Corpo Berne Guererro

Narratives
Corporation Law (Commercial)

Michael Vernon Guerrero Mendiola
2005
Shared under Creative Commons Attriution!
NonCommercial!ShareAli"e #$0 %hilippines license$
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(ale o) Contents
*eliciano vs$ Commission on Audit +G& ,-.-02/ ,- 0anuar1 200-2 3$$$$$$$$$ ,
Ma'sa1sa1!Larador/ et$ al$ vs$ Court o) Appeals +G& 54,54/ ,6 7ecemer ,6462 3$$$$$$$$$ ,
Sulo n' 8a1an vs$ Araneta +G& L!#,05,/ ,. Au'ust ,6.52 3$$$$$$$$$ 2
Lu9uria :omes vs$ Court o) Appeals +G& ,25645/ 24 0anuar1 ,6662 3$$$$$$$$$ #
Concept 8uilders ;nc$ vs$ National Laor &elations Commission (NL&C/ *irst 7ivision) +G& ,04.#-/ 26 Ma1 ,6652 3$$$$$$$$$ -
Villa &e1 (ransit vs$ *errer +G& L!2#46#/ 26 <ctoer ,6542 3$$$$$$$$$ 5
*rancisco Motors Corporation vs$ Court o) Appeals +G& ,004,2/ 25 0une ,6662 3$$$$$$$$$ 4
%hilippine National 8an" vs$ Andrada =lectric > =n'ineerin' Co$ +G& ,-26#5/ ,. April 20022 3$$$$$$$$$ 6
Lipat vs$ %aci)ic 8an"in' Corporation +G& ,-2-#5/ #0 April 200#2 3$$$$$$$$$ ,0
:all vs$ %iccio +G& L!2564/ 26 0une ,6502 3$$$$$$$$$ ,2
Lim vs$ %hilippine *ishin' Gear ;ndustries ;nc$ +G& ,#5--4/ # Novemer ,6662 3$$$$$$$$$ ,#
;nternational =9press (ravel > (our Services/ ;nc$ vs$ Court o) Appelas +G& ,,6002/ ,6 <ctoer 20002 3$$$$$$$$$ ,5
0ardine 7avies vs$ Court o) Appeals +G& ,24055/ ,6 0une 20002 3$$$$$$$$$ ,5
*ilipinas 8roadcastin' Networ" ;nc$ vs$ A'o Medical and =ducational Center!
8icol Christian Colle'e o) Medicine (AM=C!8CCM) +G& ,-,66-/ ,. 0anuar1 20052 3$$$$$$$$$ ,.
L1ceum o) the %hilippines vs$ Court o) Appeals +G& ,0,46./ 5 March ,66#2 3$$$$$$$$$ ,6
An' m'a ?aani sa ;'lesia n' 7ios ?a1 ?risto :esus/ :S? sa 8ansan' %ilipinas ;nc$ vs$ ;'lesia n' 7ios "a1 Cristo 0esus/
:ali'i at Suha1 n' ?atotohanan +G& ,#.562/ ,2 7ecemer 200,2 3$$$$$$$$$ 20
;ndustrial &e)ractories Corporation o) the %hilippines vs$ Court o) Appeals +G& ,22,.-/ # <ctoer 20022 3$$$$$$$$$ 22
0G Summit :oldin's ;nc$ vs$ Court o) Appeals +G& ,2-26#/ 20 Novemer 20002 3$$$$$$$$$ 2#
@oun' Auto Suppl1 vs$ Court o) Appeals +G& ,0-,.5/ 25 0une ,66#2 3$$$$$$$$$ 25
&epulic %lanters 8an" vs$ A'ana +G& 5,.55/ # March ,66.2 3$$$$$$$$$ 25
Grace Christian :i'h School vs$ Court o) Appeals +G& ,04605/ 2# <ctoer ,66.2 3$$$$$$$$$ 2.
Go"on'wei vs$ Securities and =9chan'e Commission +G& L!-56,,/ ,, April ,6.62 3$$$$$$$$$ 24
Aestern ;nstitute o) (echnolo'1 ;nc$ vs$ Salas +G& ,,#0#2/ 2, Au'ust ,66.2 3$$$$$$$$$ ##
Nacpil vs$ ;nternational 8roadcastin' Corporation +G& ,--.5./ 2, March 20022 3$$$$$$$$$ #-
%eopleBs Aircar'o and Aarehousin' Co$ ;nc$ vs$ Court o) Appeals +G& ,,.4-./ . <ctoer ,6642 3$$$$$$$$$ #5
%rime Ahite Cement Corporation vs$ ;ntermediate Appellate Court +G& 54555/ ,6 March ,66#2 3$$$$$$$$$ #.
Santos vs$ National Laor &elations Commission +G& ,0,566/ ,# March ,6652 3$$$$$$$$$ #6
Mala1an' Samahan n' m'a Man''a'awa sa M$ Green)ield (MSMG!CA%) vs$ &amos +G& ,,#60./ 20 April 200,2 3$$$$$$$$$ -0
A* &ealt1 > 7evelopment ;nc$ vs$ 7ieselman *rei'ht Services Co$ +G& ,,,--4/ ,5 0anuar1 20022 3$$$$$$$$$ -#
Atrium Mana'ement Corporation vs$ Court o) Appeals +G& ,06-6,/ 24 *eruar1 200,2 3$$$$$$$$$ --
8A Savin's 8an" vs$ Sia +G& ,#,2,-/ 2. 0ul1 20002 3$$$$$$$$$ -5
%owton Con'lomerate ;nc$ vs$ A'colicol +G& ,506.4/ # April 200#2 3$$$$$$$$$ -5
;nter!Asia ;nvestments ;ndustries vs$ Court o) Appeals +G& ,25..4/ ,0 0une 200#2 3$$$$$$$$$ -.
Lapu!Lapu *oundation vs$ Court o) Appeals +G& ,25005/ 26 0anuar1 200-2 3$$$$$$$$$ -6
Nielson > Co$ ;nc$ vs$ Lepanto Consolidated Minin' Co$ +G& L!2,50,/ 24 7ecemer ,6542 3$$$$$$$$$ 50
;slamic 7irectorate o) the %hilippines vs$ Court o) Appeals +G& ,,.46./ ,- Ma1 ,66.2 3$$$$$$$$$ 52
LopeD 7ee vs$ Securit1 and =9chan'e Commission +G& 50502/ ,5 0ul1 ,66,2 3$$$$$$$$$ 5-
Spouses *irme vs$ 8u"al =nterprises and 7evelopment Corp$ +G& ,-5504/ 2# <ctoer 200#2 3$$$$$$$$$ 55
Lo1ola Grand Villas :omeowners (South) Association ;nc$ vs$ Court o) Appeals +G& ,,.,44/ . Au'ust ,66.2 3$$$$$$$$$ 54
China 8an"in' Corporation vs$ Court o) Appeals +G& ,,.50-/ 25 March ,66.2 3$$$$$$$$$ 56
Lee vs$ Court o) Appeals +G& 6#565/ - *eruar1 ,6622 3$$$$$$$$$ 5,
&epulic o) the %hilippines (%CGG) vs$ Sandi'ana1an +G& ,0..46/ #0 April 200#2 3$$$$$$$$$ 5#
&epulic o) the %hilippines vs$ Coco)ed +G&s ,-.052!5-/ ,- 7ecemer 200,2 3$$$$$$$$$ 55
=van'elista vs$ Santos +G& L!,.2,/ ,6 Ma1 ,6502 3$$$$$$$$$ 5.
Lim vs$ Lim!@u +G& ,#4#-#/ ,6 *eruar1 200,2 3$$$$$$$$$ 54
Gochan vs$ @oun' +G& ,#,446/ ,2 March 200,2 3$$$$$$$$$ 56
Chua vs$ Court o) Appeals +G& ,50.6#/ ,6 Novemer 200- 3$$$$$$$$$ .0
Nava vs$ %eers Mar"etin' Corp$ +G& L!24,20/ 25 Novemer ,6.52 3$$$$$$$$$ .,
Lim (a1 vs$ Court o) Appeals +G& ,2546,/ 5 Au'ust ,6642 3$$$$$$$$$ .2
(he &ural 8an" o) Lipa Cit1 ;nc$/ etc$ vs$ Court o) Appeals +G& ,2-5#5/ 24 Septemer 200,2 3$$$$$$$$$ .#
%once vs$ Alsons Cement Corporation +G& ,#6402/ ,0 7ecemer 20022 3$$$$$$$$$ .5
<n' @on'/ et al$ vs$ (iu/ et al$ +G& ,---.5/ 4 April 200#2 3$$$$$$$$$ .5
GonDales vs$ %hilippine National 8an" +G& L!###20/ #0 Ma1 ,64#2 3$$$$$$$$$ .4
Associated 8an" vs$ Court o) Appeals +G& ,2#.6#/ 26 0une ,6642 3$$$$$$$$$ .6
8ast vs$ Court o) Appeals +G& 66#64/ 25 0anuar1 200,2 3$$$$$$$$$ 4,
Lon' vs$ 8asa +G&s ,#-65#!5-/ 2. Septemer 200,2 3$$$$$$$$$ 42
Sta$ Clara :omeownersB Association vs$ Spouses Gaston +G& ,-,65,/ 2# 0anuar1 20022 3$$$$$$$$$ 4-
%adcom Condominium Corporation vs$ <rti'as Center Association +G& ,-540./ 6 Ma1 20022 3$$$$$$$$$ 45
Manuel &$ 7ula1 =nterprises vs$ Court o) Appeals +G& 6,446/ 2. Au'ust ,66#2 3$$$$$$$$$ 4.
San 0uan Structural and Steel *aricators +G& ,26-56/ 26 Septemer ,6642 3$$$$$$$$$ 46
Gelano vs$ Court o) Appeals +G& L!#6050/ 2- *eruar1 ,64,2 3$$$$$$$$$ 60
Vesa'as vs$ Court o) Appeals +G& ,-262-/ 5 7ecemer 200,2 3$$$$$$$$$ 62
%hilippine Veterans 8an" =mplo1ees Cnion!NC8= vs$ Ve'a +G& ,05#5-/ 24 0une 200,2 3$$$$$$$$$ 6#
(an (ion' 8io vs$ 8ureau o) ;nternal &evenue +G& L!4400/ 2# <ctoer ,6552 3$$$$$$$$$ 6-
&eollido vs$ Court o) Appeals +G& 6,,2#/ 24 *eruar1 ,6462 3$$$$$$$$$ 65
*acilities Mana'ement Corporation vs$ de la <sa +G& L!#45-6/ 25 March ,6.62 3$$$$$$$$$ 64
:ome ;nsurance Compan1 vs$ =astern Shippin' Lines +G& L!#-#42/ 20 0ul1 ,64#2 3$$$$$$$$$ 66
(he Mentholatum Co$ ;nc$ vs$ Man'aliman +G& -..0,/ 2. 0une ,6-,2 3$$$$$$$$$ ,0,
=ri"s %te$ Ltd$ vs$ Court o) Appeals +G& ,,44-#/ 5 *eruar1 ,66.2 3$$$$$$$$$ ,02
M& :oldin's Ltd$ vs$ Sheri)) 8aEar +G& ,#4,0-/ ,, April 20022 3$$$$$$$$$ ,0#
:utchison %orts %hilippines Limited vs$ Suic 8a1 Metropolitan Authorit1 (S8MA) +G& ,#,#5./ #, Au'ust 20002 3$$$$$$$$$ ,05
Antam Consolidated vs$ Court o) Appeals +G& L!5,52#/ #, 0ul1 ,6452 3$$$$$$$$$ ,0.
Merrill L1nch *utures vs$ Court o) Appeals +G& 6.4,5/ 2- 0ul1 ,6622 3$$$$$$$$$ ,06
A'ilent (echnolo'ies Sin'apore vs$ ;nte'rated Silicon (echnolo'1 %hilippines Corp$ +G& ,5-5,4/ ,- April 200-2 3$$$$$$$$$ ,,,
This collection contains seventy four (74) cases
summarized in this format by
Michael Vernon M. Guerrero (as a senior law student)
during the econd emester! school year "##$%"##&
in the 'ommercial (aw )eview class
under *tty. +arah Villanueva%'astro
at the *rellano ,niversity chool of (aw (*,().
'om-iled as ./0! 1uly "#22.
3erne Guerrero entered *,( in 1une "##"
and eventually graduated from *,( in "##&.
4e -assed the .hili--ine bar e5aminations immediately after (*-ril "##7).
www$erne'uerrero$com
Narratives (Berne Guerrero)
1 Feliciano vs. Commission on Audit [GR 147402 14 !anuar" 2004#
En Banc, Carpio (J): 13 concur
Facts$ A Special Audit Team from Commission on Audit (COA) Reional Office !o" #$$$ audited t%e
accounts of t%e &e'te (etropolitan )ater *istrict (&()*)" Su+se,uentl', &()* recei-ed a letter from
COA dated 1. Jul' 1... re,uestin pa'ment of auditin fees" As /eneral (anaer of &()*, Enr" Ranulfo
C" 0eliciano sent a repl' dated 11 Octo+er 1... informin COA2s Reional *irector t%at t%e 3ater district
could not pa' t%e auditin fees" 0eliciano cited as +asis for %is action Sections 4 and 15 of 6* 1.7, as 3ell as
Section 17 of RA 4897" T%e Reional *irector referred 0eliciano2s repl' to t%e COA C%airman on 17
Octo+er 1..." On 1. Octo+er 1..., 0eliciano 3rote COA t%rou% t%e Reional *irector as:in for refund of
all auditin fees &()* pre-iousl' paid to COA" On 14 (arc% 1555, 0eliciano recei-ed COA C%airman
Celso *" /anan2s Resolution dated 3 Januar' 1555 den'in 0eliciano2s re,uest for COA to cease all audit
ser-ices, and to stop c%arin auditin fees, to &()*" T%e COA also denied 0eliciano2s re,uest for COA to
refund all auditin fees pre-iousl' paid +' &()*" 0eliciano filed a motion for reconsideration on 31 (arc%
1555, 3%ic% COA denied on 35 Januar' 1551" On 13 (arc% 1551, 0elicaino filed t%e petition for certiorari"
%ssue$ )%et%er a &ocal )ater *istrict (;&)*<) is a o-ernment=o3ned or controlled corporation"
&eld$ T%e Constitution reconi>es t3o classes of corporations" T%e first refers to pri-ate corporations created
under a eneral la3" T%e second refers to o-ernment=o3ned or controlled corporations created +' special
c%arters" T%e Constitution emp%aticall' pro%i+its t%e creation of pri-ate corporations e?cept +' a eneral la3
applica+le to all citi>ens" T%e purpose of t%is constitutional pro-ision is to +an pri-ate corporations created +'
special c%arters, 3%ic% %istoricall' a-e certain indi-iduals, families or roups special pri-ilees denied to
ot%er citi>ens" $n s%ort, Conress cannot enact a la3 creatin a pri-ate corporation 3it% a special c%arter"
Suc% leislation 3ould +e unconstitutional" 6ri-ate corporations ma' e?ist onl' under a eneral la3" $f t%e
corporation is pri-ate, it must necessaril' e?ist under a eneral la3" Stated differentl', onl' corporations
created under a eneral la3 can ,ualif' as pri-ate corporations" @nder e?istin la3s, t%at eneral la3 is t%e
Corporation Code, e?cept t%at t%e Cooperati-e Code o-erns t%e incorporation of cooperati-es" T%e
Constitution aut%ori>es Conress to create o-ernment=o3ned or controlled corporations t%rou% special
c%arters" Since pri-ate corporations cannot %a-e special c%arters, it follo3s t%at Conress can create
corporations 3it% special c%arters onl' if suc% corporations are o-ernment=o3ned or controlled" O+-iousl',
&)*s are not pri-ate corporations +ecause t%e' are not created under t%e Corporation Code" &)*s are not
reistered 3it% t%e Securities and E?c%ane Commission" Section 1A of t%e Corporation Code states t%at
;BACll corporations orani>ed under t%is code s%all file 3it% t%e Securities and E?c%ane Commission articles
of incorporation ? ? ?"< &)*s %a-e no articles of incorporation, no incorporators and no stoc:%olders or
mem+ers" T%ere are no stoc:%olders or mem+ers to elect t%e +oard directors of &)*s as in t%e case of all
corporations reistered 3it% t%e Securities and E?c%ane Commission" T%e local ma'or or t%e pro-incial
o-ernor appoints t%e directors of &)*s for a fi?ed term of office" &)*s e?ist +' -irtue of 6* 1.7, 3%ic%
constitutes t%eir special c%arter" Since under t%e Constitution onl' o-ernment=o3ned or controlled
corporations ma' %a-e special c%arters, &)*s can -alidl' e?ist onl' if t%e' are o-ernment=o3ned or
controlled" To claim t%at &)*s are pri-ate corporations 3it% a special c%arter is to admit t%at t%eir e?istence
is constitutionall' infirm" @nli:e pri-ate corporations, 3%ic% deri-e t%eir leal e?istence and po3er from t%e
Corporation Code, &)*s deri-e t%eir leal e?istence and po3er from 6* 1.7"
2 'a(sa"sa")*a+rador et. al. vs. Court o, A--eals [GR ./10/ 11 2ecem+er 11/1#
Third Division, Fernan (CJ): 3 concur, 1 on leave
Facts$ On . 0e+ruar' 1.8., Adelaida Rodriue>=(asa'sa', 3ido3 and special administrati? of t%e estate of
t%e late Senator /enaro (asa'sa', +rou%t +efore t%e t%en Court of 0irst $nstance of Olonapo an action
aainst Artemio 6anani+an, Su+ic &and Corporation (S@B$C), 0ilipinas (anufacturerDs Ban:
(0$&(A!BA!E) and t%e Reister of *eeds of Fam+ales, for t%e annulment of t%e *eed of Assinment
Commercial *a3 ) Cor-oration *a3 200. ( 1 )
e?ecuted +' t%e late Senator in fa-or of S@B$C (as a result of 3%ic% TCT 3197 3as cancelled and TCT 11A31
issued in t%e name of S@B$C), for t%e annulment of t%e *eed of (ortae e?ecuted +' S@B$C in fa-or of
0$&(A!BA!E (dated 17 April 1.88 in t%e amount of 6 1,855,555"55), and cancellation of TCT 11A31 +'
t%e Reister of *eeds, and for t%e latter to issue a ne3 title in %er fa-or" On 8 (arc% 1.8., Concepcion
(asa'sa'=&a+rador, Soledad (asa'sa'=Ca+rera, &uisa (asa'sa'=Corpu>, 0elicidad (asa'sa', and
(ercedes (asa'sa'=*ia>, sisters of t%e late senator, filed a motion for inter-ention on t%e round t%at on 15
June 1.87, t%eir +rot%er con-e'ed to t%em 1G1 of %is s%are%oldins in S@B$C or a total of A14,944"4 s%ares
and as assinees of around A1 H of t%e total outstandin s%ares of suc% stoc:s of S@B$C, t%e' %a-e a
su+stantial and leal interest in t%e su+Iect matter of litiation and t%at t%e' %a-e a leal interest in t%e success
of t%e suit 3it% respect to S@B$C" On 14 Jul' 1.8., t%e trial court denied t%e motion for inter-ention, and
ruled t%at petitioners %a-e no leal interest 3%atsoe-er in t%e matter in litiation and t%eir +ein alleed
assinees or transferees of certain s%ares in S@B$C cannot leall' entitle t%em to inter-ene +ecause S@B$C
%as a personalit' separate and distinct from its stoc:%olders"
On appeal, t%e Court of Appeals found no factual or leal Iustification to distur+ t%e findins of t%e lo3er
court" T%e appellate court furt%er stated t%at 3%ate-er claims t%e (asa'sa' sisters %a-e aainst t%e late
Senator or aainst S@B$C for t%at matter can +e -entilated in a separate proceedin" T%e motion for
reconsideration of t%e (asa'sa' sisters 3as denied" Jence, t%e petition for re-ie3 on certiorari"
%ssue$ )%et%er t%e (asa'sa' sister, alleedl' stoc:%olders of S@B$C, are interested parties in a case 3%ere
corporate properties are in dispute"
&eld$ #ie3ed in t%e li%t of Section 1, Rule 11 of t%e Re-ised Rules of Court, t%e (asa'sa' sisters %a-e no
leal interest in t%e su+Iect matter in litiation so as to entitle t%em to inter-ene in t%e proceedins" To +e
permitted to inter-ene in a pendin action, t%e part' must %a-e a leal interest in t%e matter in litiation, or in
t%e success of eit%er of t%e parties or an interest aainst +ot%, or %e must +e so situated as to +e ad-ersel'
affected +' a distri+ution or ot%er disposition of t%e propert' in t%e custod' of t%e court or an officer t%ereof "
Jere, t%e interest, if it e?ists at all, of t%e (asa'sa' sisters is indirect, continent, remote, conIectural,
conse,uential and collateral" At t%e -er' least, t%eir interest is purel' inc%oate, or in s%eer e?pectanc' of a
ri%t in t%e manaement of t%e corporation and to s%are in t%e profits t%ereof and in t%e properties and assets
t%ereof on dissolution, after pa'ment of t%e corporate de+ts and o+liations" )%ile a s%are of stoc: represents
a proportionate or ali,uot interest in t%e propert' of t%e corporation, it does not -est t%e o3ner t%ereof 3it%
an' leal ri%t or title to an' of t%e propert', %is interest in t%e corporate propert' +ein e,uita+le or
+eneficial in nature" S%are%olders are in no leal sense t%e o3ners of corporate propert', 3%ic% is o3ned +'
t%e corporation as a distinct leal person"
4 5ulo n( Ba"an vs. Araneta [GR *)41001 17 Au(ust 1170#
Second Division, Antonio (J): 4 concur
Facts$ On 14 April 1.44, Sulo n Ba'an, $nc" filed an accion de re-indicacion 3it% t%e Court of 0irst $nstance
of Bulacan, 0ift% Judicial *istrict, #alen>uela, Bulacan, aainst /reorio Araneta $nc" (/A$), 6aradise 0arms
$nc", !ational )ater3or:s K Se3erae Aut%orit' (!A)ASA), Jacienda Caretas $nc", and t%e Reister of
*eeds of Bulacan to reco-er t%e o3ners%ip and possession of a lare tract of land in San Jose del (onte,
Bulacan, containin an area of 18,.71,195 s," ms", more or less, reistered under t%e Torrens S'stem in t%e
name of /A$, et" al"Ds predecessors=in=interest (3%o are mem+ers of t%e corporation)" On 1 Septem+er 1.44,
/A$ filed a motion to dismiss t%e amended complaint on t%e rounds t%at (1) t%e complaint states no cause of
actionL and (1) t%e cause of action, if an', is +arred +' prescription and lac%es" 6aradise 0arms, $nc" and
Jacienda Caretas, $nc" filed motions to dismiss +ased on t%e same rounds" !A)ASA did not file an' motion
to dismiss" Jo3e-er, it pleaded in its ans3er as special and affirmati-e defenses lac: of cause of action +'
Sulo n Ba'an $nc" and t%e +arrin of suc% action +' prescription and lac%es" On 1A Januar' 1.48, t%e trial
court issued an Order dismissin t%e (amended) complaint" On 1A 0e+ruar' 1.48, Sulo n Ba'an filed a
motion to reconsider t%e Order of dismissal, aruin amon ot%ers t%at t%e complaint states a sufficient cause
of action +ecause t%e su+Iect matter of t%e contro-ers' in one of common interest to t%e mem+ers of t%e
corporation 3%o are so numerous t%at t%e present complaint s%ould +e treated as a class suit" T%e motion 3as
denied +' t%e trial court in its Order dated 11 0e+ruar' 1.48"
Sulo n Ba'an appealed to t%e Court of Appeals" On 3 Septem+er 1.4., t%e Court of Appeals, upon findin
t%at no ,uestion of fact 3as in-ol-ed in t%e appeal +ut onl' ,uestions of la3 and Iurisdiction, certified t%e
case to t%e Supreme Court for resolution of t%e leal issues in-ol-ed in t%e contro-ers'"
%ssue [1#$ )%et%er t%e corporation (non=stoc:) ma' institute an action in +e%alf of its indi-idual mem+ers for
t%e reco-er' of certain parcels of land alleedl' o3ned +' said mem+ers, amon ot%ers"
&eld [1#$ $t is a doctrine 3ell=esta+lis%ed and o+tains +ot% at la3 and in e,uit' t%at a corporation is a distinct
leal entit' to +e considered as separate and apart from t%e indi-idual stoc:%olders or mem+ers 3%o compose
it, and is not affected +' t%e personal ri%ts, o+liations and transactions of its stoc:%olders or mem+ers" T%e
propert' of t%e corporation is its propert' and not t%at of t%e stoc:%olders, as o3ners, alt%ou% t%e' %a-e
e,uities in it" 6roperties reistered in t%e name of t%e corporation are o3ned +' it as an entit' separate and
distinct from its mem+ers" Con-ersel', a corporation ordinaril' %as no interest in t%e indi-idual propert' of its
stoc:%olders unless transferred to t%e corporation, Me-en in t%e case of a one=man corporation"M T%e mere fact
t%at one is president of a corporation does not render t%e propert' 3%ic% %e o3ns or possesses t%e propert' of
t%e corporation, since t%e president, as indi-idual, and t%e corporation are separate similarities" Similarl',
stoc:%olders in a corporation enaed in +u'in and dealin in real estate 3%ose certificates of stoc: entitled
t%e %older t%ereof to an allotment in t%e distri+ution of t%e land of t%e corporation upon surrender of t%eir
stoc: certificates 3ere considered not to %a-e suc% leal or e,uita+le title or interest in t%e land, as 3ould
support a suit for title, especiall' aainst parties ot%er t%an t%e corporation" $t must +e noted, %o3e-er, t%at t%e
Iuridical personalit' of t%e corporation, as separate and distinct from t%e persons composin it, is +ut a leal
fiction introduced for t%e purpose of con-enience and to su+ser-e t%e ends of Iustice" T%is separate
personalit' of t%e corporation ma' +e disrearded, or t%e -eil of corporate fiction pierced, in cases 3%ere it is
used as a cloa: or co-er for fraud or illealit', or to 3or: =an inIustice, or 3%ere necessar' to ac%ie-e e,uit'"
$t %as not +een claimed t%at t%e mem+ers %a-e assined or transferred 3%ate-er ri%ts t%e' ma' %a-e on t%e
land in ,uestion to t%e corporation" A+sent an' s%o3in of interest, t%erefore, a corporation, %as no
personalit' to +rin an action for and in +e%alf of its stoc:%olders or mem+ers for t%e purpose of reco-erin
propert' 3%ic% +elons to said stoc:%olders or mem+ers in t%eir personal capacities"
%ssue [2#$ )%et%er t%e complaint filed +' t%e corporation in +e%alf of its mem+ers ma' +e treated as a class
suit
&eld [2#$ $n order t%at a class suit ma' prosper, t%e follo3in re,uisites must +e present: (1) t%at t%e su+Iect
matter of t%e contro-ers' is one of common or eneral interest to man' personsL and (1) t%at t%e parties are so
numerous t%at it is impractica+le to +rin t%em all +efore t%e court" Jere, t%ere is onl' one part' plaintiff, and
t%e corporation does not e-en %a-e an interest in t%e su+Iect matter of t%e contro-ers', and cannot, t%erefore,
represent its mem+ers or stoc:%olders 3%o claim to o3n in t%eir indi-idual capacities o3ners%ip of t%e said
propert'" (oreo-er, a class suit does not lie in actions for t%e reco-er' of propert' 3%ere se-eral persons
claim partners%ip of t%eir respecti-e portions of t%e propert', as eac% one could alleed and pro-e %is
respecti-e ri%t in a different 3a' for eac% portion of t%e land, so t%at t%e' cannot all +e %eld to %a-e identical
title t%rou% ac,uisitionGprescription"
4 *u6uria &omes vs. Court o, A--eals [GR 12.1/0 2/ !anuar" 1111#
First Division, Martinez (J):4 concur
Facts$ Aida (" 6osadas and %er t3o (1) minor c%ildren co=o3ned a 1"4 %ectare propert' in Sucat,
(untinlupa, 3%ic% 3as occupied +' s,uatters" 6osadas entered into neotiations 3it% Jaime T" Bra-o
reardin t%e de-elopment of t%e said propert' into a residential su+di-ision" On 3 (a' 1.7., s%e aut%ori>ed
Bra-o to neotiate 3it% t%e s,uatters to lea-e t%e said propert'" )it% a 3ritten aut%ori>ation, Bra-o +uc:led
do3n to 3or: and started neotiations 3it% t%e s,uatters" (ean3%ile, some 8 mont%s later, on 11 *ecem+er
1.7., 6osadas and %er c%ildren, t%rou% a *eed of Assinment, assined t%e said propert' to &u?uria Jomes,
$nc", urortedl! for orani>ational and ta? a-oidance purposes" Bra-o sined as one of t%e 3itnesses to t%e
e?ecution of t%e *eed of Assinment and t%e Articles of $ncorporation of &u?uria Jomes, $nc" T%en
sometime in 1..1, t%e %armonious and conenial relations%ip of 6osadas and Bra-o turned sour 3%en t%e
former supposedl' could not accept t%e manaement contracts to de-elop t%e 1"4 %ectare propert' into a
residential su+di-ision, t%e latter 3as proposin" $n retaliation, Bra-o demanded pa'ment for ser-ices
rendered in connection 3it% t%e de-elopment of t%e land" $n %is statement of account dated 11 Auust 1..1,
Bra-o demanded t%e pa'ment of 61,857,A7."55 for -arious ser-ices rendered, i"e", relocation of s,uatters,
preparation of t%e arc%itectural desin and site de-elopment plan, sur-e' and fencin" 6osadas refused to pa'
t%e amount demanded" T%us, in Septem+er 1..1, James Builder Construction and Jaime T" Bra-o instituted a
complaint for specific performance +efore t%e trial court aainst 6osadas and &u?uria Jomes, $nc" On 18
Septem+er 1..3, t%e trial court declared 6osadas in default and allo3ed James Builder Construction and
Bra-o to present t%eir e-idence e?=parte" On 7 (arc% 1..A, it ordered 6osadas, Iointl' and in solidum 3it%
&u?uria Jomes, $nc", to pa' Bra-o, et" al" t%e +alance of t%e pa'ment for t%e -arious ser-ices performed +'
t%em in t%e total amount of 61,857,A7."55L actual damaes incurred for t%e construction of t%e
3are%ouseG+un:s, and for t%e material used in t%e total sum of 61,955"555"55L moral and e?emplar' damaes
of 6955"555"55L Attorne'Ds fee of 695,555"55L and cost of t%is proceedins" T%e court also directed 6osadas as
t%e Representati-e of t%e Corporation &u?uria Jomes, $ncorporated, to e?ecute t%e manaement contract s%e
committed to do, also in consideration of t%e -arious underta:ins t%at Bra-o rendered for %er"
&u?uria Jomes and 6osadas appealed to t%e Court of Appeals" T%e appellate court affirmed 3it% modification
t%e decision of t%e trial court" T%e appellate court deleted t%e a3ard of moral damaes on t%e round t%at
James Builder Construction is a corporation and %ence could not e?perience p%'sical sufferin and mental
anuis%" $t also reduced t%e a3ard of e?emplar' damaes" &u?uria JomesD and 6osadasD motion for
reconsideration, promptin t%em to file t%e petition for re-ie3 +efore t%e Supreme Court"
%ssue$ )%et%er &u?uria Jomes, $nc", 3as a part' to t%e transactions entered into +' 6osadas 3it% Bra-o and
James Builder Construction and t%us could +e %eld Iointl' and se-erall' 3it% 6osadas"
&eld$ $t cannot +e said t%en t%at t%e incorporation of &u?uria Jomes and t%e e-entual transfer of t%e su+Iect
propert' to it 3ere in fraud of Bra-o and James Builder Construction as suc% 3ere done 3it% t%e full
:no3lede of Bra-o %imself, as e-idenced +' t%e *eed of Assinment dated 11 *ecem+er 1.7. and t%e
Articles of $ncorporation of &u?uria Jomes, $nc", issued 14 Januar' 1..5 3ere +ot% sined +' Bra-o %imself
as 3itness" 0urt%er, 6osadas is not t%e maIorit' stoc:%older of &u?uria Jomes, $nc" T%e Articles of
$ncorporation of &u?uria Jomes, $nc", clearl' s%o3 t%at 6osadas o3ns appro?imatel' 33H onl' of t%e capital
stoc:" Jence, 6osadas cannot +e considered as an alter eo of &u?uria Jomes, $nc" To disreard t%e separate
Iuridical personalit' of a corporation, t%e 3rondoin must +e clearl' and con-incinl' esta+lis%ed" $t cannot
+e presumed" Bra-o, et" al" failed to s%o3 proof t%at 6osadas acted in +ad fait%, and conse,uentl' t%at &u?uria
Jomes, $nc", 3as a part' to an' of t%e supposed transactions, not e-en to t%e areement to neotiate 3it% and
relocate t%e s,uatters, it cannot +e %eld lia+le, na' Iointl' and in solidum, to pa' Bra-o, et" al" Jence, since it
3as 6osadas 3%o contracted Bra-o to render t%e su+Iect ser-ices, onl' s%e is lia+le to pa' t%e amounts
adIuded +' t%e Court"
. Conce-t Builders %nc. vs. National *a+or Relations Commission (N*RC First 2ivision) [GR
10/744 21 'a" 1110#
First Division, "er#osisi#a Jr$ (J): 4 concur
Facts$ Concept Builders, $nc", (CB$) a domestic corporation, 3it% principal office at 399 (a'san Road,
#alen>uela, (etro (anila, is enaed in t%e construction +usiness 3%ile !or+erto (ara+eL Rodolfo Ra,uel,
Cristo+al Rieo, (anuel /illeo, 6alcronio /iducos, 6edro A+oiar, !or+erto Comendador, Roelio Salut,
Emilio /arcia, Jr", (ariano Rio, 6aulina Basea, Alfredo Al+era, 6a,uito Salut, *omino /uarino, Romeo
/al-e, *ominador Sa+ina, 0elipe Radiana, /a-ino Suali+io, (oreno Escares, 0erdinand Torres, 0elipe
Basilan, and Ru+en Ro+alos 3ere emplo'ed +' said compan' as la+orers, carpenters and riers" On
!o-em+er 1.71, (ara+e, et" al" 3ere ser-ed indi-idual 3ritten notices of termination of emplo'ment +'
CB$, effecti-e on 35 !o-em+er 1.71" $t 3as stated in t%e indi-idual notices t%at t%eir contracts of
emplo'ment %ad e?pired and t%e proIect in 3%ic% t%e' 3ere %ired %ad +een completed" T%e !ational &a+or
Relations Commission (!&RC) found it to +e, t%e fact, %o3e-er, t%at at t%e time of t%e termination of (ara+e,
et"al"Ds emplo'ment, t%e proIect in 3%ic% t%e' 3ere %ired %ad not 'et +een finis%ed and completed" CB$ %ad to
enae t%e ser-ices of su+=contractors 3%ose 3or:ers performed t%e functions of (ara+e, et" al" Arie-ed,
(ara+e, et" al" filed a complaint for illeal dismissal, unfair la+or practice and non=pa'ment of t%eir leal
%olida' pa', o-ertime pa' and t%irteent%=mont% pa' aainst CB$" On 1. *ecem+er 1.7A, t%e &a+or Ar+iter
rendered Iudment orderin CB$ to reinstate (ara+e et" al" and to pa' t%em +ac: 3aes e,ui-alent to 1 'ear
or 355 3or:in da's" On 18 !o-em+er 1.79, t%e !&RC dismissed t%e motion for reconsideration filed +'
CB$ on t%e round t%at t%e said decision %ad alread' +ecome final and e?ecutor'"
On 14 Octo+er 1.74, t%e !&RC Researc% and $nformation *epartment made t%e findin t%at (ara+e, et" al"Ds
+ac: 3aes amounted to 61..,755"55" On 1. Octo+er 1.74, t%e &a+or Ar+iter issued a 3rit of e?ecution
directin t%e s%eriff to e?ecute t%e *ecision, dated 1. *ecem+er 1.7A" T%e 3rit 3as partiall' satisfied
t%rou% arnis%ment of sums from CB$Ds de+tor, t%e (etropolitan )ater3or:s and Se3erae Aut%orit', in t%e
amount of 671,379"3A" Said amount 3as turned o-er to t%e cas%ier of t%e !&RC" On 1 0e+ruar' 1.7., an
Alias )rit of E?ecution 3as issued +' t%e &a+or Ar+iter directin t%e s%eriff to collect from CB$ t%e sum of
6118,A1A"84, representin t%e +alance of t%e Iudment a3ard, and to reinstate (ara+e, et" al" to t%eir former
positions" On 13 Jul' 1.7., t%e s%eriff issued a report statin t%at %e tried to ser-e t%e alias 3rit of e?ecution
on petitioner t%rou% t%e securit' uard on dut' +ut t%e ser-ice 3as refused on t%e round t%at CB$ no loner
occupied t%e premises" On 14 Septem+er 1.74, upon motion of (ara+e, et" al", t%e &a+or Ar+iter issued a
second alias 3rit of e?ecution" T%e said 3rit %ad not +een enforced +' t%e special s%eriff +ecause, as stated in
%is proress report dated 1 !o-em+er 1.7., t%at all t%e emplo'ees inside CB$Ds premises claimed t%at t%e'
3ere emplo'ees of J'dro 6ipes 6%ilippines, $nc" (J66$) and not +' CB$L t%at le-' 3as made upon personal
properties %e found in t%e premisesL and t%at securit' uards 3it% %i%=po3ered uns pre-ented %im from
remo-in t%e properties %e %ad le-ied upon" T%e said special s%eriff recommended t%at a M+rea:=open orderM
+e issued to ena+le %im to enter CB$Ds premises so t%at %e could proceed 3it% t%e pu+lic auction sale of t%e
aforesaid personal properties on 8 !o-em+er 1.7." On 4 !o-em+er 1.7., a certain *ennis Cu'e:en filed a
t%ird=part' claim 3it% t%e &a+or Ar+iter allein t%at t%e properties sou%t to +e le-ied upon +' t%e s%eriff
3ere o3ned +' J66$, of 3%ic% %e is t%e #ice=6resident" On 13 !o-em+er 1.7., (ara+e, et" al" filed a
M(otion for $ssuance of a Brea:=Open Order,M allein t%at J66$ and CB$ 3ere o3ned +' t%e same
incorporatorGstoc:%olders" T%e' also alleed t%at petitioner temporaril' suspended its +usiness operations in
order to e-ade its leal o+liations to t%em and t%at (ara+e, et" al" 3ere 3illin to post an indemnit' +ond to
ans3er for an' damaes 3%ic% CB$ and J66$ ma' suffer +ecause of t%e issuance of t%e +rea:=open order" On
1 (arc% 1..5, t%e &a+or Ar+iter issued an Order 3%ic% denied (ara+e, et" al"Ds motion for +rea:=open order"
(ara+e, et" al" t%en appealed to t%e !&RC" On 13 April 1..1, t%e !&RC set aside t%e order of t%e &a+or
Ar+iter, issued a +rea:=open order and directed (ara+e, et" al" to file a +ond" T%ereafter, it directed t%e s%eriff
to proceed 3it% t%e auction sale of t%e properties alread' le-ied upon" $t dismissed t%e t%ird=part' claim for
lac: of merit" CB$ mo-ed for reconsideration +ut t%e motion 3as denied +' t%e !&RC in a Resolution, dated
3 *ecem+er 1..1" Jence, t%e petition"
%ssue$ )%et%er t%e !&RC 3as correct in issuin t%e +rea:=open order to le-' t%e ;J66$ properties< located
at CB$ amdGor J66$2s premises at 399 (a'san Road, #alen>uela, (etro (anila"
Commercial *a3 ) Cor-oration *a3 200. ( . )
&eld$ $t is a fundamental principle of corporation la3 t%at a corporation is an entit' separate and distinct from
its stoc:%olders and from ot%er corporations to 3%ic% it ma' +e connected" But, t%is separate and distinct
personalit' of a corporation is merel' a fiction created +' la3 for con-enience and to promote Iustice" So,
3%en t%e notion of separate Iuridical personalit' is used to defeat pu+lic con-enience, Iustif' 3ron, protect
fraud or defend crime, or is used as a de-ice to defeat t%e la+or la3s, t%is separate personalit' of t%e
corporation ma' +e disrearded or t%e -eil of corporate fiction pierced" T%is is true li:e3ise 3%en t%e
corporation is merel' an adIunct, a +usiness conduit or an alter eo of anot%er corporation" T%e conditions
under 3%ic% t%e Iuridical entit' ma' +e disrearded -ar' accordin to t%e peculiar facts and circumstances of
eac% case" !o %ard and fast rule can +e accuratel' laid do3n, +ut certainl', t%ere are some pro+ati-e factors of
identit' t%at 3ill Iustif' t%e application of t%e doctrine of piercin t%e corporate -eil, to 3it: (1) Stoc:
o3ners%ip +' one or common o3ners%ip of +ot% corporationsL (1) $dentit' of directors and officersL (3) T%e
manner of :eepin corporate +oo:s and recordsL and (A) (et%ods of conductin t%e +usiness" T%e SEC en
+anc e?plained t%e Minstrumentalit' ruleM 3%ic% t%e courts %a-e applied in disreardin t%e separate Iuridical
personalit' of corporations as M)%ere one corporation is so orani>ed and controlled and its affairs are
conducted so t%at it is, in fact, a mere instrumentalit' or adIunct of t%e ot%er, t%e fiction of t%e corporate entit'
of t%e Minstrumentalit'M ma' +e disrearded" T%e control necessar' to in-o:e t%e rule is not maIorit' or e-en
complete stoc: control +ut suc% domination of instances, policies and practices t%at t%e controlled corporation
%as, so to spea:, no separate mind, 3ill or e?istence of its o3n, and is +ut a conduit for its principal" $t must
+e :ept in mind t%at t%e control must +e s%o3n to %a-e +een e?ercised at t%e time t%e acts complained of too:
place" (oreo-er, t%e control and +reac% of dut' must pro?imatel' cause t%e inIur' or unIust loss for 3%ic% t%e
complaint is made"M T%e test in determinin t%e applica+ilit' of t%e doctrine of piercin t%e -eil of corporate
fiction is as (1) Control, not mere maIorit' or complete stoc: control, +ut complete domination, not onl' of
finances +ut of polic' and +usiness practice in respect to t%e transaction attac:ed so t%at t%e corporate entit'
as to t%is transaction %ad at t%e time no separate mind, 3ill or e?istence of its o3nL (1) Suc% control must %a-e
+een used +' t%e defendant to commit fraud or 3ron, to perpetuate t%e -iolation of a statutor' or ot%er
positi-e leal dut' or dis%onest and unIust act in contra-ention of plaintiffDs leal ri%tsL and (3) T%e aforesaid
control and +reac% of dut' must pro?imatel' cause t%e inIur' or unIust loss complained of" T%e a+sence of
an' one of t%ese elements pre-ents Mpiercin t%e corporate -eil"M $n appl'in t%e Minstrumentalit'M or Malter
eoM doctrine, t%e courts are concerned 3it% realit' and not form, 3it% %o3 t%e corporation operated and t%e
indi-idual defendantDs relations%ip to t%at operation" T%us t%e ,uestion of 3%et%er a corporation is a mere
alter eo, a mere s%eet or paper corporation, a s%am or a su+terfue is purel' one of fact" Jere, 3%ile CB$
claimed t%at it ceased its +usiness operations on 1. April 1.74, it filed an $nformation S%eet 3it% t%e
Securities and E?c%ane Commission on 19 (a' 1.78, statin t%at its office address is at 399 (a'san Road,
#alen>uela, (etro (anila" On t%e ot%er %and, J66$, t%e t%ird=part' claimant, su+mitted on t%e same da', a
similar information s%eet statin t%at its office address is at 399 (a'san Road, #alen>uela, (etro (anila"
0urt%er, +ot% information s%eets 3ere filed +' t%e same #irilio O" CasiNo as t%e corporate secretar' of +ot%
corporations" Bot% corporations %ad t%e same president, t%e same +oard of directors, t%e same corporate
officers, and su+stantiall' t%e same su+scri+ers" 0rom t%e foreoin, it appears t%at, amon ot%er t%ins, t%e
CB$ and t%e J66$ s%ared t%e same address andGor premises" @nder t%ese circumstances, it cannot +e said t%at
t%e propert' le-ied upon +' t%e s%eriff 3ere not of CB$Ds" Clearl', CB$ ceased its +usiness operations in order
to e-ade t%e pa'ment to (ara+e, et" al" of +ac: 3aes and to +ar t%eir reinstatement to t%eir former positions"
J66$ is o+-iousl' a +usiness conduit of CB$ and its emerence 3as s:illfull' orc%estrated to a-oid t%e
financial lia+ilit' t%at alread' attac%ed to CB$"
0 7illa Re" 8ransit vs. Ferrer [GR *)24/14 21 9cto+er 110/#
%n &anc, An'eles (J): ( concur, ) too* no art, 1 on leave
Facts$ +recedin' case, 6rior to 1.9., Jose (" #illarama 3as an operator of a +us transportation, under t%e
+usiness name of #illa Re' Transit, pursuant to certificates of pu+lic con-enience ranted %im +' t%e 6u+lic
Ser-ice Commission (6SC) in Cases AA113 and 15A491, 3%ic% aut%ori>ed %im to operate a total of 31 units
on -arious routes or lines from 6anasinan to (anila, and -ice=-ersa" On 7 Januar' 1.9., %e sold t%e t3o
certificates of pu+lic con-enience to t%e 6anasinan Transportation Compan', $nc" (6antranco), for
6395,555"55 3it% t%e condition, amon ot%ers, t%at t%e seller (#illarama) Ms%all not for a period of 15 'ears
from t%e date of t%is sale, appl' for an' T6@ ser-ice identical or competin 3it% t%e +u'er"M Barel' 3 mont%s
t%ereafter, or on 4 (arc% 1.9.: a corporation called #illa Re' Transit, $nc" (t%e Corporation) 3as orani>ed
3it% a capital stoc: of 6955,555"55 di-ided into 9,555 s%ares of t%e par -alue of 6155"55 eac%L 6155,555"55
3as t%e su+scri+ed stoc:L !ati-idad R" #illarama (3ife of Jose (" #illarama) 3as one of t%e incorporators,
and s%e su+scri+ed for 61,555"55L t%e +alance of 61..,555"55 3as su+scri+ed +' t%e +rot%er and sister=in=la3
of Jose (" #illaramaL of t%e su+scri+ed capital stoc:, 6159,555"55 3as paid to t%e treasurer of t%e
corporation, 3%o 3as !ati-idad R" #illarama" $n less t%an a mont% after its reistration 3it% t%e Securities
and E?c%ane Commission (15 (arc% 1.9.), t%e Corporation, on 8 April 1.9., +ou%t 9 certificates of pu+lic
con-enience, A. +uses, tools and e,uipment from one #alentin 0ernando, for t%e sum of 61A.,555"55, of
3%ic% 6155,555"55 3as paid upon t%e sinin of t%e contractL 695,555"55 3as pa'a+le upon t%e final
appro-al of t%e sale +' t%e 6SCL 6A.,955"55 one 'ear after t%e final appro-al of t%e saleL and t%e +alance of
695,555"55 Ms%all +e paid +' t%e B@OER to t%e different suppliers of t%e SE&&ER"M T%e -er' same da' t%at
t%e contract of sale 3as e?ecuted, t%e parties t%ereto immediatel' applied 3it% t%e 6SC for its appro-al, 3it% a
pra'er for t%e issuance of a pro-isional aut%orit' in fa-or of t%e -endee Corporation to operate t%e ser-ice
t%erein in-ol-ed" On 1. (a' 1.9., t%e 6SC ranted t%e pro-isional permit pra'ed for, upon t%e condition t%at
Mit ma' +e modified or re-o:ed +' t%e Commission at an' time, s%all +e su+Iect to 3%ate-er action t%at ma'
+e ta:en on t%e +asic application and s%all +e -alid onl' durin t%e pendenc' of said application"M Before t%e
6SC could ta:e final action on said application for appro-al of sale, %o3e-er, t%e S%eriff of (anila, on 8 Jul'
1.9., le-ied on 1 of t%e fi-e certificates of pu+lic con-enience in-ol-ed t%erein, namel', t%ose issued under
6SC cases 9.A.A and 43875, pursuant to a 3rit of e?ecution issued +' t%e Court of 0irst $nstance of
6anasinan in Ci-il Case 138.7, in fa-or of Euse+io E" 0errer aainst #alentin 0ernando" T%e S%eriff made
and entered t%e le-' in t%e records of t%e 6SC" On 14 Jul' 1.9., a pu+lic sale 3as conducted +' t%e S%eriff of
t%e said t3o certificates of pu+lic con-enience" 0errer 3as t%e %i%est +idder, and a certificate of sale 3as
issued in %is name" T%ereafter, 0errer sold t%e t3o certificates of pu+lic con-enience to 6antranco, and Iointl'
su+mitted for appro-al t%eir correspondin contract of sale to t%e 6SC" 6antranco t%erein pra'ed t%at it +e
aut%ori>ed pro-isionall' to operate t%e ser-ice in-ol-ed in t%e said t3o certificates" T%e applications for
appro-al of sale, filed +efore t%e 6SC, +' 0ernando and t%e Corporation, Case 11A598, and t%at of 0errer and
6antranco, Case 114187, 3ere sc%eduled for a Ioint %earin" $n t%e meantime, to 3it, on 11 Jul' 1.9., t%e
6SC issued an order disposin t%at durin t%e pendenc' of t%e cases and +efore a final resolution on t%e
aforesaid applications, t%e 6antranco s%all +e t%e one to operate pro-isionall' t%e ser-ice under t%e t3o
certificates em+raced in t%e contract +et3een 0errer and 6antranco" T%e Corporation too: issue 3it% t%is
particular rulin of t%e 6SC and ele-ated t%e matter to t%e Supreme Court, 3%ic% decreed, after deli+eration,
t%at until t%e issue on t%e o3ners%ip of t%e disputed certificates s%all %a-e +een finall' settled +' t%e proper
court, t%e Corporation s%ould +e t%e one to operate t%e lines pro-isionall'"
+resent case, On A !o-em+er 1.9., t%e Corporation filed in t%e Court of 0irst $nstance of (anila, a
complaint for t%e annulment of t%e s%eriffDs sale of t%e aforesaid t3o certificates of pu+lic con-enience (6SC
Cases 9.A.A and 43875) in fa-or of 0errer, and t%e su+se,uent sale t%ereof +' t%e latter to 6antranco, aainst
0errer, 6antranco and t%e 6SC" T%e Corporation pra'ed t%erein t%at all t%e orders of t%e 6SC relati-e to t%e
partiesD dispute o-er t%e said certificates +e annulled" T%e C0$ of (anila declared t%e s%eriffDs sale of t3o
certificates of pu+lic con-enience in fa-or of 0errer and t%e su+se,uent sale t%ereof +' t%e latter to 6antranco
null and -oidL declared t%e Corporation to +e t%e la3ful o3ner of t%e said certificates of pu+lic con-enienceL
and ordered 0errer and 6antranco, Iointl' and se-erall', to pa' t%e Corporation, t%e sum of 69,555"55 as and
for attorne'Ds fees" T%e case aainst t%e 6SC 3as dismissed" All parties appealed"
%ssue$ )%et%er t%e stipulation, MSJA&& !OT 0OR A 6ER$O* O0 15 OEARS 0RO( TJE *ATE O0 TJ$S
SA&E, A66&O 0OR A!O T6@ SER#$CE $*E!T$CA& OR CO(6ET$!/ )$TJ TJE B@OERM in t%e
contract +et3een #illarama and 6antranco, +inds t%e Corporation (t%e #illa Re' Transit, $nc")"
&eld$ #illarama supplied t%e orani>ation e?penses and t%e assets of t%e Corporation, suc% as truc:s and
e,uipmentL t%ere 3as no actual pa'ment +' t%e oriinal su+scri+ers of t%e amounts of 6.9,555"55 and
6155,555"55 as appearin in t%e +oo:sL #illarama made use of t%e mone' of t%e Corporation and deposited
t%em to %is pri-ate accountsL and t%e Corporation paid %is personal accounts" #illarama %imself admitted t%at
%e minled t%e corporate funds 3it% %is o3n mone'" T%ese circumstances are stron persuasi-e e-idence
s%o3in t%at #illarama %as +een too muc% in-ol-ed in t%e affairs of t%e Corporation to altoet%er neati-e t%e
claim t%at %e 3as onl' a part=time eneral manaer" T%e' s%o3 +e'ond dou+t t%at t%e Corporation is %is alter
eo" T%e interference of #illarama in t%e comple? affairs of t%e corporation, and particularl' its finances, are
muc% too inconsistent 3it% t%e ends and purposes of t%e Corporation la3, 3%ic%, precisel', see:s to separate
personal responsi+ilities from corporate underta:ins" $t is t%e -er' essence of incorporation t%at t%e acts and
conduct of t%e corporation +e carried out in its o3n corporate name +ecause it %as its o3n personalit'" T%e
doctrine t%at a corporation is a leal entit' distinct and separate from t%e mem+ers and stoc:%olders 3%o
compose it is reconi>ed and respected in all cases 3%ic% are 3it%in reason and t%e la3" )%en t%e fiction is
ured as a means of perpetratin a fraud or an illeal act or as a -e%icle for t%e e-asion of an e?istin
o+liation, t%e circum-ention of statutes, t%e ac%ie-ement or perfection of a monopol' or enerall' t%e
perpetration of :na-er' or crime, t%e -eil 3it% 3%ic% t%e la3 co-ers and isolates t%e corporation from t%e
mem+ers or stoc:%olders 3%o compose it 3ill +e lifted to allo3 for its consideration merel' as an areation
of indi-iduals" Jence, t%e #illa Re' Transit, $nc" is an alter eo of Jose (" #illarama, and t%at t%e restricti-e
clause in t%e contract entered into +' t%e latter and 6antranco is also enforcea+le and +indin aainst t%e said
Corporation" 0or t%e rule is t%at a seller or promisor ma' not ma:e use of a corporate entit' as a means of
e-adin t%e o+liation of %is co-enant" )%ere t%e Corporation is su+stantiall' t%e alter eo of t%e co-enantor
to t%e restricti-e areement, it can +e enIoined from competin 3it% t%e co-enantee"
7 Francisco 'otors Cor-oration vs. Court o, A--eals [GR 100/12 2. !une 1111#
Second Division, -uisu#.in' (J): 4 concur
Facts$ On 13 Januar' 1.79, 0rancisco (otors Corp" filed a complaint aainst Spouses /reorio and &i+rada
(anuel to reco-er 63,A11"54, representin t%e +alance of t%e Ieep +od' purc%ased +' t%e (anuels from
0rancisco (otorsL an additional sum of 615,A9A"75 representin t%e unpaid +alance on t%e cost of repair of
t%e -e%icleL and 64,555"55 for cost of suit and attorne'Ds fees" To t%e oriinal +alance on t%e price of Ieep
+od' 3ere added t%e costs of repair" $n t%eir ans3er, t%e (anuel spouses interposed a counterclaim for unpaid
leal ser-ices +' /reorio (anuel in t%e amount of 695,555 3%ic% 3as not paid +' t%e incorporators,
directors and officers of 0rancisco (otors" T%e trial court decided t%e case on 14 June 1.79, in fa-or of
0rancisco (otors in reard to its claim for mone', +ut also allo3ed t%e counter=claim of t%e (anuel spouses"
Bot% parties appealed" On 19 April 1..1, t%e Court of Appeals sustained t%e trial courtDs decision" Jence, t%e
present petition for re-ie3 on certiorari"
%ssue$ )%et%er t%e 0rancisco (otors Corporation s%ould +e lia+le for t%e leal ser-ices of /reorio (anuel
rendered in t%e intestate proceedins o-er Benita Trinidad2s estate (of t%e 0rancisco famil')"
&eld$ Basic in corporation la3 is t%e principle t%at a corporation %as a separate personalit' distinct from its
stoc:%olders and from ot%er corporations to 3%ic% it ma' +e connected" Jo3e-er, under t%e doctrine of
piercin t%e -eil of corporate entit', t%e corporationDs separate Iuridical personalit' ma' +e disrearded, for
e?ample, 3%en t%e corporate identit' is used to defeat pu+lic con-enience, Iustif' 3ron, protect fraud, or
defend crime" Also, 3%ere t%e corporation is a mere alter eo or +usiness conduit of a person, or 3%ere t%e
corporation is so orani>ed and controlled and its affairs are so conducted as to ma:e it merel' an
instrumentalit', aenc', conduit or adIunct of anot%er corporation, t%en its distinct personalit' ma' +e
inored" $n t%ese circumstances, t%e courts 3ill treat t%e corporation as a mere arupation of persons and t%e
lia+ilit' 3ill directl' attac% to t%em" T%e leal fiction of a separate corporate personalit' in t%ose cited
instances, for reasons of pu+lic polic' and in t%e interest of Iustice, 3ill +e Iustifia+l' set aside" Jerein,
Commercial *a3 ) Cor-oration *a3 200. ( / )
%o3e-er, i-en t%e facts and circumstances of t%is case, t%e doctrine of piercin t%e corporate -eil %as no
rele-ant application" T%e rationale +e%ind piercin a corporationDs identit' in a i-en case is to remo-e t%e
+arrier +et3een t%e corporation from t%e persons comprisin it to t%3art t%e fraudulent and illeal sc%emes of
t%ose 3%o use t%e corporate personalit' as a s%ield for underta:in certain proscri+ed acti-ities" $n t%e present
case, instead of %oldin certain indi-iduals or persons responsi+le for an alleed corporate act, t%e situation
%as +een re-ersed" $t is t%e 0rancisco (otors Corporation (0(C) as a corporation 3%ic% is +ein ordered to
ans3er for t%e personal lia+ilit' of certain indi-idual directors, officers and incorporators concerned" Jence,
t%e doctrine %as +een turned upside do3n +ecause of its erroneous in-ocation" $n fact, t%e ser-ices of
/reorio (anuel 3ere solicited as counsel for mem+ers of t%e 0rancisco famil' to represent t%em in t%e
intestate proceedins o-er Benita TrinidadDs estate" T%ese estate proceedins did not in-ol-e an' +usiness of
0(C" (anuelDs mo-e to reco-er unpaid leal fees t%rou% a counterclaim aainst 0(C, to offset t%e unpaid
+alance of t%e purc%ase and repair of a Ieep +od' could onl' result from an o+-ious misappre%ension t%at
0(CDs corporate assets could +e used to ans3er for t%e lia+ilities of its indi-idual directors, officers, and
incorporators" Suc% result if permitted could easil' preIudice t%e corporation, its o3n creditors, and e-en ot%er
stoc:%oldersL %ence, clearl' ine,uitous to 0(C" 0urt%ermore, considerin t%e nature of t%e leal ser-ices
in-ol-ed, 3%ate-er o+liation said incorporators, directors and officers of t%e corporation %ad incurred, it 3as
incurred in t%eir personal capacit'" )%en directors and officers of a corporation are una+le to compensate a
part' for a personal o+liation, it is far=fetc%ed to allee t%at t%e corporation is perpetuatin fraud or
promotin inIustice, and +e t%ere+' %eld lia+le t%erefor +' piercin its corporate -eil" )%ile t%ere are no %ard
and fast rules on disreardin separate corporate identit', 3e must al3a's +e mindful of its function and
purpose" A court s%ould +e careful in assessin t%e milieu 3%ere t%e doctrine of piercin t%e corporate -eil
ma' +e applied" Ot%er3ise an inIustice, alt%ou% unintended, ma' result from its erroneous application" T%e
personalit' of t%e corporation and t%ose of its incorporators, directors and officers in t%eir personal capacities
ou%t to +e :ept separate in t%is case" T%e claim for leal fees aainst t%e concerned indi-idual incorporators,
officers and directors could not +e properl' directed aainst t%e corporation 3it%out -iolatin +asic principles
o-ernin corporations" (oreo-er, e-er' action P includin a counterclaim P must +e prosecuted or
defended in t%e name of t%e real part' in interest" $t is plainl' an error to la' t%e claim for leal fees of pri-ate
respondent /reorio (anuel at t%e door of 0(C rat%er t%an indi-idual mem+ers of t%e 0rancisco famil'"
/ :;ili--ine National Ban< vs. Andrada =lectric > =n(ineerin( Co. [GR 142140 17 A-ril 2002#
Third Division, /an'ani.an (J): 3 concur, 1 on o00icial leave
Facts$ On 14 Auust 1.89, t%e 6%ilippine national Ban: (6!B) ac,uired t%e assets of t%e 6ampana Suar
(ills (6AS@($&) t%at 3ere earlier foreclosed +' t%e *e-elopment Ban: of t%e 6%ilippines (*B6) under &O$
311" T%e 6!B orani>ed t%e ational Suar *e-elopment Corporation (!AS@*ECO) in Septem+er 1.89, to
ta:e o3ners%ip and possession of t%e assets and ultimatel' to nationali>e and consolidate its interest in ot%er
6!B controlled suar mills" 6rior to 1. Octo+er 1.81, 6AS@($& enaed t%e ser-ices of t%e Andrada
Electric K Enineerin Compan' (AEEC) for electrical re3indin and repair, most of 3%ic% 3ere partiall'
paid +' 6AS@($&, lea-in se-eral unpaid accounts 3it% AEEC" On 1. Octo+er 1.81, AEEC and 6AS@($&
entered into a contract for AEEC to perform t%e (a) Construction of a po3er %ouse +uildinL 3 reinforced
concrete foundation for 3 units 395 E) diesel enine eneratin sets, 3 reinforced concrete foundation for t%e
9,555 E) and 1,195 E) tur+o enerator sets, amon ot%ers" Aside from t%e 3or: contract, 6AS@($&
re,uired AEEC to perform e?tra 3or:, and pro-ide electrical e,uipment and spare parts" Out of t%e total
o+liation of 6888,143"75, 6AS@($& %ad paid onl' 6195,555"55, lea-in an unpaid +alance, as of 18 June
1.83, amountin to 6918,143"75" Out of said unpaid +alance of 6918,143"75, 6AS@($& made a partial
pa'ment to AEEC of 61A,555"55, in +ro:en amounts, co-erin t%e period from 9 Januar' 1.8A up to 13 (a'
1.8A, lea-in an unpaid +alance of 6913,143"75" 6AS@($& and 6!B, and no3 !AS@*ECO, alleedl'
failed and refused to pa' AEEC t%eir Iust, -alid and demanda+le o+liation (T%e 6resident of t%e
!AS@*ECO is also t%e #ice=6resident of t%e 6!B" AEEC +esou%t said official to pa' t%e outstandin
o+liation of 6AS@($&, inasmuc% as 6!B and !AS@*ECO no3 o3ned and possessed t%e assets of
6AS@($&, and t%ese defendants all +enefited from t%e 3or:s, and t%e electrical, as 3ell as t%e enineerin
and repairs, performed +' AEEC)" Because of t%e failure and refusal of 6!B, 6AS@($& andGor !AS@*ECO
to pa' t%eir o+liations, AEEC alleedl' suffered actual damaes in t%e total amount of 6913,143"75L and t%at
in order to reco-er t%ese sums, AEEC 3as compelled to enae t%e professional ser-ices of counsel, to 3%om
AEEC areed to pa' a sum e,ui-alent to 19H of t%e amount of t%e o+liation due +' 3a' of attorne'Ds fees"
6!B and !AS@*ECO filed a Ioint motion to dismiss on t%e round t%at t%e complaint failed to state
sufficient alleations to esta+lis% a cause of action aainst 6!B and !AS@*ECO, inasmuc% as t%ere is lac:
or 3ant of pri-it' of contract +et3een t%e t%em and AEEC" Said motion 3as denied +' t%e trial court in its 18
!o-em+er order, and ordered 6!B nad !AS@*ECO to file t%eir ans3ers 3it%in 19 da's" After due
proceedins, t%e Trial Court rendered Iudment in fa-or of AEEC and aainst 6!B, !AS@*ECO and
6AS@($&L t%e latter +ein ordered to pa' Iointl' and se-erall' t%e former (1) t%e sum of 6913,413"75 plus
interest t%ereon at t%e rate of 1AH per annum as claimed from 19 Septem+er 1.75 until full' paidL (1) t%e sum
of 6151,81A"84 as attorne'Ds feesL and, (3) Costs" 6!B and !AS@*ECO appealed" T%e Court of Appeals
affirmed t%e decision of t%e trial court in its decision of 18 April 1555 (CA=/R C# 98415" 6!B and
!AS@*ECO filed t%e petition for re-ie3"
%ssue$ )%et%er 6!B and !AS@*ECO ma' +e %eld lia+le for 6AS@($&2s lia+ilit' to AEEC"
&eld$ Basic is t%e rule t%at a corporation %as a leal personalit' distinct and separate from t%e persons and
entities o3nin it" T%e corporate -eil ma' +e lifted onl' if it %as +een used to s%ield fraud, defend crime,
Iustif' a 3ron, defeat pu+lic con-enience, insulate +ad fait% or perpetuate inIustice" T%us, t%e mere fact t%at
t%e 6%ilippine !ational Ban: (6!B) ac,uired o3ners%ip or manaement of some assets of t%e 6ampana
Suar (ill (6AS@($&), 3%ic% %ad earlier +een foreclosed and purc%ased at t%e resultin pu+lic auction +'
t%e *e-elopment Ban: of t%e 6%ilippines (*B6), 3ill not ma:e 6!B lia+le for t%e 6AS@($&Ds contractual
de+ts to Andrada Electric K Enineerin Compan' (AEEC)" 6iercin t%e -eil of corporate fiction ma' +e
allo3ed onl' if t%e follo3in elements concur: (1) control P not mere stoc: control, +ut complete
domination P not onl' of finances, +ut of polic' and +usiness practice in respect to t%e transaction attac:ed,
must %a-e +een suc% t%at t%e corporate entit' as to t%is transaction %ad at t%e time no separate mind, 3ill or
e?istence of its o3nL (1) suc% control must %a-e +een used +' t%e defendant to commit a fraud or a 3ron to
perpetuate t%e -iolation of a statutor' or ot%er positi-e leal dut', or a dis%onest and an unIust act in
contra-ention of plaintiffDs leal ri%tL and (3) t%e said control and +reac% of dut' must %a-e pro?imatel'
caused t%e inIur' or unIust loss complained of" T%e a+sence of t%e foreoin elements in t%e present case
precludes t%e piercin of t%e corporate -eil" 0irst, ot%er t%an t%e fact t%at 6!B and !AS@*ECO ac,uired t%e
assets of 6AS@($&, t%ere is no s%o3in t%at t%eir control o-er it 3arrants t%e disreard of corporate
personalities" Second, t%ere is no e-idence t%at t%eir Iuridical personalit' 3as used to commit a fraud or to do
a 3ronL or t%at t%e separate corporate entit' 3as farcicall' used as a mere alter eo, +usiness conduit or
instrumentalit' of anot%er entit' or person" T%ird, AEEC 3as not defrauded or inIured 3%en 6!B and
!AS@*ECO ac,uired t%e assets of 6AS@($&" Jence, alt%ou% t%e assets of !AS@*ECO can +e easil'
traced to 6AS@($&, t%e transfer of t%e latterDs assets to 6!B and !AS@*ECO 3as not fraudulentl' entered
into in order to escape lia+ilit' for its de+t to AEEC" !eit%er 3as t%ere an' merer or consolidation 3it%
respect to 6AS@($& and 6!B" T%e procedure prescri+ed under Title $Q of t%e Corporation Code 9. 3as not
follo3ed" $n fact, 6AS@($&Ds corporate e?istence %ad not +een leall' e?tinuis%ed or terminated" 0urt%er,
prior to 6!BDs ac,uisition of t%e foreclosed assets, 6AS@($& %ad pre-iousl' made partial pa'ments to AEEC
for t%e formerDs o+liation in t%e amount of 6888,143"75" As of 18 June 1.83, 6AS@($& %ad paid 6195,555
to AEEC and, from 9 Januar' 1.8A to 13 (a' 1.8A, anot%er 61A,555" !eit%er did 6!B e?pressl' or impliedl'
aree to assume t%e de+t of 6AS@($& to AEEC" &O$ 11 e?plicitl' pro-ides t%at 6!B s%all stud' and su+mit
recommendations on t%e claims of 6AS@($&Ds creditors" Clearl', t%e corporate separateness +et3een
6AS@($& and 6!B remains, despite AEECDs insistence to t%e contrar'"
1 *i-at vs. :aci,ic Ban<in( Cor-oration [GR 14244. 40 A-ril 2004#
1, -uisu#.in' (J): 3 concur
Facts$ T%e spouses Alfredo &ipat and Estelita Buros &ipat, o3ned MBelaDs E?port TradinM (BET), a sinle
proprietors%ip 3it% principal office at !o" 71A Aurora Boule-ard, Cu+ao, Rue>on Cit'" BET 3as enaed in
t%e manufacture of arments for domestic and forein consumption" T%e &ipats also o3ned t%e M('stical
0as%ionsM in t%e @nited States, 3%ic% sells oods imported from t%e 6%ilippines t%rou% BET" (rs" &ipat
desinated %er dau%ter, Teresita B" &ipat, to manae BET in t%e 6%ilippines 3%ile s%e 3as manain
M('stical 0as%ionsM in t%e @nited States" $n order to facilitate t%e con-enient operation of BET, Estelita &ipat
e?ecuted on 1A *ecem+er 1.87, a special po3er of attorne' appointin Teresita &ipat as %er attorne'=in=fact
to o+tain loans and ot%er credit accommodations from 6acific Ban:in Corporation (6acific Ban:)" S%e
li:e3ise aut%ori>ed Teresita to e?ecute mortae contracts on properties o3ned or co=o3ned +' %er as
securit' for t%e o+liations to +e e?tended +' 6acific Ban: includin an' e?tension or rene3al t%ereof"
Sometime in April 1.8., Teresita, +' -irtue of t%e special po3er of attorne', 3as a+le to secure for and in
+e%alf of %er mot%er, (rs" &ipat and BET, a loan from 6acific Ban: amountin to 6973,79A"55 to +u' fa+rics
to +e manufactured +' BET and e?ported to M('stical 0as%ionsM in t%e @nited States" As securit' t%erefor, t%e
&ipat spouses, as represented +' Teresita, e?ecuted a Real Estate (ortae o-er t%eir propert' located at !o"
71A Aurora Bl-d", Cu+ao, Rue>on Cit'" Said propert' 3as li:e3ise made to secure ot%er additional or ne3
loans, etc" On 9 Septem+er 1.8., BET 3as incorporated into a famil' corporation named BelaDs E?port
Corporation (BEC) in order to facilitate t%e manaement of t%e +usiness" BEC 3as enaed in t%e +usiness of
manufacturin and e?portation of all :inds of arments of 3%ate-er :ind and description and utili>ed t%e
same mac%ineries and e,uipment pre-iousl' used +' BET" $ts incorporators and directors included t%e &ipat
spouses 3%o o3ned a com+ined 355 s%ares out of t%e A15 s%ares su+scri+ed, Teresita &ipat 3%o o3ned 15
s%ares, and ot%er close relati-es and friends of t%e &ipats" Estelita &ipat 3as named president of BEC, 3%ile
Teresita +ecame t%e -ice=president and eneral manaer" E-entuall', t%e loan 3as later restructured in t%e
name of BEC and su+se,uent loans 3ere o+tained +' BEC 3it% t%e correspondin promissor' notes dul'
e?ecuted +' Teresita on +e%alf of t%e corporation" A letter of credit 3as also opened +' 6acific Ban: in fa-or
of A" O" Enittin (anufacturin Co", $nc", upon t%e re,uest of BEC after BEC e?ecuted t%e correspondin
trust receipt t%erefor" E?port +ills 3ere also e?ecuted in fa-or of 6acific Ban: for additional finances" T%ese
transactions 3ere all secured +' t%e real estate mortae o-er t%e &ipatsD propert'" T%e promissor' notes,
e?port +ills, and trust receipt e-entuall' +ecame due and demanda+le" @nfortunatel', BEC defaulted in its
pa'ments" After receipt of 6acific Ban:Ds demand letters, Estelita &ipat 3ent to t%e office of t%e +an:Ds
li,uidator and as:ed for additional time to ena+le %er to personall' settle BECDs o+liations" T%e +an:
acceded to %er re,uest +ut Estelita failed to fulfill %er promise" Conse,uentl', t%e real estate mortae 3as
foreclosed and after compliance 3it% t%e re,uirements of t%e la3 t%e mortaed propert' 3as sold at pu+lic
auction" On 31 Januar' 1.7., a certificate of sale 3as issued to respondent Euenio *" Trinidad as t%e
%i%est +idder" On 17 !o-em+er 1.7., t%e spouses &ipat filed +efore t%e Rue>on Cit' RTC a complaint for
annulment of t%e real estate mortae, e?traIudicial foreclosure and t%e certificate of sale issued o-er t%e
propert' aainst 6acific Ban: and Euenio *" Trinidad" T%e complaint alleed, amon ot%ers, t%at t%e
promissor' notes, trust receipt, and e?port +ills 3ere all ultra -ires acts of Teresita as t%e' 3ere e?ecuted
3it%out t%e re,uisite +oard resolution of t%e Board of *irectors of BEC" T%e &ipats also a-erred t%at
assumin said acts 3ere -alid and +indin on BEC, t%e same 3ere t%e corporationDs sole o+liation, it %a-in
a personalit' distinct and separate from spouses &ipat" $t 3as li:e3ise pointed out t%at TeresitaDs aut%orit' to
secure a loan from 6acific Ban: 3as specificall' limited to (rs" &ipatDs sole use and +enefit and t%at t%e real
estate mortae 3as e?ecuted to secure t%e &ipatsD and BETDs 6973,79A"55 loan onl'" $n t%eir respecti-e
ans3ers, 6acific Ban: and Trinidad alleed in common t%at petitioners &ipat cannot e-ade pa'ments of t%e
-alue of t%e promissor' notes, trust receipt, and e?port +ills 3it% t%eir propert' +ecause t%e' and t%e BEC are
one and t%e same, t%e latter +ein a famil' corporation" Trinidad furt%er claimed t%at %e 3as a +u'er in ood
fait% and for -alue and t%at t%e &ipat spouses are estopped from den'in BECDs e?istence after %oldin
t%emsel-es out as a corporation" After trial on t%e merits, t%e RTC dismissed t%e complaint" T%e &ipats timel'
appealed t%e RTC decision to t%e Court of Appeals in CA=/"R" C# A1934" Said appeal, %o3e-er, 3as
dismissed +' t%e appellate court for lac: of merit" T%e &ipats t%en mo-ed for reconsideration, +ut t%is 3as
denied +' t%e appellate court in its Resolution of 13 0e+ruar' 1555" T%e &ipat spouses filed t%e petition for
re-ie3 on certiorari"
%ssue$ )%et%er BEC and BET are separate +usiness entities, and t%us t%e &ipt spouses can isolate t%emsel-es
+e%ind t%e corporate personalit' of BEC"
&eld$ )%en t%e corporation is t%e mere alter eo or +usiness conduit of a person, t%e separate personalit' of
t%e corporation ma' +e disrearded" T%is is commonl' referred to as t%e Minstrumentalit' ruleM or t%e alter eo
doctrine, 3%ic% t%e courts %a-e applied in disreardin t%e separate Iuridical personalit' of corporations" As
%eld in one case, 3%ere one corporation is so orani>ed and controlled and its affairs are conducted so t%at it
is, in fact, a mere instrumentalit' or adIunct of t%e ot%er, t%e fiction of t%e corporate entit' of t%e
Dinstrumentalit'D ma' +e disrearded" T%e control necessar' to in-o:e t%e rule is not maIorit' or e-en
complete stoc: control +ut suc% domination of finances, policies and practices t%at t%e controlled corporation
%as, so to spea:, no separate mind, 3ill or e?istence of its o3n, and is +ut a conduit for its principal" T%e
e-idence on record s%o3s BET and BEC are not separate +usiness entities" (1) Estelita and Alfredo &ipat are
t%e o3ners and maIorit' s%are%olders of BET and BEC, respecti-el'L (1) +ot% firms 3ere manaed +' t%eir
dau%ter, TeresitaL 1. (3) +ot% firms 3ere enaed in t%e arment +usiness, suppl'in products to M('stical
0as%ion,M a @"S" firm esta+lis%ed +' Estelita &ipatL (A) +ot% firms %eld office in t%e same +uildin o3ned +'
t%e &ipatsL (9) BEC is a famil' corporation 3it% t%e &ipats as its maIorit' stoc:%oldersL (4) t%e +usiness
operations of t%e BEC 3ere so mered 3it% t%ose of (rs" &ipat suc% t%at t%e' 3ere practicall'
indistinuis%a+leL (8) t%e corporate funds 3ere %eld +' Estelita &ipat and t%e corporation itself %ad no -isi+le
assetsL (7) t%e +oard of directors of BEC 3as composed of t%e Buros and &ipat famil' mem+ersL (.) Estelita
%ad full control o-er t%e acti-ities of and decided +usiness matters of t%e corporationL and t%at (15) Estelita
&ipat %ad +enefited from t%e loans secured from 6acific Ban: to finance %er +usiness a+road and from t%e
e?port +ills secured +' BEC for t%e account of M('stical 0as%ion"M $t could not %a-e +een coincidental t%at
BET and BEC are so intert3ined 3it% eac% ot%er in terms of o3ners%ip, +usiness purpose, and manaement"
Apparentl', BET and BEC are one and t%e same and t%e latter is a conduit of and merel' succeeded t%e
former" T%e spousesD attempt to isolate t%emsel-es from and %ide +e%ind t%e corporate personalit' of BEC so
as to e-ade t%eir lia+ilities to 6acific Ban: is precisel' 3%at t%e classical doctrine of piercin t%e -eil of
corporate entit' see:s to pre-ent and remed'" BEC is a mere continuation and successor of BET, and t%e &ipat
spouses cannot e-ade t%eir o+liations in t%e mortae contract secured under t%e name of BEC on t%e
prete?t t%at it 3as sined for t%e +enefit and under t%e name of BET"
10 &all vs. :iccio [GR *)2.1/ 21 !une 11.0#
%n &anc, &en'zon (J): 2 concur
Facts$ On 17 (a' 1.A8, C" Arnold Jall and Bradle' 6" Jall, and 0red Bro3n, Emma Bro3n, Jipolita *"
C%apman and Ceferino S" A+ella, sined and ac:no3leded in &e'te, t%e article of incorporation of t%e 0ar
Eastern &um+er and Commercial Co", $nc", orani>ed to enae in a eneral lum+er +usiness to carr' on as
eneral contractors, operators and manaers, etc" Attac%ed to t%e article 3as an affida-it of t%e treasurer
statin t%at 13,A17 s%ares of stoc: %ad +een su+scri+ed and full' paid 3it% certain properties transferred to t%e
corporation descri+ed in a list appended t%ereto" $mmediatel' after t%e e?ecution of said articles of
incorporation, t%e corporation proceeded to do +usiness 3it% t%e adoption of +'=la3s and t%e election of its
officers" On 1 *ecem+er 1.A8, t%e said articles of incorporation 3ere filed in t%e office of t%e Securities and
E?c%ane Commissioner, for t%e issuance of t%e correspondin certificate of incorporation" On 11 (arc%
1.A7, pendin action on t%e articles of incorporation +' t%e aforesaid o-ernmental office, 0red Bro3n,
Emma Bro3n, Jipolita *" C%apman and Ceferino S" A+ella filed +efore t%e Court of 0irst $nstance of &e'te
t%e ci-il case, allein amon ot%er t%ins t%at t%e 0ar Eastern &um+er and Commercial Co" 3as an
unreistered partners%ipL t%at t%e' 3is%ed to %a-e it dissol-ed +ecause of +itter dissension amon t%e
mem+ers, mismanaement and fraud +' t%e manaers and %ea-' financial losses" C" Arnold Jall and Bradle'
6" Jall, filed a motion to dismiss, contestin t%e courtDs Iurisdiction and t%e sufficientl' of t%e cause of action"
After %earin t%e parties, t%e Jon" Edmund S" 6iccio ordered t%e dissolution of t%e compan'L and at t%e
re,uest of Bro3n, et" al", appointed 6edro A" Capucion as t%e recei-er of t%e properties t%ereof, upon t%e
filin of a 615,555 +ond" Jall and Jall offered to file a counter=+ond for t%e disc%are of t%e recei-er, +ut
Jude 6iccio refused to accept t%e offer and to disc%are t%e recei-er" )%ereupon, Jall and Jall instituted t%e
present special ci-il action 3it% t%e Supreme Court"
%ssue$ )%et%er Bro3n, et" al" ma' file an action to cause t%e dissolution of t%e 0ar Eastern &um+er and
Commercial Co", 3it%out State inter-ention"
&eld$ T%e Securities and E?c%ane Commission %as not issued t%e correspondin certificate of
incorporation" T%e personalit' of a corporation +eins to e?ist onl' from t%e moment suc% certificate is issued
P not +efore" !ot %a-in o+tained t%e certificate of incorporation, t%e 0ar Eastern &um+er and Commercial
Co" P e-en its stoc:%olders P ma' not pro+a+l' claim Min ood fait%M to +e a corporation" @nder t%e statue it
is to +e noted t%at it is t%e issuance of a certificate of incorporation +' t%e *irector of t%e Bureau of
Commerce and $ndustr' 3%ic% calls a corporation into +ein" T%e immunit' if collateral attac: is ranted to
corporations Mclaimin in ood fait% to +e a corporation under t%is act"M Suc% a claim is compati+le 3it% t%e
e?istence of errors and irreularitiesL +ut not 3it% a total or su+stantial disreard of t%e la3" @nless t%ere %as
+een an e-ident attempt to compl' 3it% t%e la3 t%e claim to +e a corporation Munder t%is actM could not +e
made Min ood fait%"M
T%is is not a suit in 3%ic% t%e corporation is a part'" T%is is a litiation +et3een stoc:%olders of t%e alleed
corporation, for t%e purpose of o+tainin its dissolution" E-en t%e e?istence of a de Iure corporation ma' +e
terminated in a pri-ate suit for its dissolution +et3een stoc:%olders, 3it%out t%e inter-ention of t%e state"
11 *im vs. :;ili--ine Fis;in( Gear %ndustries %nc. [GR 14044/ 4 Novem+er 1111#
Third Division, /an'ani.an (J): 3 concur
Facts$ On +e%alf of MOcean Ruest 0is%in Corporation,M Antonio C%ua and 6eter Oao entered into a Contract
dated 8 0e+ruar' 1..5, for t%e purc%ase of fis%in nets of -arious si>es from t%e 6%ilippine 0is%in /ear
$ndustries, $nc" (60/$)" T%e' claimed t%at t%e' 3ere enaed in a +usiness -enture 3it% &im Ton &im, 3%o
%o3e-er 3as not a sinator' to t%e areement" T%e total price of t%e nets amounted to 6931,5A9" A55 pieces
of floats 3ort% 647,555 3ere also sold to t%e Corporation" T%e +u'ers, %o3e-er, failed to pa' for t%e fis%in
nets and t%e floatsL %ence, 60/$ filed a collection suit aainst C%ua, Oao and &im Ton &im 3it% a pra'er for
a 3rit of preliminar' attac%ment" T%e suit 3as +rou%t aainst t%e t%ree in t%eir capacities as eneral partners,
on t%e alleation t%at MOcean Ruest 0is%in CorporationM 3as a none?istent corporation as s%o3n +' a
Certification from t%e Securities and E?c%ane Commission" On 15 Septem+er 1..5, t%e lo3er court issued a
)rit of 6reliminar' Attac%ment, 3%ic% t%e s%eriff enforced +' attac%in t%e fis%in nets on +oard 0GB
&ourdes 3%ic% 3as t%en doc:ed at t%e 0is%eries 6ort, !a-otas, (etro (anila" $nstead of ans3erin t%e
Complaint, C%ua filed a (anifestation admittin %is lia+ilit' and re,uestin a reasona+le time 3it%in 3%ic% to
pa'" Je also turned o-er to 60/$ some of t%e nets 3%ic% 3ere in %is possession" 6eter Oao filed an Ans3er,
after 3%ic% %e 3as deemed to %a-e 3ai-ed %is ri%t to cross=e?amine 3itnesses and to present e-idence on
%is +e%alf, +ecause of %is failure to appear in su+se,uent %earins" &im Ton &im, on t%e ot%er %and, filed an
Ans3er 3it% Counterclaim and Crossclaim and mo-ed for t%e liftin of t%e )rit of Attac%ment" T%e trial
court maintained t%e )rit, and upon motion of 60/$, ordered t%e sale of t%e fis%in nets at a pu+lic auction"
60/$ 3on t%e +iddin and deposited 3it% t%e said court t%e sales proceeds of 6.55,555" On 17 !o-em+er
1..1, t%e trial court rendered its *ecision, rulin t%at 60/$ 3as entitled to t%e )rit of Attac%ment and t%at
C%ua, Oao and &im, as eneral partners, 3ere Iointl' lia+le to pa' 60/$" T%e trial court ruled t%at a
partners%ip amon &im, C%ua and Oao e?isted +ased (1) on t%e testimonies of t%e 3itnesses presented and (1)
on a Compromise Areement e?ecuted +' t%e t%ree in Ci-il Case 1A.1=(! 3%ic% C%ua and Oao %ad +rou%t
aainst &im in t%e RTC of (ala+on, Branc% 81, for (a) a declaration of nullit' of commercial documentsL (+)
a reformation of contractsL (c) a declaration of o3ners%ip of fis%in +oatsL (d) an inIunction and (e) damaes"
&im appealed to t%e Court of Appeals (CA) 3%ic%, affirmed t%e RTC" &im filed t%e 6etition for Re-ie3 on
Certiorari" &im arues, amon ot%ers, t%at under t%e doctrine of corporation +' estoppel, lia+ilit' can +e
imputed onl' to C%ua and Oao, and not to %im"
%ssue$ )%et%er &im s%ould +e %eld Iointl' lia+le 3it% C%ua and Oao"
&eld$ C%ua, Oao and &im %ad decided to enae in a fis%in +usiness, 3%ic% t%e' started +' +u'in +oats
3ort% 63"39 million, financed +' a loan secured from Jesus &im 3%o 3as &im Ton &im2s +rot%er" $n t%eir
Compromise Areement, t%e' su+se,uentl' re-ealed t%eir intention to pa' t%e loan 3it% t%e proceeds of t%e
sale of t%e +oats, and to di-ide e,uall' amon t%em t%e e?cess or loss" T%ese +oats, t%e purc%ase and t%e
repair of 3%ic% 3ere financed 3it% +orro3ed mone', fell under t%e term Mcommon fundM under Article 1848"
T%e contri+ution to suc% fund need not +e cas% or fi?ed assetsL it could +e an intani+le li:e credit or industr'"
T%at t%e parties areed t%at an' loss or profit from t%e sale and operation of t%e +oats 3ould +e di-ided
e,uall' amon t%em also s%o3s t%at t%e' %ad indeed formed a partners%ip" T%e partners%ip e?tended not onl'
to t%e purc%ase of t%e +oat, +ut also to t%at of t%e nets and t%e floats" T%e fis%in nets and t%e floats, +ot%
essential to fis%in, 3ere o+-iousl' ac,uired in furt%erance of t%eir +usiness" $t 3ould %a-e +een
inconcei-a+le for &im to in-ol-e %imself so muc% in +u'in t%e +oat +ut not in t%e ac,uisition of t%e
aforesaid e,uipment, 3it%out 3%ic% t%e +usiness could not %a-e proceeded" T%e sale of t%e +oats, as 3ell as
t%e di-ision amon t%e t%ree of t%e +alance remainin after t%e pa'ment of t%eir loans, pro-es +e'ond ca-il
t%at 0GB &ourdes, t%ou% reistered in %is name, 3as not %is o3n propert' +ut an asset of t%e partners%ip" $t is
not uncommon to reister t%e properties ac,uired from a loan in t%e name of t%e person t%e lender trusts, 3%o
in t%is case is &im Ton &im %imself" After all, %e is t%e +rot%er of t%e creditor, Jesus &im" $t is unreasona+le
P indeed, it is a+surd P for petitioner to sell %is propert' to pa' a de+t %e did not incur, if t%e relations%ip
amon t%e t%ree of t%em 3as merel' t%at of lessor=lessee, instead of partners"
As to &imDs arument t%at under t%e doctrine of corporation +' estoppel, lia+ilit' can +e imputed onl' to C%ua
and Oao, and not to %imL Section 11 of t%e Corporation Code of t%e 6%ilippines pro-ides t%at MAll persons
3%o assume to act as a corporation :no3in it to +e 3it%out aut%orit' to do so s%all +e lia+le as eneral
partners for all de+ts, lia+ilities and damaes incurred or arisin as a result t%ereof: 6ro-ided %o3e-er, T%at
3%en an' suc% ostensi+le corporation is sued on an' transaction entered +' it as a corporation or on an' tort
committed +' it as suc%, it s%all not +e allo3ed to use as a defense its lac: of corporate personalit'" One 3%o
assumes an o+liation to an ostensi+le corporation as suc%, cannot resist performance t%ereof on t%e round
t%at t%ere 3as in fact no corporation"M T%us, e-en if t%e ostensi+le corporate entit' is pro-en to +e leall'
none?istent, a part' ma' +e estopped from den'in its corporate e?istence" MT%e reason +e%ind t%is doctrine is
o+-ious P an unincorporated association %as no personalit' and 3ould +e incompetent to act and appropriate
for itself t%e po3er and attri+utes of a corporation as pro-ided +' la3L it cannot create aents or confer
aut%orit' on anot%er to act in its +e%alfL t%us, t%ose 3%o act or purport to act as its representati-es or aents do
so 3it%out aut%orit' and at t%eir o3n ris:" And as it is an elementar' principle of la3 t%at a person 3%o acts
as an aent 3it%out aut%orit' or 3it%out a principal is %imself rearded as t%e principal, possessed of all t%e
ri%t and su+Iect to all t%e lia+ilities of a principal, a person actin or purportin to act on +e%alf of a
corporation 3%ic% %as no -alid e?istence assumes suc% pri-ilees and o+liations and +ecomes personall'
lia+le for contracts entered into or for ot%er acts performed as suc% aent"M T%e doctrine of corporation +'
estoppel ma' appl' to t%e alleed corporation and to a t%ird part'" $n t%e first instance, an unincorporated
association, 3%ic% represented itself to +e a corporation, 3ill +e estopped from den'in its corporate capacit'
in a suit aainst it +' a t%ird person 3%o relied in ood fait% on suc% representation" $t cannot allee lac: of
personalit' to +e sued to e-ade its responsi+ilit' for a contract it entered into and +' -irtue of 3%ic% it
recei-ed ad-antaes and +enefits" On t%e ot%er %and, a t%ird part' 3%o, :no3in an association to +e
unincorporated, nonet%eless treated it as a corporation and recei-ed +enefits from it, ma' +e +arred from
den'in its corporate e?istence in a suit +rou%t aainst t%e alleed corporation" $n suc% case, all t%ose 3%o
+enefited from t%e transaction made +' t%e ostensi+le corporation, despite :no3lede of its leal defects, ma'
+e %eld lia+le for contracts t%e' impliedl' assented to or too: ad-antae of" T%ere is no dispute t%at 60/$ is
entitled to +e paid for t%e nets it sold" T%e onl' ,uestion %ere is 3%et%er &im s%ould +e %eld Iointl' lia+le 3it%
C%ua and Oao" &im contests suc% lia+ilit', insistin t%at onl' t%ose 3%o dealt in t%e name of t%e ostensi+le
corporation s%ould +e %eld lia+le" Alt%ou% tec%nicall' it is true t%at &im did not directl' act on +e%alf of t%e
corporationL %o3e-er, %a-in reaped t%e +enefits of t%e contract entered into +' persons 3it% 3%om %e
pre-iousl' %ad an e?istin relations%ip, %e is deemed to +e part of said association and is co-ered +' t%e scope
of t%e doctrine of corporation +' estoppel"
12 %nternational =6-ress 8ravel > 8our 5ervices %nc. vs. Court o, A--elas [GR 111002 11 9cto+er
2000#
First Division, 3aunan (J): 4 concur
Facts$ On 35 June 1.7., t%e $nternational E?press Tra-el and Tour Ser-ices, $nc" ($ETTS$), t%rou% its
manain director, 3rote a letter to t%e 6%ilippine 0oot+all 0ederation (0ederation), t%rou% its president,
Jenri Ea%n, 3%erein t%e former offered its ser-ices as a tra-el aenc' to t%e latter" T%e offer 3as accepted"
$ETTS$ secured t%e airline tic:ets for t%e trips of t%e at%letes and officials of t%e 0ederation to t%e Sout% East
Asian /ames in Euala &umpur as 3ell as -arious ot%er trips to t%e 6eopleDs Repu+lic of C%ina and Bris+ane"
T%e total cost of t%e tic:ets amounted to 6AA.,49A"73" 0or t%e tic:ets recei-ed, t%e 0ederation made t3o
partial pa'ments, +ot% in Septem+er of 1.7., in t%e total amount of 6184,A48"95" On A Octo+er 1.7., $ETTS$
3rote t%e 0ederation, t%rou% Ea%n a demand letter re,uestin for t%e amount of 6149,7.A"33" On 35 Octo+er
1.7., t%e 0ederation, t%rou% t%e 6roIect /inton Ala', paid t%e amount of 631,453"55" On 18 *ecem+er
1.7., Jenri Ea%n issued a personal c%ec: in t%e amount of 695,555 as partial pa'ment for t%e outstandin
+alance of t%e 0ederation" T%ereafter, no furt%er pa'ments 3ere made despite repeated demands" T%is
prompted $ETTS$ to file a ci-il case +efore t%e Reional Trial Court of (anila" $ETTS$ sued Jenri Ea%n in
%is personal capacit' and as 6resident of t%e 0ederation and impleaded t%e 0ederation as an alternati-e
defendant" $ETTS$ sou%t to %old Jenri Ea%n lia+le for t%e unpaid +alance for t%e tic:ets purc%ased +' t%e
0ederation on t%e round t%at Jenri Ea%n alleedl' uaranteed t%e said o+liation" Ea%n filed %is ans3er
3it% counterclaim, 3%ile t%e 0ederation failed to file its ans3er and 3as declared in default +' t%e trial court"
$n due course, t%e trial court rendered Iudment and ruled in fa-or of $ETTS$ and declared Jenri Ea%n
personall' lia+le for t%e unpaid o+liation of t%e 0ederation" T%e complaint of $ETTS$ aainst t%e 6%ilippine
0oot+all 0ederation and t%e counterclaims of Jenri Ea%n 3ere dismissed, 3it% costs aainst Ea%n" Onl'
Jenri Ea%n ele-ated t%e decision to t%e Court of Appeals" On 11 *ecem+er 1..A, t%e appellate court rendered
a decision re-ersin t%e trial court" $ETTS$ filed a motion for reconsideration and as an alternati-e pra'er
pleaded t%at t%e 0ederation +e %eld lia+le for t%e unpaid o+liation" T%e same 3as denied +' t%e appellate
court in its resolution of 7 0e+ruar' 1..9" $ETTS$ filed t%e petition 3it% t%e Supreme Court"
%ssue [1#$ )%et%er t%e 6%ilippine 0oot+all 0ederation %as a corporate e?istence of its o3n"
&eld [1#$ Bot% RA 3139 (t%e Re-ised C%arter of t%e 6%ilippine Amateur At%letic 0ederation) and 6* 45A
reconi>ed t%e Iuridical e?istence of national sports associations" T%is ma' +e leaned from t%e po3ers and
functions ranted to t%ese associations (See Section 1A of RA 3139 and Section 7 of 6* 45A)" T%e po3ers and
functions ranted to national sports associations indicate t%at t%ese entities ma' ac,uire a Iuridical personalit'"
T%e po3er to purc%ase, sell, lease and encum+er propert' are acts 3%ic% ma' onl' +e done +' persons,
3%et%er natural or artificial, 3it% Iuridical capacit'" Jo3e-er, 3%ile national sports associations ma' +e
accorded corporate status, suc% does not automaticall' ta:e place +' t%e mere passae of t%ese la3s" $t is a
+asic postulate t%at +efore a corporation ma' ac,uire Iuridical personalit', t%e State must i-e its consent
eit%er in t%e form of a special la3 or a eneral ena+lin act" T%e 6%ilippine 0oot+all 0ederation did not come
into e?istence upon t%e passae of t%ese la3s" !o3%ere can it +e found in RA 3139 or 6* 45A an' pro-ision
creatin t%e 6%ilippine 0oot+all 0ederation" T%ese la3s merel' reconi>ed t%e e?istence of national sports
associations and pro-ided t%e manner +' 3%ic% t%ese entities ma' ac,uire Iuridical personalit'" Section 11 of
RA 3139 and Section 7 of 6* 45A re,uire t%at +efore an entit' ma' +e considered as a national sports
association, suc% entit' must +e reconi>ed +' t%e accreditin orani>ation, t%e 6%ilippine, Amateur At%letic
0ederation under RA 3139, and t%e *epartment of Oout% and Sports *e-elopment under 6* 45A" T%is fact of
reconition, %o3e-er, Jenri Ea%n failed to su+stantiate" A cop' of t%e constitution and +'=la3s of t%e
Commercial *a3 ) Cor-oration *a3 200. ( 1. )
6%ilippine 0oot+all 0ederation does not pro-e t%at said 0ederation %as indeed +een reconi>ed and accredited
+' eit%er t%e 6%ilippine Amateur At%letic 0ederation or t%e *epartment of Oout% and Sports *e-elopment"
Accordinl', t%e 6%ilippine 0oot+all 0ederation is not a national sports association 3it%in t%e pur-ie3 of t%e
aforementioned la3s and does not %a-e corporate e?istence of its o3n"
%ssue [2#$ )%et%er Ea%n s%ould +e made personall' lia+le for t%e unpaid o+liations of t%e 6%ilippine
0oot+all 0ederation"
&eld [2#$ Jenr' Ea%n s%ould +e %eld lia+le for t%e unpaid o+liations of t%e unincorporated 6%ilippine
0oot+all 0ederation" $t is a settled principal in corporation la3 t%at an' person actin or purportin to act on
+e%alf of a corporation 3%ic% %as no -alid e?istence assumes suc% pri-ilees and +ecomes personall' lia+le
for contract entered into or for ot%er acts performed as suc% aent" As president of t%e 0ederation, Jenri Ea%n
is presumed to %a-e :no3n a+out t%e corporate e?istence or non=e?istence of t%e 0ederation"
%ssue [4#$ )%et%er t%e appellate court properl' applied t%e doctrine of corporation +' estoppel"
&eld [4#$ T%e Court cannot su+scri+e to t%e position ta:en +' t%e appellate court t%at e-en assumin t%at t%e
0ederation 3as defecti-el' incorporated, $ETTS$ cannot den' t%e corporate e?istence of t%e 0ederation
+ecause it %ad contracted and dealt 3it% t%e 0ederation in suc% a manner as to reconi>e and in effect admit
its e?istence" T%e doctrine of corporation +' estoppel is mista:enl' applied +' t%e appellate court to $ETTS$"
T%e application of t%e doctrine applies to a t%ird part' onl' 3%en %e tries to escape lia+ilities on a contract
from 3%ic% %e %as +enefited on t%e irrele-ant round of defecti-e incorporation" Jerein, $ETTS$ is not tr'in
to escape lia+ilit' from t%e contract +ut rat%er is t%e one claimin from t%e contract"
14 !ardine 2avies vs. Court o, A--eals [GR 12/000 11 !une 2000# also 6urefoods Corporation -s" Court
of Appeals B/R 11754.C
Second Division, &ellosillo (J): 4 concur
Facts$ $n 1..1, at t%e %ei%t of t%e po3er crisis 3%ic% t%e countr' 3as t%en e?periencin, and to remed' and
curtail furt%er losses due to t%e series of po3er failures, 6ure 0oods Corporation decided to install t3o (1)
1955 E) enerators in its food processin plant in San Ro,ue, (ari:ina Cit'" Sometime in !o-em+er 1..1 a
+iddin for t%e suppl' and installation of t%e enerators 3as %eld" Se-eral suppliers and dealers 3ere in-ited
to attend a pre=+iddin conference to discuss t%e conditions, propose sc%eme and specifications t%at 3ould
+est suit t%e needs of 6@RE0OO*S" Out of t%e 7 prospecti-e +idders 3%o attended t%e pre=+iddin
conference, onl' 3 +idders, namel', 0ar East (ills Suppl' Corporation (0E(SCO), (onar: and Ad-ance
6o3er su+mitted +id proposals and a-e +id +onds e,ui-alent to 9H of t%eir respecti-e +ids, as re,uired"
T%ereafter, in a letter dated 11 *ecem+er 1..1 addressed to 0E(SCO 6resident Alfonso 6o, 6@RE0OO*S
confirmed t%e a3ard of t%e contract to 0E(SCO" $mmediatel', 0E(SCO su+mitted t%e re,uired performance
+ond in t%e amount of 61,7A1,178".5 and contractorDs all=ris: insurance polic' in t%e amount of
64,138,1.3"55 3%ic% 6@RE0OO*S t%rou% its #ice 6resident Benedicto /" Tope ac:no3leded in a letter
dated 17 *ecem+er 1..1" 0E(SCO also made arranements 3it% its principal and started t%e 6@RE0OO*S
proIect +' purc%asin t%e necessar' materials" 6@RE0OO*S on t%e ot%er %and returned 0E(SCODs BidderDs
Bond in t%e amount of 61,555,555"55, as re,uested" &ater, %o3e-er, in a letter dated 11 *ecem+er 1..1,
6@RE0OO*S t%rou% its Senior #ice 6resident Teodoro &" *ima'ua unilaterall' cancelled t%e a3ard as
Msinificant factors 3ere unco-ered and +rou%t to (t%eir) attention 3%ic% dictate (t%e) cancellation and
3arrant a total re-ie3 and re=+id of (t%e) proIect"M Conse,uentl', 0E(SCO protested t%e cancellation of t%e
a3ard and sou%t a meetin 3it% 6@RE0OO*S" Jo3e-er, on 14 (arc% 1..3, +efore t%e matter could +e
resol-ed, 6@RE0OO*S alread' a3arded t%e proIect and entered into a contract 3it% JAR*$!E !E&&, a
di-ision of Jardine *a-ies, $nc" (JAR*$!E), 3%ic% incidentall' 3as not one of t%e +idders" 0E(SCO t%us
3rote 6@RE0OO*S to %onor its contract 3it% t%e former, and to JAR*$!E to cease and desist from
deli-erin and installin t%e 1 enerators at 6@RE0OO*S" $ts demand letters un%eeded, 0E(SCO sued +ot%
6@RE0OO*S and JAR*$!E: 6@RE0OO*S for renein on its contract, and JAR*$!E for its un3arranted
interference and inducement" Trial ensued" After 0E(SCO presented its e-idence, JAR*$!E filed a
*emurrer to E-idence" On 18 June 1..A t%e Reional Trial Court of 6asi, Branc% 47, ranted JAR*$!EDs
*emurrer to E-idence" On 17 Jul' 1..A t%e trial court rendered a decision orderin 6@RE0OO*S: (a) to
indemnif' 0E(SCO t%e sum of 61,355,555"55 representin t%e -alue of enineerin ser-ices it renderedL (+)
to pa' 0E(SCO t%e sum of @SS1A,555"55 or its peso e,ui-alent, and 6.55,555"55 representin contractorDs
mar:=up on installation 3or:, considerin t%at it 3ould +e impossi+le to compel 6@RE0OO*S to %onor,
perform and fulfill its contractual o+liations in -ie3 of 6@RE0OO*Ds contract 3it% JAR*$!E and notin
t%at construction %ad alread' started t%ereonL (c) to pa' attorne'Ds fees in an amount e,ui-alent to 15H of t%e
total amount dueL and, (d) to pa' t%e costs" T%e trial court dismissed t%e counterclaim filed +' 6@RE0OO*S
for lac: of factual and leal +asis" Bot% 0E(SCO and 6@RE0OO*S appealed to t%e Court of Appeals"
0E(SCO appealed t%e 18 June 1..A Resolution of t%e trial court 3%ic% ranted t%e *emurrer to E-idence
filed +' JAR*$!E resultin in t%e dismissal of t%e complaint aainst it, 3%ile 6@RE0OO*S appealed t%e 17
Jul' 1..A *ecision of t%e same court 3%ic% ordered it to pa' 0E(SCO" On 1A Auust 1..4 t%e Court of
Appeals affirmed in toto t%e 17 Jul' 1..A *ecision of t%e trial court" $t also re-ersed t%e 18 June 1..A
Resolution of t%e lo3er court and ordered JAR*$!E to pa' 0E(SCO damaes for inducin 6@RE0OO*S to
-iolate t%e latterDs contract 3it% 0E(SCO" As suc%, JAR*$!E 3as ordered to pa' 0E(SCO 61,555,555"55
for moral damaes" $n addition, 6@RE0OO*S 3as also directed to pa' 0E(SCO 61,555,555"55 as moral
damaes and 61,555,555"55 as e?emplar' damaes as 3ell as 15H of t%e total amount due as attorne'Ds fees"
On 31 Januar' 1..8 t%e Court of Appeals denied for lac: of merit t%e separate motions for reconsideration
filed +' 6@RE0OO*S and JAR*$!E" Jence, 1 petitions for re-ie3 filed 3ere +' 6@RE0OO*S and
JAR*$!E 3%ic% 3ere su+se,uentl' consolidated"
%ssue$ )%et%er 0E(SCO is entitled to an a3ard for moral damaes"
&eld$ B' t%e unilateral cancellation of t%e contract, 6@RE 0OO*S %as acted 3it% +ad fait% and t%is 3as
furt%er ara-ated +' t%e su+se,uent in:in of a contract +et3een 6urefoods and Jardine" $t is -er' e-ident
t%at 6urefoods t%ou%t t%at +' t%e e?pedient means of merel' 3ritin a letter 3ould automaticall' cancel or
nullif' t%e e?istin contract entered into +' +ot% parties after a process of +iddin" T%is is a flarant -iolation
of t%e e?press pro-isions of t%e la3 and is contrar' to fair and Iust dealins to 3%ic% e-er' man is due" T%e
Court %as a3arded in t%e past moral damaes to a corporation 3%ose reputation %as +een +esmirc%ed" Jerein,
0E(SCO %as sufficientl' s%o3n t%at its reputation 3as tarnis%ed after it immediatel' ordered e,uipment
from its suppliers on account of t%e urenc' of t%e proIect, onl' to +e canceled later" T%e Court t%us sustain
t%e appellate courtDs a3ard of moral damaes" T%e Court %o3e-er reduced t%e a3ard from 61,555,555"55 to
61,555,555"55, as moral damaes are ne-er intended to enric% t%e recipient" &i:e3ise, t%e a3ard of
e?emplar' damaes +' 3a' of e?ample for t%e pu+lic ood is e?cessi-e and s%ould +e reduced to
6155,555"55" On t%e ot%er %and, t%e appellate court erred in orderin JAR*$!E to pa' moral damaes to
0E(SCO as it supposedl' induced 6@RE0OO*S to -iolate t%e contract 3it% 0E(SCO" )%ile it ma' seem
t%at 6@RE0OO*S and JAR*$!E conni-ed to decei-e 0E(SCO, t%ere is no specific e-idence on record to
support suc% perception" &i:e3ise, t%ere is no s%o3in 3%atsoe-er t%at JAR*$!E induced 6@RE0OO*S"
T%e similarit' in t%e desin su+mitted to 6@RE0OO*S +' +ot% JAR*$!E and 0E(SCO, and t%e tender of a
lo3er ,uotation +' JAR*$!E are insufficient to s%o3 t%at JAR*$!E indeed induced 6@RE0OO*S to
-iolate its contract 3it% 0E(SCO"
14 Fili-inas Broadcastin( Net3or< %nc. vs. A(o 'edical and =ducational Center)Bicol C;ristian
Colle(e o, 'edicine (A'=C)BCC') [GR 141114 17 !anuar" 200.#
Cario (J): 4 concur
Facts$ ;E?posT< is a radio documentar' proram %osted +' Carmelo U(el2 Rima (;Rima<) and Jermoenes
UJun2 Alere (;Alere<)" E?posT is aired e-er' mornin o-er *FRC=A( 3%ic% is o3ned +' 0ilipinas
Broadcastin !et3or:, $nc" (;0B!$<)" ;E?posT< is %eard o-er &ea>pi Cit', t%e Al+a' municipalities and
ot%er Bicol areas" $n t%e mornin of 1A and 19 *ecem+er 1.7., Rima and Alere e?posed -arious alleed
complaints from students, teac%ers and parents aainst Ao (edical and Educational Center=Bicol C%ristian
Collee of (edicine (;A(EC<) and its administrators" Claimin t%at t%e +roadcasts 3ere defamator',
A(EC and Anelita Ao (;Ao<), as *ean of A(EC2s Collee of (edicine, filed a complaint for damaes
aainst 0B!$, Rima and Alere on 18 0e+ruar' 1..5" T%e complaint furt%er alleed t%at A(EC is a reputa+le
learnin institution" )it% t%e supposed e?posTs, 0B!$, Rima and Alere ;transmitted malicious imputations,
and as suc%, destro'ed plaintiffs2 (A(EC and Ao) reputation"< A(EC and Ao included 0B!$ as defendant
for alleedl' failin to e?ercise due dilience in t%e selection and super-ision of its emplo'ees, particularl'
Rima and Alere" On 17 June 1..5, 0B!$, Rima and Alere, t%rou% Att'" Ro>il &o>ares, filed an Ans3er
allein t%at t%e +roadcasts aainst A(EC 3ere fair and true" 0B!$, Rima and Alere claimed t%at t%e' 3ere
plainl' impelled +' a sense of pu+lic dut' to report t%e ;oins=on in A(EC, B3%ic% isC an institution im+ued
3it% pu+lic interest"< T%ereafter, trial ensued" *urin t%e presentation of t%e e-idence for t%e defense, Att'"
Edmundo Cea, colla+oratin counsel of Att'" &o>ares, filed a (otion to *ismiss on 0B!$2s +e%alf" T%e trial
court denied t%e motion to dismiss" Conse,uentl', 0B!$ filed a separate Ans3er claimin t%at it e?ercised due
dilience in t%e selection and super-ision of Rima and Alere" 0B!$ claimed t%at +efore %irin a +roadcaster,
t%e +roadcaster s%ould (1) file an applicationL (1) +e inter-ie3edL and (3) undero an apprentices%ip and
trainin proram after passin t%e inter-ie3" 0B!$ li:e3ise claimed t%at it al3a's reminds its +roadcasters to
;o+ser-e trut%, fairness and o+Iecti-it' in t%eir +roadcasts and to refrain from usin li+elous and indecent
lanuae"< (oreo-er, 0B!$ re,uires all +roadcasters to pass t%e Eapisanan n ma Brod:aster sa 6ilipinas
(;EB6<) accreditation test and to secure a EB6 permit" On 1A *ecem+er 1..1, t%e trial court rendered a
*ecision findin 0B!$ and Alere lia+le for li+el e?cept Rima" T%e trial court %eld t%at t%e +roadcasts are
li+elous per se" T%e trial court reIected t%e +roadcasters2 claim t%at t%eir utterances 3ere t%e result of strai%t
reportin +ecause it %ad no factual +asis" T%e +roadcasters did not e-en -erif' t%eir reports +efore airin t%em
to s%o3 ood fait%" $n %oldin 0B!$ lia+le for li+el, t%e trial court found t%at 0B!$ failed to e?ercise
dilience in t%e selection and super-ision of its emplo'ees" $n a+sol-in Rima from t%e c%are, t%e trial court
ruled t%at Rima2s onl' participation 3as 3%en %e areed 3it% Alere2s e?posT" T%e trial court found Rima2s
statement 3it%in t%e ;+ounds of freedom of speec%, e?pression, and of t%e press"< Bot% parties, namel',
0B!$, Rima and Alere, on one %and, and A(EC and Ao, on t%e ot%er, appealed t%e decision to t%e Court of
Appeals" T%e Court of Appeals affirmed t%e trial court2s Iudment 3it% modification" T%e appellate court
made Rima solidaril' lia+le 3it% 0B!$ and Alere" T%e appellate court denied Ao2s claim for damaes and
attorne'2s fees +ecause t%e +roadcasts 3ere directed aainst A(EC, and not aainst %er" 0B!$, Rima and
Alere filed a motion for reconsideration 3%ic% t%e Court of Appeals denied in its 14 Januar' 1555
Resolution" Jence, 0B!$ filed t%e petition for re-ie3"
%ssue$ )%et%er A(EC is entitled to moral damaes"
&eld$ A Iuridical person is enerall' not entitled to moral damaes +ecause, unli:e a natural person, it cannot
e?perience p%'sical sufferin or suc% sentiments as 3ounded feelins, serious an?iet', mental anuis% or
moral s%oc:" T%e Court of Appeals cites (am+ulao &um+er Co" -" 6!B, et al" to Iustif' t%e a3ard of moral
damaes" Jo3e-er, t%e Court2s statement in (am+ulao t%at ;a corporation ma' %a-e a ood reputation
3%ic%, if +esmirc%ed, ma' also +e a round for t%e a3ard of moral damaes< is an o+iter dictum"
!e-ert%eless, A(EC2s claim for moral damaes falls under item 8 of Article 111. of t%e Ci-il Code" T%is
pro-ision e?pressl' aut%ori>es t%e reco-er' of moral damaes in cases of li+el, slander or an' ot%er form of
defamation" Article 111.(8) does not ,ualif' 3%et%er t%e plaintiff is a natural or Iuridical person" T%erefore, a
Iuridical person suc% as a corporation can -alidl' complain for li+el or an' ot%er form of defamation and
claim for moral damaes" (oreo-er, 3%ere t%e +roadcast is li+elous per se, t%e la3 implies damaes" $n suc%
a case, e-idence of an %onest mista:e or t%e 3ant of c%aracter or reputation of t%e part' li+eled oes onl' in
mitiation of damaes" !eit%er in suc% a case is t%e plaintiff re,uired to introduce e-idence of actual damaes
as a condition precedent to t%e reco-er' of some damaes" $n t%is case, t%e +roadcasts are li+elous per se"
T%us, A(EC is entitled to moral damaes" Jo3e-er, t%e Court found t%e a3ard of 6355,555 moral damaes
unreasona+le" T%e record s%o3s t%at e-en t%ou% t%e +roadcasts 3ere li+elous per se, A(EC %as not suffered
Commercial *a3 ) Cor-oration *a3 200. ( 1/ )
an' su+stantial or material damae to its reputation" T%erefore, t%e Court reduced t%e a3ard of moral damaes
from 6355,555 to 6195,555"
1. *"ceum o, t;e :;ili--ines vs. Court o, A--eals [GR 101/17 . 'arc; 1114#
Third Division, Feliciano (J): 4 concur, 1 on ter#inal leave
Facts$ &'ceum of t%e 6%ilippines $nc" %ad sometime +efore commenced in t%e SEC a proceedin (SEC=Case
!o" 11A1) aainst t%e &'ceum of Bauio, $nc" to re,uire it to c%ane its corporate name and to adopt anot%er
name not Msimilar BtoC or identicalM 3it% t%at of petitioner" $n an Order dated 15 April 1.88, Associate
Commissioner Julio Sulit %eld t%at t%e corporate name of petitioner and t%at of t%e &'ceum of Bauio, $nc"
3ere su+stantiall' identical +ecause of t%e presence of a MdominantM 3ord, i"e", M&'ceum,M t%e name of t%e
eorap%ical location of t%e campus +ein t%e onl' 3ord 3%ic% distinuis%ed one from t%e ot%er corporate
name" T%e SEC also noted t%at &'ceum of t%e 6%ilippines $nc" %ad reistered as a corporation a%ead of t%e
&'ceum of Bauio, $nc" in point of time, and ordered t%e latter to c%ane its name to anot%er name Mnot
similar or identical B3it%CM t%e names of pre-iousl' reistered entities" T%e &'ceum of Bauio, $nc" assailed
t%e Order of t%e SEC +efore t%e Supreme Court (/R &=A49.9)" $n a (inute Resolution dated 1A Septem+er
1.88, t%e Court denied t%e 6etition for Re-ie3 for lac: of merit" Entr' of Iudment in t%at case 3as made on
11 Octo+er 1.88"
Armed 3it% t%e Resolution of t%e Supreme Court, t%e &'ceum of t%e 6%ilippines t%en 3rote all t%e
educational institutions it could find usin t%e 3ord M&'ceumM as part of t%eir corporate name, and ad-ised
t%em to discontinue suc% use of M&'ceum"M )%en, 3it% t%e passae of time, it +ecame clear t%at t%is recourse
%ad failed, and on 1A 0e+ruar' 1.7A, &'ceum of t%e 6%ilippines instituted +efore t%e SEC SEC=Case 198. to
enforce 3%at &'ceum of t%e 6%ilippines claims as its proprietar' ri%t to t%e 3ord M&'ceum"M T%e SEC
%earin officer rendered a decision sustainin petitionerDs claim to an e?clusi-e ri%t to use t%e 3ord
M&'ceum"M T%e %earin officer relied upon t%e SEC rulin in t%e &'ceum of Bauio, $nc" case (SEC=Case
11A1) and %eld t%at t%e 3ord M&'ceumM 3as capa+le of appropriation and t%at petitioner %ad ac,uired an
enforcea+le e?clusi-e ri%t to t%e use of t%at 3ord" On appeal, %o3e-er, +' &'ceum Of Aparri, &'ceum Of
Ca+aan, &'ceum Of Camalaniuan, $nc", &'ceum Of &allo, $nc", &'ceum Of Tuao, $nc", Bu%i &'ceum,
Central &'ceum Of Catanduanes, &'ceum Of Sout%ern 6%ilippines, &'ceum Of Eastern (indanao, $nc" and
)estern 6anasinan &'ceum, $nc",, 3%ic% are also educational institutions, to t%e SEC En Banc, t%e decision
of t%e %earin officer 3as re-ersed and set aside" T%e SEC En Banc did not consider t%e 3ord M&'ceumM to
%a-e +ecome so identified 3it% &'ceum of t%e 6%ilippines as to render use t%ereof +' ot%er institutions as
producti-e of confusion a+out t%e identit' of t%e sc%ools concerned in t%e mind of t%e eneral pu+lic" @nli:e
its %earin officer, t%e SEC En Banc %eld t%at t%e attac%in of eorap%ical names to t%e 3ord M&'ceumM
ser-ed sufficientl' to distinuis% t%e sc%ools from one anot%er, especiall' in -ie3 of t%e fact t%at t%e
campuses of &'ceum of t%e 6%ilippines and t%ose of t%e ot%er &'ceums 3ere p%'sicall' ,uite remote from
eac% ot%er" &'ceum of t%e 6%ilippines t%en 3ent on appeal to t%e Court of Appeals" $n its *ecision dated 17
June 1..1, %o3e-er, t%e Court of Appeals affirmed t%e ,uestioned Orders of t%e SEC En Banc" &'ceum of t%e
6%ilippines filed a motion for reconsideration, 3it%out success" &'ceum of t%e 6%ilippines filed t%e petition
for re-ie3"
%ssue [1#$ )%et%er t%e names of t%e contendin &'ceum sc%ools are confusinl' similar"
&eld [1#$ T%e Articles of $ncorporation of a corporation must, amon ot%er t%ins, set out t%e name of t%e
corporation" Section 17 of t%e Corporation Code esta+lis%es a restricti-e rule insofar as corporate names are
concerned" $t pro-ides t%at M!o corporate name ma' +e allo3ed +' t%e Securities an E?c%ane Commission if
t%e proposed name is identical or decepti-el' or confusinl' similar to t%at of an' e?istin corporation or to
an' ot%er name alread' protected +' la3 or is patentl' decepti-e, confusin or contrar' to e?istin la3s"
)%en a c%ane in t%e corporate name is appro-ed, t%e Commission s%all issue an amended certificate of
incorporation under t%e amended name"M T%e polic' underl'in t%e pro%i+ition in Section 17 aainst t%e
reistration of a corporate name 3%ic% is Midentical or decepti-el' or confusinl' similarM to t%at of an'
e?istin corporation or 3%ic% is Mpatentl' decepti-eM or Mpatentl' confusinM or Mcontrar' to e?istin la3s,M is
t%e a-oidance of fraud upon t%e pu+lic 3%ic% 3ould %a-e occasion to deal 3it% t%e entit' concerned, t%e
e-asion of leal o+liations and duties, and t%e reduction of difficulties of administration and super-ision o-er
corporations" Jerein, t%e Court does not consider t%at t%e corporate names of t%e academic institutions are
Midentical 3it%, or decepti-el' or confusinl' similarM to t%at of &'ceum of t%e 6%ilippines $nc"" True enou%,
t%e corporate names of t%e ot%er sc%ools (defendant institutions) entities all carr' t%e 3ord M&'ceumM +ut
confusion and deception are effecti-el' precluded +' t%e appendin of eorap%ic names to t%e 3ord
M&'ceum"M T%us, t%e M&'ceum of AparriM cannot +e mista:en +' t%e eneral pu+lic for t%e &'ceum of t%e
6%ilippines, or t%at t%e M&'ceum of CamalaniuanM 3ould +e confused 3it% t%e &'ceum of t%e 6%ilippines"
0urt%er, et'moloicall', t%e 3ord M&'ceumM is t%e &atin 3ord for t%e /ree: l':eion 3%ic% in turn referred to
a localit' on t%e ri-er $lissius in ancient At%ens Mcomprisin an enclosure dedicated to Apollo and adorned
3it% fountains and +uildins erected +' 6isistratus, 6ericles and &'curus fre,uented +' t%e 'out% for
e?ercise and +' t%e p%ilosop%er Aristotle and %is follo3ers for teac%in"M $n time, t%e 3ord M&'ceumM +ecame
associated 3it% sc%ools and ot%er institutions pro-idin pu+lic lectures and concerts and pu+lic discussions"
T%us toda', t%e 3ord M&'ceumM enerall' refers to a sc%ool or an institution of learnin" Since M&'ceumM or
M&iceoM denotes a sc%ool or institution of learnin, it is not unnatural to use t%is 3ord to desinate an entit'
3%ic% is orani>ed and operatin as an educational institution" To determine 3%et%er a i-en corporate name
is MidenticalM or Mconfusinl' or decepti-el' similarM 3it% anot%er entit'Ds corporate name, it is not enou% to
ascertain t%e presence of M&'ceumM or M&iceoM in +ot% names" One must e-aluate corporate names in t%eir
entiret' and 3%en t%e name of &'ceum of t%e 6%ilippines is Iu?taposed 3it% t%e names of pri-ate respondents,
t%e' are not reasona+l' rearded as MidenticalM or Mconfusinl' or decepti-el' similarM 3it% eac% ot%er"
%ssue [2#$ )%et%er t%e use +' t%e &'ceum of t%e 6%ilippines of M&'ceumM in its corporate name %as +een for
suc% lent% of time and 3it% suc% e?clusi-it' as to %a-e +ecome associated or identified 3it% t%e petitioner
institution in t%e mind of t%e eneral pu+lic (or at least t%at portion of t%e eneral pu+lic 3%ic% %as to do 3it%
sc%ools)"
&eld [2#$ T%e num+er alone of t%e pri-ate respondents in t%e present case suests stronl' t%at t%e &'ceum
of t%e 6%ilippinesD use of t%e 3ord M&'ceumM %as not +een attended 3it% t%e e?clusi-it' essential for
applica+ilit' of t%e doctrine of secondar' meanin" $t ma' +e noted also t%at at least one of t%e pri-ate
respondents, i"e", t%e )estern 6anasinan &'ceum, $nc", used t%e term M&'ceumM 18 'ears +efore &'ceum of
t%e 6%ilippines reistered its o3n corporate name 3it% t%e SEC and +ean usin t%e 3ord M&'ceum"M $t
follo3s t%at if an' institution %ad ac,uired an e?clusi-e ri%t to t%e 3ord M&'ceum,M t%at institution 3ould
%a-e +een t%e )estern 6anasinan &'ceum, $nc" rat%er t%an &'ceum of t%e 6%ilippines" Jence, &'ceum of t%e
6%ilippines is not entitled to a leall' enforcea+le e?clusi-e ri%t to use t%e 3ord M&'ceumM in its corporate
name and t%at ot%er institutions ma' use M&'ceumM as part of t%eir corporate names"
10 An( m(a ?aani+ sa %(lesia n( 2ios ?a" ?risto &esus &5? sa Bansan( :ili-inas %nc. vs. %(lesia
n( 2ios <a" Cristo !esus &ali(i at 5u;a" n( ?atoto;anan [GR 147.12 12 2ecem+er 2001#
First Division, 4nares5Santia'o (J): 3 concur, 1 on o00icial leave
Facts$ T%e $lesia n *ios Ea' Cristo Jesus, Jalii at Su%a' n Eatoto%anan ($*CJ=JSEL C%urc% of /od in
C%rist Jesus, t%e 6illar and /round of Trut%), is a non=stoc: reliious societ' or corporation reistered in
1.34" Sometime in 1.84, one Eliseo Soriano and se-eral ot%er mem+ers of said corporation disassociated
t%emsel-es from t%e latter and succeeded in reisterin on 35 (arc% 1.88 a ne3 non=stoc: reliious societ'
or corporation, named $lesia n *ios Ea' Eristo Jesus, Jalii at Salian n Eatoto%anan ($*EJ=JSE)" On
14 Jul' 1.8., $*CJ=JSE filed 3it% t%e SEC a petition to compel $*EJ=JSE to c%ane its corporate name
(SEC Case 188A)" On A (a' 1.77, t%e SEC rendered Iudment in fa-or of $*CJ=JSE, orderin $*EJ=JSE to
c%ane its corporate name to anot%er name t%at is not similar or identical to an' name alread' used +' a
corporation, partners%ip or association reistered 3it% t%e Commission" !o appeal 3as ta:en from said
decision"
*urin t%e pendenc' of SEC Case 188A, Soriano, et al", caused t%e reistration on 19 April 1.75 of An (a
Eaani+ sa $lesia n *ios Ea' Eristo Jesus, J"S"E, sa Bansan 6ilipinas (AEB$*EJ=JSECB6)" T%e
acron'm MJ"S"E"M stands for Jalii at Salian n Eatoto%anan" On 1 (arc% 1..A, $*CJ=JSE filed +efore t%e
SEC a petition (SEC Case 53=.A=A85A), pra'in t%at AEB$*EJ=JSECB6 +e compelled to c%ane its
corporate name and +e +arred from usin t%e same or similar name on t%e round t%at t%e same causes
confusion amon t%eir mem+ers as 3ell as t%e pu+lic" E$*EJ=JSE=B6 filed a motion to dismiss on t%e
round of lac: of cause of action" T%e motion to dismiss 3as denied" T%ereafter, for failure to file an ans3er,
AEB$*EJ=JSECB6 3as declared in default and $*CJ=JSE 3as allo3ed to present its e-idence e? parte" On
15 !o-em+er 1..9, t%e SEC rendered a decision orderin AEB$*EJ=JSECB6 to c%ane its corporate name"
AEB$*EJ=JSECB6 appealed to t%e SEC En Banc (SEC=AC 93.)" $n a decision dated A (arc% 1..4, t%e SEC
En Banc affirmed t%e a+o-e decision, upon a findin t%at AEB$*EJ=JSECB6Ds corporate name 3as identical
or confusinl' or decepti-el' similar to t%at of $*CJ=JSEDs corporate name" AEB$*EJ=JSECB6 filed a
petition for re-ie3 3it% t%e Court of Appeals" On 8 Octo+er 1..8, t%e Court of Appeals rendered t%e decision
affirmin t%e decision of t%e SEC En Banc" AEB$*EJ=JSECB6Ds motion for reconsideration 3as denied +'
t%e Court of Appeals on 14 0e+ruar' 1..1" AEB$*EJ=JSECB6 filed t%e petition for re-ie3"
%ssue [1#$ )%et%er t%e corporate names of AEB$*EJ=JSECB6 and $*CJ=JSE are confusinl' similar"
&eld [1#$ T%e SEC %as t%e aut%orit' to de=reister at all times and under all circumstances corporate names
3%ic% in its estimation are li:el' to spa3n confusion" $t is t%e dut' of t%e SEC to pre-ent confusion in t%e use
of corporate names not onl' for t%e protection of t%e corporations in-ol-ed +ut more so for t%e protection of
t%e pu+lic" Section 17 of t%e Corporation Code pro-ides t%at M!o corporate name ma' +e allo3ed +' t%e
Securities and E?c%ane Commission if t%e proposed name is identical or decepti-el' or confusinl' similar
to t%at of an' e?istin corporation or to an' ot%er name alread' protected +' la3 or is patentl' decepti-e,
confusin or is contrar' to e?istin la3s" )%en a c%ane in t%e corporate name is appro-ed, t%e Commission
s%all issue an amended certificate of incorporation under t%e amended name"M Corollar' t%ereto, t%e pertinent
portion of t%e SEC /uidelines on Corporate !ames states t%at M(d) $f t%e proposed name contains a 3ord
similar to a 3ord alread' used as part of t%e firm name or st'le of a reistered compan', t%e proposed name
must contain t3o ot%er 3ords different from t%e name of t%e compan' alread' reisteredL 6arties orani>in a
corporation must c%oose a name at t%eir perilL and t%e use of a name similar to one adopted +' anot%er
corporation, 3%et%er a +usiness or a nonprofit orani>ation, if misleadin or li:el' to inIure in t%e e?ercise of
its corporate functions, reardless of intent, ma' +e pre-ented +' t%e corporation %a-in a prior ri%t, +' a
suit for inIunction aainst t%e ne3 corporation to pre-ent t%e use of t%e name" Jerein, t%e additional 3ords
MAn (a Eaani+ M and MSa Bansan 6ilipinas, $nc"M in AEB$*EJ=JSECB6Ds name are merel' descripti-e of
and also referrin to t%e mem+ers, or :aani+, of $*CJ=JSE 3%o are li:e3ise residin in t%e 6%ilippines"
T%ese 3ords can %ardl' ser-e as an effecti-e differentiatin medium necessar' to a-oid confusion or
difficult' in distinuis%in AEB$*EJ=JSECB6 from $*CJ=JSE" T%is is especiall' so, since +ot% AEB$*EJ=
JSECB6 and $*CJ=JSE are usin t%e same acron'm P J"S"E"L not to mention t%e fact t%at +ot% are
espousin reliious +eliefs and operatin in t%e same place" 6arent%eticall', it is 3ell to mention t%at t%e
acron'm J"S"E" used +' AEB$*EJ=JSECB6 stands for MJalii at Salian n Eatoto%anan"M T%en, too, t%e
records re-eal t%at in %oldin out t%eir corporate name to t%e pu+lic, AEB$*EJ=JSECB6 %i%li%ts t%e
dominant 3ords M$/&ES$A !/ *$OS EAO ER$STO JES@S, JA&$/$ AT SA&$/A! !/
EATOTOJA!A!,M 3%ic% is stri:inl' similar to $*CJ=JSEDs corporate name, t%us ma:in it e-en more
e-ident t%at t%e additional 3ords MAn (a Eaani+M and MSa Bansan 6ilipinas, $nc"M, are merel' descripti-e
of and pertainin to t%e mem+ers of $*CJ=JSE" Sinificantl', t%e onl' difference +et3een t%e corporate
names of AEB$*EJ=JSECB6 and $*CJ=JSE are t%e 3ords SA&$/A! and S@JAO" T%ese 3ords are
s'non'mous P +ot% mean round, foundation or support" Jence, t%is case is on all fours 3it% @ni-ersal
(ills Corporation -" @ni-ersal Te?tile (ills, $nc", 11 3%ere t%e Court ruled t%at t%e corporate names
@ni-ersal (ills Corporation and @ni-ersal Te?tile (ills, $nc", are undisputa+l' so similar t%at e-en under t%e
test of Mreasona+le care and o+ser-ationM confusion ma' arise"
%ssue [2#$ )%et%er t%e eneric 3ord rule 3ould appl' to support AEB$*EJ=JSECB62s cause"
&eld [2#$ T%e 3%olesale appropriation +' AEB$*EJ=JSECB6 of $*CJ=JSEDs corporate name cannot find
Iustification under t%e eneric 3ord rule" A contrar' rulin 3ould encourae ot%er corporations to adopt
-er+atim and reister an e?istin and protected corporate name, to t%e detriment of t%e pu+lic" T%e fact t%at
t%ere are ot%er non=stoc: reliious societies or corporations usin t%e names C%urc% of t%e &i-in /od, $nc",
C%urc% of /od Jesus C%rist t%e Son of /od t%e Jead, C%urc% of /od in C%rist K B' t%e Jol' Spirit, and
ot%er similar names, is of no conse,uence" $t does not aut%ori>e t%e use +' AEB$*EJ=JSECB6 of t%e
essential and distinuis%in feature of $*CJ=JSEDs reistered and protected corporate name"
17 %ndustrial Re,ractories Cor-oration o, t;e :;ili--ines vs. Court o, A--eals [GR 122174 4
9cto+er 2002#
Second Division, Austria5Martinez (J): 3 concur, 1 on o00icial leave
Facts$ Refractories Corporation of t%e 6%ilippines (RC6) is a corporation dul' orani>ed on 13 Octo+er 1.84
for t%e purpose of enain in t%e +usiness of manufacturin, producin, sellin, e?portin and ot%er3ise
dealin in an' and all refractor' +ric:s, its +'=products and deri-ati-es" On 11 June 1.88, it reistered its
corporate and +usiness name 3it% t%e Bureau of *omestic Trade" $ndustrial Refractories Corp" of t%e
6%ilippines ($RC6) on t%e ot%er %and, 3as incorporated on 13 Auust 1.8. oriinall' under t%e name
MS'nclaire (anufacturin CorporationM" $t amended its Articles of $ncorporation on 13 Auust 1.79 to c%ane
its corporate name to M$ndustrial Refractories Corp" of t%e 6%ilippinesM" $t is enaed in t%e +usiness of
manufacturin all :inds of ceramics and ot%er products, e?cept paints and >incs" Bot% companies are t%e onl'
local suppliers of monolit%ic unnin mi?" *isco-erin t%at $RC6 3as usin suc% corporate name, RC6 filed
on 1A April 1.77 3it% t%e Securities and E?c%ane Commission (SEC) a petition to compel $RC6 to c%ane
its corporate name on t%e round t%at its corporate name is confusinl' similar 3it% t%at of RC6Ds suc% t%at
t%e pu+lic ma' +e confused or decei-ed into +elie-in t%at t%e' are one and t%e same corporation" T%e SEC
decided in fa-or of RC6 in its Iudment of 13 Jul' 1..3" $RC6 appealed to t%e SEC En Banc, aruin t%at it
does not %a-e an' Iurisdiction o-er t%e case, and t%at RC6 %as no ri%t to t%e e?clusi-e use of its corporate
name as it is composed of eneric or common 3ords" $n its *ecision dated 13 Jul' 1..3, t%e SEC En Banc
modified t%e appealed decision in t%at $RC6 3as ordered to delete or drop from its corporate name onl' t%e
3ord MRefractoriesM" $RC6 ele-ated t%e decision of t%e SEC En Banc t%rou% a petition for re-ie3 on
certiorari to t%e Court of Appeals 3%ic% t%en rendered t%e decision, den'in to i-e due course t%e petition
filed +' $RC6 +' up%oldin t%e Iurisdiction of t%e SEC o-er t%e case, and rulin t%at t%e corporate names of
$RC6 and RC6 are confusinl' or decepti-el' similar, and t%at RC6 %as esta+lis%ed its prior ri%t to use t%e
3ord MRefractoriesM as its corporate name" T%e appellate court also found t%at t%e petition 3as filed +e'ond
t%e relementar' period" $RC6 filed t%e petition for re-ie3 on certiorari"
%ssue [1#$ )%et%er t%e corporate names of $RC6 and RC6 are confusinl' similar"
&eld [1#$ T%e Iurisdiction of t%e SEC is not merel' confined to t%e adIudicati-e functions pro-ided in Section
9 of 6* .51=A, as amended" $t is t%e SECDs dut' to pre-ent confusion in t%e use of corporate names not onl'
for t%e protection of t%e corporations in-ol-ed +ut more so for t%e protection of t%e pu+lic, and it %as aut%orit'
to de=reister at all times and under all circumstances corporate names 3%ic% in its estimation are li:el' to
enerate confusion" Section 17 of t%e Corporation Code e?pressl' pro%i+its t%e use of a corporate name 3%ic%
is Midentical or decepti-el' or confusinl' similar to t%at of an' e?istin corporation or to an' ot%er name
alread' protected +' la3 or is patentl' decepti-e, confusin or contrar' to e?istin la3sM" T%e polic' +e%ind
t%e foreoin pro%i+ition is to a-oid fraud upon t%e pu+lic t%at 3ill %a-e occasion to deal 3it% t%e entit'
concerned, t%e e-asion of leal o+liations and duties, and t%e reduction of difficulties of administration and
super-ision o-er corporation" 6ursuant t%ereto, t%e Re-ised /uidelines in t%e Appro-al of Corporate and
6artners%ip !ames 19 specificall' re,uires t%at: (1) a corporate name s%all not +e identical, misleadin or
confusinl' similar to one alread' reistered +' anot%er corporation 3it% t%e CommissionL and (1) if t%e
proposed name is similar to t%e name of a reistered firm, t%e proposed name must contain at least one
distincti-e 3ord different from t%e name of t%e compan' alread' reistered" To fall 3it%in t%e pro%i+ition of
t%e la3, t3o re,uisites must +e pro-en: (1) t%at t%e complainant corporation ac,uired a prior ri%t o-er t%e use
of suc% corporate nameL and (1) t%e proposed name is eit%er: (a) identical, or (+) decepti-el' or confusinl'
similar to t%at of an' e?istin corporation or to an' ot%er name alread' protected +' la3L or (c) patentl'
decepti-e, confusin or contrar' to e?istin la3" As reards t%e first re,uisite, it %as +een %eld t%at t%e ri%t to
t%e e?clusi-e use of a corporate name 3it% freedom from infrinement +' similarit' is determined +' priorit'
of adoption" Jerein, +ein t%e prior reistrant, RC6 %as ac,uired t%e ri%t to use t%e 3ord MRefractoriesM as
part of its corporate name" Anent t%e second re,uisite, in determinin t%e e?istence of confusin similarit' in
corporate names, t%e test is 3%et%er t%e similarit' is suc% as to mislead a person usin ordinar' care and
discrimination and t%e Court must loo: to t%e record as 3ell as t%e names t%emsel-es" Jerein, t%e onl' 3ord
t%at distinuis%es $RC6 from RC6 is t%e 3ord M$ndustrialM 3%ic% merel' identifies a corporationDs eneral
field of acti-ities or operations" T%e t3o corporate names are patentl' similar t%at e-en 3it% reasona+le care
and o+ser-ation, confusion mi%t arise" $t must +e noted t%at +ot% cater to t%e same clientele, i"e", t%e steel
industr'" $n fact, t%e SEC found t%at t%ere 3ere instances 3%en different steel companies 3ere actuall'
confused +et3een t%e t3o, especiall' since t%e' also %a-e similar product pac:ain"
%ssue [2#$ )%et%er t%e eneric 3ord rule 3ould appl' to support $RC62s cause"
&eld [2#$ Refractories are structural materials used at %i% temperatures to BsicC industrial furnaces" T%e' are
supplied mainl' in t%e form of +ric: of standard si>es and of special s%apes" Refractories also include
refractor' cements, +ondin mortars, plastic fire+ric:, casta+les, rammin mi?tures, and ot%er +ul: materials
suc% as dead=+uried rain maneside, c%rome or round anister and special cla'" )%ile t%e 3ord
MrefractoriesM is a eneric term, its usae is not 3idespread and is limited merel' to t%e industr'Gtrade in
3%ic% it is used, and its continuous use +' RC6 for a considera+le period %as made t%e term so closel'
identified 3it% it" (oreo-er, $RC6Ds appropriation of RC6Ds corporate name cannot find Iustification under t%e
eneric 3ord rule" A contrar' rulin 3ould encourae ot%er corporations to adopt -er+atim and reister an
e?istin and protected corporate name, to t%e detriment of t%e pu+lic"
1/ !G 5ummit &oldin(s %nc. vs. Court o, A--eals [GR 124214 20 Novem+er 2000#
4nares5Santia'o (J): 4 concur
Facts$ On 18 Januar' 1.88, t%e !ational $n-estment and *e-elopment Corporation (!$*C), a o-ernment
corporation, entered into a Joint #enture Areement (J#A) 3it% Ea3asa:i Jea-' $ndustries, &td" of Eo+e,
Japan (Ea3asa:i) for t%e construction, operation, and manaement of t%e Su+ic !ational S%ip'ard, $nc"
(S!S), 3%ic% su+se,uentl' +ecame t%e 6%ilippine S%ip'ard and Enineerin Corporation (6J$&SECO)"
@nder t%e J#A, !$*C and Ea3asa:i 3ould maintain a s%are%oldin proportion of 45H = A5H, respecti-el'"
One of t%e pro-isions of t%e J#A accorded t%e parties t%e ri%t of first refusal s%ould eit%er part' sell, assin
or transfer its interest in t%e Ioint -enture" On 19 !o-em+er 1.74, !$*C transferred all its ri%ts, title and
interest in 6J$&SECO to t%e 6%ilippine !ational Ban: (6!B)" (ore t%an t3o mont%s later or on 3 0e+ruar'
1.78, +' -irtue of Administrati-e Order 1A, 6!BDs interest in 6J$&SECO 3as transferred to t%e !ational
/o-ernment" (ean3%ile, on 7 *ecem+er 1.74, 6resident Cora>on C" A,uino issued 6roclamation 95
esta+lis%in t%e Committee on 6ri-ati>ation (CO6) and t%e Asset 6ri-ati>ation Trust (A6T) to ta:e title to and
possession of, conser-e, manae and dispose of non=performin assets of t%e !ational /o-ernment" On 18
0e+ruar' 1.78, a trust areement 3as entered into +et3een t%e !ational /o-ernment and t%e A6T +' -irtue
of 3%ic% t%e latter 3as named t%e trustee of t%e !ational /o-ernmentDs s%are in 6J$&SECO" $n 1.7., as a
result of a ,uasi=reorani>ation of 6J$&SECO to settle its %ue o+liations to 6!B, t%e !ational
/o-ernmentDs s%are%oldins in 6J$&SECO increased to .8"A1H t%ere+' reducin Ea3asa:iDs s%are%oldins
to 1"9.H" E?ercisin t%eir discretion, t%e CO6 and t%e A6T deemed it in t%e +est interest of t%e national
econom' and t%e o-ernment to pri-ati>e 6J$&SECO +' sellin 78"48H of its total outstandin capital stoc:
to pri-ate entities" After a series of neotiations +et3een t%e A6T and Easa3a:i, t%e' areed t%at t%e latterDs
ri%t of first refusal under t%e J#A +e Me?c%anedM for t%e ri%t to top +' 9H t%e %i%est +id for said s%ares"
T%e' furt%er areed t%at Ea3asa:i 3ould +e entitled to name a compan' in 3%ic% it 3as a stoc:%older, 3%ic%
could e?ercise t%e ri%t to top" On 8 Septem+er 1..5, Ea3asa:i informed A6T t%at 6%il'ards Joldins, $nc"
(6J$) 3ould e?ercise its ri%t to top +' 9H" At t%e pre=+iddin conference %eld on 17 Septem+er 1..3,
interested +idders 3ere i-en copies of t%e J#A +et3een !$*C and Ea3asa:i, and of t%e Asset Specific
Biddin Rules (ASBR) drafted for t%e 78"48H e,uit' (sic) in 6J$&SECO of t%e !ational /o-ernment" T%e
pro-isions of t%e ASBR 3ere e?plained to t%e interested +idders 3%o 3ere notified t%at +iddin 3ould +e
%eld on 1 *ecem+er 1..3" At t%e pu+lic +iddin on said date, t%e consortium composed of J/ Summit
Joldins, $nc" (J/S($), Sem+a3an S%ip'ard &td" of Sinapore (Sem+a3an), and Juron S%ip'ard &imited
of (ala'sia (Juron), 3as declared t%e %i%est +idder at 61"53 +illion" T%e follo3in da', t%e CO6 appro-ed
t%e sale of 78"48H !ational /o-ernment s%ares of stoc: in 6J$&SECO to said consortium" $t notified J/S($
of said appro-al Msu+Iect to t%e ri%t of Ea3asa:i Jea-' $ndustries, $nc"G6%il'ards Joldins, $nc" to top
J/S($Ds +id +' 9H as specified in t%e +iddin rules"M On 1. *ecem+er 1..3, J/S($ informed t%e A6T t%at it
3as protestin t%e offer of 6J$ to top its +id on t%e rounds t%at: (a) t%e Ea3asa:iG6J$ consortium composed
of Ea3asa:i, 6%il'ards, (itsui, Eeppel, S( /roup, $CTS$ and $nsular &ife -iolated t%e ASBR +ecause t%e
last four (A) companies 3ere t%e losin +idders (for 61"917 +illion) t%ere+' circum-entin t%e la3 and
preIudicin t%e 3ea: 3innin +idderL (+) onl' Ea3asa:i could e?ercise t%e ri%t to topL (c) i-in t%e same
option to top to 6J$ constituted un3arranted +enefit to a t%ird part'L (d) no ri%t of first refusal can +e
e?ercised in a pu+lic +iddin or auction sale, and (e) t%e J/ Summit Consortium 3as not estopped from
,uestionin t%e proceedins" On 1 0e+ruar' 1..A, J/S($ 3as notified t%at 6J$ %ad full' paid t%e +alance of
t%e purc%ase price of t%e su+Iect +iddin" On 8 0e+ruar' 1..A, t%e A6T notified J/S($ t%at 6J$ %ad
e?ercised its option to top t%e %i%est +id and t%at t%e CO6 %ad appro-ed t%e same on 4 Januar' 1..A" On 1A
0e+ruar' 1..A, t%e A6T and 6J$ e?ecuted a Stoc: 6urc%ase Areement" Conse,uentl', J/S($ filed 3it% t%e
Supreme Court a petition for mandamus under /R 11A598" On 11 (a' 1..A, said petition 3as referred to t%e
Court of Appeals" On 17 Jul' 1..9, t%e Court of Appeals MdeniedM for lac: of merit t%e petition for
mandamus" J/S($ filed a motion for t%e reconsideration of said *ecision 3%ic% 3as denied on 19 (arc%
1..4" J/S($ filed t%e petition for re-ie3 on certiorari"
%ssue$ )%et%er 6J$&SECO, as a s%ip'ard, is a pu+lic utilit' and, %ence, could +e operated onl' +' a
corporation at least 45H of 3%ose capital is o3ned +' 0ilipino citi>ens, in accordance 3it% Article Q$$,
Section 15 of t%e Constitution"
&eld$ A s%ip'ard suc% as 6J$&SECO +ein a pu+lic utilit' as pro-ided +' la3, Section 11 of t%e Article Q$$
of t%e Constitution applies" T%e pro-ision states t%at M6o 0ranchise, certi0icate, or an! other 0or# o0
authorization 0or the oeration o0 a u.lic utilit! shall .e 'ranted e7cet to citizens o0 the /hiliines or to
cororations or associations or'anized under the la8s o0 the /hiliines at least si7t! er centu# o0 8hose
caital is o8ned .! such citizens, nor shall such 0ranchise, certi0icate, or authorization .e e7clusive in
character or 0or a lon'er eriod than 0i0t! !ears$ 6either shall an! such 0ranchise or ri'ht .e 'ranted e7cet
under the condition that it shall .e su.9ect to a#end#ent, alteration, or reeal .! the Con'ress 8hen the
co##on 'ood so re:uires$ The State shall encoura'e e:uit! articiation in u.lic utilities .! the 'eneral
u.lic$ The articiation o0 0orei'n investors in the 'overnin' .od! o0 an! u.lic utilit! enterrise shall .e
li#ited to their roortionate share in its caital, and all the e7ecutive and #ana'in' o00icers o0 such
cororation or association shall .e citizens o0 the /hiliines$; T%e proenitor of t%is constitutional
pro-ision, Article Q$#, Section 9 of t%e 1.83 Constitution, re,uired t%e same proportion of 45H = A5H
capitali>ation" T%e J#A +et3een !$*C and Ea3asa:i entered into on 18 Januar' 1.88 manifests t%e intention
of t%e parties to a+ide +' t%e constitutional mandate on capitali>ation of pu+lic utilities" T%e Ioint -enture
created +et3een !$*C and Ea3asa:i falls 3it%in t%e pur-ie3 of an MassociationM pursuant to Section 9 of
Article Q$# of t%e 1.83 Constitution and Section 11 of Article Q$$ of t%e 1.78 Constitution" Conse,uentl', a
Ioint -enture t%at 3ould enae in t%e +usiness of operatin a pu+lic utilit', suc% as a s%ip'ard, must o+ser-e
t%e proportion of 45H=A5H 0ilipino=forein capitali>ation" 0urt%er, pararap% 1"A of t%e J#A accorded t%e
parties t%e ri%t of first refusal Munder t%e same terms"M T%is p%rase implies t%at 3%en eit%er part' e?ercises
t%e ri%t of first refusal under pararap% 1"A, t%e' can onl' do so to t%e e?tent allo3ed t%em +' pararap%s 1"1
and 1"3 of t%e J#A or under t%e proportion of 45H=A5H of t%e s%ares of stoc:" T%us, s%ould t%e !$*C opt to
sell its s%ares of stoc: to a t%ird part', Ea3asa:i could onl' e?ercise its ri%t of first refusal to t%e e?tent t%at
its total s%ares of stoc: 3ould not e?ceed A5H of t%e entire s%ares of stoc: of S!S or 6J$&SECO" T%e !$*C,
on t%e ot%er %and, ma' purc%ase e-en +e'ond 45H of t%e total s%ares" As a o-ernment corporation and
necessaril' a 155H 0ilipino=o3ned corporation, t%ere is not%in to pre-ent its purc%ase of stoc:s e-en +e'ond
45H of t%e capitali>ation as t%e Constitution clearl' limits onl' forein capitali>ation" Ea3asa:i 3as +ound
+' its contractual o+liation under t%e J#A t%at limits its ri%t of first refusal to A5H of t%e total capitali>ation
of 6J$&SECO" T%us, Ea3asa:i cannot purc%ase +e'ond A5H of t%e capitali>ation of t%e Ioint -enture on
account of +ot% constitutional and contractual proscriptions" 0rom t%e facts on record, it appears t%at at t%e
outset, t%e A6T and Ea3asa:i respected t%e 45H=A5H capitali>ation proportion in 6J$&SECO" Jo3e-er,
A6T su+se,uentl' encouraed Ea3asa:i to participate in t%e pu+lic +iddin of t%e !ational /o-ernmentDs
s%are%oldins of 78"48H of t%e total 6J$&SECO s%ares, definitel' o-er and a+o-e t%e A5H limit of its
s%are%oldins" $n so doin, t%e A6T 3ent +e'ond t%e am+it of its aut%orit'"
11 @oun( Auto 5u--l" vs. Court o, A--eals [GR 10417. 2. !une 1114#
First Division, -uiason (J): 3 concur
Facts$ On 17 Octo+er 1.78, Ooun Auto Suppl' Co" $nc" (OASCO) represented +' !emesio /arcia, its
president, !elson /arcia and #icente S', sold all of t%eir s%ares of stoc: in Consolidated (ar:etin K
*e-elopment Corporation (C(*C) to /eore C" Ro?as" T%e purc%ase price 3as 67,555,555"55 pa'a+le as
follo3s: a do3n pa'ment of 6A,555,555"55 and t%e +alance of 6A,555,555"55 in four postdated c%ec:s of
61,555,555"55 eac%" $mmediatel' after t%e e?ecution of t%e areement, Ro?as too: full control of t%e four
mar:ets of C(*C" Jo3e-er, t%e -endors %eld on to t%e stoc: certificates of C(*C as securit' pendin full
pa'ment of t%e +alance of t%e purc%ase price" T%e first c%ec: of 6A,555,555"55, representin t%e do3n
pa'ment, 3as %onored +' t%e dra3ee +an: +ut t%e four ot%er c%ec:s representin t%e +alance of
6A,555,555"55 3ere dis%onored" $n t%e meantime, Ro?as sold one of t%e mar:ets to a t%ird part'" Out of t%e
proceeds of t%e sale, OASCO recei-ed 6455,555"55, lea-in a +alance of 63,A55,555"55" Su+se,uentl',
!elson /arcia and #icente S' assined all t%eir ri%ts and title to t%e proceeds of t%e sale of t%e C(*C
s%ares to !emesio /arcia" On 15 June 1.77, OASCO and /arcia filed a complaint aainst Ro?as in t%e
Reional Trial Court, Branc% 11, Ce+u Cit', pra'in t%at Ro?as +e ordered to pa' t%em t%e sum of
63,A55,555"55 or t%at full control of t%e t%ree mar:ets +e turned o-er to OASCO and /arcia" T%e complaint
also pra'ed for t%e forfeiture of t%e partial pa'ment of 6A,455,555"55 and t%e pa'ment of attorne'Ds fees and
costs" 0ailin to su+mit %is ans3er, and on 1. Auust 1.77, t%e trial court declared Ro?as in default" T%e
order of default 3as, %o3e-er, lifted upon motion of Ro?as" On 11 Auust 1.77, Ro?as filed a motion to
dismiss" After a %earin, 3%erein testimonial and documentar' e-idence 3ere presented +' +ot% parties, t%e
trial court in an Order dated 7 0e+ruar' 1..1 denied Ro?asD motion to dismiss" After recei-in said order,
Ro?as filed anot%er motion for e?tension of time to su+mit %is ans3er" Je also filed a motion for
reconsideration, 3%ic% t%e trial court denied in its Order dated 15 April 1..1 for +ein pro=forma" Ro?as 3as
aain declared in default, on t%e round t%at %is motion for reconsideration did not toll t%e runnin of t%e
period to file %is ans3er" On 3 (a' 1..1, Ro?as filed an un-erified (otion to &ift t%e Order of *efault 3%ic%
3as not accompanied 3it% t%e re,uired affida-it of merit" But 3it%out 3aitin for t%e resolution of t%e
motion, %e filed a petition for certiorari 3it% t%e Court of Appeals" T%e Court of Appeals dismissal of t%e
complaint on t%e round of improper -enue" A su+se,uent motion for reconsideration +' OASCO 3as to no
a-ail" OASCO and /arcia filed t%e petition"
%ssue$ )%et%er t%e -enue for t%e case aainst OASCO and /arcia in Ce+u Cit' 3as improperl' laid"
&eld$ A corporation %as no residence in t%e same sense in 3%ic% t%is term is applied to a natural person" But
for practical purposes, a corporation is in a metap%'sical sense a resident of t%e place 3%ere its principal
office is located as stated in t%e articles of incorporation" T%e Corporation Code precisel' re,uires eac%
corporation to specif' in its articles of incorporation t%e Mplace 3%ere t%e principal office of t%e corporation is
to +e located 3%ic% must +e 3it%in t%e 6%ilippines"M T%e purpose of t%is re,uirement is to fi? t%e residence of
a corporation in a definite place, instead of allo3in it to +e am+ulator'" Actions cannot +e filed aainst a
corporation in an' place 3%ere t%e corporation maintains its +ranc% offices" T%e Court ruled t%at to allo3 an
action to +e instituted in an' place 3%ere t%e corporation %as +ranc% offices, 3ould create confusion and 3or:
untold incon-enience to said entit'" B' t%e same to:en, a corporation cannot +e allo3ed to file personal
actions in a place ot%er t%an its principal place of +usiness unless suc% a place is also t%e residence of a co=
plaintiff or a defendant" )it% t%e findin t%at t%e residence of OASCO for purposes of -enue is in Ce+u Cit',
3%ere its principal place of +usiness is located, it +ecomes unnecessar' to decide 3%et%er /arcia is also a
resident of Ce+u Cit' and 3%et%er Ro?as 3as in estoppel from ,uestionin t%e c%oice of Ce+u Cit' as t%e
-enue" T%e decision of t%e Court of Appelas 3as set aside"
20 Re-u+lic :lanters Ban< vs. A(ana [GR .170. 4 'arc; 1117#
First Division, "er#osisi#a Jr$ (J): 3 concur, 1 concurs in result
Facts$ On 17 Septem+er 1.41, t%e Ro+es=0rancisco Realt' K *e-elopment Corporation (R0R*C) secured a
loan from t%e Repu+lic 6lanters Ban: in t%e amount of 6115,555"55" As part of t%e proceeds of t%e loan,
preferred s%ares of stoc:s 3ere issued to R0R*C t%rou% its officers t%en, Adalia 0" Ro+es and one Carlos 0"
Ro+es" $n ot%er 3ords, instead of i-in t%e leal tender totalin to t%e full amount of t%e loan, 3%ic% is
6115,555"55, t%e Ban: lent suc% amount partiall' in t%e form of mone' and partiall' in t%e form of stoc:
certificates num+ered 315A and 3159, eac% for A55 s%ares 3it% a par -alue of 615"55 per s%are, or for
6A,555"55 eac%, for a total of 67,555"55" Said stoc: certificates 3ere in t%e name of Adalia 0" Ro+es and
Carlos 0" Ro+es, 3%o su+se,uentl', %o3e-er, endorsed %is s%ares in fa-or of Adalia 0" Ro+es" Said certificates
of stoc: +ear t%e follo3in terms and conditions: MT%e 6referred Stoc: s%all %a-e t%e follo3in ri%ts,
preferences, ,ualifications and limitations, to 3it: 1" Of t%e ri%t to recei-e a ,uarterl' di-idend of 1H,
cumulati-e and participatin" ??? 1" T%at suc% preferred s%ares ma' +e redeemed, +' t%e s'stem of dra3in
lots, at an' time after 1 'ears from t%e date of issue at t%e option of t%e Corporation"M On 31 Januar' 1.8.,
R0R*C and Ro+es proceeded aainst t%e Ban: and filed a complaint anc%ored on t%eir alleed ri%ts to
collect di-idends under t%e preferred s%ares in ,uestion and to %a-e t%e +an: redeem t%e same under t%e terms
and conditions of t%e stoc: certificates" T%e +an: filed a (otion to *ismiss 3 pri-ate respondentsD Complaint
on t%e follo3in rounds: (1) t%at t%e trial court %ad no Iurisdiction o-er t%e su+Iect=matter of t%e actionL (1)
t%at t%e action 3as unenforcea+le under su+stanti-e la3L and (3) t%at t%e action 3as +arred +' t%e statute of
limitations andGor lac%es" T%e +an:Ds (otion to *ismiss 3as denied +' t%e trial court in an order dated 14
(arc% 1.8." T%e +an: t%en filed its Ans3er on 1 (a' 1.8." T%ereafter, t%e trial court a-e t%e parties 15
da's from 35 Jul' 1.8. to su+mit t%eir respecti-e memoranda after t%e su+mission of 3%ic% t%e case 3ould
+e deemed su+mitted for resolution" On 8 Septem+er 1.8., t%e trial court rendered t%e decision in fa-or of
R0R*C and Ro+esL orderin t%e +an: to pa' R0R*C and Ro+es t%e face -alue of t%e stoc: certificates as
redemption price, plus 1H ,uarterl' interest t%ereon until full pa'ment" T%e +an: filed t%e petition for
certiorari 3it% t%e Supreme Court, essentiall' on pure ,uestions of la3"
%ssue [1#$ )%et%er t%e +an: can +e compelled to redeem t%e preferred s%ares issued to R0R*C and Ro+es"
&eld [1#$ )%ile t%e stoc: certificate does allo3 redemption, t%e option to do so 3as clearl' -ested in t%e
+an:" T%e redemption t%erefore is clearl' t%e t'pe :no3n as MoptionalM" T%us, e?cept as ot%er3ise pro-ided in
t%e stoc: certificate, t%e redemption rests entirel' 3it% t%e corporation and t%e stoc:%older is 3it%out ri%t to
eit%er compel or refuse t%e redemption of its stoc:" 0urt%ermore, t%e terms and conditions set fort% t%erein use
t%e 3ord Mma'M" $t is a settled doctrine in statutor' construction t%at t%e 3ord Mma'M denotes discretion, and
cannot +e construed as %a-in a mandator' effect" T%e redemption of said s%ares cannot +e allo3ed" T%e
Central Ban: made a findin t%at t%e Ban: %as +een sufferin from c%ronic reser-e deficienc', and t%at suc%
findin resulted in a directi-e, issued on 31 Januar' 1.83 +' t%en /o-" /" S" &icaros of t%e Central Ban:, to
t%e 6resident and Actin C%airman of t%e Board of t%e +an: pro%i+itin t%e latter from redeemin an'
preferred s%are, on t%e round t%at said redemption 3ould reduce t%e assets of t%e Ban: to t%e preIudice of its
depositors and creditors" Redemption of preferred s%ares 3as pro%i+ited for a Iust and -alid reason" T%e
directi-e issued +' t%e Central Ban: /o-ernor 3as o+-iousl' meant to preser-e t%e status ,uo, and to pre-ent
t%e financial ruin of a +an:in institution t%at 3ould %a-e resulted in ad-erse repercussions, not onl' to its
depositors and creditors, +ut also to t%e +an:in industr' as a 3%ole" T%e directi-e, in limitin t%e e?ercise of
a ri%t ranted +' la3 to a corporate entit', ma' t%us +e considered as an e?ercise of police po3er"
%ssue [2#$ )%et%er R0R*C and Ro+es are entitled to t%e pa'ment of certain rate of interest on t%e stoc:s as a
matter of ri%t 3it%out necessit' of a prior declaration of di-idend"
&eld [2#$ Bot% Section 14 of t%e Corporation &a3 and Section A3 of t%e present Corporation Code pro%i+it
t%e issuance of an' stoc: di-idend 3it%out t%e appro-al of stoc:%olders, representin not less t%an t3o=t%irds
(1G3) of t%e outstandin capital stoc: at a reular or special meetin dul' called for t%e purpose" T%ese
pro-isions underscore t%e fact t%at pa'ment of di-idends to a stoc:%older is not a matter of ri%t +ut a matter
of consensus" 0urt%ermore, Minterest +earin stoc:sM, on 3%ic% t%e corporation arees a+solutel' to pa'
interest +efore di-idends are paid to common stoc:%olders, is leal onl' 3%en construed as re,uirin pa'ment
of interest as di-idends from net earnins or surplus onl'" $n compellin t%e +an: to redeem t%e s%ares and to
pa' t%e correspondin di-idends, t%e Trial committed ra-e a+use of discretion amountin to lac: or e?cess
of Iurisdiction in inorin +ot% t%e terms and conditions specified in t%e stoc: certificate, as 3ell as t%e clear
mandate of t%e la3"
21 Grace C;ristian &i(; 5c;ool vs. Court o, A--eals [GR 10/10. 24 9cto+er 1117#
Second Division, Mendoza (J): ) concur, 1 on leave
Facts$ /race C%ristian Ji% Sc%ool is an educational institution offerin preparator', :inderarten and
secondar' courses at t%e /race #illae in Rue>on Cit'" /race #illae Association, $nc", on t%e ot%er %and, is
an orani>ation of lot andGor +uildin o3ners, lessees and residents at /race #illae, 3%ile AleIandro /"
Beltran and Ernesto &" /o 3ere its president and c%airman of t%e committee on election, respecti-el', in
1..5, 3%en t%is suit 3as +rou%t" As adopted in 1.47, t%e +'=la3s of t%e association pro-ided in Article $#,
t%at Mt%e annual meetin of t%e mem+ers of t%e Association s%all +e %eld on t%e first Sunda' of Januar' in
eac% calendar 'ear at t%e principal office of t%e Association at 1:55 6"(" 3%ere t%e' s%all elect +' pluralit'
-ote and +' secret +allotin, t%e Board of *irectors, composed of 11 mem+ers to ser-e for one 'ear until t%eir
successors are dul' elected and %a-e ,ualified"M $t appears, t%at on 15 *ecem+er 1.89, a committee of t%e
+oard of directors prepared a draft of an amendment to t%e +'=la3s, pro-idin t%at MT%e Annual (eetin of
t%e mem+ers of t%e Association s%all +e %eld on t%e second T%ursda' of Januar' of eac% 'ear" Eac% C%arter or
Associate (em+er of t%e Association is entitled to -ote" Je s%all +e entitled to as man' -otes as %e %as
ac,uired t%ru %is mont%l' mem+ers%ip fees onl' computed on a ratio of TE! (615"55) 6ESOS for one -ote"
T%e C%arter and Associate (em+ers s%all elect t%e *irectors of t%e Association" T%e candidates recei-in t%e
first 1A %i%est num+er of -otes s%all +e declared and proclaimed elected until t%eir successors are elected and
,ualified" /RACE CJR$ST$A! J$/J SCJOO& representati-e is a permanent *irector of t%e
ASSOC$AT$O!"M T%is draft 3as ne-er presented to t%e eneral mem+ers%ip for appro-al" !e-ert%eless, from
1.89, after it 3as presuma+l' su+mitted to t%e +oard, up to 1..5, /race C%ristian Ji% Sc%ool 3as i-en a
permanent seat in t%e +oard of directors of t%e association" On 13 0e+ruar' 1..5, t%e associationDs committee
on election in a letter informed James Tan, principal of t%e sc%ool, t%at Mit 3as t%e sentiment t%at all directors
s%ould +e elected +' mem+ers of t%e associationM +ecause Mto ma:e a person or entit' a permanent *irector
3ould depri-e t%e ri%t of -oters to -ote for 19 mem+ers of t%e Board,M and Mit is undemocratic for a person
or entit' to %old office in perpetuit'"M 0or t%is reason, Tan 3as told t%at Mt%e proposal to ma:e t%e /race
C%ristian Ji% Sc%ool representati-e as a permanent director of t%e association, alt%ou% pre-iousl' tolerated
in t%e past elections s%ould +e ree?amined"M 0ollo3in t%is ad-ice, notices 3ere sent to t%e mem+ers of t%e
association t%at t%e pro-ision on election of directors of t%e 1.47 +'=la3s of t%e association 3ould +e
o+ser-ed" T%e sc%ool re,uested t%e c%airman of t%e election committee to c%ane t%e notice of election +'
follo3in t%e procedure in pre-ious elections, claimin t%at t%e notice issued for t%e 1..5 elections ran
Mcounter to t%e practice in pre-ious 'earsM and 3as Min -iolation of t%e +'=la3s (of 1.89)M and Munla3full'
depri-eBdC /race C%ristian Ji% Sc%ool of its -ested ri%t BtoC a permanent seat in t%e +oard"M As t%e
association denied its re,uest, t%e sc%ool +rou%t suit for mandamus in t%e Jome $nsurance and /uarant'
Corporation to compel t%e +oard of directors of t%e association to reconi>e its ri%t to a permanent seat in t%e
+oard" T%e sc%ool +ased its claim on t%e follo3in portion of t%e proposed amendment 3%ic%, it contended,
%ad +ecome part of t%e +'=la3s of t%e association as Article #$, pararap% 1" $t appears t%at t%e opinion of t%e
Securities and E?c%ane Commission on t%e -alidit' of t%is pro-ision 3as sou%t +' t%e association and t%at
in repl' to t%e ,uer', t%e SEC rendered an opinion to t%e effect t%at t%e practice of allo3in unelected
mem+ers in t%e +oard 3as contrar' to t%e e?istin +'=la3s of t%e association and to V.1 of t%e Corporation
Code" T%e association cited t%e SEC opinion, amon ot%ers, in its ans3er" A preliminar' conference 3as %eld
on 1. (arc% 1..5 +ut not%in su+stantial 3as areed upon" A su+se,uent meetin 3as %eld on 18 April 1..5,
+ut t%e parties failed to reac% an areement" $nstead, t%e +oard adopted a resolution declarin t%e 1.89
pro-ision null and -oid for lac: of appro-al +' mem+ers of t%e association and t%e 1.47 +'=la3s to +e
effecti-e" On 15 June 1..5, t%e %earin officer of t%e J$/C rendered a decision dismissin t%e sc%oolDs
action" T%e appeals +oard of t%e J$/C affirmed t%e decision of t%e %earin officer in its resolution dated 13
Septem+er 1..5" 6etitioner appealed to t%e Court of Appeals +ut t%e sc%ool aain lost as t%e appellate court
on . 0e+ruar' 1..3, affirmed t%e decision of t%e J$/C" T%e sc%ool filed t%e petition for re-ie3"
%ssue$ )%et%er t%e sc%oolDs representati-e s%ould +e elected to %a-e t%e ri%t to sit in t%e +oard of directors of
/race #illae Association, $nc" as a mem+er t%ereof"
&eld$ $t is actuall' VV17 and 1. of t%e Corporation &a3 P V 13 of t%e present la3L not V.1 of t%e present la3
or V1. of t%e former one P 3%ic% re,uire mem+ers of t%e +oards of directors of corporations to +e elected"
T%e +oard of directors of corporations must +e elected from amon t%e stoc:%olders or mem+ers" T%ere ma'
+e corporations in 3%ic% t%ere are unelected mem+ers in t%e +oard +ut it is clear t%at in t%e e?amples cited +'
t%e sc%ool, t%e unelected mem+ers sit as e? officio mem+ers, i"e", +' -irtue of and for as lon as t%e' %old a
particular office" But in t%e case of t%e sc%ool itself, t%ere is no reason at all for its representati-e to +e i-en a
seat in t%e +oard" !or does t%e sc%ool claim a ri%t to suc% seat +' -irtue of an office %eld" $n fact it 3as not
i-en suc% seat in t%e +einnin" $t 3as onl' in 1.89 t%at a proposed amendment to t%e +'=la3s sou%t to
i-e it one" Since t%e pro-ision in ,uestion is contrar' to la3, t%e fact t%at for 19 'ears it %as not +een
,uestioned or c%allened +ut, on t%e contrar', appears to %a-e +een implemented +' t%e mem+ers of t%e
association cannot forestall a later c%allene to its -alidit'" !eit%er can it attain -alidit' t%rou% ac,uiescence
+ecause, if it is contrar' to la3, it is +e'ond t%e po3er of t%e mem+ers of t%e association to 3ai-e its
in-alidit'" 0or t%at matter t%e mem+ers of t%e association ma' %a-e formall' adopted t%e pro-ision in
,uestion, +ut t%eir action 3ould +e of no a-ail +ecause no pro-ision of t%e +'=la3s can +e adopted if it is
contrar' to la3" $t is pro+a+le t%at, in allo3in t%e sc%oolDs representati-e to sit on t%e +oard, t%e mem+ers of
t%e association 3ere not a3are t%at t%is 3as contrar' to la3" $t s%ould +e noted t%at t%e' did not actuall'
implement t%e pro-ision in ,uestion e?cept per%aps insofar as it increased t%e num+er of directors from 11 to
19, +ut certainl' not t%e allo3ance of t%e sc%oolDs representati-e as an unelected mem+er of t%e +oard of
directors" $t is more accurate to sa' t%at t%e mem+ers merel' tolerated t%e sc%oolDs representati-e and
tolerance cannot +e considered ratification" !or can t%e sc%ool claim a -ested ri%t to sit in t%e +oard on t%e
+asis of Mpractice"M 6ractice, no matter %o3 lon continued, cannot i-e rise to an' -ested ri%t if it is
contrar' to la3" E-en less tena+le is t%e sc%oolDs claim t%at its ri%t is Mcoterminus 3it% t%e e?istence of t%e
association"M
22 Go<on(3ei vs. 5ecurities and =6c;an(e Commission [GR *)4.111 11 A-ril 1171#
%n &anc, Antonio (J): 4 concur, 1 concur and reserves his ri'ht to 0ile searation oinion, 1 concurs in result
and reserves his ri'ht to 0ile searate oinion, 1 reserves ri'ht to 0ile searate oinion, 4 0ile a 9oint searate
oinion to 8hich 1 9oined, 1 concurs and dissents in a searate oinion, 1 too* no art$
Facts$ +S%C Case 13<2, On 11 Octo+er 1.84, Jo%n /o:on3ei Jr", as stoc:%older of San (iuel
Corporation, filed 3it% t%e Securities and E?c%ane Commission (SEC) a petition for Mdeclaration of nullit'
of amended +'=la3s, cancellation of certificate of filin of amended +'=la3s, inIunction and damaes 3it%
pra'er for a preliminar' inIunctionM aainst t%e maIorit' of t%e mem+ers of t%e Board of *irectors and San
(iuel Corporation as an un3illin petitioner" As a first cause of action, /o:on3ei alleed t%at on 17
Septem+er 1.84, Andres Soriano, Jr", Jose (" Soriano, Enri,ue Fo+el, Antonio Ro?as, Emeterio BuNao,
)alt%rode B" Conde, (iuel Ortias, and Antonio 6rieto amended +' +'la3s of t%e corporation, +asin t%eir
aut%orit' to do so on a resolution of t%e stoc:%olders adopted on 13 (arc% 1.41, 3%en t%e outstandin capital
stoc: of t%e corporation 3as onl' 685,13."8A5"55, di-ided into 9,913,.8A common s%ares at 615"55 per s%are
and 195,555 preferred s%ares at 6155"55 per s%are" At t%e time of t%e amendment, t%e outstandin and paid up
s%ares totalled 35,118,5A3, 3it% a total par -alue of 6351,185,A35"55" $t 3as contended t%at accordin to
section 11 of t%e Corporation &a3 and Article #$$$ of t%e +'=la3s of t%e corporation, t%e po3er to amend,
modif', repeal or adopt ne3 +'=la3s ma' +e deleated to t%e Board of *irectors onl' +' t%e affirmati-e -ote
of stoc:%olders representin not less t%an 1G3 of t%e su+scri+ed and paid up capital stoc: of t%e corporation,
3%ic% 1G3 s%ould %a-e +een computed on t%e +asis of t%e capitali>ation at t%e time of t%e amendment" Since
t%e amendment 3as +ased on t%e 1.41 aut%ori>ation, /o:on3ei contended t%at t%e Board acted 3it%out
aut%orit' and in usurpation of t%e po3er of t%e stoc:%olders" As a second cause of action, it 3as alleed t%at
t%e aut%orit' ranted in 1.41 %ad alread' +een e?ercised in 1.41 and 1.43, after 3%ic% t%e aut%orit' of t%e
Board ceased to e?ist" As a t%ird cause of action, /o:on3ei a-erred t%at t%e mem+ers%ip of t%e Board of
*irectors %ad c%aned since t%e aut%orit' 3as i-en in 1.41, t%ere +ein 4 ne3 directors" As a fourt% cause of
action, it 3as claimed t%at prior to t%e ,uestioned amendment, /o:o3ei %ad all t%e ,ualifications to +e a
director of t%e corporation, +ein a su+stantial stoc:%older t%ereofL t%at as a stoc:%older, /o:on3ei %ad
ac,uired ri%ts in%erent in stoc: o3ners%ip, suc% as t%e ri%ts to -ote and to +e -oted upon in t%e election of
directorsL and t%at in amendin t%e +'=la3s, Soriano, et" al" purposel' pro-ided for /o:on3eiDs
dis,ualification and depri-ed %im of %is -ested ri%t as afore=mentioned, %ence t%e amended +'=la3s are null
and -oid" As additional causes of action, it 3as alleed t%at corporations %a-e no in%erent po3er to dis,ualif'
a stoc:%older from +ein elected as a director and, t%erefore, t%e ,uestioned act is ultra -ires and -oidL t%at
Andres (" Soriano, Jr" andGor Jose (" Soriano, 3%ile representin ot%er corporations, entered into contracts
(specificall' a manaement contract) 3it% t%e corporation, 3%ic% 3as a-o3ed +ecause t%e ,uestioned
amendment a-e t%e Board itself t%e preroati-e of determinin 3%et%er t%e' or ot%er persons are enaed in
competiti-e or antaonistic +usinessL t%at t%e portion of t%e amended +'=la3s 3%ic% states t%at in determinin
3%et%er or not a person is enaed in competiti-e +usiness, t%e Board ma' consider suc% factors as +usiness
and famil' relations%ip, is unreasona+le and oppressi-e and, t%erefore, -oidL and t%at t%e portion of t%e
amended +'=la3s 3%ic% re,uires t%at Mall nominations for election of directors s%all +e su+mitted in 3ritin
to t%e Board of *irectors at least fi-e (9) 3or:in da's +efore t%e date of t%e Annual (eetinM is li:e3ise
unreasona+le and oppressi-e" $t 3as, t%erefore, pra'ed t%at t%e amended +'=la3s +e declared null and -oid
and t%e certificate of filin t%ereof +e cancelled, and t%at Soriano, et" al" +e made to pa' damaes, in specified
amounts, to /o:on3ei" On 17 Octo+er 1.84, in connection 3it% t%e same case, /o:on3ei filed 3it% t%e
Securities and E?c%ane Commission an M@rent (otion for 6roduction and $nspection of *ocumentsM,
allein t%at t%e Secretar' of t%e corporation refused to allo3 %im to inspect its records despite re,uest made
+' /o:on3ei for production of certain documents enumerated in t%e re,uest, and t%at t%e corporation %ad
+een attemptin to suppress information from its stoc:%olders despite a neati-e repl' +' t%e SEC to its ,uer'
reardin t%eir aut%orit' to do so" T%e motion 3as opposed +' Soriano, et" al" T%e Corporation, Soriano, et"
al" filed t%eir ans3er, and t%eir opposition to t%e petition, respecti-el'" (ean3%ile, on 15 *ecem+er 1.84,
3%ile t%e petition 3as 'et to +e %eard, t%e corporation issued a notice of special stoc:%oldersD meetin for t%e
purpose of Mratification and confirmation of t%e amendment to t%e B'=la3sM, settin suc% meetin for 15
0e+ruar' 1.88" T%is prompted /o:on3ei to as: t%e SEC for a summar' Iudment insofar as t%e first cause
of action is concerned, for t%e alleed reason t%at +' callin a special stoc:%oldersD meetin for t%e aforesaid
purpose, Soriano, et" al" admitted t%e in-alidit' of t%e amendments of 17 Septem+er 1.84" T%e motion for
summar' Iudment 3as opposed +' Soriano, et" al" 6endin action on t%e motion, /o:on3ei filed an
M@rent (otion for t%e $ssuance of a Temporar' Restrainin OrderM, pra'in t%at pendin t%e determination
of /o:on3eiDs application for t%e issuance of a preliminar' inIunction and or /o:on3eiDs motion for
summar' Iudment, a temporar' restrainin order +e issued, restrainin Soriano, et" al" from %oldin t%e
special stoc:%oldersD meetin as sc%eduled" T%is motion 3as dul' opposed +' Soriano, et" al" On 15 0e+ruar'
1.88, Cremation issued an order den'in t%e motion for issuance of temporar' restrainin order" After receipt
of t%e order of denial, Soriano, et" al" conducted t%e special stoc:%oldersD meetin 3%erein t%e amendments to
t%e +'=la3s 3ere ratified" On 1A 0e+ruar' 1.88, /o:on3ei filed a consolidated motion for contempt and for
nullification of t%e special stoc:%oldersD meetin" A motion for reconsideration of t%e order den'in
/o:on3eiDs motion for summar' Iudment 3as filed +' /o:on3ei +efore t%e SEC on 15 (arc% 1.88"
+S%C Case 14)3, /o:on3ei alleed t%at, %a-in disco-ered t%at t%e corporation %as +een in-estin
corporate funds in ot%er corporations and +usinesses outside of t%e primar' purpose clause of t%e corporation,
in -iolation of section 18=1G1 of t%e Corporation &a3, %e filed 3it% SEC, on 15 Januar' 1.88, a petition
see:in to %a-e Andres (" Soriano, Jr" and Jose (" Soriano, as 3ell as t%e corporation declared uilt' of suc%
-iolation, and ordered to account for suc% in-estments and to ans3er for damaes" On A 0e+ruar' 1.88,
motions to dismiss 3ere filed +' Soriano, et" al", to 3%ic% a consolidated motion to stri:e and to declare
Soriano, et" al" in default and an opposition ad a+undantiorem cautelam 3ere filed +' /o:on3ei" *espite t%e
fact t%at said motions 3ere filed as earl' as A 0e+ruar' 1.88, t%e Commission acted t%ereon onl' on 19 April
1.88, 3%en it denied Soriano, et" al"Ds motions to dismiss and a-e t%em t3o (1) da's 3it%in 3%ic% to file
t%eir ans3er, and set t%e case for %earin on April 1. and (a' 3, 1.88" Soriano, et" al" issued notices of t%e
annual stoc:%oldersD meetin, includin in t%e Aenda t%ereof, t%e Mreaffirmation of t%e aut%ori>ation to t%e
Board of *irectors +' t%e stoc:%olders at t%e meetin on 15 (arc% 1.81 to in-est corporate funds in ot%er
companies or +usinesses or for purposes ot%er t%an t%e main purpose for 3%ic% t%e Corporation %as +een
orani>ed, and ratification of t%e in-estments t%ereafter made pursuant t%ereto"M B' reason of t%e foreoin,
on 17 April 1.88, /o:on3ei filed 3it% t%e SEC an urent motion for t%e issuance of a 3rit of preliminar'
inIunction to restrain Soriano, et" al" from ta:in up $tem 4 of t%e Aenda at t%e annual stoc:%oldersD meetin,
re,uestin t%at t%e same +e set for %earin on 3 (a' 1.88, t%e date set for t%e second %earin of t%e case on
t%e merits" T%e SEC, %o3e-er, cancelled t%e dates of %earin oriinall' sc%eduled and reset t%e same to (a'
14 and 18, 1.88, or after t%e sc%eduled annual stoc:%oldersD meetin" 0or t%e purpose of urin t%e
Commission to act, /o:on3ei filed an urent manifestation on 3 (a' 1.88, +ut t%is not3it%standin, no
action %as +een ta:en up to t%e date of t%e filin of t%e instant petition"
/o:on3ei filed a petition for petition for certiorari, mandamus and inIunction, 3it% pra'er for issuance of
3rit of preliminar' inIunction, 3it% t%e Supreme Court, allein t%at t%ere appears a deli+erate and concerted
ina+ilit' on t%e part of t%e SEC to act"
%ssue [1#$ )%et%er t%e corporation %as t%e po3er to pro-ide for t%e (additional) ,ualifications of its directors"
&eld [1#$ $t is reconi>ed +' all aut%orities t%at Me-er' corporation %as t%e in%erent po3er to adopt +'=la3s
Dfor its internal o-ernment, and to reulate t%e conduct and prescri+e t%e ri%ts and duties of its mem+ers
to3ards itself and amon t%emsel-es in reference to t%e manaement of its affairs"DM $n t%is Iurisdiction under
section 11 of t%e Corporation &a3, a corporation ma' prescri+e in its +'=la3s Mt%e ,ualifications, duties and
compensation of directors, officers and emplo'ees"M T%is must necessaril' refer to a ,ualification in addition
to t%at specified +' section 35 of t%e Corporation &a3, 3%ic% pro-ides t%at Me-er' director must o3n in %is
ri%t at least one s%are of t%e capital stoc: of t%e stoc: corporation of 3%ic% %e is a director"M An' person
M3%o +u's stoc: in a corporation does so 3it% t%e :no3lede t%at its affairs are dominated +' a maIorit' of
t%e stoc:%olders and t%at %e impliedl' contracts t%at t%e 3ill of t%e maIorit' s%all o-ern in all matters 3it%in
t%e limits of t%e act of incorporation and la3full' enacted +'=la3s and not for+idden +' la3"M To t%is e?tent,
t%erefore, t%e stoc:%older ma' +e considered to %a-e Mparted 3it% %is personal ri%t or pri-ilee to reulate
t%e disposition of %is propert' 3%ic% %e %as in-ested in t%e capital stoc: of t%e corporation, and surrendered it
to t%e 3ill of t%e maIorit' of %is fello3 incorporators" $t can not t%erefore +e Iustl' said t%at t%e contract,
e?press or implied, +et3een t%e corporation and t%e stoc:%olders is infrined +' an' act of t%e former 3%ic%
is aut%ori>ed +' a maIorit'"M 6ursuant to section 17 of t%e Corporation &a3, an' corporation ma' amend its
articles of incorporation +' a -ote or 3ritten assent of t%e stoc:%olders representin at least t3o=t%irds of t%e
su+scri+ed capital stoc: of t%e corporation" $f t%e amendment c%anes, diminis%es or restricts t%e ri%ts of t%e
e?istin s%are%olders, t%en t%e dissentin minorit' %as onl' one ri%t, -i>": Mto o+Iect t%ereto in 3ritin and
demand pa'ment for %is s%are"M @nder section 11 of t%e same la3, t%e o3ners of t%e maIorit' of t%e
su+scri+ed capital stoc: ma' amend or repeal an' +'=la3 or adopt ne3 +'=la3s" $t cannot +e said, t%erefore,
t%at /o:on3ei %as a -ested ri%t to +e elected director, in t%e face of t%e fact t%at t%e la3 at t%e time suc%
ri%t as stoc:%older 3as ac,uired contained t%e prescription t%at t%e corporate c%arter and t%e +'=la3 s%all +e
su+Iect to amendment, alteration and modification"
%ssue [2#$ )%et%er t%e dis,ualification of a competitor from +ein elected to t%e Board of *irectors is a
reasona+le e?ercise of corporate aut%orit'"
&eld[2#$ Alt%ou% in t%e strict and tec%nical sense, directors of a pri-ate corporation are not rearded as
trustees, t%ere cannot +e an' dou+t t%at t%eir c%aracter is t%at of a fiduciar' insofar as t%e corporation and t%e
stoc:%olders as a +od' are concerned" As aents entrusted 3it% t%e manaement of t%e corporation for t%e
collecti-e +enefit of t%e stoc:%olders, Mt%e' occup' a fiduciar' relation, and in t%is sense t%e relation is one of
trust"M MT%e ordinar' trust relations%ip of directors of a corporation and stoc:%olders is not a matter of
statutor' or tec%nical la3" $t sprins from t%e fact t%at directors %a-e t%e control and uidance of corporate
affairs and propert' and %ence of t%e propert' interests of t%e stoc:%olders" E,uit' reconi>es t%at
stoc:%olders are t%e proprietors of t%e corporate interests and are ultimatel' t%e onl' +eneficiaries t%ereof"M A
director is a fiduciar'" T%eir po3ers are po3ers in trust" Je 3%o is in suc% fiduciar' position cannot ser-e
%imself first and %is cestuis second" Je cannot manipulate t%e affairs of %is corporation to t%eir detriment and
in disreard of t%e standards of common decenc'" Je cannot +' t%e inter-ention of a corporate entit' -iolate
t%e ancient precept aainst ser-in t3o masters" Je cannot utili>e %is inside information and strateic position
for %is o3n preferment" Je cannot -iolate rules of fair pla' +' doin indirectl' t%rou% t%e corporation 3%at
%e could not do so directl'" Je cannot -iolate rules of fair pla' +' doin indirectl' t%rou% t%e corporation
3%at %e could not do so directl'" Je cannot use %is po3er for %is personal ad-antae and to t%e detriment of
t%e stoc:%olders and creditors no matter %o3 a+solute in terms t%at po3er ma' +e and no matter %o3
meticulous %e is to satisf' tec%nical re,uirements" 0or t%at po3er is at all times su+Iect to t%e e,uita+le
limitation t%at it ma' not +e e?ercised for t%e arandi>ement, preference, or ad-antae of t%e fiduciar' to t%e
e?clusion or detriment of t%e cestuis" T%e doctrine of Mcorporate opportunit'M is precisel' a reconition +'
t%e courts t%at t%e fiduciar' standards could not +e up%eld 3%ere t%e fiduciar' 3as actin for t3o entities 3it%
competin interests" T%is doctrine rests fundamentall' on t%e unfairness, in particular circumstances, of an
officer or director ta:in ad-antae of an opportunit' for %is o3n personal profit 3%en t%e interest of t%e
corporation Iustl' calls for protection" $t is not denied t%at a mem+er of t%e Board of *irectors of t%e San
(iuel Corporation %as access to sensiti-e and %i%l' confidential information, suc% as: (a) mar:etin
strateies and pricin structureL (+) +udet for e?pansion and di-ersificationL (c) researc% and de-elopmentL
and (d) sources of fundin, a-aila+ilit' of personnel, proposals of merers or tie=ups 3it% ot%er firms" $t is
o+-iousl' to pre-ent t%e creation of an opportunit' for an officer or director of San (iuel Corporation, 3%o
is also t%e officer or o3ner of a competin corporation, from ta:in ad-antae of t%e information 3%ic% %e
ac,uires as director to promote %is indi-idual or corporate interests to t%e preIudice of San (iuel
Corporation and its stoc:%olders, t%at t%e ,uestioned amendment of t%e +'=la3s 3as made" Certainl', 3%ere
t3o corporations are competiti-e in a su+stantial sense, it 3ould seem impro+a+le, if not impossi+le, for t%e
director, if %e 3ere to disc%are effecti-el' %is dut', to satisf' %is lo'alt' to +ot% corporations and place t%e
performance of %is corporation duties a+o-e %is personal concerns" T%e offer and assurance of /o:on3ei
t%at to a-oid an' possi+ilit' of %is ta:in unfair ad-antae of %is position as director of San (iuel
Corporation, %e 3ould a+sent %imself from meetins at 3%ic% confidential matters 3ould +e discussed, 3ould
not detract from t%e -alidit' and reasona+leness of t%e +'=la3s in-ol-ed" Apart from t%e impractical results
t%at 3ould ensue from suc% arranement, it 3ould +e inconsistent 3it% /o:on3eiDs primar' moti-e in
runnin for +oard mem+ers%ip P 3%ic% is to protect %is in-estments in San (iuel Corporation" (ore
important, suc% a proposed norm of conduct 3ould +e aainst all accepted principles underl'in a directorDs
dut' of fidelit' to t%e corporation, for t%e polic' of t%e la3 is to encourae and enforce responsi+le corporate
manaement"
%ssue [4#$ )%et%er t%e SEC ra-el' a+used its discretion in den'in /o:on3eiDs re,uest for an e?amination
of t%e records of San (iuel $nternational, $nc", a full' o3ned su+sidiar' of San (iuel Corporation"
&eld [4#$ 6ursuant to t%e second pararap% of section 91 of t%e Corporation &a3, M(t)%e record of all +usiness
transactions of t%e corporation and minutes of an' meetin s%all +e open to t%e inspection of an' director,
mem+er or stoc:%older of t%e corporation at reasona+le %ours"M T%e stoc:%olderDs ri%t of inspection of t%e
corporationDs +oo:s and records is +ased upon t%eir o3ners%ip of t%e assets and propert' of t%e corporation" $t
is, t%erefore, an incident of o3ners%ip of t%e corporate propert', 3%et%er t%is o3ners%ip or interest +e termed
an e,uita+le o3ners%ip, a +eneficial o3ners%ip, or a ,uasi=o3ners%ip" T%is ri%t is predicated upon t%e
necessit' of self=protection" $t is enerall' %eld +' maIorit' of t%e courts t%at 3%ere t%e ri%t is ranted +'
statute to t%e stoc:%older, it is i-en to %im as suc% and must +e e?ercised +' %im 3it% respect to %is interest
as a stoc:%older and for some purpose ermane t%ereto or in t%e interest of t%e corporation" $n ot%er 3ords,
t%e inspection %as to +e ermane to t%e petitionerDs interest as a stoc:%older, and %as to +e proper and la3ful
in c%aracter and not inimical to t%e interest of t%e corporation" T%e Meneral rule t%at stoc:%olders are entitled
to full information as to t%e manaement of t%e corporation and t%e manner of e?penditure of its funds, and to
inspection to o+tain suc% information, especiall' 3%ere it appears t%at t%e compan' is +ein mismanaed or
t%at it is +ein manaed for t%e personal +enefit of officers or directors or certain of t%e stoc:%olders to t%e
e?clusion of ot%ers"M )%ile t%e ri%t of a stoc:%older to e?amine t%e +oo:s and records of a corporation for a
la3ful purpose is a matter of la3, t%e ri%t of suc% stoc:%older to e?amine t%e +oo:s and records of a 3%oll'=
o3ned su+sidiar' of t%e corporation in 3%ic% %e is a stoc:%older is a different t%in" Stoc:%olders are entitled
to inspect t%e +oo:s and records of a corporation in order to in-estiate t%e conduct of t%e manaement,
determine t%e financial condition of t%e corporation, and enerall' ta:e an account of t%e ste3ards%ip of t%e
officers and directors" %erein, considerin t%at t%e forein su+sidiar' is 3%oll' o3ned +' San (iuel
Corporation and, t%erefore, under $ts control, it 3ould +e more in accord 3it% e,uit', ood fait% and fair
dealin to construe t%e statutor' ri%t of petitioner as stoc:%older to inspect t%e +oo:s and records of t%e
corporation as e?tendin to +oo:s and records of suc% 3%oll' o3ned su+sidiar' 3%ic% are in t%e corporationDs
possession and control"
%ssue [4#$ )%et%er t%e SEC ra-el' a+used its discretion in allo3in t%e stoc:%olders of San (iuel
Corporation to ratif' t%e in-estment of corporate funds in a forein corporation"
&eld [4#$ Section 18=1G1 of t%e Corporation &a3 allo3s a corporation to Min-est its funds in an' ot%er
corporation or +usiness or for an' purpose ot%er t%an t%e main purpose for 3%ic% it 3as orani>edM pro-ided
t%at its Board of *irectors %as +een so aut%ori>ed +' t%e affirmati-e -ote of stoc:%olders %oldin s%ares
entitlin t%em to e?ercise at least t3o=t%irds of t%e -otin po3er" $f t%e in-estment is made in pursuance of t%e
corporate purpose, it does not need t%e appro-al of t%e stoc:%olders" $t is onl' 3%en t%e purc%ase of s%ares is
done solel' for in-estment and not to accomplis% t%e purpose of its incorporation t%at t%e -ote of appro-al of
t%e stoc:%olders %oldin s%ares entitlin t%em to e?ercise at least t3o=t%irds of t%e -otin po3er is necessar'"
As stated +' t%e corporation, t%e purc%ase of +eer manufacturin facilities +' S(C 3as an in-estment in t%e
same +usiness stated as its main purpose in its Articles of $ncorporation, 3%ic% is to manufacture and mar:et
+eer" $t appears t%at t%e oriinal in-estment 3as made in 1.A8=1.A7, 3%en S(C, t%en San (iuel Bre3er',
$nc", purc%ased a +eer +re3er' in Jon:on (Jon:on Bre3er' K *istiller', &td") for t%e manufacture and
mar:etin of San (iuel +eer t%ereat" Restructurin of t%e in-estment 3as made in 1.85=1.81 t%ru t%e
orani>ation of S($ in Bermuda as a ta? free reorani>ation" Assumin aruendo t%at t%e Board of *irectors
of S(C %ad no aut%orit' to ma:e t%e assailed in-estment, t%ere is no ,uestion t%at a corporation, li:e an
indi-idual, ma' ratif' and t%ere+' render +indin upon it t%e oriinall' unaut%ori>ed acts of its officers or
ot%er aents" T%is is true +ecause t%e ,uestioned in-estment is neit%er contrar' to la3, morals, pu+lic order or
pu+lic polic'" $t is a corporate transaction or contract 3%ic% is 3it%in t%e corporate po3ers, +ut 3%ic% is
defecti-e from a purported failure to o+ser-e in its e?ecution t%e re,uirement of t%e la3 t%at t%e in-estment
must +e aut%ori>ed +' t%e affirmati-e -ote of t%e stoc:%olders %oldin t3o=t%irds of t%e -otin po3er" T%is
re,uirement is for t%e +enefit of t%e stoc:%olders" T%e stoc:%olders for 3%ose +enefit t%e re,uirement 3as
enacted ma', t%erefore, ratif' t%e in-estment and its ratification +' said stoc:%olders o+literates an' defect
3%ic% it ma' %a-e %ad at t%e outset" Besides, t%e in-estment 3as for t%e purc%ase of +eer manufacturin and
mar:etin facilities 3%ic% is apparentl' rele-ant to t%e corporate purpose" T%e mere fact t%at t%e corporation
su+mitted t%e assailed in-estment to t%e stoc:%olders for ratification at t%e annual meetin of 15 (a' 1.88
cannot +e construed as an admission t%at t%e corporation %ad committed an ultra -ires act, considerin t%e
common practice of corporations of periodicall' su+mittin for t%e ratification of t%eir stoc:%olders t%e acts
of t%eir directors, officers and manaers"
24 Aestern %nstitute o, 8ec;nolo(" %nc. vs. 5alas [GR 114042 21 Au(ust 1117#
First Division, "er#osisi#a Jr$ (J): 4 concur
Facts$ Ricardo T" Salas, Sal-ador T" Salas, Soledad Salas=Tu+illeIa, Antonio S" Salas, and Ric%ard S" Salas,
+elonin to t%e same famil', are t%e maIorit' and controllin mem+ers of t%e Board of Trustees of )estern
$nstitute of Tec%nolo', $nc" ()$T), a stoc: corporation enaed in t%e operation, amon ot%ers, of an
educational institution" Accordin to Jomero &" #illasis, *imas Enri,ue>, peston 0" #illasis, and Reinald 0"
#illasis, t%e minorit' stoc:%olders of )$T, sometime on 1 June 1.74 in t%e principal office of )$T at &a 6a>,
$loilo Cit', a Special Board (eetin 3as %eld" $n attendance 3ere ot%er mem+ers of t%e Board includin
Reinald #illasis" 6rior to said Special Board (eetin, copies of notice t%ereof, dated 1A (a' 1.74, 3ere
distri+uted to all Board (em+ers" T%e notice alleedl' indicated t%at t%e meetin to +e %eld on 1 June 1.74
included $tem 4 3%ic% states t%at M6ossi+le implementation of Art" $$$, Sec" 4 of t%e Amended B'=&a3s of
)estern $nstitute of Tec%nolo', $nc" on compensation of all officers of t%e corporation"M $n said meetin, t%e
Board of Trustees passed Resolution A7, series 1.74, rantin mont%l' compensation to Salas, et" al" as
corporate officers retroacti-e 1 June 1.79, in t%e follo3in amounts: ;C%airman .,555"55Gmont%, #ice
C%airman 63,955"55Gmont%, Corporate Treasurer 63,955"55Gmont% and Corporate Secretar' 63,955"55Gmont%,
retroacti-e June 1, 1.79 and t%e ten percentum of t%e net profits s%all +e distri+uted e,uall' amon t%e ten
mem+ers of t%e Board of Trustees" T%is s%all amend and supercede an' pre-ious resolution"< A fe3 'ears
later, or on 13 (arc% 1..1, Jomero #illasis, 6reston #illasis, Reinald #illasis and *imas Enri,ue> filed an
affida-it=complaint aainst Salas, et" al" +efore t%e Office of t%e Cit' 6rosecutor of $loilo, as a result of 3%ic%
1 separate criminal informations, one for falsification of a pu+lic document under Article 181 of t%e Re-ised
6enal Code and t%e ot%er for estafa under Article 319, par" 1(+) of t%e R6C, 3ere filed +efore Branc% 33 of t%e
Reional Trial Court of $loilo Cit'" T%e c%are for falsification of pu+lic document 3as anc%ored on Salas,
et" al"Ds su+mission of )$TDs income statement for t%e fiscal 'ear 1.79=1.74 3it% t%e Securities and E?c%ane
Commission (SEC) reflectin t%erein t%e dis+ursement of corporate funds for t%e compensation of Salas, et"
al" +ased on Resolution A, series of 1.74, ma:in it appear t%at t%e same 3as passed +' t%e +oard on 35
(arc% 1.74, 3%en in trut%, t%e same 3as actuall' passed on 1 June 1.74, a date not co-ered +' t%e
corporationDs fiscal 'ear 1.79=1.74 (+einnin (a' 1, 1..9 and endin April 35, 1.74)" T%ereafter, trial for
t%e t3o criminal cases (Criminal Cases 385.8 and 385.7), 3as consolidated" After a full=+lo3n %earin,
Jude 6orfirio 6arian %anded do3n a -erdict of ac,uittal on +ot% counts dated 4 Septem+er 1..3 3it%out
imposin an' ci-il lia+ilit' aainst t%e accused t%erein" #illasis, et" al" filed a (otion for Reconsideration of
t%e ci-il aspect of t%e RTC *ecision 3%ic% 3as, %o3e-er, denied in an Order dated 13 !o-em+er 1..3"
#illasis, et" al" filed t%e petition for re-ie3 on certiorari" Sinificantl' on 7 *ecem+er 1..A, a (otion for
$nter-ention, dated 1 *ecem+er 1..A, 3as filed +efore t%is Court +' )estern $nstitute of Tec%nolo', $nc",
diso3nin its inclusion in t%e petition and su+mittin t%at Att'" Tran,uilino R" /ale, counsel for #illasis, et"
al", %ad no aut%orit' 3%atsoe-er to represent t%e corporation in filin t%e petition" $nter-enor li:e3ise pra'ed
for t%e dismissal of t%e petition for +ein utterl' 3it%out merit" T%e (otion for $nter-ention 3as ranted on
14 Januar' 1..9"
%ssue$ )%et%er t%e rant of compensation to Salas, et" al" is proscri+ed under Section 35 of t%e Corporation
Code"
&eld$ *irectors or trustees, as t%e case ma' +e, are not entitled to salar' or ot%er compensation 3%en t%e'
perform not%in more t%an t%e usual and ordinar' duties of t%eir office" T%is rule is founded upon a
presumption t%at directorsGtrustees render ser-ice ratuitousl', and t%at t%e return upon t%eir s%ares ade,uatel'
furnis%es t%e moti-es for ser-ice, 3it%out compensation" @nder Section 35 of t%e Corporation Code, t%ere are
onl' t3o (1) 3a's +' 3%ic% mem+ers of t%e +oard can +e ranted compensation apart from reasona+le per
diems: (1) 3%en t%ere is a pro-ision in t%e +'=la3s fi?in t%eir compensationL and (1) 3%en t%e stoc:%olders
representin a maIorit' of t%e outstandin capital stoc: at a reular or special stoc:%oldersD meetin aree to
i-e it to t%em" Also, t%e proscription, %o3e-er, aainst rantin compensation to directorGtrustees of a
corporation is not a s3eepin rule" )ort%' of note is t%e clear p%raseolo' of Section 35 3%ic% state: MBTC%e
directors s%all not recei-e an' compensation, as suc% directors"M T%e p%rase as suc% directors is not 3it%out
sinificance for it delimits t%e scope of t%e pro%i+ition to compensation i-en to t%em for ser-ices performed
purel' in t%eir capacit' as directors or trustees" T%e unam+iuous implication is t%at mem+ers of t%e +oard
ma' recei-e compensation, in addition to reasona+le per diems, 3%en t%e' render ser-ices to t%e corporation
in a capacit' ot%er t%an as directorsGtrustees" Jerein, resolution A7, s" 1.74 ranted mont%l' compensation to
Salas, et" al" not in t%eir capacit' as mem+ers of t%e +oard, +ut rat%er as officers of t%e corporation, more
particularl' as C%airman, #ice=C%airman, Treasurer and Secretar' of )estern $nstitute of Tec%nolo'" Clearl',
t%erefore, t%e pro%i+ition 3it% respect to rantin compensation to corporate directorsGtrustees as suc% under
Section 35 is not -iolated in t%is particular case" Conse,uentl', t%e last sentence of Section 35 3%ic% pro-ides
t%at M$n no case s%all t%e total 'earl' compensation of directors, as suc% directors, e?ceed ten (15H) percent
of t%e net income +efore income ta? of t%e corporation durin t%e precedin 'earM does not li:e3ise find
application in t%is case since t%e compensation is +ein i-en to Salas, et" al" in t%eir capacit' as officers of
)$T and not as +oard mem+ers"
24 Nac-il vs. %nternational Broadcastin( Cor-oration [GR 144707 21 'arc; 2002#
First Division, 3aunan (J): ) concur, 1 on o00icial leave
Facts$ *il' *an' !acpil states t%at %e 3as Assistant /eneral (anaer for 0inanceGAdministration and
Comptroller of $ntercontinental Broadcastin Corporation ($BC) from 1..4 until April 1..8" Accordin to
!acpil, 3%en Emiliano Templo 3as appointed to replace $BC 6resident Tomas /ome> $$$ sometime in (arc%
1..8, t%e former told t%e Board of *irectors t%at as soon as %e assumes t%e $BC presidenc', %e 3ould
terminate t%e ser-ices of !acpil" Apparentl', Templo +lamed !acpil, alon 3it% a certain (r" Basilio and (r"
/ome>, for t%e prior mismanaement of $BC" @pon %is assumption of t%e $BC presidenc', Templo alleedl'
%arassed, insulted, %umiliated and pressured !acpil into resinin until t%e latter 3as forced to retire"
Jo3e-er, Templo refused to pa' %im %is retirement +enefits, alleedl' +ecause %e %ad not 'et secured t%e
clearances from t%e 6residential Commission on /ood /o-ernment (6C//) and t%e Commission on Audit
(COA)" 0urt%ermore, Templo alleedl' refused to reconi>e !acpilDs emplo'ment, claimin t%at !acpil 3as
not t%e Assistant /eneral (anaerGComptroller of $BC +ut merel' usurped t%e po3ers of t%e Comptroller"
Jence, in 1..8, !acpil filed 3it% t%e &a+or Ar+iter a complaint for illeal dismissal and non=pa'ment of
+enefits" $nstead of filin its position paper, $BC filed a motion to dismiss allein t%at t%e &a+or Ar+iter %ad
no Iurisdiction o-er t%e case" $BC contended t%at !acpil 3as a corporate officer 3%o 3as dul' elected +' t%e
Board of *irectors of $BCL %ence, t%e case ,ualities as an intra=corporate dispute fallin 3it%in t%e
Iurisdiction of t%e Securities and E?c%ane Commission (SEC)" Jo3e-er, t%e motion 3as denied +' t%e
&a+or Ar+iter in an Order dated 11 April 1..7" On 11 Auust 1..7, t%e &a+or Ar+iter rendered a *ecision
statin t%at !acpil %ad +een illeall' dismissed" $BC 3as ordered (1) to reinstate !acpil to %is former
position 3it%out diminution of salar' or loss of seniorit' ri%ts, and 3it% full +ac:3aes computed from t%e
time of %is illeal dismissal on (a' 14, 1..8 up to t%e time of %is actual reinstatement 3%ic% is tentati-el'
computed as of t%e date of t%is decision on Auust 11, 1..7 in t%e amount of 61,131,895"55L and t%at s%ould
!acpil +e not reinstated 3it%in 15 da's from receipt of t%is decision, %e s%all +e entitled to additional
+ac:3aes until actuall' reinstatedL and (1) to pa' !acpil 61 (illion as and for moral damaes, 6955,555"55
as and for e?emplar' damaes, and 15H t%ereof as and for attorne'Ds fees" $BC appealed to t%e !&RC, +ut t%e
same 3as dismissed in a Resolution dated 1 (arc% 1..., for its failure to file t%e re,uired appeal +ond in
accordance 3it% Article 113 of t%e &a+or Code" $BC t%en filed a motion for reconsideration t%at 3as li:e3ise
denied in a Resolution dated 14 April 1..." $BC t%en filed 3it% t%e Court of Appeals a petition for certiorari
under Rule 49, 3%ic% petition 3as ranted +' t%e appellate court in its *ecision dated 13 !o-em+er 1..."
!acpil t%en filed a motion for reconsideration, 3%ic% 3as denied +' t%e appellate court in a Resolution dated
31 Auust 1555" !acpil filed t%e petition for re-ie3 on certiorari"
%ssue [1#$ )%et%er t%e SEC or t%e !&RC %as Iurisdiction o-er t%e !acpil2s alleed illeal dismissal"
&eld [1#$ As !acpilDs appointment as comptroller re,uired t%e appro-al and formal action of t%e $BCDs Board
of *irectors to +ecome -alid, 18 it is clear t%erefore %olds t%at !acpil is a corporate officer 3%ose dismissal
ma' +e t%e su+Iect of a contro-ers' coni>a+le +' t%e SEC under Section 9(c) of 6* .51=A 3%ic% includes
contro-ersies in-ol-in +ot% election and appointment of corporate directors, trustees, officers, and manaers
Jad !acpil +een an ordinar' emplo'ee, suc% +oard action 3ould not %a-e +een re,uired" T%us, since !acpil
is considered a corporate officer and %is claim of illeal dismissal is a contro-ers' t%at falls under t%e
Iurisdiction of t%e SEC as contemplated +' Section 9 of 6* .51=A" T%e rule is t%at dismissal or non=
appointment of a corporate officer is clearl' an intra=corporate matter and Iurisdiction o-er t%e case properl'
+elons to t%e SEC, not to t%e !&RC" As to t%e arument t%at t%e nature of %is functions is recommendator'
t%ere+' ma:in %im a mere manaerial officer, t%e Court %as pre-iousl' %eld t%at t%e relations%ip of a person
to a corporation, 3%et%er as officer or aent or emplo'ee is not determined +' t%e nature of t%e ser-ices
performed, +ut instead +' t%e incidents of t%e relations%ip as t%e' actuall' e?ist"
%ssue [2#$ )%et%er t%e inclusion of mone' claims in !acpil2s complaint for illeal dismissal remo-es t%e case
from t%e am+it of t%e Corporation Code"
&eld [2#$ $t is of no conse,uence t%at !acpilDs complaint for illeal dismissal includes mone' claims, for
suc% claims are actuall' part of t%e per,uisites of %is position in, and t%erefore lin:ed 3it% %is relations 3it%,
t%e corporation" T%e inclusion of suc% mone' claims does not con-ert t%e issue into a simple la+or pro+lem"
Clearl', t%e issues raised +' !acpil aainst t%e $BC are matters t%at come 3it%in t%e area of corporate affairs
and manaement, and constitute a corporate contro-ers' in contemplation of t%e Corporation Code"
(Note: =nder Section 2$) o0 the Securities >e'ulation Code (>eu.lic Act ?<@@) 8hich 8as si'ned into la8
.! then /resident Joseh %9ercito %strada on 1? Jul! )AAA, the S%CBs 9urisdiction over all cases enu#erated
in Section 2 o0 /D @A)5A has .een trans0erred to the >e'ional Trial Courts$)
2. :eo-leBs Aircar(o and Aare;ousin( Co. %nc. vs. Court o, A--eals [GR 117/47 7 9cto+er 111/#
First Division, /an'ani.an (J): 4 concur
Facts$ 6eopleDs Aircaro and )are%ousin Co" $nc" (6A)C$) is a domestic corporation, 3%ic% 3as orani>ed
in t%e middle of 1.74 to operate a customs +onded 3are%ouse at t%e old (anila $nternational Airport in 6asa'
Cit'" To o+tain a license for t%e corporation from t%e Bureau of Customs, Antonio 6unsalan Jr", t%e
corporation president, solicited a proposal from Stefani SaNo for t%e preparation of a feasi+ilit' stud'" SaNo
su+mitted a letter=proposal dated 18 Octo+er 1.74 (M0irst ContractM) to 6unsalan, for t%e proIect feasi+ilit'
stud' (mar:et, tec%nical, and financial feasi+ilit') and preparation of pertinent documentation re,uirements
for t%e application, 3ort% 6395,555" $nitiall', C%en Oon, t%e maIorit' stoc:%older of 6A)C$, o+Iected to
SaNoDs offer, as anot%er compan' priced a similar proposal at onl' 619,555" Jo3e-er, 6unsalan preferred
SaNoDs ser-ices +ecause of t%e latterDs mem+ers%ip in t%e tas: force, 3%ic% 3as super-isin t%e transition of
t%e Bureau of Customs from t%e (arcos o-ernment to t%e A,uino Administration" On 18 Octo+er 1.74,
6A)C$, t%rou% 6unsalan, sent SaNo a letter confirmin t%eir areement" Accordinl', SaNo prepared a
feasi+ilit' stud' for 6A)C$ 3%ic% e-entuall' paid %im t%e +alance of t%e contract price, alt%ou% not
accordin to t%e sc%edule areed upon" On A *ecem+er 1.74, upon 6unsalanDs re,uest, SaNo sent 6A)C$
anot%er letter=proposal (MSecond ContractM) formali>in its proposal for consultanc' ser-ices in t%e amount of
6A55,555" On 15 Januar' 1.78, And' #illaceren, -ice president of 6A)C$, recei-ed t%e operations manual
prepared +' SaNo" 6A)C$ su+mitted said operations manual to t%e Bureau of Customs in connection 3it% t%e
formerDs application to operate a +onded 3are%ouseL t%ereafter, in (a' 1.78, t%e Bureau issued to it a license
to operate, ena+lin it to +ecome one of t%e t%ree pu+lic customs +onded 3are%ouses at t%e international
airport" SaNo also conducted, in t%e t%ird 3ee: of Januar' 1.78 in t%e 3are%ouse of 6A)C$, a t%ree=da'
trainin seminar for t%e latterDs emplo'ees" On 19 (arc% 1.78, SaNo Ioined t%e Bureau of Customs as special
assistant to t%en Commissioner Ale? 6adilla, a position %e %eld until %e +ecame tec%nical assistant to t%en
Commissioner (iriam *efensor=Santiao on 8 (arc% 1.77" (ean3%ile, 6unsalan sold %is s%ares in 6A)C$
and resined as its president in 1.78" On . 0e+ruar' 1.77, SaNo filed a collection suit aainst 6A)C$" Je
alleed t%at %e %ad prepared an operations manual for 6A)C$, conducted a seminar=3or:s%op for its
emplo'ees and deli-ered to it a computer proramL +ut t%at, despite demand, 6A)C$ refused to pa' %im for
%is ser-ices" 6A)C$, in its ans3er, denied t%at SaNo %ad prepared an operations manual and a computer
proram or conducted a seminar=3or:s%op for its emplo'ees" $t furt%er alleed t%at t%e letter=areement 3as
sined +' 6unsalan 3it%out aut%orit', in collusion 3it% SaNo in order to unla3full' et some mone' from
6A)C$, and despite %is :no3lede t%at a roup of emplo'ees of t%e compan' %ad +een commissioned +' t%e
+oard of directors to prepare an operations manual" T%e Reional Trial Court (RTC) of 6asa' Cit', Branc%
115, rendered a *ecision dated 14 Octo+er 1..5 declared t%e Second Contract unenforcea+le or simulated"
Jo3e-er, since SaNo %ad actuall' prepared t%e operations manual and conducted a trainin seminar for
6A)C$ and its emplo'ees, t%e trial court a3arded 645,555 to t%e former, on t%e round t%at no one s%ould +e
unIustl' enric%ed at t%e e?pense of anot%er (Article 11A1, Ci-il Code)" T%e trial Court determined t%e amount
Min li%t of t%e e-idence presented +' defendant on t%e usual c%ares made +' a leadin consultanc' firm on
similar ser-ices"M @pon appeal, and on 17 0e+ruar' 1..A, t%e appellate court modified t%e decision of t%e trial
court, and declared t%e Second Contract -alid and +indin on 6A)C$, 3%ic% 3as %eld lia+le to SaNo in t%e
full amount of 6A55,555, representin pa'ment of SaNo ser-ices in preparin t%e manual of operations and in
t%e conduct of a seminar for 6A)C$" As no ne3 round 3as raised +' 6A)C$, reconsideration of t%e
decision 3as denied in t%e Resolution promulated on 17 Octo+er 1..A" 6A)C$ filed t%e 6etition for Re-ie3"
%ssue$ )%et%er a sinle instance 3%ere t%e corporation %ad pre-iousl' allo3ed its president to enter into a
contract 3it% anot%er 3it%out a +oard resolution e?pressl' aut%ori>in %im, %as clot%ed its president 3it%
apparent aut%orit' to e?ecute t%e su+Iect contract"
&eld$ Apparent aut%orit' is deri-ed not merel' from practice" $ts e?istence ma' +e ascertained t%rou% (1)
t%e eneral manner in 3%ic% t%e corporation %olds out an officer or aent as %a-in t%e po3er to act or, in
ot%er 3ords, t%e apparent aut%orit' to act in eneral, 3it% 3%ic% it clot%es %imL or (1) t%e ac,uiescence in %is
acts of a particular nature, 3it% actual or constructi-e :no3lede t%ereof, 3%et%er 3it%in or +e'ond t%e scope
of %is ordinar' po3ers" $t re,uires presentation of e-idence of similar act(s) e?ecuted eit%er in its fa-or or in
fa-or of ot%er parties" $t is not t%e ,uantit' of similar acts 3%ic% esta+lis%es apparent aut%orit', +ut t%e -estin
of a corporate officer 3it% t%e po3er to +ind t%e corporation" Jerein, 6A)C$, t%rou% its president Antonio
6unsalan Jr", entered into t%e 0irst Contract 3it%out first securin +oard appro-al" *espite suc% lac: of +oard
appro-al, 6A)C$ did not o+Iect to or repudiate said contract, t%us Mclot%inM its president 3it% t%e po3er to
+ind t%e corporation" T%e rant of apparent aut%orit' to 6unsalan is e-ident in t%e testimon' of Oon P senior
-ice president, treasurer and maIor stoc:%older of 6A)C$" T%e 0irst Contract 3as consummated,
implemented and paid 3it%out a %itc%" Jence, Sano s%ould not +e faulted for +elie-in t%at 6unsalanDs
conformit' to t%e contract in dispute 3as also +indin on petitioner" $t is familiar doctrine t%at if a corporation
:no3inl' permits one of its officers, or an' ot%er aent, to act 3it%in t%e scope of an apparent aut%orit', it
%olds %im out to t%e pu+lic as possessin t%e po3er to do t%ose actsL and t%us, t%e corporation 3ill, as aainst
an'one 3%o %as in ood fait% dealt 3it% it t%rou% suc% aent, +e estopped from den'in t%e aentDs aut%orit'"
0urt%ermore, SaNo prepared an operations manual and conducted a seminar for t%e emplo'ees of 6A)C$ in
accordance 3it% t%eir contract" 6A)C$ accepted t%e operations manual, su+mitted it to t%e Bureau of
Customs and allo3ed t%e seminar for its emplo'ees" As a result of its aforementioned actions, 6A)C$ 3as
i-en +' t%e Bureau of Customs a license to operate a +onded 3are%ouse" /rantin aruendo t%en t%at t%e
Second Contract 3as outside t%e usual po3ers of t%e president, 6A)C$Ds ratification of said contract and
acceptance of +enefits %a-e made it +indin, nonet%eless" T%e enforcea+ilit' of contracts under Article
1A53(1) is ratified M+' t%e acceptance of +enefits under t%emM under Article 1A59"
20 :rime A;ite Cement Cor-oration vs. %ntermediate A--ellate Court [GR 0/... 11 'arc;
1114#
Second Division, Ca#os Jr$ (J): 4 concur
Facts$ On or a+out 14 Jul' 1.4., AleIandro Te and 6rime )%ite Cement Corporation (6)CC) t%ru its
6resident, (r" Fosimo 0alcon and Justo C" Tra>o, as C%airman of t%e Board, entered into a dealers%ip
areement 3%ere+' Te 3as o+liated to act as t%e e?clusi-e dealer andGor distri+utor of 6)CC of its cement
products in t%e entire (indanao area for a term of 9 'ears and pro-idin amon ot%ers t%at (a) t%e corporation
s%all, commencin Septem+er, 1.85, sell to and suppl' Te, as dealer 3it% 15,555 +as (.A l+sG+a) of 3%ite
cement per mont%L (+) Te s%all pa' 6)CC 6."85, 6%ilippine Currenc', per +a of 3%ite cement, 0OB *a-ao
and Caa'an de Oro portsL (c) Te s%all e-er' time 6)CC is read' to deli-er t%e ood, open 3it% an' +an: or
+an:in institution a confirmed, unconditional, and irre-oca+le letter of credit in fa-or of 6)CC and t%at
upon certification +' t%e +oat captain on t%e +ill of ladin t%at t%e oods %a-e +een loaded on +oard t%e -essel
+ound for *a-ao t%e said +an: or +an:in institution s%all release t%e correspondin amount as pa'ment of
t%e oods so s%ipped"M Ri%t after Te entered into t%e dealers%ip areement, %e placed an ad-ertisement in a
national, circulatin ne3spaper t%e fact of %is +ein t%e e?clusi-e dealer of 6))CDs 3%ite cement products
in (indanao area, more particularl', in t%e (anila C%ronicle dated 14 Auust 1.4. and 3as e-en
conratulated +' %is +usiness associates, so muc% so, %e 3as as:ed +' some of %is +usinessmen friends and
close associates if t%e' can +e %is su+=dealer in t%e (indanao area" Rel'in %ea-il' on t%e dealers%ip
areement, Te sometime in t%e mont%s of Septem+er, Octo+er, and *ecem+er, 1.4., entered into a 3ritten
areement 3it% se-eral %ard3are stores dealin in +u'in and sellin 3%ite cement in t%e Cities of *a-ao and
Caa'an de Oro 3%ic% 3ould t%us ena+le %im to sell %is allocation of 15,555 +as reular suppl' of t%e said
commodit', +' Septem+er, 1.85" After Te 3as assured +' %is supposed +u'er t%at %is allocation of 15,555
+as of 3%ite cement can +e disposed of, %e informed t%e defendant corporation in %is letter dated 17 Auust
1.85 t%at %e is ma:in t%e necessar' preparation for t%e openin of t%e re,uisite letter of credit to co-er t%e
price of t%e due initial deli-er' for t%e mont% of Septem+er 1.85, loo:in for3ard to 6)CCDs dut' to compl'
3it% t%e dealers%ip areement" $n repl' to t%e aforesaid letter of Te, 6)CC t%ru its corporate secretar', replied
t%at t%e +oard of directors of 6)CC decided to impose t%e follo3in conditions: (a) *eli-er' of 3%ite cement
s%all commence at t%e end of !o-em+er, 1.85L (+) Onl' 7,555 +as of 3%ite cement per mont% for onl' a
period of t%ree (3) mont%s 3ill +e deli-eredL (c) T%e price of 3%ite cement 3as priced at 613"35 per +aL (d)
T%e price of 3%ite cement is su+Iect to readIustment unilaterall' on t%e part of t%e defendantL (e) T%e place of
deli-er' of 3%ite cement s%all +e Austurias (sic)L (f) T%e letter of credit ma' +e opened onl' 3it% t%e
6rudential Ban:, (a:ati Branc%L () 6a'ment of 3%ite cement s%all +e made in ad-ance and 3%ic% pa'ment
s%all +e used +' t%e defendant as uarant' in t%e openin of a forein letter of credit to co-er costs and
e?penses in t%e procurement of materials in t%e manufacture of 3%ite cement" Se-eral demands to compl'
3it% t%e dealers%ip areement 3ere made +' Te to 6)CC, %o3e-er, 6)CC refused to compl' 3it% t%e
same, and Te +' force of circumstances 3as constrained to cancel %is areement for t%e suppl' of 3%ite
cement 3it% t%ird parties, 3%ic% 3ere concluded in anticipation of, and pursuant to t%e said dealers%ip
areement" !ot3it%standin t%at t%e dealers%ip areement +et3een Te and 6)CC 3as in force and
su+sistin, 6)CC, in -iolation of, and 3it% e-ident intention not to +e +ound +' t%e terms and conditions
t%ereof, entered into an e?clusi-e dealers%ip areement 3it% a certain !apoleon Co for t%e mar:etin of 3%ite
cement in (indanao" Te filed suit" After trial, t%e trial court adIuded 6)CC lia+le to AleIandro Te in t%e
amount of 63,351,A55"55 as actual damaes, 6155,555"55 as moral damaes, and 615,555 55 as and for
attorne'Ds fees and costs" T%e appellate court affirmed t%e said decision" Jence, 6)CC filed t%e petition for
%ssue$ )%et%er t%e Mdealers%ip areementM referred +' t%e 6resident and C%airman of t%e Board of 6)CC is
a -alid and enforcea+le contract"
&eld$ T%e ;dealers%ip areement< is not -alid and unenforcea+le" @nder t%e Corporation &a3, 3%ic% 3as
t%en in force at t%e time t%e case arose, as 3ell as under t%e present Corporation Code, all corporate po3ers
s%all +e e?ercised +' t%e Board of *irectors, e?cept as ot%er3ise pro-ided +' la3" Alt%ou% it cannot
completel' a+dicate its po3er and responsi+ilit' to act for t%e Iuridical entit', t%e Board ma' e?pressl'
deleate specific po3ers to its 6resident or an' of its officers" $n t%e a+sence of suc% e?press deleation, a
contract entered into +' its 6resident, on +e%alf of t%e corporation, ma' still +ind t%e corporation if t%e +oard
s%ould ratif' t%e same e?pressl' or impliedl'" $mplied ratification ma' ta:e -arious forms P li:e silence or
ac,uiescenceL +' acts s%o3in appro-al or adoption of t%e contractL or +' acceptance and retention of +enefits
flo3in t%erefrom" 0urt%ermore, e-en in t%e a+sence of e?press or implied aut%orit' +' ratification, t%e
6resident as suc% ma', as a eneral rule, +ind t%e corporation +' a contract in t%e ordinar' course of +usiness,
pro-ided t%e same is reasona+le under t%e circumstances" T%ese rules are +asic, +ut are all eneral and t%us
,uite fle?i+le" T%e' appl' 3%ere t%e 6resident or ot%er officer, purportedl' actin for t%e corporations, is
dealin 3it% a t%ird person, i"e", a person outside t%e corporation" T%e situation is ,uite different 3%ere a
director or officer is dealin 3it% %is o3n corporation" Jerein, Te 3as not an ordinar' stoc:%olderL %e 3as a
mem+er of t%e Board of *irectors and Auditor of t%e corporation as 3ell" Je 3as 3%at is often referred to as a
Mself=dealinM director" A director of a corporation %olds a position of trust and as suc%, %e o3es a dut' of
lo'alt' to %is corporation" $n case %is interests conflict 3it% t%ose of t%e corporation, %e cannot sacrifice t%e
latter to %is o3n ad-antae and +enefit" As corporate manaers, directors are committed to see: t%e ma?imum
amount of profits for t%e corporation" A directorDs contract 3it% %is corporation is not in all instances -oid or
-oida+le" $f t%e contract is fair and reasona+le under t%e circumstances, it ma' +e ratified +' t%e stoc:%olders
pro-ided a full disclosure of %is ad-erse interest is made"
/rantin aruendo t%at t%e Mdealers%ip areementM 3ould +e -alid and enforcea+le if entered into 3it% a
person ot%er t%an a director or officer of t%e corporation, t%e fact t%at t%e ot%er part' to t%e contract 3as a
*irector and Auditor of 6)CC c%anes t%e 3%ole situation" 0irst of all, t%e contract 3as neit%er fair nor
reasona+le" T%e Mdealers%ip areementM entered into in Jul' 1.4., 3as to sell and suppl' to Te 15,555 +as of
3%ite cement per mont%, for 9 'ears startin Septem+er 1.85, at t%e fi?ed price of 6."85 per +a" Te is a
+usinessman %imself and must %a-e :no3n, or at least must +e presumed to :no3, t%at at t%at time, prices of
commodities in eneral, and 3%ite cement in particular, 3ere not sta+le and 3ere e?pected to rise" At t%e time
of t%e contract, 6)CC %ad not e-en commenced t%e manufacture of 3%ite cement, t%e reason 3%' deli-er'
3as not to +ein until 1A mont%s later" Je must %a-e :no3n t%at 3it%in t%at period of 4 'ears, t%ere 3ould +e
a considera+le rise in t%e price of 3%ite cement" $n fact, TeDs o3n (emorandum s%o3s t%at in Septem+er
1.85, t%e price per +a 3as 61A"95, and +' t%e middle of 1.89, it 3as alread' 638"95 per +a" *espite t%is, no
pro-ision 3as made in t%e Mdealers%ip areementM to allo3 for an increase in price mutuall' accepta+le to t%e
parties" $nstead, t%e price 3as peed at 6."85 per +a for t%e 3%ole 9 'ears of t%e contract" 0airness on %is
part as a director of t%e corporation from 3%om %e 3as to +u' t%e cement, 3ould re,uire suc% a pro-ision" $n
fact, t%is unfairness in t%e contract is also a +asis 3%ic% renders a contract entered into +' t%e 6resident,
3it%out aut%orit' from t%e Board of *irectors, -oid or -oida+le, alt%ou% it ma' %a-e +een in t%e ordinar'
course of +usiness" T%e fi?ed price of 6."85 per +a for a period of 9 'ears 3as not fair and reasona+le" As
director, speciall' since %e 3as t%e ot%er part' in interest, TeDs +ounden dut' 3as to act in suc% manner as not
to undul' preIudice t%e corporation" $n t%e li%t of t%e circumstances of t%is case, it is to @s ,uite clear t%at %e
3as uilt' of dislo'alt' to t%e corporationL %e 3as attemptin in effect, to enric% %imself at t%e e?pense of t%e
corporation" T%ere is no s%o3in t%at t%e stoc:%olders ratified t%e Mdealers%ip areementM or t%at t%e' 3ere
full' a3are of its pro-isions" T%e contract 3as t%erefore not -alid and t%e Court cannot allo3 %im to reap t%e
fruits of %is dislo'alt'"
27 5antos vs. National *a+or Relations Commission [GR 101011 14 'arc; 1110#
1, Citu' (J): 4 concur
Facts$ (el-in *" (illena, on 1 Octo+er 1.79, 3as %ired to +e t%e proIect accountant for (ana (inin and
*e-elopment CorporationDs (((*C) minin operations in /at+o, Bacon, Sorsoon" On 11 Auust 1.74,
(illena sent to (r" /il A+aNo, t%e ((*C corporate treasurer, a memorandum callin t%e latterDs attention to
t%e failure of t%e compan' to compl' 3it% t%e 3it%%oldin ta? re,uirements of, and to ma:e t%e
correspondin mont%l' remittances to, t%e Bureau of $nternal Re-enue (B$R) on account of dela'ed pa'ments
of accrued salaries to t%e compan'Ds la+orers and emplo'ees" $n a letter, dated 7 Septem+er 1.74, A+aNo
ad-ised (illena t%at it 3as t%e +oardDs decision t%at it stop porduction (operation) in Sorsoon due to t%e
upcomin rain' seasons and t%e deterioration of t%e peace and order in t%e said areaL t%at t%e corporation 3ill
underta:e onl' necessar' maintenance and repair 3or: and 3ill :eep o-er%ead do3n to t%e minimum
manaea+le le-elL and t%at t%e corporation 3ill not need a proIect accountant until t%e corporaton resumes
full=scale operations" (illena e?pressed Ms%oc:M o-er t%e termination of %is emplo'ment" Je complained t%at
%e 3ould not %a-e resined from t%e S'cip, /ores K #ela'o accountin firm, 3%ere %e 3as alread' a senior
staff auditor, %ad it not +een for t%e assurance of a Mcontinuous Io+M +' ((*CDs En" Rodillano E"
#elas,ue>" (illena re,uested t%at %e +e reim+ursed t%e Mad-ancesM %e %ad made for t%e compan' and +e paid
%is Maccrued salariesGclaims"M T%e claim 3as not %eeded" On Octo+er 1.74, (illena filed 3it% t%e !&RC
Reional Ar+itration, Branc% !o" #, in &ea>pi Cit', a complaint for illeal dismissal, unpaid salaries, 13t%
mont% pa', o-ertime pa', separation pa' and incenti-e lea-e pa' aainst ((*C and its t3o top officials,
namel', BenIamin A Santos (t%e 6resident) and Rodillano A" #elas,ue> (t%e e?ecuti-e -ice=president)" $n %is
complaint=affida-it (position paper), su+mitted on 18 Octo+er 1.74, (illena alleed, amon ot%er t%ins, t%at
%is dismissal 3as merel' an offs%oot of %is letter of 11 Auust 1.74 to A+aNo a+out t%e compan'Ds ina+ilit' to
pa' its 3or:ers and to remit 3it%%oldin ta?es to t%e B$R" On 18 Jul' 1.77, &a+or Ar+iter 0ructouso T"
Aurellano, findin no -alid cause for terminatin complaintDs emplo'ment, ruledt%at a partial closure of an
esta+lis%ment due to losses 3as a retrenc%ment measure t%at rendered t%e emplo'er lia+le for unpaid salaries
and ot%er monetar' claims" T%e &a+or Ar+iter ordered Santos, et" al" to pa' (illena t%e amount of 638,131"19
correspondin to t%e latterDs unpaid salaries and ad-ances: 69,A55"55 for petitionerDs 13t% mont% pa'L
63,3A5".9 as ser-ice incenti-e lea-e pa'L and 69, A55"55 as separation pa'" Santos, et" al" 3ere furt%er ordered
to pa' (illena 15H of t%e monetar' a3ards as attorne'Ds fees" Allein a+use of discretion +' t%e &a+or
Ar+iter, t%e compan' and its co=respondents filed a Mmotion for reconsideration and Gor appeal"M 7 T%e
motionGappeal 3as fort%3it% indorsed to t%e E?ecuti-e *irector of t%e !&RC in (anila" $n a resolution, dated
5A Septem+er 1.7., t%e !&RC affirmed t%e decision of t%e &a+or Ar+iter" A 3rit of e?ecution
correspondinl' issuedL %o3e-er, it 3as returned unsatisfied for t%e failure of t%e s%eriff to locate t%e offices
of t%e corporation in t%e addressed indicated" Anot%er 3rit of e?ecution and an order of arnis%ment 3as
t%ereupon ser-ed on Santos at %is residence" Contendin t%at %e %ad +een denied due process, Santos filed a
motion for reconsideration of t%e !&RCDs resolution alon 3it% a pra'er for t%e ,uas%al of t%e 3rit of
e?ecution and order of arnis%ment" Je a-erred t%at %e %ad ne-er recei-ed an' notice, summons or e-en a
cop' of t%e complaintL %ence, %e said, t%e &a+or Ar+iter at no time %ad ac,uired Iurisdiction o-er %im" On 14
Auust 1..1, t%e !&RC dismissed t%e motion for reconsideration" Santos filed t%e petition for certiorari"
%ssue$ )%et%er Santos s%ould +e made solidaril' lia+le 3it% ((*C"
&eld$ A corporation is a Iudicial entit' 3it% leal personalit' separated and distinct from t%ose actin for and
in its +e%alf and, in eneral, from t%e people comprisin it" T%e rule is t%at o+liations incurred +' t%e
corporation, actin t%rou% its directors, officers and emplo'ees, are its sole lia+ilities" !e-ert%eless, +ein a
mere fiction of la3, peculiar situations or -alid rounds can e?ist to 3arrant, al+eit done sparinl', t%e
disreard of its independent +ein and t%e liftin of t%e corporate -eil" As a rule, t%is situation mi%t arise a
corporation is used to e-ade a Iust and due o+liation or to Iustif' a 3ron, to s%ield or perpetrate fraud, to
carr' out similar ot%er unIustifia+le aims or intentions, or as a su+terfue to commit inIustice and so
circum-ent t%e la3" )it%out necessaril' piercin t%e -eil of corporate fiction, personal ci-il lia+ilit' can also
+e said to la3full' attac% to a corporate director, trustee or officerL to 3it: )%en (1) Je assents (a) to a
patentl' unla3ful act of t%e corporation, or (+) for +ad fait% or ross nelience in directin its affairs, or (+)
for conflict of interest, resultin in damaes to t%e corporation, its stoc:%olders or ot%er personsL (1) Je
consents to t%e issuance of 3atered stoc:s or 3%o, %a-in :no3lede t%ereof, does not fort%3it% file 3it% t%e
corporate secretar' %is 3ritten o+Iection t%eretoL (3) Je arees to %old %imself personall' and solidaril' lia+le
3it% t%e corporationL or (A) Je is made, +' a specific pro-ision of la3, to personall' ans3er for %is corporate
action" T%e case of Santos is 3a' of t%ese e?ceptional instances" $t is not e-en s%o3n t%at Santos %as %ad a
direct %and in t%e dismissal of (illena enou% to attri+ute to Santos a patentl' unla3ful act 3%ile actin for
t%e corporation" !eit%er can Article 17. of t%e &a+or Code +e applied since t%is specificall' refers onl' to t%e
imposition of penalties under t%e Code" $t is undisputed t%at t%e termination of (illenaDs emplo'ment %as,
instead, +een due, collecti-el', to t%e need for a furt%er mitiation of losses, t%e onset of t%e rain' season, t%e
insurenc' pro+lem, in Sorsoon and t%e lac: of funds to furt%er support t%e minin operation in /at+o" $t is
+asic t%at a corporation is in-ested +' la3 3it% a personall' separate and distinct from t%ose of t%e persons
composin it as 3ell as from t%at of an', ot%er leal entit' to 3%ic% it ma' +e related" (ere o3ners%ip +' a
sinle stoc:%older or +' anot%er corporation of all nearl' all of t%e capital stoc: of a corporation is not of
itself sufficient round for disreardin t%e separate corporate personall'" Similar to t%e case of Sunio -s"
!ational &a+or Relations Commission, Santos s%ould not %a-e +een made personall' ans3era+le for t%e
pa'ment of (illenaDs +ac: salaries"
2/ 'ala"an( 5ama;an n( m(a 'an((a(a3a sa '. Green,ield ('5'G)CA:) vs. Ramos [GR
114107 20 A-ril 2001#
Third Division, Donza'a5>e!es (J): ) concur, ) reiterate their searate oinion in Serrano v 6E>C, D>
11<A4A, Januar! )AAA$
+)? Fe.ruar! )AAA decisionF /urisi#a, (ala'an Sama%an n ma (anaa3a sa (" /reenfield, $nc", (B)
((S(/, t%e Mlocal unionM), is an affiliate of @nited &um+er and /eneral )or:ers of t%e 6%ilippines
(@&/)6, t%e MfederationM)" On 11 Septem+er 1.74, a local union election 3as %eld under t%e auspices of t%e
@&/)6 3%erein (S(/=@)6, Beda (adalena #illanue-a, and t%e ot%er union officers 3ere proclaimed as
3inners" (inutes of said election 3ere dul' filed 3it% t%e Bureau of &a+or Relations on 1. Septem+er 1.74"
On 11 (arc% 1.78, a 6etition for $mpeac%ment 3as filed 3it% t%e national federation @&/)6 +' t%e
defeated candidates in t%e aforementioned election" On 14 June 1.78, t%e federation conducted an audit of
t%e local union=funds" T%e in-estiation" did not 'ield an' unfa-ora+le result and t%e local union" officers
3ere cleared of t%e c%ares of anomal' in t%e custod', %andlin and disposition of t%e union funds" T%e 1A
defeated candidates filed a 6etition for $mpeac%mentGE?pulsion of t%e local union officers 3it% t%e *O&E
!CR on 9 !o-em+er 1.78 (!CR=O*=(=11=875=78)" Jo3e-er, t%e same 3as dismissed on 1 (arc% 1.77, +'
(ed=Ar+iter Renato 6aruno for failure to su+stantiate t%e c%ares and to present e-idence in support of t%e
alleations" On 18 April 1.77, t%e local union %eld a eneral mem+ers%ip meetin at t%e Carunc%o Comple?
in 6asi" Se-eral union mem+ers failed to attend t%e meetin, promptin t%e E?ecuti-e Board to create a
committee tas:ed to in-estiate t%e non=attendance of se-eral union mem+ers in t%e said assem+l', pursuant
to Sections A and 9, Article # of t%e Constitution and B'=&a3s of t%e union" On 18 June 1.77, t%e local union
3rote @&/)6 a letter re,uestin it to deduct t%e union fines from t%e 3aesGsalaries of t%ose union mem+ers
3%o failed to attend t%e eneral mem+ers%ip meetin" $n a (emorandum dated 3 Jul' 1.77, t%e Secretar'
/eneral of t%e national federation, /odofredo 6aceNo, Jr" disappro-ed t%e resolution of t%e local union
imposin t%e 695"55 fine" T%e union officers protested suc% action +' t%e 0ederation in a Repl' dated A Jul'
1.77" On 11 Jul' 1.77, t%e federation 3rote (" /reenfield (B) a letter ad-isin t%e latter not to deduct t%e
fift'=peso fine from t%e salaries of t%e union mem+ers" T%e follo3in da', t%e compan' sent a repl' to
(S(/Ds re,uest in a letter, statin t%at it cannot deduct fines from t%e emplo'eesD salar' 3it%out oin
aainst certain la3s" T%e compan' suested t%at t%e union refer t%e matter to t%e proper o-ernment office
for resolution in order to a-oid placin t%e compan' in t%e middle of t%e issue" T%e imposition of 695"55 fine
+ecame t%e su+Iect of +itter disareement +et3een t%e 0ederation and t%e local union culminatin in t%e
latterDs declaration of eneral autonom' from t%e former t%rou% Resolution 15 passed +' t%e local e?ecuti-e
+oard and ratified +' t%e eneral mem+ers%ip on 14 Jul' 1.77" $n retaliation, t%e national federation as:ed t%e
compan' to stop t%e remittance of t%e local unionDs s%are in t%e education funds effecti-e Auust 1.77" T%is
3as o+Iected to +' t%e local union 3%ic% demanded t%at t%e education fund +e remitted to it in full" T%e
compan' 3as t%us constrained to file a Complaint for $nterpleader 3it% a 6etition for *eclarator' Relief 3it%
t%e (ed=Ar+itration Branc% of t%e *epartment of &a+or and Emplo'ment (Case O*=(=7=A39=77)" T%is 3as
resol-ed on 17 Octo+er 1.77, +' (ed=Ar+iter Anastacio Bactin in an Order, orderin (1) T%at t%e @nited
&um+er and /eneral )or:ers of t%e 6%ilippines (@&/)6) t%rou% its local union officers s%all administer
t%e collecti-e +arainin areement (CBA)L (1) T%at t%e compan' s%all remit t%e 615,555"55 mont%l' la+or
education proram fund to t%e @&/)6 su+Iect to t%e condition t%at it s%all use t%e said amount for its
intended purpose" and (3) t%at t%e Treasurer of t%e (S(/ s%all +e aut%ori>ed to collect from t%e 394 union
mem+ers t%e amount of 695"55 as penalt' for t%eir failure to attend t%e eneral mem+ers%ip assem+l' on 18
April 1.77" Jo3e-er, if t%e (S(/ Officers could present t%e indi-idual 3ritten aut%ori>ations of t%e 394
union mem+ers, t%en t%e compan' is o+lied to deduct from t%e salaries of t%e 394 union mem+ers t%e 695"55
fine"M On appeal, *irector 6ura=0errer CalleIa issued a Resolution dated 8 0e+ruar' 1.7., 3%ic% modified in
part t%e earlier disposition, to t%e e?tent t%at t%e compan' s%ould remit t%e amount of 69,555"55 of t%e
615,555"55 mont%l' la+or education proram fund to @&/)6 and t%e ot%er 69,555"55 to (S(/, +ot%
unions to use t%e same for its intended purpose"M
(ean3%ile, on 1 Septem+er 1.77, se-eral local unions (Top 0orm, (" /reenfield, /ros+', Triump%
$nternational, /eneral (illin, and #ander Jons c%apters) filed a 6etition for Audit and E?amination of t%e
federation and education funds of @&/)6 3%ic% 3as ranted +' (ed=Ar+iter Rasidali A+dulla% on 19
*ecem+er 1.77 in an Order 3%ic% directed t%e audit and e?amination of t%e +oo:s of account of @&/)6" On
35 Septem+er 1.77, t%e officials of @&/)6 called a Special !ational E?ecuti-e Board (eetin at !asipit,
Ausan del !orte 3%ere a Resolution 3as passed placin t%e (S(/ under trustees%ip and appointin Cesar
Clarete as administrator" On 18 Octo+er 1.77, t%e said administrator 3rote t%e compan' informin t%e latter
of its desination of a certain Alfredo Ealin:in as local union president and Mdisaut%ori>inM t%e incum+ent
union officers from representin t%e emplo'ees" T%is action +' t%e national federation 3as protested +' t%e
(S(/ in a letter to t%e compan' dated 11 !o-em+er 1.77" On 13 !o-em+er 1.77, (S(/ union officers
recei-ed identical letters from t%e administrator re,uirin t%em to e?plain 3it%in 81 %ours 3%' t%e' s%ould
not +e remo-ed from t%eir office and e?pelled from union mem+ers%ip" On 14 !o-em+er 1.77, (S(/
replied, Jo3e-er, as earl' as 11 !o-em+er 1.77, t%e officers 3ere e?pelled from t%e @&/)6" On t%e same
da', t%e federation ad-ised respondent compan' of t%e e?pulsion of t%e 35 union officers and demanded t%eir
separation from emplo'ment pursuant to t%e @nion Securit' Clause in t%eir collecti-e +arainin areement"
T%is demand 3as reiterated t3ice, t%rou% letters dated 0e+ruar' 11 and (arc% A, 1.7., respecti-el', to t%e
compan'" T%ereafter, t%e 0ederation filed a !otice of Stri:e 3it% t%e !ational Conciliation and (ediation
Board to compel t%e compan' to effect t%e immediate termination of t%e e?pelled union officers" On 8 (arc%
1.7., under t%e pressure of a t%reatened stri:e, t%e compan' terminated t%e 35 union officers from
emplo'ment, ser-in t%em identical copies of t%e termination letter, T%e e?pelled union officers assined in
t%e first s%ift 3ere p%'sicall' or +odil' +rou%t out of t%e compan' premises +' t%e compan'Ds securit'
uards" &i:e3ise, t%ose assined to t%e second s%ift 3ere not allo3ed to report for 3or:" t%is pro-o:ed some
of t%e mem+ers of t%e local union to demonstrate t%eir protest for t%e dismissal of t%e said union officers"
Some union mem+ers left t%eir 3or: posts and 3al:ed out of t%e compan' premises" On t%e ot%er %and, t%e
0ederation, %a-in ac%ie-ed its o+Iecti-e, 3it%dre3 t%e !otice of Stri:e filed 3it% t%e !C(B" On 7 (arc%
1.7., (S(/ filed a !otice of Stri:e 3it% t%e !C(B, *O&E, (anila (!C(B=!CR=!S53=114=7.)" T%e
follo3in da', a stri:e -ote referendum 3as conducted and out of 1,153 union mem+ers 3%o cast t%eir -otes,
1,574 mem+ers -oted to declare a stri:e" On 15 (arc% 1.7., t%e 35 dismissed union officers filed an urent
petition (!C(B=!CR=!S=53=114=7.), 3it% t%e Office of t%e Secretar' of t%e *epartment of &a+or and
Emplo'ment pra'in for t%e suspension of t%e effects of t%eir termination from emplo'ment" Jo3e-er, t%e
petition 3as dismissed +' t%en Secretar' 0ran:lin *rilon on 11 April 1.7." On (arc% 13 and 1A, 1.7., a total
of 87 union s%op ste3ards 3ere placed under pre-enti-e suspension +' t%e compan'" T%is prompted t%e union
mem+ers to aain stae a 3al:=out and resulted in t%e official declaration of stri:e at around 3:35 p"m" of 1A
(arc% 1.7." T%e stri:e 3as attended 3it% -iolence, force and intimidation on +ot% sides resultin to p%'sical
inIuries to se-eral emplo'ees, +ot% stri:in and non=stri:in, and damae to compan' properties" T%e
emplo'ees 3%o participated in t%e stri:e and alleedl' fiured in t%e -iolent incident 3ere placed under
pre-enti-e suspension +' t%e compan'" T%e compan' also sent return to=3or: notices to t%e %ome addresses
of t%e stri:in emplo'ees t%rice successi-el', on (arc% 18, April 7 and April 31, 1.7., respecti-el'" Jo3e-er,
onl' 141 emplo'ees 3ere e-entuall' accepted +ac: to 3or:" T%ose 3%o did not respond to t%e return=to=3or:
notice 3ere sent termination letters dated 18 (a' 1.7."
On 8 Auust 1.7., (S(/ filed a -erified complaint 3it% t%e Ar+itration Branc%, !ational Capital Reion,
*O&E, (anila, (!CR =55=5.=5A1..=7.), c%arin t%e corporation, etc" of unfair la+or practice 3%ic% consists
of union +ustin, illeal dismissal, illeal suspension interference in union acti-ities, discrimination, t%reats,
intimidation, coercion, -iolence, and oppression" After t%e filin of t%e complaint, t%e lease contracts on t%e
compan'Ds office and factor' at (er-ille Su+di-ision, 6araNa,ue e?pired and 3ere not rene3ed" @pon
demand of t%e o3ners of t%e premises, t%e compan' 3as compelled to -acate its office and factor'"
T%ereafter, t%e compan' transferred its administration and accountGclient ser-icin department at A06=RSBS
$ndustrial 6ar: in Taui, (etro (anila" 0or failure to find a suita+le place in (etro (anila for relocation of
its factor' and manufacturin operations, t%e compan' 3as constrained to mo-e t%e said departments to
Taclo+an, &e'te" Jence, on 14 April 1..5, t%e compan' accordinl' notified its emplo'ees of a temporar'
s%utdo3n" in operations" Emplo'ees 3%o 3ere interested in relocatin to Taclo+an 3ere ad-ised to enlist on
or +efore 13 April 1..5" On 19 *ecem+er 1..1, findin t%e termination to +e -alid in compliance 3it% t%e
union securit' clause of t%e collecti-e +arainin areement, &a+or Ar+iter Cresencio Ramos dismissed t%e
complaint" (S(/ t%en appealed to t%e !&RC" T%e 0irst *i-ision affirmed t%e &a+or Ar+iterDs disposition"
)it% t%e denial of t%eir motion for reconsideration on 17 Januar' 1..A, (S(/ ele-ated t%e case to t%e
Supreme Court"
T%e Supreme Court on 17 0e+ruar' 1555, ordered (" /reenfield to immediatel' reinstate t%e affected
emplo'ees and officers to t%eir respecti-e positionsL t%at s%ould reinstatement +e not feasi+le, said compan'
s%all pa' separation pa' of one mont% salar' for e-er' 'ear of ser-iceL t%at since t%e affected emplo'ees and
officers 3ere terminated 3it%out t%e re,uisite 3ritten notice at least 35 da's prior to t%eir termination, t%e
compan' 3as ordered to pa' full +ac:3aes to t%e affected emplo'ees 3%ile t%e 0ederation 3as ordered to
pa' full +ac:3aes to t%e affected union officers 3%o 3ere dismissed upon its instiationL t%at since t%e
dismissal of t%e affected emplo'ees and officers 3as 3it%out cause, +ac:3aes are to +e computed from t%e
time t%e affected emplo'ees and union officers 3ere dismissed until t%eir actual reinstatement, and t%at
s%ould reinstatement +e not feasi+le, t%eir +ac:3aes s%all +e computed from t%e time t%e affected emplo'ees
and officers 3ere terminated until t%e finalit' of t%e CourtDs decisionL 3it% costs aainst t%e compan'" $n t%e
decision, t%e court %eld t%at t%e compan' officials cannot +e %eld personall' lia+le for damaes on account of
t%e emplo'eesD dismissal +ecause t%e emplo'er corporation %as a personalit' separate and distinct from its
officers 3%o merel' acted as its aents" (S(/=@)/ filed a motion for partial reconsideration"
%ssue$ )%et%er t%e compan' officials cannot +e %eld personall' lia+le for damaes on account of emplo'eesD
dismissal +ecause t%e emplo'er corporation %as a personalit' separate and distinct from its officers 3%o
merel' acted as its aents"
&eld$ A corporation is a Iuridical entit' 3it% leal personalit' separate and distinct from t%ose actin for and
in its +e%alf and, in eneral from t%e people comprisin it" T%e rule is t%at o+liations incurred +' t%e
corporation, actin t%rou% its directors, officers and emplo'ees, are its sole lia+ilities" True, solidar'
lia+ilities ma' at times +e incurred +ut onl' 3%en e?ceptional circumstances 3arrant suc% as, enerall', in t%e
follo3in cases: (1) )%en directors and trustees or, in appropriate cases, t%e officers of a corporation P (a)
#ote for or assent to patentl' unla3ful acts of t%e corporationL (+) act in +ad fait% or 3it% ross nelience in
directin t%e corporate affairsL (c) are uilt' of conflict of interest to t%e preIudice of t%e corporation, its
stoc:%olders or mem+ers, and ot%er persons" (1) )%en a director or officer %as consented to t%e issuance of
3atered stoc:s or 3%o, %a-in :no3lede t%ereof, did not fort%3it% file 3it% t%e corporate secretar' %is
3ritten o+Iection t%ereto" (3) )%en a director, trustee or officer %as contractuall' areed or stipulated to %old
%imself personall' and solidaril' lia+le 3it% t%e Corporation" (A) )%en a director, trustee or officer is made,
+' specific pro-ision of la3, personall' lia+le for %is corporate action" $n la+or cases, particularl', t%e Court
%as %eld corporate directors and officers solidaril' lia+le 3it% t%e corporation for t%e termination of
emplo'ment of corporate emplo'ees done 3it% malice or in +ad fait%" Bad fait% or nelience is a ,uestion of
fact and is e-identiar'" $t %as +een %eld t%at +ad fait% does not connote +ad Iudment or nelienceL it imports
a dis%onest purpose or some moral o+li,uit' and conscious doin of 3ronL it means +reac% of a :no3n dut'
t%ru some moti-e or interest or ill 3illL it parta:es of t%e nature of fraud" Jerein, t%ere is not%in su+stantial
on record to s%o3 t%at t%e corporate officers acted in patent +ad fait% or 3ere uilt' of ross nelience in
terminatin t%e ser-ices of t%e affected emplo'ees and officers so as to 3arrant personal lia+ilit'"
21 AF Realt" > 2evelo-ment %nc. vs. 2ieselman Frei(;t 5ervices Co. [GR 11144/ 10 !anuar"
2002#
Third Division, Sandoval5Dutierrez (J): 4 concur
Facts$ On 15 (a' 1.77, (anuel C" Cru>, Jr", a mem+er of t%e +oard of directors of *ieselman 0rei%t
Ser-ices Co", issued a letter denominated as MAut%orit' To Sell Real EstateM to Cristeta !" 6olintan, a real
estate +ro:er of t%e C!6 Real Estate Bro:erae" Cru>, Jr" aut%ori>ed 6olintan Mto loo: for a +u'erG+u'ers and
neotiate t%e saleM of t%e lot at 63,555"55 per s,uare meter, or a total of 64,171,555"55" Cru>, Jr" %as no
3ritten aut%orit' from *ieselman to sell t%e lot" $n turn, Cristeta 6olintan, t%rou% a letter dated 1. (a'
1.77, aut%ori>ed 0elicisima (M(imiM) !o+le to sell t%e same lot" 0elicisima !o+le t%en offered for sale t%e
propert' to A0 Realt' K *e-elopment, $nc" (A0 Realt') at 61,955"55 per s,uare meter" Fenaida Ranullo,
+oard mem+er and -ice=president of A0 Realt', accepted t%e offer and issued a c%ec: in t%e amount of
6355,555"55 pa'a+le to t%e order of *ieselman" 6olintan recei-ed t%e c%ec: and sined an MAc:no3ledment
ReceiptM indicatin t%at t%e amount of 6355,555"55 represents t%e partial pa'ment of t%e propert' +ut
refunda+le 3it%in t3o 3ee:s s%ould A0 Realt' disappro-e RanulloDs action on t%e matter" On 1. June 1.77,
A0 Realt' confirmed its intention to +u' t%e lot" Jence, Ranullo as:ed 6olintan for t%e +oard resolution of
*ieselman aut%ori>in t%e sale of t%e propert'" Jo3e-er, 6olintan could onl' i-e Ranullo t%e oriinal cop'
of TCT 3.7A., t%e ta? declaration and ta? receipt for t%e lot, and a p%otocop' of t%e Articles of $ncorporation
of *ieselman" On 1 Auust 1.77, (anuel 0" Cru>, Sr", president of *ieselman, ac:no3leded receipt of t%e
said 6355,555"55 as Mearnest mone'M +ut re,uired A0 Realt' to finali>e t%e sale at 6A,555"55 per s,uare
meter" A0 Realt' replied t%at it %as paid an initial do3n pa'ment of 6355,555"55 and is 3illin to pa' t%e
+alance" Jo3e-er, on 13 Auust 1.77, (r" Cru>, Sr" terminated t%e offer and demanded from A0 Realt' t%e
return of t%e title of t%e lot earlier deli-ered +' 6olintan" Claimin t%at t%ere 3as a perfected contract of sale
+et3een t%em, A0 Realt' filed 3it% t%e Reional Trial Court, Branc% 145, 6asi Cit' a complaint for specific
performance (Ci-il Case 94187) aainst *ieselman and Cru>, Jr"" T%e complaint pra'ed t%at *ieselman +e
ordered to e?ecute and deli-er a final deed of sale in fa-or of A0 Realt'"M $n its amended complaint, A0
Realt' as:ed for pa'ment of 61,955,555"55 as compensator' damaesL 6A55,555"55 as attorne'Ds feesL and
6955,555"55 as e?emplar' damaes" $n its ans3er, *ieselman alleed t%at t%ere 3as no meetin of t%e minds
+et3een t%e parties in t%e sale of t%e propert' and t%at it did not aut%ori>e an' person to enter into suc%
transaction on its +e%alf" (ean3%ile, on 35 Jul' 1.77, *ieselman and (idas *e-elopment Corporation
((idas) e?ecuted a *eed of A+solute Sale of t%e same propert'" T%e areed price 3as 61,755"55 per s,uare
meter" (idas deli-ered to *ieselman 6955,555"55 as do3n pa'ment and deposited t%e +alance of
69,355,555"55 in escro3 account 3it% t%e 6C$Ban:" Constrained to protect its interest in t%e propert', (idas
filed on 3 April 1.7. a (otion for &ea-e to $nter-ene in Ci-il Case 94187" (idas alleed t%at it %as
purc%ased t%e propert' and too: possession t%ereof, %ence *ieselman cannot +e compelled to sell and con-e'
it to A0 Realt'" T%e trial court ranted (idasD motion" After trial, t%e lo3er court rendered t%e *ecision
%oldin t%at t%e acts of Cru>, Jr" +ound *ieselman in t%e sale of t%e lot to A0 Realt'" Conse,uentl', t%e
perfected contract of sale +et3een *ieselman and A0 Realt' +ars (idasD inter-ention" T%e trial court also
%eld t%at (idas acted in +ad fait% 3%en it initiall' paid *ieselman 6955,555"55 e-en 3it%out seein t%e
latterDs title to t%e propert'" (oreo-er, t%e notarial report of t%e sale 3as not su+mitted to t%e Cler: of Court of
t%e Rue>on Cit' RTC and t%e +alance of 69,355,555"55 purportedl' deposited in escro3 +' (idas 3it% a
+an: 3as not esta+lis%ed" *ieselman 3as ordered to e?ecute and deli-er to A0 Realt' t%e final deed of sale
of t%e propert' co-ered +' TCT 3.7A. of t%e Reistr' of *eed of Ri>al, (etro (anila *istrict $$, includin
t%e impro-ements t%ereon, and orderin *ieselman to pa' A0 Realt' attorne'Ds fees in t%e amount of
695,555"55 and to pa' t%e costs" *issatisfied, all t%e parties appealed to t%e Court of Appeals" $n its *ecision
dated 15 *ecem+er 1..1, t%e Court of Appeals re-ersed t%e Iudment of t%e trial court %oldin t%at since
Cru>, Jr" 3as not aut%ori>ed in 3ritin +' *ieselman to sell t%e su+Iect propert' to A0 Realt', t%e sale 3as not
perfectedL and t%at t%e *eed of A+solute Sale +et3een *ieselman and (idas is -alid, t%ere +ein no +ad fait%
on t%e part of t%e latter" T%e Court of Appeals t%en declared *ieselman and Cru>, Jr" Iointl' and se-erall'
lia+le to A0 Realt' for 6155,555"55 as moral damaesL 6155,555"55 as e?emplar' damaesL and 6155,555"55
as attorne'Ds fees" On 9 Auust 1..3, t%e Court of Appeals, upon motions for reconsideration filed +' t%e
parties, promulated an Amendin *ecision, in t%e sense t%at onl' Cru>, s%ould +e made lia+le to pa' A0
Realt' t%e damaes and attorne'Ds fees a3arded t%erein, plus t%e amount of 6355,555"55 unless, in t%e case of
t%e said 6355,555"55, t%e same is still deposited 3it% t%e Court 3%ic% s%ould +e restituted to A0 Realt'" A0
Realt' filed t%e petition for re-ie3 on certiorari"
%ssue$ )%et%er t%ere 3as a perfected contract of sale in-ol-in t%e *ieselman real propert' in fa-or of A0
Realt'"
&eld$ Section 13 of t%e Corporation Code e?pressl' pro-ides t%at t%e corporate po3ers of all corporations
s%all +e e?ercised +' t%e +oard of directors" Just as a natural person ma' aut%ori>e anot%er to do certain acts
in %is +e%alf, so ma' t%e +oard of directors of a corporation -alidl' deleate some of its functions to
indi-idual officers or aents appointed +' it" T%us, contracts or acts of a corporation must +e made eit%er +'
t%e +oard of directors or +' a corporate aent dul' aut%ori>ed +' t%e +oard" A+sent suc% -alid
deleationGaut%ori>ation, t%e rule is t%at t%e declarations of an indi-idual director relatin to t%e affairs of t%e
corporation, +ut not in t%e course of, or connected 3it%, t%e performance of aut%ori>ed duties of suc% director,
are %eld not +indin on t%e corporation" Jerein, Cru> %as no 3ritten aut%orit' from t%e +oard of directors of
*ieselman to sell or to neotiate t%e sale of t%e lot, muc% less to appoint ot%er persons for t%e same purpose"
Cru>Ds lac: of suc% aut%orit' precludes %im from conferrin an' aut%orit' to 6olintan in-ol-in t%e su+Iect
realt'" !ecessaril', neit%er could 6olintan aut%ori>e 0elicisima !o+le" Clearl', t%e collecti-e acts of Cru>,
6olintan and !o+le cannot +ind *ieselman in t%e purported contract of sale"
40 Atrium 'ana(ement Cor-oration vs. Court o, A--eals [GR 101411 2/ Fe+ruar" 2001# also *e
&eon -s" Court of Appeals B/R 1117.AC
First Division, /ardo (J): 4 concur
Facts$ Ji=Cement Corporation t%rou% its corporate sinatories, &ourdes (" de &eon, treasurer, and t%e late
Antonio de las Alas, C%airman, issued c%ec:s in fa-or of E"T" Jenr' and Co" $nc", as pa'ee" E"T" Jenr' and
Co", $nc", in turn, endorsed t%e four c%ec:s to Atrium (anaement Corporation for -alua+le consideration"
@pon presentment for pa'ment, t%e dra3ee +an: dis%onored all four c%ec:s for t%e common reason Mpa'ment
stoppedM" On 3 Januar' 1.73, Atrium (anaement Corporation filed 3it% t%e Reional Trial Court, (anila an
action for collection of t%e proceeds of four postdated c%ec:s in t%e total amount of 61 million, after its
demand for pa'ment of t%e -alue of t%e c%ec:s 3as denied" After due proceedins, on 15 Jul' 1.7., t%e trial
court rendered a decision orderin &ourdes (" de &eon, %er %us+and Rafael de &eon, E"T" Jenr' and Co", $nc"
and Ji=Cement Corporation to pa' Atrium Iointl' and se-erall', t%e amount of 61 million correspondin to
t%e -alue of t%e four c%ec:s, plus interest and attorne'Ds fees" On appeal to t%e Court of Appeals, on 18 (arc%
1..3, t%e Court of Appeals promulated its decision modif'in t%e decision of t%e trial court, a+sol-in Ji=
Cement Corporation from lia+ilit' and dismissin t%e complaint as aainst it" T%e appellate court ruled t%at:
(1) &ourdes (" de &eon 3as not aut%ori>ed to issue t%e su+Iect c%ec:s in fa-or of E"T" Jenr', $nc"L (1) T%e
issuance of t%e su+Iect c%ec:s +' &ourdes (" de &eon and t%e late Antonio de las Alas constituted ultra -ires
actsL and (3) T%e su+Iect c%ec:s 3ere not issued for -alua+le consideration" Jence, Atrium filed t%e petition"
%ssue [1#$ )%et%er t%e issuance of t%e c%ec:s 3as an ultra -ires act"
&eld [1#$ T%e record re-eals t%at Ji=Cement Corporation issued t%e four (A) c%ec:s to e?tend financial
assistance to E"T" Jenr', not as pa'ment of t%e +alance of t%e 635 million pesos cost of %'dro oil deli-ered +'
E"T" Jenr' to Ji=Cement" )%' else 3ould petitioner de &eon as: for counterpart c%ec:s from E"T" Jenr' if
t%e c%ec:s 3ere in pa'ment for %'dro oil deli-ered +' E"T" Jenr' to Ji=CementW Ji=Cement, %o3e-er,
maintains t%at t%e c%ec:s 3ere not issued for consideration and t%at &ourdes and E"T" Jenr' enaed in a
M:itin operationM to raise funds for E"T" Jenr', 3%o admittedl' 3as in need of financial assistance" T%ere
3as no sufficient e-idence to s%o3 t%at suc% is t%e case" &ourdes (" de &eon is t%e treasurer of t%e
corporation and is aut%ori>ed to sin c%ec:s for t%e corporation" At t%e time of t%e issuance of t%e c%ec:s,
t%ere 3ere sufficient funds in t%e +an: to co-er pa'ment of t%e amount of 61 million pesos" T%us, t%e act of
issuin t%e c%ec:s 3as 3ell 3it%in t%e am+it of a -alid corporate act, for it 3as for securin a loan to finance
t%e acti-ities of t%e corporation, %ence, not an ultra -ires act" An ultra -ires act is one committed outside t%e
o+Iect for 3%ic% a corporation is created as defined +' t%e la3 of its orani>ation and t%erefore +e'ond t%e
po3er conferred upon it +' la3M T%e term Multra -iresM is Mdistinuis%ed from an illeal act for t%e former is
merel' -oida+le 3%ic% ma' +e enforced +' performance, ratification, or estoppel, 3%ile t%e latter is -oid and
cannot +e -alidated"
%ssue [2#$ )%et%er &ourdes (" de &eon and Antonio de las Alas 3ere personall' lia+le for t%e c%ec:s issued
as corporate officers and aut%ori>ed sinatories of t%e c%ec:"
&eld [2#$ 6ersonal lia+ilit' of a corporate director, trustee or officer alon (alt%ou% not necessaril') 3it% t%e
corporation ma' so -alidl' attac%, as a rule, onl' 3%en: (1) Je assents (a) to a patentl' unla3ful act of t%e
corporation, or (+) for +ad fait% or ross nelience in directin its affairs, or (c) for conflict of interest,
resultin in damaes to t%e corporation, its stoc:%olders or ot%er personsL (1) Je consents to t%e issuance of
3atered do3n stoc:s or 3%o, %a-in :no3lede t%ereof, does not fort%3it% file 3it% t%e corporate secretar'
%is 3ritten o+Iection t%eretoL (3) Je arees to %old %imself personall' and solidaril' lia+le 3it% t%e
corporationL or (A) Je is made, +' a specific pro-ision of la3, to personall' ans3er for %is corporate action"M
Jerein, &ourdes (" de &eon and Antonio de las Alas as treasurer and C%airman of Ji=Cement 3ere
aut%ori>ed to issue t%e c%ec:s" Jo3e-er, (s" de &eon 3as nelient 3%en s%e sined t%e confirmation letter
re,uested +' (r" Oap of Atrium and (r" Jenr' of E"T" Jenr' for t%e rediscountin of t%e crossed c%ec:s
issued in fa-or of E"T" Jenr'" S%e 3as a3are t%at t%e c%ec:s 3ere strictl' endorsed for deposit onl' to t%e
pa'eeDs account and not to +e furt%er neotiated" )%at is more, t%e confirmation letter contained a clause t%at
3as not true, t%at is, Mt%at t%e c%ec:s issued to E"T" Jenr' 3ere in pa'ment of J'dro oil +ou%t +' Ji=Cement
from E"T" Jenr'M" Jer nelience resulted in damae to t%e corporation" Jence, (s" de &eon ma' +e %eld
personall' lia+le t%erefor"
41 BA 5avin(s Ban< vs. 5ia [GR 141214 27 !ul" 2000#
Facts$ On 4 Auust 1..8, t%e Court of Appeals issued a Resolution den'in due course to a 6etition for
Certiorari filed +' BA Sa-ins Ban:, on t%e round t%at Mt%e Certification on anti=forum s%oppin
incorporated in t%e petition 3as sined not +' t%e dul' aut%ori>ed representati-e of t%e petitioner, as re,uired
under Supreme Court Circular !o" 17=.1, +ut +' its counsel, in contra-ention of said circular"M A (otion for
Reconsideration 3as su+se,uentl' filed +' BA Sa-ins Ban:, attac%ed to 3%ic% 3as a BA Sa-ins Ban:
Corporate Secretar'Ds Certificate, dated 1A Auust 1..8" T%e Certificate t%at BA Sa-ins Ban:Ds Board of
*irectors appro-ed a Resolution on 11 (a' 1..4, aut%ori>in t%e +an:Ds la3'ers to represent it in an' action
or proceedin +efore an' court, tri+unal or aenc'L and to sin, e?ecute and deli-er t%e Certificate of !on=
forum S%oppin, amon ot%ers"
On 1A Octo+er 1..8, t%e (otion for Reconsideration 3as denied +' t%e Court of Appeals on t%e round t%at
Supreme Court Re-ised Circular 17=.1 Mre,uires t%at it is t%e petitioner, not t%e counsel, 3%o must certif'
under oat% to all of t%e facts and underta:ins re,uired t%erein"M T%e +an: appealed"
%ssue$ )%et%er t%e certificate of non=forum s%oppin can +e sined +' t%e corporate counsel, not necessaril'
+' t%e corporate officers alone"
&eld$ A corporation %as no po3ers e?cept t%ose e?pressl' conferred on it +' t%e Corporation Code and t%ose
t%at are implied +' or are incidental to its e?istence" $n turn, a corporation e?ercises said po3ers t%rou% its
+oard of directors andGor its dul' aut%ori>ed officers and aents" 6%'sical acts, li:e t%e sinin of documents,
can +e performed onl' +' natural persons dul' aut%ori>ed for t%e purpose +' corporate +'la3s or +' a specific
act of t%e +oard of directors" MAll acts 3it%in t%e po3ers of a corporation ma' +e performed +' aents of its
selectionL and, e?cept so far as limitations or restrictions 3%ic% ma' +e imposed +' special c%arter, +'=la3, or
statutor' pro-isions, t%e same eneral principles of la3 3%ic% o-ern t%e relation of aenc' for a natural
person o-ern t%e officer or aent of a corporation, of 3%ate-er status or ran:, in respect to %is po3er to act
for t%e corporationL and aents once appointed, or mem+ers actin in t%eir stead, are su+Iect to t%e same rules,
lia+ilities and incapacities as are aents of indi-iduals and pri-ate persons"M Jerein, t%e corporationDs +oard of
directors issued a Resolution specificall' aut%ori>in its la3'ers Mto act as t%eir aents in an' action or
proceedin +efore t%e Supreme Court, t%e Court of Appeals, or an' ot%er tri+unal or aenc'BLC and to sin,
e?ecute and deli-er in connection t%ere3it% t%e necessar' pleadins, motions, -erification, affida-it of merit,
certificate of non=forum s%oppin and ot%er instruments necessar' for suc% action and proceedin"M T%e
Resolution 3as sufficient to -est suc% persons 3it% t%e aut%orit' to +ind t%e corporation and 3as specific
enou% as to t%e acts t%e' 3ere empo3ered to do" $n t%e case of natural persons, Circular 17=.1 re,uires t%e
parties t%emsel-es to sin t%e certificate of non=forum s%oppin" Jo3e-er, suc% re,uirement cannot +e
imposed on artificial persons, li:e corporations, for t%e simple reason t%at t%e' cannot personall' do t%e tas:
t%emsel-es" As alread' stated, corporations act onl' t%rou% t%eir officers and dul' aut%ori>ed aents" $n fact,
p%'sical actions, li:e t%e sinin and t%e deli-er' of documents, ma' +e performed, on +e%alf of t%e corporate
entit', onl' +' specificall' aut%ori>ed indi-iduals" $t is note3ort%' t%at t%e Circular does not re,uire corporate
officers to sin t%e certificate" (ore important, t%ere is no pro%i+ition on aainst aut%ori>in aents to do so"
$n fact, not onl' 3as BA Sa-ins Ban: aut%ori>ed to name an aent to sin t%e certificateL it also e?ercised its
appointin aut%orit' reasona+l' 3ell" 0or 3%o else :no3s of t%e circumstances re,uired in t%e Certificate +ut
its o3n retained counsel" $ts reular officers, li:e its +oard c%airman and president, ma' not e-en :no3 t%e
details re,uired t%erein" Circular 17=.1 3as prescri+ed +' t%e Supreme Court to pro%i+it and penali>e t%e
e-ils of forum s%oppin" )e see no circum-ention of t%is rationale if t%e certificate 3as sined +' t%e
corporationDs specificall' aut%ori>ed counsel, 3%o %ad personal :no3lede of t%e matters re,uired in t%e
Circular"
42 :o3ton Con(lomerate %nc. vs. A(colicol [GR 1.017/ 4 A-ril 2004#
First Division, 4nares5Santia'o (J): 4 concur
Facts$ Sometime in !o-em+er 1..5, Jo%nn' Acolicol, proprietor of Japerson Enineerin, entered into an
MElectrical $nstallation ContractM 3it% 6o3ton Conlomerate, $nc" (6o3ton), t%ru its 6resident and C%airman
of t%e Board, 6%ilip C" C%ien" 0or a contract price of 69,355,555"55, Acolicol undertoo: to pro-ide electrical
3or:s as 3ell as t%e necessar' la+or and materials for t%e installation of electrical facilities at t%e Ciano 6la>a
Buildin o3ned +' 6o3ton, located alon (" Re'es Street, corner /" (ascardo Street, Ban:al, (a:ati,
(etro (anila" $n Auust 1..1, t%e Cit' EnineerDs Office of (a:ati inspected t%e electrical installations at
t%e Ciano 6la>a Buildin and certified t%at t%e same 3ere in ood condition" Jence, it issued t%e
correspondin certificate of electrical inspection" On 14 *ecem+er 1..A, Acolicol filed 3it% t%e Reional
Trial Court of 6asa' Cit', Branc% 119, t%e complaint for sum of mone' aainst 6o3ton and C%ien" Je alleed
t%at despite t%e completion of t%e electrical 3or:s at Ciano 6la>a Buildin, t%e latter onl' paid t%e amount of
69,531,745"A5, 3%ic% is e,ui-alent to more t%an .9H of t%e total contract price, t%ere+' lea-in a +alance of
6147,13."75" Acolicol li:e3ise claimed t%e amount of 6811,835"37 as additional electrical 3or:s 3%ic%
3ere necessitated +' t%e alleed re-isions in t%e structural desin of t%e +uildin" $n t%eir ans3er, petitioners
contended t%at t%e' cannot +e o+lied to pa' t%e +alance of t%e contract price +ecause t%e electrical
installations 3ere defecti-e and 3ere completed +e'ond t%e areed period" *urin t%e trial, C%ien testified
t%at t%e' s%ould not +e %eld lia+le for t%e additional electrical 3or:s alleedl' performed +' 6o3ton +ecause
t%e' ne-er aut%ori>ed t%e same" At t%e pre=trial conference, t%e parties stipulated, inter alia, t%at t%e unpaid
+alance claimed +' t%e respondent is 6147,13."45 and t%e cost of additional 3or: is 6811,835"37" On 14
Auust 1..., a decision 3as rendered a3ardin Acolicol t%e total a3ard of 6..5,748"37 representin t%e
unpaid +alance and t%e costs of additional 3or:s" Arie-ed, 6o3ton and C%ien appealed to t%e Court of
Appeals 3%ic%, on 3 Septem+er 1551 %o3e-er, affirmed t%e decision of t%e trial court" T%e motion for
reconsideration 3as li:e3ise denied on 9 *ecem+er 1551" 6o3ton and C%ien filed t%e petition for re-ie3 on
certiorari"
%ssue$ )%et%er C%ien, as president, can +e made solidaril' lia+le 3it% 6o3ton"
&eld$ T%e settled rule is t%at, a corporation is in-ested +' la3 3it% a personalit' separate and distinct from
t%ose of t%e persons composin it, suc% t%at, sa-e for certain e?ceptions, corporate officers 3%o entered into
contracts in +e%alf of t%e corporation cannot +e %eld personall' lia+le for t%e lia+ilities of t%e latter" 6ersonal
lia+ilit' of a corporate director, trustee or officer alon (alt%ou% not necessaril') 3it% t%e corporation ma' so
-alidl' attac%, as a rule, onl' 3%en P (1) %e assents to a patentl' unla3ful act of t%e corporation, or 3%en %e
is uilt' of +ad fait% or ross nelience in directin its affairs, or 3%en t%ere is a conflict of interest resultin
in damaes to t%e corporation, its stoc:%olders or ot%er personsL (1) %e consents to t%e issuance of 3atered
do3n stoc:s or 3%o, %a-in :no3lede t%ereof, does not fort%3it% file 3it% t%e corporate secretar' %is
3ritten o+Iection t%eretoL (3) %e arees to %old %imself personall' and solidaril' lia+le 3it% t%e corporationL or
(A) %e is made +' a specific pro-ision of la3 personall' ans3era+le for %is corporate action" Considerin t%at
none of t%e foreoin e?ceptions 3as esta+lis%ed in t%e present case, C%ien, 3%o entered into a contract 3it%
Acolicol in %is capacit' as 6resident and C%airman of t%e Board of 6o3ton, cannot +e %eld solidaril' lia+le
3it% t%e latter"
44 %nter)Asia %nvestments %ndustries vs. Court o, A--eals [GR 12.77/ 10 !une 2004#
Third Division, Cario Morales (J): 4 concur
Facts$ On 1 Septem+er 1.87, $nter=Asia $ndustries, $nc" ($nter=Asia), +' a Stoc: 6urc%ase Areement (t%e
Areement), sold to Asia $ndustries, $nc" (Asia $ndustries) for and in consideration of t%e sum of
61.,955,555"55 all its ri%t, title and interest in and to all t%e outstandin s%ares of stoc: of 0AR(ACOR,
$!C" (0AR(ACOR)" T%e Areement 3as sined +' &eonides 6" /on>ales and Jesus J" #erara, presidents of
$nter=Asia and Asia $ndustries, respecti-el'" @nder pararap% 8 of t%e Areement, $nter=Asia as seller made
3arranties and representations" T%e Areement 3as later amended 3it% respect to t%e MClosin *ate,M
oriinall' set up at 15:55 a"m" of 35 Septem+er 1.87, 3%ic% 3as mo-ed to 31 Octo+er 1.87, and to t%e mode
of pa'ment of t%e purc%ase price" T%e Areement, as amended, pro-ided t%at pendin su+mission +' S/# of
0AR(ACORDs audited financial statements as of 31 Octo+er 1.87, Asia $ndustries ma' retain t%e sum of
68,955,555"55 out of t%e stipulated purc%ase price of 61.,955,555"55L t%at from t%is retained amount of
68,955,555"55, Asia $ndustries ma' deduct an' s%ortfall on t%e (inimum /uaranteed !et )ort% of
611,555,555"55L and t%at if t%e amount retained is not sufficient to ma:e up for t%e deficienc' in t%e
(inimum /uaranteed !et )ort%, $nter=Asia s%all pa' t%e difference 3it%in 9 da's from date of receipt of t%e
audited financial statements" Asia $ndustries paid $nter=Asia a total amount of 611,555,555"55: 69,555,555"55
upon t%e sinin of t%e Areement, and 68,555,555"55 on 1 !o-em+er 1.87" 0rom t%e STATE(E!T O0
$!CO(E A!* *E0$C$T attac%ed to t%e financial report dated 17 !o-em+er 1.87 su+mitted +' S/#, it
appears t%at 0AR(ACOR %ad, for t%e 15 mont%s ended 31 Octo+er 1.87, a deficit of 611,1AA,119"55" Since
t%e stoc:%olderDs e,uit' amounted to 615,555,555"55, 0AR(ACOR %ad a net 3ort% deficienc' of
61,1AA,119"55" T%e uaranteed net 3ort% s%ortfall t%us amounted to 613,1AA,119"55 after addin t%e net
3ort% deficienc' of 61,1AA,119"55 to t%e (inimum /uaranteed !et )ort% of 611,555,555"55" T%e adIusted
contract price, t%erefore, amounted to 64,119,889"55 3%ic% is t%e difference +et3een t%e contract price of
61.,955,555"55 and t%e s%ortfall in t%e uaranteed net 3ort% of 613,11A,119"55" Asia $ndustries %a-in
alread' paid $nter=Asia 611,555,555"55, it 3as entitled to a refund of 69,8AA,119"55" $nter=Asia t%ereafter
proposed, +' letter of 1A Januar' 1.75, sined +' its president, t%at Asia $ndustriesDs claim for refund +e
reduced to 6A,5.3,..3"55, it promisin to pa' t%e cost of t%e !ort%ern Cota+ato $ndustries, $nc" (!OCOS$$)
superstructures in t%e amount of 689.,985"55" To t%e proposal respondent areed" $nter=Asia, %o3e-er,
3elc%ed on its promise" $nter=AsiaDs total lia+ilit' t%us stood at 6A,793,953"55 (6A,5.3,..3"55 plus
689.,985"55) e?clusi-e of interest" On 9 April 1.73, Asia $ndustries filed a complaint aainst $nter=Asia 3it%
t%e Reional Trial Court of (a:ati, one of t3o causes of action of 3%ic% 3as for t%e reco-er' of a+o-e=said
amount of 6A,793,953"55 18 plus interest" *en'in Asia $ndustriesDs claim, $nter=Asia countered t%at Asia
$ndustries failed to pa' t%e +alance of t%e purc%ase price and accordinl' set up a counterclaim" 0indin for
Asia $ndustries, t%e trial court rendered on 18 !o-em+er 1..1 a *ecision, orderin $nter=Asia to pa' Asia
$ndustries t%e sum of 6A,793,953"55 plus interest t%ereon at t%e leal rate from t%e filin of t%e complaint
until full' paid, t%e sum of 635,555"55 as attorne'Ds fees and t%e costs of suitL and (+) dismissin t%e
counterclaim" On appeal to t%e Court of Appeals, and +' *ecision of 19 Januar' 1..4, t%e Court of Appeals
affirmed t%e trial courtDs decision" $nter=AsiaDs motion for reconsideration of t%e decision %a-in +een denied
+' t%e Court of Appeals +' Resolution of 11 Jul' 1..4, $nter=Asia filed t%e petition for re-ie3 on certiorari"
%ssue$ )%et%er t%e 1A Januar' 1.75 letter sined +' $nter=Asia2s president is -alid and +indin"
&eld$ T%e 1A Januar' 1.75 letter sined +' $nter=AsiaDs president is -alid and +indin" As %eld in t%e case of
6eopleDs Aircaro and )are%ousin Co", $nc" -" Court of Appeals, t%e eneral rule is t%at, in t%e a+sence of
aut%orit' from t%e +oard of directors, no person, not e-en its officers, can -alidl' +ind a corporation" A
corporation is a Iuridical person, separate and distinct from its stoc:%olders and mem+ers, M%a-in " " "
po3ers, attri+utes and properties e?pressl' aut%ori>ed +' la3 or incident to its e?istence"M Bein a Iuridical
entit', a corporation ma' act t%rou% its +oard of directors, 3%ic% e?ercises almost all corporate po3ers, la's
do3n all corporate +usiness policies and is responsi+le for t%e efficienc' of manaement, as pro-ided in
Section 13 of t%e Corporation Code of t%e 6%ilippines" @nder t%is pro-ision, t%e po3er and responsi+ilit' to
decide 3%et%er t%e corporation s%ould enter into a contract t%at 3ill +ind t%e corporation is loded in t%e
+oard, su+Iect to t%e articles of incorporation, +'la3s, or rele-ant pro-isions of la3" Jo3e-er, Iust as a natural
person ma' aut%ori>e anot%er to do certain acts for and on %is +e%alf, t%e +oard of directors ma' -alidl'
deleate some of its functions and po3ers to officers, committees or aents" T%e aut%orit' of suc% indi-iduals
to +ind t%e corporation is enerall' deri-ed from la3, corporate +'la3s or aut%ori>ation from t%e +oard, eit%er
e?pressl' or impliedl' +' %a+it, custom or ac,uiescence in t%e eneral course of +usiness, -i>: MA corporate
officer or aent ma' represent and +ind t%e corporation in transactions 3it% t%ird persons to t%e e?tent t%at
Bt%eC aut%orit' to do so %as +een conferred upon %im, and t%is includes po3ers as, in t%e usual course of t%e
particular +usiness, are incidental to, or ma' +e implied from, t%e po3ers intentionall' conferred, po3ers
added +' custom and usae, as usuall' pertainin to t%e particular officer or aent, and suc% apparent po3ers
as t%e corporation %as caused person dealin 3it% t%e officer or aent to +elie-e t%at it %as conferred""""
BACpparent aut%orit' is deri-ed not merel' from practice" $ts e?istence ma' +e ascertained t%rou% (1) t%e
eneral manner in 3%ic% t%e corporation %olds out an officer or aent as %a-in t%e po3er to act or, in ot%er
3ords t%e apparent aut%orit' to act in eneral, 3it% 3%ic% it clot%es %imL or (1) t%e ac,uiescence in %is acts of
a particular nature, 3it% actual or constructi-e :no3lede t%ereof, 3it%in or +e'ond t%e scope of %is ordinar'
po3ers" $t re,uires presentation of e-idence of similar acts e?ecuted eit%er in its fa-or or in fa-or of ot%er
parties" $t is not t%e ,uantit' of similar acts 3%ic% esta+lis%es apparent aut%orit', +ut t%e -estin of a corporate
officer 3it% t%e po3er to +ind t%e corporation"M Jence, an officer of a corporation 3%o is aut%ori>ed to
purc%ase t%e stoc: of anot%er corporation %as t%e implied po3er to perform all ot%er o+liations arisin
t%erefrom, suc% as pa'ment of t%e s%ares of stoc:" B' allo3in its president to sin t%e Areement on its
+e%alf, $nter=Asia clot%ed %im 3it% apparent capacit' to perform all acts 3%ic% are e?pressl', impliedl' and
in%erentl' stated t%erein"
44 *a-u)*a-u Foundation vs. Court o, A--eals [GR 120000 21 !anuar" 2004#
Second Division, Calle9o Sr$ (J): 4 concur
Facts$ Sometime in 1.88, Elias R" Tan, t%en 6resident of &apulapu 0oundation, $nc", o+tained four loans
from Allied Ban:in Corporation co-ered +' four promissor' notes in t%e amounts of 6155,555 eac%" As of
13 Januar' 1.8., t%e entire o+liation amounted to 6A.3,944"41 and despite demands made on t%em +' t%e
Ban:, Tan and t%e foundation failed to pa' t%e same" T%e Ban: 3as constrained to file 3it% t%e Reional Trial
Court of Ce+u Cit', Branc% 19, a complaint see:in pa'ment +' Tan and t%e foundation, Iointl' and
solidaril', of t%e sum of 6A.3,944"41 representin t%eir loan o+liation, e?clusi-e of interests, penalt'
c%ares, attorne'2s fees and costs" $n its ans3er to t%e complaint, t%e 0oundation denied incurrin
inde+tedness from t%e Ban: allein t%at t%e loans 3ere o+tained +' Tan in %is personal capacit', for %is o3n
use and +enefit and on t%e strent% of t%e personal information %e furnis%ed t%e Ban:" T%e 0oundation
maintained t%at it ne-er aut%ori>ed Tan to co=sin in %is capacit' as its 6resident an' promissor' note and t%at
t%e Ban: full' :ne3 t%at t%e loans contracted 3ere made in Tan2s personal capacit' and for %is o3n use and
t%at t%e 0oundation ne-er +enefited, directl' or indirectl', t%erefrom" T%e 0oundation t%en interposed a cross=
claim aainst Tan allein t%at %e, %a-in e?ceeded %is aut%orit', s%ould +e solel' lia+le for said loans, and a
counterclaim aainst t%e Ban: for damaes and attorne'2s fees" 0or %is part, Tan admitted t%at %e contracted
t%e loans from t%e Ban: in %is personal capacit'" T%e parties, %o3e-er, areed t%at t%e loans 3ere to +e paid
from t%e proceeds of Tan2s s%ares of common stoc:s in t%e &apulapu $ndustries Corporation, a real estate
firm" T%e loans 3ere co-ered +' promissor' notes 3%ic% 3ere automaticall' rene3a+le (;rolled=o-er<) e-er'
'ear at an amount includin unpaid interests, until suc% time as Tan 3as a+le to pa' t%e same from t%e
proceeds of %is aforesaid s%ares" Accordin to Tan, t%e Ban:2s emplo'ee re,uired %im to affi? t3o sinatures
on e-er' promissor' note, assurin %im t%at t%e loan documents 3ould +e filled out in accordance 3it% t%eir
areement" Jo3e-er, after %e sined and deli-ered t%e loan documents to t%e Ban:, t%ese 3ere filled out in a
manner not in accord 3it% t%eir areement, suc% t%at t%e 0oundation 3as included as part' t%ereto" 0urt%er,
prior to its filin of t%e complaint, t%e Ban: made no demand on %im" After due trial, t%e court rendered
Iudment (1) re,uirin Tan and t%e 0oundation to pa' Iointl' and solidaril' to t%e Ban: t%e amount of
6A.3,944"41 as principal o+liation for t%e four promissor' notes, includin all ot%er c%ares included in t%e
same, 3it% interest at 1AH per annum, computed from 1A Januar' 1.8., until t%e same are full' paid, plus 1H
ser-ice c%ares and 1H mont%l' penalt' c%aresL (1) re,uirin Tan and t%e 0oundation to pa' Iointl' and
solidaril', attorne'2s fees in t%e e,ui-alent amount of 19H of t%e total amount due from t%em on t%e
promissor' notes, includin all c%aresL and (3) re,uirin Tan and t%e 0oundation to pa' Iointl' and solidaril'
litiation e?penses of 61,555"55 plus costs of t%e suit" On appeal, t%e CA affirmed 3it% modification t%e
Iudment of t%e court a ,uo +' deletin t%e a3ard of attorne'2s fees in fa-or of t%e Ban: for +ein 3it%out
+asis" Tan and t%e foundation filed t%e petition for re-ie3 on certiorari"
%ssue [1#$ )%et%er Tan and t%e foundation s%ould +e %eld Iointl' and solidaril' lia+le"
&eld [1#$ T%e appellate court did not err in %oldin Tan and t%e foundation Iointl' and solidaril' lia+le as it
applied t%e doctrine of piercin t%e -eil of corporate entit'" Tan and t%e foundation cannot %ide +e%ind t%e
corporate -eil under t%e follo3in circumstances: MT%e e-idence s%o3s t%at Tan %as +een representin
%imself as t%e 6resident of &apulapu 0oundation, $nc" Je opened a sa-ins account and a current account in
t%e names of t%e corporation, and sined t%e application form as 3ell as t%e necessar' specimen sinature
cards t3ice, for %imself and for t%e foundation" Je su+mitted a notari>ed Secretar'2s Certificate from t%e
corporation, attestin t%at %e %as +een aut%ori>ed, inter alia, to sin for and in +e%alf of t%e &apulapu
0oundation an' and all c%ec:s, drafts or ot%er orders 3it% respect to t%e +an:L to transact +usiness 3it% t%e
Ban:, neotiate loans, areements, o+liations, promissor' notes and ot%er commercial documentsL and to
initiall' o+tain a loan for 6155,555"55 from an' +an:" @nder t%ese circumstances, t%e foundation is lia+le for
t%e transactions entered into +' Tan on its +e%alf"
%ssue [2#$ )%et%er t%e foundation a-e Tan an apparent aut%orit' to deal 3it% t%e Ban:"
&eld [2#$ 6er its Secretar'2s Certificate, t%e 0oundation %ad i-en its 6resident, Tan, ostensi+le and apparent
aut%orit' to inter alia deal 3it% t%e Ban:" Accordinl', t%e 0oundation is estopped from ,uestionin Tan2s
aut%orit' to o+tain t%e su+Iect loans from t%e respondent Ban:" $t is a familiar doctrine t%at if a corporation
:no3inl' permits one of its officers, or an' ot%er aent, to act 3it%in t%e scope of an apparent aut%orit', it
%olds %im out to t%e pu+lic as possessin t%e po3er to do t%ose actsL and t%us, t%e corporation 3ill, as aainst
an'one 3%o %as in ood fait% dealt 3it% it t%rou% suc% aent, +e estopped from den'in t%e aent2s
aut%orit'"
4. Nielson > Co. %nc. vs. *e-anto Consolidated 'inin( Co. [GR *)21001 2/ 2ecem+er 110/#
%n &anc, Galdivar (J): ( concur, 4 too* no art
Facts$ +D> E5)1(A1, 1< Dece#.er 1@((F Galdivar (J): ( concur, ) too* no art, An operatin areement 3as
e?ecuted +efore )orld )ar $$ (on 35 Januar' 1.38) +et3een !ielson K Co" $nc" and t%e &epanto
Consolidated (inin Co" 3%ere+' t%e former operated and manaed t%e minin properties o3ned +' t%e
latter for a manaement fee of 61,955"55 a mont% and a 15H participation in t%e net profits resultin from t%e
operation of t%e minin properties, for a period of 9 'ears" $n 1.A5, a dispute arose reardin t%e computation
of t%e 15H s%are of !ielson in t%e profits" T%e Board of *irectors of &epanto, reali>in t%at t%e mec%anics of
t%e contract 3as unfair to !ielson, aut%ori>ed its 6resident to enter into an areement 3it% !ielson modif'in
t%e pertinent pro-ision of t%e contract effecti-e 1 Januar' 1.A5 in suc% a 3a' t%at !ielson s%all recei-e (1)
15H of t%e di-idends declared and paid, 3%en and as paid, durin t%e period of t%e contract and at t%e end of
eac% 'ear, (1) 15H of an' depletion reser-e t%at ma' +e set up, and (3) 15H of an' amount e?pended durin
t%e 'ear out of surplus earnins for capital account" $n t%e latter part of 1.A1, t%e parties areed to rene3 t%e
contract for anot%er period of 9 'ears, +ut in t%e meantime, t%e 6acific )ar +ro:e out in *ecem+er 1.A1" $n
Januar' 1.A1 operation of t%e minin properties 3as disrupted on account of t%e 3ar" $n 0e+ruar' 1.A1, t%e
mill, po3er plant, supplies on %and, e,uipment, concentrates on %and and mines, 3ere destro'ed upon orders
of t%e @nited States Arm', to pre-ent t%eir utili>ation +' t%e in-adin Japanese Arm'" T%e Japanese forces
t%ereafter occupied t%e minin properties, operated t%e mines durin t%e continuance of t%e 3ar, and 3%o
3ere ousted from t%e minin properties onl' in Auust 1.A9" After t%e minin properties 3ere li+erated from
t%e Japanese forces, &E6A!TO too: possession t%ereof and em+ar:ed in re+uildin and reconstructin t%e
mines and millL settin up ne3 orani>ationL clearin t%e mill siteL repairin t%e minesL erectin staff ,uarters
and +odeas and repairin e?istin structuresL installin ne3 mac%iner' and e,uipmentL repairin roads and
maintainin t%e sameL sal-ain e,uipment and storin t%e same 3it%in t%e +odeasL doin police 3or:
necessar' to ta:e care of t%e materials and e,uipment reco-eredL repairin and rene3in t%e 3ater s'stemL
and retim+erin" T%e re%a+ilitation and reconstruction of t%e mine and mill 3as not completed until 1.A7" On
14 June 1.A7 t%e mines resumed operation under t%e e?clusi-e manaement of &E6A!TO" S%ortl' after t%e
mines 3ere li+erated from t%e Japanese in-aders in 1.A9, a disareement arose +et3een !$E&SO! and
&E6A!TO o-er t%e status of t%e operatin contract 3%ic% as rene3ed e?pired in 1.A8" @nder t%e terms
t%ereof, t%e manaement contract s%all remain in suspense in case fortuitous e-ent or force maIeure, suc% as
3ar or ci-il commotion, ad-ersel' affects t%e 3or: of minin and millin" On 4 0e+ruar' 1.97, !$E&SO!
+rou%t an action aainst &E6A!TO +efore t%e Court of 0irst $nstance of (anila to reco-er certain sums of
mone' representin damaes alleedl' suffered +' t%e former in -ie3 of t%e refusal of t%e latter to compl'
3it% t%e terms of a manaement contract entered into +et3een t%em on 35 Januar' 1.38, includin attorne'Ds
fees and costs" &E6A!TO in its ans3er denied t%e material alleations of t%e complaint and set up certain
special defenses, amon t%em, prescription and lac%es, as +ars aainst t%e institution of t%e action" After trial,
t%e court a ,uo rendered a decision dismissin t%e complaint 3it% costs" T%e court stated t%at it did not find
sufficient e-idence to esta+lis% &E6A!TODs counterclaim and so it li:e3ise dismissed t%e same" !$E&SO!
appealed" T%e Supreme Court re-ersed t%e decision of t%e trial court and enter in lieu t%ereof anot%er,
Commercial *a3 ) Cor-oration *a3 200. ( .0 )
orderin &epanto to pa' !ielson (1) 15H s%are of cas% di-idends of *ecem+er, 1.A1 in t%e amount of
618,955"55, 3it% leal interest t%ereon from t%e date of t%e filin of t%e complaintL (1) manaement fee for
Januar', 1.A1 in t%e amount of 61,955"55, 3it% leal interest t%ereon from t%e date of t%e filin of t%e
complaintL (3) manaement fees for t%e si?t'=mont% period of e?tension of t%e manaement contract,
amountin to 6195,555"55, 3it% leal interest from t%e date of t%e filin of t%e complaintL (A) 15H s%are in
t%e cas% di-idends durin t%e period of e?tension of t%e manaement contract, amountin to 61,A55,555"55,
3it% leal interest t%ereon from t%e date of t%e filin of t%e complaintL (9) 15H of t%e depletion reser-e set up
durin t%e period of e?tension, amountin to 693,.17"77, 3it% leal interest t%ereon from t%e date of t%e filin
of t%e complaintL (4) 15H of t%e e?penses for capital account durin t%e period of e?tension, amountin to
64.A,34A"84, 3it% leal interest t%ereon from t%e date of t%e filin of t%e complaintL (8) to issue and deli-er to
!ielson and Co" $nc" s%ares of stoc: of &epanto Consolidated (inin Co" at par -alue e,ui-alent to t%e total
of !ielsonDs 15H s%are in t%e stoc: di-idends declared on !o-em+er 17, 1.A. and Auust 11, 1.95, toet%er
3it% all cas% and stoc: di-idends, if an', as ma' %a-e +een declared and issued su+se,uent to !o-em+er 17,
1.A. and Auust 11, 1.95, as fruits t%at accrued to said s%aresL pro-ided t%at if sufficient s%ares of stoc: of
&epantoDs are not a-aila+le to satisf' t%is Iudment, &epanto s%all pa' !ielson an amount in cas% e,ui-alent
to t%e mar:et -alue of said s%ares at t%e time of default, t%at is, all s%ares of stoc: t%at s%ould %a-e +een
deli-ered to !ielson +efore t%e filin of t%e complaint must +e paid at t%eir mar:et -alue as of t%e date of t%e
filin of t%e complaintL and all s%ares, if an', t%at s%ould %a-e +een deli-ered after t%e filin of t%e complaint
at t%e mar:et -alue of t%e s%ares at t%e time &epanto disposed of all its a-aila+le s%ares, for it is onl' t%en t%at
&epanto placed itself in condition of not +ein a+le to perform its o+liationL (7) t%e sum of 695,555"55 as
attorne'Ds feesL and (.) t%e costs"
&epanto see:s t%e reconsideration of t%e decision rendered on 18 *ecem+er 1.44"
%ssue$ )%et%er t%e manaement contract is a contract of aenc' or a contract of lease of ser-ices"
&eld$ Article 185. of t%e Old Ci-il Code, definin contract of aenc', pro-ides t%at MB' t%e contract of
aenc', one person +inds %imself to render some ser-ice or do somet%in for t%e account or at t%e re,uest of
anot%er"M Article 19AA, definin contract of lease of ser-ice, pro-ides t%at M$n a lease of 3or: or ser-ices, one
of t%e parties +inds %imself to ma:e or construct somet%in or to render a ser-ice to t%e ot%er for a price
certain"M $n +ot% aenc' and lease of ser-ices one of t%e parties +inds %imself to render some ser-ice to t%e
ot%er part'" Aenc', %o3e-er, is distinuis%ed from lease of 3or: or ser-ices in t%at t%e +asis of aenc' is
representation, 3%ile in t%e lease of 3or: or ser-ices t%e +asis is emplo'ment" T%e lessor of ser-ices does not
represent %is emplo'er, 3%ile t%e aent represents %is principal" 0urt%er, aenc' is a preparator' contract, as
aenc' Mdoes not stop 3it% t%e aenc' +ecause t%e purpose is to enter into ot%er contracts"M T%e most
c%aracteristic feature of an aenc' relations%ip is t%e aentDs po3er to +rin a+out +usiness relations +et3een
%is principal and t%ird persons" MT%e aent is destined to e?ecute Iuridical acts (creation, modification or
e?tinction of relations 3it% t%ird parties)" &ease of ser-ices contemplate onl' material (non=Iuridical) acts"M
Jerein, t%e principal and paramount underta:in of !ielson under t%e manaement contract 3as t%e
operation and de-elopment of t%e mine and t%e operation of t%e mill" All t%e ot%er underta:ins mentioned in
t%e contract are necessar' or incidental to t%e principal underta:in P t%ese ot%er underta:ins +ein
dependent upon t%e 3or: on t%e de-elopment of t%e mine and t%e operation of t%e mill" $n t%e performance of
t%is principal underta:in !ielson 3as not in an' 3a' e?ecutin Iuridical acts for &epanto, destined to create,
modif' or e?tinuis% +usiness relations +et3een &epanto and t%ird persons" $n ot%er 3ords, in performin its
principal underta:in !ielson 3as not actin as an aent of &epanto, in t%e sense t%at t%e term aent is
interpreted under t%e la3 of aenc', +ut as one 3%o 3as performin material acts for an emplo'er, for a
compensation" $t is true t%at t%e manaement contract pro-ides t%at !ielson 3ould also act as purc%asin
aent of supplies and enter into contracts reardin t%e sale of mineral, +ut t%e contract also pro-ides t%at
!ielson could not ma:e an' purc%ase, or sell t%e minerals, 3it%out t%e prior appro-al of &epanto" $t is clear,
t%erefore, t%at e-en in t%ese cases !ielson could not e?ecute Iuridical acts 3%ic% 3ould +ind &epanto 3it%out
first securin t%e appro-al of &epanto" !ielson, t%en, 3as to act onl' as an intermediar', not as an aent"
0urt%er, from t%e statements in t%e annual report for 1.34, and from t%e pro-ision of pararap% Q$ of t%e
(anaement contract, t%at t%e emplo'ment +' &epanto of !ielson to operate and manae its mines 3as
principall' in consideration of t%e :no3=%o3 and tec%nical ser-ices t%at !ielson offered &epanto" T%e
contract t%us entered into pursuant to t%e offer made +' !ielson and accepted +' &epanto 3as a Mdetailed
operatin contractM" $t 3as not a contract of aenc'" !o3%ere in t%e record is it s%o3n t%at &epanto
considered !ielson as its aent and t%at &epanto terminated t%e manaement contract +ecause it %ad lost its
trust and confidence in !ielson"
40 %slamic 2irectorate o, t;e :;ili--ines vs. Court o, A--eals [GR 117/17 14 'a" 1117#
First Division, "er#osisi#a Jr$ (J): 1 concurs, 1 concurs, 1 too* no art, 1 on leave
Facts$ Sometime in 1.81, $slamic leaders of all (uslim maIor tri+al roups in t%e 6%ilippines %eaded +'
*ean Cesar Adi+ (aIul orani>ed and incorporated t%e $S&A($C *$RECTORATE O0 TJE 6J$&$66$!ES
($*6), t%e primar' purpose of 3%ic% is to esta+lis% an $slamic Center in Rue>on Cit' for, t%e construction of a
M(os,ue (pra'er place, (adrasa% (Ara+ic Sc%ool), and ot%er reliious infrastructuresM so as to facilitate t%e
effecti-e practice of $slamic fait% in t%e area" To3ards t%is end, t%at is, in t%e same 'ear, t%e &i+'an
o-ernment donated mone' to t%e $*6 to purc%ase land at Culiat, Tandan Sora, Rue>on Cit', to +e used as a
Center for t%e $slamic populace" T%e land, 3it% an area of A.,491 s,uare meters, 3e co-ered +' t3o titles:
TCTs RT=14915 (184414) and RT=14911 (185948), +ot% reistered in t%e name of $*6" $n 1.81, t%e Board of
Trustees of t%e $*6 3as composed of Senator (amintal Tamano, Conressman Ali *imaporo, Conressman
Salipada 6endatun, *ean Cesar Adi+ (aIul, Sultan Jarun Al=Ras%id &ucman, *eleate A%mad Alonto,
Commissioner *atu (ama Sinsuat and (a'or Amin:adra A+u+a:ar" $n 1.81, after t%e purc%ase of t%e land
+' t%e &i+'an o-ernment in t%e name of $*6, (artial &a3 3as declared +' t%e late 6resident 0erdinand
(arcos" (ost of t%e mem+ers of t%e 1.81 Board of Trustees li:e Senators (amintal Tamano, Salipada
6endatun, A%mad Alonto, and Conressman Al=Ras%id &ucman fle3 to t%e (iddle East to escape political
persecution" T%ereafter, t3o (uslim roups sprun, t%e Carpi>o /roup, %eaded +' Enineer 0arou: Carpi>o,
and t%e A++as /roup, led +' (rs" Fora'da Tamano and Att'" 0irdaussi A++as" Bot% roups claimed to +e t%e
leitimate $*6" Sinificantl', on 3 Octo+er 1.74, t%e SEC, in a suit +et3een t%ese t3o contendin roups,
came out 3it% a *ecision in SEC Case 1478 declarin t%e election of +ot% t%e Carpi>o /roup and t%e A++as
/roup as $*6 +oard mem+ers to +e null and -oid" !eit%er roup, %o3e-er, too: t%e necessar' steps
prescri+ed +' t%e SEC in its 3 Octo+er 1.74 *ecision, and no -alid election of t%e mem+ers of t%e Board of
Trustees of $*6 3as e-er called" Alt%ou% t%e Carpi>o /roup attempted to su+mit a set of +'=la3s, t%e SEC
found t%at, aside from t%at Enineer 0arou: Carpi>o and Att'" (usi+ Buat, t%ose 3%o prepared and adopted
t%e +'=la3s 3ere not +ona fide mem+ers of t%e $*6, t%us renderin t%e adoption of t%e +'=la3s li:e3ise null
and -oid" On 15 April 1.7., 3it%out %a-in +een properl' elected as ne3 mem+ers of t%e Board of Trustees
of $*6, t%e Carpi>o /roup caused to +e sined an alleed Board Resolution of t%e $*6, aut%ori>in t%e sale of
t%e su+Iect t3o parcels of land to t%e $lesia ni Cristo ($!C) for a consideration of 611,3A3,A55"55, 3%ic% sale
3as e-idenced +' a *eed of A+solute Sale 11 dated 15 April 1.7." On 35 (a' 1..1, t%e 1.81 $*6 Board of
Trustees %eaded +' former Senator (amintal Tamano, or t%e Tamano /roup, filed a petition +efore t%e SEC
(SEC Case A511) see:in to declare null and -oid t%e *eed of A+solute Sale sined +' t%e Carpi>o /roup and
t%e $!C since t%e roup of Enineer Carpi>o 3as not t%e leitimate Board of Trustees of t%e $*6" (ean3%ile,
$!C, pursuant to t%e *eed of A+solute Sale e?ecuted in its fa-or, filed an action for Specific 6erformance
3it% *amaes aainst t%e -endor, Carpi>o /roup, +efore Branc% 71 of t%e Reional Trial Court of Rue>on
Cit' (Ci-il Case R=.5=4.38) to compel said roup to clear t%e propert' of s,uatters and deli-er complete and
full p%'sical possession t%ereof to $!C" &i:e3ise, $!C filed a motion in t%e same case to compel one (rs"
&eticia 6" &ion to produce and surrender to t%e Reister of *eeds of Rue>on Cit' t%e o3nerDs duplicate cop'
of TCTs RT=14911 and RT=14915 co-erin t%e t3o parcels of land, so t%at t%e sale in $!CDs fa-or ma' +e
reistered and ne3 titles issued in t%e name of $!C" (rs" &ion 3as alleed to +e t%e mortaee of t%e t3o
parcels of land e?ecuted in %er fa-or +' certain A+dulra%man R"T" &in>a and Ro3aida Busran=Sampaco
claimed to +e in +e%alf of t%e Carpi>o /roup" Jude Celia &ipana=Re'es of Branc% 71, Reional Trial Court
of Rue>on Cit', denied $*6Ds motion to inter-ene on t%e round of lac: of Iuridical personalit' of t%e $*6=
Tamano /roup and t%at t%e issues +ein raised +' 3a' of inter-ention are intra=corporate in nature,
Iurisdiction t%ereto properl' pertainin to t%e SEC" Apprised of t%e pendenc' of SEC Case A511 in-ol-in
t%e contro-erted status of t%e $*6=Carpi>o /roup +ut 3it%out 3aitin for t%e outcome of said case, Jude
Re'es, on 11 Septem+er 1..1, rendered 6artial Judment in Ci-il Case R=.5=4.38 orderin t%e $*6=Carpi>o
/roup to compl' 3it% its o+liation under t%e *eed of Sale of clearin t%e su+Iect lots of s,uatters and of
deli-erin t%e actual possession t%ereof to $!C" T%ereupon Jude Re'es in anot%er Order, dated 1 (arc%
1..1, pertainin also to Ci-il Case R=.5=4.38, treated $!C as t%e ri%tful o3ner of t%e real properties and
disposed" On 4 April 1..1, t%e Order 3as amended +' Jude Re'es directin &ion Mto deli-er t%e o3nerDs
duplicate copies of TCT !os" RT=14911 (185948) and RT=14915 (184414) to t%e Reister of *eeds of Rue>on
Cit' for t%e purposes stated in t%e Order of (arc% 1, 1..1"M (ortaee &ion 3ent to t%e Court of Appeals,
t%ru a petition for certiorari (CA=/R S6=18.83), assailin t%e Orders of Jude Re'es" T%e appellate court
dismissed %er petition on 17 Octo+er 1..1" @ndaunted, &ion filed a petition for re-ie3 +efore t%e Supreme
Court (/R 158891)" $n t%e meantime, t%e SEC, on 9 Jul' 1..3, finall' came out 3it% a *ecision in SEC Case
A511, *eclarin t%e +'=la3s su+mitted +' t%e $*6=Capri>o roup as unaut%ori>ed, and %ence, null and -oidL
declarin t%e sale of t%e t3o (1) parcels of land in Rue>on Cit' co-ered +' t%e *eed of A+solute Sale entered
into +' $lesia ni Eristo and t%e $slamic *irectorate of t%e 6%ilippines, $nc" null and -oidL declarin t%e
election of t%e Board of *irectors 13 of t%e corporation from 1.74 to 1..1 as null and -oidL and *eclarin t%e
acceptance of t%e respondents, e?cept 0arou: Carpi>o and (usni+ Buat, as mem+ers of t%e $*6 null and -oid"
T%e $!C filed a (otion for $nter-ention, dated 8 Septem+er 1..3, in SEC Case A511, +ut t%e same 3as
denied on account of t%e fact t%at t%e decision of t%e case %ad +ecome final and e?ecutor', no appeal %a-in
+een ta:en t%erefrom" $!C ele-ated SEC Case A511 to t%e Court of Appeals +' 3a' of a special ci-il action
for certiorari (CA=/R S6 331.9)" On 17 Octo+er 1..A, t%e appeallate court promulated a *ecision rantin
$!CDs petition" T%e portion of t%e SEC *ecision in SEC Case A511 3%ic% declared t%e sale of t%e t3o (1) lots
in ,uestion to $!C as -oid 3as ordered set aside +' t%e Court of Appeals" T%us, t%e $*6=Tamano /roup
+rou%t t%e petition for re-ie3, dated 11 *ecem+er 1..A, to t%e Supreme Court" )%ile t%e petition 3as
pendin, %o3e-er, t%e Supreme Court rendered Iudment in /R 158891 on t%e petition filed +' (rs" &eticia
6" &ion" T%e *ecision, dated 1 June 1..9, denied t%e &ion petition and affirmed t%e 17 Octo+er 1..1
*ecision of t%e Court of Appeals in CA=/R S6=18.83 3%ic% sustained t%e Order of Jude Re'es compellin
mortaee &ion to surrender t%e o3nerDs duplicate copies of TCTs RT=14911 (185948) and RT=14915
(184414) to t%e Reister of *eeds of Rue>on Cit' so t%at t%e *eed of A+solute Sale in $!CDs fa-or ma' +e
properl' reistered"
%ssue$ )%et%er t%e Tandan Sora propert' 3as leitimatel' sold to t%e $!C"
&eld$ As far +ac: as 3 Octo+er 1.74, t%e SEC, in Case 1478, in a suit +et3een t%e Carpi>o /roup and t%e
A++as /roup, alread' declared t%e election of t%e Carpi>o /roup (as 3ell as t%e A++as /roup) to t%e $*6
Board as null and -oid for +ein -iolati-e of t%e Articles of $ncorporation" !ot%in t%us +ecomes more settled
t%an t%at t%e $*6=Carpi>o /roup 3it% 3%om $!C contracted is a fa:e Board" 6remises considered, all acts
carried out +' t%e Carpi>o Board, particularl' t%e sale of t%e Tandan Sora propert', alleedl' in t%e name of
t%e $*6, %a-e to +e struc: do3n for %a-in +een done 3it%out t%e consent of t%e $*6 t%ru a leitimate Board
of Trustees" Article 1317 of t%e !e3 Ci-il Code la's do3n t%e essential re,uisites of contracts, and 3%ere all
t%ese elements must +e present to constitute a -alid contract" 0or, 3%ere e-en one is a+sent, t%e contract is
-oid" Specificall', consent is essential for t%e e?istence of a contract, and 3%ere it is 3antin, t%e contract is
non=e?istent" Jerein, t%e $*6, o3ner of t%e su+Iect parcels of land, ne-er a-e its consent, t%ru a leitimate
Board of Trustees, to t%e disputed *eed of A+solute Sale e?ecuted in fa-or of $!C" T%is is, t%erefore, a case
not onl' of -itiated consent, +ut one 3%ere consent on t%e part of one of t%e supposed contractin parties is
totall' 3antin" $nelucta+l', t%e su+Iect sale is -oid and produces no effect 3%atsoe-er" T%e Carpi>o /roup=
$!C sale is furt%er deemed null and -oid a+ initio +ecause of t%e Carpi>o /roupDs failure to compl' 3it%
Section A5 of t%e Corporation Code pertainin to t%e disposition of all or su+stantiall' all assets of t%e
corporation" T%e Tandan Sora propert', it appears from t%e records, constitutes t%e onl' propert' of t%e $*6"
Jence, its sale to a t%ird=part' is a sale or disposition of all t%e corporate propert' and assets of $*6 fallin
s,uarel' 3it%in t%e contemplation of t%e foreoin section" 0or t%e sale to +e -alid, t%e maIorit' -ote of t%e
leitimate Board of Trustees, concurred in +' t%e -ote of at least 1G3 of t%e +ona fide mem+ers of t%e
corporation s%ould %a-e +een o+tained" T%ese t3in re,uirements 3ere no met as t%e Carpi>o /roup 3%ic%
-oted to sell t%e Tandan Sora propert' 3as a fa:e Board of Trustees, and t%ose 3%ose names and sinatures
3ere affi?ed +' t%e Carpi>o /roup toet%er 3it% t%e s%am Board Resolution aut%ori>in t%e neotiation for
t%e sale 3ere, from all indications, not +ona fide mem+ers of t%e $*6 as t%e' 3ere made to appear to +e"
Apparentl', t%ere are onl' 19 official mem+ers of t%e $*6 includin t%e 7 mem+ers of t%e Board of Trustees"
All told, t%e disputed *eed of A+solute Sale e?ecuted +' t%e fa:e Carpi>o Board and $!C 3as intrinsicall'
-oid a+ initio"
47 *o-eD 2ee vs. 5ecurit" and =6c;an(e Commission [GR 00.02 10 !ul" 1111# also *e Jesus -s"
$ntermediate Appellate Court B/R 43.11C
%n &anc, /aras (J): 14 concur
Facts$ !aa Telep%one Compan', $nc" (!atelco) 3as orani>ed in 1.9A, t%e aut%ori>ed capital 3as
6155,555"55" $n 1.8A !atelco decided to increase its aut%ori>ed capital to 63,555,555"55" As re,uired +' t%e
6u+lic Ser-ice Act, !atelco filed an application for t%e appro-al of t%e increased aut%ori>ed capital 3it% t%e
t%en Board of Communications under BOC Case 8A=7A" On 7 Januar' 1.89, a decision 3as rendered in said
case, appro-in t%e said application su+Iect to certain conditions, amon 3%ic% 3as MT%at t%e issuance of t%e
s%ares of stoc:s 3ill +e for a period of one 'ear from t%e date %ereof, Dafter 3%ic% no furt%er issues 3ill +e
made 3it%out pre-ious aut%orit' from t%is Board"M 6ursuant to t%e appro-al i-en +' t%e t%en Board of
Communications, !atelco filed its Amended Articles of $ncorporation 3it% t%e Securities and E?c%ane
Commission (SEC)" )%en t%e amended articles 3ere filed 3it% t%e SEC, t%e oriinal aut%ori>ed capital of
6155,555"55 3as alread' paid" Of t%e increased capital of 61,.55,555"55 t%e su+scri+ers su+scri+ed to
6975,555"55 of 3%ic% 61A9,555 3as full' paid" T%e capital stoc: of !atelco 3as di-ided into 113,555
common s%ares and 78,555 preferred s%ares, +ot% at a par -alue of 615"55 per s%ares" On 11 April 1.88,
!atelco entered into a contract 3it% Communication Ser-ices, $nc" (CS$) for t%e Mmanufacture, suppl',
deli-er' and installationM of telep%one e,uipment" $n accordance 3it% t%is contract, !atelco issued 1A,555
s%ares of common stoc:s to CS$ on t%e same date as part of t%e do3npa'ment" On 9 (a' 1.8., anot%er
11,555 s%ares of common stoc:s 3ere issued to CS$" $n +ot% instances, no prior aut%ori>ation from t%e Board
of Communications, no3 t%e !ational Telecommunications Commission, 3as secured pursuant to t%e
conditions imposed +' t%e decision in BOC Case 8A=7A" On 1. (a' 1.8., t%e stoc:%olders of t%e !atelco
%eld t%eir annual stoc:%oldersD meetin to elect t%eir se-en directors to t%eir Board of *irectors, for t%e 'ear
1.8.=1.75" $n t%is election 6edro &ope> *ee 3as unseated as C%airman of t%e Board and 6resident of t%e
Corporation, +ut 3as elected as one of t%e directors, toet%er 3it% %is 3ife, Amelia &ope> *ee" $n t%e election
CS$ 3as a+le to ain control of !atelco 3%en t%e latterDs leal counsel, Att'" &uciano (aa' 3on a seat in
t%e Board 3it% t%e %elp of CS$" $n t%e reorani>ation Att'" (aa' +ecame president" *ee %a-in +een
unseated in t%e election, filed a petition in t%e SEC (SEC Case 18A7), ,uestionin t%e -alidit' of t%e elections
of 1. (a' 1.8. upon t%e main round t%at t%ere 3as no -alid list of stoc:%olders t%rou% 3%ic% t%e ri%t to
-ote could +e determined" As pra'ed for in t%e petition, a restrainin order 3as issued +' t%e SEC placin *ee
and t%e ot%er officers of t%e 1.87=1.8. !atelco Board in %old=o-er capacit'" T%e SEC restrainin order 3as
ele-ated to t%e Supreme Court in /R 95779 3%ere t%e enforcement of t%e SEC restrainin order 3as
restrained" (aa', et" al" replaced t%e %old=o-er officers" *urin t%e tenure of t%e (aa' Board, from 11
June 1.8. to 15 (arc% 1.75, it did not reform t%e contract of 11 April 1.88, and entered into anot%er contract
3it% CS$ for t%e suppl' and installation of additional e,uipment +ut also issued to CS$ 113,755 s%ares of
common stoc:" Su+se,uentl', t%e Supreme Court dismissed t%e petition in /R 95779 upon t%e round t%at t%e
same 3as premature and t%e Commission s%ould +e allo3ed to conduct its %earin on t%e contro-ers'" T%e
dismissal of t%e petition resulted in t%e unseatin of t%e (aa' roup from t%e +oard of directors of !atelco
in a M%old=o-erM capacit'" $n t%e course of t%e proceedins in SEC Case 18A7, SEC Jearin officer Emmanuel
Sison issued an order on 13 June 1.71, declarin: (1) t%at CS$ is a stoc:%older of !atelco and, t%erefore,
entitled to -oteL (1) t%at une?plained 14,797 s%ares of !atelco appear to %a-e +een issued in e?cess to CS$
3%ic% s%ould not +e allo3ed to -oteL (3) t%at 71 s%are%olders 3it% t%eir correspondin num+er of s%ares s%all
+e allo3ed to -oteL and (A) conse,uentl', orderin t%e %oldin of special stoc:%olderD meetin to elect t%e ne3
mem+ers of t%e Board of *irectors for !atelco +ased on t%e findins made in t%e order as to 3%o are entitled
to -ote" 0rom t%e foreoin order dated 13 June 1.71, *ee filed a petition for certiorariGappeal 3it% t%e SEC
en +anc (SEC=AC 534)" T%ereafter, t%e Commission en +anc rendered a decision on 9 April 1.71, sustainin
t%e order of t%e Jearin OfficerL dismissin t%e petitionGappeal for lac: of meritL and orderin ne3 elections
as t%e Jearin Officer s%all set after consultations 3it% !atelco officers, amon ot%ers" On 11 April 1.71,
*ee and !atelco filed t%eir respecti-e motions for reconsideration" 6endin resolution of t%e motions for
reconsideration, on A (a' 1.71, t%e %earin officer 3it%out 3aitin for t%e decision of t%e commission en
+anc, to +ecome final and e?ecutor' rendered an order statin t%at t%e election for directors 3ould +e %eld on
11 (a' 1.71" On 15 (a' 1.71, t%e SEC en +anc denied t%e motions for reconsideration"
(ean3%ile on 15 (a' 1.71 (/R 43.11), Antonio #illasenor filed Ci-il Case 1958 3it% t%e Court of 0irst
$nstance of Camarines Sur, !aa Cit', aainst &uciano (aa', !ildo $" Ramos, *esirerio Saa-edra, Auusto
0ederis, Ernesto (iuel, Justino de Jesus St", #icente Tordilla, 6edro &ope> *ee and Julio &ope> *ee, 3%ic%
3as raffled to Branc% $, presided o-er +' Jude *elfin #ir" Suna" #illasenor claimed t%at %e 3as an assinee
of an option to repurc%ase 34,555 s%ares of common stoc:s of !atelco under a *eed of Assinment e?ecuted
in %is fa-or" T%e (aa' roup alleedl' refused to allo3 t%e repurc%ase of said stoc:s 3%en #illasenor
offered to CS$ t%e repurc%ase of said stoc:s +' tenderin pa'ment of its price" T%e complaint t%erefore,
pra'ed for t%e allo3ance to repurc%ase t%e aforesaid stoc:s and t%at t%e %oldin of t%e 11 (a' 1.71 election
of directors and officers of !atelco +e enIoined" A restrainin order dated 11 (a' 1.71 3as issued +' t%e
lo3er court commandin desistance from t%e sc%eduled election until furt%er orders" !e-ert%eless, on 11 (a'
1.71, as sc%eduled, t%e controllin maIorit' of t%e stoc:%olders of t%e !atelco defied t%e restrainin order,
and proceeded 3it% t%e elections, under t%e super-ision of t%e SEC representati-es" On 19 (a' 1.71, t%e
SEC reconi>ed t%e fact t%at elections 3ere dul' %eld, and proclaimed t%at t%e follo3in are t%e Mdul' elected
directorsM of t%e !atelco for t%e term 1.71=1.73: 0elipa T" Ja-alera, !ilda $" Ramos, &uciano (aa',
Auusto 0ederis, *aniel J" $lano, !elin J" $lano, Sr", and Ernesto A" (iuel" T%e follo3in are t%e reconi>ed
officers to 3it: &uciano (aa' (6resident), !ilda $" Ramos (#ice=6resident), *esiderio Saa-edra
(Secretar'), 0elipa Ja-alera (Treasurer), and *aniel $lano (Auditor)" *espite ser-ice of t%e order of 19 (a'
1.71, t%e &ope> *ee roup %eaded +' (essrs" Justino *e Jesus and Julio &ope> *ee :ept insistin no
elections 3ere %eld and refused to -acate t%eir position" On 17 (a' 1.71, t%e SEC issued anot%er order
directin t%e %old=o-er directors and officers to turn o-er t%eir respecti-e posts to t%e ne3l' elected directors
and officers and directin t%e S%eriff of !aa Cit', 3it% t%e assistance of 6C and $!6 of !aa Cit', and ot%er
la3 enforcement aencies of t%e Cit' or of t%e 6ro-ince of Camarines Sur, to enforce t%e aforesaid order" On
1. (a' 1.71, t%e S%eriff of !aa Cit', assisted +' la3 enforcement aencies, installed t%e ne3l' elected
directors and officers of t%e !atelco, and t%e %old=o-er officers peacefull' -acated t%eir respecti-e offices and
turned=o-er t%eir functions to t%e ne3 officers" On 1 June 1.71, a c%are for contempt 3as filed +' #illasenor
allein t%at (aa', et" al" %a-e +een claimin in press conferences and o-er t%e radio airlanes t%at t%e'
actuall' %eld and conducted elections on 11 (a' 1.71 in t%e Cit' of !aa and t%at t%e' %a-e a ne3 set of
officers, and t%at suc% acts of (aa', et" al" constitute contempt of court" On 8 Septem+er 1.71, t%e lo3er
court rendered Iudment on t%e contempt c%are, declarin CS$, !ilda Ramos, &uciano (aa', *esiderio
Saa-edra, Auusto 0ederis and Ernesto (iuel, uilt' of contempt of court, and accordinl' punis%ed 3it%
imprisonment of 4 mont%s and to pa' fine of 61,555"55 eac%: and orderin r!ilda Ramos, &uciano (aa',
*esiderio Saa-edra, Auusto 0ederis and Ernesto (iuel, and t%ose no3 occup'in t%e positions of directors
and officers of !ATE&CO to -acate t%eir respecti-e positions t%erein, and orderin t%em to reinstate t%e %old=
o-er directors and officers of !ATE&CO, suc% as 6edro &ope> *ee as 6resident, Justino de Jesus, Sr", as #ice
6resident, Julio &ope> *ee as Treasurer and #icente Tordilla, Jr" as Secretar', and ot%ers referred to as %old=
o-er directors and officers of !ATE&CO in t%e order dated 17 (a' 1.71 of SEC Jearin Officer Emmanuel
Sison, in SEC Case 18A7, +' 3a' of REST$T@T$O!, and conse,uentl', orderin said respondents to turn
o-er all records, propert' and assets of !ATE&CO to said %old=o-er directors and officers" T%e trial Iude
issued an order dated 15 Septem+er 1.71 directin t%e respondents in t%e contempt c%are to Mcompl' strictl',
Commercial *a3 ) Cor-oration *a3 200. ( .. )
under pain of +ein su+Iected to imprisonment until t%e' do so"M (aa', et" al" filed on 18 Septem+er 1.71,
a petition for certiorari and pro%i+ition 3it% preliminar' inIunction or restrainin order aainst t%e C0$ Jude
of Camarines Sur, !aa Cit' and de Jesus, Sr", et"a al", 3it% t%e t%en $ntermediate Appellate Court 3%ic%
issued a resolution orderin de Jesus, Sr", et" al" to comment on t%e petition, 3%ic% 3as complied 3it%, and at
t%e same time temporaril' refrained from implementin and or enforcin t%e ,uestioned Iudment and order
of t%e lo3er court" On 1A April 1.73, t%e t%en $ntermediate Appellate Court, rendered a decision, annulin
t%e Iudment dated 8 Septem+er 1.71 rendered +' t%e trial Iude on t%e contempt c%are, and %is order dated
15 Septem+er 1.71, implementin said IudmentL orderin t%e D%old=o-erD directors and officers of
!ATE&CO to -acate t%eir respecti-e officesL directin respondents to restore or re=esta+lis% (aa', et" al"
3%o 3ere eIected on 11 (a' 1.71 to t%eir respecti-e offices in t%e !ATE&COL and pro%i+itin 3%oe-er ma'
+e t%e successor of t%e Jude from interferin 3it% t%e proceedins of t%e Securities and E?c%ane
Commission in SEC=AC 534" T%e order of re=implementation 3as issued, and, finall', t%e (aa' roup %as
+een restored as t%e officers of t%e !atelco"
&ope> *ee, et" al" filed t%e petitions for certiorari 3it% preliminar' inIunction andGor restrainin order" $n t%e
resolution of t%e Court En Banc dated 13 Auust 1.73, /R 43.11 3as consolidated 3it% /R 45951"
%ssue [1#$ )%et%er t%e issuance of 113,755 s%ares of !atelco to CS$, made durin t%e pendenc' of SEC Case
18A7 in t%e Securities and E?c%ane Commission 3as -alid"
&eld [1#$ T%e issuance of 113,755 s%ares of !atelco stoc: to CS$ made durin t%e pendenc' of SEC Case
18A7 in t%e Securities and E?c%ane Commission 3as -alid" T%e findins of t%e SEC En Banc as to t%e
issuance of t%e 113,755 s%ares of stoc: 3as stated as follo3s: MBut t%e issuance of 113,755 s%ares 3as
pursuant to a Board Resolution and stoc:%oldersD appro-al prior to 1. (a' 1.8. 3%en CS$ 3as not 'et in
control of t%e Board or of t%e -otin s%ares" T%ere is distinction +et3een an order to issue s%ares on or +efore
1. (a' 1.8. and actual issuance of t%e s%ares after 1. (a' 1.8." T%e actual issuance, it is true, came durin
t%e period 3%en CS$ 3as in control of -otin s%ares and t%e Board (if t%e' 3ere in fact in control) = +ut onl'
pursuant to t%e oriinal Board and stoc:%oldersD orders, not on t%e initiati-e to t%e ne3 Board, elected 1. (a'
1.8., 3%ic% petitioners are ,uestionin" T%e Commission en +anc finds it difficult to see %o3 t%e one 3%o
a-e t%e orders can turn around and impun t%e implementation of t%e orders %e %ad pre-iousl' i-en" T%e
reformation of t%e contract is understanda+le for !atelco lac:ed t%e corporate funds to purc%ase t%e CS$
e,uipment"""" Appellant %ad raise t%e issue 3%et%er t%e issuance of 113,755 s%ares of stoc: durin t%e
incum+enc' of t%e (aa' Board 3%ic% 3as alleedl' CS$ controlled, and 3%ile t%e case 3as su+ Iudice,
amounted to unfair and undue ad-antae" T%is does not merit consideration in t%e a+sence of additional
e-idence to support t%e proposition"M $n effect, t%erefore, t%e stoc:%olders of !atelco appro-ed t%e issuance of
stoc: to CS$"
%ssue [2#$ )%et%er !atelco stoc:%olders %a-e a ri%t of preemption to t%e 113,755 s%ares in ,uestionL else,
3%et%er t%e (aa' Board, in issuin said s%ares 3it%out notif'in !atelco stoc:%olders, -iolated t%eir ri%t
of pre=emption to t%e unissued s%ares
&eld [2#$ T%e issuance of t%e 113,755 stoc:s is not in-alid e-en assumin t%at it 3as made 3it%out notice to
t%e stoc:%olders as claimed +' *ee, et" al"" T%e po3er to issue s%ares of stoc:s in a corporation is loded in
t%e +oard of directors and no stoc:%olders meetin is re,uired to consider it +ecause additional issuance of
s%ares of stoc:s does not need appro-al of t%e stoc:%olders" Conse,uentl', no pre=empti-e ri%t of !atelco
stoc:%olders 3as -iolated +' t%e issuance of t%e 113,755 s%ares to CS$"
4/ 5-ouses Firme vs. Bu<al =nter-rises and 2evelo-ment Cor-. [GR 14000/ 24 9cto+er 2004#
First Division, Cario (J): 3 concur, 1 on leave
Facts$ Spouses Constante and A>ucena 0irme are t%e reistered o3ners of a parcel of land located on *a%lia
A-enue, 0air-ie3 6ar:, Rue>on Cit'" Renato de Castro, t%e -ice president of Bu:al Enterprises and
*e-elopment Corporation aut%ori>ed %is friend, Teodoro A-iles, a +ro:er, to neotiate 3it% t%e Spouses 0irme
for t%e purc%ase of t%e 6ropert'" On 17 (arc% 1..9, Bu:al Enterprises filed a complaint for specific
performance and damaes 3it% t%e trial court, allein t%at t%e Spouses 0irme reneed on t%eir areement to
sell t%e 6ropert'" T%e complaint as:ed t%e trial court to order t%e Spouses 0irme to e?ecute t%e deed of sale
and to deli-er t%e title to t%e 6ropert' to Bu:al Enterprises upon pa'ment of t%e areed purc%ase price" On 8
Auust 1..7, t%e trial court rendered Iudment aainst Bu:al Enterprises, dismissin t%e case and orderin
Bu:al Enterprises to pa' t%e Spouses Constante and A>ucena 0irme (1) t%e sum of 6339,.4A".5 as and +'
3a' of actual and compensator' damaesL (1) t%e sum of 6955,555"55 as and +' 3a' of moral damaesL (3)
t%e sum of 6155,555"55 as and +' 3a' of attorne'2s feesL and (A) t%e costs of t%e suit" T%e trial court %eld
t%ere 3as no perfected contract of sale as Bu:al Enterprises failed to esta+lis% t%at t%e Spouses 0irme a-e
t%eir consent to t%e sale of t%e 6ropert'L and t%at A-iles %ad no -alid aut%orit' to +ind Bu:al Enterprises in t%e
sale transaction" Bu:al Enterprises appealed to t%e Court of Appeals, 3%ic% re-ersed and set aside t%e
decision of t%e trial court" T%e appellate court ordered t%e Spouses 0irme to e?ecute t%e *eed of A+solute
Sale transferrin t%e o3ners%ip of t%e su+Iect propert' to Bu:al Enterprises immediatel' upon receipt of t%e
purc%ase price of 63,11A,555"55 and to perform all suc% acts necessar' and proper to effect t%e transfer of t%e
propert' co-ered +' TCT 14A1A3 to Bula: EnterprisesL and directed Bu:al Enterprises to deli-er t%e pa'ment
of t%e purc%ase price of t%e propert' 3it%in 45 da's from t%e finalit' of t%e Iudment" T%e Court of Appeals
%eld t%at t%e lac: of a +oard resolution aut%ori>in A-iles to act on +e%alf of Bu:al Enterprises in t%e purc%ase
of t%e 6ropert' 3as cured +' ratificationL inasmuc% as Bu:al Enterprises ratified t%e purc%ase 3%en it filed
t%e complaint for t%e enforcement of t%e sale" T%e spouses 0irme filed t%e petition for re-ie3 on certiorari
+efore t%e Supreme Court"
%ssue$ )%et%er t%ere 3as a perfected contract +et3een t%e Spouses 0irme and Bu:al Enterprises, t%e latter
alleedl' +ein represented +' A-iles"
&eld$ T%ere 3as no consent on t%e part of t%e Spouses 0irme" Consent is an essential element for t%e
e?istence of a contract, and 3%ere it is 3antin, t%e contract is non=e?istent" T%e essence of consent is t%e
conformit' of t%e parties on t%e terms of t%e contract, t%e acceptance +' one of t%e offer made +' t%e ot%er"
T%e Spouses 0irme flatl' reIected t%e offer of A-iles to +u' t%e 6ropert' on +e%alf of Bu:al Enterprises"
T%ere 3as t%erefore no concurrence of t%e offer and t%e acceptance on t%e su+Iect matter, consideration and
terms of pa'ment as 3ould result in a perfected contract of sale" 0urt%er, t%ere 3as no appro-al from t%e
Board of *irectors of Bu:al Enterprises as 3ould finali>e an' transaction 3it% t%e Spouses 0irme" A-iles did
not %a-e t%e proper aut%orit' to neotiate for Bu:al Enterprises" A-iles testified t%at %is friend, *e Castro, %ad
as:ed %im to neotiate 3it% t%e Spouses 0irme to +u' t%e 6ropert'" *e Castro, as Bu:al Enterprises2 -ice
president, testified t%at %e aut%ori>ed A-iles to +u' t%e 6ropert'" Jo3e-er, t%ere is no Board Resolution
aut%ori>in A-iles to neotiate and purc%ase t%e 6ropert' on +e%alf of Bu:al Enterprises" $t is t%e +oard of
directors or trustees 3%ic% e?ercises almost all t%e corporate po3ers in a corporation" @nder Sections 13 and
34 of t%e Corporation Code, t%e po3er to purc%ase real propert' is -ested in t%e +oard of directors or trustees"
)%ile a corporation ma' appoint aents to neotiate for t%e purc%ase of real propert' needed +' t%e
corporation, t%e final sa' 3ill %a-e to +e 3it% t%e +oard, 3%ose appro-al 3ill finali>e t%e transaction" A
corporation can onl' e?ercise its po3ers and transact its +usiness t%rou% its +oard of directors and t%rou%
its officers and aents 3%en aut%ori>ed +' a +oard resolution or its +'=la3s" A-iles, 3%o neotiated t%e
purc%ase of t%e 6ropert', is neit%er an officer of Bu:al Enterprises nor a mem+er of t%e Board of *irectors of
Bu:al Enterprises" T%ere is no Board Resolution aut%ori>in A-iles to neotiate and purc%ase t%e 6ropert' for
Bu:al Enterprises" T%ere is also no e-idence to pro-e t%at Bu:al Enterprises appro-ed 3%ate-er transaction
A-iles made 3it% t%e Spouses 0irme" $n fact, t%e president of Bu:al Enterprises did not sin an' of t%e deeds
of sale presented to t%e Spouses 0irme" E-en *e Castro admitted t%at %e %ad ne-er met t%e Spouses 0irme"
Considerin all t%ese circumstances, it is %i%l' impro+a+le for A-iles to finali>e an' contract of sale 3it% t%e
Spouses 0irme" 0urt%ermore, t%e Court notes t%at in t%e Complaint filed +' Bu:al Enterprises 3it% t%e trial
court, A-iles sined t%e -erification and certification of non=forum s%oppin" T%e -erification and
certification of non=forum s%oppin 3as not accompanied +' proof t%at Bu:al Enterprises aut%ori>ed A-iles
to file t%e complaint on +e%alf of Bu:al Enterprises" T%e po3er of a corporation to sue and +e sued is
e?ercised +' t%e +oard of directors" ;T%e p%'sical acts of t%e corporation, li:e t%e sinin of documents, can
+e performed onl' +' natural persons dul' aut%ori>ed for t%e purpose +' corporate +'=la3s or +' a specific
act of t%e +oard of directors"< T%e purpose of -erification is to secure an assurance t%at t%e alleations in t%e
pleadin are true and correct and t%at it is filed in ood fait%" True, t%is re,uirement is procedural and not
Iurisdictional" Jo3e-er, t%e trial court s%ould %a-e ordered t%e correction of t%e complaint since A-iles 3as
neit%er an officer of Bu:al Enterprises nor aut%ori>ed +' its Board of *irectors to act on +e%alf of Bu:al
Enterprises"
41 *o"ola Grand 7illas &omeo3ners (5out;) Association %nc. vs. Court o, A--eals [GR 1171// 7
Au(ust 1117#
Second Division, >o#ero (J): 3 concur, 1 on leave
Facts$ &o'ola /rand #illas Jomeo3ners Association (&/#JA$) 3as orani>ed on 7 0e+ruar' 1.73 as t%e
association of %omeo3ners and residents of t%e &o'ola /rand #illas" $t 3as reistered 3it% t%e Jome
0inancin Corporation, t%e predecessor of Jome $nsurance and /uarant' Corporation (J$/C), as t%e sole
%omeo3nersD orani>ation in t%e said su+di-ision under Certificate of Reistration 5A=1.8" $t 3as orani>ed
+' t%e de-eloper of t%e su+di-ision and its first president 3as #ictorio #" Soli-en, %imself t%e o3ner of t%e
de-eloper" 0or un:no3n reasons, %o3e-er, &/#JA$ did not file its corporate +'=la3s" Sometime in 1.77, t%e
officers of t%e &/#JA$ tried to reister its +'=la3s" T%e' failed to do so" To t%e officersD consternation, t%e'
disco-ered t%at t%ere 3ere t3o ot%er orani>ations 3it%in t%e su+di-ision P t%e &o'ola /rand #illas
Jomeo3ners (!ort%) Association $ncorporated (!ort% Association) and t%e &o'ola /rand #illas Jomeo3ners
(Sout%) Association $ncorporated (Sout% Association)" Accordin to Emden Encarnaction and Joratio
A'cardo, a non=resident and Soli-en %imself, respecti-el' %eaded t%ese associations" T%e' also disco-ered
t%at t%ese associations %ad 9 reistered %omeo3ners eac% 3%o 3ere also t%e incorporators, directors and
officers t%ereof" !one of t%e mem+ers of t%e &/#JA$ 3as listed as mem+er of t%e !ort% Association 3%ile 3
mem+ers of &/#JA$ 3ere listed as mem+ers of t%e Sout% Association" T%e !ort% Association 3as reistered
3it% t%e J$/C on 13 0e+ruar' 1.7. under Certificate of Reistration 5A=1145 co-erin 6%ases )est $$, East
$$$, )est $$$ and East $#" $t su+mitted its +'=la3s on 15 *ecem+er 1.77" $n Jul' 1.7., 3%en Soli-en in,uired
a+out t%e status of &/#JA$, Att'" Joa,uin A" Bautista, t%e %ead of t%e leal department of t%e J$/C,
informed %im t%at &/#JA$ %ad +een automaticall' dissol-ed for t3o reasons" 0irst, it did not su+mit its +'=
la3s 3it%in t%e period re,uired +' t%e Corporation Code and, second, t%ere 3as non=user of corporate c%arter
+ecause J$/C %ad not recei-ed an' report on t%e associationDs acti-ities" Apparentl', t%is information resulted
in t%e reistration of t%e Sout% Association 3it% t%e J$/C on 18 Jul' 1.7. co-erin 6%ases )est $, East $ and
East $$" $t filed its +'=la3s on 14 Jul' 1.7." T%ese de-elopments prompted t%e officers of t%e &/#JA$ to
lode a complaint 3it% t%e J$/C" T%e' ,uestioned t%e re-ocation of &/#JA$Ds certificate of reistration
3it%out due notice and %earin and concomitantl' pra'ed for t%e cancellation of t%e certificates of reistration
of t%e !ort% and Sout% Associations +' reason of t%e earlier issuance of a certificate of reistration in fa-or of
&/#JA$" On 14 Januar' 1..3, after due notice and %earin, Encarnacion and A'ca'do o+tained a fa-ora+le
rulin from J$/C Jearin Officer *anilo C" Ja-ier (J$/C Case RR(=9=7.) reconi>in t%e &/#JA$ under
Certificate of Reistration 5A=1.8 as t%e dul' reistered and e?istin %omeo3ners association for &o'ola
/rand #illas %omeo3ners, and declarin t%e Certificates of Reistration of !ort% and Sout% Associations as
re-o:ed or cancelled, amon ot%ers" T%e Sout% Association appealed to t%e Appeals Board of t%e J$/C" $n its
Resolution of 7 Septem+er 1..3, t%e Board dismissed t%e appeal for lac: of merit" Re+uffed, t%e Sout%
Association in turn appealed to t%e Court of Appeals" Jo3e-er, in t%e *ecision of 13 Auust 1..A, t%e Court
of Appeals affirmed t%e Resolution of t%e J$/C Appeals Board" T%e Sout% Association filed t%e petition for
%ssue$ )%et%er t%e &/#JA$Ds failure to file its +'=la3s 3it%in t%e period prescri+ed +' Section A4 of t%e
Corporation Code %ad t%e effect of automaticall' dissol-in t%e said corporation"
Commercial *a3 ) Cor-oration *a3 200. ( ./ )
&eld$ Automatic corporate dissolution for failure to file t%e +'=la3s on time 3as ne-er t%e intention of t%e
leislature" (oreo-er, e-en 3it%out resortin to t%e records of deli+erations of t%e Batasan 6am+ansa, t%e
la3 itself pro-ides t%e ans3er to t%e issue" Ta:en as a 3%ole and under t%e principle t%at t%e +est interpreter of
a statute is t%e statute itself (optima statuli interpretati? est ipsum statutum), Section A4 re-eals t%e leislati-e
intent to attac% a director', and not mandator', meanin for t%e 3ord DDmustM in t%e first sentence t%ereof" T%e
second pararap% of t%e la3 3%ic% allo3s t%e filin of t%e +'=la3s e-en prior to incorporation" T%is pro-ision
in t%e same section of t%e Code rules out mandator' compliance 3it% t%e re,uirement of filin t%e +'=la3s
M3it%in 1 mont% after receipt of official notice of t%e issuance of its certificate of incorporation +' t%e
Securities and E?c%ane Commission"M $t necessaril' follo3s t%at failure to file t%e +'=la3s 3it%in t%at period
does not impl' t%e MdemiseM of t%e corporation" B'=la3s ma' +e necessar' for t%e Mo-ernmentM of t%e
corporation +ut t%ese are su+ordinate to t%e articles of incorporation as 3ell as to t%e Corporation Code and
related statutes" T%ere are in fact cases 3%ere +'=la3s are unnecessar' to corporate e?istence or to t%e -alid
e?ercise of corporate po3ers, t%us: M$n t%e a+sence of c%arter or statutor' pro-isions to t%e contrar', +'=la3s
are not necessar' eit%er to t%e e?istence of a corporation or to t%e -alid e?ercise of t%e po3ers conferred upon
it, certainl' in all cases 3%ere t%e c%arter sufficientl' pro-ides for t%e o-ernment of t%e +od'L and e-en
3%ere t%e o-ernin statute in e?press terms confers upon t%e corporation t%e po3er to adopt +'=la3s, t%e
failure to e?ercise t%e po3er 3ill +e ascri+ed to mere nonaction 3%ic% 3ill not render -oid an' acts of t%e
corporation 3%ic% 3ould ot%er3ise +e -alid"M Alt%ou% t%e Corporation Code re,uires t%e filin of +'=la3s, it
does not e?pressl' pro-ide for t%e conse,uences of t%e non=filin of t%e same 3it%in t%e period pro-ided for
in Section A4" And e-en if suc% omission %as +een rectified +' 6residential *ecree .51=A, and under t%e
e?press rant of po3er and aut%orit' to t%e SEC, t%ere can +e no automatic corporate dissolution simpl'
+ecause t%e incorporators failed to a+ide +' t%e re,uired filin of +'=la3s em+odied in Section A4 of t%e
Corporation Code" T%ere is no outri%t MdemiseM of corporate e?istence" 6roper notice and %earin are
cardinal components of due process in an' democratic institution, aenc' or societ'" $n ot%er 3ords, t%e
incorporators must +e i-en t%e c%ance to e?plain t%eir nelect or omission and remed' t%e same" T%at t%e
failure to file +'=la3s is not pro-ided for +' t%e Corporation Code +ut in anot%er la3 is of no moment" 6*
.51=A, 3%ic% too: effect immediatel' after its promulation on 11 (arc% 1.84, is -er' muc% apposite to t%e
Code" T%e Corporation Code and 6* .51=A are statutes in pari materia" E-er' statute must +e so construed
and %armoni>ed 3it% ot%er statutes as to form a uniform s'stem of Iurisprudence" As t%e Mrules and
reulations or pri-ate la3s enacted +' t%e corporation to reulate, o-ern and control its o3n actions, affairs
and concerns and its stoc:%olders or mem+ers and directors and officers 3it% relation t%ereto and amon
t%emsel-es in t%eir relation to it,M +'=la3s are indispensa+le to corporations in t%is Iurisdiction" T%ese ma' not
+e essential to corporate +irt% +ut certainl', t%ese are re,uired +' la3 for an orderl' o-ernance and
manaement of corporations" !onet%eless, failure to file t%em 3it%in t%e period re,uired +' la3 +' no means
tolls t%e automatic dissolution of a corporation"
40 C;ina Ban<in( Cor-oration vs. Court o, A--eals [GR 117004 20 'arc; 1117#
Facts$ On 11 Auust 1.8A, /alicano Calapatia, Jr", a stoc:%older of #alle' /olf K Countr' Clu+, $nc"
(#/CC$), pleded %is Stoc: Certificate 111. to C%ina Ban:in Corporation (CBC)" On 14 Septem+er 1.8A,
CBC 3rote #/CC$ re,uestin t%at t%e plede areement +e recorded in its +oo:s" $n a letter dated 18
Septem+er 1.8A, #/CC$ replied t%at t%e deed of plede e?ecuted +' Calapatia in CBCDs fa-or 3as dul' noted
in its corporate +oo:s" On 3 Auust 1.73, Calapatia o+tained a loan of 615,555"55 from CBC, pa'ment of
3%ic% 3as secured +' t%e plede areement still e?istin +et3een Calapatia and CBC" *ue to CalapatiaDs
failure to pa' %is o+liation, CBC, on 11 April 1.79, filed a petition for e?traIudicial foreclosure +efore
!otar' 6u+lic Antonio T" de #era of (anila, re,uestin t%e latter to conduct a pu+lic auction sale of t%e
pleded stoc:" On 1A (a' 1.79, CBC informed #/CC$ of t%e foreclosure proceedins and re,uested t%at t%e
pleded stoc: +e transferred to its name and t%e same +e recorded in t%e corporate +oo:s" Jo3e-er, on 19
Jul' 1.79, #/CC$ 3rote CBC e?pressin its ina+ilit' to accede to CBCDs re,uest in -ie3 of CalapatiaDs
unsettled accounts 3it% t%e clu+" *espite t%e foreoin, !otar' 6u+lic de #era %eld a pu+lic auction on 18
Septem+er 1.79 and CBC emered as t%e %i%est +idder at 615,555"55 for t%e pleded stoc:" Conse,uentl',
CBC 3as issued t%e correspondin certificate of sale" On 11 !o-em+er 1.79, #/CC$ sent Calapatia a notice
demandin full pa'ment of %is o-erdue account in t%e amount of 617,873"1A" Said notice 3as follo3ed +' a
demand letter dated 11 *ecem+er 1.79 for t%e same amount and anot%er notice dated 11 !o-em+er 1.74 for
613,A73"1A" On A *ecem+er 1.74, #/CC$ caused to +e pu+lis%ed in t%e ne3spaper *ail' E?press a notice of
auction sale of a num+er of its stoc: certificates, to +e %eld on 15 *ecem+er 1.74 at 15:55 a"m" $ncluded
t%erein 3as CalapatiaDs o3n s%are of stoc: (Stoc: Certificate 111.)" T%rou% a letter dated 19 *ecem+er
1.74, #/CC$ informed Calapatia of t%e termination of %is mem+ers%ip due to t%e sale of %is s%are of stoc: in
t%e 15 *ecem+er 1.74 auction" On 9 (a' 1.7., CBC ad-ised #/CC$ t%at it is t%e ne3 o3ner of CalapatiaDs
Stoc: Certificate 111. +' -irtue of +ein t%e %i%est +idder in t%e 18 Septem+er 1.79 auction and re,uested
t%at a ne3 certificate of stoc: +e issued in its name" On 1 (arc% 1..5, #/CC$ replied t%at Mfor reason of
delin,uenc'M CalapatiaDs stoc: 3as sold at t%e pu+lic auction %eld on 15 *ecem+er 1.74 for 619,555"55" On .
(arc% 1..5, CBC protested t%e sale +' #/CC$ of t%e su+Iect s%are of stoc: and t%ereafter filed a case 3it%
t%e Reional Trial Court of (a:ati for t%e nullification of t%e 15 *ecem+er 1.74 auction and for t%e issuance
of a ne3 stoc: certificate in its name" On 17 June 1..5, t%e Reional Trial Court of (a:ati dismissed t%e
complaint for lac: of Iurisdiction o-er t%e su+Iect matter on t%e t%eor' t%at it in-ol-es an intra=corporate
dispute and on 18 Auust 1..5 denied CBCDs motion for reconsideration" On 15 Septem+er 1..5, CBC filed a
complaint 3it% t%e Securities and E?c%ane Commission (SEC) for t%e nullification of t%e sale of CalapatiaDs
stoc: +' #/CC$L t%e cancellation of an' ne3 stoc: certificate issued pursuant t%eretoL for t%e issuance of a
ne3 certificate in petitionerDs nameL and for damaes, attorne'Ds fees and costs of litiation" On 3 Januar'
1..1, SEC Jearin Officer (anuel 6" 6erea rendered a decision in fa-or of #/CC$, statin in t%e main t%at
considerin t%at t%e said s%are is delin,uent, #/CC$ %ad -alid reason not to transfer t%e s%are in t%e name of
CBC in t%e +oo:s of #/CC$ until li,uidation of delin,uenc'" Conse,uentl', t%e case 3as dismissed" On 1A
April 1..1, Jearin Officer 6erea denied CBCDs motion for reconsideration" CBC appealed to t%e SEC en
+anc and on A June 1..3, t%e Commission issued an order re-ersin t%e decision of its %earin officerL
%oldin t%at CBC %as a prior ri%t o-er t%e pleded s%are and +ecause of pledorDs failure to pa' t%e principal
de+t upon maturit', CBC can proceed 3it% t%e foreclosure of t%e pleded s%areL declarin t%at t%e auction sale
conducted +' #/CC$ on 15 *ecem+er 1.74 is declared !@&& and #O$*L and orderin #/CC$ to issue
anot%er mem+ers%ip certificate in t%e name of CBC" #/CC$ sou%t reconsideration of t%e order" Jo3e-er,
t%e SEC denied t%e same in its resolution dated 8 *ecem+er 1..3" T%e sudden turn of e-ents sent #/CC$ to
see: redress from t%e Court of Appeals" On 19 Auust 1..A, t%e Court of Appeals rendered its decision
nullif'in and settin aside t%e orders of t%e SEC and its %earin officer on round of lac: of Iurisdiction o-er
t%e su+Iect matter and, conse,uentl', dismissed CBCDs oriinal complaint" T%e Court of Appeals declared t%at
t%e contro-ers' +et3een CBC and #/CC$ is not intra=corporateL nullif'in t%e SEC orders and dismissin
CBC2s complaint" CBC mo-ed for reconsideration +ut t%e same 3as denied +' t%e Court of Appeals in its
resolution dated 9 Octo+er 1..A" CBC filed t%e petition for re-ie3 on certiorari"
%ssue$ )%et%er CBC is +ound +' #/CC$Ds +'=la3s"
&eld$ $n order to +e +ound, t%e t%ird part' must %a-e ac,uired :no3lede of t%e pertinent +'=la3s at t%e time
t%e transaction or areement +et3een said t%ird part' and t%e s%are%older 3as entered into" Jerein, at t%e time
t%e plede areement 3as e?ecuted" #/CC$ could %a-e easil' informed CBC of its +'=la3s 3%en it sent
notice formall' reconi>in CBC as pledee of one of its s%ares reistered in CalapatiaDs name" CBCDs +elated
notice of said +'=la3s at t%e time of foreclosure 3ill not suffice" B'=la3s sinifies t%e rules and reulations or
pri-ate la3s enacted +' t%e corporation to reulate, o-ern and control its o3n actions, affairs and concerns
and its stoc:%olders or mem+ers and directors and officers 3it% relation t%ereto and amon t%emsel-es in
t%eir relation to it" $n ot%er 3ords, +'=la3s are t%e relati-el' permanent and continuin rules of action adopted
+' t%e corporation for its o3n o-ernment and t%at of t%e indi-iduals composin it and %a-in t%e direction,
manaement and control of its affairs, in 3%ole or in part, in t%e manaement and control of its affairs and
acti-ities" T%e purpose of a +'=la3 is to reulate t%e conduct and define t%e duties of t%e mem+ers to3ards t%e
corporation and amon t%emsel-es" T%e' are self=imposed and, alt%ou% adopted pursuant to statutor'
aut%orit', %a-e no status as pu+lic la3" T%erefore, it is t%e enerall' accepted rule t%at t%ird persons are not
+ound +' +'=la3s, e?cept 3%en t%e' %a-e :no3lede of t%e pro-isions eit%er actuall' or constructi-el'" 0or
t%e e?ception to t%e eneral accepted rule t%at t%ird persons are not +ound +' +'=la3s to +e applica+le and
+indin upon t%e pledee, :no3lede of t%e pro-isions of t%e #/CC$ B'=la3s must +e ac,uired at t%e time
t%e plede areement 3as contracted" Eno3lede of said pro-isions, eit%er actual or constructi-e, at t%e time
of foreclosure 3ill not affect pledeeDs ri%t o-er t%e pleded s%are" Article 1578 of t%e Ci-il Code pro-ides
t%at it is also of t%e essence of t%ese contracts t%at 3%en t%e principal o+liation +ecomes due, t%e t%ins in
3%ic% t%e plede or mortae consists ma'+e alienated for t%e pa'ment to t%e creditor" 0urt%er, #/CC$Ds
contention t%at CBC is dut'=+ound to :no3 its +'=la3s +ecause of Article 15.. of t%e Ci-il Code 3%ic%
stipulates t%at t%e creditor must ta:e care of t%e t%in pleded 3it% t%e dilience of a ood fat%er of a famil',
fails to con-ince" CBC 3as ne-er informed of CalapatiaDs unpaid accounts and t%e restricti-e pro-isions in
#/CC$Ds +'=la3s" 0urt%ermore, Section 43 of t%e Corporation Code 3%ic% pro-ides t%at Mno s%ares of stoc:
aainst 3%ic% t%e corporation %olds an' unpaid claim s%all +e transfera+le in t%e +oo:s of t%e corporationM
cannot +e utili>ed +' #/CC$" T%e term Munpaid claimM refers to Man' unpaid claim arisin from unpaid
su+scription, and not to an' inde+tedness 3%ic% a su+scri+er or stoc:%older ma' o3e t%e corporation arisin
from an' ot%er transaction"M Jerein, t%e su+scription for t%e s%are in ,uestion %as +een full' paid as
e-idenced +' t%e issuance of (em+ers%ip Certificate 111." )%at Calapatia o3ed t%e corporation 3ere merel'
t%e mont%l' dues" Jence, Section 43 does not appl'"
41 *ee vs. Court o, A--eals [GR 1401. 4 Fe+ruar" 1112#
Third Division, Dutierrez Jr$ (J): 4 concur
Facts$ On 19 !o-em+er 1.79, a complainant for sum of mone' 3as filed +' t%e $nternational Corporate
Ban:, $nc" aainst Saco+a (anufacturin Corp", 6a+lo /on>ales Jr", and Tomas /on>ales 3%o, in turn, filed a
t%ird part' complaint aainst Alfa $nterated Te?tile (ills (A&0A), Ramon C" &ee (A&0ADs president) and
Antonio *(" &acdao (A&0ADs -ice president) on 18 (arc% 1.74" On 18 Septem+er 1.78, &ee and &acdao
filed a motion to dismiss t%e t%ird part' complaint 3%ic% t%e Reional Trial Court of (a:ati, Branc% 97
denied in an Order dated 18 June 1.77" On 17 Jul' 1.77, &ee and &acdao filed t%eir ans3er to t%e t%ird part'
complaint" (ean3%ile, on 11 Jul' 1.77, t%e trial issued an order re,uirin t%e issuance of an alias summons
upon A&0A t%rou% t%e *B6 as a conse,uence of &ee and &acdaoDs letter informin t%e court t%at t%e
summons for A&0A 3as erroneousl' ser-ed upon t%em considerin t%at t%e manaement of A&0A %ad +een
transferred to t%e *B6" $n a manifestation dated 11 Jul' 1.77, t%e *B6 claimed t%at it 3as not aut%ori>ed to
recei-e summons on +e%alf of A&0A since t%e *B6 %ad not ta:en o-er t%e compan' 3%ic% %as a separate and
distinct corporate personalit' and e?istence" On A Auust 1.77, t%e trial court issued an order ad-isin Saco+a
(anufacturin, et" al" to ta:e t%e appropriate steps to ser-e t%e summons to A&0A" On 14 Auust 1.77,
Saco+a (anufacturin, et" al" filed a (anifestation and (otion for t%e *eclaration of 6roper Ser-ice of
Summons 3%ic% t%e trial court ranted on 18 Auust 1.77" On 11 Septem+er 1.77, &ee and &acdao filed a
motion for reconsideration su+mittin t%at t%e Rule 1A, section 13 of t%e Re-ised Rules of Court is not
applica+le since t%e' 3ere no loner officers of A&0A and Saco+a (anufacturin, et" al" s%ould %a-e a-ailed
of anot%er mode of ser-ice under Rule 1A, Section 14 of t%e said Rules, i"e", t%rou% pu+lication to effect
proper ser-ice upon A&0A" On 1 Januar' 1.7., t%e trial court up%eld t%e -alidit' of t%e ser-ice of summons
on A&0A t%rou% &ee and &acdao, t%us, den'in t%e latterDs motion for reconsideration and re,uirin A&0A to
file its ans3er t%rou% &ee and &acdao as its corporate officers" On 1. Januar' 1.7., a second motion for
reconsideration 3as filed +' &ee and &acdao reiteratin t%eir stand t%at +' -irtue of t%e -otin trust areement
t%e' ceased to +e officers and directors of A&0A, %ence, t%e' could no loner recei-e summons or an' court
processes for or on +e%alf of A&0A" $n support of t%eir second motion for reconsideration, &ee and &acdao
attac%ed t%ereto a cop' of t%e -otin trust areement +et3een all t%e stoc:%olders of A&0A (&ee and &acdao
included), on t%e one %and, and t%e *B6, on t%e ot%er %and, 3%ere+' t%e manaement and control of A&0A
+ecame -ested upon t%e *B6" On 19 April 1.7., t%e trial court re-ersed itself +' settin aside its pre-ious
Order dated 1 Januar' 1.7. and declared t%at ser-ice upon &ee and &acdao 3%o 3ere no loner corporate
officers of A&0A cannot +e considered as proper ser-ice of summons on A&0A" On 19 (a' 1.7., Saco+a
(anufacturin, et" al" mo-ed for a reconsideration of t%e Order 3%ic% 3as affirmed +' t%e court in is Order
dated 1A Auust 1.7. den'in Saco+a (anufacturin, et" al"Ds motion for reconsideration" On 17 Septem+er
1.7., a petition for certiorari 3as +elatedl' su+mitted +' Saco+a (anufacturin, et" al" +efore t%e Court of
Appeals 3%ic%, nonet%eless, resol-ed to i-e due course t%ereto on 11 Septem+er 1.7." On 18 Octo+er 1.7.,
t%e trial court, not %a-in +een notified of t%e pendin petition for certiorari 3it% t%e appellate court issued an
Order declarin as final t%e Order dated 19 April 1.7." Saco+a (anufacturin, et" al" in t%e said Order 3ere
re,uired to ta:e positi-e steps in prosecutin t%e t%ird part' complaint in order t%at t%e court 3ould not +e
constrained to dismiss t%e same for failure to prosecute" Su+se,uentl', on 19 Octo+er 1.7. Saco+a
(anufacturin, et" al" filed a motion for reconsideration on 3%ic% t%e trial court too: no furt%er action" On 1.
(arc% 1..5, after &ee and &acdao filed t%eir ans3er to Saco+a (anufacturin, et" al"Ds petition for certiorari,
t%e appellate court rendered its decision, settin aside t%e orders of trial court Iude dated 19 April 1.7. and
1A Auust 1.7." On 11 April 1..5, &ee and &acdao mo-ed for a reconsideration of t%e decision of t%e
appellate court 3%ic% resol-ed to den' t%e same on 15 (a' 1..5" &ee and &acdao filed t%e petition for
certiorari" $n t%e meantime, t%e appellate court inad-ertentl' made an entr' of Iudment on 14 Jul' 1..5
erroneousl' appl'in t%e rule t%at t%e period durin 3%ic% a motion for reconsideration %as +een pendin
must +e deducted from t%e 19=da' period to appeal" Jo3e-er, in its Resolution dated 3 Januar' 1..1, t%e
appellate court set aside t%e aforestated entr' of Iudment after furt%er considerin t%at t%e rule it relied on
applies to appeals from decisions of t%e Reional Trial Courts to t%e Court of Appeals, not to appeals from its
decision to t%e Supreme Court pursuant to t%e Supreme CourtDs rulin in t%e case of Refractories Corporation
of t%e 6%ilippines -" $ntermediate Appellate Court, 184 SCRA 93. B1.7.C"
%ssue [1#$ )%et%er t%e e?ecution of t%e -otin trust areement +' &ee and &acdao 3%ere+' all t%eir s%ares to
t%e corporation %a-e +een transferred to t%e trustee depri-es t%e stoc:%older of t%eir positions as directors of
t%e corporation"
&eld [1#$ &ee and &acdao, +' -irtue of t%e -otin trust areement e?ecuted in 1.71 disposed of all t%eir
s%ares t%rou% assinment and deli-er' in fa-or of t%e *B6, as trustee" Conse,uentl', &ee and &acdao ceased
to o3n at least one s%are standin in t%eir names on t%e +oo:s of A&0A as re,uired under Section 13 of t%e
ne3 Corporation Code" T%e' also ceased to %a-e an't%in to do 3it% t%e manaement of t%e enterprise" &ee
and &acdao ceased to +e directors" Jence, t%e transfer of t%eir s%ares to t%e *B6 created -acancies in t%eir
respecti-e positions as directors of A&0A" T%e transfer of s%ares from t%e stoc:%olders of A&0A to t%e *B6 is
t%e essence of t%e su+Iect -otin trust areement" Considerin t%at t%e -otin trust areement +et3een A&0A
and t%e *B6 transferred leal o3ners%ip of t%e stoc:s co-ered +' t%e areement to t%e *B6 as trustee, t%e
latter +ecause t%e stoc:%older of record 3it% respect to t%e said s%ares of stoc:s" $n t%e a+sence of a s%o3in
t%at t%e *B6 %ad caused to +e transferred in t%eir names one s%are of stoc: for t%e purpose of ,ualif'in as
directors of A&0A, &ee and &acdao can no loner +e deemed to %a-e retained t%eir status as officers of A&0A
3%ic% 3as t%e case +efore t%e e?ecution of t%e su+Iect -otin trust areement" T%ere is no dispute from t%e
records t%at *B6 %as ta:en o-er full control and manaement of t%e firm"
%ssue [2#$ )%et%er t%e fi-e='ear period of t%e -otin trust areement in ,uestion %ad lapsed in 1.74 so t%at
t%e leal title to t%e stoc:s co-ered +' t%e said -otin trust areement ipso facto re-erted to &ee and &acdao as
+eneficial o3ners pursuant to t%e 4t% pararap% of section 9. of t%e ne3 Corporation Code"
&eld [2#$ T%e 4t% pararap% of section 9. of t%e ne3 Corporation Code reads t%at M@nless e?pressl' rene3ed,
all ri%ts ranted in a -otin trust areement s%all automaticall' e?pire at t%e end of t%e areed period, and t%e
-otin trust certificates as 3ell as t%e certificates of stoc: in t%e name of t%e trustee or trustees s%all t%ere+'
+e deemed cancelled and ne3 certificates of stoc: s%all +e reissued in t%e name of t%e transferors"M Jo3e-er,
it is manifestl' clear from t%e terms of t%e -otin trust areement +et3een A&0A and t%e *B6 t%at t%e
duration of t%e areement is continent upon t%e fulfillment of certain o+liations of A&0A 3it% t%e *B6"
Jad t%e fi-e='ear period of t%e -otin trust areement e?pired in 1.74, t%e *B6 3ould not %a-e transferred
an its ri%ts, titles and interests in A&0A Meffecti-e June 35, 1.74M to t%e national o-ernment t%rou% t%e
Asset 6ri-ati>ation Trust (A6T) as attested to in a Certification dated 1A Januar' 1.7. of t%e #ice 6resident of
t%e *B6Ds Special Accounts *epartment $$" $n t%e same certification, it is stated t%at t%e *B6, from 1.78 until
1.7., %ad %andled s account 3%ic% included A&0ADs assets pursuant to a manaement areement +' and
+et3een t%e *B6 and A6T" Jence, t%ere is e-idence on record t%at at t%e time of t%e ser-ice of summons on
A&0A t%rou% &ee and &acdao on 11 Auust 1.78, t%e -otin trust areement in ,uestion 3as not 'et
terminated so t%at t%e leal title to t%e stoc:s of A&0A, t%en, still +eloned to t%e *B6"
%ssue [4#$ )%et%er t%ere 3as proper ser-ice of summons on A&0A t%rou% &ee and &acdao, to +ind A&0A"
&eld [4#$ $t is a +asic principle in Corporation &a3 t%at a corporation %as a personalit' separate and distinct
from t%e officers or mem+ers 3%o compose it" T%us, t%e role on ser-ice of processes on a corporation
enumerates t%e representati-es of a corporation 3%o can -alidl' recei-e court processes on its +e%alf" !ot
e-er' stoc:%older or officer can +ind t%e corporation considerin t%e e?istence of a corporate entit' separate
from t%ose 3%o compose it" T%e rationale of t%e rule is t%at ser-ice must +e made on a representati-e so
interated 3it% t%e corporation sued as to ma:e it a priori supposa+le t%at %e 3ill reali>e %is responsi+ilities
and :no3 3%at %e s%ould do 3it% an' leal papers ser-ed on %im" Jerein, &ee and &acdao do not fall under
an' of t%e enumerated officers" T%e ser-ice of summons upon A&0A, t%rou% &ee and &acdao, t%erefore, is
not -alid" To rule ot%er3ise 3ill contra-ene t%e eneral principle t%at a corporation can onl' +e +ound +' suc%
acts 3%ic% are 3it%in t%e scope of t%e officerDs or aentDs aut%orit'"
42 Re-u+lic o, t;e :;ili--ines (:residential Commission on Good Government) vs. 5andi(an+a"an
[GR 1077/1 40 A-ril 2004#L also Africa -s" Sandian+a'an B/R 1A811AC
>esolution %n &anc, Cario5Morales (J): @ concur, 1 concurs in result, ) too* no art, 1 a.road on o00icial
.usiness
Facts$ On 8 Auust 1..1, t%e 6residential Commission on /ood /o-ernment (6C//) conducted an Eastern
Telecommunications, 6%ilippines, $nc" (ET6$) stoc:%olders meetin durin 3%ic% a 6C// controlled +oard
of directors 3as elected" A special stoc:%olders meetin 3as later con-ened +' t%e reistered ET6$
stoc:%olders 3%erein anot%er set of +oard of directors 3as elected, as a result of 3%ic% t3o sets of suc% +oard
and officers 3ere elected" #ictor Africa, a stoc:%older of ET6$, allein t%at t%e 6C// %ad since 1. Januar'
1.77 +een Milleall' De?ercisinD t%e ri%ts of stoc:%olders of ET6$,M especiall' in t%e election of t%e mem+ers
of t%e +oard of directors, filed a motion +efore t%e Sandian+a'an, pra'ed t%at said court order t%e Mcallin
and %oldin of t%e Eastern Telecommunications, 6%ilippines, $nc" (ET6$) annual stoc:%olders meetin for
1..1 under t%e BcCourtDs control and super-ision and prescri+ed uidelines"M T%e 6C// did not o+Iect to
AfricaDs motion pro-ided t%at M(1) An Order +e issued up%oldin t%e ri%t of 6C// to -ote all t%e Class MAM
s%ares of ET6$L (1) $n t%e alternati-e, in t%e remote e-ent t%at 6C//Ds ri%t to -ote t%e se,uestered s%ares +e
not up%eld, an Order +e issued (a) disreardin t%e Stoc: and Transfer Boo: and Boo:let of Stoc: Certificates
of ET6$ in determinin 3%o can -ote t%e s%ares in an Annual Stoc:%olders (eetin of ET6$, (+) allo3in
6C// to -ote 13".H of t%e total su+scription in ET6$, and (c) directin t%e amendment of t%e Articles of
$ncorporation and B'=la3s of ET6$ pro-idin for t%e minimum safeuards for t%e conser-ation of assets prior
to t%e callin of a stoc:%olders meetin" B' t%e assailed Resolution of 13 !o-em+er 1..1, t%e Sandian+a'an
resol-ed AfricaDs motion, orderin t%e conduct of an annual stoc:%olders meetin of ET6$, for 1..1" Assailin
t%e foreoin resolution, t%e 6C// filed +efore t%e Supreme Court a petition (/R 15887.) for Certiorari,
(andamus and 6ro%i+ition"
B' Resolution of 14 !o-em+er 1..1, t%e Supreme Court enIoined t%e Sandian+a'an from (a) implementin
its Resolution of 13 !o-em+er 1..1, and (+) %oldin t%e stoc:%oldersD meetin of ET6$ sc%eduled on 18
!o-em+er 1..1" On 8 *ecem+er 1..1, Aerocom $n-estors and (anaers, $nc" (AEROCO(), Benito !ieto,
Carlos !ieto, (anuel !ieto $$$, Ramon !ieto, Rosario Arellano, #ictoria &earda, Anela &o+reat, (a" Rita
de los Re'es, Carmen Tua>on and Rafael #alde>, all stoc:%olders of record of ET6$, filed a motion to
inter-ene in /R 15887." T%eir motion 3as ranted +' t%e Supreme Court +' Resolution of 1A Januar' 1..3"
After t%e parties su+mitted t%eir respecti-e memoranda, t%e 6C//, in earl' 1..9, filed a M#ERO @R/E!T
6ET$T$O! 0OR A@TJOR$TO TO JO&* S6EC$A& STOCEJO&*ERSD (EET$!/ 0OR BTJEC SO&E
6@R6OSE O0 $!CREAS$!/ BET6$DsC A@TJOR$FE* CA6$TA& STOCE,M it claimin t%at t%e increase in
aut%ori>ed capital stoc: 3as necessar' in li%t of t%e re,uirements laid do3n +' E?ecuti-e Order 15. and
Repu+lic Act 8.89" B' Resolution of 8 (a' 1..4, t%e Supreme Court resol-ed to refer t%e 6C//Ds -er'
urent petition to %old t%e special stoc:%oldersD meetin to t%e Sandian+a'an for reception of e-idence and
resolution" $n compliance t%ere3it%, t%e Sandian+a'an issued a Resolution of 13 *ecem+er 1..4, rantin
t%e 6C// Maut%orit' to cause t%e %oldin of a special stoc:%oldersD meetin of ET6$ for t%e sole purpose of
increasin ET6$Ds aut%ori>ed capital stoc: and to -ote t%erein t%e se,uestered Class DAD s%ares of stoc:"M T%e
6C//=controlled ET6$ +oard of directors t%us aut%ori>ed t%e ET6$ C%air and Corporate Secretar' to call t%e
special stoc:%olders meetin" !otices 3ere sent to t%ose entitled to -ote for a meetin on 18 (arc% 1..8" T%e
meetin 3as %eld as sc%eduled and t%e increase in ET6$Ds aut%ori>ed capital stoc: from 6195 (illion to 61"4
Billion 3as Munanimousl' appro-ed"M On 1 April 1..8, Africa filed +efore t%e Supreme Court a motion to cite
t%e 6C// Mand its accomplicesM in contempt and Mto nullif' t%e Dstoc:%olders meetinD calledGconducted +'
6C// and its accomplices,M %e contendin t%at onl' t%is Court, and not t%e Sandian+a'an, %as t%e po3er to
aut%ori>e t%e 6C// to call a stoc:%olders meetin and -ote t%e se,uestered s%ares" Africa 3ent on to contend
t%at, assumin t%at t%e Sandian+a'an %ad suc% po3er, its Resolution of 13 *ecem+er 1..4 aut%ori>in t%e
6C// to %old t%e stoc:%olders meetin %ad not 'et +ecome final +ecause t%e motions for reconsideration of
said resolution 3ere still pendin" 0urt%er, Africa alleed t%at %e 3as not i-en notice of t%e meetin, and t%e
6C// %ad no ri%t to -ote t%e se,uestered Class MAM s%ares" A motion for lea-e to inter-ene relati-e to
AfricaDs M(otion to Cite t%e 6C// and its Accomplices in ContemptM 3as filed +' ET6$" T%e Supreme Court
ranted t%e motion for lea-e +ut ET6$ ne-er filed an' pleadin relati-e to AfricaDs motion to cite t%e 6C// in
contempt" B' Resolution of 14 0e+ruar' 1551, t%e Sandian+a'an finall' resol-ed to den' t%e motions for
reconsideration of its Resolution of 13 *ecem+er 1..4, promptin Africa to file on 4 April 1551 +efore t%e
Supreme Court a petition for Re-ie3 on Certiorari (/R 1A811A), c%allenin t%e Sandian+a'an Resolutions
of 13 *ecem+er 1..4 (aut%ori>in t%e %oldin of a stoc:%olders meetin to increase ET6$Ds aut%ori>ed capital
stoc: and to -ote t%erein t%e se,uestered Class MAM s%ares of stoc:) and 14 0e+ruar' 1551 (den'in
reconsideration of t%e *ecem+er 13, 1..4 Resolution)" T%e petitions 3ere consolidated"
%ssue [1#$ )%et%er t%e 6C// can -ote t%e se,uestered ET6$ Class MAM s%ares in t%e stoc:%olders meetin for
t%e election of t%e +oard of directors"
&eld [1#$ )%en se,uestered s%ares reistered in t%e names of pri-ate indi-iduals or entities are alleed to
%a-e +een ac,uired 3it% ill=otten 3ealt%, t%en t%e t3o=tiered test is applied" Jo3e-er, 3%en t%e se,uestered
s%ares in t%e name of pri-ate indi-iduals or entities are s%o3n, prima facie, to %a-e +een (1) oriinall'
o-ernment s%ares, or (1) purc%ased 3it% pu+lic funds or t%ose affected 3it% pu+lic interest, t%en t%e t3o=
tiered test does not appl'" Rat%er, t%e pu+lic c%aracter e?ception in Baseco -" 6C// and CoIuanco Jr" -"
Ro?as pre-ailL t%at is, t%e o-ernment s%all -ote t%e s%ares"
%ssue [2#$ )%et%er t%e Sandian+a'an can order t%e *i-ision Cler: of Court to call t%e stoc:%olders meetin
and in appointin t%en Sandian+a'an Associate Justice Sa+ino de &eon, Jr" to control and super-ise t%e
same"
&eld [2#$ T%e Cler: of Court, 3%o is alread' saddled 3it% Iudicial responsi+ilities, need not +e +urdened
3it% t%e additional duties of a corporate secretar'" (oreo-er, t%e Cler: of Court ma' not %a-e t%e re,uisite
:no3lede and e?pertise to disc%are t%e functions of a corporate secretar'" T%e case of Board of *irectors
and Election Committee of S(B )or:ers Sa-ins and &oan Asso", $nc" -" Tan, etc", et al" (159 6%il" A14
(1.9.)" #ide also 9 0letc%er C'c Corp (6erm Ed) V158AL 17A Am Jur 1d ) pro-ides a solution to t%e
Sandian+a'anDs dilemma of callin a meetin 3%en ET6$ %ad t3o sets of officers" T%ere, t%e Supreme Court
up%eld t%e creation of a committee empo3ered to call, conduct and super-ise t%e election of t%e +oard of
directors" Suc% a committee composed of impartial persons :no3ledea+le in corporate proceedins 3ould
pro-ide t%e needed e?pertise and o+Iecti-it' in t%e callin and t%e %oldin of t%e meetin 3it%out
compromisin t%e Sandian+a'an or its officers" T%e appointment of t%e committee mem+ers and t%e
delineation of t%e scope of t%e duties of t%e committee ma' +e made pursuant to an areement +' t%e parties
or in accordance 3it% t%e pro-isions of Rule . ((anaement Committee) of t%e $nterim Rules of 6rocedure
for $ntra=Corporate Contro-ersies insofar as t%e' are applica+le"
B $n fine, t%e Court ruled t%at (1) T%e 6C// cannot -ote se,uestered s%ares to elect t%e ET6$ Board of
*irectors or to amend t%e Articles of $ncorporation for t%e purpose of increasin t%e aut%ori>ed capital stoc:
unless t%ere is a prima facie e-idence s%o3in t%at said s%ares are ill=otten and t%ere is an imminent daner
of dissipation" (1)T%e ET6$ Stoc: and Transfer Boo: s%ould +e t%e +asis for determinin 3%ic% persons %a-e
t%e ri%t to -ote in t%e stoc:%olders meetin for t%e election of t%e ET6$ Board of *irectors" (3) T%e 6C// is
entitled to -ote t%e s%ares ceded to it +' Ro+erto S" Benedicto and %is controlled corporations under t%e
Compromise Areement, pro-ided t%at t%e s%ares are first reistered in t%e name of t%e 6C//" T%e 6C//
ma' not reister t%e transfer of t%e (alacaNan and t%e !ieto s%ares in t%e ET6$ Stoc: and Transfer Boo:L
%o3e-er, it ma' -ote t%e same as conser-ator pro-ided t%at t%e 6C// satisfies t%e t3o=tiered test de-ised +'
t%e Court in CoIuanco -" Calpo" (A) T%e safeuards laid do3n in t%e case of CoIuanco -" Ro?as s%all +e
incorporated in t%e ET6$ Articles of $ncorporation su+stantiall' contemporaneous to, +ut not +efore, t%e
election of t%e ET6$ Board of *irectors" (9) (em+ers of t%e Sandian+a'an s%all not participate in t%e
stoc:%olders meetin for t%e election of t%e ET6$ Board of *irectors" !eit%er s%all a Cler: of Court +e
appointed to call suc% meetin and issue notices t%ereof" T%e Sandian+a'an s%all appoint, or t%e parties ma'
aree to constitute, a committee of competent and impartial persons to call, send notices and preside at t%e
meetin for t%e election of t%e ET6$ Board of *irectorsL and (4) T%is Court %as no Iurisdiction o-er t%e
motion to cite t%e 6C// and Mits accomplicesM in contempt and to nullif' t%e stoc:%olders meetin of (arc%
18, 1..8" C
44 Re-u+lic o, t;e :;ili--ines vs. Coco,ed [GRs 147002)04 14 2ecem+er 2001#
%n &anc, /an'ani.an (J): < concur, 1 0iled a dissentin' oinion to 8hich 4 9oined, 1 0iled a searate oinion
to 8hich 1 9oined$
Facts$ $mmediatel' after t%e 1.74 E*SA Re-olution, t%en 6resident Cora>on C" A,uino issued E?ecuti-e
Orders 1, 9 1 4 and 1A" On t%e e?plicit premise t%at -ast resources of t%e o-ernment %a-e +een amassed +'
former 6resident 0erdinand E" (arcos, %is immediate famil', relati-es, and close associates +ot% %ere and
a+road, t%e 6residential Commission on /ood /o-ernment (6C//) 3as created +' E?ecuti-e Order 1 to
assist t%e 6resident in t%e reco-er' of t%e ill=otten 3ealt% t%us accumulated 3%et%er located in t%e
6%ilippines or a+road" E?ecuti-e Order 1 stated t%at t%e ill=otten assets and properties are in t%e form of +an:
accounts, deposits, trust accounts, s%ares of stoc:s, +uildins, s%oppin centers, condominiums, mansions,
residences, estates, and ot%er :inds of real and personal properties in t%e 6%ilippines and in -arious countries
of t%e 3orld" E?ecuti-e Order 1A, on t%e ot%er %and, empo3ered t%e 6C//, 3it% t%e assistance of t%e Office
of t%e Solicitor /eneral and ot%er o-ernment aencies, inter alia, to file and prosecute all cases in-estiated
+' it under EOs 1 and 1" 6ursuant to t%ese la3s, t%e 6C// issued and implemented numerous se,uestrations,
free>e orders and pro-isional ta:eo-ers of alleedl' ill=otten companies, assets and properties, real or
personal" Amon t%e properties se,uestered +' t%e Commission 3ere s%ares of stoc: in t%e @nited Coconut
6lanters Ban: (@C6B) reistered in t%e names of t%e alleed ;one million coconut farmers,< t%e so=called
Coconut $ndustr' $n-estment 0und companies (C$$0 companies) and Eduardo CoIuanco Jr" $n connection
3it% t%e se,uestration of t%e said @C6B s%ares, t%e 6C//, on 31 Jul' 1.78, instituted an action for
recon-e'ance, re-ersion, accountin, restitution and damaes (Case 5533) in t%e Sandian+a'an" On 19
!o-em+er 1..5, upon (otion of COCO0E*, t%e Sandian+a'an issued a Resolution liftin t%e se,uestration
of t%e su+Iect @C6B s%ares on t%e round t%at COCO0E* and t%e so=called C$$0 companies %ad not +een
impleaded +' t%e 6C// as parties=defendants in its 31 Jul' 1.78 Complaint for recon-e'ance, re-ersion,
accountin, restitution and damaes" T%e Sandian+a'an ruled t%at t%e )rit of Se,uestration issued +' t%e
Commission 3as automaticall' lifted for 6C//2s failure to commence t%e correspondin Iudicial action
3it%in t%e si?=mont% period endin on 1 Auust 1.78 pro-ided under Section 14, Article Q#$$$ of t%e 1.78
Constitution" T%e anti=raft court noted t%at t%ou% t%ese entities 3ere listed in an anne? appended to t%e
Complaint, t%e' %ad not +een named as parties=respondents" T%e Sandian+a'an Resolution 3as c%allened
+' t%e 6C// in a 6etition for Certiorari (/R .4583) in t%e Supreme Court" (ean3%ile, upon motion of
CoIuanco, t%e anti=raft court ordered t%e %oldin of elections for t%e Board of *irectors of @C6B"
Jo3e-er, t%e 6C// applied for and 3as ranted +' t%is Court a Restrainin Order enIoinin t%e %oldin of
t%e election" Su+se,uentl', t%e Court lifted t%e Restrainin Order and ordered t%e @C6B to proceed 3it% t%e
election of its +oard of directors" 0urt%ermore, it allo3ed t%e se,uestered s%ares to +e -oted +' t%eir reistered
o3ners" T%e -ictor' of t%e reistered s%are%olders 3as fleetin +ecause t%e Court, actin on t%e solicitor
eneral2s (otion for ClarificationG(anifestation, issued a Resolution on 14 0e+ruar' 1..3, declarin t%at ;t%e
ri%t of COCO0E*, et" al" to -ote stoc: in t%eir names at t%e meetins of t%e @C6B cannot +e conceded at
t%is time" T%at ri%t still %as to +e esta+lis%ed +' t%em +efore t%e Sandian+a'an" @ntil t%at is done, t%e'
cannot +e deemed leitimate o3ners of @C6B stoc: and cannot +e accorded t%e ri%t to -ote t%em"< On 13
Januar' 1..9, t%e Court rendered its final *ecision in /R .4583, nullif'in and settin aside t%e 19
!o-em+er 1..5 Resolution of t%e Sandian+a'an 3%ic% lifted t%e se,uestration of t%e su+Iect @C6B s%ares"
A mont% t%ereafter, t%e 6C// P pursuant to an Order of t%e Sandian+a'an P su+di-ided Case 5533 into
ei%t Complaints (Cases 5533=A to 5533=J)" Si? 'ears later, on 13 0e+ruar' 1551, t%e Board of *irectors of
@C6B recei-ed from t%e ACCRA &a3 Office a letter 3ritten on +e%alf of t%e COCO0E* and t%e alleed
nameless one million coconut farmers, demandin t%e %oldin of a stoc:%olders2 meetin for t%e purpose of,
amon ot%ers, electin t%e +oard of directors" $n response, t%e +oard appro-ed a Resolution callin for a
stoc:%olders2 meetin on 4 (arc% 1551 at 3 p"m" On 13 0e+ruar' 1551, ;COCO0E*, et al" and Ballares, et
al"< filed t%e ;Class Action Omni+us (otion< in Sandian+a'an Ci-il Cases 5533=A, 5533=B and 5533=0,
as:in t%e Sandian+a'an to enIoin t%e 6C// from -otin t%e @C6B s%ares of stoc: reistered in t%e
respecti-e names of t%e more t%an one million coconut farmersL and to enIoin t%e 6C// from -otin t%e
S(C s%ares reistered in t%e names of t%e 1A C$$0 %oldin companies includin t%ose reistered in t%e name
of t%e 6C//" On 17 0e+ruar' 1551, t%e Sandian+a'an, after %earin t%e parties on oral arument, issued t%e
Order, aut%ori>in COCO0E*, et" al" and Ballares, et" al" as 3ell as CoIuanco, as are all ot%er reistered
stoc:%olders of t%e @nited Coconut 6lanters Ban:, until furt%er orders from t%e Court, to e?ercise t%eir ri%ts
to -ote t%eir s%ares of stoc: and t%emsel-es to +e -oted upon in t%e @nited Coconut 6lanters Ban: (@C6B) at
t%e sc%eduled Stoc:%olders2 (eetin on 4 (arc% 1551 or on an' su+se,uent continuation or resettin t%ereof,
and to perform suc% acts as 3ill normall' follo3 in t%e e?ercise of t%ese ri%ts as reistered stoc:%olders" T%e
Repu+lic of t%e 6%ilippines represented +' t%e 6C// filed t%e petition for certiorari"
%ssue$ )%et%er t%e 6C// can -ote t%e se,uestered @C6B s%ares"
&eld$ T%e reistered o3ner of t%e s%ares of a corporation e?ercises t%e ri%t and t%e pri-ilee of -otin" T%is
principle applies e-en to s%ares t%at are se,uestered +' t%e o-ernment, o-er 3%ic% t%e 6C// as a mere
conser-ator cannot, as a eneral rule, e?ercise acts of dominion" On t%e ot%er %and, it is aut%ori>ed to -ote
t%ese se,uestered s%ares reistered in t%e names of pri-ate persons and ac,uired 3it% alleedl' ill=otten
3ealt%, if it is a+le to satisf' t%e t3o=tiered test de-ised +' t%e Court in CoIuanco -" Calpo and 6C// -"
CoIuanco Jr" T3o clear ;pu+lic c%aracter< e?ceptions under 3%ic% t%e o-ernment is ranted t%e aut%orit' to
-ote t%e s%ares e?ist (1) )%ere o-ernment s%ares are ta:en o-er +' pri-ate persons or entities 3%oG3%ic%
reistered t%em in t%eir o3n names, and (1) )%ere t%e capitali>ation or s%ares t%at 3ere ac,uired 3it% pu+lic
funds some%o3 landed in pri-ate %ands" T%e e?ceptions are +ased on t%e common=sense principle t%at leal
fiction must 'ield to trut%L t%at pu+lic propert' reistered in t%e names of non=o3ners is affected 3it% trust
relationsL and t%at t%e prima facie +eneficial o3ner s%ould +e i-en t%e pri-ilee of enIo'in t%e ri%ts
flo3in from t%e prima facie fact of o3ners%ip" $n s%ort, 3%en se,uestered s%ares reistered in t%e names of
pri-ate indi-iduals or entities are alleed to %a-e +een ac,uired 3it% ill=otten 3ealt%, t%en t%e t3o=tiered test
is applied" Jo3e-er, 3%en t%e se,uestered s%ares in t%e name of pri-ate indi-iduals or entities are s%o3n,
prima facie, to %a-e +een (1) oriinall' o-ernment s%ares, or (1) purc%ased 3it% pu+lic funds or t%ose
affected 3it% pu+lic interest, t%en t%e t3o=tiered test does not appl'" Rat%er, t%e pu+lic c%aracter e?ceptions in
Baseco -" 6C// and CoIuanco Jr" -" Ro?as pre-ailL t%at is, t%e o-ernment s%all -ote t%e s%ares" Jerein, t%e
mone' used to purc%ase t%e se,uestered @C6B s%ares came from t%e Coconut Consumer Sta+ili>ation 0und
(CCS0), ot%er3ise :no3n as t%e coconut le-' funds" T%e se,uestered @C6B s%ares are confirmed to %a-e
+een ac,uired 3it% coco le-ies, not 3it% alleed ill=otten 3ealt%" As t%e coconut le-' funds are not onl'
affected 3it% pu+lic interest, +ut are in fact prima facie pu+lic funds, t%e Court +elie-es t%at t%e o-ernment
s%ould +e allo3ed to -ote t%e ,uestioned s%ares, +ecause t%e' +elon to it as t%e prima facie +eneficial and
true o3ner" T%e Sandian+a'an committed ra-e a+use of discretion in rossl' contradictin and effecti-el'
re-ersin e?istin Iurisprudence, and in depri-in t%e o-ernment of its ri%t to -ote t%e se,uestered @C6B
s%ares 3%ic% are prima facie pu+lic in c%aracter"
44 =van(elista vs. 5antos [GR *)1721 11 'a" 11.0#
%n &anc, >e!es (J): ( concur
Facts$ Juan *" E-anelista, et" al" are minorit' stoc:%olders of t%e #itali &um+er Compan', $nc", a 6%ilippine
corporation orani>ed for t%e e?ploitation of a lum+er concession in Fam+oana, 6%ilippines, 3%ile Rafael
Santos %olds more t%an 95H of t%e stoc:s of said corporation and also is and al3a's %as +een t%e president,
manaer, and treasurer t%ereof" Santos, in suc% triple capacit', t%rou% fault, nelect, and a+andonment
allo3ed its lum+er concession to lapse and its properties and assets, amon t%em mac%ineries, +uildins,
3are%ouses, truc:s, etc", to disappear, t%us causin t%e complete ruin of t%e corporation and total depreciation
of its stoc:s" E-anelista, et" al" t%erefore pra's for Iudment re,uirin Santos: (1) to render an account of %is
administration of t%e corporate affairs and assets: (1) to pa' plaintiffs t%e -alue of t %eir respecti-e
participation in said assets on t%e +asis of t%e -alue of t%e stoc:s %eld +' eac% of t%emL and (3) to pa' t%e
costs of suit" E-anelista, et" al" also as: for suc% ot%er remed' as ma' +e and e,uita+le" T%e complaint does
not i-e E-anelista, et" al"Ds residence, +ut, +ut purposes of -enue, allees t%at Santos resides at 1111 *e3e'
Boule-ard, corner &i+ertad Street, 6asa', pro-ince of Ri>al" Ja-in +een ser-ed 3it% summons at t%at place,
Santos filed a motion for t%e dismissal of t%e complaint on t%e round of improper -enue and also on t%e
round t%at t%e complaint did not state a cause of action in fa-or of E-anelista, et" al" After %earin, t%e
lo3er court rendered its order, rantin t%e motion for dismissal" Reconsideration of t%e order 3as denied"
E-anelista, et" al" appealed to t%e Supreme Court"
%ssue$ )%et%er E-anelista, et" al" %ad t%e ri%t to +rin t%e action for damaes resultin from
mismanaement of t%e affairs and assets of t%e corporation +' its principal officer, it +ein alleed t%at
SantosD maladministration %as +rou%t a+out t%e ruin of t%e corporation and t%e conse,uent loss of -alue of its
stoc:s"
&eld$ T%e inIur' complained of is primaril' to t%e corporation, so t%at t%e suit for t%e damaes claimed
s%ould +e +' t%e corporation rat%er t%an +' t%e stoc:%olders" T%e stoc:%olders ma' not directl' claim t%ose
damaes for t%emsel-es for t%at 3ould result in t%e appropriation +', and t%e distri+ution amon t%em of part
of t%e corporate assets +efore t%e dissolution of t%e corporation and t%e li,uidation of its de+ts and lia+ilities,
somet%in 3%ic% cannot +e leall' done in -ie3 of section 14 of t%e Corporation &a3, 3%ic% pro-ides t%at
M!o s%all corporation s%all ma:e or declare an' stoc: or +ond di-idend or an' di-idend 3%atsoe-er from t%e
profits arisin from its +usiness, or di-ide or distri+ute its capital stoc: or propert' ot%er t%an actual profits
amon its mem+ers or stoc:%olders until after t%e pa'ment of its de+ts and t%e termination of its e?istence +'
limitation or la3ful dissolution"M But 3%ile it is to t%e corporation t%at t%e action s%ould pertain in cases of
t%is nature, %o3e-er, if t%e officers of t%e corporation, 3%o are t%e ones called upon to protect t%eir ri%ts,
refuse to sue, or 3%ere a demand upon t%em to file t%e necessar' suit 3ould +e futile +ecause t%e' are t%e
-er' ones to +e sued or +ecause t%e' %old t%e controllin interest in t%e corporation, t%en in t%at case an' one
of t%e stoc:%olders is allo3ed to +rin suit" But in t%at case it is t%e corporation itself and not t%e plaintiff
stoc:%older t%at is t%e real propert' in interest, so t%at suc% damaes as ma' +e reco-ered s%all pertain to t%e
corporation" $n ot%er 3ords, it is a deri-ati-e suit +rou%t +' a stoc:%older as t%e nominal part' plaintiff for
t%e +enefit of t%e corporation, 3%ic% is t%e real propert' in interest" Jerein, E-anelista, et" al" %a-e +rou%t
t%e action not for t%e +enefit of t%e corporation +ut for t%eir o3n +enefit, since t%e' as: t%at Santos ma:e
ood t%e losses occasioned +' %is mismanaement and pa' to t%em t%e -alue of t%eir respecti-e participation
in t%e corporate assets on t%e +asis of t%eir respecti-e %oldins" Clearl', t%is cannot +e done until all corporate
de+ts, if t%ere +e an', are paid and t%e e?istence of t%e corporation terminated +' t%e limitation of its c%arter
or +' la3ful dissolution in -ie3 of t%e pro-isions of section 14 of t%e Corporation &a3" $t results t%at
E-anelista, et" al"Ds complaint s%o3s no cause of action in t%eir fa-or"
4. *im vs. *im)@u [GR 14/444 11 Fe+ruar" 2001#
Facts$ At a special meetin on 8 Octo+er 1..A, t%e Board of *irectors of &impan $n-estment Corporation
(&$(6A!) appro-ed a resolution of t%e follo3in tenor: MRESO&#E* t%at t%e corporation ma:e a partial
pa'ment BforC t%e leal ser-ices of /ilda C" &im in t%e %andlin of -arious cases on +e%alf of, or in-ol-in t%e
corporation in t%e amount of 61,991,955"55 to +e paid in e,ui-alent -alue in s%ares of stoc: of t%e
corporation totalin 19,919 s%ares, t%e same +ein found to +e reasona+le, and t%ere +ein no a-aila+le funds
to pa' t%e same" RESO&#E* 0@RTJER, t%at t%e Corporate Secretar' +e aut%ori>ed, as %e is %ere+'
aut%ori>ed, to secure and compl' 3it% necessar' re,uirements of t%e la3 for t%e issuance of said s%ares"M On
17 Octo+er 1..A, t%e Corporate Secretar' Jaime /" (an>ano filed a re,uest +efore t%e Corporate and &eal
Affairs *epartment of t%e SEC as:in for t%e e?emption of t%e 19,919 s%ares from t%e reistration
re,uirements of t%e Re-ised Securities ActL t%e re,uest 3as ranted in a Resolution dated 1A !o-em+er 1..A"
*ue to t%e issuance of t%e unsu+scri+ed s%ares to /ilda C" &im, all of &impan2s aut%ori>ed capital stoc:
+ecame full' su+scri+ed, 3it% &$( endin up controllin 41"9H of t%e s%ares" $n Jul' 1..4, 6atricia &im Ou
(Ou), a sister of &im, filed a complaint aainst t%e mem+ers of t%e Board of *irectors of &impan 3%o
appro-ed t%e aforesaid resolution (/ilda C" &im, )il%elmina #" Jo-en, *itas A" &erios, Auusto R" Bundan,
Teresita C" #ele> and Jaime (an>anoL SEC Case 58=.9=911A)" Bundan, #ele>, and (an>ano filed an
Ans3er, assertin as affirmati-e defenses t%at t%e complaint failed to state a cause of action aainst t%emL t%at
Ou %ad no leal capacit' to sueL and t%at t%e issuance of t%e s%ares in &im2s fa-or 3as +ona fide and -alid
pursuant to la3 and &impan2s B'=&a3s" $n turn, &im, Jo-en and &erios filed a (otion to *ismiss on t%e
follo3in rounds: t%at O@ %ad no leal capacit' to sueL t%at t%e complaint failed to state a cause of action
aainst Jo-en and &erios, and t%at no earnest efforts 3ere e?erted to3ards a compromise, Ou and &im +ein
si+lins" Actin on &im, et" al"2s (otion to *ismiss, t%e Jearin Officer, Att'" (anuel 6erea, issued an Order
dated 9 Januar' 1..4, %oldin in a+e'ance t%e resolution of t%e motion to dismiss" Ou filed a (otion for
Reconsideration dated 7 April 1..4, 3%ic% 3as denied in an Order dated 19 April 1..4, on t%e round t%at it
3as filed +e'ond t%e 15=da' period allo3ed for see:in reconsideration" Ou filed a (otion for &ea-e to Admit
Second (otion for Reconsideration dated 1 Jul' 1..4 3%ic% t%e Jearin Officer also denied" 0rom t%e denial
of %er second motion for reconsideration, Ou filed a petition for certiorari +efore t%e SEC En Banc see:in to
set aside t%e Order of 9 Januar' 1..A" On A 0e+ruar' 1..A, t%e SEC En Banc issued an order rantin t%e
petition for certiorari, and orderin t%e Securities $n-estiation K Clearin *epartment (S$C*) to %ear t%e
ot%er rounds of t%e (otion to *ismiss and to continue t%e case until its final determination" A motion for
reconsideration filed +' &im %a-in +een denied, t%e petition for re-ie3 3as instituted +efore t%e Court of
Appeals" On 31 Jul' 1..7, t%e Court of Appeals (CA) in CA=/R S6 A41.1 dismissed t%e petition for lac: of
merit and lifted t%e preliminar' inIunction pre-iousl' issued" OuDs capacit' to file t%e suit 3as sustained" &im,
et" al" mo-ed for reconsideration +ut 3as denied +' t%e appellate court in a resolution dated 19 (arc% 1..."
&im, et" al" filed t%e petition under Rule A9 of t%e Rules of Court"
%ssue$ )%et%er Ou2s suit to enforce %er preempti-e ri%ts in a corporation is in t%e nature of a deri-ati-e suit"
&eld$ A deri-ati-e suit %as +een defined as ;an action +rou%t +' minorit' s%are%olders in t%e name of t%e
corporation to redress 3rons committed aainst it, for 3%ic% t%e directors refuse to sue" $t is a remed'
desined +' e,uit' and %as +een t%e principal defense of t%e minorit' s%are%olders aainst a+uses +' t%e
maIorit'"< $n a deri-ati-e action, t%e real part' in interest is t%e corporation itself, not t%e s%are%older(s) 3%o
actuall' instituted it" $f t%e suit filed +' Ou 3as indeed deri-ati-e in c%aracter, t%en Ou ma' not %a-e t%e
capacit' to sue" T%e reason is t%at s%e 3ould +e actin in representation of t%e corporation, an act 3%ic% t%e
TRO enIoins %er from doin" Jence, OuDs suit cannot +e c%aracteri>ed as deri-ati-e, +ecause s%e 3as
complainin onl' of t%e -iolation of %er preempti-e ri%t under Section 3. of t%e Corporation Code" S%e 3as
merel' pra'in t%at s%e +e allo3ed to su+scri+e to t%e additional issuances of stoc:s in proportion to %er
s%are%oldins to ena+le %er to preser-e %er percentae of o3ners%ip in t%e corporation" S%e 3as t%erefore not
actin for t%e +enefit of t%e corporation" Ruite t%e contrar', s%e 3as suin on %er o3n +e%alf, out of a desire
to protect and preser-e %er preempti-e ri%ts" @n,uestiona+l', t%e TRO did not pre-ent %er from pursuin
t%at action"
40 Goc;an vs. @oun( [GR 141//1 12 'arc; 2001#
Facts$ 0eli? /oc%an and Sons Realt' Corporation (/oc%an Realt') 3as reistered 3it% t%e SEC on June
1.91, 3it% 0eli? /oc%an, Sr", (aria 6an !u' /o Tion, 6edro /oc%an, Tomasa /oc%an, Este+an /oc%an and
Crispo /oc%an as its incorporators" 0eli? /oc%an Sr"Ds dau%ter, Alice in%erited 95 s%ares of stoc: in /oc%an
Realt' from t%e former" Alice died in 1.99, lea-in t%e 95 s%ares to %er %us+and, Jo%n Ooun, Sr" $n 1.41, t%e
Reional Trial Court of Ce+u adIudicated 4G1A of t%ese s%ares to %er c%ildren, Ric%ard Ooun, *a-id Ooun,
Jane Ooun &la+an, Jo%n Ooun Jr", (ar' Ooun Jsu and Ale?ander T%omas Ooun (t%e Oouns)" Ja-in
earned di-idends, t%ese stoc:s num+ered 18. +' 15 Septem+er 1.8." 9 da's later (19 Septem+er), at 3%ic%
time all t%e c%ildren %ad reac%ed t%e ae of maIorit', t%eir fat%er Jo%n Sr", re,uested /oc%an Realt' to
partition t%e s%ares of %is late 3ife +' cancellin t%e stoc: certificates in %is name and issuin in lieu t%ereof,
ne3 stoc: certificates in t%e names of t%e Oouns" On 18 Octo+er 1.8., /oc%an Realt' refused, citin as
reason, t%e ri%t of first refusal ranted to t%e remainin stoc:%olders +' t%e Articles of $ncorporation" $n
1..5, Jo%n, Sr" died, lea-in t%e s%ares to t%e Oouns" On 7 0e+ruar' 1..A, Cecilia /oc%an @' and (iuel
@' filed a complaint 3it% t%e SEC for issuance of s%ares of stoc: to t%e ri%tful o3ners, nullification of
s%ares of stoc:, recon-e'ance of propert' impressed 3it% trust, accountin, remo-al of officers and directors
and damaes aainst #irinia /oc%an, et" al" (/oc%ans) A !otice of &is 6endens 3as annotated to t%e real
properties of t%e corporation" On 14 (arc% 1..A, t%e /oc%ans mo-ed to dismiss t%e complaint allein t%at:
(1) t%e SEC %ad no Iurisdiction o-er t%e nature of t%e actionL (1) t%e t%e Oouns 3ere not t%e real parties=in=
interest and %ad no capacit' to sueL and (3) t%e OounsD causes of action 3ere +arred +' t%e Statute of
&imitations" T%e motion 3as opposed +' t%e Oouns" On 1. (arc% 1..A, t%e /oc%ans filed a (otion for
cancellation of !otice of &is 6endens" T%e Oouns opposed t%e said motion" On . *ecem+er 1..A, t%e SEC,
t%rou% its Jearin Officer, ranted t%e motion to dismiss and ordered t%e cancellation of t%e notice of lis
pendens annotated upon t%e titles of t%e corporate landsL %oldin t%at t%e Oouns ne-er +een stoc:%olders of
record of 0/SRC to confer t%em 3it% t%e leal capacit' to +rin and maintain t%eir action, and t%us, t%e case
cannot +e considered as an intra=corporate contro-ers' 3it%in t%e Iurisdiction of t%e SECL and t%at on t%e
alleation t%at t%e Oouns +rou%t t%e action as a deri-ati-e suit on t%eir o3n +e%alf and on +e%alf of /oc%an
Realt', r%e failure to compl' 3it% t%e Iurisdictional re,uirement on deri-ati-e action necessaril' result in t%e
dismissal of t%e complaint" T%e Oouns filed a 6etition for Re-ie3 3it% t%e Court of Appeals" On 17 0e+ruar'
1..4, t%e Court of Appeals ruled t%at t%e SEC %ad no Iurisdiction o-er t%e case as far as t%e %eirs of Alice
/oc%an 3ere concerned, +ecause t%e' 3ere not 'et stoc:%olders of t%e corporation" On t%e ot%er %and, it
up%eld t%e capacit' of Cecilia /oc%an @' and %er spouse (iuel @'" $t also %eld t%at t%e $ntestate Estate of
Jo%n Ooun Sr" 3as an indispensa+le part'" T%e appellate court furt%er ruled t%at t%e cancellation of t%e notice
of lis pendens on t%e titles of t%e corporate real estate 3as not Iustified" (oreo-er, it declared t%at t%e OounsD
(otion for Reconsideration +efore t%e SEC 3as not pro formaL t%us, its filin tolled t%e appeal period" T%e
/oc%ans mo-ed for reconsideration +ut 3ere denied in a Resolution dated 17 *ecem+er 1..8" T%e /oc%ans
filed t%e 6etition for Re-ie3 on Certiorari"
%ssue$ )%et%er t%e action filed +' t%e Spouses @' 3as not a deri-ati-e suit, +ecause t%e spouses and not t%e
corporation 3ere t%e inIured parties"
&eld$ T%e follo3in portions of t%e Complaint s%o3s alleations of inIur' to t%e corporation itself, to 3it:
MT%at on information and +elief, in furt%er pursuance of t%e said conspirac' and for t%e fraudulent purpose of
depressin t%e -alue of t%e stoc: of t%e Corporation and to induce t%e minorit' stoc:%olders to sell t%eir
s%ares of stoc: for an inade,uate consideration as aforesaid, respondent Este+an T" /oc%an " " ", in -iolation of
t%eir duties as directors and officers of t%e Corporation " " ", unla3full' and fraudulentl' appropriated BforC
t%emsel-es t%e funds of t%e Corporation +' dra3in e?cessi-e amounts in t%e form of salaries and cas%
ad-ances " " " and +' ot%er3ise c%arin t%eir purel' personal e?penses to t%e CorporationML and MT%at t%e
pa'ment of 61,155,555"55 +' t%e Corporation to complainant Cecilia /oc%an @' for %er s%ares of stoc:
constituted an unla3ful, premature and partial li,uidation and distri+ution of assets to a stoc:%older, resultin
in t%e impairment of t%e capital of t%e Corporation and pre-ented it from ot%er3ise utili>in said amount for
its reular and la3ful +usiness, to t%e damae and preIudice of t%e Corporation, its creditors, and of
complainants as minorit' stoc:%olders"M As earl' as 1.11, t%e Court %as reconi>ed t%e ri%t of a sinle
stoc:%older to file deri-ati-e suits" M)%ere corporate directors %a-e committed a +reac% of trust eit%er +'
t%eir frauds, ultra -ires acts, or nelience, and t%e corporation is una+le or un3illin to institute suit to
remed' t%e 3ron, a sinle stoc:%older ma' institute t%at suit, suin on +e%alf of %imself and ot%er
stoc:%olders and for t%e +enefit of t%e corporation, to +rin a+out a redress of t%e 3ron done directl' to t%e
corporation and indirectl' to t%e stoc:%olders"M Jerein, t%e Complaint allees all t%e components of a
deri-ati-e suit" T%e alleations of inIur' to t%e Spouses @' can coe?ist 3it% t%ose pertainin to t%e
corporation" T%e personal inIur' suffered +' t%e spouses cannot dis,ualif' t%em from filin a deri-ati-e suit
on +e%alf of t%e corporation" $t merel' i-es rise to an additional cause of action for damaes aainst t%e
errin directors" T%is cause of action is also included in t%e Complaint filed +efore t%e SEC" T%e Spouses @'
%a-e t%e capacit' to file a deri-ati-e suit in +e%alf of and for t%e +enefit of t%e corporation" T%e reason is t%at
t%e alleations of t%e Complaint ma:e t%em out as stoc:%olders at t%e time t%e ,uestioned transaction
occurred, as 3ell as at t%e time t%e action 3as filed and durin t%e pendenc' of t%e action"
47 C;ua vs. Court o, A--eals [GR 1.0714 11 Novem+er 2004
First Division, -uisu#.in' (J): 4 concur
Facts$ On 17 0e+ruar' 1..4, &'dia Jao, treasurer of Siena Realt' Corporation, filed a complaint=affida-it
3it% t%e Cit' 6rosecutor of (anila c%arin 0rancis C%ua and %is 3ife, Elsa C%ua, of four counts of
falsification of pu+lic documents pursuant to Article 181B3C in relation to Article 181BAC of t%e Re-ised 6enal
Code" T%e c%are reads: MT%at on or a+out (a' 13, 1..A, in t%e Cit' of (anila, 6%ilippines, t%e said accused,
+ein t%en a pri-ate indi-idual, did t%en and t%ere 3illfull', unla3full' and feloniousl' commit acts of
falsification upon a pu+lic document, to 3it: t%e said accused prepared, certified, and falsified t%e (inutes of
t%e Annual Stoc:%olders meetin of t%e Board of *irectors of t%e Siena Realt' Corporation, dul' notari>ed
+efore a !otar' 6u+lic, Att'" Juanito /" /arcia and entered in %is !otarial Reistr' as *oc !o" 15., 6ae 11,
Boo: !o" $# and Series of 1..A, and t%erefore, a pu+lic document, +' ma:in or causin it to appear in said
(inutes of t%e Annual Stoc:%olders (eetin t%at one &O*$A JAO CJ@A 3as present and %as participated
in said proceedins, 3%en in trut% and in fact, as t%e said accused full' 3ell :ne3 t%at said &'dia C" Jao 3as
ne-er present durin t%e Annual Stoc:%olders (eetin %eld on April 35, 1..A and neit%er %as participated in
t%e proceedins t%ereof to t%e preIudice of pu+lic interest and in -iolation of pu+lic fait% and destruction of
trut% as t%erein proclaimed" Contrar' to &a3"M T%ereafter, t%e Cit' 6rosecutor filed t%e $nformation (Criminal
Case 179811) for falsification of pu+lic document, +efore t%e (etropolitan Trial Court ((eTC) of (anila,
Branc% 11, aainst 0rancis C%ua +ut dismissed t%e accusation aainst Elsa C%ua" 0rancis C%ua, 3as arrained
and trial ensued t%ereafter" *urin t%e trial in t%e (eTC, Att'" E-el'n Sua=E%o and Att'" Ariel Bruno Ri-era
appeared as pri-ate prosecutors and presented Jao as t%eir first 3itness" After Jao2s testimon', C%ua mo-ed
to e?clude Jao2s counsels as pri-ate prosecutors in t%e case on t%e round t%at Jao failed to allee and pro-e
an' ci-il lia+ilit' in t%e case" $n an Order, dated 14 April 1..., t%e (eTC ranted C%ua2s motion and ordered
t%e complainant2s counsels to +e e?cluded from acti-el' prosecutin Criminal Case 179811" Jao mo-ed for
reconsideration +ut it 3as denied" Jao filed a petition for certiorari (SCA ..=.A7A4), +efore t%e Reional
Trial Court (RTC) of (anila, Branc% 1." T%e RTC a-e due course to t%e petition and on 9 Octo+er 1..., t%e
RTC in an order re-ersed t%e (eTC Order" C%ua mo-ed for reconsideration 3%ic% 3as denied" *issatisfied,
C%ua filed +efore t%e Court of Appeals a petition for certiorari" On 1A June 1551, t%e appellate court
promulated its *ecision den'in t%e petition" T%e Court of Appeals %eld t%at t%e action 3as indeed a
deri-ati-e suit, for it alleed t%at petitioner falsified documents pertainin to proIects of t%e corporation and
made it appear t%at C%ua 3as a stoc:%older and a director of t%e corporation" Accordin to t%e appellate court,
t%e corporation 3as a necessar' part' to t%e petition filed 3it% t%e RTC and e-en if Jao filed t%e criminal
case, %er act s%ould not di-est t%e Corporation of its ri%t to +e a part' and present its o3n claim for damaes"
C%ua mo-ed for reconsideration +ut it 3as denied in a Resolution dated 15 !o-em+er 1551" Jence, t%e
petition +' C%ua"
%ssue$ )%et%er t%e criminal complaint 3as in t%e nature of a deri-ati-e suit"
&eld$ @nder Section 34 of t%e Corporation Code, read in relation to Section 13, 3%ere a corporation is an
inIured part', its po3er to sue is loded 3it% its +oard of directors or trustees" An indi-idual stoc:%older is
permitted to institute a deri-ati-e suit on +e%alf of t%e corporation 3%erein %e %olds stoc:s in order to protect
or -indicate corporate ri%ts, 3%ene-er t%e officials of t%e corporation refuse to sue, or are t%e ones to +e
sued, or %old t%e control of t%e corporation" $n suc% actions, t%e suin stoc:%older is rearded as a nominal
part', 3it% t%e corporation as t%e real part' in interest" A deri-ati-e action is a suit +' a s%are%older to enforce
a corporate cause of action" T%e corporation is a necessar' part' to t%e suit" And t%e relief 3%ic% is ranted is
a Iudment aainst a t%ird person in fa-or of t%e corporation" Similarl', if a corporation %as a defense to an
action aainst it and is not assertin it, a stoc:%older ma' inter-ene and defend on +e%alf of t%e corporation"
@nder t%e Re-ised 6enal Code, e-er' person criminall' lia+le for a felon' is also ci-ill' lia+le" )%en a
criminal action is instituted, t%e ci-il action for t%e reco-er' of ci-il lia+ilit' arisin from t%e offense c%ared
s%all +e deemed instituted 3it% t%e criminal action, unless t%e offended part' 3ai-es t%e ci-il action, reser-es
t%e ri%t to institute it separatel' or institutes t%e ci-il action prior to t%e criminal action" !ot e-er' suit filed
in +e%alf of t%e corporation is a deri-ati-e suit" 0or a deri-ati-e suit to prosper, it is re,uired t%at t%e minorit'
stoc:%older suin for and on +e%alf of t%e corporation must allee in %is complaint t%at %e is suin on a
deri-ati-e cause of action on +e%alf of t%e corporation and all ot%er stoc:%olders similarl' situated 3%o ma'
3is% to Ioin %im in t%e suit" $t is a condition sine ,ua non t%at t%e corporation +e impleaded as a part' +ecause
not onl' is t%e corporation an indispensa+le part', +ut it is also t%e present rule t%at it must +e ser-ed 3it%
process" T%e Iudment must +e made +indin upon t%e corporation in order t%at t%e corporation ma' et t%e
+enefit of t%e suit and ma' not +rin su+se,uent suit aainst t%e same defendants for t%e same cause of action"
$n ot%er 3ords, t%e corporation must +e Ioined as part' +ecause it is its cause of action t%at is +ein litiated
and +ecause Iudment must +e a res adIudicata aainst it" Jerein, t%e complaint 3as instituted +' Jao aainst
C%ua for falsif'in corporate documents 3%ose su+Iect concerns corporate proIects of Siena Realt'
Corporation" Clearl', Siena Realt' Corporation is an offended part'" Jence, Siena Realt' Corporation %as a
cause of action" And t%e ci-il case for t%e corporate cause of action is deemed instituted in t%e criminal action"
Jo3e-er, t%e +oard of directors of t%e corporation in t%is case did not institute t%e action aainst C%ua" Jao
3as t%e one 3%o instituted t%e action" !o3%ere is it stated t%at s%e is filin t%e same in +e%alf and for t%e
+enefit of t%e corporation" T%us, t%e criminal complaint includin t%e ci-il aspect t%ereof could not +e
deemed in t%e nature of a deri-ati-e suit"
4/ Nava vs. :eers 'ar<etin( Cor-. [GR *)2/120 2. Novem+er 1170#
Second Division, A:uino (J): 4 concur
Facts$ Teofilo 6o as an incorporator su+scri+ed to 75 s%ares of 6eers (ar:etin Corporation at 6155 a s%are
or a total par -alue of 67,555" 6o paid 61,555 or 19H of t%e amount of %is su+scription" !o certificate of
stoc: 3as issued to %im or, for t%at matter, to an' incorporator, su+scri+er or stoc:%older" On 1 April 1.44 6o
sold to Ricardo A" !a-a for 61,555 15 of %is 75 s%ares" $n t%e deed of sale 6o represented t%at %e 3as Mt%e
a+solute and reistered o3ner of t3ent' s%aresM of 6eers (ar:etin Corp" !a-a re,uested t%e officers of t%e
corporation to reister t%e sale in t%e +oo:s of t%e corporation" T%e re,uest 3as denied +ecause 6o %as not
paid full' t%e amount of %is su+scription" !a-a 3as informed t%at 6o 3as delin,uent in t%e pa'ment of t%e
+alance due on %is su+scription and t%at t%e corporation %ad a claim on %is entire su+scription of 75 s%ares
3%ic% included t%e 15 s%ares t%at %ad +een sold to !a-a" On 11 *ecem+er 1.44 !a-a filed a mandamus
action in t%e Court of 0irst $nstance of !eros Occidental, Bacolod Cit' Branc% to compel t%e corporation
and Renato R" Cusi and Amparo Cusi, its e?ecuti-e -ice=president and secretar' respecti-el', to reister t%e
said 15 s%ares in !a-aDs name in t%e corporationDs transfer +oo:" T%e corporation and t%e Cusis pleaded t%e
defense t%at no s%ares of stoc: aainst 3%ic% t%e corporation %olds an unpaid claim are transfera+le in t%e
+oo:s of t%e corporation" After %earin, t%e trial court dismissed t%e petition" !a-a appealed"
%ssue$ )%et%er t%e officers of 6eers (ar:etin Corporation can +e compelled +' mandamus to enter in its
stoc: and transfer +oo: t%e sale made +' 6o to !a-a of t%e 15 s%ares formin part of 6oDs su+scription of 75
s%ares, 3it% a total par -alue of 67,555 and for 3%ic% 6o %ad paid onl' 61,555, it +ein admitted t%at t%e
corporation %as an unpaid claim of 64,555 as t%e +alance due on 6oDs su+scription and t%at t%e 15 s%ares are
not co-ered +' an' stoc: certificate"
&eld$ T%e transfer made +' 6o to !a-a is not t%e Malienation, sale, or transfer of stoc:M t%at is supposed to +e
recorded in t%e stoc: and transfer +oo:, as contemplated in section 91 of t%e Corporation &a3" As a rule, t%e
s%ares 3%ic% ma' +e alienated are t%ose 3%ic% are co-ered +' certificates of stoc:" T%e t3ent' s%ares in
,uestion, %o3e-er, are not co-ered +' an' certificate of stoc: in 6oDs name" (oreo-er, t%e corporation %as a
claim on t%e said s%ares for t%e unpaid +alance of 6oDs su+scription" A stoc: su+scription is a su+sistin
lia+ilit' from t%e time t%e su+scription is made" T%e su+scri+er is as muc% +ound to pa' %is su+scription as %e
3ould +e to pa' an' ot%er de+t" T%e ri%t of t%e corporation to demand pa'ment is no less incontesta+le" A
corporation cannot release an oriinal su+scri+er from pa'in for %is s%ares 3it%out a -alua+le consideration
or 3it%out t%e unanimous consent of t%e stoc:%olders" T%us, %erein, t%ere is no clear leal dut' on t%e part of
t%e officers of t%e corporation to reister t%e 15 s%ares in !a-aDs name" As no stoc: certificate 3as issued to
6oL and 3it%out t%e stoc: certificate, 3%ic% is t%e e-idence of o3ners%ip of corporate stoc:, t%e assinment of
corporate s%ares is effecti-e onl' +et3een t%e parties to t%e transaction" T%e deli-er' of t%e stoc: certificate,
3%ic% represents t%e s%ares to +e alienated, is essential for t%e protection of +ot% t%e corporation and its
stoc:%olders"
41 *im 8a" vs. Court o, A--eals [GR 120/11 . Au(ust 111/#
Facts$ On 7 Januar' 1.75, S' /uio: secured a loan from &im Ta' in t%e amount of 6A5,555 pa'a+le 3it%in 4
mont%s" To secure t%e pa'ment of t%e aforesaid loan and interest t%ereon, /uio: e?ecuted a Contract of
6lede in fa-or of &im Ta' 3%ere+' %e pleded %is 355 s%ares of stoc: in t%e /o 0a' K Compan' $nc" /uio:
o+lied %imself to pa' interest on said loan at t%e rate of 15H per annum from t%e date of said contract of
plede" On t%e same date, Alfonso S' &im secured a loan, from &im Ta' in t%e amount of 6A5,555 pa'a+le in
4 mont%s" To secure t%e pa'ment of %is loan, S' &im e?ecuted a MContract of 6ledeM co-erin %is 355 s%ares
of stoc: in /o 0a' K Co" @nder said contract, S' &im o+lied %imself to pa' interest on %is loan at t%e rate of
15H per annum from t%e date of t%e e?ecution of said contract" T%e contractual stipulation in t%e plede
s%o3ed t%at &im Ta' 3as merel' aut%ori>ed to foreclose t%e plede upon maturit' of t%e loans, not to o3n
t%em" Suc% foreclosure is not automatic, for it must +e done in a pu+lic or pri-ate sale" /uio: and S' &im
endorsed t%eir respecti-e s%ares of stoc: in +lan: and deli-ered t%e same to &im Ta'" Jo3e-er, /uio: and S'
&im failed to pa' t%eir respecti-e loans and t%e accrued interests t%ereon to &im Ta'" $n Octo+er 1..5, &im
Ta' filed a M6etition for (andamusM aainst /o 0a' K Co", 3it% t%e SEC (SEC Case 537.A), pra'in t%at an
order +e issued directin t%e corporate secretar' of /o 0a' K Co" to reister t%e stoc: transfers and issue ne3
certificates in fa-or of &im Ta'L and orderin /o 0a' K Co" to pa' all di-idends due and unclaimed on t%e
said certificates to &im Ta'" $n t%e interim, S' &im died" /uio: and t%e $ntestate Estate of Alfonso S' &im,
represented +' Conc%ita &im, filed t%eir Ans3er=$n=$nter-ention 3it% t%e SEC" After due proceedins, t%e
SEC %earin officer promulated a *ecision dismissin &im Ta'Ds Complaint on t%e round t%at alt%ou% t%e
SEC %ad Iurisdiction o-er t%e action, pursuant to t%e *ecision of t%e Supreme Court in t%e case of MRural
Ban: of Salinas et" al" -ersus Court of Appeals, et al", 115 SCRA 915,M %e failed to pro-e t%e leal +asis for
t%e secretar' of t%e Corporation to +e compelled to reister stoc: transfers in fa-or of &im Ta' and to issue
ne3 certificates of stoc: under %is name" &im Ta' appealed t%e *ecision of t%e %earin officer to t%e SEC,
+ut, on 8 (arc% 1..4, t%e SEC promulated a *ecision, dismissin &im Ta'Ds appeal" On appeal to t%e Court
of Appeals, t%e appellate court de+un:ed &im Ta'Ds claim t%at %e %ad ac,uired o3ners%ip o-er t%e s%ares +'
-irtue of no-ation, %oldin t%at /uio:Ds and S' &imDs indorsement and deli-er' of t%e s%ares 3ere pursuant to
Articles 15.3 and 15.9 of t%e Ci-il Code and t%at &im Ta'Ds receipt of di-idends 3as in compliance 3it%
Article 1151 of t%e same Code" &im Ta'Ds claim t%at %e %ad ac,uired o3ners%ip of t%e s%ares +' -irtue of
prescription 3as li:e3ise dismissed +' t%e appellate court" &im Ta' +rou%t +efore t%e Supreme Court a
6etition for Re-ie3 on Certiorari in accordance 3it% Rule A9 of t%e Rules of Court"
%ssue$ )%et%er &im Ta' is t%e o3ner of t%e s%ares pre-iousl' su+Iected to plede, for %im to cause t%e
reistration of said s%ares in %is o3n name"
&eld$ &im Ta'Ds o3ners%ip o-er t%e s%ares 3as not 'et perfected 3%en t%e Complaint 3as filed" T%e contract
of plede certainl' does not ma:e %im t%e o3ner of t%e s%ares pleded" 0urt%er, 3%et%er prescription
effecti-el' transferred o3ners%ip of t%e s%ares, 3%et%er t%ere 3as a no-ation of t%e contracts of plede, and
3%et%er lac%es %ad set in 3ere difficult leal issues, 3%ic% 3ere unpleaded and unresol-ed 3%en &im Ta'
as:ed t%e corporate secretar' of /o 0a' to effect t%e transfer, in %is fa-or, of t%e s%ares pleded to %im" &im
Ta' %as failed to esta+lis% a clear leal ri%t" &im Ta'Ds contention t%at %e is t%e o3ner of t%e said s%ares is
completel' 3it%out merit" &im Ta' does not %a-e an' o3ners%ip ri%ts at all" At t%e time &im Ta' instituted
%is suit at t%e SEC, %is o3ners%ip claim %ad no prima facie le to stand on" At +est, %is contention 3as
disputa+le and uncertain" &im Ta' cannot claim to %a-e ac,uired o3ners%ip o-er t%e certificates of stoc:
t%rou% e?traordinar' prescription, as pro-ided for in Article 1131 of t%e Ci-il Code" )%at is re,uired +'
Article 1131 is possession in t%e concept of an o3ner" Jerein, &im Ta'Ds possession of t%e stoc: certificates
came a+out +ecause t%e' 3ere deli-ered to %im pursuant to t%e contracts of plede" Jis possession as a
pledee cannot ripen into o3ners%ip +' prescription" &im Ta' e?pressl' repudiated t%e plede, onl' 3%en %e
filed %is Complaint and claimed t%at %e 3as not a mere pledee, +ut t%at %e 3as alread' t%e o3ner of t%e
s%ares" Based on t%e foreoin, &im Ta' %as not ac,uired t%e certificates of stoc: t%rou% e?traordinar'
prescription" !eit%er did &im Ta' ac,uire t%e s%ares +' -irtue of a no-ation of t%e contract of plede"
!o-ation cannot +e presumed +' /uio:Ds and S' &imDs indorsement and deli-er' of t%e certificates of stoc:
co-erin t%e 455 s%ares, nor &im Ta'Ds receipt of di-idends from 1.75 to 1.73, nor t%e fact t%at /uio: and S'
&im %a-e not instituted an' action to reco-er t%e s%ares since 1.75" !o-ation is ne-er presumed inferred"
.0 8;e Rural Ban< o, *i-a Cit" %nc. etc. vs. Court o, A--eals [GR 124.4. 2/ 5e-tem+er 2001#
Facts$ Re'naldo #illanue-a, Sr", a stoc:%older of t%e Rural Ban: of &ipa Cit', e?ecuted a *eed of
Assinment, 3%erein %e assined %is s%ares, as 3ell as t%ose of 7 ot%er s%are%olders under %is control 3it% a
total of 15,A48 s%ares, in fa-or of t%e stoc:%olders of t%e Ban: represented +' its directors Bernardo Bautista,
Jaime Custodio and Octa-io Eati+a:" Sometime t%ereafter, Re'naldo #illanue-a, Sr" and %is 3ife, A-elina,
e?ecuted an Areement 3%erein t%e' ac:no3leded t%eir inde+tedness to t%e Ban: in t%e amount of
6A,555,555"55, and stipulated t%at said de+t 3ill +e paid out of t%e proceeds of t%e sale of t%eir real propert'
descri+ed in t%e Areement" At a meetin of t%e Board of *irectors of t%e Ban: on 19 !o-em+er 1..3, t%e
#illanue-a spouses assured t%e Board t%at t%eir de+t 3ould +e paid on or +efore *ecem+er 31 of t%at same
'earL ot%er3ise, t%e Ban: 3ould +e entitled to li,uidate t%eir s%are%oldins, includin t%ose under t%eir
control" $n suc% an e-ent, s%ould t%e proceeds of t%e sale of said s%ares fail to satisf' in full t%e o+liation, t%e
unpaid +alance s%all +e secured +' ot%er collateral sufficient t%erefor" )%en t%e #illanue-a spouses failed to
settle t%eir o+liation to t%e Ban: on t%e due date, t%e Board sent t%em a letter demandin: (1) t%e surrender
of all t%e stoc: certificates issued to t%emL and (1) t%e deli-er' of sufficient collateral to secure t%e +alance of
t%eir de+t amountin to 63,3A4,7.7"9A" T%e #illanue-as inored t%e +an:Ds demands, 3%ereupon t%eir s%ares
of stoc: 3ere con-erted into Treasur' Stoc:s" &ater, t%e #illanue-as, t%rou% t%eir counsel, ,uestioned t%e
lealit' of t%e con-ersion of t%eir s%ares" On 19 Januar' 1..A, t%e stoc:%olders of t%e Ban: met to elect t%e
ne3 directors and set of officers for t%e 'ear 1..A" T%e #illanue-as 3ere not notified of said meetin" $n a
letter dated 1. Januar' 1..A, Att'" Amado $nacio, counsel for t%e #illanue-a spouses, ,uestioned t%e lealit'
of t%e said stoc:%oldersD meetin and t%e -alidit' of all t%e proceedins t%erein" $n repl', t%e ne3 set of
officers of t%e Ban: informed Att'" $nacio t%at t%e #illanue-as 3ere no loner entitled to notice of t%e said
meetin since t%e' %ad relin,uis%ed t%eir ri%ts as stoc:%olders in fa-or of t%e Ban:" Conse,uentl', t%e
#illanue-a spouses filed 3it% t%e Securities and E?c%ane Commission (SEC), a petition for annulment of t%e
stoc:%oldersD meetin and election of directors and officers on 19 Januar' 1..A, 3it% damaes and pra'er for
preliminar' inIunction (SEC Case 51=.A=A473X" Joinin t%em as co=petitioners 3ere Catalino #illanue-a,
Andres /on>ales, Aurora &acerna, Celso &a'o, Edardo Re'es, AleIandro Tonoan, and Elena @si" !amed
respondents 3ere t%e ne3l'=elected officers and directors of t%e Rural Ban:, namel': Bernardo Bautista,
Jaime Custodio, Octa-io Eati+a:, 0rancisco Custodio and Juanita Bautista" On 4 April 1..A, t%e
#illanue-asD application for t%e issuance of a 3rit of preliminar' inIunction 3as denied +' t%e SEC Jearin
Officer on t%e round of lac: of sufficient +asis for t%e issuance t%ereof" Jo3e-er, a motion for
reconsideration 3as ranted on 14 *ecem+er 1..A, upon findin t%at since t%e #illanue-asD %a-e not disposed
of t%eir s%ares, 3%et%er -oluntaril' or in-oluntaril', t%e' 3ere still stoc:%olders entitled to notice of t%e
annual stoc:%oldersD meetin 3as sustained +' t%e SEC" Accordinl', a 3rit of preliminar' inIunction 3as
issued enIoinin Bautista, et" al" from actin as directors and officers of t%e +an:" T%ereafter, Bautista, et al"
filed an urent motion to ,uas% t%e 3rit of preliminar' inIunction, c%allenin t%e propriet' of t%e said 3rit
considerin t%at t%e' %ad not 'et recei-ed a cop' of t%e order rantin t%e application for t%e 3rit of
preliminar' inIunction" )it% t%e impendin 1..9 annual stoc:%oldersD meetin onl' . da's a3a', t%e
#illanue-as filed an Omni+us (otion pra'in t%at t%e said meetin and election of officers sc%eduled on 1A
Januar' 1..9 +e suspended or %eld in a+e'ance, and t%at t%e 1..3 Board of *irectors +e allo3ed, in t%e
meantime, to act as suc%" 1 da' +efore t%e sc%eduled stoc:%olders meetin, t%e SEC Jearin Officer ranted
t%e Omni+us (otion +' issuin a temporar' restrainin order pre-entin Bautista, et al" from %oldin t%e
stoc:%olders meetin and electin t%e +oard of directors and officers of t%e Ban:" A petition for Certiorari and
Annulment 3it% *amaes 3as filed +' t%e Rural Ban:, its directors and officers +efore t%e SEC en +anc" On
8 June 1..9, t%e SEC en +anc denied t%e petition for certiorari" A su+se,uent motion for reconsideration 3as
li:e3ise denied +' t%e SEC en +anc in a Resolution dated 1. Septem+er 1..9" A petition for re-ie3 3as filed
+efore t%e Court of Appeals (CA=/R S6 37741), assailin t%e Order dated 8 June 1..9 and t%e Resolution
dated 1. Septem+er 1..9 of t%e SEC en +anc in SEC EB AA5" T%e appellate court up%eld t%e rulin of t%e
SEC" Bautista, et al"Ds motion for reconsideration 3as li:e3ise denied +' t%e Court of Appeals in an Order
dated 1. (arc% 1..4" T%e +an:, Bautista, et al" filed t%e instant petition for re-ie3"
%ssue$ )%et%er t%ere 3as -alid transfer of t%e s%ares to t%e Ban:"
&eld$ 0or a -alid transfer of stoc:s, t%ere must +e strict compliance 3it% t%e mode of transfer prescri+ed +'
la3" T%e re,uirements are: (a) T%ere must +e deli-er' of t%e stoc: certificate: (+) T%e certificate must +e
endorsed +' t%e o3ner or %is attorne'=in=fact or ot%er persons leall' aut%ori>ed to ma:e t%e transferL and (c)
To +e -alid aainst t%ird parties, t%e transfer must +e recorded in t%e +oo:s of t%e corporation" As it is,
compliance 3it% an' of t%ese re,uisites %as not +een clearl' and sufficientl' s%o3n" Still, 3%ile t%e
assinment ma' +e -alid and +indin on t%e +an:, et al" and t%e #illanue-as, it does not necessaril' ma:e t%e
transfer effecti-e" Conse,uentl', t%e +an: et al", as mere assinees, cannot enIo' t%e status of a stoc:%older,
cannot -ote nor +e -oted for, and 3ill not +e entitled to di-idends, insofar as t%e assined s%ares are
concerned" 6arent%eticall', t%e #illanue-as cannot, as 'et, +e depri-ed of t%eir ri%ts as stoc:%olders, until
and unless t%e issue of o3ners%ip and transfer of t%e s%ares in ,uestion is resol-ed 3it% finalit'"
.1 :once vs. Alsons Cement Cor-oration [GR 141/02 10 2ecem+er 2002#
Second Division, -uisu#.in' (J): 4 concur
Facts$ On 19 Januar' 1..4, #icente C" 6once, filed a complaint 3it% t%e SEC for mandamus and damaes
aainst Alsons Cement Corporation and its corporate secretar' 0rancisco (" /iron, Jr" $n %is complaint,
6once alleed, amon ot%ers, t%at Mt%e late 0austo /" /aid 3as an incorporator of #ictor' Cement
Corporation (#CC), %a-in su+scri+ed to and full' paid 13.,955 s%ares of said corporationL t%at on 7
0e+ruar' 1.47, 6once and 0austo /aid e?ecuted a M*eed of @nderta:inM and M$ndorsementM 3%ere+' t%e
latter ac:no3ledes t%at t%e former is t%e o3ner of said s%ares and %e 3as t%erefore assininGendorsin t%e
same to 6onceL t%at on 15 April 1.47, #CC 3as renamed 0loro Cement Corporation (0CC)L t%at on 11
Octo+er 1..5, 0CC 3as renamed Alsons Cement Corporation (ACC)L t%at from t%e time of incorporation of
#CC up to t%e present, no certificates of stoc: correspondin to t%e 13.,955 su+scri+ed and full' paid s%ares
of /aid 3ere issued in t%e name of 0austo /" /aid andGor 6onceL and t%at despite repeated demands, ACC
and /iron refused and continue to refuse 3it%out an' Iustifia+le reason to issue to 6once t%e certificates of
stoc:s correspondin to t%e 13.,955 s%ares of /aid, in -iolation of 6onceDs ri%t to secure t%e correspondin
certificate of stoc: in %is name" ACC and /iron mo-ed to dismiss" SEC Jearin Officer Enri,ue &" 0lores, Jr"
ranted t%e motion to dismiss in an Order dated 1. 0e+ruar' 1..4" 6once appealed t%e Order of dismissal" On
4 Januar' 1..8, t%e Commission En Banc re-ersed t%e appealed Order and directed t%e Jearin Officer to
proceed 3it% t%e case" $n rulin t%at a transfer or assinment of stoc:s need not +e reistered first +efore it
can ta:e coni>ance of t%e case to enforce 6onceDs ri%ts as a stoc:%older, t%e Commission En Banc cited t%e
Supreme CourtDs rulin in A+eIo -s" *e la Cru>, 1A. SCRA 49A (1.78)" T%eir motion for reconsideration
%a-in +een denied, ACC and /iron appealed t%e decision of t%e SEC En Banc and t%e resolution den'in
t%eir motion for reconsideration to t%e Court of Appeals" $n its decision, t%e Court of Appeals %eld t%at in t%e
a+sence of an' alleation t%at t%e transfer of t%e s%ares +et3een /aid and 6once 3as reistered in t%e stoc:
and transfer +oo: of ACC, 6once failed to state a cause of action" T%us, said t%e appellate court, Mt%e
complaint for mandamus s%ould +e dismissed for failure to state a cause of action"M 6onceDs motion for
reconsideration 3as denied in a resolution dated 15 Auust 1..." 6once filed t%e petition for re-ie3 on
certiorari"
%ssue$ )%et%er 6once can re,uire t%e corporate secretar', /iron, to reister /aid2s s%ares in %is name"
&eld$ 0austo /aid 3as an oriinal su+scri+er of ACCDs 13.,955 s%ares" 0rom t%e Amended Articles of
$ncorporation appro-ed on . April 1..9, eac% s%are %ad a par -alue of 61"55 per s%are" 6once %ad not made a
pre-ious re,uest upon t%e corporate secretar' of ACC, 0rancisco (" /iron Jr", to record t%e alleed transfer of
stoc:s" 6ursuant to Section 43 of t%e Corporation Code, a transfer of s%ares of stoc: not recorded in t%e stoc:
and transfer +oo: of t%e corporation is non=e?istent as far as t%e corporation is concerned" As +et3een t%e
corporation on t%e one %and, and its s%are%olders and t%ird persons on t%e ot%er, t%e corporation loo:s onl' to
its +oo:s for t%e purpose of determinin 3%o its s%are%olders are" $t is onl' 3%en t%e transfer %as +een
recorded in t%e stoc: and transfer +oo: t%at a corporation ma' ri%tfull' reard t%e transferee as one of its
stoc:%olders" 0rom t%is time, t%e conse,uent o+liation on t%e part of t%e corporation to reconi>e suc% ri%ts
as it is mandated +' la3 to reconi>e arises" Jence, 3it%out suc% recordin, t%e transferee ma' not +e
rearded +' t%e corporation as one amon its stoc:%olders and t%e corporation ma' leall' refuse t%e issuance
of stoc: certificates in t%e name of t%e transferee e-en 3%en t%ere %as +een compliance 3it% t%e re,uirements
of Section 4A of t%e Corporation Code" T%e stoc: and transfer +oo: is t%e +asis for ascertainin t%e persons
entitled to t%e ri%ts and su+Iect to t%e lia+ilities of a stoc:%older" )%ere a transferee is not 'et reconi>ed as
a stoc:%older, t%e corporation is under no specific leal dut' to issue stoc: certificates in t%e transfereeDs
name" A petition for mandamus fails to state a cause of action 3%ere it appears t%at t%e petitioner is not t%e
reistered stoc:%older and t%ere is no alleation t%at %e %olds an' po3er of attorne' from t%e reistered
stoc:%older, from 3%om %e o+tained t%e stoc:s, to ma:e t%e transfer" T%e deed of underta:in 3it%
indorsement presented +' 6once does not esta+lis%, on its face, %is ri%t to demand for t%e reistration of t%e
transfer and t%e issuance of certificates of stoc:s" @nder t%e pro-isions of our statute touc%in t%e transfer of
stoc:, t%e mere indorsement of stoc: certificates does not in itself i-e to t%e indorsee suc% a ri%t to %a-e a
transfer of t%e s%ares of stoc: on t%e +oo:s of t%e compan' as 3ill entitle %im to t%e 3rit of mandamus to
compel t%e compan' and its officers to ma:e suc% transfer at %is demand, +ecause, under suc% circumstances
t%e dut', t%e leal o+liation, is not so clear and indisputa+le as to Iustif' t%e issuance of t%e 3rit" As a eneral
rule, as +et3een t%e corporation on t%e one %and, and its s%are%olders and t%ird persons on t%e ot%er, t%e
corporation loo:s onl' to its +oo:s for t%e purpose of determinin 3%o its s%are%olders are, so t%at a mere
indorsee of a stoc: certificate, claimin to +e t%e o3ner, 3ill not necessaril' +e reconi>ed as suc% +' t%e
corporation and its officers, in t%e a+sence of e?press instructions of t%e reistered o3ner to ma:e suc%
transfer to t%e indorsee, or a po3er of attorne' aut%ori>in suc% transfer" T%us, a+sent an alleation t%at t%e
transfer of s%ares is recorded in t%e stoc: and transfer +oo: of ACC, t%ere appears no +asis for a clear and
indisputa+le dut' or clear leal o+liation t%at can +e imposed upon t%e corporate secretar', so as to Iustif'
t%e issuance of t%e 3rit of mandamus to compel %im to perform t%e transfer of t%e s%ares to 6once"
.2 9n( @on( et al. vs. 8iu et al. [GR 144470 / A-ril 2004#E also Tiu, et al" -s" On Oon, et al" B/R
1AA41.C
>esolution o0 Secial Second Division, Corona (J): 3 concur
Facts$ $n 1..A, t%e construction of t%e (asaana Citimall in 6asa' Cit' 3as t%reatened 3it% stoppae and
incompletion 3%en its o3ner, t%e 0irst &andlin: Asia *e-elopment Corporation (0&A*C), 3%ic% 3as o3ned
+' *a-id S" Tiu, Cel' O" Tiu, (ol' Ou /o3, Belen See Ou, *" Terence O" Tiu, Jo%n Ou and &ourdes C" Tiu
(t%e Tius), encountered dire financial difficulties" $t 3as %ea-il' inde+ted to t%e 6%ilippine !ational Ban:
(6!B) for 61.5 million" To sta-e off foreclosure of t%e mortae on t%e t3o lots 3%ere t%e mall 3as +ein
+uilt, t%e Tius in-ited On Oon, Juanita Tan On, )ilson T" On, Anna &" On, )illiam T" On and Julia
On Alon>o (t%e Ons), to in-est in 0&A*C" @nder t%e 6re=Su+scription Areement t%e' entered into, t%e
Ons and t%e Tius areed to maintain e,ual s%are%oldins in 0&A*C: t%e Ons 3ere to su+scri+e to
1,555,555 s%ares at a par -alue of 6155"55 eac% 3%ile t%e Tius 3ere to su+scri+e to an additional 9A.,755
s%ares at 6155"55 eac% in addition to t%eir alread' e?istin su+scription of A95,155 s%ares" 0urt%ermore, t%e'
areed t%at t%e Tius 3ere entitled to nominate t%e #ice=6resident and t%e Treasurer plus 9 directors 3%ile t%e
Ons 3ere entitled to nominate t%e 6resident, t%e Secretar' and 4 directors (includin t%e c%airman) to t%e
+oard of directors of 0&A*C" (oreo-er, t%e Ons 3ere i-en t%e ri%t to manae and operate t%e mall"
Accordinl', t%e Ons paid 6155 million in cas% for t%eir su+scription to 1,555,555 s%ares of stoc: 3%ile t%e
Tius committed to contri+ute to 0&A*C a four=store' +uildin and t3o parcels of land respecti-el' -alued at
615 million (for 155,555 s%ares), 635 million (for 355,555 s%ares) and 6A."7 million (for A.,755 s%ares) to
co-er t%eir additional 9A.,755 stoc: su+scription t%erein" T%e Ons paid in anot%er 685 million 3 to 0&A*C
and 615 million to t%e Tius o-er and a+o-e t%eir 6155 million in-estment, t%e total sum of 3%ic% (61.5
million) 3as used to settle t%e 61.5 million mortae inde+tedness of 0&A*C to 6!B" T%e +usiness %armon'
+et3een t%e Ons and t%e Tius in 0&A*C, %o3e-er, 3as s%ortli-ed +ecause t%e Tius, on 13 0e+ruar' 1..4,
rescinded t%e 6re=Su+scription Areement" T%e Tius accused t%e Ons of (1) refusin to credit to t%em t%e
0&A*C s%ares co-erin t%eir real propert' contri+utionsL (1) pre-entin *a-id S" Tiu and Cel' O" Tiu from
assumin t%e positions of and performin t%eir duties as #ice=6resident and Treasurer, respecti-el', and (3)
refusin to i-e t%em t%e office spaces areed upon" T%e contro-ers' finall' came to a %ead 3%en t%e case
3as commenced +' t%e Tius on 18 0e+ruar' 1..4 at t%e Securities and E?c%ane Commission (SEC), see:in
confirmation of t%eir rescission of t%e 6re=Su+scription Areement" After %earin, t%e SEC, t%rou% t%en
Jearin Officer Rolando /" Anda'a, Jr", issued a decision on 1. (a' 1..8 confirmin t%e rescission sou%t
+' t%e Tius" On motion of +ot% parties, t%e a+o-e decision 3as partiall' reconsidered +ut onl' insofar as t%e
OnsD 685 million 3as declared not as a premium on capital stoc: +ut an ad-ance (loan) +' t%e Ons to
0&A*C and t%at t%e imposition of interest on it 3as correct" Bot% parties appealed to t%e SEC en +anc 3%ic%
rendered a decision on 11 Septem+er 1..7, affirmin t%e 1. (a' 1..8 decision of t%e Jearin Officer" T%e
SEC en +anc confirmed t%e rescission of t%e 6re=Su+scription Areement +ut re-erted to classif'in t%e 685
million paid +' t%e Ons as premium on capital and not as a loan or ad-ance to 0&A*C, %ence, not entitled to
earn interest" On appeal, t%e Court of Appeals (CA) rendered a decision on 9 Octo+er 1..., modif'in t%e
SEC order of 11 Septem+er 1..7" T%eir motions for reconsideration %a-in +een denied, +ot% parties filed
separate petitions for re-ie3 +efore t%e Supreme Court" On 1 0e+ruar' 1551, t%e Supreme Court promulated
its *ecision, affirmin t%e assailed decision of t%e Court of Appeals +ut 3it% t%e modifications t%at t%e 615
million loan e?tended +' t%e Ons to t%e Tius s%all earn interest at 11H per annum to +e computed from t%e
time of Iudicial demand 3%ic% is from 13 April 1..4L t%at t%e 685 million ad-anced +' t%e Ons to t%e
0&A*C s%all earn interest at 15H per annum to +e computed from t%e date of t%e 0&A*C Board Resolution
3%ic% is 1. June 1..4L and t%at t%e Tius s%all +e credited 3it% A.,755 s%ares in 0&A*C for t%eir propert'
contri+ution, specificall', t%e 191 s," m" parcel of land" T%e Court affirmed t%e fact t%at +ot% t%e Ons and t%e
Tius -iolated t%eir respecti-e o+liations under t%e 6re=Su+scription Areement"
On 19 (arc% 1551, t%e Tius filed +efore t%e Court a (otion for $ssuance of a )rit of E?ecution" Aside from
t%eir opposition to t%e TiusD (otion for $ssuance of )rit of E?ecution, t%e Ons filed t%eir o3n M(otion for
ReconsiderationL Alternati-el', (otion for (odification (of t%e 0e+ruar' 1, 1551 *ecision)M on 19 (arc%
1551" )illie On filed a separate M(otion for 6artial ReconsiderationM dated 7 (arc% 1551, pointin out t%at
t%ere 3as no -iolation of t%e 6re=Su+scription Areement on t%e part of t%e Ons, amon ot%ers" On 1.
Januar' 1553, t%e Special Second *i-ision of t%is Court %eld oral aruments on t%e respecti-e positions of t%e
parties" On 18 0e+ruar' 1553, *r" )illie On and t%e rest of t%e mo-ants On filed t%eir respecti-e
memoranda" On 17 0e+ruar' 1553, t%e Tius su+mitted t%eir memorandum"
%ssue [1#$ )%et%er t%e pre=Su+scription Areement e?ecuted +' t%e Ons is actuall' a su+scription contract"
&eld [1#$ 0&A*C 3as oriinall' incorporated 3it% an aut%ori>ed capital stoc: of 955,555 s%ares 3it% t%e
Tius o3nin A95,155 s%ares representin t%e paid=up capital" )%en t%e Tius in-ited t%e Ons to in-est in
0&A*C as stoc:%olders, an increase of t%e aut%ori>ed capital stoc: +ecame necessar' to i-e eac% roup
e,ual (95=95) s%are%oldins as areed upon in t%e 6re=Su+scription Areement" T%e aut%ori>ed capital stoc:
3as t%us increased from 955,555 s%ares to 1,555,555 s%ares 3it% a par -alue of 6155 eac%, 3it% t%e Ons
su+scri+in to 1,555,555 s%ares and t%e Tius to 9A.,755 more s%ares in addition to t%eir A95,155 s%ares to
complete 1,555,555 s%ares" T%us, t%e su+Iect matter of t%e contract 3as t%e 1,555,555 unissued s%ares of
0&A*C stoc: allocated to t%e Ons" Since t%ese 3ere unissued s%ares, t%e partiesD 6re=Su+scription
Areement 3as in fact a su+scription contract as defined under Section 45, Title #$$ of t%e Corporation Code"
A su+scription contract necessaril' in-ol-es t%e corporation as one of t%e contractin parties since t%e su+Iect
matter of t%e transaction is propert' o3ned +' t%e corporation P its s%ares of stoc:" T%us, t%e su+scription
contract (denominated +' t%e parties as a 6re=Su+scription Areement) 3%ere+' t%e Ons in-ested 6155
million for 1,555,555 s%ares of stoc: 3as, from t%e -ie3point of t%e la3, one +et3een t%e Ons and 0&A*C,
not +et3een t%e Ons and t%e Tius" Ot%er3ise stated, t%e Tius did not contract in t%eir personal capacities
3it% t%e Ons since t%e' 3ere not sellin an' of t%eir o3n s%ares to t%em" $t 3as 0&A*C t%at did"
Considerin t%erefore t%at t%e real contractin parties to t%e su+scription areement 3ere 0&A*C and t%e
Ons alone, a ci-il case for rescission on t%e round of +reac% of contract filed +' t%e Tius in t%eir personal
capacities 3ill not prosper" Assumin it %ad -alid reasons to do so, onl' 0&A*C (and certainl' not t%e Tius)
%ad t%e leal personalit' to file suit rescindin t%e su+scription areement 3it% t%e Ons inasmuc% as it 3as
t%e real part' in interest t%erein" Article 1311 of t%e Ci-il Code pro-ides t%at Mcontracts ta:e effect onl'
+et3een t%e parties, t%eir assins and %eirs" " "M T%erefore, a part' 3%o %as not ta:en part in t%e transaction
cannot sue or +e sued for performance or for cancellation t%ereof, unless %e s%o3s t%at %e %as a real interest
affected t%ere+'"
%ssue [2#$ )%et%er t%e rescission of 6re=Su+scription Areement 3ould result in unaut%ori>ed li,uidation"
&eld [2#$ T%e rescission of t%e 6re=Su+scription Areement 3ill effecti-el' result in t%e unaut%ori>ed
distri+ution of t%e capital assets and propert' of t%e corporation, t%ere+' -iolatin t%e Trust 0und *octrine
and t%e Corporation Code, since rescission of a su+scription areement is not one of t%e instances 3%en
distri+ution of capital assets and propert' of t%e corporation is allo3ed" Rescission 3ill, in t%e final anal'sis,
result in t%e premature li,uidation of t%e corporation 3it%out t%e +enefit of prior dissolution in accordance
3it% Sections 118, 117, 11. and 115 of t%e Corporation Code"
.4 GonDales vs. :;ili--ine National Ban< [GR *)44420 40 'a" 11/4#
First Division, Cas:uez (J): 3 concur, 1 concurs in the result, 1 on leave
Facts$ Ramon A" /on>ales initiall' instituted se-eral cases in t%e Supreme Court ,uestionin different
transactions entered into +' t%e Ban: 3it% ot%er parties" 0irst amon t%em is Ci-il Case 4.3A9 filed on 18
April 1.48, +' /on>ales as a ta?pa'er -ersus Sec" Antonio Ra,ui>a of 6u+lic )or:s and Communications,
t%e Commissioner of 6u+lic Ji%3a's, t%e Ban:, Continental Ore 6%il", $nc", Continental Ore, Ju+er
Corporation, Allis C%almers and /eneral (otors Corporation" $n t%e course of t%e %earin of said case on 3
Auust 1.48, t%e personalit' of /on>ales to sue t%e +an: and ,uestion t%e letters of credit it %as e?tended for
t%e importation +' t%e Repu+lic of t%e 6%ilippines of pu+lic 3or:s e,uipment intended for t%e massi-e
de-elopment proram of t%e 6resident 3as raised" $n -ie3 t%ereof, %e e?pressed and made :no3n %is
intention to ac,uire one s%are of stoc: from Conressman Justiniano (ontano 3%ic%, on t%e follo3in da',
35 Auust 1.48, 3as transferred in %is name in t%e +oo:s of t%e Ban:" Su+se,uent to %is aforementioned
ac,uisition of one s%are of stoc: of t%e Ban:, /on>ales, in %is dual capacit' as a ta?pa'er and stoc:%older,
filed t%e follo3in cases in-ol-in t%e +an: or t%e mem+ers of its Board of *irectors to 3it: (1) On 17
Octo+er 1.48, Ci-il Case 815AA -ersus t%e Board of *irectors of t%e Ban:L t%e !ational $n-estment and
*e-elopment Corp", (aru+eni $ida Co", &td", and Aro=$nc" *e-" Co" or Sara-iaL (1) On 11 (a' 1.47, Ci-il
Case 81.34 -ersus Ro+erto Benedicto and ot%er *irectors of t%e Ban:, 6assi ($loilo) Suar Central, $nc",
Calino=&am+unao Suar (ill $nterated 0armin, $nc", Talo suar (illin Co", $nc", Safar' Central, $nc",
and Batanas Suar Central $nc"L and (3) On 7 (a' 1.4., Ci-il Case 84A18 -ersus Alfredo (onteli+ano and
t%e *irectors of +ot% t%e 6!B and *B6" On 11 Januar' 1.4., %o3e-er, /on>ales addressed a letter to t%e
6resident of t%e Ban:, re,uestin su+mission to loo: into t%e records of its transactions co-erin t%e purc%ase
of a suar central +' t%e Sout%ern !eros *e-elopment Corp" to +e financed +' Japanese suppliers and
financiersL its financin of t%e Ce+u=(actan Bride to +e constructed +' #"C" 6once, $nc" and t%e construction
of t%e 6assi Suar (ills in $loilo" On Januar' 13, 1.4., t%e Asst" #ice 6resident and &eal Counsel of t%e
Ban: ans3ered petitionerDs letter den'in %is re,uest for +ein not ermane to %is interest as a one s%are
stoc:%older and for t%e cloud of dou+t as to %is real intention and purpose in ac,uirin said s%are" $n -ie3 of
t%e Ban:Ds refusal, /on>ales instituted t%e petition for mandamus" T%e Court of 0irst $nstance of (anila
denied t%e pra'er of /on>ales t%at %e +e allo3ed to e?amine and inspect t%e +oo:s and records of 6!B
reardin t%e transactions mentioned on t%e rounds t%at t%e ri%t of a stoc:%older to inspect t%e record of t%e
+usiness transactions of a corporation ranted under Section 91 of t%e former Corporation &a3 (Act !o"
1A9., as amended) is not a+solute, +ut is limited to purposes reasona+l' related to t%e interest of t%e
stoc:%older, must +e as:ed for in ood fait% for a specific and %onest purpose and not ratif' curiosit' or for
speculati-e or -icious purposesL t%at suc% e?amination 3ould -iolate t%e confidentialit' of t%e records of t%e
+an: as pro-ided in Section 14 of its c%arter, RA 1355, as amendedL and t%at /on>ales %as not e?%austed %is
administrati-e remedies" /on>ales filed t%e petition for re-ie3"
%ssue [1#$ )%et%er /on>alesD can as: for an e?amination of t%e +oo:s and records of 6!B, in li%t of %is
o3ners%ip of one s%are in t%e +an:"
&eld [1#$ T%e un,ualified pro-ision on t%e ri%t of inspection pre-iousl' contained in Section 91, Act !o"
1A9., as amended, no loner %olds true under t%e pro-isions of t%e present la3" T%e arument of /on>ales
t%at t%e ri%t ranted to %im under Section 91 of t%e former Corporation &a3 s%ould not +e dependent on t%e
propriet' of %is moti-e or purpose in as:in for t%e inspection of t%e +oo:s of 6!B loses 3%ate-er -alidit' it
mi%t %a-e %ad +efore t%e amendment of t%e la3" $f t%ere is an' dou+t in t%e correctness of t%e rulin of t%e
trial court t%at t%e ri%t of inspection ranted under Section 91 of t%e old Corporation &a3 must +e dependent
on a s%o3in of proper moti-e on t%e part of t%e stoc:%older demandin t%e same, it is no3 dissipated +' t%e
clear lanuae of t%e pertinent pro-ision contained in Section 8A of Batas 6am+ansa Bilan 47" Alt%ou%
/on>ales %as claimed t%at %e %as Iustifia+le moti-es in see:in t%e inspection of t%e +oo:s of t%e 6!B, %e %as
not set fort% t%e reasons and t%e purposes for 3%ic% %e desires suc% inspection, e?cept to satisf' %imself as to
t%e trut% of pu+lis%ed reports reardin certain transactions entered into +' t%e respondent +an: and to in,uire
into t%eir -alidit'" T%e circumstances under 3%ic% %e ac,uired one s%are of stoc: in t%e 6!B purposel' to
e?ercise t%e ri%t of inspection do not arue in fa-or of %is ood fait% and proper moti-ation" Admittedl' %e
sou%t to +e a stoc:%older in order to pr' into transactions entered into +' t%e 6!B e-en +efore %e +ecame a
stoc:%older" Jis o+-ious purpose 3as to arm %imself 3it% materials 3%ic% %e can use aainst t%e 6!B for
acts done +' t%e latter 3%en /on>ales 3as a total straner to t%e same" Je could %a-e +een impelled +' a
lauda+le sense of ci-ic consciousness, +ut it could not +e said t%at %is purpose is ermane to %is interest as a
stoc:%older"
%ssue [2#$ )%et%er t%e inspection sou%t to +e e?ercised +' /on>ales 3ould +e -iolati-e of t%e pro-isions of
6!BDs c%arter"
&eld [2#$ Section 19 of t%e 6!BDs C%arter (RA 1355, as amended) pro-ides t%at M$nspection +' *epartment
of Super-ision and E?amination of t%e Central Ban:" P T%e !ational Ban: s%all +e su+Iect to inspection +'
t%e *epartment of Super-ision and E?amination of t%e Central Ban:"M Section 14 t%ereof pro-idest t%at
MConfidential information" P T%e Superintendent of Ban:s and t%e Auditor /eneral, or ot%er officers
desinated +' la3 to inspect or in-estiate t%e condition of t%e !ational Ban:, s%all not re-eal to an' person
ot%er t%an t%e 6resident of t%e 6%ilippines, t%e Secretar' of 0inance, and t%e Board of *irectors t%e details of
t%e inspection or in-estiation, nor s%all t%e' i-e an' information relati-e to t%e funds in its custod', its
current accounts or deposits +elonin to pri-ate indi-iduals, corporations, or an' ot%er entit', e?cept +'
order of a Court of competent Iurisdiction"M On t%e ot%er %and, Section 35 of t%e same pro-ides t%at M6enalties
for -iolation of t%e pro-isions of t%is Act" P An' director, officer, emplo'ee, or aent of t%e Ban:, 3%o
-iolates or permits t%e -iolation of an' of t%e pro-isions of t%is Act, or an' person aidin or a+ettin t%e
-iolations of an' of t%e pro-isions of t%is Act, s%all +e punis%ed +' a fine not to e?ceed ten t%ousand pesos or
+' imprisonment of not more t%an fi-e 'ears, or +ot% suc% fine and imprisonment"M T%e 6%ilippine !ational
Ban: is not an ordinar' corporation" Ja-in a c%arter of its o3n, it is not o-erned, as a rule, +' t%e
Corporation Code of t%e 6%ilippines" T%e pro-ision of Section 8A of Batas 6am+ansa Bl" 47 of t%e ne3
Corporation Code 3it% respect to t%e ri%t of a stoc:%older to demand an inspection or e?amination of t%e
+oo:s of t%e corporation ma' not +e reconciled 3it% t%e a+o-e ,uoted pro-isions of t%e c%arter of t%e 6!B" $t
is not correct to claim, t%erefore, t%at t%e ri%t of inspection under Section 8A of t%e ne3 Corporation Code
ma' appl' in a supplementar' capacit' to t%e c%arter of t%e 6!B"
.4 Associated Ban< vs. Court o, A--eals [GR 124714 21 !une 111/#
Facts$ On or a+out 14 Septem+er 1.89 Associated Ban:in Corporation and Citi>ens Ban: and Trust
Compan' mered to form Iust one +an:in corporation :no3n as Associated Citi>ens Ban:, t%e sur-i-in
+an:" T%e 14 Septem+er 1.89 Areement of (erer, 3%ic% Associated Ban:in Corporation (ABC) and
Citi>ens Ban: and Trust Compan' (CBTC) entered into, pro-ided t%at its effecti-it' Ms%all, for all intents and
purposes, +e t%e date 3%en t%e necessar' papers to carr' out t%is BmCerer s%all %a-e +een appro-ed +' t%e
Securities and E?c%ane Commission"M As to t%e transfer of t%e properties of CBTC to ABC, t%e areement
pro-ides t%at M@pon effecti-e date of t%e (erer, all ri%ts, pri-ilees, po3ers, immunities, franc%ises, assets
and propert' of BCBTCC, 3%et%er real, personal or mi?ed, and includin BCBTCDsC ood3ill and tradename,
and all de+ts due to BCBTCC on 3%ate-er act, and all ot%er t%ins in action +elonin to BCBTCC as of t%e
effecti-e date of t%e BmCerer s%all +e -ested in BABCC, t%e S@R#$#$!/ BA!E, 3it%out need of furt%er act
or deed, unless +' e?press re,uirements of la3 or of a o-ernment aenc', an' separate or specific deed of
con-e'ance to leall' effect t%e transfer or assinment of an' :ind of propert' BorC asset is re,uired, in 3%ic%
case suc% document or deed s%all +e e?ecuted accordinl'L and all propert', ri%ts, pri-ilees, po3ers,
immunities, franc%ises and all appointments, desinations and nominations, and all ot%er ri%ts and interests
of BCBTCC as trustee, e?ecutor, administrator, reistrar of stoc:s and +onds, uardian of estates, assinee,
recei-er, trustee of estates of persons mentall' ill and in e-er' ot%er fiduciar' capacit', and all and e-er' ot%er
interest of BCBTCC s%all t%ereafter +e effectuall' t%e propert' of BABCC as t%e' 3ere of BCBTCC, and title to
an' real estate, 3%et%er +' deed or ot%er3ise, -ested in BCBTCC s%all not re-ert or +e in an' 3a' impaired +'
reason t%ereofL pro-ided, %o3e-er, t%at all ri%ts of creditors and all liens upon an' propert' of BCBTCC s%all
+e preser-ed and unimpaired and all de+ts, lia+ilities, o+liations, duties and underta:ins of BCBTCC,
3%et%er contractual or ot%er3ise, e?pressed or implied, actual or continent, s%all %encefort% attac% to BABCC
3%ic% s%all +e responsi+le t%erefor and ma' +e enforced aainst BABCC to t%e same e?tent as if t%e same
de+ts lia+ilities, o+liations, duties and underta:ins %a-e +een oriinall' incurred or contracted +' BABCC,
su+Iect, %o3e-er, to all ri%ts, pri-ilees, defenses, set=offs and counterclaims 3%ic% BCBTCC %as or mi%t
%a-e and 3%ic% s%all pertain to BABCC" On or a+out 15 (arc% 1.71, t%e Associated Citi>ens Ban: c%aned its
corporate name to Associated Ban: +' -irtue of t%e Amended Articles of $ncorporation" On 8 Septem+er
1.88, &oren>o Sarmiento Jr" e?ecuted in fa-or of Associated Ban: a promissor' note 3%ere+' t%e former
undertoo: to pa' t%e latter t%e sum of 61,955,555"55 pa'a+le on or +efore 4 (arc% 1.87" As per said
promissor' note, Sarmiento areed to pa' interest at 1AH per annum, 3H per annum in t%e form of li,uidated
damaes, compounded interests, and attorne'Ds fees, in case of litiation e,ui-alent to 15H of t%e amount due"
Sarmiento, to date, still o3ed Associated Ban: t%e amount of 61,195,555"55 e?clusi-e of interest and ot%er
c%ares" *espite repeated demands t%e defendant failed to pa' t%e amount due" Sarmiento denied t%e c%ares"
On 11 (a' 1.74, Sarmiento 3as declared as if in default for failure to appear at t%e 6re=Trial Conference
despite due notice" A (otion to &ift Order of *efault andGor Reconsideration of Order dated 11 (a' 1.74
3as filed +' SarmientoDs counsel 3%ic% 3as denied +' t%e Court in an order dated 14 Septem+er 1.74 and
Associated Ban: 3as allo3ed to present its e-idence +efore t%e Court e?=parte on 14 Octo+er 1.74" Based on
t%e e-idence presented +' t%e +an:, t%e trial court ordered Sarmiento to pa' t%e +an: %is remainin +alance
plus interests and attorne'Ds fees" Sarmiento appealed" T%e Court of Appeals (in CA=/R C# 14A49)
promulated on 35 Januar' 1..4 a decision 3%ic% re-ersed and set aside t%e 18 Octo+er 1.74 *ecision in
Ci-il Case 79=311A3, promulated +' t%e Reional Trial Court of (anila, Branc% A7L and t%us dismissin t%e
complaint" T%e +an: filed t%e petition for re-ie3"
%ssue$ )%et%er $n a merer, t%e sur-i-in corporation %a-e a ri%t to enforce a contract entered into +' t%e
a+sor+ed compan' su+se,uent to t%e date of t%e merer areement, +ut prior to t%e issuance of a certificate of
merer +' t%e Securities and E?c%ane Commission"
&eld$ Ordinaril', in t%e merer of t3o or more e?istin corporations, one of t%e com+inin corporations
sur-i-es and continues t%e com+ined +usiness, 3%ile t%e rest are dissol-ed and all t%eir ri%ts, properties and
lia+ilities are ac,uired +' t%e sur-i-in corporation" Alt%ou% t%ere is a dissolution of t%e a+sor+ed
corporations, t%ere is no 3indin up of t%eir affairs or li,uidation of t%eir assets, +ecause t%e sur-i-in
corporation automaticall' ac,uires all t%eir ri%ts, pri-ilees and po3ers, as 3ell as t%eir lia+ilities" T%e
merer, %o3e-er, does not +ecome effecti-e upon t%e mere areement of t%e constituent corporations" T%e
procedure to +e follo3ed is prescri+ed under t%e Corporation Code" Section 8. of said Code re,uires t%e
appro-al +' t%e Securities and E?c%ane Commission (SEC) of t%e articles of merer 3%ic%, in turn, must
%a-e +een dul' appro-ed +' a maIorit' of t%e respecti-e stoc:%olders of t%e constituent corporations" T%e
same pro-ision furt%er states t%at t%e merer s%all +e effecti-e onl' upon t%e issuance +' t%e SEC of a
certificate of merer" T%e effecti-it' date of t%e merer is crucial for determinin 3%en t%e mered or
a+sor+ed corporation ceases to e?istL and 3%en its ri%ts, pri-ilees, properties as 3ell as lia+ilities pass on to
t%e sur-i-in corporation" T%e areement, as a clause, pro-ided t%at M@pon t%e effecti-e date of t%e BmCerer,
all references to BCBTCC in an' deed, documents, or ot%er papers of 3%ate-er :ind or nature and 3%ere-er
found s%all +e deemed for all intents and purposes, references to BABCC, t%e S@R#$#$!/ BA!E, as if suc%
references 3ere direct references to BABCC"M T%e fact t%at t%e promissor' note 3as e?ecuted after t%e
effecti-it' date of t%e merer does not militate aainst t%e +an:" T%e areement itself clearl' pro-ides t%at all
contracts P irrespecti-e of t%e date of e?ecution P entered into in t%e name of CBTC s%all +e understood as
Commercial *a3 ) Cor-oration *a3 200. ( /0 )
pertainin to t%e sur-i-in +an:, Associated Ban:" Since, in contrast to t%e earlier afore,uoted pro-ision, t%e
latter clause no loner specificall' refers onl' to contracts e?istin at t%e time of t%e merer, no distinction
s%ould +e made" T%e clause must %a-e +een deli+eratel' included in t%e areement in order to protect t%e
interests of t%e com+inin +an:sL specificall', to a-oid i-in t%e merer areement a farcical interpretation
aimed at e-adin fulfillment of a due o+liation" T%us, alt%ou% t%e su+Iect promissor' note names CBTC as
t%e pa'ee, t%e reference to CBTC in t%e note s%all +e construed, under t%e -er' pro-isions of t%e merer
areement, as a reference to Associated Ban:, Mas if suc% reference B3as aC direct reference toM t%e latter Mfor
all intents and purposes"M
.. Ba+st vs. Court o, A--eals [GR 1141/ 20 !anuar" 2001#L also Eli>alde Steel Consolidated $nc" -s"
Court of Appeals B/R 15A419C
First Division, 4nares Santia'o (J): 4 concur
Facts$ On 7 June 1.83, E&$SCO! o+tained from Commercial Ban: and Trust Compan' (CBTC) a loan in t%e
amount of 67,519,.55"7A, 3it% interest at t%e rate of 1AH per annum, e-idenced +' a promissor' note"
Eli>alde Steel Consolidated, $nc" (E&$SCO!) defaulted in its pa'ments, lea-in an outstandin inde+tedness
in t%e amount of 61,8.9,1A5"48 as of 31 Octo+er 1.71" T%e letters of credit, on t%e ot%er %and, 3ere opened
for E&$SCO! +' CBTC usin t%e credit facilities of 6acific (ulti=Commercial Corporation ((@&T$) 3it%
t%e said +an:, pursuant to t%e Resolution of t%e Board of *irectors of (@&T$ adopted on 31 Auust 1.88"
Su+se,uentl', on 14 Septem+er 1.87, Antonio Ro?as C%ua and C%ester /" Ba+st e?ecuted a Continuin
Suret's%ip, 3%ere+' t%e' +ound t%emsel-es Iointl' and se-erall' lia+le to pa' an' e?istin inde+tedness of
(@&T$ to CBTC to t%e e?tent of 67,555,555"55 eac%" Sometime in Octo+er 1.87, CBTC opened for
E&$SCO! in fa-or of !ational Steel Corporation (!SC) 3 domestic letters of credit in t%e amounts of
61,.A4,759"83, 61,851,74."31 and 6155,358"81, respecti-el', 3%ic% E&$SCO! used to purc%ase tin +lac:
plates from !SC" E&$SCO! defaulted in its o+liation to pa' t%e amounts of t%e letters of credit, lea-in an
outstandin account, as of 31 Octo+er 1.71, in t%e total amount of 63,.43,381"57" On 11 *ecem+er 1.75, t%e
Ban: of t%e 6%ilippine $slands (B6$) and CBTC entered into a merer, 3%erein B6$, as t%e sur-i-in
corporation, ac,uired all t%e assets and assumed all t%e lia+ilities of CBTC" (ean3%ile, E&$SCO!
encountered financial difficulties and +ecame %ea-il' inde+ted to t%e *e-elopment Ban: of t%e 6%ilippines
(*B6)" $n order to settle its o+liations, E&$SCO! proposed to con-e' to *B6 +' 3a' of dacion en pao all
its fi?ed assets mortaed 3it% *B6, as pa'ment for its total inde+tedness in t%e amount of 6151,171,733"14"
On 17 *ecem+er 1.87, E&$SCO! and *B6 e?ecuted a *eed of Cession of 6ropert' in 6a'ment of *e+t" $n
June 1.71, E&$SCO! called its creditors to a meetin to announce t%e ta:e=o-er +' *B6 of its assets" $n
Octo+er 1.71, *B6 formall' too: o-er t%e assets of E&$SCO!, includin its inde+tedness to B6$" T%ereafter,
*B6 proposed formulas for t%e settlement of all of E&$SCO!Ds o+liations to its creditors, +ut B6$ e?pressl'
reIected t%e formula su+mitted to it for not +ein accepta+le" Conse,uentl', on 18 Januar' 1.73, B6$, as
successor=in=interest of CBTC, instituted 3it% t%e Reional Trial Court of (a:ati, Branc% 1A8, a complaint
for sum of mone' aainst E&$SCO!, (@&T$ and Ba+st (Ci-il Case A.114)" On 15 0e+ruar' 1.78, t%e trial
court rendered its *ecision in fa-or of B6$" $n due time, E&$SCO!, (@&T$ and Ba+st filed t%eir respecti-e
notices of appeal" On 1. April 1..1, t%e Court of Appeals rendered a *ecision modif'in t%e Iudment of t%e
trial court" E&$SCO! filed a (otion for Reconsideration of t%e *ecision of t%e Court of Appeals 3%ic% 3as,
%o3e-er, denied in a Resolution dated . (arc% 1..1" Su+se,uentl', E&$SCO! filed a petition for re-ie3 on
certiorari (/R" 15A419)" (ean3%ile, Ba+st also filed a petition for re-ie3 3it% t%e Court (/R ..3.7)"
%ssue [1#$ )%et%er t%e B6$ can institute t%e present case"
&eld [1#$ T%ere 3as a -alid merer +et3een B6$ and CBTC" $t is settled t%at in t%e merer of t3o e?istin
corporations, one of t%e corporations sur-i-es and continues t%e +usiness, 3%ile t%e ot%er is dissol-ed and all
its ri%ts, properties and lia+ilities are ac,uired +' t%e sur-i-in corporation" Jence, B6$ %as a ri%t to
institute t%e present case"
%ssue [2#$ )%et%er B6$, t%e sur-i-in corporation in a merer 3it% CBTC, consented to t%e assumption +'
*B6 of t%e o+liations of E&$SCO!"
&eld [2#$ *ue to t%e failure of B6$ to reister its o+Iection to t%e ta:e=o-er +' *B6 of E&$SCO!Ds assets, at
t%e creditorsD meetin %eld in June 1.71 and t%ereafter, it is deemed to %a-e consented to t%e su+stitution of
*B6 for E&$SCO! as de+tor" T%e aut%orit' ranted +' B6$ to its account officer to attend t%e creditorsD
meetin 3as an aut%orit' to represent t%e +an:, suc% t%at 3%en %e failed to o+Iect to t%e su+stitution of
de+tors, %e did so on +e%alf of and for t%e +an:" E-en rantin aruendo t%at t%e said account officer 3as not
so empo3ered, B6$ could %a-e su+se,uentl' reistered its o+Iection to t%e su+stitution, especiall' after it %ad
alread' learned t%at *B6 %ad ta:en o-er t%e assets and assumed t%e lia+ilities of E&$SCO!" $ts failure to do
so can onl' mean an ac,uiescence in t%e assumption +' *B6 of E&$SCO!Ds o+liations" As repeatedl'
pointed out +' E&$SCO! and (@&T$, B6$Ds o+Iection 3as to t%e proposed pa'ment formula, not to t%e
su+stitution itself" B6$ i-es no coent reason in 3it%%oldin its consent to t%e su+stitution, ot%er t%an its
desire to preser-e its causes of action and leal recourse aainst t%e sureties of E&$SCO!" $t must +e
remem+ered, %o3e-er, t%at 3%ile a suret' is solidaril' lia+le 3it% t%e principal de+tor, %is o+liation to pa'
onl' arises upon t%e principal de+torDs failure or refusal to pa'" T%ere 3as no indication t%at t%e principal
de+tor 3ill default in pa'ment" $n fact, *B6, 3%ic% %ad stepped into t%e s%oes of E&$SCO!, 3as capa+le of
pa'ment" $ts aut%ori>ed capital stoc: 3as increased +' t%e o-ernment" (ore importantl', t%e !ational
*e-elopment Compan' too: o-er t%e +usiness of E&$SCO! and undertoo: to pa' E&$SCO!Ds creditors, and
earmar:ed for t%at purpose t%e amount of 6A,519,93A"9A for pa'ment to B6$" !ot3it%standin t%e fact t%at a
relia+le institution +ac:ed +' o-ernment funds 3as offerin to pa' E&$SCO!Ds de+ts, not as mere suret' +ut
as su+stitute principal de+tor, B6$, for reasons :no3n onl' to itself, insisted in oin after t%e sureties" B6$Ds
conduct e-inced a clear and unmista:a+le consent to t%e su+stitution of *B6 for E&$SCO! as de+tor" Jence,
t%ere 3as a -alid no-ation 3%ic% resulted in t%e release of E&$SCO! from its o+liation to B6$, 3%ose cause
of action s%ould +e directed aainst *B6 as t%e ne3 de+tor"
.0 *on( vs. Basa [GRs 144104)04 27 5e-tem+er 2001#L also &im C%e Boon -s" Basa B/Rs 139191=
93C, &im C%e Boon -s" Basa B/R 138139C
Third Division, Sandoval5Dutierrez (J): ) concur, 1 dissents in searate oinion
Facts$ $n 1.83, a reliious roup :no3n as MT%e C%urc% $n Rue>on Cit' (C%urc% Assem+l' Jall),
$ncorporatedM (CJ@RCJ), located at 1A5 Tala'an St", Tala'an #illae, Rue>on Cit', 3as orani>ed as Man
entit' of t%e +rot%er%ood in C%rist"DD $t 3as reistered in t%e same 'ear 3it% t%e Securities and E?c%ane
Commission (SEC) as a non=stoc:, non=profit reliious corporation for t%e administration of its temporalities
or t%e manaement of its properties" T%e Articles of $ncorporation and B'=la3s of t%e CJ@RCJ decree t%at
its affairs and operation s%all +e manaed +' a Board of *irectors consistin of 4 mem+ers, 3 3%o s%all +e
mem+ers of t%e CJ@RCJ" Fealous in up%oldin and uardin t%eir C%ristian fait%, and to ensure unit' and
uninterrupted e?ercise of t%eir reliious +elief, t%e mem+ers of t%e CJ@RCJ -ested upon t%e Board of
*irectors t%e a+solute po3er M(to preser-e and protect t%e(ir) fait%M and to admit and e?pel a mem+er of t%e
CJ@RCJ" Admission for mem+ers%ip in t%e CJ@RCJ is so e?actin" Onl' Mpersons >ealous of t%e /ospel,
fait%ful in C%urc% 3or: and of sound :no3lede of t%e Trut%, as t%e Board of *irectors s%all admit to
mem+ers%ip, s%all +e mem+ers of t%e (CJ@RCJ)"M T%e procedure for t%e e?pulsion of an errin or dissident
mem+er is prescri+ed in Article #$$ (pararap% A) of t%e CJ@RCJ B'=la3s, 3%ic% pro-ides t%at M$f it is
+rou%t to t%e notice of t%e Board of *irectors t%at an' mem+er %as failed to o+ser-e an' reulations and B'=
la3s of t%e $nstitution (CJ@RCJ) or t%e conduct of an' mem+er %as +een dis%onora+le or improper or
ot%er3ise inIurious to t%e c%aracter and interest of t%e $nstitution, t%e Board of *irectors ma' +' resolution
3it%out assinin an' reason t%erefor e?pel suc% mem+er from suc% $nstitution and %e s%all t%en forfeit %is
interest, ri%ts and pri-ilees in t%e $nstitution"M As earl' as 1.77, t%e Board of *irectors o+ser-ed t%at certain
mem+ers of t%e CJ@RCJ, includin Alfredo &on, Josep% &im, &iu Oe: See, and 0eli? Almeria, e?%i+ited
Mconduct 3%ic% 3as dis%onora+le, improper and inIurious to t%e c%aracter and interest of t%e (CJ@RCJ)M +'
Mintroducin (to t%e mem+ers) doctrines and teac%ins 3%ic% 3ere not +ased on t%e Jol' Bi+leM and t%e
6rinciples of 0ait% em+raced +' t%e CJ@RCJ" Confronted 3it% t%is situation, &'dia Basa, Ant%on'
Sa'%eeliam and Oao C%e:, as mem+ers of t%e Board of *irectors, and some responsi+le mem+ers of t%e
CJ@RCJ, ad-ised &on, et al" Mto correct t%eir 3a'sM and 3arned t%em t%at if t%e' persist in t%eir %i%l'
improper conduct, t%e' 3ill +e dropped from t%e mem+ers%ip of t%e CJ@RCJL durin Sunda' 3ors%ip
at%erins, Min small roup meetins and e-en one=on=one personal tal: 3it% t%em"M &on et al" inored t%ese
repeated admonitions" Alarmed t%at &on, et al"Ds conduct 3ill continue to undermine t%e interit' of t%e
6rinciples of 0ait% of t%e CJ@RCJ, t%e Board of *irectors, durin its 35 Auust 1..3 reular meetin %eld
for t%e purpose of re-ie3in and updatin t%e mem+ers%ip list of t%e CJ@RCJ, remo-ed from t%e said list
certain names of mem+ers, includin t%e names of Josep% &im, &iu Oe: See, Alfredo &on and 0eli? Almeria"
T%e' 3ere remo-ed for espousin doctrines inimical or inIurious to t%e 6rinciples of 0ait% of t%e CJ@RCJ"
T%e Board also updated t%e list +' remo-in t%e names of t%ose 3%o %a-e mirated to ot%er countries, t%ose
deceased and t%ose 3%om t%e CJ@RCJ %ad lost contact 3it%" All t%e t%en 4 mem+ers of t%e Board, namel',
*irectors &im C%e Boon, Tan Jon Eoc, Ant%on' Sa'%eeliam, &eandro Basa, Oao C%ec and &'dia &" Basa
M3ere dul' informedM of t%at meetin" Jo3e-er, *irectors &im C%e Boon and Tan Jon Eoc did not appear"
T%us, t%e resolution 3as sined onl' +' *irectors Ant%on' Sa'%eeliam, &eandro Basa, Oao C%ec and &'dia
&" Basa 3%o composed t%e maIorit' of t%e Board" T%e updated mem+ers%ip list appro-ed +' t%e Board on 35
Auust 1..3, toet%er 3it% t%e minutes of t%e meetin, 3ere dul' filed 3it% t%e SEC on 13 Septem+er 1..3"
On 1. Septem+er 1..3, &im C%e Boon, Tan Jon Eoc, Josep% &im, &iu Oe: See and ot%ers ,uestioned t%eir
e?pulsion +' filin 3it% t%e SEC Securities $n-estiation and Clearin *epartment a petition (SEC Case 5.
.3=A971, and later a supplemental petition) aainst *irectors Oao C%e:, &eandro Basa, &'dia Basa and
Ant%on' Sa'%eeliam" $t sou%t mainl' t%e annulment of t%e 35 Auust 1..3 mem+ers%ip list and t%e
reinstatement of t%e oriinal list on t%e round t%at t%e e?pulsion 3as made 3it%out prior notice and %earinL
and pra'ed for t%e issuance of a temporall' restrainin order (TRO) and a 3rit of preliminar' inIunction
principall' to enIoin t%e Board of *irectors from %oldin an' election of a ne3 set of directors amon t%e
mem+ers named in t%e 35 Auust 1..3 list of corporate mem+ers%ip" After conductin a %earin on t%e
application for a 3rit of preliminar' inIunction, SEC Jearin Officer (anuel 6erea denied t%e same in an
order dated 11 0e+ruar' 1..A" &im C%e Boon, et al" ele-ated 6ereaDs order to t%e SEC en +anc -ia a petition
for certiorari (SEC EB Case 37.)" T%e SEC, in an en +anc decision dated 11 Jul' 1..A, affirmed t%e 6erea
rulin and Mdismissed for lac: of meritM t%e petition" &im C%e Boon et al" did not appeal from t%e decision of
t%e SEC en +anc"
su+se,uentl', t%e SEC, t%rou% a %earin panel, conducted furt%er proceedins to %ear and decide t%e
permissi-e counterclaim and t%ird=part' complaint incorporated in Basa, et al"Ds supplemental ans3er,
includin t%eir pra'er for inIuncti-e relief to pre-ent &on, &im C%e Boon, et al" from interferin and
usurpin t%e functions of t%e Board of *irectors" &on, et al" su+se,uentl' filed motions to dismissGstri:e out
t%e counterclaim and t%ird=part' complaint" T%e %earin panel in its omni+us order dated 1 Octo+er 1..9
denied t%e motions, and declined to act on Basa, et al"Ds t%ird=part' complaintDs pra'er for inIuncti-e relief
since t%ere is a case pendin +efore anot%er Jearin Officer in SEC Case A..A for t%e declaration of nullit' of
t%e eneral mem+ers%ip meetin %eld on 11 0e+ruar' 1..9" @pon denial of t%e separate motions for
reconsideration of +ot% parties, Basa, et al" filed 3it% t%e SEC en +anc a petition for re-ie3 on certiorari (SEC
EB Case A7A), 3%ic% interposed t%e issue as to t%e -alidit' of t%e ,uestioned e?pulsion alread' resol-ed +'
t%e SEC en +anc in its decision dated 11 Jul' 1..A in SEC EB Case 37. 3%ic% %ad attained finalit'" On 31
Jul' 1..4, t%e SEC en +anc, issued an order in SEC EB Case A7A, settin aside t%e e?pulsion of certain
mem+ers of t%e CJ@RCJ appro-ed +' its Board of *irectors on 35 Auust 1..3 for +ein -oid and orderin
t%e reinstatement of &on, et al" as mem+ers of t%e CJ@RCJ" 6romptl', Sa'%eeliam and Basa filed a petition
for re-ie3 3it% t%e Court of Appeals (CA=/R S6 A1991)" Oao C%ec:, for %is part, filed a motion for
reconsideration of t%e same order" @pon denial of %is motion %e also filed 3it% t%e Court of Appeals a petition
for re-ie3 (CA=/R S6 A337.), 3%ic% 3as consolidated 3it% CA=/R S6 A1991)" On 1. (a' 1..7, t%e Court
of Appeals promulated its decision rantin Basa, et al"Ds consolidated petitions and re-ersin t%e 31 Jul'
1..4 order of t%e SEC en +anc in SEC EB Case A7A" &on, et al" filed a motion for reconsideration +ut 3as
denied +' t%e appellate court in a resolution dated 17 Auust 1..7" &on, &im C%e Boon, et al" filed t%e
petitions for re-ie3, 3%ic% 3ere su+se,uentl' consolidated"
%ssue$ )%et%er t%e e?pulsion of Josep% &im, &iu Oe: See, Alfredo &on and 0eli? Almeria from t%e
mem+ers%ip of t%e CJ@RCJ +' its Board of *irectors t%rou% a resolution issued on Auust 35, 1..3 is in
accordance 3it% la3"
&eld$ T%e B'=la3s of t%e CJ@RCJ, 3%ic% t%e mem+ers %a-e e?pressl' ad%ered to, does not re,uire t%e
Board of *irectors to i-e prior notice to t%e errin or dissident mem+ers in cases of e?pulsion" $n t%e B'=la3
pro-ision, t%e onl' re,uirements +efore a mem+er can +e e?pelled or remo-ed from t%e mem+ers%ip of t%e
CJ@RCJ are: (a) t%e Board of *irectors %as +een notified t%at a mem+er %as failed to o+ser-e an'
reulations and B'=la3s of t%e CJ@RCJ, or t%e conduct of an' mem+er %as +een dis%onora+le or improper
or ot%er3ise inIurious to t%e c%aracter and interest of t%e CJ@RCJ, and (+) a resolution is passed +' t%e
Board e?pellin t%e mem+er concerned, 3it%out assinin an' reason t%erefor" T%us, a mem+er 3%o commits
an' of t%e causes for e?pulsion enumerated in pararap% A of Article #$$ ma' +e e?pelled +' t%e Board of
*irectors, t%rou% a resolution, 3it%out i-in t%at errin mem+er an' notice prior to %is e?pulsion" T%e
resolution need not e-en state t%e reason for suc% action" T%e CJ@RCJ B'=la3 pro-ision on e?pulsion, as
p%rased, ma' sound unusual and o+Iectiona+le as t%ere is no re,uirement of prior notice to +e i-en to an
errin mem+er +efore %e can +e e?pelledL +ut t%at is %o3 peculiar t%e nature of a reliious corporation is -is=
a=-is an ordinar' corporation orani>ed for profit" $t must +e stressed t%at t%e +asis of t%e relations%ip
+et3een a reliious corporation and its mem+ers is t%e latterDs a+solute ad%erence to a common reliious or
spiritual +elief " Once t%is +asis ceases, mem+ers%ip in t%e reliious corporation must also cease" T%us,
enerall', t%ere is no room for dissension in a reliious corporation" And 3%ere an' mem+er of a reliious
corporation is e?pelled from t%e mem+ers%ip for espousin doctrines and teac%ins contrar' to t%at of %is
c%urc%, t%e esta+lis%ed doctrine in t%is Iurisdiction is t%at suc% action from t%e c%urc% aut%orities is
conclusi-e upon t%e ci-il courts" O+-iousl' reconi>in t%e peculiarit' of a reliious corporation, t%e
Corporation Code lea-es t%e matter of ecclesiastical discipline to t%e reliious roup concerned" Section .1 of
t%e Corporation Code, 3%ic% %as +een made e?plicitl' applica+le to reliious corporations +' t%e second
pararap% of Section 15. of t%e same Code, pro-ides for t%e termination of mem+ers%ip" $t pro-ides t%at
M(em+ers%ip s%all +e terminated in t%e manner and for t%e causes pro-ided in t%e articles of incorporation or
t%e +'=la3s" Termination of mem+ers%ip s%all %a-e t%e effect of e?tinuis%in all ri%ts of a mem+er in t%e
corporation or in its propert', unless ot%er3ise pro-ided in t%e articles of incorporation or t%e +'=la3s"M $n
fact, &on, et al" reall' %a-e no reason to +e3ail t%e lac: of prior notice in t%e B'=la3s" T%e' %a-e 3ai-ed
suc% notice +' ad%erin to t%ose B'=la3s" T%e' +ecame mem+ers of t%e CJ@RCJ -oluntaril'" T%e' entered
into its co-enant and su+scri+ed to its rules" B' doin so, t%e' are +ound +' t%eir consent" E-en assumin t%at
&on, et al"Ds e?pulsion falls 3it%in t%e Constitutional pro-isions on Mprior noticeM or Mdue process,M still t%e
Court can not conclude t%at Basa, et al" committed a constitutional infraction" &on, et al" 3ere i-en more
t%an sufficient notice of t%eir impendin e?pulsion, as s%o3n +' t%e records"
.7 5ta. Clara &omeo3nersB Association vs. 5-ouses Gaston [GR 141101 24 !anuar" 2002#
Third Division, /an'ani.an (J): 3 concur, 1 concurs althou'h he #i'ht call attention to Article )1<4 o0 the
Civil Code as and 8hen ertinent$
Facts$ Spouses #ictor (a" /aston and &'dia (" /aston 3ere residents of San Jose A-enue, Sta" Clara
Su+di-ision, (andalaan, Bacolod Cit'" T%e' purc%ased t%eir lots in t%e said su+di-ision sometime in 1.8A,
and at t%e time of purc%ase, t%ere 3as no mention or re,uirement of mem+ers%ip in an' %omeo3nersD
association" 0rom t%at time on, t%e' %a-e remained non=mem+ers of SCJA" T%e' also stated t%at an
arranement 3as made 3%erein %omeo3ners 3%o 3ere non=mem+ers of t%e association 3ere issued Mnon=
mem+erM atepass stic:ers for t%eir -e%icles for identification +' t%e securit' uards mannin t%e
su+di-isionDs entrances and e?its" T%is arranement remained undistur+ed until sometime in t%e middle of
(arc% 1..7, 3%en SCJA disseminated a +oard resolution 3%ic% decreed t%at onl' its mem+ers in ood
standin 3ere to +e issued stic:ers for use in t%eir -e%icles" T%ereafter, on t%ree separate incidents, #ictor ("
/aston, t%e son of t%e spouses /aston 3%o li-es 3it% t%em, 3as re,uired +' t%e uards on dut' emplo'ed +'
SCJA to s%o3 %is dri-erDs license as a prere,uisite to %is entrance to t%e su+di-ision and to %is residence
t%erein despite t%eir :no3in %im personall' and t%e e?act location of %is residence" On 1. (arc% 1..7,
#ictor (a" /aston 3as %imself pre-ented from enterin t%e su+di-ision and proceedin to %is residential
a+ode 3%en securit' uards Roer Capillo and a MJo%n *oeM lo3ered t%e steel +ar of t%e EA(ETA& ate of
t%e su+di-ision and demanded from %im %is dri-erDs license for identification" On 1 April 1..7, Spouses
#ictor (a" /aston and &'dia (" /aston filed a complaint for damaes 3it% preliminar'
inIunctionGpreliminar' mandator' inIunction and temporar' restrainin order +efore t%e Reional Trial Court
in !eros Occidental at Bacolod Cit' aainst Santa Clara Jomeo3ners Association (SCJA) t%ru its Board of
*irectors, namel': Arneil C%ua, &uis Sarrosa, Jocel'n /arcia, (a" (ilaros #aras, &oren>o &acson, Ernesto
6iccio, *indo $laan, *anilo /am+oa, Jr", Ri>>a de la Rama and Securit' /uard Capillo and DJo%n *oeD, and
Santa Clara Estate, $ncorporated (Ci-il Case .7=15118, RTC=Branc% A., Bacolod Cit')L allein t%at t%e acts
of SCJA, et al", done in t%e presence of ot%er su+di-ision o3ners %ad caused t%e spouses /aston to suffer
moral damae" On 7 April 1..7, SCJA, et al" filed a motion to dismiss aruin t%at t%e trial court %ad no
Iurisdiction o-er t%e case as it in-ol-ed an intra=corporate dispute +et3een SCJA and its mem+ers pursuant to
Repu+lic Act 975, as amended +' E?ecuti-e Orders 939 and .5, muc% less, to declare as null and -oid t%e
su+Iect resolution of t%e +oard of directors of SCJA, t%e proper forum +ein t%e Jome insurance and
/uarant' Corporation (J$/C)" To support t%eir claim of intra=corporate contro-ers', SCJA, et al" stated t%at
t%e Articles of $ncorporation of SCJA, 3%ic% 3as dul' appro-ed +' t%e Securities and E?c%ane
Commission (SEC) on A Octo+er 1.83, pro-ides Mt%at t%e association s%all +e a non=stoc: corporation 3it% all
%omeo3ners of Sta" Clara constitutin its mem+ers%ipML and t%at its +'=la3s contains a pro-ision t%at Mall real
estate o3ners in Sta" Clara Su+di-ision automaticall' +ecome mem+ers of t%e associationML amon ot%ers" On
4 Jul' 1..7, t%e lo3er court resol-ed to den' SCJA et al"Ds motion to dismiss, findin t%at t%ere e?isted no
intra=corporate contro-ers' since t%e Spouses /aston alleed t%at t%e' %ad ne-er Ioined t%e association" On
17 Jul' 1..7, SCJA, et al" su+mitted a (otion for Reconsideration, addin lac: of cause of action as round
for t%e dismissal of t%e case" On 18 Auust 1..7, t%e trial court denied t%e said motion 3it%out %o3e-er
rulin on t%e additional round of lac: of cause of action" On 17 Auust 1..7, SCJA, et al" filed a motion to
resol-e its motion to dismiss on round of lac: of cause of action" On 7 Septem+er 1..7, t%e trial court issued
an order den'in t%e motion" On 1A Septem+er 1..7, SCJA" et al" ele-ated t%e matter to t%e Court of Appeals
-ia a 6etition for Certiorari" On 31 Auust 1..., t%e Court of Appeals dismissed t%e 6etition and ruled t%at
t%e RTC %ad Iurisdiction o-er t%e dispute" T%e appellate court li:e3ise denied SCJA, et al"Ds motion for
reconsideration in a resolution dated 11 0e+ruar' 1555" SCJA, et al" filed t%e petition for re-ie3"
%ssue$ )%et%er t%e Spouses /aston are mem+ers of t%e SCJA"
&eld$ T%e constitutionall' uaranteed freedom of association includes t%e freedom not to associate" T%e ri%t
to c%oose 3it% 3%om one 3ill associate oneself is t%e -er' foundation and essence of t%at partners%ip"
0urt%er, t%e Spouses /aston cannot +e compelled to +ecome mem+ers of t%e SCJA +' t%e simple e?pedient
of includin t%em in its Articles of $ncorporation and B'=la3s 3it%out t%eir e?press or implied consent" True,
it ma' +e to t%e mutual ad-antae of lot o3ners in a su+di-ision to +and t%emsel-es toet%er to promote t%eir
common 3elfare, +ut t%at is possi+le onl' if t%e o3ners -oluntaril' aree, directl' or indirectl', to +ecome
mem+ers of t%e association" True also, mem+ers%ips in %omeo3nersD associations ma' +e ac,uired in -arious
3a's P often t%rou% deeds of sale, Torrens certificates or ot%er forms of e-idence of propert' o3ners%ip"
Jerein, %o3e-er, ot%er t%an t%e said Articles of $ncorporation and B'=la3s, t%ere is no s%o3in t%at t%e
Spouses /aston %a-e areed to +e SCJA mem+ers" T%e appro-al +' t%e SEC of t%e said documents is not an
operati-e act 3%ic% +esto3s mem+ers%ip on t%e Spouses /aston +ecause t%e ri%t to associate parta:es of t%e
nature of freedom of contract 3%ic% can +e e?ercised +' and +et3een t%e %omeo3ners amonst t%emsel-es,
t%e %omeo3nersD association and a %omeo3ner, and t%e su+di-ision o3ner and a %omeo3nerGlot +u'er"
Clearl', t%ere is no pri-it' of contract e?ists +et3een SCJA and Spouses /aston" )%en t%e Spouses /aston
purc%ased t%eir propert' in 1.8A and o+tained Transfer Certificates of Titles T=1149A1 and T=118A41 for &ots
11 and 11 of Bloc: 38 alon San Jose A-enue in Sta" Clara Su+di-ision, t%ere 3as no annotation s%o3in
Commercial *a3 ) Cor-oration *a3 200. ( /. )
t%eir automatic mem+ers%ip in t%e SCJA" 0urt%ermore, t%e records are +ereft of an' e-idence t%at 3ould
indicate t%at t%e Spouses /aston intended to +ecome mem+ers of t%e SCJA" 6rior to t%e implementation of
t%e aforesaid Resolution, t%e' and t%e ot%er %omeo3ners 3%o 3ere not mem+ers of t%e association 3ere
issued non=mem+er ate pass stic:ers for t%eir -e%iclesL a fact not disputed +' SCJA" T%us, t%e SCJA
reconi>ed t%at t%ere 3ere su+di-ision lando3ners 3%o 3ere not mem+ers t%ereof, not3it%standin t%e
pro-isions of its Articles of $ncorporation and B'=la3s"
./ :adcom Condominium Cor-oration vs. 9rti(as Center Association [GR 140/07 1 'a" 2002#
First Division, Davide Jr$ (CJ): 4 concur
Facts$ 6adcom Condominium Corporation (6A*CO() o3ns and manaes t%e 6adilla Office Condominium
Buildin (6A*CO( Buildin) located at Emerald A-enue, Ortias Center, 6asi Cit'" T%e land on 3%ic% t%e
+uildin stands 3as oriinall' ac,uired from t%e Ortias K Compan', &imited 6artners%ip (OC&6), +' Tierra
*e-elopment Corporation (T*C) under a *eed of Sale dated A Septem+er 1.8A" Amon t%e terms and
conditions in t%e deed of sale 3as t%e re,uirement t%at t%e transferee and its successor=in=interest must
+ecome mem+ers of an association for realt' o3ners and lon=term lessees in t%e area later :no3n as t%e
Ortias Center" Su+se,uentl', t%e said lot, toet%er 3it% impro-ements t%ereon, 3as con-e'ed +' T*C in
fa-or of 6A*CO( in a *eed of Transfer dated 19 0e+ruar' 1.89" $n 1.71, Ortias Center Association, $nc"
3as orani>ed to ad-ance t%e interests and promote t%e eneral 3elfare of t%e real estate o3ners and lon=
term lessees of lots in t%e Ortias Center" $t sou%t t%e collection of mem+ers%ip dues in t%e amount of
61,81A"A5 per mont% from 6A*CO(" T%e corporate +oo:s s%o3ed t%at 6A*CO( o3ed t%e Association
643.,.41"A8, representin mem+ers%ip dues, interests and penalt' c%ares from April 1.73 to June 1..3" T%e
letters e?c%aned +et3een t%e parties t%rou% t%e 'ears s%o3ed repeated demands for pa'ment, re,uests for
e?tensions of pa'ment, and e-en a settlement sc%eme proposed +' 6A*CO( in Septem+er 1..5" $n -ie3 of
6A*CO(Ds failure and refusal to pa' its arrears in mont%l' dues, includin interests and penalties t%ereon,
t%e Association filed a complaint for collection of sum of mone' +efore t%e Reional Trial Court of 6asi
Cit', Branc% 14A (Ci-il Case !o" 43751)" T%e Association a-erred t%at purc%asers of lands 3it%in t%e Ortias
Center comple? from OC&6 are o+liated under t%eir contracts of sale to +ecome mem+ers of t%e Association,
and t%at t%is o+liation 3as alleedl' passed on to 6A*CO( 3%en it +ou%t t%e lot from T*C, its
predecessor=in=interest" $n its ans3er, 6A*CO( contended t%at it is a non=stoc:, non=profit association, and
for it to +ecome a special mem+er of t%e Association, it s%ould first appl' for and +e accepted for mem+ers%ip
+' t%e latterDs Board of *irectorsL t%at no automatic mem+ers%ip 3as apparentl' contemplated in t%e
AssociationDs B'=la3s" 6A*CO( added t%at it could not +e compelled to +ecome a mem+er 3it%out -iolatin
its ri%t to freedom of associationL and t%at since it 3as not a mem+er of t%e Association, it 3as not lia+le for
mem+ers%ip dues, interests and penalties" On 1 Septem+er 1..8, t%e trial court rendered a decision dismissin
t%e complaint" T%e Association appealed t%e case to t%e Court of Appeals (CA=/R C# 455..)" $n its decision
of 35 June 1555, t%e Court of Appeals re-ersed and set aside t%e trial courtDs decision, and entered a ne3 one
orderin 6A*CO( to pa' t%e Association (1) 643.,.41"A8 as and for mem+ers%ip dues in arrears inclusi-e of
earned interests and penaltiesL and (1) 619,555"55 as and for attorne'Ds feesL 3it% costs aainst 6A*CO(L on
t%e round t%at 6A*CO( automaticall' +ecame a mem+er of t%e Association 3%en t%e land 3as sold to
T*CL and t%at t%e intent to pass t%e o+liation to prospecti-e transferees 3as e-ident from t%e annotation of
t%e same clause at t%e +ac: of t%e Transfer Certificate of Title co-erin t%e lot" T%e appellate court %eld t%at
despite disa-o3al of mem+ers%ip, 6A*CO(Ds mem+ers%ip in t%e Association 3as e-ident from t%ese facts:
(1) 6A*CO( 3as included in t%e AssociationDs list of +ona fide mem+ers as of 35 (arc% 1..9L (1) !arciso
6adilla, 6A*CO(Ds 6resident, 3as one of t%e AssociationDs incorporatorsL and (3) %a-in recei-ed t%e
demands for pa'ment, 6A*CO( not onl' ac:no3leded t%em, +ut as:ed for and 3as ranted repeated
e?tensions, and e-en proposed a sc%eme for t%e settlement of its o+liation" 6A*CO( filed t%e petition for
re-ie3"
%ssue$ )%et%er 6A*CO( can +e compelled to Ioin t%e association pursuant to t%e pro-ision on automatic
mem+ers%ip appearin as a condition in t%e *eed of Sale of A Septem+er 1.8A and t%e annotation t%ereof on
Transfer Certificate of Title A98357"
&eld$ )%en t%e land in ,uestion 3as +ou%t +' 6A*CO(Ds predecessor=in=interest, T*C, from OC&6, t%e
sale +ound T*C to compl' 3it% pararap% (/) of t%e co-enants, conditions and restrictions of t%e *eed of
Sale" $t 3as areed +' t%e parties t%at dues s%all +e collected from an automatic mem+er and suc% fees or
assessments s%all +e a lien on t%e propert'" T%e stipulation 3as li:e3ise annotated at t%e +ac: of Transfer
Certificate of Title A98357 issued to T*C" )%en t%e latter sold t%e lot to 6A*CO( on 19 0e+ruar' 1.89, t%e
*eed of Transfer e?pressl' stated t%at Mfor and in consideration of t%e foreoin premises, t%e *E#E&O6ER,
+' t%ese presents, cedes, transfers and con-e's unto t%e COR6ORAT$O! t%e a+o-e=descri+ed parcel of land
e-idenced +' Transfer Certificate of Title A98357, as 3ell as t%e Common and &imited Common Areas of t%e
Condominium proIect mentioned and descri+ed in t%e (aster *eed 3it% *eclaration of Restrictions, free
from all liens and encum+rances, e?cept t%ose alread' annotated at t%e +ac: of said Transfer Certificate of
Title A98357"M As t%e pro-ision on automatic mem+ers%ip 3as annotated in t%e Certificate of Title and made a
condition in t%e *eed of Transfer in fa-or of 6A*CO(L conse,uentl', 6A*CO( is +ound +' and must
compl' 3it% t%e co-enant" (oreo-er, Article 1311 of t%e Ci-il Code pro-ides t%at contracts ta:e effect
+et3een t%e parties, t%eir assins and %eirs" Since 6A*CO( is t%e successor=in=interest of T*C, it follo3s
t%at t%e stipulation on automatic mem+ers%ip 3it% t%e Association is also +indin on t%e former" 0urt%er, as
lot o3ner, 6A*CO( is a reular mem+er of t%e Association" !o application for mem+ers%ip is necessar'" $f
at all, acceptance +' t%e Board of *irectors is a ministerial function considerin t%at 6A*CO( is deemed to
+e a reular mem+er upon t%e ac,uisition of t%e lot pursuant to t%e automatic mem+ers%ip clause annotated in
t%e Certificate of Title of t%e propert' and t%e *eed of Transfer" 0urt%ermore, t%e automatic mem+ers%ip
clause is not a -iolation of its freedom of association" 6A*CO( 3as ne-er forced to Ioin t%e association" $t
could %a-e a-oided suc% mem+ers%ip +' not +u'in t%e land from T*C" !o+od' forced it to +u' t%e land
3%en it +ou%t t%e +uildin 3it% t%e annotation of t%e condition or lien on t%e Certificate of Title t%ereof and
accepted t%e *eed" 6A*CO( -oluntaril' areed to +e +ound +' and respect t%e condition, and t%us to Ioin
t%e Association" &astl', under t%e principle of estoppel, from t%e facts or circumstances it enumerated in t%e
appellate courtDs decision, 6A*CO( is +arred from disclaimin mem+ers%ip in t%e Association"
.1 'anuel R. 2ula" =nter-rises vs. Court o, A--eals [GR 11//1 27 Au(ust 1114#
Second Division, 6ocon (J): 3 concur, 1 too* no art
Facts$ (anuel R" *ula' Enterprises, $nc", a domestic corporation 3it% t%e follo3in as mem+ers of its Board
of *irectors: (anuel R" *ula' 3it% 1.,.45 s%ares and desinated as president, treasurer and eneral manaerL
Att'" #irilio E" *ula' 3it% 15 s%ares and desinated as -ice=presidentL &inda E" *ula' 3it% 15 s%aresL Celia
*ula'=(endo>a 3it% 15 s%aresL and Att'" 6laridel C" Jose 3it% 15 s%ares and desinated as secretar', o3ned a
propert' co-ered +' TCT 18775 A and :no3n as *ula' Apartment consistin of 14 apartment units on a 47.
s,uare meter lot, more or less, located at Se-ent% Street (no3 Buendia E?tension) and 0"B" Jarrison Street,
6asa' Cit'" T%e corporation t%rou% its president, (anuel *ula', o+tained -arious loans for t%e construction
of its %otel proIect, *ula' Continental Jotel (no3 0rederic: Jotel)" $t e-en %ad to +orro3 mone' from
#irilio *ula' to +e a+le to continue t%e %otel proIect" As a result of said loan, #irilio *ula' occupied one of
t%e unit apartments of t%e su+Iect propert' since 1.83 3%ile at t%e same time manain t%e *ula' Apartment
as %is s%are%oldins in t%e corporation 3as su+se,uentl' increased +' %is fat%er" On 13 *ecem+er 1.84,
(anuel *ula' +' -irtue of Board Resolution 17 of t%e corporation sold t%e su+Iect propert' to spouses (aria
T%eresa and Castrense #eloso in t%e amount of 6355,555"55 as e-idenced +' t%e *eed of A+solute Sale"
T%ereafter, TCT 18775 3as cancelled and TCT 13119 3as issued to (aria T%eresa #eloso" Su+se,uentl',
(anuel *ula' and t%e spouses #eloso e?ecuted a (emorandum to t%e *eed of A+solute Sale of 13 *ecem+er
1.84 dated . *ecem+er 1.88 i-in (anuel *ula' 3it%in 1 'ears or until . *ecem+er 1.8. to repurc%ase t%e
su+Iect propert' for 6155,555"55 3%ic% 3as, %o3e-er, not annotated eit%er in TCT 18775 or TCT 13119" On
1A *ecem+er 1.84, (aria #eloso, 3it%out t%e :no3lede of (anuel *ula', mortaed t%e su+Iect propert' to
(anuel A" Torres for a loan of 6195,555"55 3%ic% 3as dul' annotated as Entr' 4713. in TCT 13119" @pon
t%e failure of (aria #eloso to pa' Torres, t%e su+Iect propert' 3as sold on 9 April 1.87 to Torres as t%e
%i%est +idder in an e?traIudicial foreclosure sale as e-idenced +' t%e Certificate of S%eriffDs Sale issued on
15 April 1.87" On 15 Jul' 1.87, (aria #eloso e?ecuted a *eed of A+solute Assinment of t%e Ri%t to
Redeem in fa-or of (anuel *ula' assinin %er ri%t to repurc%ase t%e su+Iect propert' from Torres as a
result of t%e e?traIudicial sale" As neit%er (aria #eloso nor %er assinee (anuel *ula' 3as a+le to redeem t%e
su+Iect propert' 3it%in t%e one 'ear statutor' period for redemption, Torres filed an Affida-it of
Consolidation of O3ners%ip 13 3it% t%e Reistr' of *eeds of 6asa' Cit' and TCT 1A8.. 3as su+se,uentl'
issued to Torres on 13 April 1.8." On 1 Octo+er 1.8., Torres filed a petition for t%e issuance of a 3rit of
possession aainst spouses #eloso and (anuel *ula' in &RC Case 18A1=6" Jo3e-er, 3%en #irilio *ula'
appeared in court to inter-ene in said case allein t%at (anuel *ula' 3as ne-er aut%ori>ed +' t%e
corporation to sell or mortae t%e su+Iect propert', t%e trial court ordered Torres to implead t%e corporation
as an indispensa+le part' +ut t%e latter mo-ed for t%e dismissal of %is petition 3%ic% 3as ranted in an Order
dated 7 April 1.75" On 15 June 1.75, Torres and Edardo 6a+alan, real estate administrator of Torres, filed an
action aainst t%e corporation, #irilio *ula' and !epomuceno Redo-an, a tenant of *ula' Apartment @nit
!o" 7=A for t%e reco-er' of possession, sum of mone' and damaes 3it% preliminar' inIunction in Ci-il Case
71.7=6 3it% t%e t%en Court of 0irst $nstance of Ri>al" On 11 Jul' 1.75, t%e corporation filed an action aainst
spouses #eloso and Torres for t%e cancellation of t%e Certificate of S%eriffDs Sale and TCT 1A8.. in Ci-il
Case 7187=6 3it% t%e t%en Court of 0irst $nstance of Ri>al" On 1. Januar' 1.71, 6a+alan and Torres filed an
action aainst spouses 0lorentino and El-ira (analastas, a tenant of *ula' Apartment @nit !o" 8=B, 3it% t%e
corporation as inter-enor for eIectment in Ci-il Case 37=71 3it% t%e (etropolitan Trial Court of 6asa' Cit'
3%ic% rendered a decision on 19 April 1.79, in fa-or of 6a+alan, et al", orderin t%e spouses (analastas and
all persons claimin possession under t%em to -acate t%e premisesL and to pa' t%e rents in t%e sum of 6955"55
a mont% from (a' 1.8. until t%e' s%all %a-e -acated t%e premises 3it% interest at t%e leal rateL and to pa'
attorne'Ds fees in t%e sum of 61,555"55 and 61,555"55 as ot%er e?penses of litiation and for t%em to pa' t%e
costs of t%e suit" T%ereafter or on 18 (a' 1.79, t%e corporation and #irilio *ula' filed an action aainst t%e
presidin Iude of t%e (etropolitan Trial Court of 6asa' Cit', 6a+alan and Torres for t%e annulment of said
decision 3it% t%e Reional Trial Court of 6asa' in Ci-il Case 1775=6" T%ereafter, t%e 3 cases 3ere Iointl' tried
and t%e trial court rendered a decision in fa-or of 6a+alan and Torres" !ot satisfied 3it% said decision, t%e
corporation, et al" appealed to t%e Court of Appeals 3%ic% rendered a decision on 13 Octo+er 1.7., affirmin
t%e trial court decision" On 7 !o-em+er 1.7., t%e corporation, et al" filed a (otion for Reconsideration 3%ic%
3as denied on 14 Januar' 1..5" T%e corporation, et al" filed t%e petition for re-ie3 on certiorari" *urin t%e
pendenc' of t%e petition, Torres died on 3 April 1..1 as s%o3n in %is deat% certificate and named Torres=
6a+alan Realt' K *e-elopment Corporation as %is %eir in %is %olorap%ic 3ill dated 31 Octo+er 1.74"
%ssue$ )%et%er t%e sale of t%e su+Iect propert' +et3een spouses #eloso and (anuel *ula' %as no +indin
effect on t%e corporation as Board Resolution 17 3%ic% aut%ori>ed t%e sale of t%e su+Iect propert' 3as
resol-ed 3it%out t%e appro-al of all t%e mem+ers of t%e +oard of directors and said Board Resolution 3as
prepared +' a person not desinated +' t%e corporation to +e its secretar'"
&eld$ Section 151 of t%e Corporation Code of t%e 6%ilippines pro-ides t%at M)%en +oard meetin is
unnecessar' or improperl' %eld" @nless t%e +'=la3s pro-ide ot%er3ise, an' action +' t%e directors of a close
corporation 3it%out a meetin s%all ne-ert%eless +e deemed -alid if: (1) Before or after suc% action is ta:en,
3ritten consent t%ereto is sined +' all t%e directorsL or (1) All t%e stoc:%olders %a-e actual or implied
:no3lede of t%e action and ma:e no prompt o+Iection t%ereto in 3ritinL or (3) T%e directors are accustomed
to ta:e informal action 3it% t%e e?press or implied ac,uiesce of all t%e stoc:%oldersL or (A) All t%e directors
%a-e e?press or implied :no3lede of t%e action in ,uestion and none of t%em ma:es prompt o+Iection
t%ereto in 3ritin" $f a directorsD meetin is %eld 3it%out proper call or notice, an action ta:en t%erein 3it%in
t%e corporate po3ers is deemed ratified +' a director 3%o failed to attend, unless %e promptl' files %is 3ritten
o+Iection 3it% t%e secretar' of t%e corporation after %a-in :no3lede t%ereof"M Jerein, t%e corporation is
classified as a close corporation and conse,uentl' a +oard resolution aut%ori>in t%e sale or mortae of t%e
su+Iect propert' is not necessar' to +ind t%e corporation for t%e action of its president" At an' rate, a corporate
action ta:en at a +oard meetin 3it%out proper call or notice in a close corporation is deemed ratified +' t%e
Commercial *a3 ) Cor-oration *a3 200. ( // )
a+sent director unless t%e latter promptl' files %is 3ritten o+Iection 3it% t%e secretar' of t%e corporation after
%a-in :no3lede of t%e meetin 3%ic%, in t%is case, #irilio *ula' failed to do" T%e corporationDs claim t%at
t%e sale of t%e su+Iect propert' +' its president, (anuel *ula', to spouses #eloso is null and -oid as t%e
alleed Board Resolution 17 3as passed 3it%out t%e :no3lede and consent of t%e ot%er mem+ers of t%e
+oard of directors cannot +e sustained" #irilio E" *ula'Ds protestations of complete innocence to t%e effect
t%at %e ne-er participated nor 3as e-en a3are of an' meetin or resolution aut%ori>in t%e mortae or sale of
t%e su+Iect premises is difficult to +elie-e" On t%e contrar', %e is -er' muc% pri-' to t%e transactions in-ol-ed"
To +ein 3it%, %e is an incorporator and one of t%e +oard of directors desinated at t%e time of t%e
orani>ation of (anuel R" *ula' Enterprises, $nc" $n ordinar' parlance, t%e said entit' is loosel' referred to as
a Mfamil' corporation"M T%e nomenclature, if imprecise, %o3e-er, fairl' reflects t%e co%esi-eness of a roup
and t%e paroc%ial instincts of t%e indi-idual mem+ers of suc% an arupation of 3%ic% (anuel R" *ula'
Enterprises, $nc" is t'pical: four=fift%s of its incorporators +ein close relati-es namel', 3 c%ildren and t%eir
fat%er 3%ose name identifies t%eir corporation" Besides, t%e fact t%at #irilio *ula' on 1A June 1.89 e?ecuted
an affida-it t%at %e 3as a sinator' 3itness to t%e e?ecution of t%e post=dated *eed of A+solute Sale of t%e
su+Iect propert' in fa-or of Torres indicates t%at %e 3as a3are of t%e transaction e?ecuted +et3een %is fat%er
and Torres and %ad, t%erefore, ade,uate :no3lede a+out t%e sale of t%e su+Iect propert' to Torres"
Conse,uentl', t%e corporation is lia+le for t%e act of (anuel *ula' and t%e sale of t%e su+Iect propert' to
Torres +' (anuel *ula' is -alid and +indin"
00 5an !uan 5tructural and 5teel Fa+ricators [GR 1214.1 21 5e-tem+er 111/#
Facts$ On 1A 0e+ruar' 1.7., San Juan Structural and Steel 0a+ricators, $nc" (SJSS0$) entered into an
areement 3it% (otoric% Sales Corporation ((SC) for t%e transfer to it of a parcel of land identified as &ot
35, Bloc: 1 of t%e Acropolis /reens Su+di-ision located in t%e *istrict of (urp%', Rue>on Cit', (etro
(anila, containin an area of A1A s,uare meters, co-ered +' TCT (341.5.) 1784 (the lot 8as still re'istered
in the na#e o0 ACE Develo#ent Cororation +ADC, at that ti#e)" As stipulated in t%e Areement of 1A
0e+ruar' 1.7., SJSS0$ paid t%e do3npa'ment in t%e sum of 6155,555"55, t%e +alance to +e paid on or +efore
1 (arc% 1.7." On 1 (arc% 1.7., (r" Andres T" Co, SJSS0$ president, 3rote a letter to (SC re,uestin for a
computation of t%e +alance to +e paid" Said letter 3as coursed t%rou% (SCDs +ro:er, &inda Aduca, 3%o
3rote t%e computation of t%e +alance" On 1 (arc% 1.7., SJSS0$ 3as read' 3it% t%e amount correspondin to
t%e +alance, co-ered +' (etro+an: Cas%ierDs C%ec: 55A113, pa'a+le to (SC" SJSS0$ and (SC 3ere
supposed to meet in t%e office of SJSS0$ +ut (SCDs treasurer, !enita &ee /ruen+er, did not appear" (SC,
despite repeated demands and in utter disreard of its commitments %ad refused to e?ecute t%e Transfer of
Ri%tsG*eed of Assinment 3%ic% is necessar' to transfer t%e certificate of title" On 4 April 1.7., A*C and
(SC entered into a *eed of A+solute Sale 3%ere+' t%e former transferred to t%e latter t%e su+Iect propert'"
B' reason of said transfer, t%e Reistr' of *eeds of Rue>on Cit' issued a ne3 title in t%e name of (SC,
represented +' !enita &ee /ruen+er and Re'naldo & /ruen+er, under Transfer Certificate of Title 3981"
SJSS0$ filed t%e complaint for damaes aainst (SC, and !enita &ee /ruen+er, as a result of t%e latter2s
alleed +ad fait% in refusin to e?ecute a formal Transfer of Ri%tsG*eed of Assinment" $t impleaded A*C
and J!( Realt' K *e-elopment Corp" (JR*C) as necessar' parties, since Transfer Certificate of Title
(341.5.) 1784 3as in t%e name of A*C, and t%at JR*C is t%e transferor of ri%t in fa-or of (*C" $n its
ans3er, (SC and !enita &ee /ruen+er interposed as affirmati-e defense t%at t%e 6resident and C%airman of
(otoric% did not sin t%e areement ad-erted toL t%at (rs" /ruen+erDs sinature on t%e areement is
inade,uate to +ind (SC as t%e ot%er sinature, t%at of (r" Re'naldo /ruen+er, 6resident and C%airman of
(SC, is re,uiredL t%at SJSS0$ :ne3 t%is from t%e -er' +einnin as it 3as presented a cop' of t%e Transfer of
Ri%ts at t%e time t%e Areement 3as sinedL t%at SJSS0$ itself drafted t%e Areement and insisted t%at (rs"
/ruen+er accept t%e 6155,555"55 as earnest mone'L t%at rantin, 3it%out admittin, t%e enforcea+ilit' of
t%e areement, SJSS0$ nonet%eless failed to pa' in leal tender 3it%in t%e stipulated period (up to 1 (arc%
1.7.)L t%at it 3as t%e understandin +et3een (rs" /ruen+er and SJSS0$ t%at t%e Transfer of Ri%tsG*eed of
Assinment 3ill +e sined onl' upon receipt of cas% pa'mentL t%us t%e' areed t%at if t%e pa'ment +e in
c%ec:, t%e' 3ill meet at a +an: desinated +' SJSS0$ 3%ere t%e' 3ill encas% t%e c%ec: and sin t%e Transfer
of Ri%tsG*eed, +ut t%at SJSS0$ informed (rs" /ruen+er of t%e alleed a-aila+ilit' of t%e c%ec:, +' p%one,
onl' after +an:in %ours" On t%e +asis of t%e e-idence, and on 17 June 1..A, t%e Reional Trial Court of
(a:ati, (etro (anila, Branc% 43 (Ci-il Case 7.=3911) rendered Iudment, dismissin SJSS0$Ds complaint,
findin t%at !enita &ee /uten+er 3as not aut%ori>ed +' t%e corporation to dispose of t%e propert' as suc%
disposition is o-erned +' t%e re,uirements of Section A5, Corporation CodeL and t%at !enita &ee /uten+er
did not in an'3a' misrepresent %erself to +e aut%ori>ed +' t%e corporation to sell t%e propert' to SJSS0$" T%e
trial court also dismissed t%e counterclaim" SJSS0$ appealed" On 17 (arc% 1..8, t%e Court of Appeals (CA
/R C# A4751) modified t%e decision of t%e trial court +' orderin !enita &ee /uten+er to refund or return
to SJSS0$ t%e do3npa'ment of 6155,555"55 3%ic% s%e recei-ed from t%e latter" SJSS0$ mo-ed for
reconsideration, 3%ic% 3as denied +' t%e appellate court on 15 June 1..8" SJSS0$ filed t%e 6etition for
Re-ie3 on Certiorari" SJSS0$ arues, amon ot%ers, t%at t%e -eil of corporate fiction of (SC s%ould +e
pierced, +ecause t%e latter is a close corporation" Since MSpouses Re'naldo &" /ruen+er and !enita R"
/ruen+er o3ned all or almost all or .."744H to +e accurate, of t%e su+scri+ed capital stoc:M 19 of (otoric%,
petitioner arues t%at /ruen+er needed no aut%ori>ation from t%e +oard to enter into t%e su+Iect contract" $t
adds t%at, +ein solel' o3ned +' t%e Spouses /ruen+er t%e compan' can +e treated as a close corporation
3%ic% can +e +ound +' t%e acts of its principal stoc:%older 3%o needs no specific aut%orit'"
%ssue$ )%et%er (SC is a close corporation, +ased on t%e fact t%at almost all of t%e s%ares of stoc: of t%e
corporation are o3ned +' said treasurer and %er %us+and"
&eld$ Section .4 of t%e Corporation Code defines a close corporation pro-ides t%at MA close corporation,
3it%in t%e meanin of t%is Code, is one 3%ose articles of incorporation pro-ide t%at: (1) All of t%e
corporationDs issued stoc: of all classes, e?clusi-e of treasur' s%ares, s%all +e %eld of record +' not more t%an
a specified num+er of persons, not e?ceedin t3ent' (15)L (1) All of t%e issued stoc: of all classes s%all +e
su+Iect to one or more specified restrictions on transfer permitted +' t%is TitleL and (3) T%e corporation s%all
not list in an' stoc: e?c%ane or ma:e an' pu+lic offerin of an' of its stoc: of an' class" !ot3it%standin
t%e foreoin, a corporation s%all +e deemed not a close corporation 3%en at least t3o=t%irds (1G3) of its
-otin stoc: or -otin ri%ts is o3ned or controlled +' anot%er corporation 3%ic% is not a close corporation
3it%in t%e meanin of t%is Code"M T%e articles of incorporation of (SC does not contain an' pro-ision statin
t%at (1) t%e num+er of stoc:%olders s%all not e?ceed 15, or (1) a preemption of s%ares is restricted in fa-or of
an' stoc:%older or of t%e corporation, or (3) listin its stoc:s in an' stoc: e?c%ane or ma:in a pu+lic
offerin of suc% stoc:s is pro%i+ited" 0rom its articles, it is clear t%at (SC is not a close corporation" (SC
does not +ecome one eit%er, Iust +ecause Spouses Re'naldo and !enita /ruen+er o3ned .."744H of its
su+scri+ed capital stoc:" T%e mere o3ners%ip +' a sinle stoc:%older or +' anot%er corporation of all or
nearl' all of t%e capital stoc: of a corporation is not of itself sufficient round for disreardin t%e separate
corporate personalities" So, too, a narro3 distri+ution of o3ners%ip does not, +' itself, ma:e a close
corporation"
01 Gelano vs. Court o, A--eals [GR *)410.0 24 Fe+ruar" 11/1#
First Division, De Castro (J): 3 concur, 1 concurs in result, 1 too* no art
Facts$ $nsular Sa3mill, $nc" ($S$) is a corporation orani>ed on 18 Septem+er 1.A9 3it% a corporate life of 95
'ears, or up to 18 Septem+er 1..9, 3it% t%e primar' purpose of carr'in on a eneral lum+er and sa3mill
+usiness" To carr' on t%is +usiness, $S$ leased t%e parap%ernal propert' of Carlos /elanoDs 3ife /uillermina
(endo>a=/elano at t%e corner of Canonio and Otis, 6aco, (anila for 61,155"55 a mont%" $t 3as 3%ile $S$
3as leasin t%e aforesaid propert' t%at its officers and directors %ad come to :no3 Carlos /elano 3%o
recei-ed from t%e corporation cas% ad-ances on account of rentals to +e paid +' t%e corporation on t%e land"
Bet3een 1. !o-em+er 1.A8 to 14 *ecem+er 1.95 Carlos /elano o+tained from $S$ cas% ad-ances of
619,.95"55" T%e said sum 3as ta:en and recei-ed +' Carlos /elano on t%e areement t%at $S$ could deduct
t%e same from t%e mont%l' rentals of t%e leased premises until said cas% ad-ances are full' paid" Out of t%e
aforementioned cas% ad-ances in t%e total sum of 619,.95"55, Carlos /elano 3as a+le to pa' onl' 69,.95"55
t%ere+' lea-in an unpaid +alance of 615,555"55 3%ic% %e refused to pa' despite repeated demands +' $S$"
/uillermina (" /elano refused to pa' on t%e round t%at said amount 3as for t%e personal account of %er
%us+and as:ed for +', and i-en to %im, 3it%out %er :no3lede and consent and did not +enefit t%e famil'"
On -arious occasions from A (a' 1.A7 to 11 Septem+er 1.A. t%e Spouses /elano also made credit purc%ases
of lum+er materials from $S$ 3it% a total price of 61,115"A4 in connection 3it% t%e repair and impro-ement of
t%e spousesD residence" On . !o-em+er 1.A. partial pa'ment 3as made +' t%e spouses in t%e amount of
6.1"55 and in -ie3 of t%e cas% discount in fa-or of t%e spousesin t%e amount of 673"55, t%e amount due $S$
on account of credit purc%ases of lum+er materials is 6.A4"A4 3%ic% t%e spouses failed to pa'" On 1A Jul'
1.91, in order to accommodate and %elp t%e spouses rene3 pre-ious loans o+tained +' t%em from t%e C%ina
Ban:in Corporation, $S$, t%rou% Josep% Tan Ooc Su, e?ecuted a Ioint and se-eral promissor' note 3it%
Carlos /elano in fa-or of said +an: in t%e amount of 67,555"55 pa'a+le in 45 da's" 0or failure of Carlos
/elano to pa' t%e promissor' note upon maturit', t%e +an: collected from t%e $S$ t%e amount of 6.,154"55
includin interests, +' de+itin it from t%e corporationDs current account 3it% t%e +an:" Carlos /elano 3as
a+le to pa' $S$ t%e amount of 69,555"55 +ut t%e +alance of 6A,154"55 remained unsettled" /uillermina ("
/elano refused to pa' on t%e round t%at s%e %ad no :no3lede a+out t%e accommodation made +' $S$ in
fa-or of %er %us+and" On 1. (a' 1.9., $S$, t%ru Att'" /erman &ee, filed a complaint for collection aainst
t%e spouses +efore t%e Court of 0irst $nstance of (anila" Trial 3as %eld and 3%en t%e case 3as at t%e stae of
su+mittin memorandum, Att'" &ee retired from acti-e la3 practice and Att'" Eduardo 0" Eli>alde too: o-er
and prepared memorandum" $n t%e meantime, $S$ amended its Articles of $ncorporation to s%orten its term of
e?istence up to 31 *ecem+er 1.45 onl'" T%e amended Articles of $ncorporation 3as filed 3it%, and appro-ed
+' t%e Securities and E?c%ane Commission, +ut t%e trial court 3as not notified of t%e amendment s%ortenin
t%e corporate e?istence and no su+stitution of part' 3as e-er made" On 15 !o-em+er 1.4A and almost A 'ears
after t%e dissolution of t%e corporation, t%e trial court rendered a decision in fa-or of $S$ orderin Carlos
/elano to pa' $S$ t%e sum of 61.,495"55 3it% interest t%ereon at t%e leal rate from t%e date of t%e filin of
t%e complaint on 1. (a' 1.9. until said sum is full' paidL and 6A,154"55, 3it% interest t%ereon at t%e leal
rate from t%e date of t%e filin of t%e complaint until said sum is full' paidL and t%e sum of 61,555"55
attorne'Ds fees" T%e Court also ordered t%e spouses to solidaril' pa' $S$ t%e sum of 6.A4"A4, 3it% interest
t%ereon at t%e areed rate of 11H per annum from 4 Octo+er 1.A4, until said sum is full' paidL 6995"55, 3it%
interest t%ereon at t%e leal rate from t%e date of t%e filin of t%e complaint until t%e said sum is full' paidL
and costs of t%e suit" T%e court dismissed t%e counterclaims of t%e spouses" Bot% parties appealed to t%e Court
of Appeals, 3it% $S$ ppealin +ecause it insisted t%at +ot% Carlos /elano and /uillermina /elano s%ould +e
%eld lia+le for t%e su+stantial portion of t%e claim" On 13 Auust 1.83, t%e Court of Appeals rendered a
decision modif'in t%e Iudment of t%e trial court +' %oldin t%e spouses Iointl' and se-erall' lia+le on $S$Ds
claim and increasin t%e a3ard of 6A,154"55 to 67,145"55" After t%e spouses recei-ed a cop' of t%e decision
on 1A Auust 1.83, t%e' came to :no3 t%at t%e $S$ 3as dissol-ed 3a' +ac: on 31 *ecem+er 1.45" Jence, t%e
spouses filed a motion to dismiss t%e case and or reconsideration of t%e decision of t%e Court of Appeals on
rounds t%at t%e case 3as prosecuted e-en after dissolution of $S$ as a corporation and t%at a defunct
corporation cannot maintain an' suit for or aainst it 3it%out first compl'in 3it% t%e re,uirements of t%e
3indin up of t%e affairs of t%e corporation and t%e assinment of its propert' ri%ts 3it%in t%e re,uired
period" $ncidentall', after t%e receipt of t%e spousesD motion to dismiss andGor reconsideration or on 17
Octo+er 1.83, $S$ t%ru its former directors filed a 6etition for Recei-ers%ip +efore t%e Court of 0irst $nstance
of (anil (Special 6roceedins .1353), 3%ic% petition is still pendin +efore said court" On 9 !o-em+er 1.83,
$S$ filed a comment on t%e motion to dismiss andGor reconsideration and after t%e parties %a-e filed repl' and
reIoinder, t%e Court of Appeals on 9 Jul' 1.8A issued a resolution den'in t%e aforesaid motion" T%e spouses
filed t%e petition for re-ie3"
%ssue$ )%et%er a corporation, 3%ose corporate life %ad ceased +' t%e e?piration of its terms of e?istence,
could still continue prosecutin and defendin suits after its dissolution and +e'ond t%e period of 3 'ears
pro-ided for under Act 1A9., ot%er3ise :no3n as t%e Corporation &a3, to 3ind up its affairs, 3it%out %a-in
underta:en an' step to transfer its assets to a trustee or assinee"
&eld$ )%en $S$ 3as dissol-ed on 31 *ecem+er 1.45, under Section 88 of t%e Corporation &a3, it still %as
t%e ri%t until 31 *ecem+er 1.43 to prosecute in its name t%e present case" After t%e e?piration of said period,
t%e corporation ceased to e?ist for all purposes and it can no loner sue or +e sued" Jo3e-er, a corporation
t%at %as a pendin action and 3%ic% cannot +e terminated 3it%in t%e 3='ear period after its dissolution is
aut%ori>ed under Section 87 to con-e' all its propert' to trustees to ena+le it to prosecute and defend suits +'
or aainst t%e corporation +e'ond t%e 3='ear period" Alt%ou% $S$ did not appoint an' trustee, 'et t%e counsel
3%o prosecuted and defended t%e interest of t%e corporation in t%e present case and 3%o in fact appeared in
+e%alf of t%e corporation ma' +e considered a trustee of t%e corporation at least 3it% respect to t%e matter in
litiation onl'" Said counsel %ad +een %andlin t%e case 3%en t%e same 3as pendin +efore t%e trial court until
it 3as appealed +efore t%e Court of Appeals and finall' to t%e Supreme Court" T%erefore, t%ere 3as a
su+stantial compliance 3it% Section 87 of t%e Corporation &a3 and as suc%, $S$ could still continue
prosecutin t%e present case e-en +e'ond t%e period of 3 'ears from t%e time of its dissolution" 0urt%er, t%e
case 3as instituted on 1. (a' 1.9., durin t%e time 3%en t%e corporation 3as still -er' muc% ali-e" An'
litiation filed +' or aainst it instituted 3it%in t%e period, +ut 3%ic% could not +e terminated, must
necessaril' prolon t%at period until t%e final termination of said litiation as ot%er3ise corporations in
li,uidation 3ould lose 3%at s%ould Iustl' +elon to t%em or 3ould +e e?empt from t%e pa'ment of Iust
o+liations t%rou% a mere tec%nicalit', somet%in t%at courts s%ould pre-ent"
02 7esa(as vs. Court o, A--eals [GR 142124 . 2ecem+er 2001#
First Division, /uno (J): 4 concur
Facts$ Spouses *elfino and Jelenda Raniel are mem+ers in ood standin of t%e &u> #illae Tennis Clu+,
$nc" Teodoro B" #esaas, 3%o claims to +e t%e clu+Ds dul' elected president, 3it% )ilfred *" Asis, 3%o, in
turn, claims to +e its dul' elected -ice=president and leal counsel, alleedl' summaril' stripped t%em of t%eir
la3ful mem+ers%ip, 3it%out due process of la3" T%ereafter, t%e spouses filed a Complaint 3it% t%e Securities
and E?c%ane Commission (SEC) on 14 (arc% 1..8 aainst t%e #esaas and Asis (SEC Case 53=.8=99.7)"
T%e spouses Raniel as:ed t%e Commission to declare as illeal t%eir e?pulsion from t%e clu+ as it 3as
alleedl' done in utter disreard of t%e pro-isions of its +'=la3s as 3ell as t%e re,uirements of due process"
T%e' li:e3ise sou%t t%e annulment of t%e amendments to t%e +'=la3s made on 7 *ecem+er 1..4, c%anin
t%e annual meetin of t%e clu+ from t%e last Sunda' of Januar' to !o-em+er and increasin t%e num+er of
trustees from nine to fifteen" 0inall', t%e' pra'ed for t%e issuance of a Temporar' Restrainin Order and )rit
of 6reliminar' $nIunction" T%e application for TRO 3as denied +' SEC Jearin Officer Soller in an Order
dated 1. April 1..8" Before t%e %earin officer could start proceedin 3it% t%e case, %o3e-er, #esaas and
Asis filed a motion to dismiss on t%e round t%at t%e SEC lac:s Iurisdiction o-er t%e su+Iect matter of t%e
case" T%e motion 3as denied on 9 Auust 1..8" T%eir su+se,uent mo-e to %a-e t%e rulin reconsidered 3as
li:e3ise denied" @npertur+ed, t%e' filed a petition for certiorari 3it% t%e SEC En Banc see:in a re-ie3 of
t%e %earin officerDs orders" T%e petition 3as aain denied for lac: of merit, and so 3as t%e motion for its
reconsideration in separate orders, dated 1A Jul' 1..7 and 18 !o-em+er 1..7, respecti-el'" *issatisfied 3it%
t%e -erdict, #esaas and Asis promptl' sou%t relief 3it% t%e Court of Appeals contestin t%e rulin of t%e
Commission en +anc" T%e appellate court, %o3e-er, dismissed t%e petition for lac: of merit in a *ecision
promulated on 35 Jul' 1..." T%en, in a resolution rendered on 14 (arc% 1555, it similarl' denied t%eir
motion for reconsideration" #esaas and Asis filed t%e petition for re-ie3 on certiorari"
%ssue$ )%et%er t%e clu+ %as alread' ceased to +e a corporate +od'"
Jeld: T%e clu+, accordin to t%e SECDs e?plicit findin, 3as dul' reistered and a certificate of incorporation
3as issued in its fa-or" T%e ,uestion of 3%et%er t%e clu+ 3as indeed reistered and issued a certification or
not is one 3%ic% necessitates a factual in,uir'" T%e findin of t%e Commission, as t%e administrati-e aenc'
tas:ed 3it% amon ot%ers t%e function of reisterin and administerin corporations, is i-en reat 3ei%t and
accorded %i% respect" (oreo-er, +' t%eir o3n admission contained in t%e -arious pleadins 3%ic% t%e' %a-e
filed in t%e different staes of t%is case, #esaas and Asis t%emsel-es %a-e considered t%e clu+ as a
corporation" Ot%er3ise, t%ere is no coenc' in spear%eadin t%e mo-e for its dissolution" #esaas and Asis
3ere t%erefore 3ell a3are of t%e incorporation of t%e clu+ and e-en areed to et elected and ser-e as its
responsi+le officers +efore t%e' reconsidered dissol-in its corporate form" On t%e ot%er %and, at t%e time of
t%e institution of t%e case 3it% t%e SEC, t%e clu+ 3as not dissol-ed +' -irtue of an alleed Board resolution"
T%e Corporation Code esta+lis%es t%e procedure and ot%er formal re,uirements a corporation needs to follo3
in case it elects to dissol-e and terminate its structure -oluntaril' and 3%ere no ri%ts of creditors ma'
possi+l' +e preIudiced" Section 117 (#oluntar' dissolution 3%ere no creditors are affected) of t%e Corporation
Code pro-ides t%at M$f dissolution of a corporation does not preIudice t%e ri%ts of an' creditor %a-in a claim
aainst it, t%e dissolution ma' +e effected +' maIorit' -ote of t%e +oard of directors or trustees and +' a
resolution dul' adopted +' t%e affirmati-e -ote of t%e stoc:%olders o3nin at least t3o=t%irds (1G3) of t%e
outstandin capital stoc: or at least t3o=t%irds (1G3) of t%e mem+ers at a meetin to +e %eld upon call of t%e
directors or trustees after pu+lication of t%e notice of time, place and o+Iect of t%e meetin for t%ree (3)
consecuti-e 3ee:s in a ne3spaper pu+lis%ed in t%e place 3%ere t%e principal office of said corporation is
locatedL and if no ne3spaper is pu+lis%ed in suc% place, t%en in a ne3spaper of eneral circulation in t%e
6%ilippines, after sendin suc% notice to eac% stoc:%older or mem+er eit%er +' reistered mail or +' personal
deli-er' at least 35 da's prior to said meetin" A cop' of t%e resolution aut%ori>in t%e dissolution s%all +e
certified +' a maIorit' of t%e +oard of directors or trustees and countersined +' t%e secretar' of t%e
corporation" T%e Securities and E?c%ane Commission s%all t%ereupon issue t%e certificate of dissolution"M To
su+stantiate t%eir claim of dissolution, #esaas and Asis su+mitted onl' t3o rele-ant documents: t%e (inutes
of t%e 0irst Board (eetin %eld on 9 Januar' 1..8, and t%e +oard resolution issued on 1A April 1..8 3%ic%
declared Mto continue to consider t%e clu+ as a non=reistered or a non=corporate entit' and Iust a social
association of respecta+le and respectin indi-idual mem+ers 3%o %a-e associated t%emsel-es, since t%e
1.85Ds, for t%e purpose of pla'in t%e sports of tennis"M T%ese t3o documents 3ill not suffice" T%e
re,uirements mandated +' t%e Corporation Code s%ould %a-e +een strictl' complied 3it% +' t%e mem+ers of
t%e clu+" T%e records re-eal t%at no proof 3as offered +' #esaas and Asis 3it% reard to t%e notice and
pu+lication re,uirements" Similarl' 3antin is t%e proof of t%e +oard mem+ersD certification" &astl', and most
important of all, t%e SEC Order of *issolution 3as ne-er su+mitted as e-idence"
04 :;ili--ine 7eterans Ban< =m-lo"ees Cnion)NCB= vs. 7e(a [GR 10.404 2/ !une 2001#
Facts$ Sometime in 1.79, t%e Central Ban: of t%e 6%ilippines filed 3it% Branc% 3. of t%e Reional Trial
Court of (anila a 6etition for Assistance in t%e &i,uidation of t%e 6%ilippine #eterans Ban: (Case S6=31311)"
T%ereafter, t%e 6%ilippine #eterans Ban: Emplo'ees @nion=!"@"B"E" (6#BE@=!@BE), represented +'
6erfecto #" 0ernande>, filed claims for accrued and unpaid emplo'ee 3aes and +enefits 3it% said court in
S6=3131" After lent%' proceedins, partial pa'ment of t%e sums due to t%e emplo'ees 3ere made" Jo3e-er,
due to t%e piecemeal %earins on t%e +enefits, man' remain unpaid" On 7 (arc% 1..1, 6#BE@=!@BE
0ernande> mo-ed to dis,ualif' t%e Jude BenIamin #ea, 6residin Jude of Branc% 3. of t%e Reional Trial
Court of (anila, from %earin t%e a+o-e case on rounds of +ias and %ostilit' to3ards petitioners" On 1
Januar' 1..1, t%e Conress enacted Repu+lic Act 814. pro-idin for t%e re%a+ilitation of t%e 6%ilippine
#eterans Ban:" T%ereafter, 6#BE@=!@BE and 0ernande> filed 3it% t%e la+or tri+unals t%eir residual claims
for +enefits and for reinstatement upon reopenin of t%e +an:" Repu+lic Act 814. entitled MAn Act To
Re%a+ilitate T%e 6%ilippine #eterans Ban: Created @nder Repu+lic Act 3917, 6ro-idin T%e (ec%anisms
T%erefor, And 0or Ot%er 6urposesM, 3%ic% 3as sined into la3 +' 6resident Cora>on C" A,uino on 1 Januar'
1..1 and 3%ic% 3as pu+lis%ed in t%e Official /a>ette on 1A 0e+ruar' 1..1, pro-ides in part for t%e reopenin
of t%e 6%ilippine #eterans Ban: toet%er 3it% all its +ranc%es 3it%in t%e period of 3 'ears from t%e date of t%e
reopenin of t%e %ead office" T%e la3 li:e3ise pro-ides for t%e creation of a re%a+ilitation committee in order
to facilitate t%e implementation of t%e pro-isions of t%e same" 6ursuant to said RA 814., t%e Re%a+ilitation
Committee su+mitted t%e proposed Re%a+ilitation 6lan of t%e 6#B to t%e (onetar' Board for its appro-al"
(ean3%ile, 6#B filed a (otion to Terminate &i,uidation of 6%ilippine #eterans Ban: dated 13 (arc% 1..1
3it% Jude #ea pra'in t%at t%e li,uidation proceedins +e immediatel' terminated in -ie3 of t%e passae of
RA 814." On 15 April 1..1, t%e (onetar' Board issued (onetar' Board Resolution 3A7 3%ic% appro-ed t%e
Re%a+ilitation 6lan su+mitted +' t%e Re%a+ilitation Committee" T%ereafter, t%e (onetar' Board issued a
Certificate of Aut%orit' allo3in 6#B to reopen" Sometime in (a' 1..1, t%e Central Ban: issued a
certificate of aut%orit' allo3in t%e 6#B to reopen" *espite t%e leislati-e mandate for re%a+ilitation and
reopenin of 6#B, Jude #ea continued 3it% t%e li,uidation proceedins of t%e +an:" (oreo-er, 6#BE@=
!@BE and 0ernande> learned t%at t%e Central Ban: 3as set to order t%e pa'ment and release of emplo'ee
+enefits upon motion of anot%er la3'er, 3%ile 6#BE@=!@BEDs and 0ernande>Ds claims %a-e +een fro>en to
t%eir preIudice" On 3 June 1..1, t%e li,uidator filed A (otion for t%e Termination of t%e &i,uidation
6roceedins of t%e 6%ilippine #eterans Ban: 3it% Jude #ea" 6#BE@=!@BE and 0ernande>, on t%e ot%er
%and, filed t%e petition for 6ro%i+ition 3it% 6etition for 6reliminar' $nIunction and application for E? 6arte
Temporar' Restrainin Order" $n a Resolution, dated 7 June 1..1, t%e Supreme Court resol-ed to issue a
Temporar' Restrainin Order enIoinin t%e trial court from furt%er proceedin 3it% t%e case" On 11 June
1..1, (O6 Securit' K *etecti-e Aenc' (#O6S*A) and its 141 securit' uards filed a (otion for
$nter-ention 3it% pra'er t%at t%e' +e e?cluded from t%e operation of t%e Temporar' Restrainin Order issued
+' t%e Court" On 3 Auust 1..1, t%e 6%ilippine #eterans Ban: opened its doors to t%e pu+lic and started
reular +an:in operations"
%ssue$ )%et%er a li,uidation court can continue 3it% li,uidation proceedins of t%e 6%ilippine #eterans Ban:
(6#B) 3%en Conress %ad mandated its re%a+ilitation and reopenin"
&eld$ T%e enactment of Repu+lic Act 814., as 3ell as t%e su+se,uent de-elopments %as rendered t%e
li,uidation court functus officio" Conse,uentl', Jude #ea %as +een stripped of t%e aut%orit' to issue orders
in-ol-in acts of li,uidation" &i,uidation, in corporation la3, connotes a 3indin up or settlin 3it% creditors
and de+tors" $t is t%e 3indin up of a corporation so t%at assets are distri+uted to t%ose entitled to recei-e
t%em" $t is t%e process of reducin assets to cas%, disc%arin lia+ilities and di-idin surplus or loss" On t%e
opposite end of t%e spectrum is re%a+ilitation 3%ic% connotes a reopenin or reorani>ation" Re%a+ilitation
contemplates a continuance of corporate life and acti-ities in an effort to restore and reinstate t%e corporation
to its former position of successful operation and sol-enc'" $t is cr'stal clear t%at t%e concept of li,uidation is
diametricall' opposed or contrar' to t%e concept of re%a+ilitation, suc% t%at +ot% cannot +e underta:en at t%e
same time" To allo3 t%e li,uidation proceedins to continue 3ould seriousl' %inder t%e re%a+ilitation of t%e
su+Iect +an:"
04 8an 8ion( Bio vs. Bureau o, %nternal Revenue [GR *)//00 24 9cto+er 11.0#
%n &anc, >e!es J&E (J): ? concur
Facts$ On or a+out 11 Octo+er 1.A4, t%e Central S'ndicate, a corporation orani>ed for t%e limited period of
t3o 'ears, addressed a letter to t%e Collector of $nternal Re-enue ad-isin t%e latter of a sale of said
corporation +' one *ee Jon &ue of surplus properties purc%ased +' t%e -endor from t%e 0orein &i,uidation
Commission, 3it% t%e condition t%at t%e -endee corporation 3ould pa' t%e 3 1G1H sales ta? on suc% surplus
properties in t%e name and in +e%alf of t%e -endor *ee Jon &ue" $n t%e same letter, t%e S'ndicate deposited
3it% t%e Collector t%e amount of 6A3,895"55 to ans3er for t%e sales ta? collecti+le on t%e purc%ase, +ut
representin t%at *ee Jon &ue e?pected a refund from t%e @"S" /o-ernment on t%e oriinal purc%ase price
+ecause of non=deli-er' of -arious items included in t%e contract, and t%at t%erefore, t%e oriinal sales ta? due
on t%e sales price 3as su+Iect to readIustment and reduction" Su+se,uentl', on 31 Januar' 1.A7, *ee Jon
&ue, t%rou% counsel, 3rote t%e Collector ad-isin %im t%at t%e 0orein &i,uidation Commission %ad i-en
%im a refund of 631,911"17 on t%e purc%ase price of t%e aforesaid surplus properties, and re,uestin for t%e
refund of an alleed o-erpa'ment of sales ta? in t%e amount of 61,153"17" T%e Collector ordered t%e case
in-estiated" 0our 'ears later, or on A Januar' 1.91, t%e Collector informed *ee Jon &ue of t%e denial of %is
re,uest for ta? refund" On t%e same da', t%e Collector 3rote t%e Central S'ndicate, informin it t%at t%e
in-estiation made +' t%e Bureau re-ealed t%at it 3as t%e S'ndicate and not *ee Jon &ue t%at %ad actuall'
purc%ased t%e surplus oods in ,uestion (commonl' :no3n us t%e M('ster' 6ileM) from t%e 0orein
&i,uidation CommissionL t%at t%e properties 3ere in-oiced in t%e name of *ee Jon &ue in trust for t%e
S'ndicate +ecause it 3as t%en onl' in t%e process of incorporationL and t%at t%e S'ndicate, after it %ad +een
orani>ed, made it appear t%at t%e oods 3ere sold to it +' *ee Jon &ue, to e-ade pa'ment of sales ta? on
its sellin prices to t%e pu+licL and assessed t%e S'ndicate a deficienc' sales ta? of 618,537"35 and 19H
surc%are of 64,89."97 or a total sum of 633,8.8"77, plus t%e amount of 6355"55 as penalt'" Because of t%e
refusal of t%e S'ndicate to pa' t%e deficienc' assessment, and t%e findins of t%e Bureau t%at t%e corporation
%ad no e?istin properties to satisf' t%e assessment, t%e Collector 3rote *a-id S'cip and Ou E%e T%ai,
manaer and president, respecti-el', of t%e S'ndicate, to pa' t%e corporationDs ta? lia+ilit' or else +e %eld
criminall' lia+le under t%e $nternal Re-enue Code" @ltimatel', on 9 Auust 1.9A, t%e Collector issued a final
definiti-e rulin reaffirmin t%e deficienc' assessment aainst t%e S'ndicateL from 3%ic% rulin t%e latter
appealed to t%e Court of Ta? Appeals" $n t%e Court of Ta? Appeals, t%e Solicitor=/eneral mo-ed for t%e
dismissal of t%e appeal on t%e round t%at t%e Central S'ndicate no loner %ad t%e capacit' to sue +ecause its
term of e?istence %ad e?pired on 19 Auust 1.A7, as s%o3n +' its Articles of $ncorporation attac%ed to t%e
motion to dismiss" T%e S'ndicate opposed t%e motion, allein t%at alt%ou% t%e corporation %ad one
defunct, its officers and directors not onl' stood lia+le for t%e assessment +ut %ad also +een t%reatened to +e
%eld criminall' lia+le t%ereforL and offered to +e su+stituted as appellants" After %earin t%e aruments of +ot%
parties, t%e Court of Ta? Appeals issued a resolution dismissin t%e appeal, on t%e round t%at 3%ate-er
Iudment it 3ould render in fa-or of t%e /o-ernment 3ould +e unenforcea+le aainst t%e s'ndicate +ecause it
is a non=e?istin entit'" 0rom t%is resolution, t%e S'ndicate appealed to t%e Supreme Court on petition for
re-ie3"
%ssue$ )%et%er t%e o-ernment can insist on ma:in a ta? assessment aainst a corporation t%at no loner
e?ists and at t%e same time oppose t%e appeal ,uestionin t%e lealit' of t%e assessment precisel' on t%e
round t%at t%e corporation is non=e?istent, and %as no loner capacit' to sue"
&eld$ $t is true t%at sections 88 and 87 of our Corporation &a3 contemplate t%at corporate e?istence can +e
proloned onl' for t%ree 'ears from and after t%e termination of t%e corporate term, for t%e purpose of
3indin up its affairsL and in t%e case of t%e Central S'ndicate, t%e t%ree 'ears e?pired in 1.91" On t%is +asis,
if it +e true t%at t%e S'ndicate t%ereafter %ad no personalit' to dispute t%e assessment, it 3ould +e e,uall' true
t%at no -alid assessment could +e imposed on a corporation t%at no loner %ad Iuridical personalit'" $n an'
e-ent, t%e o-ernment can not insist on ma:in a ta? assessment aainst a corporation t%at no loner e?ists
and t%en turn around and oppose t%e appeal ,uestionin t%e lealit' of t%e assessment precisel' on t%e round
t%at t%e corporation is non= e?istent, and %as no loner capacit' to sue" T%e o-ernment can not adopt
inconsistent stands and t%ere+' depri-e t%e officers and directors of t%e defunct corporation of t%e remed' to
,uestion t%e -alidit' and correctness of t%e assessment for 3%ic%, if sustained, t%e' 3ould +e %eld personall'
lia+le as successors=in=interest to t%e corporate propert'" T%e appeal s%ould not %a-e +een dismissed +ut t%at
t%e Court of Ta? Appeals s%ould %a-e allo3ed t%e su+stitution of its former officers and directors as parties=
appellants, since t%e' are proper parties in interest in so far as t%e' ma' +e (and in fact are) %eld personall'
lia+le for t%e unpaid deficienc' assessments made +' t%e Collector of $nternal Re-enue aainst t%e defunct
S'ndicate"
0. Re+ollido vs. Court o, A--eals [GR 11124 2/ Fe+ruar" 11/1#
Third Division, Dutierrez Jr$ (J): 4 concur
Facts$ $n June 1.73, t%e Board of *irectors and t%e stoc:%olders of 6epsi Cola adopted its amended articles
of incorporation to s%orten its corporate term in accordance 3it% Section 115 of t%e Corporation Code
follo3in t%e procedure laid do3n +' Section 38 (po3er to e?tend or s%orten t%e corporate term) and Section
14 (amendment of t%e articles of incorporation) of t%e same Code" $mmediatel' after suc% amendment or on
June 14, 13 and 35, 1.73, 6epsi Cola caused t%e pu+lication of a notice of dissolution and t%e assumption of
lia+ilities +' 6E6S$CO in a ne3spaper of eneral circulation" (ean3%ile, a -e%icular accident occured on 1
(arc% 1.7A, in-ol-in a (a>da (ini+us used as a sc%ool+us 3it% 6late !um+er !)E=393 o3ned and
dri-en +' Crisostomo Re+ollido and 0ernando #alencia, respecti-el' and a truc: trailer 3it% 6late !um+er
!RJ=911 o3ned at t%at time +' 6epsi Cola Bottlin Compan' of t%e 6%ilippines, $nc" and dri-en +' Al+erto
Al-a" T%e dissolution of 6epsi Cola as appro-ed +' t%e Securities and E?c%ane Commission (SEC)
materiali>ed on 1 (arc% 1.7A, one da' after t%e accident occurred" On 8 Auust 1.7A, Crisostomo Re+ollido,
#alencia and Ed3in Re+ollido filed Ci-il Case 7113 for damaes aainst 6epsi Cola and Al-a +efore t%e
Reional Trial Court of (a:ati" On 11 Septem+er 1.7A, t%e s%eriff of t%e lo3er court ser-ed t%e summons
addressed to 6epsi Cola and Al-a" $t 3as recei-ed +' one !enette Sison 3%o represented %erself to +e t%e
aut%ori>ed person recei-in court processes as s%e 3as t%e secretar' of t%e leal department of 6epsi Cola"
6epsi Cola failed to file an ans3er and 3as later declared in default" T%e lo3er court %eard t%e case e?=parte
and adIuded 6epsi Cola and Al-a Iointl' and se-erall' lia+le for damaes in a decision rendered on 1A June
1.79" T%e' 3ere ordered to pa' (1) 611,114"15, for t%e %ospitali>ation and medical e?penses of #alenciaL (1)
6314"39 as e?penses for t%e medical treatment of Ed3in Re+ollidoL (3) 6.,.11"55, for t%e repair of and cost of
replacement parts of t%e (a>da (ini+us +elonin to Crisostomo Re+ollidoL (A) 614,155"55, for t%e e?penses
incurred +' Crisostomo Re+ollido in %irin anot%er -e%icle to transport sc%ool pupilsL (9) 6151,141".5, as
unreali>ed mont%l' net income due Re+ollido, et al" from June 1.7A to 35 (arc% 1.79L (4) 615,755"55,
representin t%e unpaid salaries of #alencia for t%e period from (arc% to *ecem+er 1.7AL (8) 615,555"55, as
moral damaes due #alenciaL (7) 615,555"55, as moral damaes due Crisostomo Re+ollidoL (.) A sum
e,ui-alent to 15H of t%e total amount due, as and for attorne'Ds feesL and (15) T%e costs of suit"
On 9 Auust 1.79, 3%en t%e default Iudment +ecame final and e?ecutor', Re+ollido, et al" filed a motion for
e?ecution, a cop' of 3%ic% 3as recei-ed no loner +' 6epsi Cola +ut +' 6E6S$CO, $nc", on 4 Auust 1.79"
At t%at time, 6E6S$CO 3as alread' occup'in t%e place of +usiness of 6epsi Cola at Ricoen Buildin,
Auirre Street, &easpi #illae, (a:ati, (etro (anila" 6E6S$CO, a forein corporation orani>ed under t%e
la3s of t%e State of *ela3are, @SA, %eld offices %ere for t%e purpose, amon ot%ers, of settlin 6epsi ColaDs
de+ts, lia+ilities and o+liations 3%ic% it assumed in a 3ritten underta:in e?ecuted on 11 June 1.73,
preparator' to t%e e?pected dissolution of 6epsi Cola" Reali>in t%at t%e Iudment of t%e lo3er court 3ould
e-entuall' +e e?ecuted aainst it, 6E6S$CO opposed t%e motion for e?ecution and mo-ed to -acate t%e
Iudment on t%e round of lac: of Iurisdiction" 6E6S$CO ,uestioned t%e -alidit' of t%e ser-ice of summons to
a mere cler:" $t in-o:ed Section 13, Rule 1A of t%e Rules of Court on t%e manner of ser-ice upon a pri-ate
domestic corporation and Section 1A of t%e same rule on ser-ice upon a pri-ate forein corporation" On 1A
Auust 1.79, t%e lo3er court denied t%e motion of 6E6S$CO %oldin t%at despite t%e dissolution and t%e
assumption of lia+ilities +' 6E6S$CO, t%ere 3as proper ser-ice of summons upon 6epsi Cola" On 18 Auust
1.79, 6E6S$CO filed a special ci-il action for certiorari and pro%i+ition 3it% t%e appellate court to annul and
set aside t%e Iudment of t%e lo3er court and its order den'in t%e motion to -acate t%e Iudment, for %a-in
+een issued 3it%out Iurisdiction" On 1. *ecem+er 1.74, t%e Court of Appeals ranted t%e petition on t%e
round of lac: of Iurisdiction rulin t%at t%ere 3as no -alid ser-ice of summons" T%e appellate court stated
t%at an' Iudment rendered aainst 6epsi Cola after its dissolution is a Mlia+ilit'M of 6E6S$CO 3it%in t%e
contemplation of t%e underta:in, +ut ser-ice of summons s%ould +e made upon 6E6S$CO itself in
accordance 3it% Section 1A, Rule 1A of t%e Rules of Court" $t remanded t%e case to t%e lo3er court and
ordered t%at 6E6S$CO +e summoned and +e i-en its da' in court" On 18 !o-em+er 1.78, a motion for
reconsideration filed +' Re+ollido, et al" 3as denied" Jence, t%e petition"
%ssue [1#$ )%et%er 6epsi Cola, t%e dissol-ed corporation, is t%e real part' in interest to 3%om summons
s%ould +e ser-ed in t%e ci-il case for damaes"
&eld [1#$ Re+ollido, et al" %ad a -alid cause of action for damaes aainst 6epsi Cola" T%e la3 pro-ides t%at a
corporation 3%ose corporate term %as ceased can still %e made a part' to suit" @nder pararap% 1, Section 111
of t%e Corporation Code, a dissol-ed corporation Ms%all ne-ert%eless +e continued as a +od' corporate for
t%ree (3) 'ears after t%e time 3%en it 3ould %a-e +een so dissol-ed, for t%e purpose of prosecutin and
defendin suits +' or aainst it and ena+lin it to settle and close its affairs, to dispose of and con-e' its
propert' and to distri+ute its assets, +ut not for t%e purpose of continuin t%e +usiness for 3%ic% it 3as
esta+lis%ed"M T%e rationale for e?tendin t%e period of e?istence of a dissol-ed corporation is t%at Mt%is
continuance of its leal e?istence for t%e purpose of ena+lin it to close up its +usiness is necessar' to ena+le
t%e corporation to collect t%e demands due it as 3ell as to allo3 its creditors to assert t%e demands aainst it"
$f t%is 3ere not so, t%en a corporation t%at +ecame in-ol-ed in lia+ilities mi%t escape t%e pa'ment of its Iust
o+liations +' merel' surrenderin its c%arter, and t%us defeat its creditors or reatl' %inder and dela' t%em in
t%e collection of t%eir demands" T%is course of conduct on t%e part of corporations t%e la3 in Iustice to
persons dealin 3it% t%em does not permit" T%e person 3%o %as a -alid claim aainst a corporation, 3%et%er it
arises in contract or tort s%ould not +e depri-ed of t%e ri%t to prosecute an action for t%e enforcement of %is
demands +' t%e action of t%e stoc:%olders of t%e corporation in areein to its dissolution" T%e dissolution of
a corporation does not e?tinuis% o+liations or lia+ilities due +' or to it"M Jerein, t%e ri%t of action of
Re+ollido, et al" aainst 6epsi Cola and its dri-er arose not at t%e time 3%en t%e complaint 3as filed +ut 3%en
t%e acts or omission constitutin t%e cause of action accrued, i"e" on (arc% 1, 1.7A 3%ic% is t%e date of t%e
accident and 3%en 6epsi Cola alleedl' committed t%e 3ron"
%ssue [2#$ )%et%er t%e ser-ice of summons t%rou% (s" !enette C" Sison, upon 6epsi Cola operates to -est
Iurisdiction upon 6E6S$CO"
&eld [2#$ At t%e time of t%e issuance and receipt of t%e summons, 6epsi Cola 3as alread' dissol-ed" T%e
Court is of t%e opinion t%at ser-ice is allo3ed in suc% a situation" $n t%e American case of Cra3ford -"
Refiners Co=operati-e Association, $ncorporation (81 !( 1, 389 p 1d 111 B1.41C), it 3as %eld t%at a
Mdefendant corporation is su+Iect to suit and ser-ice of process e-en t%ou% dissol-ed"M !o3%ere in t%e
Corporation Code is t%ere an' special pro-ision on %o3 process s%all +e ser-ed upon a dissol-ed defendant
corporation" T%e a+sence of an' suc% pro-ision, %o3e-er, s%ould not lea-e Re+ollido, et al" 3it%out an'
remed', una+le to pursue reco-er' for 3rons committed +' t%e corporation +efore its dissolution" Since
6%ilippine la3 reconi>es t%e lia+ilit' of a dissol-ed corporation to an arie-ed creditor, it is +ut loical for
t%e la3 to allo3 ser-ice of process upon a dissol-ed corporation" Ot%er3ise, su+stanti-e ri%ts 3ould +e lost
+' t%e mere lac: of e?plicit tec%nical rules" T%e Rules of Court on ser-ice of summons upon a pri-ate
domestic corporation is also applica+le to a corporation 3%ic% is no loner a oin concern" Section 13, Rule
1A mandates t%at M$f t%e defendant is a corporation orani>ed under t%e la3s of t%e 6%ilippines or a
partners%ip dul' reistered, ser-ice ma' +e made on t%e president, manaer, secretar', cas%ier, aent or an' of
its directors"M T%e case of CastleDs Administrator -" Acroen Coal Co", is illustrati-e of t%e manner +' 3%ic%
ser-ice can ne-ert%eless +e made despite t%e deat% of t%e entit'L i"e" M3%en an action t%at mi%t %a-e +een
instituted aainst a forein or domestic corporation 3%ile it 3as a oin concern is instituted after its
dissolution, process in t%e action ma' +e ser-ed upon t%e same person upon 3%om t%e process could +e
ser-ed +efore t%e dissolution"M Still, a li+eral interpretation of Section 13, Rule 1A %as +een adopted in t%e
case of / K / Tradin Corporation -" Court of Appeals (197 SCRA A44 B1.77C) t%at Malt%ou% it ma'+e true
t%at t%e ser-ice of summons 3as made on a person not aut%ori>ed to recei-e t%e same, ne-ert%eless since it
appears t%at t%e summons and complaint 3ere in fact recei-ed +' t%e corporation t%rou% its said cler:, t%e
Court finds t%at t%ere 3as su+stantial compliance, 3it% t%e rule on ser-ice of summons" $ndeed t%e purpose of
said rule as a+o-e stated to assure ser-ice of summons on t%e corporation %ad t%ere+' +een attained" T%e need
for speed' Iustice must pre-ail o-er a tec%nicalit'"M T%e rationale for t%e rule on ser-ice of summons upon a
defendant corporation Mto render it reasona+l' certain t%at t%e corporation 3ill recei-e prompt and proper
notice in an action aainst it or to insure t%at t%e summons +e ser-ed on a representati-e so interated 3it% t%e
corporation t%at suc% person 3ill :no3 3%at to do 3it% t%e leal papers ser-ed on %im" $n ot%er 3ords, Dto
+rin %ome to t%e corporation notice of t%e filin of t%e action"M Jerein, t%e fact t%at t%e summons 3as
recei-ed t%rou% (iss Sison is not disputed +' t%e parties" )%et%er summons 3as ser-ed t%rou% t%e
secretar' of t%e leal department 3%o acted as aent of 6epsi Cola, as claimed +' Re+ollido et al", or 3%et%er
(iss Sison 3or:s for 6E6S$CODs leal department, as 6E6S$CO claims, and not of 6epsi Cola, 6E6S$CO %ad
t%e o+liation to act upon t%e summons recei-ed and to defend 6epsi Cola pursuant to t%e underta:in it
e?ecuted on 11 June 1.73" )%omsoe-er (iss Sison 3as actin for in recei-in t%e summons t%ere is no
,uestion t%at t%e notice of t%e action 3as promptl' deli-ered eit%er to 6epsi Cola or 6E6S$CO 3it% 3%om s%e
is admittedl' connected" T%ere 3as su+stantial compliance 3it% Section 13, Rule 1A +ecause t%e purpose of
notice 3as satisfied" As t%ere 3as proper ser-ice of summons to +ind 6epsi Cola, t%e decision of t%e lo3er
court aainst 6epsi Cola rendered on 1A June 1.79 is -alid and enforcea+le aainst 6E6S$CO" E-en assumin
t%at Iurisdiction o-er 6E6S$CO can +e ac,uired onl' +' 3a' of ser-ice of summons in literal compliance 3it%
Section 1A, Rule 1A, Re+ollido, et al" cannot +e faulted for %a-in +rou%t t%e case namin 6epsi Cola as one
of t%e defendants so t%at t%e summons 3as addressed onl' to t%e defendants named t%erein and not to
6E6S$CO" At t%e time of t%e commencement of t%e suit +elo3, Re+ollido, et al" %ad no :no3lede of t%e
leal dissolution and t%e underta:in assumed +' 6E6S$CO" T%e pu+lication of t%e notice of dissolution and
t%e assumption of lia+ilities, done in June 1.73 or 7 mont%s +efore t%e -e%icular accident, cannot ser-e as a
notice to Re+ollido, et al" 3%o 3ere not 'et creditors %a-in a claim upon a ,uasi=delict"
00 Facilities 'ana(ement Cor-oration vs. de la 9sa [GR *)4/041 20 'arc; 1171#
First Division, Ma*asiar (J): 2 concur
Facts$ 0acilities (anaement Corporation and J" S" *re'er are domiciled in )a:e $sland 3%ile J" #" Catuira
is an emplo'ee of 0(C stationed in (anila" &eonardo dela Osa 3as emplo'ed +' 0(C in (anila, +ut
rendered 3or: in )a:e $sland, 3it% t%e appro-al of t%e *epartment of &a+or of t%e 6%ilippines" *e la Osa
3as emplo'ed as (1) painter 3it% an %ourl' rate of S1"19 from (arc% 1.4A to !o-em+er 1.4A, inclusi-eL (1)
%ouse+o' 3it% an %ourl' rate of S1"14 from *ecem+er 1.4A to !o-em+er 1.49, inclusi-eL (3) %ouse+o' 3it%
an %ourl' rate of S1"33 from *ecem+er 1.49 to Auust 1.44, inclusi-eL and (A) cas%ier 3it% an %ourl' rate of
S1"A5 from Auust 1.44 to (arc% 18 1.48, inclusi-e" Je furt%er a-erred t%at from *ecem+er, 1.49 to
Auust, 1.44, inclusi-e, %e rendered o-ertime ser-ices dail', and t%at t%is entire period 3as di-ided into
s3in and ra-e'ard s%ifts to 3%ic% %e 3as assined, +ut %e 3as not paid +ot% o-ertime and ni%t s%ift
premiums despite %is repeated demands from 0(C, et al" $n a petition filed on 1 Jul' 1.48, dela Osa sou%t
%is reinstatement 3it% full +ac:3aes, as 3ell as t%e reco-er' of %is o-ertime compensation, s3in s%ift and
ra-e'ard s%ift differentials" Su+se,uentl' on 3 (a' 1.47, 0(C, et al" filed a motion to dismiss t%e su+Iect
petition on t%e round t%at t%e Court %as no Iurisdiction o-er t%e case, and on 1A (a' 1.47, de la Osa
interposed an opposition t%ereto" Said motion 3as denied +' t%e Court in its Order issued on 11 Jul' 1.47"
Su+se,uentl', after trial, t%e Court of $ndustrial Relations, in a decision dated 1A 0e+ruar' 1.81, ordered
0(C, et al" to pa' de la Osa %is o-ertime compensation, as 3ell as %is s3in s%ift and ra-e'ard s%ift
premiums at t%e rate of 95H per cent of %is +asic salar'" 0(C, et al" filed t%e petition for re-ie3 on certiorari"
%ssue [1#$ )%et%er t%e mere act +' a non=resident forein corporation of recruitin 0ilipino 3or:ers for its
o3n use a+road, in la3 doin +usiness in t%e 6%ilippines"
&eld [1#$ $n its motion to dismiss, 0(C admits t%at (r" Catuira represented it in t%e 6%ilippines Mfor t%e
purpose of ma:in arranements for t%e appro-al +' t%e *epartment of &a+or of t%e emplo'ment of 0ilipinos
3%o are recruited +' t%e Compan' as its o3n emplo'ees for assinment a+road"M $n effect, (r" Catuira 3as
alleed to +e a liaison officer representin 0(C in t%e 6%ilippines" @nder t%e rules and reulations
promulated +' t%e Board of $n-estments 3%ic% too: effect 3 0e+ruar' 1.4., implementin RA 9A99, 3%ic%
too: effect 35 Septem+er 1.47, t%e p%rase Mdoin +usinessM %as +een e?emplified 3it% illustrations, amon
t%em +ein as follo3s: MM(1) Solicitin orders, purc%ases (sales) or ser-ice contracts" Concrete and specific
solicitations +' a forein firm, not actin independentl' of t%e forein firm, amountin to neotiation or
fi?in of t%e terms and conditions of sales or ser-ice contracts, reardless of 3%et%er t%e contracts are actuall'
reduced to 3ritin, s%all constitute doin +usiness e-en if t%e enterprise %as no office or fi?ed place of
+usiness in t%e 6%ilippinesL (1) appointin a representati-e or distri+utor 3%o is domiciled in t%e 6%ilippines,
unless said representati-e or distri+utor %as an independent status, i"e", it transacts +usiness in its name and for
its o3n account, and not in t%e name or for t%e account of t%e principalL ??? (A) Openin offices, 3%et%er
called DliaisonD offices, aencies or +ranc%es, unless pro-ed ot%er3ise" ??? (15) An' ot%er act or acts t%at
impl' a continuit' of commercial dealins or arranements, and contemplate to t%at e?tent t%e performance of
acts or 3or:s, or t%e e?ercise of some of t%e functions normall' incident to, or in t%e proressi-e prosecution
of, commercial ain or of t%e purpose and o+Iecti-e of t%e +usiness orani>ation"M
%ssue [2#$ )%et%er 0(C %as +een Mdoin +usiness in t%e 6%ilippinesM so t%at t%e ser-ice of summons upon
its aent in t%e 6%ilippines -ested t%e Court of 0irst $nstance of (anila 3it% Iurisdiction"
&eld [2#$ 0(C ma' +e considered as Mdoin +usiness in t%e 6%ilippinesM 3it%in t%e scope of Section 1A
(Ser-ice upon pri-ate forein corporations), Rule 1A of t%e Rules of Court 3%ic% pro-ides t%at M$f t%e
defendant is a forein corporation, or a non=resident Ioint stoc: compan' or association, doin +usiness in t%e
6%ilippines, ser-ice ma' +e made on its resident aent desinated in accordance 3it% la3 for t%at purpose or,
if t%ere +e no suc% aent, on t%e o-ernment official desinated +' la3 to t%at effect, or on an' of its officers
or aents 3it%in t%e 6%ilippines"M $ndeed, 0(C, in compliance 3it% Act 1A74 as implemented +' *epartment
of &a+or Order $# dated 15 (a' 1.47 %ad to appoint Jaime #" Catuira, 1311 A" (a+ini, Ermita, (anila Mas
aent for 0(C 3it% aut%orit' to e?ecute Emplo'ment Contracts and recei-e, in +e%alf of t%at corporation,
leal ser-ices from and +e +ound +' processes of t%e 6%ilippine Courts of Justice, for as lon as %e remains an
emplo'ee of 0(C"M $t is a fact t%at 3%en t%e summons for 0(C 3as ser-ed on Catuira %e 3as still in t%e
emplo' of t%e 0(C" Jence, if a forein corporation, not enaed in +usiness in t%e 6%ilippines, is not +arred
from see:in redress from courts in t%e 6%ilippines (suc% as in earlier cases of Aetna Casualt' K Suret'
Compan', -s" 6acific Star &ine, etc" B/R &=1475.C, $n (ent%olatum -s" (analiman, and East+oard
!a-iation -s" Juan Osmael K Co"), a fortiori, t%at same corporation cannot claim e?emption from +ein sued
in 6%ilippine courts for acts done aainst a person or persons in t%e 6%ilippines"
07 &ome %nsurance Com-an" vs. =astern 5;i--in( *ines [GR *)444/2 20 !ul" 11/4#L also Jome
$nsurance -s" !edllo'd &iInen B/R &=3A373C
First Division, Dutierrez Jr$ (J): 4 concur, ) on leave
Facts$ +D> E5343?), On or a+out 13 Januar' 1.48, S" EaIita K Co", on +e%alf of Atlas Consolidated (inin
K *e-elopment Corporation, s%ipped on +oard t%e SS Eastern Jupiter from Osa:a, Japan, 1,341 coils of
Blac: Jot Rolled Copper )ire Rods" T%e said #ESSE& is o3ned and operated +' Eastern S%ippin &ines"
T%e s%ipment 3as co-ered +' Bill of &adin O=(A=., 3it% arri-al notice to 6%elps *ode Copper 6roducts
Corporation of t%e 6%ilippines at (anila" T%e s%ipment 3as insured 3it% t%e Jome $nsurance Compan'
aainst all ris:s in t%e amount of 61,975,159"54 under its $nsurance 6olic' AS=83433" T%e coils disc%ared
from t%e #ESSE& num+ered 1,341, of 3%ic% 93 3ere in +ad order" )%at t%e 6%elps *ode ultimatel'
recei-ed at its 3are%ouse 3as t%e same num+er of 1,341 coils, 3it% 83 coils loose and partl' cut, and 17 coils
entanled, partl' cut, and 3%ic% %ad to +e considered as scrap" @pon 3ei%in at 6%elps *odeDs 3are%ouse,
t%e 1,341 coils 3ere found to 3ei%t 143,.A5"79 :ilos as aainst its in-oiced 3ei%t of 14A,93A"55 :ilos or a
net lossGs%ortae of 9.3"19 :ilos, or 1,15.,94 l+s", accordin to t%e claims presented +' t%e 6%elps *ode
aainst Jome $nsurance, t%e Eastern S%ippin, and Anel Jose Transportation $nc" 0or t%e lossGdamae
suffered +' t%e caro, Jome $nsurance paid t%e 6%elps *ode under its insurance polic' t%e amount of
63,145"AA, +' -irtue of 3%ic% Jome $nsurance +ecame su+roated to t%e ri%ts and actions of t%e 6%elps
*ode" Jome $nsurance made demands for pa'ment aainst t%e Eastern S%ippin and t%e Anel Jose
Transportation for reim+ursement of t%e aforesaid amount +ut eac% refused to pa' t%e same"M
+D> E5343?3, On or a+out 11 *ecem+er 1.44, t%e Jansa Transport Eontor s%ipped from Bremen, /erman',
35 pac:aes of Ser-ice 6arts of 0arm E,uipment and $mplements on +oard t%e #ESSE&, SS D!E*ER R$J!D
o3ned +' !" #" !edllo'd &iInen, and represented in t%e 6%ilippines +' its local aent, t%e Colum+ian
6%ilippines, $nc"" T%e s%ipment 3as co-ered +' Bill of &adin !o" 11 for transportation to, and deli-er' at,
(anila, in fa-or of $nternational Jar-ester (acleod, $nc" T%e s%ipment 3as insured 3it% Jome $nsurance
compan' under its Caro 6olic' AS=83839 D3it% a-erae termsD for 6.7,948"8." T%e pac:aes disc%ared
from t%e #ESSE& num+ered 1., of 3%ic% se-en pac:aes 3ere found to +e in +ad order" )%at $nternational
Jar-ester ultimatel' recei-ed at its 3are%ouse 3as t%e same num+er of 1. pac:aes 3it% . pac:aes in +ad
order" Out of t%ese . pac:aes, 1 pac:ae 3as accepted +' $nternational Jar-ester in ood order due to t%e
nelii+le damaes sustained" @pon inspection at $nternational Jar-esterDs 3are%ouse, t%e contents of 3 out of
t%e 7 cases 3ere also found to +e complete and intact, lea-in 9 cases in +ad order" T%e contents of t%ese 9
pac:aes s%o3ed se-eral items missin in t%e total amount of S131"1AL 3%ile t%e contents of t%e undeli-ered
1 pac:ae 3ere -alued at S3.A"44, or a total of S919"75 or 61,A14".7" 0or t%e s%ort=deli-er' of 1 pac:ae and
t%e missin items in 9 ot%er pac:aes, Jome $nsurance paid $nternational Jar-ester under its $nsurance Caro
6olic' t%e amount of 61,A14".7, +' -irtue of 3%ic% Jome $nsurance +ecame su+roated to t%e ri%ts and
actions of $nternational Jar-ester" *emands 3ere made on !"#" !edllo'd &iInen and $nternational Jar-ester
for reim+ursement t%ereof +ut t%e' failed and refused to pa' t%e same"M
)%en t%e insurance contracts 3%ic% formed t%e +asis of t%ese cases 3ere e?ecuted, Jome $nsurance %ad not
'et secured t%e necessar' licenses and aut%orit'L +ut 3%en t%e complaints in t%ese t3o cases 3ere filed, Jome
$nsurance %ad alread' secured t%e necessar' license to conduct its insurance +usiness in t%e 6%ilippines" $n
+ot% cases, Jome $nsurance made t%e a-erment reardin its capacit' to sue, as t%at it Mis a forein insurance
compan' dul' aut%ori>ed to do +usiness in t%e 6%ilippines t%rou% its aent, (r" #ictor J" Bello, of leal ae
and 3it% office address at Oledan Buildin, A'ala A-enue, (a:ati, Ri>al"M T%e Court of 0irst $nstance of
(anila, Branc% Q#$$, %o3e-er, dismissed t%e complaints in +ot% cases, on t%e round t%at Jome $nsurance
%ad failed to pro-e its capacit' to sue" Jome $nsurance filed t%e petitions for re-ie3 on certiorari, 3%ic% 3ere
consolidated"
%ssue$ )%et%er Jome $nsurance, a forein corporation licensed to do +usiness at %e time of t%e filin of t%e
case, %as t%e capacit' to sue for claims on contracts made 3%en it %as no license 'et to do +usiness in t%e
6%ilippines"
&eld$ As earl' as 1.1A, t%e Supreme Court ruled in t%e leadin case of (ars%all )ells Co" -" Jenr' )" Elser
K Co" (A4 6%il" 85) t%at t%e o+Iect of Sections 47 and 4. of t%e Corporation &a3 3as to su+Iect t%e forein
corporation doin +usiness in t%e 6%ilippines to t%e Iurisdiction of 6%ilippine courts" T%e Corporation &a3
must +e i-en a reasona+le, not an undul' %ars%, interpretation 3%ic% does not %amper t%e de-elopment of
trade relations and 3%ic% fosters friendl' commercial intercourse amon countries" T%e o+Iecti-es enunciated
in t%e 1.1A decision are e-en more rele-ant toda' 3%en 3e commercial relations are -ie3ed in terms of a
3orld econom', 3%en t%e tendenc' is to re=e?amine t%e political +oundaries separatin one nation from
anot%er insofar as t%e' define +usiness re,uirements or restrict mar:etin conditions" T%e court distinuis%ed
+et3een t%e denial of a ri%t to ta:e remedial action and t%e penal sanction for non=reistration" $nsofar as
transactin +usiness 3it%out a license is concerned, Section 4. of t%e Corporation &a3 imposed a penal
sanction P imprisonment for not less t%an 4 mont%s nor more t%an 1 'ears or pa'ment of a fine not less t%an
6155"55 nor more t%an 61,555"55 or +ot% in t%e discretion of t%e court" T%ere is a penalt' for transactin
+usiness 3it%out reistration" And insofar as litiation is concerned, t%e forein corporation or its assinee
ma' not maintain an' suit for t%e reco-er' of an' de+t, claim, or demand 3%ate-er" T%e Corporation &a3 is
silent on 3%et%er or not t%e contract e?ecuted +' a forein corporation 3it% no capacit' to sue is null and -oid
a+ initio" Still, t%ere is no ,uestion t%at t%e contracts are enforcea+le" T%e re,uirement of reistration affects
onl' t%e remed'" Sinificantl', Batas 6am+ansa 47, t%e Corporation Code of t%e 6%ilippines %as corrected t%e
am+iuit' caused +' t%e 3ordin of Section 4. of t%e old Corporation &a3" Section 133 of t%e present
Corporation Code pro-ides t%at M!o forein corporation transactin +usiness in t%e 6%ilippines 3it%out a
license, or its successors or assins, s%all +e permitted to maintain or inter-ene in an' action, suit or
proceedin in an' court or administrati-e aenc' in t%e 6%ilippinesL +ut suc% corporation ma' +e sued or
proceeded aainst +efore 6%ilippine courts or administrati-e tri+unals on an' -alid cause of action reconi>ed
under 6%ilippine la3s"M T%e old Section 4. %as +een re3orded in terms of non=access to courts and
administrati-e aencies in order to maintain or inter-ene in an' action or proceedin" T%e pro%i+ition aainst
doin +usiness 3it%out first securin a license is no3 i-en penal sanction 3%ic% is also applica+le to ot%er
-iolations of t%e Corporation Code under t%e eneral pro-isions of Section 1AA of t%e Code" $t is, t%erefore,
not necessar' to declare t%e contract null and -oid e-en as aainst t%e errin forein corporation" T%e penal
sanction for t%e -iolation and t%e denial of access to 6%ilippine courts and administrati-e +odies are sufficient
from t%e -ie3point of leislati-e polic'" Jerein, t%e lac: of capacit' at t%e time of t%e e?ecution of t%e
contracts 3as cured +' t%e su+se,uent reistration is also strent%ened +' t%e procedural aspects of t%ese
cases" Jome $nsurance a-erred in its complaints t%at it is a forein insurance compan', t%at it is aut%ori>ed to
do +usiness in t%e 6%ilippines, t%at its aent is (r" #ictor J" Bello, and t%at its office address is t%e Oledan
Buildin at A'ala A-enue, (a:ati" T%ese are all t%e a-erments re,uired +' Section A, Rule 7 of t%e Rules of
Court" Jome $nsurance sufficientl' alleed its capacit' to sue"
0/ 8;e 'ent;olatum Co. %nc. vs. 'an(aliman [GR 47701 27 !une 1141#
First Division, Eaurel (J): 3 concur, 1 dissents
Facts$ T%e (ent%olatum Co", $nc", is a Eansas corporation 3%ic% manufactures M(ent%olatum,M a
medicament and sal-e adapted for t%e treatment of colds, nasal irritations, c%apped s:in, insect +ites, rectal
irritation and ot%er e?ternal ailments of t%e +od'" T%e 6%ilippine=American *ru Co", $nc", is its e?clusi-e
distri+utin aent in t%e 6%ilippines aut%ori>ed +' it to loo: after and protect its interests" On 14 June 1.1.
and on 11 Januar' 1.11, t%e (ent%olatum Co", $nc", reistered 3it% t%e Bureau of Commerce and $ndustr' t%e
3ord, M(ent%olatumM, as trade mar: for its products" T%e (analiman +rot%ers prepared a medicament and
sal-e named M(ent%olimanM 3%ic% t%e' sold to t%e pu+lic pac:ed in a container of t%e same si>e, color and
s%ape as M(ent%olatum"M As a conse,uence of t%ese acts of t%e (analimans, (ent%olatum, etc" suffered
damaes from t%e diminution of t%eir sales and t%e loss of ood3ill and reputation of t%eir product in t%e
mar:et" On 1 Octo+er 1.39, t%e (ent%olatum Co", $nc", and t%e 6%ilippine=American *ru, Co", $nc"
instituted an action in t%e Court of 0irst $nstance (C0$) of (anila aainst Anacleto (analiman, 0lorencio
(analiman and t%e *irector of t%e Bureau of Commerce for infrinement of trade mar: and unfair
competition (Ci-il case A7799)" (ent%olatum, etc" pra'ed for t%e issuance of an order restrainin Anacleto
and 0lorencio (analiman from sellin t%eir product M(ent%oliman,M and directin t%em to render an
accountin of t%eir sales and profits and to pa' damaes" After a protracted trial, featured +' t%e dismissal of
t%e case on . (arc% 1.34 for failure of plaintiffDs counsel to attend, and its su+se,uent reinstatement on April
A, 1.34, t%e Court of 0irst $nstance of (anila, on 1. Octo+er 1.38, rendered Iudment in fa-or of
(ent%olatum, etc" $n t%e Court of Appeals (CA=/R A4548), t%e decision of t%e trial court 3as, on 1. June
1.A5, re-ersed, said tri+unal %oldin t%at t%e acti-ities of t%e (ent%olatum Co", $nc", 3ere +usiness
transactions in t%e 6%ilippines, and t%at +' section 4. of t%e Corporation &a3, it ma' not maintain t%e suit"
(ent%olatum, etc" filed t%e petition for certiorari"
%ssue$ )%et%er (ent%olatum, etc" could prosecute t%e instant action 3it%out %a-in secured t%e license
re,uired in section 4. of t%e Corporation &a3"
&eld$ !o eneral rule or o-ernin principle can +e laid do3n as to 3%at constitutes MdoinM or Menain inM
or MtransactinM +usiness" $ndeed, eac% case must +e Iuded in t%e li%t of its peculiar en-ironmental
circumstances" T%e true test, %o3e-er, seems to +e 3%et%er t%e forein corporation is continuin t%e +od' or
su+stance of t%e +usiness or enterprise for 3%ic% it 3as orani>ed or 3%et%er it %as su+stantiall' retired from
it and turned it o-er to anot%er" T%e term implies a continuit' of commercial dealins and arranements, and
contemplates, to t%at e?tent, t%e performance of acts or 3or:s or t%e e?ercise of some of t%e functions
normall' incident to, and in proressi-e prosecution of, t%e purpose and o+Iect of its orani>ation" Jerein,
(ent%olatum Co", t%rou% its aent, t%e 6%ilippine=American *ru Co", $nc", %as +een doin +usiness in t%e
6%ilippines +' sellin its products %ere since t%e 'ear 1.1., at least" )%ate-er transactions t%e 6%ilippine=
American *ru Co", $nc", %ad e?ecuted in -ie3 of t%e la3, t%e (ent%olatum Co", $nc", +ein a forein
corporation doin +usiness in t%e 6%ilippines 3it%out t%e license re,uired +' section 47 of t%e Corporation
&a3, it ma' not prosecute t%is action for -iolation of trade mar: and unfair competition" !eit%er ma' t%e
6%ilippine=American *ru Co", $nc", maintain t%e action %ere for t%e reason t%at t%e distinuis%in features of
t%e aent +ein %is representati-e c%aracter and deri-ati-e aut%orit', it cannot no3, to t%e ad-antae of its
principal, claim an independent standin in court" 0urt%er, t%e reconition of t%e leal status of a forein
corporation is a matter affectin t%e polic' of t%e forum, and t%e distinction dra3n in 6%ilippine Corporation
&a3 is an e?pression of t%e polic'" T%e eneral statement made in )estern E,uipment and Suppl' Co" -s"
Re'es reardin t%e c%aracter of t%e ri%t in-ol-ed s%ould not +e construed in t%e deroation of t%e polic'=
determinin aut%orit' of t%e State" T%e ri%t of (ent%olatum conditioned upon compliance 3it% t%e
re,uirement of section 4. of t%e Corporation &a3 to protect its ri%ts, is reser-ed"
01 =ri<s :te. *td. vs. Court o, A--eals [GR 11//44 0 Fe+ruar" 1117#
Facts$ Eri:s 6te" &td" is a non=resident forein corporation enaed in t%e manufacture and sale of elements
used in sealin pumps, -al-es and pipes for industrial purposes, -al-es and control e,uipment used for
industrial fluid control and 6#C pipes and fittins for industrial uses" On -arious dates co-erin t%e period
Januar' 18 P Auust 14, 1.7., *elfin Enri,ue>, Jr", doin +usiness under t%e name and st'le of *elrene EB
Controls Center andGor EB Earmine Commercial, ordered and recei-ed from Eri:s 6te" &td" -arious elements
used in sealin pumps, -al-es, pipes and control e,uipment, 6#C pipes and fittins" T%e transfers of oods
3ere perfected in Sinapore, for Enri,ue>Ds account, 0"O"B" Sinapore, 3it% a .5=da' credit term"
Su+se,uentl', demands 3ere made +' Eri:s upon Enri,ue> to settle %is account, +ut t%e latter failedGrefused
to do so" On 17 Auust 1..1, Eri:s filed 3it% t%e Reional Trial Court of (a:ati, Branc% 137, Ci-il Case .1=
1383 for t%e reco-er' of SSA1,.3."43 or its e,ui-alent in 6%ilippine currenc', plus interest t%ereon and
damaes" Enri,ue> responded 3it% a (otion to *ismiss, contendin t%at Eri:s %ad no leal capacit' to sue" $n
an Order dated 7 (arc% 1..3, t%e trial court dismissed t%e action on t%e round t%at Eri:s is a forein
corporation doin +usiness in t%e 6%ilippines 3it%out a license" On appeal and on 19 Januar' 1..9, t%e
appellate court (CA /R C# A1189) affirmed said order as it deemed t%e series of transactions +et3een Eri:s
and Enri,ue> not to +e an Misolated or casual transaction"M T%us, t%e appellate court li:e3ise found Eri:s to +e
3it%out leal capacit' to sue" Eri:s filed t%e petition for re-ie3"
%ssue$ )%et%er a forein corporation 3%ic% sold its products 14 times o-er a fi-e=mont% period to t%e same
0ilipino +u'er 3it%out first o+tainin a license to do +usiness in t%e 6%ilippines, is pro%i+ited from
maintainin an action to collect pa'ment t%erefor in 6%ilippine courts"
&eld$ Section 133 of t%e Corporation Code pro-ides t%at M!o forein corporation transactin +usiness in t%e
6%ilippines 3it%out a license, or its successors or assins, s%all +e permitted to maintain or inter-ene in an'
action, suit or proceedin in an' court or administrati-e aenc' of t%e 6%ilippinesL +ut suc% corporation ma'
+e sued or proceeded aainst +efore 6%ilippine courts or administrati-e tri+unals on an' -alid cause of action
reconi>ed under 6%ilippine la3s"M T%e pro-ision pro%i+its, not merel' a+sence of t%e prescri+ed license, +ut
it also +ars a forein corporation Mdoin +usinessM in t%e 6%ilippines 3it%out suc% license access to 6%ilippine
courts" A forein corporation 3it%out suc% license is not ipso facto incapacitated from +rinin an action" A
license is necessar' onl' if it is Mtransactin or doin +usinessM in t%e countr'" Jo3e-er, t%ere is no definiti-e
rule on 3%at constitutes Mdoin,M Menain in,M or MtransactinM +usiness" T%e Corporation Code itself does
not define suc% terms" To fill t%e ap, t%e e-olution of its statutor' definition %as produced a rat%er all=
encompassin concept in Repu+lic Act 85A1 in t%is 3ise: MT%e p%rase Ddoin +usinessD s%all include solicitin
orders, ser-ice contracts, openin offices, 3%et%er called DliaisonD offices or +ranc%esL appointin
representati-es or distri+utors domiciled in t%e 6%ilippines or 3%o in an' calendar 'ear sta' in t%e countr' for
a period or periods totalin one %undred ei%t(') (175) da's or moreL participatin in t%e manaement,
super-ision or control of an' domestic +usiness, firm, entit' or corporation in t%e 6%ilippinesL and an' ot%er
act or acts t%at impl' a continuit' of commercial dealins or arranements, and contemplate to t%at e?tent t%e
performance of acts or 3or:s, or t%e e?ercise of some of t%e functions normall' incident to, and in
proressi-e prosecution of, commercial ain or of t%e purpose and o+Iect of t%e +usiness orani>ation:
6ro-ided, %o3e-er, T%at t%e p%rase Ddoin +usinessD s%all not +e deemed to include mere in-estment as a
s%are%older +' a forein entit' in domestic corporations dul' reistered to do +usiness, andGor t%e e?ercise of
ri%ts as suc% in-estorL nor %a-in a nominee director or officer to represent its interests in suc% corporationL
nor appointin a representati-e or distri+utor domiciled in t%e 6%ilippines 3%ic% transacts +usiness in its o3n
name and for its o3n account"M T%e accepted rule in Iurisprudence is t%at eac% case must +e Iuded in t%e
li%t of its o3n en-ironmental circumstances" $t s%ould +e :ept in mind t%at t%e purpose of t%e la3 is to
su+Iect t%e forein corporation doin +usiness in t%e 6%ilippines to t%e Iurisdiction of 6%ilippine courts" $t is
not to pre-ent t%e forein corporation from performin sinle or isolated acts, +ut to +ar it from ac,uirin a
domicile for t%e purpose of +usiness 3it%out first ta:in t%e steps necessar' to render it amena+le to suits in
t%e local courts" Jerein, more t%an t%e s%eer num+er of transactions entered into, a clear and unmista:a+le
intention on t%e part of Eri:s to continue t%e +od' of its +usiness in t%e 6%ilippines is more t%an apparent" As
alleed in its complaint, it is enaed in t%e manufacture and sale of elements used in sealin pumps, -al-es,
and pipes for industrial purposes, -al-es and control e,uipment used for industrial fluid control and 6#C
pipes and fittins for industrial use" T%us, t%e sale +' Eri:s of t%e items co-ered +' t%e receipts, 3%ic% are
part and parcel of its main product line, 3as actuall' carried out in t%e proressi-e prosecution of commercial
ain and t%e pursuit of t%e purpose and o+Iect of its +usiness, pure and simple" 0urt%er, its rant and e?tension
of .5=da' credit terms to Enri,ue> for e-er' purc%ase made, unarua+l' s%o3s an intention to continue
transactin 3it% Enri,ue>, since in t%e usual course of commercial transactions, credit is e?tended onl' to
customers in ood standin or to t%ose on 3%om t%ere is an intention to maintain lon=term relations%ip" T%e
series of transactions in ,uestion could not %a-e +een isolated or casual transactions" )%at is determinati-e of
Mdoin +usinessM is not reall' t%e num+er or t%e ,uantit' of t%e transactions, +ut more importantl', t%e
intention of an entit' to continue t%e +od' of its +usiness in t%e countr'" T%e num+er and ,uantit' are merel'
e-idence of suc% intention" T%e p%rase Misolated transactionM %as a definite and fi?ed meanin, i"e" a
transaction or series of transactions set apart from t%e common +usiness of a forein enterprise in t%e sense
t%at t%ere is no intention to enae in a proressi-e pursuit of t%e purpose and o+Iect of t%e +usiness
orani>ation" )%et%er a forein corporation is Mdoin +usinessM does not necessaril' depend upon t%e
fre,uenc' of its transactions, +ut more upon t%e nature and c%aracter of t%e transactions" /i-en t%e facts of t%e
case, t%e Court cannot see %o3 Eri:sD +usiness dealins 3ill fit t%e cateor' of Misolated transactionsM
considerin t%at its intention to continue and pursue t%e corpus of its +usiness in t%e countr' %ad +een clearl'
esta+lis%ed" $t %as not presented an' con-incin arument 3it% e,uall' con-incin e-idence for t%e Court to
rule ot%er3ise" Accordinl' and inelucta+l', Eri:s must +e %eld to +e incapacitated to maintain t%e action a
,uo aainst Enri,ue>"
70 'R &oldin(s *td. vs. 5;eri,, BaFar [GR 14/104 11 A-ril 2002#
Third Division, Sandoval Dutierrez (J): 4 concur
Facts$ @nder a M6rincipal &oan AreementM and MComplementar' &oan Areement,M +ot% dated A !o-em+er
1..1, Asian *e-elopment Ban: (A*B), a multilateral de-elopment finance institution, areed to e?tend to
(arcopper (inin Corporation ((arcopper) a loan in t%e areate amount of @SSA5,555,555"55 to finance
t%e latterDs minin proIect at Sta" Cru>, (arindu,ue" T%e principal loan of @SS19,555,555"55 3as sourced
from A*BDs ordinar' capital resources, 3%ile t%e complementar' loan of @SS19,555,555"55 3as funded +'
t%e Ban: of !o-a Scotia, a participatin finance institution" On e-en date, A*B and 6lacer *ome, $nc",
(6lacer *ome), a forein corporation 3%ic% o3ns A5H of (arcopper, e?ecuted a MSupport and Stand+' Credit
AreementM 3%ere+' t%e latter" areed to pro-ide (arcopper 3it% cas% flo3 support for t%e pa'ment of its
o+liations to A*B" To secure t%e loan, (arcopper e?ecuted in fa-or of A*B a M*eed of Real Estate and
C%attel (ortaeM dated 11 !o-em+er 1..1, co-erin su+stantiall' all of its ((arcopperDs) properties and
assets in (arindu,ue" $t 3as reistered 3it% t%e Reister of *eeds on 11 !o-em+er 1..1" )%en (arcopper
defaulted in t%e pa'ment of its loan o+liation, 6lacer *ome, in fulfillment of its underta:in under t%e
MSupport and Stand+' Credit Areement,M and presuma+l' to preser-e its international credit standin, areed
to %a-e its su+sidiar' corporation, (R Joldin, &td", assumed (arcopperDs o+liation to A*B in t%e amount
of @SS17,A93,A95"51" Conse,uentl', in an MAssinment AreementM dated 15 (arc% 1..8 A*B assined to
(R Joldins all its ri%ts, interests and o+liations under t%e principal and complementar' loan areements,
(M*eed of Real Estate and C%attel (ortae,M and MSupport and Stand+' Credit AreementM)" On 7 *ecem+er
1..8, (arcopper li:e3ise e?ecuted a M*eed of AssinmentM in fa-or of (R Joldins" @nder its pro-isions,
(arcopper assins, transfers, cedes and con-e's to (R Joldins, its assins andGor successors=in=interest all
of its ((arcopperDs) properties, minin e,uipment and facilities" (ean3%ile, it appeared t%at on 8 (a' 1..8,
Solid+an: Corporation (Solid+an:) o+tained a 6artial Judment aainst (arcopper from t%e RTC, Branc% 14,
(anila, in Ci-il Case .4=75573, orderin (arcopper to pa' Solid+an: %e amount if 6J6 91,.85,894"7., plus
interest and c%ares until full' paidL to pa' an amount e,ui-alent to 15H of a+o-e=stated amount as attorne'Ds
feesL and to pa' t%e costs of suit" @pon Solid+an:Ds motion, t%e RTC of (anila issued a 3rit of e?ecution
pendin appeal directin Carlos 6" BaIar, s%eriff, to re,uire (arcopper Mto pa' t%e sums of mone' to satisf'
t%e 6artial Judment"M T%ereafter, BaIar issued t3o notices of le-' on (arcopperDs personal and real
properties, and o-er all its stoc:s of scrap iron and unser-icea+le minin e,uipment" Toet%er 3it% s%eriff
0erdinand (" Jandusa' of t%e RTC, Branc% .A, Boac, (arindu,ue, BaIar issued t3o notices settin t%e pu+lic
auction sale of t%e le-ied properties on 18 Auust 1..7 at t%e (arcopper mine site" Ja-in learned of t%e
sc%eduled auction sale, (R Joldins ser-ed an MAffida-it of T%ird=6art' ClaimM upon t%e s%eriffs on 14
Auust 1..7, assertin its o3ners%ip o-er all (arcopperDs minin properties, e,uipment and facilities +'
-irtue of t%e M*eed of Assinment"M @pon t%e denial of its MAffida-it of T%ird=6art' ClaimM +' t%e RTC of
(anila, (R Joldins commenced 3it% t%e RTC of Boac, (arindu,ue, presided +' Jude &eonardo 6"
Ansaldo, a complaint for rei-indication of properties, etc", 3it% pra'er for preliminar' inIunction and
temporar' restrainin order aainst Solid+an:, (arcopper, and s%eriffs BaIar and Jandusa' (Ci-il Case .7=
13)" $n an Order dated 4 Octo+er 1..7, Jude Ansaldo denied (R JoldinsD application for a 3rit of
preliminar' inIunction on t%e round t%at (a) (R Joldins %as no leal capacit' to sue, it +ein a forein
corporation doin +usiness in t%e 6%ilippines 3it%out licenseL (+) an inIunction 3ill amount Mto sta'in t%e
e?ecution of a final Iudment +' a court of co=e,ual and concurrent IurisdictionLM and (c) t%e -alidit' of t%e
MAssinment AreementM and t%e M*eed of AssinmentM %as +een Mput into serious ,uestion +' t%e timin of
t%eir e?ecution and reistration"M @nsatisfied, (R Joldins ele-ated t%e matter to t%e Court of Appeals on a
6etition for Certiorari, 6ro%i+ition and (andamus (CA=/R S6 A.114)" On 7 Januar' 1..., t%e Court of
Appeals rendered a *ecision affirmin t%e trial courtDs decision" (R Joldins filed t%e 6etition for Re-ie3
on Certiorari"
%ssue [1#$ )%et%er (R JoldinsD participation under t%e MAssinment AreementM and t%e M*eed of
AssinmentM constitutes ;doin +usiness"<
&eld [1#$ Batas 6am+ansa 47, ot%er3ise :no3n as MT%e Corporation Code of t%e 6%ilippines,M is silent as to
3%at constitutes doinM or MtransactinM +usiness in t%e 6%ilippines" 0ortunatel', Iurisprudence %as supplied
t%e deficienc' and %as %eld t%at t%e term Mimplies a continuit' of commercial dealins and arranements, and
contemplates, to t%at e?tent, t%e performance of acts or 3or:s or t%e e?ercise of some of t%e functions
normall' incident to, and in proressi-e prosecution of, t%e purpose and o+Iect for 3%ic% t%e corporation 3as
orani>ed"M T%e traditional case la3 definition %as metamorp%osed into a statutor' definition, %a-in +een
adopted 3it% some ,ualifications in -arious pieces of leislation in 6%ilippine Iurisdiction, suc% as Repu+lic
Act 85A1 (0orein $n-estment Act of 1..1), and Repu+lic Act 9A99" T%ere are ot%er statutes definin t%e term
Mdoin +usiness,M and as ma' +e o+ser-ed, one common denominator amon t%em all is t%e concept of
Mcontinuit'"M T%e e?pression Mdoin +usinessM s%ould not +e i-en suc% a strict and literal construction as to
ma:e it appl' to an' corporate dealin 3%ate-er" At t%is earl' stae and 3it% (R JoldinsD acts or
transactions limited to t%e assinment contracts, it cannot +e said t%at it %ad performed acts intended to
continue t%e +usiness for 3%ic% it 3as orani>ed" Jerein, at t%is earl' stae and 3it% (R JoldinsD acts or
transactions limited to t%e assinment contracts, it cannot +e said t%at it %ad performed acts intended to
continue t%e +usiness for 3%ic% it 3as orani>ed" $t ma' not +e amiss to point out t%at t%e purpose or +usiness
for 3%ic% (R Joldins 3as orani>ed is not discerni+le in t%e records" !o effort 3as e?erted +' t%e Court of
Appeals to esta+lis% t%e ne?us +et3een (R JoldinsD +usiness and t%e acts supposed to constitute Mdoin
+usiness"M T%us, 3%et%er t%e assinment contracts 3ere incidental to (R JoldinsD +usiness or 3ere
continuation t%ereof is +e'ond determination" T%e Court of AppealsD %oldin t%at (R Joldins 3as
determined to +e Mdoin +usinessM in t%e 6%ilippines is +ased mainl' on conIectures and speculation" $n
concludin t%at t%e Munmista:a+le intentionM of (R Joldins is to continue (arcopperDs +usiness, t%e Court
of Appeals %ans on t%e 3o++l' premise t%at Mt%ere is no ot%er 3a' for petitioner to reco-er its %ue financial
in-estments 3%ic% it poured into (arcopperDs re%a+ilitation 3it%out it (petitioner) continuin (arcopperDs
+usiness in t%e countr'"M A+sent o-ert acts of (R Joldins from 3%ic% 3e ma' directl' infer its intention to
continue (arcopperDs +usiness, t%e Supreme Court cannot i-e its concurrence" Sinificantl', a -ie3
su+scri+ed upon +' man' aut%orities is t%at t%e mere o3ners%ip +' a forein corporation of a propert' in a
certain state, unaccompanied +' its acti-e use in furt%erance of t%e +usiness for 3%ic% it 3as formed, is
insufficient in itself to constitute doin +usiness" 0urt%er, lon +efore (R Joldins assumed (arcopperDs
de+t to A*B and +ecame t%eir assinee under t%e t3o assinment contracts, t%ere alread' e?isted a MSupport
and Stand+' Credit AreementM +et3een A*B and 6lacer *ome 3%ere+' t%e latter +ound itself to pro-ide
cas% flo3 support for (arcopperDs pa'ment of its o+liations to A*B" 6lainl', (R JoldinsD pa'ment of
@SS17,A93,A95"11 to A*B 3as more of a fulfillment of an o+liation under t%e MSupport and Stand+' Credit
AreementM rat%er t%an an in-estment" T%at (R Joldins %ad to step into t%e s%oes of A*B as (arcopperDs
creditor 3as Iust a necessar' leal conse,uence of t%e transactions t%at transpired" Also, t%e MSupport and
Stand+' Credit AreementM 3as e?ecuted A 'ears prior to (arcopperDs insol-enc', %ence, t%e alleed
Mintention of (R Joldins to continue (arcopperDs +usinessM could %a-e no +asis for at t%at time,
(arcopperDs fate cannot 'et +e determined" $n t%e final anal'sis, (R Joldins 3as enaed onl' in isolated
acts or transactions" Sinle or isolated acts, contracts, or transactions of forein corporations are not rearded
as a doin or carr'in on of +usiness" T'pical e?amples of t%ese are t%e ma:in of a sinle contract, sale, sale
3it% t%e ta:in of a note and mortae in t%e state to secure pa'ment t%erefor, purc%ase, or note, or t%e mere
commission of a tort" $n t%ese instances, t%ere is no purpose to do an' ot%er +usiness 3it%in t%e countr'"
71 &utc;ison :orts :;ili--ines *imited vs. 5u+ic Ba" 'etro-olitan Aut;orit" (5B'A) [GR
141407 41 Au(ust 2000#
First Division, 4nares5Santia'o (J): 3 concur, 1 concurs in result
Facts$ On 11 0e+ruar' 1..4, t%e Su+ic Ba' (etropolitan Aut%orit' (SB(A) ad-ertised in leadin national
dail' ne3spapers and in one international pu+lication, an in-itation offerin to t%e pri-ate sector t%e
opportunit' to de-elop and operate a modern marine container terminal 3it%in t%e Su+ic Ba' 0reeport Fone"
Out of 8 +idders 3%o responded to t%e pu+lis%ed in-itation, 3 3ere declared +' t%e SB(A as ,ualified
+idders after passin t%e pre=,ualification e-aluation conducted +' t%e SB(ADs Tec%nical E-aluation
Committee (SB(A=TEC) T%ese are: (1) $nternational Container Terminal Ser-ices, $nc" ($CTS$)L (1) a
consortium consistin of Ro'al 6ort Ser-ices, $nc" and J6C Jam+ur 6ort Consultin /(BJ (R6S$)L and
(3) Jutc%ison 6orts 6%ilippines &imited (J66&), representin a consortium composed of J66&, /uoco
Joldins (6%ils"), $nc" and @nicol (anaement Ser-ices, $nc" All 3 ,ualified +idders 3ere re,uired to su+mit
t%eir respecti-e formal +id pac:ae on or +efore 1 Jul' 1..4 +' t%e SB(ADs 6re=,ualification, Bids and
A3ards Committee (SB(A=6BAC)" T%ereafter, t%e ser-ices of 3 international consultants recommended +'
t%e )orld Ban: for t%eir e?pertise 3ere %ired +' SB(A to e-aluate t%e +usiness plans su+mitted +' eac% of
t%e +idders, and to ensure t%at t%ere 3ould +e a transparent and compre%ensi-e re-ie3 of t%e su+mitted +ids"
T%e SB(A also %ired t%e firm of *a-is, &andon and Sea% 6%ilippines, $nc" to assist in t%e e-aluation of t%e
+ids and in t%e neotiation process after t%e 3innin +idder is c%osen" All t%e consultants, after suc% re-ie3
and e-aluation unanimousl' concluded t%at J66&Ds Business 6lan 3as Mfar superior to t%at of t%e t3o ot%er
+idders"M Jo3e-er, e-en +efore t%e sealed en-elopes containin t%e +iddersD proposed ro'alt' fees could +e
opened at t%e appointed time and place, R6S$ formall' protested t%at $CTS$ is leall' +arred from operatin a
second port in t%e 6%ilippines +ased on E?ecuti-e Order 111 and *epartment of Transportation and
Communication (*OTC) Order .9=743" R6S$ t%us re,uested t%at t%e financial +id of $CTS$ s%ould +e set
aside" !e-ert%eless, t%e openin of t%e sealed financial +ids proceeded Munder ad-isementM relati-e to t%e
protest sinified +' R6S$" T%e financial +ids, more particularl' t%e proposed ro'alt' fee of eac% +idder, 3as
as follo3s: (1) $CTS$, @SS98"75 TE@L (1) J66&, @SS15"95 TE@L and (3) R6S$, @SS19"57 TE@" T%e
SB(A=6BAC decided to suspend t%e announcement of t%e 3innin +id, %o3e-er, and instead a-e $CTS$ 8
da's 3it%in 3%ic% to respond to t%e letter=protest loded +' R6S$" T%e J66& Ioined in R6S$Ds protest, statin
t%at $CTS$ s%ould +e dis,ualified +ecause it 3as alread' operatin t%e (anila $nternational Container 6ort
(($C6), 3%ic% 3ould i-e rise to ine-ita+le conflict of interest +et3een t%e ($C6 and t%e Su+ic Ba'
Container Terminal facilit'" On 19 Auust 1..4, t%e SB(A=6BAC issued a resolution reIectin t%e +id of
$CTS$ +ecause Msaid +id does not compl' 3it% t%e re,uirements of t%e tender documents and t%e la3s of t%e
6%ilippines"M T%e follo3in da', $CTS$ filed a letter=appeal 3it% SB(ADs Board of *irectors re,uestin t%e
nullification and re-ersal of t%e resolution reIectin $CTS$Ds +id 3%ile a3ardin t%e same to J66&" But e-en
+efore t%e SB(A Board could act on t%e appeal, $CTS$ filed a similar appeal +efore t%e Office of t%e
6resident" On 35 Auust 1..4, t%en C%ief 6residential &eal Counsel (C6&C) Renato &" Ca'etano su+mitted
a memorandum to t%en 6resident 0idel #" Ramos, recommendin t%at t%e 6resident direct SB(A C%airman
/ordon to consider re=e-aluatin t%e financial +ids su+mitted +' t%e parties, ta:in into consideration all t%e
follo3in factors: (1) Reinstate $CTS$Ds +idL (1) *isreard all aruments relatin to Mmonopol'ML (3) T%e re=
e-aluation must +e limited to t%e partiesD financial +ids" Considerin t%at t%e partiesD +usiness %a-e +een
accepted (passed), strictl' follo3 t%e criteria for +id e-aluation pro-ided for in pars" (c) and (d), 6art B (1) of
t%e Tender *ocumentL (A) $n t%e re=e-aluation, t%e COA s%ould acti-el' participate to determine 3%ic% of t%e
financial +ids is more ad-antaeousL (9) $n addition, all t%e parties s%ould +e i-en ample opportunit' to
elucidate or clarif' t%e componentsGIustification for t%eir respecti-e financial +ids in order to ensure fair pla'
and transparenc' in t%e proceedinsL and (4) T%e 6residentDs aut%orit' to re-ie3 t%e final a3ard s%all remain"M
T%e recommendation of C6&C Ca'etano 3as appro-ed +' 6resident Ramos" A cop' of 6resident RamosD
%and3ritten appro-al 3as sent to t%e SB(A Board of *irectors" Accordinl', t%e SB(A Board, 3it% t%e
concurrence of representati-es of t%e Commission on Audit, areed to focus t%e ree-aluation of t%e +ids in
accordance 3it% t%e e-aluation criteria and t%e detailed components contained in t%e Tender *ocument,
includin all rele-ant information leaned from t%e +iddin documents, as 3ell as t%e reports of t%e t%ree
international e?perts and t%e consultanc' firm %ired +' t%e SB(A" On 1. Septem+er 1..4, t%e SB(A Board
issued a Resolution, declarin t%at t%e +est possi+le offer and t%e most ad-antaeous to t%e o-ernment is t%at
of J66&, 3%ic% 3as a3arded t%e concession for t%e operation and de-elopment of t%e Su+ic Ba' Container
Terminal" $n a letter dated 1A Septem+er 1..4, t%e SB(A Board of *irectors su+mitted to t%e Office of t%e
6resident t%e results of t%e re=e-aluation of t%e +id proposals" !ot3it%standin t%e SB(A BoardDs
recommendations and action a3ardin t%e proIect to J66&, t%en E?ecuti-e Secretar' Ru+en Torres su+mitted
a memorandum to t%e Office of t%e 6resident recommendin t%at anot%er re+iddin +e conducted"
Conse,uentl', t%e Office of t%e 6resident issued a (emorandum directin t%e SB(A Board of *irectors to
refrain from sinin t%e Concession Contract 3it% J66& and to conduct a re+iddin of t%e proIect" $n t%e
meantime, t%e Resident Om+udsman for t%e *OTC filed a complaint aainst mem+ers of t%e SB(A=6BAC
+efore t%e Office of t%e Om+udsman for alleed -iolation of Section 3(e) of Repu+lic Act 351. for a3ardin
t%e contract to J66&" On 14 April 1..8, t%e E-aluation and 6reliminar' $n-estiation Bureau of t%e Office of
t%e Om+udsman issued a Resolution a+sol-in t%e mem+ers of t%e SB(A=6BAC of an' lia+ilit' and
dismissin t%e complaint aainst t%em"
On 8 Jul' 1..8, t%e J66&, feelin arie-ed +' t%e SB(ADs failure and refusal to commence neotiations
and to e?ecute t%e Concession Areement despite its earlier pronouncements t%at J66& 3as t%e 3innin
+idder, filed a complaint aainst SB(A +efore t%e Reional Trial Court (RTC) of Olonapo Cit', Branc% 89,
for specific performance, mandator' inIunction and damaes" $n due time, $CTS$, R6S$ and t%e Office of t%e
6resident filed separate Ans3ers=in=$nter-ention to t%e complaint opposin t%e reliefs sou%t +' complainant
J66&" )%ile t%e case +efore t%e trial court 3as pendin litiation, on A Auust 1..8, t%e SB(A sent notices
to J66&, $CTS$ and R6S$ re,uestin t%em to declare t%eir interest in participatin in a re+iddin of t%e
proposed proIect" On 15 Octo+er 1..8, J66& recei-ed a cop' of t%e minutes of t%e pre=+id conference 3%ic%
stated t%at t%e 3innin +idder 3ould +e announced on 9 *ecem+er 1..8" T%en on A !o-em+er 1..8, J66&
learned t%at t%e SB(A %ad accepted t%e +ids of $CTS$ and R6S$ 3%o 3ere t%e onl' +idders 3%o ,ualified" $n
order to enIoin t%e re+iddin 3%ile t%e case 3as still pendin, J66& filed a motion for maintenance of t%e
status ,uo on 17 Octo+er 1..8" T%e said motion 3as denied +' t%e court a ,uo in an Order dated 3 !o-em+er
1..8" J66& filed t%e petition aainst SB(A, $CTS$, R6S$ and t%e E?ecuti-e Secretar' see:in to o+tain a
pro%i+itor' inIunction"
%ssue$ )%et%er J66& %as t%e leal capacit' to e-en see: redress from t%e Court"
&eld$ J66& is a forein corporation, orani>ed and e?istin under t%e la3s of t%e Britis% #irin $slands"
)%ile t%e actual +idder 3as a consortium composed of J66&, and t3o ot%er corporations, namel', /uoco
Joldins (6%ils") $nc" and @nicol (anaement Ser-ices, $nc", it is onl' J66& t%at %as +rou%t t%e
contro-ers' +efore t%e Court, aruin t%at it is suin onl' on an isolated transaction to e-ade t%e leal
re,uirement t%at forein corporations must +e licensed to do +usiness in t%e 6%ilippines to +e a+le to file and
prosecute an action +efore 6%ilippines courts" T%ere is no eneral rule or o-ernin principle laid do3n as to
3%at constitutes MdoinM or Menain inM or MtransactinM +usiness in t%e 6%ilippines" Eac% case must +e
Iuded in t%e li%t of its peculiar circumstances" T%us, it %as often +een %eld t%at a sinle act or transaction
ma' +e considered as Mdoin +usinessM 3%en a corporation performs acts for 3%ic% it 3as created or e?ercises
some of t%e functions for 3%ic% it 3as orani>ed" T%e amount or -olume of t%e +usiness is of no moment, for
e-en a sinular act cannot +e merel' incidental or casual if it indicates t%e forein corporationDs intention to
do +usiness" 6articipatin in t%e +iddin process constitutes Mdoin +usinessM +ecause it s%o3s t%e forein
corporationDs intention to enae in +usiness %ere" T%e +iddin for t%e concession contract is +ut an e?ercise
of t%e corporationDs reason for creation or e?istence" T%us, it %as +een %eld t%at Ma forein compan' in-ited to
+id for $BR* and A*B international proIects in t%e 6%ilippines 3ill +e considered as doin +usiness in t%e
6%ilippines for 3%ic% a license is re,uired"M $n t%is reard, it is t%e performance +' a forein corporation of
t%e acts for 3%ic% it 3as created, reardless of -olume of +usiness, t%at determines 3%et%er a forein
corporation needs a license or not" T%e primar' purpose of t%e license re,uirement is to compel a forein
corporation desirin to do +usiness 3it%in t%e 6%ilippines to su+mit itself to t%e Iurisdiction of t%e courts of
t%e state and to ena+le t%e o-ernment to e?ercise Iurisdiction o-er t%em for t%e reulation of t%eir acti-ities
in t%is countr'" $f a forein corporation operates a +usiness in t%e 6%ilippines 3it%out a license, and t%us does
not su+mit itself to 6%ilippine la3s, it is onl' Iust t%at said forein corporation +e not allo3ed to in-o:e t%em
in our courts 3%en t%e need arises" M)%ile forein in-estors are al3a's 3elcome in t%is land to colla+orate
3it% us for our mutual +enefit, t%e' must +e prepared as an indispensa+le condition to respect and +e +ound
+' 6%ilippine la3 in proper cases"M T%e re,uirement of a license is not intended to put forein corporations at
a disad-antae, for t%e doctrine of lac: of capacit' to sue is +ased on considerations of sound pu+lic polic'"
Accordinl', J66& must +e %eld to +e incapacitated to +rin t%e petition for inIunction +efore t%e Supreme
Court for it is a forein corporation doin +usiness in t%e 6%ilippines 3it%out t%e re,uisite license"
72 Antam Consolidated vs. Court o, A--eals [GR *)01.24 41 !ul" 11/0#
Second Division, Dutierrez Jr$ (J): 4 concur, 1 too* no art
Facts$ On . April 1.71, Sto:el' #an Camp" $nc" filed a complaint aainst Bana%a3 (illin Corporation,
Antam Consolidated, $nc", Tam+untin Tradin Corporation, Aurora Consolidated Securities and $n-estment
Corporation, and @nited Coconut Oil (ills, $nc" (@nicom) for collection of sum of mone'" $n its complaint,
Sto:el' alleed: (1) t%at it is a corporation orani>ed and e?istin under t%e la3s of t%e state of $ndiana,
@"S"A" and %as its principal office at .A1 !ort% (eridian Street, $ndianapolis, $ndiana, @"S"A", and one of its
su+di-isions MCapital Cit' 6roduct Compan'M (Capital Cit') %as its office in Colum+us, O%io, @"S"A"L (1) t%at
Sto:el' and Capital Cit' 3ere not enaed in +usiness in t%e 6%ilippines prior to t%e commencement of t%e
suit so t%at Sto:el' is not licensed to do +usiness in t%is countr' and is not re,uired to secure suc% licenseL (3)
t%at on 11 Auust 1.87, Capital Cit' and Coconut Oil (anufacturin (6%il") $nc" (Comp%il) 3it% t%e latter
actin t%rou% its +ro:er Rot%sc%ild Bro:erae Compan', entered into a contract (RBS 3499) 3%erein
Comp%il undertoo: to sell and deli-er and Capital Cit' areed to +u' 955 lon tons of crude coconut oil to +e
deli-ered in Octo+erG!o-em+er 1.87 at t%e c"i"f price of @SS5"35Gl+" +ut Comp%il failed to deli-er t%e
coconut oil so t%at Capital Cit' co-ered its coconut oil needs in t%e open mar:et at a price su+stantiall' in
e?cess of t%e contract and sustained a loss of @SS153,455L t%at to settle Capital Cit'Ds loss under t%e contract,
t%e parties entered into a second contract (RBS 3837) on 3 !o-em+er 1.87 3%erein Comp%il undertoo: to
+u' and Capital Cit' areed to sell 955 lon tons of coconut crude oil under t%e same terms and conditions
+ut at an increased c"i"f" price of @SS5"3.19Gl+"L (A) t%at t%e second contract states t%at Mit is a 3as% out
aainst RBS 3499M so t%at Comp%il 3as supposed to repurc%ase t%e undeli-ered coconut oil at @S S5"3.19
from Capital Cit' +' pa'in t%e latter t%e sum of @SS153,455"55 3%ic% is t%e same amount of loss t%at
Capital Cit' sustained under t%e first contractL t%at Comp%il aain failed to pa' said amount, so to settle
Capital Cit'Ds loss, it entered into a t%ird contract 3it% Comp%il on 1A Januar' 1.8. 3%erein t%e latter
undertoo: to sell and deli-er and Capital Cit' areed to +u' t%e same ,uantit' of crude coconut oil to +e
deli-ered in AprilG(a' 1.8. at t%e c"i"f" price of @SS5"3A19Gl+"L (9) t%at t%e latter price 3as ."19 centsGl+" or
@SS153,455 for 955 lon tons +elo3 t%e t%en current mar:et price of A3"1 centsGl+" and +' deli-erin said
,uantit' of coconut oil to Capital Cit' at t%e discounted price, Comp%il 3as to %a-e settled its @SS153,455
lia+ilit' to Capital Cit'L (4) t%at Comp%il failed to deli-er t%e coconut oil so Capital Cit' notified t%e former
t%at it 3as in defaultL (8) t%at Capital Cit' sustained damaes in t%e amount of @SS189,555L and (7) t%at after
repeated demands from Comp%il to pa' t%e said amount, t%e latter still refuses to pa' t%e same" Sto:el'
furt%er pra'ed t%at a 3rit of attac%ment +e issued aainst an' and all t%e properties of Antam, et al" in an
amount sufficient to satisf' an' lien of Iudment t%at Sto:el' ma' o+tain in its action" $n support of t%is
pro-isional remed' and of its cause of action aainst Antam, et al", ot%er t%an Comp%il, Sto:el' alleed t%at:
1) After demands 3ere made +' respondent on Comp%il, t%e Tam+untins ceased to +e directors and officers
of Comp%il and 3ere replaced +' t%eir fi-e emplo'ees, 3%o 3ere manaers of Tam+untinDs pa3ns%ops and
said emplo'ees caused t%e name of Comp%il to +e c%aned to MBana%a3 (illin CorporationM and aut%ori>ed
one of t%e Tam+untins, Antonio 6" Tam+untin, Jr", 3%o 3as at t%at time neit%er a director nor officer of
Bana%a3 to sell its oil millL 1) @nicom %as ta:en o-er t%e entire operations and assets of Bana%a3 +ecause
t%e entire and outstandin capital stoc: of t%e latter 3as sold to t%e formerL 3) All of t%e issued and
outstandin capital stoc: of Comp%il are o3ned +' t%e Tam+untins 3%o 3ere t%e directors and officers of
Comp%il and 3%o 3ere t%e ones 3%o +enefited from t%e sale of Bana%a3Ds assets or s%ares to @nicomL A) All
of t%e petitioners e-aded t%eir o+liation to respondent +' t%e de-ious sc%eme of usin Tam+untin
emplo'ees to replace t%e Tam+untins in t%e manaement of Bana%a3 and disposin of t%e oil mill of
Bana%a3 or t%eir entire interests to @nicomL and 9) Respondent %as reasona+le cause to +elie-e and does
+elie-e t%at t%e coconut oil mill, 3%ic% is t%e onl' su+stantial asset of Bana%a3 is a+out to +e sold or
remo-ed so t%at unless pre-ented +' t%e Court t%ere 3ill pro+a+l' +e no assets of Bana%a3 to satisf' its
claim" On 15 April 1.71, t%e trial court ordered t%e issuance of a 3rit of attac%ment in fa-or of Sto:el' upon
t%e latterDs deposit of a +ond in t%e amount of 61,179,555"55" On 3 June 1.71, Sto:el' filed a motion for
reconsideration to reduce t%e attac%ment +ond" On 11 June 1.71, Antam, et al" filed a motion to dismiss t%e
complaint on t%e round t%at Sto:el', +ein a forein corporation not licensed to do +usiness in t%e
6%ilippines, %as no personalit' to maintain t%e suit" T%ereafter, t%e trial court issued an order, dated 15 Auust
1.71, reducin t%e attac%ment +ond to 6955,555"55 and den'in t%e motion to dismiss +' Antam, et al" on t%e
round t%at t%e reason cited t%erein does not appear to +e indu+ita+le" Antam, et al" filed a petition for
certiorari +efore t%e $ntermediate Appellate Court" On 1A June 1.71, t%e appellate court dismissed t%e
petition" Antam, et al" filed a motion for reconsideration +ut t%e same 3as denied" Jence, t%e' filed t%e
petition for certiorari and pro%i+ition 3it% pra'er for temporar' restrainin order"
%ssue$ )%et%er Sto:el' #an Camp, $nc" %as t%e capacit' to sue, in li%t of t%ree transactions it entered into
3it% Comp%il, Antam, etc" 3it%out license"
&eld$ T%e transactions entered into +' Sto:el' 3it% Comp%il, Antam, et al" are not a series of commercial
dealins 3%ic% sinif' an intent on t%e part of Sto:el' to do +usiness in t%e 6%ilippines +ut constitute an
isolated one 3%ic% does not fall under t%e cateor' of Mdoin +usiness"M T%e onl' reason 3%' Sto:el' entered
into t%e second and t%ird transactions 3it% Comp%il, Antam, et al" 3as +ecause it 3anted to reco-er t%e loss it
sustained from t%e failure of Comp%il, Antam, et al" to deli-er t%e crude coconut oil under t%e first transaction
and in order to i-e t%e latter a c%ance to ma:e ood on t%eir o+liation" $nstead of ma:in an outri%t
demand on Comp%il, Antam, et al", Sto:el' opted to tr' to pus% t%rou% 3it% t%e transaction to reco-er t%e
amount of @SS153,455"55 it lost" T%is e?plains 3%' in t%e second transaction, Comp%il, Antam, et al" 3ere
supposed to +u' +ac: t%e crude coconut oil t%e' s%ould %a-e deli-ered to t%e respondent in an amount 3%ic%
3ill earn t%e latter a profit of @SS153,455"55" )%en t%is failed t%e t%ird transaction 3as entered into +' t%e
parties 3%ere+' Comp%il, Antam, et al" 3ere supposed to sell crude coconut oil to t%e respondent at a
discounted rate, t%e total amount of suc% discount +ein @SS153,455"55" @nfortunatel', Comp%il, Antam, et
al" failed to deli-er aain, promptin Sto:el' to file t%e suit +elo3" 0rom t%ese facts alone, it can +e deduced
t%at in realit', t%ere 3as onl' one areement +et3een Comp%il, Antam, et al" and Sto:el' and t%at 3as t%e
deli-er' +' t%e former of 955 lon tons of crude coconut oil to t%e latter, 3%o in turn, must pa' t%e
correspondin price for t%e same" T%e t%ree seeminl' different transactions 3ere entered into +' t%e parties
onl' in an effort to fulfill t%e +asic areement and in no 3a' indicate an intent on t%e part of Sto:el' to
enae in a continuit' of transactions 3it% Comp%il, Antam, et al" 3%ic% 3ill cateori>e it as a forein
corporation doin +usiness in t%e 6%ilippines" Sto:el', +ein a forein corporation not doin +usiness in t%e
6%ilippines, does not need to o+tain a license to do +usiness in order to %a-e t%e capacit' to sue"
73 Mentholatum Inc. vs. Mangaliman, 73 Phil 524 (see case entry 6!
74 'errill *"nc; Futures vs. Court o, A--eals [GR 17/10 24 !ul" 1112#
First Division, 6arvasa (CJ): 3 concur, 1 too* no art
Facts$ On 13 !o-em+er 1.78, (errill &'nc% futures, $nc" ((& 0@T@RES) filed a complaint 3it% t%e
Reional Trial Court at Rue>on Cit' aainst t%e Spouses 6edro (" &ara and Elisa /" &ara for t%e reco-er' of
a de+t and interest t%ereon, damaes, and attorne'Ds fees" $n its complaint (& 0@T@RES descri+ed itself as
(a) Ma non=resident forein corporation, not doin +usiness in t%e 6%ilippines, dul' orani>ed and e?istin
under and +' -irtue of t%e la3s of t%e state of *ela3are, @"S"A"LM as 3ell as (+) a Dfutures commission
merc%antD dul' licensed to act as suc% in t%e futures mar:ets and e?c%anes in t%e @nited States, " " "
essentiall' functionin as a +ro:er (e?ecutin) orders to +u' and sell futures contracts recei-ed from its
customers on @"S" futures e?c%anes"M $n its complaint (& 0@T@RES alleed (1) t%at on 17 Septem+er 1.73
it entered into a 0utures Customer Areement 3it% t%e spouses (Account 137=11141), in -irtue of 3%ic% it
areed to act as t%e latterDs +ro:er for t%e purc%ase and sale of futures contracts in t%e @"S"L (1) t%at pursuant
to t%e contract, orders to +u' and sell futures contracts 3ere transmitted to (& 0@T@RES +' t%e &ara
Spouses Mt%rou% t%e facilities of (errill &'nc% 6%ilippines, $nc", a 6%ilippine corporation and a compan'
ser-icin (& 0uturesD customersLM (3) t%at from t%e outset, t%e &ara Spouses M:ne3 and 3ere dul' ad-ised
t%at (errill &'nc% 6%ilippines, $nc" 3as not a +ro:er in futures contracts,M and t%at it Mdid not %a-e a license
from t%e Securities and E?c%ane Commission to operate as a commodit' tradin ad-isor (i"e", Mand entit'
3%ic%, not +ein a +ro:er, furnis%es ad-ice on commodit' futures to persons 3%o trade in futures contractsM)L
(A) t%at in line 3it% t%e a+o-e mentioned areement and t%rou% said (erill &'nc% 6%ilippines, $nc", t%e &ara
Spouses acti-el' traded in futures contracts, includin Mstoc: inde? futuresM for four 'ears or so, i"e", from
1.73 to Octo+er, 1.78, t%ere +ein more or less reular accountin and correspondin remittances of mone'
(or creditin or de+itin) made +et3een t%e spouses and (& 0@T@RESL (9) t%at +ecause of a loss amountin
to @S S145,8A."4. incurred in respect of 3 transactions in-ol-in Minde? futures,M and after settin t%is off
aainst an amount of @S S89,.13"A1 t%en o3in +' (& 0@T@RES to t%e &ara Spouses, said spouses +ecame
inde+ted to (& 0@T@RES for t%e ensuin +alance of @S S7A,734"18, 3%ic% t%e latter as:ed t%em to pa'L (4)
t%at t%e &ara Spouses %o3e-er refused to pa' t%is +alance, Mallein t%at t%e transactions 3ere null and -oid
+ecause (errill &'nc% 6%ilippines, $nc", t%e 6%ilippine compan' ser-icin accounts of (& 0utures, %ad no
license to operate as a Mcommodit' andGor financial futures +ro:er"M On t%e foreoin essential facts, (&
0@T@RES pra'ed (1) for a preliminar' attac%ment aainst t%e spousesD properties Mup to t%e -alue of at least
61,148,13."95,M and (1) for Iudment, after trial, sentencin t%e spouses to pa' (& 0@T@RES: (a) t%e
6%ilippine peso e,ui-alent of S7A,734"18 at t%e applica+le e?c%ane rate on date of pa'ment, 3it% leal
interest from t%e date of demand until full pa'mentL (+) e?emplar' damaes in t%e sum of at least
6955,555,55L and (c) attorne'Ds fees and e?penses of litiation as ma' +e pro-en at t%e trial" 6reliminar'
attac%ment issued e? parte on 1 *ecem+er 1.78, and t%e spouses 3ere dul' ser-ed 3it% summons" T%e
spouses filed a motion to dismiss dated 17 *ecem+er 1.78 on t%e rounds t%at (1) (& 0@T@RES %ad Mno
leal capacit' to sueM and (1) its Mcomplaint states no cause of action since it is not t%e real part' in interest"M
On 11 Januar' 1.77, t%e Trial Court promulated an Order sustainin t%e motion to dismiss, directin t%e
dismissal of t%e case and disc%arin t%e 3rit of preliminar' attac%ment" $t later denied (& 0@T@RESDs
motion for reconsideration, +' Order dated 1. 0e+ruar' 1.77" (& 0@T@RES appealed to t%e Court of
Appeals" $n its o3n decision promulated on 18 !o-em+er 1..5, t%e Court of Appeals affirmed t%e Trial
CourtDs Iudment" $ts motion for reconsideration %a-in +een denied, (& 0@T@RES appealed to t%e Supreme
Court on certiorari"
%ssue [1#$ )%et%er (& 0@T@RES 3as doin +usiness in t%e 6%ilippines 3it%out license"
&eld [1#$ T%e facts on record ade,uatel' esta+lis% t%at (& 0@T@RES, operatin in t%e @nited States, %ad
indeed done +usiness 3it% t%e &ara Spouses in t%e 6%ilippines o-er se-eral 'ears, %ad done so at all times
t%rou% (errill &'nc% 6%ilippines, $nc" ((&6$), a corporation orani>ed in t%is countr', and %ad e?ecuted all
t%ese transactions 3it%out (& 0@T@RES +ein licensed to so transact +usiness %ere, and 3it%out (&6$
+ein aut%ori>ed to operate as a commodit' futures tradin ad-isor" T%ese are t%e factual findins to +ot% t%e
Trial Court and t%e Court of Appeals" T%ese, too, are t%e conclusions of t%e Securities K E?c%ane
Commission 3%ic% denied (&6$Ds application to operate as a commodit' futures tradin ad-isor, a denial
su+se,uentl' affirmed +' t%e Court of Appeals" 6rescindin from t%e proposition t%at factual findins of t%e
Court of Appeals are enerall' conclusi-e, t%e Supreme Court %as +een cited to no circumstance of su+stance
to 3arrant re-ersal of said Appellate CourtDs findins or conclusions in t%is case" 0urt%er, t%e &aras did
transact +usiness 3it% (& 0@T@RES t%rou% its aent corporation orani>ed in t%e 6%ilippines, it +ein
unnecessar' to determine 3%et%er t%is domestic firm 3as (&6$ ((errill &'nc% 6%ilippines, $nc") or (errill
&'nc% 6ierce 0enner K Smit% ((&6$Ds alleed predecessor)" T%e fact is t%at (& 0@T@RES did deal 3it%
futures contracts in e?c%anes in t%e @nited States in +e%alf and for t%e account of t%e &ara Spouses, and t%at
on se-eral occasions t%e latter recei-ed account documents and mone' in connection 3it% t%ose transactions"
/i-en t%ese facts, if indeed t%e last transaction e?ecuted +' (& 0@T@RES in t%e &arasDs +e%alf %ad resulted
in a loss amountin to @S S145,8A."4.L t%at in relation to t%is loss, (& 0@T@RES %ad credited t%e &aras
3it% t%e amount of @S S 89,.13"A1 P 3%ic% it ((& 0@T@RES) t%en admittedl' o3ed t%e spouses P and
t%ereafter sou%t to collect t%e +alance, @S S7A,734"18, +ut t%e &aras %ad refused to pa' (for t%e reasons
alread' a+o-e stated)"
%ssue [2#$ )%et%er Y in li%t of t%e fact t%at t%e &aras 3ere full' a3are of its lac: of license to do +usiness in
t%e 6%ilippines, and in relation to t%ose transactions %ad made pa'ments to, and recei-ed mone' from it for
se-eral 'ears Yt%e &ara Spouses are estopped to impun (& 0@T@RES capacit' to sue t%em in t%e courts of
t%e forum"
&eld [2#$ T%e &aras recei-ed +enefits enerated +' t%eir +usiness relations 3it% (& 0@T@RES" T%ose
+usiness relations, accordin to t%e &aras t%emsel-es, spanned a period of 8 'earsL and t%e' e-identl' found
t%ose relations to +e of suc% profita+ilit' as 3arranted t%eir maintainin t%em for t%at not insinificant period
of timeL ot%er3ise, it is reasona+l' certain t%at t%e' 3ould %a-e terminated t%eir dealins 3it% (& 0@T@RES
muc%, muc% earlier" $n fact, e-en as reards t%eir last transaction, in 3%ic% t%e &aras alleedl' suffered a loss
in t%e sum of @SS145,8A."4., t%e &aras nonet%eless still recei-ed some monetar' ad-antae, for (&
0@T@RES credited t%em 3it% t%e amount of @S S89,.13"A1 t%en due to t%em, t%us reducin t%eir de+t to @S
S7A,734"18" /i-en t%ese facts, and assumin t%at t%e &ara Spouses 3ere a3are from t%e outset t%at (&
0@T@RES %ad no license to do +usiness in t%is countr' and (&6$, no aut%orit' to act as +ro:er for it, it
3ould appear ,uite ine,uita+le for t%e &aras to e-ade pa'ment of an ot%er3ise leitimate inde+tedness due
and o3in to (& 0@T@RES upon t%e plea t%at it s%ould not %a-e done +usiness in t%is countr' in t%e first
place, or t%at its aent in t%is countr', (&6$, %ad no license eit%er to operate as a Mcommodit' andGor financial
futures +ro:er"M Considerations of e,uit' dictate t%at, at t%e -er' least, t%e issue of 3%et%er t%e &aras are in
trut% lia+le to (& 0@T@RES and if so in 3%at amount, and 3%et%er t%e' 3ere so far a3are of t%e a+sence of
t%e re,uisite licenses on t%e part of (& 0@T@RES and its 6%ilippine correspondent, (&6$, as to +e estopped
from allein t%at fact as a defense to suc% lia+ilit', s%ould +e -entilated and adIudicated on t%e merits +' t%e
proper trial court"
7. A(ilent 8ec;nolo(ies 5in(a-ore vs. %nte(rated 5ilicon 8ec;nolo(" :;ili--ines Cor-. [GR
1.401/ 14 A-ril 2004#
Facts$ Ailent Tec%noloies Sinapore (6te"), &td" is a forein corporation, 3%ic%, +' its o3n admission, is
not licensed to do +usiness in t%e 6%ilippines" $nterated Silicon Tec%nolo' 6%ilippines Corporation is a
pri-ate domestic corporation, 155H forein o3ned, 3%ic% is enaed in t%e +usiness of manufacturin and
assem+lin electronics components" Teo% Eian Jon, Teo% Eian Sen and Ant%on' C%oo, (ala'sian
nationals, are current mem+ers of $nterated Silicon2s +oard of directors, 3%ile Joanne Eate (" dela Cru>,
Jean Ea' (" dela Cru>, and Rolando T" !acilla are its former mem+ers" T%e Iuridical relation amon t%e
-arious parties in t%e case can +e traced to a 9='ear #alue Added Assem+l' Ser-ices Areement (#AASA),
entered into on 1 April 1..4 +et3een $nterated Silicon and t%e Je3lett=6ac:ard Sinapore (6te") &td",
Sinapore Components Operation (J6=Sinapore)" @nder t%e terms of t%e #AASA, $nterated Silicon 3as to
locall' manufacture and assem+le fi+er optics for e?port to J6=Sinapore" J6=Sinapore, for its part, 3as to
consin ra3 materials to $nterated SiliconL transport mac%iner' to t%e plant of $nterated SiliconL and pa'
$nterated Silicon t%e purc%ase price of t%e finis%ed products" T%e #AASA %ad a fi-e='ear term, +einnin on
1 April 1..4, 3it% a pro-ision for annual rene3al +' mutual 3ritten consent" On 1. Septem+er 1..., 3it% t%e
consent of $nterated Silicon, J6=Sinapore assined all its ri%ts and o+liations in t%e #AASA to Ailent"
On 19 (a' 1551, $nterated Silicon filed a complaint for ;Specific 6erformance and *amaes< aainst
Ailent and its officers Tan Bian Ee, &im C%in Jon, Te' Boon Tec: and 0rancis E%or (Ci-il Case 3115=51=
C), allein t%at Ailent +reac%ed t%e parties2 oral areement to e?tend t%e #AASA" $nterated Silicon t%us
pra'ed t%at Ailent +e ordered to e?ecute a 3ritten e?tension of t%e #AASA for a period of fi-e 'ears as
earlier assured and promisedL to compl' 3it% t%e e?tended #AASAL and to pa' actual, moral, e?emplar'
damaes and attorne'2s fees" On 1 June 1551, summons and a cop' of t%e complaint 3ere ser-ed on Att'"
Ramon Ruisum+in, 3%o returned t%ese processes on t%e claim t%at %e 3as not t%e reistered aent of
Ailent" &ater, %e entered a special appearance to assail t%e court2s Iurisdiction o-er t%e person of Ailent" On
1 Jul' 1551, Ailent filed a separate complaint aainst $nterated Silicon, Teo% Ean Sen, Teo% Eian /on,
Ant%on' C%oo, Joanne Eate (" dela Cru>, Jean Ea' (" dela Cru> and Rolando T" !acilla, for ;Specific
6erformance, Reco-er' of 6ossession, and Sum of (one' 3it% Reple-in, 6reliminar' (andator' $nIunction,
and *amaes<, +efore t%e Reional Trial Court, Calam+a, &auna, Branc% .1 (Ci-il Case 3113=1551=C)"
Ailent pra'ed t%at a 3rit of reple-in or, in t%e alternati-e, a 3rit of preliminar' mandator' inIunction, +e
issued orderin $nterated Silicon, et" al" to immediatel' return and deli-er to Ailent its e,uipment,
mac%ineries and t%e materials to +e used for fi+er=optic components 3%ic% 3ere left in t%e plant of $nterated
SiliconL and t%at t%e latter +e ordered to pa' actual and e?emplar' damaes and attorne'2s fees" $nterated
Silicon, et" al" filed a (otion to *ismiss in Ci-il Case !o" 3113=1551=C, on t%e rounds of lac: of Ailent2s
leal capacit' to sueL litis pendentiaL forum s%oppinL and failure to state a cause of action" On A Septem+er
1551, t%e trial court denied t%e (otion to *ismiss and ranted Ailent2s application for a 3rit of reple-in"
)it%out filin a motion for reconsideration, $nterated Silicon, et" al" filed a petition for certiorari 3it% t%e
Court of Appeals" $n t%e meantime, upon motion filed +' $nterated Silicon, et" al", Jude Antonio S" 6o>as of
Branc% .1 -oluntaril' in%i+ited %imself in Ci-il Case 3113=1551=C" T%e case 3as re=raffled and assined to
Branc% 39, t%e same +ranc% 3%ere Ci-il Case 3115=1551=C is pendin" On 11 Auust 1551, t%e Court of
Appeals ranted $nterated Silicon, et" al"2s petition for certiorari, set aside t%e assailed Order of t%e trial court
dated A Septem+er 1551, and ordered t%e dismissal of Ci-il Case 3113=1551=C" Ailent filed t%e petition for
re-ie3"
%ssue [1#$ )%et%er a forein corporation 3it%out a license is incapacitated from +rinin an action in
6%ilippine courts"
&eld [1#$ A forein corporation 3it%out a license is not ipso facto incapacitated from +rinin an action in
6%ilippine courts" A license is necessar' onl' if a forein corporation is ;transactin< or ;doin +usiness< in
t%e countr'" Section 133 of t%e Corporation Code pro-ides t%at M!o forein corporation transactin +usiness
in t%e 6%ilippines 3it%out a license, or its successors or assins, s%all +e permitted to maintain or inter-ene in
an' action, suit or proceedin in an' court or administrati-e aenc' of t%e 6%ilippinesL +ut suc% corporation
ma' +e sued or proceeded aainst +efore 6%ilippine courts or administrati-e tri+unals on an' -alid cause of
action reconi>ed under 6%ilippine la3s"M T%e aforementioned pro-ision pre-ents an unlicensed forein
corporation ;doin +usiness< in t%e 6%ilippines from accessin our courts" $n a num+er of cases, %o3e-er, t%e
Court %eld t%at an unlicensed forein corporation doin +usiness in t%e 6%ilippines ma' +rin suit in
6%ilippine courts aainst a 6%ilippine citi>en or entit' 3%o %ad contracted 3it% and +enefited from said
corporation" Suc% a suit is premised on t%e doctrine of estoppel" A part' is estopped from c%allenin t%e
personalit' of a corporation after %a-in ac:no3leded t%e same +' enterin into a contract 3it% it" T%is
doctrine of estoppel to den' corporate e?istence and capacit' applies to forein as 3ell as domestic
corporations" T%e application of t%is principle pre-ents a person contractin 3it% a forein corporation from
later ta:in ad-antae of its noncompliance 3it% t%e statutes c%iefl' in cases 3%ere suc% person %as recei-ed
t%e +enefits of t%e contract" T%e principles reardin t%e ri%t of a forein corporation to +rin suit in
6%ilippine courts ma' t%us +e condensed in four statements: (1) if a forein corporation does +usiness in t%e
6%ilippines 3it%out a license, it cannot sue +efore t%e 6%ilippine courtsL (1) if a forein corporation is not
doin +usiness in t%e 6%ilippines, it needs no license to sue +efore 6%ilippine courts on an isolated transaction
or on a cause of action entirel' independent of an' +usiness transactionL (3) if a forein corporation does
+usiness in t%e 6%ilippines 3it%out a license, a 6%ilippine citi>en or entit' 3%ic% %as contracted 3it% said
corporation ma' +e estopped from c%allenin t%e forein corporation2s corporate personalit' in a suit
+rou%t +efore 6%ilippine courtsL and (A) if a forein corporation does +usiness in t%e 6%ilippines 3it% t%e
re,uired license, it can sue +efore 6%ilippine courts on an' transaction"
%ssue [2#$ )%et%er Ailent 3as doin +usiness in t%e 6%ilippines"
&eld [2#$ T%e c%allene to Ailent2s leal capacit' to file suit %ines on 3%et%er or not it is doin +usiness in
t%e 6%ilippines" Jo3e-er, t%ere is no definiti-e rule on 3%at constitutes ;doin<, ;enain in<, or
;transactin< +usiness in t%e 6%ilippines, t%e Corporation Code itself is silent as to 3%at acts constitute doin
or transactin +usiness in t%e 6%ilippines" An anal'sis of t%e rele-ant case la3, in conIunction 3it% Section 1
of t%e $mplementin Rules and Reulations of t%e 0orein $n-estments Act of 1..1 (0$A, as amended +' RA
718.), 3ould demonstrate t%at t%e acts enumerated in t%e #AASA do not constitute ;doin +usiness< in t%e
6%ilippines" Section 1 of t%e $mplementin Rules and Reulations of t%e 0$A (as amended +' RA 718.)
pro-ides t%at t%e follo3in s%all not +e deemed ;doin +usiness<: (1) (ere in-estment as a s%are%older +' a
forein entit' in domestic corporations dul' reistered to do +usiness, andGor t%e e?ercise of ri%ts as suc%
in-estorL (1) Ja-in a nominee director or officer to represent its interest in suc% corporationL (3) Appointin
a representati-e or distri+utor domiciled in t%e 6%ilippines 3%ic% transacts +usiness in t%e representati-e2s or
distri+utor2s o3n name and accountL (A) T%e pu+lication of a eneral ad-ertisement t%rou% an' print or
+roadcast mediaL (9) (aintainin a stoc: of oods in t%e 6%ilippines solel' for t%e purpose of %a-in t%e same
processed +' anot%er entit' in t%e 6%ilippinesL (4) Consinment +' a forein entit' of e,uipment 3it% a local
compan' to +e used in t%e processin of products for e?portL (8) Collectin information in t%e 6%ilippinesL
and (7) 6erformin ser-ices au?iliar' to an e?istin isolated contract of sale 3%ic% are not on a continuin
+asis, suc% as installin in t%e 6%ilippines mac%iner' it %as manufactured or e?ported to t%e 6%ilippines,
ser-icin t%e same, trainin domestic 3or:ers to operate it, and similar incidental ser-ices" B' and lare, to
constitute ;doin +usiness<, t%e acti-it' to +e underta:en in t%e 6%ilippines is one t%at is for profit=ma:in"
Jerein, +' t%e clear terms of t%e #AASA, Ailent2s acti-ities in t%e 6%ilippines 3ere confined to (1)
maintainin a stoc: of oods in t%e 6%ilippines solel' for t%e purpose of %a-in t%e same processed +'
$nterated SiliconL and (1) consinment of e,uipment 3it% $nterated Silicon to +e used in t%e processin of
products for e?port" As suc%, Ailent cannot +e deemed to +e ;doin +usiness< in t%e 6%ilippines" $nterated
Silicon, et" al"2s contention t%at Ailent lac:s t%e leal capacit' to file suit is t%erefore de-oid of merit" As a
forein corporation not doin +usiness in t%e 6%ilippines, it needed no license +efore it can sue +efore our
courts"

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