisions of law. Practice, no matter how
long continued, cannot give rise to any vested right if it is
contrary to law. Further, there is no reason as to why a
representative from GCHS should be given an automatic
seat. It should therefore go through the process of
election. It cannot also be argued that the draft of the by-
laws in 1975 was ratified when GCHS was allowed to take
its seat for 15 years without an election. In the first place,
the proposal was merely a draft and even if passed and
approved by the general membership, it cannot be given
effect because it is void and contrary to the law. GCHS’
seat in the corporate board is at best merely tolerated by
GVAI.
3. LEE vs CA
TOPIC: Voting Trusts Agreement
FACTS: A complaint for a sum of money was filed by
the International Corporate Bank, Inc. (ICB) against
the private respondents. Private respondents, in turn,
filed a 3rd-party complaint against ALFA and ICB. The
petitioners filed a motion to dismiss the third party
complaint which was denied. Subsequently, the trial
court issued an order requiring the issuance of an alias
summons upon ALFA through the DBP, because of the
petitioner's letter that ALFA management was
transferred to DBP. DBP claimed that it was not
authorized to receive summons on behalf of ALFA.
Hence the trial court issued an order advising the
private respondents to take the appropriate steps to
serve the summons to ALFA.
The petitioner filed a motion for reconsideration which
was denied. Thereafter, they again filed a 2nd motion for
reconsideration alleging that by virtue of the voting trust
agreement they ceased to be officers and directors of
ALFA, wherein they attached a copy of the voting trust
agreement between all the stockholders of ALFA and the
DBP whereby the management and control of ALFA
became vested upon the DBP.
nd
On account of the 2 motion for reconsideration,
the trial court reversed itself by setting aside its
previous Order and declared that service upon the
petitioners who were no longer corporate officers of
ALFA cannot be considered as proper service of
summons on ALFA.
ISSUE:
W/N the voting trust agreement is valid despite being
contrary to the general principle that a corporation can
only be bound by such acts which are within the scope
of its officers' or agents' authority? – YES
HELD: Voting trust agreements are allowed provided
that the provisions of the law are satisfied.
– SECOND SET CASE DIGEST | 74
Sec. 59. Voting Trusts — One or more stockholders of a
stock corporation may create a voting trust for the
purpose of conferring upon a trustee or trustees the right
to vote and other rights pertaining to the share for a
period rights pertaining to the shares for a period not
exceeding 5 years at any one time: Provided, that in the
case of a voting trust specifically required as a condition in
a loan agreement, said voting trust may be for a period
exceeding 5 years but shall automatically expire upon full
payment of the loan. A voting trust agreement must be in
writing and notarized, and shall specify the terms and
conditions thereof. A certified copy of such agreement
shall be filed with the corporation and with the Securities
and Exchange Commission; otherwise, said agreement is
ineffective and unenforceable. The certificate or
certificates of stock covered by the voting trust agreement
shall be cancelled and new ones shall be issued in the
name of the trustee or trustees stating that they are
issued pursuant to said agreement. In the books of the
corporation, it shall be noted that the transfer in the name
of the trustee or trustees is made pursuant to said voting
trust agreement.
A voting trust is also defined in Ballentines Dictionary
as trust created by an agreement between a group of
the stockholders of a corporation and the trustee or by
a group of identical agreements between individual
stockholders and a common trustee, whereby it is
provided that for a term of years, or for a period
contingent upon a certain event, or until the
agreement is terminated, control over the stock owned
by such stockholders, either for certain purposes or for
all purposes, is to be lodged in the trustee, either with
or without a reservation to the owners, or persons
designated by them, of the power to direct how such
control shall be used.
4. Quimson vs Pasay, SEC-EB Case 260, March
21, 1991
5. Rio Grande Rubber Estate vs Board of
Liquidators
FACTS: Petitioner Rio Grande Rubber Estate sold all of its
shares to Ohta Development Co., a Japanese owned
company, wherein a part of the proceeds of such sale was
used to pay its debts from the Agricultural and Industrial
Bank and the remaining balance was distributed to all of
its shareholders. After the Japanese war, when Cotabato
was liberated by the Americans, the former properties of
the the petitioners were acquired by the Americans and
were later given back to the Republic of the Philippines.
Laws were later on passed by Congress, distributing a
portion of the real estate of the said assets to Mindanao
Institute of Technology. Petitioners, who organized
themselves as the Board of Directors of the Rio Grande
Rubber Estate, now claims that the properties should be
returned to them because the SEC Certificates were still
under their names.
ISSUE:
Whether the petitioners can still validly organize
themselves into a board to act for the corporation? – NO
HELD: It appears that in October, 1943, the
stockholders of plaintiff corporation sold their entire
stockholding as well as its assets to Ohta Development
Co., a Japanese corporation, for the sum of
P370,000.00, of which the amount of P93,928.56 was
applied to the payment of plaintiff's indebtedness to
the Agricultural & Industrial Bank and the balance of
P276,071.44 was distributed among the stockholders
and applied to other expenses of the corporation. It is
 CORPORATION LAW
for this reason that the lower court made in its order of
dismissal the conclusion that these stockholders "could
not validly organize themselves into a board to act for
the corporation inasmuch as they could no longer claim
as stockholders because they already sold and
disposed of all their stockholdings to the Ohta
Development Co," We find this conclusion to be correct
unless it be shown, which is not the case, that said
stockholders reacquired their stockholdings before the
institution of the present action.
It is true that there is an intimation on the part of plaintiff
that the sale of its stockholding in favor of Ohta
Development Co. was made thru force, duress and
intimidation, but that was a mere claim which has not
been proven. And even if the same were true, that will not
ipso facto have the effect of reverting the ownership of
the stock to its original owner before any judicial
declaration to that effect, for under the law, a contract
where consent is vitiated by mistake, violence or
intimidation, is not void ab initio but is merely voidable
(Article 1330, New Civil Code). More than that, under the
law, a contract entered into under those circumstances is
binding upon the parties unless annulled by proper action
in court. And the contract is even susceptible of
ratification (Article 1390, Idem.)
[1]
For these reasons, we
find correct the following finding of the lower court:
"Assuming arguendo that the sale was forced upon the
vendors, nevertheless there is no judicial declaration that
the transaction was hull and void due to the alleged force
and intimidation in securing the consent of the
stockholders. So far, the sale still stands valid until such
time when the same is declared null and void by the
Courts. A mere allegation on their part that the sale was
consummated thru intimidation will not ipso facto revert
to them the ownership of those stocks without any judicial
declaration."
We have taken note of plaintiff's claim that the original
stockholders should now be considered as the owners
of their respective stock for the reason that they were
able to secure from the corporation new certificates of
stock and that these certificates were duly approved
by the Securities and Exchange Commission. And on
the strength of this claim, plaintiff now contends that
the original stockholders have now the requisite power
and authority to act in behalf of the corporation,
including the institution of the present action. The least
we can say with regard to these new certificates is that
the same were secured thru misrepresentation and as
such cannot be considered valid under Republic Act No.
62. Thus, it appears that these certificates were
obtained upon the claim that the original ones were
lost or destroyed during the last war and that in spite
of diligent efforts to locate them they could not be
found, which certainly is not true upon the view we
take of the case. Evidently, the Securities and
Exchange Commission was led into approving those
certificates in view of this misrepresentation.
6. Garcia vs Diapo, SEC Case 2169, July 30, 1990
FACTS:
ISSUE: Whether the by-laws of a corporation requiring
that only members in good standing for at least 5 years
shall be qualified to be elected as director is valid? - YES
HELD: Yes it is valid because the by-laws may prescribe
the qualifications of directors. Thus, one who was elected
despite the fact that his membership in the corporation
has not reached five (5) years is in violation of the by-
laws and hence, his election is null and void.
7. REMOVAL
– SECOND SET CASE DIGEST | 75
1. JOSE A. BERNAS, et al. vs JOVENCIO F. CINCO
et al.
G.R. Nos. 163356-57; G.R. NOS. 163368-
69 July 01, 2015
FACTS:
Makati Sports Club (MSC) is a domestic corporation
duly organized and existing under Philippine laws for
the primary purpose of establishing, maintaining, and
providing social, cultural, recreational and athletic
activities among its members.
Petitioners in G.R. Nos. 163356-57, Jose A. Bernas
(Bernas), Cecile H. Cheng, Victor Africa, Jesus
Maramara, Jose T. Frondoso, Ignacio T. Macrohon and
Paulino T. Lim (BERNAS GROUP ) were among the
Members of the Board of Directors and Officers of the
corporation whose terms were to expire either in 1998
or 1999.
Petitioners in G.R. Nos. 163368-69 Jovencio Cinco,
Ricardo Librea and Alex Y. Pardo ( CINCO GROUP ) are
the members and stockholders of the corporation who
were elected Members of the Board of Directors and
Officers of the club during the 17 December 1997
Special Stockholders Meeting.
Alarmed with the rumored anomalies in handling the
corporate funds, the MSC Oversight Committee
(MSCOC), composed of the past presidents of the club,
demanded from the Bernas Group, who were then
incumbent officers of the corporation, to resign from their
respective positions to pave the way for the election of
new set of officers. Agreeing with this were the
stockholders of the corporation representing at least 100
shares who sought the assistance of the MSCOC to call for
a special stockholders meeting for the purpose of
removing the sitting officers and electing new ones.
Pursuant to such request, the MSCOC called a Special
Stockholders’ Meeting and sent out notices to all
stockholders and members stating therein the time, place
and purpose of the meeting. For failure of the Bernas
Group to secure an injunction before the Securities
Commission (SEC), the meeting proceeded wherein
Bernas, Cheng, Africa, Maramara, Frondoso, Macrohon, Jr.
and Lim were removed from office and, in their place and
stead, Cinco, Librea, Pardo, Aguiling, Villarosa, David,
Maronilla, de Leon-Herlihy
and Altura, were elected.
Aggrieved by the turn of events, the BERNAS GROUP
sought the nullification of the 17 December 1997
Special Stockholders Meeting on the ground that it was
improperly called before the Securities Investigation
and Clearing Department (SICD) of the SEC. Citing
Section 28 of the Corporation Code, the Bernas
Group argued that the authority to call a meeting lies
with the Corporate Secretary and not with the MSCOC
which functions merely as an oversight body and is not
vested with the power to call corporate meetings. For
being called by the persons not authorized to do so,
the Bernas Group urged the SEC to declare the 17
December 1997 Special Stockholders’ Meeting,
including the removal of the sitting officers and the
election of new ones, be nullified.
For their part, the CINCO GROUP insisted that the 17
December 1997 Special Stockholders’ Meeting is
sanctioned by the Corporation Code and the MSC by-laws.
In justifying the call effected by the MSCOC, they
reasoned that Section 25 of the MSC by-laws merely
authorized the Corporate Secretary to issue notices of
meetings and nowhere does it state that such authority
solely belongs to him. It was further asseverated by the
Cinco Group that it would be useless to course the
 CORPORATION LAW
request to call a meeting thru the Corporate Secretary
because he repeatedly refused to call a special
stockholders’ meeting despite demands and even filed
a suit to restrain the holding of a special meeting.
The newly elected directors initiated an investigation
on the alleged anomalies in administering the
corporate affairs and after finding Bernas guilty of
irregularities, the Board resolved to expel him from the
club by selling his shares at public auction. Due to the
filing of several petitions for and against the removal
of the Bernas Group from the Board pending before
the SEC resulting in the piling up of legal controversies
involving MSC, the SEC En Banc resolved to supervise
the holding of the 1999 Annual Stockholders’ Meeting.
During the said meeting, the stockholders once again
approved, ratified and confirmed the holding of the 17
December 1997 Special Stockholders’ Meeting.
The conduct of the 17 December 1997 Special
Stockholders’ Meeting was likewise ratified by the
stockholders during the 2000 Annual Stockholders’
Meeting which was held on 17 April 2000. SICD
rendered a decision finding, among others, that the 17
December 1997 Special Stockholders’ Meeting and the
Annual Stockholders’ Meeting conducted on 20 April
1998 and 19 April 1999 are invalid. The SICD likewise
nullified the expulsion of Bernas from the corporation
and the sale of his share at the public auction.
Court of Appeals declared that 17 December 1997
Special Stockholders’ Meeting invalid for being
improperly called but affirmed the actions taken during
the Annual Stockholders’ Meeting held on 20 April
1998, 19 April 1999 and 17 April 2000.
The BERNAS GROUP agrees with the disquisition of the
appellate court that the Special Stockholders’ Meeting
is invalid for being called by the persons not authorized
to do so, they urge the Court to likewise invalidate the
holding of the subsequent Annual Stockholders’
Meetings invoking the application of the holdover
principle. The CINCO GROUP insists that the holding of
17 December 1997 Special Stockholders’ Meeting is
valid and binding underscoring the overwhelming
ratification made by the stockholders during the
subsequent annual stockholders’ meetings and the
previous refusal of the Corporate Secretary to call a
special stockholders’ meeting despite demand.
ISSUES:
1. Whether or not the Court of Appeals erred in ruling
that the 17 December 1997 Special Stockholders’
Meeting is invalid.
RULING:
1. YES. It is invalid.
The 17 December 1997 Special Stockholders’ Meeting
is null and void and produces no effect; the resolution
expelling the Bernas Group from the corporation and
authorizing the sale of Bernas’ shares at the public
auction is likewise null and void.
The Corporation Code laid down the rules on the
removal of the Directors of the corporation by
providing, inter alia, the persons authorized to call the
meeting and the number of votes required for the
purpose of removal, thus:
Sec. 28 . Removal of directors or trustees. - Any
director or trustee of a corporation may be
removed from office by a vote of the stockholders
holding or representing at least two-thirds (2/3) of
the outstanding capital stock, or if the corporation
be a non-stock corporation, by a vote
– SECOND SET CASE DIGEST | 76
of at least two-thirds (2/3) of the members
entitled to vote: Provided, That such removal
shall take place either at a regular meeting of
the corporation or at a special meeting called
for the purpose, and in either case, after
previous notice to stockholders or members of
the corporation of the intention to propose such
removal at the meeting. A special meeting of
the stockholders or members of a
corporation for the purpose of removal of
directors or trustees, or any of them, must
be called by the secretary on order of the
president or on the written demand of the
stockholders representing or holding at
least a majority of the outstanding capital
stock, or, if it be a non-stock corporation, on
the written demand of a majority of the
members entitled to vote. Should the secretary
fail or refuse to call the special meeting upon
such demand or fail or refuse to give the notice,
or if there is no secretary, the call for the
meeting may be addressed directly to the
stockholders or members by any stockholder or
member of the corporation signing the demand.
Notice of the time and place of such meeting, as
well as of the intention to propose such
removal, must be given by publication or by
written notice prescribed in this Code. Removal
may be with or without cause: Provided, that
removal without cause may not be used to
deprive minority stockholders or members of
the right of representation to which they may
be entitled under Section 24 of this Code.
Textually, only the President and the Board of
Directors are authorized by the by-laws to call a
special meeting. In cases where the person authorized
to call a meeting refuses, fails or neglects to call a
meeting, then the stockholders representing at least
100 shares, upon written request, may file a petition to
call a special stockholder’s meeting.
In the instant case, there is no dispute that the 17
December 1997 Special Stockholders’ Meeting was called
neither by the President nor by the Board of Directors but
by the MSCOC. While the MSCOC, as its name suggests, is
created for the purpose of overseeing the affairs of the
corporation, nowhere in the by-laws does it state that it is
authorized to exercise corporate powers, such as the
power to call a special meeting, solely vested by law and
the MSC by-laws on the
President or the Board of Directors.
The board of directors is the directing and controlling
body of the corporation. It is a creation of the
stockholders and derives its power to control and direct
the affairs of the corporation from them. The board of
directors, in drawing to itself the power of the corporation,
occupies a position of trusteeship in relation to the
stockholders, in the sense that the board should exercise
not only care and diligence, but utmost good faith in the
management of the corporate affairs.
The underlying policy of the Corporation Code is that
the business and affairs of a corporation must be
governed by a board of directors whose members have
stood for election, and who have actually been elected
by the stockholders, on an annual basis. The
shareholder vote is critical to the theory that
legitimizes the exercise of power by the directors or
officers over the properties that they do not own.
SEC. 23. The Board of Directors or
Trustees. – Unless otherwise provided in this
Code, the corporate powers of all the
corporations formed under this Code shall be
exercised, all business conducted and all
 CORPORATION LAW
property of such corporations controlled and
held by the board of directors and trustees x x
x.
A corporation’s board of directors is understood to
be that body which (1) exercises all powers provided
for under the Corporation Code; (2) conducts all
business of the corporation; and (3) controls and holds
all the property of the corporation. Its members have
been characterized as trustees or directors clothed
with fiduciary character.
It is ineluctably clear that the fiduciary relation is
between the stockholders and the board of directors
and who are vested with the power to manage the
affairs of the corporation. 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. Should the
board fail to perform its fiduciary duty to safeguard the
interest of the stockholders or commit acts prejudicial
to their interest, the law and the by-laws provide
mechanisms to remove and replace the erring director.
It is apt to recall that illegal acts of a corporation which
contemplate the doing of an act which is contrary to
law, morals or public order, or contravenes some rules
of public policy or public duty, are, like similar
transactions between individuals, void. The same
principle can apply in the present case. The void
election of 17 December 1997 cannot be ratified by the
subsequent Annual Stockholders’ Meeting.
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 are contrary to law, morals or
public policy or public duty, and are, like similar
transactions between individuals, void. They cannot
serve as basis of a court action nor acquire validity by
performance, ratification or estoppel. Mere ultra
vires acts, on the other hand, or those which are not
illegal or void ab initio, but are not merely within the
scope of the articles of incorporation, are merely
voidable and may become binding and enforceable
when ratified by the stockholders. The 17 December
1997 Meeting belongs to the category of the latter,
that is, it is void ab initio and cannot be validated.
Consequently, such Special Stockholders’ Meeting called
by the Oversight Committee cannot have any legal effect.
The Cinco Group cannot invoke the application of de facto
officership doctrine to justify the actions taken after the
invalid election since the operation of the principle is
limited to third persons who were originally not part of the
corporation but became such by reason of voting of
government- sequestered shares.
Where there is an officer authorized to call a meeting
and that officer refuses, fails, or neglects to call a
meeting, the SEC can assume jurisdiction and issue an
order to the petitioning stockholder to call a meeting
pursuant to its regulatory and administrative powers to
implement the Corporation Code. This is clearly
provided for by Section 50 of the Corporation Code
Sec. 50. Regular and special meetings of stockholders
or members. – x x x
Whenever, for any cause, there is no person
authorized to call a meeting, the Securities and
Exchange Commission, upon petition of a
– SECOND SET CASE DIGEST | 77
stockholder or member, and on a showing of
good cause therefore, may issue an order to the
petitioning stockholder or member directing him
to call a meeting of the corporation by giving
proper notice required by this Code or by the
by-laws. The petitioning stockholder or
member shall preside thereat until at least
majority of the stockholders or members
present have chosen one of their member[s]
as presiding officer.
9. COMPENSATION
1. CENTRAL COOPERATIVE V. TIBE
J. Reyes, JBL; June 30, 1970
FACTS:
Petitioner CCE is the national federation of farmers'
cooperative marketing associations (FACOMAS). Its
single majority stockholder is the Agricultural Credit
Administration (ACA). In the annual meeting of
stockholders on January 1956, several resolutions
were passed authorizing Concordio Tibe, Sr., a
member of CCE’s Board, to obtain several amounts
from CCE. Such amounts were with the approval of the
Manager, Treasurer, and Auditor:
 cash advances amounting to P5,668.00
 sum of P14,436.95,representing commutable per
diems for attending meetings of the Board in Manila
 transportation expenses for FACOMA visitations
 representation expenses
 commutable discretionary funds.
Petitioner CCE now sues Tibe for the refund of said
amounts. It maintains that the BOD had no power to
issue said Resolutions.
Tibe et. al. argue for the validity of the resolutions,
stating that these are manifestations of the good
intentions of the board (e.g. economic considerations).
The suit was also barred by laches.
During the course of the suit, Tibe admitted liability and
made partial payments for the refund of said amounts.
Issue:
(1) WON the BOD had the power and authority to
adopt various resolutions appropriating
corporate funds for the expenses of a Member
of the Board? NO.
Held:
(1) Section 8 of the By-Laws of petitioner federation
provides:
The compensation, if any, and the per
diems for attendance at meetings of
the members of the Board of Directors
shall be determined by the members at
any annual meeting or special meeting
of the Exchange called for the purpose.
We agree with the petitioner that the questioned
resolutions are contrary to the By-Laws of the
federation and, therefore, are not within the power
of the board of directors to enact.
Under Sec. 8 of the Corporation Code, it
explicitly reserved unto the stockholders the
 CORPORATION LAW
power to determine the compensation of
members of the BOD. The law is well-settled
that directors of corporations presumptively
serve without compensation and in the
absence of an express agreement or a
resolution in relation thereto, no claim can
be asserted therefore.
Thus, the directors, in assigning themselves
additional duties, such as the visitation of
FACOMAS, acted within their power, but, by voting
for themselves compensation for such additional
duties, they acted in excess of their authority, as
expressed in the By-Laws.
Moreover, what the stockholders authorized were
compensations to "actual transportation expenses
plus the per diems of P30.00 and actual expenses
while waiting” only.
The BOD also cannot rely on Section 28 of the
Corporation Law (giving the exercise of corporate
powers and the control of the corporation's
business and property to the BOD), or on Section
1 of Article VI of the By-Laws (empowering the
board with "general supervision and control of the
affairs and property of the Exchange) because
these related only to the BOD’s general powers.
Granting of compensations is a matter specifically
withheld from the board of directors under its By-
Laws, and reserved to the stockholders.
2. MALATE TAXICAB & GARAGE, INC., Petitioner,
vs. THE COURT OF INDUSTRIAL RELATIONS AND
NATIONAL LABOR UNION, Respondents.
(wala ko kabalo asa ang connection sa topic sa
corporation huhu)
FACTS:
Petitioner is a commercial establishment that operates
a fleet of taxicabs under franchise from the Public
Service Commission. It had hired drivers who were
paid on commission basis of 25 per cent of their gross
earnings. On September 10, 1954, these cars operated
by the taxicab firm were sold to the Manila Yellow
Taxicab Co.and on the same date, the 360 drivers of
the Petitioner were dismissed. There was no one
month prior notice given to these drivers and neither
were they paid one month salary in lieu of such notice.
The National Labor Union then filed a petition with the
Court of Industrial Relations on behalf of the dismissed
drivers, asking that they be paid one month’s
separation pay. Malate Taxicab moved for the
dismissal of the petition on the grounds, among
others, that it stated no cause of action and that the
court had no jurisdiction over the subject matter.
The court denied the motion to dismiss and ordered
Malate Taxicab to pay each of the 360 drivers “P120 as
separation pay, based on 30 working days at P4 per
day, which is the minimum wage fixed by law.”
Reconsideration of this order having been denied by
the court in banc, Malate taxicab brought the case here
on a petition to review by certiorari.
ISSUE:
whether taxicab drivers “paid on commission basis of
25 per cent of their gross earnings”, are entitled to a
month’s separation pay if dismissed without one
month’s prior notice.
– SECOND SET CASE DIGEST | 78
RULING: YES
The question presented in the case cited was whether
taxicab drivers receiving by way of compensation certain
percentage of their gross fare receipts were, on being
dismissed without a month’s advance notice, entitled to
the mesada, or month’s salary, mentioned in article 302
of the Code of Commerce, and we there held that the said
article could no longer be applied because it had already
been repealed by the new Civil Code.
But by way of dictum it was also there said that even
assuming that the article mentioned was still in force,
nevertheless, since it spoke of “salary corresponding to
said month, commonly known as mesada”, it would
have no application to employees having “no fixed
salary either by the day, week or the month”, since
computation of the month’s salary payable in that case
would be impossible.
It appears, however, that subsequent to this decision, and
possibly as a consequence thereof, Republic Act No.
1052 was approved on June 12, 1954. The Act provides:
“SECTION 1. In cases of employment, without a definite
period, in a commercial, industrial, or agricultural
establishment or enterprise, neither the employer nor the
employee shall terminate the employment without serving
notice on the other at least one month advance.
“The employee, upon whom no such notice was
served, shall be entitled to one month’s compensation
from the date of termination of his employment.
“SEC. 2. Any contract or agreement contrary to the
provisions of section one of this Act shall be null and
void.”
Note must be taken of the fact that the new law no longer
speaks of “salary” but of “compensation”, a term broad
enough to include all forms of remuneration. And we do
not think it could be successfully argued that
remuneration paid to taxi drivers on a percentage basis
does not constitute compensation.
The point is made that the object of Republic Act No.
1052 is only to fill a void left by the repeal of article
302 of the Code of Commerce, or in other words, to
revive the mesada mentioned in said article. This
narrow interpretation is not in accord with the liberal
spirit of our labor laws. As correctly contended by the
labor union and sustained by the lower court, what
was revived by the Act was the principle of giving aid
to a laborer, who, suddenly deprived of his livelihood
through dismissal without sufficient notice, would have
no means of supporting himself and family until he had
found another job. This aid is just as necessary in the
case of a laborer earning compensation on a
percentage basis as it is where he is paid a fixed
salary. It is, therefore, our opinion that under the law
as it now stands an employee who has been hired
without a definite period and earning compensation on
a percentage basis is, upon being dismissed without a
month’s previous notice, entitled to the month’s
compensation therein provided for.
3. LEXAL LABORATORIES and/or JOSE ANGELES,
vs.
NATIONAL CHEMICAL INDUSTRIES WORKERS
UNION-PAFLU (Lexal Laboratories Chapter) and
THE COURT OF INDUSTRIAL RELATIONS
FACTS:
The Court of Industrial Relations (CIR) decided to
reinstate Guillermo Ponseca, a dismissed employee, to his
former position with full back wages from the day of
 CORPORATION LAW
his dismissal up to the time he is reinstated without
loss of his seniority rights and of such other rights and
privileges enjoyed by him prior to his lay-off. Ponseca
was entitled to back wages from the day he ceased
reporting for work, to a day prior to his reinstatement.
Petitioners objected to the inclusion of P4.00 per diem
in the computation of Ponseca’s back wages because
he did not spend for his meals and lodgings for he was
all the time in Manila, his station. CIR stated that per
diems should be paid as part of the back wages
because they were “paid to him regularly.”
Per diem is intended to cover the cost of lodging and
subsistence of officers and employees when the latter
are on duty outside of their permanent station.
Ponseca, during the period involved, did not leave
Manila. Since he spent nothing for meals and lodging
outside of Manila,there is nothing to be reimbursed.
Since per diem is in the nature of reimbursement,
Ponseca should not be entitled to per diems.
ISSUE:
Whether per diems are included in backpay.
RULING:
The SC ruled that per diems are not integral parts of
regular wages or salaries. Neither is it suggested in the
record that per diems formed part of the terms of
employment between petitioners and respondent union
(of which Ponseca is a member), or with Ponseca
himself for that matter. Nor was pronouncement made
either in the original decision or in the questioned
order and resolution of CIR that per diems are part of
back wages. CIR simply hit upon the idea that per
diems should be paid as part of the back wages
because they were "paid to him regularly."
Per diem, the dictionary definition tells us, is "a daily
allowance" given "for each day he (an officer or
employee) was away from his home base". It would seem
to us that per diem is intended to cover the cost of
lodging and subsistence of officers and employees when
the latter are on duty outside of their permanent station.
Lexal concedes that whenever its employee, Guillermo
Ponseca, was out of Manila, he was allowed a per diem of
P4.00 broken down as follows: P1.00 for breakfast; P1.00
for lunch; P1.00 for dinner; and P1.00 for lodging.
Ponseca — during the period involved — did not leave
Manila. Therefore, he spent nothing for meals and lodging
outside of Manila. Because he spent nothing, there is
nothing to be reimbursed. Since per diems are in the
nature of reimbursement, Ponseca should not be entitled
to per diems.
Besides, back wages are what an employee has lost "in
the way of wages" due to his dismissal. So that,
because Ponseca earned P4.50 a day, "then that is the
amount which he lost daily by reason of his dismissal,
nothing more nothing less:"
Hence, CIR erred in including per diems in the back
wages due and payable to Guillermo Ponseca.
4. Peralta vs Mathay
FACTS:
As set forth in the brief of petitioner, the GSIS, on May
17, 1966, in a resolution duly passed, granted him an
optional retirement gratuity of P40,336.07. Of that
amount, he was not able to collect the sum of P7,032.26,
covering P3,982.26 as cost of living allowance, P1,275.00
as incentive bonus, and P1,775.00 as Christmas bonus.
Such items were not passed in audit. the view of
respondent Auditor General
– SECOND SET CASE DIGEST | 79
being that they should be deducted from his gratuity,
although during petitioner’s incumbency as Trustee, no
question was raised when he was paid such allowance
and bonuses. Respondent Auditor General justified his
action on the ground that they "partake of the nature
of additional compensation," a trustee’s remuneration
being fixed by law in the form of a per diem of P25.00
for every board meeting of the GSIS attended.
ISSUE:
WON COLA, incentive bonus, and Christmas bonus are
additional compensation?
RULING:
Yes. Cola not nature of reimbursement unlike per
diem. Incentive bonus and christmas bonus are
obviously additional compensation.
It is expressly provided in the Constitution: "No officer or
employee of the government shall receive additional or
double compensation unless specifically authorized by
law." This is to manifest a commitment to the
fundamental principle that a public office is a public trust.
It is expected of a government official or employee that
he keeps uppermost in mind the demands of public
welfare. He is there to render public service. He is of
course entitled to be rewarded for the performance of the
functions entrusted to him, but that should not be the
overriding consideration. The intrusion of the thought of
private gain should be unwelcome. The temptation to
further personal ends, public employment as a means for
the acquisition of wealth, is to be resisted. That at least is
the ideal. There is then to be an awareness on the part of
an officer or employee of the government that he is to
receive only such compensation as may be fixed by law.
With such a realization, he is expected not to avail himself
of devious or circuitous means to increase the
remuneration attached to his position. It is an entirely
different matter if the legislative body would itself
determine for reasons satisfactory to it that he should
receive something more. If it were to be thus though,
there must be a law to that effect. So the Constitution
decrees.
A "per diem" is commonly identified with the daily
allowance "for each day he (an officer or employee)
was away from his home base." Its usual signification
is thus that a reimbursement for expenses incurred in
the performance of one’s duties.
A similar approach is called for in determining the
nature of a cost of living allowance. If it could rightfully
be considered as in the nature of a reimbursement
rather than additional emoluments or perquisites, then
the ruling of respondent Auditor General cannot find
support in the Constitution.
Such a principle does not come to the aid of petitioner
though. He was unable to show that the cost of living
allowance received by him was in the nature of a
reimbursement. It did amount then to an additional
compensation.
It is quite obvious that by its very nature, a bonus
partakes of an additional remuneration or
compensation. The very characterization of what was
received by petitioner as bonuses being intended by
way of an incentive to spur him possibly to more
diligent efforts and to add to the feeling of well-being
traditionally associated with the Christmas season
would remove any doubt that the Auditor General had
no choice except to deduct from petitioner’s gratuity
such items.
5. Western Institute of Technology Inc. vs. Salas
 CORPORATION LAW
[GR 113032, 21 August 1997]
Facts: Salas family, are the majority and controlling
members of the Board of Trustees of Western Institute
of Technology, Inc. (WIT), a stock corporation engaged
in the operation, among others, of an educational
institution.
According to the Villasis the minority stockholders of
WIT, sometime on 1 June 1986 in the principal office
of WIT at La Paz, Iloilo City, a Special Board Meeting
was held. In attendance were other members of the
Board including Reginald Villasis. Prior to said Special
Board Meeting, copies of notice thereof, dated 24 May
1986, were distributed to all Board Members. The
notice allegedly indicated that the meeting to be held
on 1 June 1986 included Item 6 which states that
"Possible implementation of Art. III, Sec. 6 of the
Amended By-Laws of Western Institute of Technology,
Inc. on compensation of all officers of the corporation."
In said meeting, the Board of Trustees passed
Resolution 48, series 1986, granting monthly
compensation to Salas, et. al. as corporate officers
retroactive 1 June 1985, in the following amounts:
“Chairman 9,000.00/month, Vice Chairman
P3,500.00/month, Corporate Treasurer
P3,500.00/month and Corporate Secretary
P3,500.00/month, retroactive June 1, 1985 and the ten
percentum of the net profits shall be distributed equally
among the ten members of the Board of Trustees. This
shall amend and supercede any previous resolution.”
A few years later, or on 13 March 1991 the Villasis and
Dimas Enriquez filed an affidavit-complaint against
Salas, et. al. before the Office of the City Prosecutor of
Iloilo, as a result of which 2 separate criminal
informations, one for falsification of a public document
under Article 171 of the Revised Penal Code and the
other for estafa under Article 315, par. 1(b) of the
RPC, were filed before Branch 33 of the Regional Trial
Court of Iloilo City.
The charge for falsification of public document was
anchored on Salas, et. al.'s submission of WIT's income
statement for the fiscal year 1985-1986 with the
Securities and Exchange Commission (SEC) reflecting
therein the disbursement of corporate funds for the
compensation of Salas, et. al. based on Resolution 4,
series of 1986, making it appear that the same was
passed by the board on 30 March 1986, when in truth, the
same was actually passed on 1 June 1986, a date not
covered by the corporation's fiscal year 1985-1986
(beginning May 1, 1995 and ending April 30, 1986).
Thereafter, trial for the two criminal cases (Criminal Cases
37097 and 37098), was consolidated.
After a full-blown hearing, Judge Porfirio Parian handed
down a verdict of acquittal on both counts dated 6
September 1993 without imposing any civil liability
against the accused therein. Villasis, et. al. filed a Motion
for Reconsideration of the civil aspect of the RTC Decision
which was, however, denied in an Order dated 23
November 1993. Villasis, et. al. filed the petition for
review on certiorari. Significantly on 8 December 1994, a
Motion for Intervention, dated 2 December 1994, was
filed before this Court by Western Institute of Technology,
Inc., disowning its inclusion in the petition and submitting
that Atty. Tranquilino R. Gale, counsel for Villasis, et. al.,
had no authority whatsoever to represent the corporation
in filing the petition. Intervenor likewise prayed for the
dismissal of the petition for being utterly without merit.
The Motion for Intervention was granted on 16 January
1995.
ISSUE:
– SECOND SET CASE DIGEST | 80
Whether the grant of compensation to Salas, et. al. is
proscribed under Section 30 of the Corporation Code.
RULING:
Directors or trustees, as the case may be, are not
entitled to salary or other compensation when they
perform nothing more than the usual and ordinary
duties of their office. This rule is founded upon a
presumption that directors/trustees render service
gratuitously, and that the return upon their shares
adequately furnishes the motives for service, without
compensation.
Under Section 30 of the Corporation Code, there are
only two (2) ways by which members of the board can
be granted compensation apart from reasonable per
diems:
(1) when there is a provision in the by-laws fixing their
compensation; and
(2) when the stockholders representing a majority of
the outstanding capital stock at a regular or special
stockholders' meeting agree to give it to them. Also,
the proscription, however, against granting
compensation to director/trustees of a corporation is
not a sweeping rule.
Worthy of note is the clear phraseology of Section 30
which state: "[T]he directors shall not receive any
compensation, as such directors." The phrase as such
directors is not without significance for it delimits the
scope of the prohibition to compensation given to them
for services performed purely in their capacity as
directors or trustees. The unambiguous implication is
that members of the board may receive compensation,
in addition to reasonable per diems, when they render
services to the corporation in a capacity other than as
directors/trustees.
Herein, resolution 48, s. 1986 granted monthly
compensation to Salas, et. al. not in their capacity as
members of the board, but rather as officers of the
corporation, more particularly as Chairman, Vice-
Chairman, Treasurer and Secretary of Western
Institute of Technology. Clearly, therefore, the
prohibition with respect to granting compensation to
corporate directors/trustees as such under Section 30
is not violated in this particular case. Consequently,
the last sentence of Section 30 which provides that "In
no case shall the total yearly compensation of
directors, as such directors, exceed ten (10%) percent
of the net income before income tax of the corporation
during the preceding year" does not likewise find
application in this case since the compensation is being
given to Salas, et. al. in their capacity as officers of
WIT and not as board members.
10. RULES ON FIDUCIARIES' DUTIES AND
LIABILITIES
1) BENGUET ELECTRlC COOPERATIVE, INC.,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
PETER COSALAN and BOARD OF DIRECTORS OF
BENGUET ELECTRIC COOPERATIVE, INC.,
FACTS:
On 3 November 1982, respondent Cosalan received Audit
Memorandum No. 1 issued by the Commission on Audit
("COA"). This Memorandum noted that cash advances
received by officers and employees of petitioner Beneco in
the amount of P129,618.48 had been virtually written off
in the books of Beneco. In the
 CORPORATION LAW
Audit Memorandum, the COA directed petitioner
Beneco to secure the approval of the National
Electrification Administration ("NEA") before writing off
or condoning those cash advances, and recommended
the adoption of remedial measures.
On 12 November 1982, COA issued another
Memorandum — Audit Memorandum No. 2 ––
addressed to respondent Peter Cosalan, inviting
attention to the fact that the audit of per diems and
allowances received by officials and members of the
Board of Directors of Beneco showed substantial
inconsistencies with the directives of the NEA. The
Audit Memorandum once again directed the taking of
immediate action in conformity with existing NEA
regulations.
On 19 May 1983, petitioner Beneco received the COA
Audit Report on the financial status and operations of
Beneco for the eight (8) month period ended 30
September 1982. This Audit Report noted and
enumerated irregularities in the utilization of funds
amounting to P37 Million released by NEA to Beneco,
and recommended that appropriate remedial action be
taken.
Having been made aware of the serious financial
condition of Beneco and what appeared to be
mismanagement, respondent Cosalan initiated
implementation of the remedial measures
recommended by the COA. The respondent members
of the Board of Beneco reacted by adopting a series of
resolutions during the period from 23 June to 24 July
1984. These Board Resolutions abolished the housing
allowance of respondent Cosalan; reduced his salary
and his representation and commutable allowances;
directed him to hold in abeyance all pending personnel
disciplinary actions; and struck his name out as a
principal signatory to transactions of petitioner Beneco.
During the period from 28 July to 25 September 1984,
the respondent Beneco Board members adopted
another series of resolutions which resulted in the
ouster of respondent Cosalan as General Manager of
Beneco and his exclusion from performance of his
regular duties as such, as well as the withholding of his
salary and allowances. These resolutions were as
follows:
1. Resolution No. 91-4 dated 28 July 1984:
. . . that the services of Peter M. Cosalan as General
Manager of BENECO is terminated upon approval of
the National Electrification Administration;
2. Resolution No. 151-84 dated September 15, 1984;
. . . that Peter M. Cosalan is hereby suspended from his
position as General Manager of the Benguet Electric
Cooperative, Inc. (BENECO) effective as of the start of the
office hours on September 24, 1984, until a final decision
has been reached by the NEA on his dismissal;
. . . that GM Cosalan's suspension from office shall
remain in full force and effect until such suspension is
sooner lifted, revoked or rescinded by the Board of
Directors; that all monies due him are withheld until
cleared;
3. Resolution No. 176-84 dated September 25, 1984;
. . . that Resolution No. 151-84, dated September 15,
1984 stands as preventive suspension for GM Peter M.
1
Cosalan.
Respondent Cosalan nevertheless continued to work as
General Manager of Beneco, in the belief that he could be
suspended or removed only by duly authorized officials of
NEA, in accordance with provisions of P.D. No, 269, as
amended by P.D. No. 1645 (the statute creating the NEA,
providing for its capitalization, powers and functions and
organization), the loan agreement between NEA and
2
petitioner Beneco and the NEA
– SECOND SET CASE DIGEST | 81
3
Memorandum of 2 July 1980. Accordingly, on 5
October and 10 November 1984, respondent Cosalan
requested petitioner Beneco to release the
compensation due him. Beneco, acting through
respondent Board members, denied the written
request of respondent Cosalan.
Cosalan then filed a complaint for illegal dismissal against
the BENECO Board Members, he later impleaded BENECO
itself. The Labor Arbiter (LA) ruled in favor of Cosalan.
The National Labor Relations Commission (NLRC) affirmed
the decision of the LA but modified it so as to absolve the
Board Members from liability as it held that the Board
Members merely acted in their official capacity. BENECO,
being the only party adjudged to be liable, then appealed
said decision.
ISSUE:
WON the board acted in their fiduciary duty.
HELD:
No. The act of the Board Members is ultra vires. There
was no legal basis for them to suspend Cosalan
indefinitely for under the Implementing Rules of the Labor
Code the maximum period form preventive suspension
should not go beyond 30 days. Further, it was found that
Cosalan was never informed of the charges against him
nor was he afforded the opportunity to present his case.
He was deprived of due process. Nor was Cosalan’s
suspension approved by the NEA, which is also required
for due process purposes.
These acts by the Board Members are tainted with bad
faith. A very strong presumption arises that the Board
Members are acting in reprisal against the reforms
sought to be introduced by Cosalan in order to address
the irregularities within BENECO. The Board Members
are therefore liable for damages under Section 31 of
the Corporation Code
Sec. 31. Liability of directors, trustees or officers.
— Directors or trustees who willfully and knowingly vote
for or assent to patently unlawful acts of the corporation
or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as
such directors or trustees shall be jointly liable and
severally for all damages resulting therefrom suffered by
the corporation, its stockholders or members and other
persons . . . (Emphasis supplied). And even though
BENECO is a cooperative, it is still covered by the
Corporation Code because under PD 269, cooperatives are
considered as corporations.
The Supreme Court ruled that BENECO and the
BENECO Board Members are liable for the damages
caused against Cosalan. However BENECO can seek
reimbursement from the Board Members so as not to
unduly penalize the innocent members of BENECO.
2) BANK OF COMMERCE vs. MARILYN P. NITE
FACTS:
Respondent Marilyn Nite (Nite) was charged, together
with Nunelon Bradley (Bradley) and Victoria Magalona-
Escalambre (Escalambre), with violation of Section 19
5
of Batas Pambansa Bilang 178 (BP Blg. 178) in an
Information that reads:
 CORPORATION LAW
That on or about April 25, 1994, in the Municipality of
Makati, Metro Manila, and within the jurisdiction of the
Honorable Court, the above-named accused, doing
business under the name and style of Bancapital
Development Corporation (Bancap) did then and there,
willfully and feloniously engage in the business of
selling securities, particularly treasury bills (T-bills)
with Bank of Commerce (Bancom) in the amount of
₱250 Million without having been registered as a
broker, dealer or salesman with the Securities and
Exchange Commission, in violation of said law.
CONTRARY TO LAW.
6 Section 19 of BP Blg. 178 and estafa. Hence, the only
The case docketed as Criminal Case No. 94-5267.
Nite was also charged, together with Bradley,
Escalambre, and Eugene Yang (Yang), with Estafa in
an Information that reads:
That on or about April 25, 1994, in Makati, Metro Manila,
and within the jurisdiction of this Honorable Court, the
above-named accused, confederating together and
mutually helping each other, by means of deceit, with
unfaithfulness or abuse of confidence on the part of
accused Eugene Yang and taking advantage of his
position as senior manager of the Bank of Commerce
(Bancom), did then and there willfully, unlawfully and
feloniously defraud Bancom as follows: That Bancapital
Development Corporation (Bancap) thru accused Nite,
Bradley and Escalambre by means of fraudulent
misreoresentations; offered and confirmed for sale
Php250 Million worth of Treasury bills at a discounted
price of Php243,215,972.52 to Bancom which was
actually purchased and fully paid by Bancom, when in
truth and in fact Bancap which was not authorized to
trade security did not actually have such Treasury bills
worth Php250 Million as only Php88 Million worth of
Treasury bills was delivered to Bancom upon receipt by
Bancap of the full payment thereof; that accused
Eugene Yang, senior manager of Bancom, willfully,
unlawfully and feloniously caused the preparation,
issuance and signing of the manager’s check in payment
of the treasury bills in question on the basis of the
trading order he himself approved and Bancap’s
confirmation of sale signed by accused Nite and
Escalambre, and, once in possession of the full payment
thereof, the above-named accused misappropriated,
misapplied and converted the same to their own
personal use and benefit and despite repeated demands
failed to deliver the remaining Treasury bills worth
Php162 Million, to the damage and prejudice of Bancom,
its creditors and stockholders, in the amount of Php162
Million Pesos.
7
CONTRARY TO LAW.
The case was docketed as Criminal Case No. 94-5268.
The two cases were tried jointly.
Since Bradley was still at large during the trial, and the
proceedings against Escalambre and Yang were
suspended pending their petition for certiorari and
mandamus before the Court of Appeals in connection
with the denial of their demurrer to evidence, as
separate trial was conducted against Nite after she was
arrested in the United States of America for
overstaying and brought back to the Philippines.
In Criminal Case No. 94-5267, the thrust of the
prosecution’s argument was that Nite, as President of
Bancapital Development Corporation (Bancap), violated
Section 19 of BP Blg. 178 when Bancap sold ₱250 million
worth of treasury bills to Bank of Commerce (Bancom)
without being registered as broker, dealer, or salesman of
securities. In Criminal Case No. 94-5268, the
– SECOND SET CASE DIGEST | 82
prosecution alleged that Nite defrauded Bancom by
falsely pretending to posses and own ₱250 million
worth of treasury bills that Bancap supposedly sold to
Bancom when none of the treasury bills described in
the Confirmation of Sale and Letter of Undertaking
issued by Bancap were ever delivered to Bancom. The
prosecution alleged that Bancom paid Bancap the
amount of ₱243,215,972.52 as payment for the
treasury bills but Bancap only delivered substitute bills
in the amount of ₱88 million.
Nite was acquitted by the trial court of violation of
issue here is Nite’s civil liability after her acquittal.
ISSUE:
WoN Nite is personally liableto Bancom for the amount
of treasury bills undelivered by Bancap.
HELD:
The general rule is that a corporation is invested by
law with a personality separate and distinct from that
of the persons composing it, or from any other legal
12
entity that it may be related to. The obligations of a
corporation, acting through its directors, officers, and
13
employees, are its own sole liabilities. Therefore, the
corporation’s directors, officers, or employees are
generally not personally liable for the obligations of the
14
corporation. Bancom alleges that his case falls under
the exception to the general rule and that Nite should
be held personally liable for Bancap’s obligation.
Bancom alleges that Nite signed the Confirmation of
Sale knowing that Bancap did not have the treasury
bills, and thus, sale was illegal.
Bancom’s arguments have no merit.
To hold a director or officer personally liable for corporate
obligations, two requisites must concur: (1) complainant
must allege in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or
that the officer was guilty of gross negligence or bad faith;
and (2) complaint must clearly and convincingly prove
15
such unlawful acts, negligence or bad faith. To hold a
director personally liable for debts of the corporation, and
thus pierce the veil of corporate fiction, the bad faith or
wrongdoing of the director must be established clearly
and convincingly.
16
It is settled that the transaction
between Bancom and Bancap is an ordinary sale. We give
weight to the finding of both the trial court and the Court
of Appeals that Bancap’s liability arose from its
contractual obligation to Bancom. The trial court and the
Court of Appeals found that Bancom and Bancap had been
dealing with each other as seller and buyer of treasury
bills from December 1992 until the transaction subject of
this case on 25 April 1994, which was no different from
their previous transactions. Nite, as Bancap’s President,
cannot be held personally liable for Bancap’s obligation
unless it can be shown that she acted fraudulently.
However, the issue of fraud had been resolved with
finality when the trial court acquitted Nite of estafa on the
ground that the element of deceit is non-existent in the
case. The acquittal had long become final and the finding
is conclusive on this Court. The prosecution failed to show
that Nite acted in bad faith. It is no longer open for
review. Nite’s act of signing the Confirmation of Sale, by
itself, does not make the corporate liability her personal
liability.
In addition, we consider the testimony of Lagrimas
Nuqui, the Legal Officer in Charge of the Government
Securities Department of the Bangko Sentral ng
 CORPORATION LAW
Pilipinas from 1994 to 1998, who explained that
primary issues of treasury bills are supposed to be
issued only to accredited dealers but these accredited
banks can sell to anyone who need not be accredited,
and such buyers, who may be corporations or
individuals, are classified as the secondary market. The
trial court and the Court of Appeals found that Bancap
17
sold the treasury bills as a secondary dealer. As
such, Bancap’s act of selling securities to Bancom is at
most ultra vires and not patently unlawful.
Base on the foregoing, we cannot hold Nite Personally
liable for Bancap’s corporate liability.
3. SOLIDBANK CORPORATION, petitioner, vs.
MINDANAO FERROALLOY CORPORATION,
Spouses JONG-WON HONG and SOO-OK KIM
* Ferrosilicon to expire September 20, 1991.
HONG, TERESITA CU, and RICARDO P. GUEVARA
**
and Spouse, respondents.
FACTS:
The Maria Cristina Chemical Industries (MCCI) and three
(3) Korean corporations, namely, the Ssangyong
Corporation, the Pohang Iron and Steel Company and
the Dongil Industries Company, Ltd., decided to forge
a joint venture and establish a corporation, under the
name of the Mindanao Ferroalloy Corporation
(Corporation for brevity) with principal offices in Iligan
City. Ricardo P. Guevara was the President and
Chairman of the Board of Directors of the Corporation.
Jong-Won Hong, the General Manager of Ssangyong
Corporation, was the Vice-President of the Corporation
for Finance, Marketing and Administration. So was
Teresita R. Cu. On November 26, 1990, the Board of
Directors of the Corporation approved a Resolution
authorizing its President and Chairman of the Board of
Directors or Teresita R. Cu, acting together with Jong-
Won Hong, to secure an omnibus line in the aggregate
amount of P30,000,000.00 from the Solidbank x x x. x
xxxxxxxx
In the meantime, the Corporation started its operations
sometime in April, 1991. Its indebtedness ballooned to
P200,453,686.69 compared to its assets of only
P65,476,000.00. On May 21, 1991, the Corporation
secured an ordinary time loan from the Solidbank in the
amount of P3,200,000.00. Another ordinary time loan was
granted by the Bank to the Corporation on May 28, 1991,
in the amount of P1,800,000.00 or in the total amount of
P5,000,000.00, due on July 15 and 26, 1991,
respectively.
However, the Corporation and the Bank agreed to
consolidate and, at the same time, restructure the two
(2) loan availments, the same payable on September
20, 1991. The Corporation executed Promissory Note
No. 96-91-00865-6 in favor of the Bank evidencing its
loan in the amount of P5,160,000.00, payable on
September 20, 1991. Teresita Cu and Jong-Won Hong
affixed their signatures on the note. To secure the
payment of the said loan, the Corporation, through
Jong-Won Hong and Teresita Cu, executed a Deed of
Assignment in favor of the Bank covering its rights,
title and interest to the following:
The entire proceeds of drafts drawn under Irrevocable
Letter of Credit No. M-S-041-2002080 opened with The
Mitsubishi Bank Ltd. Tokyo dated June 13, 1991 for the
account of Ssangyong Japan Corporation, 7F. Matsuoka-
Tamura-Cho Bldg., 22-10, 5-Chome, Shimbashi,
– SECOND SET CASE DIGEST | 83
Minato-Ku, Tokyo, Japan up to the extent of
US$197,679.00
The Corporation likewise executed a Quedan, by way of
additional security, under which the Corporation bound
and obliged to keep and hold, in trust for the Bank or its
Order, Ferrosilicon for US$197,679.00. Jong-Won Hong
and Teresita Cu affixed their signatures thereon for the
Corporation. The Corporation, also, through Jong-Won
Hong and Teresita Cu, executed a Trust Receipt
Agreement, by way of additional security for said loan, the
Corporation undertaking to hold in trust, for the Bank, as
its property, the following:
1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-S-
041-2002080 for account of Ssangyong Japan
Corporation, Tokyo, Japan for US$197,679.00
2. SEC QUEDAN NO. 91-476 dated June 26, 1991
covering the following:
Ferrosilicon for US$197,679.00
However, shortly after the execution of the said deeds,
the Corporation stopped its operations. The Corporation
failed to pay its loan availments from the Bank inclusive of
accrued interest. On February 11, 1992, the Bank sent a
letter to the Corporation demanding payment of its loan
availments inclusive of interests due. The Corporation
failed to comply with the demand of the Bank. On
November 23, 1992, the Bank sent another letter to the
[Corporation] demanding payment of its account which,
by November 23, 1992, had amounted to P7,283,913.33.
The Corporation again failed to comply with the demand
of the Bank.
On January 6, 1993, the Bank filed a complaint against
the Corporation with the Regional Trial Court of Makati
City, entitled and docketed as Solidbank Corporation
vs. Mindanao Ferroalloy Corporation, Sps. Jong-Won
Hong and the Sps. Teresita R. Cu, Civil Case No. 93-
038 for Sum of Money with a plea for the issuance of a
writ of preliminary attachment. x x x x x x x x x x x x
Under its Amended Complaint, the Plaintiff alleged that
it impleaded Ricardo Guevara and his wife as
Defendants because, [among others]:
Defendants JONG-WON HONG and TERESITA CU, are
the Vice-Presidents of defendant corporation, and also
members of the companys Board of Directors. They
are impleaded as joint and solidary debtors of
[petitioner] bank having signed the Promissory Note,
Quedan, and Trust Receipt agreements with
[petitioner], in this case. x x x x x x x x x
[Petitioner] likewise filed a criminal complaint x x x
entitled and docketed as Solidbank Corporation vs.
Ricardo Guevara, Teresita R. Cu and Jong Won Hong x
x x for Violation of P.D. 115. On April 14, 1993, the
investigating Prosecutor issued a Resolution finding no
probable cause for violation of P.D. 115 against the
Respondents as the goods covered by the quedan were
nonexistent:
xxxxxxxxx
In their Answer to the complaint [in the civil case], the
Spouses Jong-Won Hong and Soo-ok Kim Hong alleged,
 CORPORATION LAW
inter alia, that [petitioner] had no cause of action
against them as:
x x x the clean loan of P5.1 M obtained was a corporate
undertaking of defendant MINFACO executed through
its duly authorized representatives, Ms. Teresita R. Cu
and Mr. Jong-Won Hong, both Vice Presidents then of
MINFACO. x x x.
xxxxxxxxx
[On their part, respondents] Teresita Cu and Ricardo
Guevara alleged that [petitioner] had no cause of
action against them because: (a) Ricardo Guevara did
not sign any of the documents in favor of [petitioner];
(b) Teresita Cu signed the Promissory Note, Deed of
Assignment, Trust Receipt and Quedan in blank and
merely as representative and, hence, for and in behalf
of the Defendant Corporation and, hence, was not
personally liable to [petitioner].
In the interim, the Corporation filed, on June 20, 1994,
a Petition, with the Regional Trial Court of Iligan City,
for Voluntary Insolvency x x x. x x x x x x x x x
Appended to the Petition was a list of its creditors,
including [petitioner], for the amount of
P8,144,916.05. The Court issued an Order, on July 12,
1994, finding the Petition sufficient in form and
substance x x x. x x x x x x x x x
In view of said development, the Court issued an Order,
in Civil Case No. 93-038, suspending the proceedings as
against the Defendant Corporation but ordering the
proceedings to proceed as against the individual
defendants x x x.
xxxxxxxxx
On December 10, 1999, the Court rendered a Decision
dismissing the complaint for lack of cause of action of
[petitioner] against the Spouses Jong-Won Hong,
Teresita Cu and the Spouses Ricardo Guevara, x x x. x
xxxxxxxx
In dismissing the complaint against the individual
[respondents], the Court a quo found and declared that
[petitioner] failed to adduce a morsel of evidence to prove
the personal liability of the said [respondents] for the
claims of [petitioner] and that the latter impleaded the
[respondents], in its complaint and amended complaint,
solely to put more pressure on the Defendant Corporation
to pay its obligations to [petitioner].
[Petitioner] x x x interposed an appeal, from the
Decision of the Court a quo and posed, for x x x
resolution, the issue of whether or not the individual
[respondents], are jointly and severally liable to
[petitioner] for the loan availments of the [respondent]
Corporation, inclusive of accrued interests and
penalties.
In the meantime, on motion of [petitioner], the Court set
aside its Order, dated February 2, 1995, suspending the
proceedings as against the [respondent] Corporation.
[Petitioner] filed a Motion for Summary Judgment against
the [respondent] Corporation. On February 28, 2000, the
Court rendered a Summary Judgment against the
[respondent] Corporation, the decretal portion of which
reads as follows:
WHEREFORE, premises considered, this Court hereby
resolves to give due course to the motion for summary
judgment filed by herein [petitioner]. Consequently,
– SECOND SET CASE DIGEST | 84
judgment is hereby rendered in favor of [Petitioner]
SOLIDBANK CORPORATION and against
[Respondent] MINDANAO FERROALLOY
CORPORATION, ordering the latter to pay the former
the amount of P7,086,686.70, representing the
outstanding balance of the subject loan as of 24
September 1994, plus stipulated interest at the rate of
16% per annum to be computed from the aforesaid
date until fully paid together with an amount
equivalent to 12% of the total amount due each year
from 24 September 1994 until fully paid. Lastly, said
[respondent] is hereby ordered to pay [petitioner] the
amount of P25,000.00 to [petitioner] as reasonable
attorneys fees as well as cost of litigation.
[5]
In its appeal, petitioner argued that (1) it had adduced
the requisite evidence to prove the solidary liability of
the individual respondents, and (2) it was not liable for
their counterclaims for damages and attorneys fees.
ISSUE:
WoN there is ample evidence on record to support the
joint and solidary liability of individual respondents
with Mindanao Ferroalloy Corporation.
HELD:
Basic is the principle that a corporation is vested by law
with a personality separate and distinct from that of each
[9] [10]
person composing or representing it. Equally
fundamental is the general rule that corporate officers
cannot be held personally liable for the consequences of
their acts, for as long as these are for and on behalf of the
corporation, within the scope of their authority and in
[11]
good faith. The separate corporate personality is a
shield against the personal liability of corporate officers,
[12]
whose acts are properly attributed to the corporation.
[13]
Tramat Mercantile v. Court of Appeals held thus:
Personal liability of a corporate director, trustee or
officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when
1. He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its
stockholders or other persons;
2. He consents to the issuance of watered stocks or who,
having knowledge thereof, does not forthwith file 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.
Consistent with the foregoing principles, we sustain the
CAs ruling that Respondent Guevara was not personally
liable for the contracts. First, it is beyond cavil that he
was duly authorized to act on behalf of the corporation;
and that in negotiating the loans with petitioner, he did so
in his official capacity. Second, no sufficient and specific
evidence was presented to show that he had acted in bad
faith or gross negligence in that negotiation. Third, he did
not hold himself personally and solidarily liable with the
corporation. Neither is there any specific provision of law
making him personally answerable for the subject
corporate acts.
 CORPORATION LAW
On the other hand, Respondents Cu and Hong signed
the Promissory Note without the word by preceding
their signatures, atop the designation Maker/Borrower
and the printed name of the corporation, as follows:
__(Sgd) Cu/Hong__
(Maker/Borrower)
MINDANAO FERROALLOY
While their signatures appear without qualification, the
inference that they signed in their individual capacities
is negated by the following facts: 1) the name and the
address of the corporation appeared on the space
provided for Maker/Borrower; 2) Respondents Cu and
Hong had only one set of signatures on the instrument,
when there should have been two, if indeed they had
intended to be bound solidarily -- the first as
representatives of the corporation, and the second as
themselves in their individual capacities; 3) they did
not sign under the spaces provided for Co-maker, and
neither were their addresses reflected there; and 4) at
the back of the Promissory Note, they signed above
the words Authorized Representative.
Moreover, it is axiomatic that solidary liability cannot be
[14]
lightly inferred. Under Article 1207 of the Civil Code,
there is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the
obligation requires solidarity. Since solidary liability is not
clearly expressed in the Promissory Note and is not
required by law or the nature of the obligation in this
case, no conclusion of solidary liability can be made.
Furthermore, nothing supports the alleged joint liability
of the individual petitioners because, as correctly
pointed out by the two lower courts, the evidence
shows that there is only one debtor: the corporation.
In a joint obligation, there must be at least two
debtors, each of whom is liable only for a proportionate
part of the debt; and the creditor is entitled only to a
[15]
proportionate part of the credit.
Moreover, it is rather late in the day to raise the
alleged joint liability, as this matter has not been
pleaded before the trial and the appellate courts.
Before the lower courts, petitioner anchored its claim
solely on the alleged joint and several (or solidary)
liability of the individual respondents. Petitioner must
be reminded that an issue cannot be raised for the first
time on appeal, but seasonably in the proceedings
[16]
before the trial court.
So too, the Promissory Note in question is a negotiable
instrument. Under Section 19 of the Negotiable
Instruments Law, agents or representatives may sign for
the principal. Their authority may be established, as in
other cases of agency. Section 20 of the law provides that
a person signing for and on behalf of a [disclosed]
principal or in a representative capacity x x x is not liable
on the instrument if he was duly authorized.
The authority of Respondents Cu and Hong to sign for
and on behalf of the corporation has been amply
established by the Resolution of Minfacos Board of
Directors, stating that Atty. Ricardo P. Guevara
(President and Chairman), or Ms. Teresita R. Cu (Vice
President), acting together with Mr. Jong Won Hong
(Vice President), be as they are hereby authorized for
and in behalf of the Corporation to: 1. Negotiate with
and obtain from (petitioner) the extension of an
omnibus line in the aggregate of P30 million x x x; and
2. Execute and deliver all documentation necessary to
[17]
implement all of the foregoing.
– SECOND SET CASE DIGEST | 85
Further, the agreement involved here is a contract of
adhesion, which was prepared entirely by one party
and offered to the other on a take it or leave it basis.
Following the general rule, the contract must be read
against petitioner, because it was the party that
[18]
prepared it, more so because a bank is held to high
[19]
standards of care in the conduct of its business.
In the totality of the circumstances, we hold that
Respondents Cu and Hong clearly signed the Note
merely as representatives of Minfaco.
No Reason to Pierce the Corporate Veil
Under certain circumstances, courts may treat a
corporation as a mere aggroupment of persons, to
whom liability will directly attach. The distinct and
separate corporate personality may be disregarded,
inter alia, when the corporate identity is used to defeat
public convenience, justify a wrong, protect a fraud, or
defend a crime. Likewise, the corporate veil may be
pierced when the corporation acts as a mere alter ego
or business conduit of a person, or when it is so
organized and controlled and its affairs so conducted
as to make it merely an instrumentality,
[20]
agency, conduit or adjunct of another corporation.
But to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and
[21]
convincingly established; it cannot be presumed.
Petitioner contends that the corporation was used to
protect the fraud foisted upon it by the individual
respondents. It argues that the CA failed to consider the
following badges of fraud and evident bad faith: 1) the
individual respondents misrepresented the corporation as
solvent and financially capable of paying its loan; 2) they
knew that prices of ferrosilicon were declining in the world
market when they secured the loan in June 1991; 3) not a
single centavo was paid for the loan; and
4) the corporation suspended its operations shortly after
[22]
the loan was granted.
Fraud refers to all kinds of deception -- whether through
insidious machination, manipulation, concealment or
misrepresentation -- that would lead an ordinarily prudent
person into error after taking the circumstances
[23]
into account. In contracts, a fraud known as dolo
[24]
causante or causal fraud is basically a deception used
by one party prior to or simultaneous with the contract,
[25]
in order to secure the consent of the other.
Needless to say, the deceit employed must be serious.
In contradistinction, only some particular or accident of
the obligation is referred to by incidental fraud or dolo
[26]
incidente, or that which is not serious in character
and without which the other party would have entered
[27]
into the contract anyway.
Fraud must be established by clear and convincing
evidence; mere preponderance of evidence is not
[28]
adequate. Bad faith, on the other hand, imports a
dishonest purpose or some moral obliquity and
conscious doing of a wrong, not simply bad judgment
[29]
or negligence. It is synonymous with fraud, in that
[30]
it involves a design to mislead or deceive another.
Unfortunately, petitioner was unable to establish clearly
and precisely how the alleged fraud was committed. It
failed to establish that it was deceived into granting the
loans because of respondents misrepresentations
 CORPORATION LAW
and/or insidious actions. Quite the contrary,
circumstances indicate the weakness of its submission.
First, petitioner does not deny that the P5 million loan
[31]
represented the consolidation of two loans, granted
long before the bank required the individual
respondents to execute the Promissory Note, Trust
Receipt Agreement, Quedan or Deed of Assignment.
Hence, no words, acts or machinations arising from
any of those instruments could have been used by
them prior to or simultaneous with the execution of the
contract, or even as some accident or particular of the
obligation.
Second, petitioner bank was in a position to verify for
itself the solvency and trustworthiness of respondent
corporation. In fact, ordinary business prudence required
it to do so before granting the multimillion loans. It is of
common knowledge that, as a matter of practice, banks
conduct exhaustive investigations of the financial standing
of an applicant debtor, as well as appraisals of collaterals
offered as securities for loans to ensure their prompt and
satisfactory payment. To uphold petitioners cry of fraud
when it failed to verify the existence of the goods covered
by the Trust Receipt Agreement and the Quedan is to
condone its negligence.
4. PRUDENTIAL BANK VS
ALVIAR FACTS:
Respondents, spouses Don A. Alviar and Georgia B.
Alviar, are the registered owners of a parcel of land in
San Juan, Metro Manila, covered by Transfer Certificate
of Title (TCT) No. 438157 of the Register of Deeds of
Rizal. On 10 July 1975, they executed a deed of real
estate mortgage in favor of petitioner Prudential Bank
[2]
to secure the payment of a loan worth P250,000.00.
This mortgage was annotated at the back of TCT No.
438157. On 4 August 1975, respondents executed the
corresponding promissory note, PN BD#75/C-252,
covering the said loan, which provides that the loan
matured on 4 August 1976 at an interest rate of 12%
per annum with a 2% service charge, and that the
note is secured by a real estate mortgage as
[3]
aforementioned. Significantly, the real estate
mortgage contained the following clause:
That for and in consideration of certain loans, overdraft
and other credit accommodations obtained from the
Mortgagee by the Mortgagor and/or
________________ hereinafter referred to,
irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be
obtained, the principal or all of which is hereby fixed at
Two Hundred Fifty Thousand (P250,000.00) Pesos,
Philippine Currency, as well as those that the
Mortgagee may extend to the Mortgagor and/or
DEBTOR, including interest and expenses or any other
obligation owing to the Mortgagee, whether direct or
indirect, principal or secondary as appears in the
accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of
mortgage unto the Mortgagee, its successors or
assigns, the parcels of land which are described in the
list inserted on the back of this document, and/or
appended hereto, together with all the buildings and
improvements now existing or which may hereafter be
erected or constructed thereon, of which the Mortgagor
declares that he/it is the absolute owner free from all
liens and incumbrances. . . .[4]
– SECOND SET CASE DIGEST | 86
On 22 October 1976, Don Alviar executed another
promissory note, PN BD#76/C-345 for P2,640,000.00,
secured by D/A SFDX #129, signifying that the loan
was secured by a "hold-out" on the mortgagor's
foreign currency savings account with the bank under
Account No. 129, and that the mortgagor's passbook is
to be surrendered to the bank until the amount
secured by the "hold-out" is settled.
[5]
On 27 December 1976, respondent spouses executed for
Donalco Trading, Inc., of which the husband and wife
were President and Chairman of the Board and Vice
President,
[6]
respectively, PN BD#76/C-430 covering
P545,000.000. As provided in the note, the loan is
secured by "Clean- Phase out TOD CA 3923," which
means that the temporary overdraft incurred by Donalco
Trading, Inc. with petitioner is to be converted into an
ordinary loan in compliance with a Central Bank circular
[7]
directing the discontinuance of overdrafts.
On 16 March 1977, petitioner wrote Donalco Trading,
Inc., informing the latter of its approval of a straight
loan of P545,000.00, the proceeds of which shall be
used to liquidate the outstanding loan of P545,000.00
TOD. The letter likewise mentioned that the securities
for the loan were the deed of assignment on two
promissory notes executed by Bancom Realty
Corporation with Deed of Guarantee in favor of A.U.
Valencia and Co. and the chattel mortgage on various
[8]
heavy and transportation equipment.
On 06 March 1979, respondents paid petitioner
P2,000,000.00, to be applied to the obligations of G.B.
Alviar Realty and Development, Inc. and for the
release of the real estate mortgage for the
P450,000.00 loan covering the two (2) lots located at
Vam Buren and Madison Streets, North Greenhills, San
Juan, Metro Manila. The payment was acknowledged
by petitioner who accordingly released the mortgage
[9]
over the two properties.
On 15 January 1980, petitioner moved for the
extrajudicial foreclosure of the mortgage on the
property covered by TCT No. 438157. Per petitioner's
computation, respondents had the total obligation of
P1,608,256.68, covering the three (3) promissory
notes, to wit: PN BD#75/C-252 for P250,000.00, PN
BD#76/C-345 for P382,680.83, and PN BD#76/C-340
for P545,000.00, plus assessed past due interests and
penalty charges. The public auction sale of the
mortgaged property was set on 15 January 1980.
Respondents filed a complaint for damages with a
prayer for the issuance of a writ of preliminary
[11]
injunction with the RTC of Pasig, claiming that they
have paid their principal loan secured by the
mortgaged property, and thus the mortgage should
not be foreclosed.
On 15 March 1994, the trial court dismissed the
complaint and ordered the Sheriff to proceed with the
extra- judicial foreclosure.
The Court of Appeals affirmed the Order of the trial court
but deleted the award of attorney's fees.
[17]
It ruled that
while a continuing loan or credit accommodation based on
only one security or mortgage is a common practice in
financial and commercial institutions, such agreement
must be clear and unequivocal. In the instant case, the
parties executed different promissory notes agreeing to a
particular security for each loan. Thus, the appellate
 CORPORATION LAW
court ruled that the extrajudicial foreclosure sale of the
property for the three loans is improper.
ISSUE:
WoN the respondents are the real party to the loan.
HELD:
No. it is important to note that one of the loans sought to
be included in the "blanket mortgage clause" was
obtained by respondents for Donalco Trading, Inc. Indeed,
PN BD#76/C-430 was executed by respondents on behalf
of Donalco Trading, Inc. and not in their personal
capacity. Petitioner asks the Court to pierce the veil of
corporate fiction and hold respondents liable even for
obligations they incurred for the corporation. The
mortgage contract states that the mortgage covers "as
well as those that the Mortgagee may extend to the
Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee,
whether direct or indirect, principal or secondary." Well-
settled is the rule that a corporation has a personality
separate and distinct from that of its officers and
stockholders. Officers of a corporation are not personally
liable for their acts as such officers unless it is shown that
they have exceeded their
[36]
authority. However, the legal fiction that a corporation
has a personality separate and distinct from stockholders
and members may be disregarded if it is used as a means
to perpetuate fraud or an illegal act or as a vehicle for the
evasion of an existingobligation, the circumvention of
[37]
statutes, or to confuse legitimate issues. PN BD#76/C-
430, being an obligation of Donalco Trading, Inc., and not
of the respondents, is not within the contemplation of the
"blanket mortgage clause." Moreover, petitioner is unable
to show that respondents are hiding behind the corporate
structure to evade payment of their obligations. Save for
the notation in the promissory note that the loan was for
house construction and personal consumption, there is no
proof showing that the loan was indeed for respondents'
personal consumption. Besides, petitioner agreed to the
terms of the promissory note. If respondents were indeed
the real parties to the loan, petitioner, a big, well-
established institution of long standing that it is, should
have insisted that the note be made in the name of
respondents themselves, and not to Donalco Trading Inc.,
and that they sign the note in their personal capacity and
not as officers of the corporation.
5. PIONEER INSURANCE vs MORNING STAR
TRAVEL AND TOURS
Morning Star is a travel and tours agency with Benny
Wong, Estelita Wong, Arsenio Chua, Sonny Chua, and
Wong Yan Tak as shareholders and members of the board
of directors. International Air Transport Association is a
Canadian corporation licensed to do business in the
Philippines "to promote safe, regular and economical air
transport for all people, among others."
International Air Transport Association appointed
Morning Star as an accredited travel agent.11 Morning
Star "avail[ed] of the privilege of getting on credit . . .
air transport tickets from various airline companies [to
be sold] to passengers at prices fixed by the airline
companies[.]"
Morning Star and International Air Transport Association
entered a Passenger Sales Agency Agreement such that
Morning Star must report all air transport ticket sales to
International Air Transport Association and account all
– SECOND SET CASE DIGEST | 87
payments received through the centralized system
called Billing and Settlement Plan. Morning Star only
holds in trust all monies collected as these belong to
the airline companies.
International Air Transport Association obtained a
Credit Insurance Policy from Pioneer to assure itself of
payments by accredited travel agents for ticket sales
and monies due to the airline companies under the
Billing and Settlement Plan. The policy was for the
period from November 1, 2001 to December 31, 2002,
renewed for the period from January 1, 2003 to
December 31, 2003.
The policy was made known to the accredited travel
agents. Morning Star, through its President, Benny
Wong, was among those that declared itself liable to
indemnify Pioneer for any and all claims under the
policy. He executed a registration form under the
Credit Insurance Program for BSP-Philippines Agents.
Morning Star had an accrued billing of P49,051,641.80
and US$325,865.35 for the period from December 16,
2002 to December 31, 2002. It failed to remit these
amounts through the Billing and Settlement Plan,
prompting the International Air Transport Association
to send a letter dated January 17, 2003 advising on
the overdue remittance.
International Air Transport Association again declared
Morning Star in default by a letter dated January 20, 2003
for its overdue account covering the period from January
1, 2003 to January 20, 2003. Pursuant to the credit
insurance policies, International Air Transport Association
demanded from Pioneer the sums of P109,728,051.00 and
US$457,834.14 representing Morning Star’s overdue
account as of April 30, 2003. Pioneer investigated,
ascertained, and validated the claims, then paid
International Air Transport Association the amounts of
P100,479,171.59 and US$457,834.14.
Consequently, Pioneer demanded these amounts from
Morning Star through a letter dated September 23,
2003. International Air Transport Association executed
in Pioneer’s favor a Release of Claim and Subrogation
Receipt on December 23, 2003.
On November 10, 2005, Pioneer filed a Complaint for
Collection of Sum of Money and Damages against
Morning Star and its shareholders and directors.
RTC: ruled in favor of Pioneer and ordered respondents
to jointly and severally pay Pioneer
Court of Appeals: denied Pioneer’s Motion for Partial
Reconsideration. Thus, Pioneer filed this Petition.
Pioneer submits that its Petition falls under the
exceptions to the general rule that petitions for review
may raise only questions of law. Pioneer raises
conflicting findings and conclusions by the lower courts
regarding solidary liability, and misapprehension of
facts by the Court of Appeals.
Pioneer argues that "the individual respondents were, at
the very least, grossly negligent in running the affairs of
respondent Morning Star by knowingly allowing it to
amass huge debts to [International Air Transport
Association] despite its financial distress, thus, giving
sufficient ground for the court to pierce the corporate veil
and hold said individual respondents personally liable." It
cites Section 31 of the Corporation Code on the liability of
directors "guilty of gross negligence or bad faith in
directing the affairs of the corporation[.]"
 CORPORATION LAW
Pioneer also cites jurisprudence on the requisites for
the doctrine of piercing the corporate veil to apply. It
submits that all requisites are present, thus, the
individual respondents should be held solidarily liable
with Morning Star. It cites at length the testimony of
its witness Atty. Vincenzo Nonato M. Taggueg (Atty.
Taggueg) that based on Morning Star’s General
Information Sheet and financial statements, Morning
Star "has been accumulating losses as early as 1998
continuing to 1999 and 2000 resulting to a deficit of
Php26,168,1768.00 [sic] as of December 31, 2000[.]"
Pioneer contends that the abnormally large
indebtedness to International Air Transport Association
was incurred in fraud and bad faith, with Morning Star
having no intention to pay its debt. It cites Oria v.
McMicking on the badges of fraud. Pioneer then
enumerates "the unmistakable badges of fraud and
deceit committed by individual respondents" such as
the fact that Morning Star had no assets, but the two
corporations also "controlled and managed by the
individual respondents were doing relatively well [at]
the time . . . Morning Star was incurring huge
losses[.]" Moreover, a new travel agency called
Morning Star Tour Planners, Inc. now operates at the
Morning Star’s former principal place of business in
Pedro Gil, Manila, with the children of individual
respondents as its stockholders, directors, and officers.
Respondents counter with the general rule clothing
corporations with personality separate and distinct
from their officers and stockholders. They submit that
"[m]ere sweeping allegations that officers acted in bad
faith because it incurred obligations it cannot pay will
not hold any water." Respondents argue that Pioneer
failed to prove bad faith, relying only on Atty.
Taggueg’s testimony, but "Mr. Taggueg admitted that
his knowledge about the defendant Morning Star was
merely based on his assumptions and his examination
of the [Securities and Exchange Commission]
documents.
ISSUE: Whether the doctrine of piercing the corporate
veil applies to hold the individual respondents solidarily
liable with respondent Morning Star Travel and Tours,
Inc. to pay the award in favor of petitioner Pioneer
Insurance & Surety Corporation.
RULING:
The law vests corporations with a separate and distinct
personality from those that represent these
corporations.61
The corporate legal structure draws its "economic
superiority"62 from key features such as a separate
corporate personality. Unlike other business
associations such as partnerships, the corporate
framework encourages investment by allowing even
small capital contributors to be part of a big business
endeavor made possible by the aggregation of their
capital funds.63 The consequent limited liability
feature, since corporate assets will answer for
corporate debts, also proves attractive for investors.
However, this legal structure should not be abused.
A separate corporate personality shields corporate
officers acting in good faith and within their scope of
authority from personal liability except for situations
enumerated by law and jurisprudence,64 thus:
Personal liability of a corporate director, trustee or
officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when
— not find any assets or properties in the name of
– SECOND SET CASE DIGEST | 88
‘1. He assents (a) to a patently unlawful act of
the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for
conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;
‘2. He consents to the issuance of watered
stocks or who, having knowledge thereof, does
not forthwith file 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 first exception comes from Section 31 of the
Corporation Code:
SECTION 31. Liability of Directors, Trustees or
Officers. —
Directors or trustees who wilfully and knowingly vote
for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the
corporation, its stockholders or members and other
persons. (Emphasis supplied)
Petitioner imputes gross negligence and bad faith on the
part of the individual respondents for incurring the huge
indebtedness to International Air Transport Association.
Bad faith "imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, not simply
bad judgment or negligence." "[I]t means breach of a
known duty through some motive or interest or ill will;
it partakes of the nature of fraud."
The trial court gave weight to its finding that respondent
Morning Star still availed itself of loans and/or obligations
with International Air Transport Association despite its
financial standing of operating at a loss:
Based on the plaintiff’s examination of the financial
statements submitted by the defendant Morning Star with
the Securities and Exchange Commission (SEC) for the
years 2000 and 2001 with comparative figures for the
years ending 1998, 1999 and 2000, herein defendant
corporation has been accumulating losses as early as
1998 continuing to 1999 and 2000 resulting to a deficit of
Php26, 168,176.80 as of December 31, 2000. It was also
shown that for the prior years of 1998 and 1999,
defendant Morning Star incurred a deficit of
Php3,910,763.00 as of December 31, 1998 and
Php2,841,626.00 as of December 31, 1999 and in the
Balance Sheet, it indicated therein the defendants’ total
assets of Php150,579,421.00 while the total liabilities
amounted to Php160,222,966.00, thereby making the
defendant Morning Star insolvent. Despite the fact that
defendant Morning Star was already incurring
losses as early as 1998 up to the year 2000, the
latter still contracted loans and/or obligations with
IATA sometime in 2002 and which indebtedness
ballooned to the huge amount of
Php109,728,051.00 andUS$496,403.21 as of April
30, 2003, which obviously it could not pay
considering its financial standing.
Further investigation by the plaintiff shows that it could
 CORPORATION LAW
defendant Morning Star because even the land and the
building where it held office was registered in the name of
"Morning Star Management Ventures Corporation", as
evidenced by the certified true copies of the transfer
certificates of title (TCT) nos. 192243 and 192244 in the
name of Morning Star Management Ventures Corporation
and unlike the defendant Morning Star, which has
practically the same officers and members of the Board,
has only an asset of Php125,392,960.00 and liabilities of
Php4,306,702[.]00 and an income deficit of
Php26,922,598.00 as of December 31, 2001. Similarly,
the Pic [‘]N Pac Mart, Inc., which has the same set of
officers, said corporation has shown a total assets of
Php5,423,201.30 and liabilities/stockholders equity of
Php5,423,201.30 but with a retained earnings of
Php194,412[.]74 as of December 31, 1999. Plaintiff
contends that in such a case, defendant Morning
Star has used the separate and distinct corporate
personality accorded to it under the Corporation
Code to commit said fraudulent transaction of
incurring corporate debts and allow the herein
individual defendants to escape personal liability
and placing the assets beyond the reach of the
creditors. (Emphasis supplied, citations omitted)
On the other hand, the Court of Appeals ruled that the
general rule on separate corporate personality and
against personal liability by corporate officers applies
since petitioner failed to prove bad faith amounting to
fraud by the corporate officers:
The mere fact that Morning Star has been incurring
huge losses and that it has no assets at the time it
contracted large financial obligations to IATA, cannot
be considered that its officers, Defendants-Appellants
Estelita Co Wong, Benny H. Wong, Arsenio Chua,
Sonny Chua and Wong Yan Tak, acted in bad faith or
such circumstance would amount to fraud, warranting
personal and solidary liability of its corporate officers.
The same is also true with the fact that Morning Star
Management Ventures Corporation and Pic ‘N Pac Mart,
Inc., corporations having the same set of officers as
Morning Star, were doing relatively well during the
time that the former incurred huge losses. Thus, only
Morning Star should be held personally liable to
Plaintiff- Appellee, and not its corporate officers.
Piercing the corporate veil in order to hold corporate
officers personally liable for the corporation’s debts
requires that "the bad faith or wrongdoing of the
director must be established clearly and convincingly
[as] [b]ad faith is never presumed."
6. G.R. No. 215568, August 03, 2015
RICHARD N. RIVERA, Petitioner, v. GENESIS
TRANSPORT SERVICE, INC. AND RIZA A.
MOISES, Respondents.
Facts: Rivera was employed by respondent Genesis
Transport Service, Inc. (Genesis) beginning June 2002
as a bus conductor, assigned to the Cubao-Baler,
Aurora route. As part of the requisites for his
employment, he was required to post a cash bond of
P6,000.00. Respondent Riza A. Moises is Genesis'
7
President and General Manager.
In his Position Paper before the Labor Arbiter, Rivera
acknowledged that he was dismissed by Genesis on
account of a discrepancy in the amount he declared on
bus ticket receipts. He alleged that on June 10, 2010,
8
he received a Memorandum giving him twenty-four
– SECOND SET CASE DIGEST | 89
(24) hours to explain why he should not be sanctioned
for reporting and remitting the amount of P198.00
instead of the admittedly correct amount of P394.00
worth of bus ticket receipts. He responded that it was
an honest mistake, which he was unable to correct
"because the bus encountered mechanical problems.
The discrepancy between the reported and remitted
amount as against the correct amount was detailed in
the "Irregularity Report" prepared by Genesis'
10
Inspector, Arnel Villaseran (Villaseran).
According to Villaseran, on May 25, 2010, he
conducted a "man to man" inspection on the tickets
held by the passengers on board Bus No. 8286 who
had transferred from Bus No. 1820 in San Fernando,
Pampanga. (Bus No. 1820 broke down.) In the course
of his inspection, he noticed that Ticket No. 723374 VA
had a written corrected amount of P394.00. However,
the amount marked by perforations made on the
ticket, which was the amount originally indicated by
the bus conductor, was only P198.00. Upon inquiring
with the passenger holding the ticket, Villaseran found
out that the passenger paid P500.00 to Rivera, who
gave her change in the amount of P106.00.
On July 20, 2010, Genesis served on Rivera a written
13
notice informing him that a hearing of his case was
set on July 23, 2010. Despite his explanations, Rivera's
services were terminated through a written notice
14
dated July 30, 2010. Contending that this
termination was arbitrary and not based on just causes
15
for terminating employment, he filed the Complaint
16
for illegal dismissal, which is subject of this Petition.
For their defense, Genesis and Riza A. Moises claimed
that Rivera's misdeclaration of the amount in the bus
ticket receipts and failure to remit the correct amount
clearly violated Genesis' policies and amounted to
serious misconduct, fraud, and willful breach of trust;
17
thereby justifying his dismissal.
Labor Arbiter Gaudencio P. Demaisip gave credence to
respondents' appreciation of the gravity of Rivera's
acts of misdeclaring the amount of bus ticket receipts
and failing to remit the correct amount. Thus, he
dismissed Rivera's Complaint. Hence, appealed.
The Court of Appeals denied Rivera's Motion for
Reconsideration.
Hence, this Petition was filed.
For resolution is the issue of whether petitioner Richard N.
Rivera's employment was terminated for just cause
by respondent Genesis Transport, Inc.
As Riza A. Moises, Genesis' President and General
Manager, has been impleaded, this court must also
rule on her personal liability, should the termination of
petitioner's employment be found invalid.
Issue:
1. Whether or not Richard Rivera violated Genesis'
policies and amounted to serious misconduct,
 CORPORATION LAW
fraud, and willful breach of trust; thereby
justifying his dismissal.
2. Whether or not Riza A. Moises, Genesis'
President and General Manager, has been
impleaded, this court must also rule on her
personal liability.
Ruling:
1. No. Misconduct and breach of trust are just
causes for terminating employment only when
attended by such gravity as would leave the
employer no other viable recourse but to cut
off an employee's livelihood.
The Labor Code recognizes serious
misconduct, willful breach of trust or loss of
confidence, and other analogous causes as
just causes for termination of employment.
Serious misconduct as a just cause for
termination was discussed in Yabut v. Manila
29
Electric Co.:
Misconduct is defined as the "transgression of some
established and definite rule of action, a forbidden act,
a dereliction of duty, willful in character, and implies
wrongful intent and not mere error in judgment." For
serious misconduct to justify dismissal, the following
requisites must be present: (a) it must be serious; (b)
it must relate to the performance of the employee's
duties; and (c) it must show that the employee has
30
become unfit to continue working for the employer.
Thus, it is not enough for an employee to be found to
have engaged in improper or wrongful conduct. To
justify termination of employment, misconduct must
be so severe as to make it evident that no other
penalty but the termination of the employee's
livelihood is viable.
To reiterate, what is involved is a paltry amount of
P196.00. All that has been proven is the existence of a
discrepancy. No proof has been adduced of ill-motive
or even of gross negligence. From all indications,
petitioner stood charged with a lone, isolated instance
of apparent wrongdoing.
The records are bereft of evidence showing a pattern of
discrepancies chargeable against petitioner. Seen in the
context of his many years of service to his employer and
in the absence of clear proof showing otherwise, the
presumption should be that he has performed his
functions faithfully and regularly. It can be assumed that
he has issued the correct tickets and given accurate
amounts of change to the hundreds or even thousands of
passengers that he encountered throughout his tenure. It
is more reasonable to assume that—except for a single
error costing a loss of only P196.00—the company would
have earned the correct expected margins per passenger,
per trip, and per bus that it
allowed to travel.
Absent any other supporting evidence, the error in a
single ticket issued by petitioner can hardly be used to
justify the inference that he has committed serious
misconduct or has acted in a manner that runs afoul of
his employer's trust. More so, petitioner cannot be
taken to have engaged in a series of acts evincing a
pattern or a design to defraud his employer.
Terminating his employment on these unfounded
reasons is manifestly unjust.
2. No. Respondent Riza A. Moises may not be
held personally liable for the illegal
– SECOND SET CASE DIGEST | 90
termination of petitioner's employment.
As we explained in Saudi Arabian Airlines v.
39
Rebesencio:
A corporation has a personality separate and distinct
from those of the persons composing it. Thus, as a
rule, corporate directors and officers are not liable for
the illegal termination of a corporation's employees. It
is only when they acted in bad faith or with malice that
they become solidarity liable with the corporation.
In Ever Electrical Manufacturing, Inc. (EEMI) v. Samahang
Manggagawa ng Ever Electrical, this court clarified that
"[b]ad faith does not connote bad judgment or
negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it means breach
of a known duty through some motive or interest or ill
40
will; it partakes of the nature of fraud."
Petitioner has not produced proof to show that
respondent Riza A. Moises acted in bad faith or with
malice as regards the termination of his employment.
Thus, she did not incur any personal liability.
11. RESPONSIBILITY FOR CRIMES
1.) G.R. No. 179337 April 30, 2008
JOSEPH SALUDAGA, petitioner, vs. FAR EASTERN
UNIVERSITY and EDILBERTO C. DE JESUS in his
capacity as President of FEU, respondents.
FACTS: Petitioner Joseph Saludaga was a sophomore
law student of respondent Far Eastern University (FEU)
when he was shot by Alejandro Rosete (Rosete), one
of the security guards on duty at the school premises.
Petitioner was rushed to FEU-Dr. Nicanor Reyes
Medical Foundation (FEU-NRMF) due to the wound he
sustained. Meanwhile, Rosete was brought to the
police station where he explained that the shooting
was accidental. He was eventually released considering
that no formal complaint was filed against him.
Petitioner thereafter filed a complaint for damages
against respondents on the ground that they breached
their obligation to provide students with a safe and
secure environment and an atmosphere conducive to
learning. Respondents, in turn, filed a Third-Party
Complaint against Galaxy Development and
Management Corporation (Galaxy), the agency
contracted by respondent FEU to provide security
services within its premises and Mariano D. Imperial
(Imperial), Galaxy's President, to indemnify them for
whatever would be adjudged in favor of petitioner.
The trial court rendered a decision in favor of petitioner
ordering: FEU and Edilberto de Jesus, in his capacity as
president of FEU to pay jointly and severally Joseph
Saludaga the amount of P35,298.25 for actual
damages with 12% interest; and Galaxy Management
and Development Corp. and its president, Col. Mariano
Imperial to indemnify jointly and severally 3rd party
plaintiffs (FEU and Edilberto de Jesus in his capacity as
President of FEU).
Respondents appealed to the CA. The CA reversed the
ruling of RTC.
Hence, the instant petition.
In his appeal, petitioner sued respondents for damages
based on the alleged breach of student-school contract
 CORPORATION LAW
for a safe learning environment. Respondents aver that
the shooting incident was a fortuitous event because
they could not have reasonably foreseen nor avoided
the accident caused by Rosete as he was not their
employee; and that they complied with their obligation
to ensure a safe learning environment for their
students by having exercised due diligence in selecting
the security services of Galaxy.
ISSUES:
1. Whether or not FEU is guilty of culpa
contractual. YES
2. Whether or not the presence of force majeure
may absolve FEU from liability. NO
3. Whether or not the petitioner is entitled to
indemnification for damages. YES
4. Whether or not EDILBERTO C. DE JESUS in
his capacity as President of FEU, is
solidarily liable with FEU. NO
5. Whether or not the FEU President himself is
vicariously liable. NO
6. Whether or not Galaxy and its President were
liable for damages. YES
RULING:
1. YES. It is undisputed that petitioner was enrolled
as a sophomore law student in respondent FEU. As
such, there was created a contractual obligation
between the two parties. On petitioner’s part, he
was obliged to comply with the rules and
regulations of the school. On the other hand,
respondent FEU, as a learning institution is
mandated to impart knowledge and equip its
students with the necessary skills to pursue higher
education or a profession. At the same time, it is
obliged to ensure and take adequate steps to
maintain peace and order within the campus.
It is settled that in culpa contractual, the mere
proof of the existence of the contract and the
failure of its compliance justify, prima facie, a
corresponding right of relief. Here, petitioner was
shot inside the campus by no less the security
guard who was hired to maintain peace and secure
the premises, there is a prima facie showing that
respondents failed to comply with its obligation to
provide a safe and secure environment to its
students. Also, respondents failed to prove that
they ensured that the guards assigned in the
campus met the requirements stipulated in the
Security Service Agreement. No evidence as to the
qualifications of Rosete as security guard was
presented. Respondents also failed to show that
they undertook steps to ascertain and confirm that
the security guards assigned to them actually
possess the qualifications required in the Security
Service Agreement. It was not proven that they
examined the clearances, psychiatric test results,
201 files, and other vital documents enumerated in
its contract with Galaxy. Total reliance on the
security agency about these matters or failure to
check the papers stating the qualifications of the
guards is negligence on the part of respondents. A
learning institution should not be allowed to
completely relinquish or abdicate security matters
in its premises to the security agency it hired. To
do so would result to contracting away its inherent
– SECOND SET CASE DIGEST | 91
obligation to ensure a safe learning environment
for its students.
2. NO.
In order for force majeure to be considered,
respondents must show that no negligence or
misconduct was committed that may have occasioned
the loss. An act of God cannot be invoked to protect a
person who has failed to take steps to forestall the
possible adverse consequences of such a loss. One’s
negligence may have concurred with an act of God in
producing damage and injury to another;
nonetheless, showing that the immediate or
proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability.
When the effect is found to be partly the result of a
person’s participation – whether by active
intervention, neglect or failure to act – the whole
occurrence is humanized and removed from the rules
applicable to acts of God.
3. YES. Petitioner is entitled to actual damages, moral
damages, temperate damages, attorney’s fees,
and litigation expenses. The petitioner is not
entitled to exemplary damages.
Article 1170 of the Civil Code provides that those
who are negligent in the performance of their
obligations are liable for damages. Accordingly, for
breach of contract due to negligence in providing a
safe learning environment, FEU is liable to
petitioner for damages. It is essential in the award
of damages that the claimant must have
satisfactorily proven during the trial the existence
of the factual basis of the damages and its causal
connection to defendant’s acts.
Petitioner spent P35,298.25 as expenses for his
hospitalization and medical expenses. Since the case
involved an obligation arising from a contract and not
a loan or forbearance of money, the proper rate of
legal interest is 6% per annum of the amount
demanded. The interest shall continue to run from the
filing of the complaint until the finality of the Decision.
After the decision becomes final and executory, the
applicable rate shall be 12% per annum until its
satisfaction. Also, transportation expenses and those
incurred in the hiring of a personal assistant while
recuperating were not however supported by receipts.
In the absence thereof, no actual damages may be
awarded.
Nonetheless, Art. 2224 of the Civil Code states that
temperate damages may be recovered where it
has been shown that the claimant suffered some
pecuniary loss but the amount thereof cannot be
proved with certainty.
SC awarded petitioner moral damages amounting to
P100,000.00 for the “physical suffering, mental
anguish, fright, serious anxiety, and moral shock
resulting from the shooting incident”. SC stressed
that the 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.
Attorney’s fees and litigation expenses amounting
to P50,000.00 were also reasonable in view of Art.
2208 of Civil Code.
 CORPORATION LAW
However, the award of exemplary damages is
deleted considering the absence of proof that the
respondents acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
4. In Powton Conglomerate, Inc. v. Agcolicol, we held
that:
[A] corporation is invested by law with a personality
separate and distinct from those of the persons
composing it, such that, save for certain exceptions,
corporate officers who entered into contracts in behalf
of the corporation cannot be held personally liable for
the liabilities of the latter. Personal liability of a
corporate director, trustee or officer along (although
not necessarily) with the corporation may so validly
attach, as a rule, only when - (1) he assents to a
patently unlawful act of the corporation, or when he is
guilty of bad faith or gross negligence in directing its
affairs, or when there is a conflict of interest resulting
in damages to the corporation, its stockholders or
other persons;
(2) he consents to the issuance of watered down
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 personally answerable for his
corporate action.
None of the foregoing exceptions was established in
the instant case; hence, respondent De Jesus should
not be held solidarily liable with respondent FEU.
5. NO. FEU President cannot be held liable for
damages under Art. 2180 of CC because
respondents are not employers of Rosete. The
latter was employed by Galaxy. The instructions
issued by respondents’ Security Consultant to
Galaxy and its security guards are ordinarily no
more than requests commonly envisaged in the
contract for services entered into by a principal
and a security agency. They cannot be construed
as the element of control as to treat respondents
as the employers of Rosete. Where the security
agency recruits, hires and assigns the works of its
watchmen or security guards to a client, the
employer of such guards or watchmen is such
agency, and not the client, since the latter has no
hand in selecting the security guards. Thus, the
duty to observe the diligence of a good father of a
family cannot be demanded from the said client.
6. YES. For the acts of negligence and for having
supplied respondent FEU with an unqualified
security guard, which resulted to the latter’s
breach of obligation to petitioner, it is proper to
hold Galaxy liable to respondent FEU for such
damages equivalent to the above-mentioned
amounts awarded to petitioner.
Also, unlike the FEU President, SC deemed Galaxy
President to be solidarily liable with Galaxy for being
grossly negligent in directing the affairs of the
security agency. It was the Galaxy President who
assured petitioner that his medical expenses will be
shouldered by Galaxy, but said representations were
not fulfilled because they presumed that petitioner
and his family were no longer interested in filing a
formal complaint against them.
HENCE, Galaxy Development and Management
Corporation (Galaxy) and its president, Mariano D.
Imperial are ORDERED to jointly and severally pay
– SECOND SET CASE DIGEST | 92
respondent FEU damages equivalent to the above-
mentioned amounts awarded to petitioner.
2.) QUEENSLAND-TOKYO COMMODITIES, INC.,
ROMEO Y. LAU, and CHARLIE COLLADO,
Petitioners, - versus - THOMAS GEORGE,
Respondent.
G.R. No. 172727 September 8, 2010
FACTS: QUEENSLAND-TOKYO COMMODITIES, INC.,
(QTCI) is a duly licensed broker engaged in the trading of
commodity futures. In 1995, Guillermo Mendoza, Jr.
(Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with
respondent Thomas George (respondent), encouraging
the latter to invest with QTCI. Respondent finally invested
with QTCI. CHARLIE Collado, in behalf of QTCI, and
[3]
respondent signed the Customers Agreement. Forming
part of the
agreement was the Special Power of
[4]
Attorney executed by respondent, appointing
Mendoza as his attorney-in-fact with full authority to
trade and manage his account.
In 1996, the Securities and Exchange Commission
(SEC) issued a Cease-and-Desist Order (CDO) against
QTCI. Alarmed by the issuance of the CDO, respondent
demanded from QTCI the return of his investment, but
it was not heeded. He then sought legal assistance,
and discovered that Mendoza and Lontoc were not
licensed commodity futures salesmen.
Respondent filed a complaint for Recovery of
[5]
Investment with Damages with the SEC against
QTCI, Lau, and Collado (petitioners), and against the
unlicensed salesmen, Mendoza and Lontoc.
Only petitioners answered the complaint, as Mendoza
and Lontoc had since disappeared. Petitioners denied
the material allegations in the complaint and alleged
lack of cause of action, as a defense. Petitioners
averred that QTCI only assigned duly qualified persons
to handle the accounts of its clients; and denied
allowing unlicensed brokers or agents to handle
respondents account. They claimed that they were not
aware of, nor were they privy to, any arrangement
which resulted in the account of respondent being
handled by unlicensed brokers. They added that even
assuming that the subject account was handled by an
unlicensed broker, respondent is now estopped from
raising it as a ground for the return of his investment.
They pointed out that respondent transacted business
with QTCI for almost a year, without questioning the
license or the authority of the traders handling his
account. It was only after it became apparent that
QTCI could no longer resume its business transactions
by reason of the CDO that respondent raised the
alleged lack of authority of the brokers or traders
handling his account. The losses suffered by
respondent were due to circumstances beyond
petitioners control and could not be attributed to them.
Respondents remedy, they added, should be against
the unlicensed brokers who handled the account. Thus,
petitioners prayed for the dismissal of the complaint.
[7]
The SEC Hearing Officer rendered a decision in favor
of respondent ordering that [petitioners] Queensland
Tokyo [C]ommodities, Inc., Romeo Y. Lau (aka Lau
Ching Yee) and Charlie F. Collado are jointly and
severally liable to [respondent] for the amount of
P138,164.00 representing the return of his
[respondents] peso investment; and the amount of
$19,820.00, American dollars, or its peso equivalent at
 CORPORATION LAW
the time of payment representing the [respondents]
return of his dollar investment.
Petitioners appealed to the Commission en banc, but
the appeal was dismissed because the Notice of Appeal
and the Memorandum on Appeal were not verified.
Petitioners appealed to the CA. They insisted that they did
not violate the rules on commodity futures trading. Thus,
they faulted the SEC Hearing Officer for nullifying the
Customers Agreement and for holding them liable for
respondents’ claims. The CA declared the dismissal of
petitioners appeal by the Commission en banc improper.
Nevertheless, it did not order a remand of the case to the
Commission en banc because jurisdiction over petitioners
appeal had already been transferred to the Regional Trial
Court (RTC) by virtue of Republic Act No. 8799 or the
Securities Regulation Code. The CA thus proceeded to
decide the merits of the case, affirming in toto the
decision of the SEC Hearing Officer. The appellate court
failed to see any reason to disturb the SEC Hearing
Officers finding of liability on the part of petitioners. It
sustained the finding that
petitioners violated the Revised Rules and Regulations
on Commodity Futures Trading when they allowed an
unlicensed salesman, like Mendoza, to handle
respondents account. The CA also upheld the
nullification of the Customers Agreement.
[13]
Petitioners filed a motion for reconsideration, but
[14]
the CA denied it on January 20, 2006. Hence, this
petition.
Petitioners insist that they did not violate the Revised
Rules and Regulations on Commodity Futures Trading.
They claim that it has been QTCIs policy and practice
to appoint only licensed traders to trade the clients
account. They denied any participation in the
designation of Mendoza as respondents attorney-in-
fact; taking exception to the findings that they
permitted Mendoza to trade respondents account.
ISSUES:
1. WON QTCI is liable for allowing an unlicensed
persons to deal with their clients.YES
2. WON Petitioners Collado and Lau are solidarily liable
with QTCI for the payment of respondents claim. YES
RULING:
1. The SC sustained the findings of the SEC Hearing
Officer and the CA that petitioners allowed unlicensed
individuals to engage in, solicit or accept orders in
futures contracts, and thus, transgressed the Revised
Rules and Regulations on Commodity Futures Trading.
[17]
As pointed out by the CA, the Special Power of
Attorney formed part of respondents agreement with
[18]
QTCI, and under the Customers Agreement, only a
licensed or registered dealer or investment consultant
may be appointed as attorney-in-fact.
Inexplicably, petitioners did not object to, and in fact
recognized, Mendozas appointment as respondents
attorney-in-fact. Collado, in behalf of QTCI, concluded
the Customers Agreement despite the fact that the
appointed attorney-in-fact was not a licensed dealer.
Worse, petitioners permitted Mendoza to handle
respondents account.
Indubitably, petitioners violated the Revised Rules and
Regulations on Commodity Futures Trading prohibiting
any unlicensed person to engage in, solicit or accept
orders in futures contract. Consequently, the SEC
Hearing Officer and the CA cannot be faulted for
– SECOND SET CASE DIGEST | 93
declaring the contract between QTCI and respondent
void.
Batas Pambansa Bilang (B.P. Blg.) 178 or the Revised
Securities Act explicitly provided:
SEC. 53. Validity of Contracts. x x x.
(b) Every contract executed in violation of any
provision of this Act, or any rule or regulation
thereunder, and every contract, including any contract
for listing a security on an exchange heretofore or
hereafter made, the performance of which involves the
violation of, or the continuance of any relationship or
practice in violation of, any provision of this Act, or
any rule and regulation thereunder, shall be void.
[20]
Likewise, Paragraph 29 of the Customers
Agreement provides:
29. Contracts entered into by unlicensed Account
Executives (A/E) or Investment consultants are
deemed void and of no legal effect.
Clearly, the CA merely adhered to the clear provision
of B.P. Blg. 178 and to the stipulation in the parties’
agreement when it declared as void the Customers
Agreement between QTCI and respondent.
It is settled that a void contract is equivalent to
nothing; it produces no civil effect. It does not create,
modify, or extinguish a juridical relation. Parties to a
void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are
[21]
deemed in pari delicto or in equal fault. This rule,
however, is not absolute. Article 1412 of the Civil Code
provides an exception, and permits the return of that
which may have been given under a void contract. Art.
1412. If the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense,
the following rules shall be observed:
(2) When only one of the contracting
parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for
the fulfillment of what has been promised him.
The other, who is not at fault, may demand
the return of what he has given without any
obligation to comply with his promise.
The evidence on record established that petitioners
indeed permitted an unlicensed trader and salesman,
like Mendoza, to handle respondents account. On the
other hand, the record is bereft of proof that
respondent had knowledge that the person handling
his account was not a licensed trader. Respondent can,
therefore, recover the amount he had given under the
contract. The SEC Hearing Officer and the CA,
therefore, committed no reversible error in holding
that respondent is entitled to a full recovery of his
investments.
2.) Doctrine dictates that a corporation is invested by law
with a personality separate and distinct from those of the
persons composing it, such that, save for certain
exceptions, corporate officers who entered into contracts
in behalf of the corporation cannot be held personally
liable for the liabilities of the latter. Personal liability of a
corporate director, trustee, or officer, along (although not
necessarily) with the corporation, may validly attach, as a
rule, only when (1) he assents to a patently unlawful act
of the corporation, or when he is guilty of bad faith or
gross negligence in directing its affairs, or when there is a
conflict of interest resulting in damages to the
corporation, its stockholders, or other persons; (2) he
consents to the issuance of watered down stocks or who,
having knowledge thereof, does not forthwith file with the
corporate secretary his written
 CORPORATION LAW
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 personally
answerable for his corporate action.
In holding Lau and Collado jointly and severally liable
with QTCI for respondents claim, the SEC Hearing
Officer explained in this wise:
Anent the issue of who among the individual
[petitioners] are jointly liable with QTCI in the payment of
the awards, the Commission took into consideration,
among others, that audit report on the trading activities
submitted by the Brokers and Exchange Department
(BED) of this Commission (Exhibit J). The findings
contained in the report include the presence of seven
(7) unlicensed investment consultants in QTCI, and the
company practice of changing deeds of Special Power
of Attorney bearing those who are licensed (exhibits J-
1 and J-2).
The Commission also took into consideration
the fact that [petitioner] Collado, who is not a licensed
commodity salesman, himself violated the aforequoted
provisions of the Revised Rules and Regulations on
Commodity Futures Trading when he admitted having
participated in the execution of the customers orders
(p. 7, TSN dated January 21, 1999) without giving any
exception thereto, which presumably includes his
participation in the execution of customers orders of
the [respondent].
Such being the case, [Mendozas] participation
in the trading of [respondents] account is within the
knowledge of [petitioner] Collado.
The presence of seven (7) unlicensed
investment consultants within QTCI apart from x x x
Mendoza, and [petitioner] Collados participation in the
unlawful execution of orders under the [respondents]
account clearly established the fact that the management
of QTCI failed to implement the rules and regulations
against the hiring of, and associating with, unlicensed
consultants or traders. How these unlicensed personnel
been able to pursue their unlawful activities is a reflection
of how negligent [the] management was.
[Petitioner] Romeo Lau, as
president of [petitioner] QTCI, cannot
feign innocence on the existence of
these unlawful activities within the
company, especially so that Collado,
himself a ranking officer of QTCI, is
involved in the unlawful execution of
customers orders. [Petitioner] Lau,
being the chief operating officer,
cannot escape the fact that had he
exercised a modicum of care and
discretion in supervising the operations
of QTCI, he could have detected and
prevented the unlawful acts of
[petitioner] Collado and Mendoza.
It is therefore safe to conclude
that although Lau may not have
participated nor been aware of the
unlawful acts, he is however deemed
to have been grossly negligence in
directing the affairs of QTCI.
In all, it having been
established by substantial evidence
that [petitioner] Collado assented to
the unlawful act of QTCI, and that
[petitioner] Lau is grossly negligent
in directing the affairs of QTCI, and
pursuant to Section 31 of
– SECOND SET CASE DIGEST | 94
the Corporation Code, they are
therefore, jointly and severally
liable with QTCI for all the
damages and awards due to the
[23]
[respondent].
The SC found no compelling reason to depart from the
conclusion of the SEC Hearing Officer, which was
affirmed by the CA. Thus, SC held Lau and Collado
jointly and severally liable with QTCI for the payment
of respondents claim.
3. G.R. No. 170735 December 17, 2007
IMMACULADA L. GARCIA, petitioner, vs. SOCIAL
SECURITY COMMISSION LEGAL AND COLLECTION,
SOCIAL SECURITY SYSTEM, respondents.
FACTS: Petitioner Immaculada L. Garcia, Eduardo de
Leon, Ricardo de Leon, Pacita Fernandez, and Consuelo
3
Villanueva were directors of Impact Corporation. The
corporation was engaged in the business of
manufacturing aluminum tube containers and operated
two factories.
Records show that around 1978, Impact Corporation
started encountering financial problems. In March
1983, Impact Corporation filed with the Securities and
Exchange Commission (SEC) a Petition for Suspension
of Payments.
The union of Impact Corporation filed a Notice of Strike
with the Ministry of Labor which was followed by a
declaration of strike. Subsequently, the Ministry of Labor
certified the labor dispute for compulsory arbitration to
the National Labor Relations Commission (NLRC) in an
5
Order dated 25 August 1985. The Ministry of Labor, in
the same Order, noted the inability of Impact Corporation
to pay wages, 13th month pay, and SSS remittances due
to cash liquidity problems.
The Social Security System (SSS), through its Legal and
Collection Division (LCD), filed a case before the SSC for
the collection of unremitted SSS premium contributions
withheld by Impact Corporation from its employees.
Impact Corporation was compulsorily covered by the
SSS as an employer effective 15 July 1963.
In answer to the allegations of SSS-LCD, Impact
Corporation, through its then Vice President Ricardo de
Leon, explained in a letter that it had been confronted
with strikes in 1984 and layoffs were effected
thereafter. It further argued that the P402,988.93 is
erroneous. It explained among other things, that its
operations had been suspended and that it was waiting
for the resolution on its Petition for Suspension of
Payments by the SEC.
Despite due notice, the corporation failed to appear at
the hearings. The SSC ordered the investigating team
of the SSS to determine if it can still file its claim for
unpaid premium contributions against the corporation
under the Petition for Suspension of Payments.
In the meantime, the Petition for Suspension of
Payments was dismissed. Impact Corporation resumed
9
operations but only for its winding up and dissolution.
Due to Impact Corporation’s liability and cash flow
problems, all of its assets, namely, its machineries,
equipment, office furniture and fixtures, were sold to
scrap dealers to answer for its arrears in rentals.
 CORPORATION LAW
The SSS -LCD filed an amended Petition wherein the
directors of Impact Corporation were directly impleaded
as respondents, namely: Eduardo de Leon, Ricardo de
11
Leon, Pacita Fernandez, Consuelo Villanueva, and
petitioner. The amounts sought to be collected totaled
P453,845.78 and P10,856.85 for the periods August 1980
to December 1984 and August 1981 to July 1984,
respectively, and the penalties for late remittance at the
rate of 3% per month from the date the contributions fell
due until fully paid pursuant to Section 22(a) of the Social
12
Security Law, as amended, in the amounts of
P49,941.67 and P2,474,662.82.
Summonses were not served upon Eduardo de Leon,
Pacita Fernandez, and Consuelo Villanueva, their
whereabouts unknown. They were all later determined
to be deceased. On the other hand, due to failure to
file his responsive pleading, Ricardo de Leon was
declared in default.
13
Petitioner filed with the SSC a Motion to Dismiss on
grounds of prescription, lack of cause of action and
cessation of business, but the Motion was denied for lack
14
of merit. In her Answer with Counterclaim, petitioner
averred that Impact Corporation had ceased operations in
1980. In her defense, she insisted that she was a
mere director without managerial functions, and she
ceased to be such in 1982. Even as a stockholder and
director of Impact Corporation, petitioner
contended that she cannot be made personally
liable for the corporate obligations of Impact
Corporation since her liability extended only up to
the extent of her unpaid subscription, of which she
had none since her subscription was already fully
paid.
SSC directed the System to check if Impact
Corporation had leviable properties to which the
investigating team of respondent SSS manifested that
the Impact Corporation had already been dissolved
17
and its assets disposed of.
The Social Security Commission ruled in favor of SSS
and declared petitioner liable to pay the unremitted
contributions and penalties, stating that respondents
Impact Corporation and/or Immaculada L. Garcia, as
director and responsible officer of the said corporation,
is liable to pay the SSS the amounts of P442,988.93,
representing the unpaid SS contributions of their
employees as well as the 3% per month penalty
imposed thereon for late payment in the amounts of
P3,194,548.63 and P78,441.33.
19
Petitioner filed a Motion for Reconsideration but it
was denied for lack of merit.
Petitioner elevated her case to the Court of Appeals.
The Court of Appeals, applying Section 28(f) of the
21
Social Security Law, again ruled against petitioner. It
dismissed the petitioner’s Petition.
Aggrieved, petitioner filed a Motion for Reconsideration
of the appellate court’s Decision but her Motion was
denied.
Hence, the instant Petition in which petitioner insists that
the Court of Appeals committed grave error in holding her
solely liable for the collected but unremitted
SSS premium contributions and the consequent late
penalty payments due thereon.
Petitioner contended that to be held liable under Section
28(f) of the Social Security Law for the unpaid SSS
premium contributions, one must be the "managing
– SECOND SET CASE DIGEST | 95
head," "managing director," or "managing partner” and
not merely a director or officer of an employer
corporation.
ISSUE: 1. Whether or not petitioner, as the only
surviving director of Impact Corporation, can be made
solely liable for the corporate obligations of Impact
Corporation pertaining to unremitted SSS premium
contributions and penalties therefore. YES, she is liable
as provided by law, Section 28(f) of the Social
Security Law.
2. Whether or not petitioner is liable for the unpaid SSS
premium contributions in addition to the penalties. YES
RULING: 1. Section 28(f) of the Social Security Law
imposes penalty on:
(1) the managing head;
(2) directors; or
(3) partners, for offenses committed by a
juridical person
The said provision does not qualify that the director or
partner should likewise be a "managing director" or
29
"managing partner." The law is clear and
unambiguous.
Petitioner nonetheless raises the defense that
under Section 31 of the Corporation Code, only
directors, trustees or officers who participate in
unlawful acts or are guilty of gross negligence
and bad faith shall be personally liable, and that
being a mere stockholder, she is liable only to
the extent of her subscription.
Basic is the rule that a corporation is invested by law
with a personality separate and distinct from that of
the persons composing it as well as from that of any
other legal entity to which it may be related. A
corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it.
Following this, the general rule applied is that
obligations incurred by the corporation, acting through
its directors, officers and employees, are its sole
30
liabilities. A director, officer, and employee of a
corporation are generally not held personally liable for
obligations incurred by the corporation.
Being a mere fiction of law, however, there are
peculiar situations or valid grounds that can exist to
warrant the disregard of its independent being and the
lifting of the corporate veil. This situation might arise
when a corporation is used to evade a just and due
obligation or to justify a wrong, to shield or perpetrate
fraud, to carry out other similar unjustifiable aims or
intentions, or as a subterfuge to commit injustice and
31
so circumvent the law. Thus, Section 31 of the
Corporation Law provides:
Taking a cue from the above provision, a corporate
director, a trustee or an officer, may be held solidarily
liable with the corporation in the following instances:
1. When directors and trustees or, in appropriate
cases, the officers of
a corporation--
(a) vote for or assent to patently unlawful acts
of the corporation;
(b) act in bad faith or with gross negligence in
directing the corporate affairs;
(c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or
members, and other persons.
 CORPORATION LAW
2. When a director or officer has consented to the
issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto.
3. When a director, trustee or officer has
contractually agreed or stipulated to hold himself
personally and solidarily liable with the Corporation.
4. When a director, trustee or officer is made, by
specific provision of law, personally liable for his
32
corporate action.
The situation of petitioner, as a director of
Impact Corporation when said corporation failed
to remit the SSS premium contributions falls
exactly under the fourth situation.
Section 28(f) of the Social Security Law imposes a
civil liability for any act or omission pertaining to the
violation of the Social Security Law, to wit:
(f) If the act or omission penalized by this Act
be committed by an association, partnership,
corporation or any other institution, its
managing head, directors or partners shall be
liable to the penalties provided in this Act for
the offense.
In fact, criminal actions for violations of the Social
Security Law are also provided under the Revised
Penal Code. The Social Security Law provides, in
Section 28 thereof, to wit:
(h) Any employer who, after deducting the
monthly contributions or loan amortizations from
his employees’ compensation, fails to remit the
said deductions to the SSS within thirty (30) days
from the date they became due shall be
presumed to have misappropriated such
contributions or loan amortizations and shall
suffer the penalties provided in Article Three
hundred fifteen of the Revised Penal Code.
The personal liability for the unremitted SSS
premium contributions and the late penalty
thereof attaches to the petitioner as a director of
Impact Corporation during the period the
amounts became due and demandable by virtue
of a direct provision of law.
Petitioner’s defense that since Impact Corporation
suffered irreversible economic losses, and by reason of
fortuitous events, she should be absolved from liability,
is also untenable. The evidence adduced totally belies
this claim. A reference to the copy of the Petition for
Suspension of Payments filed by Impact Corporation
on 18 March 1983 before the SEC contained an
admission that:
"[I]t has been and still is engaged in business"
and "has been and still is engaged in the
business of manufacturing aluminum tube
containers" and "in brief, it is an on-going,
viable, and profitable enterprise" which has
"sufficient assets" and "actual and potential
income-generation capabilities."
The foregoing document negates petitioner’s assertion
and supports the contention that during the period
involved Impact Corporation was still engaged in
business and was an ongoing, viable, profitable
– SECOND SET CASE DIGEST | 96
enterprise. In fact, the latest SSS form RIA submitted
by Impact Corporation is dated 7 May 1984. The
assessed SSS premium contributions and penalty are
obligations imposed upon Impact Corporation by law,
and should have been remitted to the SSS within the
first 10 days of each calendar month following the
month for which they are applicable or within such
35
time as the SSC prescribes.
2. As a covered employer under the Social Security
Law, it is the obligation of Impact Corporation under
the provisions of Sections 18, 19 and 22 thereof, as
amended, to deduct from its duly covered employee’s
monthly salaries their shares as premium contributions
and remit the same to the SSS, together with the
employer’s shares of the contributions to the
petitioner, for and in their behalf.
Petitioner in assailing the Court of Appeals Decision,
distinguishes the penalties from the unremitted or
unpaid SSS premium contributions. She points out that
although the appellate court is of the opinion that the
concerned officers of an employer corporation are
liable for the penalties for non-remittance of
premiums, it still affirmed the SSC Resolution holding
petitioner liable for the unpaid SSS premium
contributions in addition to the penalties.
Petitioner avers that her liability does not include
liability for the unremitted SSS premium contributions.
The liability imposed as contemplated under the foregoing
Section 28(f) of the Social Security Law does not preclude
the liability for the unremitted amount. Relevant to
Section 28(f) is Section 22 of the same law.
Under Section 22(a), “Every employer required to deduct
and to remit such contributions shall be liable for their
payment and if any contribution is not paid to the
SSS as herein prescribed, he shall pay besides the
contribution a penalty thereon of three percent (3%) per
month from the date the contribution falls due until paid.
The penalty automatically attaches to the delayed SSS
premium contributions. The spirit, rather than the letter of
a law determines construction of a provision of law. It is a
cardinal rule in statutory construction that in interpreting
the meaning and scope of a term used in the law, a
careful review of the whole law involved, as well as the
24
intendment of the law, must be made. Nowhere in the
provision or in the Decision can it be inferred that the
persons liable are absolved from paying the unremitted
premium contributions.
4.) Edward Ong v. Court of Appeals, G.R. No.
119858, [April 29, 2003]
FACTS: The prosecution alleged that petitioner,
[8]
representing RMAGRI International Corporation
(ARMAGRI), applied for a letter of credit for
P2,532,500.00 with SOLIDBANK Corporation (Bank) to
finance the purchase of differential assemblies from
Metropole Industrial Sales.
On 1990, petitioner, representing ARMAGRI, executed
[9]
a trust receipt acknowledging receipt from the Bank
of the goods valued at P2,532,500.00.
Petitioner and Benito Ong, representing ARMAGRI, applied
for another letter of credit for P2,050,000.00 to finance
the purchase of merchandise from Fertiphil Corporation.
The Bank approved the application, opened
 CORPORATION LAW
the letter of credit and paid to Fertiphil Corporation the
amount of P2,050,000.00.
Petitioner, signing for ARMAGRI, executed another
[10]
trust receipt in favor of the Bank acknowledging
receipt of the merchandise.
Both trust receipts contained the same stipulations. Under
the trust receipts, ARMAGRI undertook to account for the
goods held in trust for the Bank, or if the goods are sold,
to turn over the proceeds to the Bank. ARMAGRI also
undertook the obligation to keep the proceeds in the form
of money, bills or receivables as the separate property of
the Bank or to return the goods upon demand by the
Bank, if not sold. In addition, petitioner executed the
following additional undertaking stamped on the dorsal
portion of both trust receipts:
I/We jointly and severally agreed to any
increase or decrease in the interest rate which
may occur after July 1, 1981, when the Central
Bank floated the interest rates, and to pay
additionally the penalty of 1% per month until
the amount/s or installment/s due and unpaid
under the trust receipt on the reverse side
[11]
hereof is/are fully paid.
Petitioner signed alone the foregoing additional
undertaking in the Trust Receipt for P2,253,500.00,
while both petitioner and Benito Ong signed the
additional undertaking in the Trust Receipt for
P2,050,000.00.
When the trust receipts became due and demandable,
ARMAGRI failed to pay or deliver the goods to the Bank
despite several demand letters.
[12]
Consequently, the
unpaid account under the first trust receipt amounted to
[13]
P1,527,180.66, while the unpaid account under the
second trust receipt amounted to P1,449,395.71. Thus, a
case was filed charging petitioner and Benito Ong with
two counts of estafa.
Petitioner was convicted of estafa for violation of the
Trust Receipts Law by the Regional Trial Court of
Manila, on the other hand, accused BENITO ONG was
acquitted since his guilt thereof not having been
established. Petitioner appealed his conviction to the
Court of Appeals which affirmed the trial court's
decision in toto.
Petitioner filed a motion for reconsideration, but the
same was denied. The Court of Appeals held that
although petitioner is neither a director nor an officer
of ARMAGRI International Corporation, he certainly
comes within the term "employees or other . . .
persons therein responsible for the offense" in Section
13 of the Trust Receipts Law.
Hence, the present petition. Petitioner contended that
the Court of Appeals erred in finding him liable for the
default of ARMAGRI, arguing that in signing the trust
receipts, he merely acted as an agent of ARMAGRI.
Petitioner asserted that nowhere in the trust receipts
did he assume personal responsibility for the
undertakings of ARMAGRI which was the entrustee.
ISSUE: WON petitioner, who acted merely as agent
and signed for the entrustee corporation, was the one
responsible for the offense. YES
– SECOND SET CASE DIGEST | 97
RULING: The Supreme Court affirmed petitioner's
conviction. The Court ruled that petitioner is the
person responsible for the offense.
The Trust Receipts Law is violated whenever the
entrustee fails to: (1) turn over the proceeds of the
sale of the goods, or (2) return the goods covered by
the trust receipts if the goods are not sold. The mere
failure to account or return gives rise to the crime
which is malum prohibitum. There is no requirement to
prove intent to defraud. The Trust Receipts
Law recognizes the impossibility of imposing the
penalty of imprisonment on a corporation. Hence,
if the entrustee is a corporation, the law makes
the officers or employees or other persons
responsible for the offense liable to suffer the
penalty of imprisonment. The reason is obvious:
corporations, partnerships, associations and
other juridical entities cannot be put to jail.
Hence, the criminal liability falls on the human
agent responsible for the violation of theTrust
Receipts Law.
In the instant case, the Bank was the entruster while
ARMAGRI was the entrustee. Being the entrustee,
ARMAGRI was the one responsible to account for the
goods or its proceeds in case of sale. However, the
criminal liability for violation of the Trust Receipts Law
falls on the human agent responsible for the violation.
Petitioner, who admits being the agent of ARMAGRI, is
the person responsible for the offense for two reasons.
First, petitioner is the signatory to the trust receipts,
the loan applications and the letters of credit. Second,
despite being the signatory to the trust receipts and
the other documents, petitioner did not explain or
show why he is not responsible for the failure to turn
over the proceeds of the sale or account for the goods
covered by the trust receipts.
The Trust Receipts Law expressly makes the
corporation's' officers or employees or other persons
therein responsible for the offense liable to suffer the
penalty of imprisonment. In the instant case, petitioner
signed the two trust receipts on behalf of ARMAGRI as
the latter could only act through its agents. When
petitioner signed the trust receipts, he acknowledged
receipt of the goods covered by the trust receipts. In
addition, petitioner was fully aware of the terms and
conditions stated in the trust receipts, including the
obligation to turn over the proceeds of the sale or
return the goods to the Bank. True, petitioner acted on
behalf of ARMAGRI. However, it is a well-settled rule
that the law of agency governing civil cases has no
application in criminal cases. When a person
participates in the commission of a crime, he cannot
escape punishment on the ground that he simply acted
as an agent of another party. In the instant case, the
Bank accepted the trust receipts signed by petitioner
based on petitioner's representations. It is the fact of
being the signatory to the two trust receipts, and thus
a direct participant to the crime, which makes
petitioner a person responsible for the offense.
Contrary to petitioner's assertions, the Informations
explicitly allege that petitioner, representing ARMAGRI,
defrauded the Bank by failing to remit the proceeds of the
sale or to return the goods despite demands by the Bank,
to the latter's prejudice. As an essential element of estafa
with abuse of confidence, it is sufficient that the
Informations specifically allege that the entrustee received
the goods. The Informations expressly state that
ARMAGRI, represented by petitioner, received the goods
in trust for the Bank under the express obligation to remit
the proceeds of the sale or to return the goods upon
demand by the Bank. There is no need to allege in the
Informations in what capacity petitioner participated to
hold him responsible for the offense. Under the Trust
 CORPORATION LAW
Receipts Law, it is sufficient to allege and establish the
failure of ARMAGRI, whom petitioner represented, to
remit the proceeds or to return the goods to the Bank.
When petitioner signed the trust receipts, he claimed he
was representing ARMAGRI. The corporation obviously
acts only through its human agents and it is the conduct
of such agents which the law must deter. The existence of
the corporate entity does not shield from prosecution the
agent who knowingly and intentionally commits a crime at
the instance of a corporation.
It is a well-settled doctrine long before the enactment
of the Trust Receipts Law, that the failure to account,
upon demand, for funds or property held in trust is
evidence of conversion or misappropriation. Under the
law, mere failure by the entrustee to account for the
goods received in trust constitutes estafa: The Trust
Receipts Law punishes dishonesty and abuse of
confidence in the handling of money or goods to the
prejudice of public order. The mere failure to deliver
the proceeds of the sale or the goods if not sold
constitutes a criminal offense that causes prejudice not
only to the creditor, but also to the public interest.
Evidently, the Bank suffered prejudice for neither
money nor the goods were turned over to the Bank.
Petitioner signed the stamped additional undertaking
without any indication he was signing for ARMAGRI.
Petitioner merely placed his signature after the
additional undertaking. Clearly, what petitioner signed
in his personal capacity was the stamped additional
undertaking to pay a monthly penalty of 1% of the
total obligation in case of ARMAGRI's default. In the
additional undertaking, petitioner bound himself to pay
"jointly and severally" a monthly penalty of 1% in case
of ARMAGRI's default. Thus, petitioner is liable to the
Bank for the stipulated monthly penalty of 1% on the
outstanding amount of each trust receipt. The penalty
shall be computed from 15 July 1991, when petitioner
received the demand letter, until the debt is fully paid.
H. STOCKHOLDERS AND MEMBERS
1.) FOREST HELLS GOLF vs FIL-ESTATE
PROPERTIES
On March 31, 1993, Kingsville Construction and
Development Corporation (Kingsville) and Kings
Properties Corporation (KPC) entered into a project
agreement with respondent Fil-Estate Properties, Inc.
(FEPI), whereby the latter agreed to finance and cause
the development of several parcels of land owned by
Kingsville in Antipolo, Rizal, into Forest Hills Residential
Estates and Golf and Country Club, a first-class
residential area/golf-course/commercial center. Under
the agreement, respondent FEPI was tasked to
incorporate petitioner Forest Hills Golf and Country
Club, Inc. (FHGCCI) with an authorized stock of 3,600
shares; and to perform the development and
construction work and other undertakings as full
payment of its subscription to the authorized capital
stock of the club. As to the remaining shares of the
club, they agreed that these should be retained by
Kingsville in exchange for the parcels of land used for
the golf course development.
On July 10, 1995, respondent FEPI assigned its rights and
obligations over the project to a related corporation,
respondent Fil-Estate Golf Development, Inc. (FEGDI).
On July 19, 1996, Rainier L. Madrid (Madrid)
purchased two Class "A" shares at the secondary price
of P3 80,000.00 each, and applied for a membership to
the club for P25,000.00.
– SECOND SET CASE DIGEST | 98
Due to the delayed construction of the second 18-Hole
Golf Course, Madrid wrote two demand letters dated
October 29, 2009 and March 15, 2010 to the Board of
Directors of petitioner FHGCCI asking them to initiate
the appropriate legal action against respondents FEPI
and FEGDI. The Board of Directors, however, failed
and/or refused to act on the demand letters.
Thus, on April 21, 2010, Madrid, in a derivative
capacity on behalf of petitioner FHGCCI, filed with the
RTC of Antipolo City a Complaint for Specific
Performance with Damages, docketed as Civil Case No.
10-9042, against respondents FEPI and FEGDI.
In their Answer with Compulsory Counterclaim,
respondents FEPI and FEGDI argued that there is no
cause of action against them as petitioner FHGCCI failed
to state the contractual and/or legal bases of their alleged
obligation; that no prior demand was made to them; that
the action is not a proper derivative suit as petitioner
FHGCCI failed to exhaust all remedies available under the
articles of incorporation and by-laws; and that petitioner
FHGCCI failed to implead its Board of Directors as
indispensable parties.
Petitioner FHGCCI, in turn, filed a Reply arguing that the
case does not involve an intra-corporate controversy and
that the exhaustion of intra-corporate remedies was futile
and useless as the Board of Directors of petitioner FHGCCI
also own respondent FEGDI.
Respondents FEPI and FEGDI filed a Rejoinder followed
by a Motion to set their affirmative defenses for
preliminary hearing.
Petitioner FHGCCI filed a Motion for leave to amend its
Complaint to implead KPC and Kingsville as additional
defendants and to include Madrid as additional plaintiff
in his personal capacity. Respondents FEPI and FEGDI
opposed the Motion.
RTC: issued an Order dismissing the case for lack of
jurisdiction, without prejudice to the re-filing of the
same with the proper special commercial court sitting
at Binangonan, Rizal. Consequently, the motion for
leave to amend the Complaint was mooted.
Feeling aggrieved, petitioner FHGCCI moved for
reconsideration but the RTC denied the same in its
Order.
Petitioner FHGCCVs Arguments
Petitioner FHGCCI admits that it filed a derivative suit.
However, it contends that not all derivative suits involve
intra-corporate controversies. In this case, it filed a
derivative suit for specific performance in order to enforce
the project agreement between KPC, Kingsville, and
respondents FEPI and FEGDI. And although respondent
FEGDI is a stockholder of petitioner FHGCCI, it argues
that this does not make the instant case an intra-
corporate controversy as the case was filed against
respondents FEPI and FEGDI as developers, and not as
stockholders of petitioner FHGCCI. In fact, the causes of
action stated in the Complaint do not involve intra-
corporate controversies, nor do these involve the intra-
corporate relations between and among the stockholders
and the corporation's officials. Thus, the RTC seriously
erred in applying the case of Reyes without clearly
explaining why the instant case involves an intra-
corporate controversy.
Respondents' Arguments
 CORPORATION LAW
Respondents FEPI and FEGDI, on the other hand, reiterate
the arguments raised in their Answer before the RTC, to
wit: that petitioner FHGCCI has no cause of action as it
failed to present any contract upon which it can base its
claim; that the filing of the case is premature as no prior
demand was made to respondents FEPI and FEGDI; that
the Complaint is not a proper derivative suit as petitioner
FHGCCI failed to exhaust all remedies available under the
articles of incorporation and by-laws; and that petitioner
FHGCCI failed to implead its Board of Directors as
indispensable parties. They also maintain that the instant
case is an intra-corporate controversy as the allegations in
the Complaint clearly show that petitioner FHGCCI is suing
respondents FEPI and FEGDI not only as developers but
also as stockholders of petitioner FHGCCI. And since the
instant case involves an intra-corporate controversy, the
RTC correctly dismissed the Complaint for lack of
jurisdiction, as the RTC is not a special commercial court.
ISSUE: WON the case involves an intra-corporate
controversy.
RULING: Based on the allegations, it is clear that
Madrid filed a derivative suit on behalf of petitioner
FHGCCI to compel respondents FEPI and FEGDI to
complete the golf course and country club project and
to render an accounting of all works done, existing
work-in-progress and, if any, differential backlog. The
fact that petitioner FHGCCI denominated the Complaint
as a derivative suit for specific performance is
sufficient reason for the RTC to dismiss it for lack of
jurisdiction, as the RTC where the Complaint was
raffled is not a special commercial court. Upon the
enactment of RA No. 8799, jurisdiction over intra-
corporate disputes, including derivatives suits, is now
vested in the RTCs designated as special commercial
courts by this Court pursuant to A.M. No. 00- 11-03-
SC promulgated on November 21, 2000.
Petitioner FHGCCI's contention that the instant case does
not involve an intra-corporate controversy as it was filed
against respondents FEPI and FEGDI as developers, and
not as shareholders of the corporation holds no water.
Apparent in the Complaint are allegations of the
interlocking directorships of the Board of Directors of
petitioner FHGCCI and respondents FEPI and FEGDI, the
conflict of interest of the Board of Directors of petitioner
FHGCCI, and their bad faith in carrying out their duties.
Likewise alleged is that respondent FEPI and, later,
respondent FEGDI are shareholders of petitioner FHGCCI
which under the project agreement, respondent FEPI was
tasked to perform the development and construction work
and other obligations and undertakings of the project as
full payment of its subscription to the authorized capital
stock of petitioner FHGCCI, which it later assigned to
respondent FEGDI. Considering these allegations, we find
that, contrary to the claim of petitioner FHGCCI, there are
unavoidably intra- corporate controversies intertwined in
the specific performance case.
Moreover, a derivative suit is a remedy designed by equity
as a principal defense of the minority shareholders against
the abuses of the majority.[40] Under the Corporation
Code, the corporation's power to sue is lodged with its
board of directors or trustees.[41] However, when its
officials refuse to sue, or are the ones to be sued, or hold
control of the corporation, an individual stockholder may
be permitted to institute a derivative suit to enforce a
corporate cause of action on
– SECOND SET CASE DIGEST | 99
behalf of a corporation in order to protect or vindicate
its rights.[42]In such actions, the corporation is the
real party in interest, while the stockholder suing on
behalf of the corporation is only a nominal party.[43]
Considering its purpose, a derivative suit, therefore,
would necessarily touch upon the internal affairs of a
corporation.
It is for this reason that a derivative suit is among the
cases covered by the Interim Rules of Procedure
Governing Intra-Corporate Controversies, A.M. No. 01-
2-04- SC, March 13, 2001. Section l(a), Rule 1 of the
said Interim Rules states that:
RULE 1 General Provisions
SECTION 1. (a) Cases Covered— These Rules shall
govern the procedure to be observed in civil cases
involving the following:
(1) Devices or schemes employed by, or any act of,
the board of directors, business associates, officers or
partners, amounting to fraud or misrepresentation
which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of
any corporation, partnership, or association;
(2) Controversies arising out of intra-corporate,
partnership, or association relations, between and
among stockholders, members, or associates; and
between, any or all of them and the corporation,
partnership, or association of which they are
stockholders, members, or associates, respectively;
(3) Controversies in the election or appointment of
directors, trustees, officers, or managers of
corporations, partnerships, or associations;
(4) Derivative suits; and
(5)Inspection of corporate books.
In view of the foregoing, we agree with the RTC that
the instant derivative suit for specific performance
against respondents FEPI and FEGDI falls under the
jurisdiction of special commercial courts.
In Gonzales v. GJH Land, Inc.,[44] we laid down the
guidelines to be observed if a commercial case filed
before the proper RTC is wrongly raffled to its regular
branch. In that case, we said that if the RTC has no
internal branch designated as a Special Commercial
Court, the proper recourse is to refer the case to the
nearest RTC with a designated Special Commercial
Court branch within the judicial region. Upon referral,
the RTC to which the case was referred to should
redocket the case as a commercial case. And if the
said RTC has only one branch designated as a Special
Commercial Court, it should assign the case to the sole
special branch.
The Complaint filed by petitioner FHGCCI failed
to comply with the requisites for a valid
derivative suit.
In this case, however, to refer the case to a special
commercial court would be a waste of time since it is
apparent on the face of the Complaint, as pointed out
by respondents FEPI and FEGDI in their Answer, that
petitioner FHGCCI failed to comply with the requisites
for a valid derivative suit.
 CORPORATION LAW
Rule 8, Section 1 of the Interim Rules of Procedure
Governing Intra- Corporate Controversies provides:
SECTION 1. Derivative action. — A stockholder or
member may bring an action in the name of a
corporation or association, as the case may be,
provided, that:
(1) He was a stockholder or member at the time the
acts or transactions subject of the action occurred and
at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust all
remedies available under the articles of incorporation,
by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall
forthwith dismiss the case.
Corollarily, "[f]or a derivative suit to prosper, it is
required that the minority stockholder suing for and
on behalf of the corporation must allege in his
complaint that he is suing on a derivative cause of
action on behalf of the corporation and all other
stockholders similarly situated who may wish to
join him in the suit."[45] It is also required that the
stockholder "should have exerted all reasonable
efforts to exhaust all remedies available under the
articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain
the relief he desires [and that such fact is alleged]
with particularity in the complaint."[46] The purpose
for this rule is "to make the derivative suit the final
recourse of the stockholder, after all other remedies to
obtain the relief sought had failed."[47] Finally, the
stockholder is also required "to allege, explicitly or
otherwise, the fact that there were no appraisal rights
available for the acts complained of, as well as a
categorical statement that the suit is not a
nuisance or a harassment suit."[48]
Thus, for failing to meet the requirements set forth in
Section 1, Rule 8 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies, the
Complaint, denominated as a derivative suit for
specific performance, must be dismissed.
2.) G.R. No. 172948, October 05, 2016
PHILIPPINE ASSOCIATED SMELTING AND
REFINING CORPORATION, Petitioner, v. PABLITO
O. LIM, MANUEL A. AGCAOILI, AND CONSUELO M.
PADILLA, Respondents.
FACTS: Philippine Associated Smelting and Refining
Corporation (hereafter PASAR) is a corporation duly
organized and existing under the laws of the Philippines
and is engaged in copper smelting and refining.
On the other hand, Pablito Lim, Manuel Agcaoili and
Consuelo Padilla (collectively referred to as
respondents) were former senior officers and presently
shareholders of PASAR holding 500 shares each.
Petitioner claims that respondents are materially and
substantially invading its right to protect itself by
demanding to inspect petitioner's purportedly
confidential records. Respondents wrote petitioner and
– SECOND SET CASE DIGEST | 100
demanded to inspect its corporate books and
34
records. They reiterated this demand in a
35
subsequent letter.
On at least two (2) occasions, respondents went to
petitioner's office to again demand that they be
36
allowed to inspect. On one of these occasions,
respondents brought members of the press, caused
work disruption, and harassed petitioner's
37
representatives who met with them. When asked the
purpose of the inspection of certain records not
ordinarily inspected by stockholders, respondents
answered they wished to ensure that petitioner's
business transactions were "above board" and "entered
into for the best interest of the company."
38
During negotiations on the terms of confidentiality
agreements to be executed before respondents are
allowed to inspect certain confidential records,
respondents wrote petitioner stating that they would
proceed to inspect the corporate books and records.
They warned petitioner that should petitioner fail to
allow inspection, they would initiate legal proceedings
39
against it. They refused to accept the final terms and
conditions of the confidentiality agreement and wrote
another letter, reiterating their demand to inspect
40
confidential records.
After petitioner filed before the Regional Trial Court of
41
Pasig City a Petition for Declaratory Relief seeking a
declaration of the rights and duties of the parties in
relation to the inspection of the records, respondent Lim
42
filed a criminal Complaint against some of petitioner's
officers for infringing on their right to inspect petitioner's
43
corporate books and records. As a result, a criminal
case was filed against Javier Herrero, petitioner's Former
President, and Jocelyn Sanchez-Salazar, its
Former Corporate Secretary.
Respondents wrote another letter dated January 30,
2004 demanding again that they be allowed to inspect,
among others, the confidential records. They stated
that they wanted to ensure that petitioner complied
with environmental laws in the operations of its plant
47
in Leyte.
On April 7, 2006, petitioner advised respondents that it
would furnish them with records kept by the
Department of Environment and Natural Resources.
These records supposedly showed that all
48
environmental laws were complied with. On June 28,
2006 and July 4, 2006, respondents Lim and Padilla
wrote to demand that they be allowed to inspect the
audited financial statements for 2004 and 2005; the
interim statements for the end of May 2006; and more
detailed records on finance, production, marketing,
49
and purchasing.
In September 2006, after a stockholders' meeting,
respondents again demanded access to certain
50
information and documents. In a letter dated
September 8, 2006, respondents again asked about
balance sheet accounts, advances to suppliers, trade
and other receivables, inventory, investments, current
assets, trade and other payables, related party
transactions, cost of goods manufactured and sold,
selling and administrative expenses, other operating
expenses, metal hedging, and staff costs, among
51
others.
An Amended Petition for Injunction and Damages with
prayer for Preliminary Injunction and/or Temporary
Restraining Order, was filed by PASAR seeking to
restrain respondents from demanding inspection of its
confidential and inexistent records.
The RTC issued an Order granting PASAR's prayer for a
 CORPORATION LAW
writ of preliminary injunction. The RTC held that the
right to inspect book should not be denied to the
stockholders, however, the same may be restricted.
The right to inspect should be limited to the ordinary
records as identified and classified by PASAR. Thus,
pending the determination of which records are
confidential or inexistent, the petitioners should be
enjoined from inspecting the books.
Respondents filed a Motion for Dissolution of the Writ
of Preliminary Injunction on the ground that the
petition is insufficient. Petitioners claim that the
enforcement of the right to inspect book should be on
the stockholders and not on PASAR.
The RTC issued the assailed Order, denying the Motion
to Dismiss filed by respondents on the ground that it is
a prohibited pleading under Section 8, Rule 1 of the
Interim Rules on Intra-Corporate Controversies under
the Securities Regulation Code (RA 8799). The Motion
for Dissolution of the Writ of Preliminary Injunction
was likewise denied on the ground that the writ does
not completely result in unjust denial of petitioners'
right to inspect the books of the corporation.
Aggrieved, Lim, Agcaoili, and Padilla filed before the Court
8 suffering to be done some act or acts probably in
of Appeals a Petition for Certiorari questioning the
propriety of the writ of preliminary injunction. The Court
of Appeals held that there was no basis to issue an
injunctive writ. The act of PASAR in filing a petition for
injunction with prayer for writ of preliminary injunction is
uncalled for. The petition is a pre-emptive action unjustly
intended to impede and restrain the stockholders' rights.
If a stockholder demands the inspection of corporate
books, the corporation could refuse to heed to such
demand. When the corporation, through its officers,
denies the stockholders of such right, the latter could then
go to court and enforce their rights. It is then that the
corporation could set up its defenses and the reasons for
the denial of such right. Thus, the proper remedy
available for the enforcement of the right of inspection is
undoubtedly the writ of mandamus to be filed by the
stockholders and not a petition for injunction filed by the
corporation.
Hence, Philippine Associated Smelting and Refining
Corporation filed this Petition. Petitioner argues that the
right of a stockholder to inspect corporate books and
records is limited in that any demand must be made in
20
good faith or for a legitimate purpose. Respondents,
21
however, have no legitimate purpose in this case. If
respondents gain access to petitioner's confidential
records, petitioner's trade secrets and other confidential
information will be used by its former officers to give
22
undue commercial advantage to third parties.
Petitioner insists that to hold that objections to the
right of inspection can only be raised in an action for
mandamus brought by the stockholder, would leave a
corporation helpless and without an adequate legal
23
remedy. To leave the corporation helpless negates
the doctrine that where there is a right, there is a
24
remedy for its violation.
Petitioner argues that it has the right to protect itself
against all forms of embarrassment or harassment
against its officers, including the filing of criminal cases
25
against them. Moreover, respondents' request for
inspection of confidential corporate records and
documents violates and breaches petitioner's right to
peaceful and continuous possession of its confidential
records and documents. Likewise petitioner argues,
respondents' Motion to Dismiss is a prohibited pleading
under Rule 1, Section 8 of the Interim Rules of
28
Procedure Governing Intra-Corporate Controversies
29
and should not have been granted. In any case, the
Court of Appeals should have remanded the case to
the trial court for further disposition.
30
– SECOND SET CASE DIGEST | 101
ISSUE: WON injunction properly lies to prevent
respondents from invoking their right to inspect. NO.
RULING: For an action for injunction to prosper, the
applicant must show the existence of a right, as well as
52
the actual or threatened violation of this right.
Specifically, for a writ of preliminary injunction to be
issued, Rule 58 of the Rules of Court provides:
RULE58 SEC. 3. Grounds for issuance of preliminary
injunction. — A preliminary injunction may be granted
when it is established:
(a) That the applicant is entitled to the relief demanded,
and the whole or part of such relief consists in restraining
the commission or continuance of the act or acts
complained of, or in requiring the performance of an act
or acts either for a limited period or perpetually;
(b) That the commission, continuance or non-
performance of the act or acts complained of during
the litigation would probably work injustice to the
applicant; or
(c) That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or
violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to
render the judgment ineffectual.
An injunctive remedy may only be resorted to when
there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any
standard compensation. The possibility of irreparable
damage without proof of an. actual existing right would
not justify injunctive relief in his favor.
In the absence of a clear legal right, the issuance of the
injunctive writ constitutes grave abuse of discretion. Every
court should remember that an injunction is a limitation
upon the freedom of action of the defendant and should
not be granted lightly or precipitately. It should be
granted only when the court is fully satisfied that the law
54
permits it and the emergency demands it. (Emphasis
supplied, citations omitted) Thus, an injunction must fail
where there is no clear showing of both an actual right to
be protected and its threatened violation, which calls for
the issuance of an injunction.
The Corporation Code provides that a stockholder
has the right to inspect the records of all
business transactions of the corporation and the
minutes of any meeting at reasonable hours on
business days. The stockholder may demand in
writing for a copy of excerpts from these records
or minutes, at his or her expense:
Title VIII Corporate Books and Records
SECTION 74. Books to be Kept; Stock Transfer Agent. —
Every corporation shall, at its principal office, keep and
carefully preserve a record of all business transactions,
and minutes of all meetings of stockholders or members,
or of the board of directors or trustees, in which shall be
set forth in detail the time and place of holding the
meeting, how authorized, the notice given, whether the
meeting was regular or special, if special its object, those
present and absent, and every act done or ordered done
at the meeting. Upon the demand of any director, trustee,
stockholder or member, the time when any director,
trustee, stockholder or member entered or left the
meeting must be noted in the minutes; and on a similar
demand, the yeas and nays must be taken on any motion
or proposition, and a record thereof carefully made. The
protest of any director, trustee, stockholder or member on
any action or proposed action must be
 CORPORATION LAW
recorded in full on his demand.
The records of all business transactions of the corporation
and the minutes of any meetings shall be open to the
inspection of any director, trustee, stockholder or member
of the corporation at reasonable hours on business days
and he may demand, in writing, for a copy of excerpts
from said records or minutes, at
his expense.
Any officer or agent of the corporation who shall refuse to
allow any director, trustee, stockholder or member of the
corporation to examine and copy excerpts from its records
or minutes, in accordance with the provisions of this Code,
shall be liable to such director, trustee, stockholder or
member for damages, and in addition, shall be guilty of
an offense which shall be punishable under Section 144 of
this Code: Provided, That if such refusal is pursuant to a
resolution or order of the Board of Directors or Trustees,
the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such
refusal: and Provided, further, That it shall be a defense
to any action under this section that the person
demanding to examine and copy excerpts from the
corporation's records and minutes has improperly used
any information secured through any prior examination of
the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a
legitimate purpose in making his demand. (Emphasis
supplied)
The right to inspect under Section 74 of the
Corporation Code is subject to certain limitations.
However, these limitations are expressly provided as
defenses in actions filed under Section 74.
Thus, this Court has held in Republic v. Sandiganbayan,
276 Phil. 43, 50 (1991) that a corporation's objections to
the right to inspect must be raised as a defense:
2) the person demanding to examine and copy
excerpts from the corporation's records and minutes
has not improperly used any information secured
through any previous examination of the records of
such corporation; and
3) the demand is made in good faith or for a
legitimate purpose.
The latter two limitations, however, must be
set up as a defense by the corporation if it is to
merit judicial cognizance. As such, and in the
absence of evidence, the PCGG cannot unilaterally
deny a stockholder from exercising his statutory right
of inspection based on an unsupported and naked
assertion that private respondent's motive is improper
or merely for curiosity or on the ground that the
stockholder is not in friendly terms with the
corporation's officers.
As held by the SC In Guthrie v. Harkness, among the
purposes held to justify a demand for inspection are
the following: (1) To ascertain the financial condition of
the company or the propriety of dividends;
(2) the value of the shares of stock for sale or
investment; (3) whether there has been mismanagement;
(4) in anticipation of shareholders' meetings to obtain a
mailing list of shareholders to solicit proxies or influence
voting; (5) to obtain information in aid of litigation with
the corporation or its officers as to corporate transactions.
Among the improper purposes which may justify denial of
the right of inspection are: (1) Obtaining of information as
to business secrets or to aid a competitor; (2) to secure
business "prospects" or investment or advertising lists;
(3) to find technical defects in corporate transactions
in order to bring "strike suits" for purposes of
blackmail or extortion.
– SECOND SET CASE DIGEST | 102
Among the actions that may be filed is an action for
specific performance, damages, petition for mandamus, or
for violation of Section 74, in relation to Section 144
of the Corporation Code, which
provides:chanRoblesvirtualLawlibrary
SECTION 144. Violations of the Code. — Violations of any
of the provisions of this Code or its amendments not
otherwise specifically penalized therein shall be punished
by a fine of not less than one thousand (P1,000.00) pesos
but not more than ten thousand (P10,000.00) pesos or by
imprisonment for not less than thirty (30) days but not
more than five (5) years, or both, in the discretion of the
court. If the violation is committed by a corporation, the
same may, after notice and hearing, be dissolved in
appropriate proceedings
before the Securities and Exchange Commission:
Provided, That such dissolution shall not preclude the
institution of appropriate action against the director,
trustee or officer of the corporation responsible for said
violation: Provided, further, That nothing in this
section shall be construed to repeal the other causes
for dissolution of a corporation provided in this Code.
In this case, petitioner invokes its right to raise the
limitations provided under Section 74 of the
Corporation Code. However, petitioner provides
scant legal basis to claim this right because it does
not raise the limitations as a matter of defense.
The clear provision in Section 74 of the Corporation
Code is sufficient authority to conclude that an
action for injunction and, consequently, a writ of
preliminary injunction filed by a corporation is
generally unavailable to prevent stockholders from
exercising their right to inspection. Specifically,
stockholders cannot be prevented from gaining
access to the (a) records of all business
transactions of the corporation; and (b) minutes of
any meeting of stockholders or the board of
directors, including their various
committees and subcommittees.
The grant of legal personality to a corporation is
conditioned on its compliance with certain
obligations. Among these are its fiduciary
responsibilities to its stockholders. Providing
stockholders with access to information is a
fundamental basis for their intelligent
participation in the governance of the
corporation as a business organization that they
partially own. The law is agnostic with respect to the
amount of shares required.
Generally, each individual stockholder should be
given reasonable access so that he or she can
assess or share his or her assessment of the
management of the corporation with other
stockholders. The separate legal personality of a
corporation is not so absolutely separate that it
divorces itself from its responsibility to its
constituent owners.
The law takes into consideration the potential disparity in
the financial legal resources between the corporation and
an ordinary stockholder. The phraseology of the text of
the law provides that access to the information
mentioned in Section 74 of the Corporation Code is
mandatory. The presumption is that the corporation
should provide access. If it has basis for denial, then
the corporation shoulders the risks of being sued
and of successfully raising the proper defenses. The
corporation cannot immediately deploy its resources—part
of which is owned by the requesting stockholder—to put
the owner
on the defensive.
Specifically, corporations may raise their
 CORPORATION LAW
objections to the right of inspection through
affirmative defense in an ordinary civil action for
specific performance or damages, or through a
comment (if one is required) in a petition for
64
mandamus. The corporation or defendant or
respondent still carries the burden of proving (a)
that the stockholder has improperly used
information before; (b) lack of good faith; or (c)
65
lack of legitimate purpose.
Good faith and a legitimate purpose are presumed.
It is the duty of the corporation to allege and prove
with sufficient evidence the facts that give rise to a
claim of bad faith as to the
existence of an illegitimate purpose.
The confidentiality of business transactions is not a
magical incantation that will defeat the request of a
stockholder to inspect the records. Although it is true
that the business is entitled to the protection of its
trade secrets and other intellectual property rights,
facts must be pleaded to convince the court that a
specific stockholder's request for inspection, under
certain conditions, would violate the corporation's own
legal right.
Furthermore, the discomfort caused to the
management of a corporation when a request for
inspection is claimed is part of the regular matters that
a business wanting to ensure good governance must
endure. The range between discomfort and vexation is
a broad one, which may tend to be located in the
personalities of those involved.
Certainly, by themselves, these are not sufficient factual
basis to conclude bad faith on the part of the requesting
stockholder. Courts must be convinced that the scope or
manner of the request and the conditions under which it
was made are so frivolous that the huge cost to the
business will, in equity, be unfair to the other
stockholders. There is no iota of evidence that this
happened here.
3. G.R. No. 174353 September 10, 2014
NESTOR CHING and ANDREW WELLINGTON,
Petitioners, vs. SUBIC BAY GOLF
AND COUNTRY CLUB, INC., HU HO HSIU LIEN
alias SUSAN HU, HU TSUNG CHIEH alias JACK HU,
HU TSUNG HUI, HU TSUNG TZU and REYNALD R.
SUAREZ, Respondents.
FACTS:
On February 26, 2003, petitioners Nestor Ching and
3 Respondents claimed by way of defense that petitioners
Andrew Wellington filed a Complaint with the RTC of
Olongapo City on behalf of the members of Subic Bay
Golf and Country Club, Inc. (SBGCCI) against the said
country club and its Board of Directors and officers
under the provisions of Presidential Decree No. 902-A
in relation to Section 5.2 of the Securities Regulation
Code. The Subic Bay Golfers and Shareholders
Incorporated (SBGSI), a corporation composed of
shareholders of the defendant corporation, was also
named as plaintiff. The officers impleaded as
defendants were the following: (1) itsPresident, Hu Ho
Hsiu Lien alias Susan Hu; (2) its treasurer, Hu Tsung
Chieh alias Jack Hu; (3) corporate secretary Reynald
Suarez; and (4) directors Hu Tsung Hui and Hu Tsung
Tzu. The case was docketed as Civil Case No. 03-001.
The complaint alleged that the defendant corporation
sold shares to plaintiffs at US$22,000.00 per share,
presenting to them the Articles of Incorporation which
contained the following provision:
– SECOND SET CASE DIGEST | 103
No profit shall inure to the exclusive benefit of
any of its shareholders, hence, no dividends shall be
declared in their favor. Shareholders shall be entitled
only to a pro-rata share of the assets of the Club at
the time of its dissolution or liquidation.
However, on June 27, 1996, an amendment to the
Articles of Incorporation was approved by the
Securities and Exchange Commission (SEC), wherein
the above provision was changed as follows:
No profit shall inure to the exclusive benefit of any of
its shareholders, hence, no dividends shall be declared
in their favor. In accordance with the Lease and
Development Agreement by and between Subic Bay
Metropolitan Authority and The Universal International
Group of Taiwan, where the golf courseand clubhouse
component thereof was assigned to the Club, the
shareholders shall not have proprietary rights or
5
interests over the properties of the Club. x x x.
(Emphasis supplied.)
Petitioners claimed in the Complaint that defendant
corporation did not disclose to them the above
amendment which allegedly makes the shares non-
proprietary, as it takes away the rightof the
shareholders to participate in the pro-rata distribution
of the assets of the corporation after its dissolution.
According to petitioners, this is in fraud of the
stockholders who only discovered the amendment
when they filed a case for injunction to restrain the
corporation from suspending their rights to use all the
facilities of the club. Furthermore, petitioners alleged
that the Board of Directors and officers of the
corporation did not call any stockholders’ meeting from
the time of the incorporation, in violation of Section 50
of the Corporation Code and the By -Laws of the
corporation. Neither did the defendant directors and
officers furnish the stockholders with the financial
statements of the corporation nor the financial report
of the operation of the corporation in violation of
Section 75 of the Corporation Code. Petitioners also
claim that on August 15, 1997, SBGCCI presented to
the SEC an amendment to the By-Laws of the
corporation suspending the voting rights of the
shareholders except for the five founders’ shares. Said
amendment was allegedly passed without any
stockholders’ meeting or notices to the stockholders in
violation of Section 48 of the Corporation Code.
The Complaint furthermore enumerated several
instances of fraud in the management of the
corporation allegedly committed by the Board of
Directors and officers of the corporation.
failed (a) to show that it was authorized by SBGSI to file
the Complaint on the said corporation’s behalf; (b) to
comply with the requisites for filing a derivative suit and
an action for receivership; and (c) to justify their prayer
for injunctive relief since the Complaint may be
considered a nuisance or harassment suit under Section
1(b), Rule1 of the Interim Rules of Procedure for Intra-
16
Corporate Controversies. Thus, they prayed for the
dismissal of the Complaint.
On July 8, 2003, the RTC issued an Order
dismissing the Complaint. The RTC held that the
action is a derivative suit, explaining thus:
The Court finds that this case is intended not only for
the benefit of the two petitioners. This is apparentfrom
the caption of the case which reads Nestor Ching,
Andrew Wellington and the Subic Bay Golfers and
Shareholders, Inc., for and in behalf of all its members
 CORPORATION LAW
as petitioners. This is also shown in the allegations of
the petition[.] x x x.
On the bases of these allegations of the petition, the Court
finds that the case is a derivative suit. Being a derivative
suit in accordance with Rule 8 of the Interim Rules, the
stockholders and members may bring an action in the
name of the corporation or association provided that he
(the minority stockholder) exerted all reasonable efforts
and allege[d] the same with particularity in the complaint
to exhaust of (sic) all remedies available under the
articles of incorporation, by-laws or rules governing the
corporation or partnership to obtain the reliefs he desires.
An examination of the petition does not show any
allegation that the petitioners applied for redress to the
Board of Directors of respondent corporation there being
no demand, oralor written on the respondents to address
their complaints. Neither did the petitioners appl[y] for
redress to the stockholders of the respondent corporation
and ma[k]e an effort to obtain action by the stockholders
as a whole. Petitioners should have asked the Board of
Directors of the respondent corporation and/or its
stockholders to hold a meeting for the taking up of the
petitioners’ rights in this petition.
Petitioners Ching and Wellington elevated the
case to the Court of Appeals, where it was
docketed as CA- G.R. CV No. 81441. On October
27, 2005, the Court of Appeals rendered the
assailed Decision affirming that of the RTC.
Hence, petitioners resort to the present Petition for
Review, wherein they argue that the Complaint they
filed with the RTC was not a derivative suit. They
claim that they filed the suit in their own right as
stockholders against the officers and Board of
Directors of the corporation under Section 5(a) of
Presidential Decree No. 902-A, which provides:
Sec. 5. In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission
over corporations, partnerships and other forms of
associations registered with it as expressly granted
under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases
involving:
(a) Devices or schemes employed by or any
acts of the board of directors, business
associates, its officers or partners,
amounting to fraud and misrepresentation
which may be detrimental to the interest of
the public and/or of the stockholders,
partners, members of associations or
organizations registered with the
Commission.
ISSUE:
WON the petition filed by Nestor Ching and Andrew
Wellington a derivative suit.
RULING:
NO.
"Suits by stockholders or members of a corporation based
on wrongful or fraudulent acts of directors or other
persons may be classified into individual suits, class suits,
and derivative suits. Where a stockholder or member
is denied the right of inspection, his suit would be
individual because the wrong is done to him
personally and not to the other
– SECOND SET CASE DIGEST | 104
stockholders or the corporation. Where the wrong is
done to a group of stockholders, as where preferred
stockholders’ rights are violated, a class or
representative suit will be proper for the protection
of all stockholders belonging to the same group. But
where the acts complained of constitute a wrong to the
corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or
member. Although in most every case of wrong to the
corporation, each stockholder is necessarily affected
because the value of his interest therein would be
impaired, this fact of itself is not sufficient to give him an
individual cause of action since the corporation is a person
distinct and separate from him, and can and should itself
sue the wrongdoer. Otherwise, not only would the theory
of separate entity be violated, but there would be
multiplicity of suits as well as a violation of the priority
rights of creditors. Furthermore, there is the difficulty of
determining the amount of damages that should be paid
to each individual stockholder.
However, in cases of mismanagement where the
wrongful acts are committed by the directors or
trustees themselves, a stockholder or member may
find that he has no redress because the former are
vested by law with the right to decide whether or
not the corporation should sue, and they will never
be willing to sue themselves. The corporation would
thus be helpless to seek remedy. Because of the
frequent occurrence of such a situation, the
common law gradually recognized the right of a
stockholder to sue on behalf of a corporation in
what eventually became known as a "derivative
suit." It has been proven to be an effective remedy of the
minority against the abuses of management. Thus, an
individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holds stock in
order to protect or vindicate corporate rights, whenever
officials of the corporation refuse to sue or are the ones to
be sued or hold the control of the corporation. In such
actions, the suing stockholder is regarded as the nominal
party, with the corporation as the party in interest."
xxxx
Indeed, the Court notes American jurisprudence to the
effect that a derivative suit, on one hand, and
individual and class suits, on the other, are mutually
exclusive, viz.:
"As the Supreme Court has explained: "A shareholder’s
derivative suit seeks to recover for the benefit of
the corporation and its whole body of shareholders
when injury is caused to the corporation that may
not otherwise be redressed because of failure of the
corporation to act. Thus, ‘the action is derivative,
i.e., in the corporate right, if the gravamen of the
complaint is injury to the corporation, or to the
whole body of its stock and property without any
severance or distribution among individual holders,
or it seeks to recover assets for the corporation or
to prevent the dissipation of its assets.’ x x x. In
contrast, "a direct action [is one] filed by the shareholder
individually (or on behalf of a class of shareholders to
which he or she belongs) for injury to his or her interest
as a shareholder. x x x. [T]he two actions are mutually
exclusive: i.e., the right of action and recovery belongs to
either the shareholders (direct action) *651 or the
corporation (derivative action)." x x x.
However, as minority stockholders, petitioners do not
have any statutory right to override the business
 CORPORATION LAW
judgments of SBGCCI’s officers and Board of Directors on
the ground of the latter’s alleged lack of qualification to
manage a golf course. Contrary to the arguments of
petitioners, Presidential Decree No. 902-A, which is
entitled REORGANIZATION OF THE SECURITIES AND
EXCHANGE COMMISSION WITH ADDITIONAL POWERS
AND PLACING THE SAID AGENCY UNDER THE
ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE
PRESIDENT, does not grant minority stockholders a cause
of action against waste and diversion by the Board of
Directors, but merely identifies the jurisdiction of the SEC
over actions already authorized by law or jurisprudence.
It is settled that a stockholder’s right to institute a
derivative suit is not based on any express provision
of the Corporation Code, or even the Securities
Regulation Code, but is impliedly recognized when
the said laws make corporate directors or officers
liable for damages suffered by the corporation and
its stockholders for violation of their fiduciary
duties.
At this point, we should take note that while there were
allegations in the Complaint of fraud in their subscription
agreements, such as the misrepresentation of the Articles
of Incorporation, petitioners do not pray for the rescission
of their subscription or seek to avail of their appraisal
rights. Instead, they ask that defendants be enjoined from
managing the corporation and to pay damages for their
mismanagement. Petitioners’ only possible cause of action
as minority stockholders against the actions of the Board
of Directors is the common law right to file a derivative
suit. The legal standing of minority stockholders to
bring derivative suits is not a statutory right, there
being no provision in the Corporation Code or
related statutes authorizing the same, but is instead
a product of jurisprudence based on equity.
However, a derivative suit cannot prosper without
first complying with the legal requisites for its
institution
Section 1, Rule 8 of the Interim Rules of Procedure
Governing IntraCorporate Controversies imposes the
following requirements for derivative suits:
(1) He was a stockholder or member at the time
the acts or transactions subject of the action
occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and
alleges the same with particularity in the
complaint, to exhaust all remedies available
under the articles of incorporation, by-laws,
laws or rules governing the corporation or
partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act
or acts complained of; and
(4) The suit is not a nuisance or harassment
suit.
With regard, however, to the second requisite, we find
that petitioners failed to state with particularity in the
Complaint that they had exerted all reasonable efforts to
exhaust all remedies available under the articles of
incorporation, by-laws, and laws or rules governing the
corporation to obtain the relief they desire. The Complaint
contained no allegation whatsoever of any effort to avail
of intra-corporate remedies. Indeed, even if petitioners
thought it was futile to exhaust intra-corporate remedies,
they should have stated the same in the Complaint and
specified the reasons for such opinion. Failure to do so
allows the RTC to dismiss the Complaint, even motu
proprio, in accordance with the
– SECOND SET CASE DIGEST | 105
Interim Rules. The requirement of this allegation in the
Complaint is not a useless formality which may be
disregarded at will.1âwphi1 We ruled in Yu v.
26
Yukayguan :
The wordings of Section 1, Rule8 of the
Interim Rules of Procedure Governing Intra-Corporate
Controversies are simple and do not leave room for
statutory construction. The second paragraph thereof
requires that the stockholder filing a derivative suit
should have exerted all reasonable efforts to exhaust
all remedies availableunder the articles of
incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he
desires; and to allege such fact with particularity in the
complaint. The obvious intent behind the rule is to
make the derivative suit the final recourse of the
stockholder, after all other remedies to obtain
the relief sought had failed.
4. G.R. No. 172843, September 24, 2014
ALFREDO L. VILLAMOR, JR., Petitioner, v. JOHN S.
UMALE, IN SUBSTITUTION OF HERNANDO F.
BALMORES, Respondent.
G.R. NO. 172881
RODIVAL E. REYES, HANS M. PALMA AND
DOROTEO M.
PANGILINAN, Petitioners, v. HERNANDO F.
BALMORES, Respondent.
FACTS
MC Home Depot occupied a prime property
(Rockland area) in Pasig. The property was part of the
area owned by Mid-Pasig Development Corporation
(Mid-Pasig).cralawlawlibrary
On March 1, 2004, Pasig Printing Corp. (PPC) obtained
an option to lease portions of Mid-Pasig's property,
including the Rockland area.cralawlawlibrary
On November 11, 2004, PPC's board of directors
issued a resolution waiving all its rights, interests, and
participation in the option to lease contract in favor o£
the law firm of Atty. Alfredo Villamor, Jr. (Villamor),
petitioner in G.R. No. 172843. PPC received no
consideration for this waiver in favor of Villamor's law
firm.cralawlawlibrary
On November 22, 2004, PPC, represented by Villamor,
entered into a memorandum of agreement (MOA) with MC
Home Depot. Under the MOA, MC Home Depot would
continue to occupy the area as PPC's sublessee for four
(4) years, renewable for another four (4) years, at a
monthly rental of P4,500,000.00 plus goodwill of
P18,000,000.00.lawlawlibrary
In compliance with the terms of the MOA, MC Home
Depot issued 20 post-dated checks representing rental
payments for one year and the goodwill money. The
checks were given to Villamor who did not turn these
or the equivalent amount over to PPC, upon
encashment.crary
Hernando Balmores, respondent in G.R. No. 172843
and G.R. No. 172881 and a stockholder and director of
PPC, wrote a letter addressed to PPJC's directors,
petitioners in G.R. No. 172881, on April 4, 2005. He
informed them that Villamor should be made to deliver to
PPC and account for MC Home Depot's checks or their
 CORPORATION LAW
equivalent value.cralawlawlibrary
Due to the alleged inaction of the directors, respondent
Balmores filed with the Regional Trial Court an intra-
corporate controversy complaint under Rule 1, Section
1(a)(1) of the Interim Rules for Intra-Corporate
Controversies (Interim Rules) against petitioners for
their alleged devices or schemes amounting to fraud or
misrepresentation "detrimental to the interest of the
Corporation and its stockholders."cralawlawlibrary
Respondent Balmores alleged in his complaint that
because of petitioners' actions, PPC's assets were "not
only in imminent danger, but have actually been
dissipated, lost, wasted and destroyed."cralawlawlibrary
Respondent Balmores prayed that a receiver be
appointed from his list of nominees. He also prayed for
petitioners' prohibition from "selling, encumbering,
transferring or disposing in any manner any of [PPC's]
properties, including the MC Home [Depot] checks
and/or their proceeds." He prayed for the accounting
and remittance to PPC of the MC Home Depot checks
or their proceeds and for the annulment of the board's
resolution "vaiving PPC's rights in favor of Villamor's
law firm.
Ruling of the Regional Trial Court
In its resolution dated June 15, 2005, the Regional
Trial Court denied respondent Balmores' prayer
for the appointment of a receiver or the creation
of a management committee.
According to the trial court, PPC's entitlement to the
checks was doubtful. The resolution issued by PPC's
board of directors; waiving its rights to the option to
lease contract in favor of Villamor's law firm, must be
accorded prima facie validity.
The trial court also noted that there was a pending
case filed by one Leonardo Umale against Villamor,
involving the same checks. Umale was also claiming
ownership of the checks. This, according to the trial
court, weakened respondent Balmores' claim that the
checks were properties of PPC.
Ruling of the Court of Appeals
Respondent Balmores filed with the Court of Appeals a
petition for certiorari under Rule 65 of the Rules of
Court. He assailed the decision of the trial court, which
denied his "application for the appointment of a
[r]eceiver and the creation of a [management
[c]ommittee."cralawlawlibrary
In the decision promulgated on March 2, 2006, the
Court of Appeals gave due course to respondent
Balmores' petition. It reversed the trial court's
decision, and issued a new order placing PPC
under receivership and creating an interim
management committee.
The Court of Appeals ruled that the case filed by
respondent Balmores with the trial court "[was]
a derivative suit because there were allegations
of fraud or ultra vires acts ... by [PPC's
directors]."cralawlawlibrary
According to the Court of Appeals, the trial court
abandoned its duty to the stockholders in a derivative
suit when it refused to appoint a receiver or create a
management committee, all during the pendency of
the proceedings. The assailed order of the trial court
– SECOND SET CASE DIGEST | 106
removed from the stockholders their right, in an intra-
corporate controversy, to be allowed the remedy of
appointment of a receiver during the pendency of a
derivative suit, leaving the corporation under the
control of an outsider and its assets prone to
dissipation. The Court of Appeals also ruled that this
amounts to "despotic, capricious, or whimsical exercise
of judicial power" on the part of the trial court.
ISSUE:
Whether the Court of Appeals correctly characterized
respondent Balmores' action as a derivative suit
RULING:
Respondent Balmores' action in the trial court is
not a derivative suit. (INDIVIDUAL SUIT sya)
A derivative suit is an action filed by stockholders to
enforce a corporate action. It is an exception to the
general rule that the corporation's power to sue is
exercised only by the board of directors or trustees.
Individual stockholders may be allowed to sue on behalf of
the corporation whenever the directors or officers of the
corporation refuse to sue to vindicate the rights of the
corporation or are the ones to be sued and are in control
of the corporation. It is allowed when the "directors [or
officers] are guilty of breach of . . . trust, [and] not of
mere error of judgment." In derivative suits, the real
party in interest is the corporation, and the suing
stockholder is a mere nominal party.
Thus, this court noted:
The Court has recognized that a stockholder's right to
institute a derivative suit is not based on any express
provision of the Corporation Code, or even the
Securities Regulation Code, but is impliedly recognized
when the said laws make corporate directors or
officers liable for damages suffered by the corporation
and its stockholders for violation of their fiduciary
duties. In effect, the suit is an action for specific
performance of an obligation, owed by the corporation
to the stockholders, to assist its rights of action when
the corporation has been put in default by the
wrongful refusal of the directors or management to
adopt suitable measures for its protection.
Rule 8, Section 1 of the Interim Rules of Procedure for
Intra-Corporate Controversies (Interim Rules) provides
63
the five (5) requisites for filing derivative suits:
SECTION 1. Derivative action. - A stockholder or member
may bring an action in the name of a corporation or
association, as the case may be, provided, that:
(1)He was a stockholder or member at the time the
acts or transactions subject of the action occurred
and at the time the action was filed;
(2)He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust
all remedies available under the articles of
incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he
desires;
(3)No appraisal rights are available for the act or acts
complained of; and
(4)The suit is not a nuisance or harassment suit.
Thus, in Western Institute of Technology, Inc., et al v.
Solas, et al, this court said that "[a]mong the basic
requirements for a derivative suit to prosper is that the
 CORPORATION LAW
minority shareholder who is suing for and on behalf of
the corporation must allege in his complaint before the
proper forum that he is suing on a derivative cause of
action on behalf of the corporation and all other
shareholders similarly situated who wish to join [him]."
While it is true that the basis for allowing stockholders
to file derivative suits on behalf of corporations is
based on equity, the above legal requisites for its filing
must necessarily be complied with for its institution.
Respondent Balmores' action in the trial court failed to
satisfy all the requisites of a derivative suit.
Respondent Balmores failed to exhaust all available
remedies to obtain the reliefs he prayed for. Though he
tried to communicate with PPC's directors about the
checks in Villamor's possession before he filed an
action with the trial court, respondent Balmores was
not able to show that this comprised -all the remedies
available under the articles of incorporation, bylaws,
laws, or rules governing PPC.
In this case, respondent Balmores filed an individual
suit. His intent was very clear from his manner of
describing the nature of his action:
1.1 This is an action under Section 1 (a) (1), Rule 1 of
the Interim Rules of Procedure for Intra -corporate
Controversies, involving devices or schemes employed
by, or acts of, the defendants as board of directors,
business associates and officers of Pasig Printing
Corporation (PPC), amounting to fraud or
misrepresentation, which are detrimental to the
interest of the plaintiff as stockholder of PPC.
(Emphasis supplied)
ii. VOTING TRUST
1. G.R. No. 93695 February 4, 1992
RAMON C. LEE and ANTONIO DM.
LACDAO, petitioners, vs.
THE HON. COURT OF APPEALS, SACOBA
MANUFACTURING CORP., PABLO GONZALES, JR.
and THOMAS GONZALES, respondents.
FACTS
On November 15, 1985, a complaint for a sum of
money was filed by the International Corporate Bank,
Inc. against the private respondents who, in turn, filed
a third party complaint against Alfa Integrated Textile
Mills (ALFA) and the petitioners on March 17, 1986.
On September 17, 1987, the petitioners filed a motion
to dismiss the third party complaint which the Regional
Trial Court of Makati, Branch 58 denied in an Order
dated June 27, 1988.
On July 18, 1988, the petitioners filed their answer to
the third party complaint.
Meanwhile, on July 12, 1988, the trial court issued an
order requiring the issuance of an alias summons upon
ALFA through the DBP as a consequence of the
petitioner's letter informing the court that the
summons for ALFA was erroneously served upon them
considering that the management of ALFA had been
transferred to the DBP.
– SECOND SET CASE DIGEST | 107
In a manifestation dated July 22, 1988, the DBP
claimed that it was not authorized to receive summons
on behalf of ALFA since the DBP had not taken over
the company which has a separate and distinct
corporate personality and existence.
On August 4, 1988, the trial court issued an order
advising the private respondents to take the
appropriate steps to serve the summons to ALFA.
On August 16, 1988, the private respondents filed a
Manifestation and Motion for the Declaration of Proper
Service of Summons which the trial court granted on
August 17, 1988.
On September 12, 1988, the petitioners filed a motion
for reconsideration submitting that Rule 14, section 13
of the Revised Rules of Court is not applicable since
they were no longer officers of ALFA and that the
private respondents should have availed of another
mode of service under Rule 14, Section 16 of the said
Rules, i.e.,through publication to effect proper service
upon ALFA.
On January 2, 1989, the trial court upheld the validity
of the service of summons on ALFA through the
petitioners, thus, denying the latter's motion for
reconsideration and requiring ALFA to filed its answer
through the petitioners as its corporate officers.
On January 19, 1989, a second motion for
reconsideration was filed by the petitioners
reiterating their stand that by virtue of the voting
trust agreement they ceased to be officers and
directors of ALFA, hence, they could no longer
receive summons or any court processes for or
on behalf of ALFA. In support of their second motion
for reconsideration, the petitioners attached thereto a
copy of the voting trust agreement between all the
stockholders of ALFA (the petitioners included), on the
one hand, and the DBP, on the other hand, whereby
the management and control of ALFA became vested
upon the DBP.
On April 25, 1989, the trial court reversed itself by
setting aside its previous Order dated January 2, 1989
and declared that service upon the petitioners who
were no longer corporate officers of ALFA cannot be
considered as proper service of summons on ALFA.
On May 15, 1989, the private respondents moved for a
reconsideration of the above Order which was affirmed by
the court in its Order dated August 14, 1989 denying the
private respondent's motion for reconsideration.
On October 17, 1989, the trial court, not having been
notified of the pending petition for certiorari with public
respondent issued an Order declaring as final the
Order dated April 25, 1989. The private respondents in
the said Order were required to take positive steps in
prosecuting the third party complaint in order that the
court would not be constrained to dismiss the same for
failure to prosecute. Subsequently, on October 25,
1989 the private respondents filed a motion for
reconsideration on which the trial court took no further
action.
On March 19, 1990, after the petitioners filed their
answer to the private respondents' petition for
certiorari, the public respondent (CA) rendered its
decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the orders of
respondent judge dated April 25, 1989 and August 14,
 CORPORATION LAW
1989 are hereby SET ASIDE and respondent
corporation is ordered to file its answer within the
reglementary period. (CA Decision, p. 8; Rollo, p. 24)
ISSUE:
Whether or not there was proper service of summons
on Alfa Integrated Textile Mills through the petitioners
as president and vice-president, allegedly, of the
subject corporation after the execution of a voting
trust agreement between ALFA and the Development
Bank of the Philippines
RULING:
NO
The SC find the petitioners' position meritorious.
A voting trust is defined in Ballentine's Law Dictionary
as follows:
(a) trust created by an agreement between a group of
the stockholders of a corporation and the trustee or by
a group of identical agreements between individual
stockholders and a common trustee, whereby it is
provided that for a term of years, or for a period
contingent upon a certain event, or until the
agreement is terminated, control over the stock owned
by such stockholders, either for certain purposes or for
all purposes, is to be lodged in the trustee, either with
or without a reservation to the owners, or persons
designated by them, of the power to direct how such
control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19
Am J 2d Corp. sec. 685).
Under Section 59 of the new Corporation Code which
expressly recognizes voting trust agreements, a more
definitive meaning may be gathered. The said
provision partly reads:
Sec. 59. Voting Trusts — One or more
stockholders of a stock corporation may create a voting
trust for the purpose of conferring upon a trustee or
trustees the right to vote and other rights pertaining to
the share for a period rights pertaining to the shares for a
period not exceeding five (5) years at any one time:
Provided, that in the case of a voting trust specifically
required as a condition in a loan agreement, said voting
trust may be for a period exceeding (5) years but shall
automatically expire upon full payment of the loan. A
voting trust agreement must be in writing and notarized,
and shall specify the terms and conditions thereof. A
certified copy of such agreement shall be filed with the
corporation and with the Securities and Exchange
Commission; otherwise, said agreement is ineffective and
unenforceable. The certificate or certificates of stock
covered by the voting trust agreement shall be cancelled
and new ones shall be issued in the name of the trustee
or trustees stating that they are issued pursuant to said
agreement. In the books of the corporation, it shall be
noted that the transfer in the name of the trustee or
trustees is made pursuant to said voting trust agreement.
By its very nature, a voting trust agreement results in the
separation of the voting rights of a stockholder from his
other rights such as the right to receive dividends, the
right to inspect the books of the corporation, the right to
sell certain interests in the assets of the corporation and
other rights to which a stockholder may be entitled until
the liquidation of the corporation.
– SECOND SET CASE DIGEST | 108
However, in order to distinguish a voting trust agreement
from proxies and other voting pools and agreements, it
must pass three criteria or tests, namely:
(1) that the voting rights of the stock are separated
from the other attributes of ownership; (2) that the
voting rights granted are intended to be irrevocable for
a definite period of time; and (3) that the principal
purpose of the grant of voting rights is to acquire
voting control of the corporation.
Under section 59 of the Corporation Code, supra, a
voting trust agreement may confer upon a trustee not
only the stockholder's voting rights but also other
rights pertaining to his shares as long as the voting
trust agreement is not entered "for the purpose of
circumventing the law against monopolies and illegal
combinations in restraint of trade or used for purposes
of fraud." (section 59, 5th paragraph of the
Corporation Code) Thus, the traditional concept of a
voting trust agreement primarily intended to single out
a stockholder's right to vote from his other rights as
such and made irrevocable for a limited duration may
in practice become a legal device whereby a transfer of
the stockholder's shares is effected subject to the
specific provision of the voting trust agreement.
The execution of a voting trust agreement, therefore,
may create a dichotomy between the equitable or
beneficial ownership of the corporate shares of a
stockholders, on the one hand, and the legal title
thereto on the other hand.
The law simply provides that a voting trust agreement is
an agreement in writing whereby one or more
stockholders of a corporation consent to transfer his or
their shares to a trustee in order to vest in the latter
voting or other rights pertaining to said shares for a
period not exceeding five years upon the fulfillment of
statutory conditions and such other terms and conditions
specified in the agreement. The five year-period may be
extended in cases where the voting trust is executed
pursuant to a loan agreement whereby the period is made
contingent upon full payment of the loan.
In the instant case, the point of controversy arises
from the effects of the creation of the voting trust
agreement. The petitioners maintain that with the
execution of the voting trust agreement between
them and the other stockholders of ALFA, as one
party, and the DBP, as the other party, the former
assigned and transferred all their shares in ALFA to
DBP, as trustee. They argue that by virtue to of the
voting trust agreement the petitioners can no
longer be considered directors of ALFA. In support
of their contention, the petitioners invoke section
23 of the Corporation Code which provides, in part,
that:
Every director must own at least one (1) share of
the capital stock of the corporation of which he is a
director which share shall stand in his name on the
books of the corporation. Any director who ceases
to be the owner of at least one (1) share of the
capital stock of the corporation of which he is a
director shall thereby cease to be director . . .
(Rollo, p. 270)
The private respondents, on the contrary, insist
that the voting trust agreement between ALFA
and the DBP had all the more safeguarded the
petitioners' continuance as officers and directors
of ALFA inasmuch as the general object of voting
trust is to insure permanency of the tenure of the
directors of a corporation. They cited the
commentaries by Prof. Aguedo Agbayani on the
 CORPORATION LAW
right and status of the transferring stockholders,
to wit:
The "transferring stockholder", also called the
"depositing stockholder", is equitable owner for
the stocks represented by the voting trust
certificates and the stock reversible on
termination of the trust by surrender. It is said
that the voting trust agreement does not destroy
the status of the transferring stockholders as
such, and thus render them ineligible as
directors. But a more accurate statement seems
to be that for some purposes the depositing
stockholder holding voting trust certificates in
lieu of his stock and being the beneficial owner
thereof, remains and is treated as a stockholder.
It seems to be deducible from the case that he
may sue as a stockholder if the suit is in equity
or is of an equitable nature, such as, a technical
stockholders' suit in right of the corporation.
[Commercial Laws of the Philippines by
Agbayani, Vol. 3 pp. 492 -493, citing 5 Fletcher
326, 327] (Rollo, p. 291)
The facts of this case show that the petitioners, by
virtue of the voting trust agreement executed in 1981
disposed of all their shares through assignment and
delivery in favor of the DBP, as trustee. Consequently,
the petitioners ceased to own at least one share
standing in their names on the books of ALFA as
required under Section 23 of the new Corporation
Code. They also ceased to have anything to do with
the management of the enterprise. The petitioners
ceased to be directors. Hence, the transfer of the
petitioners' shares to the DBP created vacancies in
their respective positions as directors of ALFA.
Considering that the voting trust agreement between
ALFA and the DBP transferred legal ownership of the stock
covered by the agreement to the DBP as trustee, the
latter became the stockholder of record with respect to
the said shares of stocks. In the absence of a showing
that the DBP had caused to be transferred in their names
one share of stock for the purpose of qualifying as
directors of ALFA, the petitioners can no longer be
deemed to have retained their status as officers of ALFA
which was the case before the execution of the subject
voting trust agreement. There appears to be no dispute
from the records that DBP has taken over full control and
management of the firm.
iii. RIGHT TO INSPECT
1. G.R. No. 160924, August 05, 2015
TERELAY INVESTMENT AND DEVELOPMENT
CORPORATION, Petitioner, v. CECILIA TERESITA J.
YULO, Respondent.
FACTS
Asserting her right as a stockholder, Cecilia Teresita
Yulo wrote a letter, dated September 14, 1999,
addressed to Terelay Investment and Development
Corporation (TERELAY) requesting that she be allowed
to examine its books and records on September 17,
1999 at 1:30 o'clock in the afternoon at the latter's
office on the 25th floor, Citibank Tower, Makati City. In
its reply-letter, dated September 15, 1999, TERELAY
denied the request for inspection and instead
demanded that she show proof that she was a bona
fide stockholder.
– SECOND SET CASE DIGEST | 109
On September 16, 1999, Cecilia Yulo again sent another
letter clarifying that her request for examination of the
corporate records was for the purpose of inquiring into the
financial condition of TERELAY and the conduct of its
affairs by the principal officers. The following day, Cecilia
Yulo received a faxed letter from TERELAY's counsel
advising her not to continue with the inspection in order to
avoid trouble.
On October 11, 1999, Cecilia Yulo filed with the
Securities and Exchange Commission (SEC), a Petition
for Issuance of a Writ of Mandamus with prayer for
Damages against TERELAY, docketed as SEC Case No.
10-99-6433. In her petition, she prayed that judgment
be rendered ordering TERELAY to allow her to inspect
its corporate records, books of account and other
financial records; to pay her actual damages
representing attorney's fees and litigation expenses of
not less than One Hundred Thousand Pesos
(P100,000.00); to pay her exemplary damages; and to
pay the costs of the suit On May 16, 2000, in the
preliminary conference held before the SEC Hearing
Officer, the parties agreed on the following:
1. Petitioner Cecilia Teresita Yulo is registered as a
stockholder in the corporation's stock and transfer
book subject to the qualification in the Answer, and
2. Petitioner had informed the respondent, through
demand letter, of her desire to inspect the records of
the corporation, but the same was denied by the
respondent.
Following the enactment of Republic Act No. 8799 (The
Securities Regulation Code), the case was transferred
from the Securities and Exchange Commission to the
RTC.
RTC MAKATI DECISION: petitioner's application for
inspection of corporate records is granted pursuant to
Rule 7 of the Interim Rules in relation to Section 74
and 75 of the Corporation Code.
CA: AFFIRMED RTC’s decision
ISSUE
WON Teresita Yulo as a stockholder entitled to inspect
TERELAY’s corporate books and records despite her
shareholding being a measly .001% interest
RULING
YES.
The Corporation Code has granted to all stockholders
the right to inspect the corporate books and records,
and in so doing has not required any specific amount
of interest for the exercise of the right to inspect. Ubi
lex non distinguit nee nos distinguere debemos. When
the law has made no distinction, we ought not to
recognize any distinction.
The right of the shareholder to inspect the books and
records of the petitioner should not be made subject to
the condition of a showing of any particular dispute or
of proving any mismanagement or other occasion
rendering an examination proper, but if the right is to
be denied, the burden of proof is upon the corporation
to show that the purpose of the shareholder is
improper, by way of defense.
Among the purposes held to justify a demand for
inspection are the following: (1) To ascertain the
financial condition of the company or the propriety of
 CORPORATION LAW
dividends; (2) the value of the shares of stock for sale or
investment; (3) whether there has been mismanagement;
(4) in anticipation of shareholders' meetings to obtain a
mailing list of shareholders to solicit proxies or influence
voting; (5) to obtain information in aid of litigation with
the corporation or its officers as to corporate transactions.
Among the improper purposes which may justify denial of
the right of inspection are: (1) Obtaining of information as
to business secrets or to aid a competitor; (2) to secure
business "prospects" or investment or advertising lists;
(3) to find technical defects in corporate transactions
in order to bring "strike suits" for purposes of
blackmail or extortion.
In general, however, officers and directors have no legal
authority to close the office doors against shareholders for
whom they are only agents, and withhold from them the
right to inspect the books which furnishes the most
effective method of gaining information which the law has
provided, on mere doubt or suspicion as to the motives of
the shareholder. While there is some conflict of authority,
when an inspection by a shareholder is contested, the
burden is usually held to be upon the corporation to
establish a probability that the applicant is attempting to
gain inspection for a purpose not connected with his
interests as a shareholder, or that his purpose is
otherwise improper.
2. G.R. No. 172948, October 05, 2016
PHILIPPINE ASSOCIATED SMELTING AND
REFINING CORPORATION, Petitioner, v. PABLITO
O. LIM, MANUEL A. AGCAOILI, AND CONSUELO M.
PADILLA, Respondents.
FACTS
Philippine Associated Smelting and Refining Corporation
(hereafter PASAR) is a corporation duly organized and
existing under the laws of the Philippines and is engaged
in copper smelting and refining.
On the other hand, Pablito Lim, Manuel Agcaoili and
Consuelo Padilla (collectively referred to as petitioners)
were former senior officers and presently shareholders
of PASAR holding 500 shares each.
An Amended Petition for Injunction and Damages with
prayer for Preliminary Injunction and/or Temporary
Restraining Order, dated February 4, 2004 was filed by
PASAR seeking to restrain LIM, AGCAOILI, and
PADILLA from demanding inspection of its confidential
and inexistent records.
On April 14, 2004, the RTC issued an Order
granting PASAR's prayer for a writ of preliminary
injunction. The RTC held that the right to inspect
book should not be denied to the stockholders,
however, the same may be restricted. The right to
inspect should be limited to the ordinary records as
identified and classified by PASAR. Thus, pending the
determination of which records are confidential or
inexistent, LIM, AGCAOILI and PADILLA should be
enjoined from inspecting the books.
On May 26, 2004, LIM et al. filed a Motion for Dissolution
of the Writ of Preliminary Injunction on the ground that
the petition is insufficient. On January 10, 2005, the RTC
issued the assailed Order, denying the Motion to Dismiss
filed by LIM et al. on the ground that it is a prohibited
pleading under Section 8, Rule 1 of the Interim Rules on
– SECOND SET CASE DIGEST | 110
Intra-Corporate Controversies under the Securities
Regulation Code (RA 8799).
Aggrieved, Lim, Agcaoili, and Padilla filed before the
Court of Appeals a Petition for Certiorari questioning
the propriety of the writ of preliminary injunction. The
Court of Appeals held that there was no basis to
issue an injunctive writ.
Hence, this petition.
ISSUE
Whether or not injunction properly lies to prevent Lim
et al. from invoking their right to inspect
RULING
NO.
For an action for injunction to prosper, the applicant
must show the existence of a right, as well as the
actual or threatened violation of this right.
Thus, an injunction must fail where there is no clear
showing of both an actual right to be protected and its
threatened violation, which calls for the issuance of an
injunction.
The Corporation Code provides that a stockholder has
the right to inspect the records of all business
transactions of the corporation and the minutes of any
meeting at reasonable hours on business days. The
stockholder may demand in writing for a copy of
excerpts from these records or minutes, at his or her
expense.
The right to inspect under Section 74 of the
Corporation Code is subject to certain limitations.
However, these limitations are expressly provided as
defenses in actions filed under Section 74. Thus, this
Court has held that a corporation's objections to the
right to inspect must be raised as a defense.
Gokongwei, Jr. v. Securities and Exchange Commission
stresses that "impropriety of purpose . . .
must be set up the [sic] corporation defensively":
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.
But the "impropriety of purpose such as will defeat
enforcement must be set up the corporation
defensively if the Court is to take cognizance of it
as a qualification. In other words, the specific
provisions take from the stockholder the burden of
showing propriety of purpose and place upon the
corporation the burden of showing impropriety of
 CORPORATION LAW
purpose or motive." It appears to be 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.
In this case, petitioner invokes its right to raise the
limitations provided under Section 74 of the
Corporation Code. However, petitioner provides scant
legal basis to claim this right because it does not raise
the limitations as a matter of defense.
As properly appreciated by the Court of Appeals:
The act of PASAR in filing a petition for injunction with
prayer for writ of preliminary injunction is uncalled for.
The petition is a pre-emptive action unjustly intended to
impede and restrain the stockholders' rights. If a
stockholder demands the inspection of corporate books,
the corporation could refuse to heed to such demand.
When the corporation, through its officers, denies the
stockholders of such right, the latter could then go to
court and enforce their rights. It is then that the
corporation could set up its defenses and the reasons for
the denial of such right. Thus, the proper remedy
available for the enforcement of the right of
inspection is undoubtedly the writ of mandamus to
be filed by the stockholders and not a petition for
injunction filed by the corporation.
7. MEETINGS
1. G.R. No. 184068, April 19, 2016
SIMNY G. GUY, AS MINORITY STOCKHOLDER AND
FOR AND IN BEHALF OF GOODLAND COMPANY,
INC., Petitioner, v. GILBERT G. GUY, ALVIN
AGUSTIN T. IGNACIO AND JOHN AND/OR JANE
DOES, Respondents.
FACTS:
Goodland Company, Inc. (GCI) is a family-owned
corporation of the Guy family duly organized and
existing under Philippine laws. Petitioner Simny G. Guy
(Simny) is a stockholder of record and member of the
board of directors of the corporation. Respondents are
also GCI stockholders of record who were allegedly
elected as new directors by virtue of the assailed
stockholders' meeting held on 7 September 2004.
On 10 September 2004, Paulino Delfin Pe and Benjamin
Lim (stockholders of record of GCI) informed petitioner
that they had received a notice dated 31 August 2004
calling for the holding of a special stockholders' meeting
on 7 September 2004 at the Manila Diamond Hotel. The
notice reads:
NOTICE OF MEETING
Please take notice that the Special Stockholders' meeting
of Goodland Company, Inc. shall be held on 7 September
2004 at 10:00 a.m. at the Manila Diamond Hotel located
at Roxas Boulevard corner Dr. J. Quintos Street, Ermita,
Manila, for the purposes, among others, of the election of
the Board of Directors for the year 2004-2005, and
consideration of such other matters as
may arise during the meeting.
If you are unable to be present at the stockholders'
meeting, please nominate and authorize your proxy
– SECOND SET CASE DIGEST | 111
representative by executing, signing and delivering to
the undersigned the proxy for the meeting of the
stockholders.
The newly elected Board of Directors may meet
thereafter for the purposes, among others, of election
and appointment of officers, and consideration of such
other matters as may arise during the meeting.
Quezon City, 31 August 2004.
(Sgd)
GILBERT G. GUY Executive
Vice-President
On 22 September 2004, or fifteen (15) days after
the stockholders' meeting, petitioner received
the aforementioned notice.
On 30 September 2004, petitioner, for himself and on
behalf of GCI and Grace Guy Cheu (Cheu), filed a
Complaint against respondents before the RTC of
Manila for the "Nullification of Stockholders' Meeting
and Election of Directors, Nullification of Acts and
Resolutions, Injunction and Damages with Prayer for
Temporary Restraining Order and/or Writ of
Preliminary Injunction."
Petitoner assailed the election held on 7 September
2004 on the following grounds: (1) there was no
previous notice to petitioner and Cheu; (2) the
meeting was not called by the proper person; and (3)
the notices were not issued by the person who had the
legal authority to do so.
On 18 October 2004, the RTC issued a Temporary
Restraining Order (TRO) enjoining respondents and
their officers, agents, assigns, and all other persons
deriving authority from them from acting or holding
themselves out as new directors/officers of the
corporation.
In a Manifestation dated 10 August 2005, respondents
disclosed that an annual stockholders' meeting of GCI
for the year 2005 had been held. They prayed for the
dismissal of the Complaint, claiming that the issues
raised therein had already become moot and academic
by virtue of the 2005 annual stockholders' meeting.
On 26 October 2005, the RTC denied the prayer for
dismissal and ruled that the case had not been mooted by
the holding of the 2005 annual stockholders' meeting. It
said that respondents' issuance and sending of notices
were part of the acts arising from the special stockholders'
meeting held on 7 September 2004, the validity of which
is being assailed in the present case.
In a Decision dated 25 June 2007, the RTC
dismissed the Complaint filed by petitioner and
Cheu.
On appeal, the CA affirmed the RTC ruling in toto.
Hence, this petition.
ISSUE:
Whether or not the notice of the stockholders' meeting
was properly sent in compliance with law and the by-
laws of the corporation
RULING:
YES. Special meetings of stockholders or members shall
be held at any time deemed necessary or as provided in
the by-laws: Provided, however, that at least one (1)
 CORPORATION LAW
week written notice shall be sent to all stockholders or
members, unless otherwise provided in the by-laws.
Notice of any meeting may be waived, expressly or
impliedly, by any stockholder or member.
Whenever, for any cause, there is no person authorized to
call a meeting, the SEC, upon petition of a stockholder or
member, and on the showing of good cause therefor, may
issue an order to the petitioning stockholder or member
directing him to call a meeting of the corporation by
giving proper notice required by this Code or by the by-
laws. The petitioning stockholder or member shall preside
thereat until at least a majority of the stockholders or
members present have chosen one of their number as
presiding officer.
In the case at bar, under the by-laws of GCI, the
notice of meeting shall be mailed not less than five (5)
days prior to the date set for the special meeting. The
pertinent provision reads:
Section 3. Notice of meeting written or printed for every
regular or special meeting of the stockholders shall be
prepared and mailed to the registered post office address
of each stockholder not less than five (5) days prior to the
date set for such meeting, and if for a special meeting,
such notice shall state the object or objects of the same.
No failure or irregularity of notice of any meeting shall
invalidate such meeting at which all the stockholders are
present and voting without protest.
The Corporation Code itself permits the shortening (or
lengthening) of the period within which to send the
notice to call a special (or regular) meeting. Thus, no
irregularity exists in the mailing of the notice sent by
respondent Gilbert on 2 September 2004 calling for the
special stockholders' meeting to be held on 7
September 2004, since it abides by what is stated in
GCI's by-laws as quoted above.
The Court finds that the provisions under Sec. 50 of
the Corporation Code and the by-laws of GCI are clear
and unambiguous. They do not admit of two or more
meanings, nor do they make reference to two or more
things at the same time. The provisions only require
the sending/mailing of the notice of a stockholders'
meeting to the stockholders of the corporation.
Sending/mailing is different from filing or service under
the Rules of Court. Had the lawmakers intended to
include the stockholder's receipt of the notice, they
would have clearly reflected such requirement in the
law. Absent that requirement, the word "send" should
be understood in its plain meaning:
"Send" means to deposit in the mail or deliver for
transmission by any other usual means of
communication with postage or cost of transmission
provided for and properly addressed and in the case of
an instrument to an address specified thereon or
otherwise agreed, or if there be none, to any address
reasonable under the circumstances. The receipt of
any writing or notice within the time at which it would
have arrived if properly sent has the effect of a proper
sending.
Clearly, respondents are only mandated to notify
petitioner by depositing in the mail the notice of the
stockholders' special meeting, with postage or cost of
transmission provided and the name and address of
the stockholder properly specified. With respect to the
latter part of the definition of "send" under Black's Law
Dictionary, the term "receipt" only has the effect of
proper sending when a mail matter is received in the
usual course of transmission.
It should be emphasized here that the period of mailing,
that is, at least five (5) days prior mailing of notice of
meeting as provided in the By-laws of GOODLAND is
reasonable enough for the petitioner Simny Guy to
– SECOND SET CASE DIGEST | 112
receive the notice of meeting prior to the holding of the
subject stockholders' meeting considering the relative
distance of the Post Office (Meralco Post Office, Pasig City)
where the said notice of meeting was mailed vis-à-vis the
place of residence of petitioner Simny Guy located at
Greenmeadows, Quezon City.
Therefore, petitioner is considered to have received
notice of the special stockholders' meeting after said
notice was properly mailed by respondents.
SHARES OF STOCKS
1. G.R. No. 184332
ANNA TENG, Petitioner, vs.
SECURITIES AND EXCHANGE COMMISSION (SEC)
and TING PING LAY, Respondents.
FACTS:
Herein respondent Ting Ping purchased 1) 480 shares
of TCL Sales Corporation (TCL) from Peter Chiu (Chiu)
on February 2, 1979; 2) 1,400 shares on September
22, 1985 from his brother Teng Ching Lay (Teng
Ching), who was also the president and operations
manager of TCL; and 3) 1,440 shares from Ismaelita
5
Maluto (Maluto) on September 2, 1989.
Upon Teng Ching's death in 1989, his son Henry Teng
(Henry) took over the management of TCL. To protect
his shareholdings with TCL, Ting Ping on August 31,
1989 requested TCL's Corporate Secretary, herein
petitioner Teng, to enter the transfer in the Stock and
Transfer Book of TCL for the proper recording of his
acquisition. He also demanded the issuance of new
certificates of stock in his favor. TCL and Teng,
however, refused despite repeated demands. Because
of their refusal, Ting Ping filed a petition for
mandamus with the SEC against TCL and Teng,
6
docketed as SEC Case No. 3900.
SEC DECISION
A. Ordering [TCL and Teng] to record in the Books of
the Corporation the following shares:
1. 480 shares acquired by [Ting Ping] from
[Chiu] per Deed of Sales [sic] dated February
20, 1979;
2. 1,400 shares acquired by [Ting Ping] from
[Teng Ching] per Deed of Sale dated
September 22, 1985; and
3. 1,440 shares acquired by [Ting Ping] from
[Maluto] per Deed of Assignment dated Sept 2,
1989 [sic].
B. Ordering [TCL and Teng] to issue
corresponding new certificates of stocks (sic) in the
name of [Ting Ping].
C. Ordering [TCL and Teng] to pay [Ting Ping]
moral damages in the amount of One Hundred
Thousand (P 100,000.00) Pesos and Fifty Thousand (P
50,000.00) Pesos for attorney's fees.
 CORPORATION LAW – SECOND SET CASE DIGEST | 113

TCL and Teng appealed to the SEC en banc, the 1440 shares acquired by Ting Ping based on the
9 SEC Order dated August 9, 2006.
which, in its Order dated June 11, 1996, affirmed the
SEC decision with modification, in that Teng was held
solely liable for the payment of moral damages and On April 29, 2008, the CA promulgated the
attorney's fees. assailed decision dismissing the petition and denying
28
the motion to expunge the SEC's comment.
CA DECISION
Hence, Teng filed the present petition.
Not contented, TCL and Teng filed a petition
for review with the CA. The CA, however, dismissed ISSUE:
the petition for having been filed out of time and for
finding no cogent and justifiable grounds to disturb the
Whether or not the surrender of the certificates of
10
findings of the SEC en banc. This prompted TCL and stock is a requisite before registration of the transfer
Teng to come to the Court via a petition for review on may be made in the corporate books and for the
certiorari under Rule 45 which denied such petition and issuance of new certificates in its stead.
affirmed CA’s decision.

RULING:
After the finality of the Court's decision, the
SEC issued a writ of execution addressed to the Sheriff
NO. It is thus clear that Teng's position - that Ting
of the Regional Trial Court (RTC) of Manila. Teng,
Ping must first surrender Chiu's and Maluto's respective
however, filed on February 4, 2004 a complaint for
certificates of stock before the transfer to Ting Ping may
interpleader with the RTC of Manila where Teng sought
be registered in the books of the corporation - does not
to compel Henry and Ting Ping to interplead and settle
have legal basis. The delivery or surrender adverted
the issue of ownership over the 1,400 shares, which
to by Teng, i.e., from Ting Ping to TCL, is not a
were previously owned by Teng Ching. Thus, the
requisite before the conveyance may be recorded in
deputized sheriff held in abeyance the further
its books. To compel Ting Ping to deliver to the
implementation of the writ of execution pending
corporation the certificates as a condition for the
outcome of the case. RTC of Manila, Branch 46,
registration of the transfer would amount to a restriction
rendered its Decision finding Henry to have a better
on the right of Ting Ping to have the stocks transferred to
right to the shares of stock formerly owned by Teng
his name, which is not sanctioned by law. The only
Ching, except as to those covered by Stock Certificate
limitation imposed by Section 63 is when the corporation
No. 011 covering 262.5 shares, among others.
holds any unpaid claim against the shares intended to be
transferred.
MOTION FOR WRIT OF EXECUTION

Respondent Ting Ping Lay was able to establish

Thereafter, an Ex Parte Motion for the Issuance
15
of Alias Writ of Execution was filed by Ting Ping
where he sought the partial satisfaction of SEC en
banc Order dated June 11, 1996 ordering TCL and
Teng to record the 480 shares he acquired from Chiu
and the 1,440 shares he acquired from Maluto, and for
Teng's payment of the damages awarded in his favor.
prima facie ownership over the shares of stocks in
question, through deeds of transfer of shares of stock
of TCL Corporation. Petitioners could not repudiate
these documents. Hence, the transfer of shares to
him must be recorded on the corporation's stock
and transfer book.

Acting upon the motion, the SEC issued an
16
Order dated August 9, 2006 granting partial
enforcement and satisfaction of the Decision dated July
20, 1994, as modified by the SEC en banc's Order
17
dated June 11, 1996. On the same date, the SEC
18
issued an alias writ of execution.
Teng and TCL filed their respective motions to
19
quash the alias writ of execution, which was opposed
20
by Ting Ping, who also expressed his willingness to
surrender the original stock certificates of Chiu and Maluto
to facilitate and expedite the transfer of the shares in his
favor. Teng pointed out, however, that the annexes in
Ting Ping's opposition did not include the subject
certificates of stock, surmising that they could have been
21
lost or destroyed. Ting Ping belied this, claiming that his
counsel Atty. Simon V. Lao already communicated with
TCL's counsel regarding the surrender of the said
22
certificates of stock. Teng then filed a counter
manifestation where she pointed out a discrepancy
between the total shares of Maluto based on the annexes,
which is only 1305 shares, as against
Section 63 provides:
Sec. 63. Certificate of stock and transfer of shares. -
The capital stock of stock corporations shall be divided
into shares for which certificates signed by the
president or vice president, countersigned by the
secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are
personal property and may be transferred by
delivery of the certificate or certificates indorsed
by the owner or his attorney-in-fact or other
person legally authorized to make the transfer.
No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded
in the books of the corporation showing the names
of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates
and the number of shares transferred.
No shares of stock against which the corporation
holds any unpaid claim shall be transferable in the books
of the corporation. (Emphasis and underscoring ours)
 CORPORATION LAW
Under the provision, certain minimum
requisites must be complied with for there to be a valid
transfer of stocks, to wit: (a) there must be delivery of
the stock certificate; (b) the certificate must be
endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and
(c) to be valid against third parties, the transfer must
be recorded in the books of the corporation.
40
It is the delivery of the certificate, coupled with
the endorsement by the owner or his duly authorized
representative that is the operative act of transfer of
41
shares from the original owner to the transferee. The
Court even emphatically declared. in Fil-Estate Golf
and Development, Inc., et al. v. Vertex Sales and
42
Trading, Inc. that in "a sale of shares of stock,
physical delivery of a stock certificate is one of the
essential requisites for the transfer of ownership of the
stocks purchased."
43
The delivery contemplated in
Section 63, however, pertains to the delivery of the
certificate of shares by the transferor to the
transferee, that is, from the original stockholder
named in the certificate to the person or entity the
stockholder was transferring the shares to, whether by
sale or some other valid form of absolute conveyance
44
of ownership. "[S]hares of stock may be transferred
by delivery to the transferee of the certificate properly
indorsed. Title may be vested in the transferee by the
45
delivery of the duly indorsed certificate of stock."
2 AND 4. G.R. No. 154069, June 06, 2016
INTERPORT RESOURCES CORPORATION,
Petitioner, v. SECURITIES SPECIALIST, INC., AND
R.C. LEE SECURITIES INC., Respondents.
FACTS:
In January 1977, Oceanic Oil & Mineral
Resources, Inc. (Oceanic) entered into a compel the respondents to deliver the 5,000,000
subscription agreement with R.C. Lee, a domestic
corporation engaged in the trading of stocks and
other securities, covering 5,000,000 of its shares
with par value of P0.01 per share, for a total of
P50,000.00. Thereupon, R.C. Lee paid 25% of the
subscription, leaving 75% unpaid. Consequently,
Oceanic issued Subscription Agreements Nos. 1805,
1808, 1809, 1810, and 1811 to R.C. Lee.
On July 28, 1978, Oceanic merged with
Interport, with the latter as the surviving corporation.
Interport was a publicly-listed domestic corporation
whose shares of stocks were traded in the stock
exchange. Under the terms of the merger, each share
of Oceanic was exchanged for a share of Interport. On
April 16, 1979 and April 18, 1979, SSI, a domestic
corporation registered as a dealer in securities,
received in the ordinary course of business Oceanic
Subscription Agreements Nos. 1805, 1808 to 1811, all
outstanding in the name of R.C. Lee, and Oceanic
official receipts showing that 25% of the subscriptions
5 Interport appealed to the CA. which on February
had been paid. The Oceanic subscription agreements
were duly delivered to SSI through stock assignments
indorsed in blank by R.C. Lee.
– SECOND SET CASE DIGEST | 114
Later on, R.C. Lee requested Interport for a list
of subscription agreements and stock certificates
issued in the name of R.C. Lee and other individuals
named in the request. In response, Atty. Rhodora B.
Morales, Interport1 s Corporate Secretary, provided
the requested list of all subscription agreements of
Interport and Oceanic, as well as the requested stock
7
certificates of Interport. Upon finding no record
showing any transfer or assignment of the Oceanic
subscription agreements and stock certificates of
Interport as contained in the list, R.C. Lee paid its
unpaid subscriptions and was accordingly issued stock
8
certificates corresponding thereto. chanr
On February 8, 1989, Interport issued a
call for the full payment of subscription
receivables, setting March 15, 1989 as the
deadline. SSI tendered payment prior to the
deadline through two stockbrokers of the Manila
Stock Exchange. However, the stockbrokers
reported to SSI that Interport refused to honor
the Oceanic subscriptions.
SSI wrote R.C. Lee demanding the delivery of
the 5,000,000 Interport shares on the basis of a
purported assignment of the subscription agreements
covering the shares made in 1979. R.C. Lee failed to
return the subject shares inasmuch as it had already
sold the same to other parties. SSI thus demanded
that R.C. Lee pay not only the equivalent of the 25% it
had paid on the subscription but the whole 5,000,000
shares at current market value.
SSI also made demands upon Interport and
R.C. Lee for the cancellation of the shares issued to
R.C. Lee and for the delivery of the shares to SSI.
On October 6, 1989, after its demands were
not met, SSI commenced this case in the SEC to
shares and to pay damages.17 It alleged fraud
and collusion between Interport and R.C. Lee in
rejecting the tendered payment and the transfer
of the shares covered by the subscription
agreements.
SEC's Securities Investigation and Clearing
Department (SICD)
Judgment is hereby rendered ordering
respondent Interport to deliver the five (5) million
shares covered by Oceanic Oil and Mineral Resources,
Inc. subscription agreement.
Both Interport and R.C. Lee appealed to the
SEC En Banc partially reversing the decision dated
October 25, 1994.
CA DECISION
11, 2002 affirmed the SEC's decision. On June 25,
2002, the CA denied Interport's motion for
reconsideration hence this petition.
ISSUE:
 CORPORATION LAW
Whether or not Interport was liable to deliver
to SSI the Oceanic shares of stock, or the value
thereof, under Subscriptions Agreement No. 1805, and
Nos. 1808 to 1811 to SSI.
RULING:
YES. Interport was liable to deliver the Oceanic
shares of stock, or the value thereof, under Subscription
Agreements Nos. 1805, and 1808 to 1811 to SSI
Interport argues that R.C. Lee should be held
liable for the delivery of 25% of the shares under the
subject subscription agreements inasmuch as R.C. Lee
had already received all the 5,000,000 shares upon its
payment of the 75% balance on the subscription price
to Interport; that it was only proper for R.C. Lee to
deliver 25% of the shares under the Oceanic
subscription agreements because it had already
received the corresponding payment therefor from SSI
for the assignment of the shares; that R.C. Lee would
be unjustly enriched if it retained the 5,000,000 shares
and the 25% payment of the subscription price made
by SSI in favor of R.C. Lee as a result of the
assignment; and that it merely relied on its records, in
accordance with Section 74 of the Corporation Code,
when it issued the stock certificates to R.C. Lee upon
its full payment of the subscription price.
Interport's arguments must fail.
In holding Interport liable for the delivery of the
Oceanic shares, the SEC explained:
The Oceanic subscriptions agreements were duly
delivered to the Complainant SSI supported by stock
assignments of respondent R.C. Lee (Exhibits "B" to "B-4"
of the petitioner) and by official receipts of Oceanic
showing that twenty five percent of the subscription had
been paid (Exhibits "C" to "C-4"). To this date,
respondent R.C. Lee does not deny having
subscribed and delivered such stock assignments to
the Oceanic subscription agreements. Therefore,
having negotiated them by allowing to be in street
certificates, respondent R.C. Lee, as a broker,
cannot now legally and morally claim any further
interests over such subscriptions or the shares of
stock they represent.
NOTA BENE:
The SEC correctly categorized the assignment of
the subscription agreements as a form of novation by
substitution of a new debtor and which required the
consent of or notice to the creditor. We agree. Under the
Civil Code, obligations may be modified by: (1) changing
their object or principal conditions; or (2) substituting the
person of the debtor; or (3) subrogating a third person in
the rights of the creditor.26 Novation, which consists in
substituting a new debtor in the place of the original one,
may be made even without the knowledge or against the
will of the latter, but not without the consent of the
creditor.27 In this case, the change of debtor took place
when R.C. Lee assigned the Oceanic shares under
Subscription Agreement Nos.
– SECOND SET CASE DIGEST | 115
1805, and 1808 to 1811 to SSI so that the latter
became obliged to settle the 75% unpaid balance on
the subscription.
Section 63 of the Corporation Code cannot be
strictly applied herein, however, because Interport had
unduly refused to recognize the assignment of the
shares between R.C. Lee and SSI. Accordingly, we
adopt with approval the SEC's following conclusion that
”To say that the ten years since the
assignment had been made are a sufficient lapse of
time in order for respondent SSI to be considered to
have abandoned its rights under the subscription
agreements, is to ignore the rule -
"The right to have the transfer registered
exists from the time of the transfers and it is to the
transferee's benefit that the right be exercised early.
However, since the law does not prescribed (sic) any
period within which the registration should be effected
the action to be enforced the right does not accrue
until here has been a demand and a refusal to record
the transfer." (11 Campus 310, 1990 ed., citing Won
v. Wack Wack Golf, 104 Phil. 466, Emphasis supplied).
Subscription Agreements Nos. 1805, and
1808 to 1811 were now binding between
Interport and SSI only, and only such parties
were expected to comply with the terms thereof.
Hence, the CA did not err in relying on the findings of
the SEC, which was in a better position to pass
judgment on whether or not Interport was liable to
deliver to SSI the Oceanic shares under Subscription
Agreements Nos. 1805, and 1808 to 1811.
3. G.R. No. 168134, October 05, 2016 FERRO
CHEMICALS, INC., Petitioner, v. ANTONIO M.
GARCIA, ROLANDO NAVARRO, JAIME Y.
GONZALES AND CHEMICAL INDUSTRIES OF THE
PHILIPPINES, INC., Respondents.
Fraud is a question of fact and the circumstances
constituting it must be alleged and proved in the court
below.
The elements of tortious interference with contractual
relations are: (1) existence of a valid contract; (2)
knowledge on the part of the third person of the
existence of the contract and (3) interference on the
part of the third person without legal justification or
excuse.
Attorney’s fees must be reasonable, just and equitable
because, as part of damages, they are not meant to
enrich the winning party at the expense of the losing
litigant.
FACTS:
In 1988, Antonio Garcia and Ferro Chemicals entered
into a Deed of Absolute Sale and Purchase of Shares of
Stock over shares of Chemical Industries registered
under the name of Antonio Garcia. Under the
agreement, Antonio Garcia warranted, among others,
 CORPORATION LAW
that the shares are free from liens and encumbrances
except those under the Security Bank and Insular Bank.
On 17 January 1989, Antonio Garcia and Consortium
Banks entered into a Compromise Agreement with
respect to First Consortium Case (this case involves
the payment of Garcia’s liability under surety
agreements with the consortium banks).
On 3 March 1989, Antonio Garcia and Ferro Chemicals
entered into a Deed of Right to Repurchase. On 12 July
1989, Antonio Garcia notified Ferro Chemicals of his
intention to exercise his right to buy back the sold
shares under the repurchase deed. On 31 July 1989,
Antonio Garcia reiterated his intent to reacquire the
subject shares by sending another notice to Ferro
Chemicals coupled with the tender of the amount of
the agreed repurchase price.
On 11 August 1989, the RTC of Makati, Branch 145,
issued a Writ of Execution to enforce the Judgment by
Compromise in the First Consortium Case. On 22
August 1989, the Consortium Banks were declared as
the highest bidders of the levied shares at the public
auction.
On 26 September 1989, Ferro Chemicals (thru Chemphil
Export) successor-in-interest, opposed the
consolidation of ownership of the subject shares in the
names of the Consortium Banks. Consequently, the
Second Consortium Case was litigated. Ferro
Chemicals lost the Second Consortium Case on 1 April
1996 with finality.
On 3 December 1996, Ferro Chemicals initiated an action
for damages based on fraud, claiming that Antonio Garcia,
Jaime Gonzales and Rolando Navarro and Chemical
Industries conspired and abetted to fraudulently induce it
to purchase Antonio Garcia's shares by falsely warranting
that these shares are free from liens and encumbrances.
These representations were made despite their knowledge
that the subject shares were previously garnished by
Consortium Banks.
The RTC ruled in favor of Ferro Chemicals and found
therein defendants solidarily liable for the value of the
lost shares, costs of litigation, attorney's fees and
exemplary damages. The CA affirmed the RTC’s ruling
with the following modifications: a) it discharged
Rolando Navarro from liability; b) it struck down the
award of attorneys fees; c) it deleted the grant for
reimbursement of litigation expenses.
Issues:
1) Whether Antonio Garcia is guilty of fraud and
breach of obligation.
– SECOND SET CASE DIGEST | 116
2) Whether Rolando Navarro and Jaime Gonzales
are guilty of tortious interference.
3) Whether Ferro Chemical is entitled to
reimbursement of its litigation expenses, as
payment of attorneys fees.
RULING:
1) Antonio Garcia is not guilty of fraud and breach
of obligation.
Fraud, in its general sense, is deemed to comprise
anything calculated to deceive, including all acts,
omissions, and concealment involving a breach of legal
or equitable duty, trust or confidence justly reposed,
resulting in the damage to another, or by which an
undue and unconscionable advantage is taken of
another. It is a question of fact and the circumstances
constituting it must be alleged and proved in the court
below.
Here, the impassioned efforts to buy back the disputed
shares way before the Second Consortium Case
commenced and even after the shares were assigned
already to Chemphil Export, clearly show that Antonio
Garcia did not intend to defraud Ferro Chemicals.
2) Rolando Navarro and Jaime Gonzales are not
guilty of tortious interference.
Under Article 1314 of the New Civil Code, any
third person who induces another to violate his
contract shall be liable for damages to the other
contracting party. The tort recognized in that provision
is known as interference with contractual relations. The
interference is penalized because it violates the
property right of a party in a contract to reap the
benefits that should result therefrom. The elements of
tortious interference with contractual relations are: (1)
existence of a valid contract; (2) knowledge on the
part of the third person of the existence of the contract
and (3) interference on the part of the third person
without legal justification or excuse.
A perusal of the allegations proffered against
Rolando Navarro would show that none of his conduct
prior or even subsequent to the execution of the
subject deed, which was primarily done in furtherance
of his duties as corporate secretary, constitutes
tortious interference. As the Corporate Secretary of
Chemical Industries, Rolando Navarro is under
obligation to record in the stock and transfer book any
and all alienation involving the shares of stocks of the
corporation. He is also under no obligation to record
the attachment of the Consortium Banks, not being a
transfer of ownership but merely a burden on the title
of the owner.
 CORPORATION LAW
Jaime Gonzales, on other hand, the assignee of the
subject shares, cannot, for that reason alone, be held
liable for tortious interference. He did nothing more
than act as instrumental witness of the deed of sale
and give Antonio Garcia financial advice on the matter.
None of these acts is actionable tort.
3) Ferro Chemical is not entitled to reimbursement
of its litigation expenses, as payment of attorneys fees,
because Ferro Chemicals failed to justify satisfactorily its
claim. Likewise, the award of attorney's fees in the sum of
P1,000,000.00 plus additional 10% of the value of the
shares is unreasonable and excessive. Article 2208 of the
New Civil Code enumerates the instances where such may
be awarded and, in any event, it must be reasonable, just
and equitable. Attorney's fees as part of damages are not
meant to enrich the winning party at the expense of the
losing litigant. They are not awarded every time a party
prevails in a suit because of the policy that no premium
should be placed on the right to litigate. The award of
attorney's fees is the exception rather than the rule.
5. BANCO DE ORO vs. REPUBLIC OF THE
PHILIPPINES G.R. No. 198756, January 13, 2015
FACTS:
This case involves P35 billion worth of 10-year
zero-coupon treasury bonds issued by the Bureau of
Treasury (BTr) denominated as the Poverty Eradication
and Alleviation Certificates or the PEACe Bonds. These
PEACe Bonds would initially be purchased by a special
purpose vehicle on behalf of Caucus of Development
NGO Networks (CODE-NGO), repackaged and sold at a
premium to investors. The net proceeds from the sale
will be used to endow a permanent fund to finance
meritorious activities and projects of accredited non-
government organizations (NGOs) throughout the
country. In relation to this, CODE-NGO wrote a letter
to the Bureau of Internal Revenue (BIR) to inquire as
to whether the PEACe Bonds will be subject to
withholding tax of 20%. The BIR issued several rulings
beginning with BIR Ruling No.020-2001 (issued on May
31, 2001) and was subsequently reiterated its points in
BIR Ruling No. 035-200119 dated August 16, 2001
and BIR Ruling No. DA-175-0120. The rulings basically
say that in determining whether financial assets such
as a debt instrument are deposit substitute, the “20 or
more individual or corporate lenders rule” should
apply. Likewise, the “at any one time” stated in the
rules should be construed as “at the time of the
original issuance.”
With this BTr made a public offering of the
PEACe Bonds to the Government Securities Eligible
Dealers (GSED) wherby RCBC won as the highest
bidder for approximately 10.17 billion, resulting in a
discount of approximately 24.83 billion. RCBC Capital
Capital entered into an underwriting agreement with
CODE-NGO, whereby RCBC Capital was appointed as
the Issue Manager and Lead Underwriter for the
offering of the PEACe Bonds.
In October 7, 2011, BIR issued BIR RULING NO.
370-2011 in response to the query of the Secretary of
Finance as to the proper tax treatment of the discounts
and interest derived from Government Bonds. It cited
– SECOND SET CASE DIGEST | 117
three other rulings issued in 2004 and 2005. The
above ruling states that the all treasury bonds
(including PEACe Bonds), regardless of the number of
purchasers/lenders at the time of origination/issuance
are considered deposit substitutes. In the case of zero-
coupon bonds, the discount (i.e. difference between
face value and purchase price/discounted value of the
bond) is treated as interest income of the
purchaser/holder.
ISSUE:
Whether or not the PEACE Bonds are deemed deposit
substitutes within the meaning of Section 22(Y) of the
1997 National Internal Revenue Code.
RULING:
The PEACE Bonds, according to the SC,
requires further information for proper determination
of whether these bonds are within the purview of
deposit substitutes. The Court noted that it may seem
that the lender is only CODE-NGO through RCBC.
However, the underwriting agreement reveals that the
entire 35billion worth of zero-coupon bonds were
sourced directly from the undisclosed number of
investors. These are the same investors to whom
RCBC Capital distributed the PEACE Bonds all at the
time of the origination or issuance. Hence, until there
is information as to whether the PEACE Bonds are
found within the coverage of deposit substitutes, the
proper procedure for the BIR is to collect the unpaid
final withholding tax directly from RCBC Capital/
CODE-NGO, or any lender if such be the case.
The court also noted that according to the NIRC,
Section 24, interest income received by individuals from
long term deposits or investments with a holding period of
not less than five years is exempt from final tax.
The decision provided the definition of deposit
substitute 1997 National Internal Revenue Code which
placed the 20-lender rule. In particular, Section 22 (Y)
states that a debt instrument shall mean “an
alternative form of obtaining funds from the public (the
term 'public' means borrowing from twenty (20) or
more individual or corporate lenders at any one time)
other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for
the borrower’s own account” The determination as to
whether a deposit substitute will be imposed with 20%
final withholding tax rests on the number of lenders.
When there are 20 or more lenders/investors in a
transaction for a specific bond issue, the seller is required
to withhold the 20% final income tax on the imputed
interest income from the bonds. The SC cited Sections
24(B) (1), 27(D)(1), and 28(A)(7) of the 1997 NIRC.
These provisions state the imposition of a final tax rate of
20% upon the amount of interest from any currency bank
deposit and yield or any other monetary benefit from
deposit substitutes. On the other hand, for instruments
not considered as deposit substitutes, these will be
subjected to regular income tax. The prevailing provision
is Section 32(A). Hence, should the deposit substitute
involves less than 20 lenders in a
 CORPORATION LAW
transaction, the income is considered as “income
derived from whatever source”.
The “gain” referred to in Section 32 (A) pertains
to that realized from the trading of bonds at maturity rate
or the gain realized by the last holder of the bonds when
redeemed at maturity. In the case of discounted
instruments, like the zero-coupon bonds, the trading gain
shall be the excess of the selling price over the book value
or accreted value of the instruments.
As for the BIR Rulings issued in 2001, the SC
finds that the interpretation of the phrase “at any one
time”, is “to mean at the point of origination alone is
unduly restrictive” On the other hand, the 2011 BIR
Ruling which relied on the 2004 and 2005 BIR Rulings
is void for creating a distinction between government
bonds and those issued by private corporations, when
there is none in the law. Further, it completely
disregarding the 20-lender rule under the NIRC since it
says, “all treasury bonds regardless of the number of
purchasers/lenders at the time of origination/issuance
are considered deposit substitutes”.
6. G.R. No. 202205 March 6, 2013 FOREST
HILLS GOLF & COUNTRY
CLUB, Petitioner, vs.VERTEX SALES AND
TRADING, INC., Respondent.
FACTS:
Petitioner Forest Hills Golf & Country Club
(Forest Hills) is a domestic non-profit stock corporation
that operates and maintains a golf and country club
facility in Antipolo City. Forest Hills was created as a
result of a joint venture agreement between Kings
Properties Corporation (Kings) and Fil-Estate Golf and
Development, Inc. (FEGDI). Accordingly, Kings and
FEGDI owned the shares of stock of Forest Hills,
holding 40% and 60% of the shares, respectively.
In August 1997, FEGDI sold to RS Asuncion
Construction Corporation (RSACC) one (1) Class "C"
common share of Forest Hills for ₱1.1 million. Prior to
the full payment of the purchase price, RSACC
transferred its interests over FEGDI's Class "C"
common share to respondent Vertex Sales and
4 Whether or not the CA correctly declared the
Trading, Inc. (Vertex). RSACC advised FEGDI of the
transfer and FEGDI, in turn, requested Forest Hills to
recognize Vertex as a shareholder. Forest Hills acceded
to the request, and Vertex was able to enjoy
membership privileges in the golf and country club.
Despite the sale of FEGDI's Class "C" common
share to Vertex, the share remained in the name of
FEGDI, prompting Vertex to demand for the issuance of a
5
stock certificate in its name. As its demand went
6
unheeded, Vertex filed a complaint for rescission with
damages against defendants Forest Hills, FEGDI, and Fil-
Estate Land, Inc. (FELI) – the developer of the Forest Hills
golf course. Vertex averred that the defendants defaulted
in their obligation as sellers when they failed and refused
to issue the stock certificate covering the Class "C"
common share. It prayed for the rescission of the sale and
the return of the sums it paid; it also claimed payment of
actual damages for the defendants’ unjustified refusal to
issue the stock certificate.
– SECOND SET CASE DIGEST | 118
Forest Hills denied transacting business with
Vertex and claimed that it was not a party to the sale
of the share; FELI claimed the same defense. While
admitting that no stock certificate was issued, FEGDI
alleged that Vertex nonetheless was recognized as a
stockholder of Forest Hills and, as such, it exercised
rights and privileges of one. FEGDI added that during
the pendency of Vertex's action for rescission, a stock
certificate was issued in Vertex's name,
7
but Vertex
refused to accept it.
The RTC Ruling
Dismissed Vertex's complaint after finding that
the failure to issue a stock certificate did not constitute a
violation of the essential terms of the contract of sale that
would warrant its rescission. The RTC noted that the sale
was already consummated notwithstanding the non-
issuance of the stock certificate. The issuance of a stock
certificate is a collateral matter in the consummated sale
of the share; the stock certificate is not essential to the
creation of the relation of a shareholder. Hence, the RTC
ruled that the non-issuance of the stock certificate is a
mere casual breach that would not entitle Vertex to
rescind the sale.
The CA Ruling
Vertex appealed the RTC's dismissal of its
10
complaint. In its February 22, 2012 decision, the CA
reversed the RTC. It declared that "in the sale of
shares of stock, physical delivery of a stock certificate
is one of the essential requisites for the transfer of
11
ownership of the stocks purchased." It based its
ruling on Section 63 of the Corporation Code.
Without the issuance of the stock certificate
and despite Vertex’s full payment of the purchase
price, the share cannot be considered as having been
validly transferred. Hence, the CA rescinded the sale of
the share and ordered the defendants to return the
amount paid by Vertex by reason of the sale.
ISSUE:
rescission of the sale of one (1) Class "C" common
share of Forest Hills to Vertex.
RULING:
Ruling on rescission of sale is a settled matter
At the outset, we declare that the question of
rescission of the sale of the share is a settled matter
that the Court can no longer review in this petition.
While Forest Hills questioned and presented its
arguments against the CA ruling rescinding the sale of
the share in its petition, it is not the proper party to
appeal this ruling.
As correctly pointed out by Forest Hills, it was
not a party to the sale even though the subject of the
sale was its share of stock. The corporation whose
shares of stock are the subject of a transfer
 CORPORATION LAW
transaction (through sale, assignment, donation, or
any other mode of conveyance) need not be a party
to the transaction, as may be inferred from the
terms of Section 63 of the Corporation Code.
However, to bind the corporation as well as third
parties, it is necessary that the transfer is recorded
in the books of the corporation. In the present case,
the parties to the sale of the share were FEGDI as the
seller and Vertex as the buyer (after it succeeded RSACC).
As party to the sale, FEGDI is the one who may appeal the
ruling rescinding the sale. The remedy of appeal is
available to a party who has "a present interest in the
subject matter of the litigation and is aggrieved or
prejudiced by the judgment. A party, in turn, is
deemed aggrieved or prejudiced when his interest,
recognized by law in the subject matter of the
lawsuit, is injuriously affected by the judgment,
17
order or decree." The rescission of the sale does not in
any way prejudice Forest Hills in such a manner that its
interest in the subject matter – the share of stock – is
injuriously affected. Thus, Forest Hills is in no position to
appeal the ruling rescinding the sale of the share. Since
FEGDI, as party to the sale, filed no appeal against its
rescission, we consider as final the CA’s ruling on this
matter.
7. G.R. No. 189827 October 16, 2013
GERSIP ASSOCIATION, INC., LETICIA ALMAZAN,
ANGELA NARVAEZ, MARIA B. PINEDA, LETICIA DE
MESA AND ALFREDO D. PINEDA, Petitioners, vs.
GOVERNMENT INSURANCE SERVICE SYSTEM,
Respondent.
FACTS:
Respondent GSIS is a social insurance institution
created under Commonwealth Act No. 186,5 tasked
with providing and administering a pension fund for
government employees and managing the General
Insurance Fund.
On March 19, 1981, the GSIS Board of
Trustees (GSIS Board) approved the proposed GSIS
Provident Fund Plan (Plan) to provide supplementary
benefits to GSIS employees upon their retirement,
disability or separation from the service, and payment
of definite amounts to their beneficiaries in the event
of death. It likewise adopted the "Provident Fund Rules
and Regulations" (PFRR) which became effective on
April 1, 1981.6
Under the Plan, employees who are members of
the Provident Fund (Fund) contribute through salary
deduction a sum equivalent to five percent (5%) of their
monthly salary while respondent’s monthly contribution is
fixed at 45% of each member’s monthly salary. A
Committee of Trustees (Committee) appointed by
respondent administers the Fund by investing it "in a
prudent manner to ensure the preservation of the Fund
capital and the adequacy of its earnings."7
Out of the earnings realized by the Fund,
twenty percent (20%) of the proportionate earnings of
respondent’s contributions is deducted and credited to
a General Reserve Fund (GRF) and the remainder is
credited to the accounts of the members in proportion
– SECOND SET CASE DIGEST | 119
to the amounts standing to their credit at the beginning of
each quarter. Upon retirement, members are entitled to
withdraw the entire amount of their contributions and
proportionate share of the accumulated earnings thereon,
and 100% of respondent’s contributions with its
proportionate earnings.8
On March 30, 2001, petitioner GERSIP
Association, Inc.9 (GERSIP), composed of retired GSIS
employees and officers, wrote the President and General
Manager of respondent requesting the liquidation and
partition of the GRF. In his letter-reply10 dated August
14, 2001, then President and General Manager Winston F.
Garcia explained that there exists a trust relation rather
than co-ownership with respect to the Fund. He stressed
that the PFRR authorizes a reduction of 20% earnings for
the GRF, not a total liquidation of the fund itself.
Moreover, the GRF, being an integral part of the Fund,
must be maintained as a general policy to serve its
purpose of providing supplementary benefits to retired,
separated and disabled GSIS employees and, in the event
of death, payment of definite amounts to their
beneficiaries.
RTC DECISION:
Petitioners initially filed a civil suit before the
Regional Trial Court (RTC) of Quezon City (Civil Case
No. Q-01-45533) but on motion of respondent said
case was dismissed on the ground that it is the GSIS
Board which has jurisdiction over the controversy.
GSIS BOARD
On October 27, 2004, the GSIS Board denied
the petition for lack of merit. It held that the execution
14
of the Trust Agreement between respondent and the
Committee is a clear indication that the parties
intended to establish an express trust, not a co-
ownership, with respondent as Trustor, the Committee
as Trustee of the Fund and the members as
Beneficiaries. As to the GRF, the Board said that it
answers only for the contingent claims mentioned in
Section 8, Article IV and there is no requirement in the
PFRR for the accounting and partition of GRF.
CA DECISION
By Decision dated June 30, 2009, the CA
affirmed the ruling of the GSIS Board. Petitioners’
motion for reconsideration was likewise denied.
ISSUE:
Whether or not the Provident fund is not a "trust" but a
co-ownership.
RULING:
NO. We sustain the rulings of the GSIS Board and
CA.
Trust is the legal relationship between one person
having an equitable ownership in property and another
person owning the legal title to such property, the
equitable ownership of the former entitling him to the
 CORPORATION LAW
performance of certain duties and the exercise of
19
certain powers by the latter. A trust fund refers to
money or property set aside as a trust for the benefit
of another and held by a trustee.
20
Under the Civil
Code, trusts are classified as either express or implied.
An express trust is created by the intention of the
trustor or of the parties, while an implied trust comes
21
into being by operation of law.
There is no doubt that respondent intended
to establish a trust fund from the employees’
contributions (5% of monthly salary) and its own
contributions (45% of each member’s monthly
salary and all unremitted Employees Welfare
contributions). We cannot accept petitioners’ submission
that respondent could not impose terms and conditions on
the availment of benefits from the Fund on the ground
that members already own respondent’s contributions
from the moment such was remitted to their account.
Petitioners’ assertion that the Plan was a purely
contractual obligation on the part of respondent is likewise
mistaken.
Republic Act No. 8291, otherwise known as "The
Government Service Insurance System Act of 1997,"
mandated respondent to maintain a provident fund
subject to rules and regulations it may adopt. Thus:
SECTION 41. Powers and Functions of the GSIS. — The
GSIS shall exercise the following powers and functions:
xxxx
(s) to maintain a provident fund , which consists of
contributions made by both the GSIS and its officials
and employees and their earnings, for the payment of
benefits to such officials and employees or their heirs
under such terms and conditions as it may prescribe;
(Emphasis supplied.)
It is clear that while respondent’s monthly
contributions are credited to the account of each
member, and the same were received by
petitioners upon their retirement, they were
entitled to only a proportionate share of the
earnings thereon. The benefits of retiring members
of the Fund are covered by Section 1(b), Article V
which states:
(b) Retirement. In the event the separation from the
System is due to retirement under existing laws, such
as P.D. 1146, R.A. 660 or R.A. 1616, irrespective of
the length of membership to the Fund, the retiree shall
be entitled to withdraw the entire amount of his
contributions to the Fund, as well as the corresponding
proportionate share of the accumulated earnings
thereon, and in addition, 100% of the System’s
contributions, plus the proportionate earnings thereon.
We find nothing illegal or anomalous in the creation of
the GRF to address certain contingencies and ensure
the Fund’s continuing viability. Petitioners’ right to
receive retirement benefits under the Plan was subject
to well-defined rules and regulations that were made
known to and accepted by them when they applied for
membership in the Fund.
Petitioners have the right to demand for an accounting of
28
the Fund including the GRF. Under Section 5, Article VIII
of the PFRR, the Committee is required to prepare an
annual report showing the income and expenses and the
financial condition of the Fund as of the end of each
calendar year. Said report shall be submitted to the GSIS
Board and shall be available to members. There
– SECOND SET CASE DIGEST | 120
is, however, no allegation or evidence that the
Committee failed to comply with the submission of
such annual report, or that such report was not made
available to members.
8. G.R. No. 202079 June 10, 2013 FIL-
ESTATE GOLF AND DEVELOPMENT, INC. and
FILESTATE LAND, INC., Petitioners, vs.
VERTEX SALES AND TRADING, INC., Respondent.
FACTS:
FEGDI is a stock corporation whose primary
business is the development of golf courses. FELI is
also a stock corporation, but is engaged in real estate
development. FEGDI was the developer of the Forest
Hills Golf and Country Club (Forest Hills) and, in
consideration for its financing support and construction
efforts, was issued several shares of stock of Forest
Hills.
Sometime in August 1997, FEGDI sold, on
installment, to RS Asuncion Construction Corporation
(RSACC) one Class "C" Common Share of Forest Hills for
₱1,100,000.00. Prior to the full payment of the purchase
5
price, RSACC sold, on February 11, 1999, the Class "C"
Common Share to respondent Vertex Sales and Trading,
Inc. (Vertex). RSACC advised FEGDI of the sale to Vertex
and FEGDI, in turn, instructed Forest Hills to recognize
Vertex as a shareholder. For this reason, Vertex enjoyed
membership privileges in Forest Hills.
Despite Vertex’s full payment, the share remained
in the name of FEGDI. Seventeen (17) months after the
sale (or on July 28, 2000), Vertex wrote FEDGI a letter
demanding the issuance of a stock certificate in its name.
FELI replied, initially requested Vertex to first pay the
necessary fees for the transfer. Although Vertex complied
with the request, no certificate was issued. This prompted
Vertex to make a final demand on March 17, 2001. As the
demand went unheeded, Vertex filed on January 7, 2002
a Complaint for Rescission with Damages and Attachment
against FEGDI, FELI and Forest Hills. It averred that the
petitioners defaulted in their obligation as sellers when
they failed and refused to issue the stock certificate
covering the subject share despite repeated demands. On
the basis of its rights under Article 1191 of the Civil Code,
Vertex prayed for the rescission of the sale and demanded
the reimbursement of the amount it paid (or
₱1,100,000.00), plus interest. During the pendency of the
rescission action (or on January 23, 2002), a certificate of
stock was issued in Vertex’s name, but Vertex refused to
accept it.
RULING OF THE RTC
The RTC dismissed the complaint for insufficiency
of evidence. It ruled that delay in the issuance of stock
certificates does not warrant rescission of the contract as
this constituted a mere casual or slight breach. It also
observed that notwithstanding the delay in the issuance of
the stock certificate, the sale had already been
consummated; the issuance of the stock certificate is just
a collateral matter to the sale and the
 CORPORATION LAW
stock certificate is not essential to "the creation of the
6 shares should have been delivered. This was a
relation of shareholder."
RULING OF THE CA
Vertex appealed the dismissal of its complaint.
In its decision, the CA reversed the RTC and rescinded
the sale of the share. Citing Section 63 of the
Corporation Code, the CA held that there can be no
valid transfer of shares where there is no delivery of
the stock certificate. It considered the prolonged
issuance of the stock certificate a substantial breach
7 rescission under Article 1191" of the Civil Code; such
that served as basis for Vertex to rescind the sale.
The CA ordered the petitioners to return the amounts
paid by Vertex by reason of the sale.
ISSUE:
Whether or not the delay in the issuance of a
stock certificate can be considered a substantial breach
as to warrant rescission of the contract of sale.
RULING:
YES. Physical delivery is necessary to transfer
ownership of stocks.
The factual backdrop of this case is similar to that of
9
Raquel-Santos v. Court of Appeals, where the Court held
that in "a sale of shares of stock, physical delivery of a
stock certificate is one of the essential requisites for the
transfer of ownership of the stocks purchased."
Section 63 of the Corporation Code provides:
SEC. 63. Certificate of stock and transfer of
shares. – The capital stock of stock corporations shall be
divided into shares for which certificates signed by the
president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal
of the corporation shall be issued in accordance with the
by-laws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact
or other person legally authorized to make the
transfer.1âwphi1 No transfer, however, shall be valid,
except as between the parties, until the transfer is
recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and
the number of shares transferred.
No shares of stock against which the
corporation holds any unpaid claim shall be
transferable in the books of the corporation.
In this case, Vertex fully paid the
purchase price by February 11, 1999 but the
stock certificate was only delivered on January
23, 2002 after Vertex filed an action for
rescission against FEGDI.
Under these facts, considered in relation to the
governing law, FEGDI clearly failed to deliver the stock
certificates, representing the shares of stock purchased
– SECOND SET CASE DIGEST | 121
by Vertex, within a reasonable time from the point the
substantial breach of their contract that entitles Vertex
the right to rescind the sale under Article 1191 of the
Civil Code. It is not entirely correct to say that a sale
had already been consummated as Vertex already
enjoyed the rights a shareholder can exercise. The
enjoyment of these rights cannot suffice where the
law, by its express terms, requires a specific form to
transfer ownership.
"Mutual restitution is required in cases involving
restitution is necessary to bring back the parties to their
10
original situation prior to the inception of the contract.
Accordingly, the amount paid to FEGDI by reason of the
sale should be returned to Vertex. On the amount of
damages, the CA is correct in not awarding damages since
Vertex failed to prove by sufficient evidence that it
suffered actual damage due to the delay in the issuance of
the certificate of stock.
9. G.R. NO. 201675, June 19, 2013
JUANITO ANG, FOR AND IN BEHALF OF SUNRISE
MARKETING (BACOLOD), INC., Petitioner, v.
SPOUSES ROBERTO
AND RACHEL ANG, Respondents.
FACTS:
Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly
registered corporation owned by the Ang family.
Juanito Ang (Juanito) and Roberto Ang (Roberto) are
siblings. Anecita Limoco-Ang (Anecita) is Juanito’s wife
and Jeannevie is their daughter. Roberto was elected
President of SMBI, while Juanito was elected as its Vice
President. Rachel Lu-Ang (Rachel) and Anecita are SMBI’s
Corporate Secretary and Treasurer, respectively.
On 31 July 1995, Nancy Ang (Nancy), the sister of
Juanito and Roberto, and her husband, Theodore Ang
(Theodore), agreed to extend a loan to settle the
obligations of SMBI and other corporations owned by
the Ang family, specifically Bayshore Aqua Culture
Corporation, Oceanside Marine Resources and JR Aqua
Venture.
Nancy and Theodore issued a check in the amount of
$1,000,000.00 payable to “Juanito Ang and/or Anecita
Ang and/or Roberto Ang and/or Rachel Ang.” Nancy was a
former stockholder of SMBI, but she no longer appears in
SMBI’s General Information Sheets as early as 1996.
Nancy and Theodore are now currently residing in the
United States. There was no written loan agreement, in
view of the close relationship between the parties. Part of
the loan was also used to purchase real properties for
SMBI, for Juanito, and for Roberto.
On 22 December 2005, SMBI increased its authorized
capital stock to P10,000,000.00. The Certificate of
Increase of Capital Stock was signed by Juanito,
Anecita, Roberto, and Rachel as directors of SMBI.
Juanito claimed, however, that the increase of SMBI’s
capital stock was done in contravention of the
Corporation Code.
According to Juanito, when he and Anecita left for
Canada,
Roberto and Rachel Ang took over the active
management of [SMBI]. Through the employment of
sugar coated words they were able to successfully
manipulate the stocks sharings between themselves at
 CORPORATION LAW
50-50 under the condition that the procedures
mandated by the Corporation Code on increase of
capital stock be strictly observed (valid Board
Meeting). No such meeting of the Board to increase
capital stock materialized. It was more of an
accommodation to buy peace.
Juanito claimed that payments to Nancy and Theodore
ceased sometime after 2006. On 24 November 2008,
Nancy and Theodore, through their counsel here in the
Philippines, sent a demand letter to “Spouses Juanito L.
Ang/Anecita L. Ang and Spouses Roberto L. Ang/Rachel L.
Ang” for payment of the principal amounting to
$1,000,000.00 plus interest at ten percent (10%) per
annum, for a total of $2,585,577.37 within ten days from
receipt of the letter.
Roberto and Rachel then sent a letter to Nancy and
Theodore’s counsel on 5 January 2009, saying that
they are not complying with the demand letter because
they have not personally contracted a loan from Nancy
and Theodore.
On 8 January 2009, Juanito and Anecita executed a Deed
of Acknowledgment and Settlement Agreement
(Settlement Agreement) and an Extra-Judicial Real Estate
Mortgage (Mortgage). Under the foregoing instruments,
Juanito and Anecita admitted that they, together with
Roberto and Rachel, obtained a loan from Nancy and
Theodore for $1,000,000.00 on 31 July 1995.
Thereafter, Juanito filed a “Stockholder Derivative Suit
with prayer for an ex-parte Writ of
Attachment/Receivership” (Complaint) before the RTC
Bacolod on 29 January 2009. He alleged that “the
intentional and malicious refusal of defendant Sps.
Roberto and Rachel Ang to [settle] their 50% share x x
x [of] the total obligation x x x will definitely affect the
financial viability of plaintiff SMBI.”
Juanito also claimed that he has been “illegally
excluded from the management and participation in
the business of [SMBI through] force, violence and
intimidation” and that Rachel and Roberto have seized
and carted away SMBI’s records from its office.
On 29 January 2009, the RTC Bacolod issued an
Order16 granting the application for an ex-parte writ of
attachment and break open order. Atty. Jerry Basiao,
who filed an application for appointment as Receiver of
SMBI, was directed by the RTC Bacolod to furnish the
required Receivership Bond.
On the same date, Roberto and Rachel moved to quash
the writ of attachment and set aside the break open
order and appointment of receiver. They claimed that
these were issued in violation of their rights.
In her Verified Answer Ad Cautelam which was filed on
10 February 2009, Rachel prayed that the Complaint
be dismissed as it was not a bona fide derivative suit
as defined under the Interim Rules of Procedure for
Intra-Corporate Controversies
(Interim Rules). According to Rachel, the Complaint,
although labelled as a derivative suit, is actually a
collection suit since the real party in interest is not
SMBI, but Nancy and Theodore.
ISSUE:
Whether based on the allegations of the complaint, the
nature of the case is one of a derivative suit or not.
RULING:
We uphold the CA-Cebu’s finding that the Complaint is not
a derivative suit. A derivative suit is an action brought by
a stockholder on behalf of the corporation to
– SECOND SET CASE DIGEST | 122
enforce corporate rights against the corporation’s
directors, officers or other insiders.
Under Sections 2330 and 3631of the Corporation Code,
the directors or officers, as provided under the by-laws,
have the right to decide whether or not a corporation
should sue. Since these directors or officers will never be
willing to sue themselves, or impugn their wrongful or
fraudulent decisions, stockholders are permitted by law to
bring an action in the name of the corporation to hold
these directors and officers accountable.
In derivative suits, the real party in interest is the
corporation, while the stockholder is a mere nominal
party.
This Court, in Yu v. Yukayguan,
The Court has recognized that a stockholder’s right to
institute a derivative suit is not based on any express
provision of the Corporation Code, or even the
Securities Regulation Code, but is impliedly recognized
when the said laws make corporate directors or officers
liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties.
Hence, a stockholder may sue for mismanagement,
waste or dissipation of corporate assets because of a
special injury to him for which he is otherwise without
redress. In effect, the suit is an action for specific
performance of an obligation owed by the corporation
to the stockholders to assist its rights of action when
the corporation has been put in default by the wrongful
refusal of the directors or management to make
suitable measures for its protection. The basis of a
stockholder’s suit is always one in equity. However, it
cannot prosper without first complying with the legal
requisites for its institution.
Section 1, Rule 8 of the Interim Rules imposes the
following requirements for derivative suits:
(1) [The person filing the suit must be] a stockholder or
member at the time the acts or transactions subject of the
action occurred and the time the action was filed;
(2) [He must have] exerted all reasonable efforts, and
alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he
desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
Applying the foregoing, we find that the Complaint is
not a derivative suit. The Complaint failed to show how
the acts of Rachel and Roberto resulted in any
detriment to SMBI. The CA-Cebu correctly concluded
that the loan was not a corporate obligation, but a
personal debt of the Ang brothers and their spouses.
The check was issued to “Juanito Ang and/or Anecita
Ang and/or Roberto Ang and/or Rachel Ang” and not
SMBI. The proceeds of the loan were used for payment
of the obligations of the other corporations owned by
the Angs as well as the purchase of real properties for
the Ang brothers. SMBI was never a party to the
Settlement Agreement or the Mortgage. It was never
named as a co-debtor or guarantor of the loan. Both
instruments were executed by Juanito and Anecita in
their personal capacity, and not in their capacity as
directors or officers of SMBI. Thus, SMBI is under no
legal obligation to satisfy the obligation.
 CORPORATION LAW
The fact that Juanito and Anecita attempted to constitute
a mortgage over “their” share in a corporate asset cannot
affect SMBI. The Civil Code provides that in order for a
mortgage to be valid, the mortgagor must be the
“absolute owner of the thing x x x mortgaged.”
Corporate assets may be mortgaged by authorized
directors or officers on behalf of the corporation as
owner, “as the transaction of the lawful business of the
corporation may reasonably and necessarily require.”
However, the wording of the Mortgage reveals that it
was signed by Juanito and Anecita in their personal
capacity as the “owners” of a pro-indiviso share in
SMBI’s land and not on behalf of SMBI:
This [Mortgage] is made and executed by and between:
Spouses JUANITO and ANECITA ANG, of legal age,
Filipino citizens, resident[s] of Sunrise Marketing
Building at Hilado Street, Capitol Shopping Center,
Bacolod City, hereinafter referred to as the
MORTGAGOR[S];
Spouses THEODORE and NANCY ANG, x x x hereinafter
referred to as the MORTGAGEE[S] represented in this
instance through their attorney-in-fact, Mr. Kenneth
Locsin;
xxxx
In order to ensure payment x x x the MORTGAGORS
hereby CONVEY unto the MORTGAGEES by way of
EXTRA-JUDICIAL REAL ESTATE MORTGAGE their 50%
rights and interests over the following real properties
to wit:
a. Those registered in the name of SUNRISE
MARKETING (BACOLOD), INC. x x x
xxxx
Juanito and Anecita, as stockholders of SMBI, are not co-
owners of SMBI assets. They do not own pro-indiviso
shares, and therefore, cannot mortgage the same except
in their capacity as directors or officers of SMBI.
We also find that there is insufficient evidence to
suggest that Roberto and Rachel fraudulently and
wrongfully removed Nancy as a stockholder in SMBI’s
reportorial requirements. As early as 2005, when SMBI
increased its capital stock, Juanito and Anecita already
knew that Nancy was not listed as a stockholder of
SMBI. However, they attempted to rectify the error
only in 2009, when the Complaint was filed. That it
took four years for them to make any attempt to
question Nancy’s exclusion as stockholder negates
their allegation of fraud.
Since damage to the corporation was not sufficiently
proven by Juanito, the Complaint cannot be considered
a bona fide derivative suit. A derivative suit is one that
seeks redress for injury to the corporation, and not the
stockholder. No such injury was proven in this case.
The Complaint also failed to allege that all available
corporate remedies under the articles of incorporation, by-
laws, laws or rules governing the corporation were
exhausted, as required under the Interim Rules. The CA-
Cebu, applying our ruling in the Yu case, pointed out:
x x x No written demand was ever made for the board
of directors to address private respondent Juanito
Ang’s concerns.
The fact that [SMBI] is a family corporation does not
exempt private respondent Juanito Ang from complying
– SECOND SET CASE DIGEST | 123
with the [Interim] Rules. In the x x x Yu case, the
Supreme Court held that a family corporation is not
exempt from complying with the clear requirements
and formalities of the rules for filing a derivative suit.
There is nothing in the pertinent laws or rules [which
state that there is a] distinction between x x x family
corporations x x x [and] other types of corporations in
the institution [by] a stockholder of a derivative suit.
Furthermore, there was no allegation that there was
an attempt to remove Rachel or Roberto as director or
officer of SMBI, as permitted under the Corporation
Code and the by-laws of the corporation. Thus, the
Complaint failed to satisfy the requirements for a
derivative suit under the Interim Rules.
The CA-Cebu correctly ruled that the Complaint should
be dismissed since it is a nuisance or harassment suit
under Section 1(b) of the Interim Rules. Section 1(b)
thereof provides:
b) Prohibition against nuisance and harassment suits. -
Nuisance and harassment suits are prohibited. In
determining whether a suit is a nuisance or
harassment suit, the court shall consider, among
others, the following:
(1) The extent of the shareholding or interest of the
initiating stockholder or member;
(2) Subject matter of the suit;
(3) Legal and factual basis of the complaint;
(4) Availability of appraisal rights for the act or acts
complained of; and
(5) Prejudice or damage to the corporation,
partnership, or association in relation to the relief
sought.
In case of nuisance or harassment suits, the court
may, motu proprio or upon motion, forthwith dismiss
the case.
Records show that Juanito, apart from being Vice
President, owns the highest number of shares, equal to
those owned by Roberto. Also, as explained earlier,
there appears to be no damage to SMBI if the loan
extended by Nancy and Theodore remains unpaid. The
CA-Cebu correctly concluded that “a plain reading of
the allegations in the Complaint would readily show
that the case x x x was mainly filed [to collect] a debt
allegedly extended by the spouses Theodore and
Nancy Ang to [SMBI]. Thus, the aggrieved party is not
SMBI x x x but the spouses Theodore and Nancy Ang.
10. Republic Planters Bank vs. Agana Case Digest
[GR 51765, 3 March 1997]
FACTS:
On 18 September 1961, the Robes-Francisco Realty &
Development Corporation (RFRDC) secured a loan from
the Republic Planters Bank in the amount of
P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to RFRDC
through its officers then, Adalia F. Robes and one
Carlos F. Robes. In other words, instead of giving the
legal tender totaling to the full amount of the loan,
which is P120,000.00, the Bank lent such amount
partially in the form of money and partially in the form
of stock certificates numbered 3204 and 3205, each
for 400 shares with a par value of P10.00 per share, or
for P4,000.00 each, for a total of P8,000.00. Said stock
certificates were in the name of Adalia F. Robes and
 CORPORATION LAW
Carlos F. Robes, who subsequently, however, endorsed
his shares in favor of Adalia F. Robes.
Said certificates of stock bear the following terms and
conditions: "The Preferred Stock shall have the following
rights, preferences, qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of 1%,
cumulative and participating. xxx 2. That such preferred
shares may be redeemed, by the system of drawing lots,
at any time after 2 years from the date of issue at the
option of the Corporation." On 31 January 1979, RFRDC
and Robes proceeded against the Bank and filed a
complaint anchored on their alleged rights to collect
dividends under the preferred shares in question and to
have the bank redeem the same under the terms and
conditions of the stock certificates. The bank filed a
Motion to Dismiss 3 private respondents' Complaint on the
following grounds: (1) that the trial court had no
jurisdiction over the subject-matter of the action; (2) that
the action was unenforceable under substantive law; and
(3) that the action was barred by the statute of limitations
and/or laches. The bank's Motion to Dismiss was denied
by the trial court in an order dated 16 March 1979. The
bank then filed its Answer on 2 May 1979. Thereafter, the
trial court gave the parties 10 days from 30 July 1979 to
submit their respective memoranda after the submission
of which the case would be deemed submitted for
resolution. On 7 September 1979, the trial court rendered
the decision in favor of RFRDC and Robes; ordering the
bank to pay RFRDC and Robes the face value of the stock
certificates as redemption price, plus 1% quarterly
interest thereon until full payment. The bank filed the
petition for certiorari with the Supreme Court, essentially
on pure questions of law.
ISSUES:
1. Whether the bank can be compelled to redeem
the preferred shares issued to RFRDC and
Robes.
2. Whether RFRDC and Robes are entitled to the
payment of certain rate of interest on the
stocks as a matter of right without necessity of
a prior declaration of dividend.
RULING:
1. While the stock certificate does allow redemption, the
option to do so was clearly vested in the bank. The
redemption therefore is clearly the type known as
"optional". Thus, except as otherwise provided in the
stock certificate, the redemption rests entirely with the
corporation and the stockholder is without right to either
compel or refuse the redemption of its stock.
Furthermore, the terms and conditions set forth therein
use the word "may". It is a settled doctrine in statutory
construction that the word "may" denotes discretion, and
cannot be construed as having a mandatory effect. The
redemption of said shares cannot be allowed. The Central
Bank made a finding that the Bank has been suffering
from chronic reserve deficiency, and that such finding
resulted in a directive, issued on 31 January 1973 by then
Gov. G. S. Licaros of the Central Bank, to the President
and Acting Chairman of the Board of the bank prohibiting
the latter from redeeming any preferred share, on the
ground that said redemption would reduce the assets of
the Bank to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited for a just
and valid reason. The directive issued by the Central Bank
Governor was obviously meant to preserve the status quo,
and to prevent the financial ruin of a banking institution
that would have resulted in adverse repercussions, not
only to its depositors and creditors, but also to the
banking industry as a whole. The directive, in limiting the
– SECOND SET CASE DIGEST | 124
exercise of a right granted by law to a corporate entity,
may thus be considered as an exercise of police power.
2. Both Section 16 of the Corporation Law and Section
43 of the present Corporation Code prohibit the
issuance of any stock dividend without the approval of
stockholders, representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or
special meeting duly called for the purpose. These
provisions underscore the fact that payment of
dividends to a stockholder is not a matter of right but a
matter of consensus. Furthermore, "interest bearing
stocks", on which the corporation agrees absolutely to
pay interest before dividends are paid to common
stockholders, is legal only when construed as requiring
payment of interest as dividends from net earnings or
surplus only. In compelling the bank to redeem the
shares and to pay the corresponding dividends, the
Trial committed grave abuse of discretion amounting
to lack or excess of jurisdiction in ignoring both the
terms and conditions specified in the stock certificate,
as well as the clear mandate of the law.
11. JOSEFA SANTAMARIA, assisted by her
husband, FRANCISCO SANTAMARIA, Jr., plaintiff-
appellee, vs. THE HONGKONG AND SHANGHAI
BANKING CORPORATION and R. W. TAPLIN,
defendants-appellant.
BAUTISTA ANGELO, J.: G.R. No. L-2808 August 31,
1951
FACTS:
Mrs. Josefa T. Santamaria bought 10,000 shares of the
Batangas Minerals, Inc. (Batangas), through the offices
of Woo, Uy-Tioco & Naftaly (Woo), a stock brokerage
firm and pay therefore P8,041.20 as shown by a
receipt. The buyer received Stock Certificate No. 517
issued in the name of Woo, Uy-Tioco & Naftaly and
indorsed in blank by this firm.
Thereafter, Mrs. Santamaria placed an order for the
purchase of 10,000 shares of the Crown Mines, Inc.
with R.J. Campos & Co. (RJ Campos), a brokerage
firm, and delivered Certificate No. 517 to the latter as
security therefor with the understanding that said
certificate would be returned to her upon payment of
the 10,000 shares.
Her name was later written in lead pencil on the upper
right hand corner of the certificate.
Two days later, when Mrs. Santamaria went to pay for
her order, she was informed that R.J. Campos was no
longer allowed to transact business due to a
prohibition order from Securities and Exchange
Commission and that her Stock certificate was in the
possession of the Hongkong and Shanghai Banking
Corporation (Hongkong) It came into the possession of
the Hongkong because R.J. Campos had opened an
overdraft account with this bank and had executed a
document of hypothecation. As per request of
Hongkong, Batangas issued Certificate No. 715 in lieu
of Certificate No. 517, in the name of Robert W. Taplin
as trustee.
CFI ordered Hongkong to pay the plaintiff the sum of
P8,041.20 plus the costs of suit. The case was certified
to this Court of Appeals.
ISSUES:
1)WON plaintiff-appellee was chargeable with
negligence in the transaction which gave rise to this
case.
 CORPORATION LAW
2) WON the defendants Bank obligated to inquire who
was the real owner of the shares represented by the
certificate of stock, and could it
be charged with negligence for having failed to do so?
RULING:
1. YES.
Plaintiff did not take any precaution to protect herself
against the possible misuse of the shares represented
by the certificate of stock. Plaintiff could have asked
the corporation that had issued said certificate to
cancel it and issue another in lieu thereof in her name
to apprise the holder that she was the owner of said
certificate.
This she failed to do, and instead she delivered said
certificate, as it was, to R.J. Campos hereby clothing the
latter with apparent title to the shares represented by said
certificate including apparent authority to negotiate it by
delivering it to said company while it was indorsed in
blank by the person or firm appearing on its face asthe
owner thereof. The defendant Bank had no knowledge of
the circumstances under which the certificate of stock was
delivered to R.J. Campos and had a perfect right to
assume that R.J. Campos was lawfully in possession of the
certificate in view of the fact that it was a street
certificate, and was in such form as would entitle a
possessor thereof to a transfer of the stock on the books
of the corporation concerned.
It is a well-known rule that a bona fide pledgee or
transferee of a stock from the apparent owner is not
chargeable with knowledge of the limitations placed on
it by the real owner, or of any secret agreement
relating to the use which might be made of the stock
by the holder.
2. NO.
It should be noted that the certificate of stock in
question was issued in the name of the brokerage
firm-Woo, Uy -Tioco & Naftaly and that it was duly
indorsed in blank by said firm, and that said
indorsement was guaranteed by R.J. Campos which in
turn indorsed it in blank. This certificate is what it is
known as street certificate. Upon its face, the holder
was entitled to demand its transfer into his name from
the issuing corporation. The Bank was not obligated to
look beyond the certificate to ascertain the ownership
of the stock at the time it received the same from R.J.
Campos for it was given to the Bank pursuant to their
letter of hypothecation. Even if said certificate had
been in the name of the plaintiff but indorsed in blank,
the Bank would
still have been justified in believing that R.J. Campos
had title thereto for the reason that it is a well-known
practice that a certificate of stock, indorsed in blank, is
deemed quasi negotiable, and as such the transferee
thereof is justified in believing that it belongs to the
holder and transferor.
The only evidence in the record to show that the
certificate of stock in question may not have belonged to
R.J. Campos is the testimony of the plaintiff but even
assuming for the sake of argument that what plaintiff has
stated is true, such an incident would merely show that
plaintiff has an adverse claim to the ownership of said
certificate of stock, but that would not necessarily place
the Bank in the position to inquire as to the real basis of
her claim, nor would it place the Bank in the obligation to
recognize her claim and return to her the certificate
outright. A mere claim and of ownership does not
establish the fact of ownership. The right of the plaintiff in
such a case would be against the transferor. In fact, this
is the attitude plaintiff has adopted when
– SECOND SET CASE DIGEST | 125
she filed a charge for estafa against Rafael J. Campos,
which culminated in his prosecution and conviction,
and it is only when she found him to be insolvent that
she decided to go against the Bank.
The Court has noticed that the defendant Bank was
willing from the very beginning to compromise this
case by delivering to the plaintiff certificate of stock
No. 715 that was issued to said Bank by the issuer
corporation in lieu of the original as alleged and prayed
for in its amended answer to the complaint. The most
that plaintiff could claim is the return to her of the said
certificate of stock. The Court is inclined to grant the
formal tender made by the defendant to the plaintiff of
said certificate.
12. G.R. No. 78508 March 21, 1994 PHILIPPINE
NATIONAL BANK, petitioner, vs. FILEMON
REMIGIO and the HON. COURT OF APPEALS,
respondents.
FACTS:
The facts, by and large, are undisputed. In chronology,
the events leading to this appeal may be recited, thus:
(1) On 25 August 1967, private respondent obtained
from petitioner a P65,000.00 loan secured by a real
estate mortgage covering five (5) parcels of land in
Isabela.
(2) Private respondent defaulted; hence on 17
November 1970, petitioner bank extrajudicially
foreclosed on the mortgage, and it acquired the
encumbered assets for the sum of P87,082.00. The
sheriff's sale was registered with the Office of the
Register of Deeds of Isabela only on 11 October 1972.
(3) In its letter-offer of 15 February 1971, petitioner bank
invited private respondent to repurchase the foreclosed
property for P87,082.00 plus interest and other charges.
Before that, or on 18 November 1970 (or one day after
the foreclosure sale), private respondent already had paid
an initial P10,000.00 to redeem the property.
Subsequently, additional payments were made by private
respondent, i.e., P10,000.00 on 26 April 1971 and
another P20,000.00 on 17 May 1971.
(4) On 21 October 1972, Presidential Decree ("P.D.")
No. 27 was enacted into law that mandated an
agrarian reform. Pursuant thereto, an "Operation Land
Transfer Program" was launched; among the areas it
covered were the parcels of land under TCT No. T-100,
T-11326 and T-681.
(5) On 17 April 1974, private respondent offered to
buy the foreclosed property for P284,000.00 which was
the market and appraised value thereof fixed by
petitioner bank. On 24 December 1974, the Deed of
Promise to Sell was executed between petitioner bank
and private respondent.
(6) In a letter, dated 25 August 1978, sent to and
received by petitioner bank on even date, private
respondent, through counsel, inquired why he was still
being made to buy the property for P284,000.00 when,
in truth, he had already paid P40,000.00 of the
P87,082.00 previously offered by petitioner for the
redemption of the property.
There was no reply or response from petitioner. As of
02 November 1977, private respondent had paid
petitioner the total sum of P207,243.85.
7) Private respondent, on 20 September 1978, instituted
an action for "Annulment of Foreclosure Deed, Breach of
Contract, Sum of Money and Damages" at the CFI,
Echague, Isabela, against petitioner bank and its Branch
Manager Leuterio Genato.
 CORPORATION LAW
(8) On 19 March 1980, while the case was yet pending
with the trial court, petitioner bank additionally
received from the Land Bank of the Philippines
P26,348.12 in cash and P160,000.00 worth of Land
Bank Bonds in payment of the foreclosed parcels
covered by TCT No. T-100, T-11326, and T-681.
On 05 December 1981, after trial, the court a quo
rendered judgment in favor of petitioner bank, the
dispositive portion of which read:
WHEREFORE, in the light of the foregoing
considerations, judgment is hereby rendered:
1. DECLARING the foreclosure sale of the plaintiff's
mortgaged properties, covered by and embraced in
Original Certificate of Title No. I-1673 and Transfer
Certificates of Title Nos. T-11326, T-681, T-100 and T-
27, all of the Registry of Deeds of Isabela, as valid;
2. DECLARING the right of the plaintiff to redeem his
foreclosed properties as forever lost;
3. DECLARING the deed of promise the sell executed
between the plaintiff and the defendant bank as valid;
4. DECLARING that the outstanding obligation of the
plaintiff to the bank is P186,874.16 from which shall be
deducted whatever payments are made and/or to be
made by the Land Bank of the Philippines as a result of
its Operation Land Transfer Program;
5. ORDERING that whatever balance thereof shall be
paid by the plaintiff to the defendant bank with twelve
per cent (12%) interest until fully paid and conversely,
whatever excess thereof shall be refunded by the
defendant bank to the plaintiff;
6. ORDERING the defendant bank to execute the
corresponding deed of conveyance of the lands to and
in favor of the plaintiff after payment is made in
accordance with the above;
7. ORDERING the defendant bank to deliver to the
plaintiff the certificates of title covering the properties
mentioned above;
8. DISMISSING the complaint, with costs against the
plaintiff;
9. ORDERING the plaintiff to pay to the defendant,
Leuterio Genato, the sum of TEN THOUSAND PESOS
(P10,000.00) as attorney's fees and FIVE THOUSAND
PESOS (P5,000.00) as expenses of litigation; and
10. DENYING the defendant bank's counterclaim.
Private respondent went to the Court of Appeals, which,
on 05 May 1987, rendered a decision, reversing the trial
court and entering a new one in favor of private
respondent. The appellate court adjudged, as follows:
WHEREFORE, the decision appealed from is set aside
and a new one entered declaring the foreclosure of the
mortgaged properties to be without force and effect;
ordering the defendant bank to release the properties
and the plaintiff to transfer the rights to the tenants-
beneficiaries in favor of the Land Bank of the
Philippines; declaring the deed of promise to sell
executed by the plaintiff and the defendant bank
rescinded; ordering the defendant bank and the Land
Bank of the Philippines to recalculate the amounts of
payments due for the transfer of the subject properties
in accordance with this Decision subject to the
provisions of P.D. No. 27 and in accordance with the
mechanics of the Operation Land Transfer; and
annulling the order of the lower court for the plaintiff
to pay the defendant the expenses of litigation and
attorney's fees.
ISSUE:
– SECOND SET CASE DIGEST | 126
Can the land be redeemed?
RULING:
Yes. The property may be redeemed.
When Presidential Decree No. 27, "Decreeing the
Emancipation of Tenants from the Bondage of the Soil,
Transferring to them the Ownership of the Land They
Till and Providing the Instruments and Mechanism
therefor," was enacted on 21 October 1972, the
parcels of land in dispute were clearly still subject to
private respondent's right of redemption.
In the foreclosure of real property by banking institutions,
as well as in the extrajudicial foreclosure by any other
mortgagee, the mortgagor could redeem the property
within one year from date of registration of the deed of
sale in the appropriate Registry of deeds.
In Medida vs. Court of Appeals (208 SCRA 887), we
ruled that the "title to the land sold under a mortgage
foreclosure remains with the mortgagor or his grantee
until the expiration of the redemption period . . ." The
Court of Appeals committed no error when it thereby
held:
. . . The foreclosure proceedings were instituted in
1970, and on this, there appears to be no question.
The registration of the sheriff's sale was, however,
effected only on October 11, 1972. From this date,
therefore, the period of redemption begins to run
since, according to judicial construction, the period of
redemption begins to run not from the date of the sale
but from the date of registration of the sale in the
office of the Register of Deeds, applying this rule not
only to an execution sale but also to an extrajudicial
foreclosure sale of registered land.
as required under Section 27 of Rule 39 of the Rules of
Court in relation to Section 50 of Act No. 496.
For this reason, the foreclosure proceedings were not
completed since the period of redemption, counted from
October 11, 1972, would expire on October 12, 1973.
This would thereby bring the disputed properties under
the operation and under the ambit of the said Opinion
which interprets Operation Land Transfer under P.D.
No. 27.
It was not thus all that consequential for the appellate
court to still rule on the efficacy or inefficacy of the
foreclosure.
In passing, the Secretary of the Department of Justice
has himself opined thus:
I am aware that a ruling that lands covered by P.D.
No. 27 may not be the object of the foreclosure
proceedings after the promulgation of said decree on
October 21, 1972, would concede that P.D. No. 27 had
the effect of impairing the obligation of the duly
executed mortgage contracts affecting said lands.
There is no question, however, that the land reform
program of the government as accelerated under P.D.
No. 27 and mandated by the Constitution itself (Art.
XIV, Sec. 12), was undertaken in the exercise of the
police power of the state. It is settled in a long line of
decisions of the Supreme Court that the Constitutional
guaranty of non-impairment of obligations of contract
is limited by the exercise of the police power of the
state. One limitation on the contract clause arises from
the police power, the reason being that public welfare
is superior to private rights.
The situation here, is like that in eminent domain
proceedings, where the state expropriates private
property for public use, and the only condition to be
complied with is the payment of just compensation.
 CORPORATION LAW
Technically, the condemnation proceedings do not
impair the contract to destroy its obligations, but
merely appropriate or take for public use . As the Land
Bank is obliged to settle the obligations secured by the
mortgage, the mortgagee is not left without any
compensation.
This Court, likewise, in a number of cases has
expressed the dictum that police power subordinates
the non-impairment clause of the Constitution
Petitioner contends that the Court of Appeals has erred
in holding that the bank is entitled only to P87,012.00,
and not to P284,000.00, which it considers to be the
fair market value of the property foreclosed. Here, the
Court of Appeals has explained:
We come to the respective liabilities and obligations of
the parties. To date, the defendant bank has received
P207,243.85 from the plaintiff (Stipulation of Facts,
No. 15). In addition, the defendant bank has also been
the recipient of bonds worth P160,000.00 and cash in
the amount of P26,348.12 from the Land Bank in
payment for the properties covered by TCTs Nos. T-
100, T-11326 and T-681 or a total amount of
P186,348.12. The defendant bank has accepted
payment of the latter amount at P170,348.12. All in
all, the bank has received payments in cash and bonds
in the amount of P377,591.97 as compensation for the
plaintiff's original obligation of P65,000.00. The total
amounts paid by plaintiff represent the consideration in
part of the market price of the properties as found by
the Loans and Discount Section of the defendant bank
irrespective of whether or not the lands are covered by
Operation Land Transfer. The cash and bonds
payments made by the Land Bank to the PNB on the
other hand, represent payments for the lands covered
by Operation Land Transfer, namely T-100, T-11326
and T-681. For its part, the lower court ruled that the
plaintiff's obligation to the defendant bank amounts to
P186,874.16 based on the market price as determined
by the Loans and Discount Section of the defendant
bank which market price amounts to P284,000.00.
In view of Our conclusion that the subject mortgaged
properties fall under the ambit and purview of
Operation Land Transfer under P.D. No. 27, it appears
that said adjudged amount is in excess of the rightful
amount that is due the defendant bank by the plaintiff.
We hold, therefore, that the defendant bank is entitled
to a payment of P87,012.00 representing the offer of
the defendant bank to the plaintiff in the same bank's
letter to the plaintiff dated February 15, 1971. The
plaintiff is, therefore, entitled to a refund of whatever
over payments were made by him in favor of the
defendant bank. The amount of P87,012.00 represents
the redemption price of the foreclosed properties and
as a release of the said properties for redistribution to
qualified tenants.
In Development Bank of the Philippines vs. Mirang, 66
SCRA 141, we have ruled that the right of redemption
by the mortgagor could be exercised by paying to the
creditor bank all the amounts owing to the latter "on
the date of the sale, with interest on the total
indebtedness at the rate agreed upon in the obligation
from said date." In the case of foreclosures by the
Philippine National Bank particularly, Section 20 of its
own charter provides:
Sec. 20. Right of Redemption of property foreclosed. —
The mortgagor shall have the right, within the year after
the sale of real estate as a result of the foreclosure of a
mortgage, to redeem the property by paying the amount
fixed by the court in the order of execution, with
– SECOND SET CASE DIGEST | 127
interest thereon at the rate specified in the mortgage, and
all the costs and other judicial expenses incurred by the
Bank by reason of the execution and sale and for the
custody of said property. (Republic Act No. 1300)
Accordingly, the appellate court did not commit any
reversible error in ordering petitioner bank and the
Land Bank of the Philippines to recalculate the
amounts of payments due for the transfer of the
foreclosed property.
13. COMMISSIONER vs. MANNING G.R. No. L-
28398. August 6, 1975
Income Tax on Stock Dividends
FACTS:
Manila Trading and Supply Co. (MANTRASCO) had an
authorized capital stock of P2.5 million divided into
25,000 common shares: 24,700 were owned by Reese
and the rest at 100 shares each by the Respondents.
Reese entered into a trust agreement whereby it is
stated that upon Reese’s death, the company would
purchase back all of its shares. Reese died.
MANTRASCO repurchased the 24,700 shares.
Thereafter, a resolution was passed authorizing that
the 24,700 shares be declared as stock dividends to be
distributed to the stockholders. The BIR ordered an
examination of MANTRASCO’s books and discovered
that the 24,700 shares declared as dividends were not
disclosed by respondents as part of their taxable
income for the year 1958. Hence, the CIR issued
notices of assessment for deficiency income taxes to
respondents. Respondents protested but the CIR
denied. Respondents appealed to the CTA. The CTA
ruled in their favor. Hence, this petition by the CIR
ISSUE:
Whether the respondents are liable for deficiency
income taxes on the stock dividends?
RULING:
Dividends means any distribution made by a corporation
to its shareholders out of its earnings or profits. Stock
dividends which represent transfer of surplus to capital
account is not subject to income tax. But if a corporation
redeems stock issued so as to make a distribution, this is
essentially equivalent to the distribution of a taxable
dividend the amount so distributed in the redemption
considered as taxable income.
The distinctions between a stock dividend which does
not and one which does constitute taxable income to
the shareholders is that a stock dividend constitutes
income if its gives the shareholder an interest different
from that which his former stockholdings represented.
On the other hand, it does constitute income if the new
shares confer no different rights or interests than did
the old shares. Therefore, whenever the companies
involved parted with a portion of their earnings to bnuy
the corporate holdings of Reese, they were making a
distribution of such earnings to respondents. These
amounts are thus subject to income tax as a flow of
cash benefits to respondents. Hence, respondents are
liable for deficiency income taxes.
14. Ong Yong v. Tiu G.R. No. 144476 April
8, 2003
FACTS:
 CORPORATION LAW
1994: construction of the Masagana Citimall in Pasay
City was threatened with stoppage, when its owner,
the First Landlink Asia Development Corporation
(FLADC), owned by the Tius, became heavily indebted
to the Philippine National Bank (PNB) for P190M
To save the 2 lots where the mall was being built from
foreclosure, the Tius invited Ong Yong, Juanita Tan
Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and
Julia Ong Alonzo (the Ongs), to invest in FLADC.
Pre-Subscription Agreement: Ongs and the Tius agreed
to maintain equal shareholdings in FLADC
Ongs: subscribe to 1,000,000 shares
Tius: subscribe to an additional 549,800 shares in
addition to their already existing subscription of
450,200 shares
Tius: nominate the Vice-President and the Treasurer
plus 5 directors
Ongs nominate the President, the Secretary and 6
directors (including the chairman) to the board of
directors of FLADC and right to manage and operate
the mall.
Tius: contribute to FLADC a 4-storey building P20M
(for 200K shares)and 2 parcels of land P30M (for 300K
shares) and P49.8M (for 49,800 shares)
Ongs: paid P190M to settle the mortgage indebtedness
of FLADC to PNB (P100M in cash for their subscription
to 1M shares)
February 23, 1996: Tius rescinded the Pre-Subscription
Agreement
February 27, 1996: Tius filed at the Securities and
Exchange Commission (SEC) seeking confirmation of
their rescission of the Pre-Subscription Agreement
SEC: confirmed recission of Tius
Ongs filed reconsideration that their P70M was not a
premium on capital stock but an advance loan
SEC en banc: affirmed it was a premium on capital
stock
CA: Ongs and the Tius were in pari delicto (which
would not have legally entitled them to rescission) but,
"for practical considerations," that is, their inability to
work together, it was best to separate the two groups
by rescinding the Pre-Subscription Agreement,
returning the original investment of the Ongs and
awarding practically everything else to the Tius.
ISSUE:
W/N Specific performance and NOT rescission is the
remedy
RULING:
YES.
Ongs granted did not justify the rescission of the
contract providing appropriate offices for David S. Tiu
and Cely Y. Tiu as Vice-President and Treasurer,
respectively, had no bearing on their obligations under
the Pre-Subscription Agreement since the obligation
pertained to FLADC itself failure of the Ongs to credit
shares of stock in favor of the Tius for their property
contributions also pertained to the corporation and not
to the Ongs the principal objective of both parties in
entering into the Pre-Subscription Agreement in 1994
was to raise the P190 million
law requires that the breach of contract should be so
"substantial or f undamental" as to defeat the primary
objective of the parties in making the agreementsince
the cash and other contributions now sought to be
returned already belong to FLADC, an innocent third
party, said remedy may no longer be availed of under
the law.
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
– SECOND SET CASE DIGEST | 128
this Title, notwithstanding the fact that the parties
refer to it as a purchase or some other contract
allows the distribution of corporate capital only in three
instances:
(1) amendment of the Articles of Incorporation to
reduce the authorized capital stock,24
(2) purchase of redeemable shares by the corporation,
regardless of the existence of unrestricted retained
earnings,25 and
(3) dissolution and eventual liquidation of the
corporation.
They want this Court to make a corporate decision for
FLADC.
The Ongs' shortcomings were far from serious and
certainly less than substantial; they were in fact
remediable and correctable under the law. It would be
totally against all rules of justice, fairness and equity
to deprive the Ongs of their interests on petty and
tenuous grounds.
15. THE NATIONAL EXCHANGE CO., INC. vs. I. B.
DEXTER,
This action was instituted in the Court of First Instance of
Manila by the National Exchange Co., Inc., as assignee
(through the Philippine National Bank) of C. S. Salmon &
Co., for the purpose of recovering from I. B. Dexter a
balance of P15,000, the par value of one hundred fifty
shares of the capital stock of C. S. Salmon
& co., with interest and costs. Upon hearing the cause
the trial judge gave judgment for the plaintiff to
recover the amount claimed, with lawful interest from
January 1, 1920, and with costs. From this judgment
the defendant appealed.
FACTS:
1. It appears that on August 10, 1919, the
defendant, I. B. Dexter, signed a written subscription
to the corporate stock of C. S. Salmon & Co. in the
following form:
I hereby subscribe for three hundred
(300) shares of the capital stock of C. S. Salmon and
Company, payable from the first dividends declared on
any and all shares of said company owned by me at
the time dividends are declared, until the full amount
of this subscription has been paid.
2. Upon this subscription the sum of P15,000 was
paid in January, 1920, from a dividend declared at
about that time by the company, supplemented by
money supplied personally by the subscriber.
3. Beyond this nothing has been paid on the
shares and no further dividend has been declared by
the corporation.
4. There is therefore a balance of P15,000 still
paid upon the subscription.
5. The trial court held, in effect, that the stipulation
mentioned is invalid.
ISSUE:
 CORPORATION LAW
whether the stipulation contained in the subscription to
the effect that the subscription is payable from the first
dividends declared on the shares has the effect of
relieving the subscriber from personal liability in an
action to recover the value of the shares.
RULING:
In the absence of restrictions in its character, a
corporation, under its general power to contract, has
the power to accept subscriptions upon any special
terms not prohibited by positive law or contrary to
public policy, provided they are not such as to require
the performance of acts which are beyond the powers
conferred upon the corporation by its character, and
provided they do not constitute a fraud upon other
subscribers or stockholders, or upon persons who are
or may become creditors of the corporation.
A provision in the Corporation states: ". . . no
corporation shall issue stock or bonds except in
exchange for actual cash paid to the corporation or for
property actually received by it at a fair valuation
equal to the par value of the stock or bonds so issued."
Now, if it is unlawful to issue stock otherwise than as
stated it is self-evident that a stipulation such as that
now under consideration, in a stock subcription, is
illegal, for this stipulation obligates the subscriber to
pay nothing for the shares except as dividends may
accrue upon the stock. In the contingency that
dividends are not paid, there is no liability at all. This is
a discrimination in favor of the particular subscriber,
and hence the stipulation is unlawful.
Corpus Juris:
Nor has a corporation the power to receive a
subscription upon such terms as will operate as a fraud
upon the other subscribers or stockholders by
subjecting the particular subcriber to lighter burdens,
or by giving him greater rights and privileges, or as a
fraud upon creditors of the corporation by withdrawing
or decreasing the capital.
as a general rule, an agreement between the
corporation and a particular subscriber that the
subscription is not to be payable, or is to be payable in
part only is illegal and void as it constitutes fraud to
other stockholders or creditors, whether it is for the
purpose of making the stock seem greater than it is, or
for the purpose of preventing the predominance of
certain stockholders, or for any other purpose thus,
the agreement cannot be enforced by the subscriber or
interpose it as a defense in an action on the
subscription.
"Conditions attached to subscriptions, which, lessen
the capital of the company, are a fraud upon the
grantor of the franchise, and upon those who may
become creditors of the corporation, and upon
unconditional stockholders."
ii. NATURE OF SHARES OF STOCKS
1. Silverio v. Filipino Business Consultants, Inc. (G.R.
No. 143312, Aug. 12, 2005)
FACTS:
Petitioner Silverio, Jr. is the President of two
corporations namely Esses Devt. Corp., and Tristar
Farms, Inc.
– SECOND SET CASE DIGEST | 129
The above-mentioned corporations were in possession
of the Calatagan Property and registered in the names
of Esses and Tristar.
On Sept. 22, 1995, Esses and Tristar executed a Deed
of Sale with Assumption of Mortgage in favor of Filipino
Business Consultants, Inc. (FBCI). Esses and Tristar
failed to redeem the Calatagan Property.
On May 27, 1997, FBCI filed a Petition for Consolidation of
Title of the Calatagan Property with RTC-Balayan.
FBCI obtained a judgment by default. Subsequently, two
land titles in the name of Esses and Tristar were cancelled
and new land title was issued in favor of FBCI.
On April 20, 1998, RTC-Balayan issued a writ of
possession in FBCI’s favor. The latter then entered the
Calatagan Property.
When Silverio, Jr., Esses and Tristar learned of the
judgment by default and writ of possession, they filed
a petition for relief from judgment and the recall of the
writ of possession. Silverio et. al. alleged that the
judgment by default is void because the RTC-Balayan
did not acquire jurisdiction over them as a result of
forged service of summons on them.
On May 23, 2000, FBCI filed with RTC-Balayan an
Urgent Ex-Parte Motion to Suspend Enforcement of
Writ of Possession. FBCI pointed out that it is now the
new owner of Esses and Tristar having purchased the
“substantial and controlling shares of stocks” of the
two corporations.
ISSUE:
Whether FBCI’s acquisition of shares of stocks of Esses
and Tristar representing a controlling interest of the
two corporations would also give FBCI a proprietary
right over the Calatagan Property owned by both Esses
Corp. and Tristar.
RULING:
No. FBCI’s alleged controlling shareholdings in Esses and
Tristar merely represent a proportionate interest in the
properties of the two corporations. Such controlling
shareholdings do not vest FBCI with any legal right or title
to any of Esses and Tristar’s corporate properties.
A corporation is a juridical person distinct from the
members composing it. Properties registered in the
name of the corporation are owned by it as an entity
separate and distinct from its members.
CORPORATION LAW – SECOND SET CASE DIGEST | 130