1. UNION GLASS v.

SEC Pioneer Glass covered by the agreement; [2] the self-

dealing indulged in by DBP, having acted both as
FACTS: stockholder/director and secured creditor of
Pioneer Glass; and [3] the wrongful inclusion by DBP in
its statement of account of P26M as due from
Private respondent Carolina Hofileña, complainant in Pioneer Glass when the same had already been
SEC Case No. 2035, is a stockholder of converted into equity. Petitioner, on the other hand,
Pioneer Glass Manufacturing Corporation, a domestic moved for the dismissal of the case on the ground of lack
corporation engaged in the operation of silica mines and of jurisdiction of the SEC because it has no intra-
the manufacture of glass and glassware. corporate relation with the complainant or with DBP.
Pioneer Glass had obtained various loan
accommodations from the Development Bank of the
Philippines [DBP], and also from other local and foreign || ISSUE:
sources which DBP guaranteed.
Whether or not SEC has jurisdiction over the case.
As security for said loan accommodations,
Pioneer Glass mortgaged and/or assigned its assets, to
the DBP. However, through the conversion into equity of
the accumulated unpaid interests on the various loans HELD:
amounting to P5.4 million as of January 1975, and NO.
subsequently increased by another P2.2 million in 1976,
the DBP was able to gain control of the outstanding The principal function of the SEC is the supervision and
shares of common stocks of Pioneer Glass, and to get control over corporations, partnerships and associations
two, later three, regular seats in the corporation's board with the end in view that investment in these entities may
of directors. be encouraged and protected, and their activities
pursued for the promotion of economic development.||| 
When Pioneer Glass suffered serious liquidity problems
such that it could no longer meet its financial obligations In order that the SEC can take cognizance of a case, the
with DBP, it entered into a dacion en pago agreement controversy must pertain to any of the following
with the latter, whereby all its assets mortgaged to DBP relationships: (a) between the corporation, partnership or
were ceded to the latter in full satisfaction of the association and the public; (b)between the corporation,
corporation's obligations. Part of the assets transferred to partnership or association and its stockholders, partners,
the DBP was the glassplant in Rosario, Cavite, which members, or officers; (c) between the corporation,
DBP leased and subsequently sold to herein partnership or association and the state in so far as its
petitioner Union Glass and Container Corporation. franchise, permit or license to operate is concerned; and
Private respondent then filed a case before the SEC (d) among the stockholders, partners or associates
alleging the illegality of the aforesaid dacion en themselves.
pago resulting from: [1] the supposed unilateral and
The fact that the controversy at bar involves the rights of
unsupported undervaluation of the assets of
petitioner Union Glass who has no intra-corporate
 relation either with complainant or the DBP, places the ISSUE:
suit beyond the jurisdiction of the respondent SEC. The
case should be tried and decided by the court of general Whether or not SEC has jurisdiction over the case.
jurisdiction, the Regional Trial Court. This view is in
accord with the rudimentary principle that administrative
agencies, like the SEC, are tribunals of limited HELD:
jurisdiction and, as such, could wield only such powers
as are specifically granted to them by their enabling YES.
statutes.
The dispute between the contending parties for control of
thecorporation manifestly fans within the primary and
2. SPS. ABEJO v. DELA CRUZ exclusive jurisdiction of the SEC in whom the law has
reserved such jurisdiction as an administrative agency of
FACTS: special competence to deal promptly and expeditiously
therewith.
With the said purchases in 1982, Telectronics requested
the corporate secretary of the corporation, Norberto In all disputes affecting and dealing with the interests of
Braga, to register and transfer to its name, and those of the corporation and its stockholders, following the trend
its nominees the total 196,000 Pocket Bell shares in the and clear legislative intent of entrusting all disputes of a
corporation's transfer book, cancel the surrendered specialized nature to administrative agencies possessing
certificates of stock and issue the corresponding new the requisite competence, special knowledge, experience
certificates of stock in its name and those of its and services and facilities to expeditiously resolve them
nominees. and determine the essential facts including technical and
intricate matters, as in labor and public utilities rates
Norberto Braga, the corporate secretary and son of the disputes, the SEC has been given "the original and
Bragas, refused to register the aforesaid transfer of exclusive jurisdiction to hear and decide" them (under
shares in t e corporate oo s, asserting that the Bragas Section 5 of P.D. 902-A) "in addition to [its] regulatory
claim preemptive rights over the 133,000 Abejo shares and adjudicative functions" (under Section 3, vesting in it
and that Virginia Braga never transferred her 63,000 "absolute jurisdiction, supervision and control over all
shares to Telectronics but had lost the five stock corporations" and the Ruler-making power granted it in
certificates representing those shares. Section 143 of the Corporation Code, supra). As stressed
by the Court in the Philex case, supra, "(T)here
The Bragas assert that the regular civil court has original is no distinction, qualification, nor any exemption
and exclusive jurisdiction as against the Securities and whatsoever. The provision is broad and covers all kinds
Exchange Commission, while the Abejos claim the of controversies between stockholders and corporations."
contrary. NB: Parenthetically, the cited case of Union
Glass illustrates by way of contrast what disputes do not
fall within the special jurisdiction of the SEC. In this case,
the SEC had properly assumed jurisdiction over the
 dissenting stockholders' complaint against the On January 10, 1984, Magalad filed a complaint for
corporation Pioneer Glass questioning its dacion en damages with prayer for writ of preliminary attachment
pago of its glass plant and all its assets in favor of the with the RTC, Branch LXXXV, Quezon City. Premiere
DBP which was clearly an intra-corporate controversy having failed to file an answer and acting on Magalad's
dealing with its internal affairs. But the Court held that the motion, the lower court declared Premiere in default by
SEC had no jurisdiction over petitioner Union Glass virtue of an order dated April 5, 1984 allowing Magalad to
Corp., impleaded as third party purchaser of the plant present evidence ex-parte.
from DBP in the action to annul the dacion en pago. The
On May 22, 1984 the lower court rendered a default
Court held that such action for recovery of the glass plant
judgment against Premiere. Premiere filed a motion for
could be brought by the dissenting stockholder to the
reconsideration of the foregoing decision, based
regular courts only if and when the SEC rendered final
principally on a question of law alleging that the
judgment annulling the dacion en pago and furthermore
Securities and Exchange Commission (SEC) has
subject to Union Glass' defenses as a third party buyer in
exclusive and original jurisdiction over a corporation
good faith.
under a state of suspension of payments.
3. MAGALAD v. PREMIER FINANCING

FACTS: ISSUE:

With expired permit to issue commercial papers and with Whether or not SEC has jurisdiction over the case.
intention not to pay or defraud its creditors, Premiere
induced and misled Magalad into making a money
market placement of P50,000.00 at 22% interest per HELD:
annum for which it issued a receipt. Aside from the
receipt, Premier likewise issued two (2) post-dated Considering that Magalad's complaint sufficiently alleges
checks in the total sum of P51,079.00 and assigned acts amounting to fraud and misrepresentation
to Magalad its receivable from a certain David Saman for committed by Premiere, the SEC must be held to retain
the same amount. its original and exclusive jurisdiction over the case,
despite the fact that the suit involves collection of sums of
When the said checks were presented for payment on money paid to said corporation, the recovery of which
their due dates, the drawee bank dishonored the checks would originally fall within the jurisdiction of regular
for lack of sufficient funds to cover the amount. Despite courts. The fraud committed is detrimental to the interest
demands by Magalad for the replacement of said checks of the public and, therefore, encompasses a category of
with cash, Premiere, for no valid reason, failed and relationship within the SEC jurisdiction. In this case, the
refused to honor such demands and due to fraudulent recitals of the complaint sufficiently allege that devices or
acts of Premiere, Magalad suffered sleepless nights, schemes amounting to fraud and misrepresentation
mental anguish, fright, serious anxiety, considering the detrimental to the interest of the public have been
fact that the money she invested is blood money and is resorted to by Premiere Corporation. It cannot but be
the only source of support for her family. conceded, therefore, that the SEC may exercise its
 adjudicative powers pursuant to Sec. 5(a) of Pres. informingthe Securities and Exchange Commission that
Decree No. 902-A (Supra).|||  they had been asking UIGDC for the refund of their
payment for their SBGCCI shares. UIGDC did not act
on their requests. SEC then ordered SBGCCI and
UIGDC to refund to Filart and Villareal the total
4. SEC v. SUBIC BAY GOLF & COUNTRY CLUB
purchase price of the shares issued to them.
FACTS: Respondent corporations assailed the jurisdiction of
SEC arguing that it has exceeded its jurisdiction when it
On May 25, 1995, Subic Bay Metropolitan Authority ordered the refund of the purchase price of the stocks,
(SBMA) and Universal International Group (UIG) of which is an intra-corporate controversy.
Taiwan entered into a Lease and Development
Agreement. Under the agreement, SBMA agreed to
lease the golf course to UIG for 50 years, renewable for ISSUE:
another 25 years. Later, Universal International Group
Whether or not an intra-corporate controversy is within
Development Corporation (UIGDC) succeeded to the
the jurisdiction of the SEC.
interests of UIG on the golf course development.
On April 1, 1996, UIGDC executed a Deed of
Assignment in favor HELD:
of Subic Bay Golf and Country Club, Inc. (SBGCCI). Intra-corporate controversies, previously under the
Under the Deed of Assignment, UIGDC assigned all its Securities and Exchange Commission's jurisdiction, are
rights and interests in the golfcourse's development, now under the jurisdiction of Regional Trial Courts
operations, and marketing to SBGCCI. Subsequently, designated as commercial courts. However, the transfer
SBGCCI and UIGDC entered into a Development of jurisdiction to the trial courts does not oust the
Agreement.  UIGDC agreed to "finance, construct and Securities and Exchange Commission of its jurisdiction
develop the [golf course], for and in consideration of the to determine if administrative rules and regulations
payment by [SBGCCI] of its 1,530 (SBGCCI) shares of were violated.
stock."
Thus, when Villareal and Filart alleged in their letter-
Upon SBGCCI's application, the Securities and complaint that SBGCCI and UIGDC committed
Exchange Commission issued an Order for the misrepresentations in the sale of their shares, nothing
Registration of 3,000 no par value shares of SBGCCI prevented the Securities and Exchange Commission
on July 8, 1996. SBGCCI was issued a Certificate of from taking cognizance of it to determine if SBGCCI
Permit to Offer Securities for Sale to the Public of its and UIGDC committed administrative violations and
1,530 no par value proprietary shares. The shares were were liable under the Securities Regulation Code.
sold at P425,000.00 per share. The Securities and Exchange Commission may
Due to failure to deliver several items for the club, Filart investigate activities of corporations under its
and Villareal sent a letter addressed to Atty. Callangan, jurisdiction to ensure compliance with the law.
Director of SEC’s Corporation Finan ce Department,
 However, the Securities and Exchange Commission's Pending the PSE’s final approval of PHC’s application for
regulatory power does not include the authority to order listing of the shares, the PCGG, through its then
the refund of the purchase price of Villareal's and Chairman Sabio, made a written request to suspend the
Filart's shares in the golf club. The issue of refund is listing of the increase in PHC’s capital stock citing as
intra-corporate or civil in nature. Similar to issues such reason the need to settle the conflicting claims of the two
as the existence or inexistence of appraisal rights, pre- sets of board of directors of the Philippine Overseas
emptive rights, and the right to inspect books and Telecommunication Corporation (POTC) and
corporate records, the issue of refund is an intra- PHILCOMSAT.
corporate dispute that requires the court to determine
and adjudicate the parties' rights based on law or The PSE informed the PCGG that the PSE Listing
contract. Injuries, rights, and obligations involved in Committee deferred action on the company’s listing
intra-corporate disputes are specific to the parties application and instead referred the matter to the PSE
involved. They do not affect the Securities and General Counsel to ascertain the applicability of the
Exchange Commission or the public directly.  provisions on disqualifications for listing as provided
under the PSE Revised Listing Rules. Subsequently, the
5. PHILIPPINE COMMUNICATIONS SATELLITE v. PCGG sent another letter to the PSE reiterating its
SANDIGANBAYAN request to defer the listing of PHC shares.

FACTS: In November 2007, then President Gloria Macapagal-

Arroyo appointed new government nominees to the
PHC is a domestic corporation listed in the Philippine POTC and PHILCOMSAT boards to replace Enrique
Stock Exchange (PSE). It was previously known as Locsin, Manuel Andal, Julio Jalandoni and Guy de Leon.
Liberty Mines, Inc. (LMI) and had been previously POTC owns 100% of PHILCOMSAT. In a special
engaged in the discovery, exploitation, development and stockholders’ meeting attended by POTC’s private
exploration of oils. Laperal, then Chairman of the Board stockholders and Presidential Management Staff
and President of LMI, and Poblador III, then President of Undersecretary Enrique D. Perez, as representative and
PHILCOMSAT, signed a Memorandum of Agreement 4 for proxy of the Republic of the Philippines, and observed by
the latter to gain controlling interest in LMI through an Securities and Exchange Commission (SEC)
increase in its authorized capital stock. representatives, an election of directors was held.
PHILCOMSAT also held an election on the same day. On
7 May 2008, the PCGG issued En Banc Resolution No.
On 24 June 1996, Laperal and PHILCOMSAT executed a
2008-00912 recognizing the validity of the POTC’s and
Supplemental Memorandum of Agreement reiterating the
PHILCOMSAT’s respective stockholders’ meetings and
increase in capital stock of LMI from six billion shares to
elections.
100 billion shares with par value of P0.01 per share
equivalent to ₱1 billion. As part of its implementation of
the Supplemental MOA, PHILCOMSAT subscribed to PHILCOMSAT filed a complaint17 before the
₱79,050,000,000 shares of LMI. Sometime in 1997, LMI Sandiganbayan against PCGGto compel the latter to
changed its name to PHC. withdraw its opposition to the listing of the increase in
PHC’s capital stock. PHILCOMSAT argued that PCGG
had already recognized the validity of the stockholders’ with and restrain or set aside the orders and actions of
meetings in the two corporations, which "practically the PCGG.50
erased" the alleged conflict between the two sets of
directors. The Sandiganbayan held that, based on the As the Court has already conclusively ruled, the RTC is
allegations in the complaint, the action was one for co-equal to the PCGG only in relation to cases falling
specific performance since it sought to have PCGG under the latter's function under the applicable
withdraw its objection to the listing of the increase in Executive Orders, specifically Section 2 of E.O. 14, and
PHC’s capital stock at the PSE. The Regional Trial Court Section 26, Article XVIII of the 1987 Constitution.
(RTC) has exclusive jurisdiction over the case. Hence, it
Note that in this case, the acts complained of do not
dismissed the complaint.
pertain to the PCGG's function under the
aforementioned provisions of law and the
ISSUE: Constitution, i.e., it is not a case involving "the Funds,
Moneys, Assets and Properties Illegally Acquired or
Whether or not Sandiganbayan’s dismissal of the case Misappropriated by Former President Ferdinand
for lack of jurisdiction was correct. Marcos, Mrs. Imelda Romualdez Marcos, their Close
Relatives, Subordinates, Business Associates,
Dummies, Agents or Nominees, whether civil or
HELD: criminal, . . ." nor can it be considered an "[incident]
YES. arising from, incidental to, or related to " \such cases.”
Rather, the PCGG, acting as representative of the
Under Section 2 of Executive Order No. 14, the Republic, was exercising a duty of a stockholder to
Sandiganbayan has exclusive and original jurisdiction ensure the proper and lawful exercise of corporate acts.
over all cases regarding "the funds, moneys, assets and Based on the foregoing, the Sandiganbayan correctly
properties illegally acquired by Former President dismissed the complaint for lack of jurisdiction.
Ferdinand E. Marcos, Mrs. Imelda Romualdez Marcos,
their close relatives, subordinates, business associates,
dummies, agents, or nominees," civil or criminal, 6. CIR v. CLUB FILIPINO
including incidents arising from such cases. The Decision
of the Sandiganbayan is subject to review on certiorari FACTS:
exclusively by the Supreme Court.
The Club owns and operates a club house, a bowling
In the exercise of its functions, the PCGG is a co-equal alley, a golf course (on a lot leased from the
body with the regional trial courts and co-equal bodies government), and a bar-restaurant where it sells wines
have no power to control the other. The regional trial and liquors, soft drinks, meals and short orders to its
courts and the Court of Appeals have no jurisdiction over members and their guests. The club is operated mainly
the PCGG in the exercise of its powers under the with funds derived from membership fees and dues.
applicable Executive Orders and Section 26, Article XVIII Whatever profits it had, were used to defray its
of the 1987 Constitution and, therefore, may not interfere overhead expenses and to improve its golf-course. In
1951, as a result of a capital surplus, arising from the of the trial court that it is not engaged in the business of
re-valuation of its real properties, the value or price of operator of bar and restaurant. What is determinative of
which increased, the Club declared stock dividends; but whether or not the Club is engaged in such business is
no actual cash dividends were distributed to the its object or purpose, as stated in its articles and by-
stockholders. In 1952, a BIR agent discovered that the laws. It is a familiar rule that the actual purpose is not
Club has never paid percentage tax on the gross controlled by the corporate form or by the commercial
receipts of its bar and restaurant. CIR assessed against aspect of the business prosecuted, but may be shown
and demanded from the Club taxes allegedly due. by extrinsic evidence, including the by-laws and the
method of operation. From the extrinsic evidence
Club Filipino argued that it should not be liable for such adduced, the Tax Court concluded that the Club is not
taxes because it is a non-stock corporation. It averred engaged in the business as a barkeeper and
that the bar-restaurant was a necessary incident to its restaurateur.|||
existence.
It is conceded that the Club derived profit from the
ISSUE: operation of its bar and restaurant, but such fact does
not necessarily convert it into a profit-making
Whether or not Club Filipino is a stock corporation enterprise. The bar and restaurant are necessary
engaged in a bar-restaurant business. adjuncts of the Club to foster its purposes and the
profits derived therefrom are necessarily incidental to
HELD: the primary object of developing and cultivating sports
for the healthful recreation and entertainment of the
NO. stockholders and members. That a Club makes some
profit, does not make it a profit-making Club. As has
been remarked a club should always strive, whenever
For a stock corporation to exist, 2 requisites must be
possible, to have surplus
complied with:
(1) A capital stock divided into shares
(2) An authority to distribute to the holders of such 7. DULAY ENTERPRISES v. CA
shares, dividends or allotments of the surplus profits
on the basis of shares held. FACTS:
In the case at bar, nowhere in the AOI or by-laws of Club
Filipino could be found an authority for the distribution of Manuel R. Dulay Enterprises, Inc, a domestic corporation
its dividends or surplus profits. Strictly speaking, it obtained various loans for the construction of its hotel
cannot, therefore, be considered a stock corporation, project, Dulay Continental Hotel (now Frederick Hotel).
within the contemplation of the corporation law. Manuel Dulay by virtue of Board Resolution No 18  sold
the subject property to spouses Maria Theresa and
Castrense Veloso. Maria Veloso (buyer), without the
The facts that the capital stock of the respondent Club knowledge of Manuel Dulay, mortgaged the subject
is divided into shares, does not detract from the finding
 property to private respondent Manuel A. unless the latter promptly files his written objection with
Torres. #fluffypeaches Upon the failure of Maria Veloso the secretary of the corporation after having
to pay Torres, the property was sold to Torres in an knowledge of the meeting which, in this case, petitioner
extrajudicial foreclosure sale. Virgilio Dulay failed to do. Petitioners' claim that the
sale of the subject property by its president,
Torres filed an action against the corporation, Virgilio Manuel Dulay, to private respondents spouses Veloso
Dulay and against the tenants of the apartment.  is null and void as the alleged Board Resolution No. 18
was passed without the knowledge and consent of the
 RTC ordered the corporation and the tenants to vacate other members of the board of directors cannot be
the building.  sustained. The sale of the subject property to private
  respondents by Manuel Dulay is valid and binding.|
Petitioners argue that the RTC had acted with GAD when
it applied the doctrine of piercing the veil of
corporate entity considering that the sale has no binding 8. NDC v. PHILIPPINE VETERANS BANK
effect on corporation as Board Resolution No. 18 which
authorized the sale of the subject property was resolved FACTS:
without the approval of all the members of the board of
directors and said Board Resolution was prepared by a The particular enactment in question is Presidential
person not designated by the corporation to be its Decree No. 1717, which ordered the rehabilitation of the
secretary. Agrix Group of Companies to be administered mainly by
the National Development Company. The law outlined
ISSUE: the procedure for filling claims against the Agrix
Companies and created a claims committee to process
Whether or not the sale to Veloso is valid these claims. Especially relevant to this case, and noted
notwithstanding that it was resolved without the at the outset, is section 4(1) thereof providing that “all
approval of all the members of the board of directors. mortgages and other liens presently attaching to any of
the assets of the dissolved corporations are hereby
HELD: extinguished.” Earlier, the Agrix Marketing Inc. had
executed in favor of private respondent Philippine
YES. Veterans Bank a real estate mortgage dated July 7, 1978
over three parcels of land situated in Los Baños, Laguna.
Petitioner corporation is classified as a close During the existence of the mortgage, Agrix went
corporation and consequently a board resolution bankrupt. It was the expressed purpose of salvaging this
authorizing the sale or mortgage of the subject property and the other Agrix companies that the aforementioned
is not necessary to bind the corporation for the action of decree was issued by President Marcos. A claim for the
its president. At any rate, a corporate action taken at a payment of its loan credit was filed by PNB against
board meeting without proper call or notice in a close herein petitioner, however the latter alleged and invoked
corporation is deemed ratified by the absent director that the same was extinguished by PD 1717.
ISSUE: decree also interferes with purely private agreements
without any demonstrated connection with the public
Whether or not Philippine Veterans Bank as creditor of interest, there is likewise an impairment of the obligation
Agrix is still entitled for payment without prejudice to PD of the contract. [CAVEAT: Copied from the internet. Di ko
1717. siya gets.]
HELD:
9. PIONEER INSURANCE & SURETY CORP. v. CA
Yes.
A mortgage lien is a property right derived from contract FACTS:
and so comes under the protection of Bill of rights so do
interests on loans, as well s penalties and charges, which
Jacob Lim was the owner of Southern Air Lines, a single
are also vested rights once they accrue. Private property
proprietorship. In 1965, Lim convinced Constancio
cannot simply be taken by law from one person and
Maglana, Modesto Cervantes, Francisco Cervantes, and
given to another without just compensation and any
Border Machinery and Heavy Equipment Company
known public purpose. This is plain arbitrariness and is
(BORMAHECO) to contribute funds and to buy two
not permitted under the constitution.
aircrafts which would form part  a corporation which will
The court also feels that the decree impairs the obligation be the expansion of Southern Air Lines. Maglana et al
of the contract between Agrix and the private respondent then contributed and delivered money to Lim.
without justification. While it is true that the police power But instead of using the money given to him to pay in full
is superior to the impairment clause, the principle will the aircrafts, Lim, without the knowledge of Maglana et
apply only where the contract is so related to the public al, made an agreement with Pioneer Insurance for the
welfare that it will be considered congenitally susceptible latter to insure the two aircrafts which were brought in
to change by the legislature in the interest of greater installment from Japan Domestic Airlines (JDA) using
number. said aircrafts as security. So when Lim defaulted from
paying JDA, the two aircrafts were foreclosed by Pioneer
Our finding in sum, is that PD 1717 is an invalid exercise
Insurance.
of the police power, not being in conformity with the
traditional requirements of a lawful subject and a lawful It was established that no corporation was formally
method. The extinction of the mortgage and other liens formed between Lim and Maglana et al.
and of the interest and other charges pertaining to the
legitimate creditors of Agrix constitutes taking without due
process of law, and this is compounded by the reduction ISSUE:
of the secured creditors to the category of unsecured Whether or not the parties are liable as general partners.
creditors in violation of the equal protection clause.
Moreover, the new corporation being neither owned nor
controlled by the government, should have been created HELD:
only by general and not special law. And in so far as the
NO.
 On 24 September 1984, Petitioners filed a letter
Ordinarily, when co-investors agreed to do business complaint with the Securities & Exchange Commission
through a corporation but failed to incorporate, a de facto (SEC) asking for the cancellation of the word "PHILIPS"
partnership would have been formed, and as such, all from Private Respondent's corporate name in view of the
must share in the losses and/or gains of the venture in prior registration with the Bureau of Patents of the
proportion to their contribution. Where persons associate trademark "PHILIPS" and the logo "PHILIPS SHIELD
themselves together under articles to purchase property EMBLEM" in the name of Petitioner PEBV, and the
to carry on a business, and their organization is so previous registration of Petitioners Philips Electrical and
defective as to come short of creating a corporation Philips Industrial with the SEC.
within the statute, they become in legal effect partners
inter se, and their rights as members of the company to As a result of Private Respondent's refusal to amend its
the property acquired by the company will be recognized. Articles of Incorporation, Petitioners filed with the SEC,
This doctrine does not apply where there was no on 6 February 1985, a Petition (SEC Case No. 2743),
intention to form a corporation, as in the case at bar. praying for the issuance of a Writ of Preliminary
Injunction, alleging, among others, that Private
10. PHILIPS EXPORT B.V. v. CA Respondent's use of the word PHILIPS amounts to an
infringement and clear violation of Petitioners exclusive
FACTS: right to use the same considering that both parties
engage in the same business.
Petitioner Philips Export B.V. (PEBV), a foreign
corporation organized under the laws of the Netherlands, ISSUE:
although not engaged in business here, is the registered
owner of the trademarks PHILIPS and PHILIPS SHIELD Whether or not the corporate names of petitioner and
EMBLEM under Certificates of Registration Nos. R-1641 respondent are identical.
and R-1674, respectively issued by the Philippine Patent
Office (presently known as the Bureau of Patents, HELD:
Trademarks and Technology Transfer). Petitioners
Philips Electrical Lamps, Inc. (Philips Electrical, for NO.
brevity) and Philips Industrial Development, Inc. (Philips
Industrial, for short), authorized users of the trademarks Section 18 of the Corporation Code is applicable only
PHILIPS and PHILIPS SHIELD EMBLEM, were when the corporate names in question are identical. In
incorporated on 29 August 1956 and 25 May 1956, the instant case, there is no confusing similarity between
respectively. All petitioner corporations belong to the Petitioners' and Private Respondent's corporate names
PHILIPS Group of Companies. as those of the Petitioners contain at least two words
Respondent Standard Philips Corporation (Standard different from that of the Respondent.||In determining the
Philips), on the other hand, was issued a Certificate of existence of confusing similarity in corporate names, the
Registration by respondent Commission on 19 May 1982. test is whether the similarity is such as to mislead a
person using ordinary care and discrimination. In so
 doing, the Court must look to the record as well as the 4. In an appeal, the decision was reversed by the SEC En Banc.
names themselves. It is settled, however, that proof of They held that the word Lyceum to have become identified with
actual confusion need not be shown. It suffices that petitioner as to render use thereof of other institutions as
confusion is probably or likely to occur. productive of confusion about the identity of the schools
concerned in the mind of the general public.
True, under the Guidelines in the Approval of Corporate
and Partnership Names formulated by the SEC, the 5. Petitioner went to appeal with the CA but the latter just
proposed name "should not be similar to one already affirmed the decision of the SEC En Banc.
used by another corporation or partnership. If the
ISSUE:
proposed name contains a word already used as part of
whether or not the use by petitioner of "Lyceum" in its corporate
the firm name or style of a registered company, the
name has been for such length of time and with such exclusivity
proposed name must contain two other words different
as to have become associated or identified with the petitioner
from the company already registered." It is then pointed
institution in the mind of the general public
out that Petitioners Philips Electrical and Philips Industrial
have two words different from that of Private HELD:
Respondent's name.|
Under the corporation code, no corporate name may be allowed
by the SEC if the proposed name is identical or deceptively or
LYCEUM OF THE PHILS. V. CA confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently deceptive,
FACTS: confusing or contrary to existing laws. The policy behind this
provision is to avoid fraud upon the public, which would have
1. Petitioner had sometime commenced before in the SEC a
the occasion to deal with the entity concerned, the evasion of
complaint against Lyceum of Baguio, to require it to change its
legal obligations and duties, and the reduction of difficulties of
corporate name and to adopt another name not similar or
administration and supervision over corporations.
identical with that of petitioner. SEC decided in favor of
petitioner. Lyceum of Baguio filed petition for certiorari but was
denied for lack of merit.
The corporate names of private respondents are not identical or
2. Armed with the resolution of the Court, petitioner instituted deceptively or confusingly similar to that of petitioner’s.
before the SEC to compel private respondents, which are also Confusion and deception has been precluded by the appending
educational institutions, to delete the word Lyceum from their of geographic names to the word Lyceum. Furthermore, the
corporate names and permanently to enjoin them from using word Lyceum has become associated in time with schools and
such as part of their respective names. other institutions providing public lectures, concerts, and public
discussions. Thus, it generally refers to a school or an institution
3. Hearing officer sustained the claim of petitioner and held that
of learning.
the word Lyceum was capable of appropriation and that
petitioner had acquired an enforceable right to the use of that The doctrine of secondary meaning is a principle used in
word. trademark law but has been extended to corporate names since
the right to use a corporate name to the exclusion of others is
based upon the same principle, which underlies the right to use On March 1981, Javier was advised that loan application was
a particular trademark or trade name. Under this doctrine, a approved and same to be forwarded to Central Bank for
word or phrase originally incapable of exclusive appropriation processing and release.
with reference to an article in the market, because geographical
or otherwise descriptive might nevertheless have been used for CB released loan to PAIC in two tranches of P750k each –
so long and so exclusively by one producer with reference to released to Javier Corp, but from second tranche release,
this article that, in that trade and to that group of purchasing P250k was deducted and deposited in name of Javier Corp
public, the word or phrase has come to mean that the article under time deposit.
was his produce. The doctrine cannot be made to apply where
Javier Corp claims loan releases were delayed, P250k was
the evidence didn't prove that the business has continued for so
deducted from IGLF loan and placed under time deposit + they
long a time that it has become of consequence and acquired
were never allowed to withdraw the proceeds of the time deposit
good will of considerable value such that its articles and
because PAIC intended this time deposit as automatic
produce have acquired a well known reputation, and confusion
payments on accrued principal and interest due on loan.
will result by the use of the disputed name.
PAIC claims only final proceeds of the loan was delayed,
because of shortfall in collateral cover of Javier Corp’s loan –
Petitioner didn't present evidence, which provided that the word second tranche was then released after firm commitment by
Lyceum acquired secondary meaning. The petitioner failed to Javier Corp to cover collateral deficiency through opening time
adduce evidence that it had exclusive use of the word. Even if deposit using portion of loan proceeds (P250k) and in
petitioner used the word for a long period of time, it hadn’t compliance with their commitment to submit additional security
acquired any secondary meaning in its favor because the and open time deposit, Javier executed chattel mortgage over
appellant failed to prove that it had been using the same word some machineries in favor of PIAC + when Javier Corp
all by itself to the exclusion of others. defaulted in payment of its loan, PAIC sent demand letter; sent
a second, informing foreclosure; finally initiated extrajudicial
foreclosure of real estate mortgage and accordingly auction sale
P.C. JAVIER v SONS, INC. vs. CA was executed by sheriffs.
Instant complaint to forestall extrajudicial foreclosure of sale of
FACTS: piece of land = temporarily restrained by RTC

On May 1984, PC Javier and Sons and Spouses Javier filed a RTC: declared First Summa and PAIC as one and the same +
complaint for annulment of mortgage and foreclosure with Javier Corp liable to bank for unpaid balance of loans +
prelim injunction against PAIC Savings and Mortgage Bank + extrajudicial foreclosure justified because loans were due and
supplemental complaint to include defendants (sheriffs) demandable when foreclosure proceedings commenced in April
1984, hence this appeal by certiorai.
On Feb 1981, PC Javier and Sons applied with First Summa
Savings and Mortgage Bank later renamed PAIC Savings a loan ISSUE: WON First Summa Savings and Mortgage Bank and
accommodation under Industrial Guarantee Loan Fund (P1.5M) PAIC Savings are one and the same entity; whether their
obligation is already due and demandable at the time DOCTRINE: a change in the corporate name does not make a
commencement of extrajudicial foreclosure took place. new corporation, whether effected by a special act or under a
general law. It has no effect on the identity of the corporation, or
Is Javier corp legally justified in withholding amortized payments on its property, rights, or liabilities. The corporation, upon such
to respondent bank until they have been properly notified of change in its name, is in no sense a new corporation nor the
change in corporate name? (claim never having received formal successor of the original corporation. It is the same corporation
notice of alleged change of name + first notice of change of with a diff name, and its character is in no respect changed.
name was when bank presented witness Michael Caguioa on
April 1990, where he presented SEC Certificate of Filing PHILIPPINE FIRST INSURANCE vs. HARTIGAN
Amended Articles of Incorporation of respondent bank)?
RULING: No FACTS:
• There exists no requirement under law or regulation On June 1, 1953, plaintiff was originally named as 'The Yek
ordering a bank that changes its corporate name to formally Tong Lin Fire and Marine Insurance Co., Ltd’ an insurance
notify all its debtors corporation duly presented with the Security and Exchange
Commissioner and before a Notary Public as provided in their
• Court cannot impose on bank that changes in corporate articles of incorporation. ater amended its articles of
name must notify debtor of such change = tantamount to judicial incorporation and changed its name on May 26, 1961 as
legislation; such notification is discretionary on bank ‘Philippine First Insurance Co., Inc.’ pursuant to a certificate of
the Board of Directors.
• Although no evidence showing bank furnished Javier
Corp with official documents of change of name, evidence The complaint alleges that: Philippine First Insurance Co., Inc.,
abound that they had notice doing business under the name of 'The Yek Tong Lin Fire and
Marine Insurance Co., Lt.' signed as co-maker together with
• Letter of accountant of Javier Corp addressed to bank:
defendant Maria Carmen Hartigan (MCGH), to which a
wwe obtained from the FORMER First Summa
promissory note was made in favour of China Banking. Said
• Board of resolution of Javier Corp signed by Pablo Javier defendant failed to pay in full despite renewal of such note. The
Sr authorizing him to execute a chattel mortgage over certain complaint ends with a prayer for judgment against the
machinery in favor of PAIC Savings and Mortgage Bank defendants, jointly and severally, for the sum of P4,559.50 with
interest at the rate of 12x per annum from November 23, 1961
• Secretary’s certificate signed by Fortunato Gabriel, Corp plus P911.90 by way of attorney's fees and costs.
Secretary of Javier Corp, certifying that a board resolution was
passed authorizing Pablo Javier Sr. to execute a chattel Defendants admitted the execution of the indemnity agreement
mortgage on corporation’s equipment to serve as collateral to but they claim that they signed said agreement in favor of the
cover IGLF Loan with PAIC Savings Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in
favor of the plaintiff Philippine Insurance. They likewise admit
• Undated letter signed by Pablo Javier Sr and addressed that they failed to pay the promissory note when it fell due but
to PAIC Savings authorizing Mr. Victor Javier, Gen Manager, to they allege that since their obligation with the China Banking
secure from PAIC Savings certain documents for his signature Corporation based on the promissory note still subsists, the
surety who co-signed the promissory note is not entitled to affect the rights, privileges, or obligations previously acquired or
collect the value thereof from the defendants otherwise they will incurred by it. Indeed, it has been said that a change of name by
be liable for double am amount of their obligation, there being a corporation has no more effect upon the identity of the
no allegation that the surety has paid the obligation to the corporation than a change of name by a natural person has
creditor. In their special defense, defendants claim that there is upon the identity of such person. The corporation, upon such
no privity of contract between the plaintiff and the defendants change in its name, is in no sense a new corporation, nor the
and consequently, the plaintiff has no cause of action against successor of the original one, but remains and continues to be
them, considering that the complaint does not allege that the the original corporation. It is the same corporation with a
plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., different name, and its character is in no respect changed.
Ltd.' are one and the same or that the plaintiff has acquired the
rights of the latter. As correctly pointed out by appellant, the approval by the
stockholders of the amendment of its articles of incorporation
ISSUE: changing the name The Yek Tong Lin Fire v Marine Insurance
Co., Ltd. to Philippine First Insurance Co., Inc. on March 8,
Whether or not a Philippine corporation can change its name 1961, did not automatically change the name of said corporation
and still retain its original personality and individuality on that date. To be effective, Section 18 of the Corporation Law,
earlier quoted, requires that a copy of the articles of
RULING:
incorporation as amended, duly certified to be correct by the
The court ruled in the affirmative. president and the secretary of the corporation and a majority of
the board of directors or trustees, shall be filed with the SEC,
As can be gleaned under Sections 6 and 18 of the Corporation and it is only from the time of such filing, that the corporation
Law, the name of a corporation is peculiarly important as shall have the same powers and it and the members and
necessary to the very existence of a corporation. The general stockholders thereof shall thereafter be subject to the same
rule as to corporations is that each corporation shall have a liabilities as if such amendment had been embraced in the
name by which it is to sue and be sued and do all legal acts. original articles of incorporation. It goes without saying then that
The name of a corporation in this respect designates the appellant rightly acted in its old name when on May 15, 1961, it
corporation in the same manner as the name of an individual entered into the indemnity agreement, Annex A, with the
designates the person. Since an individual has the right to defendant-appellees; for only after the filing of the amended
change his name under certain conditions, there is no articles of incorporation with the Securities v Exchange
compelling reason why a corporation may not enjoy the same Commission on May 26, 1961, did appellant legally acquire its
right. There is nothing sacrosanct in a name when it comes to new name; and it was perfectly right for it to file the present
artificial beings case In that new name on December 6, 1961. Therefore,
actions brought by a corporation after it has changed its name
A general power to alter or amend the charter of a corporation should be brought under the new name although for the
necessarily includes the power to alter the name of the enforcement of rights existing at the time the change was made.
corporation. Hence, a mere change in the name of a The change in the name of the corporation does not affect its
corporation, either by the legislature or by the corporators or right to bring an action on a note given to the corporation under
stockholders under legislative authority, does not, generally its former name.
speaking, affect the identity of the corporation, nor in any way
 renamed corporation remains liable for the illegal dismissal of its
ZUELLIG FREIGHT AND CARGO SYSTEMS v. NLRC and employee separated under that guise. Thus, the change of
RONALDO SAN MIGUEL name did not give Zuellig the license to terminate employees of
G.R. No. 157900; July 15, 2013; Bersamin, J. Zeta like San Miguel without just or authorized cause. Despite
its new name, was the mere continuation of Zeta's corporate
being, and still held the obligation to honor all of Zeta's
FACTS: obligations, one of which was to respect San Miguel's security of
tenure. The dismissal of San Miguel from employment on the
In June 1994, Ronaldo San Miguel et. al. were informed that
pretext that petitioner, being a different corporation, had no
Zuellig, then known as Zeta Brokerage Corp. would cease
obligation to accept him as its employee, was illegal and
operations and that the services of San Miguel and other
ineffectual.
employees would be terminated. San Miguel reluctantly
accepted his separation pay subject to the standing offer to be Municipality of Malabang vs Benito
hired to his former position by Zuellig.
San Miguel filed a complaint for ULP, illegal dismissal, non- FACTS: Municipality of Balabagan was once part of the
payment of salaries and moral damages against Zuellig. He Municipality of Malabang before it was created into a separate
contended that the amendments of the articles of incorporation municipality thru an executive order. The Municipality Malabang
of Zeta did not dissolve Zeta as they were for the purpose of filed a suit against the Municipality of Balabagan for having
changing the corporate name, broadening of primary functions been created under an invalid EO 386, restrainin the respondent
and increasing the capital stock. The Labor Arbiter found that municipal officials from performing the functions of their
Zuellig and Zeta are legally the same entity and that San Miguel respective offices. Petitioner relied on the ruling of the Pelaez
had been illegally dismissed. NLRC affirmed LA. CA likewise case that Sec. 68 of the Administrative Code is unconstitutional
affirmed LA and NLRC. (a) because it constitutes an undue delegation of legislative
power and (b) because it offends against Section 10 (1) of
ISSUE:
Article VII of the Constitution, which limits the President's power
Whether or not the amendments of the articles of incorporation over local governments to mere supervision. Section 68 of the
of Zeta to change the corporate name to Zuellig Freight and Revised Administrative Code, approved on March 10, 1917,
Cargo Systems, Inc. produced the dissolution of Zeta as a must be deemed repealed by the subsequent adoption of the
corporation Constitution, in 1935, which is utterly incompatible and
inconsistent with said statutory enactment.
RULING:
Meanwhile, the respondents argued that Balabagan is at least a
SC ruled that Zeta and Zuellig remained one and the same de facto corporation for having been organized under color of a
corporation. There being no just cause for termination and no statute before this was declared unconstitutional, its officers
compliance with due process, Zuellig is guilty of illegal having been either elected or appointed, and the municipality
dismissal. itself having discharged its corporate functions for the past five
years preceding the institution of this action. It is contended that
The mere change in the corporate name is not considered as a de facto corporation, its existence cannot be collaterally
under the law as the creation of a new corporation; hence, the
attacked, although it may be inquired into directly in an action   IV. There can be no de facto corporation created to take
for quo warranto at the instance of the State and not of an the place of an existing de jure corporation, as such
individual like the petitioner Balindong. organization would clearly be a usurper.10

ISSUE: whether E.O. 386 can lend a color of validity to the   In the cases where a de facto municipal corporation was
municipality of Balabagan despite the fact that such statute is recognized as such despite the fact that the statute creating it
subsequently declared unconstitutional was later invalidated, the decisions could fairly be made to rest
on the consideration that there was some other valid law giving
RULING: corporate vitality to the organization.

No, the mere fact that Balabagan was organized at a time when Hence, in the case at bar, An unconstitutional act is not a law; it
the statute had not been invalidated cannot conceivably make it confers no rights; it imposes no duties; it affords no protection; it
a de facto corporation, as, independently of the Administrative creates no office; it is, in legal contemplation, as inoperative as
Code provision in question, there is no other valid statute to give though it had never been passed."
color of authority to its creation.
Executive Order 386 "created no office." This is not to say,
I. The color of authority requisite to the organization of a de however, that the acts done by the municipality of Balabagan in
facto municipal corporation may be: the exercise of its corporate powers are a nullity because the
executive order "is, in legal contemplation, as inoperative as
1. A valid law enacted by the legislature. though it had never been passed." For the existence of
Executive, Order 386 is "an operative fact which cannot justly be
2. An unconstitutional law, valid on its face, ignored."
which has either (a) been upheld for a time
by the courts or (b) not yet been declared
void; provided that a warrant for its creation **19th CASE MISSING
can be found in some other valid law or in
the recognition of its potential existence by Jose Yulo Agricltural Corp. v. Sps. Davis (168 SCRA)
the general laws or constitution of the state.

II. There can be no de facto municipal corporation Asia Banking Corporation v. Standard Products Co.
unless either directly or potentially, such a de jure
corporation is authorized by some legislative fiat. Formation and Organization of Corporations
FACTS:
III. There can be no color of authority in an
unconstitutional statute alone, the invalidity of
The Standard Products Co., Inc executed a promissory note
which is apparent on its face.
through its president George H. Seaver in favour of Asia
Banking Corporation or order. Standard Products defaulted in
the payment of the note, hence, an action was brought by Asia
Banking Corporation to recover the sum of P24, 736.47. The             Fausta F. Oh had been teaching in the Chiang Kai Shek
RTC ruled favor of Asia Banking Corp. School since 1932 for a continuous period of almost 33 years.
She was told she had no assignment for the next semester. For
On appeal, plaintiff failed to prove affirmatively the corporate no apparent or given reason, she was dismissed from her work.
existence of the parties and the appellant insists that under As a result, she sued and demanded separation pay, social
these circumstances, the lower court erred in finding that the security benefits, salary differentials, maternity benefits and
parties were corporations with juridical personality. moral and exemplary damages. The original defendant was the
Chiang Kai Shek School but when it filed a motion to dismiss on
ISSUE: the ground that it could not be sued, the complaint was
amended. Certain officials of the school were also impleaded
Whether or not the judgment of the lower court is a reversible to make them solidarily liable with the school.
error despite Asia Banking’s failure to present evidence of its
corporate existence.             The Court of First Instance of Sorsogon dismissed the
complaint. On appeal, its decision was set aside by the
respondent court, which held the school suable and liable while
absolving the other defendants. The motion for reconsideration
RULING:
having been denied, the school then came to this Court in this
The general rule is that in the absence of fraud, a person who petition for review on certiorari.
has contracted or otherwise dealt with an association in such a
Issue:
way as to recognize and in effect admit its legal existence as a
corporate body is thereby estopped to deny its corporate             Whether or not a school that has not been
existence in any action leading out of or involving such contract incorporated may be sued by reason alone of its long continued
or dealing, unless its existence is attacked for causes which existence and recognition by the government
have arisen since making the contract or other dealing relied on
as an estoppel and this applies to foreign as well as to domestic Ruling:
corporations.
            As a school, the petitioner was governed by Act No.
Since Standard Products has recognized the corporate 2706 as amended by C.A. No. 180, which provided as follows:
existence of Asia Banking by making a promissory note in its Unless exempted for special reasons by the Secretary of Public
favour and making partial payments on the same, it is estopped Instruction, any private school or college recognized by the
from denying Asia Banking’s corporate existence. government shall be incorporated under the provisions of Act
No. 1459 known as the Corporation Law, within 90 days after
the date of recognition, and shall file with the Secretary of Public
Instruction a copy of its incorporation papers and by-
laws.Having been recognized by the government, it was under
CHIANG KAI SHEK SCHOOL,vs. COURT OF APPEALS and
obligation to incorporate under the Corporation Law within 90
FAUSTINA FRANCO OH
days from such recognition. It appears that it had not done so at
 
the time the complaint was filed notwithstanding that it had been
Facts: in existence even earlier than 1932. The petitioner cannot now
invoke its own non-compliance with the law to immunize it from case for lack of jurisdiction. The MCTC judge denied Anda’s
the private respondent’s complaint. There should also be no motion. On certiorari, Judge Eliezer De Los Santos of RTC
question that having contracted with the private respondent Angeles City reversed and ordered the dismissal of the case on
every year for thirty two years and thus represented itself as the ground that what is involved is an intra-corporate dispute
possessed of juridical personality to do so, the petitioner is now which should be under the jurisdiction of the Securities and
estopped from denying such personality to defeat her claim Exchange Commission (SEC).
against it. According to Article 1431 of the Civil Code, “through ISSUE: 
estoppel an admission or representation is rendered conclusive
upon the person making it and cannot be denied or disproved 1. Whether or not SEC has jurisdiction over the UMAJODA
as against the person relying on it.” As the school itself may be dispute - NO
sued in its own name, there is no need to apply Rule 3, Section 2. Whether or not UMAJODA is a corporation by estoppel - NO
15, under which the persons joined in an association without
any juridical personality may be sued with such association.
Besides, it has been shown that the individual members of RULING:
the board of trustees are not liable, having been appointed only
after the private respondent’s dismissal. 1.The grant of jurisdiction to the SEC must be viewed in the light
of its nature and function under the law. This jurisdiction is
determined by a concurrence of two elements: (1) the status or
relationship of the parties; and (2) the nature of the question that
Lozano v. Delos Santos is the subject of their controversy.
The first element requires that the controversy must arise
out of intracorporate or partnership relations between and
FACTS: among stockholders, members, or associates; between any or
Reynaldo Lozano was the president of KAMAJDA (Kapatirang all of them and the corporation, partnership or association of
Mabalacat-Angeles Jeepney Drivers’ Association, Inc.). Antonio which they are stockholders, members or associates,
Anda was the president of SAMAJODA (Samahang Angeles- respectively; and between such corporation, partnership or
Mabalacat Jeepney Operators’ and Drivers’ Association, Inc.). association and the State in so far as it concerns their individual
In 1995, the two agreed to consolidate the two corporations, franchises.
thus, UMAJODA (Unified Mabalacat-Angeles Jeepney
 The second element requires that the dispute among the
Operators’ and Drivers Association, Inc.).
parties be intrinsically connected with the regulation of the
In the same year, elections for the officers of UMAJODA were corporation, partnership or association or deal with the internal
held. Lozano and Anda both ran for president. Lozano won but affairs of the corporation, partnership or association.
Anda alleged fraud and the elections and thereafter he refused
to participate with UMAJODA. Anda continued to collect fees There is no intracorporate nor partnership relation between
from members of SAMAJODA and refused to recognize Lozano petitioner and private respondent. The controversy between
as president of UMAJODA. Lozano then filed a  complaint for them arose out of their plan to consolidate their respective
damages against Anda with the MCTC of Mabalacat (and jeepney drivers' and operators' associations into a single
Magalang), Pampanga. Anda moved for the dismissal of the common association. This unified association was, however, still
a proposal. It had not been approved by the SEC, neither had corporation, who therefore know that it has not been registered,
its officers and members submitted their articles of consolidation there is no corporation by estoppel.
in accordance with Sections 78 and 79 of the Corporation
NOTE: Regular courts can now hear intra-corporate disputes
Code. 
(expanded jurisdiction.
Consolidation becomes effective not upon mere agreement
of the members but only upon issuance of the certificate of
consolidation by the SEC. When the SEC, upon processing and LIM TONG LIM vs PHILIPPINE FISHING INDUSTRIES
examining the articles of consolidation, is satisfied that the
consolidation of the corporations is not inconsistent with the
provisions of the Corporation Code and existing laws, it issues a
certificate of consolidation which makes the reorganization FACTS:
official. The new consolidated corporation comes into existence
and the constituent corporations dissolve and cease to exist. Lim Tong Lim requested Peter Yao to engage in commercial
fishing with him and one Antonio Chua. The three agreed to
The KAMAJDA and SAMAJODA to which petitioner and purchase two fishing boats but since they do not have the
private respondent belong are duly registered with the SEC, but money they borrowed from one Jesus Lim (brother of Lim Tong
these associations are two separate entities. The dispute Lim). They again borrowed money and they agreed to purchase
between petitioner and private respondent is not within the fishing nets and other fishing equipments. Now, Yao and Chua
KAMAJDA nor the SAMAJODA. It is between members of represented themselves as acting in behalf of “Ocean Quest
separate and distinct associations. Petitioner and private Fishing Corporation” (OQFC) they contracted with Philippine
respondent have no intracorporate relation much less do they Fishing Gear Industries (PFGI) for the purchase of fishing nets
have an intracorporate dispute. The SEC therefore has no amounting to more than P500k. Ocean Quest failed to pay their
jurisdiction over the complaint. purchases, Respondent filed an attachment suit against them, in
their capacities as general partners, on the allegation that
Ocean Quest Fishing Corporation was a nonexistent corporation
2. The doctrine of corporation by estoppel. advanced by private as shown by a Certification from the Securities and Exchange
respondent cannot override jurisdictional Commission.
requirements. Jurisdiction is fixed by law and is not subject to
the agreement of the parties, It cannot be acquired through or ISSUE:
waived, enlarged or diminished by, any act or omission of the
Whether or not Lim Tong Lim is liable
parties, neither can it be conferred by the acquiescence of the
court. RULING:
Corporation by estoppel is founded on principles of equity The Court held that a third party who, knowing an
and is designed to prevent injustice and unfairness. It applies association to be unincorporated, nonetheless treated it as a
when persons assume to form a corporation and exercise corporation and received benefits from it, may be barred from
corporate functions and enter into business relations with third denying its corporate existence in a suit brought against the
persons. Where there is no third person involved and the alleged corporation. In such case, all those who benefited from
conflict arises only among those assuming the form of a the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.
ISSUE: Whether or not Lim Tong Lim is liable.
Lim Tong Lim cannot argue that the principle of corporation by
estoppel can only be imputed to Yao and Chua. Lim Tong Lim
benefited from the use of the nets found in his boats, the boat
which has earlier been proven to be an asset of the partnership. HELD: Yes. From the factual findings of both lower courts, it is
Lim, Chua and Yao decided to form a corporation. Although it clear that Chua, Yao and Lim had decided to engage in a fishing
was never legally formed for unknown reasons, this fact alone business, which they started by buying boats worth P3.35
does not preclude the liabilities of the three as contracting million, financed by a loan secured from Jesus Lim. In their
parties in representation of it. Compromise Agreement, they subsequently revealed their
intention to pay the loan with the proceeds of the sale of the
Clearly, under the law on estoppel, those acting on behalf of a boats, and to divide equally among them the excess or loss.
corporation and those benefited by it, knowing it to be without These boats, the purchase and the repair of which were
valid existence, are held liable as general partners. financed with borrowed money, fell under the term “common
fund” under Article 1767. The contribution to such fund need not
Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc. be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the
sale and operation of the boats would be divided equally among
FACTS: It was established that Lim Tong Lim requested Peter them also shows that they had indeed formed a partnership.
Yao to engage in commercial fishing with him and one Antonio
Chua. The three agreed to purchase two fishing boats but since
they do not have the money they borrowed from one Jesus Lim Lim Tong Lim cannot argue that the principle of corporation by
(brother of Lim Tong Lim). They again borrowed money and estoppels can only be imputed to Yao and Chua.
they agreed to purchase fishing nets and other fishing Unquestionably, Lim Tong Lim benefited from the use of the
equipments. Now, Yao and Chua represented themselves as nets found in his boats, the boat which has earlier been proven
acting in behalf of “Ocean Quest Fishing Corporation” (OQFC) to be an asset of the partnership. Lim, Chua and Yao decided to
they contracted with Philippine Fishing Gear Industries (PFGI) form a corporation. Although it was never legally formed for
for the purchase of fishing nets amounting to more than P500k. unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of
it. Clearly, under the law on estoppel, those acting on behalf of a
They were however unable to pay PFGI and so they were sued corporation and those benefited by it, knowing it to be without
in their own names because apparently OQFC is a non-existent valid existence, are held liable as general partners.
corporation. Chua admitted liability and asked for some time to
pay. Yao waived his rights. Lim Tong Lim however argued that
he’s not liable because he was not aware that Chua and Yao
represented themselves as a corporation; that the two acted
without his knowledge and consent.
International Express Travel & Tour Services, Inc. vs Court recognized and accredited by the Philippine Amateur Athletic
of Appeals Federation and the Department of Youth and Sports
Development. This fact was never substantiated by Kahn. As
such, PFF is considered as an unincorporated sports
association. And under the law, any person acting or purporting
FACTS: In 1989, International Express Travel & Tour Services,
to act on behalf of a corporation which has no valid existence
Inc. (IETTI), offered to the Philippine Football Federation (PFF)
assumes such privileges and becomes personally liable for
its travel services for the South East Asian Games. PFF,
contract entered into or for other acts performed as such agent.
through Henri Kahn, its president, agreed. IETTI then delivered
Kahn is therefore personally liable for the contract entered into
the plane tickets to PFF, PFF in turn made a down payment.
by PFF with IETTI.
However, PFF was not able to complete the full payment in
subsequent installments despite repeated demands from IETTI.
IETTI then sued PFF and Kahn was impleaded as a co-
defendant. There is also no merit on the finding of the CA that IETTI is in
estoppel. The application of the doctrine of corporation by
estoppel applies to a third party only when he tries to escape
liability on a contract from which he has benefited on the
Kahn averred that he should not be impleaded because he
irrelevant ground of defective incorporation. In the case at bar,
merely acted as an agent of PFF which he averred is a
IETTI is not trying to escape liability from the contract but rather
corporation with separate and distinct personality from him. The
is the one claiming from the contract.
trial court ruled against Kahn and held him personally liable for
the said obligation (PFF was declared in default for failing to file Loyola Grand Villas Homeowners (South) Association, Inc.
an answer). The trial court ruled that Kahn failed to prove that vs Court of Appeals
PFF is a corporation. The Court of Appeals however reversed
the decision of the trial court. The Court of Appeals took judicial
notice of the existence of PFF as a national sports association;
that as such, PFF is empowered to enter into contracts through FACTS: In 1983, the Loyola Grand Villas Association, Inc.
its agents; that PFF is therefore liable for the contract entered (LGVAI) was incorporated by the homeowners of the Loyola
into by its agent Kahn. The CA further ruled that IETTI is in Grand Villas (LGV), a subdivision. The Securities and Exchange
estoppel; that it cannot now deny the corporate existence of Commission (SEC) issued a certificate of incorporation under its
PFF because it had contracted and dealt with PFF in such a official seal to LGVAI in the same year. LGVAI was likewise
manner as to recognize and in effect admit its existence. recognized by the Home Insurance and Guaranty Corporation
(HIGC), a government-owned-and-controlled corporation whose
mandate is to oversee associations like LGVAI.
ISSUE: Whether or not the Court of Appeals is correct.
Later, LGVAI later found out that there are two homeowners
associations within LGV, namely: Loyola Grand Villas
HELD: No. PFF, upon its creation, is not automatically Homeowners (South) Association, Inc. (LGVAI-South) and
considered a national sports association. It must first be Loyola Grand Villas Homeowners (North) Association, Inc.
(LGVAI-North). The two associations asserted that they have to refusal of said body to register the shares of stock in question.
be formed because LGVAI is inactive. When LGVAI inquired (Basta na amend ung complaint)
about its status with HIGC, HIGC advised that LGVAI was
already terminated; that it was automatically dissolved when it
failed to submit it By-Laws after it was issued a certificate of
Defendant answered the amended complaint denying generally
incorporation by the SEC.
and specifically each and every one of the material allegations
thereof, and, as a special defense, alleged that the defendant,
pursuant to article 12 of its by-laws, had preferential right to buy
ISSUE: Whether or not a corporation’s failure to submit its by- from the plaintiff said shares at the par value of P100 a share,
laws results to its automatic dissolution. plus P90 as dividends corresponding to the year 1922, and that
said offer was refused by the plaintiff.

HELD: No. A private corporation like LGVAI commences to

have corporate existence and juridical personality from the date Trial Court held that, in his opinion, article 12 of the by-laws of
the Securities and Exchange Commission (SEC) issues a the corporation which gives it preferential right to buy its shares
certificate of incorporation under its official seal. The submission from retiring stockholders, is in conflict with Act No. 1459
of its by-laws is a condition subsequent but although it is merely (Corporation Law), especially with section 35 thereof; and
such, it is a MUST that it be submitted by the corporation. rendered a judgment in favor of plaintiff.
Failure to submit however does not warrant automatic
dissolution because such a consequence was never the
intention of the law. The failure is merely a ground for
Hence, this appeal.
dissolution which may be raised in a quo warranto proceeding. It
is also worthwhile to note that failure to submit can’t result to
automatic dissolution because there are some instances when a
corporation does not require a by-laws. ISSUE: whether or not article 12 of the by-laws of the
corporation is in conflict with the provisions of the Corporation
Law (Act No. 1459).
HENRY FLEISCHER, vs. BOTICA NOLASCO CO., INC.

Questioned article 12 creates in favor of the Botica Nolasco,

Inc., a preferential right to buy, under the same conditions, the
FACTS: This action was commenced in the CFI against the
share or shares of stock of a retiring shareholder. Has said
board of directors of the Botica Nolasco, Inc., a corporation duly
corporation any power, under the Corporation Law (Act. No.
organized and existing under the laws of the Philippine Islands.
1459), to adopt such by-law?
The plaintiff prayed that said board of directors be ordered to
register in the books of the corporation five shares of its stock in
the name of Henry Fleischer, the plaintiff, and to pay him the
sum of P500 for damages sustained by him resulting from the
HELD: Affirmed. Mandamus will lie to compel the officers of the The Government of the Philippine Islands vs. El Hogar
corporation to transfer said stock upon the books of the Filipino
corporation.

FACTS: The Philippine Commission enacted Act No. 1459, also

Section 13, paragraph 7, above-quoted, empowers a known as the Corporation Law, on March 1, 1906. El Hogar
corporation to make by-laws, not inconsistent with any existing Filipino, organized in 1911 under the laws of the Philippine
law, for the transferring of its stock. Islands, was the first corporation organized under Sec. 171-190
Act No. 1459, devoted to the subject of building and loan
associations, their organization and administration. In the said
law, the capital of the corporation was not permitted to exceed
Section 35 of Act No. 1459 (now Sec. 63) contemplates no
P3M, but Act No. 2092 amended the statute, permitting
restriction as to whom they may be transferred or sold. It does
capitalization to the amount of ten millions.
not suggest that any discrimination may be created by the
corporation in favor or against a certain purchaser.

El Hogar took advantage of the amendment of Act No. 1459 and

amended its AOI as a result thereof, stating that the amount of
The holder of shares, as owner of personal property, is at
capital must not exceed what has been stated in Act No. 2092.
liberty, under said section, to dispose of them in favor of
This resulted to El Hogar having 5,826 shareholders, 125,750
whomsoever he pleases, without any other limitation in this
shares with paid-up value of P8.7M. The corporation paid
respect, than the general provisions of law.
P7.16M to its withdrawing stockholders.

GR: The by-laws of a corporation are valid if they are

The Government of the Philippine Islands filed an action against
reasonable and calculated to carry into effect the objects of the
El Hogar due to the alleged illegal holding title to real property
corporation, and are not contradictory to the general policy of
for a period exceeding five (5) years after the same was bought
the laws of the land.
in a foreclosure sale. Sec. 13(5) of the Corporation Law states
that corporations must dispose of real estate obtained within 5
years from receiving the title. The Philippine Government also
A by-law cannot take away or abridge the substantial rights of prays that El Hogar be excluded from all corporate rights and
stockholder. Under a statute authorizing by- laws for the transfer privileges and effecting a final dissolution of said corporation.
of stock, a corporation can do no more than prescribe a general
mode of transfer on the corporate books and cannot justify an
unreasonable restriction upon the right of sale. By-laws cannot
It appears from the records that El Hogar was the holder of a
operate to defeat his rights as a purchaser who obtained them
recorded mortgage on the San Clemente land as security for a
in good faith and for a valuable consideration
P24K loan to El Hogar. However, shareholders and borrowers
defaulted in payment so El Hogar foreclosed the mortgage and
purchased the land during the auction sale. A deed of ISSUE: Whether the acts of respondent corporation merit its
conveyance in favor of El Hogar was executed and sent to the dissolution or deprivation of its corporate franchise and to
Register of Deeds of Tralac with a request that the certificate of exclude it from all corporate rights and privileges
title be cancelled and a new one be issued in favor of El Hogar
from the Register of Deeds of Tarlac. However, no reply was
received. El Hogar filed a complaint with the Chief of the
HELD: SUSTAINED only as to administering of real property not
General Land Registration Office. The certificate of title to the
owned by it and when permitted by contract.
San Clemente land was received by El Hogar and a board
resolution authorizing Benzon to find a buyer was issued.
Alcantara, the buyer of the land, was given extension of time to
make payment but defaulted so the contract treated rescinded. Causes of action:
Efforts were made to find another buyer. Respondent acquired
title in December 1920 until the property was finally sold to 1) Alleged illegal holding of real property for a period
Felipa Alberto in July 1926. The interval exceeded 5 years but exceeding five years from receipt of title-Cause of delay is not
the period did not commence to run until May 7, 1921 when the respondent’s fault
register of deeds delivered the new certificate of title. It has
been held that a purchaser of land registered under the Torrens
system cannot acquire the status of an innocent purchaser for 2) That respondent is owning and holding a business lot with
value unless the vendor is able to place the owner’s duplicate in the structure thereon in excess of its reasonable requirements
his hands showing the title to be in the vendor. During the and in contravention of Sec. 13(5) of Corpo. Law- WITHOUT
period before May 1921, El Hogar was not in a position to pass MERIT
an indefeasible title to any purchaser. Therefore, El Hogar
cannot be held accountable for this delay which was not due to Every corporation has the power to purchase, hold and lease
its fault. Likewise, the period from March 25, 1926 to April 20, such real property as the transaction would of the lawful
1926 must not be part of the five-year period because this was business may reasonably and necessarily require.
the period where respondent was under the obligation to sell the
property to Alcantara prior to the contract’s rescission due to
Alcantara’s non-payment. 3) That respondent is engaged in activities foreign to the
purposes for which the corporation was created and not
reasonably necessary to its legitimate ends-VALID
Another circumstance causing the delay is the fact that El Hogar
The administration of property, payment of real estate taxes,
purchased the property in the full amount of the loan made by
causing necessary repairs, managing real properties of non-
the former owner which is nearly P24K when it was
borrowing shareholders is more befitting to the business of a
subsequently found that the property was not salable and later
real estate agent or a trust company than a building and loan
sold for P6K notwithstanding El Hogar’s efforts to find a
association.
purchaser upon better terms.
4) That the by-laws of the association stating that, “the board compensation, varying in amount from time to time, out of
of directors by the vote of an absolute majority of its members is respondents’ profits- WITHOUT MERIT
empowered to cancel shares and to return the balance to the
owner by reason of their conduct or any other motive or With the growth of the corporation, the amount paid as
liquidation” is in direct conflict with Sec. 187 of the Corporation compensation to the directors has increased beyond what would
Law which provides that the board of directors shall not have probably be necessary is a matter that cannot be corrected in
the power to force the surrender and withdrawal of unmatured this action. Nor can it properly be made a basis for depriving
stock except in case of liquidation or forfeiture of stock for respondent of its franchise or enjoining it from compliance with
delinquency-WITHOUT MERIT the provisions of its own by-laws. If a mistake has been made,
the remedy is to lie rather in publicity and competition.
There is no provision of law making it a misdemeanor to
incorporate an invalid provision in the by-laws of a corporation;
and if there were such, the hazards incident to corporate effort
7) That the promoter and organizer of El Hogar was Mr.
would be largely increased.
Antonio Melian and that in the early stages of the organization
of the association, the board of directors authorized the
association to make a contract with him and that the royalty
5) Art. 61 of El Hogar’s by-laws which states that “ given to him as founder is “unconscionable, excessive and out
attendance in person or by proxy by shareholders owning one- of proportion to the services rendered”-NOT SUSTAINED
half plus one of the shareholders shall be necessary to
constitute a quorum for the election of directors” is contrary to The mere fact that compensation is in excess of what may be
Sec. 31 of the Corpo Law which provides that owners of the considered appropriate is not a proper consideration for the
majority of the subscribed capital stock entitled to vote must be court to resolve. That El Hogar is in contact with its promoter did
present either in person or by proxy at all elections of directors- not affect the association’s legal character. The court is of the
WITHOUT MERIT opinion that the traditional respect for the sanctity of the contract
obligation should prevail over the radical and innovating
No fault can be imputed to the corporation on account of the tendencies.
failure of the shareholders to attend the annual meetings and
their non-attendance in meetings is doubtless to be interpreted
in part as expressing their satisfaction of the way in which things
8) That Art. 70 of El Hogar’s by-laws, requiring persons
have been conducted. Mere failure of a corporation to elect
elected as board of directors to be holders of shares of the paid
officers does not terminate the terms of existing officers nor
up value of P5,000 which shall be held as security, is
dissolve the corporation. The general rule is to allow the officer
objectionable since a poor member or wage earner cannot
to holdover until his successor is duly qualified.
serve as a director irrespective of other qualifications- NOT
SUSTAINED

6) That the directors of El Hogar, instead of receiving nominal Corpo. Law expressly gives the power to the corporation to
pay or serving without pay, have been receiving large provide in its by-laws for the qualification of its directors and the
requirement of security from them for the proper discharge of
the duties of their pffice in the manner prescribed in Art. 70 is 11) That respondent maintains excessive reserve funds-
highly prudent and in conformity with good practice. UNFOUNDED
The function of this fund is to insure stockholders against
losses. When the reserves become excessive, the remedy is in
9) That respondent abused its franchise in issuing “special” the hands of the Legislature.
shares alleged to be illegal and inconsistent with the plan and
purposes of building and loan associations- WITHOUT MERIT No prudent person would be inclined to take a policy in a
The said special shares are generally known as advance company which had so improvidently conducted its affairs that it
payment shares which were evidently created for the purpose of only retained a fund barely sufficient to pay its present liabilities
meeting the condition caused by the prepayment of dues that is and therefore was in a condition where any change by the
permitted. Sec. 178 of Corpo Law allows payment of dues or reduction of interest upon or depreciation in the value of
interest to be paid in advance but the corporation shall not allow securities or increase of mortality would render it insolvent and
interest on advance payment grater than 6% per annum nor for subject to be placed in the hands of a receiver.
a period longer than one year. The amount is satisfied by
applying a portion of the shareholder’s participation in the
annual earnings.The mission of special shares does not involve
12) That the board of directors has settled upon the unlawful
any violation of the principle that the shares must be sold at par.
policy of paying a straight annual dividend of 10 percent per
centum regardless of losses suffered and profits made by the
corporation, in contravention with the requirements of Sec. 188
10) That in making purchases at foreclosure sales constituting of the Corpo law- UNFOUNDED
as security for 54 of the loans, El Hogar bids the full amount
after deducting the withdrawal value, alleged to be pusuing a As provided in the previous cause of action, the profits and
policy of depreciating at the rate of 10 percent per annum, the losses shall be determined by the board of directors and this
value of the real properties it acquired and that this rate is means that they shall exercise the usual discretion of good
excessive-UNSUSTAINABLE businessmen in allocating a portion of the annual profits to
purposes needful of the welfare of the association. The law
The board of directors possess discretion in this matter. There is contemplates distribution of earnings and losses after legitimate
no provision of law prohibiting the association from writing off a obligations have been met.
reasonable amount for depreciation on its assets for the
purpose of determining its real profits. Art. 74 of its by-laws
expressly authorizes the board of directors to determine each
13) That El Hogar has made loans to the knowledge of its
year the amount to be written down upon the expenses for the
officers which were intended to be used by the borrowers for
installation and the property of the corporation. The court cannot
other purposes than the building of homes and no attempt has
control the discretion of the board of directors about an
been made to control the borrowers with respect to the use
administrative matter as to which they have no legitimate power
made of the borrowed funds- UNFOUNDED
of action.
There is no statute expressly declaring that loans may be made subscribed to respondents’ shares for the sole purpose of
by these associations SOLELY for the purpose of building obtaining such loans-NO MERIT
homes. The building of himes in Sec. 171 of Corpo Law is only
one among several ends which building and loan associations Sec. 173 of Corpo Law declares that “any person” may become
are designed to promote and Sec. 181 authorizes the board of a stockholder in building and loan associations. The phrase
directors of the association to fix the premium to be charged. ANY PERSON does not prevent a finding that the phrase may
not be taken in its proper and broad sense of either a natural or
artificial person.
14) That the loans made by defendant for purposes other than
building or acquiring homes have been extended in extremely
large amounts and to wealthy persons and large companies- 17) That in disposing real estate purchased by it, some of the
WITHOUT MERIT properties were sold on credit and the persons and entities to
which it was sold are not members nor shareholders nor were
The question of whether the making of large loans constitutes a they made members or shareholders, contrary to the provision
misuser of the franchise as would justify the court in depriving of Corpo Law requiring requiring loans to be stockholders only-
the association of its corporate life is a matter confided to the NOT SUSTAINED.
discretion of the board of directors. The law states no limit as to
the size of the loans to be made by the association. Resort
should be had to the legislature because it is not a matter
The law does not prescribe that the property must be sold for
amenable to judicial control
cash or that the purchaser shall be a shareholder in the
corporation. Such sales can be made upon the terms and
conditions approved by the parties.
15) That when the franchise expires, supposing the corporation
is not reorganized, upon final liquidation of the corporation, a
reserve fund may exist which is out of all proportion to the
Respondent is enjoined in the future from administering real
requirements that may fall upon it in the liquidation of the
property not owned by itself, except as may be permitted to it by
company-NO MERIT
contract when a borrowing shareholder defaults in his
This matter may be left to the discretion of the board of directors obligation. In all other respects, the complaint is DISMISSED.
or to legislative action if it should be deemed expedient to
require the gradual suppression of reserve funds as the time for
dissolution approaches. It is no matter for judicial interference Stockholders of F. Guanzon and Sons, Inc v. Register of
and much less could the resumption of the franchise be justified Deeds of Manila
on this ground.

FACTS: Sept 19, 1960: 5 stockholders of F Guanzon executed

16) That various outstanding loans have been made by the a certificate of liquidation of the assets of the corporation. By
respondent to corporations and partnerships and such entities virtue of a resolution dissolving the corporation, they wish to
distribute as liquidated dividends among themselves and in to the SHs was deemed not in the nature of a partition among
proportion to their shareholdings, the assets of the corporation, co-owners, but rather a disposition by the corporation to the
which includes real estate properties in Manila. The Register of SHs as opposite parties to a contract Properties registered in
Deeds however, upon presentment of the certificate of the name of the corporation are owned by it as an entity
liquidation by the 5 stockholders, denied registration of the separate and distinct from its members; shares of stock are
properties to be distributed on 7 grounds, 3 of which were personal property, and NOT corporate property share of stock
questioned by the stockholders: (1) no statement of the # of typifies an aliquot part of the corporation’s property, or the right
parcels of land to be distributed (2) registration fees iao P430.50 to share in the proceeds to that extent when distributed holder
(3) doc stamp tax iao P940.45 (4) court judgment approving the of shares is not the owner of any part of the capital of the
dissolution and directing disposition of the assets. The corporation, nor is he entitled to the possession of any definite
stockholders claim that the certificate of liquidation merely portion of its property or assets.
partitions/distributes the corporate assets among them because
the corporation has already been dissolved. Hence they need
not comply with the requirements imposed by the Register of
Caram vs. Court of Appeals
Deeds and the Land Registration Authority. The LRA counters
that the distribution of the corporate assets upon dissolution of
the corporation, is ultimately a transfer/conveyance of property
to the stockholders. A certain Barretto initiated the incorporation of a company called
Filipinas Orient Airways (FOA). Barretto was referred to as the
“moving spirit” of said corporation because it was through his
effort that it was created. Before FOA’s creation though,
ISSUE: W/N the certificate of liquidation involves a mere
Barretto contracted with a third party, Alberto Arellano, for the
distribution of corporate assets or a transfer or conveyance of
latter to prepare a project study for the feasibility of creating a
property.
corporation like FOA. The project study was then presented to
the would-be incorporators and investors. On the basis of said
project study, Fermin Caram, Jr. and Rosa Caram agreed to be
HELD: It is a transfer/conveyance of property. A corporation is a incorporators of FOA. Later however, Arellano filed a collection
juridical person separate and distinct from the stockholders. suit against FOA, Barretto, and the Carams. Arellano claims that
Properties registered in the name of the corporation are owned he was not paid for his work on the project study.
by it as a separate entity. The shares held by stockholders are
their personal property and not the corporation, and it only
typifies an aliquot part of the corporation’s property or the right
ISSUE: Whether or not the Carams are personally and solidarily
to share in the proceeds. The holder of such share is not the
liable considering that the project study was contracted before
owner of any part of the capital of the corporation, nor is he
FOA became a corporation.
entitled to possession of any definite portion of its assets,
neither is he a co-owner. Liquidation by stockholders after a
corporation’s dissolution is not mere partitioning of community
property, but already a conveyance or transfer of title to them HELD: No. The Carams cannot be solidarily liable with FOA.
from the corporation. The distribution of the corporate properties The FOA is now a bona fide corporation. As such, FOA alone
should be liable for its corporate acts as duly authorized by its NHA held that the rescission is void in the absence of either
officers and directors. This includes acts which ultimately led to judicial or notarial demand. Palay, Inc. and Onstott in his
its incorporation i.e., the project study made by Arellano. FOA capacity as President of the corporation, jointly and severally,
has a separate and distinct personality from its incorporators. It was ordered to refund Dumpit the amount paid plus 12%
is not justified to make the Carams, as principal stockholders, to interest from the filing of the complaint. Petitioners' MR was
be responsible for FOA’s obligations. denied by the NHA. Respondent Presidential Executive
Assistant, on May 2, 1980, affirmed the Resolution of the NHA.
Reconsideration sought by petitioners was denied for lack of
merit. Thus, the present petition.
Palay Inc. v. Clave

ISSUE: W/N demand is necessary to rescind a contract

FACTS: On March 28, 1965, petitioner Palay, Inc., through its
President, Albert Onstott sold a parcel of land owned by the
corporation to the private respondent, Nazario Dumpit, by virtue
of a Contract to Sell. The sale price was P23,300.00 with 9% HELD: As held in previous jurisprudence, the judicial action for
interest per annum, payable with a down payment of P4,660.00 the rescission of a contract is not necessary where the contract
and monthly instalments of P246.42 until fully paid. Paragraph 6 provides that it may be revoked and cancelled for violation of
of the contract provided for automatic extrajudicial rescission any of its terms and conditions. However, even in the cited
upon default in payment of any monthly instalment after the cases, there was at least a written notice sent to the defaulter
lapse of 90 days from the expiration of the grace period of one informing him of the rescission. A written notice is indispensable
month, without need of notice and with forfeiture of all to inform the defaulter of the rescission. Hence, the resolution
instalments paid. by petitioners of the contract was ineffective and inoperative
against private respondent for lack of notice of resolution (as
held in the U.P. vs. Angeles case). The act of a party in treating
a contract as cancelled should be made known to the other.
Respondent Dumpit paid the down payment and several
instalments amounting to P13,722.50 with the last payment was Later, RA 6551 6551 entitled "An Act to Provide Protection to
made on December 5, 1967 for instalments up to September Buyers of Real Estate on Instalment Payments,” emphasized
1967. Almost six (6) years later, private respondent wrote the indispensability of notice of cancellation to the buyer when it
petitioner offering to update all his overdue accounts and sought specifically provided:
consent to the assignment of his rights to a certain Lourdes
Dizon. Petitioners informed respondent that his Contract to Sell Sec. 3(b) ... the actual cancellation of the contract shall take
had long been rescinded pursuant to paragraph 6 of the place after thirty days from receipt by the buyer of the notice of
contract, and that the lot had already been resold. cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value
to the buyer. (Emphasis supplied).
Respondent filed a letter complaint with the National Housing
Authority (NHA) questioning the validity of the rescission. The
Moreover, there was no waiver on the part of the private (supra) of the contract when it rescinded the contract to sell
respondent of his right to be notified under paragraph 6 of the extrajudicially and had sold it to a third person.
contract since it was a contract of adhesion, a standard form of
petitioner corporation, and private respondent had no freedom
to stipulate. Finally, it is a matter of public policy to protect
Petitioner Palay, Inc. is liable to refund to respondent Dumpit
buyers of real estate on installment payments against onerous
the amount of P13,722.50, with interest at twelve (12%) p.a.
and oppressive conditions. Waiver of notice is one such
from November 8, 1974, the date of the filing of the Complaint.
onerous and oppressive condition to buyers of real estate on
installment payments.

As a consequence of the resolution by petitioners, rights to the JG Summit Holdings vs. Court of Appeals
lot should be restored to private respondent or the same should
be replaced by another acceptable lot but since the property
had already been sold to a third person and there is no
evidence on record that other lots are still available, private FACTS: The National Investment and Development Corporation
respondent is entitled to the refund of instalments paid plus (NIDC), a government corporation, entered into a Joint Venture
interest at the legal rate of 12% computed from the date of the Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the
institution of the action. It would be most inequitable if construction, operation and management of the Subic National
petitioners were to be allowed to retain private respondent's Shipyard, Inc., later became the Philippine Shipyard and
payments and at the same time appropriate the proceeds of the Engineering Corporation (PHILSECO). Under the JVA, NIDC
second sale to another. and Kawasaki would maintain a shareholding proportion of
60%-40% and that the parties have the right of first refusal in
case of a sale.

Onstott not personally liable

Onstott was made liable because he was then the President of Through a series of transfers, NIDC’s rights, title and interest in
the corporation and the controlling stockholder but there was no PHILSECO eventually went to the National Government. In the
sufficient proof that he used the corporation to defraud private interest of national economy, it was decided that PHILSECO
respondent. He cannot, therefore, be made personally liable just should be privatized by selling 87.67% of its total outstanding
because he "appears to be the controlling stockholder". Mere capital stock to private entities. After negotiations, it was agreed
ownership by a single stockholder or by another corporation is that Kawasaki’s right of first refusal under the JVA be
not of itself sufficient ground for disregarding the separate “exchanged” for the right to top by five percent the highest bid
corporate personality. for said shares. Kawasaki that Philyards Holdings, Inc. (PHI), in
which it was a stockholder, would exercise this right in its stead.
Finally, there are no badges of fraud on the petitioners' part.
They had literally relied, albeit mistakenly, on paragraph 6
During bidding, Kawasaki/PHI Consortium is the losing bidder. purchase even beyond 60% of the total shares. As a
Even so, because of the right to top by 5% percent the highest government corporation and necessarily a 100% Filipino-owned
bid, it was able to top JG Summit’s bid. JG Summit protested, corporation, there is nothing to prevent its purchase of stocks
contending that PHILSECO, as a shipyard is a public utility and, even beyond 60% of the capitalization as the Constitution
hence, must observe the 60%-40% Filipino-foreign clearly limits only foreign capitalization.
capitalization. By buying 87.67% of PHILSECO’s capital stock at
bidding, Kawasaki/PHI in effect now owns more than 40% of the
stock.
Kawasaki was bound by its contractual obligation under the JVA
that limits its right of first refusal to 40% of the total capitalization
of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of
ISSUE: the capitalization of the joint venture on account of both
constitutional and contractual proscription.
Whether or not PHILSECO is a public utility
Whether or not Kawasaki/PHI can purchase beyond 40% of
PHILSECO’s stocks Young Auto Supply vs. Court of Appeals

HELD: In arguing that PHILSECO, as a shipyard, was a public Facts: On 28 October 1987, Young Auto Supply Co. Inc.
utility, JG Summit relied on sec. 13, CA No. 146. On the other (YASCO) represented by Nemesio Garcia, its president, Nelson
hand, Kawasaki/PHI argued that PD No. 666 explicitly stated Garcia and Vicente Sy, sold all of their shares of stock in
that a “shipyard” was not a “public utility.” But the SC stated that Consolidated Marketing & Development Corporation (CMDC) to
sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP George C. Roxas. The purchase price was P8,000,000.00
Blg. 391 and when BP Blg. 391 was subsequently repealed by payable as follows: a down payment of P4,000,000.00 and the
EO 226, the latter law did not revive sec. 1 of PD No. 666. balance of P4,000,000.00 in four postdated checks of
Therefore, the law that states that a shipyard is a public utility P1,000,000.00 each. Immediately after the execution of the
still stands. agreement, Roxas took full control of the four markets of CMDC.
However, the vendors held on to the stock certificates of CMDC
as security pending full payment of the balance of the purchase
price. The first check of P4,000,000.00, representing the down
A shipyard such as PHILSECO being a public utility as provided
payment, was honored by the drawee bank but the four other
by law is therefore required to comply with the 60%-40%
checks representing the balance of P4,000,000.00 were
capitalization under the Constitution. Likewise, the JVA between
dishonored. In the meantime, Roxas sold one of the markets to
NIDC and Kawasaki manifests an intention of the parties to
a third party. Out of the proceeds of the sale, YASCO received
abide by this constitutional mandate. Thus, under the JVA,
P600,000.00, leaving a balance of P3,400,000.00.
should the NIDC opt to sell its shares of stock to a third party,
Kawasaki could only exercise its right of first refusal to the
extent that its total shares of stock would not exceed 40% of the
entire shares of stock. The NIDC, on the other hand, may
Subsequently, Nelson Garcia and Vicente Sy assigned all their articles of incorporation. The Corporation Code precisely
rights and title to the proceeds of the sale of the CMDC shares requires each corporation to specify in its articles of
to Nemesio Garcia. On 10 June 1988, YASCO and Garcia filed incorporation the "place where the principal office of the
a complaint against Roxas in the Regional Trial Court, Branch corporation is to be located which must be within the
11, Cebu City, praying that Roxas be ordered to pay them the Philippines." The purpose of this requirement is to fix the
sum of P3,400,000.00 or that full control of the three markets be residence of a corporation in a definite place, instead of allowing
turned over to YASCO and Garcia. The complaint also prayed it to be ambulatory. Actions cannot be filed against a corporation
for the forfeiture of the partial payment of P4,600,000.00 and the in any place where the corporation maintains its branch offices.
payment of attorney's fees and costs. Failing to submit his The Court ruled that to allow an action to be instituted in any
answer, and on 19 August 1988, the trial court declared Roxas place where the corporation has branch offices, would create
in default. The order of default was, however, lifted upon motion confusion and work untold inconvenience to said entity. By the
of Roxas. On 22 August 1988, Roxas filed a motion to dismiss. same token, a corporation cannot be allowed to file personal
After a hearing, wherein testimonial and documentary evidence actions in a place other than its principal place of business
were presented by both parties, the trial court in an Order dated unless such a place is also the residence of a co-plaintiff or a
8 February 1991 denied Roxas' motion to dismiss. After defendant. With the finding that the residence of YASCO for
receiving said order, Roxas filed another motion for extension of purposes of venue is in Cebu City, where its principal place of
time to submit his answer. He also filed a motion for business is located, it becomes unnecessary to decide whether
reconsideration, which the trial court denied in its Order dated Garcia is also a resident of Cebu City and whether Roxas was
10 April 1991 for being pro-forma. Roxas was again declared in in estoppel from questioning the choice of Cebu City as the
default, on the ground that his motion for reconsideration did not venue. The decision of the Court of Appeals was set aside.
toll the running of the period to file his answer. On 3 May 1991,
Roxas filed an unverified Motion to Lift the Order of Default 34. Marvel Building Corp., et al vs Saturnino David (BIR
which was not accompanied with the required affidavit of merit. Collector)
But without waiting for the resolution of the motion, he filed a
Doctrine:
petition for certiorari with the Court of Appeals. The Court of
Appeals dismissal of the complaint on the ground of improper The existence of endorsed certificates discovered by
venue. A subsequent motion for reconsideration by YASCO was internal revenue agents between 1948 and 1949 in the
to no avail. YASCO and Garcia filed the petition. possession of the Secretary-Treasurer of a supposed
corporation; the fact that twenty-five certificates were signed
by its president for no justifiable reason; the fact that its
Issue: Whether the venue for the case against YASCO and principal stockholder had made enormous profits and,
Garcia in Cebu City was improperly laid. therefore, had a motive to hide them to evade the payment of
taxes; the fact that the other subscribers had no incomes of
sufficient magnitude to justify their big subscriptions; the fact
that the treasurer in the name of the alleged corporation but
Held: A corporation has no residence in the same sense in were kept by the principal stockholder herself; the fact that the
which this term is applied to a natural person. But for practical stockholders or the directors never appeared to have ever met
purposes, a corporation is in a metaphysical sense a resident of to discuss the business of the corporation; the fact that she
the place where its principal office is located as stated in the
 advanced big sums of money to the corporation without any Amado A. Yatco ------- 100" ------ 100,000.00
previous arrangement or accounting; and the fact that the
books of accounts were kept as if they belonged to her alone Santiago Tan ----------- 100" ------ 100,000.00
— are circumstantial evidence which are not only convincing
Jose T. Lopez ---------- 90" ------ 90,000.00
but conclusive that she is the sole and exclusive owner of all
the shares of stock of the corporation and that the other Benita Lamagna --------- 90" ------ 90,000.00
partners are her dummies.
C.S. Gonzales ----------- 80" ------ 80,000.00
Facts:
Maria Cristobal --------- 70" ------ 70,000.00
This action was brought by the stockholders of the Marvel
Building Corporation to enjoin the Collector of Internal Revenue Segundo Esguerra, Sr. -- 75" ------ 75,000.00
from selling at public auction various properties described in the
complaint, including three parcels of land, with the buildings Ramon Sangalang -------- 70" ------ 70,000.00
situated thereon, known as the Aguinaldo Building, the Wise Maximo Cristobal ------- 55" ------ 55,000.00
Building, and the Dewey Boulevard-Padre Faura Mansion, all
registered in the name of Marvel Building. The properties were Antonio Cristobal ------ 45" ------ 45,000
seized and distrained the CIR to collect war profits taxes
assessed against plaintiff Maria B. Castro. Plaintiffs allege that It does not appear that the stockholders or the board of
the said three properties (lands and buildings) belong to the directors of the Marvel Building Corporation have ever held a
Marvel Building corporation and not to Maria B. Castro, while business meeting, for no books thereof or minutes of meeting
the defendant claims that Maria B. Castro is the true and sole were ever mentioned by the officers thereof or presented by
owner of all the subscribed stock of the Marvel Building them at the trial. The by-laws of the corporation, if any had
Corporation, including those appearing to have been subscribed ever been approved, has not been presented. Neither does it
and paid for by the other members, and consequently said appear that any report of the affairs of the corporation has
Maria B. Castro is also the true and exclusive owner of the been made, either of its transactions or accounts.
properties seized.
From the book of accounts of the corporation, advances
The trial court ruled in favor of the stockholders. The Court held to the Marvel Building Corporation of P125,000 were made by
hat the evidence, which is mostly circumstantial, fails to show to Maria B. Castro in 1947, P102,916.05 in 1948, and
its satisfaction that Maria B. Castro is the true owner of all the P160,910.96 in 1949
stock certificates of the corporation.
Issue:
The Articles of Incorporation of the Marvel Building
WON Maria B. Castro is the owner of all the shares of stock of
Corporation is dated February 12, 1947 and according to it the
the Marvel Building Corporation and the other stockholders
capital stock is P2,000,000, of which P1,025,000 was (at the
mere dummies of hers.
time of incorporation) subscribed and paid by the following
incorporators: Held:
Maria B. Castro -------- 250shares ------P250,000.00
YES. In general the evidence offered by the plaintiffs is prove conclusively and beyond reasonable doubt (section 89,
testimonial and direct evidence, easy of fabrication; that offered Rule 123 of the Rules of Court and section 42 of the Provisional
by defendant, documentary and circumstantial, not only difficult law for the application of the Penal Code) that Maria B. Castro is
of fabrication but in most cases found in the possession of the sole and exclusive owner of all the shares of stock of the
plaintiffs. There is very little room for choice as between the two. Marvel Building Corporation and that the other partners are her
The circumstantial evidence is not only convincing; it is dummies.|||
conclusive. The existence of endorsed certificates, discovered
by the internal revenue agents between 1943 and 1949 in the 35. Gregorio Palacio vs Fely Transport Company
possession of the Secretary-Treasurer, the fact that twenty-five
Doctrine:
certificates were signed by the president of the corporation, for
no justifiable reason, the fact that two sets of certificates were Where the main purpose in forming the corporation was to
issued, the undisputed fact that Maria B. Castro had made evade one's subsidiary civil liability for damages in a criminal
enormous profits and, therefore, had a motive to hide them to case, the corporation may not be heard to say that it has a
evade the payment of taxes, the fact that the other subscribers personality separate and distinct from its members, because to
had no incomes of sufficient magnitude to justify their big allow it to do so would be a shield to further an end subversive
subscriptions, the fact that the subscriptions were not receipted of justice. The Supreme Court can even substitute the real party
for and deposited by the treasurer in the name of the in interest in place of the defendant corporation in order to avoid
corporation but were kept by Maria B. Castro herself, the fact multiplicity of suits and thereby save the parties unnecessary
that the stockholders or the directors never appeared to have expenses and delay. ||| ||
ever met to discuss the business of the corporation, the fact that
Maria B. Castro advanced big sums of money to the corporation Facts:
without any previous arrangement or accounting, and the fact
that the books of accounts were kept as if they belonged to The plaintiffs claim that in December of 1952, the defendant
Maria B. Castro alone — these facts are of patent and potent company hired Alfredo Carillo as driver of AC-787 (687) owned
significance. What are their necessary implications? Maria B. and operated by the said defendant company; that on
Castro would not have asked them to endorse their stock December 24, 1952, at about 11:30 a.m., while the driver
certificates, or be keeping these in her possession, if they were Alfonso (Alfredo) Carillo was driving AC-687 at Halcon Street,
really the owners. They never would have consented that Maria Quezon City, he ran over a child Mario Palacio, the son of
B. Castro keep the funds without receipts or accounting, nor that plaintiff Gregorio Palacio. Because of the accident, Mario
she manages the business without their knowledge or Palacio suffered a simple fracture of the right temor and was
concurrence, were they owners of the stocks in their own rights. hospitalized at the Philippine Orthopedic Hospital from
Each and every one of the facts all set forth above, in the same December 24, 1952, up to January 8, 1953. He was
manner, is inconsistent with the claim that the stockholders, continuously treated for a period of 5 months. Because of
other than Maria B. Castro, owned their shares in their own Mario's treatments, his father was forced to abandon his welding
right. On the other hand, each and every one of them, and all of shop and to sell some of his equipment.
them, can point to no other conclusion than that Maria B. Castro As a response, Fely Transportation Co. filed a Motion to
was the sole and exclusive owner of the shares and that they Dismiss on the grounds (1) that there is no cause of action
were only her dummies.||| The facts and circumstances duly set against the defendant company, and (2) that the cause of action
forth above, all of which have been proved to our satisfaction,
is barred by prior judgment. The Supreme Court deferred the to pay in the criminal case and which amount he could not pay
determination of the grounds alleged in the Motion to Dismiss on account of insolvency.
until the trial of this case. The defendant then filed its answer
and alleged by way of affirmative defenses that: (1) that 36. National Marketing Corporation vs Associated Finance
complaint states no cause of action against defendant, and (2) Company, Inc. And Francisco Sycip
that the sale and transfer of the jeep AC- 687 by Isabelo
Doctrines:
Calingasan to the Fely Transportation was made on December
24, 1955, long after the driver Alfredo Carillo of said jeep had  A stockholder is guilty of fraud where, through false
been convicted and had served his sentence in Criminal Case representations, he succeeded in inducing another
No. Q-1084 of the Court of First Instance of Quezon City. In the corporation to enter into an exchange agreement with the
Counterclaim of the Answer, defendant alleges that in view of corporation he represented and over whose business he
the filing of this complaint which is a clearly unfounded civil had absolute control knowing that the letter was in no
action merely to harass the defendant, it was compelled to position to comply with the obligation it had assumed.
engage the services of a lawyer for an agreed amount of Consequently, said stockholder cannot now seek refuge
P500.00. The lower court held that the action is barred by the behind the general principle that a corporation has a
judgment in the criminal case and, that under Article 103 of the personality distinct and separate from that of its
Revised Penal Code, the person subsidiarily liable to pay stockholders and that the latter are not personally liable
damages is Isabelo Calingasan, the employer, and not the for the corporate obligations. Upon the facts proven, the
defendant corporation. court is justified in "piercing the veil of corporate fiction"
and in holding said stockholder personally liable, jointly
Issue:
and severally with the corporation, for the sums of money
WON the defendant corporation should be made subsidiarily adjudged in favor of the aggrieved party.
liable for damages in the criminal case  When the corporation is the mere alter ego of a person,
the corporate fiction may be disregarded; the same being
Held: true when the corporation is controlled, and its affairs are
so conducted as to make it merely an instrumentality,
YES. It is evident that Isabelo Calingasan's main purpose in agency or conduit of another. ||
forming the corporation was to evade his subsidiary civil liability
1 resulting from the conviction of his driver, Alfredo Carillo. This Facts:
conclusion is borne out by the fact that the incorporators of the
Fely Transportation are Isabelo Calingasan, his wife, his son, On March 25, 1958, ASSOCIATED, a domestic corporation,
Dr. Calingasan, and his two daughters. We believe that this is through its President (Francisco Sycip) entered into an
one case where the defendant corporation should not be heard agreement to exchange sugar with NAMARCO, represented by
to say that it has a personality separate and distinct from its its then General Manager, Benjamin Estrella. The parties
members when to allow it to do so would be to sanction the use agreed that ASSOCIATED would deliver to the NAMARCO
of the fiction of corporate entity as a shield to further an end 22,516 bags (each weighing 100 pounds) of "Victorias" and/or
subversive of justice. Accordingly, defendants Fely "National" refined sugar in exchange for 7,732.71 bags of
Transportation and Isabelo Calingasan should be held "Busilak" and 17,285.08 piculs of "Pasumil" raw sugar belonging
subsidiarily liable for P500.00 which Alfredo Carillo was ordered to NAMARCO, both agreeing to pay liquidated damages
equivalent to 20% of the contractual value of the sugar should damages, P100,000.00 as exemplary damages and P10,000.00
either party fail to comply with the terms and conditions as attorney's fees.
stipulated.
Issue:
On May 19, 1958, NAMARCO delivered to ASSOCIATED
7,732.71 bags of "Busilak" and 17,285.08 piculs of "Pasumil" WON Francisco Sycip may be held liable, jointly and severally
domestic raw sugar. As ASSOCIATED failed to deliver to with ASSOCIATED, for the sums of money adjudged in favor of
NAMARCO the 22,516 bags of "Victorias" and/or "National" NAMARCO.||
refined sugar agreed upon, latter, an January 12, 1959,
Held:
demanded in writing from the ASSOCIATED either (a)
immediate delivery thereof before January 20, or (b) payment of YES. The evidence of record shows that, of the capital stock of
its equivalent cash value amounting to P372,639.80. ASSOCIATED, Sycip owned P60,000.00 worth of shares, while
his wife — the second biggest stockholder — owned
On January 19, 1959, ASSOCIATED, through Sycip, offered to
P20,000.00 worth of shares; that the par value of the subscribed
pay NAMARCO the value of 22,516 bags of refined sugar at the
capital stock of ASSOCIATED was only P105,000.00; that
rate of P15.30 per bag, but the latter rejected the offer. Instead,
negotiations that lead to the execution of the exchange
on January 21 of the same year, it demanded payment of the
agreement in question were conducted exclusively by Sycip on
7,732.71 bags of "Busilak" raw sugar at P15.30 per bag,
behalf of ASSOCIATED; that, as a matter of fact, in the course
amounting to P118,310.40, and of the 17,285.08 piculs of
of his testimony, Sycip referred to himself as the one who
"Pasumil" raw sugar at P16.50 per picul, amounting to
contracted or transacted the business in his personal capacity,
P285,203.82, or a total price of P403,514.28 for both kinds of
and asserted that the exchange agreement was his personal
sugar, based on the sugar quotations (Exhibit H) as of March
contract; that it was Sycip who made personal representations
20, 1958 — the date when the exchange agreement was
and gave assurances that ASSOCIATED was in actual
entered into.
possession of the 22,516 bags of "Victorias" and/or "National"
ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar which the latter had agreed to deliver to
refined sugar delivered to it despite repeated demands; thus, NAMARCO, and that the same was ready for delivery; that, as a
NAMARCO instituted the present action in the lower court to matter of fact, ASSOCIATED was at that time already insolvent;
recover the sum of P403,514.28 in payment of the raw sugar that when NAMARCO made written demands upon
received by defendants from it; P80,702.86; as liquidated ASSOCIATED to deliver the 22,516 bags of refined sugar it was
damages; P10,000.00 as attorney's fees, expenses of litigation under obligation to deliver to the former, ASSOCIATED and
and exemplary damages, with legal interest thereon from the Sycip, instead of making delivery of the sugar, offered to pay its
filing of the complaint until fully paid. value at the rate of P15.30 per bag — a clear indication that
they did not have the sugar contracted for.|||
ASSOCIATED, by way of affirmative defenses, alleged that the
correct value of the sugar delivered by NAMARCO to them was The Court held that Sycip was guilty of fraud because through
P259,451.09 or P13.30 per bag of 100 lbs. weight (quedan false representations he succeeded in inducing NAMARCO to
basis) and not P403,514.58 as claimed by NAMARCO. As enter into the aforesaid exchange agreement, with full
counterclaim they prayed for the award of P500,000.00 as moral knowledge, on his part of the fact that ASSOCIATED whom he
represented and over whose business and affairs he had
absolute control, was in no position to comply with the obligation In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee,
it had assumed. Consequently, he can not now seek refuge entered into a contract of sale with Graphic Publishing Inc. (GPI)
behind the general principle that a corporation has a personality whereby ASC shall deliver paper products to GPI. GPI paid a
distinct and separate from that of its stockholders and that the down payment but defaulted in paying the rest despite demand
latter are not personally liable for the corporate obligations. To from ASC. ASC sued GPI and ASC won. To satisfy the
the contrary, upon the proven facts, We feel perfectly justified in indebtedness, the trial court, presided by Judge Hilarion
"piercing the veil of corporate fiction" and in holding Sycip Jarencio, ordered that one of the printing machines of GPI be
personally liable, jointly and severally with his co-defendant, for auctioned. But before the auction can be had, Philippine
the sums of money adjudged in favor of appellant. It is settled American Drug Company (PADCO) notified the sheriff that
law in this and other jurisdictions that when the corporation is PADCO is the actual owner of said printing machine.
the mere alter ego of a person, the corporate fiction may be Notwithstanding, the sheriff still went on with the auction sale
disregarded; the same being true when the corporation is where Tan Boon Bee was the highest bidder.
controlled, and its affairs are so conducted as to make it merely
an instrumentality, agency or conduit of another. |.|| Later, PADCO filed with the same court a motion to nullify the
sale on execution. The trial court ruled in favor of PADCO and it
37. Tan Boon Bee & Co., Inc. Vs Hon. Hilarion Jarencio nullified said auction sale. Tan Boon Bee assailed the order of
the trial court. Tan Boon Bee averred that PADCO holds 50% of
Doctrine: GPI; that the board of directors of PADCO and GPI is the same;
that the veil of corporate fiction should be pierced based on the
A corporation, upon coming into being, is invested by law with a
premises. PADCO on the other hand asserts ownership over
personality separate and distinct from that of the persons
the said printing machine; that it is merely leasing it to GPI.
composing it as well as from any other legal entity to which it
may be related. The doctrine that a corporation is a legal entity Issue:
distinct and separate from the members and stockholders who
compose it is recognized and respected in all cases which are WON the veil of corporate fiction should be pierced.
within reason and the law. However, this separate and distinct
personality is merely a fiction created by law for convenience Held:
and to promote justice. This separate personality of the
YES. PADCO, as its name suggests, is a drug company not
corporation may be disregarded, or the veil of corporate fiction
engaged in the printing business. So it is dubious that it really
pierced, in cases where it is used as a cloak or cover for fraud
owns the said printing machine regardless of PADCO’s title over
or illegality, or to work an injustice, or where necessary to
it. Further, the printing machine, as shown by evidence, has
achieve equity or when necessary for the protection of creditors.
been in GPI’s premises even before the date when PADCO
Corporations are composed of natural persons and the legal
alleged that it acquired ownership thereof. Premises considered,
fiction of a separate corporate personality is not a shield for the
the veil of corporate fiction should be pierced; PADCO and GPI
commission of injustice and inequity. This is true when the
should be considered as one. When a corporation is merely an
corporation is merely an adjunct, business conduit or alter ego
adjunct, business conduit or alter ego of another corporation the
of another corporation. In such case, the fiction of separate and
fiction of separate and distinct corporation entities should be
distinct corporation entities should be disregarded.
disregarded.
Facts:
 of SUBIC; and [c] the registration of Deed of Mortgage dated
April 28, 1977 in the amount of P2,700,000.00 executed by
38. Concepcion Magsaysay-Labrador vs Court of Appeals SUBIC in favor of FILMANBANK; that the foregoing acts were
void and done in an attempt to defraud the conjugal partnership
Doctrine:
considering that the land is conjugal, her marital consent to the
 While a share of stock represents a proportionate or annotation on TCT No. 3258 was not obtained, the change
aliquot interest in the property of the corporation, it does made by the Register of Deeds of the title holders was effected
not vest the owner thereof with any legal right or title to without the approval of the Commissioner of Land Registration
any of the property, his interest in the corporate property and that the late Senator did not execute the purported Deed of
being equitable or beneficial in nature. Shareholders are Assignment or his consent thereto, if obtained, was secured by
in no legal sense the owners of corporate property, which mistake, violence and intimidation. She further alleged that the
is owned by the corporation as a distinct legal person. assignment in favor of SUBIC was without consideration and
 The transfer must be registered in the books of the consequently null and void. She prayed that the Deed of
corporation to affect third persons. The law on Assignment and the Deed of Mortgage be annulled and that the
corporations is explicit, Section 63 of the Corporation Register of Deeds be ordered to cancel TCT No. 22431 and to
Code provides, thus: "No transfer, however, shall be issue a new title in her favor. Lex
valid, except as between the parties, until the transfer is The petitioners, sisters of the late senator, filed a motion for
recorded in the books of the corporation showing the intervention on the ground that on June 20, 1978, their brother
names of the parties to the transaction, the date of the conveyed to them one-half (1/2) of his shareholdings in SUBIC
transfer, the number of the certificate or certificates and or a total of 416,566.6 shares and as assignees of around 41%
the number of shares transferred."||| of the total outstanding shares of such stocks of SUBIC, they
Facts: have a substantial and legal interest in the subject matter of
litigation and that they have a legal interest in the success of the
Adelaida Rodriguez-Magsaysay, widow and special suit with respect to SUBIC.
Administratrix of the estate of the late Senator Genaro
Magsaysay, brought before the then Court of First Instance of The court denied the motion for intervention, and ruled that
Olongapo an action against Artemio Panganiban, Subic Land petitioners have no legal interest whatsoever in the matter in
Corporation (SUBIC), Filipinas Manufacturer's Bank litigation and their being alleged assignees or transferees of
(FILMANBANK) and the Register of Deeds of Zambales. She certain shares in SUBIC cannot legally entitle them to intervene
alleged that in 1958, she and her husband acquired, thru because SUBIC has a personality separate and distinct from its
conjugal funds, a parcel of land with improvements, known as stockholders. The Lower Court's decision was affirmed by the
"Pequeña Island", covered by TCT No. 3258; that after the Court of Appeals.
death of her husband, she discovered [a] an annotation at the
Petitioners anchor their right to intervene on the purported
back of TCT No. 3258 that "the land was acquired by her
assignment made by the late Senator of a certain portion of his
husband from his separate capital;" [b] the registration of a
shareholdings to them as evidenced by a Deed of Sale dated
Deed of Assignment dated June 25, 1976 purportedly executed
June 20, 1978. 2 Such transfer, petitioners posit, clothes them
by the late Senator in favor of SUBIC, as a result of which TCT
with an interest, protected by law, in the matter of litigation.
No. 3258 was cancelled and TCT No. 22431 issued in the name
Invoking the principle enunciated in the case of PNB v. Phil. 39. Indophil Textile Mill Workers Union-PTGWO vs
Veg. Oil Co., 49 Phil. 857, 862 & 853 (1927), petitioners strongly Voluntary Arbitrator Teodorico Calica
argue that their ownership of 41.66% of the entire outstanding
capital stock of SUBIC entitles them to a significant vote in the Doctrine:
corporate affairs; that they are affected by the action of the
Under the doctrine of piercing the veil of corporate entity, when
widow of their late brother for it concerns the only tangible asset
valid grounds therefore exist, the legal fiction that a corporation
of the corporation and that it appears that they are more vitally
is an entity with a juridical personality separate and distinct from
interested in the outcome of the case than SUBIC.
its members or stockholders may be disregarded. In such
Issue: cases, the corporation will be considered as a mere association
of persons. The members or stockholders or the corporation will
WON the Magsaysay sister, allegedly stockholders of SUBIC, be considered as the corporation, that is liability will attach
are interested parties in a case where corporate properties are directly to the officers and stockholders. The doctrine applies
in dispute. when the corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, or when it is made
Held: as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a
NO. Viewed in the light of Section 2, Rule 12 of the Revised
person, or where the corporation is so organized and controlled
Rules of Court, the Magsaysay sisters have no legal interest in
and its affairs are so conducted as to make it merely an
the subject matter in litigation so as to entitle them to intervene
instrumentality, agency, conduit or adjunct of another
in the proceedings. To be permitted to intervene in a pending
corporation.
action, the party must have a legal interest in the matter in
litigation, or in the success of either of the parties or an interest Facts:
against both, or he must be so situated as to be adversely
affected by a distribution or other disposition of the property in Indophil Textile Mill Workers Union-PTGWO is a legitimate labor
the custody of the court or an officer thereof. Here, the interest, organization duly registered with the Department of Labor and
if it exists at all, of the Magsaysay sisters is indirect, contingent, Employment and the exclusive bargaining agent of all the rank-
remote, conjectural, consequential and collateral. At the very and-file employees of Indophil Textile Mills, Incorporated.
least, their interest is purely inchoate, or in sheer expectancy of Respondent Teodorico P. Calica is impleaded in his official
a right in the management of the corporation and to share in the capacity as the Voluntary Arbitrator of the National Conciliation
profits thereof and in the properties and assets thereof on and Mediation Board of the Department of Labor and
dissolution, after payment of the corporate debts and Employment, while private respondent Indophil Textile Mills, Inc.
obligations. While a share of stock represents a proportionate or is a corporation engaged in the manufacture, sale and export of
aliquot interest in the property of the corporation, it does not yarns of various counts and kinds and of materials of kindred
vest the owner thereof with any legal right or title to any of the character and has its plants at Barrio Lambakin, Marilao,
property, his interest in the corporate property being equitable or Bulacan.
beneficial in nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the corporation In April, 1987, petitioner and Indophil Textile Mills, Inc. executed
as a distinct legal person. a collective bargaining agreement (CBA) effective from April 1,
1987 to March 31, 1990.
On November 3, 1987, Indophil Acrylic Manufacturing provision if we would extend to the employees of Acrylic
Corporation was formed and registered with the Securities and the coverage clause of Indophil Textile Mills CBA.
Exchange Commission. Subsequently, Acrylic applied for Wherefore, an award is made to the effect that the
registration with the Board of Investments for incentives under proper interpretation and application of Sec. 1, (c), Art.
the 1987 Omnibus Investments Code. The application was I, of the 1987 CBA do (sic) not extend to the employees
approved on a preferred non-pioneer status. of Acrylic as an extension or expansion of Indophil
Textile Mills, Inc." (Rollo, p. 21)
In 1988, Acrylic became operational and hired workers
according to its own criteria and standards. Sometime in July, Issue:
1989, the workers of Acrylic unionized and a duly certified
collective bargaining agreement was executed. (1) WON the operations in Indophil Acrylic Corporation are an
extension or expansion of private respondent Company.
In 1990 or a year after the workers of Acrylic have been
unionized and a CBA executed, the petitioner union claimed that Held:
the plant facilities built and set up by Acrylic should be
NO. Under the doctrine of piercing the veil of corporate entity,
considered as an extension or expansion of the facilities of
when valid grounds therefore exist, the legal fiction that a
private respondent Company pursuant to Section 1(c), Article I
corporation is an entity with a juridical personality separate and
of the CBA, to wit.
distinct from its members or stockholders may be disregarded.
"c) This Agreement shall apply to the Company's plant In such cases, the corporation will be considered as a mere
facilities and installations and to any extension and association of persons. The members or stockholders of the
expansion thereat." (Rollo, p. 4) corporation will be considered as the corporation, that is liability
will attach directly to the officers and stockholders. The doctrine
Petitioner contended that Acrylic is part of the Indophil applies when the corporate fiction is used to defeat public
bargaining unit. This claim was opposed by private respondent convenience, justify wrong, protect fraud, or defend crime, or
which submits that it is a juridical entity separate and distinct when it is made as a shield to confuse the legitimate issues, or
from Acrylic. where a corporation is the mere alter ego or business conduit of
a person, or where the corporation is so organized and
The existing impasse led the petitioner and private respondent controlled and its affairs are so conducted as to make it merely
to enter into a submission agreement on September 6, 1990. an instrumentality, agency, conduit or adjunct of another
The parties jointly requested the public respondent to act as corporation. (Umali et al. v. Court of Appeals, G.R. No. 89561,
voluntary arbitrator in the resolution of the pending labor dispute September 13, 1990, 189 SCRA 529, 542)
pertaining to the proper interpretation of the CBA provision.
In the case at bar, petitioner seeks to pierce the veil of corporate
After the parties submitted their respective position papers and entity of Acrylic, alleging that the creation of the corporation is a
replies, the public respondent Voluntary Arbitrator rendered its devise to evade the application of the CBA between petitioner
award on December 8, 1990, the dispositive portion of which Union and private respondent Company. While we do not
provides as follows: discount the possibility of the similarities of the businesses of
private respondent and Acrylic, neither are we inclined to apply
"PREMISES CONSIDERED, it would be a strained
the doctrine invoked by petitioner in granting the relief sought.
interpretation and application of the questioned CBA
The fact that the businesses of private respondent and Acrylic held solidarily liable with the latter because he just signed said
are related, that some of the employees of the private instruments in his official capacity as president of Inland
respondent are the same persons manning and providing for Industries, Inc. and the latter has a juridical personality distinct
auxiliary services to the units of Acrylic, and that the physical and separate from its officers and stockholders. It is likewise
plants, offices and facilities are situated in the same compound, asserted, citing an American case, that the principle of piercing
it is our considered opinion that these facts are not sufficient to the fiction of corporate entity should be applied with great
justify the piercing of the corporate veil of Acrylic. caution and not precipitately, because a dual personality by a
corporation and its stockholders would defeat the principal
In the same case of Umali, et al. v. Court of Appeals (supra), the purpose for which a corporation is formed. Upon the other hand,
Court already emphasized "the legal corporate entity is plaintiff-appellee reiterated its allegation in the complaint that
disregarded only if it is sought to hold the officers and defendant corporation is just a mere alter ego of defendant
stockholders directly liable for a corporate debt or obligation." In Roberto Jacinto who is its President and General Manager,
the instant case, petitioner does not seek to impose a claim while the wife of the latter owns a majority of its shares of stock.
against the members of the Acrylic.
Issue:
Acrylic not being an extension or expansion of private
respondent, the rank-and-file employees working at Acrylic WON the CA can validly pierce the fiction of corporate identity of
should not be recognized as part of, and/or within the scope of the Inland Industries, Inc. even if there is no allegation in the
the petitioner, as the bargaining representative of private complaint regarding the same, nor is there anything in the
respondent. prayer demanding the piercing of the corporate veil of the
corporation Inland Industries, Inc.|||
Held:
40. Roberto Jacinto vs Court of Appeals
YES. Roberto Jacinto admitted that he and his wife own 52% of
Doctrine: the stocks of defendant corporation; thus, the Court did not give
credence to Jacinto's assertion that he only acted in his official
While on the face of the complaint there is no specific allegation
capacity as President and General Manager of Inland
that the corporation is a mere alter ego of petitioner, subsequent
Industries, Inc. when he signed the aforesaid trust receipts. The
developments, from the stipulation of facts up to the
same is just a clever ruse and a convenient ploy to thwart his
presentation of evidence and the examination ofwitnesses,
personal liability therefor by taking refuge under the protective
unequivocably show that respondent Metropolitan Bank and
mantle of the separate corporate personality of defendant
Trust Company sought to prove that petitioner and the
corporation. A painstaking examination of the records show that
corporation are one or that he is the corporation. No serious
there is no clear-cut delimitation between the personality of
objection was heard from petitioner.
Roberto Jacinto as an individual and the personality of Inland
Facts: Industries, Inc. as a corporation. The SC held that when the veil
of corporate fiction is made as a shield to perpetuate fraud and
Roberto Jacinto, tried to escape liability and shift the entire or confuse legitimate issues, the same should be pierced.
blame under the trust receipts solely and exclusively on
defendant-appellant corporation. He asserted that he cannot be
Petitioner, however, faults the courts below for piercing the veil petitioner, effective on November 30, 1981. It was stated in the
of corporate fiction despite the absence of any allegation in the individual notices that their contracts of employment had
complaint questioning the separate identity and existence of expired and the project in which they were hired had been
Inland Industries, Inc. This is not accurate. While on the face of completed. It was later discovered, however, that at the time of
the complaint there is no specific allegation that the corporation the termination of private respondent's employment, the
is a mere alter ego of petitioner, subsequent developments, project in which they were hired had not yet been finished and
from the stipulation of facts up to the presentation of evidence completed. Aggrieved, private respondents filed a complaint
and the examination of witnesses, unequivocally show that for illegal dismissal, unfair labor practice and non-payment of
respondent Metropolitan Bank and Trust Company sought to their legal holiday pay, overtime pay and thirteenth-month pay
prove that petitioner and the corporation are one or that he is against petitioner.
the corporation. No serious objection was heard from petitioner.
The Labor Arbiter ruled in favor of the private
41. Concept Builders, Inc. Vs NLRC respondents and ordered petitioner to reinstate them and to
pay back wages. The NLRC dismissed the motion for
Doctrine: reconsideration filed by petitioner on the ground that the said
decision had already become final and executory.
A corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be The Labor Arbiter issued a writ of execution directing
connected. But, this separate and distinct personality of a the sheriff to execute the Decision, dated December 19, 1984.
corporation is merely a fiction created by law for convenience The writ was partially satisfied through garnishment of sums
and to promote justice. So when the notion of separate juridical from petitioner's debtor, the Metropolitan Waterworks and
personality is used to defeat public convenience, justify wrong, Sewerage Authority, in the amount of P81,385.34. Said
protect fraud or defend crime, or is used as a device to defeat amount was turned over to the cashier of the NLRC. On
the labor laws, this separate personality of the corporation may February 1, 1989, an Alias Writ of Execution was issued by
be disregarded or the veil of corporate fiction pierced. This is the Labor Arbiter directing the sheriff to collect from herein
true likewise when the corporation is merely an adjunct, a petitioner the sum of P117,414.76, representing the balance of
business conduit or an alter ego of another corporation. the judgment award, and to reinstate private respondents to
their former positions.
The corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person The sheriff issued a report stating that he tried to serve
or of another corporation. Thus, where a sister corporation is the alias writ of execution on petitioner through the security
used as a shield to evade a corporation's subsidiary liability for guard on duty but the service was refused on the ground that
damages, the corporation may not be heard to say that it has a petitioner no longer occupied the premises. Upon motion of
personality separate and distinct from the other corporation. The private respondents, the Labor Arbiter issued a second alias
piercing of the corporate veil comes into play. writ of execution. The said writ had not been enforced by the
special sheriff because, as stated in his progress report, dated
Facts:
November 2, 1989:
On November, 1981, private respondents were served
1. All the employees inside petitioner's premises at 355
individual written notices of termination of employment by
Maysan Road, Valenzuela, Metro Manila, claimed that they
were employees of Hydro Pipes Philippines, Inc. (HPPI) and Issue:
not by respondent;
WON the NLRC committed grave abuse of discretion when it
2. Levy was made upon personal properties he found in issued a "break-open order" to the sheriff to be enforced against
the premises; personal property found in the premises of petitioner's sister
company.
3. Security guards with high-powered guns prevented
him from removing the properties he had levied upon. 4 Held:
The said special sheriff recommended that a "break- NO. A corporation is an entity separate and distinct from its
open order" be issued to enable him to enter petitioner's stockholders and from other corporations to which it may be
premises so that he could proceed with the public auction sale connected. But, this separate and distinct personality of a
of the aforesaid personal properties on November 7, 1989. corporation is merely a fiction created by law for convenience
and to promote justice. So, when the notion of separate juridical
On November 6, 1989, Dennis Cuyegkeng filed a third- personality is used to defeat public convenience, justify wrong,
party claim with the Labor Arbiter alleging that the properties protect fraud or defend crime, or is used as a device to defeat
sought to be levied upon by the sheriff were owned by Hydro the labor laws, this separate personality of the corporation may
(Phils.), Inc. (HPPI) of which he is the Vice-President. Private be disregarded or the veil of corporate fiction pierced. The
respondents filed a "Motion for Issuance of a Break-Open conditions under which the juridical entity may be disregarded
Order," alleging that HPPI and petitioner corporation were vary according to the peculiar facts and circumstances of each
owned by the same incorporator/stockholders. They also case. No hard and fast rule can be accurately laid down, but
alleged that petitioner temporarily suspended its business certainly, there are some probative factors of identity that will
operations in order to evade its legal obligations to them and justify the application of the doctrine of piercing the corporate
that private respondents were willing to post an indemnity veil, to wit:
bond to answer for any damages which petitioner and HPPI
may suffer because of the issuance of the break-open order. "1. Stock ownership by one or common ownership of
HPPI filed an Opposition to private respondents' motion for both corporations.
issuance of a break-open order, contending that HPPI is a
corporation which is separate and distinct from petitioner. 2. Identity of directors and officers.
HPPI also alleged that the two corporations are engaged in
3. The manner of keeping corporate books and records.
two different kinds of businesses, i.e., HPPI is a manufacturing
firm while petitioner was then engaged in construction. The 4. Methods of conducting the business." 13
Labor Arbiter issued an Order which denied private
respondents' motion for break-open order. The NLRC set The SEC en banc explained the "instrumentality rule"
aside the order of the Labor Arbiter, issued a break-open order which the courts have applied in disregarding the separate
and directed private respondents to file a bond. Thereafter, it juridical personality of corporations as follows:
directed the sheriff to proceed with the auction sale of the
properties already levied upon. It dismissed the third-party "Where one corporation is so organized and controlled
claim for lack of merit. and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the
 corporate entity of the 'instrumentality' may be In the case at bar, while petitioner claimed that it ceased its
disregarded. The control necessary to invoke the rule is business operations on April 29, 1986, it filed an Information
not majority or even complete stock control but such Sheet with the Securities and Exchange Commission on May
domination of finances, policies and practices that the 15, 1987, stating that its office address is at 355 Maysan
controlled corporation has, so to speak, no separate Road, Valenzuela, Metro Manila. On the other hand, HPPI, the
mind, will or existence of its own, and is but a conduit third-party claimant, submitted on the same day, a similar
for its principal. It must be kept in mind that the control information sheet stating that its office address is at 355
must be shown to have been exercised at the time the Maysan Road, Valenzuela, Metro Manila. Both information
acts complained of took place. Moreover, the control sheets were filed by the same Virgilio O. Casiño as the
and breach of duty must proximately cause the injury or corporate secretary of both corporations. Both corporations
unjust loss for which the complaint is made." had the same president, the same board of directors, the
samecorporate officers, and substantially the same
The test in determining the applicability of the doctrine subscribers.
of piercing the veil of corporate fiction is as follows:
Clearly, petitioner ceased its business operations in order to
"1. Control, not mere majority or complete stock evade the payment to private respondents of back wages and
control, but complete domination, not only of finances to bar their reinstatement to their former positions. HPPI is
but of policy and business practice in respect to the obviously a business conduit of petitioner corporation and its
transaction attacked so that the corporate entity as to emergence was skillfully orchestrated to avoid the financial
this transaction had at the time no separate mind, will liability that already attached to petitioner corporation.
or existence of its own;
2. Such control must have been used by the
defendant to commit fraud or wrong, to perpetuate the 42. Eduardo Claparols vs Court of Industrial Relations
violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiff's Doctrine:
legal rights; and
When the notion of legal entity is used to defeat public
3. The aforesaid control and breach of duty must convenience, justify wrong, protect fraud, or defend crime, the
proximately cause the injury or unjust loss complained law will regard the corporation as an association of persons, or
of: in the case of two persons, will merge them into one. Thus,
where a corporation is a dummy and serves no business
The absence of any one of these elements purpose and is intended only as a blind, the corporate fiction
prevents 'piercing the corporate veil'. In applying the may be ignored. And where a corporation is merely an adjunct,
'instrumentality' or 'alter ego' doctrine, the courts are business conduct or alter ego of another corporation the fiction
concerned with reality and not form, with how the of separate and distinct corporate entities should be
corporation operated and the individual defendant's disregarded.
relationship to that operation." 14
Facts:
A complaint for unfair labor practice was filed by private A reply to petitioner's opposition was filed by respondent
respondent Allied Workers' Association, respondent Demetrio workers, alleging among others, that Claparols Steel and Nail
Garlitos and ten (10) respondent workers against petitioners on Plant and Claparols Steel and Nail Corporation are one and the
account of the dismissal of respondent workers from Claparols same corporation controlled by petitioner Claparols, with the
Steel and Nail Plant. The Court of Industrial Relations ruled that latter corporation succeeding the former.
Mr. Claparol is guilty of union busting and of having dismissed
said complainants because of their union activities. The lower Issue:
court ordered the petitioners to: (1) cease and desist from
WON the recoverable backwages shall be limited to only three
committing unfair labor practices against their employees and
(3) months where the company had ceased operations
laborers; and (2) reinstate said complainants to their former or
equivalent jobs, as soon as possible, with back wages from the Held:
date of their dismissal up to their actual reinstatement. The
petitioners filed a Motion for Reconsideration, but it was denied NO. The ruling in Sta. Cecilia Sawmills to the effect that the
by the court. recoverable backwages shall be limited to only three (3) months
where the company had ceased operations, does not apply to a
On March 30, 1964, the counsel for the respondent workers case where the company after ceasing it as operations is
filed a motion for execution, which was granted by the Court. On succeeded by another company, which continued the
December 14, 1964, respondent workers were accompanied by operations of the first entity, and its emergence was skillfully
the Chief of Police of Talisay, Negros Occidental to the timed to avoid the financial liability that already attached to its
compound of herein petitioner company to report for predecessor, and where the "avoiding-the-liability" scheme is
reinstatement per order of the court. Respondent workers were, patently shown by the fact that 90% of the subscribed shares of
however, refused reinstatement by company accountant stock of the second company was owned by the same person
Francisco Cusi for he had no order from plant owner Eduardo and all the assets of the dissolved company were turned over to
Claparols nor from his lawyer Atty. Plaridel Katalbas, to the new company. The second company cannot seek the
reinstate respondent workers. On December 15, 1964, protective shield of a corporate function whose veil could and
respondent workers were accompanied by a police officer to the should be pierced as it was deliberately and maliciously
company compound, but then, they were again refused designed to evade its financial obligation to its employees.||
reinstatement by Cusi on the same ground. When the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the
On January 23, 1965, petitioners filed an opposition alleging
law will regard the corporation as an association of persons, or
that under the circumstances presently engulfing the company,
in the case of two persons, will merge them into one. Thus,
petitioner Claparols could not personally reinstate respondent
where a corporation is a dummy and serves no business
workers; that assuming the workers are entitled to back wages,
purpose and is intended only as a blind, the corporate fiction
the same should only be limited to three months pursuant to the
may be ignored. And where a corporation is merely an adjunct,
court ruling in the case of Sta. Cecilia Sawmills vs. CIR (L-
business conduct or alter ego of another corporation the fiction
19273-74, February 20, 1964); and that since Claparols Steel
of separate and distinct corporate entities should be
Corporation ceased to operate on December 7, 1962, re-
disregarded.|||
employment of respondent workers cannot go beyond
December 7, 1962. 43. Villa Rey Transit Inc. Vs Eusebio Ferrer
Doctrine: PSC for the annulment of the sheriff's sale. Pantranco, on its
part, filed a third-party complaint against Villarama, alleging that
The doctrine that a corporation is a legal entity distinct and Villarama and/or the Corporation was disqualified from
separate from the members and stockholders who compose it is operating the two certificates in question by virtue of the
recognized and respected in all cases which are within reason previous agreement. The trial court declared null and void the
and the law. When the fiction is urged as a means of sheriff's sale of two certificates of publicconvenience in favor of
perpetrating a fraud or an illegal act or as a vehicle for the Ferrer and the subsequent sale thereof by the latter to
evasion of an existing obligation, the circumvention of statutes, Pantranco and declaring Villa Rey Transit, Inc., to be the lawful
the achievement or perfection of a monopoly or generally the owner of the said certificates of public convenience. Pantranco
perpetration of knavery or crime, the veil with which the law disputes the correctness of the decision insofar as it holds that
covers and isolates the corporation from the members or Villa Rey Transit, Inc.(Corporation) is a distinct and separate
stockholders who compose it will be lifted to allow for its entity from Villarama. Ferrer, for his part, challenges the
consideration merely as an aggregation of individuals.||| decision insofar as it holds that the sheriff's sale is null and void.
Facts: Issue:
Jose Villarama was an operator of a bus transportation pursuant WON the agreement between Villarama and Pantranco binds
to two certificates of public convenience granted him by the Villa Rey Transit, Inc.
Public Service Commission (PSC). Later, he sold the certificates
to the Pangasinan Transportation Company, Inc. (Pantranco) Held:
with the condition that the seller (Villarama) "shallnot for a
period of 10 years, apply for any TPU service identical or YES. The restrictive clause in the contract entered into by the
competing with the buyer."Barely three months thereafter, a Villarama and Pantranco is also enforceable and binding
corporation called Villa Rey Transit, Inc. (the Corporation) was against the said Corporation. The rule is that a seller or
organized with a capital stock of P500,000.00 divided into 5,000 promisor may not make use of a corporate entity as a means of
shares of the par value of P100.00 each; P200,000.00 was the evading the obligation of his covenant. The evidence has
subscribed stock; Natividad Villarama (wife of Jose Villarama) disclosed that Villarama, albeit was not an incorporator or
was one of thein corporators, and she subscribed for P1,000.00; stockholder of the Corporation, his wife, however, was an
the balance of P199,000.00 was subscribed by the brother and incorporator and was elected treasurer of the Corporation. The
sister-in-law of Jose Villarama; of the subscribed capital stock, evidence further shows that the initial cash capitalization of the
P105,000.00 was paid to the treasurer of the corporation, corporation was mostly financed by Villarama; he supplied the
Natividad. In less than a month after its registration with the organization expenses and the assets of the Corporation, such
SEC, the Corporation bought five certificates of public as trucks and equipment; there was no actual payment by the
convenience and 49 buses from one Valentin Fernando. Later, original subscribers of the amounts of P95,000.00 and
the Sheriff of Manila levied on 2 of the 5 certificates, in favor of P100,000.00 as appearing in the books; Villarama made use of
Eusebio Ferrer, judgment creditor, against Fernando, judgment the money of the Corporation and deposited them to his private
debtor. A public sale was conducted. Ferrer was the highest accounts; and the Corporation paid his personal accounts. The
bidder. Ferrer sold the two certificates to Pantranco. The foregoing circumstances are strong persuasive evidence
Corporation filed a complaint against Ferrer, Pantranco and the showing that Villarama has been too much involved in the
affairs of the Corporation to altogether negate the claim that he
was only a part-time general manager. They show beyond The Isuzu Truck was registered to the Corporation and not to its
doubt that the Corporation is his alter ego.The doctrine that a President.
corporation is a legal entity distinct and separate from the The so-called veil of corporation fiction treats as separate and
members and stockholders who compose it is recognized and distinct the affairs of a corporation and its officers and
respected in all cases which are within reason and the law. stockholders. As a general rule, a corporation will be looked
When the fiction is urged as a means of perpetrating a fraud or upon as a legal entity, unless and until sufficient reason to the
an illegal act or as a vehicle for the evasion of an existing contrary appears. When the notion of legal entity is used to
obligation, the circumvention of statutes, the achievement or defeat public convenience, justify wrong, protect fraud, or
perfection of a monopoly or generally the perpetration of defend crime, the law will regard the corporation as an
knavery or crime, the veil with which the law covers and isolates association of persons. Also, the corporate entity may be
the corporation from the members or stockholders who disregarded in the interest of justice in such cases as fraud that
compose it will be lifted to allow for its consideration merely as may work inequities among members of the corporation
an aggregation of individuals. internally, involving no rights of the public or third persons. In
both instances, there must have been fraud and proof of it. For
44. Raymundo Secosa (driver,employee) vs. Heirs of Erwin the separate juridical personality of a corporation to be
Suarez Francisco disregarded, the wrongdoing must be clearly and convincingly
G.R. No. 160039 ; June 29, 2004 established. It cannot be presumed.
Ynares-Santiago, J.:
45. Bejamin Yu (dismissed employee) vs NLRC and Jade
FACTS: Raymundo Odani Secosa driving a truck owned by Mountain Ent.
Dassad Warehousing and Port Services negligently overtook G.R. No. 97212 ; June 30, 1993
another vehicle and hit the motorcycle of Erwin Suarez FELICIANO, J.:
Francisco causing the latter’s death. The heirs filed an action for
damages (quasi-delict) against Secosa, El Buenasenso Sy and FACTS: Benjamin Yu was hired as Assistant Manager by Jade
Dassad Warehousing. Manila RTC held that the petitioners, Mountain Enterprises a Limited Partnership that engages in
including the president of the Corporation are solidarily liable mining. The partnership was bought by two new partners and a
with each other. new partnership was formed adopting the same name of Jade
Mountain. The wages of Yu remained unpaid. When he reported
ISSUE: Can the President of the Corporation be held solidarily for work in the new office, he was told that he will no longer be
liable with the quasi-delict committed by the corporation under the Asst. Manager for the newly formed partnership. He filed for
Art. 2180 (vicarious liability) of the Civil Code? illegal dismissal. The NLRC ruled that the new partnership is not
liable for the obligations of the old one, and Yu should file his
HELD: No, The records of this case are bereft of any evidence claim with the old partners.
tending to show the presence of any grounds enumerated
above that will justify the piercing of the veil of corporate fiction The basic contention of petitioner is that the NLRC has
such as to hold the president of Dassad Warehousing and Port overlooked the principle that a partnership has a juridical
Services, Inc. solidarily liable with it. personality separate and distinct from that of each of its
members. Such independent legal personality subsists,
petitioner claims, notwithstanding changes in the identities of
the partners. Consequently, the employment contract between the Lot in its favor under conditions similar to those whereby
Benjamin Yu and the partnership Jade Mountain could not have Delpher Trades acquired property. CFI Bulacan ruled in favor of
been affected by changes in the latter's membership. reconveyance to Hydro, arguing Right of First Refusal was
violated and it must be conveyed to Hydro in the same price.
ISSUE: Does the independent legal personality of a partnership Affirmed by IAC.
subsist notwithstanding changes in the identities of the
partners? ISSUE: Does the exchange of the land for shares of stock
constitute a Sale which violates the Right of First Refusal of
HELD: Yes, Art. 1829 provides that ‘on dissolution the Hydro?
partnership is not terminated, but continues until the winding up
of partnership affairs is completed’. In the ordinary course of HELD: No, it appears that Delpher Corp. is Close Corporation
events, the legal personality of the expiring partnership persists owned by the Pachecos. There is no actual transfer of
for the limited purpose of winding up and closing of the affairs of ownership or Sale, since in effect the Delpher Trades Corp. is a
the partnership. business conduit of the Pachecos. They exchanged the property
In this case, since the old partnership did not conduct winding- for 2,500 out of 4,500 no-par value shares, thus giving them
up operations, both the old partners and the new ones will be 55% control of the Corporation. They call the transfer ‘estate
liable for creditors of the partnership, since they merely planning’ in order to avoid taxes on the land. The fact that they
continued the business of Jade Mountain as such. Art. 1840 exchanged it for no-par value means there was no real attempt
provides that when ‘the business is continued without liquidation to value the land, and that they are interested in the growth of
of the partnership affairs’, the new partners shall be liable for the the Close Corporation. What they really did was to invest their
debts of the old partnership. properties and change the nature of their ownership from
unincorporated to incorporated form by organizing Delpher
46. Creese vs. CA ? Sys vs. CA? Trades Corporation to take control of their properties and at the
same time save on Estate Taxes.
47. Delpher Trade Corp. and Sps. Pacheco vs. IAC and Hydro The gain is apparent in Sec. 35 (c) (2) of the NIRC, ‘No gain or
Pipes Co. loss shall also be recognized if a person exchanges his property
G.R. No. L – 69259 ; January 26, 1988 for stock in a corporation of which as a result of such exchange
Guitierrez, J.: said person alone or together with others not exceeding 4
FACTS: The Petitioners Sps. Pacheco are the owners and persons gain control of said corporation.’
lessors of a land in Valenzuela. They leased the land to There is also flexibility in using no-par value shares as the value
Respondent Hydro Pipes Philippines with the Right of First is determined by the Board of Directors in increasing
Refusal. A Deed of Exchange was executed between the capitalization. The Board can fix the value of the shares
Spouses Pacheco and the Petitioner Delpher Trade Corporation equivalent to the capital requirements of the Corporation. Also,
whereby the Sps. Pacheco conveyed the leased property to the property will not be subject to Estate Taxes, since the
Delpher Trades for 2,500 shares of stock of Delpher with at total Corporation does not die. The “Deed of Exchange” of property
value of P1,500,000. between the Pachecos and Delpher Trade Corporation cannot
On the ground that it was not given the first option to buy the be considered a Contract of Sale. There was no transfer of
leased property pursuant to the proviso in the lease agreement, actual ownership interests by the Pachecos to a third party. The
Respondent Hydro Pipes filed a complaint for reconveyance of Pacheco family merely changed their ownership from one form
to another. Hence, the respondent Hydro Pipes Inc., has no In order to pierce the veil and treat them as one, the following
basis for its claim of a right of first refusal under the lease requisites must concur, : (1) control, not merely majority or
contract. The IAC is reversed. complete stock control; (2) such control must have been used
by the defendant to commit fraud or wrong, to perpetuate the
48. Jardine Davies, Inc. vs. JRB Realty, Inc. violation of a statutory or other positive legal duty, or dishonest
G.R. No. 151438 ; July 15, 2005 acts in contravention of plaintiffs legal rights; and (3) the
CALLEJO, SR., J.: aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.
FACTS: Aircon Co. agreed to install air-conditioning units in the
2nd floor of the building owned by respondent. The installed units The records bear out that Aircon is a subsidiary of the petitioner
did not meet the expected cooling capacity, so Aircon obligated only because the latter acquired Aircons majority of capital
itself to replace them with different models. A new subsidiary stock. It, however, does not exercise complete control over
(Maxim) operated in the Philippines and replaced Aircon Co. but Aircon; nowhere can it be gathered that the petitioner manages
the units were still not replaced. Respondent sued Jardine the business affairs of Aircon. Indeed, no management
Davies for Specific Performance since Maxim is its subsidiary. agreement exists between the petitioner and Aircon, and the
The court held Fedders, Maxim and Jardine Davies liable for latter is an entirely different entity from the petitioner.
specific performance and damages. Aircon could no longer be Existence of inter-locking directors is not enough justification to
sued since it ceased having a corporate exisetence. pierce the veil of corporate fiction.

Appeal by Jardine Davies arguing that it had a separate and 49. Koppel (Philippines), Inc. vs. Alfredo L. Yatco (Collector of
distinct personality from its subsidiary Aircon, and so it could not Internal Revenue)
be made liable for the obligations of Aircon. G.R. No. L-47673 ; October 10, 1946
Hilado, J.:
ISSUE: Can Jardine Davies be held liable for the obligations of
its subsidiary Aircon? FACTS: Koppel is a commercial broker doing business in the
Philippines. Aside from the 4% broker’s tax, it was assessed by
HELD: NO. While a corporation is allowed to exist solely for a merchant sales tax by the respondent CIR (Yatco). Yatco claims
lawful purpose, the law will regard it as an association of that Koppel is a mere agent of Koppel, USA which owns 995 of
persons or in case of two corporations, merge them into one, its 1,000 shares of stock, the remaining 5 being held by officers
when this corporate legal entity is used as a cloak for fraud or in order to permit incorporation in the Philippines. As such, it is
illegality. This is the doctrine of piercing the veil of corporate not merely a broker, but an agent of Koppel, USA doing
fiction which applies only when such corporate fiction is used to business here in the Philippines. The CFI agreed with
defeat public convenience, justify wrong, protect fraud or defend respondent, it did not deny that Koppel Philippines had a
crime. separate legal personality, however he resorted to “disregard of
The subsidiary has a separate and distinct personality from its the corporate fiction”, to prevent tax evasion.
parent company. Any suit against the latter, does not bind the ISSUE: Should the doctrine of “piercing the veil of corporate
former, and vice-versa. fiction” be applied to Koppel Philippines, so that it may be
treated as an agent of Koppel U.S.A. and prevent injustice (tax
evasion)?
HELD: Yes. Where it appears that two business enterprises are HELD: Yes. Frank Lidell owned Lidell & Co. based on stocks
owned, conducted and controlled by the same parties, both law and paid-in capital. The same is true for Lidell Motors Inc. It is
and equity will, when necessary to protect the rights of third not proven that his wife Irene, ostensibly the sole incorporator of
persons, disregard the legal fiction that two corporations are Lidell Motors, Inc. had money of her own to pay for her P20,000
distinct entities, and treat them as identical. initial subscription. We could say that the cars and trucks merely
touched the hands of Liddell Motors, Inc. as a matter of
Koppel U.S.A. could have easily opened a branch officer here in formality.
the Philippines, and the 1 ½ percent merchants’ sales tax would
have been collectible. The only possible reason for the current Accordingly, the mere fact that Liddell & Co. and Liddell Motors,
scheme is a difference in tax liability on the ground that the Inc. are corporations owned and controlled by Frank Liddell
sales were made through another and distinct corporation, as directly or indirectly is not by itself sufficient to justify the
alleged broker, when we have seen that this latter corporation is disregard of the separate corporate identity of one from the
virtually owned by the former, or that they practically one and other. There is, however, in this instant case, a peculiar
the same, is to sanction a circumvention of our tax laws, and consequence of the organization and activities of Liddell Motors,
permit a tax evasion of no mean proportions and the Inc.
consequent commission of a grave injustice to the Government.
Not only this; it would allow the taxpayer to do by indirection Under the law in force at the time of its incorporation the sales
what the tax laws prohibited to be done directly (non-payment of tax on original sales of cars (sections 184, 185 and 186 of the
legitimate taxes), paraphrasing the United States Supreme National Internal Revenue Code), was progressive, i.e. 10% of
Court in United States vs. Lehigh Valley R. Co., the selling price of the car if it did not exceed P5000, and 15%
of the price if more than P5000 but not more than P7000, etc.
50. LIDDELL & CO., INC. vs. THE COLLECTOR OF INTERNAL This progressive rate of the sales tax naturally would tempt the
REVENUE taxpayer to employ a way of reducing the price of the first sale.
G.R. No. L-9687 ; June 30, 1961 And Liddell Motors, Inc. was the medium created by Liddell &
BENGZON., CJ.: Co. to reduce the price and the tax liability. Let us illustrate: a
car with engine motor No. 212381 was sold by Liddell & Co. Inc.
FACTS: Lidell & Co. Inc., is a domestic corporation established to Liddell Motors, Inc. on January 17, 1948 for P4,546,000.00
in the Philippines. 98% of its shares are owned by Frank Lidell. including tax; the price of the car was P4,133,000.23, the tax
It established another corporation named Lidell Motors Inc. paid being P413.22, at 10%. And when this car was later sold
Lidell & Co. sold automobiles to Lidell Motors and the latter (on the same day) by Liddell Motors, Inc. to P.V. Luistro for
subsequently sold them to the public at a high mark-up. The P5500, no more sales tax was paid.
Collector of Internal Revenue determined that the latter was but
an alter ego of Lidell & Co. Wherefore, he concluded, that for As opined in the case of Gregory v. Helvering, "the legal right of
Sales Tax Purposes, those sales made by Lidell Motors Inc., to a taxpayer to decrease the amount of what otherwise would be
the public were considered as the original sales of Lidell & Co. his taxes, or altogether avoid them by means which the law
The CIR assessed against the petitioner a sales tax deficiency. permits, cannot be doubted." But, as held in another case,
"where a corporation is a dummy, is unreal or a sham and
ISSUE: Is Lidell Motors alter ego of LIdell & Co. Inc.? serves no business purpose and is intended only as a blind, the
corporate form may be ignored for the law cannot countenance
a form that is bald and a mischievous fiction." Disregarding Corporate Entity. — The doctrine that a
corporation is a legal entity existing separate and apart from the
51. LA CAMPANA FACTORY, INC. vs. KAISAHAN NG MGA person composing it is a legal theory introduced for purposes of
MANGGAGAWA SA LA CAMPANA (KKM) convenience and to subserve the ends of justice. The concept
G.R. No. L-5677 ; May 25, 1953 cannot, therefore, be extended to a point beyond its reason and
REYES., J.: policy, and when invoked in support of an end subversive of this
policy, will be disregarded by the courts. Thus, in an appropriate
FACTS: Tan Tong is the owner of both La Campana Gaugau case and in furtherance of the ends of justice, a corporation and
packing factory and La Campana Coffee Inc. The Respondents the individual or individuals owning all its stocks and assets will
are employees of La Campana Gaugau factory. The be treated as identical, the corporate entity being disregarded
respondents filed a labor case in the CIR against both La where used as a cloak or cover for fraud or illegality.
Campana Coffee Inc. and La Campaan Gaugau packing. Tan
Tong argued that the case must be dismissed as to La 52. WPM International Trading Inc. vs. Fe Corazon Labayen
Campana Coffee Inc. as it has a separate personality from G.R. No. 182770 ; September 17, 2014
Gaugau packing. The CIR found the case to be proper since Brion, J.:
upon inspection, La Campana Gaugau and La Campana Coffee
Inc. are one and the same. It further held that La Campana Facts: The respondent, Fe Corazon Labayen, is the owner of
Gaugau Packing and La Campana Coffee Factory Co. Inc., are H.B.O. Systems Consultants, a management and consultant
operating under one single management, that is, as one firm. The petitioner, WPM International Trading, Inc. (WPM), is a
business though with two trade names. True, the coffee factory domestic corporation engaged in the restaurant business, while
is a corporation and, by legal fiction, an entity existing separate Warlito P. Manlapaz (Manlapaz) is its president. Sometime in
and apart fro the persons composing it, that is, Tan Tong and 1990, WPM entered into a management agreement with the
his family. But it is settled that this fiction of law, which has been respondent, by virtue of which the respondent was authorized to
introduced as a matter of convenience and to subserve the ends operate, manage and rehabilitate Quickbite, a restaurant owned
of justice cannot be invoked to further an end subversive of that and operated by WPM. CLN Engineering Services was hired by
purpose. Labayen o to renovate two Quickbite branches, the full-price of
the renovation was not paid. CLN filed a complaint for sum of
ISSUE: May the separate corporate personality of La Campana money and damages against Labayen. Labayen was adjudged
Coffee Factory Co. Inc. be disregarded? liable. Thereafter, Labayen filed a complaint for damages
against petitioner alleging that she was held liable for a contract
HELD: Yes, the attempt to make the two factories appears as that she entered into for and in behalf of the petitioners, to which
two separate businesses, when in reality they are but one, is but she should be entitled to reimbursement; that her participation in
a device to defeat the ends of the law (the Act governing capital the management agreement was limited only to introducing
and labor relations) and should not be permitted to prevail. Manlapaz to Engineer Carmelo Neri (Neri), CLN’s general
In the present case Tan Tong appears to be the owner of the manager; that it was actually Manlapaz and Neri who agreed on
gaugau factory. And the coffee factory, though an incorporated the terms and conditions of the agreement.
business, is in reality owned exclusively by Tan Tong and his WPM argues that Labayen exceeded her authority as agent of
family. WPM since she was already told that the price for renovation
offered by CLN was too high and she should look for another
contractor, as such she should be personally liable for the 53. GERARDO LANUZA, JR. AND ANTONIO O. OLBES vs.
contract. President of WPM Manalapaz also argues that he BF CORPORATION, SHANGRI-LA PROPERTIES,
could not be held liable WPM being a separate personality. RTC G.R. No. 174938  ; October 1, 2014
held that WPM is a mere business conduit of Manlapaz and LEONEN., J.:
they are one and the same, thus he should be liable.
Facts: BF Corporation undertook to construct for Shangri-La a
Issue: (1) Is WPM is mere instrumentality, alter-ego, and mall and a multi-level parking structure along EDSA. Shangri-La
business conduit of Manlapaz? started defaulting in payment. BF Corporation filed a collection
(2) Is Manlapaz jointly and severally liable with WPM to the case against Shangri-La and its board of directors, arguing that
respondent for reimbursement, damages and interest? they were in bad faith in the management of Shangri-La,
therefore they should be held jointly and severally liable. The
Held: (1) No, Piercing the corporate veil based on the alter ego case was dismissed since it was required to be submitted for
theory requires the concurrence of three elements, namely: Arbitration. The parties filed a motion for clarification both
(1) Control, not mere majority or complete stock control, seeking to clarify the term ‘parties’ and whether Shangri-La’s
but complete domination, not only of finances but of directors should be included in the arbitration proceedings and
policy and business practice in respect to the transaction served with separate demands for arbitration. RTC ruled that,
attacked so that the corporate entity as to this transaction Shangri-La’s directors were interested parties who "must also
had at the time no separate mind, will or existence of its be served with a demand for arbitration to give them the
own; opportunity to ventilate their side of the controversy, safeguard
(2) Such control must have been used by the defendant their interest and fend off their respective positions."
to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and CA affirmed stating that [They were] deemed not third-parties
unjust act in contravention of plaintiff’s legal right; and tothe contract as they [were] sued for their acts in
(3) The aforesaid control and breach of duty must have representation of the party to the contract pursuant to Art. 31 of
proximately caused the injury or unjust loss complained the Corporation Code, and that as directors of the defendant
of. corporation, [they], in accordance with Art. 1217 of the Civil
The absence of any of these elements prevents piercing the Code, stand to be benefited or injured by the result of the
corporate veil. In the present case, the facts do not establish arbitration proceedings, hence, being necessary parties, they
that WPM is a mere alter ego of Manlapaz. As held in Martinez must be joined in order to have complete adjudication of the
v. Court of Appeals, the mere ownership by a single stockholder controversy.
of even all or nearly all of the capital stocks of a corporation is
not by itself a sufficient ground to disregard the separate ISSUE: Should petitioners (Directors of Shangri-La) be made
corporate personality. To disregard the separate juridical parties to the arbitration proceedings, pursuant to the arbitration
personality of a corporation, the wrongdoing must be clearly and clause provided in the contract between BF Corporation and
convincingly established. Considering that there is still no proof Shangri-La?
that WPM intends to avoid liability, or has no corporate funds to
pay, there is no evidence of intention to commit fraud and cause HELD: Yes, As a general rule, therefore, a corporation’s
injury against CLN or Labayan. representative who did not personally bind himself or herself to
an arbitration agreement cannot be forced to participate in reinstatement and payment of back wages and other damages.
arbitration proceedings made pursuant to an agreement entered The president ignored the NLRC processes and did not file the
into by the corporation. He or she is generally not considered a company’s position paper. As a result, the case was decided in
party to that agreement. However, there are instances when the the employee’s favor based on the evidence he submitted.
distinction between personalities of directors, officers, and Later, the labor arbiter issued a writ of execution against the
representatives, and of the corporation, are disregarded. We company to enforce the award.
call this piercing the veil of corporate fiction. Sec. 31 of the
corporation code provides instances when directors may be
held solidarily liable with the corporation. The company appealed the decision all the way to the Court of
Appeals, which upheld the arbiter’s ruling. In the meantime, the
Hence, when the directors, as in this case, are impleaded in a company was dissolved and a new corporation took over its
case against a corporation, alleging malice or bad faith on their operations.
part in directing the affairs of the corporation, complainants are
effectively alleging that the directors and the corporation are not
acting as separate entities. They are alleging that the acts or The appellate court issued a new writ of execution, this time
omissions by the corporation that violated their rights are also against the company’s former officers and directors.
the directors’ acts or omissions. They are alleging that contracts
executed by the corporation are contracts executed by the
directors. Complainants effectively pray that the corporate veil
be pierced because the cause of action between the corporation The company president contested this action before the SC on
and the directors is the same. Thus, the directors must be made the ground that his inclusion in the writ was irregular since it
parties in order for them to defend themselves and prevent the constituted an amendment of a final decision.
piercing of the corporate veil.

ISSUE: W/n the doctrines of “piercing the veil of corporate

54. Guillermo v. Uson fiction” and personal liability of company officers in labor cases
DOCTRINE: When the shield of a separate corporate identity is apply
used to commit wrongdoing and opprobriously elude
responsibility, the courts and the legal authorities in a labor case
have not hesitated to step in and shatter the said shield and HELD: Yes. When the corporate veil is pierced, the
deny the usual protections to the offending party, even after final corporation’s liability becomes personal to “the person directly
judgment. The key element is the presence of fraud, malice or responsible for and who ‘acted in bad faith’ in committing the
bad faith. illegal dismissal or any act violative of the Labor Code.”

The president committed acts that showed he acted in bad faith

FACTS: The case involves an employee of a corporation who and with malice in evading the NLRC judgment. After receiving
was dismissed from the service by its president. He filed before the initial summons, he snubbed the hearings and failed to
the NLRC a complaint for illegal dismissal and demanded his submit evidence to controvert the employee’s claim of illegal
dismissal. Thereafter, he dissolved the corporation and formed wages and more benefits. A deadlock ensued since none of the
a new one with a different name but engaged in the same parties is willing togive concessions. The dispute was certified to
business and operated at the same business address. When the Court of Industrial Relations. La Campana filed a motion to
the writ of execution was served on him, he used a fictitious dismiss before the CIR claiming that the CIR has no jurisdiction
name to receive it and denied he was the person mentioned because only those from the coffee factory were presenting the
there. demands (there were only 14 employees in said factory). This
was done in light of the requirement that at least 31 employees
should present the demands.
The tribunal thus ruled the president cannot use the
corporation’s juridical personality to justify his refusal to comply
with the arbiter’s decision. It declared as valid the inclusion of
the president in the writ of execution despite the fact that its The motion was denied by the CIR. According to the CIR, the
underlying decision had already become final. Kaisahan was the one that presented the demands and not just
the workers in the coffee factory. Ramon Tantongco died some
time in1956. The administrator of the estate of Ramon
Tantongco, herein petitioner Ricardo Tantongco, was ordered
55. Tangtongco v. Kaisahan ng mga Manggagawa sa La included as respondent in the cases pending before the CIR.
Campana (KMM) The CIR rendered a decision on the incidental cases and
ordered the reinstatement of the dismissed employees. When
DOCTRINE: The death of an owner and manager of a
the employees reported to work, the management refused them
corporation, against which cases are pending in the Court of
admittance.
Industrial relations, does not deprive the latter of its jurisdiction
over the same. The party in those cases being the corporation
and not the owner or manager personally, the claims of the
laborers therein, which are merely incidental to their demands ISSUE: W/n the Doctrine of Piercing the Veil applies
for reinstatement for having been unjustly dismissed, and for
better working conditions, are not the claims contemplated by
law to be submitted before the administrator of the estate of a
HELD: No. In G.R. No. L-5677, we "pierced the veil of corporate
deceased person.
existence", and held that the La Campana Starch and Coffee
Factory and its owner, Ramon Tantongco, were one; so that
with the death of Ramon, the La Campana entities ceased to
FACTS: La Campana Starch Factory and La Campana Coffee exist, resulting in the loss of jurisdiction of the CIR to enforce its
Factory are two separate entities run by a single management order against said entities. The reason we applied the so-called
under the leadership of Ramon Tantongco. KMM, on the other "piercing the veil of corporate existence" in G.R. No. L-5677 was
hand, is a labor union with members from the two companies. to avoid the technicality therein advanced in order to defeat the
jurisdiction of the CIR. We there found that although there were
ostensibly two separate companies or entities, they were
managed by the same person or persons and the workers in
Sometime in June 1951, representatives of Kaisahan
both were used interchangeably so that in order to determine
approached the management of La Campana to demand higher
whether or not the CIR had jurisdiction, the number of workers not himself the judgment debtor in the final judgment of NLRC
in both entitles, not in only one, was to be considered. Case sought to be enforced but rather the company known as
"Qualitrans Limousine Service, Inc.," a duly registered
corporation.
However, we still believe that although the family of Ramon
Tantongco was practically the owner of both the coffee factory
and the starch factory, nevertheless these entities are separate Dalisay explained that when he garnished complainant's cash
from the personality of Ramon. The coffee factory is a stock deposit at the Philtrust bank, he was merely performing a
corporation and the shares are owned not only by Ramon but ministerial duty. While it is true that said writ was addressed to
also by others, such as petitioner Ricardo who not only is a Qualitrans Limousine Service, Inc., yet it is also a fact that
stockholder and director and treasurer but also the management complainant had executed an affidavit before the Pasay City
of the same Furthermore, petitioner is now estopped from assistant fiscal stating that he is the owner/president of said
claiming that the two entities in question and Ramon are one. corporation and, because of that declaration, the counsel for the
plaintiff in the labor case advised him to serve notice of
garnishment on the Philtrust bank.
La Campana Starch and Food Products Company which stands
for the La Campana Starch and Coffee Factory are entities
distinct from the personality of Ramon Tantongco; that after the ISSUE: W/n Dalisay’s act is justified
death of Ramon these two entities continued to exist and to
operate under the management of petitioner and that
consequently he is the proper person and official to which the
HELD: No. The tenor of the NLRC judgment and the
orders of the CIR are addressed and who is in duty bound to
implementing writ is clear enough. It directed Qualitrans
comply with the same. 
Limousine Service, Inc. to reinstate the discharged employees
and pay them full backwages. Respondent, however, chose to
"pierce the veil of corporate entity" usurping a power belonging
56. Cruz vs. Dalisay to the court and assumed improvidently that since the
complainant is the owner/president of Qualitrans Limousine
DOCTRINE: A corporation has a personality distinct and Service, Inc., they are one and the same.
separate from its individual stockholders or members. The mere
fact that one is president of a corporation does not render the
property he owns or possesses the property of the corporation,
since the president, as individual, and the corporation are It is a well settled doctrine both in law and in equity that as a
separate entities. legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members. The mere
fact that one is president of a corporation does not render the
property he owns or possesses the property of the corporation,
FACTS: Respondent sheriff (Dalisay) attached and/or levied the since the president, as individual, and the corporation are
money belonging to complainant Cruz (President) when he was separate entities.
 Meanwhile, respondent and NEMU-PEMA entered into a CBA
on non-economic terms.  Unfortunately, a dispute among the
57. NASECO Guards Association-PEMA v. National Service leaders of NEMU-PEMA arose and at a certain point, leadership
Corp. of the organization was unclear.  Hence, the negotiations
concerning the economic terms of the CBA were put on hold
DOCTRINE: Control, by itself, does not mean that the controlled
until the internal dispute could be resolved. On April 29, 1997,
corporation is a mere instrumentality or a business conduit of
petitioner filed a notice of strike before the NCMB against
the mother company. Even control over the financial and
respondent and PNB due to a bargaining deadlock.  The
operational concerns of a subsidiary company does not by itself
following day, NEMU-PEMA likewise filed a notice of strike
call for disregarding its corporate fiction. There must be a
against respondent and PNB on the ground of ULP.  Efforts by
perpetuation of fraud behind the control or at least a fraudulent
the NCMB to conciliate failed.
or illegal purpose behind the control in order to justify piercing
the veil of corporate fiction.  

DOLE Secretary assumed jurisdiction over the strike notices.

DOLE Secretary issued a Resolution directing petitioner and
FACTS: Respondent National Service Corporation (NASECO) is
respondent to execute a new CBA incorporating therein his
a wholly-owned subsidiary of the PNB organized under the
dispositions regarding benefits of the employees. The charge of
Corporation Code in 1975.  It supplies security and manpower
ULP against respondent and PNB was dismissed.
services to different clients such as the SEC, PDIC, Food
Terminal Incorporated, Forex Corporation and PNB.  Petitioner
NASECO Guards Association-PEMA (NAGA-PEMA) is the
collective bargaining representative of the regular rank and file ISSUE: W/n PNB, being the undisputed owner of and exercising
security guards of respondent.  NASECO Employees Union- control over respondent, should be made liable to pay the CBA
PEMA (NEMU-PEMA) is the collective bargaining benefits awarded to the petitioner.
representative of the regular rank and file (non-security)
employees of respondent such as messengers, janitors, typists,
clerks and radio-telephone operators.
HELD: No. We find no reason to pierce the corporate veil of
respondent and go beyond its legal personality.  Control, by
itself, does not mean that the controlled corporation is a mere
On June 8, 1995, petitioner and respondent agreed to sign a instrumentality or a business conduit of the mother company.
CBA on non-economic terms. Petitioner filed a notice of strike Even control over the financial and operational concerns of a
because of respondent’s refusal to bargain for economic subsidiary company does not by itself call for disregarding its
benefits in the CBA.  Following conciliation hearings, the parties corporate fiction. There must be a perpetuation of fraud behind
again commenced CBA negotiations and started to resolve the the control or at least a fraudulent or illegal purpose behind the
issues on wage increase, productivity bonus, incentive bonus, control in order to justify piercing the veil of corporate
allowances, and other benefits but failed to reach an agreement. fiction.  Such fraudulent intent is lacking in this case.
There is no showing that such “no loss, no profit” scheme The aforesaid control and breach of duty must [have]
between respondent and PNB was implemented to defeat public proximately caused the injury or unjust loss complained
convenience, justify wrong, protect fraud or defend crime, or is of.
used as a device to defeat the labor laws, nor does the scheme
show that respondent is a mere business conduit or alter ego of
PNB.  Absent proof of these circumstances, respondent’s
FACTS: A complaint was instituted against EIB Securities Inc.
corporate personality cannot be pierced. It is apparent that
(E–Securities) for unauthorized sale of 32,180,000 DMCI shares
petitioner wants the Court to disregard the corporate personality
of Pacific Rehouse Corporation, Pacific Concorde Corporation,
of respondent and directly go after PNB in order for it to collect
Mizpah Holdings, Inc., Forum Holdings Corporation, and East
the CBA benefits.  On the same breath, however, petitioner
Asia Oil Company, Inc. RTC rendered judgment on the
argues that ultimately it is PNB, by virtue of the “no loss, no
pleadings, directing the E–Securities to return to the petitioners
profit” scheme, which shoulders and provides the funds for
32,180,000 DMCI shares, as of judicial demand. On the other
financial liabilities of respondent including wages and benefits of
hand, petitioners are directed to reimburse the defendant the
employees.  If such scheme was indeed true as the petitioner
amount of [P]10,942,200.00, representing the buy back price of
presents it, then there was absolutely no need to pierce the veil
the 60,790,000 KPP shares of stocks at [P]0.18 per share.
of corporate fiction of respondent. 

When the Writ of Execution was returned unsatisfied, petitioners

58. Pacific Rehouse Corp. v CA
moved for the issuance of an alias writ of execution to hold
DOCTRINE: The Court has laid down a three–pronged control Export and Industry Bank, Inc. liable for the judgment obligation
test to establish when the alter ego doctrine should be as E–Securities is “a wholly–owned controlled and dominated
operative: subsidiary of Export and Industry Bank, Inc., and is, thus, a
mere alter ego and business conduit of the latter. E–Securities
opposed the motion, arguing that it has a corporate personality
that is separate and distinct from the respondent.
Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy
and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction ISSUE: W/n E-Securities is merely an alter ego of Export Bank
had at the time no separate mind, will or existence of its so that “piercing the veil of corporate fiction” is proper
own;
Such control must have been used by the defendant to
HELD: No. An alter ego exists where one corporation is so
commit fraud or wrong, to perpetuate the violation of a
organized and controlled and its affairs are conducted so that it
statutory or other positive legal duty, or dishonest and
is, in fact, a mere instrumentality or adjunct of the other. The
unjust act in contravention of plaintiff’s legal right; and
control necessary to invoke the alter ego doctrine is not majority
or even complete stock control but such domination of finances,
policies and practices that the controlled corporation has, so to
speak, no separate mind, will or existence of its own, and is but the veil of corporate fiction. Such fraudulent intent is lacking in
a conduit for its principal. this case.
59. Kukan International Corp v Reyes
The Court has laid down a three–pronged control test to DOCTRINE: A corporation not impleaded in a suit cannot be
establish when the alter ego doctrine should be operative: subject to the court’s process of piercing the veil of its corporate
fiction.

Control, not mere majority or complete stock control, but

complete domination, not only of finances but of policy FACTS: Kukan, Inc. conducted bidding for the supply and
and business practice in respect to the transaction installation of signages in a building being constructed in Makati
attacked so that the corporate entity as to this transaction City. Romeo Morales tendered the winning bid and was
had at the time no separate mind, will or existence of its awarded the PhP 5 million contract. Short changed, Morales
own; filed a Complaint against Kukan, Inc. for a sum of money. The
RTC rendered a Decision in favor of Morales and against
Such control must have been used by the defendant to Kukan, Inc.
commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and After the decision became final and executory, Morales moved
unjust act in contravention of plaintiff’s legal right; and for and secured a writ of execution against Kukan, Inc. The
sheriff then levied upon various personal properties of Kukan
The aforesaid control and breach of duty must [have] International Corporation (KIC). Alleging that it owned the
proximately caused the injury or unjust loss complained properties thus levied and that it was a different corporation
of. from Kukan, Inc., Kukan International Corporation (KIC) filed an
Affidavit of Third-Party Claim. 
The absence of any one of these elements prevents ‘piercing
the corporate veil’ in applying the ‘instrumentality’ or ‘alter ego’
doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendant’s Morales prayed, applying the principle of piercing the veil of
relationship to that operation. Hence, all three elements should corporate fiction, that an order be issued for the satisfaction of
concur for the alter ego doctrine to be applicable. the judgment debt of Kukan, Inc. with the properties under the
name or in the possession of KIC, it being alleged that both
In this case, the alleged control exercised by Export Bank upon corporations are but one and the same entity.
its subsidiary E–Securities, by itself, does not mean that the
controlled corporation is a mere instrumentality or a business
conduit of the mother company. Even control over the financial
and operational concerns of a subsidiary company does not by ISSUE: W/n the Doctrine of Piercing the Veil of Corporate
itself call for disregarding its corporate fiction. There must be a Fiction applies to confer jurisdiction
perpetuation of fraud behind the control or at least a fraudulent
or illegal purpose behind the control in order to justify piercing
HELD: No. The principle of piercing the veil of corporate fiction, justifiably be impaled only when it becomes a shield for fraud,
and the resulting treatment of two related corporations as one illegality or inequity committed against third persons.
and the same juridical person with respect to a given
transaction, is basically applied only to determine established
liability; it is not available to confer on the court a jurisdiction it
FACTS: Sometime in 1984, petitioners DBP and PNB
has not acquired, in the first place, over a party not impleaded in
foreclosed on certain mortgages made on the properties of
a case.
Marinduque Mining and Industrial  Corporation (MMIC). As a
Elsewise put, a corporation not impleaded in a suit cannot be result of the foreclosure, DBP and PNB acquired substantially
subject to the court’s process of piercing the veil of its corporate all the assets of MMIC and resumed the business operations of
fiction. In that situation, the court has not acquired jurisdiction the defunct MMIC by organizing NMIC.
over the corporation and, hence, any proceedings taken against
DBP and PNB owned 57% and 43% of the shares of NMIC,
that corporation and its property would infringe on its right to
respectively, except for five qualifying shares. As of September
due process.
1984, the members of the Board of Directors of NMIC, namely,
In those instances when the Court pierced the veil of corporate Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo
fiction of two corporations, there was a confluence of the Agulto, and Faustino Agbada, were either from DBP or PNB.
following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a NMIC engaged the services of Hercon, Inc., for NMIC’s Mine
second corporation to avoid a financial liability of the first Stripping and Road Construction Program. After computing the
corporation; and payments already made by NMIC under the program and
3. Both corporations are owned and controlled by the crediting the NMIC’s receivables from Hercon, Inc., the latter
same persons such that the second corporation should found that NMIC still  has an unpaid balance of
be considered as a continuation and successor of the P8,370,934.74.10
first corporation.
Hercon, Inc. made several demands on NMIC, and when these
In the instant case, however, the second and third factors are were not heeded, a complaint for sum of money was filed,
conspicuously absent. There is, therefore, no compelling seeking to hold petitioners NMIC, DBP, and PNB solidarily liable
justification for disregarding the fiction of corporate entity for the amount owing Hercon, Inc. Subsequent to the filing of
separating Kukan, Inc. from KIC.  the complaint, Hercon, Inc. was acquired by HRCC in a merger.
Thereafter, on December 8, 1986, then President Corazon C.
60. PNB v Hydro Resources Contractors Aquino issued Proclamation No. 50 creating the APT for the
expeditious disposition and privatization of certain government
DOCTRINE: The corporate mask may be removed or the corporations and/or the assets thereof. Pursuant to the said
corporate veil pierced when the corporation is just an alter ego Proclamation, on February 27, 1987, DBP and PNB executed
of a person or of another corporation. For reasons of public their respective deeds of transfer in favor of the National
policy and in the interest of justice, the corporate veil will Government assigning, transferring and conveying certain
assets and liabilities, including their respective stakes in NMIC.
In turn and on even date, the National Government transferred DBP and PNB in such a way that NMIC could be considered to
the said assets and liabilities to the APT as trustee under a have no separate mind, will or existence of its own but a mere
Trust Agreement. conduit for DBP and PNB.
In relation to the second element, to disregard the separate
juridical personality of a corporation, the wrongdoing or unjust
ISSUE: W/n there is sufficient ground to pierce the veil of act in contravention of a plaintiff's legal rights must be clearly
corporate fiction of NMIC and hold DBP and PNB solidarily and convincingly established; it cannot be presumed. Without a
liable with NMIC demonstration that any of the evils sought to be prevented by
the doctrine is present, it does not apply.
It is a recognition that, even assuming that DBP and PNB
HELD: No. Piercing the corporate veil based on the alter ego
exercised control over NMIC, there is no evidence that the
theory requires the concurrence of three elements: control of
juridical personality of NMIC was used by DBP and PNB to
the corporation by the stockholder or parent corporation, fraud
commit a fraud or to do a wrong against HRCC. There being a
or fundamental unfairness imposed on the plaintiff, and harm or
total absence of evidence pointing to a fraudulent, illegal or
damage caused to the plaintiff by the fraudulent or unfair act of
unfair act committed against HRCC by DBP and PNB under the
the corporation. The absence of any of these elements prevents
guise of NMIC, there is no basis to hold that NMIC was a mere
piercing the corporate veil.
alter ego of DBP and PNB.
While ownership by one corporation of all or a great majority of
As regards the third element, in the absence of both control by
stocks of another corporation and their interlocking directorates
DBP and PNB of NMIC and fraud or fundamental unfairness
may serve as indicia of control, by themselves and without
perpetuated by DBP and PNB through the corporate cover of
more, however, these circumstances are insufficient to establish
NMIC, no harm could be said to have been proximately caused
an alter ego relationship or connection between DBP and PNB
by DBP and PNB on HRCC for which HRCC could hold DBP
on the one hand and NMIC on the other hand, that will justify
and PNB solidarily liable with NMIC.
the puncturing of the latter's corporate cover. This Court has
declared that "mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the 61. Macasaet v Co, Jr.
separate corporate personality."
DOCTRINE: To warrant the substituted service of the summons
This Court has likewise ruled that the "existence of interlocking and copy of the complaint, the serving officer must first attempt
directors, corporate officers and shareholders is not enough to effect the same upon the defendant in person. Only after the
justification to pierce the veil of corporate fiction in the absence attempt at personal service has become futile or impossible
of fraud or other public policy considerations." within a reasonable time may the officer resort to substituted
service.

In this case, nothing in the records shows that the corporate

finances, policies and practices of NMIC were dominated by
FACTS: Francisco Co, a retired police officer, sued HELD: 1. Yes. The significance of the proper service of the
AbanteTonite, a daily tabloid of general circulation; its Publisher summons on the defendant in an action in personam cannot be
Allen A. Macasaet; its Managing Director; its Circulation overemphasized. The service of the summons fulfills two
Manager; its Editors; and its columnist/Reporter (petitioners), fundamental objectives, namely: (a) to vest in the court
claiming damages because of an allegedly libelous article jurisdiction over the person of the defendant; and (b) to afford to
petitioners published in the June 6, 2000 issue of AbanteTonite. the defendant the opportunity to be heard on the claim brought
The RTC issued summons to be served on each defendant, against him.
including AbanteTonite, at their business address at Monica
Publishing Corporation, 301-305 3rd Floor, BF Condominium Under the Rules of Court, the service of the summons should
Building, Solana Street corner A. Soriano Street, Intramuros, firstly be effected on the defendant himself whenever
Manila. practicable. Such personal service consists either in handing a
copy of the summons to the defendant in person, or, if the
RTC Sheriff Raul Medina proceeded to the stated address to defendant refuses to receive and sign for it, in tendering it to
effect the personal service of the summons on the defendants. him. 24 The rule on personal service is to be rigidly enforced in
But his efforts to personally serve each defendant in the order to ensure the realization of the two fundamental objectives
address were futile because the defendants were then out of the earlier mentioned. If, for justifiable reasons, the defendant
office and unavailable. He returned in the afternoon of that day cannot be served in person within a reasonable time, the
to make a second attempt at serving the summons but he was service of the summons may then be effected either (a) by
informed that petitioners were still out of the office. He decided leaving a copy of the summons at his residence with some
to resort to substituted service of the summons. person of suitable age and discretion then residing therein, or
(b) by leaving the copy at his office or regular place of business
Petitioners moved for the dismissal of the complaint through with some competent person in charge thereof. The latter mode
counsel's special appearance in their behalf, alleging lack of of service is known as substituted service because the service
jurisdiction over their persons because of the invalid and of the summons on the defendant is made through his
ineffectual substituted service of summons. They contended substitute.
that the sheriff had made no prior attempt to serve the summons
personally on each of them in accordance with Section 6 and There is no question that Sheriff Medina twice attempted to
Section 7, Rule 14 of the Rules of Court. They further moved to serve the summons upon each of petitioners in person at their
drop AbanteTonite as a defendant by virtue of its being neither a office address, the first in the morning of September 18, 2000
natural nor a juridical person that could be impleaded as a party and the second in the afternoon of the same date. Each attempt
in a civil action. failed because Macasaet and Quijano were "always out and not
available" and the other petitioners were "always roving outside
and gathering news." After Medina learned from those present
in the office address on his second attempt that there was no
ISSUE: W/n jurisdiction was acquired over petitioners
likelihood of any of petitioners going to the office during the
W/n AbanteTonite cannot be sued because of the lack of business hours of that or any other day, he concluded that
juridical personality further attempts to serve them in person within a reasonable
time would be futile. The circumstances fully warranted his
conclusion. He was not expected or required as the serving
officer to effect personal service by all means and at all times,
considering that he was expressly authorized to resort to
substituted service should he be unable to effect the personal 62. Aboitiz Equity Ventures (AEV), Inc. v Chiongbian
service within a reasonable time. In that regard, what was a
DOCTRINE: A corporation has a personality separate and
reasonable time was dependent on the circumstances
distinct from that of its individual stockholders
obtaining. While we are strict in insisting on personal service on
the defendant, we do not cling to such strictness should the
circumstances already justify substituted service instead.
FACTS: Aboitiz Shipping Corporation ("ASC"), principally owned
by the Aboitiz family, CAGLI, principally owned by the Gothong
family, and William Lines, Inc. ("WLI"), principally owned by the
In reality, petitioners' insistence on personal service by the
Chiongbian family, entered into an agreement (the
serving officer was demonstrably superfluous. They had actually
"Agreement"), whereby ASC and CAGLI would transfer their
received the summonses served through their substitutes, as
shipping assets to WLI in exchange for WLI's shares of stock.
borne out by their filing of several pleadings in the RTC,
WLI, in turn, would run their merged shipping businesses and,
including an answer with compulsory counterclaim ad cautelam
henceforth, be known as WG&A, Inc.
and a pretrial brief ad cautelam. They had also availed
themselves of the modes of discovery available under the Rules Annex SL-V confirmed WLI's commitment to acquire certain
of Court. Such acts evinced their voluntary appearance in the inventories of CAGLI. These inventories would have a total
action. aggregate value of, at most, PhP400 million. Pursuant to Annex
SL-V, inventories were transferred from CAGLI to WLI. These
2. No. Nor can we sustain petitioners' contention that Abante
inventories were assessed to have a value of PhP514 million,
Tonite could not be sued as a defendant due to its not being
which was later adjusted to PhP558.89 million. Of the total
either a natural or a juridical person. In rejecting their
amount of PhP558.89 million, "CAGLI was paid the amount of
contention, the CA categorized Abante Tonite as a corporation
PhP400 Million."
by estoppel as the result of its having represented itself to the
reading public as a corporation despite its not being As there was still a balance, in 2001, CAGLI sent WG&A (the
incorporated. Thereby, the CA concluded that the RTC did not renamed WLI) demand letters "for the return of or the payment
gravely abuse its discretion in holding that the non-incorporation for the excess inventories." AEV alleged that to satisfy CAGLI's
of Abante Tonite with the Securities and Exchange Commission demand, WG&A returned inventories amounting to PhP120.04
was of no consequence, for, otherwise, whoever of the public million. As proof, AEV attached copies of delivery receipts
who would suffer any damage from the publication of articles in signed by CAGLI's representatives.
the pages of its tabloids would be left without recourse.
Chiongbian and Gothong families decided to leave the WG&A
We cannot disagree with the CA, considering that the editorial enterprise and sell their interest therein to the Aboitiz family. As
box of the daily tabloid disclosed that although Monica such, a share purchase agreement (SPA) was entered into by
Publishing Corporation had published the tabloid on a daily AEV and the respective shareholders groups of the Chiongbians
basis, nothing in the box indicated that Monica Publishing and Gothongs.
Corporation had owned Abante Tonite.
As a result of the SPA, AEV became a stockholder of WG&A. stockholder of WLI/WG&A, which was subsequently renamed
Subsequently, WG&A was renamed Aboitiz Transport Shipping ATSC. Nonetheless, AEV's status as ATSC's stockholder does
Corporation ("ATSC"). not subject it to ATSC's obligations.
AEV alleged that CAGLI resumed making demands despite It is basic that a corporation has a personality separate and
having already received PhP120.04 million worth of excess distinct from that of its individual stockholders. Thus, a
inventories. As alleged by AEV, however, CAGLI subsequently stockholder does not automatically assume the liabilities of the
resorted to a "shotgun approach" and directed its subsequent corporation of which he is a stockholder.
demand letters to AEV as well as to FCLC (a company related
to Chiongbian).
AEV rebuffed CAGLI's demands noting that: (1) CAGLI already AEV's status as ATSC's stockholder is, in and of itself,
received the excess inventories; (2) it was not a party to insufficient to make AEV liable for ATSC's obligations.
CAGLI's claim as it had a personality distinct from Moreover, the SPA does not contain any stipulation which
WLI/WG&A/ATSC; and (3) CAGLI's claim was already barred by makes AEV assume ATSC's obligations.
prescription.
AEV was drawn into the present controversy on account of its
having entered into the SPA. This SPA made AEV a stockholder
of WLI/ WG&A/ ATSC. Even then, AEV retained a personality
ISSUE: W/n AEV is liable for ATSC’s obligations separate and distinct from WLI/WG&A/ATSC. The SPA did not
render AEV personally liable for the obligations of the
corporation whose stocks it held.
HELD: No. While the principle of privity or relativity of contracts
acknowledges that contractual obligations are transmissible to a
party's assigns and heirs, AEV is not WLI's successor-in
interest. In the period relevant to this petition, the transferee of
the inventories transferred by CAGLI pursuant to Annex SL-V 63. Livesey v. Binswanger Phils., Inc.
assumed three (3) names: (1) WLI, the original name of the
DOCTRINE: Piercing the veil of corporate fiction is an equitable
entity that survived the merger under the January 8, 1996
doctrine developed to address situations where the separate
Agreement; (2) WG&A, the name taken by WLI in the wake of
corporate personality of a corporation is abused or used for
the Agreement; and (3) ATSC, the name taken by WLI/WG&A in
wrongful purposes. Under the doctrine, the corporate existence
the wake of the SPA. As such, it is now ATSC that is liable
may be disregarded where the entity is formed or used for non-
under Annex SL-V.
legitimate purposes, such as to evade a just and due obligation,
Pursuant to the January 8, 1996 Agreement, the Aboitiz group or to justify a wrong, to shield or perpetrate fraud or to carry out
(via ASC) and the Gothong group (via CAGLI) became similar or inequitable considerations, other unjustifiable aims or
stockholders of WLI/WG&A, along with the Chiongbian group intentions, in which case, the fiction will be disregarded and the
(which initially controlled WLI). This continued until, pursuant to individuals composing it and the two corporations will be treated
the SPA, the Gothong group and the Chiongbian group as identical.
transferred their shares to AEV. With the SPA, AEV became a
 HELD: Yes. It has long been settled that the law vests a
corporation with a personality distinct and separate from its
FACTS: Livesey alleged that CBB hired him as Director and stockholders or members. In the same vein, a corporation, by
Head of Business Space Development, with a monthly salary of legal fiction and convenience, is an entity shielded by a
US$5,000.00; shareholdings in CBB's offshore parent company; protective mantle and imbued by law with a character alien to
and other benefits. In August 2001, he was appointed as the persons comprising it. Nonetheless, the shield is not at all
Managing Director. Allegedly, despite the several deals for CBB times impenetrable and cannot be extended to a point beyond
he drew up, CBB failed to pay him a significant portion of his its reason and policy. Circumstances might deny a claim for
salary which compelled him to resign. He claimed CBB owed corporate personality, under the "doctrine of piercing the veil of
him US$23,000.00 in unpaid salaries. corporate fiction."
CBB denied liability. It alleged that it engaged Livesey as a Piercing the veil of corporate fiction is an equitable doctrine
corporate officer. It claimed that Livesey was later designated as developed to address situations where the separate corporate
Managing Director when it became an extension office of its personality of a corporation is abused or used for wrongful
principal in Hongkong. purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-
The parties entered into a compromise agreement in which CBB
legitimate purposes, such as to evade a just and due obligation,
paid Livesey the initial amount of US$13,000.00, but not the
or to justify a wrong, to shield or perpetrate fraud or to carry out
next two installments as the company ceased operations.
similar or inequitable considerations, other unjustifiable aims or
Livesey moved for the issuance of a writ of execution. LA
intentions, in which case, the fiction will be disregarded and the
Eduardo G. Magno granted the writ, but it was not enforced.
individuals composing it and the two corporations will be treated
Livesey then filed a motion for the issuance of an alias writ of
as identical.
execution, alleging that in the process of serving respondents
the writ, he learned "that respondents, in a clear and willful We see an indubitable link between CBB's closure and
attempt to avoid their liabilities to complainant . . . have Binswanger's incorporation. CBB ceased to exist only in name;
organized another corporation, [Binswanger] Philippines, Inc." it re-emerged in the person of Binswanger for an urgent purpose
He claimed that there was evidence showing that CBB and — to avoid payment by CBB of the last two installments of its
Binswanger Philippines, Inc. are one and the same corporation, monetary obligation to Livesey, as well as its other financial
pointing out that CBB stands for Chesterton Blumenauer liabilities. Freed of CBB's liabilities, especially that owing to
Binswanger. Invoking the doctrine of piercing the veil of Livesey, Binswanger can continue, as it did continue, CBB's real
corporate fiction, Livesey prayed that an alias writ of execution estate brokerage business.
be issued against respondents Binswanger and Keith Elliot,
CBB's former President, and now Binswanger's President and While the ostensible reason for Binswanger's establishment is to
CEO. continue CBB's business operations in the Philippines, which by
itself is not illegal, the close proximity between CBB's
disestablishment and Binswanger's coming into existence points
ISSUE: W/n the veil of corporate fiction may be pierced to an unstated but urgent consideration which, as we earlier
noted, was to evade CBB's unfulfilled financial obligation to
Livesey under the compromise agreement.
 a third-party mortgagor and that it was a corporation separate
and distinct from Hammer.
65. Heirs of Uy v. International Exchange Bank, G.R. No.
166282, February 13, 2013 Meanwhile, iBank applied for the issuance of a writ of
preliminary attachment which was granted. The Notice of Levy
Doctrine: A corporate officer's negligence, to be held personally on Attachment of Real Properties covered the properties under
liable under Sec. 31, must be gross. When two business the name of Goldkey.
enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the The RTC ruled in favor of iBank. While it made the
rights of third parties, disregard the legal fiction that two pronouncement that the signature of Uy on the Surety
corporations are distinct entities and treat them as identical or Agreement was a forgery, it nevertheless held her liable for the
one and the same. outstanding obligation of Hammer because she was an officer
and stockholder of the said corporation. The RTC agreed with
Facts: Respondent International Exchange Bank (iBank), Goldkey that as a third-party mortgagor, its liability was limited
granted loans to Hammer Garments Corporation (Hammer), to the properties mortgaged. It came to the conclusion,
covered by promissory notes and deeds of assignment, totalling however, that Goldkey and Hammer were one and the same
24,938,898.08. entity for the following reasons: (1) both were family
corporations of Chua and Uy, with Chua as the President and
These were made pursuant to the Letter-Agreement between Chief Operating Officer; (2) both corporations shared the same
iBank and Hammer, granting the latter a P 25 Million-Peso office and transacted business from the same place, (3) the
Omnibus Line. The loans were secured by a P 9 Million-Peso assets of Hammer and Goldkey were co-mingled; and (4) when
Real Estate Mortgage executed by Goldkey Development Chua absconded, both Hammer and Goldkey ceased to
Corporation (Goldkey) over several of its properties and a P 25 operate. As such, the piercing of the veil of corporate fiction was
Million-Peso Surety Agreement signed by Chua and his wife, Fe warranted. Uy, as an officer and stockholder of Hammer and
Tan Uy (Uy). Goldkey, was found liable to iBank together with Chua, Hammer
and Goldkey for the deficiency aforementioned.
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 unpaid balance of P13,420,177.62. On appeal to the CA, the latter affirmed the decision of the RTC.
For failure of Hammer to pay the deficiency, iBank filed a It further held, among others, that iBank was induced to grant
Complaint for sum of money against Hammer, Chua, Uy, and the loan because petitioners, with intent to defraud the bank,
Goldkey before the RTC. submitted a falsified Financial Report for 1996 which incorrectly
declared the assets and cashflow of Hammer. Because
Despite service of summons, Chua and Hammer did not file petitioners acted maliciously and in bad faith and used the
their respective answers and were declared in default. In her corporate fiction to defraud iBank, they should be treated as one
separate answer, Uy claimed that she was not liable to iBank and the same as Hammer.
because she never executed a surety agreement in favor of
iBank. Goldkey also denies liability, averring that it acted only as Hence this consolidated petition filed by Uy and Goldkey.
Issue: that Uy should be held jointly and severally liable to iBank for
the unpaid loan of Hammer.
1. Whether Uy can be held liable to iBank for the loan
obligation of Hammer as an officer and stockholder of the At most, Uy could have been charged with negligence in the
said corporation? performance of her duties as treasurer of Hammer by allowing
2. Whether Goldkey can be held liable for the obligation of the company to contract a loan despite its precarious financial
Hammer for being a mere alter ego of the latter? position.

Held: Nonetheless, these shortcomings of Uy are not sufficient to

justify the piercing of the corporate veil which requires that the
1. No. Before a director or officer of a corporation can be negligence of the officer must be so gross that it could amount
held personally liable for corporate obligations the to bad faith and must be established by clear and convincing
following requisites must concur: (1) the complainant evidence. Gross negligence is one that is characterized by the
must allege in the complaint that the director or officer lack of the slightest care, acting or failing to act in a situation
assented to patently unlawful acts of the corporation, or where there is a duty to act, wilfully and intentionally with a
that the officer was guilty of gross negligence or bad conscious indifference to the consequences insofar as other
faith; and (2) the complainant must clearly and persons may be affected.
convincingly prove such unlawful acts, negligence or bad
faith. There is no showing that Uy committed gross negligence. And
in the absence of any of the aforementioned requisites for
In this case, petitioners are correct to argue that it was not making a corporate officer, director or stockholder personally
alleged, much less proven, that Uy committed an act as an liable for the obligations of a corporation, Uy, as a treasurer and
officer of Hammer that would permit the piercing of the stockholder of Hammer, cannot be made to answer for the
corporate veil. A reading of the complaint reveals that with unpaid debts of the corporation.
regard to Uy, iBank did not demand that she be held liable for
the obligations of Hammer because she was a corporate officer 2. Yes. Under a variation of the doctrine of piercing the veil
who committed bad faith or gross negligence in the performance of corporate fiction, when two business enterprises are
of her duties such that the lifting of the corporate mask would be owned, conducted and controlled by the same parties,
merited. What the complaint simply stated is that she, together both law and equity will, when necessary to protect the
with her errant husband Chua, acted as surety of Hammer, as rights of third parties, disregard the legal fiction that two
evidenced by her signature on the Surety Agreement which was corporations are distinct entities and treat them as
later found by the RTC to have been forged. 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
Considering that the only basis for holding Uy liable for the justify the application of the doctrine of piercing the corporate
payment of the loan was proven to be a falsified document, veil:
there was no sufficient justification for the RTC to have ruled
(1) Stock ownership by one or common ownership of both properties of Goldkey are mortgaged to secure Hammer's
corporations; obligation with creditor hanks.
(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records, and The proceeds of at least two loans which Hammer obtained
(4) Methods of conducting the business. from plaintiff "iBank", purportedly to finance its export to
These factors are unquestionably present in the case of WalMart are instead used to finance the purchase of a
Goldkey and Hammer since: manager's check payable to Goldkey. The defendants' claim
that Goldkey is a creditor of Hammer to justify its receipt of the
Manager's cheek is not substantiated by evidence. Despite
subpoenas issued by this Court, Goldkey thru its treasurer,
1. Both corporations are family corporations of defendants Chua defendant Uy and or its corporate secretary Manling Uy failed to
and Uy. The other incorporators and shareholders of the two produce the Financial Statement of Goldkey.
corporations are the brother and sister of Chua, and the sister of
Uy. The other incorporator/share holder is the daughter of Chua 5. When defendant Manuel Chua "disappeared", the defendant
and Uy. Goldkey ceased to operate despite the claim that the other
"officers" and stockholders like Benito Chua, Nenita Chua Tan,
The stockholders of Hammer Garments, aside from spouses Fe Tan Uy, Manling Uy and Milagros T. Revilla are still around
Manuel and Uy are: the brother of Chua, the sister of Chua and and may be able to continue the business of Goldkey, if it were
Tessie See Chua Tan. Also, the shares of Tessie See Chua Uy different or distinct from Hammer which suffered financial set
were later assigned to the sister of Uy, thereby consolidating the back.
shares in the family of Chua and Uy.

2. Hammer Garments and Goldkey share the same office and

practically transact their business from the same place. Thus, it was apparent that Goldkey was merely an adjunct of
Hammer and, as such, the legal fiction that it has a separate
3. Defendant Chua is the President and Chief Operating Officer personality from that of Hammer should be brushed aside as
of both corporations. All business transactions of Goldkey and they are, undeniably, one and the same.
Hammer are done at the instance of defendant Chua who is
authorized to do so by the corporations. 66. SECURITIES AND EXCHANGE
COMMISSION, Petitioner, v. OUDINE SANTOS, Respondent.
The promissory notes subject of this complaint are signed by
him as Hammer’s President and General Manager. The third- G.R. No. 195542, March 19, 2014
party real estate mortgage of defendant Goldkey is signed by
him for Goldkey to secure the loan obligation of Hammer DOCTRINE:
Garments withplaintiff "iBank''. The other third-party real estate
mortgages which Goldkey executed in favor of the other creditor The exculpation of Santos cannot be preliminarily
banks of Hammer are also signed by Manuel Chua. established simply by asserting that she did not sign the
investment contracts, as the facts alleged in this case
4. The assets of Goldkey and Hammer are co-mingled. The real constitute fraud perpetrated on the public.  Specially so
because the absence of Santos’ signature in the contract Performance Investment Product Corporation, the Philippine
is, likewise, indicative of a scheme to circumvent and evade office or branch of PIPC–BVI, which is an entity engaged in
liability should the pyramid fall apart. foreign currency trading, and not Philippine International
Planning Center Corporation.
FACTS:

Sometime in 2007, yet another investment scam was exposed Soon thereafter, the SEC, through its Compliance and
with the disappearance of its primary perpetrator, Michael H.K. Endorsement Division, filed a complaint–affidavit for violation of
Liew (Liew), a self–styled financial guru and Chairman of the Sections 8,26 and 28 of the Securities Regulation Code before
Board of Directors of Performance Investment Products the Department of Justice which was docketed as I.S. No.
Corporation (PIPC–BVI), a foreign corporation registered in the 2007–1054.  Among the respondents in the complaint–affidavit
British Virgin Islands. were the principal officers of PIPC: Liew, Chairman and
President; Cristina Gonzalez–Tuason, Director and General
To do business in the Philippines, PIPC–BVI incorporated Manager; Ma. Cristina Bautista–Jurado, Director; and herein
herein as Philippine International Planning Center Corporation respondent Santos.
(PIPC Corporation).
Private complainants, Lorenzo and Sy, in their affidavits
Because the head of PIPC Corporation had gone missing and annexed to SEC’s complaint–affidavit, respectively narrated
with it the monies and investment of a significant number of Santos’ participation in how they came to invest their monies in
investors, the SEC was flooded with complaints from thirty–one PIPC Corporation.
(31) individuals against PIPC Corporation, its directors, officers,
employees, agents and brokers for alleged violation of certain ISSUE:
provisions of the Securities Regulation Code, including Section
28 thereof.  Santos was charged in the complaints in her Is Santos liable even though she did not sign the investment
capacity as investment consultant of PIPC Corporation, who contracts?
supposedly induced private complainants Luisa Mercedes P.
Lorenzo (Lorenzo) and Ricky Albino P. Sy (Sy), to invest their HELD: YES.
monies in PIPC Corporation.
What is palpable from the foregoing is that Sy and Lorenzo did
The common recital in the 31 complaints is that: not go directly to Liew or any of PIPC Corporation’s and/or
PIPC–BVI’s principal officers before making their investment or
x x x [D]ue to the inducements and solicitations of the PIPC renewing their prior investment. However, undeniably, Santos
corporation’s directors, officers and employees/agents/brokers, actively recruited and referred possible investors to PIPC
the former were enticed to invest their hard–earned money, the Corporation and/or PIPC–BVI and acted as the go–between on
minimum amount of which must be US$40,000.00, with PIPC– behalf of PIPC Corporation and/or PIPC–BVI.
BVI, with a promise of higher income potential of an interest of
12 to 18 percentum (%) per annum at relatively low–risk The DOJ’s and Court of Appeals’ reasoning that Santos did not
investment program. The private complainants also claimed that sign the investment contracts of Sy and Lorenzo is specious. 
they were made to believe that PIPC Corporation refers to The contracts merely document the act performed by Santos.
 67. MEDICAL PLAZA MAKATI CONDOMINIUM
Individual complainants and the SEC have categorically alleged CORPORATION vs. ROBERT H. CULLEN
that Liew and PIPC Corporation and/or PIPC–BVI is not a
legitimate investment company but a company which G.R. No. 181416 November 11, 2013
perpetrated a scam on 31 individuals where the president, a
foreign national, Liew, ran away with their money. Liew’s Doctrine: In determining whether a dispute constitutes an intra-
absconding with the monies of 31 individuals and that PIPC corporate controversy, the Court uses two tests, namely, the
Corporation and/or PIPC–BVI were not licensed by the SEC to relationship test and the nature of the controversy test.
sell securities are uncontroverted facts.
Intra-corporate dispute between a condominium corporation and
The transaction initiated by Santos with Sy and Lorenzo, its stockholder/member is still within the jurisdiction of the RTC
respectively, is an investment contract or participation in a profit sitting as a special commercial court and not the HLURB.
sharing agreement that falls within the definition of the law.
When the investor is relatively uninformed and turns over his Facts: Respondent Cullen purchased from Meridien Land
money to others, essentially depending upon their Holding Inc. (MLHI) a condominium of the Medical Plaza Makati
representations and their honesty and skill in managing it, the (MPMCC) to which a condominium certificate was issued in the
transaction generally is considered to be an investment name of respondent.
contract.23 The touchstone is the presence of an investment in a
common venture premised on a reasonable expectation of Petitioner, through its corporate secretary, Dr. Dimayuga,
profits to be derived from the entrepreneurial or managerial demanded from respondent payment for alleged unpaid
efforts of others.24 association dues and assessments amounting to ₱145,567.42.
Respondent disputed this demand claiming that he had been
At bottom, the exculpation of Santos cannot be preliminarily religiously paying his dues shown by the fact that he was
established simply by asserting that she did not sign the previously elected president and director of petitioner.
investment contracts, as the facts alleged in this case constitute Petitioner, on the other hand, claimed that respondent’s
fraud perpetrated on the public.  Specially so because the obligation was a carry-over of that of MLHI. Consequently,
absence of Santos’ signature in the contract is, likewise, respondent was prevented from exercising his right to vote and
indicative of a scheme to circumvent and evade liability should be voted for during the 2002 election of petitioner’s Board of
the pyramid fall apart. Directors (MPMCC Board). Respondent thus clarified from MLHI
the veracity of petitioner’s claim, but MLHI allegedly claimed that
Lastly, we clarify that we are only dealing herein with the the same had already been settled.
preliminary investigation aspect of this case.  We do not
adjudge respondents’ guilt or the lack thereof. Santos’ defense This prompted respondent to demand from petitioner an
of being a mere employee or simply an information provider is explanation why he was considered a delinquent payer despite
best raised and threshed out during trial of the case. the settlement of the obligation. Petitioner failed to make such
explanation. Hence, respondent filed a complaint for damages
WHEREFORE, the petition is GRANTED.  against petitioner and MLHI.
The complaint of the respondent alleges, among others, that In determining whether a dispute constitutes an intra-corporate
“defendant [MPMCC] acted maliciously by insisting that plaintiff controversy, the Court uses two tests, namely, the relationship
is a delinquent member when in fact, defendant Meridien had test and the nature of the controversy test.
already paid the said delinquency, if any,” and that “as a
consequence, plaintiff was not allowed to file his certificate of An intra-corporate controversy is one which pertains to any of
candidacy as director and from exercising his right to vote in the the following relationships: (1) between the corporation,
election of new members of the Board of Directors.” Ultimately, partnership or association and the public; (2) between the
“as a direct and proximate result of the said acts of defendant corporation, partnership or association and the State insofar as
[MPMCC], plaintiff experienced/suffered from mental anguish, its franchise, permit or license to operate is concerned; (3)
moral shock, and serious anxiety,” hence the prayer for between the corporation, partnership or association and its
damages. stockholders, partners, members or officers; and (4) among the
stockholders, partners or associates themselves. Thus, under
the relationship test, the existence of any of the above intra-
corporate relations makes the case intra-corporate.
Petitioner and MLHI filed their separate motions to dismiss the
complaint on the ground of lack of jurisdiction. MLHI claims that
it is the HLURB which is vested with the exclusive jurisdiction to
hear and decide the case. Petitioner, on the other hand, raises Under the nature of the controversy test, "the controversy must
the following specific grounds for the dismissal of the complaint: not only be rooted in the existence of an intra-corporate
(1) estoppel as respondent himself approved the assessment relationship, but must as well pertain to the enforcement of the
when he was the president; (2) lack of jurisdiction as the case parties’ correlative rights and obligations under the Corporation
involves an intra-corporate controversy; (3) prematurity for Code and the internal and intra-corporate regulatory rules of the
failure of respondent to exhaust all intra-corporate remedies; corporation." In other words, jurisdiction should be determined
and (4) the case is already moot and academic, the obligation by considering both the relationship of the parties as well as the
having been settled between petitioner and MLHI. nature of the question involved.

The RTC dismissed respondent's complaint. On appeal, the CA Applying the two tests, we find and so hold that the case
reversed the RTC and remanded the case to the RTC for further involves intra-corporate controversy.
proceedings.
Petitioner is a condominium corporation duly organized and
Issue: Whether or not the dispute is an ordinary action for existing under Philippine laws, charged with the management of
damages instead of an intra-corporate controversy cognizable the Medical Plaza Makati. Respondent, on the other hand, is the
by a special commercial court. registered owner of one of its condominium units and is thus a
stockholder/member of the condominium corporation. Clearly,
Held: It is a settled rule that jurisdiction over the subject matter there is an intra-corporate relationship between the corporation
is determined by the allegations in the complaint. and a stockholder/member.

Pursuant to Section 5.2 of the Securities Regulation Code, the

jurisdiction of the SEC over all cases enumerated under Section
5 of Presidential Decree No. 902-A has been transferred to The term “capital” in Section 11, Article XII of the
RTCs designated by this Court as Special Commercial Courts. Constitution refers only to shares of stock entitled to vote
While the CA may be correct that the RTC has jurisdiction, the in the election of directors, and thus in the present case
case should have been filed not with the regular court but with only to common shares, and not to the total outstanding
the branch of the RTC designated as a special commercial capital stock comprising both common and non-voting
court. Considering that the RTC of Makati City, Branch 58 was preferred shares.
not designated as a special commercial court, it was not vested
with jurisdiction over cases previously cognizable by the SEC. FACTS:
The CA, therefore, gravely erred in remanding the case to the
RTC for further proceedings. This is a petition to nullify the sale of shares of stock of
Philippine Telecommunications Investment Corporation (PTIC)
The Magna Carta for Homeowners and Homeowners’ by the government of the Republic of the Philippines, acting
Associations empowers the HLURB to hear and decide inter- through the Inter-Agency Privatization Council (IPC), to Metro
association and/or intra-association controversies or conflicts Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific
concerning homeowners’ associations. However, we cannot Company Limited (First Pacific), a Hong Kong-based investment
apply the same in the present case as it involves a controversy management and holding company and a shareholder of the
between a condominium unit owner and a condominium Philippine Long Distance Telephone Company (PLDT). 
corporation. While the term association as defined in the law
covers homeowners’ associations of other residential real
property which is broad enough to cover a condominium
corporation, it does not seem to be the legislative intent. A The petitioner questioned the sale on the ground that it
thorough review of the deliberations of the bicameral conference also involved an indirect sale of 12 million shares (or about 6.3
committee would show that the lawmakers did not intend to percent of the outstanding common shares) of PLDT owned by
extend the coverage of the law to such kind of association. PTIC to First Pacific. With the this sale, First Pacific’s common
shareholdings in PLDT increased from 30.7 percent to 37
Accordingly, condominium corporations are not covered by the percent, thereby increasing the total common shareholdings of
amendment. Thus, the intra-corporate dispute between foreigners in PLDT to about 81.47%. This, according to the
petitioner and respondent is still within the jurisdiction of the petitioner, violates Section 11, Article XII of the 1987 Philippine
RTC sitting as a special commercial court and not the HLURB. Constitution which limits foreign ownership of the capital of a
public utility to not more than 40%.

ISSUE:
Does the term “capital” in Section 11, Article XII of the
Constitution refer to the total common shares only, or to
68. WILSON P. GAMBOA vs. FINANCE SECRETARY the total outstanding capital stock (combined total of
MARGARITO B. TEVES, ET AL. common and non-voting preferred shares) of PLDT, a
public utility?
DOCTRINE:
HELD:
 Section 11, Article XII (National Economy and Patrimony) common shares. However, preferred shareholders are often
of the 1987 Constitution mandates the Filipinization of public excluded from any control, that is, deprived of the right to vote in
utilities, to wit: the election of directors and on other matters, on the theory that
the preferred shareholders are merely investors in the
Section 11. No franchise, certificate, or any other form corporation for income in the same manner as
of authorization for the operation of a public utility shall be bondholders. xxx.
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of Considering that common shares have voting rights
the Philippines, at least sixty per centum of whose capital which translate to control, as opposed to preferred shares which
is owned by such citizens; nor shall such franchise, certificate, usually have no voting rights, the term “capital” in Section 11,
or authorization be exclusive in character or for a longer period Article XII of the Constitution refers only to common shares.
than fifty years. Neither shall any such franchise or right be However, if the preferred shares also have the right to vote in
granted except under the condition that it shall be subject to the election of directors, then the term “capital” shall include
amendment, alteration, or repeal by the Congress when the such preferred shares because the right to participate in the
common good so requires. The State shall encourage equity control or management of the corporation is exercised through
participation in public utilities by the general public. The the right to vote in the election of directors. In short, the term
participation of foreign investors in the governing body of any “capital” in Section 11, Article XII of the Constitution refers only
public utility enterprise shall be limited to their proportionate to shares of stock that can vote in the election of directors.
share in its capital, and all the executive and managing officers
of such corporation or association must be citizens of the           xxx                                 xxx                                
Philippines. (Emphasis supplied) xxx

The term “capital” in Section 11, Article XII of the Mere legal title is insufficient to meet the 60 percent
Constitution refers only to shares of stock entitled to vote in the Filipino-owned “capital” required in the Constitution. Full
election of directors, and thus in the present case only to beneficial ownership of 60 percent of the outstanding capital
common shares, and not to the total outstanding capital stock stock, coupled with 60 percent of the voting rights, is required.
comprising both common and non-voting preferred shares [of The legal and beneficial ownership of 60 percent of the
PLDT]. outstanding capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional mandate.
          xxx                                 xxx                                 Otherwise, the corporation is “considered as non-Philippine
xxx national[s].”

Indisputably, one of the rights of a stockholder is the right           xxx                                 xxx                                
to participate in the control or management of the xxx 
corporation. This is exercised through his vote in the election of
directors because it is the board of directors that controls or To construe broadly the term “capital” as the total
manages the corporation. In the absence of provisions in the outstanding capital stock, including both common and non-
articles of incorporation denying voting rights to preferred voting preferred shares, grossly contravenes the intent and
shares, preferred shares have the same voting rights as letter of the Constitution that the “State shall develop a self-
reliant and independent national economy effectively shares, who have no voting rights in the election of directors, do
controlled by Filipinos.” A broad definition unjustifiably not have any control over PLDT. In fact, under PLDT’s Articles
disregards who owns the all-important voting stock, which of Incorporation, holders of common shares have voting rights
necessarily equates to control of the public utility. for all purposes, while holders of preferred shares have no
voting right for any purpose whatsoever.
We shall illustrate the glaring anomaly in giving a broad
definition to the term “capital.” Let us assume that a corporation It must be stressed, and respondents do not dispute, that
has 100 common shares owned by foreigners and 1,000,000 foreigners hold a majority of the common shares of PLDT. In
non-voting preferred shares owned by Filipinos, with both fact, based on PLDT’s 2010 General Information Sheet
classes of share having a par value of one peso (P1.00) per (GIS), which is a document required to be submitted annually to
share. Under the broad definition of the term “capital,” such the Securities and Exchange Commission, foreigners hold
corporation would be considered compliant with the 40 percent 120,046,690 common shares of PLDT whereas Filipinos hold
constitutional limit on foreign equity of public utilities since the only 66,750,622 common shares. In other words, foreigners
overwhelming majority, or more than 99.999 percent, of the total hold 64.27% of the total number of PLDT’s common shares,
outstanding capital stock is Filipino owned. This is obviously while Filipinos hold only 35.73%. Since holding a majority of the
absurd. common shares equates to control, it is clear that foreigners
exercise control over PLDT. Such amount of control
In the example given, only the foreigners holding the unmistakably exceeds the allowable 40 percent limit on foreign
common shares have voting rights in the election of directors, ownership of public utilities expressly mandated in Section 11,
even if they hold only 100 shares. The foreigners, with a Article XII of the Constitution.
minuscule equity of less than 0.001 percent, exercise control
over the public utility. On the other hand, the Filipinos, holding As shown in PLDT’s 2010 GIS, as submitted to the SEC,
more than 99.999 percent of the equity, cannot vote in the the par value of PLDT common shares is P5.00 per share,
election of directors and hence, have no control over the public whereas the par value of preferred shares is P10.00 per share.
utility. This starkly circumvents the intent of the framers of the In other words, preferred shares have twice the par value of
Constitution, as well as the clear language of the Constitution, to common shares but cannot elect directors and have only 1/70 of
place the control of public utilities in the hands of Filipinos. It the dividends of common shares. Moreover, 99.44% of the
also renders illusory the State policy of an independent national preferred shares are owned by Filipinos while foreigners own
economy effectively controlled by Filipinos. only a minuscule 0.56% of the preferred shares. Worse,
preferred shares constitute 77.85% of the authorized capital
The example given is not theoretical but can be found in stock of PLDT while common shares constitute only
the real world, and in fact exists in the present case. 22.15%. This undeniably shows that beneficial interest in PLDT
is not with the non-voting preferred shares but with the common
          xxx                                 xxx                                 shares, blatantly violating the constitutional requirement of 60
xxx percent Filipino control and Filipino beneficial ownership in a
public utility.
[O]nly holders of common shares can vote in the election
of directors [of PLDT], meaning only common shareholders The legal and beneficial ownership of 60 percent of the
exercise control over PLDT. Conversely, holders of preferred outstanding capital stock must rest in the hands of Filipinos in
accordance with the constitutional mandate. Full beneficial of PLDT rest with the common shares, not with the preferred
ownership of 60 percent of the outstanding capital stock, shares.
coupled with 60 percent of the voting rights, is constitutionally
required for the State’s grant of authority to operate a public 69. G.R. No. 195580               April 21, 2014
utility. The undisputed fact that the PLDT preferred shares,
99.44% owned by Filipinos, are non-voting and earn only 1/70 NARRA NICKEL MINING AND DEVELOPMENT CORP.,
of the dividends that PLDT common shares earn, grossly TESORO MINING AND DEVELOPMENT, INC., and
violates the constitutional requirement of 60 percent Filipino MCARTHUR MINING, INC., Petitioners, 
control and Filipino beneficial ownership of a public utility. vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
In short, Filipinos hold less than 60 percent of the voting
stock, and earn less than 60 percent of the dividends, of DOCTRINE:
PLDT. This directly contravenes the express command in
Section 11, Article XII of the Constitution that “[n]o franchise, The Grandfather Rule or the second part of the SEC Rule
certificate, or any other form of authorization for the operation of applies only when the 60-40 Filipino-foreign equity
a public utility shall be granted except to x x x corporations x x x ownership is in doubt
organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens x x x.” FACTS:

To repeat, (1) foreigners own 64.27% of the common Sometime in December 2006, respondent Redmont
shares of PLDT, which class of shares exercises the sole right Consolidated Mines Corp. (Redmont), a domestic corporation
to vote in the election of directors, and thus exercise control organized and existing under Philippine laws, took interest in
over PLDT; (2) Filipinos own only 35.73% of PLDT’s common mining and exploring certain areas of the province of Palawan.
shares, constituting a minority of the voting stock, and thus do After inquiring with the Department of Environment and Natural
not exercise control over PLDT; (3) preferred shares, 99.44% Resources (DENR), it learned that the areas where it wanted to
owned by Filipinos, have no voting rights; (4) preferred shares undertake exploration and mining activities where already
earn only 1/70 of the dividends that common shares earn; (5) covered by Mineral Production Sharing Agreement (MPSA)
preferred shares have twice the par value of common shares; applications of petitioners Narra, Tesoro and McArthur.
and (6) preferred shares constitute 77.85% of the authorized
capital stock of PLDT and common shares only 22.15%. This Petitioner McArthur, through its predecessor-in-interest Sara
kind of ownership and control of a public utility is a mockery of Marie Mining, Inc. (SMMI), filed an application for an MPSA and
the Constitution. Exploration Permit (EP) with the Mines and Geo-Sciences
Bureau (MGB), Region IV-B, Office of the Department of
Incidentally, the fact that PLDT common shares with a Environment and Natural Resources (DENR).
par value of P5.00 have a current stock market value
of P2,328.00 per share, while PLDT preferred shares with a par bsequently, SMMI was issued MPSA-AMA-IVB-153 covering an
value of P10.00 per share have a current stock market value area of over 1,782 hectares in Barangay Sumbiling, Municipality
ranging from only P10.92 to P11.06 per share, is a glaring of Bataraza, Province of Palawan and EPA-IVB-44 which
confirmation by the market that control and beneficial ownership includes an area of 3,720 hectares in Barangay Malatagao,
Bataraza, Palawan. The MPSA and EP were then transferred to ISSUE: Whether or not the petitioner corporations are
Madridejos Mining Corporation (MMC) and, on November 6, Filipino and can validly be issued MPSA and  EP?
2006, assigned to petitioner McArthur.2
HELD:
Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining & No. The SEC Rules provide for the manner of calculating the
Development Corporation (PLMDC) which previously filed an Filipino interest in a corporation for purposes, among others, of
application for an MPSA with the MGB, Region IV-B, DENR on determining compliance with nationality requirements (the
January 6, 1992. Through the said application, the DENR ‘Investee Corporation’). Such manner of computation is
issued MPSA-IV-1-12 covering an area of 3.277 hectares in necessary since the shares in the Investee Corporation may be
barangays Calategas and San Isidro, Municipality of Narra, owned both by individual stockholders (‘Investing Individuals’)
Palawan. Subsequently, PLMDC conveyed, transferred and/or and by corporations and partnerships (‘Investing Corporation’).
assigned its rights and interests over the MPSA application in The said rules thus provide for the determination of nationality
favor of Narra. depending on the ownership of the Investee Corporation and, in
certain instances, the Investing Corporation. 
Another MPSA application of SMMI was filed with the DENR  
Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA- Under the SEC Rules, there are two cases in determining the
IVB-47) over 3,402 hectares in Barangays Malinao and nationality of the Investee Corporation. The first case is the
Princesa Urduja, Municipality of Narra, Province of Palawan. ‘liberal rule’, later coined by the SEC as the Control Test in its
SMMI subsequently conveyed, transferred and assigned its 30 May 1990 Opinion, and pertains to the portion in said
rights and interest over the said MPSA application to Tesoro. Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares
belonging to corporations or partnerships at least 60% of the
On January 2, 2007, Redmont filed before the Panel of capital of which is owned by Filipino citizens shall be considered
Arbitrators (POA) of the DENR three (3) separate petitions for as of Philippine nationality.’ Under the liberal Control Test, there
the denial of petitioners’ applications for MPSA designated as is no need to further trace the ownership of the 60% (or more)
AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12. Filipino stockholdings of the Investing Corporation since a
corporation which is at least 60% Filipino-owned is considered
In the petitions, Redmont alleged that at least 60% of the capital as Filipino. 
stock of McArthur, Tesoro and Narra are owned and controlled  
by MBMI Resources, Inc. (MBMI), a 100% Canadian The second case is the Strict Rule or the Grandfather Rule
corporation. Redmont reasoned that since MBMI is a Proper and pertains to the portion in said Paragraph 7 of the
considerable stockholder of petitioners, it was the driving force 1967 SEC Rules which states, “but if the percentage of Filipino
behind petitioners’ filing of the MPSAs over the areas covered ownership in the corporation or partnership is less than 60%,
by applications since it knows that it can only participate in only the number of shares corresponding to such percentage
mining activities through corporations which are deemed Filipino shall be counted as of Philippine nationality.” Under the Strict
citizens. Redmont argued that given that petitioners’ capital Rule or Grandfather Rule Proper, the combined totals in the
stocks were mostly owned by MBMI, they were likewise Investing Corporation and the Investee Corporation must be
disqualified from engaging in mining activities through MPSAs, traced (i.e., “grandfathered”) to determine the total percentage
which are reserved only for Filipino citizens. of Filipino ownership. Moreover, the ultimate Filipino ownership
of the shares must first be traced to the level of the Investing In a strongly worded Motion for Reconsideration dated June 5,
Corporation and added to the shares directly owned in the 2014, petitioners-movants argued, in the main, that the Court's
Investee Corporation.  Decision was not in accord with law and logic. In its September
  2, 2014 Comment, on the other hand, respondent Redmont
In other words, based on the said SEC Rule and DOJ Opinion, Consolidated Mines Corp. (Redmont) countered that petitioners’
the Grandfather Rule or the second part of the SEC Rule motion for reconsideration is nothing but a rehash of their
applies only when the 60-40 Filipino-foreign equity ownership is arguments and should, thus, be denied outright for being pro-
in doubt (i.e., in cases where the joint venture corporation with forma. Petitioners have interposed on September 30, 2014 their
Filipino and foreign stockholders with less than 60% Filipino Reply to the respondent’s Comment.
stockholdings [or 59%] invests in other joint venture corporation
which is either 60-40% Filipino-alien or the 59% less Filipino). After considering the parties’ positions, as articulated in
Stated differently, where the 60-40 Filipino- foreign equity their respective submissions, We resolve to deny the
ownership is not in doubt, the Grandfather Rule will not apply. motion for reconsideration.

70. G.R. No. 195580               January 28, 2015 ISSUE:

NARRA NICKEL MINING AND DEVELOPMENT CORP., How do we compute for the Filipino Equity Composition in
TESORO MINING AND DEVELOPMENT, INC., and a corporation?
McARTHUR MINING, INC., Petitioners, 
vs. HELD: (May computation na mahaba mismo sa case)
REDMONT CONSOLIDATED MINES CORP., Respondent.
The application of the Grandfather Ruleis justified by the
DOCTRINE: circumstances of the case to determine the nationality of
Determination and computation of petitioners’ Filipino petitioners.
equity composition was based on their common
shareholdings, not preferred or redeemable shares. To petitioners, the Court’s application of the Grandfather Rule to
determine their nationality is erroneous and allegedly without
FACTS: basis in the Constitution, the Foreign Investments Act of 1991
(FIA), the Philippine Mining Act of 1995,3 and the Rules issued
Very simply, the challenged Decision sustained the appellate by the Securities and Exchange Commission (SEC). These laws
court's ruling that petitioners, being foreign corporations, are not and rules supposedly espouse the application of the Control
entitled to Mineral Production Sharing Agreements (MPSAs). In Test in verifying the Philippine nationality of corporate entities
reaching its conclusion, this Court upheld with approval the for purposes of determining compliance withSec. 2, Art. XII of
appellate court's finding that there was doubt as to petitioners' the Constitution that only "corporations or associations at least
nationality since a 100% Canadian-owned firm, MBMI sixty per centum of whose capital is owned by such [Filipino]
Resources, Inc. (MBMI), effectively owns 60% of the common citizens" may enjoy certain rights and privileges, like the
stocks of the petitioners by owning equity interest of petitioners' exploration and development of natural resources.
other majority corporate shareholders.
The application of the Grandfather Rule in the present case operation. Consistent with this objective, the Grandfather
does not eschew the Control Test. Rulewas originally conceived to look into the citizenshipof the
individuals who ultimately own and control the shares of stock of
Clearly, petitioners have misread, and failed to appreciate the a corporation for purposes of determining compliance with the
clear import of, the Court’s April 21, 2014 Decision. Nowhere in constitutional requirement of Filipino ownership. It cannot,
that disposition did the Court foreclose the application of the therefore, be denied that the framers of the Constitution have
Control Test in determining which corporations may be not foreclosed the Grandfather Rule as a tool in verifying the
considered as Philippine nationals. Instead, to borrow Justice nationality of corporations for purposes of ascertaining their right
Leonen’s term, the Court used the Grandfather Rule as a to participate in nationalized or partly nationalized activities.
"supplement" to the Control Test so that the intent underlying
the averted Sec. 2, Art. XII of the Constitution be given effect. With 60.36% foreign ownership in petitioner Narra, as compared
The following excerpts of the April 21, 2014 Decision cannot be to only 39.64% Filipino ownership of its shares, it is clear that
clearer: petitioner Narra does not comply with the minimum Filipino
equity requirement imposed in Section 2, Article XII of the
In ending, the "control test" is still the prevailing mode of Constitution. Hence, the appellate court did not err in holding
determining whether or not a corporation is a Filipino that petitioner McArthur is a foreign corporation not entitled to
corporation, within the ambit of Sec. 2, Art. XII of the 1987 an MPSA.
Constitution, entitled to undertake the exploration, development
and utilization of the natural resources of the Philippines. When It must be noted that the foregoing determination and
in the mind of the Court, there is doubt, based on the attendant computation of petitioners’ Filipino equity composition was
facts and circumstances of the case, in the 60-40 Filipino equity based on their common shareholdings, not preferred or
ownership in the corporation, then it may apply the "grandfather redeemable shares. Section 6 of the Corporation Code of the
rule." Philippines explicitly provides that "no share may be deprived of
voting rights except those classified as ‘preferred’ or
With that, the use of the Grandfather Rule as a "supplement" to ‘redeemable’ shares." Further, as Justice Leonen puts it, there
the Control Test is not proscribed by the Constitution or the is "no indication that any of the shares x x x do not have voting
Philippine Mining Act of 1995. rights, [thus] it must be assumed that all such shares have
voting rights."22 It cannot therefore be gain said that the
The Grandfather Rule implements the intent of the Filipinization foregoing computation hewed with the pronouncements of
provisions of the Constitution. Gamboa, as implemented by SEC Memorandum Circular No. 8,
Series of 2013, (SEC Memo No. 8)23 Section 2 of which states:
To reiterate, Sec. 2, Art. XII of the Constitution reserves the
exploration, development, and utilization of natural resources to Section 2. All covered corporations shall, at all times, observe
Filipino citizens and "corporations or associations at least sixty the constitutional or statutory requirement.1âwphi1 For
per centum of whose capital is owned by such citizens." purposes of determining compliance therewith, the required
Similarly, Section 3(aq) of the Philippine Mining Act of 1995 percentage of Filipino ownership shall be applied to BOTH (a)
considers a "corporation x x x registered in accordance with law the total outstanding shares of stock entitled to vote in the
at least sixty per cent of the capital of which is owned by citizens election of directors; AND (b) the total number of outstanding
of the Philippines" as a person qualified to undertake a mining
shares of stock, whether or not entitled to vote in the election of Tabora sold the four parcels of land to the plaintiff company,
directors. said to be under process of incorporation, in consideration of
one peso (P1) subject to the mortgages in favor of PNB and
In fact, there is no indication that herein petitioners issued any Severina Buzon and, to the condition that the certificate of title
other class of shares besides the 10,000 common shares. to said lands shall not be transferred to the name of the plaintiff
Neither is it suggested that the common shares were further company until the latter has fully and completely paid Tabora’s
divided into voting or non-voting common shares. Hence, for indebtedness to PNB.
purposes of this case, items a) and b) in SEC Memo No. 8 both
refer to the 10,000 common shares of each of the petitioners, The articles of incorporation were filed and the company sold
and there is no need to separately apply the 60-40 ratio to any the parcels of land to Sandiko on the reciprocal obligation that
segment or part of the said common shares. Sandiko will shoulder the three mortgages. A deed of sale
executed before a notary public by the terms of which the
71. CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff sold, ceded and transferred to the defendant all its
vs.TEODORO SANDIKO rights, titles and interest in and to the four parcels of land.

G.R. No. 43350 December 23, 1937 He executed a promissory note that he shall be 25,300 after a
year with interest and on the promissory notes, the parcels were
Doctrines: mortgage as security.

1. “Corporations are creatures of the law, and can A promissory note for P25,300 was drawn by the defendant in
only come into existence in the manner favor of the plaintiff, payable after one year from the date
prescribed by law. thereof. Further, a deed of mortgage executed before a notary
public in accordance with which the four parcels of land were
2. Promoters could not have acted as agents for a given as security for the payment of the said promissory note.
projected corporation since that which had no All these three instruments were dated February 15, 1932.
legal existence could have no agent. A
corporation, until organized, has no life and Sandiko failed to pay, thus the action for payment. The lower
therefore no faculties. court held that deed of sale was invalid.

FACTS: The corporation filed a motion for reconsideration.

Manuel Tabora is the registered owner of four parcels of land  ISSUE:

and he wanted to build a Fishery. He loaned from PNB P8,000
and to guarantee the payment of the loan, he mortgaged the 1.Whether  Cagayan Fishing Dev’t. has juridical capacity to
said parcels of land. Three subsequent mortgages were enter into the contract.
executed in favor of the same bank and to Severina Buzon,
whom Tabora is indebted to. 2. Can promoters of a corporation act as agents of a
corporation?
RULING: being have any power to bind it by contract, unless so
authorized by the charter. Until organized as authorized by the
1. The transfer made by Tabora to the Cagayan Fishing charter there is not a corporation, nor does it possess franchises
Development Co., Inc., plaintiff herein, was effected on May 31, or faculties for it or others to exercise, until it acquires a
1930 and the actual incorporation of said company was effected complete existence.”
later on October 22, 1930. In other words, the transfer was
made almost five months before the incorporation of the 2.
company.
The contract here was entered into not only between Manuel
A duly organized corporation has the power to purchase and Tabora and a non-existent corporation but between Manuel
hold such real property as the purposes for which such Tabora as owner of four parcels of land on the one hand and
corporation was formed may permit and for this purpose may the same Manuel Tabora, his wife and others, as mere
enter into such contracts as may be necessary. But before a promoters of a corporation on the other hand. For reasons that
corporation may be said to be lawfully organized, many things are self-evident, these promoters could not have acted as
have to be done. Among other things, the law requires the filing agents for a projected corporation since that which had no legal
of articles of incorporation. Although there is a presumption that existence could have no agent. A corporation, until organized,
all the requirements of law have been complied with, in the case has no life and therefore no faculties. It is, as it were, a child in
before us it can not be denied that the plaintiff was not yet ventre sa mere. This is not saying that under no circumstances
incorporated when it entered into the contract of sale. may the acts of promoters of a corporation be ratified by the
corporation if and when subsequently organized. There are, of
The contract itself referred to the plaintiff as “una sociedad en course, exceptions  , but under the peculiar facts and
vias de incorporacion.” It was not even a de facto corporation at circumstances of the present case we decline to extend the
the time. Not being in legal existence then, it did not possess doctrine of ratification which would result in the commission of
juridical capacity to enter into the contract. injustice or fraud to the candid and unwary.

“Corporations are creatures of the law, and can only come into The transfer by Manuel Tabora to the Cagayan Fishing
existence in the manner prescribed by law. As has already been Development Company, Inc. was null because at the time it was
stated, general laws authorizing the formation of corporations effected the corporation was non-existent, we deem it
are general offers to any persons who may bring themselves unnecessary to discuss this point.
within their provisions; and if conditions precedent are
prescribed in the statute, or certain acts are required to be done,
they are terms of the offer, and must be complied with
substantially before legal corporate existence can be acquired.” 72. G.R. No. L-21221             September 28, 1968

“That a corporation should have a full and complete RIZAL LIGHT & ICE CO., INC., petitioner, 
organization and existence as an entity before it can enter into vs.
any kind of a contract or transact any business, would seem to THE PUBLIC SERVICE COMMISSION and MORONG
be self evident. . . . A corporation, until organized, has no being, ELECTRIC CO., INC., respondents.
franchises or faculties. Nor do those engaged in bringing it into
Doctrine: denial of the motion for reconsideration filed by petitioner in
Case No. 39715 on February, 15, 1963, such that as far as the
The juridical personality and legal existence of Morong Electric Commission was concerned the certificate of the petitioner was
began only on October 17, 1962 when its certificate of already declared revoked and cancelled, the Commission
incorporation was issued by the SEC. 24 Before that date, or approved the application of Morong Electric and ordered the
pending the issuance of said certificate of incorporation, the issuance in its favor of the corresponding certificate of public
incorporators cannot be considered as de facto corporation.  convenience and necessity.1awphîl.nèt

Facts: Issue:

Petitioner opposed in writing the application of Morong Electric, Should Morong Electric be granted the certificate of public
alleging among other things, that it is a holder of a certificate of convenience and necessity?
public convenience to operate an electric light, heat and power
service in the same municipality of Morong, Rizal, and that the Held:
approval of said application would not promote public
convenience, but would only cause ruinous and wasteful NO. Before any certificate may be granted, authorizing the
competition. Although the opposition is dated October 6, 1962, it operation of a public service, three requisites must be complied
was actually received by the Commission on November 8, 1962, with, namely: (1) the applicant must be a citizen of the
or twenty four days after the order of general default was issued Philippines or of the United States, or a corporation or co-
in open court when the application was first called for hearing on partnership, association or joint-stock company constituted and
October 15, 1962. On November 12, 1962, however, the organized under the laws of the Philippines, sixty per centum at
petitioner filed a motion to lift said order of default. But before least of the stock or paid-up capital of which belongs entirely to
said motion could be resolved, petitioner filed another motion, citizens of the Philippines or of the United States; 19 (2) the
dated January 4, 1963, this time asking for the dismissal of the applicant must be financially capable of undertaking the
application upon the ground that applicant Morong Electric had proposed service and meeting the responsibilities incident to its
no legal personality when it filed its application on September operation; 20 and (3) the applicant must prove that the operation
10, 1962, because its certificate of incorporation was issued by of the public service proposed and the authorization to do
the Securities and Exchange Commission only on October 17, business will promote the public interest in a proper and suitable
1962. This motion to dismiss was denied by the Commission in manner. 21
a formal order issued on January 17, 1963 on the premise that
applicant Morong Electric was a de facto corporation. As stated earlier, in the decision appealed from, the
Consequently, the case was heard on the merits and both Commission found that Morong Electric is a corporation duly
parties presented their respective evidence. On the basis of the organized and existing under the laws of the Philippines, the
evidence adduced, the Commission, in its decision dated March stockholders of which are Filipino citizens, that it is financially
13, 1963, found that there was an absence of electric service in capable of operating an electric light, heat and power service,
the municipality of Morong and that applicant Morong Electric, a and that at the time the decision was rendered there was
Filipino-owned corporation duly organized and existing under absence of electric service in Morong, Rizal. While the petitioner
the laws of the Philippines, has the financial capacity to maintain does not dispute the need of an electric service in Morong,
said service. These circumstances, considered together with the Rizal, 22 it claims, in effect, that Morong Electric should not have
been granted the certificate of public convenience and necessity an ultra vires act can be enforced or validated if there are
because (1) it did not have a corporate personality at the time it equitable grounds for taking such action.
was granted a franchise and when it applied for said certificate;
(2) it is not financially capable of undertaking an electric service, Facts:
and (3) petitioner was rendering efficient service before its
electric plant was burned, and therefore, being a prior operator On May 17, 1948, the Acoje Mining Company, Inc. wrote the
its investment should be protected and no new party should be Director of Posts requesting the opening of a post, telegraph
granted a franchise and certificate of public convenience and and money order offices at its mining camp at Sta. Cruz,
necessity to operate an electric service in the same locality. Zambales, to service its employees and their families that were
living in said camp. Acting on the request, the Director of Posts
The juridical personality and legal existence of Morong Electric wrote in reply stating that if aside from free quarters the
began only on October 17, 1962 when its certificate of company would provide for all essential equipment and assign a
incorporation was issued by the SEC. 24 Before that date, or responsible employee to perform the duties of a postmaster
pending the issuance of said certificate of incorporation, the without compensation from his office until such time as funds
incorporators cannot be considered as de therefor may be available he would agree to put up the offices
facto corporation. 25 But the fact that Morong Electric had no requested. The company in turn replied signifying its willingness
corporate existence on the day the franchise was granted in its to comply with all the requirements outlined in the letter of the
name does not render the franchise invalid, because later Director of Posts requesting at the same time that it be
Morong Electric obtained its certificate of incorporation and then furnished with the necessary forms for the early establishment
accepted the franchise in accordance with the terms and of a post office branch.
conditions thereof.
The company informed the Director of Posts of the passage by
its board of directors of a resolution of the following tenor: "That
the requirement of the Bureau of Posts that the Company
73. G.R. No. L-18062             February 28, 1963 should accept full responsibility for all cash received by the
Postmaster be complied with, and that a copy of this resolution
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,  be forwarded to the Bureau of Posts." The letter further states
vs. that the company feels that that resolution fulfills the last
ACOJE MINING COMPANY, INC., defendant-appellant. condition imposed by the Director of Posts and that, therefore, it
would request that an inspector be sent to the camp for the
Doctrine: purpose of acquainting the postmaster with the details of the
operation of the branch office.
Even assuming arguendo that the resolution in question
constitutes an ultra vires act, the same however is not void for it The post office branch was opened at the camp on October 13,
was approved not in contravention of law, customs, public order 1949 with one Hilario M. Sanchez as postmaster. He is an
or public policy. The term ultra vires should be distinguished employee of the company. On May 11, 1954, the postmaster
from an illegal act for the former is merely voidable which may went on a three-day leave but never returned. The company
be enforced by performance, ratification, or estoppel, while the immediately informed the officials of the Manila Post Office and
latter is void and cannot be validated. 2 It being merely voidable, the provincial auditor of Zambales of Sanchez' disappearance
with the result that the accounts of the postmaster were necessity for its establishment and after imposing upon the
checked and a shortage was found in the amount of company certain requirements intended to safeguard and
P13,867.24. protect the interest of the government. Thus, after the company
had signified its willingness to comply with the requirement of
The several demands made upon the company for the payment the government that it furnish free quarters and all the essential
of the shortage in line with the liability it has assumed having equipment that may be necessary for the operation of the office
failed, the government commenced the present action on including the assignment of an employee who will perform the
September 10, 1954 before the Court of First Instance of Manila duties of a postmaster, the Director of Posts agreed to the
seeking to recover the amount of Pl3,867.24. The company in opening of the post office stating that "In cases where a post
its answer denied liability for said amount contending that the office will be opened under circumstances similar to the present,
resolution of the board of directors wherein it assumed it is the policy of this office to have the company assume direct
responsibility for the act of the postmaster is ultra vires, and in responsibility for whatever pecuniary loss may be suffered by
any event its liability under said resolution is only that of a the Bureau of Posts by reason of any act of dishonesty,
guarantor who answers only after the exhaustion of the carelessness or negligence on the part of the employee of the
properties of the principal, aside from the fact that the loss company who is assigned to take charge of the post office," and
claimed by the plaintiff is not supported by the office record. accepting this condition, the company, thru its board of
directors, adopted forthwith a resolution of the following tenor:
Wherefore, the parties respectfully pray that the foregoing "That the requirement of the Bureau of Posts that the company
stipulation of facts be admitted and approved by this Honorable should accept full responsibility for all cash received by the
Court, without prejudice to the parties adducing other evidence Postmaster, be complied with, and that a copy of this resolution
to prove their case not covered by this stipulation of be forwarded to the Bureau of Posts." On the basis of the
facts. 1äwphï1.ñët foregoing facts, it is evident that the company cannot now be
heard to complain that it is not liable for the irregularity
Issue: committed by its employee upon the technical plea that the
resolution approved by its board of directors is ultra vires. The
Is the Company liable for Ultra Vires Acts? least that can be said is that it cannot now go back on its
plighted word on the ground of estoppel.
Held:
The claim that the resolution adopted by the board of directors
The contention that the resolution adopted by the company of appellant company is an ultra vires act cannot also be
dated August 31, 1949 is ultra vires in the sense that it has no entertained it appearing that the same covers a subject which
authority to act on a matter which may render the company concerns the benefit, convenience and welfare of its employees
liable as a guarantor has no factual or legal basis. In the first and their families. While as a rule an ultra vires act is one
place, it should be noted that the opening of a post office branch committed outside the object for which a corporation is created
at the mining camp of appellant corporation was undertaken as defined by the law of its organization and therefore beyond
because of a request submitted by it to promote the the powers conferred upon it by law (19 C.J.S., Section 965, p.
convenience and benefit of its employees. The idea did not 419), there are however certain corporate acts that may be
come from the government, and the Director of Posts was performed outside of the scope of the powers expressly
prevailed upon to agree to the request only after studying the conferred if they are necessary to promote the interest or
welfare of the corporation. Thus, it has been held that "although Lancashire Indemnity Co. of America v. Fairbanks Steam
not expressly authorized to do so a corporation may become a Shovel Co., 147 N.E. 329, 332, 112 Ohio St. 136.)
surety where the particular transaction is reasonably necessary
or proper to the conduct of its business," 1 and here it is The defense of ultra vires rests on violation of trust or
undisputed that the establishment of the local post office is a duty toward stockholders, and should not be entertained
reasonable and proper adjunct to the conduct of the business of where its allowance will do greater wrong to innocent
appellant company. Indeed, such post office is a vital parties dealing with corporation..
improvement in the living condition of its employees and
laborers who came to settle in its mining camp which is far The acceptance of benefits arising from the performance
removed from the postal facilities or means of communication by the other party may give rise to an estoppel precluding
accorded to people living in a city or municipality.. repudiation of the transaction.

Even assuming arguendo that the resolution in question The current of modern authorities favors the rule that
constitutes an ultra vires act, the same however is not void for it where the ultra vires transaction has been executed by
was approved not in contravention of law, customs, public order the other party and the corporation has received the
or public policy. The term ultra vires should be distinguished benefit of it, the law interposes an estoppel, and will not
from an illegal act for the former is merely voidable which may permit the validity of the transaction or contract to be
be enforced by performance, ratification, or estoppel, while the questioned, and this is especially true where there is
latter is void and cannot be validated. 2 It being merely voidable, nothing in the circumstances to put the other party to the
an ultra vires act can be enforced or validated if there are transaction on notice that the corporation has exceeded
equitable grounds for taking such action. Here it is fair that the its powers in entering into it and has in so doing
resolution be upheld at least on the ground of estoppel. On this overstepped the line of corporate privileges.
point, the authorities are overwhelming:

The weight of authority in the state courts is to the effect

that a transaction which is merely ultra vires and 74. G.R. No. L-36207             October 26, 1932
not malum in se or malum prohibitum, is, if performed by
one party, not void as between the parties to all intents IRINEO G. CARLOS, plaintiff-appellant, 
and purposes, and that an action may be brought directly vs.
on the transaction and relief had according to its terms. MINDORO SUGAR CO., ET AL., defendants-appellees.
(19 C.J.S., Section 976, p. 432, citing Nettles v. Rhett,
C.C.A.S.C., 94 F. 2d, reversing, D.C., 20 F. Supp. 48) DOCTRINE:

This rule is based on the consideration that as between It has been intimated according to section 121 of the
private corporations, one party cannot receive the Corporation Law, the Philippine Trust Company, as a banking
benefits which are embraced in total performance of a institution, could not guarantee the bonds to the value of
contract made with it by another party and then set up P3,000,000 because this amount far exceeds its capital of
the invalidity of the transaction as a defense." (London & P1,000,000 of which only one-half has been subscribed and
paid.
FACTS: The Philippine Trust Company paid the appellant, upon
presentation of the coupons, the stipulated interest from the
On November 17, 1917, the board of directors of the Philippine date of their maturity until the 1st of July, 1928, when it stopped
Trust Company, adopted a resolution authorizing its president, payments; and thenceforth it alleged that it did not deem itself
among other things, to purchase at par and in the name and for bound to pay such interest or to redeem the obligation because
the use of the trust corporation all or such part as he may deem the guarantee given for the bonds was illegal and void.
expedient, of the bonds in the value of P3,000,000 that the
Mindoro Sugar Company was about to issue, and to resell them, ISSUE:
with or without the guarantee of said trust corporation, at a price
not less than par, and to guarantee to the Philippine National Whether or not Philippine Trust Company has no power to
Bank the payment of the indebtedness to said bank by the guarantee the obligation of another juridical personality, for
Mindoro Sugar Company or Charles J. Welch and Horace value received?
Havemeyer, up to P2,000,000.
HELD:
In pursuance of this resolution, on December 21, 1917, the
Mindoro Sugar Company executed in favor of the Philippine NO.
Trust Company the deed of trust, transferring all of its property
to it in consideration of the bonds it had issued to the value of Firstly, that the Philippine Trust Company, although secondarily
P3,000,000, the value of each bond being $1,000, which par engaged in banking, was primarily organized as a trust
value, with interest at 8 per cent per annum, the Philippine Trust corporation with full power to acquire personal property such as
Company had guaranteed to the holders, and in consideration, the bonds in question according to both section 13 (par. 5) of
furthermore, of said trust corporation having guaranteed to the the Corporation Law and its duly registered by-laws and articles
Philippine National Bank all the obligations contracted by the of incorporation; secondly, that being thus authorized to acquire
Mindoro Sugar Company, Charles J. Welch and Horace the bonds, it was given implied power to guarantee them in
Havemeyer up to the aforesaid amount of P2,000,000. The order to place them upon the market under better, more
aforementioned deed was approved by his Excellency, the advantageous conditions, and thereby secure the profit derived
Governor-General, upon recommendation of the Secretary of from their sale:
Agriculture and Natural Resources, and in accordance with the
provisions of Act No. 2720 of the Philippine Legislature. It is not, however, ultra vires for a corporation to enter
into contracts of guaranty or suretyship where it does so
In consequence of this transaction, the bonds, with their in the legitimate furtherance of its purposes and
coupons were placed on the market and sold by the Philippine business. And it is well settled that where a corporation
Trust Company. acquires commercial paper or bonds in the legitimate
transaction of its business it may sell them, and in
The Philippine Trust Company sold thirteen bonds, Nos. 1219 to furtherance of such a sale it may, in order to make them
1231, to Ramon Diaz for P27,300, at a net profit of P100 per the more readily marketable, indorse or guarantee their
bond. The four bonds Nos. 1219, 1220, 1221, and 1222, here in payment. 
litigation, are included in the thirteen sold to Diaz.
It has been intimated according to section 121 of the 75. THE GOVERNMENT OF THE PHILIPPINE ISLANDS vs.EL
Corporation Law, the Philippine Trust Company, as a banking HOGAR FILIPINO, defendant.
institution, could not guarantee the bonds to the value of
P3,000,000 because this amount far exceeds its capital of
FACTS:The Government of the Philippine Islands filed an action
P1,000,000 of which only one-half has been subscribed and
against El Hogar due to the alleged illegal
paid. Section 121 reads as follows:
holding title to real property for a period exceeding five (5) years
after the same was bought in a foreclosure sale. Sec.13(5) of
SEC. 212. No such bank shall at any time be indebted or
the Corporation Law (old law) states that corporations must
in any way liable to an amount exceeding the amount of
dispose of real estate obtained within
its capital stock at such time actually paid in and
5 years from receiving the title. 
remaining undiminished by losses or otherwise, except
on account of demands of the following nature: The Philippine Government prays that El Hogar be excluded
from all corporate rights and privileges and effecting a final
(1) Moneys deposited with or collected by the dissolution of said corporation. It appears from the records that
bank; El Hogar was the holder of a recorded mortgage on the San
Clemente land as security for a P24K loan to El Hogar.
(2) Bills of exchange or drafts drawn against However, shareholders and borrowers defaulted in payment
money actually on deposit to the credit of the bank so El Hogar foreclosed the mortgage and purchased the land
or due thereto; during the auction sale. The certificate of title to the San
Clemente land was received by El Hogar and a board resolution
(3) Liabilities to the stockholders of the bank for authorizing Benzon to find a buyer was issued. Alcantara, the
dividends and reserve profits. buyer of the land, was given extension of time
to make payment but defaulted.
This difficulty is easily obviated by bearing in mind that, as we Thus, the contract was treated rescinded. Respondent acquired
stated above, the banking operations are not the primary aim of title in December 1920 until the property was finally sold
said corporation, which is engaged essentially in the trust to Felipa Alberto in July 1926. The interval exceeded 5 years
business, and that the prohibition of the law is not applicable to but the period did not commence to run until May 7, 1921 when
the Philippine Trust Company, for the evidence shows that the register of deeds delivered the new certificate of title. It has
Mindoro Sugar Company transferred all its real property, with been held that a purchaser of land registered under the Torrens
the improvements, to it, and the value of both, which surely system cannot acquire the status of an innocent purchaser for
could not be less than the value of the obligation guaranteed, value unless the vendor is able to place the owner’s duplicate in
became a part of its capital and assets; in other words, with the his hands showing the title to be in the vendor. During the
value of the real property transferred to it, the Philippine Trust period before May 1921, El Hogar was not in a position to pass
Company had enough capital and assets to meet the amount of an indefeasible title to any purchaser. Therefore,
the bonds guaranteed with interest thereon. El Hogarcannot be held accountable for this delay which was
not due to its fault. Likewise, the period from March 25, 1926 to
April 20, 1926must not be part of the five-year period because
this was the period where respondent was under the obligation
to sell the property to Alcantara prior to the contract’s rescission have been the intention; and the only way to avoid the
due to Alcantara’s non-payment.  consequence suggested is to hold, as we now hold, that the
ISSUE:Whether the acts of respondent corporation merit its provision now under consideration has not impaired the
dissolution or deprivation of its corporate franchise and to discretion of this court in applying the writ of quo warranto.
exclude it from all corporate rightsand privilege? Another way to put the same conclusion is to say that the
HELD:NO. expression "shall be dissolved by quo warrantoproceedings"
means in effect, "may be dissolved
The contention for the plaintiff is to the effect that the second by quo warranto proceedings in the discretion of the court." 
sentence in this enactment has entirely abrogated the discretion
of this court with respect to the application of the remedy
of qou warranto, as expressed in section 212 of the Code of 76. NATIONAL POWER CORPORATION vs. HONORABLE
Civil Procedure, and that it is now mandatory upon us to ABRAHAM P. VERA
dissolved any corporation whenever we find that it has
committed any violation of the Corporation Law, however trivial. Facts: Sea Lion filed a complaint for prohibition and mandamus
In our opinion in this radical view of the meaning of the with damages against NAPOCOR and Philippine Ports Authority
enactment is untenable. When the statute says, "If the violation alleging bad faith and grave abuse of discretion in not renewing
is committed by a corporation, the same shall, upon such its Contract for Stevedoring Services at NPCs plant, and in
violation being proved, be dissolved taking over its stevedoring services.
by quo warranto proceedings . . .," the intention was to indicate Respondent Judge issued a preliminary injunction enjoining
that the remedy against the corporation shall be by action NAPOCOR from further undertaking stevedoring
of quo warranto. The interpretation placed upon this language in and arrastre services in its pier in Batangas. NAPOCOR filed an
the brief of the Attorney-General would be dangerous in the “Urgent Motion” to dissolve the restraining order. It was denied
extreme, since it would actually place the life of all corporate by the respondent judge after finding that NAPOCOR was not
investments in the official. No corporate enterprise of any empowered by its Charter, RA 6395, to engage in stevedoring
moment can be conducted perpetually without some and arrastre services. Hence this petition.
trivial misdemeanor against corporate law being committed Issue: Whether or not NAPOCOR is empowered by its Charter
by some one or other of its numerous employees. As to undertake stevedoring services in its pier.
illustrations of the preposterous effects of the provision, in the
Held: Pursuant to Sec. 1 and 2 of RA 6395, NAPOCOR was
sense contended for by the Attorney-General, the attorneys for
created and empowered to construct, operate and maintain
the respondent have called attention to the fact that under
power plants, reservoirs, transmission lines and other
section 52 of the Corporation Law, a business corporation is
works. Sec. 3 of RA 6395 also empowers NAPOCOR “to
required to keep a stock book and a transfer book in which the
exercise such powers and do such things as may be reasonably
names of stockholders shall kept in alphabetical order. Again,
necessary to carry out the business and purposes for which it
under section 94, railroad corporations are required to cause all
was organized, or which, from time to time, may be declared by
employees working on passenger trains or at a station for
the Board to be necessary, useful, incidental or auxiliary to
passengers to wear a badge on his cap or hat which will
accomplish said purpose.
indicate his office. Can it be supposed that the Legislature
intended to penalize the violation of such provisions as these by To determine whether or not NAPOCORs act falls within the
dissolution of the corporation involved? Evidently such could not purview of said provision, it must be established that a logical
and necessary relation exists between the act questioned and The Labor Arbiter rendered a decision granting the general
the corporate purpose expressed in its Charter. wage increase. This decision was affirmed by the NLRC and the
In the instant case, it is an undisputed fact that the pier located Secretary of Labor. Their decision held that petitioner is
at Calaca, Batangas, which is owned by NPC, receives the financially capable and had actually been profitable. They
various shipments of coal which is used exclusively to fuel included in determining the profits of the corporation dividends it
the Batangas Coal-Fired Thermal Power Plant of the earned as stockholder in its security holdings. Hence this
NAPOCOR for the generation of electric power. The stevedoring appeal.
services which involve the unloading of the coal shipments into Petitioner alleges, inter alia, that the salary increases were
the pier for its eventual conveyance to the power plant are unfair since whatever profits it earned as dividends from security
incidental and indispensable to the operation of the plant. The holdings are the absolute property of its stockholders and
Court holds that NAPOCOR is empowered under its Charter to cannot be made available for disposition if only to meet the
undertake such services, it being reasonably necessary to the employees' economic demands, and that the employees had no
operation and maintenance of the power plant. participation whatsoever in earning said dividends.
Issue: Whether or not the cash dividends received by the
petitioner-corporation are the absolute property of its
77.Madrigal & Co., Inc. v. Zamora and Madrigal Central Office stockholders.
Employees Union 
Held: No. Dividends received by the company are corporate
G.R. No. L-48237 and L-49023 June 30, 1987  earnings arising from corporate investment. In fact, the
Facts: In 1973, Madrigal Central Office Employees Union petitioner had entered such earnings in its financial statements
sought for the renewal of its collective bargaining agreement as profits, which it would not have done if they were not in fact
with the petitioner, which was due to expire on February 1974. profits.
Specifically, it proposed a wage increase of P200.00 a month, Moreover, it is incorrect to say that such profits — in the form of
an allowance of P100.00 a month, and other economic benefits. dividends — are beyond the reach of the petitioner's creditors
The petitioner, however, requested for a deferment in the since the petitioner had received them as compensation for its
negotiations. management services in favor of the companies it managed as
On July 29, 1974, by an alleged resolution of its stockholders, a shareholder thereof. As such shareholder, the dividends paid
the petitioner reduced its capital stock from 765,000 shares to to it were its own money, which may then be available for wage
267,366 shares. increments. It is not a case of a corporation distributing
On August 22, 1975, by yet another alleged stockholders' dividends in favor of its stockholders, in which case, such
action, the petitioner further reduced its authorized capitalization dividends would be the absolute property of the stockholders
from 267,366 shares to 110,085 shares. and hence, out of reach by creditors of the corporation. Here,
the petitioner was acting as stockholder itself, and in that case,
After the petitioner's failure to sit down with the respondent
the right to a share in such dividends, by way of
union, the latter filed a complaint for unfair labor practice with
salary increases, may not be denied is employees.
the NLRC. In due time, the petitioner filed its position paper,
alleging operational losses. It also sought reorganization, by
way of retrenchment, of its employees and operations.
78. HENRY DELA RAMA CO. v. ADMIRAL UNITED SAVINGS
BANK
G.R. No. 154740 April 16, 2008 for the purpose of lending his name to METRO RENT, without
Facts: ADMIRAL extended a loan to petitioner Co with Isip as receiving value therefor. 
co-maker as evidenced by a promissory note. Co and Isip failed  
to pay the loan when it became due and demandable. Demands Issue: Is an accommodation party of a corporation liable?
were made by ADMIRAL, which were not heeded. Admiral
Held: YES.
thereafter filed a collection case against Co and Isip.
The document, bearing Cos signature, speaks for itself. To
In his Answer, Co alleged that the promissory note was a sham
repeat, Co has not questioned the genuineness and due
and frivolous; that he did not receive any benefits from the
execution of the note. By signing the promissory note, Co
transaction, claiming that ADMIRAL merely induced him into
acknowledged receipt of the loan amounting to P500,000.00,
executing the promissory note; that the claims had been paid,
and undertook to pay the same, plus interest, to ADMIRAL on or
waived or otherwise extinguished, among other things.
before February 28, 1984. Thus, he cannot validly set up
Pending resolution of the case, Isip died. Co then filed a third the defense that he did not receive the value of the note or any
party complaint against METRO RENT. He averred that the consideration therefor.
incorporators and officers of METRO RENT were the ones who
 
prodded him in obtaining a loan from ADMIRAL. The proceeds
of the loan were given to the directors and officers of METRO At any rate, Cos assertion that he merely acted as an
RENT, who assured him of prompt payment of the loan accommodation party for METRO RENT cannot release him
obligation. METRO RENT also assured him that he would be from liability under the note. An accommodation party who lends
discharged from all liabilities under the promissory note, but it his name to enable the accommodated party to obtain credit or
did not make good its promise. Co, thus, prayed that METRO raise money is liable on the instrument to a holder for value
RENT be adjudged liable to ADMIRAL for the payment of the even if he receives no part of the consideration. [13] He assumes
obligation under the promissory note. the obligation to the other party and binds himself to pay the
note on its due date. By signing the note, Co thus became liable
The RTC dismised the complaint as well as the third party
for the debt even if he had no direct personal interest in the
complaint against METRO RENT. Reversing the RTC, the CA
obligation or did not receive any benefit therefrom.
found Co liable for the payment of his loan obligation to
ADMIRAL. It rejected Cosassertion that he merely acted as an  
accommodation party for METRO RENT. The CA further held 79. UNIVERSITY OF MINDANAO, INC., vs. BANGKO
that whatever agreement Co had with METRO RENT cannot SENTRAL NG PILIPINAS, ET AL.
bind ADMIRAL since there is no showing that the latter was G.R. No. 194964-65 January 11, 2016
aware of the agreement, let alone consented to it. The CA also
rejected Cos alternative defense that METRO RENT already Facts: University of Mindanao is an educational institution.
paid the loan, finding the testimonial evidence in support of the Before 1982, Guillermo B. Torres and Dolores P. Torres
assertion as pure hearsay. Hence this petition. incorporated and operated two (2) thrift banks: Guillermo B.
Petitioner now asserts, inter alia, that he is not legally bound by Torres chaired both thrift banks. He acted as FISLAI’s
said document because he merely acted as an accommodation President, while his wife, Dolores P. Torres, acted as DSLAI’s
party for METRO RENT. He claimed the he signed the note only President and FISLAI’s Treasurer.
Upon Guillermo B. Torres’ Petitioner argues that it did not authorize Saturnino Petalcorin to
request, Bangko Sentral ng Pilipinas (BSP) issued a P1.9 mortgage its properties on its behalf. There was no board
million standby emergency credit to FISLAI. Then the University resolution to that effect. Thus, the mortgages executed
of Mindanao’s Vice President for Finance, SaturninoPetalcorin, by Saturnino Petalcorin were unenforceable.
executed a deed of real estate mortgage over University of Issue: Whether or not the execution of the mortgage contract
Mindanao’s property in favor of BSP. The mortgage served as was ultra vires. Whether or not petitioner is bound by the real
security for FISLAI’s P1.9 Million loan. It was allegedly executed estate mortgage contracts executed by Saturnino Petalcorin.
on University of Mindanao’s behalf.
Held: 1. Yes. Corporations are artificial entities granted legal
As proof of his authority to execute a real estate mortgage for personalities upon their creation by their incorporators in
University of Mindanao, SaturninoPetalcorin showed a accordance with law. A corporation may exercise its powers
Secretary’s Certificate by University of Mindanao’s Corporate only within those definitions. Corporate acts that are outside
Secretary, Aurora de Leon.   those express definitions under the law or articles of
Eventually FISLAI and DSLAI merged with DSLAI (later named incorporation or those "committed outside the object for which a
MSLAI) as surviving corporation. MSLAI failed to recover from corporation is created" are ultra vires.
its losses and was liquidated in 1991. The only exception to this rule is when acts are necessary and
In 1999, BSP sent a letter to University of Mindanao, informing it incidental to carry out a corporation’s purposes, and to the
that the bank would foreclose its properties if MSLAI’s total exercise of powers conferred by the Corporation Code and
outstanding obligation remained unpaid. under a corporation’s articles of incorporation. It is a question,
In its reply to Bangko Sentral ng Pilipinas’ June 18, 1999 letter, therefore, in each case, of the logical relation of the act to the
University of Mindanao, denied its properties were mortgaged. It corporate purpose expressed in the charter.
also denied having received any loan proceeds As an educational institution, it is limited to developing human
from Bangko Sentral ng Pilipinas. capital through formal instruction. It is not a corporation
On July 16, 1999, University of Mindanao filed two Complaints engaged in the business of securing loans of others.
for nullification and cancellation of mortgage, alleging it did not 2. No. The mortgage contracts executed in favor of respondent
obtain any loan from BSP and did not receive any loan do not bind petitioner. They were executed without authority
proceeds from the bank. from petitioner.
University of Mindanao also alleged that It never Petitioner must exercise its powers and conduct its business
authorized Saturnino Petalcorin to execute real estate mortgage through its Board of Trustees under Section 23 of the
contracts involving its properties to secure FISLAI’s debts. It Corporation Code. The Board of Trustees must act as a body in
never ratified the execution of the mortgage contracts. order to exercise corporate powers. Individual trustees are not
Moreover, as an educational institution, it cannot mortgage its clothed with corporate powers just by being a trustee. Hence,
properties to secure another person’s debts. the individual trustee cannot bind the corporation by himself or
Petitioner argues that the execution of the mortgage contract herself.
was ultra vires. As an educational institution, it may not secure The corporation may, however, delegate through a board
the loans of third persons. Securing loans of third persons is not resolution its corporate powers or functions to a representative,
among the purposes for which petitioner was established. subject to limitations under the law and the corporation’s articles
of incorporation. The relationship between a corporation and its
representatives is governed by the general principles of agency. 80. Fred Harden vs Benguet Consolidated Mining Company
Hence, without delegation by the board of directors or trustees, FACTS:In 1927, Benguet Consolidated Mining Company,
acts of a person executed on behalf of the corporation are registered as a sociedad anonima under the Spanish Law,
generally not binding on the corporation. And Contracts entered agreed to invest and build
into in another’s name without authority or valid capital equipments in favor of Balatoc Mining Company, a
legal representation are generally unenforceable. corporation registered under the then relatively new Corporation
Saturnino Petalcorin, not having the proper board resolution to Law of 1925. In exchange, Balatoc Mining agreed to
be authorized to execute the mortgage contracts for petitioner, give Benguet Mining 600,000 shares.
the contracts he executed are unenforceable against petitioner. The venture proved to be profitable and Balatoc Mining earned
They cannot bind petitioner.  and so did its stockholders, and of course, Benguet Mining was
However, personal liabilities may be incurred by directors who earning big too because it now owns 600k shares. This
assented to such unauthorized act and by the person who prompted, Fred Harden a stockholder of Balatoc Mining who
contracted in excess of the limits of his or her authority without also owns thousands of shares to sue Benguet Mining on the
the corporation’s knowledge. ground that under the Corporation Law a corporation
Additional Information: A distinction should be made between like Benguet Mining which is engaged in the mining industry is
corporate acts or contracts which are illegal and those which are prohibited from being interested in other corporations which are
merely ultra vires. The former contemplates the doing of an act also engaged in the mining industry like Balatoc Mining.
which is contrary to law, morals, or public order, or contravene ISSUE: Whether or not Harden’s suit should prosper.
some rules of public policy or public duty, and are, like similar HELD: No. The Corporation Law of 1925
transactions between individuals, void. They cannot serve as subjects sociedades anonimas to its provisions “so far as such
basis of a court action, nor acquire validity by performance, provisions may be applicable”.  In 1929, the Corporation Law
ratification, or estoppel. Mere ultra vires acts, on the other hand, was amended and the prohibition cited by Harden was so
or those which are not illegal and void ab initio, but are not modified as merely to prohibit any such corporation from holding
merely within the scope of the articles of incorporation, are more than fifteen per centum of the outstanding capital stock of
merely voidable and may become binding and enforceable another such corporation.
when ratified by the stockholders.
Further and more importantly, the Corporation Law of 1925
Acquiring shares in another corporation is not a means to create provides that if the person who allegedly violated the provisions
new powers for the acquiring corporation. Being a shareholder of said law is a corporation, the proper action is a
of another corporation does not automatically change the nature quo warranto which should be initiated by the Attorney-General
and purpose of a corporation’s business. Appropriate or its deputized provincial fiscal and not a private action as the
amendments must be made either to the law or the articles of one filed by Harden.
incorporation before a corporation can validly exercise powers
 
outside those provided in law or the articles of incorporation. In
other words, without an amendment, what is ultra vires before a 81. stonehill vs diokno
corporation acquires shares in other corporations is still ultra Facts: Respondents secured a total of 42 search warrants
vires after such acquisition. against petitioners herein and/or the corporations of which they
were officers, to search “books of accounts, financial records,
vouchers, correspondence, receipts, ledgers, journals, corporations adverted to above, since the right to object to the
portfolios, credit journals, typewriters, and other documents admission of said papers in evidence belongs exclusively to the
and/or papers showing all business transactions including corporations, to whom the seized effects belong, and may not
disbursements receipts, balance sheets and profit and loss be invoked by the corporate officers in proceedings against
statements and Bobbins (cigarette wrappers),” as “the subject of them in their individual capacity. 
the offense; stolen or embezzled and proceeds or fruits of the
offense,” or “used or intended to be used as the means of
82.Bache & Co vs ruiz
committing the offense,” which is described in the applications
adverted to above as “violation of Central Bank Laws, Tariff and
Customs Laws, Internal Revenue (Code) and the Revised Penal
Code.” FACTS: Commissioner Vera of Internal Revenue, wrote a letter
addressed to J Ruiz requesting the issuance of a search
warrant against petitioners for violation of Sec 46(a) of the
The petitioner contended that the search warrants are null and NIRC, in relation to all other pertinent provisions thereof,
void as their issuance violated the Constitution and the Rules of particularly Sects 53, 72, 73, 208 and 209, and authorizing
Court for being general warrants. Revenue Examiner de Leon make and file the application for
The documents, papers, and things seized under the alleged search warrant which was attached to the letter. The next day,
authority of the warrants in question may be split into two (2) de Leon and his witnesses went to CFI Rizal to obtain the
major groups, namely: (a) those found and seized in the offices search warrant. At that time J Ruiz was hearing a certain case;
of the aforementioned corporations, and (b) those found and so, by means of a note, he instructed his Deputy Clerk of Court
seized in the residences of petitioners herein. to take the depositions of De Leon and Logronio. After the
Issue: Whether petitioners can validly assail the search warrant session had adjourned, J Ruiz was informed that the
against the corporation. depositions had already been taken. The stenographer read to
Held: No. him her stenographic notes; and thereafter, J Ruiz asked
As regards the first group, we hold that petitioners herein respondent Logronio to take the oath and warned him that if his
have no cause of action to assail the legality of the contested deposition was found to be false and without legal basis, he
warrants and of the seizures made in pursuance thereof, for the could be charged for perjury. J  Ruiz signed de Leon’s
simple reason that said corporations have their respective application for search warrant and Logronio’s deposition. The
personalities, separate and distinct from the personality of search was subsequently conducted.
herein petitioners, regardless of the amount of shares of stock
or of the interest of each of them in said corporations, and ISSUE: Whether or not there had been a valid search warrant.
whatever the offices they hold therein may be. Indeed, it is well HELD: The SC ruled in favor of Bache on three grounds.
settled that the legality of a seizure can be contested only by the
It is next contended by respondents that a corporation is not
party whose rights have been impaired thereby, and that the
entitled to protection against unreasonable search and seizures.
objection to an unlawful search and seizure is purely
Again, we find no merit in the contention.
personal and cannot be availed of by third
parties. Consequently, petitioners herein may not validly object “we are of the opinion that an officer of a corporation which is
to the use in evidence against them of the documents, papers charged with a violation of a statute of the state of its creation,
and things seized from the offices and premises of the or of an act of Congress passed in the exercise of its
constitutional powers, cannot refuse to produce the books and a parcel of land together with various sawmill equipment, rolling
papers of such corporation, we do not wish to be understood as units and other fixed assets situated therein.
holding that a corporation is not entitled to immunity against
unreasonable searches and seizures. A corporation is, after all, P failed to pay the amortization and the amounts released to
but an association of individuals under an assumed name and and received by it. Repeated demands were made but upon
with a distinct legal entity. In organizing itself as a collective inspection it was found that P stopped operation. R sent a letter
body it waives no constitutional immunities appropriate to such to R sheriff of Camarines Norte requesting him to take
body. Its property cannot be taken without compensation. It can possession of the parcel of land and the chattels and to sell
only be proceeded against by due process of law, and is them at public auction. R sheriff issued corresponding notice of
protected, under the 14th Amendment, against unlawful extrajudicial sale and sent copy to P.
discrimination . . .”
P sent a bank draft for to PNB allegedly full settlement of the
“In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it obligation after the application of the sum representing the
was thought that a different rule applied to a corporation, the proceeds of the foreclosure sale of the parcel of land. P averred
ground that it was not privileged from producing its books and that the foreclosure of chattel mortgage is no longer needed for
papers. But the rights of a corporation against unlawful search being fully paid and that it could not be legally effected at a
and seizure are to be protected even if the same result might place other than City of Manila, the place agreed and stipulated
have been achieved in a lawful way.” in their contract.
In Stonehill, et al. vs. Diokno, et al., supra, this Court impliedly R’s counsel wrote to P that the remitted amount was not enough
recognized the right of a corporation to object against for its liability to which should be added the expenses for
unreasonable searches and seizures. guarding the mortgaged of chattels, attorney’s fees and
In the Stonehill case only the officers of the various corporations expenses of the sale. Notwithstanding, the foreclosure of both
in whose offices documents, papers and effects were searched land and the chattels were held.
and seized were the petitioners. In the case at bar, the
corporation to whom the seized documents belong, and whose ISSUE: Whether P is entitled to moral damages.
rights have thereby been impaired, is itself a petitioner. On that HELD: No.
score, petitioner corporation here stands on a different footing
from the corporations in Stonehill. Petitioner’s claim for moral damages seems to have no legal or
factual basis. Obviously, an artificial person like herein P
corporation cannot experience physical sufferings, mental
83.Mambulao Lumber Co. vs PNB anguish, fright, serious anxiety, wounded feelings, moral shock
or social humiliation which are basis of moral damages.  A
GR L-22973 corporation may have a good reputation which, if besmirched,
may also be a ground for the award of moral damages. The
30  January 1968 same cannot be considered under the facts of this case,
however, not only because it is admitted that herein appellant
FACTS: Petitioner (P) applied for industrial loan and granted by had already ceased in its business operation at the time of the
Respondent bank (R). To secure payment of loan, P mortgaged foreclosure sale of the chattels, but also for the reason that
whatever adverse effects of the foreclosure sale of the chattels Carloto-Concha at Dipolog City. Carloto filed for damages and
could have upon its reputation or business standing would Rural bank entered as co-plaintiff. Trial Court awarded damages
undoubtedly be the same whether the sale was conducted at in favor of rural bank.
Jose Panganiban, Camarines Norte, or in Manila which is the
place agreed upon by the parties in the mortgage contract.
However, exemplary damages are to be awarded. ISSUE: WoN Trial Court was correct in awarding moral
damages in favor of Rural Bank.
84.LBC Express, Inc. vs. Court of Appeals, G.R. No. 108670, Held: No
236
The respondent court erred in awarding moral damages to the
SCRA 602 , September 21, 1994 Rural Bank of Labason, Inc., an artificial person. Moral damages
are granted in recompense for physical suffering, mental
FACTS:Private respondent Carloto, incumbent President- anguish, fright, serious anxiety, besmirched reputation,
Manager of private respondent Rural Bank of Labason, alleged wounded feelings, moral shock, social humiliation, and similar
that while he was in Cebu City.He was instructed to proceed to injury. 7 A corporation, being an artificial person and having
Manila to follow-up the Rural Bank's plan of payment of existence only in legal contemplation, has no feelings, no
rediscounting obligations with Central Bank's main office in emotions, no senses;therefore, it cannot experience physical
Manila.He purchased a round trip plane ticket. He phoned his suffering and mental anguish. 8 Mental suffering can be
sister Elsie Carloto-Concha to send him P1,000.00 for his experienced only by one having a nervous system and it flows
pocket money in going to Manila and some rediscounting from real ills, sorrows, and griefs of life — all of which cannot
papers thru petitioner's LBC Office at Dipolog City. Mrs. Concha be suffered by respondent bank as an artificial person.
thru her clerk, Adelina Antigo consigned thru LBC Dipolog
Branch the pertinent documents and the sum of P1,000.00 to
The respondent court erred in awarding moral damages to the
respondent.Evidenced by LBC Air Cargo, Inc., Cashpack
Rural Bank of Labason, Inc., an artificial person. Moral damages
Delivery Receipt. Subsequently the documents arrived without
are granted in recompense for physical suffering, mental
the cashpack. Respondent Carloto made personal follow-ups
anguish, fright, serious anxiety, besmirched reputation,
but petitioner failed to deliver to him the cashpack.He went to
wounded feelings, moral shock, social humiliation, and similar
Cebu City at LBC's office. He was, however, advised that the
injury.
money has been returned to LBC's office in Dipolog City upon
shipper's request. Again, he demanded for the P1,000.00 and A corporation, being an artificial person and having existence
refund P49.00LBC revenue charges. He received the money only in legal contemplation, has no feelings, no emotions, no
after long wait less the revenue charges.Carloto claimed that senses; therefore, it cannot experience physical suffering and
because of the delay in the transmittal of the cashpack, he failed mental anguish. Mental suffering can be experienced only by
to submit the rediscounting documents to Central Bank on time. one having a nervous system and it flows from real ills, sorrows,
As a consequence, his rural bank was made to pay the Central and griefs of life.
Bank P32,000.00 as penalty interest.He allegedly suffered
embarrassment and humiliation. 91)
ABS - CBN v. CA
Doctrine: Issue: 1) Whether or not a corporation, like RBS, is entitled to
an award of actual and moral damages upon grounds of
Facts: In 1992, ABS-CBN Broadcasting Corporation, through its debased reputation.
vice president Charo Santos-Concio, requested Viva
Production, Inc. to allow ABS-CBN to air at least 14 films Ruling: Actual damages may likewise be recovered for loss or
produced by Viva. Pursuant to this request, a meeting was held impairment of earning capacity in cases of temporary or
between Viva’s representative (Vicente Del Rosario) and ABS- permanent personal injury, or for injury to the plaintiffs business
CBN’s Eugenio Lopez (General Manager) and Santos-Concio standing or commercial credit.
was held on April 2, 1992. During the meeting Del Rosario The claim of RBS for actual damages did not arise from
proposed a film package which will allow ABS-CBN to air 104 contract, quasi-contract, delict, or quasi-delict. It arose from the
Viva films for P60 million. Later, Santos-Concio, in a letter to Del fact of filing of the complaint despite ABS-CBNs alleged
Rosario, proposed a counterproposal of 53 films (including the knowledge of lack of cause of action. There is no perfected
14 films initially requested) for P35 million. Del Rosario contract herein in this case as ruled by the Court.
presented the counter offer to Viva’s Board of Directors but the
Board rejected the counter offer. Several negotiations were As to moral damages, the award of moral damages cannot
subsequently made but on April 29, 1992, Viva made an be granted in favor of a corporation because, being an artificial
agreement with Republic Broadcasting Corporation (referred to person and having existence only in legal contemplation, it has
as RBS – or GMA 7) which gave exclusive rights to RBS to air no feelings, no emotions, no senses. It cannot, therefore,
104 Viva films including the 14 films initially requested by ABS- experience physical suffering and mental anguish, which can be
CBN. experienced only by one having a nervous system.
ABS-CBN now filed a complaint for specific performance
against Viva as it alleged that there is already a perfected
contract between Viva and ABS-CBN in the April 2, 1992 92)
meeting. Lopez testified that Del Rosario agreed to the
counterproposal and he (Lopez) even put the agreement in a Filipinas Broadcasting v. Ago Medical Center
napkin which was signed and given to Del Rosario. ABS-CBN
also filed an injunction against RBS to enjoin the latter from Facts: Expos is a radio documentary[4] program hosted by
airing the films. The injunction was granted. RBS now filed a Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre
countersuit with a prayer for moral damages as it claimed that (Alegre).[5] Expos is aired every morning over DZRC-AM which
its reputation was debased when they failed to air the shows is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos
that they promised to their viewers. RBS relied on the ruling in is heard over Legazpi City, the Albay municipalities and other
People vs Manero and Mambulao Lumber vs PNB which states Bicol areas.[6]
that a corporation may recover moral damages if it “has a good
reputation that is debased, resulting in social humiliation”. The In the morning of 14 and 15 December 1989, Rima and
trial court ruled in favor of Viva and RBS. The Court of Appeals Alegre exposed various alleged complaints from students,
affirmed the trial court. teachers and parents against Ago Medical and Educational
Center-Bicol Christian College of Medicine (AMEC) and its
administrators. Claiming that the broadcasts were defamatory,
AMEC and Angelita Ago (Ago), as Dean of AMECs College of
Medicine, filed a complaint for damages[7] against FBNI, Rima Moreover, where the broadcast is libelous per se, the law
and Alegre. implies damages.
The complaint further alleged that AMEC is a reputable The award of attorneys fees is not proper because AMEC
learning institution. With the supposed exposs, FBNI, Rima and failed to justify satisfactorily its claim for attorneys fees. AMEC
Alegre transmitted malicious imputations, and as such, did not adduce evidence to warrant the award of attorneys fees.
destroyed plaintiffs (AMEC and Ago) reputation. The trial court
held that the broadcasts are libelous per se. The trial court
rejected the broadcasters claim that their utterances were the
result of straight reporting because it had no factual basis, and
93)
ordered to pay plaintiff the amount of P300,000.00 moral
damages, plus P30,000.00 reimbursement of attorneys fees, Banche and Co. v. Hon. Judge Vivencio Ruiz
and to pay the costs of suit.
Doctrine: Stonhill v. Diokno impliedly recognized the right of the
corporation to object against unreasonable searches and
Issue: WON AMEC is entitled to moral damages and attorney’s
seizures. In the case at bar, the corporation to whom the seized
fees
documents belong, and whose rights have thereby been
impaired, and not the officer, hence, able to object thereto.
Held: AMECs claim for moral damages falls under item 7 of
Article 2219[43] of the Civil Code. This provision expressly Facts: On Feb. 24, 1970, Misael Vera, CIR, wrote a letter
authorizes the recovery of moral damages in cases of libel, addressed to Judge Ruiz requesting the issuance of a search
slander or any other form of defamation. Article 2219(7) does warrant against petitioner for violation of Sec 46(a) of the NIRC.
not qualify whether the plaintiff is a natural or juridical person.
Therefore, a juridical person such as a corporation can validly At that time Judge was hearing a certain case, so by means of a
complain for libel or any other form of defamation and claim for note, he instructed his Deputy Clerk of Court to take the
moral damages.[44] depositions of respondents De Leon and Logronio. After the
session had adjourned, respondent Judge was informed that the
Moreover, where the broadcast is libelous per se, the law depositions had already been taken. The stenographer, upon
implies damages. request of respondent Judge, read to him her stenographic
notes; and thereafter, respondent Judge asked respondent
AMECs claim for moral damages falls under item 7 of Article Logronio to take the oath and warned him that if his deposition
2219[43] of the Civil Code. This provision expressly authorizes was found to be false and without legal basis, he could be
the recovery of moral damages in cases of libel, slander or any charged for perjury. Respondent Judge signed respondent de
other form of defamation. Article 2219(7) does not qualify Leon’s application for search warrant.
whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for
libel or any other form of defamation and claim for moral
damages.[44]
BIR agents served the search warrant petitioners at the offices score, petitioner corporation here stands on a different footing
of petitioner corporation on Ayala Avenue, Makati, Rizal. from the corporations in Stonehill.
Petitioners’ lawyers protested the search on the ground that no
formal complaint or transcript of testimony was attached to the
warrant. The agents nevertheless proceeded with their search
which yielded six boxes of documents.
94)
petitioners filed a petition with the Court of First Instance of
Rizal praying that the search warrant be quashed, dissolved or Ramirez v. The Orientalist Co.
recalled, that preliminary prohibitory and mandatory writs of
injunction be issued, that the search warrant be declared null Doctrine: it is familiar doctrine that if a corporation knowingly
and void on the ground that respondent Judge failed to permits one of its officer, or any other agent, to do acts within
personally examine the complainant and witness, that the the scope of an apparent authority, and thus hold him out to the
search warrant contained more than one offense, the search public as possessing power to do those acts, the corporation will
warrant failed to particularly describe the things to be seized. as against any one who has in good faith dealt with the
corporation through such agent, be estopped from denying his
Issue: WON the search warrant violated the Corporation’s authority; and where it is said "if the corporation permits" this
constitutional right, hence null and void. means the same as "if the thing is permitted by the directing
power of the corporation
Ruling: Yes. In Stonehill, Et. Al. v. Diokno, Et Al., supra, this
Court impliedly recognized the right of a corporation to object Facts: Orientalist Company was engaged in the business of
against unreasonable searches and seizures - "As regards the maintaining and conducting a theatre in the city of Manila for the
first group, we hold that petitioners herein have no cause of exhibition of cinematographic films. engaged in the business of
action to assail the legality of the contested warrants and of the marketing films for a manufacturer or manufacturers, there
seizures made in pursuance thereof, for the simple reason that engaged in the production or distribution of cinematographic
said corporations have their respective personalities, separate material. In this enterprise the plaintiff was represented in the
and distinct from the personality of herein petitioners, regardless city of Manila by his son, Jose Ramirez. The directors of the
of the amount of shares of stock or the interest of each of them Orientalist Company became apprised of the fact that the
in said corporations, whatever, the offices they hold therein may plaintiff in Paris had control of the agencies for two different
be. Indeed, it is well settled that the legality of a seizure can be marks of films, namely, the “Eclair Films” and the
contested only by the party whose rights have been impaired “Milano Films;” and negotiations were begun with said officials
thereby, and that the objection to an unlawful search and of the Orientalist Company by Jose Ramirez, as agent of the
seizure is purely personal and cannot be availed of by third plaintiff. The defendant Ramon J. Fernandez, one of the
parties.  directors of the Orientalist Company and also its treasure, was
In the Stonehill case only the officers of the various corporations chiefly active in this matter. Ramon J. Fernandez had an
in whose offices documents, papers and effects were searched informal conference with all the members of the company’s
and seized were the petitioners. In the case at bar, the board of directors except one, and with approval of those with
corporation to whom the seized documents belong, and whose whom he had communicated, addressed a letter to Jose
rights have thereby been impaired, is itself a petitioner. On that Ramirez, in Manila, accepting the offer contained in the
memorandum the exclusive agency of the Eclair films and Facts: The case is about the ad interim appointment of the
Milano films. In due time the films began to arrive in Manila, it Dean of the College of Education in the UP. Pursuant thereto
appears that the Orientalist Company was without funds to meet Dr. Blanco assumed office as ad interim Dean on May 1, 1970.
these obligations. Action was instituted by the plaintiff to The Board of Regents met and President Lopez submitted to it
Orientalist Company, and Ramon J. Fernandez for sum of the ad interim appointment of Dr. Blanco for reconsideration.
money. The Board voted to defer action on the matter in view of the
objections cited by Regent Kalaw based on the petition against
Issue: WON the Orientalist Co. is liable for the acts of its the appointment, addressed to the Board, from a majority of the
treasurer, Fernandez? faculty and from a number of alumni. President Lopez extended
another ad interim appointment to her with the same conditions
Held: Yes. It will be observed that Ramon J. Fernandez was the as the first, namely, “unless sooner terminated, and subject to
particular officer and member of the board of directors who was the approval of the Board of Regents and to pertinent University
most active in the effort to secure the films for the corporation. regulations. Then, the election was held. The roll-call voting on
The negotiations were conducted by him with the knowledge which the Chairman of the Board of Regents based his ruling
and consent of other members of the board; and the contract aforesaid gave the following results: five (5) votes in favor of Dr.
was made with their prior approval. In the light of all the Blanco’s ad interim appointment, three (3) votes against, and
circumstances of the case, we are of the opinion that the four (4) abstentions — all the twelve constituting the total
contracts in question were thus inferentially approved by the membership of the Board of the time. The next day Dr. Blanco
company’s board of directors and that the company is bound addressed a letter to the Board requesting “a reconsideration of
unless the subsequent failure of the stockholders to approve the interpretation made by the Board as to the legal effect of the
said contracts had the effect of abrogating the liability thus vote of five in favor, three against and four abstentions on
created. my ad interim appointment. Dr. Blanco wrote the President of
the University, protesting the appointment of Oseas A. del
Rosario as Officer-in-Charge of the College of Education.
95) Neither communication having elicited any official reply, Dr.
Blanco went to the Court of First Instance of Quezon City.
Salvador Lopez v. Hon. Vicente Ericta
 
Doctrine: It should be noted that an abstention, according to
the respondents' citations, is counted as an affirmative Issue: What is the legal effect of abstention in the board
vote insofar as it may be construed as an acquiescence in the meetings?
action of those who vote affirmatively. This manner of counting
is obviously based on what is deemed to be a presumption as to  
the intent of the one abstaining, namely, to acquiesce in the
action of those who vote affirmatively, but which presumption, Held: In case of abstention in board meeting on vote taken on
being merelyprima facie, would not hold in the face of clear any issue, the general rule is that the abstention is counted in
evidence to the contrary. It is pertinent, therefore, to inquire into favour of the issue that won a majority vote; since their act of
the facts and circumstances which attended the voting by the abstention, the abstaining directors are deemed to abide the
members of the Board of Regents rule of majority. All arguments on the legal question of how an
abstention should be treated, all authorities cited in support of the Federation, through the Project Gintong Alay, paid the
one or the other position, become academic and purposeless in amount of P31,603.00. On 27 December 1989, Henri Kahn
the face of the fact that respondent Dr. Blanco was clearly not issued a personal check in the amount of P50,000 as partial
the choice of a majority of the members of the Board of payment for the outstanding balance of the Federation. 
Regents, as unequivocally demonstrated by the transcript of the
proceedings. Thereafter, no further payments were made despite repeated
demands. This prompted IETTSI to file a civil case before the
Regional Trial Court of Manila. IETTSI sued Henri Kahn in his
personal capacity and as President of the Federation and
impleaded the Federation as an alternative defendant. IETTSI
sought to hold Henri Kahn liable for the unpaid balance for the
96) tickets purchased by the Federation on the ground that Henri
Kahn allegedly guaranteed the said obligation. Kahn filed his
International Express Travel v. CA
answer with counterclaim, while the Federation failed to file its
Doctrine: A copy of the constitution and by-laws of the answer and was declared in default by the trial court. In due
Philippine Football Federation does not prove that said course, the trial court rendered judgment and ruled in favor of
Federation has indeed been recognized and accredited by IETTSI and declared Henri Kahn personally liable for the unpaid
either the Philippine Amateur Athletic Federation or the obligation of the Federation. The complaint of IETTSI against
Department of Youth and Sports Development. Accordingly, the the Philippine Football Federation and the counterclaims of
Philippine Football Federation is not a national sports Henri Kahn were dismissed, with costs against Kahn. Only
association within the purview of the aforementioned laws and Henri Kahn elevated the decision to the Court of Appeals. On 21
does not have corporate existence of its own.  December 1994, the appellate court rendered a decision
reversing the trial court. IETTSI filed a motion for
reconsideration and as an alternative prayer pleaded that the
Facts: On 30 June 1989, the International Express Travel and Federation be held liable for the unpaid obligation. The same
Tour Services, Inc. (IETTSI), through its managing director, was denied by the appellate court in its resolution of 8 February
wrote a letter to the Philippine Football Federation (Federation), 1995. IETTSI filed the petition with the Supreme Court. 
through its president, Henri Kahn, wherein the former offered its
services as a travel agency to the latter. The offer was Issue
accepted. IETTSI secured the airline tickets for the trips of the 1. Whether the Philippine Football Federation has a
athletes and officials of the Federation to the South East Asian corporate existence of its own. 
Games in Kuala Lumpur as well as various other trips to the 2. Whether Kahn should be made personally liable for the
People's Republic of China and Brisbane. The total cost of the unpaid obligations of the Philippine Football Federation. 
tickets amounted to P449,654.83. For the tickets received, the 3. Whether the appellate court properly applied the doctrine
Federation made two partial payments, both in September of of corporation by estoppel. 
1989, in the total amount of P176,467.50. On 4 October 1989, Held 
IETTSI wrote the Federation, through Kahn a demand letter
requesting for the amount of P265,894.33. On 30 October 1989,
1. Both RA 3135 (the Revised Charter of the Philippine Amateur to act on behalf of a corporation which has no valid existence
Athletic Federation) and PD 604 recognized the juridical assumes such privileges and becomes personally liable for
existence of national sports associations. This may be gleaned contract entered into or for other acts performed as such agent.
from the powers and functions granted to these associations As president of the Federation, Henri Kahn is presumed to have
(See Section 14 of RA 3135 and Section 8 of PD 604). The known about the corporate existence or non-existence of the
powers and functions granted to national sports associations Federation. 
indicate that these entities may acquire a juridical personality.
The power to purchase, sell, lease and encumber property are 3. The Court cannot subscribe to the position taken by the
acts which may only be done by persons, whether natural or appellate court that even assuming that the Federation was
artificial, with juridical capacity. However, while national sports defectively incorporated, IETTSI cannot deny the corporate
associations may be accorded corporate status, such does not existence of the Federation because it had contracted and dealt
automatically take place by the mere passage of these laws. It with the Federation in such a manner as to recognize and in
is a basic postulate that before a corporation may acquire effect admit its existence. The doctrine of corporation by
juridical personality, the State must give its consent either in the estoppel is mistakenly applied by the appellate court to IETTSI.
form of a special law or a general enabling act. The Philippine The application of the doctrine applies to a third party only when
Football Federation did not come into existence upon the he tries to escape liabilities on a contract from which he has
passage of these laws. Nowhere can it be found in RA 3135 or benefited on the irrelevant ground of defective incorporation.
PD 604 any provision creating the Philippine Football Herein, IETTSI is not trying to escape liability from the contract
Federation. These laws merely recognized the existence of but rather is the one claiming from the contract.
national sports associations and provided the manner by which
these entities may acquire juridical personality. Section 11 of RA
3135 and Section 8 of PD 604 require that before an entity may 97)
be considered as a national sports association, such entity must
Citibank v. Hon. Chua
be recognized by the accrediting organization, the Philippine,
Amateur Athletic Federation under RA 3135, and the
Department of Youth and Sports Development under PD 604.
This fact of recognition, however, Henri Kahn failed to Doctrine: There are also powers incidental to express powers
substantiate. A copy of the constitution and by-laws of the conferred. It is a fundamental principle in the law of agency that
Philippine Football Federation does not prove that said every delegation of authority, whether general or special, carries
Federation has indeed been recognized and accredited by with it, unless the contrary be expressed, implied authority to do
either the Philippine Amateur Athletic Federation or the all of those acts, naturally and ordinarily done in such cases,
Department of Youth and Sports Development. Accordingly, the which are reasonably necessary and proper to be done in order
Philippine Football Federation is not a national sports to carry into effect the main authority conferred
association within the purview of the aforementioned laws and
does not have corporate existence of its own. 

2. Henry Kahn should be held liable for the unpaid obligations of

the unincorporated Philippine Football Federation. It is a settled
principal in corporation law that any person acting or purporting
Facts: Citibank NA, petitioner is a foreign commercial banking appointing the J.P. Garcia & Associates to represent and bind
corporation. Private respondents, spouses Cresencio and the BANK at the pre-trial conference and/or trial of the case of
Zenaida Velez, were good clients of petitioner bank until they "Cresencio Velez, et al. vs. Citibank, N.A.".
filed a complaint for specific performance and damages against
it. Respondent judge issued order declaring Citibank as in default.
It found that Citibank, although a foreign corp., is bound by Phil.
Spouses Velez claimed that they had an arrangement with laws when doing and conducting business in the Phils. and its
Citibank for credit lines and the bank allegedly refused to corporate powers could only be exercised by its BoD. Citibank
continue with the arrangement even after repeated demands. has no proper representation in the pre-trial conference for
purposes of Rules of Court.
Citibank has a different version of their relationship. Crescencio
Velez would deposit his unfunded personal checks with his Court of Appeals also dismissed Citibank’s petition for certiorari,
current account with Citibank asking the bank officer to credit prohibition and mandamus because Citibank did not present
checks as if they were cash deposits at the same time assuring BoD reso for appointing Atty Neri as its atty-in-fact. Also, it said
them that the personal checks were fully funded. [Velez was a that its “By-Laws” were not approved by SEC as required in Sec
trusted client already because of past transactions] He would 46.
then withdraw sums of money by way of manager’s check and
deposit them to his various current accounts in other banks to Issue/s
cover his previously deposited unfunded personal checks with 1. WON BoD Reso is always necessary for granting
Citibank. This deceptive and criminal scheme he did every authority to an agent to represent the corpo in court
banking day without fail from September 4, 1985 up to March cases. - NO
11, 1986. 2. WON by-laws of the petitioner foreign corporation which
has previously been granted a license to do business in
Citibank filed a criminal complaint against Spouses Velez for the Philippines, are effective in this jurisdiction - YES
violation of Bouncing Checks Law and estafa under Art 315 par
2(d) Held:
The date of the pre-trial conference, counsel for Citibank On granting authority, it is clear that corporate powers may be
appeared, presenting a special power of attorney executed by directly conferred upon corporate officers or agents by statute,
Citibank officer Florencia Tarriela in favor of Citibank's counsel, the articles of incorporation, the by-laws or by resolution or other
the J.P. Garcia & Associates, to represent and bind Citibank at act of the board of directors. In addition, an officer who is not a
the pre-trial conference. director may also appoint other agents when so authorized by
Counsel for spouses Velez orally moved to declare Citibank as the by-laws or by the board of directors. Such are referred to as
in default on the ground that the SPA was not executed by the express powers. There are also powers incidental to express
Board of Directors of Citibank. powers conferred. It is a fundamental principle in the law of
agency that every delegation of authority, whether general or
In its opposition to declare it in default, Citibank attached special, carries with it, unless the contrary be expressed,
another SPA made by William W. Ferguson, Vice President and implied authority to do all of those acts, naturally and ordinarily
highest ranking officer of Citibank, Philippines, constituting and done in such cases, which are reasonably necessary and
proper to be done in order to carry into effect the main authority agriculture business, however it amended its purpose to enable
conferred. it to engage in resort and restaurant business.
Petitioners are stockholders of the corporation and two of the
Since the by-laws are a source of authority for corporate heirs of Eugenia. By tolerance, they were allowed to
officers and agents of the corporation, a resolution of the Board occupy some of the properties of the corporation as
of Directors of Citibank appointing an attorney in fact to their residence.
represent and bind it during the pre-trial conference of the case However, the board of directors of the corporation passed a
at bar is not necessary because its by-laws allow its officers, the resolution evicting the petitioners from the property of the
Executing Officer and the Secretary Pro-Tem, ** to execute a corporation because the same will be needed for expansion.
power of attorney to a designated bank officer, William W. At t the RTC, private respondent presented its evidence averring that the
Ferguson in this case, clothing him with authority to direct and subject premises are owned by the corporation. Petitioners failed to
manage corporate affairs. present their evidence due to alleged negligence of their
counsel. RTC handed a decision in favor of private respondent.
On the by laws,Sec 125 of the same Code requires that a Petitioners appealed to the CA but the latter denied the petition
foreign corporation applying for a license to transact business in and affirmed the ruling of the RTC. Hence, they appealed to the
the Philippines must submit, among other documents, to the SC. In their appeal, petitioners argues that the CA made a
SEC, a copy of its articles of incorporation and by-laws, certified mistake in upholding the decision of the RTC, and that their occupancy of
in accordance with law. Unless these documents are submitted, the subject premises should be respected because they own an
the application cannot be acted upon by the SEC. Therefore aliquot part of the corporation as stockholders, and that
Citibank’s by-laws though origination from a foreign jurisdiction the veil of corporate fiction must be pierced by virtue thereof.
are valid and effective in the Philippines.
Issue:
Whether petitioners contention were correct as regards the piercing of the
corporate veil.-. Whether petitioners were correct in their
contention that they should be respected as regards
their occupancy since they own an aliquot part of the
98)
corporation.
Boyer-Roxas vs. CA
Held:
Doctrine: The separate personality of a corporation may be Petitioners contention to pierce the veil of corporate fiction is
disregarded when the corporation is used as a cloak or cover for untenable.As aptly held by the court. The separate personality
fraud or illegality, or to work injustice, or when necessary to of a corporation may be disregarded when the corporation is
achieve equity or when necessary for the protection of creditors. used as a cloak or cover for fraud or illegality, or to work
injustice, or when necessary to achieve equity or when
Facts: necessary for the protection of creditors.
When Eugenia V. Roxas died, her heirs formed a corporation
under the name and style of Heirs of EugeniaV. Roxas, Inc. As regards petitioners contention that they should be respected
using her estate as the capital of the corporation, the on their occupancy by virtue of an aliquot part they own on the
private respondent herein. It was primarily engaged in corporation as stockholders, it also fails to hold water. The court
held that properties owned by a corporation are owned by it P38,000.00. For whatever reason, the repair was never
as an entity separate and distinct from its members. While undertaken.
shares of stocks are personal property, they do not represent
property of the corporation. A share of stock only typifies an UP repeated its complaints to EPG. which again sent its
aliquot part of the corporation’s property, or the right to share in representatives to assess the defects. Finally, it made UP a
its proceeds to that extent when distributed according to law and written offer to repair the system for P194,000.00.
equity, but its holder is not the owner of any part of the capital of
UP insisted that EPG was obligated to repair the defects at its
the corporation. Nor is he entitled to the possession of any
own expense under the guarantee provision in their, contract,
definite portion of its property or assets. The holder is not a co-
EPG demurred. UP then contracted with another company,
owner or a tenant in common of the corporate property.
which repaired the defects for P190,000.00.
The private respondent subsequently demanded from EPG
reimbursement of the said amount plus an equal sum as
liquidated damages.
99)
When the demand was rejected, UP sued EPG and its
EPG Construction v. CA president, Emmanuel P. de Guzman, in the Regional Trial Court
of Quezon City.
Doctrine: where the official "had acted maliciously or in bad
faith," in which event he may be made personally liable for his De Guzman moved to dismiss the complaint as to him for lack
own act. That exception is not applicable in the case at bar, of a cause of action, but the motion was denied.
because it has not been proved that De Guzman acted
maliciously or in bad faith when, as President of EPG, he sought TC and CA favored UP.
to protect its interests and resisted UP's claims.
Issue: WON De Guzman, the president of EPG, should be held
Facts: Petitioner EPG Construction Co., Inc. and the University liable
of the Philippines, herein private respondent, entered into a
contract for the construction of the UP Law Library Building for
the stipulated price of P7,545,000.00. The agreement included a Held:
provision on guarantee.
* The president of a corporation cannot be held solidarily liable
Upon its completion, the building was formally turned over by with the corporation for a breach of contract in the construction
EPG to the private respondent UP issued a certification of of a library absent evidence of malicious acts by the former
acceptance. since a corporation has a personality separate and distinct from
its officers and stockholders. The same conclusion cannot be
Sometime in July, 1983, the private respondent complained to
altered even though the president is the controlling stockholder
the petitioner that 6 air-conditioning units on the third floor of the
because mere ownership by a single stockholder or by another
building were not cooling properly. After inspection of the
corporation of all or nearly all of the capital stock of a
equipment. EPG agreed to shoulder the expenses for their
corporation is not of itself a sufficient ground for disregarding
repair, including labor and materials. in the amount of
the separate corporate personality. The fact that the president suffered by the corporation, its stockholders or members and
resisted the claims of the client does not demonstrate malice or other persons
bad faith to make him personally liable. Facts: In 1982, Peter Cosalan, then general manager of the
It is a doctrine well-established and obtains both at law and in Benguet Electric Cooperative (BENECO), received an audit
equity that a corporation is a distinct legal entity to be report from the National Electrification Administration (NEA).
considered as separate and apart from the individual The said audit advised Cosalan of certain irregularities in the
stockholders or members who compose it, and is not affected management of the funds of BENECO. Cosalan then sought to
by the personal rights, obligations and transactions of its address the issue by introducing reforms recommended by the
stockholders or members. NEA as well as by the auditing body, Commission on Audit.
However, the Board Members of BENECO reacted to these
The exception noted is where the official "had acted maliciously reforms by issuing a series of resolutions which first reduced
or in bad faith," in which event he may be made personally liable Cosalan’s salary and allowances, then he was excluded from
for his own act. That exception is not applicable in the case at his work, and eventually, he was suspended indefinitely.
bar, because it has not been proved that De Guzman acted Cosalan then filed a complaint for illegal dismissal against the
maliciously or in bad faith when, as President of EPG, he sought BENECO Board Members, he later impleaded BENECO itself. 
to protect its interests and resisted UP's claims. Whatever The Labor Arbiter (LA) ruled in favor of Cosalan. The National
damage was caused to UP as a result of his acts is the sole Labor Relations Commission (NLRC) affirmed the decision of
responsibility of EPG even though De Guzman was its principal the LA but modified it so as to absolve the Board Members from
officer and controlling stockholder. liability as it held that the Board Members merely acted in their
In sum, we hold that the lower court did not err in holding EPG official capacity. BENECO, being the only party adjudged to be
liable for the repair of the air-conditioning system at its expense liable, then appealed said decision.
pursuant to the guarantee provision in the construction contract Issue: Whether or not the National Labor Relations Commission
with UP. However. Emmanuel de Guzman is not solidarily liable is correct.
with it, having acted on its behalf within the scope of his
Ruling: No. The act of the Board Members is ultra vires. There
authority and without any demonstrated malice or bad faith.
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
100) days. Further, it was found that Cosalan was never informed of
the charges against him nor was he afforded the opportunity to
Benguet Cooperative v. NLRC present his case. He was deprived of due process. Nor was
Doctrine: Directors or trustees who willfully and knowingly vote Cosalan’s suspension approved by the NEA, which is also
for or assent to patently unlawful acts of the corporation or who required for due process purposes.
are guilty of gross negligence or bad faith in directing the affairs These acts by the Board Members are tainted with bad faith. A
of the corporation or acquire any personal or pecuniary interest very strong presumption arises that the Board Members are
in conflict with their duty as such directors or trustees shall be acting in reprisal against the reforms sought to be introduced by
jointly liable and severally for all damages resulting therefrom Cosalan in order to address the irregularities within BENECO.
The Board Members are therefore liable for damages under the new manager, Tan Tian Hong, who had been appointed in
Section 31 of the Corporation Code. And even though BENECO the meantime, C. C. Chen having left for China. The letter of
is a cooperative, it is still covered by the Corporation Code dismissal stated no special reasons for the discharge of the
because under PD 269, cooperatives are considered as plaintiffs.
corporations. The plaintiffs thereupon brought the present action
alleging, among other things, in the complaint that their contract
The Supreme Court ruled that BENECO and the BENECO
of employment was for a term of three years from the first day of
Board Members are liable for the damages caused against
January, 1920; that in the case of their discharge by the
Cosalan. However BENECO can seek reimbursement from the
defendant without just cause before the expiration of the term of
Board Members so as not to unduly penalize the innocent
the contract, they were to receive full pay for the remaining
members of BENECO
portion of the term; that they had been so discharged without
just cause and therefore asked judgment for damages in the
101) Woothard vs. Roxas sum of P20,880.
Kong Li Po, on the other hand, contended that C. C.
CANT FIND Chen, the person whose name appears to have been signed to
the contract of employment was not authorized by the defendant
YU CHUCK, MACK YUENG, and DING MOON vs. KONG LI to execute such a contract in its behalf.
PO
G.R. No. L-22450, December 3, 1924 ISSUE:
OSTRAND, J.: Whether or not Chen had the power to bind the
corporation by a contract of the character indicated.
FACTS:
HELD:
The Kong Li Po is a domestic corporation organized in It is conceded that he had no express authority to do so,
accordance with the laws of the Philippine Islands and engaged but the evidence is conclusive that he, at the time the contract
in the publication of a Chinese newspaper styled Kong Li Po. Its was entered into, was in effect the general business manager of
articles of incorporation and by-laws are in the usual form and the newspaper Kong Li Po and that he, as such, had charge of
provide for a board of directors and for other officers among the printing of the paper, and the plaintiff maintain that he, as
them a president whose duty it is to "sign all contracts and other such general business manager, had implied authority to
instruments of writing." No special provision is made for a employ them on the terms stated and that the defendant
business or general manager. corporation is bound by his action. The general rule is that the
Sometime during the year 1919 one C. C. Chen or T. C. power to bind a corporation by contract lies with its board of
Chen was appointed general business manager of the directors or trustees, but this power may either expressly or
newspaper. During the month of December of that year he impliedly be delegated to other officers or agents of the
entered into an agreement with the plaintiffs by which the latter corporation, and it is well settled that except where the authority
bound themselves to do the necessary printing for the of employing servants and agent is expressly vested in the
newspaper for the sum of P580 per month. Under this board of directors or trustees, an officer or agent who has
agreement the plaintiffs worked for the defendant from January general control and management of the corporation's business,
1, 1920, until January 31, 1921, when they were discharged by or a specific part thereof, may bind the corporation by the
employment of such agent and employees as are usual and circumstances have been shown here. That the president of the
necessary in the conduct of such business. But the contracts of corporation saw the plaintiffs working in its office is of little
employment must be reasonable. significance; there were other printers working there at that time
In the absence of express limitations, a manager has and as the president had nothing to do with their employment, it
authority to hire an employee for such a period as is customary was hardly to be expected that be would inquire into the terms
or proper under the circumstances, such as for a year, for the of their contracts. Moreover, a ratification by him would have
season, or for two season. But unless he is either expressly been of no avail; in order to validate a contract, a ratification by
authorized, or held out as having such authority, he cannot the board of directors was necessary. The fact that the
make a contract of employment for a long future period, such as president was required by the by-laws to sign the documents
for three years, although the contract is not rendered invalid by evidencing contracts of the corporation, does not mean that he
the mere fact that the employment extends beyond the term of had power to make the contracts.
the manager's own employment.
From what has been said, there can be no doubt that
Chen, as general manager of the Kong Li Po, had implied
authority to bind the defendant corporation by a reasonable and
usual contract of employment with the plaintiffs, but we do not
think that the contract here in question can be so considered.
Not only is the term of employment unusually long, but the
conditions are otherwise so onerous to the defendant that the
possibility of the corporation being thrown into insolvency
thereby is expressly contemplated in the same contract. This
fact in itself was, in our opinion, sufficient to put the plaintiffs
upon inquiry as to the extent of the business manager's LAPULAPU FOUNDATION, INC. and ELIAS Q. TAN vs.
authority; they had not the rights to presume that he or any COURT OF APPEALS and ALLIED BANKING CORP.
other single officer or employee of the corporation had implied G.R. No. 126006, January 29, 2004
authority to enter into a contract of employment which might CALLEJO, SR., J.:
bring about its ruin.
Neither do we think that the contention that the FACTS:
corporation impliedly ratified the contract is supported by the Sometime in 1977, petitioner Elias Q. Tan, then
evidence. The contention is based principally on the fact that Te President of the co-petitioner Lapulapu Foundation, Inc.,
Kim Hua, the president of the corporation for the year 1920, obtained four loans from the respondent Allied Banking
admitted on the witness stand that he saw the plaintiffs work as Corporation covered by four promissory notes in the amounts of
printers in the office of the newspaper. He denied, however, any ₱100,000 each. As of January 23, 1979, the entire obligation
knowledge of the existence of the contract and asserted that it amounted to ₱493,566.61 and despite demands made on them
was never presented neither to him nor to the board of directors. by the respondent Bank, the petitioners failed to pay the same.
Before a contract can be ratified knowledge of its existence The respondent Bank was constrained to file with the Regional
must, of course, be brought home to the parties who have Trial Court, a complaint seeking payment by the petitioners,
authority to ratify it or circumstances must be shown from which jointly and solidarily, of the sum of ₱493,566.61 representing
such knowledge may be presumed. No such knowledge or
their loan obligation, exclusive of interests, penalty charges,
attorney’s fees and costs.
In its answer, the petitioner Foundation denied incurring
indebtedness from the respondent Bank alleging that the loans HELD:
were obtained by petitioner Tan in his personal capacity, for his YES, the promissory notes clearly showed upon their
own use and benefit and on the strength of the personal faces that they are the obligation of the petitioner Foundation,
information he furnished the respondent Bank. The petitioner as contracted by petitioner Tan "in his official and personal
Foundation maintained that it never authorized petitioner Tan to capacity." Moreover, the application for credit accommodation,
co-sign in his capacity as its President any promissory note and the signature cards of the two accounts in the name of petitioner
that the respondent Bank fully knew that the loans contracted Foundation, as well as New Current Account Record, all
were made in petitioner Tan’s personal capacity and for his own accompanying the promissory notes, were signed by petitioner
use and that the petitioner Foundation never benefited, directly Tan for and in the name of the petitioner Foundation. These
or indirectly, therefrom. The petitioner Foundation then documentary evidence unequivocally and categorically establish
interposed a cross-claim against petitioner Tan alleging that he, that the loans were solidarily contracted by the petitioner
having exceeded his authority, should be solely liable for said Foundation and petitioner Tan.
loans, and a counterclaim against the respondent Bank for In this case, the promissory notes are the law between
damages and attorney’s fees. the petitioners and the respondent Bank. These promissory
For his part, Tan admitted that he contracted the loans notes contained maturity dates as follows: February 5, 1978,
from the respondent Bank in his personal capacity. The parties, March 28, 1978, April 11, 1978 and May 5, 1978, respectively.
however, agreed that the loans were to be paid from the That these notes were to be paid on these dates is clear and
proceeds of petitioner Tan’s shares of common stocks in the explicit. Nowhere was it stated therein that they would be
Lapulapu Industries Corporation, a real estate firm. The loans renewed on a year-to-year basis or "rolled-over" annually until
were covered by promissory notes which were automatically paid from the proceeds of petitioner Tan’s shares in the
renewable ("rolled-over") every year at an amount including Lapulapu Industries Corp.
unpaid interests, until such time as petitioner Tan was able to Finally, petitioners are jointly and solidarily liable as it
pay the same from the proceeds of his aforesaid shares. applied the doctrine of piercing the veil of corporate entity. The
According to petitioner Tan, the respondent Bank’s petitioner Foundation asserts that it has a personality separate
employee required him to affix two signatures on every and distinct from that of its President, petitioner Tan, and that it
promissory note, assuring him that the loan documents would cannot be held solidarily liable for the loans of the latter. The
be filled out in accordance with their agreement. However, after Court agrees with the CA that the petitioners cannot hide behind
he signed and delivered the loan documents to the respondent the corporate veil under the following circumstances:
Bank, these were filled out in a manner not in accord with their The evidence shows that Tan has been representing
agreement, such that the petitioner Foundation was included as himself as the President of Lapulapu Foundation, Inc. He
party thereto. Further, prior to its filing of the complaint, the opened a savings account and a current account in the names
respondent Bank made no demand on him. of the corporation, and signed the application form as well as
the necessary specimen signature cards twice, for himself and
ISSUE: for the foundation. He submitted a notarized Secretary’s
Whether or not Lapu-Lapu Foundation and Tan are jointly Certificate from the corporation, attesting that he has been
and solidarily liable for the loans contracted. authorized, inter alia, to sign for and in behalf of the Lapulapu
Foundation any and all checks, drafts or other orders with Philippines. On August 1, 1946, NACOCO's charter was
respect to the bank; to transact business with the Bank, amended to grant that corporation the express power "to buy,
negotiate loans, agreements, obligations, promissory notes and sell, barter, export, and in any other manner deal in, coconut,
other commercial documents; and to initially obtain a loan for copra, and dessicated coconut, as well as their by-products, and
₱100,000.00 from any bank. Under these circumstances, the to act as agent, broker or commission merchant of the
defendant corporation is liable for the transactions entered into producers, dealers or merchants" thereof.
by Tan on its behalf. General manager and board chairman was Maximo M.
Per its Secretary’s Certificate, the petitioner Foundation Kalaw; defendants Juan Bocar and Casimiro Garcia were
had given its President, petitioner Tan, ostensible and apparent members of the Board; defendant Leonor Moll became director
authority to inter alia deal with the respondent Bank. only on December 22, 1947. NACOCO, after the passage of
Accordingly, the petitioner Foundation is estopped from Republic Act 5, embarked on copra trading activities. Amongst
questioning petitioner Tan’s authority to obtain the subject loans the scores of contracts executed by general manager Kalaw are
from the respondent Bank. It is a familiar doctrine that if a the disputed contracts, for the delivery of copra.
corporation knowingly permits one of its officers, or any other Four Typhoons which visited the Philippines conspired to
agent, to act within the scope of an apparent authority, it holds deter NACOCO from fulfilling these contracts. When it became
him out to the public as possessing the power to do those acts; clear that the contracts would be unprofitable, Kalaw submitted
and thus, the corporation will, as against anyone who has in them to the board for approval. Kalaw made a full disclosure of
good faith dealt with it through such agent, be estopped from the situation, apprised the board of the impending heavy losses.
denying the agent’s authority. Then, President Roxas made a statement that the NACOCO
head did his best to avert the losses, emphasized that
government concerns faced the same risks that confronted
private companies, that NACOCO was recouping its losses, and
that Kalaw was to remain in his post. Not long thereafter, the
board met again with Kalaw, Bocar, Garcia and Moll in
attendance. They unanimously approved the contracts
hereinbefore enumerated.
THE BOARD OF LIQUIDATORS representing THE However, one of the buyers, Louis Dreyfus & Go.
GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES (Overseas) Ltd. did in fact sued undelivered copra under the
vs. HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE contract. And the settlements amounted to the sum up to
OF THE DECEASED CASIMIRO GARCIA, and LEONOR P1,343,274.52.
MOLL NACOCO then seeks to recover the above sum of
G.R. No. L-18805, August 14, 1967 P1,343,274.52 from general manager and board chairman
SANCHEZ, J.: Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia
and Leonor Moll. It charges Kalaw with negligence under Article
FACTS: 1902 of the old Civil Code and defendant board members,
The National Coconut Corporation was chartered as a including Kalaw, with bad faith and/or breach of trust for having
non-profit governmental organization on May 7, 1940 by approved the contracts.
Commonwealth Act 518 avowedly for the protection,
preservation and development of the coconut industry in the ISSUE:
 Whether or not the contracts which Kalaw signed without The theory of corporate ratification is predicated on the right of a
prior board approval are valid corporate act. corporation to contract, and any ratification or adoption is
equivalent to a grant of prior authority."
Indeed, our law pronounces that "[r]atification cleanses
the contract from all its defects from the moment it was
constituted." By corporate confirmation, the contracts executed
HELD: by Kalaw are thus purged of whatever vice or defect they may
YES. Under the given circumstances, the Kalaw have.
contracts are valid corporate acts. A rule that has gained In sum, a case is here presented whereunder, even in
acceptance through the years is that a corporate officer the face of an express by-law requirement of prior approval, the
"intrusted with the general management and control of its law on corporations is not to be held so rigid and inflexible as to
business, has implied authority to make any contract or do any fail to recognize equitable considerations. And, the conclusion
other act which is necessary or appropriate to the conduct of the inevitably is that the embattled contracts remain valid.
ordinary business of the corporation. As such officer, "he may,
without any special authority from the Board of Directors
perform all acts of an ordinary nature, which by usage or
necessity are incident to his office, and may bind the corporation
by contracts in matters arising in the usual course of business.
In the case at bar, the practice of the corporation has
been to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in NACOCO's
behalf without prior board approval. If the by-laws were to be
literally followed, the board should give its stamp of prior
approval on all corporate contracts. But that board itself, by its ADVANCE PAPER CORPORATION and GEORGE HAW, in
acts and through acquiescence, practically laid aside the by-law his capacity as President of Advance Paper Corporation vs.
requirement of prior approval. ARMA TRADERS CORPORATION, MANUEL TING, CHENG
But if more were required, we need but turn to the GUI and BENJAMIN NG, ANTONIO TAN and UY SENG KEE
board's ratification of the contracts in dispute on January 30, WILLY
1948, though it is our (and the lower court's) belief that G.R. No.176897, December 11, 2013
ratification here is nothing more than a mere formality. BRION, J.:
Authorities, great in number, are one in the idea that
"ratification by a corporation of an unauthorized act or contract FACTS:
by its officers or others relates back to the time of the act or Petitioner Advance Paper is a domestic corporation
contract ratified, and is equivalent to original authority;" and that engaged in the business of producing, printing, manufacturing,
" [t]he corporation and the other party to the transaction are in distributing and selling of various paper products. Petitioner
precisely the same position as if the act or contract had been George Haw (Haw) is the President while his wife, Connie Haw,
authorized at the time." The language of one case is expressive: is the General Manager.
"The adoption or ratification of a contract by a corporation is Respondent Arma Traders is also a domestic corporation
nothing more or less than the making of an original contract. engaged in the wholesale and distribution of school and office
supplies, and novelty products. Respondent Antonio Tan (Tan) vires. When the acts of the corporate officers are ultra vires, the
was formerly the President while respondent Uy Seng Kee Willy corporation is not liable for whatever acts that these officers
(Uy) is the Treasurer of Arma Traders. They represented Arma committed in excess of their authority. Further, the respondents
Traders when dealing with its supplier, Advance Paper, for claimed that Advance Paper failed to verify Tan and Uy’s
about 14 years. authority to transact business with them. Hence, Advance Paper
On the other hand, respondents Manuel Ting, Cheng Gui should suffer the consequences.
and Benjamin Ng worked for Arma Traders as Vice-President,
General Manager and Corporate Secretary, respectively. ISSUE:
On various dates, Arma Traders purchased on credit Whether or not Tan and Uy are personally liable since
notebooks and other paper products amounting to Arma Traders did not issue a a board resolution to obtain loan
₱7,533,001.49 from Advance Paper. from Advance Paper.
Upon the representation of Tan and Uy, Arma Traders
also obtained three loans from Advance Paper in a total of HELD:
₱7,788,796.76. Because of its good business relations with NO. The doctrine of apparent authority provides that a
Arma Traders, Advance Paper extended the loans. corporation will be estopped from denying the agent’s authority
As payment for the purchases on credit and the loan if it knowingly permits one of its officers or any other agent to act
transactions, Arma Traders issued 82 postdated checks payable within the scope of an apparent authority, and it holds him out to
to cash or to Advance Paper. Tan and Uy were Arma Traders’ the public as possessing the power to do those acts. The
authorized bank signatories who signed and issued these doctrine of apparent authority does not apply if the principal did
checks which had the aggregate amount of ₱15,130,636.87. not commit any acts or conduct which a third party knew and
Advance Paper presented the checks to the drawee bank relied upon in good faith as a result of the exercise of
but these were dishonored either for "insufficiency of funds" or reasonable prudence. Moreover, the agent’s acts or conduct
"account closed." Despite repeated demands, however, Arma must have produced a change of position to the third party’s
Traders failed to settle its account with Advance Paper. detriment.
The petitioners claimed that the respondents fraudulently In the present petition, we do not agree with the CA’s
issued the postdated checks as payment for the purchases and findings that Arma Traders is not liable to pay the loans due to
loan transactions knowing that they did not have sufficient funds the lack of board resolution authorizing Tan and Uy to obtain the
with the drawee banks. loans. To begin with, Arma Traders’ Articles of Incorporation
As to the loan transactions, the respondents countered provides that the corporation may borrow or raise money to
that these were the personal obligations of Tan and Uy to meet the financial requirements of its business by the issuance
Advance Paper. These loans were never intended to benefit the of bonds, promissory notes and other evidence of indebtedness.
respondents. Likewise, it states that Tan and Uy are not just ordinary
The respondents also claimed that the loan transactions corporate officers and authorized bank signatories because they
were ultra vires because the board of directors of Arma Traders are also Arma Traders’ incorporators along with respondents Ng
did not issue a board resolution authorizing Tan and Uy to and Ting, and Pedro Chao. Furthermore, the respondents,
obtain the loans from Advance Paper. They claimed that the through Ng who is Arma Traders’ corporate secretary,
borrowing of money must be done only with the prior approval of incorporator, stockholder and director, testified that the sole
the board of directors because without the approval, the management of Arma Traders was left to Tan and Uy and that
corporate officers are acting in excess of their authority or ultra he and the other officers never dealt with the business and
management of Arma Traders for 14 years. He also confirmed association's committee on election in a letter informed James
that since 1984 up to the filing of the complaint against Arma Tan, principal of the school, that "it was the sentiment that all
Traders, its stockholders and board of directors never had its directors should be elected by members of the association"
meeting. because "to make a person or entity a permanent Director
Thus, Arma Traders bestowed upon Tan and Uy broad would deprive the right of voters to vote for fifteen (15) members
powers by allowing them to transact with third persons without of the Board," and "it is undemocratic for a person or entity to
the necessary written authority from its non-performing board of hold office in perpetuity." For this reason, Tan was told that "the
directors. Arma Traders failed to take precautions to prevent its proposal to make the Grace Christian High School
own corporate officers from abusing their powers. Because of its representative as a permanent director of the association,
own laxity in its business dealings, Arma Traders is now although previously tolerated in the past elections should be
estopped from denying Tan and Uy’s authority to obtain loan reexamined." Petitioner requested the chairman of the election
from Advance Paper. committee to change the notice of election by following the
We also reject the respondents’ claim that Advance procedure in previous elections, claiming that the notice issued
Paper, through Haw, connived with Tan and Uy. The records do for the 1990 elections ran "counter to the practice in previous
not contain any evidence to prove that the loan transactions years" and was "in violation of the by-laws (of 1975)" and
were personal to Tan and Uy. A different conclusion might have "unlawfully deprived Grace Christian High School of its vested
been inferred had the cashier’s checks been issued in favor of right [to] a permanent seat in the board." It appears that the
Tan and Uy, and had the postdated checks in favor of Advance opinion of the Securities and Exchange Commission on the
Paper been either Tan and/or Uy’s, or had the respondents validity of this provision was sought by the association and that
presented convincing evidence to show how Tan and Uy in reply to the query, the SEC rendered an opinion to the effect
conspired with the petitioners to defraud Arma Traders. We note that the practice of allowing unelected members in the board
that the respondents initially intended to present Sharow Ong, was contrary to the existing by-laws of the association and to
the secretary of Tan and Uy, to testify on how Advance Paper §92 of the Corporation Code (B.P. Blg. 68). Private respondent
connived with Tan and Uy. As mentioned, the respondents association cited the SEC opinion in its answer. Additionally, the
failed to present her on the witness stand. association contended that the basis of the petition for
mandamus was merely "a proposed by-laws which has not yet
been approved by competent authority nor registered with the
SEC or HIGC." It argued that "the by-laws which was registered
with the SEC on January 16, 1969 should be the prevailing by-
GRACE CHRISTIAN HIGH SCHOOL vs. THE COURT OF laws of the association and not the proposed amended by-
APPEALS, GRACE VILLAGE ASSOCIATION, INC., laws."
ALEJANDRO G. BELTRAN, and ERNESTO L. GO
G.R. No. 108905, October 23, 1997 ISSUE:
MENDOZA, J.: Whether or not Grace Christian High School is entitled to
the permanent seat in the Board of Trustees.
FACTS:
For fifteen years, Grace Christian High School 's HELD:
representative had been recognized as a "permanent director" NO, it is not. The provisions of the former and present
of the Grace Village Association. But on February 13, 1990, the corporation law leave no room for doubt as to their meaning: the
board of directors of corporations must be elected from among
the stockholders or members. There may be corporations in
which there are unelected members in the board but it is clear
that in the examples cited by petitioner the unelected members
sit as ex officio members, i.e., by virtue of and for as long as
they hold a particular office. But in the case of petitioner, there is
no reason at all for its representative to be given a seat in the
board. Nor does petitioner claim a right to such seat by virtue of
an office held. In fact it was not given such seat in the
beginning. It was only in 1975 that a proposed amendment to
the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that

for fifteen years it has not been questioned or challenged but,
on the contrary, appears to have been implemented by the
members of the association cannot forestall a later challenge to
its validity. Neither can it attain validity through acquiescence
because, if it is contrary to law, it is beyond the power of the
members of the association to waive its invalidity. For that
matter the members of the association may have formally ZAMBOANGA TRANSPORTATION COMPANY, INC., vs. THE
adopted the provision in question, but their action would be of BACHRACH MOTOR CO., INC.,
no avail because no provision of the by-laws can be adopted if it G.R. No. L-27694, October 24, 1928
is contrary to law. VILLA-REAL, J.:

FACTS:
For nearly ten years the two associations have had
business relations with each other, the Zamboanga
Transportation Co., Inc., purchasing trucks, automobiles, repair
and accessory parts for use in the business of transportation in
which it is engaged, from the Bachrach Motor Co., Inc.
Payments were made by installments, and for the security of the
vendor the Bachrach Motor Co., Inc., the purchaser, the
Zamboanga Transportation Co., Inc., executed in its favor
several chattel mortgages.
During the latter half of the month of April 1925, the
mortgagor received a letter dated April 13, 1925, through its
president and general manager, Jose Erquiaga, from the
mortgagee, enclosing the cancellation of the two former chattel
mortgages, in order to be recorded in the registries of deeds of
Cebu and Zamboanga, respectively, where said mortgages is also one of the largest shareholders, who together with
were registered. On April 27, 1925, said president and general the president constitute a majority: The payments made
manager, Jose Eraquiaga, sent the mortgage letter in which, under said contract with the knowledge of said three
replying to the latter's communication dated April 13, 1925, he directors are equivalent to a tacit approval by the board
informed it that said cancellations could not be registered, of directors of said chattel mortgage contract and binds
because the new chattel mortgage had not been approved by the Zamboanga Transportation Co., Inc. In truth and in
the mortgagor's board of directors, according to the express fact Jose Erquiaga, in his multiple capacity, was and is
stipulation of the parties, and that as soon as it was approved it the factotum of the corporation and may be said to be the
would be submitted to the Public Utility Commission for approval corporation itself.
in conformity with the law. We therefore conclude that when the president of
On May 3, 1925, the Zamboanga Transportation Co., a corporation, who is one of the principal stockholders
Inc., through its general manager, Jose Erquiaga, addressed and at the same time its general manager, auditor,
the letter to the Bachrach Motor Co., Inc., which, among other attorney or legal adviser, is empowered by its by-laws to
things, said the it was unable to make our remittances in enter into chattel mortgage contracts, subject to the
accordance with the last contract. approval of the board of directors, and enters into such
The Bachrach Motor Co., Inc., acting through its contracts with the tacit approval of two other members of
president, filed a complaint against the Zamboanga the board of directors, one of whom is also a principal
Transportation Co., Inc., praying that an order be issued shareholder, both of whom, together with the president,
declaring the former to be entitled to the possession of all the form a majority, and said corporation takes advantage of
chattels described in the chattel mortgaged as the highest the benefits afforded by said contract, such acts are
bidder in the auction sale. equivalent to an implied ratification of said contract by the
board of directors and binds the corporation even if not
ISSUE: formally approved by said board of directors as required
1. Whether or not the lack of approval of the Board of by the by-laws of the aforesaid corporation.
Directors rendered the chattel mortgage contract invalid.
2. Whether or not the lack of approval of the Public Utility 2. NO. With respect to the second question, having arrived
Commission rendered the chattel mortgage contract at the conclusion that the chattel mortgage deed, which is
invalid. the subject matter of this litigation, is valid and effective,
HELD: the lack of previous authorization and approval of the
1. NO. While it is true that said last chattel mortgage Public Utility Commission, while it, indeed, rendered said
contract was not approved by the board of directors of contract ineffective, was cured by the nunc pro tunc
the Zamboanga Transportation Co., Inc., whose approval authorization and approval granted by said Commission,
was necessary in order to validate it according to the by- and the contract was made effective from its execution,
laws of said corporation, the broad powers vested in Jose for, as this court held in the case of Zamboanga
Erquiaga as president, general manager, auditor, Transportation Co., vs. Public Utility Commission,
attorney or legal adviser, and one of the largest although the authorization and approval of said
shareholders; the approval of his act in connection with Commission were needed to render said chattel
said chattel mortgage contract in question, with which mortgage contract effective, they were not necessary for
two other directors expressed satisfaction, one of which
 the intrinsic validity of said contract so long as the legal the defendants to call for and hold another election in
elements necessary to give it juridical life are present. accordance with the constitution and by-laws of the association
In consideration of the premises, we are of the and the Corporation Law. In compliance with the judgment
opinion and so hold, that while a chattel mortgage rendered by the Court, on 26 March the election committee
contract entered into by a public service corporation is composed of Quintin Tesalona, Manuel Dumaup and Jose'
ineffective without the authorization and approval of the Capinio Santos set the meeting of the members of the
Public Utility Commission, it may be valid if it contains all association for 28 March at 5:30 o'clock in the afternoon to elect
the material and formal requisites demanded by the law the new members of the board of directors. On 27 March the
for its validity, and said Public Utility Commission may plaintiff filed an ex-parte motion alleging that the election
make it retroactive by nunc pro tunc authorization and committee that had called the meeting of members of the
approval. association is composed of the same members that had
conducted and supervised the election of the members of the
board of directors that was declared null and void by the Court;
that in view thereof it would be inequitable to allow them to
conduct and supervise again the forthcoming election; that the
election to be conducted and supervised by the said committee
would not be held in accordance with the constitution and by
laws of the association providing for five days notice to the
members before the election, since the notice was posted and
sent out only on 26 March, and the election would be held on 28
THE BOARD OF DIRECTORS AND ELECTION COMMITTEE March, or two days after notice. On the same day, 27 March the
OF THE SMB WORKERS SAVINGS AND LOAN Court entered an order providing that the election scheduled for
ASSOCIATION, INC., ET AL. vs. HON. BIENVENIDO A. TAN, March 28, 1957 be, as it hereby is, cancelled, and a committee
ETC., ET AL., of three is hereby constituted and appointed to call, conduct and
G.R. No. L-12282, March 31, 1959 supervise the election of the members of the board of directors
PADILLA, J.: of the association for 1957, said committee to be composed of:
Mr. Candido C. Viernes as representative of the Court and to
act as Chairman; and one representative each from the plaintiffs
On 17 January 1957 John Castillo et al., commenced a suit in and defendant, as members. The committee is vested with the
the court of First Instance of Manila to declare null and void sole and exclusive power and authority to call conduct and
election of the members of the board of directors of the SMB supervise the election of the members of the board of directors
Workers Savings and Loan Association, Inc. and of the of the association for the year 1957.
members of the board of directors of the association to call for
and hold another election in accordance with its constitution and ISSUES:
by-laws and the Corporation Law, and to restain the defendants 1. Whether or not the notice for the meeting was properly
who had been illegally elected as members of the board of issued.
directors from exercising the functions of their office. 2. Whether or not a court may appoint the members of the
On 11 February, the Court rendered judgment declaring election committee who will supervise and conduct the
the election held on 11 and 12 January null and void, ordering election of the member of the board of directors.
HELD:
1. NO. Notice of the time and place of holding of any annual
meeting, or any special meeting, the members, shall be
given either by posting the same in a postage prepaid
envelope, addressed to each member on the record at
the address left by such member with the Secretary of
the Association, or at his known post-office address or by
delivering the same person at least (5) days before the
date set for such meeting. In lieu of addressing or
serving personal notices to the members, notice of the
members, notice of a regular annual meeting or of a
special meeting of the members may be given by posting
copies of said notice at the different departments and
plants of the San Miguel Brewery Inc., not less than five
(5) days prior to the date of the meeting. Notice of a
special meeting of the members should be given at leasts
five days before the date of the meeting. Therefore, the DOMINGO PONCE AND BUHAY L. PONCE vs. DEMETRIO
five days’ previous notice required would not be complied B. ENCARNACION, Judge of the Court of First Instance of
with. Manila, Branch I, and POTENCIANO GAPOL,
2. YES. Court in the exercise of its equity jurisdiction may G.R. No. L-5883, November 28, 1953
appointment such committee, it having been shown that PADILLA, J.:
the Election Committee provided for in section 7 of the
by-laws of the association that conducted the election FACTS:
annulled by the respondent court if allowed to act as such The petitioners aver that the Daguhoy Enterprises, Inc.,
may jeopardise the rights of the respondents. In a proper was duly registered as such on 24 June 1948. On 16 April 1951
proceeding a court for equity may direct the holding of a at a meeting duly called, the voluntary dissolution of the
stockholders' meeting under the control of a special corporation and the appointment of Potenciano Gapol as
master, and the action taken at such a meeting will not receiver were agreed upon and to that end a petitioner Domingo
be set aside because of a wrongful use of the court' Ponce, however instead of filing the petition for voluntary
interlocutory decree, where not brought to the attention of dissolution of the of the corporation as agreed upon, the
the court prior to the meeting. A court of equity may, on respondent Potenciano Gapol, who is the largest stockholder,
showing of good reason, appoint a master to conduct and charged his mind and filed a to compel the petitioners to render
supervise an election of directors when it appears that a an accounting of the funds and assets of the corporation, and
fair election cannot make directions contrary to statute thereafter misspent, misapplied, misappropriated and converted
and public policy with respect to the conduct of such the same.
election.
 On 3 January 1952, Potenciano Gapol filed a petition,
praying for an order directing him to a call a meeting of the The requirement that "on the showing of good cause therefor,"
stockholders of the corporation and to preside at such meeting the court may grant to a stockholder the authority to call such
in accordance with section 26 of the Corporation law. Two days meeting and to preside thereat does not mean that the petition
later, without notice to the petitioners and to the other members must be set for hearing with notice served upon the board of
of the board of directors and in violation of the Rules of Court directors. The respondent court was satisfied that there was a
which require that the adverse parties be notified of the hearing showing of good cause for authorizing the respondent
of the motion three days in advance, the court issued the order Potenciano Gapol to call a meeting of the stockholders for the
as prayed for. purpose of electing the board of directors as required and
provided for in the by-laws, because the chairman of the board
ISSUE: of directors called upon to do so had failed, neglected, or
Whether or not the court may issue an order directing the refused to perform his duty. It may be likened to a writ of
call of a meeting of a corporation. preliminary injunction or of attachment which may be issued ex-
parte upon compliance with the requirements of the rules and
HELD: upon the court being satisfied that the same should be issue.
Whenever, from any cause, there is no person authorized Such provisional reliefs have not been deemed and held as
to call a meeting, or when the officer authorized to do so violative of the due process of law clause of the Constitution.
refuses, fails or neglects to call a meeting, any judge of a Court The alleged illegality of the election of one member of the
of First Instance on the showing of good cause therefor, may board of directors at the meeting called by the respondent
issue an order to any stockholder or member of a corporation, Potenciano Gapol as authorized by the court being subsequent
directing him to call a meeting of the corporation by giving the to the order complained of cannot affect the validity and legality
proper notice required by this Act or by-laws; and if there be no of the order. If it be true that one of the directors elected at the
person legally authorized to preside at such meeting, the judge meting called by the respondent Potenciano Gapol, as
of the Court of First Instance may direct the person calling the authorized by the order of the court complained of, was not
meeting to preside at the same until a majority of the members qualified in accordance with the provisions of the by-laws, the
or stockholders representing a majority of the stock members or remedy of an aggrieved party would be quo a warranto. Also,
stockholders presenting a majority of the stock present and the alleged previous agreement to dissolve the corporation does
permitted by law to be voted have chosen one of their number not affect or render illegal the order issued by the respondent
to act as presiding officer for the purposes of the meeting. court.
On the showing of good cause therefor, the court may
authorize a stockholder to call a meeting and to preside threat
until the majority stockholders representing a majority 105-109
strockholders representing a majority of the stock present and
permitted to be voted shall have chosen one among them to
preside it. And this showing of good cause therefor exists when 1. EN BANC
the court is apprised of the fact that the by-laws of the
corporation require the calling of a general meeting of the [G.R. No. L-23428. November 29, 1968.]
stockholders to elect the board of directors but call for such
meeting has not been done.
DETECTIVE & PROTECTIVE BUREAU, INC., petitioner,
vs. THE HONORABLE GAUDENCIO CLORIBEL, in his
capacity as Presiding Judge of Branch VI, Court of Facts:
First Instance of Manila, and FAUSTO S. ALBERTO,
respondents.
Petitioner was a corporation duly organized and existing under
the laws of the Philippines. It filed a complaint before the CFI
Doctrine: Manila against Fausto Alberto for accounting with preliminary
injunction and receivership, alleging that Alberto was managing
director of the corporation from 1952 until January 14, 1964,
and that in June 1963, he illegally seized and took control of all
Every director must own in his own right at least one share of the assets as well as the books, records, vouchers and receipts
the capital stock of the stock corporation of which he is a of the corporation from the accountant-cashier, concealed them
director, which stock shall stand in his name on the books of the illegally and refused to allow any member of the corporation to
corporation (Sec. 30, Corporation Law). So that, if the By-Laws see and examine the same. On January 14, 1964, the
of the Corporation provides that "The manager shall be elected stockholders, in a meeting, removed defendant as managing
by the Board of Directors from among its members," one could director and elected Jose de la Rosa in his stead, but he
not be a managing director of said corporation unless he owns refused to vacate his office and to deliver the assets and books
at least one share of stock thereof. (Detective & Protective to Jose de la Rosa, continued to perform unauthorized acts for
Bureau, Inc. v. Cloribel, G.R. No. L-23428, [November 29, and in behalf of plaintiff corporation, and contrary to a resolution
1968], 135 PHIL 258-270) adopted by the Board of Directors on November 24, 1963, he
had been illegally disposing of corporate funds. As a defense,
Alberto stated that de la Rosa could not be elected managing
Where ownership of the controlling interest in the corporation is director because he did not own any stock in the corporation.
in dispute, the party in control or in possession of the disputed
interest is presumed to have the better right (to the position of
managing corporate director) until the contrary is adjudged, and Ruling:
hence, that party should not be deprived of the control or
possession until the court is prepared to adjudicate the
controverted right in favor of the other party (Gordillo, et al. v.
Del Rosario, et al., 39 Phil. 829). Relevant here is: "The rule that There is in the record no showing that Jose de la Rosa owned a
a court should not, by means of a preliminary injunction, transfer share of stock in the corporation. If he did not own any share of
property in litigation from the possession of one party to another stock, certainly he could not be a director pursuant to the
is more particularly applicable where the legal title is in dispute mandatory provision of Section 30 of the Corporation Law,
and the party having possession asserts ownership in himself" which in part provides:
(Gordillo, et al. v. Del Rosario, supra; Rodulfa v. Alfonso, et al.,
79 Phil. 225). (Detective & Protective Bureau, Inc. v. Cloribel,
G.R. No. L-23428, [November 29, 1968], 135 PHIL 258-270)
"Sec. 30. Every director must own in his own right at least one 2. SECOND DIVISION
share of the capital stock of the stock corporation of which he is
a director, which stock shall stand in his name on the books of [G.R. No. 26555. November 16, 1926.]
the corporation .."
BALDOMERO ROXAS, ENRIQUE ECHAUS and
If he could not be a director, he could also not be a managing ROMAN J. LACSON, petitioners, vs. HONORABLE
director of the corporation, pursuant to Article V, Section 3 of the MARIANO DE LA ROSA, Auxiliary Judge of First
By-Laws of the Corporation which provides that:. Instance of Occidental Negros, AGUSTIN CORUÑA
MAURO LEDESMA and BINALBAGAN ESTATE, INC.,
"The manager shall be elected by the Board of respondents.
Directors from among its members . . ." (Record,
p. 48)
Doctrine:

If the managing director-elect was not qualified to become

managing director, respondent Fausto Alberto could not be
Where it appears that a corporation already has a duly
compelled to vacate his office and cede the same to the
functioning board of directors, without any existing vacancies,
managing director-elect because the by-laws of the corporation
the election of a new board of directors at a called meeting is
provides in Article IV, Section 1 that "Directors shall serve until
irregular; and a Court of First Instance has jurisdiction to enjoin
the election and qualification of their duly qualified successor."
the holding of a special meeting of the shareholders called by a
committee representing a majority of the shareholders, when
the call shows that the purpose is to elect a new board of
Alberto contended that he really was the owner of the controlling directors. The action of the court in issuing a temporary
interest in the business carried on in the name of the petitioner, injunction against the holding of such meeting will not be
having invested therein a total of P57,727.29 as against the sum disturbed by the Supreme Court upon petition for the writ of
of P4,000 only invested by one other director, Jose M. Barredo. certiorari. (Roxas v. De la Rosa, G.R. No. 26555, [November
We find that there was a question as to who own the controlling 16, 1926], 49 PHIL 609-614)
interest in the corporation. Where ownership is in dispute, the
party in control or possession of the disputed interest is
presumed to have the better right until the contrary is adjudged,
Facts:
and hence that party should not be deprived of the control or
possession until the court is prepared to adjudicate the
controverted right in favor of the other party.
Binalbagan Estate, Inc., is a corporation having its principal
plant in Occidental Negros where it is engaged in the
manufacture of raw sugar from canes grown upon farms
accessible to its central. The possessors of a majority of the
share of the Binalbagan Estate, Inc., formed a voting trust
composed of three members, namely, Salvador Laguda, to be taken at a special meeting to remove the directors, such
Segundo Monteblanco, and Arthur F. Fisher, as trustees. purpose shall be indicated in the call (Act No. 1459, sec. 34).

The total number of outstanding shares of the corporation is

somewhat over 5,500, while the number of shares controlled by While the trust controls a majority of the stock, it does not
the voting trust is less than 3,000. At the general annual have a clear two-third majority. It was therefore impolitic for
meeting, Mr. J. P. Heilbronn appeared as representative of the the petitioners, in forcing the call for the meeting of August 16,
voting trust, and by virtue of controlling the majority of the to come out frankly and say in the notice that one of the
shares, was able to nominate and elect a board of directors to purposes of the meeting was to remove the directors of the
his own liking, without opposition from the minority. After the corporation from office. Instead, the call was limited to the
board of directors had been thus elected and had qualified, they election of the board of directors, it being the evident intention
chose a set of officers. The present trustees, apparently of the voting trust to elect a new board as if the directorate
desirous of ousting said officers, on August 2, 1926, caused the had been then vacant. But the complaint in civil action No.
secretary of the Binalbagan Estate Inc., to issue to the 3840 direct asserts that the members of the present
shareholders a notice calling for a special general meeting of directorate were regularly elected at the general annual
shareholders "for the election of the board of directors, for the meeting held in February, 1926, and if that assertion be true,
amendment of the By-Laws, and for any other business that can the proposal to elect another directorate, as per the call of
be dealt with in said meeting." Within a few days after said August 2, if carried into effect, would result in the election of a
notice was issued Agustin Coruña, as member of the existing rival set of directors, who would probably need the assistance
board, and Mauro Ledesma, as a simple shareholder of the of judgment of court in an independent action of quo warranto
corporation, instituted a civil action in the Court of First Instance to get them installed into office, even supposing that their title
of Occidental Negros against the trustees and the Binalbagan to the office could be maintained.
Estate, Inc., for the purpose of enjoining the meeting
contemplated in the notice above-mentioned, which the Court
granted.
It is insinuated that there was some irregularity or another in
the election of the present directorate. We see nothing upon
which this suggestion can be safely planted; and at any rate
Ruling: the present board of directors are de facto incumbents of the
office who acts will be valid until they shall be lawfully removed
from office or case from the discharge of their functions. It will
be noted that the order in question enjoins the defendants
Under the law the directors of a corporation can only be from holding the meeting called for August 16; and said order
removed from office by a vote of the stockholders representing must not be understood as constituting any obstacle for the
at least two-thirds of the subscribed capital stock entitled to holding of the regular meeting at the time appointed in by-laws
vote (Act No. 1459, sec. 34); while vacancies in the board, of the corporation.
when they exist, can be filled by mere majority vote (Act No.
1459, sec. 25). Moreover, the law requires that when action is 3. FIRST DIVISION
[G.R. No. 43413. August 31, 1937.] majority. The action in such a case is said to be brought
derivatively in behalf of the corporation to protect the rights of
HIGINIO ANGELES, JOSE DE LARA and AGUEDO the minority stockholders thereof (7 R. C. L., pars. 293 and 294,
BERNABE, as stockholders for and in behalf and for and authorities therein cited; 13 Fletcher, Cyc. of Corp., pars.
the benefit of the corporation, Parañaque Rice Mill, 593, et seq., and authorities therein cited). (Angeles v. Santos,
Inc., and the other stockholders who may desire to G.R. No. 43413, [August 31, 1937], 64 PHIL 697-713)
join, plaintiffs-appellees, vs. TEODORICO B. SANTOS,
ESTANISLAO MAYUGA, APOLONIO PASCUAL, and
BASILISA RODRIGUEZ, defendants-appellants.
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
Doctrine: 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
There is ample evidence in the present case to show that the corporation and indirectly upon the stockholders. An illustration
defendants have been guilty of breach of trust as directors of of a suit of this kind is found in the case of Pascual vs. Del Saz
the corporation and the lower court so found. The board of Orozco (19 Phil., 82), decided by this court as early as 1911. In
directors of a corporation is a creation of the stockholders and that case, the Banco Español-Filipino suffered heavy losses due
controls and directs the affairs of the corporation by delegation to fraudulent connivance between a depositor and an employee
of the stockholders. But the board of directors, or the majority of the bank, which losses, it was contended, could have been
thereof, in drawing to themselves the powers of the corporation, avoided if the president and directors had been more vigilant in
occupies a position of trusteeship in relation to the minority of the administration of the affairs of the bank. The stockholders
the stock in the sense that the board should exercise good faith, constituting the minority brought a suit in behalf of the bank
care and diligence in the administration of the affairs of the against the directors to recover damages, and this over the
corporation and should protect not only the interests of the objection of the minority of the stockholders and the directors.
majority but also those of the minority of the stock. (Angeles v. This court held that the suit could properly be maintained.
Santos, G.R. No. 43413, [August 31, 1937], 64 PHIL 697-713) (Angeles v. Santos, G.R. No. 43413, [August 31, 1937], 64
PHIL 697-713)

Where a majority of the board of directors wastes or dissipates

the funds of the corporation or fraudulently disposes of its The Corporation Law, as amended, in section 29 to 34, provide
properties, or performs ultra vires acts, the court, in the exercise for the election and removal of the directors of a corporation.
of its equity jurisdiction, and upon showing that intracorporate Our Corporation Law (Act No. 1459, as amended), does not
remedy is unavailing, will entertain a suit filed by the minority confer expressly upon the courts the power to remove a director
members of the board of directors, for and in behalf of the of a corporation. In some jurisdictions, statutes expressly
corporation, to prevent waste and dissipation and the provide a more or less summary method for the confirmation of
commission of illegal acts and otherwise redress the injuries of the election and for the motion of the directors of a corporation.
the minority stockholders against the wrongdoing of the This is true in New York, New Jersey, Virginia and other states
of the American Union. There are abundant authorities, and record of the corporation which were in their
however, which hold that if the court has acquired jurisdiction to possession;
appoint a receiver because of the mismanagement of directors
these may thereafter be removed and others appointed in their
place by the court in the exercise of its equity jurisdiction (2 - that Teodoro B. Santos, for the purpose of illegally
Fletcher, Cyc. of Corp., ftn. sec. 358, pp. 118 and 119). In the controlling the affairs of the corporation, refused to sign
present case, however, the properties and assets of the and issue the corresponding certificate of stock for the
corporation being amply protected by the appointment of a 600 fully paid-up share of the plaintiff, Higinio Angeles, of
receiver and in view of the statutory provisions above referred the total value of P15,000;
to, we are of the opinion that the removal of the directors is,
under the circumstances, unnecessary and unwarranted.
- that notwithstanding written requests made in conformity
(Angeles v. Santos, G.R. No. 43413, [August 31, 1937], 64
with the by-laws of the corporation of three members of
PHIL 697-713)
the board of directors who are holders of more than one-
third of the subscribed capital stock of the corporation,
the defendant Teodorico B. Santos as president of the
Facts: corporation refused to call a meeting of the board of
directors and of the stockholders.

The Parañaque Rice Mill, Inc., is a corporation organized for the Defendants-appellants presented their amended answer to the
purpose of operating a rice mill in the municipality of Parañaque, complaint, containing a general and specific denial, and alleging
Province of Rizal, of which the parties in this case are as special defense that the defendant Teodorico B. Santos
stockholders and members. A complaint was filed by plaintiffs refused to sign the certificate of stock in favor of the plaintiff
who were minority stockholders against defendants who were Higinio Angeles for 600 shares valued at P15,00, because the
majority stockholders, with the Court of First Instance of Rizal, board of directors decided to give Higinio Angeles only 320
alleging the following: shares of stock worth P8,000. They also alleged that the court
had no jurisdiction over the Parañaque Rice Mill, Inc., because it
had not been included as party defendant in this case and that,
- that at an extraordinary meeting held on February 21, therefore the court could not properly appoint a receiver of the
1932, the stockholders appointed an investigation corporation pendente lite.
committee of which the plaintiff Jose de Lara was
chairman and the stockholders Dionisio Tomas and
Aguedo Bernabe were members, to investigate and Ruling:
determine the properties, operations, and losses of the
corporation as shown in the auditor's report
corresponding to the year 1931, but the defendants,
particularly Teodorico B. Santos, who was the president There is ample evidence in the present case to show that the
of the corporation, denied access to the properties, books defendants have been guilty of breach of trust as directors of
the corporation and the lower court so found. Where a majority
of the board of directors wastes or dissipates the funds of the amended, in section 29 to 34, provide for the election and
corporation or fraudulently disposes of its properties, or removal of the directors of a corporation. Our Corporation Law
performs ultra vires acts, the court, in the exercise of its equity (Act No. 1459, as amended), does not confer expressly upon
jurisdiction, and upon showing that intracorporate remedy is the court the power to remove a director of a corporation. There
unavailing, will entertain a suit filed by the minority members of are abundant authorities, however, which hold that if the court
the board of directors, for and in behalf of the corporation, to has acquired jurisdiction to appoint a receiver because of the
prevent waste and dissipation and the commission of illegal acts mismanagement of directors these may thereafter be remove
and otherwise redress the injuries of the minority stockholders and others appointed in their place by the court in the exercise
against the wrongdoing of the majority. of its equity jurisdiction (2 Fletcher, Cyc. of Corp., ftn. sec. 358,
pp. 18 an 119). In the present case, however, the properties and
assets of the corporation being amply protected by the
appointment of a receiver and view of the statutory provisions
The contention of the defendants in the case at bar that the
above referred to, we are of the opinion that the removal of the
Parañaque Rice Mill, Inc., should have been brought in as
directors is, under the circumstances, unnecessary and
necessary party and the action maintained in its name and in its
unwarranted.
behalf directly states the general rule, but not the exception
recognized by this court in the case of Everrett vs. Asia Banking
Corporation (49 Phil., 512, 527). In that case, upon invocation of
the general rule by the appellees there, this court said: The appellants also argue that the lower court erred in deciding
that the plaintiff Higinio Angeles is entitled to the issuance in his
But, like most rules, the rule in question has its name of a certificate covering 600 shares of stock of the total
exceptions. It is alleged in the complaint and, par value of P15,000. A review of the evidence shows that
consequently, admitted through the demurrer that the Higinio Angeles brought in P15,000 party in money and party in
corporation Teal & Company is under the complete property, for 600 shares of stock. The very articles of
control of the principal defendants in the case, and, in incorporation signed by all the incorporators, among whom are
these circumstances it is obvious that a demand upon the the defendants, show that Higinio Angeles paid P5,600 on
board of directors to institute action and prosecute the account of his subscription amounting to P10,000. The amount
same effectively would have been useless, and the law of P5,600 is the value of Angeles' cinematograph building in
does not require litigants to perform useless acts. Bacoor, Cavite, which he transferred to the municipality of
(Exchange Bank of Wewoka vs. Bailey, 29 Okla., 246; Parañaque where the same was reconstructed for the use of the
Fleming and Hewins vs. Black Warrior Copper Co., 15 corporation. The receipts signed by the Philippine Engineering
Ariz., 1; Wickersham vs. Crittenen, 106 Cal., 329; Glem Company and the testimony of Higinio Angeles and Aguedo
vs. Kittanning Brewing Co., 259 Pa., 510; Hawes vs. Bernabe (secretary-treasurer of the corporation) show that
Contra Costa Water Company, 104 U.S., 450.) Higinio Angeles paid with his own funds the sum of P2,750 to
the Philippine Engineering Co., as part of the purchase price of
the ricemill bought for the corporation. Angeles paid a further
The appellants contend that the lower court erred in ordering the sum of P2,397.99 to the Philippine Engineering Company. It
removal of the defendants from their offices as members of the also appears that for the installation of the Rice Mill, the
board of directors of the corporation. The Corporation Law, as construction of camarin, and the cement paving (cementacion)
of the whole area of two camarines, and for the excavation of a MANUEL R. SANTIAGO, BENJAMIN A. CARANDANG,
well for the use of the rice mill the plaintiff Higinio Angeles paid REGINA DE LEON-HERLIHY, CARLOS Y. RAMOS, JR.,
with his own funds the amount of P7,431.47. Adding all these ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND
sums together we have a total of P18, 179.46. At a meeting of JOHN DOES, Respondents.
the board of directors on December 27, 1931, which meeting
was convoked by Angeles, it seemed to have been agreed that x-----------------------x
Angeles was to be given shares of stock of the total par value of
P15,000. Angeles wanted to have P16,000 worth of stock to his G.R. Nos. 163368-69
credit for having made the disbursements mentioned above, but
he finally agreed to accept 600 share worth only P15,000. The JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y.
certificate of stock, however, was not issued as disagreement PARDO, Petitioners, 
arose between him and the defendant Santos. We, therefore, vs.
find no error in the decision of the lower court ordering the JOSE A BERNAS, CECILE H. CHENG AND IGNACIO A.
issuance of a certificate for 600 shares of stock of the total par MACROHON, Respondents.
value of P15,000 to Higinio Angeles.
DECISION

PEREZ, J.:

4. FIRST DIVISION Facts:

G.R. Nos. 163356-57               July 10, 2015

JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, Makati Sports Club (MSC) is a domestic corporation duly
JESUS B. MARAMARA, JOSE T. FRONDOSO, IGNACIO T. organized and existing under Philippine laws for the primary
MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR purpose of establishing, maintaining, and providing social,
CAP A CITY AS INDIVIDUAL DIRECTORS OF MAKATI cultural, recreational and athletic activities among its members.
SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD OF Alarmed with the rumored anomalies in handling the corporate
DIRECTORS OF MAKATI SPORTS CLUB, Petitioners,  funds, the MSC Oversight Committee (MSCOC), composed of
vs. the past presidents of the club, demanded from the Bernas
JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G. Group, who were then incumbent officers of the corporation, to
LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA resign from their respective positions to pave the way for the
CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA. election of new set of officers. Resonating this clamor were the
CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON, stockholders of the corporation representing at least 100 shares
CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. who sought the assistance of the MSCOC to call for a special
GOZON, CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA, stockholders meeting (1997) for the purpose of removing the
sitting officers and electing new ones. The Bernas Group
initiated an action before the Securities Investigation and Stockholders' Meeting was likewise ratified by the stockholders
Clearing Department (SICD) of the SEC seeking for the during the 2000 Annual Stockholders' Meeting.
nullification of the 17 December 1997 Special Stockholders
Meeting on the ground that it was improperly called. Citing
Section 28 of the Corporation Code, the Bernas Group argued
that the authority to call a meeting lies with the Corporate The SICD found that the 17 December 1997 Special
Secretary and not with the MSCOC which functions merely as Stockholders' Meeting and the Annual Stockholders' Meeting
an oversight body and is not vested with the power to call conducted on 20 April 1998 and 19 April 1999 are invalid. The
corporate meetings. SICD likewise nullified the expulsion of Bernas from the
corporation and the sale of his share at the public auction. It
held that the April 20, 1998 meeting was not attended by a
sufficient number of valid proxies and it was not called by the
Meanwhile, the newly elected directors initiated an investigation validly elected Corporate Secretary nor presided over by the
on the alleged anomalies in administering the corporate affairs validly elected president. The April 1999 meeting was also held
and after finding Bernas guilty of irregularities, the Board to have only been effected by less than 2/3 of the stockholders.
resolved to expel him from the club by selling his shares at
public auction. Bernas' shares was accordingly sold for
₱902,000.00 to the highest bidder:
On appeal, the SEC En Banc reversed the findings of the SICD
and validated the holding of the 17 December 1997 Special
Stockholders' Meeting as well as the Annual Stockholders'
An Annual Stockholders' Meeting was held on 20 April 1998 Meeting held on 20 April 1998 and 19 April 1999. The Court of
pursuant to Section 8 of the MSC bylaws. During the said Appeals rendered a Decision declaring the 17 December 1997
meeting, which was attended by 1,017 stockholders Special Stockholders' Meeting invalid for being improperly called
representing 2/3 of the outstanding shares, the majority but affirmed the actions taken during the Annual Stockholders'
resolved to approve, confirm and ratify, among others, the Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000.
calling and holding of 17 December 1997 Special Stockholders'
Meeting, the acts and resolutions adopted therein including the
removal of Bernas Group from the Board and the election of
their replacements. Ruling:

The SEC En Banc resolved to supervise the holding of the 1999 Sec. 28. Removal of directors or trustees. -Any director or
Annual Stockholders' Meeting. During the said meeting, the trustee of a corporation may be removed from office by a vote of
stockholders once again approved, ratified and confirmed the the stockholders holding or representing at least two-thirds (2/3)
holding of the 17 December 1997 Special Stockholders' of the outstanding capital stock, or if the corporation be a non-
Meeting. The conduct of the 17 December 1997 Special stock corporation, by a vote 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 SEC. 10. Special Meetings. Special meetings of stockholders
special meeting called for the purpose, and in either case, after shall be held at the Clubhouse when called by the President or
previous notice to stockholders or members of the corporation by the Board of Directors or upon written request of the
of the intention to propose such removal at the meeting. A stockholders representing not less than one hundred (100)
special meeting of the stockholders or members of a corporation shares. Only matters specified in the notice and call will be
for the purpose of removal of directors or trustees, or any of taken up at special meetings.
them, must be called by the secretary on order of the president
or on the written demand of the stockholders representing or xxxx
holding at least a majority of the outstanding capital stock, or, if
it be a non-stock corporation, on the written demand of a SEC. 25. Secretary. The Secretary shall keep the stock and
majority of the members entitled to vote. Should the secretary transfer book and the corporate seal, which he shall stamp on
fail or refuse to call the special meeting upon such demand or all documents requiring such seal, fill and sign together with the
fail or refuse to give the notice, or if there is no secretary, the President, all the certificates of stocks issued, give or caused to
call for the meeting may be addressed directly to the be given all notices required by law of these By-laws as well as
stockholders or members by any stockholder or member of the notices of all meeting of the Board and of the stockholders; shall
corporation signing the demand. Notice of the time and place of certify as to quorum at meetings; shall approve and sign all
such meeting, as well as of the intention to propose such correspondence pertaining to the Office of the Secretary; shall
removal, must be given by publication or by written notice keep the minutes of all meetings of the stockholders, the Board
prescribed in this Code. Removal may be with or without cause: of Directors and of all committees in a book or books kept for
Provided, That removal without cause may not be used to that purpose; and shall be acting President in the absence of
deprive minority stockholders or members of the right of the President and Vice-:President. The Secretary must be a
representation to which they may be entitled under Section 24 citizen and a resident of the Philippines. The Secretary shall
of this Code. (Emphasis supplied) keep a record of all the addresses and telephone numbers of all
stockholders.

Corollarily, the pertinent provisions of MSC by-laws which

govern the manner of calling and sending of notices of the Textually, only the President and the Board of Directors are
annual stockholders' meeting and the special stockholders' authorized by the by-laws to call a special meeting. In cases
meeting provide: where the person authorized to call a meeting refuses, fails or
neglects to call a meeting, then the stockholders representing at
SEC. 8. Annual Meetings. The annual meeting of stockholders least 100 shares, upon written request, may file a petition to call
shall be held at the Clubhouse on the third Monday of April of a special stockholder's meeting.
every year unless such day be a holiday in which case the
annual meeting shall be held on the next succeeding business
day. At such meeting, the President shall render a report to the
stockholders of the clubs. The 7 December 1997 Special Stockholders' Meeting was
called neither by the President nor by the Board of Directors but
xxxx by the MSCOC. Even the Corporation Code (Sec. 23) is
categorical in stating that a corporation exercises its powers became such by reason of voting of government-sequestered
through its board of directors and/or its duly authorized officers shares.
and agents, except in instances where the Corporation Code
requires stockholders' approval for certain specific acts.
Nowhere in the Corporation Code or in the MSC by-laws can it
be gathered that the Oversight Committee is authorized to step The case would have been different if the petitioning
in wherever there is breach of fiduciary duty and call a special stockholders went directly to the SEC and sought its assistance
meeting for the purpose of removing the existing officers and to call a special stockholders' meeting citing the previous refusal
electing their replacements even if such call was made upon the of the Corporate Secretary to call a meeting. Where there is an
request of shareholders. Needless to say, the MSCOC is officer authorized to call a meeting and that officer refuses, fails,
neither empowered by law nor the MSC by-laws to call a or neglects to call a meeting, the SEC can assume jurisdiction
meeting and the subsequent ratification made by the and issue an order to the petitioning stockholder to call a
stockholders did not cure the substantive infirmity, the defect meeting pursuant to its regulatory and administrative powers to
having set in at the time the void act was done. The defect goes implement the Corporation Code. Given the broad
into the very authority of the persons who made the call for the administrative and regulatory powers of the SEC outlined under
meeting. It is apt to recall that illegal acts of a corporation which Section 50 of the Corporation Code and Section 6 of
contemplate the doing of an act which is contrary to law, morals Presidential Decree (PD) No. 902-A, the Cinco Group cannot
or public order, or contravenes some rules of public policy or claim that if was left without recourse after the Corporate
public duty, are, like similar transactions between individuals, Secretary previously refused to heed its demand to call a
void. They cannot serve as basis for a court action, nor acquire special stockholders' meeting.
validity by performance, ratification or estoppel. The same
principle can apply in the present case. The void election of 17
December 1997 cannot be ratified by the subsequent Annual As to the meetings: First, the 20 April 1998 Annual Stockholders
Stockholders' Meeting. Meeting was valid because it was sanctioned by Section 8 of
the MSC bylaws. Unlike in Special Stockholders
Meeting wherein the bylaws mandated that such meeting shall
be called by specific persons only, no such specific requirement
Consequently, such Special Stockholders' Meeting called by the can be obtained under Section 8.
Oversight Committee cannot have any legal effect. The removal
of the Bernas Group, as well as the election of the Cinco Group, Second, the 19 April 1999 Annual Stockholders Meeting is
effected by the assembly in that improperly called meeting is likewise valid because in addition to the fact that it was
void, and since the Cinco Group has no legal right to sit in the conducted in accordance to Section 8 of the MSC bylaws, such
board, their subsequent acts of expelling Bernas from the club meeting was supervised by the SEC in the exercise of its
and the selling of his shares at the public auction, are likewise regulatory and administrative powers to implement the
invalid. The Cinco Group cannot invoke the application of de Corporation Code. Needless to say, the conduct of SEC
facto officership doctrine to justify the actions taken after the supervised Annual Stockholders Meeting gave rise to the
invalid election since the operation of the principle is limited to presumption that the corporate officers who won the election
third persons who were originally not part of the corporation but were duly elected to their positions and therefore can be
rightfully considered as de jure officers. As de jure officials, they
can lawfully exercise functions and legally perform such acts Plaintiffs-appellants contend that the investment of corporate
that are within the scope of the business of the corporation funds by defendants-appellants in another corporation
except ratification of actions that are deemed void from the constitutes a violation of Section 17 1/2 of the Corporation Law.
beginning. The Supreme Court held that "such an act, if done in pursuance
of the corporate purpose, does not need the approval of the
Considering that a new set of officers were already duly elected stockholders; but when the purchase of shares of another
in 1998 and 1999 Annual Stockholders Meetings, the Bernas corporation is done solely for investment and not to accomplish
Group whose term of office had expired cannot be permitted to the purpose of its incorporation, the vote of approval of the
use the holdover principle as a shield to perpetuate in office. stockholders is necessary," and further states that "when the
investment is necessary to accomplish its purpose or purposes
as stated in its articles of incorporation, the approval of the
stockholders is not necessary." (Guevara, Phil. Corp. Law,
1967, p. 89) (De la Rama v. Ma-ao Sugar Central Co., Inc.,
G.R. Nos. L-17504 and L-17506, [February 28, 1969], 136 PHIL
418-432)
5. EN BANC
G.R. No. L-17504 & L-17506             February 28, 1969
RAMON DE LA RAMA, FRANCISCO RODRIGUEZ, Facts:
HORTENCIA SALAS, PAZ SALAS and PATRIA SALAS,
heirs of Magdalena Salas, as stockholders on their own
behalf and for the benefit of the Ma-ao Sugar Central Co., Four minority stockholders commenced in the CFI Manila a
Inc., and other stockholders thereof who may wish to join derivative suit against the Ma-ao Sugar Central Co., Inc. and J.
in this action, plaintiffs-appellants,  Amado Araneta and three other directors of the corporation, (1)
vs. for alleged illegal and ultra-vires acts consisting of self-dealing
MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA, irregular loans, and unauthorized investments; (2) for alleged
MRS. RAMON S. ARANETA, ROMUALDO M. ARANETA, and gross mismanagement; (3) for alleged forfeiture of corporate
RAMON A. YULO, defendants-appellants. rights warranting dissolution; (4) for alleged damages and
San Juan, Africa and Benedicto for plaintiffs-appellants. attorney's fees; and (5) for receivership.
Vicente Hilado and Gianzon, Sison, Yulo and Associates for
defendants-appellants.
Plaintiffs contended that the investment of corporate funds by
CAPISTRANO, J.: the Ma-ao Sugar Co., Inc., in another corporation (the Philippine
Fiber Processing Co., Inc.) constitutes a violation of Sec. 17-½
of the Corporation Law; alleging that in 1950 the Ma-ao Sugar
Doctrine: 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.; that at the time the first two
out of three 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., On the other hand, the defendants, as appellees, invoked Sec.
was so authorized by the Board of Directors. 13, par. 10 of the Corporation Law, which provides:
SEC. 13. — Every corporation has the power:

In addition, 355,000 shares of stock of the same Philippine Fiber xxx     xxx     xxx

Processing Co., Inc., owned by Luzon Industrial, corporation
(9) To enter into any obligation or contract essential to
were transferred on May 31, 1952, to the defendant Ma-ao
the proper administration of its corporate affairs or
Sugar Central Co., Inc., with a valuation of P355,000.00 on the
necessary for the proper transaction of the business or
basis of P1.00 par value per share. Again the "investment" was
accomplishment of the purpose for which the corporation
made without prior board resolution, the authorizing resolution
was organized;
having been subsequently approved only on June 4, 1952.
Plaintiffs-appellants also contend that even (10) Except as in this section otherwise provided, and in
assuming, arguendo, that the said Board Resolutions are valid, order to accomplish its purpose as stated in the articles
the transaction, is still wanting in legality, no resolution having of incorporation, to acquire, hold, mortgage, pledge or
been approved by the affirmative vote of stockholders holding dispose of shares, bonds, securities and other evidences
shares in the corporation entitling them to exercise at least two- of indebtedness of any domestic or foreign corporation.
thirds of the voting power, as required in Sec. 17-½ of the
Corporation Law.
In his work entitled "The Philippine Corporation Law," now in its
5th edition, Professor Sulpicio S. Guevara of the University of
Ruling: the Philippines, College of Law, a well-known authority in
commercial law, reconciled these two apparently conflicting
legal provisions, as follows:
The legal provision invoked by the plaintiffs, as appellants, Sec.
j. Power to acquire or dispose of shares or securities. —
17-½ of the Corporation Law, provides:
A private corporation, in order to accomplish its purpose
No corporation organized under this act shall invest its as stated in its articles of incorporation, and subject to the
funds in any other corporation or business, or for any limitations imposed by the Corporation Law, has the
purpose other than the main purpose for which it was power to acquire, hold, mortgage, pledge or dispose of
organized, unless its board of directors has been so shares, bonds, securities, and other evidences of
authorized in a resolution by the affirmative vote of indebtedness of any domestic or foreign
stockholders holding shares in the corporation entitling corporation. Such an act, if done in pursuance of the
them to exercise at least two-thirds of the voting power corporate purpose, does not need the approval of the
on such proposal at a stockholders' meeting called for the stockholders; but when the purchase of shares of
purpose .... 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, connected with the sugar central business." This portion of the
the purchase of such shares or securities must be decision should be reversed because, Sec. 17-½ of the
subject to the limitations established by the Corporation Corporation Law allows a corporation to "invest its fund in any
Law; namely, (a) that no agricultural or mining other corporation or business, or for any purpose other than the
corporation shall in anywise be interested in any other main purpose for which it was organized," provided that its
agricultural or mining corporation; or (b) that a non- board of directors has been so authorized by the affirmative
agricultural or non-mining corporation shall be restricted vote of stockholders holding shares entitling them to exercise at
to own not more than 15% of the voting stock of any least two-thirds of the voting power.
agricultural or mining 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. (The 110-114 except 112 (RCC vs Aquino)
Philippine Corporation Law by Sulpicio S. Guevara, 1967
Ed., p. 89.) (Emphasis ours.)
40. Power to invest corporate funds. — A private 6. G.R. No. L-45911 April 11, 1979
corporation has the power to invest its corporate funds in
any other corporation or business, or for any purpose JOHN GOKONGWEI, JR., petitioner, 
other than the main purpose for which it was organized, vs.
provided that 'its board of directors has been so SECURITIES AND EXCHANGE COMMISSION, ANDRES M.
authorized in a resolution by the affirmative vote of SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO
stockholders holding shares in the corporation entitling ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE,
them to exercise at least two-thirds of the voting power MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL
on such a proposal at a stockholders' meeting called for CORPORATION, EMIGDIO TANJUATCO, SR., and
that purpose,' and provided further, that no agricultural or EDUARDO R. VISAYA, respondents.
mining corporation shall in anywise be interested in any
other agricultural or mining corporation. When the
investment is necessary to accomplish its purpose or ANTONIO, J.:
purposes as stated in it articles of incorporation, the
approval of the stockholders is not necessary. (Id., p.
108.) (Emphasis ours.)
Facts:

The investment in question does not fall under the purview of

Sec. 17- ½ of the Corporation Law. In the judgment, the lower
court ordered the management of the Ma-ao Sugar Central Co., Petitioner was a stockholder of respondent San Miguel
Inc. "to refrain from making investments in Acoje Mining, Corporation. He filed with the Securities and Exchange
Mabuhay Printing and any other company whose purpose is not Commission (SEC) a petition for declaration of nullity of
amended by-laws. He claimed that prior to the questioned
amendment, petitioner had all the qualifications to be a director
of respondent corporation, being a Substantial stockholder
thereof, but in amending the by-laws, respondents purposely Issue:
provided for petitioner's disqualification and deprived him of his
vested right.  Whether or not the amended by-laws may stipulate that a
person employed in the service of a rival company is ineligible
to be a director in a corporation

Respondents stated that petitioner was president and controlling

shareholders of closed corporations CFC and Robina; that in
August 1972, the Universal Robina Corporation (Robina), a Ruling:
corporation engaged in business competitive to that of
respondent corporation, began acquiring shares therein until
September 1976 when its total holding amounted to 622,987
shares; that in October 1972, the Consolidated Foods Yes. According to Fletcher, corporations have the power to
Corporation (CFC) likewise began acquiring shares in make by-laws declaring a person employed in the service of a
respondent corporation until its total holdings amounted to rival company to be ineligible for the corporation's Board of
P543,959.00 in September 1976; that on January 12, 1976, Directors. ... (A)n amendment which renders ineligible, or if
petitioner purchased 5,000 shares of stock of respondent elected, subjects to removal, a director if he be also a director in
corporation, and thereafter, in behalf of himself, CFC and a corporation whose business is in competition with or is
Robina, "conducted malevolent and malicious publicity antagonistic to the other corporation is valid." This is based
campaign against SMC" to generate support from the upon the principle that where the director is so employed in the
stockholder "in his effort to secure for himself and in service of a rival company, he cannot serve both, but must
representation of Robina and CFC interests, a seat in the Board betray one or the other. Such an amendment "advances the
of Directors of SMC." benefit of the corporation and is good." Section 21 of the
Corporation Law expressly provides that a corporation may
make by-laws for the qualifications of directors. Thus, it has
been held that an officer of a corporation cannot engage in a
As of May 6, 1978, petitioner has exercised, personally or thru business in direct competition with that of the corporation where
two corporations owned or controlled by him, control over the he is a director by utilizing information he has received as such
following shareholdings in San Miguel Corporation, vis.: (a) officer, under "the established law that a director or officer of a
John Gokongwei, Jr. — 6,325 shares; (b) Universal Robina corporation may not enter into a competing enterprise which
Corporation — 738,647 shares; (c) CFC Corporation — 658,313 cripples or injures the business of the corporation of which he is
shares, or a total of 1,403,285 shares. Since the outstanding an officer or director. 
capital stock of San Miguel Corporation, as of the present date,
is represented by 33,139,749 shares with a par value of P10.00,
the total shares owned or controlled by petitioner represents
4.2344% of the total outstanding capital stock of San Miguel The offer and assurance of petitioner that to avoid any
Corporation. possibility of his taking unfair advantage of his position as
director of San Miguel Corporation, he would absent himself competition. Thus, section 2 of Article XIV of the Constitution
from meetings at which confidential matters would be provides: "The State shall regulate or prohibit private
discussed, would not detract from the validity and monopolies when the public interest so requires. No
reasonableness of the by-laws here involved. Apart from the combinations in restraint of trade or unfair competition shall be
impractical results that would ensue from such arrangement, it snowed."
would be inconsistent with petitioner's primary motive in running
for board membership — which is to protect his investments in
San Miguel Corporation. More important, such a proposed norm
of conduct would be against all accepted principles underlying a Finally, considering that both Robina and SMC are, to a certain
director's duty of fidelity to the corporation, for the policy of the extent, engaged in agriculture, then the election of petitioner to
law is to encourage and enforce responsible corporate the Board of SMC may constitute a violation of the prohibition
management. As explained by Oleck: "The law win not tolerate contained in section 13(5) of the Corporation Law. Said section
the passive attitude of directors ... without active and provides in part that "any stockholder of more than one
conscientious participation in the managerial functions of the corporation organized for the purpose of engaging in agriculture
company. As directors, it is their duty to control and supervise may hold his stock in such corporations solely for
the day to day business activities of the company or to investment and not for the purpose of bringing about or
promulgate definite policies and rules of guidance with a vigilant attempting to bring about a combination to exercise control of
eye toward seeing to it that these policies are carried out. It is incorporations ... ."
only then that directors may be said to have fulfilled their duty of
fealty to the corporation.

Sound principles of corporate management counsel against

sharing sensitive information with a director whose fiduciary
duty of loyalty may well require that he disclose this information 7. G.R. No. L-25241             November 3, 1926
to a competitive arrival. These dangers are enhanced HARRIE S. EVERETT, CRAL G. CLIFFORD, ELLIS H. TEAL
considerably where the common director such as the petitioner and GEORGE W. ROBINSON, plaintiffs-appellants, 
is a controlling stockholder of two of the competing corporations. vs.
It would seem manifest that in such situations, the director has THE ASIA BANKING CORPORATION, NICHOLAS E.
an economic incentive to appropriate for the benefit of his own MULLEN, ERIC BARCLAY, ALFRED F. KELLY, JOHN W.
corporation the corporate plans and policies of the corporation MEARS and CHARLES D. MACINTOSH, defendants-
where he sits as director. appellees.
OSTRAND, J.:

There is another important consideration in determining whether

or not the amended by-laws are reasonable. The Constitution Facts:
and the law prohibit combinations in restraint of trade or unfair
 Directors, the appellees argue — and the court below held —
that the corporation Teal and Company is a necessary party
Plaintiffs were principal stockholders in Teal & Company, and plaintiff and that the plaintiff stockholders, not having made any
defendant Barclay owned one share therein. Teal became demand on the Board to bring the action, are not the proper
indebted to Asia Banking Corp. for P750,000. Because of parties plaintiff. But, like most rules, the rule in question has its
transactions entered with other companies, the Bank suggested, exceptions. It is alleged in the complaint and, consequently,
allegedly for the mutual protection of itself and Teal, that the admitted through the demurrer that the corporation Teal and
Bank should temporarily obtain control of the management and Company is under the complete control of the principal
affairs of the company. The Teal stockholders then entered into defendants in the case, and, in these circumstances, it is
a Voting Trust Agreement to be held by the Bank. Defendant obvious that a demand upon the Board of Directors to institute
Mullen, as general manager of the Bank, caused the an action and prosecute the same effectively would have been
displacement and removal of the stockholders in the board, and useless, and the law does not require litigants to perform
the new Board who have not purchased any share of stock of useless acts. (Exchange bank of Wewoka vs. Bailey, 29 Okla.,
Teal, removed the corporate secretary. Afterwards, the 246; Fleming and Hewins vs. Black Warrior Copper Co., 15
defendants who were all officers of the Bank, formed a Ariz., 1; Wickersham vs. Crittenden, 106 Cal., 329;
corporation called Philippine Motors’ Corporation to further Glenn vs. Kittaning Brewing Co., 259 Pa., 510;
defraud Teal by transferring all of Teal’s business and assets to Hawes vs.Contra Costa Water Company, 104 U. S., 450.)
PMC. Hence, plaintiffs filed a complaint to cancel the Voting
Trust Agreement and for the defendants to account for the
losses. The CFI Manila sustained the demurrer filed by
defendants, ruling that Teal should have been joined as party
plaintiff along with plaintiffs herein who had filed the case in their
own names.

8. EN BANC
Issue: G.R. No. L-15092             May 18, 1962

Whether or not a suit in behalf of a corporation will prosper if ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants, 
filed in the name of the stockholders and not the corporation vs.
itself BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.
REYES, J.B.L., J.:

Ruling:
Doctrine:

Yes. Invoking the well-known rule that shareholders cannot "It is a question, therefore, in each case, of the logical relation of
ordinarily sue in equity to redress wrongs done to the the act as to the corporate purpose expressed in the charter. If
corporation, but that the action must be brought by the Board of that act is one which is lawful in itself, and not otherwise
prohibited, is done for the purpose of serving corporate ends, paragraph 9 of the resolution of August 20, 1936, the appellee
and is reasonably tributary to the promotion of those ends, in a had become obligated to grant similar concessions to the
substantial, and not in a remote and fanciful, sense, it may fairly plaintiffs. The appellee Bacolod-Murcia Milling Co., inc., resisted
be considered within charter powers. The test to be applied is the claim, and defended by urging that the stipulations
whether the act in question is in direct and immediate contained in the resolution were made without consideration;
furtherance of the corporation's business, fairly incident to the that the resolution in question was, therefore, null and void ab
express powers and reasonably necessary to their exercise. If initio, being in effect a donation that was ultra vires and beyond
so, the corporation has the power to do it; otherwise, not." the powers of the corporate directors to adopt.
(Fletcher Cyc. corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)|||
(Montelibano v. Bacolod-Murcia Milling Co., Inc., G.R. No. L-
15092, [May 18, 1962], 115 PHIL 18-30)
Issue:
Whether or not the directors may validly modify the terms of a
contract in the guise of management policy
Facts:
Plaintiffs-appellants and the Limited co-partnership Gonzaga
and Company, were sugar planters adhered to the defendant- Ruling:
appellee's sugar central mill under identical milling contracts.
Originally executed in 1919, said contracts were stipulated to be
in force for 30 years starting with the 1920-21 crop, and Yes. The controverted resolution was adopted by appellee
provided that the resulting product should be divided in the ratio corporation as a supplement to, or further amendment of, the
of 45% for the mill and 55% for the planters. Sometime in 1936, proposed milling contract, and that it was approved on August
it was proposed to execute amended milling contracts, 20, 1936, twenty-one days prior to the signing by appellants on
increasing the planters' share to 60% of the manufactured sugar September 10, of the Amended Milling Contract itself; so that
and resulting molasses, besides other concessions, but when the Milling Contract was executed, the concessions
extending the operation of the milling contract from the original granted by the disputed resolution had been already
30 years to 45 years. To this effect, a printed Amended Milling incorporated into its terms.
Contract form was drawn up. On August 20, 1936, the Board of
Directors of the appellee Bacolod-Murcia Milling Co., Inc.,
adopted a resolution granting further concessions to the
planters over and above those contained in the printed There can be no doubt that the directors of the appellee
Amended Milling Contract. company had authority to modify the proposed terms of the
Amended Milling Contract for the purpose of making its terms
more acceptable to the other contracting parties. The rule is that
—
In 1953, the appellants initiated the present action, contending
that three Negros sugar centrals (La Carlota, Binalbagan- It is a question, therefore, in each case of the logical
Isabela and San Carlos) had already granted increased relation of the act to the corporate purpose expressed in
participation (of 62.5%) to their planters, and that under the charter. If that act is one which is lawful in itself, and
 not otherwise prohibited, is done for the purpose of A corporation is but an association of individuals, allowed to
serving corporate ends, and is reasonably tributary to the transact under an assumed corporate name, and with a distinct
promotion of those ends, in a substantial, and not in a legal personality. In organizing itself as a collective body, it
remote and fanciful sense, it may fairly be considered waives no constitutional immunities and perquisites appropriate
within charter powers. The test to be applied is whether to such a body. As to its corporate and management decisions,
the act in question is in direct and immediate furtherance therefore, the state will generally not interfere with the same.
of the corporation's business, fairly incident to the Questions of policy and management are left to the honest
express powers and reasonably necessary to their decision of the officers and directors of a corporation, and the
exercise. If so, the corporation has the power to do it; courts are without authority to substitute their judgment for the
otherwise, not. (Fletcher Cyc. Corp., Vol. 6, Rev. Ed. judgment of the board of directors. The board is the business
1950, pp. 266-268) manager of the corporation, and so long as it acts in good faith,
its orders are not reviewable by the courts.||| (Philippine Stock
Exchange, Inc. v. Court of Appeals, G.R. No. 125469, [October
27, 1997], 346 PHIL 218-240)
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 Facts:
has no authority to review them. It is a well-known rule of law
that questions of policy or of management are left solely to the The Puerto Azul Land, Inc. (PALI), a domestic real estate
honest decision of officers and directors of a corporation, and corporation, had sought to offer its shares to the public in order
the court is without authority to substitute its judgment of the to raise funds allegedly to develop its properties and pay its
board of directors; the board is the business manager of the loans with several banking institutions. PALI sought to course
corporation, and so long as it acts in good faith its orders are not the trading of its shares through the Philippine Stock Exchange,
reviewable by the courts. (Fletcher on Corporations, Vol. 2, p. Inc. (PSE), for which purpose it filed with the said stock
390). exchange an application to list its shares, with supporting
documents attached. The Board of Governors of the PSE
reached its decision to reject PALIs application, citing the
existence of serious claims, issues and circumstances
surrounding PALIs ownership over its assets that adversely
9. SECOND DIVISION
affect the suitability of listing PALIs shares in the stock
[G.R. No. 125469. October 27, 1997]
exchange, because during the time for receiving objections to
PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE
the application, the PSE heard from the representative of the
HONORABLE COURT OF APPEALS, SECURITIES
late President Ferdinand E. Marcos and his family who claim the
AND EXCHANGE COMMISSION and PUERTO AZUL
properties of the private respondent to be part of the Marcos
LAND, INC., respondents.
estate. An order of sequestration had been issued covering the
TORRES, JR., J.:
properties of PALI, and suit for reconveyance to the state had
been filed in the Sandiganbayan Court. 
Doctrine:
Hence, PALI wrote a letter bringing to the SECs attention the good faith, its orders are not reviewable by the court. Thus,
action taken by the PSE in the application of PALI for the listing notwithstanding the regulatory power of the SEC over the PSE,
of its shares with the PSE, and requesting that the SEC, in the and the resultant authority to reverse the PSEs decision in
exercise of its supervisory and regulatory powers over stock matters of application for listing in the market, the SEC may
exchanges under Section 6(j) of P.D. No. 902-A, review the exercise such power only if the PSEs judgment is attended by
PSEs action on PALIs listing application and institute such bad faith.  In reaching its decision to deny the application for
measures as are just and proper and under the circumstances. listing of PALI, the PSE considered important facts, which in the
The SEC reversed the PSE’s decision. general scheme, brings to serious question the qualification of
PALI to sell its shares to the public through the stock exchange. 
Issue:
Whether or not the act of PSE can be reversed by the SEC
STEINBERG vs VELASCO
Ruling:

In this case, no. It is true that Section 3, Presidential Decree FACTS: It is alleged that the defendants, Gregorio Velasco, as
902-A, standing alone, is enough authority to uphold the SEC's president, Felix del Castillo, as vice-president, Andres L.
challenged control authority over the petitioner PSE even as it Navallo, as secretary-treasurer, and Rufino Manuel, as director
provides that "the Commission shall have absolute jurisdiction, of the Trading Company, at a meeting of the board of directors
supervision, and control over all corporations, partnerships or approved and authorized various unlawful purchases already
associations, who are the grantees of primary franchises and/or made of a large portion of the capital stock of the company from
a license or permit issued by the government to operate in the its various stockholders, thereby diverting its funds to the injury,
Philippines . . ." The SEC's regulatory authority over private damage and in fraud of the creditors of the corporation. The
corporations encompasses a wide margin of areas, touching total amount of the capital stock unlawfully purchased was
nearly all of a corporation's concerns. This authority springs P3,300. That at the time of such purchase, the corporation had
from the fact that a corporation owes its existence to the accounts payable amounting to P13,807.50, most of which were
concession of its corporate franchise from the state. unpaid at the time the petition for the dissolution of the
corporation was presented, and that the corporation was then in
a bad financial condition, in contemplation of an insolvency and
However, a corporation is but an association of individuals,
dissolution.
allowed to transact under an assumed corporate name, and with
a distinct legal personality. In organizing itself as a collective As a second cause of action, plaintiff alleges that, the of officers
body, it waives no constitutional immunities and perquisites and directors of the corporation approved a resolution for the
appropriate to such body. As to its corporate and management payment of P3,000 as dividends to its stockholders which was
decisions, therefore, the state will generally not interfere with the wrongfully done and in bad faith, and to the injury and fraud of
same. Questions of policy and of management are left to the its creditors. That at the time the petition for the dissolution of
honest decision of the officers and directors of a corporation, the corporation was presented it had accounts payable in the
and the courts are without authority to substitute their judgment sum of P9,241.19, "and practically worthless accounts
for the judgment of the board of directors. The board is the receivable."
business manager of the corporation, and so long as it acts in
ISSUE: Whether or not the board of directors acted beyond their PALTING vs. SAN JOSE PETROLEUM, INC.
power, hence, liable.
SAN JOSE PETROLEUM filed with the Philippine Securities
HELD: It is, indeed, peculiar that the action of the board in and Exchange Commission a sworn registration statement, for
purchasing the stock from the corporation and in declaring the the registration and licensing for sale in the Philippines Voting
dividends on the stock was all done at the same meeting of the Trust Certificates representing 2,000,000 shares of its capital
board of directors, and it appears in those minutes that both stock. It was alleged that the entire proceeds of the sale of said
Ganzon and Mendaros were formerly directors and resigned securities will be devoted or used exclusively to finance the
before the board approved the purchase and declared the operations of San Jose Oil Company, Inc., a domestic mining
dividends, and that out of the whole 330 shares purchased, corporation which has 14 petroleum exploration concessions. It
Ganzon sold 100 and Mendaros 200, or a total of 300 shares was the express condition of the sale that every purchaser of
out of the 330, which were purchased by the corporation, and the securities shall not receive a stock certificate, but a
for which it paid P3,300. In other words, that the directors were registered or bearer-voting-trust certificate from the voting
permitted to resign so that they could sell their stock to the trustees. While this application for registration was pending
corporation. As stated, the authorized capital stock was P20,000 consideration by the SEC, SAN JOSE PETROLEUM filed an
divided into 2,000 shares of the par value of P10 each, of which amended Statement for registration of the sale in the Philippines
only P10,030 was subscribed and paid. Deducting the P3,300 of its shares of capital stock, which was increased from
paid for the purchase of the stock, there would be left P7,000 of 2,000,000 to 5,000,000, at a reduced offering price and reduced
paid up stock, from which deduct P3,000 paid in dividends, par value.
there would be left P4,000 only. In this situation and upon this
state of facts, it is very apparent that the directors did not act in Pedro R. Palting and others, allegedly prospective investors in
good faith or that they were grossly ignorant of their duties. the shares of SAN JOSE PETROLEUM, filed with the SEC an
opposition to the registration and licensing of the securities, one
The directors of a corporation are bound to care for its property of the grounds is the tie-up between the issuer, SAN JOSE
and manage its affairs in good faith, and for a violation of their PETROLEUM, a Panamanian corporation, and SAN JOSE OIL,
duties resulting in waste of its assets or injury to its property, a domestic corporation, violates the Constitution of the
they are liable to account the same as any other trustee. If the Philippines, the Corporation Law and the Petroleum Act of 1949.
directors of a corporation do acts clearly beyond their power, by While registrant SAN JOSE PETROLEUM claimed that it was a
reason of which a loss ensued, or dispose of its property without "business enterprise" enjoying parity rights under the ordinance
authority, they will be required to make good the loss out of their appended to the Constitution, which parity right, with respect to
private estate. A director of a corporation is bound to exercise mineral resources in the Philippines, may be exercised,
ordinary skill and judgment and cannot excuse his negligence or pursuant to the Laurel-Langley Agreement, only through the
unlawful acts on the ground of ignorance or inexperience. Also, medium of a corporation organized under the laws of the
the creditors of a corporation have the right to assume that so Philippines, which is the SAN JOSE OIL.
long as there are debts and liabilities, the board of directors of
the corporation will not use its assets to purchase its own stock
or to declare dividends to its stockholders when the corporation
is insolvent.
ISSUES: Whether or not the "tie-up" between the respondent disclosed in the present case, with a long chain of intervening
SAN JOSE PETROLEUM, a foreign corporation, and SAN foreign corporations, comes within the purview of the Parity
JOSE OIL COMPANY, INC., a domestic mining corporation, is Amendment regarding business enterprises indirectly owned or
violative of the Constitution, the Laurel-Langley Agreement, the controlled by citizens of the United States, is to unduly stretch
Petroleum Act of 1949, and the Corporation Law; and strain the language and intent of the law. Hence, San Jose
Petroleum Incorporated as presently constituted, is not a
HELD: The privilege to utilize, exploit and develop the natural business enterprise that is authorized to exercise the parity
resources of the Philippines was granted by Article XIII of the privilege under the Parity Ordinance, the Laurel-Langley
Constitution, to Filipino citizens or to corporations or Agreement and the Petroleum Law. Its tie- up with San Jose Oil
associations 60% of the capital of which is owned by such Company, Inc. is consequently, illegal.
citizens. With the Parity Amendment to the Constitution, the
same right was extended to citizens of the United States and MEAD vs McCULLOUGH
business enterprise owned or controlled, directly or indirectly, by
citizens of the United States. There can be no serious doubt as FACTS: On 1902, the plaintiff Mead and the defendants
to the meaning of the word "citizens" used in the organized the "Philippine Engineering and Construction
aforementioned provisions of the Constitution. The right was Company," the incorporators being the only stockholders and
granted to two types of persons; natural persons (Filipino or also the directors of said company, with general ordinary
American citizen) and juridical persons (corporations 60% of powers. Shortly after the organization, the directors held a
which capital is owned by Filipinos and business enterprises meeting and elected the plaintiff as general manager. After 9
owned or controlled directly or indirectly by citizens of the United months he resigned to accept the position of engineer of the
States). Canton and Shanghai Railway Company. After the plaintiff left
the Philippine Islands for China, the other directors, the
defendants in this case, held a meeting, for the purpose of
discussing the condition of the company at that time and
San Jose Petroleum Incorporated is not owned or controlled determining what course to pursue. They entered into a contract
directly by citizens of the United States, because it is owned and with the defendant McCullough stating: "For value received, this
controlled by Oil Investments, Inc., another foreign contract and all the rights and interests of the Philippine
(Panamanian) corporation. Neither is it indirectly owned or Engineering and Construction Company in the same are hereby
controlled by American citizens through Oil Investments, Inc., assigned to E. C. McCullough of Manila, P. I.The latter further
which is owned and controlled, not by citizens of the United transferred his right, title, and interest in the within contract, with
States, but by two foreign (Venezuelan) corporations. There is the exception of one-sixth,
no showing that the stockholders in these two corporations are
citizens of the United States. But even granting that they are, it The contract referred to in the foregoing document was known
is still necessary to establish that the different states of which as the wrecking contract with the naval authorities. The
they are citizens allow Filipino citizens or corporations or assignees of the wrecking contract, including McCullough,
associations owned or controlled by Filipino citizens to engage formed what was known as the "Manila Salvage Association."
in the exploitation, etc. of the natural resources of these states
(par. 3, Art. VI of the Laurel- Langley Agreement). And even if ISSUES: 1. Whether or not the corporation formed is an
these requirements are satisfied, to hold that the set-up industrial civil partnership under the civil code?
2. Whether or not the majority of the stockholders, who were at imperative necessity; third, that a majority of the stockholders or
the same time a majority of the directors of this corporation, directors, even against the protest of the minority, have this
have the power under the law and its articles of agreement, to power where, from any cause, the business is a failure and the
sell or transfer to one of its members the assets of said best interest of the corporation and all the stockholders require
corporation? it.

3. Whether or not the officers or directors of the corporation can 3. While a private corporation remains solvent, there is no
purchase the corporate property? reason why a director or officer, by authority of the majority of its
stockholders or board of managers, may not deal with the
corporation, loan it money, or buy property from it in like manner
as a stranger. This is likewise true of an insolvent corporation,
HELD: 1. A corporation organized for the purpose of engaging but, in all cases, such of officer or director must act in good faith
in general engineering and construction work, the names of the and pay an adequate consideration, their acts being at all times
organizers appearing in the articles of agreement which were subject to the most severe scrutiny.
duly inscribed in the Commercial Register, is an industrial civil
partnership (corporation) in the mercantile form; an anonymous The sale or transfer of the corporate property in the case at bar
partnership, legally constituted, and must be governed by the was made by three directors who were at the same time a
provisions of the Civil Code, the provisions of the Code of majority of the stockholders. If a majority of the stockholders
Commerce being applicable subsidiarily. have a clear and a better right to sell the corporate property
than a majority of the directors, then it can be said that a
2. Where the articles of incorporation prescribe that at all
majority of the stockholders made this sale or transfer to the
meetings of the stockholders a majority of votes of those
defendant McCullough.
present shall be necessary to determine any question
discussed, the sale or transfer to one of its members of the PRIME WHITE CEMENT CORP. vs IAC
corporate property is a matter which the majority of the
stockholders can properly consider. A majority of the DOCTRINE: A director of a corporation holds a position of trust
stockholders or directors have the power to sell or transfer to and as such, he owes a duty of loyalty to his corporation. In
one of its members the corporate property, where the case his interests con ict with those of the corporation, he
stockholders or directors have general ordinary powers, and cannot sacrifice the latter to his own advantage and bene t. As
where there is nothing in the articles of incorporation that corporate managers, directors are committed to seek the
expressly prohibits such a sale. maximum amount of pro ts for the corporation. This trust
relationship "is not a matter of statutory or technical law. It
A private corporation, which owes no special duty to the public springs from the fact that directors have the control and
and which has not been given the right of eminent domain, has guidance of corporate affairs and property and hence of the
the absolute right and power as against the whole world except property interests of the stockholders.
the state, to sell and dispose of all of its property; second, that
the board of directors has this power, without reference to the FACTS: Plaintiff (Respondent Te) and defendant corporation
assent or authority of the stockholders, when the corporation is thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as
in failing circumstances or insolvent or when it can no longer Chairman of the Board, entered into a dealership agreement
continue the business with profit, and when it is regarded as an
whereby said plaintiff was obligated to act as the exclusive fact, this unfairness in the contract is also a basis, which
dealer and/or distributor of the said defendant corporation of its renders a contract entered into by the President, without
cement products in the entire Mindanao area for a term of five authority from the Board of Directors, void or voidable, although
(5) years. Relying heavily on the dealership agreement, plaintiff it may have been in the ordinary course of business.
entered into a written agreement with several hardware stores
dealing in buying and selling white cement. Plaintiff informed the All of the contracts to resell entered into by Respondent Te
defendant corporation in his letter that he is making the stipulates, "The price of white cement shall be mutually
necessary preparation for the opening of the requisite letter of determined by us but in no case shall the same be less than
credit to cover the price of the due initial delivery for the month P14.00 per bag (94 lbs)." In each one of them he protected
of September, 1970, looking forward to the defendant himself from any increase in the market price of white cement.
corporation's duty to comply with the dealership agreement. In As director, specially since he was the other party in interest,
reply to the letter, the defendant corporation imposed some respondent Te's bounden duty was to act in such manner as not
conditions and as a consequence of defendant corporation’s to unduly prejudice the corporation. In the light of the
refusal to comply with the dealership agreement plaintiff by circumstances of this case, it is to Us quite clear that he was
force of circumstances was constrained to cancel his agreement guilty of disloyalty to the corporation; he was attempting in
for the supply of white cement with third parties. The trial court effect, to enrich himself at the expense of the corporation.
ruled in favor of plaintiff which was affirmed by the court of
appeals. A director's contract with his corporation is not in all instances
void or voidable. If the contract is fair and reasonable under the
ISSUE: Whether or not the "dealership agreement" referred by circumstances, it may be ratified by the stockholders provided a
the President and Chairman of the Board of petitioner full disclosure of his adverse interest is made as provided in
corporation is a valid and enforceable contract. Section 32 of the Corporation Code. However, there is no
showing that the stockholders ratified the "dealership
HELD: We believe that the contract was neither fair nor agreement" or that they were fully aware of its provisions. The
reasonable. The "dealership agreement" was to sell and supply contract was therefore not valid and this Court cannot allow him
to respondent Te 20,000 bags of white cement per month, for to reap the fruits of his disloyalty.
five years at the fixed price of P9.70 per bag. Respondent Te is
a businessman himself and must have known, or at least must BARRETTO vs LA PREVISORA FILIPINA
be presumed to know, that at that time, prices of commodities in
general, and white cement in particular, were not stable and DOCTRINE: Building and loan associations are peculiar and
were expected to rise. He must have known that within that special corporations. They are founded upon principles of strict
period of six years, there would be a considerable rise in the mutuality and equality of benefits and obligations, and the trend
price of white cement. In fact, respondent Te's own of the more recent decisions is that any contract made or by-law
Memorandum shows that the price per bag was P14.50, and by provision adopted by such association in contravention of the
the middle of 1975, it was already P37.50 per bag. Despite this, statute is ultra vires and void.
no provision was made in the "dealership agreement" to allow
for an increase in price mutually acceptable to the parties. FACTS: The action which gave rise to this appeal was brought
Fairness on his part as a director of the corporation, from whom by Alberto Barretto, Jose de Amusategui, and Jose Barretto,
he was to buy the cement, would require such a provision. In who had been directors of the defendant corporation from its
incorporation up to the month of March, 1929, to recover from respect to the funds contributed, and there is an implied contract
the defendant, La Previsora Filipina, a mutual building and loan with its members that it shall not divert its funds or powers to
association, 1 per cent to each of the plaintiffs of the net pro ts purposes other than those for which it was created.
of said corporation for the year 1929, which amount to P50,
727.53, under and in accordance with the following amendment The article, which the appellees rely upon, is merely a by-law
to the by-laws of the defendant corporation, which was made at provision adopted by the stockholders of the defendant
a general meeting of the stockholders corporation, without any action having been taken in relation
thereto by its board of directors. The law is settled that contracts
ISSUE: Whether or not the continuous compensation to between a corporation and third persons must be made by or
particular directors after their employment has been terminated under the authority of its board of directors and not by its
for past services is ultra vires? stockholders. Hence, the action of the stockholders in such
matters is only advisory and not in any wise binding on the
HELD: Article 68-A of the amended by-laws of the defendant corporation.
corporation upon which the action is based, does not under the
law as applied to the express provisions thereof create any legal CENTRAL COOPERATIVE EXCHANGE, INC. vs TIBE, SR.
obligation on its part to pay to the persons named therein,
including the plaintiffs, such a life gratuity or pension out of its FACTS: The petitioner is a national federation of farmers'
net profits. A by-law provision of this nature must be regarded cooperative marketing associations, or FACOMAS, scattered
as clearly beyond the lawful powers of a mutual building and throughout the country; its single majority stockholder is the
loan association, such as the defendant corporation. While such former Agricultural Credit and Cooperative Financing
associations are expressly authorized by the Corporation Law to Administration (ACCFA), now Agricultural Credit Administration
adopt by-laws for their government, section 20, of that Act, as (ACA). As a member of the petitioner's board of directors from
construed by this court in the case of Fleischer vs. Botica 23 May 1958 to 26 May 1960, representing FACOMAS in
Nolasco Co.expressly limits such authority to the adoption of by- Eastern Visayas, respondent Concordio Tibe, Sr. drew and
laws that are not inconsistent with the provisions of the law. collected from petitioner CCE cash advances amounting to
P5,668.00; of this sum, respondent had, admittedly, already
The authority conferred upon corporations in that section 21 of liquidated P3,317.25, leaving the sum of P2,350.75 still to be
the Corporation Law refers only to providing compensation for accounted for. By admission of the petitioner the sum of
the future services of directors, officers, and employees thereof P2,350.75 has been further reduced to P2,133.45 as of 31
after the adoption of the by-law or other provision in relation January 1963 on account of partial payments made after suit
thereto, and cannot in any sense be held to authorize the giving, was filed. Respondent Tibe had also drawn several sums,
as in this case, of continuous compensation to particular amounting to P14,436.95, representing commutable per diems
directors after their employment has terminated for past for attending meetings of the Board of Directors in Manila, per
services rendered gratuitously by them to the corporation. To diems and transportation expenses for FACOMA visitations,
permit the transaction involved in this case would be to create representation expenses and commutable discretionary funds.
an obligation unknown to the law, and to countenance a All these sums were disbursed with the approval of general
misapplication of the funds of the defendant building and loan manager, treasurer and auditor of CCE.
association to the prejudice of the substantial right of its
shareholders. It stands in a trust relation to the contributors in ISSUE: Whether or not the board of directors of the CCE had
the power and authority to adopt various resolutions which the latter by way of compensation as director of said company,
appropriated the funds of the corporation for the above- is too short a time for the claim to be considered stale.
enumerated expenses for the members of the said board.
STRONG vs GUITERREZ
HELD: The law is well-settled that directors of corporations
presumptively serve without compensation and in the absence FACTS: This action was brought to recover 800 shares of the
of an express agreement or a resolution in relation thereto, no capital stock of the Philippine Sugar Estates Development
claim can be asserted therefor. Where the by-laws of the Company, Limited, an anonymous society formed to hold the
corporation explicitly reserved unto the stockholders the power Dominican friar lands. The shares were the property of one of
to determine the compensation of members of the board of the plaintiffs, Mrs. Strong, as part of the estate of her first
directors and the stockholders did restrict such compensation to husband. They were purchased by the defendant through a
"actual transportation expenses plus the per diems of P30.00 broker who dealt with her agent, one Jones, who had the script
and actual expenses while waiting," it is not within the power of in her possession and who had made the sale without the
the board of directors to enact a resolution providing for knowledge of the plaintiff. The defendant was a director, was
themselves compensation for additional duties. Section 28 of the managing agent, and was in his own right the majority
the Corporation Law giving the exercise of corporate powers stockholder of the society. The script was payable to bearer and
and the control of the corporation's business and property to the had, ever since its issue, been in the possession of Jones, who
board of directors, or a provision of the by-laws empowering the was acting gratuitously as agent for the plaintiff, not only under
board with "general supervision and control of the affairs and a written power special in terms to collect money but also as a
property of the (corporation)" is no justification for the adoption general agent managing all her business under a parol
by the board of a resolution providing themselves with increased employment, the precise terms of which are not in evidence.
compensation.
ISSUE: Whether of not the defendant is duty bound to disclose
One of the grounds of the appealed decision in finding for the either his information or his intentions or even his identity?
respondent is that the petitioner's claim is barred by laches. We
do not agree. Where the corporation is virtually immobilized HELD: The Civil Code provides that consent gained by deceit
from commencing suit against its directors, as when the board shall be void (art. 1265) and that there is deceit when by
of directors, under the by-laws of the corporation had the control "insidious machinations" a person is induced to execute a
of the affairs of the corporation, laches does not begin to attach contract (art. 1269). The machinations with which the defendant
against the corporation until the directors cease to be such. is charged consist in the suppression of his identity while
Where the respondent member of the board of directors negotiating for the stock and were paying for it and also of his
admitted liability to the corporation for cash advances, he intention as majority stockholder in the company to close the
waived all defenses thereto, including laches, so that there is negotiation then pending with the Government for the sale of the
nothing left for the court to do but to order payment. This friar lands owned by the company. The prospect of such a sale
admission dispenses with the need of disbursement receipts would have materially affected the price of the stock.
covering the cash advances to prove the debt. The lapse of the
period of six months from the time respondent ceased to be a In the action of the defendant we find nothing not permissible as
director of petitioner company to the date when the action was against as holder of stock for sale, unless a peculiar duty on his
filed for refund of certain amounts received by the former from part arose by reason of his office in the association, which was
an anonymous society formed in the year 1900 under the Code in August 1972, the Universal Robina Corporation (Robina), a
of Commerce. He was its managing director and conducted corporation engaged in business competitive to that of
these transactions without formal authorization by his society respondent corporation, began acquiring shares therein, until
but after informal discussion of the director's meeting. He was September 1976 when its total holding amounted to 622,987
also in person the holder of a large majority of the stock, thus shares; that in October 1972, the Consolidated Foods
not only controlling the negotiations with the Government Corporation (CFC) likewise began acquiring shares in
through all its stages but also its ultimate result by his own vote respondent corporation, until its total holdings amounted to
in the shareholders' meeting. P543,959.00 in September 1976; that on January 12, 1976,
petitioner, who is president and controlling shareholder of
Their accountability is this expressly confined to property "with Robina and CFC (both closed corporations) purchased 5,000
the administration or alienation of which they are charged." They shares of stock of respondent corporation, and thereafter, in
are not charged with the administration or alienation of the behalf of himself, CFC and Robina, "conducted malevolent and
shares in the hands of the members and in respect to them they malicious publicity campaign against SMC" to generate support
are not mandatories and hold no trust relation to the owners. from the stockholder "in his effort to secure for himself and in
The members have no title to corporate property as such, representation of Robina and CFC interests, a seat in the Board
which, on the contrary, is distinct from the shares held by them. of Directors of SMC", that in the stockholders' meeting of March
The right of the associate in a society is only in effect a right to 18, 1976, petitioner was rejected by the stockholders in his bid
an interest remaining after liquidation and not an actual and to secure a seat in the Board of Directors on the basic issue that
active ownership in the objects which compose the social petitioner was engaged in a competitive business and his
property. Consequently the defendant violated no duty in not securing a seat would have subjected respondent corporation to
communicating to the plaintiff his purpose in buying her shares grave disadvantages; that "petitioner nevertheless vowed to
and has been guilty of no fraud. However, it is held that there is secure a seat in the Board of Directors at the next annual
lack of authority of the plaintiff’s agent to make the sale. meeting"; that thereafter the Board of Directors amended the by-
laws as afore-stated.
GOKONGWEI, JR. vs SEC
ISSUES: 1. Whether or not the question of validity of the by-
FACTS: Petitioner seeks to declare null and void the amended laws of a corporation is purely a question of law.
by-laws of respondent corporation which disqualifies any
stockholder engaged in any business that competes with or is 2. Whether or not the provisions of the amended by-laws of
antagonistic to that of the corporation from being nominated or respondent corporation disqualifying a competitor from
elected to the Board of Directors; (b) assails the order of the nomination or election to the Board of Directors are valid and
Securities and Exchange Commission denying his right to reasonable;
inspect the books of a wholly-owned subsidiary of respondent
corporation; (c) assails the act of the Securities and Exchange 3. Whether or not respondent SEC gravely abused its discretion
Commission in allowing the stockholders of respondent in denying petitioner's request for an examination of the records
corporation to ratify the investment of corporate funds in a of San Miguel International, Inc., a fully owned subsidiary of San
foreign corporation. Miguel Corporation; and

As part of the respondents affirmative defenses, it alleged that 4. Whether or not respondent SEC committed grave abuse of
discretion in allowing discussion of Item 6 of the Agenda of the where the fiduciary was acting for two entities with competing
Annual Stockholders' Meeting on May 10, 1977, and the interests. This doctrine rests fundamentally on the unfairness of
ratification of the investment in a foreign corporation of the an officer or director taking advantage of an opportunity for his
corporate funds, allegedly in violation of section 17-1/2 of the own personal profit when the interest of the corporation justly
Corporation Law. calls for protection. It is not denied that a member of the Board
of Directors of the San Miguel Corporation has access to
HELD: 1. The validity or reasonableness of a by-law of a sensitive and highly confidential information,
corporation is purely a question of law. Whether the by-law is in
conflict with the law of the land, or with the charter of the Also, section 2 of Article XIV of the Constitution provides: "The
corporation, or is in a legal sense unreasonable and therefore State shall regulate or prohibit private monopolies when the
unlawful is a question of law. This rule is subject, however, to public interest so requires. No combinations in restraint of trade
the limitation that where the reasonableness of a by-law is a or unfair competition shall be allowed."
mere matter of judgment, and one upon which reasonable
minds must necessarily differ, a court would not be warranted in Moreover, considering that both Robina and SMC are, to a
substituting its judgment instead of the judgment of those who certain extent, engaged in agriculture, then the election of
are authorized to make by-laws and who have exercised their petitioner to the Board of SMC may constitute a violation of the
authority. prohibition contained in section 13(5) of the Corporation Law.
Said section provides in part that "any stockholder of more than
2. Section 21 of the Corporation Law expressly provides that a one corporation organized for the purpose of engaging in
corporation may make by-laws for the qualifications of directors. agriculture may hold his stock in such corporations solely for
The equal protection clause of the Constitution requires only investment and not for the purpose of bringing about or
that the by-law operate equally upon all persons of a class. attempting to bring about a combination to exercise control of
Thus, it has been held that an officer of a corporation cannot such corporations .
engage in a business in direct competition with that of the
corporation where he is a director by utilizing information he has While we here sustain the validity of the amended by-laws, it
received as such officer, under "the established law that a does not follow as a necessary consequence that petitioner is
director or officer of a corporation may not enter into a ipso facto disqualified. Consonant with the requirement of due
competing enterprise which cripples or injures the business of process, there must be due hearing at which the petitioner must
the corporation of which he is an officer or director." The test be given the fullest opportunity to show that he is not covered by
must be whether the business does in fact compete, not the disqualification. As trustees of the corporation and of the
whether it is capable of an indirect and highly unsubstantial stockholders, it is the responsibility of directors to act with
duplication of an isolated or non-characteristic activity. It is, fairness to the stockholders. Pursuant to this obligation and to
therefore, necessary to show that petitioner's business covers a remove any suspicion that this power may be utilized by the
substantial portion of the same markets for similar products to incumbent members of the Board to perpetuate themselves in
the extent of not less than 10% of respondent corporation's power, any decision of the Board to disqualify a candidate for
market for competing products. the Board of Directors should be reviewed by the Securities and
Exchange Commission en banc and its decision shall be final
The doctrine of "corporate opportunity" is precisely a recognition unless reversed by this Court on certiorari.
by the courts that the fiduciary standards could not be upheld
3. While the right of a stockholder to examine the books and corporation had committed an ultra vires act, considering the
records of a corporation for a lawful purpose is a matter of law, common practice of corporations of periodically submitting for
the right of such stockholder to examine the books and records the ratification of their stockholders the acts of their directors,
of a wholly owned subsidiary of the corporation in which he is a officers and managers.
stockholder is a different thing. Thus, it has been held that
where a corporation owns approximately no property except the PHILPOTTS vs PHILIPPINE MANUFACTURING COMPANY
shares of stock of subsidiary corporations which are merely
agents or instrumentalities of the holding company, the legal FACTS: The petitioner, W. G.' Philpotts, a stockholder in the
fiction of distinct corporate entities may be disregarded and the Philippine Manufacturing Company, one of the respondents
books, papers and documents of all the corporations may be herein, seeks by this proceeding to obtain a writ of mandamus
required to be produced for examination, and that a writ of to compel the respondents to permit the plaintiff, in person or by
mandamus may be granted, as the records of the subsidiary some authorized agent or attorney, to inspect and examine the
were, to all intents and purposes, the records of the parent even records of the business transacted by said company since
though the subsidiary was not named as a party. January 1, 1918.

4. Section 17-1/2 of the Corporation Law allows a corporation to ISSUE: Whether or not the right which the law concedes to a
"invest its funds in any other corporation or business or for any stockholder to inspect the records can be exercised by a proper
purpose other than the main purpose for which it was agent or attorney of the stockholder as well as by the
organized" provided that its Board of Directors has been so stockholder in person.
authorized by the affirmative vote of stockholders holding
shares entitling them to exercise at least two-thirds of the voting HELD: The pertinent provision of our law is found in the second
power. If the investment is made in pursuance of the corporate paragraph of section 51 of Act No. 1459, which reads as
purpose, it does not need the approval of the stockholders. It is follows: "The record of all business transactions of the
only when the purchase of shares is done solely for investment corporation and the minutes of any meeting shall be open to the
and not to accomplish the purpose of its incorporation that the inspection of and director, member, or stockholder of the
vote of approval of the stockholders holding shares entitling corporation at reasonable hours." This provision is to be read of
them to exercise at least two-thirds of the voting power is course in connection with the related provisions of sections 51
necessary. and 52, defining the duty of the corporation in respect to the
keeping of its records.
"Mere ultra vires acts", said this Court in Pirovano, "or those
which are not illegal and void ab initio, but are not merely within Now it is our opinion, and we accordingly hold, that the right of
the scope of the articles of incorporation, are merely voidable inspection given to a stockholder in the provision above quoted
and may become binding and enforceable when ratified by the can be exercised either by himself or by any proper
stockholders." Besides, the investment was for the purchase of representative or attorney in fact, and either with or without the
beer manufacturing and marketing facilities which is apparently attendance of the stockholder. This is in conformity with the
relevant to the corporate purpose. The mere fact that general rule that what a man may do in person he may do
respondent corporation submitted the assailed investment to the through another; and we nd nothing in the statute that would
stockholders for ratification at the annual meeting of May 10, justify us in qualifying the right in the manner suggested by the
1977 cannot be construed as an admission that respondent respondents. An observation to the same effect is contained in
Martin vs. Bienville Oil Works Co. where it is said: "The Issue: Whether or not the board resolution in question
possession of the right in question would be futile if the constitutes a lawful restriction on the right conferred by statute.
possessor of it, through lack of knowledge necessary to
exercise it, were debarred the right of procuring in his behalf the HELD: No. The general right given by the statute may not be
services of one who could exercise it." lawfully abridged to the extent attempted in this resolution. It
may be admitted that the officials in charge of a corporation may
Pardo v. Hercules Lumber Co., Inc deny inspection when sought at unusual hours or under other
G.R. No. 22442, August 1, 1924 improper conditions; but neither the executive officers nor the
board of directors have the power to deprive a stockholder of
the right altogether. A by-law unduly restricting the right of
Facts: Petitioner, Antonio Pardo, a stockholder in the Hercules inspection is undoubtedly invalid. It will be noted that our statute
Lumber Company, Inc, filed a complaint seeking to obtain a writ declares that the right of inspection can be exercised "at
of mandamus to compel the respondents to permit the plaintiff reasonable hours." This means at reasonable hours on
and his duly authorized agent and representative to examine the business days throughout the year, and not merely during some
records and business transactions of said company. arbitrary period of a few days chosen by the directors. In
Respondent company do not deny the right of petitioner as a addition, the motive of the shareholder exercising the right is
stockholder to inspect company books and business immaterial.
transaction; however, the denial of such exercise is based on
the time, or the times, within which such right may be exercised. Gonzales v. Philippine National Bank
G.R. No. L-33320, May 30, 1983
According to respondent, under Article 10 of the By-laws
of the corporation, it is declared that "Every shareholder may Facts: Petioner Ramon Gonzales, instituted several cases
examine the books of the company and other documents questioning transactions entered into by respondent bank. The
pertaining to the same upon the days which the board of first is Civil Case No. 69345 filed by petitioner as a taxpayer, in
directors shall annually fix." It is further averred that at the the aforementioned case, the personality of petitioner to sue
directors' meeting of the respondent corporation held on respondent bank and to question the letter of credit the latter
February 16, 1924, the board passed a resolution. It stated that: had extended for the importation by the Republic of the
Philippines of public works equipment intended for the massive
The board also resolved to call the usual general development program was raised. This prompted petitioner to
(meeting of shareholders) for March 30 of the present year, with purchase a share of stock of Congressman Justiniano Montano.
notice to the shareholders that the books of the company are at After acquisition of one share of stock of the Bank, petitioner, in
their disposition from the 15th to 25th of the same month for his dual capacity as a taxpayer and stockholder, filed three
examination, in appropriate hours. cases involving the bank or the members of its Board of
Directors.
Hence, respondent’s refusal to petitioner’s request is In 1969, He wrote a letter to the respondent bank’s
justified since the latter failed to comply with the requirements of President requesting to look into the company’s record involving
the board of resolution. Petitioner has not availed himself of the transactions covering the purchase of a sugar central by the
permission to inspect the books and transactions of the Southern Negros Development Corp. to be financed by
company within the ten days thus defined, his right to inspection Japanese suppliers and financiers; its financing of the Cebu-
and examination is lost, at least for this year.
Mactan Bridge to be constructed by V.C. Ponce, Inc. and the said that his purpose is germane to his interest as a
construction of the Passi Sugar Mills in Iloilo. The company stockholder.
denied his request for being not germane to his interest as a
one-share stockholder and for the cloud of doubt as to his real
intention and purpose in acquiring said share. Hence, this Veraguth v. Isabela Sugar Co., Inc
petition. G.R. No. 37064, October 4, 1932

Issue: Whether or not the right of inspection of stockholders to Facts: Petitioner Eugenio Veraguth, a director and stockholder
inspect company books and record is absolute. of the respondent company, telegraphed the corporate
secretary asking the latter to forward to him in the shortest
Held: No. Petitioner may no longer insist on his interpretation of possible time certified copies of the minutes of the meeting and
Section 51 of Act No. 1459, as amended, regarding the right of board resolution concerning the payment of attorney's fees in
a stockholder to inspect and examine the books and records of the case against the Isabela Sugar Company and others.
a corporation. The former Corporation Law has been replaced However, the secretary denied his request. The secretary
by Batas Pambansa Blg. 68, otherwise known as the reasoned that since the minutes of the meeting in question had
"Corporation Code of the Philippines". Under the new Code, it is not been signed by the directors present, a certified copy could
now expressly required as a condition for such examination that not be furnished. In addition, the board of directors adopted a
the one requesting it must not have been guilty of using resolution providing for inspection of the books and the taking of
improperly any information through a prior examination, and that copies by stockholders, a request should first be made to the
the person asking for such examination must be "acting in good president of the Isabela Sugar Company.
faith and for a legitimate purpose in making his demand.
Issue: Whether or not it the refusal of the secretary to furnish
the records is justified.
Although the petitioner has claimed that he has justifiable
motives in seeking the inspection of the books of the respondent Held: Yes. Under Sec. 51 of the Corporation Law, directors of a
bank, he has not set forth the reasons and the purposes for corporation have the unqualified right to inspect the books and
which he desires such inspection, except to satisfy himself as to records of the corporation at all reasonable times. We do not
the truth of published reports regarding certain transactions conceive, however, that a director or stockholder has any
entered into by the respondent bank and to inquire into their absolute right to secure certified copies of the minutes of the
validity. The circumstances under which he acquired one share corporation until these minutes have been written up and
of stock in the respondent bank purposely to exercise the right approved by the directors. Hence, we do not think that anything
of inspection do not argue in favor of his good faith and proper improper occurred when the secretary declined to furnish
motivation. Admittedly he sought to be a stockholder in order to certified copies of minutes. In addition, the approved board
pry into transactions entered into by the respondent bank even resolution requiring the approval of the President before
before he became a stockholder. His obvious purpose was to exercising the right of inspection, though puts an illegal obstacle
arm himself with materials which he can use against the in the way of a stockholder or director, has not been enforced to
respondent bank for acts done by the latter when the petitioner detriment anyone.
was a total stranger to the same. He could have been impelled
by a laudable sense of civic consciousness, but it could not be
PASCUAL vs DEL SAZ OROZCO suit for and on behalf of the bank, but the extent of such a right
G.R. No. L-5174, March 17, 1911 must depend upon when, how, and for what purpose he
acquired the shares which he now owns.
Facts: Petitioner Pascual, as a stockholder Banco Español- In the case at bar, petitioner became a stockholder on
Filipino (banking company), filed a derivative suit against the 13th of November, 1903. It was presumed that stockholders
respondents who are directors of the bank for two causes of were entitled to receive dividends twice a year; every six
action. months. Hence, plaintiff is a stockholder during all the time for
For the first cause of action, petitioner alleged that during which he seeks recovery in his first cause of action, except the
the years 1903, 1904, 1905, and 1907 the respondents, without first six months of the year 1903. The demurrer for the first
the knowledge, consent, or acquiescence of the stockholders, cause of action must be reversed.
deducted their respective compensation from the gross income However, demurrer must be sustained for his second
instead of from the net profits of the bank, thereby defrauding cause of action. As settled by the Supreme Court of the United
the bank and its stockholders of approximately P20,000 per States, as a matter of substantive law, a stockholder in a
annum. Despite demands by the stockholders, respondents corporation who was not such at the time of the transactions
refuse to refund to the bank the sums so misappropriated. In complained of, or whose shares had not devolved upon him
addition, the respondents form part of the majority of the present since by operation of law, can not maintain suits of this
board and prior filing the suit, petitioners exhausted every intra character, unless such transactions continue and are injurious
corporate remedy available. For the second cause of action, the to the stockholder, or affect him especially and specifically in
predecessors of respondent, during 1899, 1900, 1901, and some other way.
1902, likewise committed the same illegal acts. Despite The rationale is that his vendor could have complained of
knowledge of these facts, respondent wholly neglected to take these transactions, but he did not choose to do so. The
any action in the premises or inform the stockholders thereof discretion whether to sue to set them aside, or to acquiesce in
upon assumption of office. and agree to them, is, in our opinion, incapable of transfer. If the
In defence, respondent filed a demurrer for lack of legal plaintiff himself had been injured by the acts of defendants'
capacity of petitioner to sue and failure to state facts constituting predecessors that is another matter. He ought to take things as
cause of action. The court sustained the Demurrer, on the he found them when he voluntarily acquired his shares. If he
ground that in actions of this character the plaintiff must aver in was defrauded in the purchase of these shares he should sue
his complaint that he was the owner of stock in the corporation his vendor.
at the time of the occurrences complained of, or else that the
stock has since devolved upon him by operation of law.
YUJUICO vs QUIMABAO
Issue: Whether or not a stockholder can maintain a suit of this
G.R. No. 180416 , June 2, 2014
character upon a cause of action pertaining to the corporation
when it appears that he was not a stockholder at the time of the
FACTS: On 2004, STRADEC held its annual board of director’s
occurrence of the acts complained of and upon which the action
meeting wherein petitioner Yujicio was newly elected president
is based.
and chairman of the corporation. Petitioners Sumbila and
Held: No. Petitioner, by reason of the fact that he is a Blando were respectively appointed as treasurer and corporate
stockholder in the bank (corporation) has a right to maintain a secretary. As newly elected president, petitioner demanded
from responded Quimbao (former President of the board) the purports to penalize “violations" of "any provision" of the
turnover of the corporate records of the company. Quiambao Corporation Code "not otherwise specifically penalized therein."
refused. Respondent Quimbao and Casanova (accountant of Hence, we find inconsequential the fact that that Section 74
STRADEC) also caused the removal of corporate records expressly mentions the application of Section 144 only to a
STRADEC from the company’s office in Pasig since respondent specific act, but not with respect to the other possible violations
Quimbao needed the documents in a pending case for defence. of the former section.
Likewise, upon assumption to office, Blando demanded from
respondent Pilapil the turnover of the stock and transfer book. However, the dismissal of the action must still be
Pilapil denied the request, instead he proposed to deposit the sustained since a criminal action based on the violation of the
stock and transfer book in a safety deposit bank to which second or fourth paragraphs of Section 74 can only be
Blando acceded. Due to the refusal of respondents, petitioner maintained against corporate officers or such other persons that
filed a complaint against them for violation of Sec.74 of the are acting on behalf of the corporation. Violations of the second
Corporation Code, in relation to Sec. 144, which will make them and fourth paragraphs of Section 74 contemplates a situation
criminally liable. After examination, prosecutor filed two wherein a corporation, acting thru one of its officers or agents,
informations against respondent. denies the right of any of its stockholders to inspect the records,
minutes and the stock and transfer book of such corporation.
The lower court held that respondents are liable, under
the Corporation Code, for the removal of the corporate records In the case at bar, petitioner were not actually invoking
in the principal office. However, it dismissed the information their right to inspect the records and the stock and transfer book
regarding refusing access to, and examination of, the corporate of STRADEC under the second and fourth paragraphs of
records and the stock and transfer book of STRADEC at its Section 74. What they seek to enforce is the proprietary right of
principal office since this is not a punishable offense under the STRADEC to be in possession of such records and book. Such
Code. right, though certainly legally enforceable by other means,
cannot be enforced by a criminal prosecution based on a
ISSUE: Whether or not refusal to allow inspection of the stock violation of the second and fourth paragraphs of Section 74.
and transfer book of a corporation is a punishable offense under Hence, the second information must be dismissed for lack of
the Corporation Code. probable cause.
HELD: YES. The act of refusing to allow inspection of the stock
and transfer book of a corporation, when done in violation of
Section 74(4) of the Corporation Code, is punishable as an Evangelista v. Santos
offense under Section 144 of the same code. While Section 74 G.R. No. L-1721, May 19, 1950
of the Corporation Code expressly mentions the application of
Section 144 only in relation to the act of "refusing to allow any Facts: Petitioners filed a suit against respondent for recovery of
director, trustees, stockholder or member of the corporation to damages resulting from the latter’s mismanagement of the
examine and copy excerpts from the corporation's records or corporate affairs and misuse of its assets. In their complaint,
minutes," the same does not mean that the latter section no they alleged that they are minority stockholders of Vital Lumber
longer applies to any other possible violations of the former Company Inc. Respondent, holds more than 50 per cent of the
section. It must be emphasized that Section 144 already stocks of said corporation and also is and always has been the
president, manager, and treasurer thereof. Defendant, in such
his triple capacity, through fault, neglect and abandonment, has It was stated in the complaint that respondent Roman granted or
allowed the company to lapse resulting to its ruin and total caused to be granted to fictitious or non-existing persons, close
depreciation of its stocks. Hence, petitioner prayed for the friends, and relatives’ loans on the basis of fictitious or inflated
accounting of the corporate affairs and assets, to pay each of appraised value of real properties. As the incumbent Governor
them the value of their respective participation in said assets on of Central Bank, respondent Cuaderno and Monetary Board
the basis of the value of the stocks held by each of them, and to ordered the investigation. Later, it was affirmed that there were
pay the costs of suit. loans approved which were in violation of the General Banking
Act. Hence, the Monetary Board ordered a new election of the
Issue: Whether or not petitioners has the right to bring this Board of Directors of Republic bank which was subsequently
action for their benefit. approved. However, the Monetary Board accepted the offer of
respondent Roman to put up a security for the questioned loans
Held: No. Based on the pleadings, petitioners filed the case
upon the condition of the resumption of the Bank’s normal
against respondent for his acts which caused the downfall of the
operation. No information was ever filed against respondent
corporation. The injury complained of is thus primarily to the
Roman for banking frauds and violation of the Banking Act until
corporation, so that the suit for the damages claimed should be
the retirement of respondent Cuaderno. To neutralize the
by the corporation rather than by the stockholders. The
impending action against him, respondent Roman engaged
stockholders may not directly claim those damages for
respondent Cuaderno as technical consultant and selected
themselves for that would result in the appropriation by, and the
respondent Dizon as chairman of the Board of Directors of the
distribution among them of part of the corporate assets before
Republic Bank. As further stated by petitioner, the Board of
the dissolution of the corporation and the liquidation of its debts
Directors were composed of individuals personally selected and
and liabilities, something which cannot be legally done in view of
chosen by Roman, which connived and confederated in
section 16 of the Corporation Law.
approving the appointment and selection of Cuaderno and
Dizon to protect respondent Roman from criminal prosecution.

Republic Bank v. Cuaderno ISSUE: Whether or not petitioner has the right to question the
G.R. No. L-22399, March 30, 1967 appointment and selection of defendants Cuaderno and Dizon.
Held: Yes. General rule is that appointment and selection of
Facts: Damaso Perez, a stockholder of the Republic Bank, a
corporate officers and employees are corporate acts which
Philippine banking corporation instituted a derivative suit for and
stockholders cannot question. However, the rule does not apply
in behalf of said Bank, against respondents, without any further
in the case at bar. The complaint expressly pleads that the
demand on the Board of Directors of the Republic Bank to
appointment of Cuaderno and Dizon were made only to shield
institute the present complaint since it would be a futile formality
respondent Roman from criminal prosecution and not to further
because the members of the board are personally chosen by
the interests of the Bank, and avers that both men are Roman's
defendant Pablo Roman himself.
alter egos. These facts pleaded constitute a cause of action for
Petitioner alleged that he filed a complaint to the the bank since money which would be disbursed in favor of
Monetary Board, against fraudulent acts committed by Cuaderno and Dizon will result to unlawful wastage or diversion
responded Pablo Roman as the chairman of the Board of of corporate funds. Republic Bank has no interest in shielding
directors of Republic Bank and the Executive Loan Committee. Roman, and the directors in approving the appointments would
be committing a breach of trust. Since the bank has the right to Issue: Whether or not there is a cause of action.
nullify the appointments of the respondents, it was proper for
petitioner to file a derivative suit to protect the interest of the Held: Yes. The importation of textiles instead of raw materials,
bank. In addition, it was not necessary for petitioner to be as well as the failure of the Board of Directors to take action
authorized before he can file the suit since it will be a futile effort against those directly responsible for the misuse of dollar
because majority of the board of directors are nominees and allocations constitute fraud, or consent thereto on the part of the
creatures of respondent Pablo. directors. Therefore, a breach of trust was committed which
justified the derivative suit by a minority stockholder on behalf of
the corporation.
Reyes v. Tan In addition, the appointment of a receiver was proper.
G.R. No. L-16982, September 30, 1961 The directors permitted the fraudulent transaction to go
unpunished and nothing appears to have been done to remove
Facts: Private respondents filed a derivative suit for the the erring purchasing managers. The appointment of a receiver
appointment of a receivership for Roxas-Kalaw Textile Mills, Inc was not only expedient but also necessary to restore the faith
and to hold petitioners solidary liable to repay the damages and confidence of the Central Bank authorities in the
caused to the corporation. According to the pleading, the administration of the affairs of the corporation, thus ultimately
corporation opened a branch in New York to supervise their leading to a restoration of the dollar allocation so essential to
purchases of raw materials needed for its factory. The the operation of the textile mills.
purchases were subject to the unanimous agreement by Cesar
K. Roxas, New York resident member of the board of directors,
Robert Born and Wadhumal Dalamal or their respective
Chase v. Court of First Instance of Manila
representatives. Several purchases aggregating $289,678.86
G.R. No. L-20457, October 29, 1966
were made in New York and were shipped to the Philippines. It
was discovered that the shipments were not composed of raw
materials but already finished products. In consequence thereof, Facts: Petitioner, a minority stockholder of AMPARTS, filed a
the dollar allocation for the shipment of raw material of the derivative suit in the Court of First Instance of Manila against
Roxas-Kalaw textile Mills, Inc was suspended. Furthermore, it respondents, who are majority stockholders and corporate
was revealed that the supplier of the aforesaid finished goods directors of AMPARTS, charging them with breach of trust. He
was the United Commercial Company of New York in which also prayed for their removal as directors and if necessary, the
petitioner Dalamal had interests and the letter of credit for said dissolution and liquidation of said corporation. Attached to the
goods were guaranteed by the Indian Commercial Company complaint was an application for the appointment of a receiver
and the Indian Traders in which firms petitioner Dalamal of AMPARTS. Respondents opposed the application for
likewise held interests. Private respondents and some members receivership and subsequently filed their answer to the
of the board of directors urged petitioners to file a suit against complaint. In 1961, an order was made by the court denying
Dalmal for the fraud he committed against the corporation. the appointment of receivership, instead respondent was
However, such requests were ignored and petitioners continued ordered to file bond to indemnify petitioner for any damages the
to deal with the Indian Commercial Company to the damage latter may incur because denial thereof.
and prejudice of the corporation.
 After trial on the merits, the court rendered judgment Facts: Inocentes de la Rama, Inc. is a domestic corporation with
finding respondent Dr. Buencamino guilty of mismanagement an authorized capital stock of 3,000 shares, with a par value of
and was condemned to pay damages. The decision prompted P100.00 per share, 2,177 of which were subscribed and issued,
petitioner to file another motion for the appointment of Lawrence thus leaving 823 shares unissued. Respondents were owners of
Moran as receiver of Amparts until the full amount of the above 1, 328 shares of stock. Respondents bought the shares of stock
judgment against respondent Buencamino is fully satisfied or owed by the corporation’s President and Vice President. To
until the dissolution or liquidation of said corporation. In 1962, forestall the takeover of respondent of the corporation,
the court again denied the prayer of petitioner. The judge petitioners, who are the remaining members of the board of
deemed it proper to bestow upon the petitioner a veto right, directors, surreptitiously met and elected respondent Ricardo L.
appealable the Court, on all decisions of the management. The Gamboa and respondent Honorio de la Rama as president and
veto right must be exercise within five days from the notice of vice-president of the corporation. Thereafter, they passed a
the corporate decision. resolution authorizing the sale of the 823 unissued shares of the
corporation to petitioners. Election of the other petitioners was
Issue: Whether or not the denial for the appointment of receiver also made after the issuance of the shares. After knowledge of
was proper. these acts committed by petitioners, respondent filed a case in
court. They alleged that the sale of the unissued 823 shares of
Held: Yes. It is well settled in this jurisdiction that where
stock of the corporation was in violation of the respondents' and
corporate directors are guilty of a breach of trust and
pre-emptive rights and made without the approval of the board
intracorporate remedy is futile, the minority stockholders may
of directors representing 2/3 of the outstanding capital stock,
resort to the courts for appropriate relief and, incidentally, ask
and is in disregard of the strictest relation of trust existing
for the appointment of a receiver for the protection of their
between the defendants. Aside for prayers of writ of preliminary
rights. In such case, however, the appointment of a receiver is a
injunction they also prayed that the issuance of the 823 shares
matter addressed to the sound discretion of the court, and it has
of stock to be declared null and void.
been frequently held that such discretion to appoint a receiver
who would take over the administration of the corporate The lower court granted the writ of preliminary injunction
business should be exercised with great caution and only when and ordered that the disputed shares be deposited to the clerk
the necessity therefor is clear. In the case at bar, considering of court. After the decision, respondents entered into a
the precautionary measures adopted by the respondent court compromise agreement with some of the petitioners whereby
for the protection of petitioner's rights and interest in AMPARTS, they withdraw their respective claims against each other and the
We cannot find our way clear to ruling that said court had participating petitioners waived and transferred their rights and
committed a grave abuse of discretion in issuing the orders interests over the questioned 823 shares of stock in favor of
complained of. respondents. After the court approved the compromise
agreement, the defendants filed a motion to dismiss the case.
The lower court denied their motion. A motion reconsideration
was filed by petitioners with an Addendum thereto, claiming that
the respondent court has no jurisdiction to interfere with the
Gamboa v. Victoriano management of the corporation by the board of directors, and
G.R. No. L-40620, [May 5, 1979] the enactment of a resolution by the defendants, as members of
the board of directors of the corporation, allowing the sale of the
823 shares of stock to the defendants was purely a that the respondents have concluded a transaction among
management concern which the courts could not interfere with. themselves as will result to serious injury to the interests of the
This was also dismissed. Hence, prompted petitioners to file a plaintiffs, so that the trial court has jurisdiction over the case.
certiorari.
c) An individual stockholder is permitted to institute a
Issue: a) Whether the denial of the motion to dismiss was derivative suit on behalf of the corporation wherein he holds
proper stock in order to protect or vindicate corporate rights, whenever
the officials of the corporation refuse to sue, or are the ones to
b) Whether the court has jurisdiction to declare the be sued or hold the control of the corporation. In such actions,
issuance of the 823 null and void. the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. In the case at bar,
c) Whether or not a derivative suit was the proper remedy
however, the respondents are alleging and vindicating their own
of respondents.
individual interests or prejudice, and not that of the corporation.
Held: a) Yes. As found by the respondent judge, the
respondents have not waived their cause of action against the G.R. No. 85339 August 11, 1989
petitioner by entering into a compromise agreement with the
other petitioners in view of the express provision of the SAN MIGUEL CORPORATION, represented by EDUARDO
compromise agreement that the same "shall not in any way DE LOS ANGELES, petitioners, 
constitute or be considered a waiver or abandonment of any vs.
claim or cause of action against the other defendants." There is ERNEST KAHN, ANDRES SORIANO III, BENIGNO TODA,
also no estoppel because there is nothing in the agreement JR., ANTONIO ROXAS, ANTONIO PRIETO, FRANCISCO
which could be construed as an affirmative admission by the EIZMENDI, JR., EDUARDO SORIANO, RALPH KAHN and
respondents of the validity of the resolution of the petitioners RAMON DEL ROSARIO, JR., respondents.
which is now sought to be judicially declared null and void. The
foregoing circumstances and the fact that no consideration was
mentioned in the agreement for the transfer of rights to the said
shares of stock to the respondents are sufficient to show that Facts: 33,133,266 shares of San Miguel Corporation allegedly
the agreement was merely an admission by the petitioners to be owned by the Marcos family are held in trust by Eduardo
Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo M. Cojuangco, Jr. After the People Power, Mr Cojuangco left the
Battistuzzi of the validity of the claim of the respondent. country and Andres Soriano III offered to purchase the block of
b) Yes. The well-known rule is that courts cannot shares from the remaining 14 directors. Neptunia Corporation
undertake to control the discretion of the board of directors Limited (a Hong Kong base company, wholly owned subsidiary
about administrative matters as to which they have legitimate of San Miguel) will be the one purchasing the block of stocks
power of, action and contracts intra vires entered into by the and had made a down payment of P500,000 from the proceeds
board of directors are binding upon the corporation and courts of the loan. The block of shares were then sequestered by the
will not interfere unless such contracts are so unconscionable PCGG, on the ground that the stock belonged to Eduardo
and oppressive as to amount to a wanton destruction of the
Cojuangco, Jr., allegedly a dummy of President Marcos, and the
rights of the minority. In the instant case, the petitioners aver
sale thereof was "in direct contravention of EO Numbered 1 and acquired such shares in 1977. Second he has raised the issue
2. The sequestration was subsequently lifted, and the sale before the BoD of the SMC to which no action was taken and
proceeded on the representation by SMC that the shares were lastly that the wrong was against the corporation generally. The
owned by 1.3 million coconut farmer and that Mr. Cojuangco number of shares, as being contended by the defendants, is
only owned 2 shares. PCGG subsequently ordered SMC to immaterial. Since the law did not provide any amount of shares
issue qualifying shares of SMC to 7 individuals which included need to bring a suit but simply stated that a person must be a
Eduardo De Los Angeles (a member of PCGG). The BoD of shareholder to qualify him. Neither would the Baseco doctrine
SMC then decided to adopt a resolution that assumed the loan apply to this case. As the 20 shares owned by De Los Angeles,
incurred by Neptunia for the down payment for the block of are shares owned in his own right. As this shares were
shares. However in a subsequent meeting, Eduardo De Los purchase in 1977 and are not the shares sequestered by the
Angeles impugned the said resolution citing the deleterious PCGG.
effect that the said resolution would be bringing to the company
thus a derivative suit was filed by him. Enrest Kahn and some
members of the board moved to dismiss the case on the ground #136
that De Los Angeles has no legal capacity to sue because 1)he
G.R. No. 172843               September 24, 2014
was simply imposed as director by PCGG into SMC and
following the BASECO ruling he has no dominion over the ALFREDO L. VILLAMOR, JR., Petitioner, 
sequestered property 2) He only owned a few shares of stocks vs.
not enough to qualify him as a minority holder JOHN S. UMALE, in substitution of HERNANDO F.
BALMORES, Respondent.
Issue: 1) w/o De Los Angeles may file a derivative suit
Facts: MC Home Depot occupied a prime property in Pasig.
Held: Yes. De Los Angeles may file a derivative suit. The law The property was part of the area owned by Mid-Pasig
lays only 3 requisites for a derivative suit and these are: Development Corporation. Pasig Printing Corporation
obtained an option to lease portions of MidPasig’s
a) the party bringing suit should be a shareholder as of the time property, including the Rockland area. Subsequently PPC’s
of the act or transaction complained of, board of directors issued a resolution waiving all its rights,
b) he has exhausted intra-corporate remedies, i.e., has made a interests, and participation in the option to lease contract in
demand on the board of directors for the appropriate relief but favor of the law firm of Atty. Alfredo Villamor, Jr. PPC received
the latter has failed or refused to heed his plea; and no consideration for thiswaiver in favor of Villamor’s law firm.
c) the cause of action actually devolves on the corporation, PPC then, represented by Atty Villamor, entered into a MOA
the ,wrongdoing or harm having been caused to the corporation with the MC Home Depot wherein the later would continue to
and not to .the particular stockholder bringing the suit; occupy the area as PPC's sublease for 4 years. MC Home
depot then issued 20 post-dated checks representing rental
De Los Angeles has complied with all 3 requisites. First he is payments for one year. The checks were given to Atty. Villamor
the owner of 20 shares of SMC stocks in his own right having who in turn did not turn over the checks to PPC.
 Hernando Balmores, a stockholder and director of PPC, The non-derivative character of respondent Balmores’ action
wrote a letter to PPC' directors informing them of such matter. may also be gleaned from hisallegations in the trial court
Due to the alleged inaction of the PPC board, Balmores filled complaint. In the complaint, he described the nature of his
with the RTC an intracorporate controversy complaint under the action asan action under Rule 1, Section 1(a)(1) of the Interim
Rule 1, Sec 1(a)(1) of the Interim Rules for Intra Corporate Rules, and not an action under Rule 1,Section 1(a)(4) of the
Controversies. It is now being questioned before the court Interim Rules, which refers to derivative suits
whether or not the suit filled by Balmores takes the form of a
derivative suit
#137
Issue: w/o Balmores' action is a derivative suit
G.R. No. 201675               June 19, 2013
Held: No. Under Rule 8, Sec 1 of the Interim Rules of
Procedure for Intra Corporate Controversies, the requisites must JUANITO ANG, for and in behalf of SUNRISE MARKETING
be as follows: (BACOLOD), INC.,* Petitioner, 
Section 1. Derivative action. — A stockholder or member may vs.
bring an action in the name of a corporation or association, as SPOUSES ROBERTO and RACHEL ANG, Respondents.
the case may be, provided, that:
(1) He was a stockholder or member at the time the acts or  Facts: On September 2, 1992, spouses Alan and EmAng
transactions subject of the action occurred and the time the (respondents) obtained a loan in the amount of three hundred
action was filed; thousand US Dollars from Theodore and Nancy Ang. On even
(2) He exerted all reasonable efforts, and alleges the same with date, the respondents executed a promissory note in favor of
particularity in the complaint, to exhaust all remedies available the petitioners wherein they promised to pay the latter the said
under the articles of incorporation, by-laws, laws or rules amount, with interest upon demand. However despite repeated
governing the corporation or partnership to obtain the relief he demands, the respondents failed to pay the petitioner.
desires;
(3) No appraisal rights are available for the acts or acts Thus on Aug 28, 2006, the petitioners sent the respondents a
complained of; and  demand letter asking them to pay their outstanding debt which,
(4) The suits is not a nuisance or harassment suit. at that time, already amounted to US$719,671.23, inclusive of
the 10% annual interest that had accumulated over the years.
Notwithstanding the receipt of the said demand letter, the
The action filled by Balmores fails to satisfy all the requisites of
respondents still failed to settle their obligations
a derivative suit. Balmores failed to exhaust all available
remedies to obtain the relief's prayed for, he also failed to On Aug. 6, 2006 the petitioners who were then residing in Los
allege that appraisal rights were not available, neither did Angeles, California, USA, executed their SPA in favor of Atty
Balmores inpleaded PPC as the real party to the case. Aceron for the purpose of filling an action in court against the
respondents. On Sept 15,2006, Atty Aceron, in behalf of the
petitioners, filled a complaint for the collection of the sum of Being merely a representative of the petitioners, Atty. Aceron in
money with the court his personal capacity does not have the right to file the
complaint below against the respondents. He may only do so,
as what he did, in behalf of the petitioners- the real parties in
interest, To stress, the right sought to be enforced in the case
Issue: w/o Atty Aceron is a real party in interest in the case below belongs to the petitioners and not to Atty. Aceron.

#138
Held: No, Atty Aceron despite being the attorney-in-fact of the
petitioners, is not a real party in interest in the case below. Rule G.R. No. L-39427             February 24, 1934
3, Sec 2 of the Rules of Court reads:
TIRSO GARCIA, in his capacity as receiver of the Mercantile
Sec 2 Parties in interest- A real party in interest is the Bank of China, plaintiff-appellee, 
party who stands to be benefited or injured by the judgement in vs.
the suit, or the party entitled to the avails of the suit. Unless LIM CHU SING, defendant-appellant.
otherwise authorized by law or these rules, every action must be
prosecuted or defended in the name of the real party in interest. Facts :Lim Cuan Sy had an account with the Mercantile Bank of
China i n t h e f o r m   o f " t r u s t   r e c e i p t s " guaranteed by Lim
Chu Sing as surety & with chattel mortgage securities.
Lim Cuan Sy failed to comply with his obligations. The
Interest within the meaning of the rules of court means plaintiff bank required Lim ChuSing, as surety, to deliver
material interest or an interest in issue to be affected by the a promissory note
decree or judgment of the case, as distinguished from mere  The plaintiff bank, without the knowledge & consent of
curiosity about the question involved, A real party in interest is the
the party who, by the substantive law, has the right sought to be defendant,f o r e c l o s e d   t h e   c h a t t e l   m o r t g a g e   a n d   p r i v
enforced ately sold the property covered thereby. The
defendant is an owner of shares of stock in the plaintiff bank.
.Meanwhile, plaintiff bank was subsequently placed
Applying the foregoing rule, it is clear that Atty. Aceron is not a under
real party in interest in the case below as he does not stand to liquidation.   T h e   d e f e n d a n t   f i l e d   a   m o t i o n   f o r   t h e
be benefited or injured by any judgment therein. He was merely inclusion of the principal
appointed be the petitioners as their attorney in fact for the d e b t o r   L i m   C u a n   S y   a s   p a r t y defendant with the CFI-
limited purpose of filing and prosecuting the complaint against Manila so that he could avail himself of the benefit of the
the respondents. Such appointment, however, does not mean exhaustion of the property of said Lim Cuan Sy. The
that he is subrogated into the rights of petitioners and ought to motion was denied. The proceeds of the sale of the
be considered as a real party in interest mortgaged chattels together with other payments made
were applied to the amount of the promissory note in question,
leaving the balance which the plaintiff now seeks to collect
purchase price to be paid 5% upon the execution of the
ISSUE:WON it is proper to COMPENSATE the contract and the remainder in installments of 5%, payable
respondents indebtedness to the value of his shares of within the 1st month of each and every quarter starting July
stock with the Mercantile Bank of China 1, 1935, w/ interest on deferred payments at 6%/annum until
paid. They also agreed to forfeit in favor of seller in case of
HELD:NO. A share of stock or the certificate thereof is default w/o court proceedings BOD resolution Aug 1, 1937:
not indebtedness to the owner nor evidence of rescinding the agreement. Petitoners filed an action in the
indebtedness and therefore, it is not a credit. Stockholders as CFI against Silang Traffic Co. Inc to recover certain sum of
such are not creditors of the corporation. The capital stock of a money w/c they had paid severally to the corp. on account of
corporation is a trust fund to be used more particularly for the shares of stock they individually. agreed to take and pay for
security of the creditors of the corporation who presumably deal under certain conditions. The company contended that the
with it on the credit of its capital resolution is not applicable to the petitioners Sofronio T.
Bayla, Josefa Naval, and Paz Toledo because on the date
thereof "their subscribed shares of stock had already
#139 automatically reverted to the defendant, and the installments
paid by them had already been forfeited" and that said
G.R. Nos. L-48195 and 48196             May 1, 1942 resolution of August 1, 1937, was revoked and cancelled by
a subsequent resolution 
SOFRONIO T. BAYLA, ET AL., petitioners, 
vs. ISSUES: 
SILANG TRAFFIC CO., INC., respondent. 1. W/N the subsequent BOD resolution is valid
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, 2. W/N  under the contract between the parties the failure of
ET AL., respondents. the purchaser to pay any of the quarterly installments on
the purchase price automatically gave rise to the forfeiture
of the amounts already paid and the reversion of the
shares to the corporation
FACTS:
Petitioners purchased the following:
HELD: Invalid. Silang Traffic to pay petitioners
Sofronio T. the agreement is entitled "Agreement for Installment Sale of
8 shares P360
Bayla....... Shares in the Silang Traffic Company, Inc.,"; that while the
purchaser is designated as "subscriber," the corporation is
Venancio described as "seller". Whether a particular contract is a
8 shares 375
Toledo........ subscription or a sale of stock is a matter of construction and
Josefa 15 depends upon its terms and the intention of the parties
675
Naval.............. shares
"subscription - mutual agreement of the subscribers to take
and pay for the stock of a corporation"
 "purchase - independent agreement between the individual
and the corp. to buy shares of stock from it at stipulated
price" #140

the rules governing subscriptions and sales of shares are G.R. No. L-56655 July 25, 1983
different. Corporation Law regarding calls for unpaid
subscription and assessment of stock (sections 37-50) do DATU TAGORANAO BENITO, petitioner, 
not apply to a purchase of stock. Corporation has no legal vs.
capacity to release an original subscriber to its capital stock SECURITIES AND EXCHANGE COMMISSION and
from the obligation to pay for his shares, is inapplicable to a JAMIATUL PHILIPPINE-AL ISLAMIA, INC., respondents.
contract of purchase of shares. The contract in question
being one of purchase and not subscription as we have Facts: Petitioner Datu Tagoranao Benito subscribed to 460
heretofore pointed out, we see no legal impediment to its shares out of the 20,000 shares with a par value of P10 each
rescission by agreement of the parties We may add that issued by the Jamiatul Philippine-Al Islamia Inc. The corporation
there is no intimation in this case that the corporation was
subsequently increased its capital stock from 20,000 shares to
insolvent, or that the right of any creditor of the same was in
any way prejudiced by the rescission. The attempted 100,000 shares. Thus, P110,980.00 worth of shares were
revocation of said rescission by the resolution of August 22, subsequently issued by the corporation from the unissued
1937, was invalid, it not having been agreed to by the portion of the authorized capital stock of P200,000.00. Of the
petitioners. increased capital stock, P160,000 worth of stocks were then
subscribed by some other shareholders. Petitoner Benito then
     2. NO filled with the SEC alleging that the additional issue (worth
The provision regarding interest on deferred payments
P110,980.00) of previously subscribed shares of the corporation
would not have been inserted if it had been the intention of
the parties to provide for automatic forfeiture and cancelation was made in violation of his pre-emptive right to said additional
of the contract. The contract did not expressly provide that issue and that the increase in the authorized capital stock of the
the failure of the purchaser to pay any installment would give corporation from P200,000.00 to P1,000,000.00 was illegal
rise to forfeiture and cancelation without the necessity of any considering that the stockholders of record were not notified of
demand from the seller. Art. 1100 of the Civil Code: persons the meeting wherein the proposed increase was in the agenda.
obliged to deliver or do something are not in default until the
Petitioner prayed that the additional issue of shares of
moment the creditor demands of them judicially or
extrajudicially the fulfillment of their obligation, unless  previously authorized capital stock as well as the shares issued
(1) the obligation or the law expressly provides that demand from the increase in capital stock of respondent corporation be
shall not be necessary in order that default may arise cancelled
(2) by reason of the nature and circumstances of the
obligation it shall appear that the designation of the time at
which that thing was to be delivered or the service rendered
was the principal inducement to the creation of the Issue: 1) w/n the increase made in the authorized capital stock
obligation. without consent is valid
 2) w/n the waiving of the pre-emptive right is valid

#141?

Held 1) Valid, 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 #142
directors and no stockholders' meeting is necessary to consider
G.R. No. L-4824             June 30, 1953
it because additional issuance of shares of stocks does not
need approval of the stockholders. The by-laws of the LINGAYEN GULF ELECTRIC POWER COMPANY,
corporation itself states that 'the Board of Trustees shall, in INC., plaintiff-appellant, 
accordance with law, provide for the issue and transfer of vs.
shares of stock of the Institute and shall prescribe the form of IRINEO BALTAZAR, defendant-appellee.
the certificate of stock of the Institute.

Facts: Lingayen Gulf Electric Power Company ihas an

2) General rule is that pre-emptive right is recognized only with authorized capital stock of P300,000 divided into 3,000 shares
respect to new issue of shares, and not with respect to with a par value of P100 per share. The defendant Baltazar
additional issues of originally authorized shares. This is on the subscribed for 600 shares or a total of P60,000 of which
theory that when a corporation at its inception offers its first P15,000 has been paid. After incorporation, Baltazar made
shares, it is presumed to have offered all of those which it is subsequent payments, leaving a balance of P18,500 unpaid.
authorized to issue. An original subscriber is deemed to have Subsequently Stockholders Resolution No. 17 was passed
taken his shares knowing that they form a definite proportionate wherein it was agreed that the initial 50% of the unpaid balance
part of the whole number of authorized shares. When the will be paid on a specific date and the remaining on another
shares left unsubscribed are later re-offered, he cannot date and that failure to pay , would revert all unpaid stock back
therefore claim a dilution of interest. to the corporation. Baltazar failed to pay his unpaid balance and
offered to return all his shares back to the company to which
But as to the newly issued shares as far as the petitioner is was left not acted . Subsequently Resolution No. 17 was passed
concerned, he had not waived his pre-emptive right to subscribe rendering the previous resolution null and void and a call was
as he could not have done so for the reason that he was not made then. A demand letter was soon received by Baltazar for
present at the meeting and had not executed a waiver, thereof. his unpaid balance to which he ignored such thus this action.
Not having waived such right and for reasons of equity, he may Defendant Baltazar now contends that the plaintiffs' action is
still be allowed to subscribe to the increased capital stock premature because there was no valid call and that he was now
proportionate to his present shareholdings.
released from the obligation of his subscription by virtue of G.R. No. L-35961         December 2, 1932
Resolution No. 17
ROMANA MIRANDA, in her capacity as judicial
Issue 1) w/n there was a valid call administratrix of the intestate estate of her deceased father,
Alberto Miranda, plaintiff-appellant, 
2)w/n he was validly released from his obligation vs.
THE TARLAC RICE MILL CO., INC., defendant-appellee.
Held 1) No valid call. the call made  was null and void for lack of
publication. The law requires that notice of any call for the
payment of unpaid subscription should be made not only  Facts: Alberto Miranda subscribed for 100 shares of Tarlac
personally but also by publication. This is clear from the Rice Mill Company to be paid in installments. He transferred in
provisions of section 40 of the Corporation Law, Act No. 1459. lieu of cash for the benefit and to the credit of the Tarlac Rice
Mill Company Inc a parcel of land. Tarlac loaned from Mariano
Publication under the said Section is made mandatory. It was
Tablante and mortgaged the said land to him The loan became
admitted by the defendant that he received notice from the due and was not paid thus the mortgaged land was sold for
Secretary-Treasurer of the company, demanding payment of the payment.
unpaid balance of his subscription. It was agreed by the parties Miranda questioned the sale should have not be made because
that the call of the Board of Directors was not published in a it violated the terms of the contract in mortgaging the
newspaper of general circulation as required by section 40 of land because the sum then due is only P3,000. and that
the Corporation Law. when the remaining installments of the stock
subscription became due, no obligation to pay arises
because the corporation has already ceased to do business

2) No. It did not release him from his obligation. For there to be Issue: w/n the mortgage and subsequent sale of the land is
a valid release from obligation Unanimous consent of valid
stockholders necessary to release subscriber.  After a valid
Held: YES
subscription to the capital stock of a corporation has been made 1)The Board of Directors may at any time declare due
and accepted, there can be no cancellation or release from the and payable to the corporation unpaid subscriptions.
obligation without the consent of the corporation and all the This power of the directors is absolute and cannot be
stockholders. As already found by the trial court, the release limited by the subscription contract.
attempted in Resolution No. 17 of 1946 was not valid for lack of
a unanimous vote. If found that at least seven stockholders 2) No call is necessary when a subscription is payable when it is
payable in installments at specific times. It is the duty of the
were absent from the meeting when said resolution was
subscriber to pay as soon as it is due without any need for call
approved. or demand. An action may be brought anytime for failure to do
so.
#143 When this action was filed on September 7 1930, the last of the
instalments had already become payable in accordance with the
subscription agreement. Neither the fact that the corporation amount due on any unpaid subscription together with
has ceased to do business nor the fact that the other accrued interest and costs and expenses incurred.
stockholders have not been required to pay for their shares in
accordance with their subscription agreement justifies the court
in ordering the corporation to return to the plaintiff the amount
paid by Alberto Miranda #145

G.R. No. L-27872             February 25, 1928

#144
THE NATIONAL EXCHANGE CO., INC vs.
GR No. 19893, Mar 31, 1923 I. B. DEXTER

ARNALDO F. DE SILVA v. ABOITIZ

Facts: A case was filled by the National Exchange Co., Inc., as
FACTS: De SIlva subscribed to 650 shares and paid for
assignee (through the Philippine National Bank) of C. S. Salmon
200. The company notified him that his shares will be declaredd
& Co.,in the Court of First Instance for the recovery of a
elinquent and sold in a public auction if he does not pay
balance of P15, the par value of one hundred fifty shares of the
the balance. De SIlva did not pay. The company advertised a
capital stock of C. S. Salmon & co. from I. B. Dexter. It appears
notice of delinquency sale De SIlva sought an injunctiont
that I.B. Dexter signed a written subscription to 300 shares the
because the by-laws allegedly provide that unpaid subscriptions
corporate stock of C.S. Salmon & Co. in which it was agreed
will be paid from the dividens alloted to stockholders.
that the price would be paid from the first dividend declared on
any and all shares of the company owned by I.B. Dexter at the
time the dividends are declared. Upon subscribing, I.B. Dexter
ISSUE:WON De SIlva liable despite the provision in the by- paid P15,000 while leaving a balance of P15,000. The balance
laws regarding dividends as payment for unpaid subscriptions has not been paid since then as no dividend has been declared
by the corporation since then.

HELD: YES. Although, the by-laws provide that unpaid
subscriptions may be paid from such dividends,   T h e Issue: w/o the stipulation contained in the subscription to the
defendant corporation, through its board of directors, made use effect that the subscription is payable from the first dividends
of its discretionary power, taking advantage of the first of the declared on the shares has the effect of relieving the subscriber
two remedies: delinquency sale or specific performance. Settled from personal liability in an action to recover the value of the
is the rule that nothing in this act shall prevent the directors shares
from collecting, by action in any court of proper jurisdiction, the
Held: Invalid. The said stipulation contained in the subscription said subscriptions.  Lumanlan was sentenced to pay the
agreement is invalid. Under the Corporation Law valid that time corporation the above- mentioned sum of P15,109 with legal
". . . no corporation shall issue stock or bonds except in interest thereon from August 30, 1930, and costs. Lumanlan
exchange for actual cash paid to the corporation or for property appealed from this decision. 
actually received by it at a fair valuation equal to the par value of
the stock or bonds so issued." The prohibition against the It was agreed by the creditors, together with some of the
issuance of shares by corporations except for actual cash to the directors and the majority of stockholders that Lumanlan will be
par value of the stock to its full equivalent in property is thus designated to pay the amount owed by the company to
enshrined in both the organic and statutory law of the Philippine. Valenzuela from the unpaid subscription of Lumanlan.  At that
The stipulation between I.B. Dexter and C.S. Salmon & Co. is time the corporation owed Valenzuela the sum of P8,000 plus
invalid. for this stipulation obligates the subcriber to pay nothing interest thereon at the rate of 12 per cent per annum. Lumanlan
for the shares except as dividends may accrue upon the stock. agreed to assume this obligation and in turn the corporation
In the contingency that dividends are not paid, there is no agreed that if Lumanlan would dismiss his appeal in case No.
liability at all. This is a discrimination in favor of the particular 37492 the corporation would collect only 50 per cent of the
subcriber, and hence the stipulation is unlawful. amount subscribed by him for stock, provided that in case the
50 per cent was insufficient to pay Valenzuela he should pay an
additional amount which should not exceed the amount of the
judgment against him in that case. In view of this agreement
#146 Lumanlan withdrew his appeal and paid Valenzuela the sum of
G.R. No. 39681. March 21, 1934 P11,840 including interest and thereby was subrogated in place
of Valenzuela. Disregarding this agreement and
Bonifacio Lumanlan vs. Cura notwithstanding the payment made by Lumanlan to Valenzuela,
the corporation on May 5, 1932, asked for the execution of the
sentence in case No. 37492 and by virtue of an order of
Facts: Bonifacio Lumandar subscribed for 300 shares of stock execution the provincial sheriff levied upon two parcels of land
of Dizon & Co. Inc. at a par value of P50 or a total of P15,000. belonging to Lumanlan
Bonifacio Lumanlan had only paid P1,500 of the P15,000, par
Issue: w/o Lumanlan is entitled to a credit against the
value of the stock for which he subscribed. Julio Valenzuela and
judgement in case No. 37492
with some other people, creditors of this corporation, filed suit
against Dizon & Co. Inc in the Court of First Instance of Manila, Held: Yes. Under the Trust Fund Doctrine It is established that
case No. 37007, praying that a receiver be appointed, as it subscriptions to the capital of a corporation constitute a fund to
appeared that the corporation at the time had no assets except which the creditors have a right to look for satisfaction of their
credits against those who had subscribed for shares of stock. claims and that the assignee in insolvency can maintain an
The court named Tayag as receiver for the purpose of collecting action upon any unpaid subscription in order to realize assets
for the payment of its debts. hundred and fifty shares and praying that his, the plaintiff’s, lien
The Corporation Law clearly recognizes that a stock on said shares, by virtue of the chattel mortgage, be declared to
subscription is a subsisting liability from the time the hold priority over the claim of the defendant Banking
subscription is made, since it requires the subscriber to pay Corporation.
interest quarterly for that date unless he is relieved from such
liability by the by-laws of the corporation. The subscriber is as Issue: who between Fua Cun and Chinabank has the better
much bound to pay the amount of the share subscribed by him right over the stock
as he would be to pay any other debt, and the right of the Held: Fua Cun has a better right to the stock. It was declared by
company to demand payment is no less incontestable. the court that a banking corporation has no lien upon its own
Lumanlan having validly paid such amount to the corporate stock for the indebtedness of the stockholders even when the
creditor Valenzuela is thus subrogated to the rights of by-laws provide that the shares shall be transferable only upon
Valenzuela and is thus entitled to a credit against the judgement the books of the corporation and that no such transfer shall be
in No. 37492. made if the holder of the shares is indebted to the
corporation. Thus China Banking Corporation cannot contend
that it has a lien over the shares of stocks subscribed although
#147 not fully paid. Also an equity in shares of stock may be
assigned, the assignment becoming effective as between the
G.R. No. 19441. March 27, 1923. parties and as to third parties with notice. The attachment made
FUA CUN (alias Tua Cun) v. RICARDO SUMMERS, by China bank on the shares held by Fua Cun came only after
China Bank was informed of the said assignment. Thus an
attachment levied upon assigned rights or interests in an action
against the assignor after the attaching creditor has received
Facts: Chua Soco subscribed to 500 shares of stock of
notice of the assignment creates no lien as against the
China Bank Corporation at a par value of P100 per share
assignee. 
and paid only ½ of the value or the sum of P25,000.
Thereafter Chua Soco assigned his rights over the said But as to the contention of Fua Cun that he is entitled to
shares over to Fua Cun. Fua Cun then informed the Bank of the issuance of certificate of stocks, the court stated that in the
the said assignment. Subsequently an action was brought absence of special agreement to the contrary, a subscriber for a
by the bank against Chua Soco for the dishonored certain number of shares of stock does not, upon payment of
commercial papers paid by the latter for his indebtedness one-half of the subscription price, become entitled to the
to the bank. The said shares was attached. F ua Cun issuance of certificates for one-half the number of shares
thereupon brought the present action maintaining that by virtue subscribed for; the subscriber’s right consists only in an equity
of the payment of the one-half of the subscription price of five entitling him to a certificate for the total number of shares
hundred shares Chua Soco in effect became the owner of two
subscribed for by him upon payment of the remaining portion of Issue: w/o if entire subscribed shares of stock are not paid, will
the subscription price.  the paid shares of stock be deprived of the right to vote, until the
entire subscribed shares of stock are fully paid?
#148

[G.R. No. L-16236. June 30, 1965

Held: Allowed to vote. All shares of the capital stocks of the
Baltazar v. Lingayen Gulf Electric Power Co., Inc defendant corporation covered by fully paid capital stock shares
of certificates are entitled to vote in all meetings of the
stockholders of this corporation. It has been the practice and
Facts: Lingayen Gulf Electric Power Co., Inc has an procedure of the corporation, since its inception, to issue
authorized capital stock of P300.000.00 divided into 3,000 certificates of stock to its individual subscribers for unpaid
shares of voting stock at P100.00 par value, per share. Plaintiffs shares of stock and gave voting power to shares of stock fully
Baltazar subscribed to 600 shares of voting stocks of which 535 paid.  In the present case, the corporation had applied the
shares of voting stock were fully paid while Rose subscribed to payments made by the stockholders to the full par value of the
400 shares of which 375 shares were fully paid. The shares of stock subscribed by them, instead of the accepted
respondents Ungson, Estrada, Fernandez and Yuson were interest, as shown by the capital stock shares certificate issued
small stockholders of the Corporation, all holding a total number for the payments made, and the stockholders had accepted
of fully paid-up shares of stock, of not more than 100 shares,  such certificates issued for such payments. This being the case,
While Acena holds 600 shares of voting stock. The later 4 the said application of payments must be deemed to have been
constituted the majority of the holdover 7 member board of agreed upon by the Corporation and the stockholders, and the
directors. In one of the board meetings, they passed 3 same cannot now be changed without the consent of the
resolutions which in a way produces the effect that all the stocks stockholders concerned. The Corporation Law and the by-laws
issued to a stockholder with an unpaid subscription shall be of the Corporation do not contain any provision, prohibiting the
declared delinquent and thus be deprived of their voting rights. application of stockholders' payments to the full par value of a
A writ of preliminary injunction was filled by both Baltazar and corporation's capital stock, ahead of the payment of accrued
Rose against the effectivity of the resolutions issued. Thereafter interest for unpaid subscriptions. It would, therefore, result that a
a tentative amicable settlement was reached by the parties corporation may, upon request of an interested stockholder, as
wherein all stockholders with unpaid subscriptions will be given his option, apply payment by them to the full par value of shares
the chance to settle their subscriptions. It was thus decided by of capital leaving its collection later of the accrued interest on
the court that due to the settlement made, the unpaid shares unpaid subscriptions, and that once such option has been
can be voted upon until once again declared delinquent. The exercised and the corresponding stock certificates have been
defendants countered that the unpaid stocks cannot be voted issued, the corporation cannot, by a unilateral act, legally nullify
until fully paid in accordance with their settlement.Thus this and cancel the capital stock certificates so issued.
issue
 mode of transfer prescribed by law. That procedure cannot be
followed in the instant case because the 20 shares in question
#149 are not covered by any certificate of stock in Po's name.
Morover, the corporation has a claim on the said shares for the
G.R. No. L-28120 November 25, 1976
unpaid balance of Po's subscription. A stock subscription is a
RICARDO A. NAVA, petitioner-appellant.  subsisting liability from the time the subscription is made. The
vs. subscriber is as much bound to pay his subscription as he
PEERS MARKETING CORPORATION, RENATO R. CUSI and would be to pay any other debt. The right of the corporation to
AMPARO CUSI, respondents-appellees. demand payment is no less incontestable.  There is no clear
legal duty on the part of the officers of the corporation to register
the 20 shares in Nava's name, there is no cause of action
for mandamus.
Facts: Teofilo Po as an incorporator subscribed to 80 shares of
Peers Marketing Corporation at P100 a share or a total par The ruling in the Baltazar vs Lingayen case is not
value of P8,000. Po paid P2,000 or 25% of the amount of his applicable to the present case as contended by Nava. In the
subscription. No certificate of stock was issued to him. Po then Baltazar case, it was held that where a stockholder subscribed
sold to Ricardo Nava his 20 shares of Peers Marketing to a certain number of shares with par value and he made a
Corporation for the amount of P2,000. Nava then proceeded to partial payment and was issued a certificate for the shares
request from the corporation to register the sale in the books of covered by his partial payment, he is entitled to vote the said
shares, although he has not paid the balance of his subscription
the corporation of which such request was denied due to the
and a call or demand had been made for the payment of the par
fact that Po was delinquent in the payment as there still remains value of the delinquent shares. As already stressed, in this case
a balance unpaid. Nava filled a mandamus case to compel the no stock certificate was issued to Po. Without stock certificate,
corporation and Renato Cusi and Amparo Cusi, executive vice- which is the evidence of ownership of corporate stock, the
president and secretary respectively, to have his name assignment of corporate shares is effective only between the
registered in the corporate transfer books. parties to the transaction.

Issue: w/o Peers Marketing may be compelled by mandamus to #150

enter Nava’s name in the corporate transfer book
G.R. No. L-21601      December 28, 1968
Held: No. As a rule, the shares which may be alienated are
those which are covered by certificates of stock. Shares of stock NIELSON & COMPANY, INC., plaintiff-appellant, 
may be transferred by delivery to the transferee of the certificate vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-
properly indorsed. "Title may be vested in the transferee by
appellee.
delivery of the certificate with a written assignment or
indorsement thereof" There should be compliance with the
 Old Civil Code, defining contract of agency, provides that "By
Facts: A management contract was entered between Nielson & the contract of agency, one person binds himself to render
Co. and Lepanto Consolidated Mining Co. on 1937 whereby the some service or do something for the account or at the request
former operated and managed the mining properties owned by of another." Article 1544, defining contract of lease of service,
the latter for a management fee of P2,500 a month and 10% provides that "In a lease of work or services, one of the parties
participation in the net profits. In the later parts of 1941 just binds himself to make or construct something or to render a
before the pacific war broke out, both corporations agreed to a 5 service to the other for a price certain." In both agency and
year contract. Then the 2nd world war broke out thus the mill, lease of services one of the parties binds himself to render
power plant, supplies, equipments, mines were all destroyed by some service to the other party. Agency is distinguished from
the United States army to prevent their utilization by the lease of work or services in that the basis of agency is
invading Japanese Army. In 1945, after the war ended, Lepanto representation, while in the lease of work or services the basis
took possession of the said properties and embarked in is employment. The lessor of services does not represent his
rebuilding and reconstructing the mines and mill; setting up new employer, while the agent represents his principal. Further,
organization; clearing the mill site; repairing the mines; erecting agency is a preparatory contract, as agency "does not stop with
staff quarters and bodegas and repairing existing structures; the agency because the purpose is to enter into other
installing new machinery and equipment; repairing roads and contracts." The most characteristic feature of an agency
maintaining the same; salvaging equipment and storing the relationship is the agent's power to bring about business
same within the bodegas; doing police work necessary to take relations between his principal and third persons. "The agent is
care of the materials and equipment recovered; repairing and destined to execute juridical acts. Lease of services
renewing the water system; and retimbering. On 1948 the contemplate only material acts." Herein, the principal and
company resumed operations but this time under the exclusive paramount undertaking of Nielson under the management
management of Lepanto. The 2 companies came into a contract was the operation and development of the mine and
disagreement. Nielson & Company contends that under their the operation of the mill. All the other undertakings mentioned in
management contract the management contract shall remain in the contract are necessary or incidental to the principal
suspense in case fortuitous event or force majeure, such as war undertaking — these other undertakings being dependent upon
or civil commotion, adversely affects the work of mining and the work on the development of the mine and the operation of
milling. Lepanto then contended that the management contract the mill. In the performance of this principal undertaking Nielson
entered was one of a nature of agency thus under the old civil was not in any way executing juridical acts for Lepanto. Nielson
code they may terminate it anytime in performing its principal undertaking was not acting as an
agent of Lepanto.. It is true that the management contract
Issue: w/o the contract entered was one of agency or services provides that Nielson would also act as purchasing agent of
Held: Service. Thus it may not be terminated by Lepanto supplies and enter into contracts regarding the sale of mineral,
Consolidated Mining Company at anytime. Article 1709 of the but the contract also provides that Nielson could not make any
purchase, or sell the minerals, without the prior approval of
Lepanto. It is clear, therefore, that even in these cases Nielson before the action to remove the pre-emptive right was taken
could not execute juridical acts which would bind Lepanto should be the value, or P0.41/share. Which lead to both parties
without first securing the approval of Lepanto. Nielson, then, to constitute an appraisal committee in accordance to Sec 82 of
was to act only as an intermediary, not as an agent. Further, the Corp. Code of Philippines. The appraisal committee
from the statements in the annual report for 1936, and from the reported its valuation of P2.54/share. Thus petitioners
provision of paragraph XI of the Management contract, that the demanded the payment of their shares. LSC refused to pay.
employment by Lepanto of Nielson to operate and manage its explaining that pursuant to the Corporation Code, the dissenting
mines was principally in consideration of the know-how and stockholders exercising their appraisal rights could be paid only
technical services that Nielson offered Lepanto. The contract when the corporation had unrestricted retained earnings to
thus entered into pursuant to the offer made by Nielson and cover the fair value of the shares, but that it had no retained
accepted by Lepanto was a "detailed operating contract". It was earnings at the time of the petitioners demand, as borne out by
not a contract of agency. Nowhere in the record is it shown that its Financial Statements for Fiscal Year 1999 showing a deficit
Lepanto considered Nielson as its agent and that Lepanto of P72,973,114.00 as of December 31, 1999. In 2002, a motion
terminated the management contract because it had lost its trust for partial summary judgement was filled by the petitioners
and confidence in Nielson. before the RTC contending that in the comapany's quarterly
financial statement it submitted to the Securities and Exchange
Commission, the company has retained earnings of
#151 P11,975,490 as of March 21, 2002.
Issue: w/o petitioners are entitled to the partial execution
G.R. No. 157479 November 24, 2010
Held: No. A stockholder who dissents from certain corporate
Philip Tuner and Elnora Turner actions has the right to demand payment of the fair value of his
vs or her shares. This right, known as the right of appraisal, is
Lorenzo Shipping Corporation expressly recognized in Section 81 of the Corporation Code.
However no payment shall be made to any dissenting
Facts: Philip Turner and Elnora Turner held  1,010,000 shares
of stock of Lorenzo Shipping Corp (LSC) ., in 1999, LSC stockholder unless the corporation has unrestricted retained
earnings in its books to cover the payment as stated in Section
decided to amend its Articles of Incorporation to remove the
stockholders pre-emptive rights to newly issued shares of stock. 82 of the Corporation Code. When the petitioners initially
exercised their Right of Appraisal, there exist no unrestricted
Feeling that the corporate move would be prejudicial to their
interest as stockholders, the petitioners voted against the retained earnings on the part of the company thus there exist no
cause of action at that time. Section 1, Rule 2, of the Rules of
amendment and demanded payment of their shares at the rate
of P2.276/share based on the book value of the shares. LSC Court requires that every ordinary civil action must be based on
a cause of action and that it must exist at the time the demand
found the fair value of the shares demanded by the petitioners
unacceptable. It insisted that the market value on the date is made. .An action commenced before the cause of action has
accrued is prematurely brought and should be dismissed. The the hands of Philippine Trust Company who instituted this
petitioners right of action could only spring from action.
an existing cause of action. Thus, a complaint whose cause of
action has not yet accrued cannot be cured by an amended or Defendant Rivera contends that the reason for the failure
supplemental pleading alleging the existence or accrual of a to pay the entire subscription is, that not long after
cause of action during the pendency of the action. The the Cooperativa Naval Filipina had been incorporated, a
availability of an unrestricted retained earnings when the motion meeting of its stockholders occurred, at which a resolution was
for partial summary judgment will not and cannot cure the adopted to the effect that the capital should be reduced by 50
defect. per centum and the subscribers released from the obligation to
pay any unpaid balance of their subscription in excess of 50 per
centum of the same. As a result of this resolution it seems to
have been supposed that the subscription of the various
#152 shareholders had been cancelled to the extent stated; and fully
paid certificate were issued to each shareholders for one-half of
G.R. No. L-19761             January 29, 1923 his subscription.
PHILIPPINE TRUST COMPANY, as assignee in insolvency
of "La Cooperativa Naval Filipina," plaintiff-appellee, 
vs. Issue: w/o Rivera must still pay for the unpaid subscription
MARCIANO RIVERA, defendant-appellant.

Held: Yes, Rivera must still pay for the unpaid subscription.  The
Facts:  The Philippine Trust Company, as assignee in resolution relied upon by Rivera was without effect and that he
insolvency of La Cooperativa Naval Filipina, against Marciano was still liable for the unpaid balance of his subscription. the
Rivera, for the purpose of recovering a balance of P22,500, resolution releasing the shareholders from their obligation to pay
alleged to be due upon defendant's subscription to the capital 50 per centum of their respective subscriptions was an
stock of said insolvent corporation. attempted withdrawal of so much capital from the fund upon
which the company's creditors were entitled ultimately to rely
in 1918 the Cooperativa Naval Filipina was duly
and, having been effected without compliance with the statutory
incorporated with a capital of P100,000, divided into 1,000
requirements, was wholly ineffectual. It is established doctrine
shares of a par value of P100 each. Among the incorporators of
that subscription to the capital of a corporation constitute a find
this company was the defendant Mariano Rivera, who
to which creditors have a right to look for satisfaction of their
subscribed for 450 shares representing. of which 225 shares
claims and that the assignee in insolvency can maintain an
remained unpaid. The company became insolvent and went into
action upon any unpaid stock subscription in order to realize
assets for the payment of its debts. A corporation has no power
to release an original subscriber to its capital stock from the which was some nine months after the attachment had been
obligation of paying for his shares, without a valuable levied. Thus arises in this case one of the most vexing
consideration for such release; and as against creditors a questions in the law of corporations, namely, whether a bona,
fide transfer of the shares of a corporation, not registered or
reduction of the capital stock can take place only in the manner
noted on the books of the corporation, is valid as against a
an under the conditions prescribed by the statute or the charter subsequent lawful attachment of said shares, regardless of
or the articles of incorporation. Moreover, strict compliance with whether the attaching creditor had actual notice of said transfer
the statutory regulations is necessary. or not. 

Issue: who between Uson and H.P.L. Jollye has the better claim
#153 to the shares

[ GR No. 42135, Jun 17, 1935 ] Held: Uson. This was the first case in which this question has
been raised.
TORIBIA USON v. VICENTE DIOSOMITO ET AL.
Under Sec. 35 of the Corporation Code, It is cited that "No
transfer,however, shall be valid, except as between the parties,
Facts: Toribia Uson filed a civil action in the Court of First
until the transfer is entered and noted upon the books of
Instance of Cavite against Vicente Diosomito and that upon
the corporation so as to show the names of the parties to the
institution of said action an attachment was duly issued and
transaction, the date of the transfer, the number of the
levied upon the property of the defendant Diosomito,
certificate, and thenumber of shares transferred.". The court
includingseventy-five shares of the North Electric Co., Inc.,
during this time decided to refer to American jurisprudence and
which stood in his name on the books of the company when the
choose to adopt the view laid down in American and English
attachment was levied on January 18, 1932. On June 23, 1932,
Annotated Cases, vol. 21, pages 1391-1407 and followed by the
Toribia Uson obtained judgment against the defendant
Supreme Courts of Massachusetts and of Wisconsin that group
Diosomito for the sum of P2,300. To satisfy said judgment, the
which, like our own Act No. 1459, holds to the rule that no
sheriff sold said shares at public auction on March 20, 1933.
transfer shall be valid except a3 between the parties until the
The plaintiff Toribia Uson was the highest bidder and said
transfer is duly registered.  Therefore, the transfer of the 75
shares were adjudicated to 'her. In the present action, H. P. L.
shares in the North Electric Company, Inc., made by the
Jollye claims to be the owner-of said 75 shares of the North
defendant Diosomito to the defendant Barcelon was not valid as
Electric Co., Inc., and presents a certificate of, stock issued to
to the plaintiff-appellee, Toribia Uson, on January 18, 1932, the
him by the company on February 13, 1933. It appears that on
date on which she obtained her attachment lien on said shares
February 3, 1931, Diosomito sold the said shares to
of stock which still stood in the name of Diosomito on the books
Emeterio Barcelon  who in turn sold the same to H. P. L. Jollye
of the corporation.
to whom a certificate was issued. However transfers made by
the Diosomito to Barcelon and to Jollye were all not registered
and noted on the books of the corporation until Sept 16, 1932
#154 say, more than three years after the escrow shares in question
were attached by garnishment served on the Filipinas Mining
G.R. No. L-49003             July 28, 1944 Corporation. Filipinas Mining Corporation issued in favor of the
defendant Standard Investment of the Philippines certificate of
ANTONIO ESCAÑO, plaintiff-appellee, 
stock for the 18,580 shares formerly held in escrow by Silverio
vs.
FILIPINAS MINING CORPORATION, ET Al., defendants. Salvosa and which had been adversely by the present plaintiff-
STANDARD INVESTMENT OF THE PHILIPPINES, appellant. appellee on the one hand and the Standard Investment of the
Philippines on the other, the first by virtue of garnishment
proceedings and the second by virtue of the sale made to it by
Jose P. Bengzon as aforesaid.
Facts: In 1937, Antonio Escano obtained a judgement before
the Court of First Instance of Manila against Silverio Salvosa
whereby the latter was ordered to transfer and deliver to the
former 116 active shares and an undetermined number of Issue: who between Escano and Standard Investment of the
shares in escrow of the Filipinas Mining Corporation and to pay Philippines has the right over the shares held in escrow
the sum of P500 as damages, with the proviso that the escrow
shares shall be transferred and delivered to the plaintiff only
after they shall have been released by the company. A writ of Held: Escano has the right. The court held that the transfer of
garnishment was served by the sheriff of Manila upon the the escrow shares in question from Salvosa to Bengzon and
Filipinas Mining Corporation to satisfy the said judgment. he from Bengzon to the Standard Investment of the Philippines, not
Filipinas Mining Corporation advised the sheriff of Manila that having been recorded in the books of the corporation as
according to its books the judgment debtor Silverio Salvosa was required by section 35 of the Corporation Law, could not prevail
the registered owner of 1,000 active shares and about 21,339 over the garnishment previously made by the plaintiff of the said
unissued shares held in escrow by the said corporation. The shares, and rendered judgment "ordering the defendants
sheriff was able to sell the active shares. However in 1936, Filipinas Mining Corporation and the Standard Investment of the
before the judgement came out, Silverio Salvosa sold to Jose P. Philippines to issue to the plaintiff out of the escrow shares
Bengzon all his right, title, and interest in and to 18,580 shares which formerly belonged to Silverio Salvosa, Under Sec 431
of stock of the Filipinas Mining Corporation held in escrow which and 432 of the Codes of Civil Procedure (now Sec 7, 8 of Rule
the said Salvosa was entitled to receive, and which Bengzon in 59), the Filipinas Mining Corporation became liable to the
turn subsequently sold and transferred to the Standard plaintiff for the shares of stock mentioned in its return to the
Investment of the Philippines. Neither Salvosa's sale to sheriff of July 29, 1937, wherein it informed the latter in
Bengzon nor Bengzon's sale to the Standard Investment of the response to the notice of garnishment "that according to its
Philippines was notified to and recorded in the books of the books said Silverio Salvosa was the registered owner of 1,000
Filipinas Mining Corporation until December 7, 1940, that is to active shares evidence by certificate of stock No. 235 and about
21,338 unissued shares held in escrow by the defendant dividends and money supplemented by Dexter, thus leaving a
Filipinas Mining Corporation." balance of P15,000 (therefore amount per share is P100, just in
case itanong ni Sir).
The contention made by the defendant Standard
Issue:
Investment that Sec 35 of the then Corporation Code with
regard the recording of the stocks will not apply to unissued Whether or not the stipulation is valid?
stocks held in escrow is of no moment. As the court declared
Held:
that the provisions of Sec 35 will be applied to both issued
shares and unissued shares of stocks held in escrow. Section No. In the absence of any provisions in its charter, a
35 of the Corporation Law, which requires the registration of corporation, under its general power to contract, has the power
transfers of shares stock upon the books of the corporation as a to accept subscriptions upon any special terms, not prohibited
condition precedent to their validity against the corporation and by positive law or contrary to public policy, provided they
are not as such to require the performance of acts which are
third parties, is also applicable to unissued shares held by the
beyond the powers conferred upon the corporation by its
corporation in escrow. charter, and provided they do not constitute fraud upon
other subscribers or stockholders, or upon persons who
are or may become creditors of the corporation.
Under the law at that time, it is unlawful to issue stocks except
National Exchange Co. vs. I.B. Dexter, February 25, 1928, in exchange for cash or property at a fair valuation equal to the
Gr. No. 27872, 51 Phil 601, Street., J. par value of the stock or bonds so issued (tingin ko obiter na
tong second part, because under Corp. Code, di na lang money
Cast: and property ang lawful consideration for shares of stocks.)

National Exchange Co. – Assignee of C.S. Salmon Now, if it is unlawful to issue stock otherwise than as stated
(cash or property based on fmv) it is self-evident that a
I.B. Dexter – Subscriber of C.S. Salmon. Left a balance of P stipulation such as that now under consideration, in a stock
15,000 of the par value of C.S. Salmon’s P150,000 worth of subscription, is illegal, for this stipulation obligates the
stocks. subscriber to pay nothing for the shares except as dividends
may accrue upon the stock. In the contingency that dividends
Facts:
are not paid, there is no liability at all. This is a discrimination in
I.B. Dexter subscribed to 300 shares of stocks of C.S. Salmon favor of the particular subscriber, and hence the stipulation is
and Co. There was a stipulation to the effect that "I hereby unlawful.
subscribe for three hundred (300) shares of the capital stock of
Bonifacio Lumanlan vs. Jacinto Cura, et. al., and Dizon and
C. S. Salmon and Company, payable from the first dividends
Co. Inc. etc., March 21, 1934, Gr. No. 36981, 59 Phil. 746,
declared on any and all shares of said company owned by me
Goddard, J.
at the time dividends are declared, until the full amount of this
subscription has been paid." P15,000 were paid from declared Cast:
Lumanlan – Subscriber of Dizon and Co. Inc unpaid stock subscriptions and any other amounts that may be
due it.
Julio Valenzuela, Pedro Santos and Francisco Escoto –
Creditors of Dizon and Co. "It is established doctrine that subscriptions to the capital of a
corporation constitute a fund to which the creditors have a right
Facts: to look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock
Bonifacio Lumanlan was a subscriber of Dizon and Co. Inc. for
subscription in order to realize assets for the payment of its
300 shares of stocks at P50 par value or a total of P15,000. Out
debts." – TRUST FUND DOCTRINE
of this amount, he only paid P1,500 leaving a balance of
P13,500. The creditors of said company filed a complaint in CFI- “The Corporation Law clearly recognizes that a stock
Manila asking the court to appoint a receiver as the corporation subscription is a subsisting liability from the time the
has no other assets except credits against those who subscription is made, since it requires the subscriber to pay
subscribed for shares of stocks. The court appointed Tayag as a interest quarterly from that date unless he is relieved from
receiver. The receiver filed suit against Lumanlan, among such liability by the by-laws of the corporation. The
others, for the collection of the balance on their subscription subscriber is as much bound to pay the amount of the share
agreement. Decision was rendered in favor of the corporation subscribed by him as he would be to pay any other debt, and
ruling that Lumanlan is liable for P13,500 plus P1,609 interest. the right of the company to demand payment is no less
Lumanlan appealed. Pending appeal, Lumanlan and the incontestable." – Nature of a stock agreement
corporation entered into an agreement that Lumanlan would pay
the liability of the corporation to Valenzuela and upon payment, The Supreme Court credited the amount of 13,840 (8,000
the corporation would only collect 50% of the amount principal obli + 3,840 (12%interest) + 2,000 (judicial costs)) from
subscribed by him for stock, if he would dismiss his appeal. the P15,109 liability of Lumanlan leaving a balance of P1,609
Lumanlan then paid the corporation’s obligation to Valenzuela in liability of Lumanlan.
the amount of P11,840 (8,000 principal obli +3,840 interest).
The corp disregarded their agreement and asked for the court to
execute the decision rendered in their favor. The promissory
note indorsed to Lumanlan by Valenzuela has the following
terms: 8,000 principal obli + 12% interest per annum + 25% of
the principal (P2,000), as judicial costs.
Fua Cun vs. Ricardo Summers and the China Banking
Issue: Corporation, March 27, 1923, Gr. No. 19441, 44 Phil 705,
Ostrand J
Whether or not the corporation can move for execution and if
so, how much? Cast:
Held: Chua Soco – Subscriber of China Banking Corporation
Yes. There are other debts left by the corporation and under this Fua Cun – Payee in promissory note issued by Chua Soco.
factual background, the corporation has a right to collect all
Ricardo Summers – Sheriff of Manila
Facts: or holder of any such shares, unless such security or
purchase shall be necessary to prevent loss upon a debt
Chua Soco was a subscriber for 500 shares of stocks at par previously contracted in good faith, and stock so
value of P100 of China Banking Corporation for P50,000. He purchased or acquired shall, within six months from the
paid P25,000 in cash. Then, Chua Soco made a promissory time of its purchase, be sold or disposed of at public or
note in favor of Fua Cun for the sum of P25,000 to be paid in 90 private sale, or, in default thereof, a receiver may be
days. The security for the note was a chattel mortgage on his appointed to close up the business of the bank in
shares of stocks in China Banking Corporation. Fua Cun went accordance with law." The reasons for this doctrine are
on to the corporation to give them notice of the said security but obvious; if banking corporations were given a lien on their
he was told to wait the decision of the corporation. The own stock for the indebtedness of the stockholders, the
corporation then later found out that Chua Soco was indebted to prohibition against granting loans or discounts upon the
it in the amount of P37,731.68 due to dishonored commercial security of the stock would become largely ineffective.
papers. It then subjected the shares of stocks of Chua Soco as
payment for the said indebtedness, the sheriff then moved to B. Fua Cun has a superior right against CBC. There is no
levy said shares. Fua Cun filed a case against the sheriff and doubt that an equity in a share of stock can be
China Banking Corporation to stop the execution or in the assigned and such assignment is valid as to the parties
alternative, to hold him entitled to 250 shares of CBC. Trial and to third persons who have notice of such fact. The
Court ordered that Fua Cun is entitled to 250 shares of CBC endorsement was accompanied by the delivery of the
because the said shares were fully paid up, and that Fua Cun receipt to the plaintiff and further strengthened by the
held a lien over these shares superior to that of CBC. execution of the chattel mortgage, which mortgage, at
least, operated as a conditional equitable assignment.
Issue:
Whether or not CBC is entitled to hold a lien over the said
As against the rights of the plaintiff the defendant bank
shares?
had no lien unless by virtue of the attachment. But the
Whose rights are more superior attachment was levied after the bank had received notice
of the assignment of Chua Soco's interests to the plaintiff
Whether or not the trial court correctly ruled that the 250 shares and was therefore subject to the rights of the latter. It
belong to Fua Cun as these are fully paid up? follows that as against these rights the bank holds no lien
whatever.
Held:
A. CBC is not entitled to hold a lien over the shares. A C. No, Fua Cun is not the owner of the 250 shares of
corporation has no lien upon the shares of stocks. “the plaintiff's rights consist in an equity in five
stockholders for any indebtedness to the corporation hundred shares and upon payment of the unpaid portion
and there are no positive provision of the law against of the subscription price he becomes entitled to the
this common law principle. Also as provided in the issuance of certificate for said five hundred shares in his
Corporation Law at that time "no bank organized under favor.”
this Act shall make any loan or discount on the security of
the shares of its own capital stock, nor be the purchaser
Ireneo S. Baltazar vs. Lingayen Gulf Electric Power Co., subscriptions were made subject to interest. The purpose
Inc., June 30 1965, Gr. No. 16236-16238, 14 SCRA 522, was evident and that is to not allow the Baltazar group to
Paredes, J retain their voting power in the May 1955 elections of the
board. The Baltazar group filed a case against the Acena
Cast: group alleging that this resolution was of no effect because it
was the practice of the corporation to issue certificates of
Ireneo S. Baltazar and other petitioners – Stockholders of
stocks even though the shares subject thereof was only
Lingayen
subscribed but not yet paid. Pending the case, there was an
Facts: amicable settlement entered into between the corporation
and the unpaid subscribers which in effect allows them to
Ireneo Batazar and Marvin Rose were two of the vote the said unpaid shares, but they will pay 3% interests
incorporators of Lingayen. They are subscribers of 600 and compounded annually in addition to the interests given under
400 shares of stocks, respectively of Lingayen at par value the Corporation Code which is 6% compounded annually.
of P100.00. Out of these subscriptions, Baltazar originally The Acena group alleged that the amicable settlement is
had paid 535 shares, however due to transfers, he only had against the policy of the Corporation Code regarding speedy
341 shares at the time of filing of the complaint. He also had payment of the subscription agreements. Their MR was
65 shares under his name for which no certificate has been approved. The decision was clarified ruling that the fully-paid
issued (no reason was stated in the case but I think eto up shares (in favor of Baltazar because the theory was,
yung unpaid nya. 600 -535(originally paid) = 65), and they cannot vote because their subscription payments
Rose has paid 375 shares duly covered by certificates of pertains to the whole 1,000 shares, and not to the 716
stocks. The authorized capital stock of Lingayen was 3,000 shares as such they cannot vote any single share,
shares of stock at par value of 100 totaling to P300,000. because they only own an equity in the 1,000 shares and
Another incorporator, Dr. Bernardo Acena, had 600 shares not 716 shares. The decision in effect allowed them to
of stocks under his name, all of which were paid and vote the said 716 shares) are entitled to vote in the
covered by certificates of stocks. Also there were other elections.
stockholders (Ungson, Estrada, Fernandez, and Yuson) who
had less than 100 shares of stocks under their name. Two of Issue:
the 7 man board of directors was elected by Acena and
Whether or not they can vote the shares of stocks fully paid
these stockholders (referred to as Acena group), while two
can vote?
was elected by Baltazar and Rose (referred to as Baltazar
group). Due to the fact that the total number of paid up Whether or not a certificate of stock may be issued to shares
shares held by one group were almost equal to the paid up of stocks partially paid?
shares held by the other (look at it this way, subscribed
capital of Baltazar group 1,000 shares, but only 716 Held:
shares were paid, the Acena group had almost 700
shares of stock all of which were paid), Acena, being the Yes to both. The present law could have simply provided
one in control of the corporation, passed three resolutions that no certificate of par value and no par value stock
which states that only fully paid-up shares of stocks of shall be issued to a subscriber, as fully paid up, until the
Lingayen Gulf are entitled to vote, that these unpaid full subscription has been paid by him to the
corporation, if full payment of subscription were prompting Nava to file a mandamus case against Renato
intended as the criterion in the issuance of certificates, Cusi and Amparo Cusi, executive vice president and
for both the par value and no par value stocks. Stated in secretary respectively, to register his name in the stock and
another way, the present law requires as a condition transfer book of the corporation.
before a share holder can vote his shares, that his full
subscription be paid in the case of no par value stock; Issue:
and in case of stock corporation with par value, the
Whether or not the Cusi may be compelled by mandamus to
stockholder can vote the shares fully paid by him only,
register Nava’s name in the stock and transfer book of the
irrespective of the unpaid delinquent shares.
corporation?
(Contentious decision, against the doctrine of
indivisibility of Subscription Contracts). As well-observed Held:
by the trial court, a corporation may now, in the absence of
provisions in their by-laws to the contrary, apply payment No. The Supreme Court ruled that Nava cannot compel the
made by subscribers-stockholders, either as: “(a) full corporate officers to register his name in the stock and
payment for the corresponding number of shares of stock, transfer book. According to “SEC. 35. The capital stock of
the par value of each of which is covered by such payment; stock corporations shall be divided into shares for which
or (b) as payment prorata to each and all the entire number certificates signed by the president or the vice-president,
of shares subscribed for”. countersigned by the secretary or clerk and sealed with the
seal of the corporation, shall be issued in accordance with
If a stockholder, in a stock corporation subscribes to a the by-laws. Shares of stock so issued are personal
certain number of shares of stock, and makes partial property and may be transferred by delivery of the
payments for which he is issued certificates of stock, he is certificate indorsed by the owner or his attorney in fact
entitled to vote the latter, notwithstanding the fact that he has or other person legally authorized to make the transfer.
not paid the balance of his subscription which has been No transfer, however, shall be valid, except as between the
called for payment or declared delinquent. parties, until the transfer is entered and noted upon the
books of the corporation so as to show the names of the
RICARDO A. NAVA vs. PEERS MARKETING
parties to the transaction, the date of the transfer, the
CORPORATION, RENATO R. CUSI and AMPARO CUSI,
number of the certificate, and the number of shares
November 25, 1976, 74 SCRA 65, Aquino, J.
transferred.
Facts:
“No share of stock against which the corporation holds
Teofilo Po was the subscriber of eighty shares of stocks of any unpaid claim shall be transferable on the books of
Peers Makreting Corporation at par value of P100 per share. the corporation.”
He paid P2,000 out of the P8,000 worth of stocks. No
As prescribed in section 35, shares of stock may be
certificate of stock was issued in his behalf. He then sold the
transferred by delivery to the transferee of the certificate
20 shares allegedly owned by him to Ricardo Nava. Ricardo
properly indorsed. “Title may be vested in the transferee by
Nava went to the corporation to have his name registered in
delivery of the certificate with a written assignment or
the stock and transfer book as absolute owner of 20 shares
of the corporation. Such was denied by the corporation
indorsement thereof. There should be compliance with the As already stressed, in this case no stock certificate was
mode of transfer prescribed by law. issued to Po. Without the stock certificate, which is the
evidence of ownership of corporate stock, the assignment of
That procedure cannot be followed in the instant case corporate shares is effective only between the parties to the
because, as already noted, the twenty shares in transaction.
question are not covered by any certificate of stock in
Po’s name. Moreover, the corporation has a claim on the The delivery of the stock certificate, which represents the
said shares for the unpaid balance of Po’s subscription. shares to be alienated, is essential for the protection of both
A stock subscription is a subsisting liability from the time the the corporation and its stockholders.
subscription is made. The subscriber is as much bound to
pay his subscription as he would be to pay any other debt. In view of the foregoing considerations, the trial court’s
The right of the corporation to demand payment is no less judgment dismissing the petition for mandamus is affirmed.
incontestable. Costs against the petitioner-appellant.

(for purposes of discussion- the relation to Baltazar ruling: NIELSON & COMPANY, INC., vs. LEPANTO
CONSOLIDATED MINING COMPANY, December 28, 1968,
Nava relies on Baltazar vs. Lingayen Gulf Electric Power Gr. No. L-21601, 26 SCRA 540, Zaldivar, J.
Co., Inc., L-16236-38, June 30, 1965, 14 SCRA 522, where
it was held that section 37 “requires as a condition before a Facts:
shareholder can vote his shares that his full subscription be
A motion for reconsideration was filed by Lepanto
paid in the case of no par value stock; and in case of stock
Consolidated because of the ruling of the court in which it
corporation with par value, the stockholder can vote the
ordered the said corporation to issue stock dividends in the
shares fully paid by him only, irrespective of the unpaid
amount of 300,000 in favor of Nielson because of the
delinquent shares”.
management contract entered by the two companies.
There is no parallelism between this case and the Baltazar Lepanto argued that it cannot issue said stock dividends in
case. It is noteworthy that in the Baltazar case the favor Nielson because the latter was not a stockholder at the
stockholder, an incorporator, was the holder of a certificate time said dividend were issued.
of stock for the shares the par value of which had been paid
Issue:
by him. The issue was whether the said shares had voting
rights although the incorporator had not paid fully the total Whether or not Nielson is entitled to stock dividend? If not in
amount of his subscription. That is not the issue in this case. what manner will they be paid?
In the Baltazar rase, it was held that where a stockholder Held:
subscribed to a certain number of shares with par value and
he made a partial payment and was issued a certificate for No. The Supreme Court ruled that the consideration for
the shares covered by his partial payment, he is entitled to which shares of stock may be issued are: (1) cash; (2)
vote the said shares, although he has not paid the balance property; and (3) undistributed profits. Shares of stock are
of his subscription and a call or demand had been made for given the special name "stock dividends" only if they are
the payment of the par value of the delinquent shares. issued in lieu of undistributed profits. If shares of stocks
are issued in exchange of cash or property then those distributed to the stockholders or retained as surplus
shares do not fall under the category of "stock available for distribution, in money or kind, should
dividends". A corporation may legally issue shares of opportunity offer. Far from being a realization of profits for
stock in consideration of services rendered to it by a the stockholder, it tends rather to postpone said realization,
person not a stockholder, or in payment of its in that the fund represented by the new stock has been
indebtedness. A share of stock issued to pay for services transferred from surplus to assets and no longer available for
rendered is equivalent to a stock issued in exchange of actual distribution. Thus, it is apparent that stock
property, because services is equivalent to property. dividends are issued only to stockholders. This is so
Likewise a share of stock issued in payment of indebtedness because only stockholders are entitled to dividends.
is equivalent to issuing a stock in exchange for cash. But a They are the only ones who have a right to a
share of stock thus issued should be part of the original proportional share in that part of the surplus which is
capital stock of the corporation upon its organization, or declared as dividends.
part of the stocks issued when the increase of the
capitalization of a corporation is properly authorized. In Nielson is entitled to the cash value amount of the dividends
other words, it is the shares of stock that are originally to which they were adjudge to be entitled, thus the Court
issued by the corporation and forming part of the capital that ordered Lepanto to pay the amount of P300,000 to Nielson,
can be exchanged for cash or services rendered, or plus interests from the finality of judgment.
property; that is, if the corporation has original shares of
PHILIP TURNER and ELNORA TURNER vs. LORENZO
stock unsold or unsubscribed, -either coming from the
SHIPPING CORPORATION, November 24, 2010, Gr. No.
original capitalization or from the increased capitalization.
157479, 636 SCRA 13, Bersamin, J.
Those shares of stock may be issued to a person who is
not a stockholder, or to a person already a stockholder Facts:
in exchange for services rendered or for cash or
property. But a share of stock coming from stock The Turners were the owners of 1,010,000 stocks of
dividends declared cannot be issued to one who is not a Lorenzo Shipping Corporation. The Corporation decided to
stockholder of a corporation. amend its Articles of Incorporation to remove the pre-
emptive rights of existing stockholders. The Turners did not
A "stock dividend" is any dividend payable in shares of accede to such amendment thus they demanded that the
stock of the corporation declaring or authorizing such Corporation must pay the fair market value of their shares at
dividend. It is, what the term itself implies, a distribution 2.276 per share. The Corporation insisted that the fair
of the shares of stock of the corporation among the market value at the time of removing the pre-emptive right
stockholders as dividends. A stock dividend of a must be taken into account, thus according to it, the fmv is .
corporation is a dividend paid in shares of stock instead of 41 per share and that payment could only be made from the
cash, and is properly payable only out of surplus profits. So, Corporation’s unrestricted retained earnings. Since there
a stock dividend is actually two things: (1) a dividend, and (2) was a disagreement as to the fmv, an appraisal committee
the enforced use of the dividend money to purchase was formed. The committee valued the shares at 2.54 per
additional shares of stocks at par. When a corporation share. Thus the Turners demanded that the corporation pay
issues stock dividends, it shows that the corporation's their shares at the said valuation. The corporation denied the
accumulated profits have been capitalized instead of claim alleging that there was no unrestricted retained
earnings appearing on its book. The corporation thereafter to any obligation on the part of the respondent to pay,
earned after the demand made by the Turners. The RTC the petitioners should first make a valid demand that the
ruled that the unrestricted retained earnings need not exist at respondent refused to pay despite having unrestricted
the time of demand and if there are retained earning later, retained earnings. In this case, no unrestricted retained
the corporation must pay the fmv of the stocks. The CA earnings yet existed at the time the demand was made,
reversed the ruling, holding that since no unrestricted therefore the demand made by the Turners was erroneous.
retained earnings was present in Corporation’s books at the Also, such error is not cured by the subsequent acquisition
time the Complaint was filed, the Turners’ right to payment of unrestricted retained earnings by the corporation. A
have not yet accrued but their appraisal right already complaint which has no cause of action at the time of its
existed. Therefore, the complaint was premature, it only filing cannot be cured by an amended or supplemental
arose after the Corporation had retained earnings. pleading alleging the existence or accrual of a cause of
(Complaint filed on January 22, 2001, retained earning action during the pendency of the action.
existed on March 21,2002)
Discussion purposes: Outline how to exercise appraisal:
Issue: (according sa case)
Whether or not the Turners may legally demand the payment The Corporation Code defines how the right of appraisal is
of the fair market value of their stocks? exercised, as well as the implications of the right of
appraisal, as follows:
Held:
1. The appraisal right is exercised by any stockholder who
No. The CA correctly ruled that the Turners may not demand has voted against the proposed corporate action by making
payment for the fair market value of their shares. While a a written demand on the corporation within 30 days after the
stockholder may exercise his appraisal right when there is a date on which the vote was taken for the payment of the fair
fundamental change in the charter and articles of value of his shares. The failure to make the demand within
incorporation substantially prejudicing the rights of the the period is deemed a waiver of the appraisal right.19
stockholder, a corporation can only buy the shares of
stocks if there are unrestricted retained earnings in its 2. If the withdrawing stockholder and the corporation
books to cover the said demand and that its acquisition cannot agree on the fair value of the shares within a period
was done in good faith. The reason for this rule is the trust of 60 days from the date the stockholders approved the
fund doctrine, as there can be no distribution of assets corporate action, the fair value shall be determined and
among stockholders without paying the corporate creditors. appraised by three disinterested persons, one of whom shall
The disposition of assets and corporate funds to the be named by the stockholder, another by the corporation,
prejudice of creditors is null and void. and the third by the two thus chosen. The findings and
award of the majority of the appraisers shall be final, and the
The SC held that the unrestricted retained earnings must corporation shall pay their award within 30 days after the
exist at the time of demand made by the dissenting award is made. Upon payment by the corporation of the
stockholder and not thereafter. It held that the Turners agreed or awarded price, the stockholder shall forthwith
have no cause of action against the Corporation and the transfer his or her shares to the corporation.20
suit is prematurely bought because in order to give rise
3. All rights accruing to the withdrawing stockholder’s Philippine Trust Company, as assignee of La Cooperativa
shares, including voting and dividend rights, shall be Naval Filipina, vs. Marciano Rivera, January 29, 1923, GR.
suspended from the time of demand for the payment of the No. 19761, 44 PHIL 469, Street, J.
fair value of the shares until either the abandonment of the
corporate action involved or the purchase of the shares by Facts:
the corporation, except the right of such stockholder to
Marciano Rivera was an incorporator of La Cooperative
receive payment of the fair value of the shares.21
Naval Filipina for 450 shares worth P45,000. Over the
4. Within 10 days after demanding payment for his or her course of time the company became insolvent and went into
shares, a dissenting stockholder shall submit to the the hand of PhilTrust as assignee in bankruptcy. PhilTrust
corporation the certificates of stock representing his shares brought the said suit against Rivera to demand the payment
for notation thereon that such shares are dissenting shares. for his unpaid subscription which amounted to half of his
A failure to do so shall, at the option of the corporation, total subscription, or 225 shares. Rivera, in his defensem,
terminate his rights under this Title X of the Corporation alleged that there was a corporate meeting reducing the
Code. If shares represented by the certificates bearing such corporation’s capital by 50%, thus all stockholders who have
notation are transferred, and the certificates are subscribed must only pay 50% of their subscriptions and any
consequently canceled, the rights of the transferor as a stockholder who have paid more than 50% must be released
dissenting stockholder under this Title shall cease and the from their liability. There was, however, no amendment of
transferee shall have all the rights of a regular stockholder; the Articles of Incorporation to show that the corporation
and all dividend distributions that would have accrued on reduced its capital.
such shares shall be paid to the transferee.22
Issue:
5. If the proposed corporate action is implemented or
Whether or not Marciano Rivera can deny the payment of
effected, the corporation shall pay to such stockholder, upon
the subscriptions?
the surrender of the certificates of stock representing his
shares, the fair value thereof as of the day prior to the date Held:
on which the vote was taken, excluding any appreciation or
depreciation in anticipation of such corporate action.23 No. The Supreme Court first ruled that subscriptions to the
capital of a corporation constitute a fund to which creditors
Notwithstanding the foregoing, no payment shall be made to have a right to look for satisfaction of their claims and that
any dissenting stockholder unless the corporation has the assignee in insolvency can maintain an action upon any
unrestricted retained earnings in its books to cover the unpaid stock subscription in order to realize assets for the
payment. In case the corporation has no available payment of its debts (trust fund doctrine). Therefore, it has
unrestricted retained earnings in its books, Section 83 of the no power to release an original subscriber from the
Corporation Code provides that if the dissenting stockholder obligation of paying for his shares without a valuable
is not paid the value of his shares within 30 days after the consideration for such release; and against the creditors,
award, his voting and dividend rights shall immediately be a reduction of the capital stock can only take place in
restored. the manner and under the conditions prescribed by the
statute or the charter or the articles of incorporation.
 In this case, the resolution releasing the shareholders from The SC then adopted a US court’s interpretation of the said
their obligation to pay 50 per centum of their respective provision which says that "We think the true meaning of the
subscriptions was an attempted withdrawal of so much language is, and the obvious intention of the legislature in
capital from the fund upon which the company's using it was, that all transfers of shares should be entered,
creditors were entitled ultimately to rely and, having as here required, on the books of the corporation. And it is
been effected without compliance with the statutory equally clear to us that all transfers of shares not so
requirements, was wholly ineffectual. entered are invalid as to attaching or execution creditors
of the assignors, as well as to the corporation and to
Toribia Uson vs. Vicente Diosomito, et. Al. June 17, 1935, subsequent purchasers in good faith, and, indeed, as to
GR. No. 42135, 61 PHIL 535, Butte, J all persons interested, except the parties to such
transfers. All transfers not so entered on the books of the
Facts:
corporation are absolutely void; not because they are without
Uson filed a case for collection of sum of money against notice or fraudulent in law or fact, but because they are
Diosomito. Judgment was rendered in her favor, thus the made so void by statute."
sheriff proceeded to levy on some of Diosomito’s properties.
The language of the law is plain to the effect that the right
One of the levied properties was Diosomito’s 75 shares of
of the owner of the shares of stock of a Philippine
stocks in North Electric Co. Inc. To satisfy the said judgment,
corporation to transfer the same by delivery of the
the shares were sold at a public auction from which Uson
certificate, whether it be regarded as statutory or common
was the highest bidder. HPL Joylle then claims to be the
law right, is limited and restricted by the express
owner of said shares of stocks. He alleged that the same
provision that "no transfer, however, shall be valid,
was sold to him by Barcelon and that Barcelon acquired the
except as between the parties, until the transfer is
shares from Diosomito. The sale between Diosomito and
entered and noted upon the books of the corporation."
Barcelon was, however, not registered until some months
Since the transfer between Diosomito and Barcelon was
after the shares were levied.
unregistered, it does not bind Uson, the attaching creditor.
Issue:
Whether or not an unregistered transfer of the shares is valid
against a lawful attachment, regardless of whether or not the
attaching creditor had notice of said transfer?
Held: Antonio Escano vs. Filipinas Mining Corporation, July
28, 1944, GR. No. 49003, 74 PHIL 711, Ozaeata, J.
The transfer did not affect the rights of Uson, as attaching
creditor. The Corporation Code provides that "No transfer, Facts:
however, shall be valid, except as between the parties, until
the transfer is entered and noted upon the books of the Escano was a judgment creditor of Silverio Salvosa. Salvosa
corporation so as to show the names of the parties to the was ordered to transfer 156 active shares to Escano and an
transaction, the date of the transfer, the number of the undertermined number of shares in escrow of the Filipinas
certificate, and the number of shares transferred." Mining Corporation. A writ of garnishment was served
against Fiipinas Mining and the latter advised the sheriff that the stock sought to be transferred, or for any other valid
Salvosa have 1,000 active shares and 21,338 shares in reason; and (3) to avoid fictitious or fraudulent
escrow. The sheriff sold the 1,000 active shares, realizing transfers. No valid reason exists for treating unissued
therefrom only P10, which was applied in partial satisfaction shares held in escrow differently from issued shares insofar
of the damages worth P500. Escano then filed the present as their sale and transfer is concerned. In both cases the
case to collect from Salvosa’s shares in escrow. It appears corporation is entitled to know who the actual owners of
however that these shares were sold to Bengzon and later the shares are, and to object to the transfer upon any
Bengzon sold the same to Standard Investment of the valid ground. Likewise, in both cases the possibility of
Philippines. The transfer was not recorded in the books until fictitious or fraudulent transfers exists. The only reason
December 7, 1940, or 3 years after the attachment of said advanced by the appellant for exempting the transfer of
shares in escrow. 18, 580 shares were issued by Filipinas unissued shares from recording is that in case of unissued
Mining in favor of Standard Investments on January 21, shares there is no certificate number to be recorded. But that
1941. is a mere detail which does not affect the reasons behind the
rule. The lack of such detail does not make it impossible to
Issue: record the transfer upon the books of the corporation so as
to show the names of the parties to the transaction, the date
Whether or not the issuance of the said shares in escrow,
of the transfer, and the number of shares transferred, which
which were unissued, were valid against the attaching
are the most essential data.
creditor of the original owner?
Moreover, it seems illogical and unreasonable to hold that
Held:
inactive or unissued shares still held by the corporation in
No.The transfer of duly issued shares of stock is not valid as escrow pending receipt of authorization from the Govern-
against third parties and the corporation until it is noted upon ment to issue them, may be negotiated or transferred unre-
the books of the corporation; but it is contended that the strictedly and more freely than active or issued shares
transfer of unissued shares of stock held in escrow is valid evidenced by certificates of stock.
against the whole world although not notified to the
Therefore, section 35 of the Corporation Law, which requires
corporation and not noted upon its books. Since the sale,
the registration of transfers of shares of stock upon the
transfer, or assignment of unissued shares of stock held in
books of the corporation as a condition precedent to
escrow is not specifically provided for by law, the question
their validity against the corporation and third parties, is
has to be resolved by resorting to analogy. The reason of the
also applicable to unissued shares held by the
law for requiring the recording upon the books of the
corporation in escrow.
corporation of transfers of shares of stock as a condition
precedent to their validity against the corporation and third
parties are the following: (1)  to enable the corporation to
know at all times who its actual stockholders are,
because mutual rights and obligations exist between the
corporation and its stockholders; (2) to afford to the
corporation an opportunity to object or refuse its
consent to the transfer in case it has any claim against