Z Corpo

commrev besties San Beda LAw Page 1 of 155
COMMERCIAL LAW REVIEW

| ATTY. ZARAH VILLANUEVA-CASTRO |
casE DIGEST IN CORPORATION LAW
MAGSAYSAY-LABRADOR vs. THE COURT OF APPEALS
G.R. No. 58168; December 19, 1989
Fernan, C.J.
Facts: Private respondent Adelaida Rodriguez Magsaysay filed an action against

Subic Land Corporation (SUBIC), among others, to annul the deed of assignment
and deed of mortgage executed in favor of the latter by her late husband. Private
respondent alleged that the subject land of the two deeds was acquired through
conjugal funds. Since her consent to the disposition of the same was not
obtained, she claimed that the acts of assignment and mortgage were done to
defraud the conjugal partnership. She further contended that the same were done
without consideration and hence null and void. Petitioners, sisters of the deceased
husband of the private respondent, filed a motion for intervention on the ground
that their brother conveyed to them one-half of his shareholdings in SUBIC, or
about 41%. They contend that they have a substantial and legal interest in the
subject matter of litigation and that they have a legal interest in the success of
the suit with respect to SUBIC. The trial court denied the motion for intervention
ruling that petitioners have no legal interest whatsoever in the matter in litigation
and their being alleged assignees or transferees of certain shares in SUBIC cannot
legally entitle them to intervene because SUBIC has a personality separate and
distinct from its stockholders. The CA confirmed the denial on appeal. Hence, this
petition.
Issue: Whether petitioners, as stockholders of SUBIC, have a legal interest in the

action for annulment of the deed of assignment and deed of mortgage in favor of
the corporation.
Held: No. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court,
the Magsaysay sisters have no legal interest in the subject matter in litigation so
as to entitle them to intervene in the proceedings. To be permitted to intervene in
a pending 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 against both, or he must
be so situated as to be adversely affected by a distribution or other disposition of
the property in the custody of the court or an officer thereof. Here, the interest, if
it exists at all, of the Magsaysay sisters is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely
inchoate, or in sheer expectancy of a right in the management of the corporation
and to share in the profits thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and obligations. While a share
of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any
of the property, his interest in the corporate property being equitable or beneficial
in nature. Shareholders are in no legal sense the owners of corporate property,
which is owned by the corporation as a distinct legal person.
BUCU | BUENDIA | CAMALIG | DE BELEN | ESPARES | FERRIOL | HORNILLA | MANALIGOD | MARCIAL | NARSOLES | RIVERA | SALAZAR | SAN DIEGO | SILVA | STA. ANA | SUYOSA
SULO NG BAYAN v. ARANETA
GR L-31061 17 August 1976
Facts: On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with
the Court of First Instance of Bulacan, against Gregorio Araneta Inc. (GAI),
Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA),
Hacienda Caretas Inc., and the Register of Deeds of Bulacan to recover the
ownership and possession of a large tract of land in San Jose del Monte, Bulacan,
registered under the Torrens System in the name of GAI, et. al.'s predecessors-
in-interest (who are members of the corporation).
On 2 September 1966, GAI filed a motion to dismiss the amended complaint on

the grounds that (1) the complaint states no cause of action; and (2) the cause of
action, if any, is barred by prescription and laches. Paradise Farms, Inc. and
Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds.
NAWASA did not file any motion to dismiss. However, it pleaded in its answer as
special and affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and
the barring of such action by prescription and laches.
On 24 January 1967, the trial court issued an Order dismissing the (amended)
complaint. On 14 February 1967, Sulo ng Bayan filed a motion to reconsider the
Order of dismissal, arguing among others that the complaint states a sufficient
cause of action because the subject matter of the controversy in one of common
interest to the members of the corporation who are so numerous that the present
complaint should be treated as a class suit. The motion was denied by the trial
court.. Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969,
the Court of Appeals, upon finding that no question of fact was involved in the
appeal but only questions of law and jurisdiction, certified the case to the
Supreme Court for resolution of the legal issues involved in the controversy.
Issues:
1. W/N the corporation (non-stock) may institute an action in behalf of its
individual members for the recovery of certain parcels of land allegedly owned by
said members, among others
2. W/N the complaint filed by the corporation in behalf of its members may be
treated as a class suit
Held:
1. NO. It is a doctrine well-established and obtains both at law and in equity that
a corporation is a distinct legal entity to be considered as separate and apart from
the individual stockholders or members who compose it, and is not affected by
the personal rights, obligations and transactions of its stockholders or members.
The property of the corporation is its property and not that of the stockholders, as
owners, although they have equities in it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members.
Conversely, a corporation ordinarily has no interest in the individual property of

its stockholders unless transferred to the corporation, "even in the case of a one-
man corporation." The mere fact that one is president of a corporation does not
render the property which he owns or possesses the property of the corporation,
since the president, as individual, and the corporation are separate similarities.
Similarly, stockholders in a corporation engaged in buying and dealing in real

estate whose certificates of stock entitled the holder thereof to an allotment in
the distribution of the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or equitable title or interest in
the land, as would support a suit for title, especially against parties other than the
corporation. It must be noted, however, that the juridical personality of the
corporation, as separate and distinct from the persons composing it, is but a legal
fiction introduced for the purpose of convenience and to subserve the ends of
justice.
This separate personality of the corporation may be disregarded, or the veil of

corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or
illegality, or to work -an injustice, or where necessary to achieve equity. It has
not been claimed that the members have assigned or transferred whatever rights
they may have on the land in question to the corporation. Absent any showing of
interest, therefore, a corporation, has no personality to bring an action for and in
behalf of its stockholders or members for the purpose of recovering property
which belongs to said stockholders or members in their personal capacities.
2. NO. In order that a class suit may prosper, the following requisites must be
present: (1) that the subject matter of the controversy is one of common or
general interest to many persons; and (2) that the parties are so numerous that
it is impracticable to bring them all before the court.
Here, there is only one party plaintiff, and the corporation does not even have an
interest in the subject matter of the controversy, and cannot, therefore, represent
its members or stockholders who claim to own in their individual capacities
ownership of the said property.
Moreover, a class suit does not lie in actions for the recovery of property where
several persons claim partnership of their respective portions of the property, as
each one could alleged and prove his respective right in a different way for each
portion of the land, so that they cannot all be held to have identical title through
acquisition/prescription. 
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO) vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
150 SCRA 181
FACTS:
1.Bataan Shipyard and Engineering Co. filed for certiorari and prohibition against
a)Executive Orders Numbered 1 and 2, promulgated by President Corazon C.
Aquino and b) the sequestration, takeover, and other orders issued by the
Presidential Commission on Good Government and/or its Commissioners and
agents, affecting said corporation. 
 
2. In relation to the sequestration order, Balde, acting for the PCGG, addressed a
letter dated April 18, 1986 to the President and other officers of petitioner firm,
reiterating an earlier request for the production of certain documents such as
Stock Transfer Book and other Articles of Incorporation, By-Laws, etc. 
 
3. BASECO declares that its objection to the constitutionality of the Sequestration

Order and Takeover Order issued purportedly under the authority of said
Executive Orders, rests on four fundamental considerations: First, no notice and
hearing was accorded before its properties and business were taken over;
Second, the PCGG is not a court, but a purely investigative agency and therefore
not competent to act as prosecutor and judge in the same cause; Third, there is
nothing in the issuances which envisions any proceeding, process or remedy by
which petitioner may expeditiously challenge the validity of the takeover after the
same has been effected; and Fourthly, being directed against specified persons,
and in disregard of the constitutional presumption of innocence and general rules
and procedures, they constitute a Bill of Attainder.” 
 
4.It argues that the order to produce corporate records from 1973 to 1986, which
it has apparently already complied with, was issued without court authority and
infringed its constitutional right against self-incrimination, and unreasonable
search and seizure. BASECO further contends that the PCGG had unduly
interfered with its right of dominion and management of its business affairs. 
 
ISSUE: 
 
Whether or not BASECO's right against self-incrimination was violated. 
HELD: 
No, It is elementary that the right against self-incrimination has no application to
juridical persons. While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises, may refuse to show its
hand when charged with an abuse of such privileges . 
 
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order
No. 14 assures protection to individuals required to produce evidence before the
PCGG against any possible violation of his right against self-incrimination. It gives
them immunity from prosecution on the basis of testimony or information he is
compelled to present. As amended, said Section 4 now provides that —
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege
against self-incrimination; but no testimony or other information compelled under
the order (or any information directly or indirectly derived from such testimony,
or other information) may be used against the witness in any criminal case,
except a prosecution for perjury, giving a false statement, or otherwise failing to
comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no

application to the case at bar either. There has been no search undertaken by any
agent or representative of the PCGG, and of course no seizure on the occasion
thereof.
Luxuria Homes Inc vs CA
G.R. No. 125986. January 28, 1999
Facts: Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In
1989, she entered into an agreement with Jaime Bravo for the latter to draft a
development and architectural design for the said property. The contract price
was P450,000.00. Posadas gave a down payment of P25,000.00. Later, Posadas
assigned her property to Luxuria Homes, Inc. One of the witnesses to the deed of
assignment and articles of incorporation was Jaime Bravo. In 1992, Bravo finished
the architectural design so he proposed that he and his company manage the
development of the property. But Posadas turned down the proposal and
thereafter the business relationship between the two went sour. Bravo then
demanded Posadas to pay them the balance of their agreement as regards the
architectural design (P425k). Bravo also demanded payment for some other
expenses and fees he incurred i.e., negotiating and relocating the informal
settlers then occupying the land of Posadas. Posadas refused to make payment.
Bravo then filed a complaint for specific performance against Posadas but he
included Luxuria Homes as a co-defendant as he alleged that Luxuria Homes was
a mere conduit of Posadas; that the said corporation was created in order to
defraud Bravo and avoid the payment of debt.
Issue: Whether Luxuria Homes, Inc., was a party to the transactions entered into
by Posadas with Bravo and James Builder Construction and thus could be held
jointly and severally with Posadas.
Held: It cannot be said then that the incorporation of Luxuria Homes and the
eventual transfer of the subject property to it were in fraud of Bravo and James
Builder Construction as such were done with the full knowledge of Bravo himself,
as evidenced by the Deed of Assignment dated 11 December 1989 and the
Articles of Incorporation of Luxuria Homes, Inc., issued 26 January 1990 were
both signed by Bravo himself as witness.
Further, Posadas is not the majority stockholder of Luxuria Homes, Inc. The
Articles of Incorporation of Luxuria Homes, Inc., clearly show that Posadas owns
approximately 33% only of the capital stock. Hence, Posadas cannot be
considered as an alter ego of Luxuria Homes, Inc.
To disregard the separate juridical personality of a corporation, the wrongdoing

must be clearly and convincingly established. It cannot be presumed. Bravo, et.
al. failed to show proof that Posadas acted in bad faith, and consequently that
Luxuria Homes, Inc., was a party to any of the supposed transactions, not even to
the agreement to negotiate with and relocate the squatters, it cannot be held
liable, nay jointly and in solidum, to pay Bravo, et. al.
Hence, since it was Posadas who contracted Bravo to render the subject services,
only she is liable to pay the amounts adjudged by the Court. 
CONCEPT BUILDERS vs. NLRC
257 SCRA 149
Facts Petitioner Concept Builders Inc., a domestic corporation with principal office
at 355 Maysan Road, Valenzuela, Metro Manila is engaged in the construction
business. Private respondents were employed by said company as laborers,
carpenters, and niggers. On November 1981, private respondents were served
with individual written notices of termination of employment by petitioner,
effective on November 30, 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they were hired
had been completed. Public respondent found it to be the fact, however, at the
time of the termination of private respondents’ employment, the project in which
they were hired had not yet been finished and completed. Petitioner had to
engage the services of the subcontractors whose workers performed the functions
of private respondents. Aggrieved, private respondents filed a complaint for illegal
dismissal, unfair labor practices and non-payment of their holiday pay, overtime
pay, and 13th month pay against petitioners. The labor arbiter rendered decision
in favor of the private respondents. When the same became final and executory, a
writ of execution was issued, however, the same was refused by the security
guard on duty on the ground that the petitioners no longer occupied the
premises. A break-open order was then recommended.
Issue: Whether or not the alias writ of execution can be issued against the sister
company of the petitioners, HPPI.
Held: Yes. It is a fundamental principle of corporation law that a corporation is an

entity separate and distinct from its stockholders and from other corporations to
which it may be connected. But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, or is used as a
device to defeat labor laws, this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.
The conditions under which the juridical entity may be disregarded vary according
to the peculiar facts and in circumstances laid down, but certainly there are some
probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The names of keeping corporate books and records
4. Methods of conducting the business.
Where one corporation is so organized and controlled and its affairs are
conducted so that, it is in fact, a mere instrumentality or adjunct of the other, the
fiction of the corporate entity of the instrumentality may be disregarded. The
control necessary to invoke the rule is not majority or even complete stock
control but such domination of instances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of its own and is
but a conduit for its principal. It must be kept in mind that the control must be
shown to have been exercised at the time the acts complained of took place.
Moreover, the control and breach of duty must proximately cause the injury or
unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction as follows:
1. Control, not mere majority or complete stock control but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will on exercise of its own;
2. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal duty
or dishonest and unjust act in contravention of plaintiff’s legal rights.
3. The aforesaid control and breach of duty must proximately cause the injury
or unjust loss complained of.
The absence of any of these elements prevents “piercing the corporate veil” of the
corporation. In applying the instrumentality or “alter ego” doctrine, the courts are
concerned with reality and not form, with how the corporation operated and the
individual defendant’s relationship to that operation.
Francisco Motors vs. CA
G.R. No. 100812 June 25, 1999
Facts: On January 23, 1985, petitioner filed a complaint against private

respondents to recover three thousand four hundred twelve and six centavos
(P3,412.06), representing the balance of the jeep body purchased by the Manuels
from petitioner; an additional sum of twenty thousand four hundred fifty-four and
eighty centavos (P20,454.80) representing the unpaid balance on the cost of
repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit and
attorney’s fees. To the original balance on the price of jeep body were added the
costs of repair. In their answer, private respondents interposed a counterclaim for
unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos
(P50,000) which was not paid by the incorporators, directors and officers of the
petitioner.
Petitioner submits that respondent court should not have resorted to piercing the
veil of corporate fiction because the transaction concerned only respondent
Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner,
there was no cause of action by said respondent against petitioner; personal
concerns of the heirs should be distinguished from those involving corporate
affairs. Petitioner further contends that the present case does not fall among the
instances wherein the courts may look beyond the distinct personality of a
corporation. According to petitioner, the services for which respondent Gregorio
Manuel seeks to collect fees from petitioner are personal in nature. Hence, it
avers the heirs should have been sued in their personal capacity, and not involve
the corporation.
Issue: Whether or not the Doctrine of Piercing the Veil of Corporate Entity is
applicable in this case.
Held: No. The rationale behind piercing a corporation’s identity in a given case is
to remove the barrier between the corporation from the persons comprising it to
thwart the fraudulent and illegal schemes of those who use the corporate
personality as a shield for undertaking certain proscribed activities. However, in
the case at bar, instead of holding certain individuals or persons responsible for
an alleged corporate act, the situation has been reversed. It is the petitioner as a
corporation which is being ordered to answer for the personal liability of certain
individual directors, officers and incorporators concerned. Hence, it appears to us
that the doctrine has been turned upside down because of its erroneous
invocation. Note that according to private respondent Gregorio Manuel his
services were solicited as counsel for members of the Francisco family to
represent them in the intestate proceedings over Benita Trinidad’s estate. These
estate proceedings did not involve any business of petitioner.
Furthermore, considering the nature of the legal services involved, whatever

obligation said incorporators, directors and officers of the corporation had
incurred, it was incurred in their personal capacity. When directors and officers of
a corporation are unable to compensate a party for a personal obligation, it is far-
fetched to allege that the corporation is perpetuating fraud or promoting injustice,
and be thereby held liable therefor by piercing its corporate veil. 
TIMES TRANSPORTATION COMPANY, INC. vs. SANTOS SOTELO, et. al.
G.R. No. 163786 February 16, 2005
Facts: Petitioner Times Transportation Company, Inc. (Times) is a corporation

engaged in the business of land transportation. Prior to its closure, the Times
Employees Union (TEU) was formed and issued a certificate of union registration.
Times challenged the legitimacy of TEU by filing a petition for the cancellation of
its union registration. TEU held a strike in response to Times’ alleged attempt to
form a rival union and its dismissal of the employees identified to be active union
members. Upon petition by Times, the labor secretary assumed jurisdiction over
the case and referred the matter to the NLRC for compulsory arbitration. A
return-to-work order was likewise issued. TEU filed a Notice of Strike. Another
conciliation/mediation proceeding was conducted for the purpose of settling the
brewing dispute. In the meantime, Times’ management implemented a
retrenchment program and notices of retrenchment were sent to some of its
employees, including the respondents herein, informing them of their
retrenchment effective 30 days thereafter.
TEU held a strike vote on grounds of unfair labor practice on the part of Times.
For alleged participation in what it deemed was an illegal strike, Times terminated
all the 123 striking employees by virtue of two notices. Then DOLE Secretary
Quisumbing issued the second return-to-work order certifying the dispute to the
NLRC. While the strike was ended, the employees were no longer admitted back
to work. In the meantime, Mencorp Transport Systems, Inc. had acquired
ownership over Times’ Certificates of Public Convenience and a number of its bus
units by virtue of several deeds of sale.
The NLRC rendered a decision, the respondents’ first strike, conducted from
March 3, 1997 to March 12, 1997, is hereby declared LEGAL; its second strike,
which commenced on October 17, 1997, is hereby declared ILLEGAL.
Consequently, those … 23 persons who participated in the illegal strike … are
deemed to have lost their employment status and were therefore validly
dismissed from employment. The CA affirmed on November 17, 2000.
Issue: Whether or not the doctrine of corporate veil applies in this case?
Held: YES. On the propriety of the piercing of the corporate veil, Times claims
that "to drag Mencorp, [Spouses] Mendoza and Rondaris into the picture on the
purported ground that a fictitious sale of Times’ assets in their favor was
consummated with the end in view of frustrating the ends of justice and for
purposes of evading compliance with the judgment is … the height of judicial
arrogance." The Court of Appeals believes otherwise and reckons that Times and
Mencorp failed to adduce evidence to refute allegations of collusion between
them.
We have held that piercing the corporate veil is warranted only in cases when the
separate legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, such that in the case of two corporations, the law will
regard the corporations as merged into one.27 It may be allowed only if the
following elements concur: (1) control—not mere stock control, but complete
domination—not only of finances, but of policy and business practice in respect to
the transaction attacked; (2) such control must have been used to commit a
fraud or a wrong to perpetuate the violation of a statutory or other positive legal
duty, or a dishonest and an unjust act in contravention of a legal right; and (3)
the said control and breach of duty must have proximately caused the injury or
unjust loss complained of.
The following findings of the Labor Arbiter, which were cited and affirmed by the
Court of Appeals, have not been refuted by Times, to wit:
1. The sale was transferred to a corporation controlled by V. Mendoza, the
daughter of respondent S. Rondaris of [Times] where she is/was also a director,
as proven by the articles of incorporation of [Mencorp];
2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza,
Virginia R. Mendoza, Vernon Gerard R. Mendoza, Vivian Charity R. Mendoza,
Vevey Rosario R. Mendoza are all relatives of respondent S. Rondaris;
3. The timing of the sale evidently was to negate the employees/complainants/
members’ right to organization as it was effected when their union (TEU) was just
organized/requesting [Times] to bargain;
5. [Mencorp] never obtained a franchise since its supposed incorporation in 10
May 1994 but at present, all the buses of [Times] are already being run/operated
by respondent [Mencorp], the franchise of [Times] having been transferred to it.29
We uphold the findings of the labor arbiter and the Court of Appeals. The sale of
Times’ franchise as well as most of its bus units to a company owned by Rondaris’
daughter and family members, right in the middle of a labor dispute, is highly
suspicious. It is evident that the transaction was made in order to remove Times’
remaining assets from the reach of any judgment that may be rendered in the
unfair labor practice cases filed against it.
WILLIAM C. YAO, SR. vs. THE PEOPLE OF THE PHILIPPINES
G.R. No. 168306. June 19, 2007
CHICO-NAZARIO, J.
Facts:
Petitioners are incorporators and officers of MASAGANA GAS CORPORATION
(MASAGANA), an entity engaged in the refilling, sale and distribution of LPG
products. Petron and Pilipinas Shell are two of the largest bulk suppliers and
producers of LPG in the Philippines. Their LPG products are sold under the marks
"GASUL" and "SHELLANE," respectively. They are the sole entity in the Philippines
authorized to allow refillers and distributors to refill, use, sell, and distribute
GASUL LPG/SHELLANE LPG(respectively) containers, products and its trademarks.
NBI agent Ritche N. Oblanca filed two applications for search warrant with the
RTC Cavite City against petitioners and other occupants of the MASAGANA
compound for alleged violation of Section 155, in relation to Section 170 of
Republic Act No. 8293, otherwise known as "The Intellectual Property Code of the
Philippines." Presiding Judge of the RTC found probable cause and
correspondingly issued Search Warrants. Oblanca and several NBI operatives
immediately proceeded to the MASAGANA compound and served the search
warrants on petitioners.
MASAGANA, as third party claimant, filed with the RTC a Motion for the Return of
Motor Compressor and LPG Refilling Machine. It claimed that it is the owner of the
said motor compressor and LPG refilling machine; that these items were used in
the operation of its legitimate business; and that their seizure will jeopardize its
business interests.
Argument of MASAGANA: Petitioners claim that MASAGANA has the right to

intervene and to move for the return of the seized items; that the items seized by
the raiding team were being used in the legitimate business of MASAGANA; that
the raiding team had no right to seize them under the guise that the same were
being used in refilling GASUL and SHELLANE LPG cylinders; and that there being
no action for infringement filed against them and/or MASAGANA from the seizure
of the items up to the present, it is only fair that the seized articles be returned to
the lawful owner in accordance with Section 20 of A.M. No. 02-1-06-SC. (The
Search warrant was issued against petitioners Yao and other occupants
of MASAGANA compound, not MASAGANA itself).
RTC Decision: RTC resolved that MASAGANA cannot be considered a third party
claimant whose rights were violated as a result of the seizure since the evidence
disclosed that petitioners are stockholders of MASAGANA and that they conduct
their business through the same juridical entity. It maintained that to rule
otherwise would result in the misapplication and debasement of the veil of
corporate fiction. It also stated that the veil of corporate fiction cannot be used as
a refuge from liability. MR DENIED.
Subsequently, petitioners appealed the two Orders of the RTC to the Court of
Appeals via a special civil action for certiorari under Rule 65 of the Rules of Court.
CA Decision: CA affirmed the decision of the RTC. MR DENIED.
Petitioner file a Petition for Review on Certiorari under Rule 45 of the Rules of
Court before the Supreme Court.
Issue: Is the contention of MASAGANA correct?
Held: NO. It is an elementary and fundamental principle of corporation law that a

corporation is an entity separate and distinct from its stockholders, directors or
officers. However, when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons; or, in the case of two corporations,
merge them into one. In other words, the law will not recognize the separate
corporate existence if the corporation is being used pursuant to the foregoing
unlawful objectives. This non-recognition is sometimes referred to as the doctrine
of piercing the veil of corporate entity or disregarding the fiction of corporate
entity. Where the separate corporate entity is disregarded, the corporation will be
treated merely as an association of persons and the stockholders or members will
be considered as the corporation, that is, liability will attach personally or directly
to the officers and stockholders.
As we now find, the petitioners, as directors/officers of MASAGANA, are utilizing
the latter in violating the intellectual property rights of Petron and Pilipinas Shell.
Thus, petitioners collectively and MASAGANA should be considered as one and the
same person for liability purposes. Consequently, MASAGANA's third party claim
serves no refuge for petitioners.
Even if we were to sustain the separate personality of MASAGANA from that of
the petitioners, the effect will be the same. The law does not require that the
property to be seized should be owned by the person against whom the search
warrants is directed. Ownership, therefore, is of no consequence, and it is
sufficient that the person against whom the warrant is directed has control or
possession of the property sought to be seized. Hence, even if, as petitioners

claimed, the properties seized belong to MASAGANA as a separate entity, their
seizure pursuant to the search warrants is still valid.
Further, it is apparent that the motor compressor, LPG refilling machine and the
GASUL and SHELL LPG cylinders seized were the corpus delicti, the body or
substance of the crime, or the evidence of the commission of trademark
infringement. These were the very instruments used or intended to be used by
the petitioners in trademark infringement. It is possible that, if returned to
MASAGANA, these items will be used again in violating the intellectual property
rights of Petron and Pilipinas Shell. Thus, the RTC was justified in denying the
petitioners' motion for their return so as to prevent the petitioners and/or
MASAGANA from using them again in trademark infringement.
Petitioners' reliance on Section 20 of A.M. No. 02-1-06-SC, is not tenable. As

correctly observed by the Solicitor General, A.M. 02-1-06-SC is not applicable in
the present case because it governs only searches and seizures in civil actions for
infringement of intellectual property rights. The offense complained of herein is
for criminal violation of Section 155 in relation to Section 170 of Republic Act No.
8293. AEIcSa  
Seventhy Day Adventist vs Northeastern Mindanao Mission
July 21 2006
Facts: Spouses Felix Cosio and Felisa Cuysona donate a parcel of land to South
Philippine [Union] Mission of Seventh Day Adventist Church, and was received by
Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf of the
donee.However, twenty years later, the spouses sold the same land to the
Seventh Day Adventist Church of Northeastern Mindanao Mission. Claiming to be
the alleged donee’s successors-in-interest, petitioners asserted ownership over
the property. This was opposed by respondents who argued that at the time of
the donation, SPUM-SDA Bayugan could not legally be a donee because, not
having been incorporated yet, it had no juridical personality. Neither were
petitioners members of the local church then, hence, the donation could not have
been made particularly to them.
The trial court ruled in favour of the respondents. The Court of Appeals
affirmed the decision of the trial court.
Issue: Whether or not there was a valid donation.
Held: No. The deed of donation was not in favor of any informal group of SDA
members but a supposed SPUM-SDA Bayugan (the local church) which, at the
time, had neither juridical personality nor capacity to accept such gift.Declaring
themselves a de facto corporation, petitioners allege that they should benefit
from the donation. But there are stringent requirements before one can qualify as
a de facto corporation: (a) the existence of a valid law under which it may be
incorporated; (b) an attempt in good faith to incorporate; and © assumption of
corporate powers.
The filing of articles of incorporation and the issuance of the certificate of
incorporation are essential for the existence of a de facto corporation. We have
held that an organization not registered with the Securities and Exchange
Commission (SEC) cannot be considered a corporation in any concept, not even
as a corporation de facto. Petitioners themselves admitted that at the time of the
donation, they were not registered with the SEC, nor did they even attempt to
organize to comply with legal requirements.
Corporate existence begins only from the moment a certificate of incorporation is
issued. No such certificate was ever issued to petitioners or their supposed
predecessor-in-interest at the time of the donation. Petitioners obviously could
not have claimed succession to an entity that never came to exist. Neither could
the principle of separate juridical personality apply since there was never any
corporation to speak of. And, as already stated, some of the representatives of
petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc.
were not even members of the local church then, thus, they could not even claim
that the donation was particularly for them. 
LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.
G.R. No. 136448. November 3, 1999
PANGANIBAN, J:
Facts: On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter
Yao entered into a Contract for the purchase of fishing nets from respondent
Philippine Fishing Gear Industries, Inc. They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however was not a signatory
to the agreement.
The buyers failed to pay for the fishing nets and the floats; hence, private
respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim
with a prayer for a writ of preliminary attachment. The suit was brought against
the three in their capacities as general partners, on the allegation that "Ocean
Quest Fishing Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission. The RTC a Writ of
Preliminary Attachment, which the sheriff enforced by attaching the fishing nets.
Chua filed a Manifestation admitting his liability and requesting a reasonable time
within which to pay. He also turned over to respondent some of the nets which
were in his possession. Peter Yao filed an Answer, after which he was deemed to
have waived his right to cross-examine witnesses and to present evidence on his
behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on
the other hand, filed an Answer with Counterclaim and Crossclaim and moved for
the lifting of the Writ of Attachment. The trial court maintained the Writ, and upon
motion of private respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and deposited with the
said court the sales proceeds.
RTC RULING: Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were jointly liable
to pay respondent. A partnership existed based (1) on the testimonies of the
witnesses presented and (2) on a Compromise Agreement executed by the three.
It was noted that the Compromise Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed from the equal distribution
of the profit and loss.
CA RULING: Affirmed RTC
Hence, this petition.
Petitioner’s contention: That since his name did not appear on any of the
contracts and since he never directly transacted with the respondent corporation,
he cannot be held liable. He disclaims any direct participation in the purchase of
the nets, alleging that the negotiations were conducted by Chua and Yao only,
and that he has not even met the representatives of the respondent company.
Petitioner further argues that he was a lessor, not a partner, of Chua and Yao. He
said he had merely leased to the two the main asset of the purported partnership
— the fishing boat F/B Lourdes.
Issue: W/N by their acts, Lim, Chua and Yao could be deemed to have entered
into a partnership, accordingly making petitioner Lim liable as a general partner
Held: YES.
“ARTICLE 1767. By the contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves."
Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings:
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yao's partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim
Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing,
dry docking and other expenses for the boats would be shouldered by Chua and
Yao;
(6) That because of the "unavailability of funds," Jesus Lim again extended a loan
to the partnership in the amount of P1 million secured by a check, because of
which, Yao and Chua entrusted the ownership papers of two other boats,
Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration
of nullity of commercial documents; (b) reformation of contracts; (c) declaration
of ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement
executed between the parties-litigants the terms of which are already
enumerated above.
It is clear that Chua, Yao and Lim had decided to engage in a fishing business,
which they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioner's brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or
loss. These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term "common fund" under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided equally among them
also shows that they had indeed formed a partnership.
The partnership extended not only to the purchase of the boat, but also to that of
the nets and the floats. The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but not in the
acquisition of the aforesaid equipment, without which the business could not have
proceeded.
Petitioner’s argument that CA’s sole basis for assuming the existence of a
partnership was the Compromise Agreement is baseless. He also claims that the
settlement was entered into only to end the dispute among them, but not to
adjudicate their preexisting rights and obligations. The Agreement was but an
embodiment of the relationship extant among the parties prior to its execution.
Petitioner failed to appreciate that the CA and the RTC delved into the history of
the document and explored all the possible consequential combinations in
harmony with law, logic and fairness. Verily, the two lower courts' factual findings
nullified petitioner's argument.
Petitioner Was a Partner, Not a Lessor

Petitioner’s argument allegedly finds support in the Contract of Lease and the
registration papers showing that he was the owner of the boats, including F/B
Lourdes where the nets were found. His allegation defies logic. In effect, he would
like this Court to believe that he consented to the sale of his own boats to pay a
debt of Chua and Yao, with the excess of the proceeds to be divided among the
three of them. No lessor would do what petitioner did. Indeed, his consent to the
sale proved that there was a preexisting partnership among all three.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can
be imputed only to Chua and Yao, and not to him.
The Court disagrees. Section 21 of the Corporation Code of the Philippines
provides:
"Sec. 21. Corporation by estoppel. — All persons who assume to act as a

corporation knowing it to be without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided however, That when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any tort committed by it as
such, it shall not be allowed to use as a defense its lack of corporate personality.
"One who assumes an obligation to an ostensible corporation as such, cannot
resist performance thereof on the ground that there was in fact no corporation."
The doctrine of corporation by estoppel may apply to the alleged corporation and
to a third party. In the first instance, an unincorporated association, which
represented itself to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received
advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received benefits
from it, may be barred from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who benefited from 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.
In the case at bar, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be
part of said association and is covered by the scope of the doctrine of corporation
by estoppel.
International Express and Travel and Tour Services vs Court of Appeals
G.R. No. 119002 October 19, 2000
Facts: Petitioner secured the airline tickets for the trips of the athletes and
officials of the Federation to the South East Asian Games in Kuala Lumpur as well
as various other trips to the People's Republic of China and Brisbane. The total
cost of the tickets amounted to P449,654.83. For the tickets received, the
Federation made two partial payments, both in September of 1989, in the total
amount of P176,467.50.2
On 4 October 1989, petitioner wrote the Federation, through the private
respondent a demand letter requesting for the amount of P265,894.33.3 On 30
October 1989, the Federation, through the Project Gintong Alay, paid the amount
of P31,603.00.4
On 27 December 1989, Henri Kahn issued a personal check in the amount of
P50,000 as partial payment for the outstanding balance of the Federation.
5
Thereafter, no further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court of
Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the
Federation and impleaded the Federation as an alternative defendant. Petitioner
sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased
by the Federation on the ground that Henri Kahn allegedly guaranteed the said
obligation.6
Issue: WON the Philippine Football Association is a corporation
Held: No. It is a basic postulate that before a corporation may acquire juridical
personality, the State must give its consent either in the form of a special law or a
general enabling act. We cannot agree with the view of the appellate court and
the private respondent that the Philippine Football Federation came into existence
upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604
any provision creating the Philippine Football Federation. These laws merely
recognized the existence of national sports associations and provided the manner
by which these entities may acquire juridical personality.
Clearly the law requires that before an entity may be considered as a national
sports association, such entity must be recognized by the accrediting
organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the
Department of Youth and Sports Development under P.D. 604. This fact of
recognition, however, Henri Kahn failed to substantiate. In attempting to prove
the juridical existence of the Federation, Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the constitution and by-laws of the
Philippine Football Federation. Unfortunately, the same does not prove that said
Federation has indeed been recognized and accredited by either the Philippine
Amateur Athletic Federation or the Department of Youth and Sports Development.
Accordingly, we rule that the Philippine Football Federation is not a national sports
association within the purview of the aforementioned laws and does not have
corporate existence of its own.
Thus being said, it follows that private respondent 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 to act on behalf of a corporation which has no valid existence assumes
such privileges and becomes personally liable for contract entered into or for
other acts performed as such agent. 
Filipinas Broadcasting Network, Inc. vs. Ago Medical and Educational
Center-Bicol Christian College of Medicine
G.R. No. 141994, January 17, 2005
Facts: “Exposé” is a radio documentary program hosted by Carmelo ‘Mel’ Rima

(“Rima”) and Hermogenes ‘Jun’ Alegre (“Alegre”). In the morning of 14 and 15
December 1989, Rima and Alegre exposed various alleged complaints from
students, teachers and parents against Ago Medical and Educational Center-Bicol
Christian College of Medicine (“AMEC”) and its administrators. Claiming that the
broadcasts were defamatory, AMEC and Angelita Ago (“Ago”), as Dean of AMEC’s
College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre
on 27 February 1990.
The complaint further alleged that AMEC is a reputable learning institution. With
the supposed exposés, FBNI, Rima and Alegre “transmitted malicious
imputations, and as such, destroyed plaintiffs’ (AMEC and Ago) reputation.” AMEC
and Ago included FBNI as defendant for allegedly failing to exercise due diligence
in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an
Answer alleging that the broadcasts against AMEC were fair and true. FBNI, Rima
and Alegre claimed that they were plainly impelled by a sense of public duty to
report the “goings-on in AMEC, [which is] an institution imbued with public
interest.” Thereafter, trial ensued. During the presentation of the evidence for the
defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion
to Dismiss on FBNI’s behalf.
The trial court denied the motion to dismiss. Consequently, FBNI filed a separate
Answer claiming that it exercised due diligence in the selection and supervision of
Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster
should (1) file an application; (2) be interviewed; and (3) undergo an
apprenticeship and training program after passing the interview. FBNI likewise
claimed that it always reminds its broadcasters to “observe truth, fairness and
objectivity in their broadcasts and to refrain from using libelous and indecent
language.” Moreover, FBNI requires all broadcasters to pass the Kapisanan ng
mga Brodkaster sa Pilipinas (“KBP”) accreditation test and to secure a KBP
permit. On 14 December 1992, the trial court rendered a Decision finding FBNI
and Alegre liable for libel except Rima. 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.
The broadcasters did not even verify their reports before airing them to show
good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to
exercise diligence in the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rima’s only
participation was when he agreed with Alegre’s exposé. The trial court found
Rima’s statement within the “bounds of freedom of speech, expression, and of the
press.” Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and
Ago, on the other, appealed the decision to the Court of Appeals. The Court of
Appeals affirmed the trial court’s judgment with modification. The appellate court
made Rima solidarily liable with FBNI and Alegre. The appellate court denied
Ago’s claim for damages and attorney’s fees because the broadcasts were
directed against AMEC, and not against her. FBNI, Rima and Alegre filed a motion
for reconsideration which the Court of Appeals denied in its 26 January 2000
Resolution. Hence, FBNI filed the petition for review.
Issue: Whether or not AMEC is entitled to moral damages.
Held: A juridical person is generally not entitled to moral damages because,

unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.
Nevertheless, AMEC’s claim, or moral damages fall under item 7 of Art – 2219 of
the NCC.
This provision expressly authorizes the recovery of moral damages in cases of
libel, slander or any other form of defamation. Art 2219 (7) does not qualify
whether the plaintiff is a natural or juridical person. Therefore, a juridical person
such as a corporation can validly complain for libel or any other form of
defamation and claim for moral damages. Moreover, where the broadcast is
libelous per se, the law implied damages. In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in
mitigation of damages. In this case, the broadcasts are libelous per se. thus,
AMEC is entitled to moral damages. However, we find the award P500,000 moral
damages unreasonable. The record shows that even though the broadcasts were
libelous, per se, AMEC has not suffered any substantial or material damage to its
reputation. Therefore, we reduce the award of moral damages to P150k.
Coastal Pacific Trading Inc. v. Southern Rolling Mills, Co. Inc. [now
known as Visayan Integrated Steel Corp. (VISCO)]
G.R. No. 118692. July 28, 2006.
Panganiban, C.J.
Facts: Respondent VISCO was engaged in a steel processing business. It

obtained a loan from the Development Bank of the Philippines in the amount of
P836,000, secured by a Real Estate Mortgage over 3 parcels of land with all the
machineries and equipment found therein.
After almost 2 years, VISCO entered into a Loan agreement with
respondent banks (known as the Consortium) to finance its importation of various
raw materials. It secured a second mortgage over the same land and machineries
in favor of the other respondent banks, which was not recorded.
When it defaulted in the performance of its obligation with the banks, the
Consortium filed a petition for foreclosure of mortgage with petition for
receivership, which was however dismissed for failure to prosecute. Afterwards,
negotiations were conducted between VISCO and respondent banks for the
conversion of the unpaid loan into equity in the corporation. The creditor banks
were given management of and control over VISCO. As a result of the
reorganized corporate structure of VISCO, respondent banks acquired more than
90 percent of its equity. Notwithstanding this conversion, it remained indebted to
the Consortium in the amount of P16,123,918.02.
Previous to such conversion, VISCO entered into a processing agreement
with petitioner Coastal Pacific Trading, Inc., for the delivery of 3,000 metric tons
of hot rolled steel coils to be processed into block iron sheets. VISCO failed to
process 1,400 metric tons, making petitioner one of its major creditors.
Respondent banks held a lunch meeting in the FEBTC boardroom to discuss
how they would address the insistent demands of the DBP for VISCO to settle its
obligations. They agreed that 2 generators from the company would be sold to
pay for such obligation. Payment for such sale was made in the FEBTC under a
special account held in trust for the Board of Trustees- Consortium.
A year thereafter, petitioner filed with the RTC a complaint for recovery of
property and damages with preliminary injunction and attachment, alleging that
VISCO had fraudulently misapplied the finished steel sheets entrusted to it, which
was approved by the court. The sheriff attempted to garnish the account of
VISCO in FEBTC but was not allowed to do so, since it was subject to prior liens in
favor of FEBTC and other entities.
While the case was pending, a cash advance was issued to VISCO’s vice-
president and director to settle the account of DBP, and the latter transferred its
interest in the mortgage rights to the consortium.
The consortium filed a petition for extrajudicial foreclosure with the office of
the provincial sheriff but Southern Industrial Projects (SIP) who was a judgment
creditor of VISCO, filed a complaint for the declaration of nullity of the mortgage
and injunction to restrain the consortium from proceeding with the auction sale,
arguing that DBP was already paid and that the mortgage was already
extinguished, but the court eventually held in favor of the consortium. The
property was sold in favor of the consortium and was later sold to National Steel
Corp.
This caused petitioner to file a complaint for annulment of sale, damages,
and preliminary injunction, alleging that the consortium was in bad faith as the
sale was intended to defraud VISCO’s other creditors. The case was decided in
favor of petitioner, and VISCO was ordered to pay the sum in the first case with
interest, attorney’s fees and costs, but the judgment remained unsatisfied.
However, the public sale made was declared valid. The CA upheld the decision of
the RTC on appeal.
Issue: Whether respondents disposed of VISCO’s assets in fraud of the

creditors, thus entitling petitioner for the payment of damages.
Held: Yes, the sale was made in fraud of creditors, however, this doses not entitle
petitioner corporation to the payment of moral damages.
As directors of VISCO, the officials of the Consortium were in a position of
trust; thus, they owed it a duty of loyalty. This trust relationship sprang from the
fact that they had control and guidance over its corporate affairs and property.
Their duty was more stringent when it became insolvent or without sufficient
assets to meet its outstanding obligations that arose. Because they were deemed
trustees of the creditors in those instances, they should have managed the
corporation’s assets with strict regard for the creditors’ interests. When these
directors became corporate creditors in their own right, they should not have
permitted themselves to secure any undue advantage over other creditors. In this
case, the consortium failed to observe such duty of fidelity to VISCO and its
creditors.
The consortium did not adopt any measure to protect petitioner’s credit but
even took steps to hide VISCO’s funds through a special bank account. The
mortgage made was also fraudulent as it in effect made the consortium owners of
the originally mortgaged property. The assignment in favor of the Consortium was
a rescissible contract for having been undertaken in fraud of creditors.
Indeed, mutual restitution is required in all cases involving rescission. But
when it is no longer possible to return the object of the contract, an indemnity for
damages operates as restitution. The important consideration is that the
indemnity for damages should restore to the injured party what was lost.
In the case at bar, it is no longer possible to order the return of VISCO’s
properties. They have already been sold to the NSC, which has not been shown to
have acted in bad faith. The party alleging bad faith must establish it by
competent proof. Sans that proof, purchasers are deemed to be in good faith, and
their interest in the subject property must not be disturbed. Purchasers in good
faith are those who buy the property of another without notice that some other
person has a right to or interest in the property; and who pay the full and fair
price for it at the time of the purchase, or before they get notice of some other
persons’ claim of interest in the property.
On the basis of the finding of fraud, the award of exemplary damages is in order,
to serve as a warning to other creditors not to abuse their rights. Under Article
2229 of the Civil Code, exemplary or corrective damages are imposed by way of
example or correction for the public good. By their nature, exemplary damages
should be imposed in an amount sufficient and effective to deter possible future
similar acts by respondent banks. The court finds the amount of P250,000
sufficient in. the instant case.
As a rule, a corporation is not entitled to moral damages because, not being a
natural person, it cannot experience physical suffering or sentiments like
wounded feelings, serious anxiety, mental anguish and moral shock. The only
exception to this rule is when the corporation has a good reputation that is
debased, resulting in its humiliation in the business realm. In the present case,
the records do not show any evidence that the name or reputation of petitioner
has been sullied as a result of the Consortium’s fraudulent acts. Accordingly,
moral damages are not warranted.
Lyceum of the Philippines v CA
GR No. 101897 March 5, 1993
Facts: Petitioner is an educational institution duly registered with the Securities

and Exchange Commission ("SEC"). When it first registered with the SEC on 21
September 1950, it used the corporate name Lyceum of the Philippines, Inc. and
has used that name ever since. On 24 February 1984, petitioner instituted
proceedings before the SEC to compel the private respondents, which are also
educational institutions, to delete the word "Lyceum" from their corporate names
and permanently to enjoin them from using "Lyceum" as part of their respective
names.  
 
Petitioner had sometime before commenced in the SEC a proceeding against the
Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt
another name not "similar [to] or identical" with that of petitioner. The SEC held
that the corporate name of the petitioner and that of Lyceum of Baguio were
substantially identical because of the dominant word Lyceum.  
 
The Lyceum of Baguio assailed the SEC order before the SC. The SC denied the
petition for review in a Minute Resolution. Such Resolution was used by the
petitioner to advise all educational institutions to discontinue the word Lyceum.
 
Upon appeal, the SEC en banc reversed the decision of the hearing officer and
declared that the attaching of geographical names to the word lyceum served
sufficiently to distinguish the schools from one another.
 
Issue: whether or not the corporate names of private institutions are identical
with or deceptively or confusingly similar to that of petitioner institution
 
Held: NO
The Articles of Incorporation of a corporation must, among other things, set out
the name of the corporation. 6 Section 18 of the Corporation Code establishes a
restrictive rule insofar as corporate names are concerned:
"SECTION 18. Corporate name. — No corporate name may be allowed by the
Securities an Exchange Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently deceptive, confusing or
contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the
amended name." (Emphasis supplied)
The policy underlying the prohibition in Section 18 against the registration of a
corporate name which is "identical or deceptively or confusingly similar" to that of
any existing corporation or which is "patently deceptive" or "patently confusing"
or "contrary to existing laws," is the avoidance of fraud upon the public which
would have occasion to deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of administration and
supervision over corporations. 7
We do not consider that the corporate names of private respondent institutions
are "identical with, or deceptively or confusingly similar" to that of the petitioner
institution. True enough, the corporate names of private respondent entities all
carry the word "Lyceum" but confusion and deception are effectively precluded by
the appending of geographic names to the word "Lyceum." Thus, we do not
believe that the "Lyceum of Aparri" can be mistaken by the general public for the
Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be
confused with the Lyceum of the Philippines.
 
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus vs Iglesia ng Dios
kay Cristo Jesus, Haligi at Suhay ng Katotohanan
December 12, 2001
Facts: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng

Katotohanan (Church of God in Christ Jesus, the Pillar and Ground of Truth), is a
non-stock religious society or corporation registered in 1936.
In 1976, one Eliseo Soriano and several other members of respondent corporation
disassociated themselves from thelatter and succeeded in registering on March
30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios
Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.
Respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios
Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name
to another name that is not similar or identical to any name already used by a
corporation, partnership or association registered with the Commission.
Petitioner is compelled to change its corporate name and be barred from using
the same or similar name on the ground that the same causes confusion among
their members as well as the public. SEC rendered a decision ordering petitioner
to change its corporate name. The Court of Appeals rendered the assailed
decision affirming the decision of the SEC En Banc. 
 
Issue:
1. Whether the corporate names of AK[IDKH-HSK]BP and IDCH-HSK are
confusingly similar.
2. Whether the generic word rule would apply to support AK[IDKH-HSK]BP’s
cause
 
Held:
1. The SEC has the authority to de-register at all times and under all
circumstances corporate names which in its estimation are likely to spawn
confusion. It is the duty of the SEC to prevent confusion in the use of corporate
names not only for the protection of the corporations involved but more so for the
protection of the public. Sec, 18 of the Corporation Code provides that "No
corporate name may be allowed by the SEC if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently deceptive, confusing or is
contrary to existing laws. When a change in the corporate name is approved, the
SEC shall issue an amended certificate of incorporation under the amended
name." Corollary thereto, the pertinent portion of the SEC Guidelines on
Corporate Names states that "(d) If the proposed name contains a word similar to
a word already used as part of the firm name or style of a registered company,
the proposed name must contain two other words different from the name of the
company already registered; Parties organizing a corporation must choose a
name at their peril; and the use of a name similar to one adopted by another
corporation, whether a business or a nonprofit organization, if misleading or likely
to injure in the exercise of its corporate functions, regardless of intent, may be
prevented by the corporation having a prior right, by a suit for injunction against
the new corporation to prevent the use of the name.
Herein, the additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc."
in AK[IDKH-HSK]BP's name are merely descriptive of and also referring to the
members, or kaanib, of IDCH-HSK who are likewise residing in the Philippines.
These words can hardly serve as an effective differentiating medium necessary to
avoid confusion or difficulty in distinguishing AK[IDKH-HSK]BP from IDCH-HSK.
This is especially so, since both AK[IDKH-HSK]BP and IDCH-HSK are using the
same acronym — H.S.K.; not to mention the fact that both are espousing
religious beliefs and operating in the same place. Parenthetically, it is well to
mention that the acronym H.S.K. used by AK[IDKH-HSK]BP stands for "Haligi at
Saligan ng Katotohanan." Then, too, the records reveal that in holding out their
corporate name to the public, AK[IDKH-HSK]BP highlights the dominant words
"IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN,"
which is strikingly similar to IDCH-HSK's corporate name, thus making it even
more evident that the additional words "Ang Mga Kaanib" and "Sa Bansang
Pilipinas, Inc.", are merely descriptive of and pertaining to the members of IDCH-
HSK. Significantly, the only difference between the corporate names of AK[IDKH-
HSK]BP and IDCH-HSK are the words SALIGAN and SUHAY. These words are
synonymous — both mean ground, foundation or support.
Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile
Mills, Inc., 22 where the Court ruled that the corporate names Universal Mills
Corporation and Universal Textile Mills, Inc., are undisputably so similar that even
under the test of "reasonable care and observation" confusion may arise.
2. The wholesale appropriation by AK[IDKH-HSK]BP of IDCH-HSK's corporate

name cannot find justification under the generic word rule. A contrary ruling
would encourage other corporations to adopt verbatim and register an existing
and protected corporate name, to the detriment of the public. The fact that there
are other non-stock religious societies or corporations using the names Church of
the Living God, Inc., Church of God Jesus Christ the Son of God the Head, Church
of God in Christ & By the Holy Spirit, and other similar names, is of no
consequence. It does not authorize the use by AK[IDKH-HSK]BP of the essential
and distinguishing feature of IDCH-HSK's registered and protected corporate
name.
Young Auto Supply Co. (and Nemesio Garcia) v. CA (and George Chiong
Roxas)
G.R. No. 104175 June 25, 1993
Facts: Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its
president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in
Consolidated Marketing & Development Corporation (CMDC) to Roxas. The
purchase price was P8,000,000.00 payable as follows: a downpayment of
P4,000,000.00 and the balance of P4,000,000.00 in four post dated checks of
P1,000,000.00 each. Immediately after the execution of the 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. The first check of
P4,000,000.00 (down-payment) was honored by the drawee bank but the four
other checks (balance of P4,000,000.00) were dishonored. In the meantime,
Roxas sold one of the markets to a third party. Out of the proceeds of the sale,
YASCO received P600,000.00, leaving a balance of P3,400,000.00. Subsequently,
Garcia and Sy assigned all their rights and title to the proceeds of the sale of the
CMDC shares to Garcia.
Petitioners filed a complaint against Roxas in RTC Cebu, praying that Roxas
be ordered to pay petitioners P3,400,00.00 or that full control of the three
markets be turned over to YASCO and Garcia. The complaint also prayed for the
forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's
fees and costs. Roxas filed a motion to dismiss on the grounds that: (1) The
complaint did not state a cause of action due to non-joinder of indispensable
parties; (2)The claim or demand set forth in the complaint had been waived,
abandoned or otherwise extinguished; and (3) The venue was improperly laid.
RTC denied Roxas' motion to dismiss.
Issue: W/N venue was improperly laid.
Held: YES. In holding that the venue was improperly laid in Cebu City, the CA
relied on the address of YASCO, as appearing in the Deed of Sale, which is "No.
1708 Dominga Street, Pasay City." This was the same address written in YASCO's
letters and several commercial documents in the possession of Roxas. In the case
of Garcia, the Court of Appeals said that he gave Pasay City as his address in
three letters which he sent to Roxas' brothers and sisters. CA held that Roxas was
led by petitioners to believe that their residence is in Pasay City and that he had
relied upon those representations. The CA erred in holding that the venue was
improperly laid in Cebu City. In RTC’s, all personal actions are commenced and
tried in the province or city where the defendant or any of the defendants resides
or may be found, or where the plaintiff or any of the plaintiffs resides, at the
election of the plaintiff [Sec.2(b) Rule4, ROC].
The Article of Incorporation of YASCO states: “That the place where the
principal office of the corporation is to be established or located is at Cebu City,
Philippines.” A corporation has no residence in the same sense in which this term
is applied to a natural person. But for practical purposes, a corporation is in a
metaphysical sense a resident of the place where its principal office is located as
stated in the articles of incorporation. The Corporation Code precisely requires
each corporation to specify in its articles of incorporation the "place where the
principal office of the corporation is to be located which must be within the
Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the residence
of a corporation in a definite place, instead of allowing it to be ambulatory.
With the finding that the residence of YASCO for purposes of venue is in
Cebu City, where its principal place of business is located, it becomes unnecessary
to decide whether Garcia is also a resident of Cebu City and whether Roxas was in
estoppel from questioning the choice of Cebu City as the venue.
Petition granted, CA decision set aside, RTC decision reinstated. 
GAMBOA VS. TEVES
G.R. No. 176579; June 28, 2011
Carpio, J.
Facts: PLDT was granted a franchise to engage in the telecommunications

business. In 1969, General Telephone and Electronics Corporation (GTE), sold 26
percent of the outstanding common shares of PLDT to Philippine
Telecommunications Investment Corporation (PTIC). In 1977, Prime Holdings,
Inc. (PHI) became the owner of 111,415 shares of stock of PTIC. In 1986, the
111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential
Commission on Good Government (PCGG). The 111,415 PTIC shares, which
represent about 46.125 percent of the outstanding capital stock of PTIC, were
later declared by this Court to be owned by the Republic of the Philippines. 
 
In 1999, First Pacific, a Bermuda-registered acquired the remaining 54 percent of
the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency
Privatization Council (IPC) of the Philippine Government through a public bidding
sold the same shares to Parallax Venture who won with a bid of P25.6 billion or
US$510 million. Thereafter, First Pacific announced that it would exercise its right
of first refusal as a PTIC stockholder and buy the 111,415 PTIC shares by
matching the bid price of Parallax. On 14 February 2007, First Pacific, through its
subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the
111,415 PTIC shares. The sale was completed on February 28, 2007.
 
According to the petitioner, since PTIC is a stockholder of PLDT, the sale by the
Philippine Government of 46.125 percent of PTIC shares is actually an indirect
sale of 12 million shares or about 6.3 percent of the outstanding common shares
of PLDT. With the sale, First Pacific's common shareholdings in PLDT increased
from 30.7 percent to 37 percent, thereby increasing the common shareholdings of
foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of
the 1987 Philippine Constitution which limits foreign ownership of the capital of a
public utility to not more than 40 percent.
According to respondents, a public hearing was conducted and the HR Committee

concluded that: (a) the auction of the government's 111,415 PTIC shares bore
due diligence, transparency and conformity with existing legal procedures; and
(b) First Pacific's intended acquisition of the government's 111,415 PTIC shares
resulting in First Pacific's 100% ownership of PTIC will not violate the 40 percent
constitutional limit on foreign ownership of a public utility since PTIC holds only
13.847 percent of the total outstanding common shares of PLDT.
Petitioner filed the instant petition for prohibition, injunction, declaratory relief,
and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims,
among others, that the sale of the 111,415 PTIC shares would result in an
increase in First Pacific's common shareholdings in PLDT from 30.7 percent to 37
percent, and this, combined with Japanese NTT DoCoMo's common shareholdings
in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56
percent which is over the 40 percent constitutional limit.
 
Issue: Does the term “capital” in Section 11, Article XII of the Constitution refer
to the total common shares only, or to the total outstanding capital stock
(combined total of common and non-voting preferred shares) of PLDT, a public
utility?
Held: Yes. Section 11, Article XIof the 1987 Constitution mandates the
Filipinization of public utilities, to wit:
 
Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or
to corporations or associations organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by
the Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be citizens of the
Philippines.
Petitioner submits that the 40 percent foreign equity limitation in domestic public
utilities refers only to common shares because such shares are entitled to vote
and it is through voting that control over a corporation is exercised. It is
undisputed that PLDT's non-voting preferred shares are held mostly by Filipino
citizens due to the Presidential Decree issued by Marcos requiring every applicant
of a PLDT telephone line to subscribe to non-voting preferred shares to pay for
the investment cost of installing the telephone line.
 
The intent of the framers of the Constitution in imposing limitations and
restrictions on fully nationalized and partially nationalized activities is for Filipino
nationals to be always in control of the corporation undertaking said activities.
Otherwise, if the Trial Court ruling upholding respondent's arguments were to be
given credence, it would be possible for the ownership structure of a public utility
corporation to be divided into one percent (1%) common stocks and ninety-nine
percent (99%) preferred stocks. Following the Trial Court ruling adopting
respondent's arguments, the common shares can be owned entirely by foreigners
thus creating an absurd situation wherein foreigners, who are supposed to be
minority shareholders, control the public utility corporation.
 
The term "capital" in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the
present case only to common shares, and not to the total outstanding capital
stock comprising both common and non-voting preferred shares.
 
Indisputably, one of the rights of a stockholder is the right to participate in the
control or management of the corporation. This is exercised through his vote in
the election of directors because it is the board of directors that controls or
manages the corporation. In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares, preferred shares have the
same voting rights as common shares. However, preferred shareholders are often
excluded from any control, that is, deprived of the right to vote in the election of
directors and on other matters, on the theory that the preferred shareholders are
merely investors in the corporation for income in the same manner as
bondholders. In fact, under the Corporation Code only preferred or redeemable
shares can be deprived of the right to vote. Common shares cannot be deprived
of the right to vote in any corporate meeting, and any provision in the articles of
incorporation restricting the right of common shareholders to vote is invalid.
 
Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term
"capital" in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election
of directors, then the term "capital" shall include such preferred shares because
the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term
"capital" in Section 11, Article XII of the Constitution refers only to shares of
stock that can vote in the election of directors.
 
This interpretation is consistent with the intent of the framers of the Constitution
to place in the hands of Filipino citizens the control and management of public
utilities. Thus, 60 percent of the "capital" assumes, or should result in,
"controlling interest" in the corporation and thus in the present case, only to
common shares, and not to the total outstanding capital stock (common and non-
voting preferred shares).
Petition is partly granted. Respondent Chairperson of the SEC is directed to apply

this definition of the term "capital" in determining the extent of allowable foreign
ownership in respondent PLDT, and if there is a violation of Section 11, Article XII
of the Constitution, to impose the appropriate sanctions under the law. 
HEIRS OF WILSON P. GAMBOA v. TEVES
G.R. No. 176579 October 9, 2012
Facts: Movants Philippine Stock Exchange’s (PSE) President, Manuel V.

Pangilinan, Napoleon L. Nazareno, and the Securities and Exchange Commission
(SEC) contend that the term “capital” in Section 11, Article XII of the Constitution
has long been settled and defined to refer to the total outstanding shares of
stock, whether voting or non-voting.
In fact, movants claim that the SEC, which is the administrative agency tasked to
enforce the 60-40 ownership requirement in favor of Filipino citizens in the
Constitution and various statutes, has consistently adopted this particular
definition in its numerous opinions. Movants point out that with the 28 June 2011
Decision, the Court in effect introduced a “new” definition or “midstream
redefinition” of the term “capital” in Section 11, Article XII of the Constitution.
Issue: W/N the term “capital” includes both voting and non-voting shares
Held: NO. The Constitution expressly declares as State policy the development
of an economy “effectively controlled” by Filipinos.
Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined
in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or
associations at least 60 percent of whose capital with voting rights belongs to
Filipinos.
The FIA’s implementing rules explain that “[f]or stocks to be deemed owned and
held by Philippine citizens or Philippine nationals, mere legal title is not enough to
meet the required Filipino equity. Full beneficial ownership of the stocks, coupled
with appropriate voting rights is essential.”
In effect, the FIA clarifies, reiterates and confirms the interpretation that the term
“capital” in Section 11, Article XII of the 1987 Constitution refers to shares with
voting rights, as well as with full beneficial ownership. This is precisely because
the right to vote in the election of directors, coupled with full beneficial ownership
of stocks, translates to effective control of a corporation. 
Narra Nickel Mining and Development Corp. vs Redmont Consolidated
Mines Corporation 
G.R. No. 195580 April 21, 2014
Facts:
1. In 2006, Redmont Consolidated Mines Corp., a domestic corporation organized
and existing under Philippine laws, took interest in mining and exploring certain
areas of the province of Palawan.
2. After inquiring with the DENR, it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by Mineral
Production Sharing Agreement applications of Narra, Tesoro and McArthur.
3. Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc.,
filed an application for an MPSA and Exploration Permit with the Mines and Geo-
Sciences Bureau of DENR. SMMI was issued an MPSA-EP covering Bataraza,
Palawan. The MPSA and EP were then transferred to MMC and assigned to
petitioner McArthur. Petitioner Narra acquired its MPSA from Alpha Resources.
Another MPSA application of SMMI was filed. SMMI subsequently conveyed its
rights and interest over the said MPSA application to Tesoro.
4. Redmont filed before the Panel of Arbitrators 3 separate petitions for the denial
of petitioners’ applications for MPSA designated, Redmont alleged that at least
60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled
by MBMI Resources, Inc. MBMI, a 100% Canadian corporation.
5. Redmont reasoned that since MBMI is a considerable stockholder of petitioners,
it was the driving force behind petitioners’ filing of the MPSAs over the areas
covered by applications since it knows that it can only participate in mining
activities through corporations which are deemed Filipino citizens. Redmont
argued that given that petitioners’ capital stocks were mostly owned by MBMI,
they were likewise disqualified from engaging in mining activities through MPSAs,
which are reserved only for Filipino citizens.  
Issue: Whether or not the petitioner corporations are Filipino and can validly be
issued MPSA and EP. 
Held: No. The SEC Rules provide for the manner of calculating the Filipino
interest in a corporation for purposes, among others, of determining compliance
with nationality requirements (the ‘Investee Corporation’). Such manner of
computation is necessary since the shares in the Investee Corporation may be
owned both by individual stockholders (‘Investing Individuals’) and by
corporations and partnerships (‘Investing Corporation’). The said rules thus
provide for the determination of nationality depending on the ownership of the
Investee Corporation and, in certain instances, the Investing Corporation.  
 
Under the SEC Rules, there are two cases in determining the nationality of the
Investee Corporation. The first case is the ‘liberal rule’, later coined by the SEC as
the Control Test in its 30 May 1990 Opinion, and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging to
corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality.’ Under the liberal
Control Test, there is no need to further trace the ownership of the 60% (or
more) Filipino stockholdings of the Investing Corporation since a corporation
which is at least 60% Filipino-owned is considered as Filipino.  
 
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to
the portion in said Paragraph 7 of the 1967 SEC Rules which states, “but if the
percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be
counted as of Philippine nationality.” Under the Strict Rule or Grandfather Rule
Proper, the combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., “grandfathered”) to determine the total
percentage of Filipino ownership. Moreover, the ultimate Filipino ownership of the
shares must first be traced to the level of the Investing Corporation and added to
the shares directly owned in the Investee Corporation.  
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather
Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-
foreign equity ownership is in doubt (i.e., in cases where the joint venture
corporation with Filipino and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture corporation which is either
60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the
60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will
not apply.
The instant case presents a situation which exhibits a scheme employed by
stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind.
To determine, therefore, the actual participation, direct or indirect, of MBMI, the
grandfather rule must be used.
Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100%
Canadian corporation, owns 60% or more of their equity interests. Such
conclusion is derived from grandfathering petitioners’ corporate owners. xxx
Noticeably, the ownership of the “layered” corporations boils down to xxx group
wherein MBMI has joint venture agreements with, practically exercising majority
control over the corporations mentioned. In effect, whether looking at the capital
structure or the underlying relationships between and among the corporations,
petitioners are NOT Filipino nationals and must be considered foreign since 60%
or more of their capital stocks or equity interests are owned by MBMI. 
Grace Christian High School vs CA
G.R. No. 108905. October 23, 1997
Facts: Grace Christian High School (GCHS) is an educational institution in Grace

Village (QC?). Grace Village Association, Inc. (GVAI)is the homeowners
association in Grace Village. GVAI has an existing by-laws which was already in
effect since 1968.
But in 1975, the board of directors made a draft amending the by-laws whereby
the representative of GCHS shall have a permanent seat in the 15-seat board.
The draft however was never presented to the general membership for approval.
But nevertheless, the representative of GCHS held a seat in the board for 15
years until in 1990 when a proposal was made to the board to reconsider the
practice of allowing the GCHS representative in taking a permanent seat.
Thereafter, an election was scheduled for the 15 seat in the board. GCHS opposed
the election as it insists that the election should only be for 14 directors because
it has a permanent seat. GVAI argued that GCHS claim has no basis because the
1975 proposed amendment was never ratified.
GCHS averred that it was ratified when it was allowed to take the seat for 15
years and as such its right has already vested.
Issue: Whether or not the representative from Grace Christian High School
should be allowed to have a permanent seat in the board of directors.
Held: No. The Corporation Code is clear when it provides that members of the
board of a corporation must be elected by the stockholders (stock corporation) or
the members (non-stock corporation).
Admittedly, there are corporations who allow some of their directors to sit in the
board without being elected – but such practice cannot prevail over provisions of
law. Practice, no matter how long continued, cannot give rise to any vested right
if it is contrary to law. Further, there is no reason as to why a representative from
GCHS should be given an automatic seat. It should therefore go through the
process of election.
It cannot also be argued that the draft of the by-laws in 1975 was ratified when
GCHS was allowed to take its seat for 15 years without an election. In the first
place, the proposal was merely a draft and even if passed and approved by the
general membership, it cannot be given effect because it is void and contrary to
the law. GCHS’ seat in the corporate board is at best merely tolerated by GVAI. 
GOKONGWEI vs. SEC
89 SCRA 336
Facts: This is a petition for “declaration of nullity of amended by-laws,

cancellation of certificate of filing of amended by-laws and damages” filed by
petitioner John Gokongwei against the majority of the members of the Board of
Directors. He has the ff causes of action:
1. that the Board in amending the by-laws, had no authority to do so because it
was based on the a 1961 authorization and the amendment being contested was
in 1976, and the authorization should have been based on votes made according
to the 1976 shares, not the 1961 shares,
2. the authority granted in 1961 had already been exercised in 1962 and 1963,
after which the authority of the Board ceased to exist,
3. membership of the Board changed since 1961, there are 6 new directors,
4. that prior to the amendment of the by-laws , he had all the qualifications to be
a director (he was a substantial stockholder) and the aamended by-laws
disqualified him and deprived him of a vested right to be voted,
5.that the corporation has no inherent power to disqualify a stockholder from
being elected and therefore it is an ultra vires and void act.
Petitioner also wanted to inspect records and documents of San Miguel
Corporation but the request was denied because the request was said to have
been made in bad faith.
Respondents filed their answer to the petition, denying the substantial allegations
therein and stating, by way of affirmative defenses that "the action taken by the
Board of Directors on September 18, 1976 resulting in the . . . amendments is
valid and legal because the power to 'amend, modify, repeal or adopt new By-
laws' delegated to said Board on March 13, 1961 and long prior thereto has never
been revoked, withdrawn or otherwise nullified by the stockholders of SMC". Also
said that the power of the Board to amend the by-laws are broad, subject only to
existing laws.
August 1972, the Universal Robina Corporation (URC), a corporation engaged in
business competitive to that of respondent corporation, began acquiring shares
amounting to 622,987 shares. In October 1972, the Consolidated Foods
Corporation (CFC) likewise began acquiring shares in respondent corporation that
amounted to P543,959.00. On January 12, 1976, petitioner, who is president and
controlling shareholder of URC and CFC (both closed corporations) purchased
5,000 shares of stock of respondent corporation, and thereafter, in behalf of
himself, CFC and URC, "conducted malevolent and malicious publicity campaign
against SMC" to generate support from the stockholder "in his effort to secure for
himself and in representation of URC and CFC interests, a seat in the Board of
Directors of SMC". Petitioner was rejected by the stockholders in his bid to secure
a seat in the Board of Directors on the basic issue that petitioner was engaged in
a competitive business and his securing a seat would have subjected respondent
corporation to grave disadvantages.
On May 6, 1977, this Court issued a temporary restraining order restraining
private respondents from disqualifying or preventing petitioner from running or
from being voted as director of respondent corporation and from submitting for
ratification or confirmation or from causing the ratification or confirmation of the
amendment. SEC held that petitioner should be allowed to run as a director but
that he should not sit as such until SEC has decided on the validity of the by-laws
in dispute.
Respondents reason out that petitioner is engaged in businesses competitive and
antagonistic to that of respondent SMC and that the Board realized the clear and
present danger in competitors being directors because they would have easy and
direct access to SMC’s business and trade secrets.
Issue: Whether or not the amended by-laws of SMC disqualifying a competitor

from nomination or election to the Board of Directors of SMC are valid and
reasonable?
Held: Amendments are valid.

The validity or reasonableness of a by-law of a corporation is purely a question of
law. Petitioner claims that the amended by-laws are invalid and unreasonable
because they were tailored to suppress the minority and prevent them from
having representation in the Board", at the same time depriving petitioner of his
"vested right" to be voted for and to vote for a person of his choice as director.
Any person "who buys stock in a corporation does so with the knowledge that its
affairs are dominated by a majority of the stockholders and that he impliedly
contracts that the will of the majority shall govern in all matters within the limits
of the act of incorporation and lawfully enacted by-laws and not forbidden by
law."
Pursuant to section 18 of the Corporation Law, any corporation may amend its
articles of incorporation by a vote or written assent of the stockholders
representing at least two-thirds of the subscribed capital stock of the corporation.
If the amendment changes, diminishes or restricts the rights of the existing
shareholders, then the dissenting minority has only one right, viz.: "to object
thereto in writing and demand payment for his share." Under section 22 of the
same law, the owners of the majority of the subscribed capital stock may amend
or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that
petitioner has a vested right to be elected director, in the face of the fact that the
law at the time such right as stockholder was acquired contained the prescription
that the corporate charter and the by-law shall be subject to amendment,
alteration and modification.
Although in the strict and technical sense, directors of a private corporation are
not regarded as trustees, there cannot be any doubt that their character is that of
a fiduciary insofar as the corporation and the stockholders as a body are
concerned. As agents entrusted with the management of the corporation, they
should act for the collective benefit of the stockholders.
It is a settled state law in the United States that corporations have the power to
make by-laws declaring a person employed in the service of a rival company to be
ineligible for the corporation's Board of Directors. ". . . (A)n amendment which
renders ineligible, or if elected, subjects to removal, a director if he be also a
director in a corporation whose business is in competition with or is antagonistic
to the other corporation is valid." This is based upon the principle that where the
director is so employed in the service of a rival company, he cannot serve both,
but must betray one or the other. Such an amendment "advances the benefit of
the corporation and is good."
The doctrine of "corporate opportunity" is precisely a recognition that fiduciary
standards could not be upheld where the fiduciary was acting for two entities with
competing interests. It is not denied that a member of the Board of Directors of
the San Miguel Corporation has access to sensitive and highly confidential
information.
It is obviously to prevent the creation of an opportunity for an officer or director
of San Miguel Corporation, who is also the officer or owner of a competing
corporation, from taking advantage of the information which he acquires as
director to promote his individual or corporate interests to the prejudice of San
Miguel Corporation and its stockholders, that the questioned amendment of the
by-laws was made. Certainly, where two corporations are competitive in a
substantial sense, it would seem improbable, if not impossible, for the director, if
he were to discharge effectively his duty, to satisfy his loyalty to both
corporations and place the performance of his corporation duties above his
personal concerns.
In the absence of any legal prohibition or overriding public policy, wide latitude
may be accorded to the corporation in adopting measures to protect legitimate
corporate interests. The test must be whether the business does in fact compete,
not whether it is capable of an indirect and highly unsubstantial duplication of an
isolated or non-characteristic activity.
People’s Aircargo and Warehousing Corporation, Inc. vs. CA
G.R. No. 117847
October 7, 1998
Facts: Petitioner is a domestic corporation, which was organized in the middle of

1986 to operate a customs bonded warehouse at the old Manila International
Airport in Pasay City. To obtain a license for the corporation from the Bureau of
Customs, Antonio Punsalan Jr., the corporation president, solicited a proposal
from private respondent for the preparation of a feasibility study. Private
respondent submitted a letter-proposal dated October 17, 1986 (First Contract) to
Punsalan. Initially, Cheng Yong, the majority stockholder of petitioner, objected to
private respondents offer, as another company priced a similar proposal at
only P15,000. However, Punsalan preferred private respondents services because
of the latters membership in the task force, which was supervising the transition
of the Bureau of Customs from the Marcos government to the Aquino
administration. On October 17, 1986, petitioner, through Punsalan, sent private
respondent a letter, confirming their agreement. On December 4, 1986, upon
Punsalans request, private respondent sent petitioner another letter-proposal
(Second Contract).
On March 25, 1987, private respondent joined the Bureau of Customs as special
assistant to then Commissioner Alex Padilla, a position he held until he became
technical assistant to then Commissioner Miriam Defensor-Santiago on March 7,
1988. Meanwhile, Punsalan sold his shares in petitioner-corporation and resigned
as its president in 1987.
On February 9, 1988, private respondent filed a collection suit against

petitioner. He alleged that he had prepared an operations manual for petitioner,
conducted a seminar-workshop for its employees and delivered to it a computer
program; but that, despite demand, petitioner refused to pay him for his services.
Petitioner, in its answer, denied that private respondent had prepared an

operations manual and a computer program or conducted a seminar-workshop for
its employees. It further alleged that the letter-agreement was signed by
Punsalan without authority, in collusion with [private respondent] in order to
unlawfully get some money from [petitioner], and despite his knowledge that a
group of employees of the company had been commissioned by the board of
directors to prepare an operations manual.
Issue: Whether or not petitioner is bound by the letter-agreement signed by

Punsalan.
Held: Yes. The general rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation. A
corporation is a juridical person, separate and distinct from its stockholders and
members, having xxx powers, attributes and properties expressly authorized by
law or incident to its existence. A corporate officer or agent may represent and
bind the corporation in transactions with third persons to the extent that [the]
authority to do so has been conferred upon him, and this includes powers which
have been intentionally conferred, and also such powers as, in the usual course of
the particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining
to the particular officer or agent, and such apparent powers as the corporation
has caused persons dealing with the officer or agent to believe that it has
conferred. Petitioner had previously allowed its president to enter into the First
Contract with private respondent without a board resolution expressly authorizing
him; thus, it had clothed its president with apparent authority to execute the
subject contract.
The First Contract was consummated, implemented and paid without a hitch.
Hence, private respondent should not be faulted for believing that Punsalan’s
conformity to the contract in dispute was also binding on petitioner. It is familiar
doctrine that if a corporation knowingly permits one of its officers, or any other
agent, to act within the scope of an apparent authority, it holds him out to the
public as possessing the power to do those acts; and thus, the corporation will, as
against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agents authority.
Furthermore, private respondent prepared an operations manual and conducted a

seminar for the employees of petitioner in accordance with their
contract. Petitioner accepted the operations manual, submitted it to the Bureau of
Customs and allowed the seminar for its employees. As a result of its
aforementioned actions, petitioner was given by the Bureau of Customs a license
to operate a bonded warehouse. Granting arguendo then that the Second
Contract was outside the usual powers of the president, petitioners ratification of
said contract and acceptance of benefits have made it binding, nonetheless.
MARC II MARKETING, INC. and LUCILA V. JOSON vs. ALFREDO M. JOSON
G.R. No. 171993 December 12, 2011
Facts: Petitioner Marc II Marketing, Inc., a corporation duly organized and

existing under and by virtue of the laws of the Philippines is primarily engaged in
buying, marketing, selling and distributing in retail or wholesale for export or
import household appliances and products and other items. Petitioner Lucila V.
Joson (Lucila) is the President and majority stockholder of petitioner corporation.
Respondent Alfredo M. Joson (Alfredo) was the General Manager, incorporator,
director and stockholder of petitioner corporation.
Before petitioner corporation was officially incorporated, respondent has already
been engaged by petitioner Lucila, in her capacity as President of Marc Marketing,
Inc., to work as the General Manager of petitioner corporation. It was formalized
through the execution of a Management Contract where it was explicitly provided
therein that respondent shall be entitled to 30% of its net income for his work as
General Manager. Respondent will also be granted 30% of its net profit to
compensate for the possible loss of opportunity to work overseas.9
Petitioner corporation decided to stop and cease its operations due to poor sales
collection aggravated by the inefficient management of its affairs. On the same
date, it formally informed respondent of the cessation of its business operation.
Concomitantly, respondent was apprised of the termination of his services as
General Manager since his services as such would no longer be necessary for the
winding up of its affairs.
For the parties’ failure to settle the case amicably, the Labor Arbiter required
them to submit their respective position papers. Respondent complied but
petitioners opted to file a Motion to Dismiss grounded on the Labor Arbiter’s lack
of jurisdiction as the case involved an intra-corporate controversy, which
jurisdiction belongs to the SEC [now with the Regional Trial Court (RTC)]. The
Labor Arbiter declared that the dismissal of the respondent was illegal.
Aggrieved, petitioners appealed the aforesaid Labor Arbiter’s Decision to the
NLRC. The NLRC ruled in favor of petitioners by giving credence to the Secretary’s
Certificate, which evidenced petitioner corporation’s Board of Directors’ meeting
in which a resolution was approved appointing respondent as its corporate officer
with designation as General Manager. Therefrom, the NLRC reversed and set
aside the Labor Arbiter’s Decision dated 1 October 2001 and dismissed
respondent’s Complaint for want of jurisdiction.
The CA rendered that the LA has jurisdiction over the present controversy. It
upheld the finding of the Labor Arbiter that respondent was a mere employee of
petitioner corporation, who has been illegally dismissed from employment without
valid cause and without due process. Nevertheless, it ordered the records of the
case remanded to the NLRC for the determination of the appropriate amount of
monetary awards to be given to respondent.
Issue: Between the Labor Arbiter or the RTC, has jurisdiction over respondent’s
dismissal as General Manager of petitioner corporation?
Held: Labor Arbiter has jurisdiction.
A careful perusal of petitioner corporation’s by-laws, particularly
paragraph 1, Section 1, Article IV,37 would explicitly reveal that its
corporate officers are composed only of: (1) Chairman; (2) President; (3)
one or more Vice-President; (4) Treasurer; and (5) Secretary.38 The
position of General Manager was not among those enumerated.
Paragraph 2, Section 1, Article IV of petitioner corporation’s by-laws, empowered
its Board of Directors to appoint such other officers as it may determine
necessary or proper. It is by virtue of this enabling provision that petitioner
corporation’s Board of Directors allegedly approved a resolution to make the
position of General Manager a corporate office, and, thereafter, appointed
respondent thereto making him one of its corporate officers. All of these acts
were done without first amending its by-laws so as to include the General
Manager in its roster of corporate officers.
With the given circumstances and in conformity with Matling Industrial and
Commercial Corporation v. Coros, this Court rules that respondent was not a
corporate officer of petitioner corporation because his position as
General Manager was not specifically mentioned in the roster of
corporate officers in its corporate by-laws. The enabling clause in petitioner
corporation’s by-laws empowering its Board of Directors to create additional
officers, i.e., General Manager, and the alleged subsequent passage of a board
resolution to that effect cannot make such position a corporate office. Matling
clearly enunciated that the board of directors has no power to create other
corporate offices without first amending the corporate by-laws so as to include
therein the newly created corporate office. Though the board of directors may
create appointive positions other than the positions of corporate officers, the
persons occupying such positions cannot be viewed as corporate officers under
Section 25 of the Corporation Code.40 In view thereof, this Court holds that unless
and until petitioner corporation’s by-laws is amended for the inclusion of General
Manager in the list of its corporate officers, such position cannot be considered as
a corporate office within the realm of Section 25 of the Corporation Code.
This Court considers that the interpretation of Section 25 of the Corporation Code
laid down in Matling safeguards the constitutionally enshrined right of every
employee to security of tenure. To allow the creation of a corporate officer
position by a simple inclusion in the corporate by-laws of an enabling clause
empowering the board of directors to do so can result in the circumvention of that
constitutionally well-protected right.
It is also of no moment that respondent, being petitioner corporation’s General
Manager, was given the functions of a managing director by its Board of Directors.
As held in Matling, the only officers of a corporation are those given that
character either by the Corporation Code or by the corporate by-laws. It follows
then that the corporate officers enumerated in the by-laws are the exclusive
officers of the corporation while the rest could only be regarded as mere
employees or subordinate officials.42 Respondent, in this case, though occupying
a high ranking and vital position in petitioner corporation but which position was
not specifically enumerated or mentioned in the latter’s by-laws, can only be
regarded as its employee or subordinate official. Noticeably, respondent’s
compensation as petitioner corporation’s General Manager was set, fixed and
determined not by the latter’s Board of Directors but simply by its President,
petitioner Lucila. The same was not subject to the approval of petitioner
corporation’s Board of Directors. This is an indication that respondent was an
employee and not a corporate officer.
That respondent was also a director and a stockholder of petitioner
corporation will not automatically make the case fall within the ambit of
intra-corporate controversy and be subjected to RTC’s jurisdiction. To
reiterate, not all conflicts between the stockholders and the corporation are
classified as intra-corporate. Other factors such as the status or relationship of
the parties and the nature of the question that is the subject of the controversy
must be considered in determining whether the dispute involves corporate
matters so as to regard them as intra-corporate controversies.45 As previously
discussed, respondent was not a corporate officer of petitioner corporation but a
mere employee thereof so there was no intra-corporate relationship between
them. With regard to the subject of the controversy or issue involved herein, i.e.,
respondent’s dismissal as petitioner corporation’s General Manager, the same did
not present or relate to an intra-corporate dispute. To note, there was no
evidence submitted to show that respondent’s removal as petitioner corporation’s
General Manager carried with it his removal as its director and stockholder. Also,
petitioners’ allegation that respondent’s claim of 30% share of petitioner
corporation’s net profit was by reason of his being its director and stockholder
was without basis, thus, self-serving. Such an allegation was tantamount to a
mere speculation for petitioners’ failure to substantiate the same.
In addition, it was not shown by petitioners that the position of General Manager
was offered to respondent on account of his being petitioner corporation’s director
and stockholder. Also, in contrast to NLRC’s findings, neither petitioner
corporation’s by-laws nor the Management Contract stated that respondent’s
appointment and termination from the position of General Manager was subject to
the approval of petitioner corporation’s Board of Directors. If, indeed, respondent
was a corporate officer whose termination was subject to the approval of its
Board of Directors, why is it that his termination was effected only by petitioner
Lucila, President of petitioner corporation? The records are bereft of any evidence
to show that respondent’s dismissal was done with the conformity of petitioner
corporation’s Board of Directors or that the latter had a hand on respondent’s
dismissal. No board resolution whatsoever was ever presented to that effect.
With all the foregoing, this Court is fully convinced that, indeed,
respondent, though occupying the General Manager position, was not a
corporate officer of petitioner corporation rather he was merely its
employee occupying a high-ranking position.
Accordingly, respondent’s dismissal as petitioner corporation’s General Manager
did not amount to an intra-corporate controversy. Jurisdiction therefor properly
belongs with the Labor Arbiter and not with the RTC.
SPOUSES ROBERTO & EVELYN DAVID vs. CONSTRUCTION INDUSTRY AND
ARBITRATION COMMISSION
G.R. No. 159795. July 30, 2004
PUNO, J p:
Facts: COORDINATED GROUP, INC. (CGI) is a corporation engaged in the

construction business, with petitioner-spouses ROBERTO and EVELYN DAVID as its
President and Treasurer, respectively. Respondent-spouses NARCISO and AIDA
QUIAMBAO engaged the services of petitioner CGI to design and construct a five-
storey concrete office/residential building on their land in Tondo, Manila. The
completion of the construction was initially scheduled on or before July 16, 1998
but was extended to November 15, 1998 upon agreement of the parties. It
appears, however, that petitioners failed to follow the specifications and plans as
previously agreed upon. Respondents demanded the correction of the errors but
petitioners failed to act on their complaint. Consequently, respondents rescinded
the contract on October 31, 1998, after paying 74.84% of the cost of
construction.
Respondents then engaged the services of another contractor, RRA and

Associates, to inspect the project and assess the actual accomplishment of
petitioners in the construction of the building. It was found that petitioners
revised and deviated from the structural plan of the building without notice to or
approval by the respondents.
Respondents filed a case for breach of contract against petitioners before the
Regional Trial Court (RTC) of Manila. At the pre-trial conference, the parties
agreed to submit the case for arbitration to the CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION (CIAC).
RTC Decision: The RTC of Manila then dismissed the case and transmitted its
records to the CIAC.
CIAC Decision: After conducting hearings and two (2) ocular inspections of the
construction site, the arbitrator rendered judgment against petitioners(Sps.
David).
CA Decision: CA affirmed the Decision of CIAC but deleted the award for Loss
Rentals.
Issue: Was the doctrine of Separate Juridical Personality in Corporation Law

violated when Sps. David was held to be jointly and severally liable with
Coordinated Group Inc.?
Argument of Sps. David: They contended that they cannot be held jointly and
severally liable with petitioner CGI in the payment of the arbitral award as they
are merely its corporate officers.
Held: NO. As a general rule, the officers of a corporation are not personally liable
for their official acts unless it is shown that they have exceeded their authority.
However, the personal liability of a corporate director, trustee or officer, along with
corporation, may so validly attach when he assents to a patently unlawful act of
the corporation or for bad faith or gross negligence in directing its affairs.
The following findings of public respondent (CIAC) would support its ruling in
holding petitioners severally and jointly liable with the Corporation:
". . . When asked whether the Building was underdesigned considering the poor
quality of the soil, Engr. Villasenor defended his structural design as adequate. He
admitted that the revision of the plans which resulted in the construction of
additional columns was in pursuance of the request of Engr. David to revise the
structural plans to provide for a significant reduction of the cost of construction.
When Engr. David was asked for the justification for the revision of the plans, he
confirmed that he wanted to reduce the cost of construction. . . ."
Clearly, the case at bar does not raise any genuine issue of law. We reiterate the
rule that factual findings of construction arbitrators are final and conclusive and
not reviewable by this Court on appeal, except when the petitioner proves
affirmatively that: (1) the award was procured by corruption, fraud or other
undue means; (2) there was evident partiality or corruption of the arbitrators or
of any of them; (3) the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; (4) one or more of the arbitrators were
disqualified to act as such under section nine of Republic Act No. 876 and willfully
refrained from disclosing such disqualifications or of any other misbehavior by
which the rights of any party have been materially prejudiced; or (5) the
arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was
not made. Petitioners failed to show that any of these exceptions applies to the
case at bar.  
Inter-Asia Investments Industries vs. CA
G.R. No. 125778 June 10, 2003
Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock

Purchase Agreement (the Agreement), sold to Asia Industries, Inc. (Asia
Industries) for and in consideration of the sum of P19,500,000.00 all its right,
title and interest in and to all the outstanding shares of stock of FARMACOR, INC.
(FARMACOR). The Agreement was signed by Leonides P. Gonzales and Jesus J.
Vergara, presidents of Inter-Asia and Asia Industries, respectively. Under
paragraph 7 of the Agreement, Inter-Asia as seller made warranties and
representations. The Agreement was later amended with respect to the "Closing
Date," originally set up at 10:00 a.m. of 30 September 1978, which was moved
to 31 October 1978, and to the mode of payment of the purchase price. The
Agreement, as amended, provided that pending submission by SGV of
FARMACOR's audited financial statements as of 31 October 1978, Asia Industries
may retain the sum of P7,500,000.00 out of the stipulated purchase price of
P19,500,000.00; that from this retained amount of P7,500,000.00, Asia
Industries may deduct any shortfall on the Minimum Guaranteed Net Worth of
P12,000,000.00; and that if the amount retained is not sufficient to make up for
the deficiency in the Minimum Guaranteed Net Worth, Inter-Asia shall pay the
difference within 5 days from date of receipt of the audited financial statements.
Asia Industries paid Inter-Asia a total amount of P12,000,000.00:
P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on 2
November 1978. From the STATEMENT OF INCOME AND DEFICIT attached to the
financial report dated 28 November 1978 submitted by SGV, it appears that
FARMACOR had, for the 10 months ended 31 October 1978, a deficit of
P11,244,225.00. Since the stockholder's equity amounted to P10,000,000.00,
FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed net
worth shortfall thus amounted to P13,244,225.00 after adding the net worth
deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of
P12,000,000.00. The adjusted contract price, therefore, amounted to
P6,225,775.00 which is the difference between the contract price of
P19,500,000.00 and the shortfall in the guaranteed net worth of P13,224,225.00.
Asia Industries having already paid Inter-Asia P12,000,000.00, it was entitled to a
refund of P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24 January
1980, signed by its president, that Asia Industries's claim for refund be reduced
to P4,093,993.00, it promising to pay the cost of the Northern Cotabato
Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the
proposal respondent agreed. Inter-Asia, however, welched on its promise.
Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus
P759,570.00) exclusive of interest. On 5 April 1983, Asia Industries filed a
complaint against Inter-Asia with the Regional Trial Court of Makati, one of two
causes of action of which was for the recovery of above-said amount of
P4,853,503.00 17 plus interest. Denying Asia Industries's claim, Inter-Asia
countered that Asia Industries failed to pay the balance of the purchase price and
accordingly set up a counterclaim. Finding for Asia Industries, the trial court
rendered on 27 November 1991 a Decision, ordering Inter-Asia to pay Asia
Industries the sum of P4,853,503.00 plus interest thereon at the legal rate from
the filing of the complaint until fully paid, the sum of P30,000.00 as attorney's
fees and the costs of suit; and (b) dismissing the counterclaim. On appeal to the
Court of Appeals, and by Decision of 25 January 1996, the Court of Appeals
affirmed the trial court's decision. Inter-Asia's motion for reconsideration of the
decision having been denied by the Court of Appeals by Resolution of 11 July
1996, Inter-Asia filed the petition for review on certiorari.
Issue: Whether the 24 January 1980 letter signed by Inter-Asia’s president is

valid and binding.
Held: The 24 January 1980 letter signed by Inter-Asia's president is valid and
binding. As held in the case of People's Aircargo and Warehousing Co., Inc. v.
Court of Appeals, the general rule is that, in the absence of authority from the
board of directors, no person, not even its officers, can validly bind a corporation.
A corporation is a juridical person, separate and distinct from its stockholders and
members, "having . . . powers, attributes and properties expressly authorized by
law or incident to its existence." Being a juridical entity, a corporation may act
through its board of directors, which exercises almost all corporate powers, lays
down all corporate business policies and is responsible for the efficiency of
management, as provided in Section 23 of the Corporation Code of the
Philippines. Under this provision, the power and responsibility to decide whether
the corporation should enter into a contract that will bind the corporation is
lodged in the board, subject to the articles of incorporation, bylaws, or relevant
provisions of law. However, just as a natural person may authorize another to do
certain acts for and on his behalf, the board of directors may validly delegate
some of its functions and powers to officers, committees or agents. The authority
of such individuals to bind the corporation is generally derived from law,
corporate bylaws or authorization from the board, either expressly or impliedly by
habit, custom or acquiescence in the general course of business, viz: "A corporate
officer or agent may represent and bind the corporation in transactions with third
persons to the extent that [the] authority to do so has been conferred upon him,
and this includes powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation has caused person dealing
with the officer or agent to believe that it has conferred.... [A]pparent authority is
derived not merely from practice. Its existence may be ascertained through (1)
the general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words the apparent authority to act in
general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, within or beyond
the scope of his ordinary powers. It requires presentation of evidence of similar
acts executed either in its favor or in favor of other parties. It is not the quantity
of similar acts which establishes apparent authority, but the vesting of a corporate
officer with the power to bind the corporation." Hence, an officer of a corporation
who is authorized to purchase the stock of another corporation has the implied
power to perform all other obligations arising therefrom, such as payment of the
shares of stock. By allowing its president to sign the Agreement on its behalf,
Inter-Asia clothed him with apparent capacity to perform all acts which are
expressly, impliedly and inherently stated therein. 
MEGAN SUGAR CORPORATION vs. REGIONAL TRIAL COURT OF ILOILO
G.R. No. 170352. June 1, 2011
PERALTA, J.:
Facts: Respondent New Frontier Sugar Corporation (NFSC) obtained a loan from
respondent Equitable PCI Bank (EPCIB). Said loan was secured by a real estate
mortgage over NFSC's land located in Passi City, Iloil and a chattel mortgage over
NFSC's sugar mill.
Because of liquidity problems and continued indebtedness to EPCIB, NFSC
entered into a MOA with Central Iloilo Milling Corporation (CIMICO), whereby the
latter agreed to take-over the operation and management of the NFSC raw sugar
factory and facilities for the period covering crop years 2000 to 2003.
NFSC filed a complaint for specific performance and collection against CIMICO for
the latter's failure to pay its obligations under the MOA. In response, CIMICO filed
with the RTC a case against NFSC for sum of money and/or breach of contract.
Because of NFSC's failure to pay its debt, EPCIB instituted extra-judicial
foreclosure proceedings over NFSC's land and sugar mill. During public auction,
EPCIB was the sole bidder and was thus able to buy the entire property and
consolidate the titles in its name. EPCIB then employed the services of Philippine
Industrial Security Agency (PISA) to help it in its effort to secure the land and the
sugar mill.
CIMICO filed with the RTC an Amended Complaint where it impleaded PISA and
EPCIB. As a result, upon the motion of CIMICO, the RTC issued a restraining
order, directing EPCIB and PISA to desist from taking possession over the
property in dispute. Hence, CIMICO was able to continue its possession over the
property.
CIMICO and petitioner Megan Sugar Corporation (MEGAN) entered into a
MOA whereby MEGAN assumed CIMICO's rights, interests and obligations over
the property. As a result of the foregoing undertaking, MEGAN started operating
the sugar mill.
Passi Iloilo Sugar Central, Inc. (Passi Sugar) filed with the RTC a Motion for
Intervention claiming to be the vendee of EPCIB. Passi Sugar claimed that it had
entered into a Contract to Sell with EPCIB after the latter foreclosed NFSC's land
and sugar mill.
During the hearing on the motion for intervention, Atty. Sabig appeared before
the RTC and entered his appearance as counsel for MEGAN. Several counsels
objected to Atty. Sabig's appearance since MEGAN was not a party to the
proceedings; however, Atty. Sabig explained to the court that MEGAN had
purchased the interest of CIMICO and manifested that his statements would bind
MEGAN.
EPCIB filed a Motion for Delivery/Deposit of Mill Shares/Rentals. The next day,
Passi Sugar filed a Motion to Order Deposit of Mill Share Production of "MEGAN"
and/or CIMICO. NFSC filed a Motion to Order Deposit of Miller's Share (37%) or
the Lease Consideration under the MOA between NFSC and CIMICO. Days later,
NFSC filed another Motion to Hold in Escrow Sugar Quedans or Proceeds of Sugar
Sales Equivalent to Miller's Shares.
RTC issued an Order granting EPCIB's motion for the placement of millers' share
in escrow. Atty. Sabig filed an Omnibus Motion for Reconsideration and
Clarification but was denied.
EPCIB filed an Urgent Ex-Parte Motion for Execution which was granted by the
RTC.
Aggrieved, MEGAN filed before the CA a petition for certiorari which was
dismissed for lack of merit. In said petition, MEGAN argued mainly on two
points; first, that the RTC erred when it determined that MEGAN was subrogated
to the obligations of CIMICO and; second, that the RTC had no jurisdiction over
MEGAN. CA ruled that since Atty. Sabig had actively participated before the RTC,
MEGAN was already estopped from assailing the RTC's jurisdiction. Hence, this
petition.
Petitioner’s contention/s: MEGAN points out that its board of directors did not
issue a resolution authorizing Atty. Sabig to represent the corporation before the
RTC. It contends that Atty. Sabig was an unauthorized agent and as such his
actions should not bind the corporation. In addition, MEGAN argues that the
counsels of the different parties were aware of Atty. Sabig's lack of authority
because he declared in court that he was still in the process of taking over the
case and that his voluntary appearance was just for the hearing of the motion for
intervention of Passi Sugar.
Issue: W/N THE PETITIONER IS ESTOPPED FROM QUESTIONING THE ASSAILED

ORDERS BECAUSE OF THE ACTS OF ATTY. SABIG
Held: YES.
Relevant to the discussion herein is the transcript surrounding the events of the
hearing of Passi Sugar's motion for intervention, to wit:
ATTY. SABIG:
This motion directly affects us and that's why we're voluntarily appearing, just for
this hearing on the motion and not for the case itself, specifically for the hearing
[on] this motion. That's our appearance for today because we have been served
and we have to protect our interest. We are not saying that we are taking over
the case but there is a hearing for the motion in intervention and we have been
served a copy, that's why we appear voluntarily.
xxx xxx xxx
ATTY. SINGSON:
That's why we want to be clarified. In what capacity is Megan entering into the
picture? That's the point now that we would like to ask them. So, whatever
statement you'll be making here will bind Megan?
ATTY. SABIG:
Yes, your Honor. Specifically for the hearing because apparently, we have to
voluntarily appear since they furnished us a copy that would directly affect our
rights.
xxx xxx xxx
COURT:
Are you saying that you are appearing now in behalf of Megan?
ATTY. SABIG:
Yes, your Honor.
COURT:
And whatever statement you made here will bind Megan?
ATTY. SABIG:
Yes, your Honor.
While it is true, as claimed by MEGAN, that Atty. Sabig said in court that he was
only appearing for the hearing of Passi Sugar's motion for intervention and not for
the case itself, his subsequent acts, coupled with MEGAN's inaction and
negligence to repudiate his authority, effectively bars MEGAN from assailing the
validity of the RTC proceedings under the principle of estoppel.
MEGAN can no longer deny the authority of Atty. Sabig as they have already
clothed him with apparent authority to act in their behalf. When Atty. Sabig
entered his appearance, he was accompanied by Concha, MEGAN's director and
general manager. A corporation may be held in estoppel from denying as against
innocent third persons the authority of its officers or agents who have been
clothed by it with ostensible or apparent authority. Atty. Sabig may not have been
armed with a board resolution, but the appearance of Concha made the parties
assume that MEGAN had knowledge of Atty. Sabig's actions and, thus, clothed
Atty. Sabig with apparent authority such that the parties were made to believe
that the proper person and entity to address was Atty. Sabig. Apparent authority,
or what is sometimes referred to as the "holding out" theory, or doctrine of
ostensible agency, imposes liability, not as the result of the reality of a contractual
relationship, but rather because of the actions of a principal or an employer in
somehow misleading the public into believing that the relationship or the
authority exists.
Furthermore, MEGAN never repudiated the authority of Atty. Sabig when all the
motions, pleadings and court orders were sent not to the office of Atty. Sabig but
to the office of MEGAN, who in turn, would forward all of the same to Atty. Sabig.
One of the instances of estoppel is when the principal has clothed the agent
with indicia of authority as to lead a reasonably prudent person to believe that
the agent actually has such authority. With the case of MEGAN, it had all the
opportunity to repudiate the authority of Atty. Sabig since all motions, pleadings
and court orders were sent to MEGAN's office. However, MEGAN never questioned
the acts of Atty. Sabig and even took time and effort to forward all the court
documents to him. It bears to point out that MEGAN was negligent when it did not
assail the authority of Atty. Sabig within a reasonable time.
MEGAN's challenge to Atty. Sabig's authority and the RTC's jurisdiction was a
mere afterthought after having received an unfavorable decision from the RTC.
Certainly, it would be unjust and inequitable to the other parties if this Court were
to grant such a belated jurisdictional challenge. Wherefore, the petition was
denied. 
Nielson & Co. vs Lepanto
G.R. No L-21601
Facts: [GR L-21601, 17 December 1966; Zaldivar (J): 6 concur, 2 took no part]
An operating agreement was executed before World War II (on 30 January 1937)
between Nielson & Co. Inc. and the Lepanto Consolidated Mining Co. whereby the
former operated and managed the mining properties owned by the latter for a
management fee of P2,500.00 a month and a 10% participation in the net profits
resulting from the operation of the mining properties, for a period of 5 years. In
1940, a dispute arose regarding the computation of the 10% share of Nielson in
the profits. The Board of Directors of Lepanto, realizing that the mechanics of the
contract was unfair to Nielson, authorized its President to enter into an
agreement with Nielson modifying the pertinent provision of the contract effective
1 January 1940 in such a way that Nielson shall receive (1) 10% of the dividends
declared and paid, when and as paid, during the period of the contract and at the
end of each year, (2) 10% of any depletion reserve that may be set up, and (3)
10% of any amount expended during the year out of surplus earnings for capital
account. In the latter part of 1941, the parties agreed to renew the contract for
another period of 5 years, but in the meantime, the Pacific War broke out in
December 1941. In January 1942 operation of the mining properties was
disrupted on account of the war. In February 1942, the mill, power plant, supplies
on hand, equipment, concentrates on hand and mines, were destroyed upon
orders of the United States Army, to prevent their utilization by the invading
Japanese Army.
The Japanese forces thereafter occupied the mining properties, operated the
mines during the continuance of the war, and who were ousted from the mining
properties only in August 1945. After the mining properties were liberated from
the Japanese forces, LEPANTO took possession thereof and embarked in
rebuilding and reconstructing the mines and mill; setting up new organization;
clearing the mill site; repairing the mines; erecting staff quarters and bodegas
and repairing existing structures; installing new machinery and equipment;
repairing roads and maintaining the same; salvaging equipment and storing the
same within the bodegas; doing police work necessary to take care of the
materials and equipment recovered; repairing and renewing the water system;
and retimbering. The rehabilitation and reconstruction of the mine and mill was
not completed until 1948. On 26 June 1948 the mines resumed operation under
the exclusive management of LEPANTO. Shortly after the mines were liberated
from the Japanese invaders in 1945, a disagreement arose between NIELSON and
LEPANTO over the status of the operating contract which as renewed expired in
1947. Under the terms thereof, the management contract shall remain in
suspense in case fortuitous event or force majeure, such as war or civil
commotion, adversely affects the work of mining and milling. On 6 February
1958, NIELSON brought an action against LEPANTO before the Court of First
Instance of Manila to recover certain sums of money representing damages
allegedly suffered by the former in view of the refusal of the latter to comply with
the terms of a management contract entered into between them on 30 January
1937, including attorney's fees and costs. LEPANTO in its answer denied the
material allegations of the complaint and set up certain special defenses, among
them, prescription and laches, as bars against the institution of the action.
After trial, the court a quo rendered a decision dismissing the complaint with
costs. The court stated that it did not find sufficient evidence to establish
LEPANTO's counterclaim and so it likewise dismissed the same. NIELSON
appealed. The Supreme Court reversed the decision of the trial court and enter in
lieu thereof another, ordering Lepanto to pay Nielson (1) 10% share of cash
dividends of December, 1941 in the amount of P17,500.00, with legal interest
thereon from the date of the filing of the complaint; (2) management fee for
January, 1942 in the amount of P2,500.00, with legal interest thereon from the
date of the filing of the complaint; (3) management fees for the sixty-month
period of extension of the management contract, amounting to P150,000.00, with
legal interest from the date of the filing of the complaint; (4) 10% share in the
cash dividends during the period of extension of the management contract,
amounting to P1,400,000.00, with legal interest thereon from the date of the
filing of the complaint; (5) 10% of the depletion reserve set up during the period
of extension, amounting to P53,928.88, with legal interest thereon from the date
of the filing of the complaint; (6) 10% of the expenses for capital account during
the period of extension, amounting to P694,364.76, with legal interest thereon
from the date of the filing of the complaint; (7) to issue and deliver to Nielson
and Co. Inc. shares of stock of Lepanto Consolidated Mining Co. at par value
equivalent to the total of Nielson's 10% share in the stock dividends declared on
November 28, 1949 and August 22, 1950, together with all cash and stock
dividends, if any, as may have been declared and issued subsequent to November
28, 1949 and August 22, 1950, as fruits that accrued to said shares; provided
that if sufficient shares of stock of Lepanto's are not available to satisfy this
judgment, Lepanto shall pay Nielson an amount in cash equivalent to the market
value of said shares at the time of default, that is, all shares of stock that should
have been delivered to Nielson before the filing of the complaint must be paid at
their market value as of the date of the filing of the complaint; and all shares, if
any, that should have been delivered after the filing of the complaint at the
market value of the shares at the time Lepanto disposed of all its available
shares, for it is only then that Lepanto placed itself in condition of not being able
to perform its obligation; (8) the sum of P50,000.00 as attorney's fees; and (9)
the costs.
Lepanto seeks the reconsideration of the decision rendered on 17 December

1966.
Issue: Whether the management contract is a contract of agency or a contract of

lease of services.
Held: Article 1709 of the Old Civil Code, defining contract of agency, provides
that "By the contract of agency, one person binds himself to render some service
or do something for the account or at the request of another." Article 1544,
defining contract of lease of service, provides that "In a lease of work or services,
one of the parties binds himself to make or construct something or to render a
service to the other for a price certain." In both agency and lease of services one
of the parties binds himself to render some service to the other party. Agency,
however, is distinguished from lease of work or services in that the basis of
agency is representation, while in the lease of work or services the basis is
employment. The lessor of services does not represent his employer, while the
agent represents his principal. Further, agency is a preparatory contract, as
agency "does not stop with the agency because the purpose is to enter into other
contracts." The most characteristic feature of an agency relationship is the
agent's power to bring about business relations between his principal and third
persons. "The agent is destined to execute juridical acts (creation, modification or
extinction of relations with third parties). Lease of services contemplate only
material (non-juridical) acts." Herein, the principal and paramount undertaking of
Nielson under the management contract was the operation and development of
the mine and the operation of the mill. All the other undertakings mentioned in
the contract are necessary or incidental to the principal undertaking — these
other undertakings being dependent upon the work on the development of the
mine and the operation of the mill. In the performance of this principal
undertaking Nielson was not in any way executing juridical acts for Lepanto,
destined to create, modify or extinguish business relations between Lepanto and
third persons. In other words, in performing its principal undertaking Nielson was
not acting as an agent of Lepanto, in the sense that the term agent is interpreted
under the law of agency, but as one who was performing material acts for an
employer, for a compensation. It is true that the management contract provides
that Nielson would also act as purchasing agent of supplies and enter into
contracts regarding the sale of mineral, 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 could
not execute juridical acts which would bind Lepanto without first securing the
approval of Lepanto. Nielson, then, was to act only as an intermediary, not as an
agent. Further, from the statements in the annual report for 1936, and from the
provision of paragraph XI of the Management contract, that the employment by
Lepanto of Nielson to operate and manage its mines was principally in
consideration of the know-how and technical services that Nielson offered
Lepanto. The contract thus entered into pursuant to the offer made by Nielson
and accepted by Lepanto was a "detailed operating contract". It was not a
contract of agency. Nowhere in the record is it shown that Lepanto considered
Nielson as its agent and that Lepanto terminated the management contract
because it had lost its trust and confidence in Nielson.
 
Islamic Directorate vs. CA
272 SCRA 454
Facts: In 1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES ("IDP") was

incorporated with the primary purpose of establishing a mosque, school, and
other religious infrastructures in Quezon City. IDP purchased a 49,652-square
meter lot in Tandang Sora, QC, which was covered by TCT Nos. RT-26520
(176616) and RT-26521 (170567). When President Marcos declared martial law in
1972, most of the members of the 1971 Board of Trustees ("Tamano Group") flew
to the Middle East to escape political persecution. Thereafter, two contending
groups claiming to be the IDP Board of Trustees sprung: the Carpizo group and
Abbas group.
In a suit between the two groups, SEC rendered a decision in 1986 declaring both
groups to be null and void. SEC recommended that a new by-laws be approved
and a new election be conducted upon the approval of the by-laws. However, the
SEC recommendation was not heeded. In 1989, the Carpizo group passed a
Board Resolution authorizing the sale of the land to Iglesia Ni Cristo ("INC"), and
a Deed of Sale was eventually executed. In 1991, the Tamano Group filed a
petition before the SEC questioning the sale.
Meanwhile, INC filed a suit for specific performance before RTC Branch 81 against
the Carpizo group. INC also moved to compel a certain Leticia Ligon (who is
apparently the mortgagee of the lot) to surrender the title.
The Tamano group sought to intervene, but the intervention was denied despite
being informed of the pending SEC case. In 1992, the Court subsequently ruled
that the INC as the rightful owner of the land and ordered Ligon to surrender the
titles for annotation. Ligon appealed to CA and SC, but her appeals were denied.
In 1993, the SEC ruled that the sale was null and void. On appeal CA reversed
the SEC ruling. 
 
Issue: Whether or not the sale between the Carpizo group and INC is null and
void. 
 
Held: YES. Since the SEC has declared the Carpizo group as a void Board of
Trustees, the sale it entered into with INC is likewise void. Without a valid consent
of a contracting party, there can be no valid contract.
In this case, the IDP, never gave its consent, through a legitimate Board of
Trustees, to the disputed Deed of Absolute Sale executed in favor of INC.
Therefore, this is a case not only of vitiated consent, but one where consent on
the part of one of the supposed contracting parties is totally wanting. Ineluctably,
the subject sale is void and produces no effect whatsoever.
Further, the Carpizo group failed to comply with Section 40 of the Corporation
Code, which provides that: " ... a corporation may, by a majority vote of its board
of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise
dispose of all or substantially all of its property and assets... when authorized by
the vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock; or in case of non-stock corporation, by the vote of at
least two-thirds (2/3) of the members, in a stockholders' or members' meeting
duly called for the purpose...."
The subject lot constitutes the only property of IDP. Hence, its sale to a third-
party is a sale or disposition of all the corporate property and assets of IDP. For
the sale to be valid, the majority vote of the legitimate Board of Trustees,
concurred in by the vote of at least 2/3 of the bona fide members of the
corporation should have been obtained. These twin requirements were not met in
the case at bar.  
Dee v. SEC
G.R. No. 60502. July 16, 1991
Paras, J.
Facts: The case arose out of two consolidated cases. Naga Telephone Co,
Inc. (Natelco) was organized in 1954 with an authorized capital of P100,000.
After 20 years, it decided to increase its authorized capital to P3,000,000 by filing
an application with the Board of Communications as required by the Public
Service Act, which was approved under the condition that “the issuance of shares
of stock will be or a period of one year from the date hereof, after which no
further issues will be made without previous authority from this Board.” When the
amended articles were filed with the SEC, the original authorized capital of
P100,000.00 was already paid. Of the increased capital of P2,900,000.00 the
subscribers subscribed to P580,000.00 of which P145,000 was fully paid. The
capital stock of Natelco was divided into 213,000 common shares and 87,000
preferred shares, both at a par value of P10.00 per shares.
2 years thereafter, Natelco entered into a contract with Communication
Services, Inc. (CSI) for the manufacture, supply, deliver, and installation of
telephone equipment. It issued 24,000 shares of common stocks to CSI as part of
the downpayment. After 2 years, another 12,000 shares of common stocks were
issued. In both instances, no prior authorization from the Board of
Communications, now the National Telecommunications Commission, was secured
pursuant to the conditions imposed.
In its annual stockholders’ meeting to elect their Board of Directors,
Petitioner Dee was unseated as Chairman of the Board and President of the
Corporation, but was elected as one of the directors together with his wife. CSI
was able to gain control over Natelco being represented by their legal counsel
Atty. Maggay who won a seat in the board and became president.
Petitioner Dee having been unseated in the election, he filed a petition in
the SEC questioning the validity of the elections on the ground that there was no
valid list of stockholders through which the right to vote could be determined. A
restraining order was issued by the SEC placing petitioner and the other previous
officers in hold-over capacity. This was reversed and the Maggay Board took over.
Said Board entered into another contract with CSI for the supply and installation
of additional equipment, issuing to it 113,800 shares of common stock. However,
the Court later resolved to return the old Board in hold-over capacity of the
Company.
In the course of the proceedings, SEC’s Hearing Officer issued an order
declaring that: 1) CSI is a stockholder of Natelco and is entitled to vote; 2) the
unexplained 16,858 shares of Natelco were issued in excess to CSI which should
not be allowed to vote; 3) 82 shareholders shall be allowed to vote; and 4) they
should elect new members of the Board.
Petitioner Dee filed a petition for certiorari/appeal with the SEC en banc, but
was dismissed. The hearing officer then ordered the holding of an election.
Petitioner Villasenor filed a case against the defendants (Maggay group) as
well as his co-petitioners as members of the board, claiming that he was an
assignee of an option to repurchase 36,000 shares of common stocks of Natelco
under a Deed of Assignment, but he was not allowed to repurchase said stocks. A
restraining order was thus issued by the RTC for the elections, but this was
disregarded by the controlling majority of the stockholders which decided to hold
it. SEC recognized the conduct of the elections wherein the Maggay group was
elected, but the Dee group refused to vacate their positions. This caused the SEC
to issue an order to vacate the said positions. Petitioner Villasenor again filed a
contempt case against the Maggay group for failing to comply with the TRO
issued, which was granted. But this was subsequently annulled by the appellate
court, holding that the Maggay group should hold the positions.
Issues: 1)Whether or not the issuance of 113,800 shares of stock of Natelco to

CSI was valid and if so whether they had the right of preemption.
2) Whether or not such election of the board of directors was proper.
Held:
1) Yes, the issuance of the shares was valid. The preemptive right of
stockholders is recognized only with respect to new issue of shares, and
not with respect to additional issues of originally authorized shares. The
questioned issuance of the 113,800 stocks is not invalid even assuming
that it was made without notice to the stockholders as claimed by the
petitioner. The power to issue shares of stocks in a corporation is lodged
in the board of directors and no stockholders meeting is required to
consider it because additional issuance of shares of stocks does not need
approval of the stockholders. Consequently, no pre-emptive right of
Natelco stockholders was violated by the issuance of the 113,800 shares
to CSI.
2) Yes, the election was proper. The election was conducted since the case
was dragging for almost a decade. Accordingly, it is clear that since the
trial judge in the lower court did not have jurisdiction in issuing the
questioned restraining order, disobedience thereto did not constitute
contempt, as it is necessary that the order be a valid and legal one. It is
an established rule that the court has no authority to punish for
disobedience of an order issued without authority.  
Jiao v NLRC
GR No. 182331 | April 18, 2012
Facts: The petitioners were regular employees of the Philippine Banking

Corporation (Philbank), each with at least ten years of service in the company. 3
Pursuant to its Memorandum dated August 28, 1970, Philbank established a
Gratuity Pay Plan (Old Plan) for its employees. On March 8, 1991, Philbank
implemented a new Gratuity Pay Plan (New Gratuity Plan).
In February 2000, Philbank merged with Global Business Bank, Inc. (Globalbank),
with the former as the surviving corporation and the latter as the absorbed
corporation, but the bank operated under the name Global Business Bank, Inc. As
a result of the merger, complainants' respective positions became redundant. A
Special Separation Program (SSP) was implemented and the petitioners were
granted a separation package In August 2002, respondent Metropolitan Bank and
Trust Company (Metrobank) acquired the assets and liabilities of Globalbank
through a Deed of Assignment of Assets and Assumption of Liabilities. 10 STcEaI
Subsequently, the petitioners led separate complaints for non-payment of

separation pay with prayer for damages and attorney's fees before the National
Labor Relations Commission (NLRC). 11 Metrobank was impleaded as a party to
the case.
Metrobank denied any liability, citing the absence of an employment relationship

with the petitioners. It argued that its acquisition of the assets and liabilities of
Globalbank did not include the latter's obligation to its employees. Moreover,
Metrobank pointed out that the petitioners' employment with Globalbank had
already been severed before it took over the latter's banking operations. 15
Issue: Whether or not Metrobank can be held liable for petitioner's claim
Held: NO
As a rule, a corporation that purchases the assets of another will not be liable for
the debts of the selling corporation, provided the former acted in good faith and
paid adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees
to assume the debts; (2) where the transaction amounts to a consolidation or
merger of the corporations; (3) where the purchasing corporation is merely a
continuation of the selling corporation; and (4) where the selling corporation
fraudulently enters into the transaction to escape liability for those debts. 37
cAHIaE Under the Deed of Assignments of Assets and Assumption of Liabilities 38
between Globalbank and Metrobank, the latter accepted the former's assets in
exchange for assuming its liabilities. The liabilities that Metrobank assumed,
which were clearly set out in Annex "A" of the instrument, are: deposit liabilities;
interbank loans payable; bills payable; manager's checks and demand drafts
outstanding; accrued taxes, interest and other expenses; and deferred credits
and other liabilities. 39 Based on this enumeration, the liabilities that Metrobank
assumed can be characterized as those pertaining to Globalbank's banking
operations. They do not include Globalbank's liabilities to pay separation pay to its
former employees. This must be so because it is understood that the same
liabilities ended when the petitioners were paid the amounts embodied in their
respective acceptance letters and quitclaims. Hence, this obligation could not
have been passed on to Metrobank. The petitioners insist that Metrobank is liable
because it is the "parent" company of Globalbank and that majority of the latter's
board of directors are also members of the former's board of directors. While the
petitioners' allegations are true, one fact cannot be ignored — that Globalbank
has a separate and distinct juridical personality. The petitioners' own evidence —
Global Business Holdings, Inc.'s General Information Sheet 40 led with the
Securities and Exchange Commission — bears this out.
ISSUE: Whether or not the corporate veil should be pierced
Held: NO
This fiction of corporate entity can only be disregarded in cases when it is used to
defeat public convenience, justify wrong, protect fraud, or defend crime.
Moreover, to justify the disregard of the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. 41 41
In the instant case, none of these circumstances is present such as to warrant
piercing the veil of corporate fiction and treating Globalbank and Metroban as
one. 
Loyola Grand Villas (South) Association Inc. v. CA
276 SCRA 681
Facts: Loyola Grand Villas Homeowners Association Inc. (LGVHAI) was organized
3 as the association of homeowners and residents of the Loyola Grand Villas. It
was registered with the Home Financing Corporation, the predecessor of herein
respondent Home Insurance and Guaranty Corporation (HIGC). For unknown
reasons, however, LGVHAI did not file its corporate by-laws. In 1989, Soliven, the
president of LGVHAI inquired about the status of the association.
Atty. Joaquin A. Bautista, the head of the legal department of the HIGC, informed
him that LGVHAI had been automatically dissolved for two reasons. First, it did
not submit its by-laws within the period required by the Corporation Code and,
second, there was non-user of corporate charter because HIGC had not received
any report on the association's activities. These developments prompted the
officers of the LGVHAI to lodge a complaint with the HIGC.
After some time, the HIGC ruled in favor of LGVHAI revoking the Certificates of
Registration of Loyola Grand Villas Homeowners (North) Association, Inc. and
Loyola Grand Villas Homeowners (South) Association, Inc. as hereby revoked or
cancelled and that the receivership terminated and that the receiver is ordered to
render an accounting and turn-over to LGVHAI all assets and records of the
Association under his custody and possession. Hence, petitioner now raises the
issue for certiorari. 
 
Issue: Whether or not the failure of a corporation to file its by-laws within one
month from its incorporation result in its automatic dissolution? 
 
Held: 
No. 
 
The pertinent provision of the Corporation Code that is the focal point of
controversy in this case states: Sec. 46. Adoption of by-laws. - Every corporation
formed under this Code, must within one (1) month after receipt of official notice
of the issuance of its certificate of incorporation by the Securities and Exchange
Commission, adopt a code of by-laws for its government not inconsistent with this
Code.
Ordinarily, the word "must" connotes an imposition of duty which must be

enforced. However, the word "must" in a statute, like "shall," is not always
imperative. It may be consistent with an exercise of discretion. If the language of
a statute, considered as a whole with due regard to its nature and object, reveals
that the legislature intended to use the words "shall" and "must" to be directory,
they should be given that meaning. 
 
The legislative deliberations of the Corpo Code reveals that it was not the
intention of Congress to automatically dissolve a corporation for failure to file the
By-Laws on time. 
 
Moreover, By-Laws may be necessary to govern the corporation, but By-Laws are
still subordinate to the Articles of Incorporation and the Corporation Code. In fact,
there are cases where By-Laws are unnecessary to the corporate existence and to
the valid exercise of corporate powers. 
 
The Corporation Code does not expressly provide for the effects of non-filing of
By-Laws. However, these have been rectified by PD 902-A which provides that
SEC shall possess the power to suspend or revoke, after proper notice and
hearing, the franchise or certificate of registration of corporations upon failure to
file By-Laws within the required period. 
 
This shows that there must be notice and hearing before a corporation is
dissolved for failure to file its By-Laws. Even assuming that the existence of a
ground, the penalty is not necessarily revocation, but may only be suspension. 
 
By-Laws are indispensable to corporations, since they are required by law for an
orderly management of corporations. However, failure to file them within the
period prescribed does not equate to the automatic dissolution of a corporation.
China Banking Corporation vs. Court of Appeals
G.R. No. 117604 March 26, 1997
Facts:
Galicano Calapatia, Jr., a stockholder of Valley Golf & Country Club, Inc.
(VGCCI), pledged his Stock Certificate to China Banking Corporation (CBC). CBC
wrote VGCCI requesting that the pledge agreement be recorded in its books.
VGCCI replied that the deed of pledge was duly noted in its corporate books.
Calapatia obtained a loan of P20,000.00 from CBC, payment of which was
secured by the pledge agreement. Due to Calapatia's failure to pay his obligation,
CBC filed a petition for extrajudicial foreclosure, requesting for the public auction
sale of the pledged stock. CBC informed VGCCI of the foreclosure proceedings
and requested that the pledged stock be transferred to its name and the same be
recorded in the corporate books. However, VGCCI wrote CBC expressing its
inability to accede to CBC's request in view of Calapatia's unsettled accounts with
the club. Despite the foregoing, a public auction was held, and CBC emerged as
the highest bidder at P20,000.00 for the pledged stock. Consequently, CBC was
issued the corresponding certificate of sale. VGCCI sent Calapatia a notice
demanding full payment of his overdue account in the amount of P18,783.24.
Said notice was followed by a demand letter for the same amount and another
notice for P23,483.24.
VGCCI caused to be published in the newspaper Daily Express a notice of
auction sale of a number of its stock certificates. Included therein was Calapatia's
own share of stock. VGCCI informed Calapatia of the termination of his
membership due to the sale of his share of stock in the auction. CBC advised
VGCCI that it is the new owner of Calapatia's Stock Certificate by virtue of being
the highest bidder in the auction and requested that a new certificate of stock be
issued in its name. VGCCI replied that "for reason of delinquency" Calapatia's
stock was sold at another public auction for P25,000.00. CBC protested the sale
by VGCCI of the subject share of stock and thereafter filed a case with RTC
Makati for the nullification of the auction and for the issuance of a new stock
certificate in its name. RTC dismissed the complaint for lack of jurisdiction over
the subject matter on the theory that it involves an intra-corporate dispute, and
denied CBC's MR. CBC filed a complaint with the SEC for the nullification of the
sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate
issued pursuant thereto; for the issuance of a new certificate in petitioner's
name; and for damages, attorney's fees and costs of litigation. SEC rendered a
decision in favor of VGCCI, stating in the main that considering that the said
share is delinquent, VGCCI had valid reason not to transfer the share in the name
of CBC in the books of VGCCI until liquidation of delinquency. The case was
dismissed, MR denied.
CBC appealed to the SEC en banc. The Commission issued an order
reversing the decision of its hearing officer; holding that CBC has a prior right
over the pledged share and because of pledgor's failure to pay the principal debt
upon maturity, CBC can proceed with the foreclosure of the pledged share;
declaring that the auction sale conducted by VGCCI is NULL and VOID; and
ordering VGCCI to issue another membership certificate in the name of CBC.
VGCCI’s MR was denied.
VGCCI sought redress from the CA, which nullified and set aside the orders
of the SEC and its hearing officer on ground of lack of jurisdiction over the subject
matter and, consequently, dismissed CBC's original complaint. CA declared that
the controversy between CBC and VGCCI is not intra-corporate; nullifying the SEC
orders and dismissing CBC’s complaint. MR was denied, hence CBC filed the
petition for review on certiorari.
Issue: Whether CBC is bound by VGCCI's by-laws.
Held: NO. In order to be bound, the third party must have acquired knowledge of
the pertinent by-laws at the time the transaction or agreement between said third
party and the shareholder was entered into. Herein, at the time the pledge
agreement was executed. VGCCI could have easily informed CBC of its by-laws
when it sent notice formally recognizing CBC as pledgee of one of its shares
registered in Calapatia's name. CBC's belated notice of said by-laws at the time of
foreclosure will not suffice. By-laws signifies the rules and regulations or private
laws enacted by the corporation to regulate, govern and control its own actions,
affairs and concerns and its stockholders or members and directors and officers
with relation thereto and among themselves in their relation to it. In other words,
by-laws are the relatively permanent and continuing rules of action adopted by
the corporation for its own government and that of the individuals composing it
and having the direction, management and control of its affairs, in whole or in
part, in the management and control of its affairs and activities. The purpose of a
by-law is to regulate the conduct and define the duties of the members towards
the corporation and among themselves. They are self-imposed and, although
adopted pursuant to statutory authority, have no status as public law. Therefore,
it is the generally accepted rule that third persons are not bound by by-laws,
except when they have knowledge of the provisions either actually or
constructively. For the exception to the general accepted rule that third persons
are not bound by by-laws to be applicable and binding upon the pledgee,
knowledge of the provisions of the VGCCI By-laws must be acquired at the time
the pledge agreement was contracted. Knowledge of said provisions, either actual
or constructive, at the time of foreclosure will not affect pledgee's right over the
pledged share. Article 2087 of the Civil Code provides that it is also of the
essence of these contracts that when the principal obligation becomes due, the
things in which the pledge or mortgage consists maybe alienated for the payment
to the creditor. Further, VGCCI's contention that CBC is duty-bound to know its
by-laws because of Article 2099 of the Civil Code which stipulates that the
creditor must take care of the thing pledged with the diligence of a good father of
a family, fails to convince. CBC was never informed of Calapatia's unpaid accounts
and the restrictive provisions in VGCCI's by-laws. Furthermore, Section 63 of the
Corporation Code which provides that "no shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the
corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers to "any
unpaid claim arising from unpaid subscription, and not to any indebtedness which
a subscriber or stockholder may owe the corporation arising from any other
transaction." Herein, the subscription for the share in question has been fully paid
as evidenced by the issuance of Membership Certificate 1219. What Calapatia
owed the corporation were merely the monthly dues. Hence, Section 63 does not
apply. 
ASSOCIATED BANK VS. COURT OF APPEALS
G.R. No. 123793; June 29, 1998
Panganiban, J.
Facts: After the merger of Associated Banking Corporation (ABC) and Citizens
Bank and Trust Company (CBTC), the private respondent executed in favor of
Associated Bank a promissory note whereby respondent undertook to pay the
bank the sum of P2,500,000.00. The merger agreement provided that all
references to CBTC shall be deemed for all intents and purposes references to the
surviving bank, ABC, as if such references were direct references to ABC. When
private respondent failed to pay the remaining balance, Associated Bank, the
surviving corporation, sued for collection. Private respondent denied the pertinent
allegations in the complaint and alleged that the complaint states no cause of
action because the promissory note was executed in favor of CBTC, not the
Associated Bank. Private respondent was declared as in default for failure to
appear at the pre-trial conference and petitioner presented its evidence ex-parte.
Thereafter, the trial court rendered judgment ordering private respondent to pay
the bank his remaining balance plus interests and attorney's fees. On appeal, the
Court of Appeals held that petitioner, which was not privy to the transaction, had
no cause of action against private respondent and that the earlier merger
between the two banks could not have vested petitioner with any interest arising
from the promissory note executed in favor of CBTC after such merger. Hence,
this recourse.
Issue: Whether or not Associated Bank, the surviving corporation, may enforce
the promissory note made by private respondent in favor of CBTC, the absorbed
company, after the merger agreement had been signed
Held: Yes. Associated Bank assumed all the rights of CBTC. The Supreme Court
held that the fact that the promissory note was executed after the effectivity of
the merger does not militate against the petitioner where the agreement clearly
provides that all contracts entered into in the name of CBTC shall be understood
as pertaining to the surviving bank; that the merger provision being clear, plain
and free of ambiguity, the same must be given its literal meaning; and that to let
the private respondent enjoy the fruits of his loan without liability is unfair and
unsconscionable, amounting to unjust enrichment.
BABST v. CA
GR 99398 26 January 2001
Facts: On 8 June 1973, ELISCON obtained from Commercial Bank and Trust
Company (CBTC) a loan in the amount of P8,015,900.84, with interest at the rate
of 14% per annum, evidenced by a promissory note.
Elizalde Steel Consolidated, Inc. (ELISCON) defaulted in its payments, leaving an
outstanding indebtedness in the amount of P2,795,240.67 as of 31 October 1982.
The letters of credit, on the other hand, were opened for ELISCON by CBTC using
the credit facilities of Pacific Multi-Commercial Corporation (MULTI) with the said
bank, pursuant to the Resolution of the Board of Directors of MULTI adopted on
31 August 1977.
Subsequently, on 26 September 1978, Antonio Roxas Chua and Chester G. Babst
executed a Continuing Suretyship, whereby they bound themselves jointly and
severally liable to pay any existing indebtedness of MULTI to CBTC to the extent
of P8,000,000.00 each. Sometime in October 1978, CBTC opened for ELISCON in
favor of National Steel Corporation (NSC) 3 domestic letters of credit in the
amounts of P1,946,805.73, P1,702,869.32 and P200,307.72, respectively, which
ELISCON used to purchase tin black plates from NSC. ELISCON defaulted in its
obligation to pay the amounts of the letters of credit, leaving an outstanding
account, as of 31 October 1982, in the total amount of P3,963,372.08.
On 22 December 1980, the Bank of the Philippine Islands (BPI) and CBTC entered
into a merger, wherein BPI, as the surviving corporation, acquired all the assets
and assumed all the liabilities of CBTC.
Meanwhile, ELISCON encountered financial difficulties and became heavily
indebted to the Development Bank of the Philippines (DBP). In order to settle its
obligations, ELISCON proposed to convey to DBP by way of dacion en pago all its
fixed assets mortgaged with DBP, as payment for its total indebtedness in the
amount of P201,181,833.16.
On 28 December 1978, ELISCON and DBP executed a Deed of Cession of Property
in Payment of Debt. In June 1981, ELISCON called its creditors to a meeting to
announce the take-over by DBP of its assets. In October 1981, DBP formally took
over the assets of ELISCON, including its indebtedness to BPI.
Thereafter, DBP proposed formulas for the settlement of all of ELISCON's
obligations to its creditors, but BPI expressly rejected the formula submitted to it
for not being acceptable.
Consequently, on 17 January 1983, BPI, as successor-in-interest of CBTC,
instituted with the Regional Trial Court of Makati, Branch 147, a complaint for
sum of money against ELISCON, MULTI and Babst (Civil Case 49226). On 20
February 1987, the trial court rendered its Decision in favor of BPI. In due time,
ELISCON, MULTI and Babst filed their respective notices of appeal. On 29 April
1991, the Court of Appeals rendered a Decision modifying the judgment of the
trial court. ELISCON filed a Motion for Reconsideration of the Decision of the
Court of Appeals which was, however, denied in a Resolution dated 9 March 1992.
Subsequently, ELISCON filed a petition for review on certiorari (GR. 104625).
Meanwhile, Babst also filed a petition for review with the Court (GR 99398)
Issues:
1. W/N the BPI can institute the present case
2. W/N BPI, the surviving corporation in a merger with CBTC, consented to the
assumption by
DBP of the obligations of ELISCON
Held:
1. YES. There was a valid merger between BPI and CBTC. It is settled that in the
merger of two existing corporations, one of the corporations survives and
continues the business, while the other is dissolved and all its rights, properties
and liabilities are acquired by the surviving corporation. Hence, BPI has a right to
institute the present case.
2. YES. Due to the failure of BPI to register its objection to the take-over by DBP
of ELISCON's assets, at the creditors' meeting held in June 1981 and thereafter, it
is deemed to have consented to the substitution of DBP for ELISCON as debtor.
The authority granted by BPI to its account officer to attend the creditors'
meeting was an authority to represent the bank, such that when he failed to
object to the substitution of debtors, he did so on behalf of and for the bank.
Even granting arguendo that the said account officer was not so empowered, BPI
could have subsequently registered its objection to the substitution, especially
after it had already learned that DBP had taken over the assets and assumed the
liabilities of ELISCON.
Its failure to do so can only mean an acquiescence in the assumption by DBP of
ELISCON's obligations. As repeatedly pointed out by ELISCON and MULTI, BPI's
objection was to the proposed payment formula, not to the substitution itself. BPI
gives no cogent reason in withholding its consent to the substitution, other than
its desire to preserve its causes of action and legal recourse against the sureties
of ELISCON. It must be remembered, however, that while a surety is solidarily
liable with the principal debtor, his obligation to pay only arises upon the principal
debtor's failure or refusal to pay. There was no indication that the principal debtor
will default in payment.
In fact, DBP, which had stepped into the shoes of ELISCON, was capable of
payment. Its authorized capital stock was increased by the government. More
importantly, the National Development Company took over the business of
ELISCON and undertook to pay ELISCON's creditors, and earmarked for that
purpose the amount of P4,015,534.54 for payment to BPI. Notwithstanding the
fact that a reliable institution backed by government funds was offering to pay
ELISCON's debts, not as mere surety but as substitute principal debtor, BPI, for
reasons known only to itself, insisted in going after the sureties. BPI's conduct
evinced a clear and unmistakable consent to the substitution of DBP for ELISCON
as debtor. Hence, there was a valid novation which resulted in the release of
ELISCON from its obligation to BPI, whose cause of action should be directed
against DBP as the new debtor. 
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC. vs. EDWARD
WILLKOM
October 11, 2010
Facts:
1. First Iligan Savings and Loan Association, Inc. and Davao Savings and Loan
Association, Inc. are entities duly registered with the SEC primarily engaged in
the business of granting loans and receiving deposits from the general public, and
treated as banks.
2. In 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving
corporation but their articles of merger were not registered with the SEC due to
incomplete documentation. DSLAI changed its corporate name to MSLAI by way
of an amendment to its Articles of Incorporation which was approved by the SEC.
3. In 1986, the Board of Directors of FISLAI passed and approved Board
Resolution assigning its assets in favor of DSLAI which in turn assumed the
former’s liabilities. The business of MSLAI, however, failed. Hence, the Monetary
Board of the Central Bank of the Philippines ordered its liquidation with PDIC as
its liquidator.
4. Prior to the closure of MSLAI, Uy filed with the RTC of Iligan City, an action for
collection of sum of money against FISLAI. The RTC issued a summary decision in
favor of Uy, directing FISLAI to pay. As a consequence, 6 parcels of land owned
by FISLAI were levied and sold to Willkom.
5. In 1995, MSLAI, represented by PDIC, filed before the RTC a complaint for the
annulment of the Sheriff’s Sale alleging that the sale on execution of the subject
properties was conducted without notice to it and PDIC.
6. Respondents, in its answer, averred that MSLAI had no cause of action because
MSLAI is a separate and distinct entity from FISLAI on the ground that the
“unofficial merger” between FISLAI and DSLAI (now MSLAI) did nottake effect
considering that the merging companies did not comply with the formalities and
procedure for merger or consolidation as prescribed by the Corporation Code of
the Philippines.
Issue: Was the merger between FISLAI and DSLAI (now MSLAI) valid and
effective?
Held:
NO.
The merger, does not become effective upon the mere agreement of the
constituent corporations. Since a merger or consolidation involves fundamental
changes in the corporation, as well as in the rights of stockholders and creditors,
there must be an express provision of law authorizing them. The steps necessary
to accomplish a merger or consolidation, as provided for in Sections 76,[24] 77,
[25] 78,[26] and 79[27] of the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation.
Such plan must include any amendment, if necessary, to the articles of
incorporation of the surviving corporation, or in case of consolidation, all the
statements required in the articles of incorporation of a corporation;
(2) Submission of plan to stockholders or members of each corporation for
approval. A meeting must be called and at least two (2) weeks’ notice must be
sent to all stockholders or members, personally or by registered mail. A summary
of the plan must be attached to the notice. Vote of two-thirds of the members or
of stockholders
representing two-thirds of the outstanding capital stock will be needed. Appraisal
rights, when proper, must be respected;
(3) Execution of the formal agreement, referred to as the articles of merger or
consolidation, by the corporate
officers of each constituent corporation. These take the place of the articles of
incorporation of the consolidated corporation, or amend the articles of
incorporation of the surviving corporation;
(4) Submission of said articles of merger or consolidation to the SEC for approval;
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned
at least two weeks before;
(6) Issuance of certificate of merger or consolidation.
Clearly, the merger shall only be effective upon the issuance of a certificate of
merger by the SEC, subject to its prior determination that the merger is not
inconsistent with the Corporation Code or existing laws. In this case, it is
undisputed that the articles of merger between FISLAI and DSLAI were not
registered with the SEC due to incomplete documentation. Consequently, the SEC
did not issue the required certificate of merger. Even if it is true that the Monetary
Board of the Central Bank of the Philippines recognized such merger, the fact
remains that no certificate was issued by the SEC. Such merger is still incomplete
without the certification. The issuance of the certificate of merger is crucial
because not only does it bear out SEC’s approval but it also marks the moment
when the consequences of a merger take place. 
LEE VS CA
G.R. No. 93695 February 4, 1992
Facts:
November 15, 1985: a complaint for a sum of money was filed by the
International Corporate Bank, Inc. (ICB) against the private respondents.
March 17, 1986: private respondents, in turn, filed a 3rd-party complaint against
ALFA and ICB.
September 17, 1987: petitioners filed a motion to dismiss the third party
complaint - denied
July 12, 1988: trial court issued an order requiring the issuance of
an alias summons upon ALFA through the DBP consequence of the petitioner's
letter that ALFA management was transferred to DBP
July 22, 1988: DBP claimed that it was not authorized to receive summons on
behalf of ALFA
August 4, 1988: trial court issued an order advising the private respondents to
take the appropriate steps to serve the summons to ALFA
September 12, 1988: petitioners filed a motion for reconsideration submitting
that Rule 14, section 13 of the Revised Rules of Court is not applicable since they
were no longer officers of ALFA and that the private respondents should have
availed of another mode of service under Rule 14, Section 16 of the said
Rules, i.e., through publication to effect proper service upon ALFA - denied
January 19, 1989: 2nd motion for reconsideration was filed by the petitioners
reiterating their stand that by virtue of the voting trust agreement they ceased to
be officers and directors of ALFA attached a copy of the voting trust agreement
between all the stockholders of ALFA and the DBP whereby the management and
control of ALFA became vested upon the DBP
April 25, 1989: trial court reversed itself by setting aside its previous Order dated
January 2, 1989 and declared that service upon the petitioners who were no
longer corporate officers of ALFA cannot be considered as proper service of
summons on ALFA
October 17, 1989: trial court (NOT notified of the petition for certiorari) declared
final its decision on April 25, 1989
Issue: Whether or not there was proper service of summons on ALFA
Held: No.
Considering that the voting trust agreement between ALFA and the DBP
transferred legal ownership of the stock covered by the agreement to the DBP as
trustee, the latter became the stockholder of record with respect to the said
shares of stocks. In the absence of a showing that the DBP had caused to be
transferred in their names one share of stock for the purpose of qualifying as
directors of ALFA, the petitioners can no longer be deemed to have retained their
status as officers of ALFA which was the case before the execution of the subject
voting trust agreement. There appears to be no dispute from the records that
DBP has taken over full control and management of the firm.
Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:
Sec. 13. Service upon private domestic corporation or partnership. — If the
defendant is a corporation organized under the laws of the Philippines or a
partnership duly registered, service may be made on the president, manager,
secretary, cashier, agent or any of its directors.
It is a basic principle in Corporation Law that a corporation has a personality

separate and distinct from the officers or members who compose it.
The rationale of the afore cited rule is that service must be made on a
representative so integrated with the corporation sued as to make it a priori
supposable that he will realize his responsibilities and know what he should do
with any legal papers served on him.
The petitioners in this case do not fall under any of the enumerated officers. The
service of summons upon ALFA, through the petitioners, therefore, is not valid. To
rule otherwise, as correctly argued by the petitioners, will contravene the general
principle that a corporation can only be bound by such a 
REPUBLIC V. SANDIGANBAYAN
April 30, 2003
Facts: On 7 August 1991, the Presidential Commission on Good Government

(PCGG) conducted an Eastern Telecommunications, Philippines, Inc. (ETPI)
stockholders meeting during which a PCGG controlled board of directors was
elected. A special stockholders meeting was later convened by the registered ETPI
stockholders wherein another set of board of directors was elected, as a result of
which two sets of such board and officers were elected. Victor Africa, a
stockholder of ETPI, alleging that the PCGG had since 29 January 1988 been
"illegally 'exercising' the rights of stockholders of ETPI," especially in the election
of the members of the board of directors, filed a motion before the
Sandiganbayan, prayed that said court order the "calling and holding of the
Eastern Telecommunications, Philippines, Inc. (ETPI) annual stockholders meeting
for 1992 under the [c]ourt's control and supervision and prescribed guidelines."
The PCGG did not object to Africa's motion provided that "(1) An Order be issued
upholding the right of PCGG to vote all the Class "A" shares of ETPI; (2) In the
alternative, in the remote event that PCGG's right to vote the sequestered shares
be not upheld, an Order be issued (a) disregarding the Stock and Transfer Book
and Booklet of Stock Certificates of ETPI in determining who can vote the shares
in an Annual Stockholders Meeting of ETPI, (b) allowing PCGG to vote 23.9% of
the total subscription in ETPI, and (c) directing the amendment of the Articles of
Incorporation and By-laws of ETPI providing for the minimum safeguards for the
conservation of assets prior to the calling of a stockholders meeting. By the
assailed Resolution of 13 November 1992, the Sandiganbayan resolved Africa's
motion, ordering the conduct of an annual stockholders meeting of ETPI, for
1992. Assailing the foregoing resolution, the PCGG filed before the Supreme
Court a petition (GR 107789) for Certiorari, Mandamus and Prohibition.
By Resolution of 26 November 1992, the Supreme Court enjoined the

Sandiganbayan from (a) implementing its Resolution of 13 November 1992, and
(b) holding the stockholders' meeting of ETPI scheduled on 27 November 1992.
On 7 December 1992, Aerocom Investors and Managers, Inc. (AEROCOM), Benito
Nieto, Carlos Nieto, Manuel Nieto III, Ramon Nieto, Rosario Arellano, Victoria
Legarda, Angela Lobregat, Ma. Rita de los Reyes, Carmen Tuazon and Rafael
Valdez, all stockholders of record of ETPI, filed a motion to intervene in GR
107789. Their motion was granted by the Supreme Court by Resolution of 14
January 1993. After the parties submitted their respective memoranda, the
PCGG, in early 1995, filed a "VERY URGENT PETITION FOR AUTHORITY TO HOLD
SPECIAL STOCKHOLDERS' MEETING FOR [THE] SOLE PURPOSE OF INCREASING
[ETPI's] AUTHORIZED CAPITAL STOCK," it claiming that the increase in
authorized capital stock was necessary in light of the requirements laid down by
Executive Order 109 and Republic Act 7975. By Resolution of 7 May 1996, the
Supreme Court resolved to refer the PCGG's very urgent petition to hold the
special stockholders' meeting to the Sandiganbayan for reception of evidence and
resolution. In compliance therewith, the Sandiganbayan issued a Resolution of 13
December 1996, granting the PCGG "authority to cause the holding of a special
stockholders' meeting of ETPI for the sole purpose of increasing ETPI's authorized
capital stock and to vote therein the sequestered Class 'A' shares of stock." The
PCGG-controlled ETPI board of directors thus authorized the ETPI Chair and
Corporate Secretary to call the special stockholders meeting. Notices were sent to
those entitled to vote for a meeting on 17 March 1997. The meeting was held as
scheduled and the increase in ETPI's authorized capital stock from P250 Million to
P2.6 Billion was "unanimously approved." On 1 April 1997, Africa filed before the
Supreme Court a motion to cite the PCGG "and its accomplices" in contempt and
"to nullify the 'stockholders meeting' called/conducted by PCGG and its
accomplices," he contending that only this Court, and not the Sandiganbayan, has
the power to authorize the PCGG to call a stockholders meeting and vote the
sequestered shares. Africa went on to contend that, assuming that the
Sandiganbayan had such power, its Resolution of 13 December 1996 authorizing
the PCGG to hold the stockholders meeting had not yet become final because the
motions for reconsideration of said resolution were still pending. Further, Africa
alleged that he was not given notice of the meeting, and the PCGG had no right
to vote the sequestered Class "A" shares. A motion for leave to intervene relative
to Africa's "Motion to Cite the PCGG and its Accomplices in Contempt" was filed by
ETPI. The Supreme Court granted the motion for leave but ETPI never filed any
pleading relative to Africa's motion to cite the PCGG in contempt. By Resolution of
16 February 2001, the Sandiganbayan finally resolved to deny the motions for
reconsideration of its Resolution of 13 December 1996, prompting Africa to file on
6 April 2001 before the Supreme Court a petition for Review on Certiorari (GR
147214), challenging the Sandiganbayan Resolutions of 13 December 1996
(authorizing the holding of a stockholders meeting to increase ETPI's authorized
capital stock and to vote therein the sequestered Class "A" shares of stock) and
16 February 2001 (denying reconsideration of the December 13, 1996
Resolution). The petitions were consolidated.
Issue:
Whether the PCGG can vote the sequestered ETPI Class "A" shares in the
stockholders meeting for the election of the board of directors.
Whether the Sandiganbayan can order the Division Clerk of Court to call the
stockholders meeting and in appointing then Sandiganbayan Associate Justice
Sabino de Leon, Jr. to control and supervise the same.
Held:
1. When sequestered shares registered in the names of private individuals or

entities are alleged to have been acquired with ill-gotten wealth, then the two-
tiered test is applied. However, when the sequestered shares in the name of
private individuals or entities are shown, prima facie, to have been (1) originally
government shares, or (2) purchased with public funds or those affected with
public interest, then the two-tiered test does not apply. Rather, the public
character exception in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is,
the government shall vote the shares.
2. The Clerk of Court, who is already saddled with judicial responsibilities, need
not be burdened with the additional duties of a corporate secretary. Moreover, the
Clerk of Court may not have the requisite knowledge and expertise to discharge
the functions of a corporate secretary. The case of Board of Directors and Election
Committee of SMB Workers Savings and Loan Asso., Inc. v. Tan, etc., et al. (105
Phil. 426 (1959). Vide also 5 Fletcher Cyc Corp (Perm Ed) §2074; 18A Am Jur
2d ) provides a solution to the Sandiganbayan's dilemma of calling a meeting
when ETPI had two sets of officers. There, the Supreme Court upheld the creation
of a committee empowered to call, conduct and supervise the election of the
board of directors. Such a committee composed of impartial persons
knowledgeable in corporate proceedings would provide the needed expertise and
objectivity in the calling and the holding of the meeting without compromising the
Sandiganbayan or its officers. The appointment of the committee members and
the delineation of the scope of the duties of the committee may be made
pursuant to an agreement by the parties or in accordance with the provisions of
Rule 9 (Management Committee) of the Interim Rules of Procedure for Intra-
Corporate Controversies insofar as they are applicable.
 
Republic of the Philippines vs. COCOFED, et al.
G.R. No. 147062-64 December 14, 2001
Facts: The very roots of this case are anchored on the historic events that
transpired during the change of government in 1986. Immediately after the 1986
EDSA Revolution, then President Corazon C. Aquino issued Executive Order (EO)
Nos. 1, 2 and 14. The Presidential Commission on Good Government (PCGG) was
created by Executive Order No. 1 to assist the President in the recovery of the ill-
gotten wealth thus accumulated whether located in the Philippines or abroad."
Executive Order No. 2 states that the ill-gotten assets and properties are in the
form of bank accounts, deposits, trust accounts, shares of stocks, buildings,
shopping centers, condominiums, mansions, residences, estates, and other kinds
of real and personal properties in the Philippines and in various countries of the
world. Executive Order No. 14, on the other hand, empowered the PCGG, with the
assistance of the Office of the Solicitor General and other government
agencies, inter alia, to file and prosecute all cases investigated by it under EO
Nos. 1 and 2. Pursuant to these laws, the PCGG issued and implemented
numerous sequestrations, freeze orders and provisional takeovers of allegedly ill-
gotten companies, assets and properties, real or personal.
Among the properties sequestered by the Commission were shares of stock in the
United Coconut Planters Bank (UCPB) registered in the names of the alleged "one
million coconut farmers," the so-called Coconut Industry Investment Fund
companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr.
(hereinafter "Cojuangco").
Six years later, on February 13, 2001, the Board of Directors of UCPB received
from the ACCRA Law Office a letter written on behalf of the COCOFED and the
alleged nameless one million coconut farmers, demanding the holding of a
stockholders' meeting for the purpose of, among others, electing the board of
directors. In response, the board approved a Resolution calling for a stockholders'
meeting on March 6, 2001 at three o'clock in the afternoon. On February 23,
2001, "COCOFED, et al. and Ballares, et al." filed the "Class Action Omnibus
Motion" referred to earlier in Sandiganbayan Civil Case Nos. 0033-A, 0033-B and
0033-F, asking the court a quo:
"1. To enjoin the PCGG from voting the UCPB shares of stock registered in the
respective names of the more than one million coconut farmers; and
"2. To enjoin the PCGG from voting the SMC shares registered in the names of the
14 CIIF holding companies including those registered in the name of the PCGG."
On February 28, 2001, respondent court, after hearing the parties on oral
argument, issued the assailed Order.
Hence, this Petition by the Republic of the Philippines represented by the PCGG.
Issue: Whether or not the petitioner has voting rights over the sequestered
shares.
Held: The general rule is that the registered owner of the shares of a corporation
exercises the right and the privilege of voting. This principle applies even to
shares that are sequestered by the government, over which the PCGG as a mere
conservator cannot, as a general rule, exercise acts of dominion.On the other
hand, it is authorized to vote these sequestered shares registered in the names of
private persons and acquired with allegedly ill-gotten wealth, if it is able to satisfy
the two-tiered test devised by the Court in Cojuangco v. Calpo and PCGG v.
Cojuangco Jr., as follows:
(1) Is there prima facie evidence showing that the said shares are ill-gotten and
thus belong to the State?
(2) Is there an imminent danger of dissipation, thus necessitating their continued
sequestration and voting by the PCGG, while the main issue is pending with the
Sandiganbayan?
The Court in Baseco v. PCGG (hereinafter "Baseco") and Cojuangco Jr. v.

Roxas30 ("Cojuangco-Roxas") has provided two clear "public character" exceptions
under which the government is granted the authority to vote the shares:
(1) Where government shares are taken over by private persons or entities who/
which registered them in their own names, and
(2) Where the capitalization or shares that were acquired with public funds
somehow landed in private hands.
The exceptions are based on the common-sense principle that legal fiction must
yield to truth; that public property registered in the names of non-owners is
affected with trust relations; and that the prima facie beneficial owner should be
given the privilege of enjoying the rights flowing from the prima facie fact of
ownership.
In short, when sequestered shares registered in the names of private individuals

or entities are alleged to have been acquired with ill-gotten wealth, then the two-
tiered test is applied. However, when the sequestered shares in the name of
private individuals or entities are shown, prima facie, to have been (1) originally
government shares, or (2) purchased with public funds or those affected with
public interest, then the two-tiered test does not apply. Rather, the public
character exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that
is, the government shall vote the shares.
In the present case before the Court, it is not disputed that the money used to
purchase the sequestered UCPB shares came from the Coconut Consumer
Stabilization Fund (CCSF), otherwise known as the coconut levy funds. Having
conclusively shown that the sequestered UCPB shares were purchased with
coconut levies, we hold that these funds and shares are, at the very least,
"affected with public interest."
Having shown that the coconut levy funds are not only affected with public
interest, but are in fact prima facie public funds, this Court believes that the
government should be allowed to vote the questioned shares, because they
belong to it as the prima facie beneficial and true owner.
As stated at the beginning, voting is an act of dominion that should be exercised

by the share owner. One of the recognized rights of an owner is the right to vote
at meetings of the corporation. The right to vote is classified as the right to
control. Voting rights may be for the purpose of, among others, electing or
removing directors, amending a charter, or making or amending by laws. Because
the subject UCPB shares were acquired with government funds, the government
becomes their prima facie beneficial and true owner.
JUAN D. EVANGELISTA ET AL. vs. RAFAEL SANTOS
G.R. No. L-1721 May 19, 1950
Facts: The complaint alleges that plaintiffs are minority stockholders of the Vitali
Lumber Company, Inc., a Philippine corporation organized for the exploitation of a
lumber concession; that defendant holds more than 50 per cent of the stocks of
said corporation and also is and always has been the president, manager, and
treasurer thereof; and that defendant, in such triple capacity, through fault,
neglect, and abandonment allowed its lumber concession to lapse and its
properties and assets, among them machineries, buildings, warehouses, trucks,
etc., to disappear, thus causing the complete ruin of the corporation and total
depreciation of its stocks.
The complaint does not give plaintiffs' residence, but, but purposes of venue,
alleges that defendant resides at Pasay, province of Rizal. Having been served
with summons at that place, defendant filed a motion for the dismissal of the
complaint on the ground of improper venue and also on the ground that the
complaint did not state a cause of action in favor of plaintiffs.
In support of the objection to the venue, the motion, which is under oath, states
that defendant is a resident of Iloilo City and not of Pasay, and at the hearing of
the motion defendant also presented further affidavit to the effect that while he
has a house in Pasay, where members of his family who are studying in Manila
live and where he himself is sojourning for the purpose of attending to his
interests in Manila, yet he has permanent residence in the City of Iloilo where he
is registered as a voter for election purposes and has been paying his residence
certificate.
The lower court rendered its order, granting the motion for dismissal upon the two
grounds alleged by defendant, and reconsideration of this order having been
denied, plaintiffs have appealed to this Court.
Issue: Whether or not the right of the plaintiffs to bring this action for their
benefit?
Held: No. The complaint shows that the action is for damages resulting from
mismanagement of the affairs and assets of the corporation by its principal
officer, it being alleged that defendant's maladministration has brought about the
ruin of the corporation and the consequent loss of value of its stocks. The injury
complained of is thus primarily to the corporation, so that the suit for the
damages claimed should be by the corporation rather than by the stockholders.
The stockholders may not directly claim those damages for themselves for that
would result in the appropriation by, and the distribution among them of part of
the corporate assets before the dissolution of the corporation and the liquidation
of its debts and liabilities, something which cannot be legally done in view of
section 16 of the Corporation Law, which provides:
No shall corporation shall make or declare any stock or bond dividend or any
dividend whatsoever from the profits arising from its business, or divide or
distribute its capital stock or property other than actual profits among its
members or stockholders until after the payment of its debts and the termination
of its existence by limitation or lawful dissolution.
But while it is to the corporation that the action should pertain in cases of this
nature, however, if the officers of the corporation, who are the ones called upon
to protect their rights, refuse to sue, or where a demand upon them to file the
necessary suit would be futile because they are the very ones to be sued or
because they hold the controlling interest in the corporation, then in that case
any one of the stockholders is allowed to bring suit (3 Fletcher's Cyclopedia of
Corporations, pp. 977-980). But in that case it is the corporation itself and not
the plaintiff stockholder that is the real property in interest, so that such damages
as may be recovered shall pertain to the corporation (Pascual vs. Del Saz Orosco,
19 Phil. 82, 85). In other words, it is a derivative suit brought by a stockholder as
the nominal party plaintiff for the benefit of the corporation, which is the real
property in interest
In the present case, the plaintiff stockholders have brought the action not for the
benefit of the corporation but for their own benefit, since they ask that the
defendant make good the losses occasioned by his mismanagement and pay to
them the value of their respective participation in the corporate assets on the
basis of their respective holdings. Clearly, this cannot be done until all corporate
debts, if there be any, are paid and the existence of the corporation terminated
by the limitation of its charter or by lawful dissolution in view of the provisions of
section 16 of the Corporation Law.
It results that plaintiff's complaint shows no cause of action in their favor so that
the lower court did not err in dismissing the complaint on that ground.
While plaintiffs ask for remedy to which they are not entitled unless the
requirement of section 16 of the Corporation Law be first complied with, we note
that the action stated in their complaint is susceptible of being converted into a
derivative suit for the benefit of the corporation by a mere change in the prayer.
Such amendment, however, is not possible now, since the complaint has been
filed in the wrong court, so that the same last to be dismissed.
FRANCIS CHUA vs. HON. COURT OF APPEALS and LYDIA C. HAO
G.R. No. 150793. November 19, 2004
QUISUMBING, J p:
Facts: Private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed
a complaint-affidavit with the City Prosecutor of Manila charging Francis Chua and
his wife, Elsa Chua, of four counts of falsification of public documents
The City Prosecutor filed the Information for falsification of public document
before the Metropolitan Trial Court (MeTC) of Manila against Francis Chua but
dismissed the accusation against Elsa Chua.
Herein petitioner, Francis Chua, was arraigned and trial ensued thereafter.
Chua moved to exclude complainant's counsels as private prosecutors in the case
on the ground that Hao failed to allege and prove any civil liability in the case.
The MeTC granted Chua's motion and ordered the complainant's counsels to be
excluded from actively prosecuting Criminal Case.
Hao filed a petition for certiorari docketed as SCA No. 99-94846, entitled Lydia C.
Hao, in her own behalf and for the benefit of Siena Realty Corporation v. Francis
Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22,
Metropolitan Trial Court of Manila, before the Regional Trial Court (RTC).
RTC ordered MeTC to allow the intervention of the private prosecutors in behalf of
petitioner Lydia C. Hao in the prosecution of the civil aspect of Criminal Case .
Chua filed before the Court of Appeals a petition for certiorari on the ground that
allowing Siena Realty Corporation to be impleaded as co- petitioner in SCA No.
99-94846 although it was not a party to the criminal complaint in Criminal Case
effectively amended the information against the accused in violation of his
constitutional rights. CA denied the petition.
Argument of Chua: Petitioner had argued before the Court of Appeals that
respondent had no authority whatsoever to bring a suit in behalf of the
Corporation since there was no Board Resolution authorizing her to file the suit.
Likewise, Petitioner avers that a derivative suit is by nature peculiar only to intra-
corporate proceedings and cannot be made part of a criminal action.
Argument of Hao: For her part, respondent Hao claimed that the suit was
brought under the concept of a derivative suit. Respondent maintained that when
the directors or trustees refused to file a suit even when there was a demand
from stockholders, a derivative suit was allowed.
The Court of Appeals held that the action was indeed a derivative suit, for it
alleged that petitioner falsified documents pertaining to projects of the
corporation and made it appear that the petitioner was a stockholder and a
director of the corporation.
Issue: Is the criminal complaint in the nature of a derivative suit?
Held: NO. A derivative action is a suit by a shareholder to enforce a corporate

cause of action. The corporation is a necessary party to the suit. And the relief
which is granted is a judgment against a third person in favor of the corporation.
Similarly, if a corporation has a defense to an action against it and is not
asserting it, a stockholder may intervene and defend on behalf of the corporation.
The complaint was instituted by respondent against petitioner for falsifying
corporate documents whose subject concerns corporate projects of Siena Realty
Corporation. Clearly, Siena Realty Corporation is an offended party. Hence, Siena
Realty Corporation has a cause of action. And the civil case for the corporate
cause of action is deemed instituted in the criminal action.
However, the board of directors of the corporation in this case did not institute the
action against petitioner. Private respondent was the one who instituted the
action. Private respondent asserts that she filed a derivative suit in behalf of the
corporation. This assertion is inaccurate. Not every suit filed in behalf of the
corporation is a derivative suit. For a derivative suit to prosper, it is required that
the minority stockholder suing for and on behalf of the corporation must allege in
his complaint that he is suing on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated who may wish to join him
in the suit. It is a condition sine qua non that the corporation be impleaded as a
party because not only is the corporation an indispensable party, but it is also the
present rule that it must be served with process. The judgment must be made
binding upon the corporation in order that the corporation may get the benefit of
the suit and may not bring subsequent suit against the same defendants for the
same cause of action. In other words, the corporation must be joined as party
because it is its cause of action that is being litigated and because judgment must
be a res adjudicata against it.
In the criminal complaint filed by herein respondent, nowhere is it stated that she
is filing the same in behalf and for the benefit of the corporation. Thus, the
criminal complaint including the civil aspect thereof could not be deemed in the
nature of a derivative suit. 
EXPERTRAVEL & TOURS, INC. vs. COURT OF APPEALS and KOREAN
AIRLINES
G.R. No. 152392 May 26, 2006
Facts:
Korean Airlines (KAL) is a corporation established and registered in the
Republic of South Korea and licensed to do business in the Philippines. Its general
manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty.
Mario Aguinaldo and his law firm.
KAL through Atty. Aguinaldo filed a complaint against ETI. ETI filed a motion
to dismiss on the ground that Atty. Aguinaldo was not authorised to execute the
verification and certification of non-forum shopping.
Atty. Aguinaldo averred that he had been authorised to file a complain
through the resolution of the KAL Board of Directors. KAL submitted on March 6,
2000 an Affidavit of even date, executed by its general manager Suk Kyoo Kim,
alleging that the board of directors conducted a special teleconference on June
25, 1999, which he and Atty. Aguinaldo attended. It was also averred that in that
same teleconference, the board of directors approved a resolution authorizing
Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the
complaint. Suk Kyoo Kim also alleged, however, that the corporation had no
written copy of the aforesaid resolution.
Trial Court issued an order denying the motion to dismiss. The Court of
Appeals rendered judgment dismissing the petition and giving credence to the
verification and certificate of non-forum shopping executed by Atty. Aguinaldo.
Held:
In this case, the petitioner, as the defendant in the RTC, assailed the
authority of Atty. Aguinaldo to execute the requisite verification and certificate of
non-forum shopping as the resident agent and counsel of the respondent. It was,
thus, incumbent upon the respondent, as the plaintiff, to allege and establish that
Atty. Aguinaldo had such authority to execute the requisite verification and
certification for and in its behalf. The respondent, however, failed to do so.
It is settled that the requirement to file a certificate of non-forum shopping
is mandatory and that the failure to comply with this requirement cannot be
excused. The certification is a peculiar and personal responsibility of the party, an
assurance given to the court or other tribunal that there are no other pending
cases involving basically the same parties, issues and causes of action. Hence,
the certification must be accomplished by the party himself because he has actual
knowledge of whether or not he has initiated similar actions or proceedings in
different courts or tribunals. Even his counsel may be unaware of such facts.
Hence, the requisite certification executed by the plaintiff's counsel will not
suffice. In a case where the plaintiff is a private corporation, the certification may
be signed, for and on behalf of the said corporation, by a specifically authorized
person, including its retained counsel, who has personal knowledge of the facts
required to be established by the documents.
The corporation, such as the petitioner, has no powers except those
expressly conferred on it by the Corporation Code and those that are implied by
or are incidental to its existence. In turn, a corporation exercises said powers
through its board of directors and/or its duly-authorized officers and agents.
Physical acts, like the signing of documents, can be performed only by natural
persons duly-authorized for the purpose by corporate by-laws or by specific act of
the board of directors.
There was no allegation that Atty. Aguinaldo had been authorized to
execute the certificate of non-forum shopping by the respondent's Board of
Directors; moreover, no such board resolution was appended thereto or
incorporated therein. While Atty. Aguinaldo is the resident agent of the
respondent in the Philippines, this does not mean that he is authorized to execute
the requisite certification against forum shopping. Under the law, Atty. Aguinaldo
was not specifically authorized to execute a certificate of non-forum shopping as
required by Section 5, Rule 7 of the Rules of Court. This is because while a
resident agent may be aware of actions filed against his principal (a foreign
corporation doing business in the Philippines), such resident may not be aware of
actions initiated by its principal, whether in the Philippines against a domestic
corporation or private individual, or in the country where such corporation was
organized and registered, against a Philippine registered corporation or a Filipino
citizen. 
NESTOR CHING and ANDREW WELLINGTON vs. SUBIC BAY GOLF AND
COUNTRY CLUB
G.R. No. 174353 September 10, 2014
LEONARDO-DE CASTRO, J.:
Facts: Petitioners Nestor Ching and Andrew Wellington filed a Complaint with the
RTC on behalf of the members of Subic Bay Golf and Country Club, Inc. (SBGCCI)
against the said country club and its Board of Directors and officers under the
provisions of Presidential Decree No. 902-A in relation to Section 5.2 of the
Securities Regulation Code.
The Subic Bay Golfers and Shareholders Incorporated (SBGSI), a corporation
composed of shareholders of the defendant corporation, was also named as
plaintiff. The officers impleaded as defendants were the president, treasurer,
corporate secretary, and the directors of the corporation.
The complaint alleged that the defendant corporation sold shares to plaintiffs at
US$22,000.00 per share, presenting to them the Articles of Incorporation which
contained the following provision:
“No profit shall inure to the exclusive benefit of any of its shareholders,
hence, no dividends shall be declared in their favor. Shareholders shall be entitled
only to a pro-rata share of the assets of the Club at the time of its dissolution or
liquidation.”
However, an amendment to the Articles of Incorporation was approved by the
SEC wherein the above provision was changed as follows:
“No profit shall inure to the exclusive benefit of any of its shareholders,
hence, no dividends shall be declared in their favor. In accordance with the Lease
and Development Agreement by and between Subic Bay Metropolitan Authority
and The Universal International Group of Taiwan, where the golf course and
clubhouse component thereof was assigned to the Club, the shareholders
shall not have proprietary rights or interests over the properties of the
Club.”
Petitioners claimed in the Complaint that defendant corporation did not disclose to
them the above amendment which allegedly makes the shares non-proprietary,
as it takes away the right of the shareholders to participate in the pro-rata
distribution of the assets of the corporation after its dissolution. According to
petitioners, this is in fraud of the stockholders who only discovered the
amendment when they filed a case for injunction to restrain the corporation from
suspending their rights to use all the facilities of the club. The Complaint
furthermore enumerated several instances of fraud in the management of the
corporation which allegedly caused stockholders to suffer damages. It further
prayed to enjoin defendants from acting as officers and Board of Directors of the
corporation and the appointment of a receiver to act as such until a duly
constituted Board of Directors and Officers of the Corporation be elected and
qualified.
Respondents contended that petitioners failed (a) to show that it was authorized
by SBGSI to file the Complaint on the said corporation's behalf; (b) to comply
with the requisites for filing a derivative suit and an action for receivership; and
(c) to justify their prayer for injunctive relief since the Complaint may be
considered a nuisance or harassment suit under Section 1 (b), Rule 1 of the
Interim Rules of Procedure for Intra-Corporate Controversies. Thus, they prayed
for the dismissal of the Complaint.
RTC RULING: Dismissed the Complaint.

- The action is a derivative suit. It is intended not only for the benefit of the
two petitioners. This is apparent from the caption of the case which reads
Nestor Ching, Andrew Wellington and the Subic Bay Golfers and
Shareholders, Inc., for and in behalf of all its members as petitioners.
- Being a derivative suit in accordance with Rule 8 of the Interim Rules, the
stockholders and members may bring an action in the name of the
corporation or association provided that he (the minority stockholder)
exerted all reasonable efforts and alleged the same with particularity in the
complaint to exhaust all of remedies available under the articles of
incorporation, by-laws or rules governing the corporation or partnership to
obtain the reliefs he desires. An examination of the petition does not show
any allegation that the petitioners applied for redress to the Board of
Directors of respondent corporation there being no demand, oral or written
on the respondents to address their complaints. Neither did the petitioners
applied for redress to the stockholders of the respondent corporation and
made an effort to obtain action by the stockholders as a whole. Petitioners
should have asked the Board of Directors of the respondent corporation
and/or its stockholders to hold a meeting for the taking up of the
petitioners' rights in this petition.
- Petitioners Ching and Wellington were not authorized by their co-petitioner
Subic Bay Golfers and Shareholders, Inc. to file the Complaint, and
therefore had no personality to file the same on behalf of the said
shareholders' corporation.
- The shareholdings of petitioners comprised of two shares out of the 409
alleged outstanding shares or 0.24% is an indication that the action is a
nuisance or harassment suit which may be dismissed either motu proprio or
upon motion in accordance with Section 1 (b) of the Interim Rules of
Procedure for Intra-Corporate Controversies.
CA RULING: Affirmed RTC decision
Petitioner’s contention/s: Their Complaint was not a derivative suit. They filed the
suit in their own right as stockholders against the officers and Board of Directors
of the corporation under Section 5 (a) of Presidential Decree No. 902-A, which
provides:
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities
and Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide cases
involving:
(a) Devices or schemes employed by or any acts of the board of directors,
business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, members of associations or
organizations registered with the Commission.
According to petitioners, the above provision (which should be read in relation to

Section 5.2 of the SEC which transfers jurisdiction over such cases to the RTC)
allows any stockholder to file a complaint against the Board of Directors for
employing devices or schemes amounting to fraud and misrepresentation which is
detrimental to the interest of the public and/or the stockholders.
Issue:W/N the case is a derivative suit
Held: YES.
Suits by stockholders or members of a corporation based on wrongful or
fraudulent acts of directors or other persons may be classified into individual
suits, class suits, and derivative suits. Where a stockholder or member is denied
the right of inspection, his suit would be individual because the wrong is done to
him personally and not to the other stockholders or the corporation. Where the
wrong is done to a group of stockholders, as where preferred stockholders' rights
are violated, a class or representative suit will be proper for the protection of
all stockholders belonging to the same group. But where the acts complained of
constitute a wrong to the corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or member. Although in most
every case of wrong to the corporation, each stockholder is necessarily affected
because the value of his interest therein would be impaired, this fact of itself is
not sufficient to give him an individual cause of action since the corporation is a
person distinct and separate from him, and can and should itself sue the
wrongdoer. Otherwise, not only would the theory of separate entity be violated,
but there would be multiplicity of suits as well as a violation of the priority rights
of creditors. Furthermore, there is the difficulty of determining the amount of
damages that should be paid to each individual stockholder.
However, in cases of mismanagement where the wrongful acts are committed by
the directors or trustees themselves, a stockholder or member may find that he
has no redress because the former are vested by law with the right to decide
whether or not the corporation should sue, and they will never be willing to sue
themselves. The corporation would thus be helpless to seek remedy. Because of
the frequent occurrence of such a situation, the common law gradually recognized
the right of a stockholder to sue on behalf of a corporation in what eventually
became known as a "derivative suit." It has been proven to be an effective
remedy of the minority against the abuses of management. Thus, an individual
stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holds stock in order to protect or vindicate corporate rights, whenever
officials of the corporation refuse to sue or are the ones to be sued or hold the
control of the corporation. In such actions, the suing stockholder is regarded as
the nominal party, with the corporation as the party in interest.
The effect of a derivative suit, on one hand, and individual and class suits, on the
other, are mutually exclusive. A shareholder's derivative suit seeks to recover for
the benefit of the corporation and its whole body of shareholders when injury is
caused to the corporation that may not otherwise be redressed because of failure
of the corporation to act. Thus, 'the action is derivative, i.e., in the corporate
right, if the gravamen of the complaint is injury to the corporation, or to the
whole body of its stock and property without any severance or distribution among
individual holders, or it seeks to recover assets for the corporation or to prevent
the dissipation of its assets. In contrast, "a direct action is one filed by the
shareholder individually (or on behalf of a class of shareholders to which he or
she belongs) for injury to his or her interest as a shareholder. The two actions
are mutually exclusive: i.e., the right of action and recovery belongs to
either the shareholders (direct action) or the corporation (derivative
action).
The reliefs sought in the Complaint, namely that of enjoining defendants from
acting as officers and Board of Directors of the corporation, the appointment of a
receiver, and the prayer for damages in the amount of the decrease in the value
of the shares of stock, clearly show that the Complaint was filed to curb the
alleged mismanagement of SBGCCI. The causes of action pleaded by petitioners
do not accrue to a single shareholder or a class of shareholders but to the
corporation itself.
However, as minority stockholders, petitioners do not have any statutory right to
override the business judgments of SBGCCI's officers and Board of Directors on
the ground of the latter's alleged lack of qualification to manage a golf course.
Presidential Decree No. 902-A does not grant minority stockholders a cause of
action against waste and diversion by the Board of Directors, but merely identifies
the jurisdiction of the SEC over actions already authorized by law or
jurisprudence. It is settled that a stockholder's right to institute a derivative suit
is not based on any express provision of the Corporation Code, or even the
Securities Regulation Code, but is impliedly recognized when the said laws make
corporate directors or officers liable for damages suffered by the corporation and
its stockholders for violation of their fiduciary duties.
DERIVATIVE SUITS
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies imposes the following requirements for derivative suits:
(1) He was a stockholder or member at the time the acts or transactions subject
of the action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in
the complaint, to exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the corporation or partnership to
obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
Petitioners failed to comply with the second and fourth requisites. The Complaint
should not have been dismissed on the ground that it is a nuisance or harassment
suit. Although the shareholdings of petitioners are indeed only two out of the 409
alleged outstanding shares or 0.24%, the Court has held that it is enough that a
member or a minority of stockholders file a derivative suit for and in behalf of a
corporation.
As to the second requisite, petitioners failed to state with particularity in the
Complaint that they had exerted all reasonable efforts to exhaust all remedies
available under the articles of incorporation, by-laws, and laws or rules governing
the corporation to obtain the relief they desire. The Complaint
contained no allegation whatsoever of any effort to avail of intra-corporate
remedies. Even if petitioners thought it was futile to exhaust intra-corporate
remedies, they should have stated the same in the Complaint and specified the
reasons for such opinion. Failure to do so allows the RTC to dismiss the
Complaint, even motu proprio, in accordance with the Interim Rules.
The wordings of Section 1, Rule 8 of the Interim Rules of Procedure Governing
Intra-Corporate Controversies are simple and do not leave room for statutory
construction. The second paragraph thereof requires that the stockholder filing a
derivative suit should have exerted all reasonable efforts to exhaust all
remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires; and
to allege such fact with particularity in the complaint. The obvious intent
behind the rule is to make the derivative suit the final recourse of the stockholder,
after all other remedies to obtain the relief sought had failed.
Therefore, the petition was denied. 
Lim Tay vs. Court of Appeals
GR 126891 5 August 1998
Facts: On 8 January 1980, Sy Guiok secured a loan from Lim Tay in the amount
of P40,000 payable within 6 months. To secure the payment of the aforesaid loan
and interest thereon, Guiok executed a Contract of Pledge in favor of Lim Tay
whereby he pledged his 300 shares of stock in the Go Fay & Company Inc. Guiok
obliged himself to pay interest on said loan at the rate of 10% per annum from
the date of said contract of pledge. On the same date, Alfonso Sy Lim secured a
loan, from Lim Tay in the amount of P40,000 payable in 6 months. To secure the
payment of his loan, Sy Lim executed a "Contract of Pledge" covering his 300
shares of stock in Go Fay & Co. Under said contract, Sy Lim obliged himself to pay
interest on his loan at the rate of 10% per annum from the date of the execution
of said contract. The contractual stipulation in the pledge showed that Lim Tay
was merely authorized to foreclose the pledge upon maturity of the loans, not to
own them. Such foreclosure is not automatic, for it must be done in a public or
private sale. Guiok and Sy Lim endorsed their respective shares of stock in blank
and delivered the same to Lim Tay. However, Guiok and Sy Lim failed to pay their
respective loans and the accrued interests thereon to Lim Tay. In October 1990,
Lim Tay filed a "Petition for Mandamus" against Go Fay & Co., with the SEC (SEC
Case 03894), praying that an order be issued directing the corporate secretary of
Go Fay & Co. to register the stock transfers and issue new certificates in favor of
Lim Tay; and ordering Go Fay & Co. to pay all dividends due and unclaimed on the
said certificates to Lim Tay. In the interim, Sy Lim died. Guiok and the Intestate
Estate of Alfonso Sy Lim, represented by Conchita Lim, filed their Answer-In-
Intervention with the SEC.
After due proceedings, the SEC hearing officer promulgated a Decision dismissing
Lim Tay's Complaint on the ground that although the SEC had jurisdiction over
the action, pursuant to the Decision of the Supreme Court in the case of "Rural
Bank of Salinas et. al. versus Court of Appeals, et al., 210 SCRA 510," he failed to
prove the legal basis for the secretary of the Corporation to be compelled to
register stock transfers in favor of Lim Tay and to issue new certificates of stock
under his name. Lim Tay appealed the Decision of the hearing officer to the SEC,
but, on 7 March 1996, the SEC promulgated a Decision, dismissing Lim Tay's
appeal. On appeal to the Court of Appeals, the appellate court debunked Lim
Tay's claim that he had acquired ownership over the shares by virtue of novation,
holding that Guiok's and Sy Lim's indorsement and delivery of the shares were
pursuant to Articles 2093 and 2095 of the Civil Code and that Lim Tay's receipt of
dividends was in compliance with Article 2102 of the same Code. Lim Tay's claim
that he had acquired ownership of the shares by virtue of prescription was
likewise dismissed by the appellate court. Lim Tay brought before the Supreme
Court a Petition for Review on Certiorari in accordance with Rule 45 of the Rules
of Court.
Issue: Whether Lim Tay is the owner of the shares previously subjected to
pledge, for him to cause the registration of said shares in his own name.
Held: Lim Tay's ownership over the shares was not yet perfected when the
Complaint was filed. The contract of pledge certainly does not make him the
owner of the shares pledged. Further, whether prescription effectively transferred
ownership of the shares, whether there was a novation of the contracts of pledge,
and whether laches had set in were difficult legal issues, which were unpleaded
and unresolved when Lim Tay asked the corporate secretary of Go Fay to effect
the transfer, in his favor, of the shares pledged to him. Lim Tay has failed to
establish a clear legal right. Lim Tay's contention that he is the owner of the said
shares is completely without merit. Lim Tay does not have any ownership rights
at all. At the time Lim Tay instituted his suit at the SEC, his ownership claim had
no prima facie leg to stand on. At best, his contention was disputable and
uncertain. Lim Tay cannot claim to have acquired ownership over the certificates
of stock through extraordinary prescription, as provided for in Article 1132 of the
Civil Code. What is required by Article 1132 is possession in the concept of an
owner. Herein, Lim Tay's possession of the stock certificates came about because
they were delivered to him pursuant to the contracts of pledge. His possession as
a pledgee cannot ripen into ownership by prescription. Lim Tay expressly
repudiated the pledge, only when he filed his Complaint and claimed that he was
not a mere pledgee, but that he was already the owner of the shares. Based on
the foregoing, Lim Tay has not acquired the certificates of stock through
extraordinary prescription. Neither did Lim Tay acquire the shares by virtue of a
novation of the contract of pledge. Novation cannot be presumed by Guiok's and
Sy Lim's indorsement and delivery of the certificates of stock covering the 600
shares, nor Lim Tay's receipt of dividends from 1980 to 1983, nor the fact that
Guiok and Sy Lim have not instituted any action to recover the shares since 1980.
Novation is never presumed inferred.
Email ThisBlogThis!Share to TwitterShare to Facebook
Rural Bank of Lipa vs. CA
Sept. 28, 2001
Facts: Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City,
executed a Deed of Assignment, wherein he assigned his shares, as well as those
of 8 other shareholders under his control, for a total of 10,467 shares, in favor
of the stockholders of the Bank represented by its directors Bernardo Bautista,
Jaime Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva,
Sr. and his wife, Avelina, executed an Agreement wherein they acknowledged
their indebtedness to the Bank in the amount of P4,000,000.00, and stipulated
that said debt will be paid out of the proceeds of the sale of their real property
described in the Agreement. At a meeting of the Board of Directors of the Bank
on 15 November 1993, the Villanueva spouses assured the Board that their debt
would be paid on or before December 31 of that same year; otherwise, the Bank
would be entitled to liquidate their shareholdings, including those under their
control. In such an event, should the proceeds of the sale of said shares fail to
satisfy in full the obligation, the unpaid balance shall be secured by other
collateral sufficient therefor. When the Villanueva spouses failed to settle their
obligation to the Bank on the due date, the Board sent them a letter demanding:
(1) the surrender of all the stock certificates issued to them; and (2) the delivery
of sufficient collateral to secure the balance of their debt amounting to
P3,346,898.54.
The Villanuevas ignored the bank's demands, whereupon their shares of stock
were converted into Treasury Stocks. Later, the Villanuevas, through their
counsel, questioned the legality of the conversion of their shares. On 15 January
1994, the stockholders of the Bank met to elect the new directors and set of
officers for the year 1994. The Villanuevas were not notified of said meeting. In a
letter dated 19 January 1994, Atty. Amado Ignacio, counsel for the Villanueva
spouses, questioned the legality of the said stockholders' meeting and the validity
of all the proceedings therein. In reply, the new set of officers of the Bank
informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of
the said meeting since they had relinquished their rights as stockholders in favor
of the Bank. Consequently, the Villanueva spouses filed with the Securities and
Exchange Commission (SEC), a petition for annulment of the stockholders'
meeting and election of directors and officers on 15 January 1994, with damages
and prayer for preliminary injunction. Joining them as co-petitioners were
Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo
Reyes, Alejandro Tonogan, and Elena Usi. Named respondents were the newly-
elected officers and directors of the Rural Bank, namely: Bernardo Bautista, Jaime
Custodio, Octavio Katigbak, Francisco Custodio and Juanita Bautista. On 6 April
1994, the Villanuevas' application for the issuance of a writ of preliminary
injunction was denied by the SEC Hearing Officer on the ground of lack of
sufficient basis for the issuance thereof.
Issue: Whether or not there was a valid transfer of the shares to the Bank.
Held: For a valid transfer of stocks, there must be strict compliance with the
mode of transfer prescribed by law. The requirements are: (a) There must be
delivery of the stock certificate: (b) The certificate must be endorsed by the
owner or his attorney-in-fact or other persons legally authorized to make the
transfer; and (c) To be valid against third parties, the transfer must be recorded
in the books of the corporation.
As it is, compliance with any of these requisites has not been clearly and
sufficiently shown. Still, while the assignment may be valid and binding on the
bank, et al. and the Villanuevas, it does not necessarily make the transfer
effective. Consequently, the bank et al., as mere assignees, cannot enjoy the
status of a stockholder, cannot vote nor be voted for, and will not be entitled to
dividends, insofar as the assigned shares are concerned. Parenthetically, the
Villanuevas cannot, as yet, be deprived of their rights as stockholders, until and
unless the issue of ownership and transfer of the shares in question is resolved
with finality.
Ponce v. Alsons Cement Corporation
G. R. No. 139802; December 10, 2002
Quisumbing, J.
Facts: Petitioner Ponce filed a complaint with the SEC for mandamus and
damages against respondents corporation and its coporate secretary Giron,
alleging that a former incorporator of Victory Cement Corp (renamed to Alsons)
who owned 239,500 shares was indorsed to him under a Deed of Undertaking and
Indorsement. However, no certificates of stock was issued in his name or of the
former incorporator despite repeated demands.
Alsons moved to dismiss the complaint on the grounds that petitioner has
no cause of action, was not the real party in interest, and the action was barred
by prescription and laches. It stated that there was no allegation that said
indorsement was not valid as it was not recorded in the books of the corporation,
and therefore does not bind third persons. Thus, There was no legal duty on its
part to issued the certificates of stock.
The SEC hearing officer dismissed the complaint. On appeal before the SEC en
banc, the order was reversed and respondents were required to issue the
certificates of stock ruling that a transfer of stocks need not be registered before
it can take cognizance of the case. The CA however reversed the order of the SEC
en banc.
Issue: Whether or not petitioner was entitled to the certificates of stock for
the stock allegedly indorsed to him.
Ruling: No. The Corporation Code states that: SEC. 63. Certificate of stock and
transfer of shares.·The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the seal of
the corporation shall be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by delivery of the certificate
or certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the
corporation so as to show the names of the parties to the transaction, the date of
the transfer, the number of the certificate or certificates and the number of shares
transferred. No shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation.
Pursuant to the foregoing provision, a transfer of shares of stock not recorded in
the stock and transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on the one hand, and its
shareholders and third persons on the other, the corporation looks only to its
books for the purpose of determining who its shareholders are. It is only when
the transfer has been recorded in the stock and transfer book that a corporation
may rightfully regard the transferee as one of its stockholders. From this time,
the consequent obligation on the part of the corporation to recognize such rights
as it is mandated by law to recognize arises.
As to the issue of mandamus against the corporate secretary, before a
transferee may ask for the issuance of stock certificates, he must first cause the
registration of the transfer and thereby enjoy the status of a stockholder insofar
as the corporation is concerned. A corporate secretary may not be compelled to
register transfers of shares on the basis merely of an indorsement of stock
certificates. With more reason, in our view, a corporate secretary may not be
compelled to issue stock certificates without such registration.
The test of sufficiency of the facts alleged in a petition is whether or not,
admitting the facts alleged, the court could render a valid judgment thereon in
accordance with the prayer of the petition. This test would not be satisfied if, as in
this case, not all the elements of a cause of action are alleged in the complaint.
Where the corporate secretary is under no clear legal duty to issue stock
certificates because of the petitioner’s failure to record earlier the transfer of
shares, one of the elements of the cause of action for mandamus is clearly
missing.
That petitioner was under no obligation to request for the registration of the
transfer is not in issue. It has no pertinence in this controversy. One may own
shares of corporate stock without possessing a stock certificate. In Tan vs. SEC,
we had occasion to declare that a certificate of stock is not necessary to render
one a stockholder in a corporation. But a certificate of stock is the tangible
evidence of the stock itself and of the various interests therein. The certificate is
the evidence of the holder’s interest and status in the corporation, his ownership
of the share represented thereby. The certificate is in law, so to speak, an
equivalent of such ownership. It expresses the contract between the corporation
and the stockholder, but it is not essential to the existence of a share in stock or
the creation of the relation of shareholder to the corporation. In fact, it rests on
the will of the stockholder whether he wants to be issued stock certificates, and a
stockholder may opt not to be issued a certificate. It was also held that
considering that the law does not prescribe a period within which the registration
should be effected, the action to enforce the right does not accrue until there has
been a demand and a refusal concerning the transfer.
Ong Yong v Tiu
GR Nos. 144476 & 144629 April 8, 2003
Facts: In 1994, the construction of the Masagana Citimall in Pasay City was
threatened with stoppage and incompletion when its owner, the First Landlink
Asia Development Corporation (FLADC), which was owned by the Tius,
encountered dire nancial difculties. It was heavily indebted to the Philippine
National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on
the two lots where the mall was being built, the Tius invited Ong Yong, Juanita
Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the
Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they entered
into, the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the
Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while
the Tius were to subscribe to an additional 549,800 shares at P100.00 each in
addition to their already existing subscription of 450,200 shares. Furthermore,
they agreed that the Tius were entitled to nominate the Vice-President and the
Treasurer plus ve directors while the Ongs were entitled to nominate the
President, the Secretary and six directors (including the chairman) to the board of
directors of FLADC. Moreover, the Ongs were given the right to manage and
operate the mall. Accordingly, the Ongs paid P100 million in cash for their
subscription to 1,000,000 shares of stock while the Tius committed to contribute
to FLADC a four-storey building and two parcels of land respectively valued at P20
million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million
(for 49,800 shares) to cover their additional 549,800 stock subscription therein.
The Ongs paid in another P70 million 3 to FLADC and P20 million to the Tius over
and above their P100 million investment, the total sum of which (P190 million)
was used to settle the P190 million mortgage indebtedness of FLADC to PNB. The
business harmony between the Ongs and the Tius in FLADC, however, was
shortlived because the Tius, on February 23, 1996, rescinded the Pre-Subscription
Agreement. The Tius accused the Ongs of refusing to credit to them the FLADC
shares covering their real property contributions.
In their defense, the Ongs asserted that, although the Tius executed a deed of
assignment for the 1,902.30 square-meter lot in favor of FLADC, they (the Tius)
refused to pay P570,690 for capital gains tax and documentary stamp tax.
Without the payment thereof, the SEC would not approve the valuation of the
Tius' property contribution (as opposed to cash contribution). This, in turn, would
make it impossible to secure a new Transfer Certicate of Title (TCT) over the
property in FLADC's name. In any event, it was easy for the Tius to simply pay
the said transfer taxes and, after the new TCT was issued in FLADC's name, they
could then be given the corresponding shares of stocks. On the 151 square-meter
property, the Tius never executed a deed of assignment in favor of FLADC. The
Tius initially claimed that they could not as yet surrender the TCT because it was
"still being reconstituted" by the Lichaucos from whom the Tius bought it. The
Ongs later on discovered that FLADC had in reality owned the property all along,
even before their Pre-Subscription Agreement was executed in 1994. This meant
that the 151 square-meter property was at that time already the corporate
property of FLADC for which the Tius were not entitled to the issuance of new
shares of stock. TEAICc
Issue: w/n the Tius can rescind the pre-subscription agreement
Held: NO
FLADC was originally incorporated with an authorized capital stock of 500,000
shares with the Tius owning 450,200 shares representing the paid-up capital.
When the Tius invited the Ongs to invest in FLADC as stockholders, an increase of
the authorized capital stock became necessary to give each group equal (50-50)
shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized
capital stock was thus increased from 500,000 shares to 2,000,000 shares with a
par value of P100 each, with the Ongs subscribing to 1,000,000 shares and the
Tius to 549,800 more shares in addition to their 450,200 shares to complete
1,000,000 shares. Thus, the subject matter of the contract was the 1,000,000
unissued shares of FLADC stock allocated to the Ongs. Since these were unissued
shares, the parties' Pre-Subscription Agreement was in fact a subscription
contract as defined under Section 60, Title VII of the Corporation Code: Any
contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription within the meaning
of this Title, notwithstanding the fact that the parties refer to it as a purchase or
some other contract (Italics supplied). A subscription contract necessarily involves
the corporation as one of the contracting parties since the subject matter of the
transaction is property owned by the corporation — its shares of stock. Thus, the
subscription contract (denominated by the parties as a PreSubscription
Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of
stock was, from the viewpoint of the law, one between the Ongs and FLADC, not
between the Ongs and the Tius. Otherwise stated, the Tius did not contract in
their personal capacities with the Ongs since they were not selling any of their
own shares to them. It was FLADC that did. Considering therefore that the real
contracting parties to the subscription agreement were FLADC and the Ongs
alone, a civil case for rescission on the ground of breach of contract led by the
Tius in their personal capacities will not prosper. Assuming it had valid reasons to
do so, only FLADC (and certainly not the Tius) had the legal personality to le suit
rescinding the subscription agreement with the Ongs inasmuch as it was the real
party in interest therein. Article 1311 of the Civil Code provides that "contracts
take effect only between the parties, their assigns and heirs. . ." Therefore, a
party who has not taken part in the transaction cannot sue or be sued for
performance or for cancellation thereof, unless he shows that he has a real
interest affected thereby. 17
the Tius are not the proper parties to raise this point because they were not
parties to the subscription contract between FLADC and the Ongs. Thus, they are
not in a position to claim that the shareholders agreement between them and the
Ongs was what induced FLADC and the Ongs to enter into the subscription
contract. It is the Ongs alone who can say that. Though FLADC was represented
by the Tius in the subscription contract, FLADC had a separate juridical
personality from the Tius. The case before us does not warrant piercing the veil of
corporate ction since there is no proof that the corporation is being used "as a
cloak or cover for fraud or illegality, or to work injustice."
However, although the Tius were adversely affected by the Ongs' unwillingness to
let them assume their positions, rescission due to breach of contract is denitely
the wrong remedy for their personal grievances. The Corporation Code, SEC rules
and even the Rules of Court provide for appropriate and adequate intra-corporate
remedies, other than rescission, in situations like this. Rescission is certainly not
one of them, specially if the party asking for it has no legal personality to do so
and the requirements of the law therefor have not been met. A contrary doctrine
will tread on extremely dangerous ground because it will allow just any
stockholder, for just about any real or imagined offense, to demand rescission of
his subscription and call for the distribution of some part of the corporate assets
to him without complying with the requirements of the Corporation Code.
In the instant case, the rescission of the Pre-Subscription Agreement will

effectively result in the unauthorized distribution of the capital assets and
property of the corporation, thereby violating the Trust Fund Doctrine and the
Corporation Code, since rescission of a subscription agreement is not one of the
instances when distribution of capital assets and property of the corporation is
allowed. Contrary to the Tius' allegation, rescission will, in the nal analysis, result
in the premature liquidation of the corporation without the benet of prior
dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation
Code. 
Long vs. Basa
27 September 2001
Facts: In 1973, a religious group known as "The Church In Quezon City (Church
Assembly Hall), Incorporated" (CHURCH) was organized as "an entity of the
brotherhood in Christ.'' The members of the CHURCH vested upon the Board of
Directors the absolute power to preserve and protect their faith and to admit and
expel a member of the CHURCH. Only "persons zealous of the Gospel, faithful in
Church work and of sound knowledge of the Truth, as the Board of Directors shall
admit to membership, shall be members of the (CHURCH)."
On 1988, the Board of Directors observed that certain members of the CHURCH,
including Alfredo Long, Joseph Lim, Liu Yek See, and Felix Almeria, exhibited
"conduct which was dishonorable, improper and injurious to the character and
interest of the (CHURCH)" by "introducing (to the members) doctrines and
teachings which were not based on the Holy Bible" and the Principles of Faith
embraced by the CHURCH. Confronted with this situation, Lydia Basa, Anthony
Sayheeliam and Yao Chek, as members of the Board of Directors, and some
responsible members of the CHURCH, advised Long, et al. "to correct their ways"
and warned them that if they persist in their highly improper conduct, they will be
dropped from the membership of the CHURCH; during Sunday worship
gatherings, "in small group meetings and even one-on-one personal talk with
them." Long et al. ignored these repeated admonitions.
Alarmed that Long, et al.'s conduct will continue to undermine the integrity of the
Principles of Faith of the CHURCH, the Board of Directors, during its regular
meeting held for the purpose of reviewing and updating the membership list of
the CHURCH, removed from the said list certain names of members, including the
names of Joseph Lim, Liu Yek See, Alfredo Long and Felix Almeria The Board also
updated the list by removing the names of those who have migrated to other
countries, those deceased and those whom the CHURCH had lost contact with.
The updated membership list approved by the Board on 30 Aug. 1993, together
with the minutes of the meeting, were duly filed with the SEC on 13 Sept. 1993.
On 29 Sept. 1993, Lim Che Boon, Tan Hon Koc, Joseph Lim, Liu Yek See and
others questioned their expulsion by filing with the SEC Securities Investigation
and Clearing Department a petition (SEC Case 09 93-4581, and later a
supplemental petition) against Directors Yao Chek, Leandro Basa, Lydia Basa and
Anthony Sayheeliam. It sought mainly the annulment of the 30 August 1993
membership list and the reinstatement of the original list on the ground that the
expulsion was made without prior notice and hearing. After conducting a hearing
on the application for a writ of preliminary injunction, SEC Hearing Officer Manuel
Perea denied the hearing for a writ of preliminary injunction. It was elevated to
the SEC en banc which dismissed it for lack of merit.
On 31 July 1996, the SEC en banc, issued an order in SEC EB Case 484, setting
aside the expulsion of certain members of the CHURCH approved by its Board of
Directors on 30 August 1993 for being void and ordering the reinstatement of
Long, et al. as members of the CHURCH. Promptly, Sayheeliam and Basa filed a
petition for review with the Court of Appeals (CA-GR SP 41551). Yao Check, for
his part, filed a motion for reconsideration of the same order. Upon denial of his
motion he also filed with the Court of Appeals a petition for review (CA-GR SP
43389), which was consolidated with CA-GR SP 41551). On 29 May 1998, the CA
promulgated its decision granting Basa, et al.'s consolidated petitions and
reversing the 31 July 1996 order of the SEC en banc in SEC EB Case 484. Long,
et al. filed a motion for reconsideration but was denied by the appellate court in a
resolution dated 18 Aug 1998. Long, Lim Che Boon, et al. filed the petitions for
review, which were subsequently consolidated.
Issue: Whether the expulsion of Joseph Lim, Liu Yek See, Alfredo Long and Felix
Almeria from the membership of the CHURCH by its Board of Directors through a
resolution issued on August 30, 1993 is in accordance with law.
Held: The By-laws of the CHURCH, which the members have expressly adhered
to, does not require the Board of Directors to give prior notice to the erring or
dissident members in cases of expulsion.
In the By-law provision, the only requirements before a member can be expelled
or removed from the membership of the CHURCH are: (a) the Board of Directors
has been notified that a member has failed to observe any regulations and By-
laws of the CHURCH, or the conduct of any member has been dishonorable or
improper or otherwise injurious to the character and interest of the CHURCH, and
(b) a resolution is passed by the Board expelling the member concerned, without
assigning any reason therefor.
Thus, a member who commits any of the causes for expulsion enumerated in
paragraph 4 of Article VII may be expelled by the Board of Directors, through a
resolution, without giving that erring member any notice prior to his expulsion.
The resolution need not even state the reason for such action. The CHURCH By-
law provision on expulsion, as phrased, may sound unusual and objectionable as
there is no requirement of prior notice to be given to an erring member before he
can be expelled; but that is how peculiar the nature of a religious corporation is
vis-a-vis an ordinary corporation organized for profit. It must be stressed that the
basis of the relationship between a religious corporation and its members is the
latter's absolute adherence to a common religious or spiritual belief .
Once this basis ceases, membership in the religious corporation must also cease.
Thus, generally, there is no room for dissension in a religious corporation. And
where any member of a religious corporation is expelled from the membership for
espousing doctrines and teachings contrary to that of his church, the established
doctrine in this jurisdiction is that such action from the church authorities is
conclusive upon the civil courts. Obviously recognizing the peculiarity of a
religious corporation, the Corporation Code leaves the matter of ecclesiastical
discipline to the religious group concerned. Section 91 of the Corporation Code,
which has been made explicitly applicable to religious corporations by the second
paragraph of Section 109 of the same Code, provides for the termination of
membership. It provides that "Membership shall be terminated in the manner and
for the causes provided in the articles of incorporation or the by-laws.
Termination of membership shall have the effect of extinguishing all rights of a

member in the corporation or in its property, unless otherwise provided in the
articles of incorporation or the by-laws." In fact, Long, et al. really have no reason
to bewail the lack of prior notice in the By-laws. They have waived such notice by
adhering to those By-laws. They became members of the CHURCH voluntarily.
They entered into its covenant and subscribed to its rules. By doing so, they are
bound by their consent. Even assuming that Long, et al.'s expulsion falls within
the Constitutional provisions on "prior notice" or "due process," still the Court can
not conclude that Basa, et al. committed a constitutional infraction. Long, et al.
were given more than sufficient notice of their impending expulsion, as shown by
the records.
Sta. Clara Homeowners' Association (SCHA) vs. Spouses Gaston
G.R. No. 141961 January 23, 2002
Facts: Spouses Victor Ma. Gaston and Lydia M. Gaston were residents of San
Jose Avenue, Sta. Clara Subdivision, Mandalagan, Bacolod City. They purchased
their lots sometime in 1974, and at the time of purchase, there was no mention
or requirement of membership in any homeowners' association. From that time
on, they have remained non-members of SCHA. They also stated that an
arrangement was made wherein homeowners who were non-members were
issued "non-member" gate pass stickers for their vehicles for identification by the
security guards. This arrangement remained undisturbed until sometime in the
middle of March 1998, when SCHA disseminated a board resolution which
decreed that only its members in good standing were to be issued stickers for use
in their vehicles. Thereafter, on three separate incidents, Victor M. Gaston, the
son of the spouses Gaston who lives with them, was required by the guards on
duty employed by SCHA to show his driver's license as a prerequisite to his
entrance to the subdivision and to his residence therein despite their knowing him
personally and the exact location of his residence.
On March 1998, Victor Ma. Gaston was himself prevented from entering the
subdivision and proceeded to his residence when security guards lowered the
steel bar of the subdivision gate and demanded from him his driver's license for
identification. Spouses Gaston filed a complaint for damages with preliminary
injunction/preliminary mandatory injunction and TRO before RTC Negros
Occidental against SCHA thru its Board of Directors, the security guards, and
Santa Clara Estate, Inc., alleging that the acts of SCHA, et al., done in the
presence of other subdivision owners had caused the spouses Gaston to suffer
moral damage. SCHA, et al. filed a MTD arguing that RTC had no jurisdiction over
the case as it involved an intra-corporate dispute between SCHA and its members
pursuant to RA 580, as amended, much less, to declare as null and void the
subject resolution of the board of directors of SCHA, the proper forum being the
Home insurance and Guaranty Corporation (HIGC). To support their claim of intra-
corporate controversy, SCHA, et al. stated that the Articles of Incorporation of
SCHA, which was duly approved by SEC, which provides "that the association
shall be a non-stock corporation with all homeowners of Sta. Clara constituting its
membership"; and that its by-laws contains a provision that "all real estate
owners in Sta. Clara Subdivision automatically become members of the
association" among others. RTC denied the MTD, finding that there existed no
intra-corporate controversy since the Spouses Gaston alleged that they had never
joined the association.
CA denied the petition and MR.
Issue: W/N Spouses Gaston are members of the SCHA.
Held: NO. The constitutionally guaranteed freedom of association includes the

freedom not to associate. The right to choose with whom one will associate
oneself is the very foundation and essence of that partnership. Further, the Sps.
Gaston cannot be compelled to become members of the SCHA by the simple
expedient of including them in its Articles of Incorporation and By-laws without
their express or implied consent. True, it may be to the mutual advantage of lot
owners in a subdivision to band themselves together to promote their common
welfare, but that is possible only if the owners voluntarily agree, directly or
indirectly, to become members of the association. True also, membership in
homeowners' associations may be acquired in various ways — often through
deeds of sale, Torrens certificates or other forms of evidence of property
ownership. Herein, however, other than the said Articles of Incorporation and By-
laws, there is no showing that the Sps. Gaston have agreed to be SCHA
members. The approval by the SEC of the said documents is not an operative act
which bestows membership on the Spouses Gaston because the right to associate
partakes of the nature of freedom of contract which can be exercised by and
between the homeowners amongst themselves, the homeowners' association and
a homeowner, and the subdivision owner and a homeowner/lot buyer. C l e a r l y ,
there is no privity of contract between SCHA and Sps. Gaston. When the spouses
purchased their property in 1974 and obtained Transfer Certificates, there was no
annotation showing their automatic membership in the SCHA. Furthermore, the
records are bereft of any evidence that would indicate that the spouses intended
to become members of the SCHA. Prior to the implementation of the aforesaid
Resolution, they and the other homeowners who were not members of the
association were issued non-member gate pass stickers for their vehicles; a fact
not disputed by SCHA. Thus, the SCHA recognized that there were subdivision
landowners who were not members thereof, notwithstanding the provisions of its
Articles of Incorporation and By-laws. 
PADCOM CONDOMINIUM CORPORATION VS. ORTIGAS CENTER
ASSOCIATION, INC.
G.R. No. 146807; May 9, 2002
Davide, Jr., C.J.
Facts: Petitioner Padcom Condominium Corporation (PADCOM) owns and

manages the Padilla Office Condominium Building (PADCOM Building). The land
on which the building stands was originally acquired from the Ortigas & Company
by Tierra Development Corporation (TDC) under a Deed of Sale with a condition
that the transferee and its successor-in-interest must become members of an
association for realty owners and long-term lessees in the area later known as the
Ortigas Center. Subsequently, the said lot, together with the improvements
thereon, was conveyed by TDC in favor of PADCOM in a Deed of Transfer.
Thereafter, respondent Ortigas Center Association, Inc. (ASSOCIATION) was

organized to advance the interests and promote the general welfare of the real
estate owners and long-term lessees of the lots in the Ortigas Center and sought
the collection of membership dues from PADCOM. In view of PADCOM'S failure
and refusal to pay its arrears in monthly dues, the Association filed a complaint
for collection of sum of money before the trial court, but the same was dismissed.
On appeal, the Court of Appeals reversed and set aside the trial court's dismissal.
PADCOM contended that it is a non-stock, non-profit association, and for it to

become a special member of the Association, it should first apply for and be
accepted for membership by the latter's Board of Directors. No automatic
membership was apparently contemplated in the Association's By-laws. PADCOM
added that it could not be compelled to become a member without violating its
right to freedom of association.
 
Issue: Whether or not PADCOM is liable to pay the membership dues
 
Held: Yes. Under the Torrens system of registration, claims and liens of whatever
character, except those mentioned by law, existing against the land binds the
holder of the title and the whole world. Evidently, it was agreed by the parties
that dues shall be collected from an automatic member and such fees or
assessments shall be a lien on the property. Moreover, Article 1311 of the Civil
Code provides that contracts take effect between the parties, their assigns and
heirs. Since PADCOM is the successor-in-interest of TDC, it follows that the
stipulation on automatic membership with the Association is also binding on the
former.
We are not persuaded by PADCOM's contention that the By-laws of the

Association requires application for membership and acceptance thereof by the
Board of Directors. As lot owner, PADCOM is a regular member of the
Association. No application for membership is necessary. If at all, acceptance by
the Board of Directors is a ministerial function considering that PADCOM is
deemed to be a regular member upon the acquisition of the lot pursuant to the
automatic membership clause annotated in the Certificate of Title of the property
and the Deed of Transfer.
Having ruled that PADCOM is a member of the Association, it is obligated to pay

its dues incidental thereto under Article 1159 of the Civil Code. Assuming in gratis
argumenti that PADCOM is not a member of the Association, it cannot evade
payment without violating the equitable principles underlying quasi-contracts.
TAN v. SYCIP
17 August 2006
Facts: Grace Christian High School (GCHS) is a nonstock, non-profit

educationalcorporation with 15 regular members, who also constitute the board of
trustees. During the annual members’ meeting, there were only 11 living
member-trustees, as 4 have already died.
Out of the 11, 7 attended the meeting through their respective proxies. The
meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection
of Atty. Antonio C.Pacis, who argued that there was no quorum.
In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith
Tan were voted to replace the four deceased member-trustees. The controversy
reached SEC and the petitioners maintained that the deceased member-trustees
should not be counted in the computation of the quorum because, upon their
death, members automatically lost all their rights (including the right to vote) and
interests in the corporation. SEC declared the meeting null and void and ruled
that the phrase “entitled to vote” under Sec 24 should be read with Sec 89 of
Corpo Code.
Issue: W/N in a non-stock corporation, should dead members still be counted in

determination of quorum for purposed of conducting the Annual Members’
Meeting
Held: NO. In non-stock corporations, the voting rights attach to membership.

Members vote as persons, in accordance with the law and the by-laws of the
corporation. Each member shall be entitled to one vote unless so limited,
broadened, or denied in the articles of incorporation or bylaws. We hold that when
the principle for determining the quorum for stock corporations is applied by
analogy to non-stock corporations, only those who are actual members with
voting rights should be counted.
Under Section 52 of the Corporation Code, the majority of the members
representing the actual number of voting rights, not the number or numerical
constant that may originally be specified in the articles of incorporation,
constitutes the quorum.
Section 25 of the Code specifically provides that a majority of the directors or
trustees, as fixed in the articles of incorporation, shall constitute a quorum for the
transaction of corporate business (unless the articles of incorporation or the
bylaws provide for a greater majority). If the intention of the lawmakers was to
base the quorum in the meetings of stockholders or members on their absolute
number as fixed in the articles of incorporation, it would have expressly specified
so. Otherwise, the only logical conclusion is that the legislature did not have that
intention.
In stock corporations, shareholders may generally transfer their shares. Thus, on
the death of a shareholder, the executor or administrator duly appointed by the
Court is vested with the legal title to the stock and entitled to vote it. Until a
settlement and division of the estate is effected, the stocks of the decedent are
held by the administrator or executor.
On the other hand, membership in and all rights arising from a non-stock
corporation are personal and non-transferable, unless the articles of incorporation
or the bylaws of the corporation provide otherwise. In other words, the
determination of whether or not dead members are entitled to exercise their
voting rights (through their executor or administrator), depends on those articles
of incorporation or bylaws.
Under the By-Laws of GCHS, membership in the corporation shall, among others,
be terminated by the death of the member. Section 91 of the Corporation Code
further provides that termination extinguishes all the rights of a member of the
corporation, unless otherwise provided in the articles of incorporation or the
bylaws.
Applying Section 91 to the present case, we hold that dead members who are
dropped from the membership roster in the manner and for the cause provided
for in the By-Laws of GCHS are not to be counted in determining the requisite
vote in corporate matters or the requisite quorum for the annual members
meeting. With 11 remaining members, the quorum in the present case should be
6. Therefore, there being a quorum, the annual members meeting, conducted
with six members present, was valid. 
Manuel R. Dulay Enterprises vs. Court of Appeals
GR 91889, 27 August 1993
Facts:
1. Dulay Enterprises, Inc. is a domestic corporation with the following as
members of its Board of Directors: Manuel R. Dulay with 19,960 shares and
designated as president, treasurer and general manager; Atty. Virgilio E. Dulay
with 10 shares and designated as vice-president; Linda E. Dulay with 10 shares;
Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and
designated as secretary,
2. The corporation owned a property known as Dulay Apartment consisting of 16
apartment units.
3. The corporation through its president, Manuel Dulay, obtained various loans for
the construction of its hotel project, Dulay Continental Hotel. It even had to
borrow money from Virgilio Dulay to be able to continue the hotel project. As a
result of said loan, Virgilio Dulay occupied one of the unit apartments of the
subject property since 1973 while at the same time managing the Dulay
Apartment
4. Manuel Dulay by virtue of Board Resolution 18 of the corporation sold the
subject property to spouses Maria Theresa and Castrense Veloso in the amount of
P300,000.00 as evidenced by the Deed of Absolute Sale.
5. Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject
property to Manuel A. Torres for a loan of P250,000.00 which was duly annotated.
Upon the failure of Maria Veloso to pay Torres, the subject property was sold to
Torres as the highest bidder in an extrajudicial foreclosure sale.
6. Torres filed a petition for the issuance of a writ of possession against spouses
Veloso and Manuel Dulay . However, when Virgilio Dulay appeared in court to
intervene in said case alleging that Manuel Dulay was never authorized by the
corporation to sell or mortgage the subject property, the trial court ordered Torres
to implead the corporation as an indispensable party.
Issue: Whether the sale of the subject property between spouses Veloso and
Manuel Dulay has no binding effect on the corporation as Board Resolution which
authorized the sale of the subject property was resolved without the approval of
all the members of the board of directors and said Board Resolution was prepared
by a person not designated by the corporation to be its secretary.
Held: yes, the sale is binding on the corporation.

Section 101 of the Corporation Code of the Philippines provides that "When board
meeting is unnecessary or improperly held. Unless the by-laws provide otherwise,
any action by the directors of a close corporation without a meeting shall
nevertheless be deemed valid if: (1) Before or after such action is taken, written
consent thereto is signed by all the directors; or (2) All the stockholders have
actual or implied knowledge of the action and make no prompt objection thereto
in writing; or (3) The directors are accustomed to take informal action with the
express or implied acquiesce of all the stockholders; or (4) All the directors have
express or implied knowledge of the action in question and none of them makes
prompt objection thereto in writing. If a directors' meeting is held without proper
call or notice, an action taken therein within the corporate powers is deemed
ratified by a director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge thereof."
Herein, the corporation is classified as a close corporation and consequently a
board resolution authorizing the sale or mortgage of the subject property is not
necessary to bind the corporation for the action of its president. At any rate, a
corporate action taken at a board meeting without proper call or notice in a close
corporation is deemed ratified by the absent director unless the latter promptly
files his written objection with the secretary of the corporation after having
knowledge of the meeting which, in this case, Virgilio Dulay failed to do. The
corporation's claim that the sale of the subject property by its president, Manuel
Dulay, to spouses Veloso is null and void as the alleged Board Resolution 18 was
passed without the knowledge and consent of the other members of the board of
directors cannot be sustained. Virgilio E. Dulay's protestations of complete
innocence to the effect that he never participated nor was even aware of any
meeting or resolution authorizing the mortgage or sale of the subject premises is
difficult to believe. On the contrary, he is very much privy to the transactions
involved. To begin with, he is an incorporator and one of the board of directors
designated at the time of the organization of Manuel R. Dulay Enterprises, Inc. In
ordinary parlance, the said entity is loosely referred to as a "family corporation."
The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a
group and the parochial instincts of the individual members of such an
aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its
incorporators being close relatives namely, 3 children and their father whose
name identifies their corporation. Besides, the fact that Virgilio Dulay on 24 June
1975 executed an affidavit that he was a signatory witness to the execution of the
post-dated Deed of Absolute Sale of the subject property in favor of Torres
indicates that he was aware of the transaction executed between his father and
Torres and had, therefore, adequate knowledge about the sale of the subject
property to Torres. Consequently, the corporation is liable for the act of Manuel
Dulay and the sale of the subject property to Torres by Manuel Dulay is valid and
binding.
San Juan Structural and Steel Fabricators, Inc. vs Court of Appeals
296 SCRA 631 GR No. 129459 September 29, 1998
Facts: In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan)
alleged that it entered into a contract of sale with Motorich Sales Corporation
(Motorich) through the latter’s treasurer, Nenita Gruenberg. The subject of the
sale was a parcel of land owned by Motorich. San Juan advanced P100k to Nenita
as earnest money.
On the day agreed upon on which Nenita was supposed to deliver the title of the
land to Motorich, Nenita did not show up. Nenita and Motorich did not heed the
subsequent demand of San Juan to comply with the contract hence San Juan
sued Motorich. Motorich, in its defense, argued that it is not bound by the acts of
its treasurer, Nenita, since her act in contracting with San Juan was not
authorized by the corporate board.
San Juan raised the issue that Nenita was actually the wife of the President of
Motorich; that Nenita and her husband owns 98% of the corporation’s capital
stocks; that as such, it is a close corporation and that makes Nenita and the
President as principal stockholders who do not need any authorization from the
corporate board; that in this case, the corporate veil may be properly pierced.
Issues:
Whether or not the corporation’s treasurer act can bind the corporation.
Whether or not the doctrine of piercing the veil of corporate entity is applicable.
Held: No. Such contract cannot bind Motorich, because it never authorized or
ratified such sale.
A corporation is a juridical person separate and distinct from its stockholders or

members. Accordingly, the property of the corporation is not the property of the
corporation is not the property of its stockholders or members and may not be
sold by the stockholders or members without express authorization from the
corporation’s board of directors.
Section 23 of BP 68 provides the Board of Directors or Trustees – Unless

otherwise provided in this code, the corporate powers of all corporations formed
under this code shall be exercised, all business conducted, and all property of
such corporations controlled and held by the board of directors or trustees to be
elected from among the stockholders of stocks, or where there is no stock, from
among the members of the corporations, who shall hold office for 1 year and until
their successors are elected and qualified.
As a general rule, the acts of corporate officers within the scope of their authority
are binding on the corporation. But when these officers exceed their authority,
their actions, cannot bind the corporation, unless it has ratified such acts as is
estopped from disclaiming them.
Because Motorich had never given a written authorization to respondent
Gruenbeg to sell its parcel of land, we hold that the February 14, 1989 agreement
entered into by the latter with petitioner is void under Article 1874 of the Civil
Code. Being inexistent and void from the beginning, said contract cannot be
ratified.
The statutorily granted privilege of a corporate veil may be used only for
legitimate purposes. On equitable consideration,the veil can be disregarded when
it is utilized as a shield to commit fraud, illegality or inequity, defeat public
convenience; confuse legitimate issues; or serve as a mere alter ego or business
conduit of a person or an instrumentality, agency or adjunct of another
corporation.
We stress that the corporate fiction should be set aside when it becomes a shield
against liability for fraud, or an illegal act on inequity committed on third person.
The question of piercing the veil of corporate fiction is essentially, then a matter
of proof. In the present case, however, the court finds no reason to pierce the
corporate veil of respondent Motorich. Petitioner utterly failed to establish the said
corporation was formed, or that it is operated for the purpose of shielding any
alleged fraudulent or illegal activities of its officers or stockholders; or that the
said veil was used to conceal fraud, illegality or inequity at the expense of third
persons like petitioner.
IGLESIA EVANGELICA v. BISHOP LAZARO
6 July 2010
Facts: In 1909, Bishop Nicolas Zamora established the petitioner Iglesia
Evangelica Metodista En Las Islas Filipinas, Inc. (IEMELIF) as a corporation
sole. Thirty-nine years later, the IEMELIF enacted and registered a by-
laws that established a Supreme Consistory of Elders (the Consistory),
made up of church ministers. The by-laws empowered the Consistory to elect
officers who would manage the affairs of the organization. For all intents and
purposes, the Consistory served as the IEMELIF’s board of directors.
Although the IEMELIF remained a corporation sole on paper, it had always acted
like a corporation aggregate. The Consistory exercised IEMELIF’s
decision-making powers without ever being challenged.
Subsequently, during its 1973 General Conference, the general membership
voted to put things right by changing IEMELIF’s organizational structure
from a corporation sole to a corporation aggregate. On May 7, 1973 the
Securities and Exchange Commission (SEC) approved the vote. However, the
corporate papers of the IEMELIF remained unaltered as a corporation
sole.
 
About 28 years later, did the issue reemerge. In answer to a query from the
IEMELIF, the SEC replied 
although the SEC Commissioner did not in 1948 object to the conversion of the
IEMELIF into a corporation aggregate, that conversion was not properly carried
out and documented. The SEC said that the IEMELIF needed to amend its
articles of incorporation for that purpose.
Acting on this advice, the Consistory resolved to convert the IEMELIF to a
corporation aggregate. Respondent Bishop Nathanael Lazaro, its General
Superintendent, instructed all their congregations to take upthe matter with their
respective members for resolution. Subsequently, the general membership
approved the conversion, prompting the IEMELIF to file amended articles
of incorporation with the SEC. Bishop Lazaro filed an affidavit-certification in
support of the conversion.
 
Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that
did not support the conversion, filed a civil case for "Enforcement of Property
Rights of Corporation Sole, Declaration of Nullity of AmendedArticles of
Incorporation from Corporation Sole to Corporation Aggregate with Application for
Preliminary Injunction and/or Temporary Restraining Order" in IEMELIF’s name
against respondent members of its Consistory before the Regional Trial Court
(RTC) of Manila.
 
Petitioners claim that a complete shift from IEMELIF’s status as a
corporation sole to a corporation aggregate required, not just an
amendment of the IEMELIF’s articles of incorporation, but a complete
dissolution of the existing corporation sole followed by a re-
incorporation. Unimpressed, the RTC dismissed the action. It held that,
while the Corporation Code on Religious 
Corporations (Chapter II, Title XIII) has no provision governing the amendment
of the articles of incorporation of a corporation sole, its Section 109 provides that
religious corporations shall be governed additionally "by the provisions on non-
stock corporations insofar as they may be applicable." The RTC thus held that
Section 16 of the Code that governed amendments of the articles of incorporation
of non-stock corporations applied to corporations sole as well. What IEMELIF
needed to authorize the amendment was merely the vote or written assent of at
least two-thirds of the IEMELIF membership. CA rendered a decision,
affirming that of the RTC. Motion for reconsideration was likewise denied.
Hence, the present petition for review before this Court.
Issue: The present dispute resolves the issue of whether or not a corporation
may change its character as a corporation sole into a corporation aggregate by
mere amendment of its articles of incorporation without first going through the
process of dissolution.
Held: Religious corporations are governed by Sections 109 through 116 of the
Corporation Code. In a 2009 case involving IEMELIF, the Court distinguished a
corporation sole from a corporation aggregate. Citing Section 110 of the
Corporation Code, the Court said that a corporation sole is "one formed by the
chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a
religious denomination, sect, or church, for the purpose of administering or
managing, as trustee, the affairs, properties and temporalities of such religious
denomination, sect or church." A corporation aggregate formed for the same
purpose, on the other hand, consists of two or more persons.
RTC correctly held that Section 109 of the Corporation Code allows the application
to religious corporations of the general provisions governing non-stock
corporations.
For non-stock corporations, the power to amend its articles of incorporation lies in
its members. The code requires two-thirds of their votes for the approval of such
an amendment. However, if such approval mechanism is made to operate in a
corporation sole, its one member in whom all the powers of the corporation
technically belongs, needs to get the concurrence of two-thirds of its
membership. The one member, here the General Superintendent, is but a trustee,
according to Section 110 of the Corporation Code, of its membership.
There is no point to dissolving the corporation sole of one member to enable the
corporation aggregate to emerge from it. The one member, with the concurrence
of two-thirds of the membership of the organization for whom he acts as trustee,
can self-will the amendment. He can, with membership concurrence, increase the
technical number of the members of the corporation from "sole" or one to the
greater number authorized by its amended articles.
Here, the evidence shows that the IEMELIF’s General Superintendent, respondent
Bishop Lazaro, who embodied the corporation sole, had obtained, not only the
approval of the Consistory that drew up corporate policies, but also that of the
required two-thirds vote of its membership.
The amendment of the articles of incorporation, as correctly put by the CA,
requires merely that a) the amendment is not contrary to any provision or
requirement under the Corporation Code, and that b) it is for a legitimate
purpose. Section 17 of the Corporation Code provides that amendment shall be
disapproved if, among others, the prescribed form of the articles of incorporation
or amendment to it is not observed, or if the purpose or purposes of the
corporation are patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations, or if the required percentage of ownership is
not complied with. These impediments do not appear in the case of IEMELIF.
Besides, as the CA noted, the IEMELIF worked out the amendment of its
articles of incorporation upon the initiative and advice of the SEC. The
SEC’s prior action on the IEMELIF issue should be accorded great weight. 
Gelano vs. CA and Insular Sawmill, Inc.
G.R. No. L-39050 February 24, 1981
Facts: Private respondent Insular Sawmill, Inc. is a corporation organized on

September 17, 1945 with a corporate life of fifty (50) years, or up to September
17, 1995, with the primary purpose of carrying on a general lumber and sawmill
business. To carry on this business, private respondent leased the paraphernal
property of petitioner-wife Guillermina M. Gelano at the corner of Canonigo and
Otis, Paco, Manila for P1,200.00 a month. It was while private respondent was
leasing the aforesaid property that its officers and directors had come to know
petitioner-husband Carlos Gelano who received from the corporation cash
advances on account of rentals to be paid by the corporation on the land.
Petitioner Carlos Gelano obtained from private respondent cash advances of

P25,950.00. The said sum was taken and received by petitioner Carlos Gelano on
the agreement that private respondent could deduct the same from the monthly
rentals of the leased premises until said cash advances are fully paid. Out of the
aforementioned cash advances in the total sum of P25,950.00, petitioner Carlos
Gelano was able to pay only P5,950.00 thereby leaving an unpaid balance of
P20,000.00 which he refused to pay despite repeated demands by private
respondent. Petitioner Guillermina M. Gelano refused to pay on the ground that
said amount was for the personal account of her husband asked for by, and given
to him, without her knowledge and consent and did not benefit the family. The
corporation, thru Atty. German Lee, filed a complaint for collection against herein
petitioners before the Court of First Instance of Manila. In the meantime, private
respondent amended its Articles of Incorporation to shorten its term of existence
up to December 31, 1960 only. The amended Articles of Incorporation was filed
with, and approved by the Securities and Exchange Commission, but the trial
court was not notified of the amendment shortening the corporate existence and
no substitution of party was ever made. On November 20, 1964 and almost four
(4) years after the dissolution of the corporation, the trial court rendered a
decision in favor of private respondent. The Court of Appeals rendered a decision
modifying the judgment of the trial court by holding petitioner spouses jointly and
severally liable on private respondent's claim.
After petitioners received a copy of the decision on August 24, 1973, they came
to know that the Insular Sawmill Inc. was dissolved way back on December 31,
1960. Hence, petitioners filed a motion to dismiss the case and/or reconsideration
of the decision of the Court of Appeals on grounds that the case was prosecuted
even after dissolution of private respondent as a corporation and that a defunct
corporation cannot maintain any suit for or against it without first complying with
the requirements of the winding up of the affairs of the corporation and the
assignment of its property rights within the required period.
Issue: Whether or not a corporation, whose corporate life had ceased by the
expiration of its term of existence, could still continue prosecuting and defending
suits after its dissolution and beyond the period of three years provided for under
Act No. 1459, otherwise known as the Corporation law, to wind up its affairs,
without having undertaken any step to transfer its assets to a trustee or assignee.
Held: Yes. When Insular Sawmill, Inc. was dissolved on December 31, 1960,
under Section 77 of the Corporation Law, it stin has the right until December 31,
1963 to prosecute in its name the present case. After the expiration of said
period, the corporation ceased to exist for all purposes and it can no longer sue or
be sued.
However, a corporation that has a pending action and which cannot be terminated
within the three-year period after its dissolution is authorized under Section 78 to
convey all its property to trustees to enable it to prosecute and defend suits by or
against the corporation beyond the Three-year period although private
respondent (did not appoint any trustee, yet the counsel who prosecuted and
defended the interest of the corporation in the instant case and who in fact
appeared in behalf of the corporation may be considered a trustee of the
corporation at least with respect to the matter in litigation only. Said counsel had
been handling the case when the same was pending before the trial court until it
was appealed before the Court of Appeals and finally to this Court. We therefore
hold that there was a substantial compliance with Section 78 of the Corporation
Law and as such, private respondent Insular Sawmill, Inc. could still continue
prosecuting the present case even beyond the period of three (3) years from the
time of its dissolution. 
CLARION PRINTING HOUSE, INC. vs. THE HONORABLE NATIONAL LABOR
RELATIONS COMMISSION
G.R. No. 148372 June 27, 2005
Facts: Respondent Michelle Miclat was employed on April 21, 1997 on a

probationary basis as marketing assistant with a monthly salary of ₱6,500.00 by
petitioner Clarion Printing House (CLARION) owned by its co-petitioner Eulogio
Yutingco. At the time of her employment, she was not informed of the standards
that would qualify her as a regular employee.
The EYCO Group of Companies of which CLARION formed part filed with the
Securities and Exchange Commission (SEC) a "Petition for the Declaration of
Suspension of Payment, Formation and Appointment of Rehabilitation Receiver/
Committee, Approval of Rehabilitation Plan with Alternative Prayer for Liquidation
and Dissolution of Corporation"
On October 22, 1997, the Assistant Personnel Manager of CLARION informed
Miclat by telephone that her employment contract had been terminated effective
October 23, 1997. No reason was given for the termination. The following day or
on October 23, 1997, on reporting for work, Miclat was informed by the General
Sales Manager that her termination was part of CLARION’s cost-cutting measures.
Miclat filed a complaint6 for illegal dismissal against CLARION and Yutingco
(petitioners) before the National Labor Relations Commission (NLRC). The Labor
Arbiter decided that Miclat was illegally dismissed and is entitled to reinstatement.
The NLRC affirmed the decision.
Issue: Whether or not petitioners are correct in arguing that when a company is
under receivership and a receiver is appointed to take control of its management
and corporate affairs, one of the evident reasons is to prevent further losses of
said company and protect its remaining assets from being dissipated?
Held: NO.
Sections 5 and 6 of Presidential Decree No. 902-A (P.D. 902-A) ("reorganization of
the securities and exchange commission with additional powers and placing said
agency under the administrative supervision of the office of the president"),26 as
amended, read:
From the provisions of P.D. No. 902-A, as amended, the appointment of a receiver
or management committee by the SEC presupposes a finding that, inter alia, a
company possesses sufficient property to cover all its debts but "foresees the
impossibility of meeting them when they respectively fall due" and "there is
imminent danger of dissipation, loss, wastage or destruction of assets of other
properties or paralization of business operations."
That the SEC, mandated by law to have regulatory functions over corporations,
partnerships or associations,27appointed an interim receiver for the EYCO Group
of Companies on its petition in light of, as quoted above, the therein enumerated
"factors beyond the control and anticipation of the management" rendering it
unable to meet its obligation as they fall due, and thus resulting to "complications
and problems . . . to arise that would impair and affect [its] operations . . ."
shows that CLARION, together with the other member-companies of the EYCO
Group of Companies, was suffering business reverses justifying, among other
things, the retrenchment of its employees.
With the appointment of a management receiver in September 1997, however, all
claims and proceedings against CLARION, including labor claims, were deemed
suspended during the existence of the receivership.33 The labor arbiter, the NLRC,
as well as the CA should not have proceeded to resolve respondent’s complaint
for illegal dismissal and should instead have directed respondent to lodge her
claim before the then duly-appointed receiver of CLARION. To still require
respondent, however, at this time to refile her labor claim against CLARION under
the peculiar circumstances of the case — that 8 years have lapsed since her
termination and that all the arguments and defenses of both parties were already
ventilated before the labor arbiter, NLRC and the CA; and that CLARION is already
in the course of liquidation — this Court deems it most expedient and
advantageous for both parties that CLARION’s liability be determined with finality,
instead of still requiring respondent to lodge her claim at this time before the
liquidators of CLARION which would just entail a mere reiteration of what has
been already argued and pleaded. Furthermore, it would be in the best interest of
the other creditors of CLARION that claims against the company be finally settled
and determined so as to further expedite the liquidation proceedings. For the
lesser number of claims to be proved, the sooner the claims of all creditors of
CLARION are processed and settled. 
LINGKOD MANGGAGAWA SA RUBBERWORLD vs. RUBBERWORLD (PHILS.)
INC.
G.R. No. 153882. January 29, 2007
GARCIA, J p:
Fact: Petitioner Rubberworld, Inc filed with the DOLE a notice of temporary
shutdown of operation; but even before the effectivity of such, it was forced to
prematurely shutdown its operation due to the strike held by the Labor Union.
Private Respondents filed with the NLRC a petition for illegal dismissal and non-
payment of separation pay. Rubberworld then filed the SEC a petition for
declaration of suspension of payments with a proposed rehabilitation plan. SEC
then ordered an order, stating that “all action for claims against Rubberworld
Philippines, Inc. pending before any court, tribunal, office, board, body,
Commission or sheriff are hereby deemed SUSPENDED.’’ Petitioner submitted to
the labor arbiter a motion to suspend the proceedings invoking the SEC order.
The Labor arbiter ignored the motion and thereafter rendered a decision finding
Rubberworld quality of illegal shutdown ordering it to pay separation pay; and
moral and exemplary damages. On appeal, the NLRC affirmed the decision with
modification deleting the award for moral and exemplary damages.
Issue: Can the DOLE, Labor arbiter, or NLRC legally act on claims despite an
order of the SEC suspending all actions against a company under rehabilitation by
a management committee?
Held: NO. The law is clear: upon the creation of a management committee or the
appointment of a rehabilitation receiver, all claims for actions "shall be suspended
accordingly." No exception in favor of labor claims is mentioned in the law. Since
the law makes no distinction or exemptions, neither should this Court. Ubi lex non
distinguit nec nos distinguere debemos. Allowing labor cases to proceed clearly
defeats the purpose of the automatic stay and severely encumbers the
management committee's time and resources. The said committee would need to
defend against these suits, to the detriment of its primary and urgent duty to
work towards rehabilitating the corporation and making it viable again. To rule
otherwise would open the floodgates to other similarly situated claimants and
forestall if not defeat the rescue efforts. Besides, even if the NLRC awards the
claims of private respondents, its ruling could not be enforced as long as the
petitioner is under the management committee.
PD 902-A is clear that “ all action for claims against corporation, partnerships or
association under management or receivership pending before any court, tribunal,
board or body shall be suspended accordingly.’’ The law did not make any
exception in favor of labor claims. The justification for such to enable the
management committee to exercise its powers free from interference that might
hinder or prevent the “rescue’’ of the debtor company. To allow the labor case to
proceed would open the defeat the rescue effort of the management committee.
Even if an award is given, the ruling could not enforce as long as petitioner is
under management committee.  
JUANITO A. GARCIA and ALBERTO J. DUMAGO vs. PHILIPPINE AIRLINES,
INC.
29 August 2007
Facts: Petitioners were employees of respondent, PAL. A combined team of PAL

Security and NBI - Narcotis Operatives found shabu paraphernalia inside the
company issued locker of Ronaldo Broas in a raid. The petitioner along with four
men were brought to the NBI for investigation. A Notice of Administrative Charge
was served on the petitioners. Petitioners vehemently denied the allegations and
challenged PAL to show proof that they were indeed "caught in the act of sniffing
shabu." Dumago claimed that he was in the Toolroom Section to request for an
allen wrench to fix the needles of the sewing and zigzagger machines. Garcia
averred he was in the Toolroom Section to inquire where he could take the
Trackster's tire for vulcanizing.
On October 9, 1995, petitioners were dismissed for violation of Chapter II,
Section 6, Article 46 (Violation of Law/Government Regulations) and Chapter II,
Section 6, Article 48 (Prohibited Drugs) of the PAL Code of Discipline. In the
meantime, the Securities and Exchange Commission (SEC) placed PAL under an
Interim Rehabilitation Receiver due to severe financial losses.
The Labor Arbiter rendered a decision in favour of the petitioners.
Meanwhile, SEC placed PAL into a Permanent Rehabilitation Receiver. On Appeal
NLRC reversed the decision of the LA. PAL appealed to the Court of Appeals on
the grounds that: (1) by declaring the writ of execution and the notice of
garnishment valid, the NLRC gave petitioners undue advantage and preference
over PAL's other creditors and hampered the task of the Permanent Rehabilitation
Receiver; and (2) there was no longer any legal or factual basis to reinstate
petitioners as a result of the reversal by the NLRC of the Labor Arbiter's decision.
The appellate court ruled that the Labor Arbiter issued the writ of execution and
the notice of garnishment without jurisdiction. Hence, the NLRC erred in
upholding its validity. Since PAL was under receivership, it could not have possibly
reinstated petitioners due to retrenchment and cash-flow constraints. The
appellate court declared that a stay of execution may be warranted by the fact
that PAL was under rehabilitation receivership.
Issue: Whether or not petitioners entitled to execution of the Labor Arbiter's

order of reinstatement even if PAL is under receivership?
Held: No. Upon appointment by the SEC of a rehabilitation receiver, all actions
for claims against the corporation pending before any court, tribunal or board
shall ipso jure be suspended. The purpose of the automatic stay of all pending
actions for claims is to enable the rehabilitation receiver to effectively exercise
its/his powers free from any judicial or extra-judicial interference that might
unduly hinder or prevent the rescue of the corporation. More importantly, the
suspension of all actions for claims against the corporation embraces all phases of
the suit, be it before the trial court or any tribunal or before this Court. No other
action may be taken, including the rendition of judgment during the state of
suspension. It must be stressed that what are automatically stayed or suspended
are the proceedings of a suit and not just the payment of claims during the
execution stage after the case had become final and executory. Furthermore, the
actions that are suspended cover all claims against the corporation whether for
damages founded on a breach of contract of carriage, labor cases, collection suits
or any other claims of a pecuniary nature. No exception in favor of labor claims is
mentioned in the law. 
SPOUSES EDUARDO SOBREJUANITE and FIDELA SOBREJUANITE vs. ASB
DEVELOPMENT CORPORATION
G.R. No. 165675. September 30, 2005
YNARES-SANTIAGO, J p:
Facts: Spouses Eduardo and Fidela Sobrejuanite (Sobrejuanite) filed a

Complaint for rescission of contract, refund of payments and damages, against
ASB Development Corporation (ASBDC) before the Housing and Land Use
Regulatory Board (HLURB).
Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a
condominium unit and a parking space. They averred that despite full payment
and demands, ASBDC failed to deliver the property. They prayed for the
rescission of the contract; refund of payments amounting to P2,674,637.10;
payment of moral and exemplary damages, attorney's fees, litigation expenses,
appearance fee and costs of the suit.
ASBDC filed a motion to dismiss or suspend proceedings in view of the approval
by the SEC of the rehabilitation plan of ASB Group of Companies, which includes
ASBDC, and the appointment of a rehabilitation receiver. The HLURB arbiter
however denied the motion and ordered the continuation of the proceedings. The
board held that the HLURB could properly take cognizance of the case since
whatever monetary award that may be granted by it will be ultimately filed as a
claim before the rehabilitation receiver.
The arbiter found that under the Contract to Sell, ASBDC should have delivered
the property to Sobrejuanite; that the latter had fully paid their obligations except
the P50,000.00 which should be paid upon completion of the construction; and
that rescission of the contract with damages is proper.
The HLURB Board of Commissioners affirmed the ruling of the arbiter.
ASBDC filed an appeal before the Office of the President which was dismissed for
lack of merit. Hence, ASBDC filed a petition before the Court of Appeals.
CA RULING: Reversed and set aside OP’s decision. The approval by the SEC of
the rehabilitation plan and the appointment of the receiver caused the suspension
of the HLURB proceedings. The complaint for rescission and damages is
a claim under the contemplation of PD No. 902-A or the SEC Reorganization
Act and A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate
Rehabilitation, because it sought to enforce a pecuniary demand. Therefore,
jurisdiction lies with the SEC and not HLURB.
Sobrejuanite's MR was denied. Hence, this petition.
Petitioner’s contention: The HLURB has jurisdiction as ruled in

the Arranza case.
Issues:
1. W/N SEC has jurisdiction - YES
2. W/N the approval of the corporate rehabilitation plan and the appointment
of a receiver had the effect of suspending the proceeding in the HLURB -
YES
Held:
Section 6(c) of PD No. 902-A empowers the SEC:
c) To appoint one or more receivers of the property, real and personal, which is
the subject of the action pending before the Commission . . . whenever necessary
in order to preserve the rights of the parties-litigants and/or protect the interest
of the investing public and creditors: . . . Provided, finally, That upon appointment
of a management committee, rehabilitation receiver, board or body, pursuant to
this Decree, all actions for claims against corporations, partnerships or
associations under management or receivership pending before any
court, tribunal, board or body shall be suspended accordingly.
The purpose for the suspension of the proceedings is to prevent a creditor from
obtaining an advantage or preference over another and to protect and preserve
the rights of party litigants as well as the interest of the investing public or
creditors. Such suspension is intended to give enough breathing space for the
management committee or rehabilitation receiver to make the business viable
again, without having to divert attention and resources to litigations in various
fora. The suspension would enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extra-
judicial interference that might unduly hinder or prevent the "rescue" of the
debtor company. To allow such other action to continue would only add to the
burden of the management committee or rehabilitation receiver, whose time,
effort and resources would be wasted in defending claims against the corporation
instead of being directed toward its restructuring and rehabilitation.
In order to resolve whether the proceedings before the HLURB should be

suspended, it is necessary to determine whether the complaint for rescission of
contract with damages is a claim within the contemplation of PD No. 902-A.
In Finasia Investments and Finance Corp. v. Court of Appeals, we construed claim

to refer only to debts or demands pecuniary in nature. In Arranza v. B.F. Homes,
Inc., claim is defined as referring to actions involving monetary considerations.
These cases were promulgated prior to the effectivity of the Interim Rules of
Procedure on Corporate Rehabilitation. The interim rules define a claim as
referring to all claims or demands, of whatever nature or character against a
debtor or its property, whether for money or otherwise. The definition is all-
encompassing as it refers to all actions whether for money or otherwise. There
are no distinctions or exemptions.
Although the petition for rehabilitation with prayer for suspension of actions and
proceedings was filed before the SEC prior to the effectivity of the interim rules,
the same would still apply pursuant to Section 1, Rule 1 thereof which provides:
Section 1. Scope — These Rules shall apply to petitions for rehabilitation filed by
corporations, partnerships, and associations pursuant to Presidential Decree No.
902-A, as amended.
Clearly then, the complaint filed by Sobrejuanite is a claim as defined under

the Interim Rules of Procedure on Corporate Rehabilitation.
Thus, the HLURB arbiter should have suspended the proceedings upon the
approval by the SEC of the ASB Group of Companies' rehabilitation plan and the
appointment of its rehabilitation receiver. By the suspension of the proceedings,
the receiver is allowed to fully devote his time and efforts to the rehabilitation and
restructuring of the distressed corporation.
It is well to note that even the execution of final judgments may be held in
abeyance when a corporation is under rehabilitation. Hence, there is more reason
in the instant case for the HLURB arbiter to order the suspension of the
proceedings as the motion to suspend was filed soon after the institution of the
complaint. By allowing the proceedings to proceed, the HLURB arbiter unwittingly
gave undue preference to Sobrejuanite over the other creditors and claimants of
ASBDC, which is precisely the vice sought to be prevented by Section 6(c) of PD
902-A.
As between creditors, the key phrase is "equality is equity." When a corporation

threatened by bankruptcy is taken over by a receiver, all the creditors should
stand on equal footing. Not anyone of them should be given any preference by
paying one or some of them ahead of the others. This is precisely the reason for
the suspension of all pending claims against the corporation under receivership.
Instead of creditors vexing the courts with suits against the distressed firm, they
are directed to file their claims with the receiver who is a duly appointed officer of
the SEC.
Petitioner’s reliance on the Arranza case is misplaced. In that case, we held that
the HLURB retained its jurisdiction despite the rehabilitation proceedings since the
claim filed by the homeowners did not involve pecuniary considerations. The claim
therein was for specific performance to enforce the homeowners' rights as
regards right of way, open spaces, road and perimeter wall repairs, and security.
However, it can also be deduced therefrom that if the claim was for monetary
awards, the proceedings before the HLURB should be suspended during the
rehabilitation.
Therefore, the petition was denied and the CA decision affirmed. 
Panlilio vs RTC
G.R. No. 173846 2 February 2011
Facts: On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris
and Marlo Cristobal (petitioners), as corporate officers of Silahis International
Hotel, Inc. (SIHI), filed with the Regional Trial Court (RTC) of Manila, Branch 24, a
petition for Suspension of Payments and Rehabilitation[4] in SEC Corp. Case No.
04-111180. 
 
On October 18, 2004, the RTC of Manila, Branch 24, issued an Order[5] staying all
claims against SIHI upon finding the petition sufficient in form and substance.
The pertinent portions of the Order read: 
 
Finding the petition, together with its annexes, sufficient in form and substance
and pursuant to Section 6, Rule 4 of the Interim Rules on Corporate
Rehabilitation, the Court hereby: 
 
x x x x 
 
2) Stays the enforcement of all claims, whether for money or otherwise and
whether such enforcement is by court action or otherwise, against the debtor, its
guarantors and sureties not solidarily liable with the debtor.[6]
 
At the time, however, of the filing of the petition for rehabilitation, there were a
number of criminal charges[7] pending against petitioners in Branch 51 of the RTC
of Manila. These criminal charges were initiated by respondent Social Security
System (SSS) and involved charges of violations of Section 28 (h)[8] of Republic
Act 8282, or the Social Security Act of 1997 (SSS law), in relation to Article 315
(1) (b)[9] of the Revised Penal Code, or Estafa. Consequently, petitioners filed
with the RTC of Manila, Branch 51, a Manifestation and Motion to Suspend
Proceedings.[10] Petitioners argued that the stay order issued by Branch 24 should
also apply to the criminal charges pending in Branch 51. Petitioners, thus,
prayed that Branch 51 suspend its proceedings until the petition for rehabilitation
was finally resolved. 
 
On December 13, 2004, Branch 51 issued an Order[11] denying petitioners' motion
to suspend the proceedings. It ruled that the stay order issued by Branch 24 did
not cover criminal proceedings, to wit: 
 
Clearly then, the issue is, whether the stay order issued by the RTC commercial
court, Branch 24 includes the above-captioned criminal cases. 
 
The Court shares the view of the private complainants and the SSS that the said
stay order does not include the prosecution of criminal offenses. Precisely, the law
"criminalizes" the non-remittance of SSS contributions by an employer to protect
the employees from unscrupulous employers. Clearly, in these cases, public
interest requires that the said criminal acts be immediately investigated and
prosecuted for the protection of society. 
 
From the foregoing, the inescapable conclusion is that the stay order issued by
RTC Branch 24 does not include the above-captioned cases which are criminal in
nature.
Issue: WON the suspension order should also apply to the criminal proceedings
Held: No.  
To begin with, corporate rehabilitation connotes the restoration of the debtor to a
position of successful operation and solvency, if it is shown that its continued
operation is economically feasible and its creditors can recover more, by way of
the present value of payments projected in the rehabilitation plan, if the
corporation continues as a going concern than if it is immediately liquidated.[17] It
contemplates a continuance of corporate life and activities in an effort to restore
and reinstate the corporation to its former position of successful operation and
solvency, the purpose being to enable the company to gain a new lease on life
and allow its creditors to be paid their claims out of its earnings.[18] 
 
A principal feature of corporate rehabilitation is the suspension of claims against
the distressed corporation. Section 6 (c) of Presidential Decree No. 902-A, as
amended, provides for suspension of claims against corporations undergoing
rehabilitation, to wit: 
 
Section 6 (c). x x x 
 
x x x Provided, finally, that upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree, all actions for
claims against corporations, partnerships or associations under management or
receivership pending before any court, tribunal, board or body, shall be
suspended accordingly.[19]
In Finasia Investments and Finance Corporation v. Court of Appeals,[22] the term
"claim" has been construed to refer to debts or demands of a pecuniary nature, or
the assertion to have money paid. The purpose for suspending actions for claims
against the corporation in a rehabilitation proceeding is to enable the
management committee or rehabilitation receiver to effectively exercise its/his
powers free from any judicial or extrajudicial interference that might unduly
hinder or prevent the rescue of the debtor company.[23]
The rehabilitation of SIHI and the settlement of claims against the corporation is
not a legal ground for the extinction of petitioners' criminal liabilities. There is no
reason why criminal proceedings should be suspended during corporate
rehabilitation, more so, since the prime purpose of the criminal action is to punish
the offender in order to deter him and others from committing the same or
similar offense, to isolate him from society, reform and rehabilitate him or, in
general, to maintain social order.[26] As correctly observed in Rosario,[27] it would
be absurd for one who has engaged in criminal conduct could escape punishment
by the mere filing of a petition for rehabilitation by the corporation of which he is
an officer. 
 
The prosecution of the officers of the corporation has no bearing on the pending
rehabilitation of the corporation, especially since they are charged in their
individual capacities. Such being the case, the purpose of the law for the issuance
of the stay order is not compromised, since the appointed rehabilitation receiver
can still fully discharge his functions as mandated by law. It bears to stress that
the rehabilitation receiver is not charged to defend the officers of the corporation.
If there is anything that the rehabilitation receiver might be remotely interested
in is whether the court also rules that petitioners are civilly liable. Such a
scenario, however, is not a reason to suspend the criminal proceedings, because
as aptly discussed in Rosario, should the court prosecuting the officers of the
corporation find that an award or indemnification is warranted, such award would
fall under the category of claims, the execution of which would be subject to the
stay order issued by the rehabilitation court.[28] The penal sanctions as a
consequence of violation of the SSS law, in relation to the revised penal code can
therefore be implemented if petitioners are found guilty after trial. However, any
civil indemnity awarded as a result of their conviction would be subject to the stay
order issued by the rehabilitation court. Only to this extent can the order of
suspension be considered obligatory upon any court, tribunal, branch or body
where there are pending actions for claims against the distressed corporation.[29] 
Alfredo Villamor, Jr. vs. John Umale
G.R. No. 172843 September 24, 2014
Facts: MC Home Depot occupied a prime property (Rockland area) in Pasig. The
property was part of the area owned by Mid-Pasig Development Corporation (Mid-
Pasig). On March 1, 2004, Pasig Printing Corporation (PPC) obtained an option to
lease portions of MidPasig’s property, including the Rockland area. On November
11, 2004, PPC’s board of directors issued a resolution waiving all its rights,
interests, and participation in the option to lease contract in favor of the law firm
of Atty. Alfredo Villamor, Jr. (Villamor). PPC received no consideration for this
waiver in favor of Villamor’s law firm.
On November 22, 2004, PPC, represented by Villamor, entered into a
memorandum of agreement (MOA) with MC Home Depot. Under the MOA, MC
Home Depot would continue to occupy the area as PPC’s sublessee for 4 years,
renewable for another 4 years, at a monthly rental of P4,500,000.00 plus goodwill
of P18,000,000.00.
In compliance with the MOA, MC Home Depot issued 20 post-dated checks
representing rental payments for one year and the goodwill money. The checks
were given to Villamor who did not turn these or the equivalent amount over to
PPC, upon encashment.
Hernando Balmores, a stockholder and director of PPC, wrote a letter addressed
to PPC’s directors on April 4, 2005. He informed them that Villamor should be
made to deliver to PPC and account for MC Home Depot’s checks or their
equivalent value.
Due to the alleged inaction of the directors, respondent Balmores filed with the
RTC an intra-corporate controversy complaint under Rule 1, Section 1(a)(1) of the
Interim Rules for Intra-Corporate Controversies (Interim Rules) against
petitioners for their alleged devices or schemes amounting to fraud or
misrepresentation "detrimental to the interest of the corporation and its
stockholders."
The RTC denied respondent Balmores’ prayer for the appointment of a receiver or
the creation of a management committee. RTC held PPC’s entitlement to the
checks was doubtful. The resolution issued by PPC’s board of directors, waiving its
rights to the option to lease contract in favor of Villamor’s law firm, must be
accorded prima facie validity.
According to the CA, the trial court abandoned its duty to the stockholders in a
derivative suit when it refused to appoint a receiver or create a management
committee, all during the pendency of the proceedings.
Issue: Whether the CA correctly characterized respondent Balmores’ action as a

derivative suit.
Held: NO.
A derivative suit is an action filed by stockholders to enforce a corporate action. It
is an exception to the general rule that the corporation’s power to sue is exercised
only by the board of directors or trustees. Individual stockholders may be allowed
to sue on behalf of the corporation whenever the directors or officers of the
corporation refuse to sue to vindicate the rights of the corporation or are the ones
to be sued and are in control of the corporation. In derivative suits, the real party
in interest is the corporation, and the suing stockholder is a mere nominal party.
Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate
Controversies (Interim Rules) provides the 5 requisites for filing derivative suits.
SECTION 1. Derivative action. – A stockholder or member may bring an action in
the name of a corporation or association, as the case may be, provided that:
(1)He was a stockholder or member at the time the acts or transactions
subject of the action occurred and at the time the action was filed;
(2)He exerted all reasonable efforts, and alleges the same with particularity
in the complaint, to exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
(3)No appraisal rights are available for the act or acts complained of; and
(4)The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration,
is implied in the first paragraph of Rule 8, Section 1 of the Interim Rules: The
action brought by the stockholder or member must be "in the name of [the]
corporation or association." This requirement has already been settled in
jurisprudence.
Thus, it is important that the corporation be made a party to the case. The
corporation must be joined as party because it is its cause of action that is being
litigated and because judgment must be a res judicata against it.”
In the same case, this court enumerated the reasons for disallowing a direct
individual suit.
The reasons given for not allowing direct individual suit are:
(1). . . "the universally recognized doctrine that a stockholder in a corporation
has no title legal or equitable to the corporate property; that both of these
are in the corporation itself for the benefit of the stockholders." In other
words, to allow shareholders to sue separately would conflict with the
separate corporate entity principle;
(2). . . that the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista v. Santos, that ‘the
stockholders may not directly claim those damages for themselves for that
would result in the appropriation by, and the distribution among them of
part of the corporate assets before the dissolution of the corporation and
the liquidation of its debts and liabilities, something which cannot be legally
done in view of Section 16 of the Corporation Law. . .";
(3)the filing of such suits would conflict with the duty of the management to
sue for the protection of all concerned;
(4)it would produce wasteful multiplicity of suits; and
(5)it would involve confusion in ascertaining the effect of partial recovery by
an individual on the damages recoverable by the corporation for the same
act.
Respondent Balmores’ action in the trial court failed to satisfy all the requisites of
a derivative suit. Respondent failed to exhaust all available remedies to obtain the
reliefs he prayed for. He also failed to allege that appraisal rights were not
available for the acts complained of. This is another requisited as provided under
Rule 8, Section 1(3) of the Interim Rules. Neither did respondent Balmores
implead PPC as party in the case nor did he allege that he was filing on behalf of
the corporation.
The non-derivative character of respondent Balmores’ action may also be gleaned
from his allegations in the trial court complaint. In the complaint, he described
the nature of his action as an action under Rule 1, Section 1(a)(1) of the Interim
Rules, and not an action under Rule 1, Section 1(a)(4) of the Interim Rules, which
refers to derivative suits.
Rule 1, Section 1(a)(1) of the Interim Rules refers to acts of the board,
associates, and officers, amounting to fraud or misrepresentation, which may be
detrimental to the interest of the stockholders. This is different from a derivative
suit.
While devices and schemes of the board of directors, business associates, or
officers amounting to fraud under Rule 1, Section 1(a)(1) of the Interim Rules are
causes of a derivative suit, it is not always the case that derivative suits are
limited to such causes or that they are necessarily derivative suits. Hence, they
are separately enumerated in Rule 1, Section 1(a) of the Interim Rules:
SECTION 1. (a) Cases covered. – These Rules shall govern the procedure to be
observed in civil cases involving the following:
(1)Devices or schemes employed by, or any act of, the board of directors,
business associates, officers or partners, amounting to fraud or
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of any corporation,
partnership, or association;
(2)Controversies arising out of intra-corporate, partnership, or association
relations, between and among stockholders, members, or associates; and
between, any or all of them and the corporation, partnership, or association
of which they are stockholders, members, or associates, respectively;
(3)Controversies in the election or appointment of directors, trustees, officers,
or managers of corporations, partnerships, or associations;
(4)Derivative suits; and
(5)Inspection of corporate books.
Stockholder/s’ suits based on fraudulent or wrongful acts of directors, associates,

or officers may also be individual suits or class suits.
Individual suits are filed when the cause of action belongs to the individual
stockholder personally, and not to the stockholders as a group or to the
corporation.
In this case, respondent Balmores filed an individual suit. His intent was very
clear from his manner of describing the nature of his action. He was alleging that
the acts of PPC’s directors, specifically the waiver of rights in favor of Villamor’s
law firm and their failure to take back the MC Home Depot checks from Villamor,
were detrimental to his individual interest as a stockholder.
Facilities Management Corp v. De la Osa
G.R. No. L-38649; March 26, 1979
Makasiar, J.
Facts: In a petition filed by respondent De la Osa, he sought his

reinstatement with full backwages, as well as the recovery of his overtime
compensation, swing shift and graveyard shift differentials. He alleged that he
was employed as a painter, houseboy and cashier in the span of 4 years. In their
letter-answer, petitioner interposed the several special defenses, most notably,
that such as the corporation was outside the jurisdiction of the Philippines, being
domiciled in Wake Island. It also alleged that it was a foreign corporation, had
never engaged in business in the Philippines, and has no agent or office in the
country.
Issue: Whether petitioner can be considered ‘doing business in the

Philippines’ so that the service of summons upon its agent in the Philippines
vested the Court with jurisdiction.
Held: Yes, petitioner may be considered as “doing business in the Philippines’

within the scope of Section 14, Rule 14 of the Rules of Court which provides:
SEC. 14. Service upon private foreign corporations. ·If the defendant is a foreign
corporation, or a non-resident joint stock company or association, doing business
in the Philippines, service may be made on its resident agent designated in
accordance with law for that purpose or, if there be no such agent, on the
government official designated by law to that effect, or on any of its officers or
agents within the Philippines.”
Indeed, if a foreign corporation, not engaged in business in the Philippines, is not
barred from seeking redress from courts in the Philippines, a fortiori that same
corporation cannot claim exemption from being sued in Philippine courts for acts
done against a person or persons in the Philippines.
Home Insurance v Eastern Shipping Lines
GR No. L-34382 July 20, 1983
Facts: This is a case for recovery of maritime damages. Home Insurance

Corporation seeks to recover from Eastern Shipping Lines and/or Angel Jose
Transportation for loss/damage suffered by the cargo - Back Hot Rolled Copper
Wires.
In GR # L-34383, Home Insurance seeks to recover from N.V. Nedlloyd Lijnen

and/or Columbian Philippines, Inc and/or Guacods, Inc. for short-delivery of 1
package and the missing items in other 5 packages.
In both cases, the petitioner-appellant made the following averment regarding its
capacity to sue: LibLex The plaintiff is a foreign insurance company duly
authorized to do business in the Philippines through its agent, Mr. VICTOR H.
BELLO, of legal age and with office address at Oledan Building, Ayala Avenue,
Makati, Rizal.
The respondents denied the petitioner's capacity to sue.
It should be noted that before these cases were filed, petitioner ad already
secured the necessary license to conduct its insurance business in the Philippines.
It could already filed suits.
However, when the insurance contracts which formed the basis of these cases
were executed, the petitioner had not yet secured the necessary licenses and
authority.
Issue: Whether or not the petitioner has the capacity to sue
Held: YES
Section 133 of the present Corporation Code provides: "SEC. 133. Doing business
without a license.— No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shal be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative agency
in the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws." The old Section 69 has been reworded in terms
of non-access to courts and administrative agencies in order to maintain or
intervene in any action or proceeding. The prohibition against doing business
without first securing a license is now given penal sanction which is also
applicable to other violations of the Corporation Code under the general
provisions of Section 144 of the Code. It is, therefore, not necessary to declare
the contract null and void even as against the erring foreign corporation. The
penal sanction for the violation and the denial of access to our courts and
administrative bodies are sufficient from the viewpoint of legislative policy. LibLex
Our ruling that the lack of capacity at the time of the execution of the contracts
was cured by the subsequent registration is also strengthened by the procedural
aspects of these cases. The petitioner averred in its complaints that it is a foreign
insurance company, that it is authorized to do business in the Philippines, that its
agent is Mr. Victor H. Bello, and that its office address is the Oledan Building at
Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8
of the Rules of Court. The petitioner sufficiently alleged its capacity to sue. The
private respondents countered either with an admission of the plaintiff's
jurisdictional averments or with a general denial based on lack of knowledge or
information sufficient to form a belief as to the truth of the averments. We find
the general denials inadequate to attack the foreign corporations lack of capacity
to sue in the light of its positive averment that it is authorized to do so.
Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal
existence of any party or the capacity of any party to sue or be sued in a
representative capacity shall do so by specific denial, which shall include such
supporting particulars as are particularly within the pleader's knowledge. At the
very least, the private respondents should have stated particulars in their
answers upon which a specific denial of the petitioner's capacity to sue could have
been based or which could have supported its denial for lack of knowledge. And
yet, even if the plaintiff's lack of capacity to sue was not properly raised as an
issue by the answers, the petitioner introduced documentary evidence that it had
the authority to engage in the insurance business at the time it filed the
complaints. 
The Mentholatum Co. Inc. vs. Mangaliman
72 Phil 524
Facts: The Mentholatum Co., Inc., is a Kansas corporation which manufactures

"Mentholatum," a medicament and salve adapted for the treatment of colds, nasal
irritations, chapped skin, insect bites, rectal irritation and other external ailments
of the body. The Philippine-American Drug Co., Inc., is its exclusive distributing
agent in the Philippines authorized by it to look after and protect its interests.
Mentholatum Co., Inc., registered with the Bureau of Commerce and Industry the
word, "Mentholatum", as trade mark for its products.
The Mangaliman brothers prepared a medicament and salve named

"Mentholiman" which they sold to the public packed in a container of the same
size, color and shape as "Mentholatum." As a consequence of these acts of the
Mangalimans, Mentholatum, etc. suffered damages from the diminution of their
sales and the loss of goodwill and reputation of their product in the market. On 1
October 1935, the Mentholatum Co., Inc., and the Philippine-American Drug, Co.,
Inc. instituted an action in the CFI of Manila against Anacleto Mangaliman,
Florencio Mangaliman and the Director of the Bureau of Commerce for
infringement of trade mark and unfair competition (Civil case 48855).
Mentholatum, etc. prayed for the issuance of an order restraining Anacleto and
Florencio Mangaliman from selling their product "Mentholiman," and directing
them to render an accounting of their sales and profits and to pay damages. After
a protracted trial, featured by the dismissal of the case on 9 March 1936 for
failure of plaintiff's counsel to attend, and its subsequent reinstatement on April
4, 1936, the CFI of Manila, on 29 Oct. 1937, rendered judgment in favor of
Mentholatum, etc. In the Court of Appeals (CA-GR 46067), the decision of the
trial court was, on 29 June 1940, reversed, said tribunal holding that the activities
of the Mentholatum Co., Inc., were business transactions in the Philippines, and
that by section 69 of the Corporation Law, it may not maintain the suit.
Issue: Whether Mentholatum, etc. could prosecute the instant action without
having secured the license required in section 69 of the Corporation Law.
Held: No general rule can be laid down as to what constitutes "doing" or

"engaging in" or "transacting" business. Each case must be judged in the light of
its peculiar environmental circumstances.
The true test, however, seems to be whether the foreign corporation is continuing
the body or substance of the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it over to another. The term
implies a continuity of commercial dealings and arrangements, and contemplates,
to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of, the purpose and
object of its organization.
Herein, Mentholatum Co., through its agent, the Philippine-American Drug Co.,
Inc., has been doing business in the Philippines by selling its products here since
the year 1929, at least. Whatever transactions the Philippine-American Drug Co.,
Inc., had executed in view of the law, the Mentholatum Co., Inc., being a foreign
corporation doing business in the Philippines without the license required by
section 68 of the Corporation Law, it may not prosecute this action for violation of
trade mark and unfair competition. Neither may the Philippine-American Drug
Co., Inc., maintain the action here for the reason that the distinguishing features
of the agent being his representative character and derivative authority, it cannot
now, to the advantage of its principal, claim an independent standing in court.
Further, the recognition of the legal status of a foreign corporation is a matter

affecting the policy of the forum, and the distinction drawn in Philippine
Corporation Law is an expression of the policy. The general statement made in
Western Equipment and Supply Co. vs. Reyes regarding the character of the right
involved should not be construed in the derogation of the policy-determining
authority of the State. The right of Mentholatum conditioned upon compliance
with the requirement of section 69 of the Corporation Law to protect its rights, is
reserved
Eriks Pte. Ltd., v. CA (and Delfin F. Enriquez, Jr.)
G.R. No. 118843 February 6, 1997
Facts: Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in

the manufacture and sale of elements used in sealing pumps, valves and pipes for
industrial purposes, valves and control equipment used for industrial fluid control
and PVC pipes and fittings for industrial uses. In its complaint, it alleged that: It
is a corporation duly organized and existing under the laws of the Republic of
Singapore; It is not licensed to do business in the Philippines; and is not so
engaged and is suing on an isolated transaction for which it has capacity to sue.
On various dates, private respondent Delfin Enriquez, Jr., doing business
under the name and style of Delrene EB Controls Center and/or EB Karmine
Commercial, ordered and received from petitioner various elements used in
sealing pumps, valves, pipes and control equipment, PVC pipes and fittings. The
transfers of goods were perfected in Singapore, for private respondents account,
F.O.B. Singapore, with a 90-day credit term. Subsequently, demands were made
by petitioner upon private respondent to settle his account, but the latter failed/
refused to do so.
Petitioner corporation filed with RTC Makati for the recovery of S$41,939.63
or its equivalent in Philippine currency, plus interest thereon and damages.
Private respondent responded with a Motion to Dismiss, contending that
petitioner corporation had no legal capacity to sue. RTC dismissed the action on
the ground that petitioner is a foreign corporation doing business in the
Philippines without a license.
CA affirmed said order as it deemed the series of transactions between
petitioner corporation and private respondent not to be an isolated or casual
transaction. Thus, CA likewise found petitioner to be without legal capacity to sue.
Issue: W/N petitioner may maintain an action in Philippine courts.
Held: NO. The petition has no merit. Sec. 133, Corp. Code prohibits, not merely
absence of the prescribed license, but it also bars a foreign corporation doing
business in the Philippines without such license access to our courts. A foreign
corporation without such license is not ipso facto incapacitated from bringing an
action. A license is necessary only if it is transacting or doing business in the
country. However, there is no definitive rule on what constitutes doing, engaging
in, or transacting business. The Corporation Code itself does not define such
terms. To fill the gap, the evolution of its statutory definition has produced a
rather all-encompassing concept in Republic Act No. 7042 Sec. 3.
Accordingly and ineluctably, petitioner must be held to be incapacitated to
maintain the action a quo against private respondent. It was never the intent of
the legislature to bar court access to a foreign corporation or entity which
happens to obtain an isolated order for business in the Philippines. Neither, did it
intend to shield debtors from their legitimate liabilities or obligations. But it
cannot allow foreign corporations or entities which conduct regular business any
access to courts without the fulfillment by such corporations of the necessary
requisites to be subjected to our governments regulation and authority. By
securing a license, the foreign entity would be giving assurance that it will abide
by the decisions of our courts, even if adverse to it.
*Other Remedy Still Available: By this judgment, we are not foreclosing
petitioners right to collect payment. Res judicata does not set in a case dismissed
for lack of capacity to sue, because there has been no determination on the
merits. Moreover, this Court has ruled that subsequent acquisition of the license
will cure the lack of capacity at the time of the execution of the contract.
Petition denied. CA decision affirmed. 
MERRILL LYNCH FUTURES, INC. VS. COURT OF APPEALS
G.R. No. 97816; July 24, 1992
Narvasa, C.J.
Facts: Merrill Lynch Futures, Inc. (ML Futures) filed a complaint with the QC RTC
against Spouses Lara for the recovery of a debt and interest thereon, damages,
and attorney's fees. In ML Futures’ complaint, it described itself as (a) a non-
resident foreign corporation, not doing business in the Philippines and a (b)
"futures commission merchant" duly licensed in the futures markets and
exchanges in the United States. It essentially functions as a broker, executing
orders to buy and sell futures contracts received from its customers on U.S.
futures exchanges.
Petitioner alleges that ML Futures entered into a Futures Customer Agreement
with the defendant spouses. Pursuant to the contract, Spouses transmitted orders
to buy and sell futures contracts to ML through the facilities of Merrill Lynch
Philippines, Inc., a Philippine corporation and a company servicing ML Futures’
customers. The Spouses knew and were duly advised that Merrill Lynch
Philippines, Inc. was not a broker in futures contracts and that it did not have a
license from the SEC to operate as a commodity trading advisor. The Spouses
actively traded in futures contracts for four years there being regular accounting
and corresponding remittances of money made between the parties.
Because of a loss amounting to US$160,749.69 in its transactions, the Spouses
became indebted to ML Futures for US$84,836.27. The Lara Spouses however
refused to pay alleging that the transactions were null and void because Merrill
Lynch Philippines, Inc. had no license to operate as a 'commodity and/or financial
futures broker.
In a motion to dismiss, the defendant spouses averred that: (a) ML is prohibited
by law to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines because it described itself in the
complaint as “not being licensed, but had been doing business in the Philippines
at least for the last four (4) years; (b) they had never been informed that Merrill
Lynch Philippines, Inc. was not licensed to do business in this country; and (c) all
their transactions had actually been with MERRILL LYNCH PIERCE FENNER &
SMITH, INC., and not with ML FUTURES. RTC and CA dismissed the case because
the plaintiff has no legal capacity to sue and that the complaint states no cause of
action.
Issue: Whether or not ML Futures is prohibited from suing in Philippine Courts for
doing business in the country without a license
Held: No. The case is to be reinstated in the RTC. Despite having no license to
transact business in the Philippines, the fact that the Lara Spouses had done
business with ML Futures in the Philippines through ML Philippines, the Spouses
are now estopped to impugn ML Futures’ capacity to sue them in Philippine
courts.
Under Sec. 133 of the Corporation Code, “no foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court
or administrative agency in the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.”
However, one who has dealt with a corporation of foreign origin as a corporate
entity is estopped to deny its corporate existence and capacity. This principle will
be applied to prevent a person contracting with a foreign corporation from later
taking advantage of its noncompliance with the statutes, chiefly in cases where
such person has received the benefits of the contract.
The Court is satisfied that the Spouses did transact business with ML through its
agent corporation organized in the Philippines, and that on several occasions the
latter received account documents and money in connection with those
transactions. There would seem to be no question that the Spouses received
benefits generated by their business relations with ML. Those business relations,
spanned a period of 7 years; and they evidently found those relations to be of
such profitability as warranted their maintaining them for that not insignificant
period of time; otherwise, it is reasonably certain that they would have
terminated their dealings with ML much, much earlier.
Considerations of equity dictate that, at the very least, the issue of whether the
Spouses are in truth liable to ML and if so in what amount, and whether they
were so far aware of the absence of the requisite licenses on the part of ML and
its Philippine correspondent, as to be estopped from alleging that fact as defense
to such liability, should be ventilated and adjudicated on the merits by the proper
trial court. 
AGILENT TECHNOLOGIES SINGAPORE VS. INTEGRATED SILICON
TECHNOLOGY PHILIPPINES CORPORATION
G.R. NO. 154618, APRIL 14, 2004
Facts: Petitioner Agilent is a foreign corporation, which, by its own admission, is

not licensed to do business in the Philippines. Respondent Integrated Silicon is a
private domestic corporation, 100% foreign owned, which is engaged in the
business of manufacturing and assembling electronics components.
The juridical relation among the various parties in this case can be traced to a 5-
year Value Added Assembly Services Agreement (VAASA), between Integrated
Silicon and HP-Singapore. Under the terms of the VAASA, Integrated Silicon was
to locally manufacture and assemble fiber optics for export to HP-Singapore. HP-
Singapore, for its part, was to consign raw materials to Integrated Silicon.
The VAASA had a five-year term with a provision for annual renewal by mutual
written consent. Later, with the consent of Integrated Silicon, HP-Singapore
assigned all its rights and obligations in the VAASA to Agilent.
Later, Integrated Silicon filed a complaint for “Specific Performance and Damages”
against Agilent and its officers. It alleged that Agilent breached the parties’ oral
agreement to extend the VAASA. Agilent filed a separate complaint against
Integrated Silicon for “Specific Performance, Recovery of Possession, and Sum of
Money with Replevin, Preliminary Mandatory Injunction, and Damages”.
Respondents filed a MTD in the 2nd case, on the grounds of lack of Agilent’s legal
capacity to sue; litis pendentia; forum shopping; and failure to state a cause of
action.
The trial court denied the MTD and granted petitioner Agilent’s application for a
writ of replevin. Without filing a MR, respondents filed a petition for certiorari with
the CA. The CA granted respondents’ petition for certiorari, set aside the assailed
Order of the trial court (denying the MTD) and ordered the dismissal of the 2nd
case. Hence, the instant petition.
Issue:1. W/N an unlicensed foreign corporation not doing business in the

Philippines lacks the legal capacity to file suit
2. W/N Agilent was doing business in the Philippines
Held:
1. NO. A foreign corporation without a license is not ipso facto incapacitated from
bringing an action in Philippine courts. A license is necessary only if a foreign
corporation is “transacting” or “doing business” in the country. Section 133 of the
Corporation Code provides that "No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns, shall be permitted
to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws."
The aforementioned provision prevents an unlicensed foreign corporation “doing
business” in the Philippines from accessing our courts. In a number of cases,
however, the Court held that an unlicensed foreign corporation doing business in
the Philippines may bring suit in Philippine courts against a Philippine citizen or
entity who had contracted with and benefited from said corporation. Such a suit is
premised on the doctrine of estoppel. A party is estopped from challenging the
personality of a corporation after having acknowledged the same by entering into
a contract with it. This doctrine of estoppel to deny corporate existence and
capacity applies to foreign as well as domestic corporations. The application of
this principle prevents a person contracting with a foreign corporation from later
taking advantage of its noncompliance with the statutes chiefly in cases where
such person has received the benefits of the contract.
The principles regarding the right of a foreign corporation to bring suit in
Philippine courts may thus be condensed in four statements: (1) if a foreign
corporation does business in the Philippines without a license, it cannot sue
before the Philippine courts; (2) if a foreign corporation is not doing business in
the Philippines, it needs no license to sue before Philippine courts on an isolated
transaction or on a cause of action entirely independent of any business
transaction; (3) if a foreign corporation does business in the Philippines without a
license, a Philippine citizen or entity which has contracted with said corporation
may be estopped from challenging the foreign corporation’s corporate personality
in a suit brought before Philippine courts; and (4) if a foreign corporation does
business in the Philippines with the required license, it can sue before Philippine
courts on any transaction
2. NO. The challenge to Agilent’s legal capacity to file suit hinges on whether or
not it is doing business in the Philippines. However, there is no definitive rule on
what constitutes “doing”, “engaging in”, or “transacting” business in the
Philippines, the Corporation Code itself is silent as to what acts constitute doing
or transacting business in the Philippines. An analysis of the relevant case law, in
conjunction with Section 1 of the Implementing Rules and Regulations of the
Foreign Investments Act of 1991 (FIA, as amended by RA 8179), would
demonstrate that the acts enumerated in the VAASA do not constitute “doing
business” in the Philippines.
Section 1 of the Implementing Rules and Regulations of the FIA (as amended by
RA 8179) provides that the following shall not be deemed “doing business”: (1)
Mere investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or the exercise of rights as such investor; (2)
Having a nominee director or officer to represent its interest in such corporation;
(3) Appointing a representative or distributor domiciled in the Philippines which
transacts business in the representative’s or distributor’s own name and account;
(4) The publication of a general advertisement through any print or broadcast
media; (5) Maintaining a stock of goods in the Philippines solely for the purpose
of having the same processed by another entity in the Philippines; (6)
Consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export; (7) Collecting information in the
Philippines; and (8) Performing services auxiliary to an existing isolated contract
of sale which are not on a continuing basis, such as installing in the Philippines
machinery it has manufactured or exported to the Philippines, servicing the same,
training domestic workers to operate it, and similar incidental services.
By and large, to constitute “doing business”, the activity to be undertaken in the
Philippines is one that is for profit-making.
Herein, by the clear terms of the VAASA, Agilent’s activities in the Philippines
were confined to (1) maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by Integrated Silicon; and (2)
consignment of equipment with Integrated Silicon to be used in the processing of
products for export. As such, Agilent cannot be deemed to be “doing business” in
the Philippines. Integrated Silicon, et. al.’s contention that Agilent lacks the legal
capacity to file suit is therefore devoid of merit. As a foreign corporation not doing
business in the Philippines, it needed no license before it can sue before our
courts 
Expert Travel & Tours vs. CA
G.R. No. 152392; May 26, 2005
Facts:
1. Petitioner Korean Airlines, is a corporation established and registered in the
Republic of South Korea. It is licensed to do business in the Philippines,its general
manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty.
Mario Aguinaldo and his law firm.
2. KAL, through appointed counsel, filed a complaint against herein private
respondent Expert Travel with the RTC for the collection of sum of money. The
verification and certification against forum shopping was signed by the same
appointed counsel, who indicated therein that he was the resident agent and legal
counsel of KAL and had caused the preparation of the complaint.
3. Expert Travel filed a motion to dismiss the complaint on the ground that the
appointed counsel was not authorized to execute the verification and certificate of
non-forum shopping as required by the Rules of Court.
4. KAL opposed the motion, contending that he is a resident agent and was
registered as such with the SEC as required by the Corporation Code. He also
claimed that he had been authorized to file the complaint through a resolution of
the KAL Board of Directors approved during a special meeting, wherein the board
of directors conducted a special teleconference which he attended.
5. It was also averred that in the same teleconference, the board of directors
approved a resolution authorizing him to execute the certificate of non-forum
shopping and to file the complaint. Suk Kyoo Kim alleged, however, that the
corporation had no written copy of the aforesaid resolution.
Issues:
1. Whether or not a teleconference call be recognized as a legitimate means to
approve a board resolution and authorize an agent to execute an act in favor of
the corporation?
2. Whether or not the counsel was authorized to execute the verification and
certification.
Held:
1. YES. In this age of modern technology, the courts may take judicial notice that
business transactions may be made by individuals through teleconferencing.
Such teleconferencing and videoconferencing of members of board of directors of
private corporations is a reality, in light of Republic Act No. 8792, the Securities
and Exchange Commission issued SEC Memorandum Circular No. 15, on
November 30, 2001, providing the guidelines to be complied with related to such
conferences.
2. No, in the case at bar, even given the possibility that Atty. Aguinaldo and Suk
Kyoo Kim participated in a teleconference along with the respondent’s Board of
Directors, the Court is not convinced that one was conducted; even if there had
been one, the Court is not inclined to believe that a board resolution was duly
passed specifically authorizing Atty. Aguinaldo to file the complaint and execute
the required certification against forum shopping. Facts and circumstances show
that there was gross failure on the part of company to prove that there was
indeed a special teleconference such as failure to produce a written copy of the
board resolution via teleconference.
STEELCASE, INC., vs DESIGN INTERNATIONAL SELECTIONS, INC.,
G.R. No. 171995 April 18, 2012
Facts: Petitioner Steelcase, Inc. ("Steelcase") is a foreign corporation existing

under the laws of Michigan, United States of America (U.S.A.), and engaged in
the manufacture of office furniture with dealers worldwide. Respondent Design
International Selections, Inc. ("DISI") is a corporation existing under Philippine
Laws and engaged in the furniture business, including the distribution of
furniture.
Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership
agreement whereby Steelcase granted DISI the right to market, sell, distribute,
install, and service its products to end-user customers within the Philippines. The
business relationship continued smoothly until it was terminated sometime in
January 1999 after the agreement was breached with neither party admitting any
fault. Steelcase filed a complaint for sum of money against DISI alleging, among
others, that DISI had an unpaid account of US$600,000.00. Steelcase prayed that
DISI be ordered to pay actual or compensatory damages, exemplary damages,
attorney’s fees, and costs of suit. Among the counter-arguments raised, DISI
alleged that the complaint failed to state a cause of action and to contain the
required allegations on Steelcase’s capacity to sue in the Philippines despite the
fact that Steelcase was doing business in the Philippines without the required
license to do so. Consequently, it posited that the complaint should be dismissed
because of Steelcase’s lack of legal capacity to sue in Philippine courts.
Issue: (a) whether or not Steelcase is doing business in the Philippines without a
license; and (b) whether or not DISI is estopped from challenging the Steelcase’s
legal capacity to sue.
Held: The Supreme Court ruled in favor of Steelcase.
Steelcase is an unlicensed foreign corporation not doing business in the

Philippines
According to the Supreme Court, the following acts shall not be deemed "doing
business" in the Philippines:
(a) mere investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or the exercise of rights as such investor;
(b) having a nominee director or officer to represent its interest in such
corporation;
(c) appointing a representative or distributor domiciled in the Philippines which
transacts business in the representative's or distributor's own name and account;
(d) the publication of a general advertisement through any print or broadcast
media;
(e) maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines;
(f) consignment by a foreign entity of equipment with a local company to be used
in the processing of products for export;
(g) collecting information in the Philippines; and
(h) performing services auxiliary to an existing isolated contract of sale which are
not on a continuing basis, such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the same, training
domestic workers to operate it, and similar incidental services.
Based on this list, the Supreme Court said that the appointment of a distributor in
the Philippines is not sufficient to constitute "doing business" unless it is under
the full control of the foreign corporation. If the distributor is an independent
entity which buys and distributes products, other than those of the foreign
corporation, for its own name and its own account, the latter cannot be
considered to be doing business in the Philippines.
Applying these rules, the Supreme Court said that DISI was founded in 1979 and
is independently owned and managed. In addition to Steelcase products, DISI
also distributed products of other companies including carpet tiles, relocatable
walls and theater settings. The dealership agreement between Steelcase and DISI
had been described by the owner himself as a buy and sell arrangement. This
clearly belies DISI’s assertion that it was a mere conduit through which Steelcase
conducted its business in the country. From the preceding facts, the only
reasonable conclusion that can be reached is that DISI was an independent
contractor, distributing various products of Steelcase and of other companies,
acting in its own name and for its own account. As a result, Steelcase cannot be
considered to be doing business in the Philippines by its act of appointing a
distributor as it falls under one of the exceptions under R.A. No. 7042.
DISI is estopped from challenging Steelcase's capacity to sue
On this point, the Supreme Court declared that “if indeed Steelcase had been
doing business in the Philippines without a license, DISI would nonetheless be
estopped from challenging the former’s legal capacity to sue xxx A foreign
corporation doing business in the Philippines may sue in Philippine Courts
although not authorized to do business here against a Philippine citizen or entity
who had contracted with and benefited by said corporation. To put it in another
way, a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the doctrine of
estoppel to deny corporate existence applies to a foreign as well as to domestic
corporations. One who has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its corporate existence and capacity.”
*
Although the foreign corporation in this case was declared to be not doing
business in the Philippines, this case, nonetheless, explicitly declares another
exception to the rule provided in Section 133 of the Corporation Code of the
Philippines that “[n]o foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative agency
of the Philippines…” Following the ruling in this case, a foreign corporation doing
business in the Philippines without a license may maintain suit in the Philippines
against a domestic corporation or person who is party to a contract as the
domestic corporation or person is deemed estopped from challenging the
personality of the foreign corporation. 
AIR CANADA v. CIR
778 SCRA 131
G.R. No. 169507 11 January 2016
A foreign airline company selling tickets in the Philippines through their local
agents shall be considered as resident foreign corporation engaged in trade or
business in the country. The absence of flight operations within the Philippine
territory cannot alter the fact that the income received was derived from activities
within the Philippines. The test of taxability is the source, and the source is that
activity which produced the income.
Facts:
1. Air Canada is a foreign corporation organized and existing under the laws of
Canada.
2. Air Canada was granted an authority to operate as an off-line carrier by the
Civil Aeronautics 
Board (CAB) subject to certain conditions, on April 24, 2000, with said
authority to expire on 
April 24, 2005.
3. On July 1, 1999, Air Canada and Aerotel Ltd., Corporation entered into a
Passenger General 
Sales Agency (GSA) Agreement for operation the Philippines.
4. On November 28, 2002, Air Canada filed its administrative claim for refund
with the Bureau of 
Internal Revenue (BIR) in the total amount of Php 5,185,676.77.
5. Air Canada contends that it erroneously paid income taxes from the Q3
2000 up to the Q2 2002.
6. With no response received from the BIR, AirCanada elevated its claim to the
CTA on November 29, 2002.
7. Air Canada: The revenue derived by it from its sales of tickets in the
Philippines on its off-line 
flights through its local General Sales Agent cannot be subject to income
tax because the 
same is not sourced within the Philippines.
Issue: Whether or not the revenue derived by an international air carrier from
sales of tickets in the Philippines for air transportation, while having no landing
rights in the country, constitutes income of said international air carrier from
Philippine source, and accordingly, taxable under Sec. 24(b)(2) of the National
Revenue Code?
Held: YES. Such revenue constitutes taxable income. This issue has already been
laid to rest in a number of cases by the SC, one of which is the landmark case of
CIR v. British Overseas Airways Corporation. Although Air Canada is not liable to
pay the tax as an international air carrier (2.5% on gross Phil. Billings), it is still
liable to pay income tax as a resident foreign corporation.
An off-line international carrier with a General Sales Agent (GSA) in the
Philippines may be considered a resident foreign corporation taxable at 32% on
taxable income derived from Philippine sources.
The GSA’s functions include, among others, solicitation, promotion and sale of air
passenger services. Such activities show continuity of commercial dealings and
the exercise of functions in pursuit of commercial gain. Moreover, Revenue
Regulations No. 6-78 has elaborated that the phrase “doing business in the
Philippines” includes “regular sale of tickets in the Philippines by off-line
international airlines, either by themselves or through their agents.”
On the other hand, income from sale of tickets in the Philippines is considered
Philippine sourced. The test of taxability is the “source” and the source of an
income is the activity which produced the income. The sale of tickets in the
Philippines is the activity that produces the income. Further, by appointment of a
GSA whose premises are used as outlet for selling tickets, the off-line carrier may
be deemed to have a permanent establishment in the Philippines, hence taxable
on Philippine sourced income.

Z Corpo

Uploaded by

Copyright:

Available Formats

Z Corpo

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Z Corpo

Uploaded by

Copyright:

Available Formats

commrev besties San Beda LAw Page 1 of 155

COMMERCIAL LAW REVIEW

Facts: Private respondent Adelaida Rodriguez Magsaysay filed an action against

Issue: Whether petitioners, as stockholders of SUBIC, have a legal interest in the

On 2 September 1966, GAI filed a motion to dismiss the amended complaint on

Conversely, a corporation ordinarily has no interest in the individual property of

Similarly, stockholders in a corporation engaged in buying and dealing in real

This separate personality of the corporation may be disregarded, or the veil of

3. BASECO declares that its objection to the constitutionality of the Sequestration

The constitutional safeguard against unreasonable searches and seizures finds no

To disregard the separate juridical personality of a corporation, the wrongdoing

Held: Yes. It is a fundamental principle of corporation law that a corporation is an

Facts: On January 23, 1985, petitioner filed a complaint against private

Furthermore, considering the nature of the legal services involved, whatever

Facts: Petitioner Times Transportation Company, Inc. (Times) is a corporation

Argument of MASAGANA: Petitioners claim that MASAGANA has the right to

CA Decision: CA affirmed the decision of the RTC. MR DENIED.

Issue: Is the contention of MASAGANA correct?

Held: NO. It is an elementary and fundamental principle of corporation law that a

possession of the property sought to be seized. Hence, even if, as petitioners

Petitioners' reliance on Section 20 of A.M. No. 02-1-06-SC, is not tenable. As

infringement of intellectual property rights. The offense complained of herein is

Issue: Whether or not there was a valid donation.

CA RULING: Affirmed RTC

Hence, this petition.

Petitioner Was a Partner, Not a Lessor

"Sec. 21. Corporation by estoppel. — All persons who assume to act as a

Issue: WON the Philippine Football Association is a corporation

Facts: “Exposé” is a radio documentary program hosted by Carmelo ‘Mel’ Rima

Issue: Whether or not AMEC is entitled to moral damages.

Held: A juridical person is generally not entitled to moral damages because,

Facts: Respondent VISCO was engaged in a steel processing business. It

Issue: Whether respondents disposed of VISCO’s assets in fraud of the

Facts: Petitioner is an educational institution duly registered with the Securities

Facts: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng

2. The wholesale appropriation by AK[IDKH-HSK]BP of IDCH-HSK's corporate

Issue: W/N venue was improperly laid.

Facts: PLDT was granted a franchise to engage in the telecommunications

According to respondents, a public hearing was conducted and the HR Committee

Petition is partly granted. Respondent Chairperson of the SEC is directed to apply

Facts: Movants Philippine Stock Exchange’s (PSE) President, Manuel V.

Facts: Grace Christian High School (GCHS) is an educational institution in Grace

Facts: This is a petition for “declaration of nullity of amended by-laws,

Issue: Whether or not the amended by-laws of SMC disqualifying a competitor

Held: Amendments are valid.

Facts: Petitioner is a domestic corporation, which was organized in the middle of

On February 9, 1988, private respondent filed a collection suit against

Petitioner, in its answer, denied that private respondent had prepared an

Issue: Whether or not petitioner is bound by the letter-agreement signed by

Furthermore, private respondent prepared an operations manual and conducted a

Facts: Petitioner Marc II Marketing, Inc., a corporation duly organized and

Facts: COORDINATED GROUP, INC. (CGI) is a corporation engaged in the

Respondents then engaged the services of another contractor, RRA and

Issue: Was the doctrine of Separate Juridical Personality in Corporation Law

Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock

Issue: Whether the 24 January 1980 letter signed by Inter-Asia’s president is

Issue: W/N THE PETITIONER IS ESTOPPED FROM QUESTIONING THE ASSAILED

Lepanto seeks the reconsideration of the decision rendered on 17 December

Therefore, the petition was denied and the CA decision affirmed. 