CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA

MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P.

MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special
Administratrix of the Estate of the late Genaro F. Magsaysay respondents.
G.R. No. 58168 December 19, 1989

Facts:
On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the
late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action
against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank
(FILMANBANK)and the Register of Deeds of Zambales, for the annulment of the Deed of Assignment
executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was cancelled and TCT
22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage executed by SUBIC in
favor of FILMANBANK (dated 28April 1977 in the amount of P 2,700,000.00), and cancellation of TCT
22431 by the Register of Deeds, and for the latter to issue a new title in her favor. On 7 March 1979,
Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad
Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on
the ground that on 20 June 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or a
total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of
SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a
legal interest in the success of the suit with respect to SUBIC. On 26July 1979, the trial court denied the
motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in
litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle
them to intervene because SUBIC has a personality separate and distinct from its stockholders. On appeal,
the Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The
appellate court further stated that whatever claims the Magsaysay sisters have against the late Senator or
against SUBIC for that matter can be ventilated in a separate proceeding. The motion for reconsideration
of the Magsaysay sisters was denied. Hence, the petition for review on certiorari.

Issue:
whether or not respondent Court of Appeals correctly denied their motion for intervention.

Held:
Yes, The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to
intervene on the strength of the transfer of shares allegedly executed by the late Senator. The corporation
did not keep books and records. Perforce, no transfer was ever recorded, much less effected as to
prejudice third parties. The transfer must be registered in the books of the corporation to affect third
persons. The law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No
transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books
of the corporation showing the names of the parties to the transaction, the date of the transfer, the number
of the certificate or certificates and the number of shares transferred."

























SULO NG BAYAN, INC. vs. GREGORIO ARANETA, INC., PARADISE FARMS, INC.,
NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC. and
REGISTER OF DEEDS OF BULACAN (72 SCRA 247; G.R. No. L-31061. August 17, 1976)

Facts:
The petitioner herein is a corporation organized and existing under the laws of the Philippines,
with its principal office and place of business at San Jose del Monte, Bulacan. Its membership is
composed of natural persons residing at San Jose del Monte, Bulacan, who had pioneered in the clearing
of the tract of land in controversy, cultivated the same since the Spanish regime and continuously
possessed the said property openly and publicly under concept of ownership adverse against the whole
world. It was on April 26, 1966 when Sulo ng Bayan, Inc. filed an accion de reivindicacion with theCFI
Bulacan against the respondent herein (Araneta, Inc. ) for the petitioners ejectment through force and
intimidation from their possession of the aforementioned land. On September 2, 1966, Araneta, Inc. filed
a motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause of
action; and (2) the cause of action, if any, is barred by prescription and laches. The other respondents,
Paradise Farms, Inc. and Hacienda Caretas, Inc. did the same. But National Waterworks & Sewerage
Authority (NAWASA) did not file any but pleaded in its answer as special and affirmative defenses the
same grounds as the others.
Sulo ng Bayan filed for a motion to transfer the case to CFI Malolos but the lower court denied
such being moot and academic, the court having dismissed the amended complaint. Petitioner filed a
motion to reconsider the Order of dismissal on the grounds that the court had no jurisdiction to issue the
Order of dismissal, because its request for the transfer of the case and that such as approved by the DOJ.
Also, thje complaint states a sufficient cause of action because the subject matter of the controversy is one
of common interest to the members of the corporation who are so numerous that the present complaint
should be treated as a class suit; and that the action is not barred by the statute of limitations because (a)
an action for the reconveyance of property registered through fraud does not prescribe, and (b) an action
to impugn a void judgment may be brought any time. This motion of the petitioner was denied by the trial
court and hence, recourse was made to the CA, which later on found out that it involves questions of law
and jurisdiction. CA therefore certified this case to the SC for resolution.

Issue/s: Whether or not plaintiff corporation (non-stock) may institute an action in behalf of its individual
members for the recovery of certain parcels of land allegedly owned by said members

Held:
The SC held that the trial court correctly dismissed the amended complaint. It is a doctrine well-
established and obtains both at law and in equity that a corporation is a distinct legal entity to be
considered as separate and apart from the individual stockholders or members who compose it, and is not
affected by the personal rights, obligations and transactions of its stockholders or members. The property
of the corporation is its property and not that of the stockholders, as owners, although they have equities
in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct
from its members. Conversely, a corporation ordinarily has no interest in the individual property of its
stockholders unless transferred to the corporation, "even in the case of a one-man corporation". The mere
fact that one is president of a corporation does not render the property which he owns or possesses the
property of the corporation, since the president, as individual, and the corporation are separate
entities. Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose
certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the
corporation upon surrender of their stock certificates were considered not to have such legal or equitable
title or interest in the land, as would support a suit for title, especially against parties other than the
corporation.
It must be noted, however, that the juridical personality of the corporation, as separate and
distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience
and to subserve the ends of justice. This separate personality of the corporation may be disregarded, or
the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or
to work an injustice, or where necessary to achieve equity.
It has not been claimed that the members have assigned or transferred whatever rights they may
have on the land in question to the plaintiff corporation. Absent any showing of interest, therefore, a
corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its
stockholders or members for the purpose of recovering property which belongs to said stockholders or
members in their personal capacities.
Thus, the essential elements of a cause of action are legal right of the plaintiff, correlative
obligation of the defendant, an act or omission of the defendant in violation of the aforesaid legal
right. Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it does
not have any interest in the subject matter of the case which is material and direct so as to entitle it to file
the suit as a real party in interest.





Manila International Airport Authority vs CA
July 20, 2006

Facts:
MIAA operates Ninoy Aquino International Airport Complex in Paranaque City under the MIAA
Charter. In 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061,
opining that the Local Government Code withdrew the exemption from real estate tax granted to MIAA.
In 2001, MIAA received final notices of real estate tax delinquency, totaling P 624,506,725.42,
from the City of Paranaque. The City Treasurer issued notices and warrants of levy on the Airport Land
and buildings.
MIAA filed with the Court of Appeals to restrain the City of Paraaque from imposing real estate
tax on, levying against, and auctioning for public sale the Airport Lands and Buildings.
MIAA argued that the owner of the Airport Land and Buildings is the Republic. Thus, they are
inalienable and are not subject to tax by the local governments. Furthermore, it invoked the principle
that the government cannot tax itself, being the tax creditor and tax debtor at the same time.
Respondent City invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled corporations".

Issue:
Whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing
laws.

Held:
MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. A government-owned or controlled
corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock
or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into
shares. MIAA has no stockholders or voting shares.
Second, the real properties of MIAA are owned by the Republic of the Philippines and thus
exempt from real estate tax. The Airport Lands and Buildings of MIAA are properties of public dominion
and therefore owned by the State or the Republic of the Philippines. The term "ports, mentioned in
ART. 420 of the Civil Code, includes seaports and airports. The Airport Lands and Buildings are outside
the commerce of man and cannot be the subject of an auction sale. Local governments are devoid of
power to tax the national government, its agencies and instrumentalities.
The Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the
real estate tax imposed by the City of Paraaque.





Gamboa vs. Finance Secretary
GR 176579 ; June 28, 2011
Facts: In 1969, American-owned General Telephone and Electronics Corporation (GTE), a major
shareholder of PLDT, sold 26% of PLDT's equity to Philippine Telecommunications Investment
Corporation (PTIC). PTIC was incorporated on November 9, 1967 and is engaged in the business of
investment holdings. It held 26,034,263 of PLDT shares, or 13.847% of the total outstanding common
stocks of PLDT.
In 1977, Prime Holdings, Inc. (PHI) was incorporated and 100% owned by the Cojuangco group.
Subsequently, PHI became the owner of 111,415 shares or 46.125% of PTIC by virtue of three (3) Deeds
of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla.
On May 9, 1986, the 111,415 PTIC shares held by PHI were sequestered by the Presidential Commission
on Good Government (PCGG) pursuant to Executive Order No. 1. Later, this Court declared the said
shares to be owned by the Republic of the Philippines.
In 1999, First Pacific Company Limited (First Pacific), a Bermuda-registered, Hong Kong-based
investment firm, acquired the remaining 54% equity of PTIC.
Thereafter, the government decided to sell its 46.1% stake in PTIC (equivalent to 6.4% indirect stake in
PLDT), designating the Privatization Council of the Philippine Government as the disposition entity. On
December 8, 2006, a public bidding was held where Singapore-based Parallax Capital Management LP
(Parallax) emerged as the highest bidder with an offer of PhP25,217,556,000.
On January 31, 2007, the House of Representatives Committee on Good Government conducted a public
hearing on the particulars of the impending sale. In Report No. 2270, the House Committee on Good
Government concluded that: (1) the auction of the government's PTIC shares bore due diligence,
transparency and conformity with existing legal procedures; and (2) First Pacific's intended acquisition of
the government's PTIC shares resulting in its 100% ownership in PTIC will not violate the 40%
constitutional limit on foreign ownership of a public utility since PTIC held only 13.847% of the total
outstanding common stocks of PLDT.
Subsequently, the government informed First Pacific of the results of the bidding and gave it until
February 1, 2007 to exercise its right of first refusal as provided under PTIC's Articles of Incorporation.
Consequently, First Pacific announced that it would match Parallax's bid. However, First Pacific failed to
raise the money for the purchase by the February 1, 2007 deadline and, instead, yielded the right to PTIC
itself. The deadline was then reset to March 2, 2007.
On February 14, 2007, First Pacific, through its subsidiary, Metro Pacific Assets Holdings, Inc. (MPAH),
entered into a Conditional Sale and Purchase Agreement with the government for the latter's 46.1% stake
in PTIC at the price of PhP25,217,556,000. The acquisition was completed on February 28, 2007.
On the same date, Wilson Gamboa (Gamboa) filed the instant petition for prohibition, injunction,
declaratory relief and declaration of nullity of sale of the 111,415 shares of PTIC. He argues that: (1) the
consummation of the impending sale of 111,415 shares to First Pacific violates the constitutional
limitation on foreign ownership of a public utility; (2) respondents committed grave abuse of discretion
by allowing the sale of PTIC shares to First Pacific; (3) respondents have made a complete
misrepresentation of the impending sale by saying that it does not breach the constitutional limitation on
foreign ownership of a public utility; and (4) the sale of common shares to foreigners in excess of 40% of
the entire subscribed common capital stock violates the 1987 Philippine Constitution.
Issue: Whether the term "capital" in Section 11, Article XII of the Constitution refers to the total common
shares only or to the total outstanding capital stock (combined total of common and non-voting preferred
shares) of PLDT, a public utility.

Held: The court agreed with the petitioner and petitioners-in-intervention that the term "capital" in
Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares, and not to the total outstanding capital
stock comprising both common and non-voting preferred shares.

Considering that common shares have voting rights which translate to control, as opposed to preferred
shares which usually have no voting rights, the term "capital" in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to vote in
the election of directors, then the term "capital" shall include such preferred shares because the right to
participate in the control or management of the corporation is exercised through the right to vote in the
election of directors. In short, the term "capital" in Section 11, Article XII of the Constitution refers
only to shares of stock that can vote in the election of directors.














BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO)
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
Ponente: Narvasa, J.:
Facts:
BASECO described itself as a ship repair and ship building company, incorporated as a domestic
private corporation by a consortium of Filipino ship owners and executives, where its main office is in
Manila but its shipyard is located in Bataan. Herein is a case of special civil action of certiorari and
prohibition. EO 1 & 2 was promulgated by Pres. Corazon Aquino which orders the sequestration,
takeover and other orders in relations to the EO done by PCGG to the alleged Marcos controlled
corporations. The problem arose when orders were given to 3 PCGG Commissioners for the sequestration
of a list of corporation, including BASECO and for them to produce and surrender certain documents.
Issues:
1. Whether or not the order of production of documents would be self incriminating to BASECO
2. Whether or not a corporation can avail the right against self incrimination
3. Whether or not EO 1, 2 and 14 are constitutional
4. Whether or not PCGG had unduly interfered with its right of dominion and management of its business
affairs.
Held:
Issues 1 & 2:
The Court held that the right against self incrimination has no application to corporations because as
quoted in Wilson v US, the corporation is a creature of the state and is presumed to be incorporated for
the benefit of the public. Its power is limited by law and it would be a strange anomaly to hold that a state,
having chartered a corporation to make use of certain franchises, could not, in exercise of sovereignty,
inquire how these franchises had been employed, and whether they have been abused and demand the
production of corporate books and papers for that purpose
Issue 3:
The impugned EO are avowedly meant to carry out explicit command of the Provisional Constitution,
that the President shall give priority to measures to achieve the mandate of the people among others to
recover ill gotten wealth amassed by the leaders and supporters of the previous regime. The institution of
these provisional remedies also is premised upon the States inherent police power, therefore the
Executive Orders are valid and constitutional.
Issue 4:
One other question remains to be disposed of, that respecting the scope and extent of the powers that may
be wielded by the PCGG with regard to the properties or businesses placed under sequestration.
a. PCGG may not exercise acts of ownership. They cannot exercise acts of dominion over property
sequestered, frozen or provisionally taken over. The PCGG is a conservator, not an owner.
b. PCGG has only powers of administration over the property or business sequestered, much like a court
appointed a receiver, such as to bring and defend actions in its own name; receive rents; collect debts due;
pay outstanding debts and generally do such other acts and things as may be necessary to fulfill its
mission as conservator and administrator.
c. In the special instance of a business enterprise shown by evidence to have been taken over by
government of the Marcos Administration, the PCGG is given power and authority to provisionally take
over in the public interest or to prevent disposal or dissipation, and since the term obviously employed in
reference to going concerns, or business enterprise in operation, something more than physical custody
connoted, the PCGG may in this case exercise some measure of control in the operation, running or
management of the business itself.
d. PCGG may also properly exercise the prerogative to vote sequestered stock of corporations granted to
it by the President through a Memorandum but it should be construed in such a manner as to be consistent
with the EO. There was adequate justification to vote the incumbent directors out of office because
evidence showed prima facie that the former were just tools of President Marcos and were no longer
owners of any stock in the firm.




FILIPINAS BROADCASTING NETWORK, INC., petitioner,
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF
MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.
G.R. No. 141994 January 17, 2005

Facts:
Expos is a radio documentary program hosted by Carmelo Mel Rima (Rima) and Hermogenes
Jun Alegre (Alegre). Expos is aired every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities
and other Bicol areas. In the morning of 14 and 15 December 1989, Rima and Alegre exposed various
alleged complaints from students, teachers and parents against Ago Medical and Educational Center-
Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a
complaint for damages against FBNI, Rima and Alegre on 27 February 1990. The complaint further
alleged that AMEC is a reputable learning institution. With

the supposed exposs, FBNI, Rima and Alegre transmitted malicious imputations, and as such, destroyed
plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI as defendant for allegedly
failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and
Alegre. On 18June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer alleging
that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were
plainly impelled by a sense of public duty to report the goings-on in AMEC, [which is] an institution
imbued with public interest. Thereafter, trial ensued. During the presentation of the evidence for the
defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss on
FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer
claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI
claimed that before hiring a broadcaster, the broadcaster should (1)file an application; (2) be interviewed;
and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise
claimed that it always reminds its broadcasters to observe truth, fairness and objectivity in their
broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI requires all
broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to
secure a KBP permit. On 14 December 1992, the trial court rendered a Decision finding FBNI and Alegre
liable for libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court
rejected the broadcasters claim that their utterances were the result of straight reporting because it had no
factual basis. The broadcasters did not even verify their reports before airing them to show good faith.
In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the
selection and supervision of its employees. In absolving Rima from the charge, the trial court ruled that
Rimas only participation was when he agreed with Alegres expos. The trial court found Rimas
statement within the bounds of freedom of speech, expression, and of the press. Both parties, namely,
FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the
Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The
appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos
claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not
against her. FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied
in its 26 January 2000 Resolution. Hence, FBNI filed the petition for review.

Issue:
Whether AMEC is entitled to moral damages.

Held:
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the award of
moral damages. However, the Courts statement in Mambulao that a corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral damages is an obiter
dictum. Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the Civil
Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or
any other form of defamation. Article2219(7) does not qualify whether the plaintiff is a natural or
juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any
other form of defamation and claim for moral damages. Moreover, where the broadcast is libelous per se,
the law implies damages. In such a case, evidence of an honest mistake or the want of character or
reputation of the party libeled goes only in mitigation of damages.




LUXURIA HOMES INC. vs. HONORABLE COURT OF APPEALS, JAMES BUILDER
CONSTRUCTION and/or JAIME T. BRAVO (G.R. No. 125986. January 28, 1999)

Facts:
Petitioner Aida M. Posadas and her two minor children co-owned a 1.6 hectare property in Sucat,
Muntinlupa, which was occupied by squatters. Petitioner Posadas entered into negotiations with private
respondent Jaime T. Bravo regarding the development of the said property into a residential subdivision.
On May 3, 1989, she authorized respondent Bravo to negotiate with the squatters to leave the said
property. Seven months later, petitioner Posadas and her two children assigned the said property to
petitioner Luxuria Homes, Inc. wherein respondent Bravo signed as one of the witnesses to the execution
of the Deed of Assignment. However, sometime in 1992, the relationship of petitioner Posadas and
respondent Bravo turned sour when the former could not accept the proposed management contracts of
the latter to develop the said property into a residential subdivision. Consequently, in September 1992,
private respondents James Builder Construction and Jaime T. Bravo instituted a complaint for specific
performance before the trial court against petitioners Posadas and Luxuria Homes, Inc. On September 27,
1993, the trial court declared petitioner Posadas in default and allowed private respondents to present their
evidence ex-parte. On March 8, 1994, it ordered petitioner Posadas, jointly and in solidum with Luxuria
Homes, Inc. to pay private respondents damages and to execute the management contract. The Court of
Appeals modified the decision of the trial court by deleting the award of moral damages and reducing the
award on exemplary damages. Hence, this petition.

Issue/s:
a.) Whether or not Posadas surreptitiously formed Luxuria Homes, Inc., and transferred the subject
parcel of land to it to evade payment and defraud creditors, including private respondents
b.) Whether or not petitioner Luxuria Homes, Inc., was a party to the transaction entered into by
Posadas with private respondents and thus could be held jointly and severally with Posadas

Held:
a.) No. From the record, the private respondents sent demand letters on 21 August 1991 and 14
September 1991, or more than a year and a half after the execution of the Deed of Assignment on
11 December 1989, and the issuance of the Articles of Incorporation of petitioner Luxuria Homes
on 26 January 1990. And, the transfer was made at the time the relationship between petitioner
Posadas and private respondents was supposedly very pleasant. In fact the Deed of Assignment
dated 11 December 1989 and the Articles of Incorporation of Luxuria Homes, Inc., issued 26
January 1990 were both signed by respondent Bravo himself as witness. It cannot be said then
that the incorporation of petitioner Luxuria Homes and the eventual transfer of the subject
property to it were in fraud of private respondents as such were done with the full knowledge of
respondent Bravo himself.
Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc., as
erroneously stated by the lower court. The Articles of Incorporation of petitioner Luxuria Homes, Inc.,
clearly show that petitioner Posadas owns approximately 33% only of the capital stock. Hence petitioner
Posadas cannot be considered as an alter ego of petitioner Luxuria Homes, Inc.
SC held that, to disregard the separate juridical personality of a corporation, the wrongdoing must
be clearly and convincingly established. It cannot be presumed. This is elementary. Thus in Bayer-Roxas
v. Court of Appeals, such disregard may only be allowed when the corporation is used as a cloak or cover
for fraud or illegality, or to work injustice, or where necessary for the protection of the creditors.
No. The private respondents failed to show proof that petitioner Posadas acted in bad faith. Consequently
since private respondents failed to show that petitioner Luxuria Homes, Inc., was a party to any of the
supposed transactions, not even to the agreement to negotiate with and relocate the squatters, it cannot be
held liable, nay jointly and in solidum, to pay private respondents. In this case since it was petitioner Aida
M. Posadas who contracted respondent Bravo to render the subject services, only she is liable to pay the
amounts adjudged herein











Concept Builders vs NLRC
May 29, 1996

Facts:
Petitioner Concept Builders is a domestic corporation engaged in construction business. Private
respondents were employed by the said company as laborers, carpenters and riggers.
In 1981, the respondents received notices of termination of employment, informing them that the
project has been completed. Later, they found out that the project in which they were hired for was not,
in fact, completed. The petitioner corporation had hired sub-contractors in place of the respondent
laborers.
The Labor Arbiter rendered judgment, ordering petitioner to reinstate private respondents and
to pay them back wages equivalent to one year or three hundred working days. However, the writ of
execution was not enforced. According to the special sheriffs report, all the employees inside
petitioners premises claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not
by Concept Builders.
Cuyegkeng filed a 3
rd
-party claim, alleging that the properties sought to be levied upon were
owned by Hydro Pipes, of which he is the V-President.
Respondents filed a Motion for Issuance of a Break-Open Order, alleging that Hydro Pipes and
Concept Builders were owned by the same incorporator and stockholders. They also alleged that the
petitioner temporarily suspended its operation to evade its legal obligations.
NLRC issued a break-open order. It directed the sheriff to proceed with the auction sale of the
properties already levied upon. The third-party claim was dismissed for lack of merit.
Petitioner Concept Builders alleged that NLRC committed a grave abuse of discretion and that
the doctrine of piercing the corporate veil should not have been applied in this case in the absence of
any showing that it created Hydro Pipes in order to evade its liability to private respondents.

Issue:
Whether the National Labor Relations Commission committed grave abuse of discretion when it
issued a break-open order to the sheriff to be enforced against the personal property found in the
premises of petitioners sister company.
Whether the doctrine of piercing the corporate veil is applicable.

Held:
Concept Builders contention is unmeritous.
The separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice. When the notion of separate juridical personality is used to defeat
public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the
labor laws, this separate personality of the corporation may be disregarded or the veil of corporate
fiction be pierced.
There are some probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.
While the question of whether a corporation is a mere alter ego, a mere sheet or paper
corporation is purely a question of fact, clearly, the petitioner ceased its business operations to evade its
legal obligations to the respondents. It is shown that the same address was indicated by Hydro Pipes and
Concept Builders even as it claimed it had ceased operations. Further, both corporations had the same
president, same officers and substantially the same subscribers.
It is proven that the second corporation was aiming for the protective shield of a corporate
fiction. The petition by corporation is dismissed and the resolutions of NLRC are affirmed.























Villarey Transit vs. Ferrer
25 SCRA 845; G.R. No. L-23893

Facts: Jose M. Villarama was the operator of a bus company under the name Villa Rey Transit,
authorized to operate 32 units from Pangasinan to Manila and vice-versa, sold 2 CPCs to Pantranco. One
of the conditions included in the contract of sale was that the seller (Villarama) "shall not, for a period of
10 years from the date of the sale, apply for any TPU service identical or competing with the buyer
(Pantranco)."
Barely 3 months after the sale, a corporation called Villa Rey Transit, Inc. was organized, with the wife of
Jose M. Villarama as one of the incorporators and who was subsequently elected as treasurer of the
Corporation. Barely a month after its registration with the SEC, the corporation bought 5 CPCs and 49
buses from one Valentin Fernando, and applied with the Public Service Commission (PSC) for approval
of the sale. Before the PSC could take final action on the said application, however, 2 of the 5 CPCs were
levied upon pursuant to a writ of execution issued by the CFI in favor of Eusebio Ferrer, judgment
creditor, against Valentin Fernando, judgment debtor. During the public sale conducted, Ferrer was the
highest bidder, and a certificate of sale was issued in his name. Shortly thereafter, he sold the said CPCs
to Pantranco, and they jointly submitted their contract of sale to the PSC for approval.
The PSC issued an order that pending resolution of the applications, Pantranco shall have the authority to
provisionally operate the service under the 2 CPCS that were the subject of the contract between Ferrer
and Pantranco. Villa Rey Transit took filed a complaint for annulment of the sheriff's sale of the CPCs
and prayed that all the orders of the PSC relative to the dispute over the CPCs in question be
annulled. Pantranco filed a third-party complaint against Jose M. Villarama, alleging that Villarama and
Villa Rey Transit are one and the same, and that Villarama and/or the Corporation is disqualified from
operating the CPCs by virtue of the agreement entered into between Villarama and Pantranco.
Issue: Whether the stipulation, "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF
THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER"
in the contract between Villarama and Pantranco, binds the Corporation (the Villa Rey Transit, Inc.).
Held: YES. The doctrine that a corporation is a legal entity distinct and separate from the members and
stockholders who compose it is recognized and respected in all cases which are within reason and the law.
However, when the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for
the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.
In the present case, the Court found that the finances of Villa-Rey, Inc. were managed as if they were the
private funds of Villarama and in such a way and extent that Villarama appeared to be the actual owner of
the business without regard to the rights of the stockholders. Villarama even admitted that he mingled the
corporate funds with his own money. These circumstances negate Villarama's claim that he was only a
part-time General Manager, and show beyond doubt that the corporation is his alter ego. Thus, the
restrictive clause with Pantranco applies. A seller may not make use of a corporate entity as a means of
evading the obligation of his covenant. Where the Corporation is substantially the alter ego of one of the
parties to the covenant or the restrictive agreement, it can be enjoined from competing with the
covenantee.
Hence, the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in
the contract entered into by the latter and Pantranco is also enforceable and binding against the said
Corporation.























Francisco Motors Corporation vs CA
Ponente: Quisimbing, J.
Facts:
On 23
rd
of January 1985, Francisco Motors filed a complaint against Spouses Gregorio and
Librada Manuel to recover P3, 412.06, representing the balance of the jeep body purchased by the
Manuels from Francisco Motors; an additional sum of P20, 454.80 representing the unpaid balance on the
cost of repair of the vehicle; and P6000 for the cost of the suit and attorneys fees. To the original balance
on the price of the jeep body were added the cost of the repair. In their answer, the Manuel spouses
interposed a counterclaim for unpaid legal services of Gregorio Manuel in the amount of P50,000, which
was not paid by the incorporators, directors and officers of Francisco Motors. The trial court decided in
favor of Francisco Motors in regard to its claim for money, but also allowed the counter claim of the
Manuel spouses hence an appeal was made. The CA sustained the trial courts decision hence the present
petition for review on certiorari.
Issue:
Whether or not Francisco Motors Corporation should be liable for the legal services of Gregorio Manuel
rendered in the intestate proceeding over Benita Trinidads estate
Held:
It is a basic principle in corporation law, that a corporation has a personality separate and distinct from its
stockholders and from other corporations to which it may be connected. However, under the doctrine of
piercing the corporate veil of corporate entity, the corporations separate juridical personality may be
disregarded, for example, when the corporate entity is used to defeat public convenience, justify wrong,
protect fraud or defend crime. Also, where the corporation is a mere business conduit of a person, or
where the corporation is so organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency or adjunct of another corporation, then its distinct personality may be ignored.
In these circumstances, the court will treat the corporation as a mere aggrupation of persons and the
liability will directly attach to them. The legal fiction of a separate corporate personality in those cited
instances, for reasons of public policy and in the interest of justice, will be justifiably set aside. However,
in the said case, the doctrine of piercing the corporate veil has no relevant application. The rationale
behind piercing a corporations identity in a given case is to remove the barrier between the corporation
from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate
personality as a shield for undertaking certain proscribed activities. Here, instead of holding certain
individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is FMC
as a corporation which is being ordered to answer for personal liability of certain individual directors and
officers. These legal services did not involve any business of FMC. Manuels move to recover unpaid
legal fees through a counterclaim against FMC, to offset the unpaid balance of the purchase and repair of
the body of the jeep could only result from an obvious misconception that FMCs corporate assets could
be used to answer for the liabilities of its individual directors, incorporators and officers. If permitted, this
would prejudice the corporation, its incorporators and even the stockholders. Furthermore, considering
the nature of the legal services involved, whatever obligation incurred was done in its personal capacity.
The claim for legal fees against the concerned individual incorporators, officers and directors could not be
properly directed against the corporation without violating the basic principles governing corporations.
Every action, including a counterclaim, must be prosecuted in the name of the real party in interest .It is
therefore an error to claim for the legal fees of private respondent Gregorio Manuel to FMC rather than
individual members of the Francisco family.


























TIMES TRANSPORTATION COMPANY, INC., petitioner,
vs.
SANTOS SOTELO, CONRADO B. SALONGA, et. al, respondents.
G.R. No. 163786 February 16, 2005

Facts:
Times Transportation Company, Inc. (Times) is a corporation engaged in the business
of land transportation. Times Employees Union (TEU) was formed and issued a certificate
of uni on r e gi s t r at i on. Ti mes chal l enged t he
l e gi t i ma c y of TEU by f i l i ng a pet i t i on f or t he cancellation of its union registration. TEU
held a strike in response to Times alleged attempt to form a rival union and its dismissal of the
employees identified to be active union members. The Labor Secretary assumed jurisdiction over the case
and referred the matter to the NLRC for compulsory arbitration. A return-to-work order was likewise issued. In a
certification
election,T E U wa s c e r t i f i e d a s t h e s o l e a n d e x c l u s i v e c o l l e c t i v e b a r g a i n i n g
a g e n t i n T i me s . Consequently, TEUs president wrote the management of Times and requested
for collectivebargaining. Times refused. TEU filed a Notice of Strike. Another
conciliation/mediation proceeding was conducted for the purpose of settling the brewing dispute. Times
management implemented a retrenchment program and notices of retrenchment were sent to
some of its employees. TEU held a strike vote on grounds of unfair labor practice on the part of
Times. For alleged participation in an illegal strike, Times terminated all the 123 striking employees. The
DOLE Secretary issued the second return-to-work order certifying the dispute to the NLRC. While the
strike was ended, the employees were no longer admitted back to work. Mencorp Transport
Systems, Inc. (Mencorp) had acquired ownership over Times Certificates of Public Convenience and
a number of its bus units by virtue of several deeds of sale.[ Mencorp is controlled and
operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority stockholder
of Times. Meanwhile, the NLRC rendered a decision declaring the first strike LEGAL and
the second ILLEGAL. Times and TEU both appealed the decision of the NLRC, which CA affirmed.
Upon denial of its motion for reconsideration, Times filed a petition for review on certiorari.
After the closure of Times, the retrenched employees filed cases for
illegaldi s mi s s al , money cl ai ms and unf ai r l a bor pr act i ce s a gai ns t Ti mes bef or e t h
e Re gi onal Arbitration Branch in San Fernando City, La Union. The employees withdrew their
complaints with leave of court and filed a new set of cases before the National Capital Region Arbitration
Branch, impleading Mencorp and the Spouses Mendoza. Times sought the dismissal of these cases on the
ground of litis pendencia and forum shopping. The Labor Arbiter ruled that the dismissals of
complainants Times, effected, participated in, authorized or ratified by Santiago Rondaris constituted the
prohibited act of unfair labor practice and hence, illegal and that the sale of said respondent company to
respondents Mencorp Transport Systems Company (sic),Inc. and/or Virginia Mendoza and
Reynaldo Mendoza was simulated and/or effected in bad faith. Times, Mencorp and the Spouses
Mendoza submitted their respective memorandum of appeal to the NLRC. NLRC rendered its decision
remanding the records of the consolidated cases to the Arbitration Branch of origin for
disposition and for the conduct of appropriate proceedings. NLRC denied the Motion for
Reconsideration. Thus, the employees appealed to the CA by way of a petition for certiorari, which granted the
petition and set aside the decision of the N LRC. Times, Mencorp and the Spouses Mendoza filed Motions for
Reconsideration, which were denied. Hence, this petition for review on
certiorari.

Issue:
Whether or not the honourable court erred in applying the doctrine of piercing the veil of corporate fiction

Held:
No, On the propriety of the piercing of the corporate veil, Times claims that "to drag Mencorp, [Spouses]
Mendoza and Rondaris into the picture on the purported ground that a fictitious sale of Times assets in
their favor was consummated with the end in view of frustrating the ends of justice and for purposes of
evading compliance with the judgment is the height of judicial arrogance." The Court of Appeals
believes otherwise and reckons that Times and Mencorp failed to adduce evidence to refute allegations of
collusion between them.
We have held that piercing the corporate veil is warranted only in cases when the separate legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of
two corporations, the law will regard the corporations as merged into one. It may be allowed only if the
following elements concur: (1) controlnot mere stock control, but complete dominationnot only of
finances, but of policy and business practice in respect to the transaction attacked; (2) such control must
have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive
legal duty, or a dishonest and an unjust act in contravention of a legal right; and (3) the said control and
breach of duty must have proximately caused the injury or unjust loss complained of.



WILLIAM C. YAO, SR., LUISA C. YAO, RICHARD C. YAO, WILLIAM C. YAO, JR., and
ROGER C. YAO vs. THE PEOPLE OF THE PHILIPPINES, PETRON CORPORATION, and
PILIPINAS SHELL PETROLEUM CORP. and its Principal, SHELL INT'L PETROLEUM CO.
LTD (G.R. No. 168306. June 19, 2007)

Facts:
Petitioners are incorporators and officers of MASAGANA GAS CORPORATION
(MASAGANA), an entity engaged in the refilling, sale and distribution of LPG products. Private
respondents Petron Corporation (Petron) and Pilipinas Shell Petroleum Corporation (Pilipinas Shell) are
two of the largest bulk suppliers and producers of LPG in the Philippines. Such products are sold under
the marks "GASUL" and "SHELLANE," respectively. Such private respondents are the sole entity in the
Philippines authorized to allow refillers and distributors to refill, use, sell, and distribute GASUL and
SHELLANE LPG containers, products and its trademarks. On April 3, 2003, the NBI filed two
applications for search warrant with the RTC Cavite City for the petitioners violation of Section 155, in
relation to Section 170 of Republic Act No. 8293, otherwise known as "The Intellectual Property Code of
the Philippines." Such information alleged that petitioners are actually producing, selling, offering for sale
and/or distributing LPG products using steel cylinders owned by, and bearing the tradenames, trademarks,
and devices of Petron and Pilipinas Shell, without authority and in violation of the rights of the said
entities. The search warrants were issued by the court but the petitioners filed a Motion to Quash and then
later on, MASAGANA, as a third party complainant, filed Motion for the Return of Motor Compressor
and LPG Refilling Machine. MASAGANA claimed that such items were used in the operation of its
legitimate business; and that their seizure will jeopardize its business interests. RTC denied such motions
hence recourse made to the CA.

Issue/s:
Whether or not the Honorable Court Of Appeals erred in ruling that the complaint is directed
against MASAGANA, acting through its officers And directors, hence MASAGANA may not be
considered as Third Party Claimant whose rights were violated as a result of the seizure

Held:
No.
It is an elementary and fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders, directors or officers. However, when the notion of legal entity
is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons; or, in the case of two corporations, merge them into one. In other
words, the law will not recognize the separate corporate existence if the corporation is being used
pursuant to the foregoing unlawful objectives. This non-recognition is sometimes referred to as the
doctrine of piercing the veil of corporate entity or disregarding the fiction of corporate entity. Where the
separate corporate entity is disregarded, the corporation will be treated merely as an association of
persons and the stockholders or members will be considered as the corporation, that is, liability will attach
personally or directly to the officers and stockholders.
The SC found that the petitioners, as directors/officers of MASAGANA, are utilizing the latter in
violating the intellectual property rights of Petron and Pilipinas Shell. Thus, petitioners collectively and
MASAGANA should be considered as one and the same person for liability purposes. Consequently,
MASAGANA's third party claim serves no refuge for petitioners.
Even if we were to sustain the separate personality of MASAGANA from that of the petitioners,
the effect will be the same. The law does not require that the property to be seized should be owned by the
person against whom the search warrants is directed. Ownership, therefore, is of no consequence, and it is
sufficient that the person against whom the warrant is directed has control or possession of the property
sought to be seized. Hence, even if, as petitioners claimed, the properties seized belong to MASAGANA
as a separate entity, their seizure pursuant to the search warrants is still valid.
Further, it is apparent that the motor compressor, LPG refilling machine and the GASUL and
SHELL LPG cylinders seized were the corpus delicti, the body or substance of the crime, or the evidence
of the commission of trademark infringement. These were the very instruments used or intended to be
used by the petitioners in trademark infringement. It is possible that, if returned to MASAGANA, these
items will be used again in violating the intellectual property rights of Petron and Pilipinas Shell. Thus,
the RTC was justified in denying the petitioners' motion for their return so as to prevent the petitioners
and/or MASAGANA from using them again in trademark infringement.
Petitioners' reliance on Section 20 of A.M. No. 02-1-06-SC, is not tenable. As correctly observed
by the Solicitor General, A.M. 02-1-06-SC is not applicable in the present case because it governs only
searches and seizures in civil actions for infringement of intellectual property rights. The offense
complained of herein is for criminal violation of Section 155 in relation to Section 170 of Republic Act
No. 8293


Seventh Day Adventist vs. Northeastern Mindanao Mission
July 21 2006 G.R. No. 150416
Facts: On April 21, 1959, the spouses Cosio donated a parcel of land to the South Philippine Union
Mission of the Seventh Day Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan).
The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Adventist Church,
on behalf of the donee.
Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses
Cosio to the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-NEMM).TCT No.
4468 was thereafter issued in the name of SDA-NEMM.
Claiming to be the alleged donee's successors-in-interest, petitioners asserted ownership over the
property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA
Bayugan could not legally be a donee because, not having been incorporated yet, it had no juridical
personality. Neither were petitioners members of the local church then, hence, the donation could not
have been made particularly to them.
On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for cancellation of
title, quieting of ownership and possession, declaratory relief and reconveyance with prayer for
preliminary injunction and damages), in the RTC of Bayugan, Agusan del Sur. After trial, the trial court
rendered a decision on November 20, 1992 upholding the sale in favor of respondents.
On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and attorney's fees.
Petitioners' motion for reconsideration was likewise denied. Thus, this petition.
Issue: Whether or not SDA-NEMM's ownership of the lot covered by TCT No. 4468 should be upheld
Held: The alleged donation to the petitioners was declared void.
The deed of donation was not in favor of any informal group of SDA members but a supposed
SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity
to accept such gift.
Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation.
But there are stringent requirements before one can qualify as a de facto corporation:
(a)the existence of a valid law under which it may be incorporated;
(b)an attempt in good faith to incorporate; and
(c)assumption of corporate powers.
While there existed the old Corporation Law (Act 1459), a law under which SPUM-SDA Bayugan could
have been organized, there is no proof that there was an attempt to incorporate at that time.
The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for
the existence of a de facto corporation. We have held that an organization not registered with the
Securities and Exchange Commission (SEC) cannot be considered a corporation in any concept, not even
as a corporation de facto. Petitioners themselves admitted that at the time of the donation, they were not
registered with the SEC, nor did they even attempt to organize to comply with legal requirements.






















Hall vs Piccio
June 29, 1950

Facts:
In May of 1947 petitioners Arnold and Bradley Hall and respondents Brown, Chapman and
Abella signed and acknowledged the articles of incorporation of the Far Eastern Lumber. An affidavit of
the treasurer, stating that 23,428 shares of stock had been subscribed and fully paid was attached.
Thereafter, the corporation proceeded to do business, adopting its by-laws and electing its
officers. It was only in December of 1947 that the said articles of incorporations were filed with the
Securities and Exchange Commission.
Pending the approval of SEC, the respondents filed a case against the petitioners with the CFI.
They alleged that Far Eastern Lumber is unregistered, and that they wished to dissolve it due fraud and
mismanagement by the managers. Judge Piccio ordered the dissolution of the company. A petition was
made to set aside the proceedings and to enjoin the respondent judge on action upon the same.

Issue:
Whether the court has the jurisdiction to declare the dissolution of the de facto company under
Sec. 19 of the Corporation Law.

Held:
Sec. 19 of the Corporation Law does not apply. Not having obtained the certificate of
incorporation which calls a corporation into being, the company, even its stockholders- may not
probably claim in good faith to be a corporation.
The community of collateral attack is granted to corporations claiming in good faith.
Furthermore, the case is a NOT a suit in which the corporation is a party. It is a litigation
between stockholders of the alleged corporation for the purpose of obtaining its dissolution.
The petition is denied. The petitioners have the remedy of appeal at the proper time.











LIM TONG LIM vs.PHILIPPINE FISHING GEAR INDUSTRIES, INC.,
Ponente: P ANGANIBAN,J.:

Facts:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7,1990, for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (PFGI).They claimed that they were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets
amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents
filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought against the three in their capacities as general partners, on
the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission.
On September 20,1990, the lower court issued a Writ of Preliminary Attachment, which the
sheriff enforced by attaching the fishing nets onboard F/B Lourdes which was then docked at the
Fisheries Port, Navotas, Metro Manila. Instead of answering the complaint, Chua filed a Manifestation
admitting his liability and requesting a reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was
deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an
Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.
The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of
the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with
the said court the sales proceeds of P900,000.On November 18, 1992, the trial court rendered its
Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that
Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. The trial court ruled that a
partnership among Lim, Chua and Yao existed based on (1) the testimonies of the witnesses presented
and (2) on a Compromise Agreement executed by the three. In affirming the trial court, the CA held that
petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as as such for
the fishing nets and floats purchased by and for the use of the partnership.

Issue:
Whether or not by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

Held:
Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying
boats, financed by a loan secured from Jesus Lim who was Lim Tong Lims brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the
boats and to divide equally among them the excess or loss. This condition fell under the term common
fund under Article 1767. The partnership extended not only to the purchase of the boats but also to the
nets and the floats. The fishing nets and floats, both essential to fishing, were obviously acquired for the
business. It would have been inconceivable fro Lim to involve himself in buying the boat but not in the
purchase of the equipment, without which the business could not have proceeded. The sale of the boats, as
well as division amongst the three of the balance remaining after the payment of the loans, proves that
F/B Lourdes, though registered in his name, is an asset of the partnership. It is absurd for petitioner to to
sell his property to pay the debt he did not incur, if the relationship amongst the three of them was merely
that of a lessor-lessee, instead of partners.
As to Lims argument that under the doctrine of corporation estoppel, liability can be imputed
only to Chua and Yao, and not to him; Sec 21 if the Corporation Code provides that All persons who
assumes to act as a corporation knowing it to be without authority to do shall be liable as general partners
for all debts, liabilities and damages incurred or arising as a result thereof; Provided however, that when
such ostensible corporation is sued on any transaction entered by it as a corporation or on nay tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. One
who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the
ground that there was in fact no corporation. Thus, even if the ostensible corporation entity is proven to be
legally nonexistent, a party may be estopped from denying its corporate existent. There is no dispute that
PFGI is entitled to be paid for the nets it sold. The only question is whether Lim should be held jointly
liable with Chua and Yao. Lim contests such liability, insisting that only those who dealt in the name of
the ostensible corporation should be held liable. Although technically it is true that Lim did not directly
act on behalf of the corporation; however having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be part of said association
and is covered by the scope of the doctrine of corporation by estoppel.





INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL
FEDERATION, respondents.
G.R. No. 119002 October 19, 2000

Facts:
On 30 June 1989, the International Express Travel and Tour Services, Inc. (IETTSI), through its
managing director, wrote a letter to the Philippine Football Federation (Federation), through its president,
Henri Kahn, wherein the former offered its services as a travel agency to the latter. The offer was
accepted. IETTSI secured the airline tickets for the trips of the athletes and officials of the Federation to
the South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of
China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received, the
Federation made two partial payments, both in September of 1989, in the total amount of P176,467.50.
On 4 October 1989, IETTSI wrote the Federation, through Kahn a demand letter requesting for the
amount of P265,894.33. On 30 October 1989,the Federation, through the Project Gintong Alay, paid the
amount of P31,603.00. On 27 December 1989,Henri Kahn issued a personal check in the amount of
P50,000 as partial payment for the outstanding balance of the Federation. Thereafter, no further
payments were made despite repeated demands. This prompted IETTSI to file a civil case before the
Regional Trial Court of Manila. IETTSI sued Henri Kahn in his personal capacity and as President of the
Federation and impleaded the Federation as an alternative defendant. IETTSI sought to hold Henri Kahn
liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn
allegedly guaranteed the said obligation. Kahn filed his answer with counterclaim, while the Federation
failed to file its answer and was declared in default by the trial court. In due course, the trial court
rendered judgment and ruled in favor of IETTSI and declared Henri Kahn personally liable for the unpaid
obligation of the Federation. The complaint of IETTSI against the Philippine Football Federation and the
counterclaims of Henri Kahn were dismissed, with costs against Kahn. Only Henri Kahn elevated the
decision to the Court of Appeals. On 21 December 1994, the appellate court rendered a decision reversing
the trial court. IETTSI filed a motion for reconsideration and as an alternative prayer pleaded that the
Federation beheld liable for the unpaid obligation. The same was denied by the appellate court in its
resolution of 8 February1995. IETTSI filed the petition with the Supreme Court.

Issue [1]:
Whether the Philippine Football Federation has a corporate existence of its own.
Held [1]:
Both RA 3135 (the Revised Charter of the Philippine Amateur Athletic Federation) and PD
604recognized the juridical existence of national sports associations. This may be gleaned from the
powers and functions granted to these associations (See Section 14 of RA 3135 and Section 8 of PD 604).
The powers and functions granted to national sports associations indicate that these entities may acquire a
juridical personality. The power to purchase, sell, lease and encumber property are acts which may only
be done by persons, whether natural or artificial, with juridical capacity. However, while national sports
associations may be accorded corporate status, such does not automatically take place by the mere
passage of these laws. It is a basic postulate that before a corporation may acquire juridical personality,
the State must give its consent either in the form of a special law or a general enabling act. The Philippine
Football Federation did not come into existence upon the passage of these laws. Nowhere can it be found
in RA 3135 or PD 604 any provision creating the Philippine Football Federation. These laws merely
recognized the existence of national sports associations and provided the manner by which these entities
may acquire juridical personality.

Issue [2]:
Whether Kahn should be made personally liable for the unpaid obligations of the Philippine Football
Federation.

Held [2]:
Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf
of a corporation which has no valid existence assumes such privileges and becomes personally liable for
contract entered into or for other acts performed as such agent. As president of the Federation, Henri
Kahn is presumed to have known about the corporate existence or non-existence of the Federation. Issue
[3]: Whether the appellate court properly applied the doctrine of corporation by estoppel. Held [3]: The
Court cannot subscribe to the position taken by the appellate court that even assuming that the Federation
was defectively incorporated, IETTSI cannot deny the corporate existence of the Federation because it
had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its
existence. The doctrine of corporation by estoppel is mistakenly applied by the appellate court to IETTSI.
The application of the doctrine applies to a third party only when he tries to escape liabilities on a contract
from which he has benefited on the irrelevant ground of defective incorporation. Herein, IETTSI is not
trying to escape liability from the contract but rather is the one claiming from the contract.

LYCEUM OF THE PHILIPPINES, INC vs. COURT OF APPEALS, LYCEUM OF APARRI,
LYCEUM OF CABAGAN, LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC.,
LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES,
LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and
WESTERN PANGASINAN LYCEUM, INC (G.R. No. 101897. March 5, 1993)

Facts:
Petitioner is an educational institution duly registered with the Securities and Exchange
Commission and it has used its corporate name, Lyceum of the Philippines, from 21 September 1950. On
1984, petitioner instituted proceedings before the SEC to compel the private respondents, which are also
educational institutions, to delete the word "Lyceum" from their corporate names and permanently to
enjoin them from using "Lyceum" as part of their respective names. In an Order dated 20 April 1977,
Associate Commissioner Julio Sulit held that the corporate name of petitioner and that of the Lyceum of
Baguio, Inc. were substantially identical because of the presence of a "dominant" word, i.e., "Lyceum,"
the name of the geographical location of the campus being the only word which distinguished one from
the other corporate name. The SEC also ordered the respondents to change its name to another name "not
similar or identical [with]" the names of previously registered entities. Such decision was assailed but the
court denied the petition for review. Armed with the decision in their favour, petitioner then wrote all the
educational institutions it could find using the word "Lyceum" as part of their corporate name, and
advised them to discontinue such use of "Lyceum." Such move failed hence, petitioner instituted a case
before the SEC to enforce what petitioner claims as its proprietary right to the word "Lyceum." The SEC
hearing officer sustained petitioner's claim relying upon the SEC ruling in the Lyceum of Baguio, Inc.
case. However, on appeal, the decision of the hearing officer was reversed and set aside. The SEC En
Banc did not consider the word "Lyceum" to have become so identified with petitioner as to render use
thereof by other institutions as productive of confusion about the identity of the schools concerned in the
mind of the general public. It found that the attaching of geographical names to the word "Lyceum"
served sufficiently to distinguish the schools from one another, especially in view of the fact that the
campuses of petitioner and those of the private respondents were physically quite remote from each other.
The petitioner appealed to the CA, but the latter affirmed the decision of SEC En Banc. Also, the petition
for reconsideration was without success.

Issue/s: Whether or not the use by the Lyceum of the Philippines of Lyceum in its corporate name has
been for such length and time and with such exclusivity as to have become associated or identified with
the petitioner institution in the mind of the general public (or at least that portion of the general public
which has to do with schools).

Held: No. The SC affirmed the CA.
The doctrine of secondary meaning originated in the field of trademark law. Its application has,
however, been extended to corporate names since the right to use a corporate name to the exclusion of
others is based upon the same principle which underlies the right to use a particular trademark or
tradename. The doctrine provides that: " . . . a word or phrase originally incapable of exclusive
appropriation with reference to an article on the market, because geographically or otherwise descriptive,
might nevertheless have been used so long and so exclusively by one producer with reference to his
article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean
that the article was his product." This circumstance has been referred to as the distinctiveness into which
the name or phrase has evolved through the substantial and exclusive use of the same for a considerable
period of time. Consequently, the same doctrine or principle cannot be made to apply where the evidence
did not prove that the business (of the plaintiff) has continued for so long a time that it has become of
consequence and acquired a good will of considerable value such that its articles and produce have
acquired a well-known reputation, and confusion will result by the use of the disputed name (by the
defendant). SC noted that the number alone of the private respondents in the case at bar suggests strongly
that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. It may be noted also that at least one of the private
respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years
before the petitioner registered its own corporate name with the SEC and began using the word
"Lyceum."

Therefore, SC held that petitioner institution is not entitled to a legally enforceable exclusive right to use
the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their
corporate names. To determine whether a given corporate name is "identical" or "confusingly or
deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of
"Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the
name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded
as "identical" or "confusingly or deceptively similar" with each other.




Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus vs Iglesia ng Dios Kay Kristo Jesus
December 12, 2001

Facts:
Respondent Iglesia ng Dios kay Cristo Jesus, Haligi and Saligan Katotohohanan is a non-stock
religious society registered in 1936. In 1979, Soriano and other members of the respondent corporation
disassociated and formed a new non-stock religious corporation with the same name. Respondent filed
petition with the SEC which rendered judgment in their favor.
Soriano, et al., registered Ang Mga Kaanib sa Iglesia ng Dios kay Kristo Hesus, HSK (Haligi at
Saligan ng Katotohanan), sa Bansang Pilipinas. Thereafter, respondent filed, again, a petition with the
SEC to compel the petitioner to change its corporate name and be barred from using the same or similar
name on the ground that it creates confusion among its members and the public. SEC decided in favor of
the petitioner. After the SEC en banc affirmed the decision, the petitioner filed a petition for review with
the CA. The CA affirmed the decision.

Issue:
Whether the CA correctly applied the rule on Corporation Name under Sec. 18 of the
Corporation Code, mandating the Petitioner to change its corporation name.

Held:
The petition is denied.
SEC has the authority to de-register corporate names which in its estimation are likely to spawn
confusion. The Petitioners claim that it complied with SEC guideline by adding not only 2 different
words, but 8, to their nameAng mga kaanib and Sa bansang Pilipinas Inc., does not suffice. The
additional words are merely descriptive, referring to members who are residing in the Philippines.
Still, the petitioners corporate name holds the dominant words: Iglesia ng Dios kay Kristo
Jesus, Haligi at Saligan ng Katotohanan. The name is strikingly similar to respondents corporate name
that even under the test of reasonable care and observation confusion may arise.










Young Auto Supply vs. CA
G.R. No. 104175
Facts: Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson
Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development
Corporation (CMDC) to Roxas. Immediately after the execution of the agreement, Roxas took full control
of the four markets of CMDC. However, the vendors held on to the stock certificates of CMDC as
security pending full payment of the balance of the purchase price.
The first check of P4,000,000.00, representing the down payment, was honored by the drawee bank but
the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas
sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00,
leaving a balance of P3,400,000.00 (Subsequently, Nelson Garcia and Vicente Sy assigned all their rights
and title to the proceeds of the sale of the CMDC shares to Nemesio Garcia.
On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11,
Cebu City, praying that Roxas be ordered to pay petitioners the sum of P3,400,000.00 or that full control
of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of
the partial payment of P4,600,000.00 and the payment of attorney's fees and costs
Roxas filed a motion to dismiss on the grounds that:
"1.The complaint did not state a cause of action due to non-joinder of indispensable
parties;
2.The claim or demand set forth in the complaint had been waived, abandoned or
otherwise extinguished; and
3.The venue was improperly laid"
The trial court in an Order dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said
order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion for
reconsideration, which the trial court denied in its Order dated April 10, 1991 for being pro-forma. Roxas
was again declared in default, on the ground that his motion for reconsideration did not toll the running of
the period to file his answer.
On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not
accompanied with the required affidavit of merit. But without waiting for the resolution of the motion, he
filed a petition for certiorari with the CA
The CA sustained the findings of the trial court with regard to the first two grounds raised in the motion
to dismiss but ordered the dismissal of the complaint on the ground of improper venue
Issue: WON Venue was improperly laid
Held: The petition is meritorious.
In holding that the venue was improperly laid in Cebu City, the CA relied on the address of YASCO, as
appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay City."
This was the same address written on YASCO's letters and several commercial documents in the
possession of Roxas
In the case of Garcia, the CA said that he gave Pasay City as his address in three letters which he sent to
Roxas' brothers and sisters. The appellate court held that Roxas was led by petitioners to believe that their
residence is in Pasay City and that he had relied upon those representations
The CA erred in holding that the venue was improperly laid in Cebu City.
In the Regional Trial Courts, all personal actions are commenced and tried in the province or city where
the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the
plaintiffs resides, at the election of the plaintiff There are two plaintiffs in the case at bench: a natural
person and a domestic corporation. Both plaintiffs aver in their complaint that they are residents of Cebu
City.
















Republic Planters Bank vs. Agana
Facts:
Private respondent Robes Francisco Realty & Devt Corp. secured a loan from petitioner in the
amount of P120,000. As part of the proceeds of the loan, preferred shares of stocks were issued to private
respondents corporation. In other words, instead of giving the legal tender totaling to the full amount of
the loan which is P120,000.00, petitioner lent such amount partially in the form of stock certificates
numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000 each,
for a total of P8,000.00. Said stock certificates were in the name of private respondent Adalia Robes and
Carlos Robes, who, however, subsequently endorsed his shares in favor of Adalia Robes. Said certificates
of stock bear the following terms and conditions:
1. The right to receive a quarterly dividend of 1%, cumulative and participating.
2. That such preferred shares may be redeemed, by the system of drawing lots, at any
time after 2 years from the date of issue at the option of the Corporation.

Private respondents proceeded against petitioner and filed a complaint anchored on private
respondents alleged rights to collect dividends under the preferred shares in question and to have
petitioner redeem the same under the terms and conditions of the stock certificates.
The trial court ordered the petitioner to pay private respondents the face value of the stock certificates as
redemption price, plus 1% quarterly interest. Hence this petition.

Issue:
Whether or not respondents have the right to collect dividends and whether they can compel petitioner to
redeem the preferred shares.

Held:
1. A preferred share of stock is one which entitles the holder thereof to certain preferences over the
holders of common stock. The preferences are designed to induce persons to subscribe for shares of a
corporation. Preferred shares take a multiplicity of forms. The most common forms may be classified into
two: (1) preferred shares as to assets; and (2) preferred as to dividends. The former is a share which gives
the holder thereof the preference in the distribution of the assets of the corporation in case of liquidation;
the latter is a share the holder of which is entitled to receive dividends on said share to the extent agreed
upon before any dividends at all are paid to the holders of common stock. There is no guarantee, however,
that the share will receive any dividends.
2. Preferences granted to preferred stockholders do not give them a lien upon the property of the
corporation nor make them creditors of the corporation, the right of the former being always subordinate
to the latter. Shareholders, both common and preferred are considered risk takers who invest capital in the
business arid who can look only to what is left after corporate debts and liabilities are fully paid.
3. Redeemable shares are shares usually preferred, which by their terms are redeemable at a fixed date, or
at the option of either issuing corporation, or the stockholder, or both at certain redemption price;
redemption may not be made where the corporation is insolvent or if such redemption will cause
insolvency or inability of the corporation to meet its debts as they mature.
4. While the stock certificates in the case at bar does allow redemption, the option to do so was clearly
vested in the petitioner bank. The redemption is therefore optional.
5. The redemption of said shares cannot be allowed. The Central Bank made a finding that said petitioner
has been suffering from chronic reserve deficiency, and that such finding resulted in the directive
prohibiting the petitioner bank from redeeming any preferred share, on the ground that said redemption
would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of
preferred shares was prohibited for a just and valid reason.
6. Interest bearing stocks, on which the corporation agrees absolutely to pay interest before dividends
are paid to common stockholders, is legal only when construed as requiring payment of interest as
dividends from net earnings or surplus only.
















CECILIA CASTILLO, ET. AL vs. ANGELES BALINGHASAY, ET. AL (G.R. No. 150976.
October 18, 2004.)
Facts:
Petitioners and the respondents are stockholders of Medical Center Paraaque, Inc. (MCPI), with
the former holding Class "B" shares and the latter owning Class "A" shares. MCPI is a domestic
corporation organized sometime in September 1977. At the time of its incorporation, Act No. 1459, the
old Corporation Law was still in force and effect. Article VII of MCPI's original Articles of
Incorporation, as approved by the SEC provides that authorized capital stock of the corporation is 2M
PESOS, Philippine Currency, divided into 2K SHARES at a par value of P100 each share, whereby the
1K SHARES issued to, and subscribed by, the incorporating stockholders shall be classified as Class A
shares while the other 1K unissued shares shall be considered as Class B shares. Only holders of Class A
shares can have the right to vote and the right to be elected as directors or as corporate officers. There
were two amendments regarding the voting rights after that. First, in 1981 which provides: Only holders
of Class A shares have the right to vote and the right to be elected as directors or as corporate officers.
Second was in 1992, which states: Except when otherwise provided by law, only holders of Class "A"
shares have the right to vote and the right to be elected as directors or as corporate officers. In 2001,
shareholders of MCPI held their annual stockholders' meeting and election for directors, in which
respondent Jimenez declared that no Class "B" shareholder was qualified to run or be voted upon as a
director and the candidates holding Class "A" shares were the winners of all seats in the corporate board.
A complaint for injunction was filed by the petitioners on the grounds that they were (1) deprived of their
right to vote and to be voted on as directors at the annual stockholders' meeting because respondents had
erroneously relied on Article VII of the Articles of Incorporation of MCPI, despite Article VII being
contrary to the Corporation Code. Also, respondents were in estoppel, because in the past, petitioners
were allowed to vote and to be elected as members of the board. They further claimed that the privilege
granted to the Class "A" shareholders was more in the nature of a right granted to founder's shares. The
respondents however claimed that the exclusivity of the right granted to Class "A" holders cannot be
defeated or impaired by any subsequent legislative enactment, e.g. the New Corporation Code, as the
Articles of Incorporation is an intra-corporate contract between the corporation and its members; between
the corporation and its stockholders; and among the stockholders. RTC found merit in the arguments of
the respondents and ruled that corporations had the power to classify their shares of stocks, such as
"voting and non-voting" shares, conformably with Section 6 of the Corporation Code. Moreover, it
brushed aside the "founder's shares" theory of the petitioners for lack of factual basis. Thus, petitioners
recourse to the SC pointing out that Section 6 prohibits the deprivation of voting rights except as to
preferred and redeemable shares only. Hence, under the present law on corporations, all shareholders,
regardless of classification, other than holders of preferred or redeemable shares, are entitled to vote and
to be elected as corporate directors or officers. Since the Class "B" shareholders are not classified as
holders of either preferred or redeemable shares, then it necessarily follows that they are entitled to vote
and to be voted for as directors or officers..

Issue/s: Whether or not holders of Class "B" shares of the MCPI may be deprived of the right to vote and
be voted for as directors in MCPI.
Held: There should be no deprivation of Class Bs voting rights. When Article VII of the Articles of
Incorporation of MCPI was amended in 1992, the phrase "except when otherwise provided by law" was
inserted in the provision governing the grant of voting powers to Class "A" shareholders. This particular
amendment is relevant for it speaks of a law providing for exceptions to the exclusive grant of voting
rights to Class "A" stockholders. Which law was the amendment referring to? The determination of which
law to apply is necessary. There are two laws being cited and relied upon by the parties in this case. In
this instance, the law in force at the time of the 1992 amendment was the Corporation Code (B.P. Blg.
68), not the Corporation Law (Act No. 1459), which had been repealed by then. Hence, the law referred
to in the amendment to Article VII refers to the Corporation Code and no other law. At the time of the
incorporation of MCPI in 1977, the right of a corporation to classify its shares of stock was sanctioned by
Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right
of classification of stock shares to corporations, but with a significant change. Under Section 6 of B.P.
Blg. 68, the requirements and restrictions on voting rights were explicitly provided for, such that "no
share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable"
shares, unless otherwise provided in this Code" and that "there shall always be a class or series of shares
which have complete voting rights." Section 6 of the Corporation Code being deemed written into Article
VII of the Articles of Incorporation of MCPI, it necessarily follows that unless Class "B" shares of MCPI
stocks are clearly categorized to be "preferred" or "redeemable" shares, the holders of said Class "B"
shares may not be deprived of their voting rights. Note that there is nothing in the Articles of
Incorporation nor an iota of evidence on record to show that Class "B" shares were categorized as either
"preferred" or "redeemable" shares. The only possible conclusion is that Class "B" shares fall under
neither category and thus, under the law, are allowed to exercise voting rights. One of the rights of a
stockholder is the right to participate in the control and management of the corporation that is exercised
through his vote. The right to vote is a right inherent in and incidental to the ownership of corporate stock,
and as such is a property right. The stockholder cannot be deprived of the right to vote his stock nor may
the right be essentially impaired, either by the legislature or by the corporation, without his consent,
through amending the charter, or the by-laws.
NORA A. BITONG, petitioner,
vs.
COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR.
& MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA, respondents.
G.R. No. 123553 July 13, 1998

Facts:
Bitong was the treasurer and member of the BoD of Mr. & Mrs. Corporation. She filed a complaint with
the SEC to hold respondent spouses Apostol liable for fraud, misrepresentation, disloyalty, evident bad
faith, conflict of interest and mismanagement in directing the affairs of the corporation to the prejudice of
the stockholders. She alleges that certain transactions entered into by the corporation were not supported
by any stockholders resolution.
The complaint sought to enjoin Apostol from further acting as president-director of the corporation and
from disbursing any money or funds. Apostol contends that Bitong was merely a holder-in-trust of the
JAKA shares of the corporation, hence, not entitled to the relief she prays for. SEC Hearing Panel issued
a writ enjoining Apostol.
After hearing the evidence, SEC Hearing Panel dissolved the writ and dismissed the complaint filed by
Bitong. Bitong appealed to the SEC en banc. The latter reversed SEC Hearing Panel decision. Apostol
filed petition for review with the CA. CA reversed SEC en banc ruling holding that Bitong was not the
owner of any share of stock in the corporation and therefore, not a real party in interest to prosecute the
complaint. Hence, this petition with the SC.

Issue:
Whether or not Bitong was the real party in interest.

Held:
Based on the evidence presented, it could be gleaned that Bitong was not a bona fide stockholder of the
corporation. Several corporate documents disclose that the true party in interest was JAKA.
Although her buying of the shares were recorded in the Stock and Transfer Book of the corporation, and
as provided by Sec. 63 of the Corp Code that no transfer shall be valid except as between the parties until
the transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by
it and is estopped to deny the fact of transfer of said shares, this provision is not conclusive even against
the corporation but are prima facie evidence only. Parol evidence may be admitted to supply the
omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in
some cases where such records were contradicted. Besides, the provision envisions a formal certificate of
stock which can be issued only upon compliance with certain requisites: (1) certificates must be signed
by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with
the seal of the corporation, (2) delivery of the certificate; (3) the par value, as to par value shares, or the
full subscription as to no par value shares, must be first fully paid; (4) the original certificate must be
surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.
These considerations are founded on the basic principle that stock issued without authority and in
violation of the law is void and confers no rights on the person to whom it is issued and subjects him to
no liabilities. Where there is an inherent lack of power in the corporation to issue the stock, neither the
corporation nor the person to whom the stock is issued is estopped to question its validity since an
estoppel cannot operate to create stock which under the law cannot have existence.



















Grace Christian High School vs CA
October 23, 1997

Facts:
Petitioner Grace Christian High School is an educational institution at the Grace Village in QC.
Private respondent Grace Village Association is an organization of building owners, lessees, and
residents of Grace Village.
In December of 1975, a committee of the board of directors of the Association prepared a draft
of an amendment to the by-laws of the Association providing that Grace Christian high School
representative is a permanent director of the Association. The draft, however, was never submitted for
approval.
From 1975 to 1990, nevertheless, the petitioner was given a permanent seat in the board of
directors. In February of 1990, the principal of Grace HS was informed that all directors must be elected
by the members of the Association and that the permanent seat of the representative of the school
must be re-examined.
Grace High School brought a suit to compel the board of directors to recognize the schools right
to the permanent seat.

Issue:
Whether the Petitioner has the right to a permanent seat in the board of directors of the
Respondent Association.

Held:
Corporation Law requires that members of the board of directors of corporations must be
elected. The questioned provision in the drafted by-laws is contrary to law.
The fact that the practice has not been questioned for 15 years cannot forestall a later challenge
to its validity. Petitioner cannot claim a vested right to sit in the board on the basis of practice.














Gokongwei vs. SEC
89 SCRA 336 (1979)

Facts: Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of
nullity of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the
by-laws that the amendment or modification of the by-laws may only be delegated to the BODs upon an
affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock
of the corporation, which 2/3 could have been computed on the basis of the capitalization at the time of
the amendment. Petitioner contends that the amendment was based on the 1961 authorization, the Board
acted without authority and in usurpation of the power f the stockholders n amending the by-laws in 1976.
He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends that
the amendment deprived him of his right to vote and be voted upon as a stockholder (because it
disqualified competitors from nomination and election in the BOD of SMC), thus the amended by-laws
were null and void. While this was pending, the corporation called for a stockholders meeting for the
ratification of the amendment to the by-laws. This prompted petitioner to seek for summary judgment.
This was denied by the SEC. In another case filed by petitioner, he alleged that the corporation had been
using corporate funds in other corps and businesses outside the primary purpose clause of the corporation
in violation of the Corporation Code.

Issue: Are the amendments valid?

Held: The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in
conflict with the law of the land, or with the charter of the corporation or is in legal sense unreasonable
and therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law
is a mere matter of judgement, and upon which reasonable minds must necessarily differ, a court would
not be warranted in substituting its judgment instead of the judgment of those who are authorized to make
by-laws and who have exercised authority. The Court held that a corporation has authority prescribed by
law to prescribe the qualifications of directors. It has the inherent power to adopt by-laws for its internal
government, and to regulate the conduct and prescribe the rights and duties of its members towards itself
and among themselves in reference to the management of its affairs. A corporation, under the Corporation
law, may prescribe in its by-laws the qualifications, duties and compensation of directors, officers, and
employees. Any person who buys stock in a corporation does so with the knowledge that its affairs are
dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall
govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not
forbidden by law. Any corporation may amend its by-laws by the owners of the majority of the subscribed
stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be elected director,
in the face of the fact that the law at the time such stockholders right was acquired contained the
prescription that the corporate charter and the by-laws shall be subject to amendment, alteration and
modification. A Director stands in a fiduciary relation to the corporation and its shareholders, which is
characterized as a trust relationship. An amendment to the corporate by-laws which renders a stockholder
ineligible to be director, if he be also director in a corporation whose business is in competition with that
of the other corporation, has been sustained as valid. This is based upon the principle that where the
director is employed in the service of a rival company, he cannot serve both, but must betray one or the
other. The amendment in this case serves to advance the benefit of the corporation and is good. Corporate
officers are also not permitted to use their position of trust and confidence to further their private needs,
and the act done in furtherance of private needs is deemed to be for the benefit of the corporation. This is
called the doctrine of corporate opportunity.


Peoples Aircargo vs CA
Facts:
Petitioner is a domestic corporation organized in 1986 to operate a customs bonded warehouse at
MIA. To obtain a license from the Bureau of Customs, Antonio Punsalan, Jr., the president, solicited a
proposal from private respondent Stefani Sano for the preparation of a feasibility study. Sano submitted a
letter proposal dated October 17, 1986 (First Contract) to Punsalan regarding his request for professional
engineering consultancy services whose services are offered in the amount of P350,000 Initially, Cheng
Yang, the majority stockholder of petitioner, objected to the offer as another company can provide for the
same service at a lower price. However, Punsalan preferred the service of Sano because of the latters
membership in the task force. They are the one supervising the transition of the Bureau from the Marcos
to the Aquino government. Petitioner, through Punsalan, thereafter confirmed the contract. On December
4, 1986, upon Punsalans request, private respondent sent petitioner another letter-proposal which offers
the same service already at P400,000 instead of the previous P350,000 offer. On January 10, 1987, Andy
Villaceren, vice-president of petitioner, received the operations manual prepared by Sano and which was
submitted by petitioner to the Bureau in compliance for its application to operate a bonded warehouse.
Thereafter, in May 1987, the Bureau issued to it a license to operate. Private respondent also conducted in
the third week of January 1987 in the warehouse of petitioner, a three-day training seminar for the
petitioners employees. On February 9, 1988, private respondent filed a collection suit against petitioner.
He alleged that he had prepared an operation manual for petitioner, conducted a seminar-workshop for its
employees and delivered to it a computer program but that despite demand, petitioner refused to pay him
for his services. Petitioner, on its part, denied that Sano had prepared such manual operations and at the
same time alleged that the letter-agreement was signed by Punsalan without authority and as such
unenforceable. It alleges that the disputed contract was not authorized by its board of directors.

Issue: Whether or not the Second Contract signed by Punsalan is enforceable and binding against
petitioner.

Held: Yes, the Second Contract is binding and enforceable. The general rule is that, in the absence of
authority from the board of directors, no person, not even its officers, can validly bind a corporation. A
corporation is a juridical person, separate and distinct from its stockholders and members having xxx
powers, attributes and properties expressly authorized by law or incident to its existence. Being a juridical
entity, a corporation may act through its board of directors, which exercises almost all corporate powers,
lays down all corporate business policies and is responsible for the efficiency of management, as provided
in Section 23 of the Corporation Code.

However, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any
other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing
the power to do those acts and thus, the corporation witll, as against anyone who has in good faith dealt
with it through such agent, be estopped from denying the agents authority. Thus private respondent shall
not be faulted for believing that Punsalans conformity to the contract in dispute was also binding on
petitioner. In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First
Contract without first securing board approval. Despite such lack of board approval, petitioner did not
object to or repudiate said contract, thus "clothing" its president with the power to bind the corporation.
The grant of apparent authority to Punsalan is evident in the testimony of Yong senior vice president,
treasurer and major stockholder of petitioner. Furthermore, private respondent prepared an operations
manual and conducted a seminar for the employees of petitioner in accordance with their contract.
Petitioner accepted the operations manual, submitted it to the Bureau of Customs and allowed the seminar
for its employees. As a result of its aforementioned actions, petitioner was given by the Bureau of
Customs a license to operate a bonded warehouse. Granting arguendo then that the Second Contract was
outside the usual powers of the president, petitioner's ratification of said contract and acceptance of
benefits have made it binding, nonetheless. The enforceability of contracts under Article 1403(2) is
ratified "by the acceptance of benefits under them" under Article 1405



















INTER-ASIA INVESTMENTS INDUSTRIES, INC. vs. COURT OF APPEALS and ASIA
INDUSTRIES, INC. (G.R. No. 125778. June 10, 2003)

Facts:
In 1978, Inter-Asia Industries, Inc., by a Stock Purchase Agreement (the Agreement), sold to Asia
Industries, Inc. for and in consideration of the sum of P19,500,000.00 all its right, title and interest in and
to all the outstanding shares of stock of FARMACOR, INC. (FARMACOR). The Agreement was signed
by the presidents of petitioner and private respondent, respectively. Petitioner as seller made warranties
and representations among which were "(iv.) [t]he audited financial statements of FARMACOR at and for
the year ended December 31, 1977 . . . and the audited financial statements of FARMACOR as of
September 30, 1978 being prepared by SGV and Co. . . fairly present or will present the financial position
of FARMACOR and the results of its operations as of said respective dates; said financial statements
show or will show all liabilities and commitments of FARMACOR, direct or contingent, as of said
respective dates . . ."; and "(v.) [t]he Minimum Guaranteed Net Worth of FARMACOR as of September
30, 1978 shall be Twelve Million Pesos (P12,000,000.00). However, the deficiency as the amount agreed
upon were later on discovered. The guaranteed net worth shortfall thus amounted to P13,244,225.00 after
adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of
P12,000,000.00. The adjusted contract price, therefore, amounted to P6,225,775.00 which is the
difference between the contract price of P19,500,000.00 and the shortfall in the guaranteed net worth of
P13,224,225.00. Private respondent having already paid petitioner P12,000,000.00, it was entitled to a
refund of P5,744,225.00. Petitioner thereafter proposed, by letter of January 24, 1980, signed by its
president, that private respondent's claim for refund be reduced to P4,093,993.00, it promising to pay the
cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00.
To the proposal respondent agreed. Petitioner, however, welched on its promise. Petitioner's total liability
thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00) exclusive of interest. Hence, complaint
was filed by the private respondent was for the recovery of above-said amount of P4,853,503.00 plus
interest. RTC Makati ruled against petitioner and such was affirmed in the CA. Petitioner corporation
assailed the decision of the CA and the lower court, holding it liable to pay a sum of money plus interest
to private respondent corporation, as a consequence of a Letter-Proposal dated January 24, 1980 signed
by its president, with regard to the sale of petitioner's shares of stock of FARMACOR, INC., to the
private respondent corporation. Petitioner argued that the letter-proposal of its president has no legal force
and effect against it as it was not authorized by its board of directors.

Issue/s: Whether or not the letter-proposal of its president has no legal force and effect against it as it was
not authorized by its board of directors
Held: Such letter-proposal is valid and binding. The January 24, 1980 letter signed by petitioner's
president is valid and binding. The case of People's Aircargo and Warehousing Co., Inc. v. Court of
Appeals instructs: The general rule is that, in the absence of authority from the board of directors, no
person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate
and distinct from its stockholders and members, "having . . . powers, attributes and properties expressly
authorized by law or incident to its existence." Being a juridical entity, a corporation may act through its
board of directors, which exercises almost all corporate powers, lays down all corporate business policies
and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code
of the Philippines: The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the board of directors or trustees. Under this
provision, the power and responsibility to decide whether the corporation should enter into a contract that
will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or
relevant provisions of law. However, just as a natural person may authorize another to do certain acts for
and on his behalf, the board of directors may validly delegate some of its functions and powers to
officers, committees or agents. The authority of such individuals to bind the corporation is generally
derived from law, corporate bylaws or authorization from the board, either expressly or impliedly
by habit, custom or acquiescence in the general course of business, viz: A corporate officer or agent
may represent and bind the corporation in transactions with third persons to the extent that the authority to
do so has been conferred upon him, and this includes powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the
corporation has caused person dealing with the officer or agent to believe that it has conferred. Apparent
authority is derived not merely from practice. Its existence may be ascertained through (1) the general
manner in which the corporation holds out an officer or agent as having the power to act or, in other
words the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his
acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of
his ordinary powers. It requires presentation of evidence of similar acts executed either in its favor or in
favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the
vesting of a corporate officer with the power to bind the corporation. As correctly argued by respondent,
an officer of a corporation who is authorized to purchase the stock of another corporation has the implied
power to perform all other obligations arising therefrom, such as payment of the shares of stock. By
allowing its president to sign the Agreement on its behalf, petitioner clothed him with apparent capacity
to perform all acts which are expressly, impliedly and inherently stated therein
DILY DANY NACPIL, petitioner,
vs.
INTERNATIONAL BROADCASTING CORPORATION, respondent.
G.R. No. 144767 March 21, 2002

Facts:
Dily Dany Nacpil states that he was Assistant General Manager for Finance/Administration and
Comptroller of Intercontinental Broadcasting Corporation (IBC) from 1996 until April 1997. According
to Nacpil, when Emiliano Templo was appointed to replace IBC President Tomas Gomez III sometime in
March 1997, the former told the Board of Directors that as soon as he assumes the IBC presidency, he
would terminate the services of Nacpil. Apparently, Templo blamed Nacpil, along with a certain Mr.
Basilio and Mr. Gomez, for the prior mismanagement of IBC. Upon his assumption of the IBC
presidency, Templo allegedly harassed, insulted, humiliated and pressured Nacpil into resigning until the
latter was forced to retire. However, Templo refused to pay him his retirement benefits, allegedly because
he had not yet secured the clearances from the Presidential Commission on Good Government (PCGG)
and the Commission on Audit (COA). Furthermore, Templo allegedly refused to recognize Nacpil's
employment, claiming that Nacpil was not the Assistant General Manager/Comptroller of IBC but merely
usurped the powers of the Comptroller. Hence, in 1997, Nacpil filed with the Labor Arbiter a complaint
for illegal dismissal and non-payment of benefits. Instead of filing its position paper, IBC filed a motion
to dismiss alleging that the Labor Arbiter had no jurisdiction over the case.

IBC contended that Nacpil was a corporate officer who was duly elected by the Board of Directors of
IBC; hence, the case qualities as an intra-corporate dispute falling within the jurisdiction of the Securities
and Exchange Commission (SEC). However, the motion was denied by the Labor Arbiter in an Order
dated 22 April 1998. On 21 August 1998, the Labor Arbiter rendered a Decision stating that Nacpil had
been illegally dismissed. IBC was ordered (1) to reinstate Nacpil to his former position without
diminution of salary or loss of seniority rights, and with full backwages computed from the time of his
illegal dismissal on May 16, 1997 up to the time of his actual reinstatement which is tentatively computed
as of the date of this decision on August 21, 1998 in the amount of P1,231,750.00; and that should Nacpil
be not reinstated within 10 days from receipt of this decision, he shall be entitled to additional backwages
until actually reinstated; and (2) to pay Nacpil P2 Million as and for moral damages, P500,000.00 as and
for exemplary damages, and 10% thereof as and for attorney's fees. IBC appealed to the NLRC, but the
same was dismissed in a Resolution dated 2 March 1999, for its failure to file the required appeal bond in
accordance with Article 223 of the Labor Code. IBC then filed a motion for reconsideration that was
likewise denied in a Resolution dated 26 April 1999. IBC then filed with the Court of Appeals a petition
for certiorari under Rule 65, which petition was granted by the appellate court in its Decision dated 23
November 1999. Nacpil then filed a motion for reconsideration, which was denied by the appellate court
in a Resolution dated 31 August 2000. Nacpil filed the petition for review on certiorari.

Issue:
1. Whether the SEC or the NLRC has jurisdiction over the Nacpils alleged illegal
dismissal.
2. Whether the inclusion of money claims in Nacpils complaint for illegal dismissal
removes the case from the ambit of the Corporation Code.

Held:

1. As Nacpil's appointment as comptroller required the approval and formal action of the IBC's Board of
Directors to become valid, 17 it is clear therefore holds that Nacpil is a corporate officer whose dismissal
may be the subject of a controversy cognizable by the SEC under Section 5(c) of PD 902-A which
includes controversies involving both election and appointment of corporate directors, trustees, officers,
and managers Had Nacpil been an ordinary employee, such board action would not have been required.
Thus, since Nacpil is considered a corporate officer and his claim of illegal dismissal is a controversy that
falls under the jurisdiction of the SEC as contemplated by Section 5 of PD 902-A. The rule is that
dismissal or non-appointment of a corporate officer is clearly an intra-corporate matter and jurisdiction
over the case properly belongs to the SEC, not to the NLRC. As to the argument that the nature of his
functions is recommendatory thereby making him a mere managerial officer, the Court has previously
held that the relationship of a person to a corporation, whether as officer or agent or employee is not
determined by the nature of the services performed, but instead by the incidents of the relationship as they
actually exist.

2. It is of no consequence that Nacpil's complaint for illegal dismissal includes money claims, for such
claims are actually part of the perquisites of his position in, and therefore linked with his relations with,
the corporation. The inclusion of such money claims does not convert the issue into a simple labor
problem. Clearly, the issues raised by Nacpil against the IBC are matters that come within the area of
corporate affairs and management, and constitute a corporate controversy in contemplation of the
Corporation Code.

Hydro Resources Contractors Corporation vs National Irrigation Administration
November 10, 2004

Facts:
In a bidding conducted by the National Irrigation Administration (NIA) in August 1978, Hydro
Resources Contractors Corporation (Hydro) was awarded the contract involving the main civil work of
the Magat River Multi-Purpose Project. The contract prices US$ component was valued at
$60,657,992.37 at the exchange rate of P7.3735 to the dollar or P447,361,706.73.
The project was completed in 1982. During the period of the execution of the contract, the
foreign exchange value of the peso against the US dollar declined and steadily deteriorated. Hydro sent
its claim for the foreign exchange differential to NIA on 1983. Hydro received the letter on January 27,
1987 which said that NIA turned down the Hydros claim with finality
On February 18, 1987, Hydro sent its letter which said that it intended to enter into Arbitration.
Construction Industry Arbitration Commission (CIAC) ruled that Hydro was entitled to the foreign
currency differential claim. Later, the CA reversed the CIACs ruling, mainly, on the ground that Hydros
claim had prescribed based on the provision of the Contract relating to availing arbitration. NIA claimed
that Hydros manifestation to enter into arbitration, through its Administrator, was held beyond the 30-
day period.

Issue:
Whether the Administrator s acts of manifesting the corporations desire to enter into
arbitration and signing the Joint Computation of the foreign differential values were ultra vices acts.

Held:
The Administrator is the highest officer of the NIA. Furthermore, Hydro has been dealing with
the NIA through its Administrator in all its transactions with respect to the contract and subsequently
the foreign currency differential claim. The NIA Administrator is empowered by the Contract to grant
and deny claims. As early as 1983, Hydro and NIA, through its Administrator Cesar Tech, prepared the
Joint Computation which showed that Hydro was entitled to the foreign currency differential.
The records of the case show that NIA itself never disputed its Administrators capacity to sign
the Joint Computation because he knew that the Administrator, in fact, had such capacity.
Further, NIA clearly waived the prescription period when it continued to entertain the claim of
Hydro.










Sps. David et.al. vs. Construction Industry and Arbitration Commission
G.R. No. 159795, July 30, 2004
Facts: On October 7, 1997, respondent-spouses NARCISO and AIDA QUIAMBAO engaged the services
of petitioner CGI, owned by the Spouses David, to design and construct a five-storey concrete
office/residential building on their land in Tondo, Manila. The completion of the construction was
initially scheduled on or before July 16, 1998 but was extended to November 15, 1998 upon agreement of
the parties. It appears, however, that petitioners failed to follow the specifications and plans as previously
agreed upon. Respondents demanded the correction of the errors but petitioners failed to act on their
complaint. Consequently, respondents rescinded the contract on October 31, 1998, after paying 74.84% of
the cost of construction.Respondents then engaged the services of another contractor, RRA and
Associates, to inspect the project and assess the actual accomplishment of petitioners in the construction
of the building. It was found that petitioners revised and deviated from the structural plan of the building
without notice to or approval by the respondents.
Respondents filed a case for breach of contract against petitioners before the Regional Trial Court (RTC)
of Manila. At the pre-trial conference, the parties agreed to submit the case for arbitration to the
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC). After conducting hearings
and two (2) ocular inspections of the construction site, the arbitrator rendered judgment against
petitioners, making them jointly and severally liable with their corporation.
Petitioners appealed to the Court of Appeals which affirmed the arbitrator's Decision but deleted the
award for lost rentals. Unsatisfied, petitioners filed a petition for certiorari, questioning the validity of the
rescission of the contract and the propriety of being held jointly and severally liable as they (the spouses
David) are merely its corporate officers.
Issue: WON the doctrine of separate juridical personality should be observed, albeit finding the Spouses
David jointly and severally liable with their corporation.
Held: The petition was held as unmeritorious primarily because it did not raise a valid question of law.
The SC merely reiterated the factual findings of the CA which stated:
As a general rule, the officers of a corporation are not personally liable for their official
acts unless it is shown that they have exceeded their authority. However, the personal
liability of a corporate director, trustee or officer, along with corporation, may so
validly attach when he assents to a patently unlawful act of the corporation or for bad
faith or gross negligence in directing its affairs.
The following findings of public respondent (CIAC) would support its ruling in holding
petitioners severally and jointly liable with the Corporation:
". . . When asked whether the Building was underdesigned considering the poor
quality of the soil, Engr. Villasenor defended his structural design as adequate.
He admitted that the revision of the plans which resulted in the construction of
additional columns was in pursuance of the request of Engr. David to revise
the structural plans to provide for a significant reduction of the cost of
construction. When Engr. David was asked for the justification for the revision
of the plans, he confirmed that he wanted to reduce the cost of construction. . .
."
McLeod vs NLRC
Ponente: CARPIO, J
Facts:
This is a petition for review to set aside the decision of the CA affirming with modification the
decision of the NLRC. John Mcleod, petitioner, alleged that he is an expert in textile manufacturing and
was hired as Assistant Spinning Manager of UTEX in 1956 and soon was promoted to Senior Manager
and worked for the same company till 1980 under its President, Patricio Lim. It was year 1978 when
respondent Lim formed Peggy Mill, Inc. with Filsyn having controlling interest; that Mcleod was later
absorbed by Peggy Mills as its Vice President and Plant Manager. On January 1986, respondents failed to
pay vacation, leave credits, holiday pay and other benefits stated in the CBA, and requested complainant
to wait as it was short of funds then but the same was not done. August, 1990 the respondents reduced
complainants salary of P60,000 by P9,900. It was 1991 when Filsyn sold Peggy Mills to Far Eastern
Textile Mills who renamed it Sta. Rosa Textile, with Lim as Chairman and President. Far Eastern
continued consulting with respondent regarding technical aspect of reoperation of the plant but when the
complainant reached and applied for retirement age at the end of 1993, he was not given his due but only
a reduced 13
th
month pay. Thereafter, Sta. Rosa Textiles ceased its operation yet twice, complainant wrote
respondents asking for his benefits but no action was done. Respondents alleged that McLeod was former
Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980 and Peggy Mills
closed operations due to irreversible losses at the end of July 1992 but the corporation still exists at
present. They averred that complainant was hired as consultant by Sta. Rosa Textile in November 1992
but he resigned on November 30, 1993; that both are separate legal entities and have no employer
relationship with complainant; and that complainant has no cause of action. They contended that while he
was the VP of the company, the complainant was relied upon to settle a labor problem but due to
negligence and absence the strike continued resulting in closure of the company. The Labor Arbiter asked
the companies to pay the money claim but such decision was reversed by NLRC hence the case herein.
Issue:
1. Whether or not the private respondents may avoid their financial obligations to the petitioner by
invoking the veil of corporate fiction
2. Whether or not Lim should be jointly and solidarily liable with PMI in paying the money claims.
Held:
The SC held that while a corporation may exist for any lawful purpose, the law will regard it as
an association of persons or, in case of two corporations, merge them into one when its corporate legal
entity is used as a cloak for fraud or illegality and this is doctrine of piercing the veil of corporate fiction.
It applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect
fraud, or defend crime or when used as a shield to confuse the legitimate issues, or where a corporation is
the mere alter ego or business conduit of a person, or where it is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation. To disregard the separate juridical personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be presumed. In the case at bar, any of the evils sought to
be prevented by the doctrine are not presented. The Court also reiterated that a corporation is a juridical
entity with legal personality separate and distinct from those acting for and in its behalf and, in general,
from the people comprising it. The rule is that obligations incurred by the corporation, acting through its
directors, officers, and employees, are its sole liabilities Personal liability of corporate directors, trustees
or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they
are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders or other persons; (2) they consent to the issuance
of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the
corporate secretary their written objection; (3) they agree to hold themselves personally and solidarily
liable with the corporation; or (4) they are made by specific provision of law personally answerable for
their corporate action. Since McLeod failed to prove any of the exceptions, he cannot hold Patricio
solidarily liable with PMI. There is nothing substantial on record to show that Patricio acted in bad faith
in terminating McLeods services to warrant Patricios personal liability. PMI had no other choice but to
stop plant operations. It is a necessity. The mere fact that Patricio was president and director of PMI is not
a ground to conclude that he should be held solidarily liable with PMI for McLeods money claims.











ANTONIO C. CARAG vs. NATIONAL LABOR RELATIONS COMMISSION ET.AL (G.R. No.
147590. April 2, 2007)

Facts:
In 1993, National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation
Labor Union (MACLU) (collectively, complainants), on behalf of all of Mariveles Apparel Corporations
(MAC) rank and file employees, filed a complaint against MAC for illegal dismissal brought about by its
illegal closure of business. That on July 8, 1993, MAC ceased its operations with the intention of closing
its factory without following the period required for the notice for such under the Labor code, the notice
filed only on the same day that the operations closed. The Arbiter, after the failure of the possible
settlement, ruled in favour of the complainants motion to implead Atty. Carag and David, in their official
capacity as Chairman of the board and President, respectively. Such grant was for to guarantee the
satisfaction of any judgment award on the basis of Article 212(c) of the Philippine Labor Code, as
amended, which says: "Employer includes any person acting in the interest of an employer, directly or
indirectly. It does not, however, include any labor organization or any of its officers or agents except
when acting as employer." In support of the complainants, the arbiter further ruled that the Atty. Carag
and David, in their capacities as corporate officers, jointly and severally liable with MAC for the money
claims of the employees and also guilty of illegal closure. CA affirmed the decision of the Arbiter and
hence, this petition to the SC.
Issue/s: When is a director personally liable for the debts of the corporation?
Held: The rule is that a director is not personally liable for the debts of the corporation, which has a
separate legal personality of its own. Section 31 of the Corporation Code lays down the exceptions to the
rule: Liability of directors, trustees or officers. Directors or trustees who wilfully and knowingly vote
for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith
in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with
their duty as such directors or trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members and other persons. Section 31 makes
a director personally liable for corporate debts if he wilfully and knowingly votes for or assents to
patently unlawful acts of the corporation. Section 31 also makes a director personally liable if he
is guilty of gross negligence or bad faith in directing the affairs of the corporation. Complainants,
however, neither allege nor present any evidence in their complaint that Carag wilfully assented to any
patently unlawful act or even is guilty of gross negligence or bad faith in directing the affairs of of MAC.
Thus, to hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate
fiction, the bad faith or wrongdoing of the director must be established clearly and convincingly. Bad
faith is never presumed. Bad faith does not connote bad judgment or negligence. Bad faith imports a
dishonest purpose. Bad faith means breach of a known duty through some ill motive or interest. Bad faith
partakes of the nature of fraud. Neither does bad faith arise automatically just because a corporation fails
to comply with the notice requirement of labor laws on company closure or dismissal of employees. The
failure to give notice is not an unlawful act because the law does not define such failure as unlawful. Such
failure to give notice is a violation of procedural due process but does not amount to an unlawful or
criminal act. Such procedural defect is called illegal dismissal because it fails to comply with mandatory
procedural requirements, but it is not illegal in the sense that it constitutes an unlawful or criminal act. For
a wrongdoing to make a director personally liable for debts of the corporation, the wrongdoing approved
or assented to by the director must be a patently unlawful act. Mere failure to comply with the notice
requirement of labor laws on company closure or dismissal of employees does not amount to a patently
unlawful act. Patently unlawful acts are those declared unlawful by law which imposes penalties for
commission of such unlawful acts. There must be a law declaring the act unlawful and penalizing the acts.
Thus, complainants seek to hold Carag personally liable for the debts of MAC based solely on Article 212
(e) of the Labor Code. However, SC have already ruled in McLeod v. NLRC and Spouses Santos v.
NLRC that Article 212 (e) of the Labor Code, by itself, does not make a corporate officer personally
liable for the debts of the corporation. The governing law on personal liability of directors for debts of
the corporation is still Section 31 of the Corporation Code. Thus, we explained in McLeod: Personal
liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently
unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing its
affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or
other persons; (2) they consent to the issuance of watered down stocks or when, having knowledge of
such issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to
hold themselves personally and solidarily liable with the corporation; or (4) they are made by specific
provision of law personally answerable for their corporate action.
Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the
absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such
corporate officer cannot be made personally liable for corporate liabilities. Neither Article 212[e] nor
Article 273 (now 272) of the Labor Code expressly makes any corporate officer personally liable for
the debts of the corporation. Hence, it was error for the arbiter, the NLRC, and the CA to hold Carag
personally liable for the separation pay owed by MAC to complainants based alone on Article 212 (e) of
the Labor Code. Article 212 (e) does not state that corporate officers are personally liable for the unpaid
salaries or separation pay of employees of the corporation. The liability of corporate officers for corporate
debts remains governed by Section 31 of the Corporation Code.
PRIME WHITE CEMENT CORPORATION, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, respondents.
G.R. No. L-68555 March 19, 1993

Facts:
On or about 16 July 1969, Alejandro Te and Prime White Cement Corporation (PWCC) thru its President,
Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement
whereby Te was obligated to act as the exclusive dealer and/or distributor of PWCC of its cement
products in the entire Mindanao area for a term of 5 years and providing among others that (a) the
corporation shall, commencing September, 1970, sell to and supply Te, as dealer with 20,000 bags (94
lbs/bag) of white cement per month; (b) Te shall pay PWCC P9.70, Philippine Currency, per bag of white
cement, FOB Davao and Cagayan de Oro ports; (c) Te shall every time PWCC is ready to deliver the
good, open with any bank or banking institution a confirmed, unconditional, and irrevocable letter of
credit in favor of PWCC and that upon certification by the boat captain on the bill of lading that the goods
have been loaded on board the vessel bound for Davao the said bank or banking institution shall release
the corresponding amount as payment of the goods so shipped."

Right after Te entered into the dealership agreement, he placed an advertisement in a national, circulating
newspaper the fact of his being the exclusive dealer of PWWC's white cement products in Mindanao area,
more particularly, in the Manila Chronicle dated 16 August 1969 and was even congratulated by his
business associates, so much so, he was asked by some of his businessmen friends and close associates if
they can be his sub-dealer in the Mindanao area. Relying heavily on the dealership agreement, Te
sometime in the months of September, October, and December, 1969, entered into a written agreement
with several hardware stores dealing in buying and selling white cement in the Cities of Davao and
Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular supply of the
said commodity, by September, 1970. After Te was assured by his supposed buyer that his allocation of
20,000 bags of white cement can be disposed of, he informed the defendant corporation in his letter dated
18 August 1970 that he is making the necessary preparation for the opening of the requisite letter of credit
to cover the price of the due initial delivery for the month of September 1970, looking forward to PWCC's
duty to comply with the dealership agreement.

In reply to the aforesaid letter of Te, PWCC thru its corporate secretary, replied that the board of directors
of PWCC decided to impose conditions. Several demands to comply with the dealership agreement were
made by Te to PWCC, however, PWCC refused to comply with the same, and Te by force of
circumstances was constrained to cancel his agreement for the supply of white cement with third parties,
which were concluded in anticipation of, and pursuant to the said dealership agreement. Notwithstanding
that the dealership agreement between Te and PWCC was in force and subsisting, PWCC, in violation of,
and with evident intention not to be bound by the terms and conditions thereof, entered into an exclusive
dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao. Te
filed suit. After trial, the trial court adjudged PWCC liable to Alejandro Te in the amount of
P3,302,400.00 as actual damages, P100,000.00 as moral damages, and P10,000 00 as and for attorney's
fees and costs. The appellate court affirmed the said decision. Hence, PWCC filed the petition for review
on certiorari.

Issue:
Whether the "dealership agreement" referred by the President and Chairman of the Board of PWCC is a
valid and enforceable contract.

Held:
The dealership agreement is not valid and unenforceable. Under the Corporation Law, which was then
in force at the time the case arose, as well as under the present Corporation Code, all corporate powers
shall be exercised by the Board of Directors, except as otherwise provided by law. Although it cannot
completely abdicate its power and responsibility to act for the juridical entity, the Board may expressly
delegate specific powers to its President or any of its officers. In the absence of such express delegation, a
contract entered into by its President, on behalf of the corporation, may still bind the corporation if the
board should ratify the same expressly or impliedly. Implied ratification may take various forms.
Furthermore, even in the absence of express or implied authority by ratification, the President as such
may, as a general rule, bind the corporation by a contract in the ordinary course of business, provided the
same is reasonable under the circumstances. These rules are basic, but are all general and thus quite
flexible. They apply where the President or other officer, purportedly acting for the corporations, is
dealing with a third person. Herein, Te was not an ordinary stockholder; he was a member of the Board of
Directors and Auditor of the corporation as well. He was what is often referred to as a "self-dealing"
director. A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his
corporation. In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his
own advantage and benefit. As corporate managers, directors are committed to seek the maximum amount
of profits for the corporation.

Dee vs SEC
July 16, 1991

Facts:
Naga Telecommunications Company, Inc. Natelcos authorized capital was P100,000. It decided
to increase it to P3M and was approved by then Board of Communications in accordance with the Public
Service Act.
In 1977, Natelco entered a contract with Communication Services, Inc. (CSI) for manufacture,
supply, deliver and installation of telephone equipment. Natelco issued 24,000 shares of stocks to CSI
and another12,000 more.
In 1979, an annual stockholders meeting was held and a new board of directors was elected,
unseating as Chairman of the Board and President, petitioner Dee. CSIs legal counsel, Maggay, became
President. Dee and two others who were elected directors, never attended the meeting held by the
Maggay board.
Dee filed a petition with the SEC, questioning the election held in 1979 on the ground that there
was no valid list of stockholders. Furthermore, during the effectivity of the contract with CSI, the
Maggay board entered into other contracts with CSI and issued 113,800 shares of common stock. Dee
asserted that the issuance was invalid on the ground that no prior notification was given to the
stockholders of Natelco.
Issue:
Whether the board of directors has the power to issue stocks without notifying the
stockholders.
Whether the SEC has jurisdiction to declare void the shares of stock issued by Natelco in
violation of the Public Service Act requiring a prior administrative approval of any transfer or sale of
shares of stock of any public service which vest he transferee more than 40% of the subscribed capital
stock.
Held:
The board of directors is vested with the power to shares of stocks. Such authority is lodged in
the board of directors and no stockholders meeting is required since it does not need the stockholders
approval. As ruled in this case, the questioned issuance of 113,800 stocks is not invalid even assuming
that it was made without notice...
The SECs jurisdiction is limited to matters intrinsically connected with the regulation of corporations,
partnerships and associations and those dealing with internal affairs. It can only rule on the validity of
the election of officers and not on whether the issuance of the shares of stocks violated the provisions
of Public Service Act.


Nielson & Co. vs. Lepanto Construction and Mining Co
26 SCRA 540

Facts: Pursuant to an agreement in a management contract regarding the compensation of Nielson,
Lepanto Consolidated will pay Nielson 10% of any dividends declared and paid. Lepanto declared stock
dividends worth one million in 1949 and two million in 1950. This was during the period covered by an
extension in the management contract. Nielson sued for his share in the stock dividends. The Supreme
Court declared that Nielson was entitled to receive 10% of the stock dividends declared or shares of stock
worth 300T. In this motion for reconsideration, Lepanto maintains that the court erred in such order
because it is a violation of the Corporation Law, Section 16.
Issue: Whether or not a corporation can issue stock dividends to a person who is not a stockholder in
payment of services rendered.
Held: The Supreme Court ruled that Nielson is not entitled to a share in the stock dividends since he is
not a stockholder. However, he must still be paid his 10% fee using as the basis for computation the cash
value of the stock dividends declared.
Important Points on the Case of Nielson:
Effects of the Inclusion of a Non-stockholder as a Stock Dividend Beneficiary
1. It deprives a stockholder of his right share in the corporate profits.
2. The proportion of a stockholders interest changes radically to his or her detriment.
3. The non-stockholder benefits without assuming the same risks as those born by a stockholder.
Source of Dividends
General Rule: No Stock dividend may be declared, except out of unrestricted retained earnings.
Retained Earnings the net accumulated earnings of the corporation out transactions with individuals or
firms outside of the corporation. Retained earnings include earnings from the sale of goods or services in
the ordinary course of its business, as well as earnings from the sale of corporate property other than its
stock in trade, at a price higher than cost.
Implicit from the term retained earnings is the limitation that a corporation has no power to declare
dividends unless its legal or stated capital is maintained.




Dela Rama vs. Ma-Ao Sugar Central
Facts:
A derivative suit was filed in the CFI by 4 minority stockholders against Ma-Ao Sugar Central and 4 of
its directors, including J. Araneta, for the dissolution of Ma-Ao Sugar Central and for receivership. The
complaint stated 5 causes of action all of which are based on illegal and ultra vires acts of the corporation
consisting of self-dealing, irregular loans and unauthorized investments, resulting in mismanagement. It
was stated that J. Araneta and the other directors took out the funds of Ma-Ao, without the approval of its
Board of Directors, and delivered them to the various affiliate companies as loans and investments
therein. The lower court also found that there were untrue entries made in the books of the Central, which
could not have been innocent errors. Thus, the CFI ordered J. Araneta to pay the Sugar Central P46,270
with 8% interest, but dismissed the complaint for dissolution. It ordered the Sugar Central to refrain from
making investments to a mining company, a printing company and other companies whose purpose is not
connected with the Sugar Centrals business. The directors were made to pay the costs of the suit. The
petitioners filed the present appeal, as to the judgment of the CFI regarding an investment of the Centrals
funds in Philippine Fiber. The CFI held as regards to that investment that it was perfectly legitimate for
the Central to invest in said company as it was engaged in the manufacture of sugar bags, logically
connected with the sugar milling business. The only requirement necessary to make the said investment
valid was that it be ratified by the Board of Directors in a Resolution, which requirement was complied
with in the present case.
Issue:
Whether or not the lower court erred in holding that the investment of the corporate funds of the Sugar
Central in Philippine Fiber was not a violation of the Corporation Code.
Held:
No. A private corporation, in order to accomplish its purpose as stated in its articles of incorporation, and
subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage,
pledge or dispose of shares, bonds, securities, and other evidences of indebtedness of any domestic or
foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the
approval of the stockholders; but when the purchase of shares of another corporation is done solely for
investment and not to accomplish the purpose of its incorporation, the vote of approval of the
stockholders is necessary. When the investment is necessary to accomplish its purpose or purposes as
stated in it articles of incorporation, the approval of the stockholders is not necessary. Since in this case
the investment was made in a company making bags for sugar, it was necessary for the Sugar Central to
make the said investment. However, the lower courts order for Sugar Central, "to refrain from making
investments in other company whose purpose is not connected with the sugar central business." , should
not be reversed because, Sec. 17- of the Corporation Law allows a corporation "invest its fund in any
other corporation or business, or for any purpose other than the main purpose for which it was organized,"
provided that its board of directors has been so authorized by the affirmative vote of stockholders holding
shares entitling them to exercise at least two-thirds of the voting power.







































ALFREDO MONTELIBANO, ET AL. vs. BACOLOD-MURCIA MILLING CO., INC. (G.R. No.
L-15092. May 18, 1962)

Facts:
Alfredo and Alejandro Montelibano and the limited co-partnership Gonzaga and company had been and
are sugar planters adhered to herein respondent sugar central mill under identical milling contracts. There
case involves the following contracts and terms:
a.) The original contracts executed in 1919 were stipulated to be in force for 30 years starting with
the 1920-21 crop, and provided that the resulting product should be divided in the ratio of 45% for the
mill and 55% for the planters
b.) An Amended Milling Contract form was drawn up and printed sometime in 1936, increasing the
planters' share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but
extending the operation of the milling contract from the original 30 years to 45 years
c.) In August 20, 1936, the Board of Directors of the appellee Bacolod Murcia Milling Co., Inc.,
adopted a resolution (Acta No. 11, Acuerdo No. 1) granting further concessions to the planters over and
above those contained in the printed Amended Milling Contract. Montelibanos signed and executed the
printed Amended Milling Contract on September 10, 1936 but a copy of the resolution of August 20,
1936, signed by the Central's General Manager, was not attached to the printed contract until April 17,
1937.
In 1953, the Montelibanos initiated the present action, contending that three Negros sugar centrals (La
Carlota, Binalbagan-Isabela and San Carlos), with a total annual production exceeding one-third of the
production of all the sugar central mills in the province, had already granted increased participation (of
62.5%) to their planters, and that under paragraph 9 of the resolution of August 20, 1936, heretofore
quoted, the respondent had become obligated to grant similar concessions to the petitioner. Bacolod
Murcia Milling Co., Inc., resisted the claim, and defended by urging that the stipulations contained in the
resolution were made without consideration; that the resolution in question was, therefore, null and
void ab initio, being in effect a donation that was ultra vires and beyond the powers of the corporate
directors to adopt. Court a quo upheld the stand of the respondent and dismissed the complaint. Hence,
recourse to the SC.

Issue/s: Whether or not the resolution is valid and binding between the corporation and the planters

Held: The SC held in the affirmative. There can be no doubt that the directors of the appellee company
had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making
its terms more acceptable to the other contracting parties. The rule is that
"It is a question, therefore, in each case, of the logical relation of the act to the
corporate purpose expressed in the charter. If that act is one which is lawful in itself,
and not otherwise prohibited, is done for the purpose of serving corporate ends, and
is reasonably tributary to the promotion of those ends, in a substantial, and not in a
remote and fanciful, sense, it may fairly be considered within charter powers. The
test to be applied is whether the act in question is in direct and immediate furtherance
of the corporation's business, fairly incident to the express powers and reasonably
necessary to their exercise. If so, the corporation has the power to do it; otherwise,
not."
As the resolution in question was passed in good faith by the board of directors, it is valid and binding,
and whether or not it will cause losses or decrease the profits of the central, the court has no authority to
review them.
"They hold such office charged with the duty to act for the corporation according to
their best judgment, and in so doing they cannot be controlled in the reasonable
exercise and performance of such duty. Whether the business of a corporation should
be operated at a loss during depression, or close down at a smaller loss, is a purely
business and economic problem to be determined by the directors of the corporation
and not by the court. It is a well-known rule of law that questions of policy or of
management are left solely to the honest decision of officers and directors of a
corporation, and the court is without authority to substitute its judgment of the board
of directors; the board is the business manager of the corporation, and so long as it
acts in good faith its orders are not reviewable by the courts."











LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner,
vs.
HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION,
EMDEN ENCARNACION and HORATIO AYCARDO, respondents.
G.R. No. 117188 August 7, 1997

Facts:
Loyola Grand Villas Homeowners Association (LGVHAI) was organized on 8 February 1983 as the
association of homeowners and residents of the Loyola Grand Villas. It was registered with the Home
Financing Corporation, the predecessor of Home Insurance and Guaranty Corporation (HIGC), as the sole
homeowners' organization in the said subdivision under Certificate of Registration 04-197. It was
organized by the developer of the subdivision and its first president was Victorio V. Soliven, himself the
owner of the developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. To the
officers' consternation, they discovered that there were two other organizations within the subdivision
the Loyola Grand Villas Homeowners (North) Association Incorporated (North Association) and the
Loyola Grand Villas Homeowners (South) Association Incorporated (South Association). According to
Emden Encarnaction and Horatio Aycardo, a non-resident and Soliven himself, respectively headed these
associations. They also discovered that these associations had 5 registered homeowners each who were
also the incorporators, directors and officers thereof. None of the members of the LGVHAI was listed as
member of the North Association while 3 members of LGVHAI were listed as members of the South
Association.

The North Association was registered with the HIGC on 13 February 1989 under Certificate of
Registration 04-1160 covering Phases West II, East III, West III and East IV. It submitted its by-laws on
20 December 1988. In July 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A.
Bautista, the head of the legal department of the HIGC, informed him that LGVHAI had been
automatically dissolved for two reasons. First, it did not submit its by-laws within the period required by
the Corporation Code and, second, there was non-user of corporate charter because HIGC had not
received any report on the association's activities. Apparently, this information resulted in the registration
of the South Association with the HIGC on 27 July 1989 covering Phases West I, East I and East II. It
filed its by-laws on 26 July 1989.

These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They
questioned the revocation of LGVHAI's certificate of registration without due notice and hearing and
concomitantly prayed for the cancellation of the certificates of registration of the North and South
Associations by reason of the earlier issuance of a certificate of registration in favor of LGVHAI. On 26
January 1993, after due notice and hearing, Encarnacion and Aycaydo obtained a favorable ruling from
HIGC Hearing Officer Danilo C. Javier (HIGC Case RRM-5-89) recognizing the LGVHAI under
Certificate of Registration 04-197 as the duly registered and existing homeowners association for Loyola
Grand Villas homeowners, and declaring the Certificates of Registration of North and South Associations
as revoked or cancelled, among others. The South Association appealed to the Appeals Board of the
HIGC. In its Resolution of 8 September 1993, the Board dismissed the appeal for lack of merit. Rebuffed,
the South Association in turn appealed to the Court of Appeals. However, in the Decision of 23 August
1994, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board. The South Association
filed the petition for review on certiorari.

Issue:
Whether the LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the
Corporation Code had the effect of automatically dissolving the said corporation.

Held:
Automatic corporate dissolution for failure to file the by-laws on time was never the intention of the
legislature. Moreover, even without resorting to the records of deliberations of the Batasang Pambansa,
the law itself provides the answer to the issue. Taken as a whole and under the principle that the best
interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum), Section 46
reveals the legislative intent to attach a directory, and not mandatory, meaning for the word ''must" in the
first sentence thereof. The second paragraph of the law which allows the filing of the by-laws even prior
to incorporation. This provision in the same section of the Code rules out mandatory compliance with the
requirement of filing the by-laws "within 1 month after receipt of official notice of the issuance of its
certificate of incorporation by the Securities and Exchange Commission." It necessarily follows that
failure to file the by-laws within that period does not imply the "demise" of the corporation. By-laws may
be necessary for the "government" of the corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and related statutes.



China Banking Corp vs. CA
270 SCRA 503

Facts: Galicano Calapatia, Jr. a stockholder of private respondent Valley Golf & Country Club, Inc.
(VGCCI) pledged his Stock Certificate No. 1219 to petitioner China Banking Corporation (CBC).
Petitioner wrote VGCCI requesting that the aforementioned pledge agreement be recorded in its books, to
which the latter complied. Thereafter, Calapatia obtained a loan of P20,000.00 from petitioner, payment
of which was secured by the aforestated pledge agreement still existing between Calapatia and petitioner.
Due to Calapatia's failure to pay his obligation, petitioner filed a petition for extrajudicial foreclosure.
Petitioner informed VGCCI of the above-mentioned foreclosure proceedings and requested that the
pledged stock be transferred to its (petitioner's) name and the same be recorded in the corporate books.
However, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in view of
Calapatia's unsettled accounts with the club. VGCCI claims a prior right over the subject share anchored
mainly on Sec. 3, Art VIII of its by-laws which provides that "after a member shall have been posted as
delinquent, the Board may order his/her/its share sold to satisfy the claims of the Club . . ." It is pursuant
to this provision that VGCCI also sold the subject share at public auction, of which it was the highest
bidder. VGCCI caps its argument by asserting that its corporate by-laws should prevail.
Despite the foregoing, a public auction was held on and petitioner emerged as the highest bidder at
P20,000.00 for the pledged stock. Petitioner was given the corresponding certificate of sale, yet
respondent VGCCI continued to deal with Calapatia and his unsettled accounts and proceeded to conduct
another auction sale. Petitioner protested the sale by VGCCI of the subject share of stock and thereafter
filed a case for its nullification. The SEC ruled in favor of VGCCI, stating in the main that "(c)onsidering
that the said share is delinquent, (VGCCI) had valid reason not to transfer the share in the name of the
petitioner in the books of (VGCCI) until liquidation of delinquency" and subsequently dismissed the case.
However, on appeal, the SEC en banc ruled in favor of petitioner and held that they have a prior right
over the pledged share and because of pledgor's failure to pay the principal debt upon maturity.
Issue: The applicability of VGCCIs by-laws to petitioner.

Held: The Decision of the SEC En Banc was upheld.

Third persons are not bound by the by-laws of a corporation because they are not privy thereto .In order to
be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the
transaction or agreement between said third party and the shareholder was entered into, in this case, at the
time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws
when it sent notice formally recognizing petitioner as pledgee of one of its shares registered in Calapatia's
name. Petitioner's belated notice of said by-laws at the time of foreclosure will not suffice.






Republic vs Sandiganbayan

Facts:
In 1991, the PCGG conducted an ETPI (Eastern Telecommunications Phils., Inc.) stockholders
meeting in le. A PCGG-controlled board of directors was elected. Then another set of board of directors
was elcted when a special meeting was convened by the ETPI resgistered stockholders. Africa, one of the
stockholders, alleged in the Sandiganbayan that the PCGG illegally exercised stockholders rights of ETPI
especially in the election of the PCGG-controlled board.
The Sandiganbayan resolved the claim by ordering that an annual stockholders meeting be held;
that notices will be sent by the Executive Clerk of Court to the registered stockholders of the ETPI; that
the meetng shall be conducted and supervised by Sandiganbayan. PCGG assailed the decision before the
SC and petitioned the court for authority to hold a special stockholders meeting for the purpose of
increasing ETPIs authorized capital stock. SC allowed the special meeting to the Sandiganbayan for
reception of evidence. Sandiganbayan resolved by granting PCGG the authority to hold a special
stockholders meeting for the purpose of increasing ETPIs authorized capital stock and to vote therein
the sequestered Class A shares of stockthat the PCGG was entitled to vote the sequestered shares of
stock. The PCGG-controlled board of directors held a special stockholders meeting and increased the
authorized capital stock.
Africa filed before the SC a petition to nullify the meeting held. He claimed that only the SC, not
the Sandiganbayan, has the authority to authorize PCGG to call for a stockholders meeting and vote the
sequestered shares. He alleged that the Sandiganbayan gravely abused its discretion by not
acknowldging the non-sequestered status of the shares (such as his). The SC consolidated the 2 cases.
Issue:
Whether the PCGG can vote the sequestered ETPI Class A shares in the stockholders meeting
for the election of the board of directors.
Whether the members of Sandiganbayan can participate in the stockholders meeting for the
election of the ETPI Board of Directors.
Held:
The SC held that the PCGG cannot exercise acts of dominion over property sequestered, frozen
or provisionally taken over. The PCGG is a conservator, not the owner. It should make the least possible
interference with the business so that it may be returned to its rightful owner in the same condition if
proven that the enterprise is not ill-gotten. It only has powers of administration.
In sum, the PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or to
amned the Articles of Incorporation for the purpose of increasing the authorized capital stock unless
there is prima facie evidence of showing that the said shares are ill-gotten and there is imminent danger
of dissipation.
Further, the members of the Sandiganbayan cannot participate in the stockholders meeting to
elect the board of directors of the ETPI. The Clerk of Court cannot be appointed to call on such meeting
and to issue notifications for such. The Sandiganbayan shall appoint or the parties can agree to
constitute an impartial and competent committee to conduct and preside the election of the board of
directors.
The SC refers the petitions to the Sandiganbayan for reception of evidence to determine if the
sequestered shares are ill-gotten and if there is imminent danger of dissipation to entitle the PCGG to
vote the sequestered shares in the stockholders meeting.


























Republic vs Cocofed

Facts:
President Corazon C. Aquino issued Executive Orders 1, 5 2 6 and 14. On the explicit premise
that vast resources of the government have been amassed by former President Ferdinand E. Marcos, his
family, and close associates. PCGG was created by EO 1 to assist the President in the recovery of the ill-
gotten wealth whether located in the Philippines or abroad. EO 14 empowered PCGG, assisting by the
Solicitor General and other government agencies, to file and prosecute all cases investigated by it under
EOs 1 and 2. Among the properties sequestered by the Commission were shares of stock in UCPB
registered in the names of the alleged 1M coconut farmers, the so-called CIIF companies and Eduardo
Cojuangco Jr. Sandiganbayan issued a Resolution lifting the sequestration of the subject UCPB shares on
the ground that COCOFED and the so-called CIIF companies had not been impleaded by the PCGG as
parties-defendants in its Complaint for reconveyance, reversion, accounting, restitution and damages. The
Sandiganbayan ruled that the Writ of Sequestration issued by the Commission was automatically lifted
for PCGGs failure to commence the corresponding judicial action within 6 months. The Resolution was
challenged by the PCGG in a Petition for Certiorari in the SC. Meanwhile, upon motion of Cojuangco,
the anti-graft court ordered the holding of elections for the Board of Directors of UCPB. However, the
PCGGs Restraining Order was granted, enjoining the holding of the election. The Court ordered the
UCPB to proceed with the election of its board of directors and allowed the sequestered shares to be voted
by their registered owners. The court issued a Resolution February 1993, declaring that the right of
COCOFED to vote stock in their names at the meetings of the UCPB cannot be conceded at this time.
That right still has to be established by them before the Sandiganbayan. The Court rendered a final
decision nullifying the resolution of the Sandiganbayan which lifted the sequestration of the subject
UCPB shares. On 13 February 2001, UCPB received a letter written on behalf of the COCOFED and the
alleged 1M farmers, demanding the holding of a stockholders meeting for the purpose of electing the
board of directors. The board approved a Resolution calling for a stockholders meeting on March, 2001.
February of same year, COCOFE et al filed the Class Action Omnibus Motion in Sandiganbayan,
asking to enjoin the PCGG from voting the UCPB shares of stock registered in the names of the 1M
coconut farmers; and to enjoin the latter from voting the SMC shares registered in the names of the 14
CIIF holding companies including those registered in the name of the PCGG. The Sandiganbayan, after
hearing the parties on oral argument, authorized COCOFED, et. al. as are all other registered stockholders
of the UCPB until further orders from the Court, to exercise their rights to vote their shares of stock and
themselves to be voted upon in the UCPB at the scheduled Stockholders Meeting on 6 March 2001 or on
any subsequent continuation or resetting thereof, and to perform acts as will normally follow in the
exercise of these rights as registered stockholders. The Republic of the Philippines represented by the
PCGG filed the petition for certiorari.

Issue: Whether or not the PCGG can vote the sequestered UCPB shares.

Held:
The registered owner of the shares of a corporation exercises the right and the privilege of voting.
This principle applies even to shares that are sequestered by the government, over which the PCGG as a
mere conservator cannot, as a general rule, exercise acts of dominion. On the other hand, it is authorized
to vote these sequestered shares registered in the names of private persons and acquired with allegedly ill-
gotten wealth, if it is able to satisfy the two-tiered test. Two clear public character exceptions under
which the government is granted the authority to vote the shares exist (1) Where government shares are
taken over by private persons or entities who/which registered them in their own names, and (2) Where
the capitalization or shares that were acquired with public funds somehow landed in private hands. It was
stated that when sequestered shares registered in the names of private individuals or entities are alleged to
have been acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the
sequestered shares in the name of private individuals or entities are shown, prima facie, to have been (1)
originally government shares, or (2) purchased with public funds or those affected with public interest,
the two-tiered test does not apply. Rather, the public character exceptions that is, the government shall
vote the shares, will prevail. Herein, the money used to purchase the sequestered UCPB shares came from
the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the coconut levy funds. As the
coconut levy funds are not only affected with public interest, but are in fact prima facie public funds, the
Court believes that the government should be allowed to vote the questioned shares, because they belong
to it as the prima facie beneficial and true owner. The Sandiganbayan committed grave abuse of
discretion in grossly contradicting and effectively reversing existing jurisprudence, and in depriving the
government of its right to vote the sequestered UCPB shares which are prima facie public in character.









FRANCIS CHUA vs. HON. COURT OF APPEALS and LYDIA C. HAO (G.R. No. 150793.
November 19, 2004)

Facts:
Private respondent Lydia Hao, treasurer of Siena Realty Corporation (SRC), filed a complaint-
affidavit with the City Prosecutor of Manila charging herein petitioner and his wife, Elsa Chua, of four
counts of falsification of public documents pursuant to Article 172 in relation to Article 171 of the
Revised Penal Code. The said accused prepared, certified, and falsified the Minutes of the Annual
Stockholders meeting of the Board of Directors of the SRC, duly notarized before a Notary Public, and
therefore, a public document, by causing it to appear that Hao was present and has participated in said
proceedings, when in truth and in fact, as the said accused fully well knew that Hao was never present
during the Annual Stockholders Meeting held on April 30, 1994 and neither has participated in the
proceedings thereof. After the arraignment and the testimony of Hao in the MeTC, Chua moved to
complainant's counsels as private prosecutors in the case on the ground that Hao failed to allege and prove
any civil liability in the case. After granting such, Hao filed a petition for certiorari (SCA No. 99-94846 )
entitled Lydia C. Hao, in her own behalf and for the benefit of Siena Realty Corporation v. Francis Chua,
and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial Court of Manila
before RTC Manila. RTC reversed the order of the MeTC and hence, allowed the intervention of the
private prosecutors in the preosecurtion of the civil liability of the criminal case in behalf of Hao. Chua
appealed but the CA affirmed in toto and subsequently denied the reconsideration of herein petitioner.

Issue/s: Whether or not the criminal complaint in the nature of a derivative suit

Held: No. Petitioner misapprehends the ruling in Western Institute. In that case, a mere appeal in the civil
aspect cannot be treated as a derivative suit because the appeal lacked the basic requirement that it must
be alleged in the complaint that the shareholder is suing on a derivative cause of action for and in behalf
of the corporation and other shareholders who wish to join. Under Section 36 of the Corporation Code,
read in relation to Section 23, where a corporation is an injured party, its power to sue is lodged with its
board of directors or trustees. An individual stockholder is permitted to institute a derivative suit on
behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of
the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation
as the real party in interest. A derivative action is a suit by a shareholder to enforce a corporate cause of
action. The corporation is a necessary party to the suit. And the relief which is granted is a judgment
against a third person in favor of the corporation. Similarly, if a corporation has a defense to an action
against it and is not asserting it, a stockholder may intervene and defend on behalf of the corporation.
Under the Revised Penal Code, every person criminally liable for a felony is also civilly liable.
In the criminal case, the complaint was instituted by respondent against petitioner for falsifying
corporate documents whose subject concerns corporate projects of Siena Realty Corporation. Clearly,
Siena Realty Corporation is an offended party. Hence, Siena Realty Corporation has a cause of action.
And the civil case for the corporate cause of action is deemed instituted in the criminal action.
However, the board of directors of the corporation in this case did not institute the action against
petitioner. Private respondent was the one who instituted the action. Private respondent asserts that she
filed a derivative suit in behalf of the corporation. This assertion is inaccurate. Not every suit filed in
behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is required that the
minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is
suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly
situated who may wish to join him in the suit. It is a condition sine qua non that the corporation be
impleaded as a party because not only is the corporation an indispensable party, but it is also the present
rule that it must be served with process. The judgment must be made binding upon the corporation in
order that the corporation may get the benefit of the suit and may not bring subsequent suit against the
same defendants for the same cause of action. In other words, the corporation must be joined as party
because it is its cause of action that is being litigated and because judgment must be a res
adjudicata against it. In the criminal complaint filed by herein respondent, nowhere is it stated that she is
filing the same in behalf and for the benefit of the corporation. Thus, the criminal complaint including the
civil aspect thereof could not be deemed in the nature of a derivative suit.



















EXPERTRAVEL & TOURS, INC., petitioner,
vs.
COURT OF APPEALS and KOREAN AIRLINES, respondent.
G.R. No. 152392 May 26, 2005

Facts:
Korean Air Lines (KAL) filed a complaint against Expert Travel & Tours Inc (ETI) with the RTC of
Manila for collection of sum of money plus attorneys fees and damages. The verification and
certification against non-forum shopping was signed by Atty. Mario Aguinaldo, who indicated therein
that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint.
ETI moved to dismiss the complaint on the ground that said lawyer was not authorized to execute the
verification and certification against non-forum shopping as required by Section 5 Rule 7 of the Rules of
Court. KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent and was reported
as such with the SEC as required by the Corporation Code of the Philippines. Also, it further alleged that
Atty. Aguinaldo was the Corporate Secretary of KAL.
At the hearing, Atty. Aguinaldo claimed that thru a resolution of KAL Board of Directors approved
during a special meeting, he was authorized to file the complaint. Thru an affidavit submitted by its
general manager, it was alleged that a special teleconference was held and and in that same teleconference
the Board approved a resolution authorizing him to execute the certification against non-forum shopping
and to file the complaint. However, the general manager provided no written copy of the said resolution.
The trial court gave due credence to the claim of Atty. Aguinaldo and the general manager. ETI filed a
motion for reconsideration, contending that the court cannot take judicial notice of the said teleconference
without any hearing, which was denied by the RTC. CA also denied the appeal.

Issue:
Whether or not the court can take judicial notice of the said teleconference.

Held:
Things of common knowledge of which courts take judicial matters coming to the knowledge of men
generally in the course of the ordinary experiences of life, or they may be matters which are generally
accepted by mankind as true and are capable of ready and unquestionable determination. As the common
knowledge of man ranges far and wide, a wide variety of particular facts have been judicially noticed as
being matters of common knowledge. But a court cannot take judicial notice of any fact which, in part, is
dependent on the existence or non-existence of a fact of which the court has no constructive knowledge.
In this age of modern technology, the courts may take judicial notice that business transactions may be
made by individuals through teleconferencing. Teleconferencing is interactive group communication
through an electronic medium, bringing people together under one roof even though they are separated by
hundreds of miles.
In the Philippines, teleconferencing and videoconferencing of members of the board of directors of
private corporation is is a reality, in light of RA 8792. The SEC issued SEC memorandum Circular No.
15, on November 30, 2001, providing the guidelines to be complied with related to such conferences.
The Court is not convinced that one was conducted; even if there had been one, the Court is not inclined
to believe that a board resolution was duly passed specifically authorizing Atty. Aguinaldo to file the
complaint and execute the required certification against non forum shopping.


































Lee vs CA
February 4, 1992
Facts:
International Corporate Banck filed a compliant for a sum of money against the private
respondents, Sacoba Manufacturing, who also filed a 3rd-party complaint against ALFA and Lee.
Alias summons was issued upon ALFA through the DBP since, according to the petitioner, DBP
managed ALFA. DBP asserted that it was not authorized to receive the summons because ALFA had a
separate and distinct personality. The court ordered the respondents to issue appropriate summons
upon ALFA. Petitioners claimed that they were no longer officers of ALFA and the respondents should
have availed of another mode of service. Respondents asserted in their Comment that the voting trust
agreement between the stockholders of ALFA and the DBP prove that the petitioners are still officers of
ALFA and service upon them was proper. The petitioners, in turn, deny the contention, using as proof
the voting trust agreement.
The trial court rendered a decision that the service of summons was not properly done because
the petitioners were no longer corporate ofificers of ALFA. CA reversed the decision.
The petitioners maintain that with the execution of the voting trust agreement between them
and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned
and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue of the voting trust
agreement the petitioners can no longer be considered directors of ALFA.
Issue:
Whether the voting trust agreement divested the corporate officers of their positions.
Held:
The petitioners contention is correct. As decided by the SC, the most immediate effect of a
voting trust agreement on the status of a stockholder who is a party to its execution (from legal title-
holder or owner of the shares subject of the voting trust agreement), he becomes the equitable or
beneficial owner. By virtue of the voting trust agreement executed in 1981 disposed of all their shares
through assignment and delivery in favor of the DBP, as trustee.
The petitioners ceased to own at least one share as required under Section 23 of the
Corporation Code. They also stopped taking part in the management of the corporation. The transfer of
shares from the stockholders of ALFA to the DBP is the essence of the subject voting trust agreement
when ALFA assigned and delivered to DBP the certificate of the shares of stock. The agreement
transfered the legal ownership of the stocks to DBP.


Garcia vs. Lim Chu Sing
59 Phil 562

Facts: Defendant-appellant Lim Chu Sing executed and delivered to the Mercantile Bank of China a
promissory note for the sum of P19,605.17 with interest thereon at 6 per cent per annum. One of the
conditions stipulated in said promissory note is that in case of defendant's default in the payment of any of
the monthly installments, as they become due, the entire amount or the unpaid balance thereof together
with interest thereon at 6 per cent per annum, shall become due and payable on demand. The defendant
had been making several partial payments thereon, leaving an unpaid balance of P9,105.17. However, he
defaulted in the payment of several installments by reason of which the unpaid balance of P9,105.17 on
the promissory note has ipso facto become due and demandable.

The debt which is the subject matter of the complaint was not really an indebtedness of the defendant but
of LimCuan Sy, who had an account with the plaintiff bank in the form of "trust receipts" guaranteed by
the defendant as surety and with chattel mortgage securities. The plaintiff bank, without the knowledge
and consent of the defendant, foreclosed the chattel mortgage and privately sold the property covered
thereby. Inasmuch as Lim Cuan Sy failed to comply with his obligations, the plaintiff required the
defendant, as surety, to sign a promissory note for the sum of P19,105.17 payable in the manner
hereinbefore stated The defendant had been paying the corresponding installments until the debt was
reduced to the sum of P9,105.17 claimed in the complaint. The defendant is the owner of shares of stock
of the plaintiff Mercantile Bank of China amounting to P10,000.

Issue: Whether or not it is proper to compensate the defendant-appellant's indebtedness of P9,105.17,
which is claimed in the complaint, with the sum of P10,000 representing the value of his shares of stock
with the plaintiff entity, the Mercantile Bank of China.
Held: There is no sufficient ground to allow a compensation.

The shares of stock of a banking corporation do not constitute an indebtedness thereof to the stockholder
and, therefore, the latter is not a creditor of the former for such shares.






















Lumanlan vs Cura
Facts:
Herein case is an appeal from a decision rendered by the CFI of Tarlac. The defendant is a corporation
organized in the Philippines. The plaintiff Bonifacio Lumanlan subscribed for 300 shares of the
corporation for P15,000. The creditors of the said corporation filed a suit praying that a receiver be
appointed because as it appeared, the corporation at that time has no assets except credits. The appointed
receiver filed a collection case against Lumanlan since he did not pay P13,500 of the subscription. Court
decided in favor of the corporation and an appeal was made. While the case was on appeal, the company
and Lumanlan entered into a compromise whereby the latter would directly pay the creditor of the
company. In exchange, the company would forego whatever balance remained on the unpaid subscription.
Afterwards, the corporation still sued him for the balance because the company still had unpaid creditors.
Lumanlans defense was the compromise agreement.
Issue:
Whether or not the corporation still has the right to collect to Lumanlan the unpaid subscription.
Held:
The Court held that the agreement cannot prejudice the creditors. The subscriptions constitute a fund to
which they have a right to look to for satisfaction of their claims. Therefore, the corporation has a right to
collect all unpaid stock subscription and any other amount which may due to it, notwithstanding the
compromise agreement.









ONG YONG ET. AL vs. DAVID S. TIU ET. AL (G.R. No. 144476. April 8, 2003)
Facts:
In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage
and incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which
was owned by the Tius, encountered dire financial difficulties. It was heavily indebted to the Philippine
National Bank (PNB) for P190 million. To save the 2 lots where the mall was being built
from foreclosure, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T.
Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. The Tuis and Ongs entered a Pre-
Subscription Agreement whereby they agreed: (a) To maintain equal shareholdings in FLADC: the Ongs
were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to subscribe to
an additional 549,800 shares at P100.00 each in addition to their already existing subscription of 450,200
shares; (b) that the Tius were entitled to nominate the Vice-President and the Treasurer plus 5 directors
while the Ongs were entitled to nominate the President, the Secretary and 6 directors (including the
chairman) to the board of directors of FLADC and; (c) that Ongs are given the right to manage and
operate the mall. After that agreement, the Ongs paid P100 million in cash for their subscription to
1,000,000 shares of stock while the Tius committed to contribute to FLADC a four-storey building and
two parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000
shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800 stock subscription therein.
The Ongs paid in another P70 million to FLADC and P20 million to the Tius over and above their P100
million investment, the total sum of which (P190 million) was used to settle the P190 million mortgage
indebtedness of FLADC to PNB. But on February 23, 1996, the Tuis rescinded the Pre-Subscription
Agreement and accused Ongs of (1) refusing to credit to them the FLADC shares covering their real
property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and
performing their duties as Vice-President and Treasurer, respectively, and (3) refusing to give them the
office spaces agreed upon. Ongs rebutted by claiming that it was the Tuis who refused to comply with the
corporate duties assigned to them. On February 27, 1996, the Tuis went to the SEC seeking confirmation
of their rescission of the Pre-Subscription Agreement, to which the hearing officer granted. Both parties
appealed. SEC EN BANC affirmed the rescission. The CA also affirmed and claimed that the Ongs and
the Tius were in pari delicto (which would not have legally entitled them to rescission) but, "for practical
considerations," that is, their inability to work together, it was best to separate the two groups by
rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding
practically everything else to the Tius. The SC decided on the matter by affirming the court a quo.
However, upon the MR filed by the Ongs, SC reconsidered its decision.
Issue/s: Whether or not the Tius could legally rescind the Pre-Subscription Agreement
Held: SC held in the negative. The subject matter of the contract was the 1,000,000 unissued shares of
FLADC stock allocated to the Ongs therefore, the parties' Pre-Subscription Agreement was in fact a
subscription contract as defined under Section 60, Title VII of the Corporation Code: Any contract for
the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be
deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it
as a purchase or some other contract. A subscription contract necessarily involves the corporation as
one of the contracting parties since the subject matter of the transaction is property owned by the
corporation its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-
Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was,
from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius.
Hence, a civil case for rescission on the ground of breach of contract filed by the Tius in their personal
capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not the
Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs inasmuch
as it was the real party in interest therein. Moreover, the Corporation Code, SEC rules and even the Rules
of Court provide for appropriate and adequate intra-corporate remedies, other than rescission, in
situations like this. A contrary doctrine will tread on extremely dangerous ground because it will allow
just any stockholder, for just about any real or imagined offense, to demand rescission of his subscription
and call for the distribution of some part of the corporate assets to him without complying with the
requirements of the Corporation Code. Also, the Trust Fund Doctrine provides that subscriptions to the
capital stock of a corporation constitute a fund to which the creditors have a right to look for the
satisfaction of their claims. Such procedure for the distribution of capital assets allows only the
distribution of corporate capital in three instances: (1) amendment of the Articles of Incorporation to
reduce the authorized capital stock, (2) purchase of redeemable shares by the corporation, regardless of
the existence of unrestricted retained earnings, and (3) dissolution and eventual liquidation of the
corporation. Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to
acquire its own shares and in Section 122 on the prohibition against the distribution of corporate assets
and property unless the stringent requirements therefor are complied with. The distribution of corporate
assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or
directors of the corporation, or even, for that matter, on the earnest desire of the court a quo "to prevent
further squabbles and future litigations" unless the indispensable conditions and procedures for the
protection of corporate creditors are followed. Otherwise, the "corporate peace" laudably hoped for by the
court will remain nothing but a dream because this time, it will be the creditors' turn to engage in
"squabbles and litigations" should the court order an unlawful distribution in blatant disregard of the Trust
Fund Doctrine.
RICARDO A. NAVA, petitioner-appellant.
vs.
PEERS MARKETING CORPORATION, RENATO R. CUSI and AMPARO CUSI, respondents-
appellees.
G.R. No. L-28120 November 25, 1976

Facts:
Teofilo Po as an incorporator subscribed to 80 shares of Peers Marketing Corporation at P100 a share or a
total par value of P8,000. Po paid P2,000 or 25% of the amount of his subscription. No certificate of stock
was issued to him or, for that matter, to any incorporator, subscriber or stockholder. On 2 April 1966 Po
sold to Ricardo A. Nava for P2,000 20 of his 80 shares. In the deed of sale Po represented that he was "the
absolute and registered owner of twenty shares" of Peers Marketing Corp. Nava requested the officers of
the corporation to register the sale in the books of the corporation. The request was denied because Po has
not paid fully the amount of his subscription. Nava was informed that Po was delinquent in the payment
of the balance due on his subscription and that the corporation had a claim on his entire subscription of 80
shares which included the 20 shares that had been sold to Nava. On 21 December 1966 Nava filed a
mandamus action in the Court of First Instance of Negros Occidental, Bacolod City Branch to compel the
corporation and Renato R. Cusi and Amparo Cusi, its executive vice-president and secretary respectively,
to register the said 20 shares in Nava's name in the corporation's transfer book. The corporation and the
Cusis pleaded the defense that no shares of stock against which the corporation holds an unpaid claim are
transferable in the books of the corporation. After hearing, the trial court dismissed the petition. Nava
appealed.

Issue:
Whether the officers of Peers Marketing Corporation can be compelled by mandamus to enter in its stock
and transfer book the sale made by Po to Nava of the 20 shares forming part of Po's subscription of 80
shares, with a total par value of P8,000 and for which Po had paid only P2,000, it being admitted that the
corporation has an unpaid claim of P6,000 as the balance due on Po's subscription and that the 20 shares
are not covered by any stock certificate.

Held:
The transfer made by Po to Nava is not the "alienation, sale, or transfer of stock" that is supposed to be
recorded in the stock and transfer book, as contemplated in section 52 of the Corporation Law. As a rule,
the shares which may be alienated are those which are covered by certificates of stock. The twenty shares
in question, however, are not covered by any certificate of stock in Po's name. Moreover, the corporation
has a claim on the said shares for the unpaid balance of Po's subscription. A stock subscription is a
subsisting liability from the time the subscription is made. The subscriber is as much bound to pay his
subscription as he would be to pay any other debt. The right of the corporation to demand payment is no
less incontestable. A corporation cannot release an original subscriber from paying for his shares without
a valuable consideration or without the unanimous consent of the stockholders. Thus, herein, there is no
clear legal duty on the part of the officers of the corporation to register the 20 shares in Nava's name. As
no stock certificate was issued to Po; and without the stock certificate, which is the evidence of ownership
of corporate stock, the assignment of corporate shares is effective only between the parties to the
transaction. The delivery of the stock certificate, which represents the shares to be alienated, is essential
for the protection of both the corporation and its stockholders.















Lim Tay vs. Court of Appeals
GR 126891, 5 August 1998

Facts: On 8 January 1980, Sy Guiok secured a loan from Lim Tay in the amount of P40,000 payable
within 6 months. To secure the payment of the aforesaid loan and interest thereon, Guiok executed a
Contract of Pledge in favor of Lim Tay whereby he pledged his 300 shares of stock in the Go Fay &
Company Inc. Guiok obliged himself to pay interest on said loan at the rate of 10% per annum from the
date of said contract of pledge. On the same date, Alfonso Sy Lim secured a loan, from Lim Tay in the
amount of P40,000 payable in 6 months. To secure the payment of his loan, Sy Lim executed a "Contract
of Pledge" covering his 300 shares of stock in Go Fay & Co. Under said contract, Sy Lim obliged himself
to pay interest on his loan at the rate of 10% per annum from the date of the execution of said contract.
The contractual stipulation in the pledge showed that Lim Tay was merely authorized to foreclose the
pledge upon maturity of the loans, not to own them. Such foreclosure is not automatic, for it must be done
in a public or private sale. Guiok and Sy Lim endorsed their respective shares of stock in blank and
delivered the same to Lim Tay. However, Guiok and Sy Lim failed to pay their respective loans and the
accrued interests thereon to Lim Tay. In October 1990, Lim Tay filed a "Petition for Mandamus" against
Go Fay & Co., with the SEC (SEC Case 03894), praying that an order be issued directing the corporate
secretary of Go Fay & Co. to register the stock transfers and issue new certificates in favor of Lim Tay;
and ordering Go Fay & Co. to pay all dividends due and unclaimed on the said certificates to Lim Tay. In
the interim, Sy Lim died. Guiok and the Intestate Estate of Alfonso Sy Lim, represented by Conchita Lim,
filed their Answer-In-Intervention with the SEC.

After due proceedings, the SEC hearing officer promulgated a Decision dismissing Lim Tay's Complaint
on the ground that although the SEC had jurisdiction over the action, pursuant to the Decision of the
Supreme Court in the case of "Rural Bank of Salinas et. al. versus Court of Appeals, et al., 210 SCRA
510," he failed to prove the legal basis for the secretary of the Corporation to be compelled to register
stock transfers in favor of Lim Tay and to issue new certificates of stock under his name. Lim Tay
appealed the Decision of the hearing officer to the SEC, but, on 7 March 1996, the SEC promulgated a
Decision, dismissing Lim Tay's appeal. On appeal to the Court of Appeals, the appellate court debunked
Lim Tay's claim that he had acquired ownership over the shares by virtue of novation, holding that
Guiok's and Sy Lim's indorsement and delivery of the shares were pursuant to Articles 2093 and 2095 of
the Civil Code and that Lim Tay's receipt of dividends was in compliance with Article 2102 of the same
Code. Lim Tay's claim that he had acquired ownership of the shares by virtue of prescription was likewise
dismissed by the appellate court. Lim Tay brought before the Supreme Court a Petition for Review on
Certiorari in accordance with Rule 45 of the Rules of Court.

Issue: Whether Lim Tay is the owner of the shares previously subjected to pledge, for him to cause the
registration of said shares in his own name.

Held: Lim Tay's ownership over the shares was not yet perfected when the Complaint was filed. The
contract of pledge certainly does not make him the owner of the shares pledged. Further, whether
prescription effectively transferred ownership of the shares, whether there was a novation of the contracts
of pledge, and whether laches had set in were difficult legal issues, which were unpleaded and unresolved
when Lim Tay asked the corporate secretary of Go Fay to effect the transfer, in his favor, of the shares
pledged to him. Lim Tay has failed to establish a clear legal right. Lim Tay's contention that he is the
owner of the said shares is completely without merit. Lim Tay does not have any ownership rights at all.
At the time Lim Tay instituted his suit at the SEC, his ownership claim had no prima facie leg to stand on.
At best, his contention was disputable and uncertain. Lim Tay cannot claim to have acquired ownership
over the certificates of stock through extraordinary prescription, as provided for in Article 1132 of the
Civil Code. What is required by Article 1132 is possession in the concept of an owner. Herein, Lim Tay's
possession of the stock certificates came about because they were delivered to him pursuant to the
contracts of pledge. His possession as a pledgee cannot ripen into ownership by prescription. Lim Tay
expressly repudiated the pledge, only when he filed his Complaint and claimed that he was not a mere
pledgee, but that he was already the owner of the shares. Based on the foregoing, Lim Tay has not
acquired the certificates of stock through extraordinary prescription. Neither did Lim Tay acquire the
shares by virtue of a novation of the contract of pledge. Novation cannot be presumed by Guiok's and Sy
Lim's indorsement and delivery of the certificates of stock covering the 600 shares, nor Lim Tay's receipt
of dividends from 1980 to 1983, nor the fact that Guiok and Sy Lim have not instituted any action to
recover the shares since 1980. Novation is never presumed inferred.





Rural Bank of Lipa vs CA
September 28, 2001
Facts:
Private Respondent Villanueva, a stockholder of Rural Bank of Lipa, assigned his shares,
including those owned by other stockholders in their control, in favor of the shareholders of the bank.
Villanueva was indebted to the Bank so the parties agreed that the Bank would be entitled to liquidate
their shares in case of non-payment within the stipulated period.
Villanueva spouses failed to pay in spite of demands. The bank further demanded that their
certificate of stocks be surrendered. The respondents did not do so. Later, the Spouses learned that
their shares of stock were converted to Treasury Stocks. They questioned the validity of the conversion.
Meanwhile, new directors and set of officers were elected. The Spouses were not notified of
such. The contention of the bank was that Villanueva were no longer entitled to notice since he had
relinquished his rights in favor of the Bank. This prompted a petition with the SEC, questioning the
validity of the meeting and the election. Villanuevas claimed that they were deprived of their voting
rights as holders of common stocks. SEC issued a TRO upon the directors and officers of the Bank.
A petition for certiorari was eventually filed by the Bank, contending that Villanueva and his co-
respondents were no longer stockholders. The SEC en banc denied the petition. In a petition for review,
CA upheld the decison.
Issue:
Whether the ownership of the shares is validly transferred to the Bank.
Held:
The Corporation Code provides that Shares of stock so issued are personal property and may
be transferred by delivery of the certificate or certificates indorsed by the owner...
While it is true that there was a Deed of Assignment, such is insufficient to validly transfer that
ownership of shares. Title may be vested in the transferee only by delivery of duly indorsed certificates,
and to be binding against 3rd persons the fact must be recorded in the books of the corporation.






Ponce vs Alsons Cement Corporation
Facts:
On 25 January 1996, Vicente C. Ponce, filed a complaint with the SEC for mandamus and damages
against Alsons Cement Corporation and its corporate secretary Francisco M. Giron, Jr. Ponce alleged that
"the late Fausto G. Gaid was an incorporator of Victory Cement Corporation, having subscribed to and
fully paid 239,500 shares of said corporation; that on 8 February 1968, Ponce and Fausto Gaid executed a
"Deed of Undertaking" and "Indorsement" whereby the latter acknowledges that the former is the owner
of said shares and he was therefore assigning/endorsing the same to Ponce; that VCC was renamed Floro
Cement Corporation but was later renamed Alsons Cement Corporation; that from the time of
incorporation of VCC up to the present, no certificates of stock corresponding to the 239,500 subscribed
and fully paid shares of Gaid were issued in the name of Fausto G. Gaid and/or Ponce; and that despite
repeated demands, ACC and Giron refused and continue to refuse without any justifiable reason to issue
to Ponce the certificates of stocks. ACC and Giron moved to dismiss. SEC. granted the motion to dismiss
in an Order dated 29 February 1996. Ponce appealed. On 6 January 1997, the Commission En Banc
reversed the appealed Order and directed SEC to proceed with the case. In ruling that a transfer or
assignment of stocks need not be registered first before it can take cognizance of the case to enforce
Ponce's rights as a stockholder, the Commission En Banc cited the Supreme Court's ruling in Abejo vs.
De la Cruz, 149 SCRA 654 (1987). Their MR having been denied, ACC and Giron appealed the decision
of the SEC En Banc and the resolution denying their motion for reconsideration to CA. In its decision,
CA held that in the absence of any allegation that the transfer of the shares between Gaid and Ponce was
registered in the stock and transfer book of ACC, Ponce failed to state a cause of action. Thus, said the
appellate court denied the petition. Ponce filed the petition for review on certiorari.

Issue:
Whether Ponce can require the corporate secretary, Giron, to register Gaids shares in his name.

Held:
Fausto Gaid was an original subscriber of ACC's 239,500 shares. From the Amended Articles of
Incorporation approved on 9 April 1995, each share had a par value of P1.00 per share. Ponce had not
made a previous request upon the corporate secretary of ACC, Francisco M. Giron Jr., to record the
alleged transfer of stocks. Pursuant to Section 63 of the Corporation Code, a transfer of shares of stock
not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is
concerned. As between the corporation on the one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is
only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully
regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of
the corporation to recognize such rights as it is mandated by law to recognize arises. Hence, without such
recording, the transferee may not be regarded by the corporation as one among its stockholders and the
corporation may legally refuse the issuance of stock certificates in the name of the transferee even when
there has been compliance with the requirements of Section 64 of the Corporation Code. The stock and
transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a
stockholder. Where a transferee is not yet recognized as a stockholder, the corporation is under no
specific legal duty to issue stock certificates in the transferee's name. The deed of undertaking with
indorsement presented by Ponce does not establish, on its face, his right to demand for the registration of
the transfer and the issuance of certificates of stocks. As a general rule, as between the corporation on the
one hand, and its shareholders and third persons on the other, the corporation looks only to its books for
the purpose of determining who its shareholders are, so that a mere indorsee of a stock certificate,
claiming to be the owner, will not necessarily be recognized as such by the corporation and its officers, in
the absence of express instructions of the registered owner to make such transfer to the indorsee, or a
power of attorney authorizing such transfer. Thus, absent an allegation that the transfer of shares is
recorded in the stock and transfer book of ACC, there appears no basis for a clear and indisputable duty or
clear legal obligation that can be imposed upon the corporate secretary, so as to justify the issuance of the
writ of mandamus to compel him to perform the transfer of the shares to Ponce.








RAMON A. GONZALES vs. THE PHILIPPINE NATIONAL BANK (G.R. No. L-33320. May 30,
1983.)

Facts: Before the present action, the petitioner instituted several cases questioning different transactions
entered into by the Bank with other parties. On January 11, 1969, petitioner addressed a letter to the
President of the Bank, requesting submission to look into the records of its transactions covering the
purchase of a sugar central by the Southern Negros Development Corp. (SNDC) to be financed by
Japanese suppliers and financiers; its financing of the Cebu-Mactan Bridge to be constructed by V.C.
Ponce, Inc. and the construction of the Passi Sugar Mills in Iloilo. However, the Asst. Vice President and
Legal Counsel of the Bank denied his request for being not germane to his interest as a one share
stockholder and for the cloud of doubt as to his real intention and purpose in acquiring said share. Hence,
petitioner instituted in the CFI Manila a special civil action for mandamus against the respondent praying
that the latter be ordered to allow him to look into the books and records of the respondent bank in order
to satisfy himself as to the truth of the published reports that the respondent has guaranteed the obligation
of SNDC in the purchase of a US$23 million sugar-mill to be financed by Japanese suppliers and
financiers; that the respondent is financing the construction of the P21 million Cebu-Mactan Bridge to be
constructed by V.C. Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by the Honiron
Philippines, Inc., as well as to inquire into the validity of said transactions. The petitioner has alleged had
his written request for such examination was denied by the respondent. The trial court having dismissed
the petition for mandamus, the instant appeal to review the said dismissal was filed
Issue/s: Whether or not the lower court erred of having ruled that his alleged improper motive in asking
for an examination of the books and records of the respondent bank disqualifies him to exercise the right
of a stockholder to such inspection under Section 51 of Act No. 1459, as amended which provides: The
record of all business transactions of the corporation and the minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the corporation at reasonable hours
Held: Petitioner may no longer insist on his interpretation of Section 51 of Act No. 1459, as amended,
regarding the right of a stockholder to inspect and examine the books and records of a corporation. The
former Corporation Law (Act No. 1459, as amended) has been replaced by BP 68 ("Corporation Code of
the Philippines). The right of inspection granted to a stockholder under Section 51 of Act No. 1459 has
been retained, but with some modifications. The 2
nd
and 3
rd
paragraphs of Section 74 of BP 68 provides:
The records of all business transactions of the corporation and the minutes of any meeting shall be open
to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on
business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his
expense. Any officer or agent of the corporation who shall refuse to allow any director, trustee,
stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in
accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or
member for damages, and in addition, shall be guilty of an offense which shall be punishable under
Section 144 of this Code: Provided, That if such refusal is made pursuant to a resolution or order of the
board of directors or trustees, the liability under this section for such action shall be imposed upon the
directors or trustees who voted for such refusal: and Provided, further, That it shall be a defense to any
action under this section that the person demanding to examine and copy excerpts from the corporation's
records and minutes has improperly used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation, or was not acting in good faith or for
a legitimate purpose in making his demand."

As may be noted from the above-quoted provisions, among the changes introduced in the new Code with
respect to the right of inspection granted to a stockholder are the following the records must be kept at the
principal office of the corporation; the inspection must be made on business days; the stockholder may
demand a copy of the excerpts of the records or minutes; and the refusal to allow such inspection shall
subject the erring officer or agent of the corporation to civil and criminal liabilities. However, while
seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now
expressly required as a condition for such examination that the one requesting it must not have been
guilty of using improperly any information secured through a prior examination, and that the person
asking for such examination must be "acting in good faith and for a legitimate purpose in making his
demand." The unqualified provision on the right of inspection previously contained in Section 51, Act
No. 1459, as amended, no longer holds true under the provisions of the present law. The argument of the
petitioner that the right granted to him under Section 51 of the former Corporation Law should not be
dependent on the propriety of his motive or purpose in asking for the inspection of the books of the
respondent bank loses whatever validity it might have had before the amendment of the law. If there is
any doubt in the correctness of the ruling of the trial court that the right of inspection granted under
Section 51 of the old Corporation Law must be dependent on a showing of proper motive on the part of
the stockholder demanding the same, it is now dissipated by the clear language of the pertinent provision
contained in Section 74 of Batas Pambansa Blg 68. Although the petitioner has claimed that he has
justifiable motives in seeking the inspection of the books of the respondent bank, he has not set forth the
reasons and the purposes for which he desires such inspection, except to satisfy himself as to the truth of
published reports regarding certain transactions entered into by the respondent bank and to inquire into
their validity. The circumstances under which he acquired one share of stock in the respondent bank
purposely to exercise the right of inspection do not argue in favor of his good faith and proper motivation.
Admittedly he sought to be a stockholder in order to pry into transactions entered into by the respondent
bank even before he became a stockholder. His obvious purpose was to arm himself with materials which
he can use against the respondent bank for acts done by the latter when the petitioner was a total stranger
to the same. He could have been impelled by a laudable sense of civic consciousness, but it could not be
said that his purpose is germane to his interest as a stockholder

JOHN GOKONGWEI, JR., petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO,
ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE,
MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO
TANJUATCO, SR., and EDUARDO R. VISAYA, respondents.
G.R. No. L-45911 April 11, 1979

Facts: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as stockholder of San Miguel
Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of
nullity of amended by-laws, cancellation of certificate of filing of amended by-laws, injunction and
damages with prayer for a preliminary injunction" against the majority of the members of the Board of
Directors and San Miguel Corporation as an unwilling petitioner.
On 28 October 1976, in connection with the same case, Gokongwei filed with the Securities and
Exchange Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the
Secretary of the corporation refused to allow him to inspect its records despite request made by
Gokongwei for production of certain documents enumerated in the request, and that the corporation had
been attempting to suppress information from its stockholders despite a negative reply by the SEC to its
query regarding their authority to do so.

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

Issue:
Whether the SEC gravely abused its discretion in denying Gokongwei's request for an examination of the
records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation.

Held:
Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business
transactions of the corporation and minutes of any meeting shall be open to the inspection of any director,
member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of
the corporation's books and records is based upon their ownership of the assets and property of the
corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or
interest be termed an equitable ownership, a beneficial ownership, or a quasi-ownership. This right is
predicated upon the necessity of self-protection. It is generally held by majority of the courts that where
the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him
with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the
corporation. In other words, the inspection has to be germane to the petitioner's interest as a stockholder,
and has to be proper and lawful in character and not inimical to the interest of the corporation. The
"general rule that stockholders are entitled to full information as to the management of the corporation
and the manner of expenditure of its funds, and to inspection to obtain such information, especially where
it appears that the company is being mismanaged or that it is being managed for the personal benefit of
officers or directors or certain of the stockholders to the exclusion of others." While the right of a
stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the
right of such stockholder to examine the books and records of a wholly-owned subsidiary of the
corporation in which he is a stockholder is a different thing. Stockholders are entitled to inspect the books
and records of a corporation in order to investigate the conduct of the management, determine the
financial condition of the corporation, and generally take an account of the stewardship of the officers and
directors. herein, considering that the foreign subsidiary is wholly owned by San Miguel Corporation and,
therefore, under Its control, it would be more in accord with equity, good faith and fair dealing to construe
the statutory right of petitioner as stockholder to inspect the books and records of the corporation as
extending to books and records of such wholly owned subsidiary which are in the corporation's
possession and control.
Babst vs CA
January 26, 2001
Facts:
A complaint was commenced to enforce payment of a promissory note and 3 domestic letters of
credit which Elizalde Steel (ELISCON) executed and opened with the Commercial Bank and Trust
Company (CBTC). The letters of credit were opened for ELISCON using the credit facilities of Multi,
according to a resolution of the board of directors of Multi since ELISCON manufactured tin-plates for
Multi.
Chua and Babst bound themselves to jointly and severally liable to pay any existing
indebtedness of MULTI to CBTC. Moreover, CBTC opened for ELISCON in favor of National Steel
Corporation three (3) domestic letters of credit, which ELISCON used to purchase plates from National
Steel Corporation. ELISCON was unable to satisfy the debts.
BPI and CBCT entered into a merger. BPI, was the surviving corporation acquired all the assets
and assumed all the liabilities of CBCT. Meanwhile, ELISCON became heavily indebted and conveyed to
DBP its assets. DBP took over ELISCON and assumed its indebtedness to BPI. DBP made proposals of
settlement which BPI rejected.
As successor-of-interest of CBCT, BPI filed a case against ELISCON, Multi and Babst. ELISCON and
Multi assailed the capacity of BPI to recover their obligation to CBCT.
Issue:
Whether BPI, the surviving corporation, the successor-in-interest of CBCT, has the legal
authority to recover the indebtedness due to CBCT.
Held:
The SC ruled that there is no question that there was a valid merger between BPI and CBTC. It is
settled that in the merger of two existing corporations, one of the corporations survives and continues
the business, while the other is dissolved and all its rights, properties and liabilities are acquired by the
surviving corporation. Hence, BPI has a right to institute the case.









Philippine National Bank vs. Andrada Electric & Engineering Co.
GR 142936, 17 April 2002

Facts: Philippine national Bank (PNB) acquired the assets of the Pampanga Sugar Mills (PASUMIL) that
were earlier foreclosed by the Development Bank of the Philippines (DBP). The PNB organized the
National Sugar Development Corporation (NASUDECO), to take ownership and possession of the assets
and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills. Prior to 29
October 1971, PASUMIL engaged the services of the Andrada Electric & Engineering Company (AEEC)
for electrical rewinding and repair, most of which were partially paid by PASUMIL, leaving several
unpaid accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a contract for
AEEC to perform the (a) Construction of a power house building; 3 reinforced concrete foundation for 3
units 350 KW diesel engine generating sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250
KW turbo generator sets, among others. Aside from the work contract, PASUMIL required AEEC to
perform extra work, and provide electrical equipment and spare parts. Out of the total obligation of
P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of 27 June 1973,
amounting to P527,263.80. Out of said unpaid balance of P527,263.80, PASUMIL made a partial
payment to AEEC of P14,000.00, in broken amounts, covering the period from 5 January 1974 up to 23
May 1974, leaving an unpaid balance of P513,263.80. PASUMIL and PNB, and now NASUDECO,
allegedly failed and refused to pay AEEC their just, valid and demandable obligation (The President of
the NASUDECO is also the Vice-President of the PNB. AEEC besought said official to pay the
outstanding obligation of PASUMIL, inasmuch as PNB and NASUDECO now owned and possessed the
assets of PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the
engineering and repairs, performed by AEEC).

After due proceedings, the Trial Court rendered judgment in favor of AEEC and against PNB,
NASUDECO and PASUMIL; the latter being ordered to pay jointly and severally the former (1) the sum
of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from 25 September 1980
until fully paid; (2) the sum of P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO
appealed. The Court of Appeals affirmed the decision of the trial court in its decision of 17 April 2000
(CA-GR CV 57610. PNB and NASUDECO filed the petition for review.

Issue: Whether PNB and NASUDECO may be held liable for PASUMILs liability to AEEC.

Held: Basic is the rule that a corporation has a legal personality distinct and separate from the persons
and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend
crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the
mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of
the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting
public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the
PASUMIL's contractual debts to Andrada Electric & Engineering Company (AEEC).

Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the transfer of the
latter's assets to PNB and NASUDECO was not fraudulently entered into in order to escape liability for
its debt to AEEC. Neither was there any merger or consolidation with respect to PASUMIL and PNB.
The procedure prescribed under Title IX of the Corporation Code 59 was not followed. In fact,
PASUMIL's corporate existence had not been legally extinguished or terminated. Further, prior to PNB's
acquisition of the foreclosed assets, PASUMIL had previously made partial payments to AEEC for the
former's obligation in the amount of P777,263.80.


SANTIAGO CUA, JR et al vs MIGUEL OCAMPO TAN et al.
Facts:
Two petitions are presented to the Court, a petition for review on certiorari filed by Cua Jr et al in their
capacity as directors of the Philippine Racing Club, Inc. (PRCI), with Miguel Ocampo et al as
respondents. Another was a petition for certiorari and prohibition with the same party as petitioner against
Miguel and Dulay. Both petitions are questioning the decision rendered by CA in dismissing for lack of
merit, mootness and prematurity of both petitions which sought the nullification of the resolution of the
RTC granting the TRO prayed for by the respondents. The CA also denied the MR filed by the petitioners
which led them to challenge its decision. PRCI is a corporation organized and established under
Philippine laws to carry on the business of a race course in all its branches and, in particular, to conduct
horse races or races of any kind as well as to promote breeding of horses and help in development of
sports. To pursue this, PRCI holds a franchise granted by the law, to operate horse tracks and manage
betting games. In 1999, the Articles of Incorporation of PRCI was amended to include a secondary
purpose and that is to acquire real properties and/or develop real properties into mix-use realty projects
including but not limited to leisure, recreational and memorial parks and to own, operate, manage and/or
sell these real estate projects. PRCI is publicly listed with the PSE. In 2006, PRCI had an authorized
capital stock ofP1,000,000,000 and owned 2 real properties in Cavite and Makati. PRCI wished to
transform its Makati property into an urban residential and commercial use and transferred its racetrack
from Makati to Cavite and began developing it. For the Makati property, PRCI management decided that
it was best to spin off the management and development of the same to a wholly owned subsidiary and
opted to acquire another domestic corporation, JTH Davies Holdings. JTH was then owned by Jardine
Matheson Europe B.V. and was publicly listed with PSE. The PRCI Board of Directors held a meeting
several meetings wherein they deliberated and made several resolutions regarding the approval of the
purchase of JTH Davies Holdings, Inc. Among the directors present were petitioners Santiago Sr.,
Santiago Jr., and Solomon, as well as respondent Dulay. After discussing and deliberating on the matter
of the acquisition of JTH by PRCI, all the directors present, except respondent Dulay, voted affirmatively
to pass and approve resolutions. The Resolution of the PRCI Board of Directors on the property-for-
shares exchange between PRCI and JTH was supposed to be presented for approval by the stockholders
but it did not push through because the minority stockholders of PRCI filed in the RTC a derivative suit
with prayer of TRO against the directors of PRCI which the court granted, therefore, prohibiting the
exchange of PRCIs Makati property for shares of stock. This consequently led to the filing of petition for
Certiorari on the CA who supported RTCs decision hence the case at bar.
Issue:
Whether or not the petitioners are correct in filling an individual action after filling a derivative suit
Held:
A corporation, such as PRCI, is but an association of individuals, allowed to transact under an assumed
corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no
constitutional immunities and perquisites appropriate to such body. Questions of policy and of
management are left to the honest decision of the officers and directors of a corporation, and the courts are
without authority to substitute their judgment for the judgment of the board of directors. The Supreme
Court declared that through a study of the said complaint, the supposed devices and schemes employed by
the PRCI Board of Directors amounting to fraud or misrepresentation are the very same bases for the
derivative suit. They are the very same acts of the PRCI Board of Directors that have supposedly caused
injury to the corporation. From the very beginning of their complaint, respondents alleged that they are
filling the same as shareholders, for and in behalf of the Corporation, in order to redress the wrong
committed against the Corporation and to protect or vindicate corporate rights, and to prevent wastage and
dissipation of corporate funds and assets and the further commission of illegal acts by the Board of
Directors. Although Respondents Miguel, et al. also aver that they are seeking redress for the injuries of
the minority stockholders against the wrongdoings of the majority, the rest of the Complaint does not
bear this out and is utterly lacking any allegation of the injury personal to them or a certain class of
stockholders to which they belong. As the Court has explained A shareholders derivative suit seeks to
recover for the benefit of the corporation and its whole body of shareholders when injury is caused to the
corporation that may not otherwise be redressed because of the failure of the corporation to act. Thus, the
action is derivative, in the corporate right, if the gravamen of the complaint is injury to the corporation or
to the whole body of its stocks and property without any severance or distribution among individual
holder, or it seeks to recover assets for the corporation or to prevent dissipation of its assets. In contrast,
a direct action filed by the shareholder individually (or on behalf of the shareholders in which he belongs)
for injury to his or her interest as a shareholderthe two actions are mutually exclusive. The right of
action and recovery belongs to either the shareholders (direct action) or the corporation (derivative suit).
Based on allegations in the Complaint of Miguel, et al., the Court determines that there is only a derivative
suit, based on the devices and schemes employed by the PRCI Board of Directors that amounts to
mismanagement, misrepresentation, fraud, and bad faith.

ALFREDO LONG and FELIX ALMERIA vs. LYDIA BASA, ANTHONY SAYHEELIAM and
YAO CHEK (G.R. Nos. 134963-64. September 27, 2001.)

Facts:
Petitioners Joseph Lim, Liu Yek See, Alfredo Long and Felix Almeria were members of a religious group
known as "The Church In Quezon City (Church Assembly Hall), Incorporated" (CHURCH) which was
registered with the SEC in 1973 as a non-stock, non-profit religious corporation for the administration of
its temporalities or the management of its properties. The members of the CHURCH vested upon their
Board of Directors the absolute power to admit and expel a member of the Church. In 1988, the Board of
Directors observed that certain members of the church including petitioners herein exhibited conduct
which was dishonorable, improper and injurious to the character and interest of the Church. They warned
petitioners that if they persist in their highly improper conduct, they will be dropped from the membership
of the Church. However, petitioners ignored their repeated admonitions. Alarmed that petitioners' conduct
will continue to undermine the integrity of the principles of faith of the Church, the Board of Directors,
during its August 30, 1993 regular meeting, removed from the membership list certain names of
members, including the names of herein petitioners. On September 29, 1993, petitioners and others
questioned their expulsion by filing with the SEC Securities Investigation and Clearing Department a
petition seeking mainly the annulment of the August 30, 1993 membership list and the reinstatement of
the original list, on the ground that it was made without prior notice and hearing. Subsequently, SEC
Hearing Officer Perea ruled, among others, that the expulsion was in accordance with the Church By-
laws. In a petition for certiorari, the SEC en banc affirmed the Perea ruling. Petitioners did not appeal.
Since the said SEC en banc decision pertained only to the preliminary injunction incident, the SEC,
through a hearing panel, conducted further proceedings. Petitioners filed motions to dismiss/strike out the
counterclaim and third-party complaint, but those motions were denied. Upon denial of the separate
motions for reconsideration of both parties, the respondents filed with the SEC en banc a petition for
review questioning the validity of the expulsion. The SEC en banc issued an order setting aside the
expulsion of certain members of the Church. The private respondents filed a petition for review with the
CA. The CA reversed the order of the SEC en banc. Hence, this petition
Issue/s: whether or not the expulsion of petitioners from the membership of the CHURCH by its Board of
Directors through a resolution issued on August 30, 1993 is in accordance with law
Held: Yes. The CHURCH By-law provision on expulsion, as phrased, may sound unusual and
objectionable to petitioners as there is no requirement of prior notice to be given to an erring member
before he can be expelled. But that is how peculiar the nature of a religious corporation is vis--vis an
ordinary corporation organized for profit. It must be stressed that the basis of the relationship between a
religious corporation and its members is the latter's absolute adherence to a common religious or spiritual
belief. Once this basis ceases, membership in the religious corporation must also cease. Thus, generally,
there is no room for dissension in a religious corporation. And where, as here, any member of a religious
corporation is expelled from the membership for espousing doctrines and teachings contrary to that of his
church, the established doctrine in this jurisdiction is that such action from the church authorities
is conclusive upon the civil courts. It is well-established in jurisprudence that in matters purely
ecclesiastical the decisions of the proper church tribunals are conclusive upon the civil tribunals. A church
member who is expelled from the membership by the church authorities, or a priest or minister who is by
them deprived of his sacred office, is without remedy in the civil courts, which will not inquire into the
correctness of the decisions of the ecclesiastical tribunals. Obviously recognizing the peculiarity of a
religious corporation, the Corporation Code leaves the matter of ecclesiastical discipline to the religious
group concerned.
Section 91 of the Corporation Code, which has been made explicitly applicable to religious corporations
by the second paragraph of Section 109 of the same Code, states:
"SECTION 91.Termination of membership. Membership shall be terminated in the
manner and for the causes provided in the articles of incorporation or the by-
laws. Termination of membership shall have the effect of extinguishing all rights of a
member in the corporation or in its property, unless otherwise provided in the articles
of incorporation or the by-laws."
Moreover, the petitioners really have no reason to bewail the lack of prior notice in the By-laws. As
correctly observed by the CA, they have waived such notice by adhering to those By-laws. They became
members of the CHURCH voluntarily. They entered into its covenant and subscribed to its rules. By
doing so, they are bound by their consent









STA. CLARA HOMEOWNERS ASSOCIATION thru its Board of Directors composed of
ARNEIL CHUA, LUIS SARROSA, JOCELYN GARCIA, MA. MILAGROS VARGAS,
LORENZO LACSON, ERNESTO PICCIO, DINDO ILAGAN, DANILO GAMBOA JR. and
RIZZA DE LA RAMA; SECURITY GUARD CAPILLO; "JOHN DOE"; and SANTA CLARA
ESTATE, INC., petitioners,
vs.
Spouses VICTOR MA. GASTON and LYDIA GASTON, respondents.
G.R. No. 141961 January 23, 2002

Facts:
Spouses Victor Ma. Gaston and Lydia M. Gaston were residents of San Jose Avenue, Sta. Clara
Subdivision, Mandalagan, Bacolod City. They purchased their lots in the said subdivision sometime in
1974, and at the time of purchase, there was no mention or requirement of membership in any
homeowners' association. From that time on, they have remained non-members of SCHA. They also
stated that an arrangement was made wherein homeowners who were non-members of the association
were issued "non-member" gatepass stickers for their vehicles for identification by the security guards
manning the subdivision's entrances and exits. This arrangement remained undisturbed until sometime in
the middle of March 1998, when SCHA disseminated a board resolution which decreed that only its
members in good standing were to be issued stickers for use in their vehicles. Thereafter, on three
separate incidents, Victor M. Gaston, the son of the spouses Gaston who lives with them, was required by
the guards on duty employed by SCHA to show his driver's license as a prerequisite to his entrance to the
subdivision and to his residence therein despite their knowing him personally and the exact location of his
residence.

On 29 March 1998, Victor Ma. Gaston was himself prevented from entering the subdivision and
proceeding to his residential abode when security guards Roger Capillo and a "John Doe" lowered the
steel bar of the KAMETAL gate of the subdivision and demanded from him his driver's license for
identification. On 1 April 1998, Spouses Victor Ma. Gaston and Lydia M. Gaston filed a complaint for
damages with preliminary injunction/preliminary mandatory injunction and temporary restraining order
before the Regional Trial Court in Negros Occidental at Bacolod City against Santa Clara Homeowners
Association (SCHA) thru its Board of Directors, alleging that the acts of SCHA, et al., done in the
presence of other subdivision owners had caused the spouses Gaston to suffer moral damage. On 8 April
1998, SCHA, et al. filed a motion to dismiss arguing that the trial court had no jurisdiction over the case
as it involved an intra-corporate dispute between SCHA and its members pursuant to Republic Act 580,
as amended by Executive Orders 535 and 90, much less, to declare as null and void the subject resolution
of the board of directors of SCHA, the proper forum being the Home insurance and Guaranty Corporation
(HIGC). To support their claim of intra-corporate controversy, SCHA, et al. stated that the Articles of
Incorporation of SCHA, which was duly approved by the Securities and Exchange Commission (SEC) on
4 October 1973, provides "that the association shall be a non-stock corporation with all homeowners of
Sta. Clara constituting its membership"; and that its by-laws contains a provision that "all real estate
owners in Sta. Clara Subdivision automatically become members of the association"; among others. On 6
July 1998, the lower court resolved to deny SCHA et al.'s motion to dismiss, finding that there existed no
intra-corporate controversy since the Spouses Gaston alleged that they had never joined the association.

On 18 July 1998, SCHA, et al. submitted a Motion for Reconsideration, adding lack of cause of action as
ground for the dismissal of the case. On 17 August 1998, the trial court denied the said motion without
On 24 September 1998, SCHA. et al. elevated the matter to the Court of Appeals via a Petition for
Certiorari. On 31 August 1999, the Court of Appeals dismissed the Petition and ruled that the RTC had
jurisdiction over the dispute. The appellate court likewise denied SCHA, et al.'s motion for
reconsideration in a resolution dated 11 February 2000. SCHA, et al. filed the petition for review.

Issue:
Whether the Spouses Gaston are members of the SCHA.

Held:
The constitutionally guaranteed freedom of association includes the freedom not to associate. The right to
choose with whom one will associate oneself is the very foundation and essence of that partnership.
Further, the Spouses Gaston cannot be compelled to become members of the SCHA by the simple
expedient of including them in its Articles of Incorporation and By-laws without their express or implied
consent. True, it may be to the mutual advantage of lot owners in a subdivision to band themselves
together to promote their common welfare, but that is possible only if the owners voluntarily agree,
directly or indirectly, to become members of the association. True also, memberships in homeowners'
associations may be acquired in various ways however, other than the said Articles of Incorporation and
By-laws, there is no showing that the Spouses Gaston have agreed to be SCHA members. The approval
by the SEC of the said documents is not an operative act which bestows membership on the Spouses
Gaston because the right to associate partakes of the nature of freedom of contract which can be exercised
by and between the homeowners amongst themselves, the homeowners' association and a homeowner,
and the subdivision owner and a homeowner/lot buyer.
Padcom Condominium Corporation vs Ortgas Center Association, Inc.
Facts:
Padcom manages a condominium building in Ortigas Center. The land on which the building
stood was bought by Padcom from Tierra Development Corporation (TDC) as evidenced by a Deed of
Sale, which was in turn, bought from Ortigas & Company.
The respondent, Ortigas Center Association, was organized to advance the interest the general
welfare of the real estate owners and long-term lessees of the lots in Ortigas Center. It sought collection
of monthly dues from its members, including Padcom. The amount of uncollected dues from Padcom
accumulated to P639, 961.47, covering April 1983 to June 1993.
In spite of repeated demands of payment and requests of extension of payment, Padcom failed
to pay. Because of such, the Association filed a complaint against Padcom with the RTC. The trial court
dismissed the case, ruling in favor of Padcoms contention that it is a non-stock, non-profit association,
and for it to become a special member of the Association it should apply for and be accepted by the
Associations Board of Directors. Since Padcom did not apply, it is not a member of the Association and
thus cannot be compelled to pay the dues, interests and penalties.
The Association filed an appeal with the CA which reversed the decison of the trial court. CA
agreed with the contentions of the Association: that the deed of sale stipulates the automatic
membership of the owners of the lot; that filing of application with the Association is a mere formality
that can be dispensed with.
Issue:
Whether Padcom, as a non-stock corporation, can be compelled to join the association pursuant
to the automatic membership appearing as a condition in the Deed of Sale as annotated in the
certificate of title.
Held:
The SC upheld the CAs decison that Padcom cannot claim non-membership.
Membership in the Association is a lien on the land. It is undisputed that the land which was
bought by Padcoms predecessor-in-interest, TDC, is bound by the condition of automatic membership
with the Association as stated in the Deed of Sale. Such lien is carried over when Padcom bought the
land from TDC.
Moreover, Padcom cannot claim that the automatic membership violated its freedom of
association as such membership could have been avoided by not buying the land. Also, Padcom is
estopped for disclaiming membership as it repeatedly asked for time extentions for payment.



Tan vs. Sycip
G.R. No. 153468 August 17, 2006

Facts: Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation
with fifteen (15) regular members, who also constitute the board of trustees. During the annual members'
meeting held on April 6, 1998, there were only eleven (11) living member-trustees, as four (4) had already
died. Out of the eleven, seven (7) attended the meeting through their respective proxies. The meeting was
convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who
argued that there was no quorum. In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo,
and Judith Tan were voted to replace the four deceased member-trustees.
When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained
that the deceased member-trustees should not be counted in the computation of the quorum because, upon
their death, members automatically lost all their rights (including the right to vote) and interests in the
corporation.
SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of
quorum. She held that the basis for determining the quorum in a meeting of members should be their
number as specified in the articles of incorporation, not simply the number of living members. She
explained that the qualifying phrase "entitled to vote" in Section 24 of the Corporation Code, which
provided the basis for determining a quorum for the election of directors or trustees, should be read
together with Section 89.
The hearing officer also opined that Article III (2) of the By-Laws of GCHS, insofar as it prescribed the
mode of filling vacancies in the board of trustees, must be interpreted in conjunction with Section 29 of
the Corporation Code. The SEC en banc denied the appeal of petitioners and affirmed the Decision of the
hearing officer in toto. It found to be untenable their contention that the word "members,"' as used in
Section 52 of the Corporation Code, referred only to the living members of a non-stock corporation. Thus,
this petition.
Issue: WON dead members should still be counted in the determination of the quorum, for purposes of
conducting the annual members' meeting in a non-stock corporation.
Held: The petition was partly granted.
For non-stock corporations, only those who are actual, living members with voting rights shall be counted
in determining the existence of a quorum during members' meetings. Dead members shall not be counted.







Dulay Enterprise vs CA
Facts:
Manuel R.Dulay Enterprises, Inc., a domestic corporation, which owned a property known as
Dulay Apartment consisting of 16 apartment units on a 689 square meter lot located at Pasay City. The
corporation through its president, Manuel Dulay, obtained various loans for the construction of its hotel
project, Dulay Continental Hotel. It borroed money from Virgilio Dulay to be able to continue the hotel
project. As a result of said loan, Virgilio Dulay occupied one of the unit apartments of the subject
property since 1973 while at the same time managing the Dulay Apartment as his shareholdings in the
corporation was subsequently increased by his father. On December, 1976, Manuel Dulay by virtue of
Board Resolution 18 of the corporation sold the subject property to spouses Maria Theresa and Castrense
Veloso in the amount of P300,000 as evidenced by the Deed of Absolute Sale. Thereafter, TCT was
cancelled and a new one was issued to Maria Theresa Veloso. Subsequently, Manuel Dulay and the
spouses Veloso executed a Memorandum to the Deed of Absolute Sale of 23 December 1976 dated 9
December 1977 giving Manuel Dulay within 2 years to repurchase the subject property for P200,000
which was, however, not annotated in both TCT. On 24 December 1976, Maria Veloso, without the
knowledge of Manuel Dulay, mortgaged the subject property to Manuel A. Torres for a loan of P250,000
which was duly annotated as Entry 68139 in TCT 23225. Upon the failure of Maria Veloso to pay Torres,
the subject property was sold on April 1978 to Torres as the highest bidder in an extrajudicial foreclosure
sale. On 20 July 1978, Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in
favor of Manuel Dulay assigning her right to repurchase the subject property from Torres as a result of the
extrajudicial sale. On 1 October 1979, Torres filed a petition for the issuance of a writ of possession
against the spouses however it was dismissed by the trial court. Pabalan, real estate administrator of
Torres, filed an action against the corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of
Dulay Apartment for the recovery of possession, sum of money and damages with preliminary injunction.
The corporation filed an action against spouses for the cancellation of the Certificate of Sheriff's Sale.
Pabalan and Torres filed an action against spouses Manalastas, a tenant of Dulay Apartment, with the
corporation as intervenor for ejectment in MTC which rendered a decision ordering the spouses
Manalastas and all persons claiming possession under them to vacate the premises; and to pay the rents in
the sum of P500 a month from May 1979 until they shall have vacated the premises with interest at the
legal rate; and to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as other expenses of litigation
and for them to pay the costs of the suit. Thereafter the corporation and Virgilio Dulay filed an action for
the annulment of said decision with the RTC. Thereafter, the 3 cases were jointly tried and the trial court
rendered a decision in favor of Pabalan and Torres. Not satisfied with said decision, the corporation
appealed to CA which rendered a decision affirming the trial court's decision. The corporation filed a MR
which was denied so they filed the petition for review on certiorari. During the pendency of the petition,
Torres died and named Torres-Pabalan Realty & Development Corporation as heir.

Issue: Whether the sale of the subject property between spouses Veloso and Manuel Dulay has no
binding effect on the corporation.

Held: Section 101 of the Corporation Code of states that "When board meeting is unnecessary or
improperly held. Unless the by-laws provide otherwise, any action by the directors of a close corporation
without a meeting shall nevertheless be deemed valid if: (1) Before or after such action is taken, written
consent thereto is signed by all the directors; or (2) All the stockholders have actual or implied knowledge
of the action and make no prompt objection thereto in writing; or (3) The directors are accustomed to take
informal action with the express or implied acquiesce of all the stockholders; or (4) All the directors have
express or implied knowledge of the action in question and none of them makes prompt objection thereto
in writing. If a directors' meeting is held without proper call or notice, an action taken therein within the
corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge thereof." Herein, the corporation is
classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of
the subject property is not necessary to bind the corporation for the action of its president. At any rate, a
corporate action taken at a board meeting without proper call or notice in a close corporation is deemed
ratified by the absent director unless the latter promptly files his written objection with the secretary of
the corporation after having knowledge of the meeting which, in this case, Virgilio Dulay failed to do.
The corporation's claim that the sale of the subject property by its president, Manuel Dulay, to spouses
Veloso is null and void as the alleged Board Resolution 18 was passed without the knowledge and
consent of the other members of the board of directors cannot be sustained. Virgilio E. Dulay's
protestations of complete innocence to the effect that he never participated nor was even aware of any
meeting or resolution authorizing the mortgage or sale of the subject premises is difficult to believe. On
the contrary, he is very much privy to the transactions involved. The fact that Virgilio Dulay executed an
affidavit that he was a signatory witness to the execution of the post-dated Deed of Absolute Sale of the
subject property in favor of Torres indicates that he was aware of the transaction executed between his
father and Torres and had, therefore, adequate knowledge about the sale of the subject property to Torres.
Consequently, the corporation is liable for the act of Manuel Dulay and the sale of the property to Torres
is valid.

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC. vs. COURT OF APPEALS,
MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT
CORP. and JNM REALTY AND DEVELOPMENT CORP. (G.R. No. 129459. September 29, 1998.)

Facts: Petitioner herein entered into an agreement with private respondent Motorich for the transfer to it
of a parcel of land located in Quezon City, the balance to be paid on or before March 2, 1989. That on the
agreed date, petitioner was ready with the amount corresponding to the balance, but the treasurer of
Motorich, Mrs. Gruenberg, did not appear. Despite repeated demands, Motorich had refused to execute
the Transfer of Rights/Deed of Assignment which is necessary to transfer the certificate of title. As a
result, the petitioner lost the opportunity to construct a residential building. As a defense, Motorich
claimed that the President and Chairman of Motorich did not sign the agreement and that that Mrs.
Gruenberg's signature on the agreement is inadequate to bind Motorich. Trial court found no evidence to
show that the treasurer was authorized by Motorich to dispose of that property. The CA affirmed the
same. Hence, this petition. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or
almost all or 99.866% to be accurate, of the subscribed capital stock" of Motorich, petitioner argues that
the treasurer needed no authorization from the board to enter into the subject contract. It adds that, being
solely owned by the Spouses Gruenberg the company can be treated as a close corporation which can be
bound by the acts of its principal stockholder who needs no specific authority.

Issue/s: Whether or not the veil of corporate fiction of Motorich should be pierced, because the latter is a
close corporation

Held: No. that the corporate fiction should be set aside when it becomes a shield against liability for
fraud, illegality or inequity committed on third persons. The question of piercing the veil of corporate
fiction is essentially, then, a matter of proof. In the present case, however, the Court finds no reason to
pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said
corporation was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or
illegal act ivities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or
inequity at the expense of third persons like petitioner.

Moreover, Motorich is not a close corporation. According to Sec. 96 of the Corporation code, a
close corporation is one whose articles of incorporation provide that: (1) All of the corporation's issued
stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified
number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to
one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list
in any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the
foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another corporation which is not a close
corporation within the meaning of this Code. The articles of incorporation of Motorich Sales
Corporation does not contain any provision stating that (1) the number of stockholders shall not exceed
20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3)
listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its
articles, it is clear that Respondent Motorich is not a close corporation. Motorich does not become one
either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital
stock. The [m]ere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personalities. So, too, a narrow distribution of ownership does not, by itself, make a close corporation.
The Court is not unaware that there are exceptional cases where "an action by a director, who singly is the
controlling stockholder, may be considered as a binding corporate act and a board action as nothing more
than a mere formality." The present case, however, is not one of them.



















CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents.
G.R. No. L-39050 February 24, 1981

Facts:
Insular Sawmill was a corporation engaged in the general lumber and sawmill business with a corporate
life of fifty years, beginning Sept 17, 1945 Sept 17, 1995.
To carry on the business, Insular Sawmill leased paraphernal property of petitioner Guillerma Gelano. It
was while leasing the property, that the Guillerma, and her husband Carlos, incurred the following debts
to the corporation:
1. For cash advances made by the corporation to Carlos which was supposed to be deducted from the
monthly rentals being paid by the corporation
2. For credit purchases of lumber materials from the company
3. For credit accommodation obtained by the spouses from China Banking Corporation, for which the
corporation executed a promissory note in favour of the bank from which the bank collected Carlos
debt from.
On May 22, 1959, the corporation, thru Atty. German Lee, filed a complaint for collection against the
spouses Gelano before CFI- Manila. Trial was held and when the case was at the stage of submitting
memorandum, Atty. Lee retired from active law practice and Atty. Eduardo F. Elizalde took over and
prepared the memorandum
While the case was pending, Insular Sawmill amended its Articles of Incorporation to shorten its term of
existence up to December 31, 1960 only. The amended Articles of Incorporation was filed with, and
approved by the Securities and Exchange Commission, but the trial court was not notified of the
amendment shortening the corporate existence and no substitution of party was ever made.
On November 20, 1964 and almost four (4) years after the dissolution of the corporation, the trial court
rendered a decision in favor of Insular Sawmill. The CA modified the decision, holding the spouses
solidarily liable.
After the Gelanos received a copy of the decision on August 24, 1973, they came to know that the Insular
Sawmill Inc. was dissolved way back on December 31, 1960. Thus they filed an Motion to Dismiss on th
ground that the case was prosecuted even after dissolution of Insular Sawmill as a corporation and that a
defunct corporation cannot maintain any suit for or against it without first complying with the
requirements of the winding up of the affairs of the corporation and the assignment of its property rights
within the required period.
Their Motion to Dismiss was denied thus the present petition for review.

Issue:
Whether a corporation, whose corporate life had ceased by the expiration of its terms of existence, could
still continue prosecuting and defending suits after its dissolution and beyond the period of 3 years
provided for under Act 1459, otherwise known as the Corporation Law, to wind up its affairs, without
having undertaken any step to transfer its assets to a trustee or assignee.

Held:
When ISI was dissolved on 31 December 1960, under Section 77 of the Corporation Law, it still has the
right until 31 December 1963 to prosecute in its name the present case. After the expiration of said period,
the corporation ceased to exist for all purposes and it can no longer sue or be sued. However, a
corporation that has a pending action and which cannot be terminated within the 3-year period after its
dissolution is authorized under Section 78 to convey all its property to trustees to enable it to prosecute
and defend suits by or against the corporation beyond the 3-year period. Although ISI did not appoint any
trustee, yet the counsel who prosecuted and defended the interest of the corporation in the present case
and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at
least with respect to the matter in litigation only. Said counsel had been handling the case when the same
was pending before the trial court until it was appealed before the Court of Appeals and finally to the
Supreme Court. Therefore, there was a substantial compliance with Section 78 of the Corporation Law
and as such, ISI could still continue prosecuting the present case even beyond the period of 3 years from
the time of its dissolution. Further, the case was instituted on 29 May 1959, during the time when the
corporation was still very much alive. Any litigation filed by or against it instituted within the period, but
which could not be terminated, must necessarily prolong that period until the final termination of said
litigation as otherwise corporations in liquidation would lose what should justly belong to them or would
be exempt from the payment of just obligations through a mere technicality, something that courts should
prevent.







Tan Tiong Bio vs Commissioner of Internal Revenue
April 23, 1962

Facts:
In 1946, Central Syndicate purchased from Dee Hong Lue the entire stock of surplus properties
from the Foreign Liquidation Commission. Syndicate wrote a letter to the Collector of Internal Revenue
regarding this matter and remitted a sum of money as deposit for the sales tax in the said purchase.
Later on, Syndicate claimed a refund of the excess amount it had deposit. The Collector denied this and
it reiterated that Central Syndicate be ordered to pay the deficiency sales tax and surcharge.
When the case was elevated to the Court of Tax Appeals, it issued a resolution of dismissal
based on the ground that Central Syndicate has no personality to maintain the pending action since it is
already a non-existing entity due to the expiration of its corporate existence. Syndicate appealed to the
SC that the case should not be dismissed because the successors-in-interest, Tan Tiong Biong and others,
as the officers and directors of the defunct Central Syndicate, could substitute.
After trial, the Court of Tax Appeals ruled that the petitioners who appear as incorporators and directors
are ordered to pay jointly and severally to the Collector of Internal Revenue the deficiency sales tax and
surcharge on the surplus goods purchased by them.
Issue:
Whether the creditors of a dissolved corporation can enforce their claim against the
stockholders.
Held:
The creditor of a dissolved corporation may follow its assets once they are passed into the
hands of the stockholders.
It was the petitioners themselves who caused the substitution as parties in the case, being the
successors-in-interest of the defunct syndicate. They cannot therefore complain if they are made
responsible for the tax liability of the defunct syndicate whose representation they assumed and whose
assets were distributed among them. The dissolution of the corporation does not extinguish the debts
due or owing to it.






CLARION PRINTING HOUSE, INC vs. NATIONAL LABOR RELATIONS COMMISSION
461 SCRA 272 (2005)

Facts: Clarion Printing House (Clarion), a company owned by EYCO Group of Companies (EYCO)
hired Michelle Miclat (Miclat) as marketing assistant on a probationary basis. During that time, she was
not informed of the standards that she should meet to qualify as a regular employee.

EYCO subsequently filed a petition for petition for suspension of payment as well as an appointment of a
rehabilitation receivership committee before SEC on the ground that they are suffering financial
difficulty. Pursuant to this, a retrenchment occurred, thus terminating Miclat.

Conversely, Miclat filed a complaint for illegal dismissal before the NLRC. Miclat contends that
assuming her termination is necessary, it was not done in a proper manner; there was no notice that was
given to her. On the other hand, Clarion contends that they are not liable for retrenching some employees
because EYCO is being placed under receivership, and a memorandum was given to employees, hence
they substantially complied with the notice requirement. NLRC rendered its decision in favor of Miclat
and found that she was illegally dismissed. On appeal, the Court of Appeals held that Clarion failed to
prove its ground for retrenchment as well as compliance with the mandated procedure. It further ruled that
Miclat should be reinstated and paid backwages. Hence, this petition.

Issue: Whether or not Miclat was illegally dismissed

Held: It is likewise well-settled that for retrenchment to be justified, any claim of actual or potential
business losses must satisfy the following standards: (1) the losses are substantial and not de minimis; (2)
the losses are actual or reasonably imminent; (3) the retrenchment is reasonably necessary and is likely to
be effective in preventing expected losses; and (4) the alleged losses, if already incurred, or the expected
imminent losses sought to be forestalled, are proven by sufficient and convincing evidence.

From the provisions of P.D. No. 902-A, as amended, the appointment of a receiver or management
committee by the SEC presupposes a finding that, inter alia, a company possesses sufficient property to
cover all its debts but "foresees the impossibility of meeting them when they respectively fall due" and
"there is imminent danger of dissipation, loss, wastage or destruction of assets of other properties or
paralization of business operations."

That the SEC, mandated by law to have regulatory functions over corporations, partnerships or
associations, appointed an interim receiver for the EYCO Group of Companies on its petition in light of,
as quoted above, the therein enumerated "factors beyond the control and anticipation of the management"
rendering it unable to meet its obligation as they fall due, and thus resulting to "complications and
problems . . . to arise that would impair and affect [its] operations . . ." shows that CLARION, together
with the other member-companies of the EYCO Group of Companies, was suffering business reverses
justifying, among other things, the retrenchment of its employees.





LINGKOD MANGGAGAWA SA RUBBERWORLD, ADIDAS-ANGLO, its officers and members as
LINGKOD MANGGAGAWA SA RUBBERWORLD, ADIDAS-ANGLO, its officers and members
as represented by SONIA ESPERANZA, Petitioners,
vs.
RUBBERWORLD (PHILS.) INC. and ANTONIO YANG, LAYA MANANGHAYA SALGADO &
CO., CPAs (In its capacity as liquidator of Rubberworld (Phils., Inc.), Respondents.
GARCIA,J.:

FACTS:
Rubberworld announced a company shutdown due to financial crisis, and a copy of which was
served on t he recogni zed labor uni on of Rubberworld, t heBisig Pagkakaisa-NAFLU, t h e
u n i o n wi t h wh i c h t h e corporation had a CBA. On Sept ember 1, 1994, Bisi g Pagkakai sa-
NAFLU st aged a stri ke. As a result, Rubberworld's premises closed prematurely even before the date
set for the start of its temporary partial shutdown. On September 9, 1994, petitioner union, represented by
its President, Sonia Esperanza, filed a complaint against Rubberworld and its Vice Chairperson for ULP,
illegal shutdown, and non-payment of salaries and separation pay. The said complaint was referred to
Labor Arbiter for appropriate action. On November 22, 1994, while the aforementioned complaint was
pending, Rubberworld filed with the SEC a Petition for Declaration of a State of Suspension of
Payments with Proposed Rehabilitation Plan. Notwithstanding the SEC's aforementioned suspension
order and despite Rubberworld's submission on January 10, 1995 of a Motion to Suspend Proceedings,
the Labor Arbiter went ahead with the ULP case and rendered his decision denying respondents motion to
suspend proceedings and declaring respondent Rubberworld Phils., Inc. to have committed ULP. Its MR
having been denied by the NLRC, Rubberworld directly went to the Supreme Court on a Petition for
Certiorari. The SEC issued an Order stating that the continuance in business of Rubberworld would
neither be profitable nor work to the best of interest of the parties and general public. Eventually, in the
assailed Decision, the CA granted Rubberworlds petition on the finding that the Labor Arbiter had
indeed committed grave abuse of discretion when it proceeded with the ULP case despite the SECs
suspension, hence this petition.

ISSUES:
1) Whether the CA had committed grave abuse of discretion when it gave due course to the petition filed
by Rubberworld and annulled the decisions rendered by the labor arbiter, when the said decisions had
become final and executory warranting the outright dismissal of the aforesaid petition
2) Whether the CA had committed grave abuse of discretion and reversible error when it applied Section
5(d) andSection 6 (c) of P.D. No. 902-A, as amended, to the case at bar;

RULING:
The Court ruled in the negative and stated that CA did not commit grave abuse of discretion. It
cannot be said that the decision of the Labor Arbiter, or the decision/dismissal order and writ of execution
issued by the NLRC, could ever attain final and executory status.The Labor Arbiter completely
disregarded and violated Section 6(c)of Presidential Decree 902-A, as amended, which categorically
mandates the suspension of all actions for claims against a corporation placed under a management
committee by the SEC. The proceedings before the Labor Arbiter and the order and writ subsequently
issued by the NLRC are all null and void for having been undertaken or issued in violation of the SEC
suspension Order. Acts executed against provisions of mandatory and prohibitory laws are void, except
when the law itself authorizes their validity. The labor arbiters decision is void ab initio and a void
judgment is non-existent. The Court also believed that CA is correct in ruling the issue of applicability in
labor cases of the aforequoted provisions of PD 902-A. It is plain from the foregoing provisions of the
law that upon the appointment by SEC of a management committee or a rehabilitation receiver, all
actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be
suspended. The justification for the automatic stay of all pending actions for claims is to enable the
management committee or the rehabilitation receiver to effectively exercise its/his powers free from any
judicial or extra-judicial interference that might unduly hinder or prevent the rescue of the debtor
company. The law states that upon the creation of a management committee or the appointment of a
rehabilitation receiver, all claims for actions shall be suspended accordingly. Since the law makes no
distinction or exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos.
Allowing labor cases to proceed clearly defeats the purpose of the automatic stay and severely encumbers
the management committee's time and resources. The said committee would need to defend against these
suits, to the detriment of its primary and urgent duty to work towards rehabilitating the corporation and
making it viable again. Thus, when NLRC proceeded to decide the case despite the SEC suspension
order, the NLRC acted without or in excess of its jurisdiction to hear and decide cases. As a consequence,
any resolution, decision or order that it rendered or issued without jurisdiction is a nullity.



JUANITO A. GARCIA and ALBERTO J. DUMAGO vs. PHILIPPINE AIRLINES, INC. (G.R. No.
164856. August 29, 2007)

Facts:
Petitioners Dumago and Garcia were employed by respondent PAL as Aircraft Furnishers Master "C" and
Aircraft Inspector, respectively. In July 26, 1995, a Notice of Administrative Charge was served on
petitioners. They were allegedly "caught in the act of sniffing shabu inside the Toolroom Section," then
placed under preventive suspension and required to submit their written explanation within 10 days from
receipt of the notice. Petitioners denied the allegations but they were dismissed for violation of the PAL
Code of Discipline. Petitioners filed a complaint for illegal dismissal and damages. While that happened,
SEC placed PAL under an Interim Rehabilitation Receiver due to severe financial losses. Later on, the
Labor Arbiter ruled in favour of petitioners reinstatement and backwages ans also awarded damages and
attorneys fees. Meanwhile, the SEC replaced the Interim Rehabilitation Receiver with a Permanent
Rehabilitation Receiver. On appeal, the NLRC reversed the ruling of the Labor Arbiter, however, the
latter issued a Writ of Execution ordering for the immediate collection of the petitioners backwages and
other awards and if such is not possible, ordering for the levy of the office equipment/s of the respondent
for the satisfaction of such. PAL thereupon moved to quash the Writ and to lift the Notice while
petitioners moved to release the garnished amount. PAL also filed an urgent petition for injunction with
the NLRC, to which the latter affirmed the validity of the Writ and the Notice issued by the Labor Arbiter
but suspended and referred the action to the Rehabilitation Receiver for appropriate action. The CA
however nullified the NLRC Resolutions on two grounds: (1) a subsequent finding of a valid dismissal
removes the basis for implementing the reinstatement aspect of a labor arbiters decision and (2) the
impossibility to comply with the reinstatement order due to corporate rehabilitation provides a reasonable
justification for the failure to exercise the options under Article 223 of the Labor Code.

Issue/s: Whether of not the execution of the Labor Arbiter's order is legally possible even if PAL is under
receivership

Held: Note that during the pendency of this case, PAL was placed by the SEC first, under an Interim
Rehabilitation Receiver and finally, under a Permanent Rehabilitation Receiver. The pertinent law on this
matter, Section 5 (d) of Presidential Decree (P.D.) No. 902-A, as amended, provides that:
SECTION 5.In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have original and
exclusive jurisdiction to hear and decide cases involving:
xxx xxx xxx
d)Petitions of corporations, partnerships or associations to be declared in the state of suspension
of payments in cases where the corporation, partnership or association possesses property to
cover all of its debts but foresees the impossibility of meeting them when they respectively fall due
or in cases where the corporation, partnership or association has no sufficient assets to cover its
liabilities, but is under the [management of a rehabilitation receiver or] Management Committee
created pursuant to this Decree.
The same P.D., in Section 6 (c) provides that:
SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:
xxx xxx xxx
c)To appoint one or more receivers of the property, real or personal, which is the subject of the
action pending before the Commission in accordance with the pertinent provisions of the Rules of
Court in such other cases whenever necessary in order to preserve the rights of the parties-
litigants and/or protect the interest of the investing public and creditors: . . . Provided, finally,
That upon appointment of a management committee, rehabilitation receiver, board or body,
pursuant to this Decree, all actions for claims against corporations, partnerships or associations
under management or receivership pending before any court, tribunal, board or body shall be
suspended accordingly.
xxx xxx xxx

Worth stressing, upon appointment by the SEC of a rehabilitation receiver, all actions for claims against
the corporation pending before any court, tribunal or board shall ipso jure be suspended. The purpose of
the automatic stay of all pending actions for claims is to enable the rehabilitation receiver to effectively
exercise its/his powers free from any judicial or extra-judicial interference that might unduly hinder or
prevent the rescue of the corporation. More importantly, the suspension of all actions for claims against
the corporation embraces all phases of the suit, be it before the trial court or any tribunal or before this
Court. No other action may be taken, including the rendition of judgment during the state of suspension.
It must be stressed that what are automatically stayed or suspended are the proceedings of a suit and not
just the payment of claims during the execution stage after the case had become final and executory.
Furthermore, the actions that are suspended cover all claims against the corporation whether for damages
founded on a breach of contract of carriage, labor cases, collection suits or any other claims of a
pecuniary nature. No exception in favor of labor claims is mentioned in the law. This Court's adherence to
the above-stated rule has been resolute and steadfast as evidenced by its oft-repeated application in a
plethora of cases involving PAL, the most recent of which is Philippine Airlines, Inc. v. Zamora. Since
petitioners' claim against PAL is a money claim for their wages during the pendency of PAL's appeal to
the NLRC, the same should have been suspended pending the rehabilitation proceedings. The Labor
Arbiter, the NLRC, as well as the CA should have abstained from resolving petitioners' case for illegal
dismissal and should instead have directed them to lodge their claim before PAL's receiver.
SPOUSES EDUARDO SOBREJUANITE and FIDELA SOBREJUANITE, Petitioners,
vs.
ASB DEVELOPMENT CORPORATION, Respondent.
G.R. No. 165675 September 30, 2005

Facts:
on March 7, 2001, spouses Eduardo and Fidela Sobrejuanite (Sobrejuanite) filed a Complaint for
rescission of contract, refund of payments and damages, against ASB Development Corporation
(ASBDC) before the Housing and Land Use Regulatory Board (HLURB).
Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a condominium unit and a
parking space in the BSA Twin Tower-B Condominum located at Bank Drive, Ortigas Center,
Mandaluyong City. They averred that despite full payment and demands, ASBDC failed to deliver the
property on or before December 1999 as agreed. They prayed for the rescission of the contract; refund of
payments amounting to P2,674,637.10; payment of moral and exemplary damages, attorneys fees,
litigation expenses, appearance fee and costs of the suit.
ASBDC filed a motion to dismiss or suspend proceedings in view of the approval by the Securities and
Exchange Commission (SEC) on April 26, 2001 of the rehabilitation plan of ASB Group of Companies,
which includes ASBDC, and the appointment of a rehabilitation receiver. The HLURB arbiter however
denied the motion and ordered the continuation of the proceedings.
The arbiter found that under the Contract to Sell, ASBDC should have delivered the property to
Sobrejuanite in December 1999; that the latter had fully paid their obligations except the P50,000.00
which should be paid upon completion of the construction; and that rescission of the contract with
damages is proper.
The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing judgment is rendered ordering the rescission of the contracts to
sell between the parties, and further ordering the respondent [ASBDC] to pay the complainants
[Sobrejuanite] xxx
All other claims and all counter-claims are hereby dismissed.
IT IS SO ORDERED.
The HLURB Board of Commissioners affirmed the ruling of the arbiter that the approval of the
rehabilitation plan and the appointment of a rehabilitation receiver by the SEC did not have the effect of
suspending the proceedings before the HLURB. The board held that the HLURB could properly take
cognizance of the case since whatever monetary award that may be granted by it will be ultimately filed
as a claim before the rehabilitation receiver. The board also found that ASBDC failed to deliver the
property to Sobrejuanite within the prescribed period. The dispositive portion of the Decision reads:
Wherefore the petition for review is denied and the decision of the office below is affirmed. It shall be
understood that all monetary awards shall still be filed as claims before the rehabilitation receiver.
ASBDC filed an appeal before the Office of the President which was dismissed for lack of merit. Hence,
ASBDC filed a petition under Section 1, Rule 43 of the Rules of Court before the Court of Appeals,
docketed as CA-G.R. SP No. 79420.
On June 29, 2004, the Court of Appeals granted its assailed Decision.

Issue:
Whether or not the approval of the corporate rehabilitation plan and appointment of a receiver had the
effect of suspending the proceeding in the HLURB.

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


RCBC vs IAC & BF Homes Inc.
Deceber 9, 1999
Facts:
In 1984, BF Homes filed a petition for Rehabilitation and for Declaration of Suspension of
Payments with the SEC. One of its creditors is the petitioner, RCBC. Pending request of BF Homes, there
was an extra judicial foreclosure of its real estate mortgage on some properties. In the public auction
held, RCBC was the highest bidder. However, the sheriff withheld the delivery of the certificate of sale
covering the auctioned properties because of the proceedings in the SEC.
In 1985, the SEC issued a writ of preliminary injunction stopping the auction sale. RCBC
thereafter filed an action for mandamus with the IAC against the sheriff. In the same year, SEC
appointed a Management Committee for BF Homes. The trial court dismissed the mandamus case and
suspended the issuance of the certificate of sale to RCBC pending the resolution of the case with the
SEC. On appeal, the SC upheld the trail courts decision.
Issue:
Whether the sale to RCBC is validly effected before the assignment of a Management
Committee to the by the SEC pursuant to PD # 902-A.
Held:
SC rules in favor of RCBC. The reason is that the suspension of actions for claims commences
only from the time the Management Committee or Receiver is appointed by the SEC.
Insofar as the petitioner is concerned, the provisions of PD # 902-A are not yet applicable and it
may still be allowed to assert its preferred status because it foreclosed on the mortgage prior to the
appointment of the Management Committee.
Worthy to note, once a management committee is appointed pursuant to the above-mentioned
law, all actions and claims of both secured and unsecured creditor against a distressed corporation
pending before any court or body shall be suspended. The suspension should give the Committee a
chance to rehabiitate the corporation if there should be a possibility for doing so.









Facilities Management Corporation vs. de la Osa
[GR L-38649, March 26, 1979]

Facts: Facilities Management Corporation and J. S. Dreyer are domiciled in Wake Island while J. V.
Catuira is an employee of FMC stationed in Manila. Leonardo dela Osa was employed by FMC in
Manila, but rendered work in Wake Island, with the approval of the Department of Labor of the
Philippines. De la Osa was employed as (1) painter with an hourly rate of $1.25 from March 1964 to
November 1964, inclusive; (2) houseboy with an hourly rate of $1.26 from December 1964 to November
1965, inclusive; (3) houseboy with an hourly rate of $1.33 from December 1965 to August 1966,
inclusive; and (4) cashier with an hourly rate of $1.40 from August 1966 to March 27 1967, inclusive. He
further averred that from December, 1965 to August, 1966, inclusive, he rendered overtime services daily,
and that this entire period was divided into swing and graveyard shifts to which he was assigned, but he
was not paid both overtime and night shift premiums despite his repeated demands from FMC, et al. In a
petition filed on 1 July 1967, dela Osa sought his reinstatement with full backwages, as well as the
recovery of his overtime compensation, swing shift and graveyard shift differentials.

Subsequently on 3 May 1968, FMC, et al. filed a motion to dismiss the subject petition on the ground that
the Court has no jurisdiction over the case, and on 24 May 1968, de la Osa interposed an opposition
thereto. Said motion was denied by the Court in its Order issued on 12 July 1968. Subsequently, after
trial, the Court of Industrial Relations, in a decision dated 14 February 1972, ordered FMC, et al. to pay
de la Osa his overtime compensation, as well as his swing shift and graveyard shift premiums at the rate
of 50% per cent of his basic salary. FMC, et al. filed the petition for review on certiorari.

Issue:
1. Whether the mere act by a non-resident foreign corporation of recruiting Filipino workers for its
own use abroad, in law doing business in the Philippines.
2. Whether FMC has been "doing business in the Philippines" so that the service of summons upon
its agent in the Philippines vested the Court of First Instance of Manila with jurisdiction.
Held:

1. In its motion to dismiss, FMC admits that Mr. Catuira represented it in the Philippines "for the purpose
of making arrangements for the approval by the Department of Labor of the employment of Filipinos who
are recruited by the Company as its own employees for assignment abroad." In effect, Mr. Catuira was
alleged to be a liaison officer representing FMC in the Philippines. Under the rules and regulations
promulgated by the Board of Investments which took effect 3 February 1969, implementing RA 5455,
which took effect 30 September 1968, the phrase "doing business" has been exemplified with
illustrations, among them being as follows: ""(1) Soliciting orders, purchases (sales) or service contracts.
Concrete and specific solicitations by a foreign firm, not acting independently of the foreign firm,
amounting to negotiation or fixing of the terms and conditions of sales or service contracts, regardless of
whether the contracts are actually reduced to writing, shall constitute doing business even if the enterprise
has no office or fixed place of business in the Philippines; (2) appointing a representative or distributor
who is domiciled in the Philippines, unless said representative or distributor has an independent status,
i.e., it transacts business in its name and for its own account, and not in the name or for the account of the
principal; xxx (4) Opening offices, whether called 'liaison' offices, agencies or branches, unless proved
otherwise. xxx (10) Any other act or acts that imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or works, or the exercise of some of the functions
normally incident to, or in the progressive prosecution of, commercial gain or of the purpose and
objective of the business organization."

2. FMC may be considered as "doing business in the Philippines" within the scope of Section 14 (Service
upon private foreign corporations), Rule 14 of the Rules of Court which provides that "If the defendant is
a foreign corporation, or a non-resident joint stock company or association, doing business in the
Philippines, service may be made on its resident agent designated in accordance with law for that purpose
or, if there be no such agent, on the government official designated by law to that effect, or on any of its
officers or agents within the Philippines." Indeed, FMC, in compliance with Act 2486 as implemented by
Department of Labor Order IV dated 20 May 1968 had to appoint Jaime V. Catuira, 1322 A. Mabini,
Ermita, Manila "as agent for FMC with authority to execute Employment Contracts and receive, in behalf
of that corporation, legal services from and be bound by processes of the Philippine Courts of Justice, for
as long as he remains an employee of FMC." It is a fact that when the summons for FMC was served on
Catuira he was still in the employ of the FMC. Hence, if a foreign corporation, not engaged in business in
the Philippines, is not barred from seeking redress from courts in the Philippines (such as in earlier cases
of Aetna Casualty & Surety Company, vs. Pacific Star Line, etc. [GR L-26809], In Mentholatum vs.
Mangaliman, and Eastboard Navigation vs. Juan Ysmael & Co.), a fortiori, that same corporation cannot
claim exemption from being sued in Philippine courts for acts done against a person or persons in the
Philippines.






















Home Insurance Company vs. Eastern Shipping lines
Facts:
S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development Corporation, shipped on board
the SS Eastern Jupiter from Osaka, Japan, 2,361 coils of Copper Wire Rods. The said VESSEL is owned
and operated by Eastern Shipping Lines. The shipment was insured with the Home Insurance Company
against all risks in the amount of P1,580,105.06 under its Insurance Policy. The coils discharged from the
VESSEL numbered 2,361, of which 53 were in bad order. What the Phelps Dodge ultimately received at
its warehouse was the same number of 2,361 coils, with 73 coils loose and partly cut, and 28 coils
entangled, partly cut, and which had to be considered as scrap. For the loss/damage suffered by the cargo,
Home Insurance paid the Phelps Dodge under its insurance policy the amount of P3,260.44. Home
Insurance made demands for payment against the Eastern Shipping and the Angel Jose Transportation for
reimbursement of the aforesaid amount but each refused to pay the same. December 1966, the Hansa
Transport Kontor shipped from Bremen, Germany, 30 packages of Service Parts of Farm Equipment on
board the VESSEL owned by N. V. Nedlloyd Lijnen, The shipment was covered by Bill of Lading for
transportation to, and delivery at, Manila, in favor of International Harvester Macleod, Inc. The shipment
was insured with Home Insurance company. The packages discharged from the VESSEL numbered 29, of
which 7 were found to be in bad order. What International Harvester ultimately received at its warehouse
was the same number of 29 packages with 9 packages in bad order. Home Insurance paid International
Harvester under its Insurance Cargo Policy the amount of P2,426.98. Demands were made for
reimbursement thereof but they refused to pay. When the insurance contracts which formed the basis of
these cases were executed, Home Insurance had not yet secured the necessary licenses and authority; but
when the complaints in these two cases were filed, Home Insurance had already secured the necessary
license to conduct its insurance business in the Philippines. In both cases, Home Insurance made the
averment regarding its capacity to sue, as that it "is a foreign insurance company duly authorized to do
business in the Philippines through its agent. CFI dismissed the complaints, on the ground that Home
Insurance had failed to prove its capacity to sue. Hence the said petitioned which were consolidated.

Issue:
Whether Home Insurance, a foreign corporation licensed to do business at he time of the filing of the
case, has the capacity to sue for claims on contracts made when it has no license yet to do business in the
Philippines.

Held:
The SC reiterated that the object of Sections 68 and 69 of the Corporation Law was to subject the foreign
corporation doing business in the Philippines to the jurisdiction of Philippine courts. The Corporation
Law must be given a reasonable interpretation which does not hamper the development of trade relations
among countries. The court distinguished between the denial of a right to take remedial action and the
penal sanction for non-registration. Insofar as transacting business without a license is concerned, Section
69 of the Corporation Law imposed a penal sanction. The Corporation Law is silent on whether or not the
contract executed by a foreign corporation with no capacity to sue is null and void ab initio. Still, there is
no question that the contracts are enforceable. The requirement of registration affects only the remedy.
Significantly, Batas Pambansa 68, the Corporation Code of the Philippines has corrected the ambiguity
caused by the wording of Section 69 of the old Corporation Law. Section 133 of the present Corporation
Code provides that "No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency in the Philippines; but such corporation may be sued or proceeded against
before Philippine courts or administrative tribunals on any valid cause of action recognized under
Philippine laws." The old Section 69 has been reworded in terms of non-access to courts and
administrative agencies in order to maintain or intervene in any action or proceeding. The prohibition
against doing business without first securing a license is now given penal sanction which is also
applicable to other violations of the Corporation Code under the general provisions of Section 144 of the
Code. It is, therefore, not necessary to declare the contract null and void even as against the erring foreign
corporation. Herein, the lack of capacity at the time of the execution of the contracts was cured by the
subsequent registration is also strengthened by the procedural aspects of these cases. Home Insurance
averred in its complaints that it is a foreign insurance company, that it is authorized to do business in the
Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan Building at
Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules of Court.
Home Insurance sufficiently alleged its capacity to sue.











THE MENTHOLATUM CO., INC., ET AL. vs. ANACLETO MANGALIMAN, ET AL. (G.R. No.
47701. June 27, 1941)

Facts: The Mentholatum Co., Inc., is a Kansas corporation which manufactures "Mentholatum," a
medicament and salve adapted for the treatment of colds, nasal irritations, chapped skin, insect bites,
rectal irritation and other external ailments of the body. The Philippine-American Drug Co., Inc., is its
exclusive distributing agent in the Philippines authorized by it to look after and protect its interests. In
1921, the Mentholatum Co., Inc., registered with the Bureau of Commerce and Industry the word,
"Mentholatum", as trade mark for its products. The Mangaliman brothers prepared a medicament and
salve named "Mentholiman" which they sold to the public packed in a container of the same size, color
and shape as "Mentholatum." As a consequence of such, Mentholatum, etc. suffered damages from the
diminution of their sales and the loss of goodwill and reputation of their product in the market. Thus, the
Mentholatum Co., Inc., and the Philippine-American Drug, Co., Inc. instituted an action in the CFI of
Manila against the Mangalimans and the Director of the Bureau of Commerce for infringement of trade
mark and unfair competition. Petitioner prayed for the issuance of an order restraining the Mangalimans
from selling their product "Mentholiman," and directing them to render an accounting of their sales and
profits and to pay damages. After a protracted trial, the Court of First Instance of Manila, on 29 October
1937, rendered judgment in favor of Mentholatum, etc. In the CA, the decision of the trial court was
reversed, holding that the activities of the Mentholatum Co., Inc., were business transactions in the
Philippines, and that by section 69 of the Corporation Law, it may not maintain the suit. Mentholatum,
etc. filed the petition for certiorari.

Issue/s: Whether Mentholatum, etc. could prosecute the instant action without having secured the license
required in section 69 of the Corporation Law. (whether the said corporation is or is not transacting
business in the Philippines)

Held: SC held that No general rule or governing principle can be laid down as to what constitutes "doing"
or "engaging in" or "transacting" business. Indeed, each case must be judged in the light of its peculiar
environmental circumstances. The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. The term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and
object of its organization. The CA concluded that " it is undeniable that the Mentholatum Co., through its
agent, the Philippine-American Drug Co., Inc., has been doing business in the Philippines by selling its
products here since the year 1929, at least." This is assailed by petitioners as a pure conclusion of law.
This finding is predicated upon the testimony of Mr. Roy Springer of the Philippine-American Drug Co.,
Inc., and the pleadings filed by the petitioners. The complaint filed in the CFI Manila, clearly stated that
the Philippine-American Drug Co., Inc., is the exclusive distributing agent in the Philippine Islands of the
Mentholatum Co., Inc., in the sale and distribution of its product known as the Mentholatum." The object
of the pleadings being to draw the lines of battle between litigants and to indicate fairly the nature of the
claims or defenses of both parties. A party cannot subsequently take a position contradictory to, or
inconsistent with, his pleadings , as the facts therein admitted are to be taken as true for the purpose of the
action. It follows that whatever transactions the Philippine-American Drug Co., Inc., had executed in
view of the law, the Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines
without the license required by section 68 of the Corporation Law, it may not prosecute this action for
violation of trade mark and unfair competition. Neither may the Philippine-American Drug Co., Inc.,
maintain the action here for the reason that the distinguishing features of the agent being his
representative character and derivative authority, it cannot now, to the advantage of its principal, claim an
independent standing in court. The petitioners here, invoke the case of Western Equipment and Supply
Co. vs. Reyes. The CA, however, properly distinguished that case from the one at bar in that in the former
"the decision expressly says that the Western Equipment and Supply Co. was not engaged in business in
the Philippines, and significantly added that if the plaintiff had been doing business in the Philippine
Islands without first obtaining a license, 'another and a very different question would be presented'." It is
almost unnecessary to remark in this connection that the recognition of the legal status of a foreign
corporation is a matter affecting the policy of the forum, and the distinction drawn in our Corporation
Law is an expression of the policy. The general statement made in Western Equipment and Supply
Co. case regarding the character of the right involved should not be construed in the derogation of the
policy-determining authority of the State. The right of the petitioner conditioned upon compliance with
the requirement of section 69 of the Corporation Law to protect its rights, is hereby reserved.
*Dissenting Opinion by J ustice Moran: Section 69 of the Corporation Law provides that, without
license no foreign corporation may maintain by itself or assignee any suit in the Philippine courts for
the recovery of any debt, claim or demand whatever. But this provision, as we have held in Western
Equipment & Supply Company vs. Reyes does not apply to suits for infringement of trade marks and
unfair competition, the theory being that "the right to the use of the corporate and trade name of a
foreign corporation is a property right, a right in rem, which it may assert and protect in any of the
courts of the world even in countries where it does not personally transact any business," and that "trade
mark does not acknowledge any territorial boundaries but extends to every mark where the traders'
goods have become known and identified by the use of the mark."

ERIKS PTE. LTD., petitioner,
vs.
COURT OF APPEALS, and DELFIN F. ENRIQUEZ, JR., respondents.
G.R. No. 118843 February 6, 1997

Facts:
Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the manufacture and sale of elements used
in sealing pumps, valves and pipes for industrial purposes, valves and control equipment used for
industrial fluid control and PVC pipes and fittings for industrial uses. On various dates covering the
period January 17 August 16, 1989, Delfin Enriquez, Jr., doing business under the name and style of
Delrene EB Controls Center and/or EB Karmine Commercial, ordered and received from Eriks Pte. Ltd.
various elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings. The
transfers of goods were perfected in Singapore, for Enriquez's account, F.O.B. Singapore, with a 90-day
credit term. Subsequently, demands were made by Eriks upon Enriquez to settle his account, but the latter
failed/refused to do so. On 28 August 1991, Eriks filed with the Regional Trial Court of Makati, Branch
138, Civil Case 91-2373 for the recovery of S$41,939.63 or its equivalent in Philippine currency, plus
interest thereon and damages. Enriquez responded with a Motion to Dismiss, contending that Eriks had no
legal capacity to sue. In an Order dated 8 March 1993, the trial court dismissed the action on the ground
that Eriks is a foreign corporation doing business in the Philippines without a license.

On appeal and on 25 January 1995, the appellate court (CA GR CV 41275) affirmed said order as it
deemed the series of transactions between Eriks and Enriquez not to be an "isolated or casual
transaction." Thus, the appellate court likewise found Eriks to be without legal capacity to sue. Eriks filed
the petition for review.

Issue:
Whether a foreign corporation which sold its products 16 times over a five-month period to the same
Filipino buyer without first obtaining a license to do business in the Philippines, is prohibited from
maintaining an action to collect payment therefor in Philippine courts.

Held:
Section 133 of the Corporation Code provides that "No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws." The provision prohibits, not merely absence of
the prescribed license, but it also bars a foreign corporation "doing business" in the Philippines without
such license access to Philippine courts. A foreign corporation without such license is not ipso facto
incapacitated from bringing an action. A license is necessary only if it is "transacting or doing business"
in the country. However, there is no definitive rule on what constitutes "doing," "engaging in," or
"transacting" business. The Corporation Code itself does not define such terms. To fill the gap, the
evolution of its statutory definition has produced a rather all-encompassing concept in Republic Act 7042
in this wise: "The phrase 'doing business' shall include soliciting orders, service contracts, opening
offices, whether called 'liaison' offices or branches; appointing representatives or distributors domiciled in
the Philippines or who in any calendar year stay in the country for a period or periods totaling one
hundred eight(y) (180) days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the business organization: Provided,
however, That the phrase 'doing business' shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or officer to represent its interests in
such corporation; nor appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account." The accepted rule in jurisprudence is that
each case must be judged in the light of its own environmental circumstances. It should be kept in mind
that the purpose of the law is to subject the foreign corporation doing business in the Philippines to the
jurisdiction of Philippine courts. It is not to prevent the foreign corporation from performing single or
isolated acts, but to bar it from acquiring a domicile for the purpose of business without first taking the
steps necessary to render it amenable to suits in the local courts. Herein, more than the sheer number of
transactions entered into, a clear and unmistakable intention on the part of Eriks to continue the body of
its business in the Philippines is more than apparent. As alleged in its complaint, it is engaged in the
manufacture and sale of elements used in sealing pumps, valves, and pipes for industrial purposes, valves
and control equipment used for industrial fluid control and PVC pipes and fittings for industrial use.




Mentholatum Co., Inc. Vs Mangaliman
June 27, 1941
Facts:
Mentholatum Co., Inc., is a foreign corporation which manufactures Mentholatum. Its co-
petitioner, Phil-Am Drug is its exclusive distributing agent in the Philippines. Both corporations filed an
action for infringement of trademark and unfair competition against the Mangaliman brothers for selling
a product called Mentholiman.
The trial court rendered judgment in favor of the petitioners. The CA reversed the decision and
held that the activities of the Mentholatum Co., Inc., were business transactions in the Philippines and
that by Sec. 69 of the Corporation Code, it cannot maintain the action. Hence, the petition for certiorari.
Issue:
Whether the foreign corporation is doing/ transacting business in the Philippines.
Whether a foreign corporation which does not have the license as required by Sec. 68 of the
Corporation Code may institute an action for violation of trade mark and unfair competition.
Held:
The petitioner corporation cannot institute the action.
Whether the foreign corporation is continuing the body and substance of the business for which
it was organized or wthere it has substantially retire from it and turned it over to another seems to be
the rule test. However, no general rule can be had to what constitutes doing/transacting business. The
term implies continuity of commercial dealings and the performance of acts or works of some of the
functions normally incident to the purpose and object of its organization.
Since Mentholatum is a foreign corporation doing business in the Philippines without the license
required by Sec. 68 of the Corporation Law, it may not prosecute the action for violation of trademark
and unfair competition. Neither may Phil-Am Drug maintain the action since the distinguishing features
of the agent being his representative character is to the advantage of the petitioner principal which
cannot claim a standing in the court.







Merrill Lynch Futures vs. Court of Appeals
GR 97816, 24 July 1992

Facts: On 23 November 1987, Merrill Lynch futures, Inc. (ML FUTURES) filed a complaint with the
Regional Trial Court at Quezon City against the Spouses Pedro M. Lara and Elisa G. Lara for the
recovery of a debt and interest thereon, damages, and attorney's fees. In its complaint ML FUTURES
described itself as (a) "a non-resident foreign corporation, not doing business in the Philippines, duly
organized and existing under and by virtue of the laws of the state of Delaware, U.S.A.;" as well as (b) a
'futures commission merchant' duly licensed to act as such in the futures markets and exchanges in the
United States, . . . essentially functioning as a broker (executing) orders to buy and sell futures contracts
received from its customers on U.S. futures exchanges." In its complaint ML FUTURES alleged (1) that
on 28 September 1983 it entered into a Futures Customer Agreement with the spouses (Account 138-
12161), in virtue of which it agreed to act as the latter's broker for the purchase and sale of futures
contracts in the U.S.; (2) that pursuant to the contract, orders to buy and sell futures contracts were
transmitted to ML FUTURES by the Lara Spouses "through the facilities of Merrill Lynch Philippines,
Inc., a Philippine corporation and a company servicing ML Futures' customers;" (3) that from the outset,
the Lara Spouses "knew and were duly advised that Merrill Lynch Philippines, Inc. was not a broker in
futures contracts," and that it "did not have a license from the Securities and Exchange Commission to
operate as a commodity trading advisor (i.e., "and entity which, not being a broker, furnishes advice on
commodity futures to persons who trade in futures contracts"); (4) that in line with the above mentioned
agreement and through said Merill Lynch Philippines, Inc., the Lara Spouses actively traded in futures
contracts, including "stock index futures" for four years or so, i.e., from 1983 to October, 1987, there
being more or less regular accounting and corresponding remittances of money (or crediting or debiting)
made between the spouses and ML FUTURES; (5) that because of a loss amounting to US $160,749.69
incurred in respect of 3 transactions involving "index futures," and after setting this off against an amount
of US $75,913.42 then owing by ML FUTURES to the Lara Spouses, said spouses became indebted to
ML FUTURES for the ensuing balance of US $84,836.27, which the latter asked them to pay; (6) that the
Lara Spouses however refused to pay this balance, "alleging that the transactions were null and void
because Merrill Lynch Philippines, Inc., the Philippine company servicing accounts of ML Futures, had
no license to operate as a "commodity and/or financial futures broker."

On the foregoing essential facts, ML FUTURES prayed (1) for a preliminary attachment against the
spouses' properties "up to the value of at least P2,267,139.50," and (2) for judgment, after trial, sentencing
the spouses to pay ML FUTURES: (a) the Philippine peso equivalent of $84,836.27 at the applicable
exchange rate on date of payment, with legal interest from the date of demand until full payment; (b)
exemplary damages in the sum of at least P500,000,00; and (c) attorney's fees and expenses of litigation
as may be proven at the trial. Preliminary attachment issued ex parte on 2 December 1987, and the
spouses were duly served with summons. The spouses filed a motion to dismiss dated 18 December 1987
on the grounds that (1) ML FUTURES had "no legal capacity to sue" and (2) its "complaint states no
cause of action since it is not the real party in interest." On 12 January 1988, the Trial Court promulgated
an Order sustaining the motion to dismiss, directing the dismissal of the case and discharging the writ of
preliminary attachment. It later denied ML FUTURES's motion for reconsideration, by Order dated 29
February 1988. ML FUTURES appealed to the Court of Appeals. In its own decision promulgated on 27
November 1990, the Court of Appeals affirmed the Trial Court's judgment. Its motion for reconsideration
having been denied, ML FUTURES appealed to the Supreme Court on certiorari.

Issues:
1. Whether ML FUTURES was doing business in the Philippines without license.
2. Whether in light of the fact that the Laras were fully aware of its lack of license to do business
in the Philippines, and in relation to those transactions had made payments to, and received
money from it for several years the Lara Spouses are estopped to impugn ML FUTURES
capacity to sue them in the courts of the forum.
Held:

1. The facts on record adequately establish that ML FUTURES, operating in the United States, had indeed
done business with the Lara Spouses in the Philippines over several years, had done so at all times
through Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in this country, and had executed
all these transactions without ML FUTURES being licensed to so transact business here, and without
MLPI being authorized to operate as a commodity futures trading advisor. These are the factual findings
to both the Trial Court and the Court of Appeals. These, too, are the conclusions of the Securities &
Exchange Commission which denied MLPI's application to operate as a commodity futures trading
advisor, a denial subsequently affirmed by the Court of Appeals. Prescinding from the proposition that
factual findings of the Court of Appeals are generally conclusive, the Supreme Court has been cited to no
circumstance of substance to warrant reversal of said Appellate Court's findings or conclusions in this
case. Further, the Laras did transact business with ML FUTURES through its agent corporation organized
in the Philippines, it being unnecessary to determine whether this domestic firm was MLPI (Merrill
Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner & Smith (MLPI's alleged predecessor). The fact
is that ML FUTURES did deal with futures contracts in exchanges in the United States in behalf and for
the account of the Lara Spouses, and that on several occasions the latter received account documents and
money in connection with those transactions. Given these facts, if indeed the last transaction executed by
ML FUTURES in the Laras's behalf had resulted in a loss amounting to US $160,749.69; that in relation
to this loss, ML FUTURES had credited the Laras with the amount of US $ 75,913.42 which it (ML
FUTURES) then admittedly owed the spouses and thereafter sought to collect the balance, US
$84,836.27, but the Laras had refused to pay (for the reasons already above stated).

2. The Laras received benefits generated by their business relations with ML FUTURES. Those business
relations, according to the Laras themselves, spanned a period of 7 years; and they evidently found those
relations to be of such profitability as warranted their maintaining them for that not insignificant period of
time; otherwise, it is reasonably certain that they would have terminated their dealings with ML
FUTURES much, much earlier. In fact, even as regards their last transaction, in which the Laras allegedly
suffered a loss in the sum of US$160,749.69, the Laras nonetheless still received some monetary
advantage, for ML FUTURES credited them with the amount of US $75,913.42 then due to them, thus
reducing their debt to US $84,836.27. Given these facts, and assuming that the Lara Spouses were aware
from the outset that ML FUTURES had no license to do business in this country and MLPI, no authority
to act as broker for it, it would appear quite inequitable for the Laras to evade payment of an otherwise
legitimate indebtedness due and owing to ML FUTURES upon the plea that it should not have done
business in this country in the first place, or that its agent in this country, MLPI, had no license either to
operate as a "commodity and/or financial futures broker." Considerations of equity dictate that, at the very
least, the issue of whether the Laras are in truth liable to ML FUTURES and if so in what amount, and
whether they were so far aware of the absence of the requisite licenses on the part of ML FUTURES and
its Philippine correspondent, MLPI, as to be estopped from alleging that fact as a defense to such liability,
should be ventilated and adjudicated on the merits by the proper trial court.







Agilent Technologies Singapore vs. Integrated Silicon Techngology Philippines Corp.

Facts:
Agilent Technologies Singapore Ltd. is a foreign corporation, which is not licensed to do business in the
Philippines. Integrated Silicon Technology Philippines Corporation is a private domestic corporation,
100% foreign owned, which is engaged in the business of manufacturing and assembling electronics
components. The relation among the various parties in the case can be traced to a 5-year Value Added
Assembly Services Agreement , between Integrated Silicon and the Hewlett-Packard Singapore. Under
the terms of the VAASA, Integrated Silicon was to locally manufacture and assemble fiber optics for
export to HP-Singapore. HP-Singapore, for its part, was to consign raw materials to Integrated Silicon;
transport machinery to the plant of Integrated Silicon; and pay Integrated Silicon the purchase price of the
finished products. The VAASA had a 5-year term with a provision for annual renewal by mutual written
consent. With the consent of Integrated Silicon on 1999, HP-Singapore assigned all its rights and
obligations in the VAASA to Agilent. On 25 May 2001, Integrated Silicon filed a complaint for Specific
Performance and Damages against Agilent and its officers Tan Bian Ee, Lim Chin Hong, Tey Boon Teck
and Francis Khor, alleging that Agilent breached the parties oral agreement to extend the VAASA.
Integrated Silicon and asked Agilent to execute a written extension of the VAASA for a period of 5 years
as earlier assured and promised; to comply with the extended VAASA; and to pay damages. Summons
and a copy of the complaint were served on Atty. Ramon Quisumbing, who returned it on the claim that
he was not the registered agent of Agilent. Later, he entered a special appearance to assail the courts
jurisdiction over the person of Agilent. Agilent filed a separate complaint against Integrated Silicon, et al
before the RTC. Agilent prayed that a writ of replevin or, in the alternative, a writ of preliminary
mandatory injunction, be issued ordering Integrated Silicon, et. al. to deliver its equipment, machineries
and the materials which were left in the plant of Integrated Silicon; and pay damages. The trial court
granted Agilents application for a writ of replevin. Without filing an MR, the CA granted Integrated
Silicon, et. al.s petition for certiorari, set aside Order of the trial court and ordered the dismissal of the
case. Agilent filed the petition for review.

Issue:
Whether a foreign corporation without a license is incapacitated from bringing an action in Philippine
courts.
Held:

A foreign corporation without a license is not ipso facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a foreign corporation is doing business in the country.
Section 133 of the Corporation Code provides that "No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws." In a number of cases, however, the Court held
that an unlicensed foreign corporation doing business in the Philippines may bring suit in Philippine
courts against a Philippine citizen or entity who had contracted with and benefited from said corporation.
Such a suit is premised on the doctrine of estoppel. This applies to foreign as well as domestic
corporations. The application of this principle prevents a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes chiefly in cases where such person has
received the benefits of the contract. The principles regarding the right of a foreign corporation to bring
suit in Philippine courts may thus be condensed in four statements: (1) if a foreign corporation does
business in the Philippines without a license, it cannot sue before the Philippine courts; (2) if a foreign
corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on
an isolated transaction or on a cause of action entirely independent of any business transaction; (3) if a
foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which
has contracted with said corporation may be estopped from challenging the foreign corporations
corporate personality in a suit brought before Philippine courts; and (4) if a foreign corporation does
business in the Philippines with the required license, it can sue before Philippine courts on any
transaction.








EXPERTRAVEL & TOURS, INC. vs. COURT OF APPEALS and KOREAN AIRLINES (G.R. No.
152392. May 26, 2005)

Facts: Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea
and licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim,
while its appointed counsel was Atty. Mario Aguinaldo and his law firm. In September 1996, KAL filed a
complaint against petitioner herein (ETI) for the collection of the principal amount of P260,150.00, plus
attorney's fees and exemplary damages. The verification and certification against forum shopping was
signed by Atty. Aguinaldo, who indicated therein that he was the resident agent and legal counsel of KAL
and had caused the preparation of the complaint. ETI filed a motion to dismiss claiming that Atty.
Aguinaldo was not authorized to execute the verification and certificate of non-forum shopping as
required by Section 5, Rule 7 of the Rules of Court. KAL opposed and contended that Atty. Aguinaldo
was its resident agent and was registered as such with the SEC as required by the Corporation Code of the
Philippines. Atty. Aguinaldo claimed that he had been authorized to file the complaint through a
resolution of the KAL Board of Directors approved during a special meeting via teleconferencing held on
June 25, 1999. Upon his motion, KAL was given a period of 10 days within which to submit a copy of the
said resolution. The trial court granted the motion. Also, the counsel of the KAL executed an affidavit
alleging that the special meeting happened and the resolution authorizing Atty. Aguinaldo to execute the
certificate of non-forum shopping and to file the complaint exists. Trial court gave credence to KALs
claims and hence dismissed the motion of the petitioner. ETI opposed to such and appealed but the CA
dismissed such, ruling that the verification and certificate of non-forum shopping executed by Atty.
Aguinaldo was sufficient compliance with the Rules of Court. ETIs motion for reconsideration was
denied and thus recourse to the SC.

Issue/s: Whether or not Atty. Aguinaldo, as the allegedly resident agent of the respondent in the
Philippines, is authorized to execute the requisite certification against forum shopping

Held: The SC was not convinced. While Atty. Aguinaldo is the resident agent of the respondent in the
Philippines, this does not mean that he is authorized to execute the requisite certification against forum
shopping. Under Section 127, in relation to Section 128 of the Corporation Code, the authority of the
resident agent of a foreign corporation with license to do business in the Philippines is to receive, for and
in behalf of the foreign corporation, services and other legal processes in all actions and other legal
proceedings against such corporation, thus:
SEC. 127.Who may be a resident agent. A resident agent may either be an individual residing in the
Philippines or a domestic corporation lawfully transacting business in the Philippines: Provided, That in
the case of an individual, he must be of good moral character and of sound financial standing.
SEC. 128.Resident agent; service of process. The Securities and Exchange Commission shall require
as a condition precedent to the issuance of the license to transact business in the Philippines by any
foreign corporation that such corporation file with the Securities and Exchange Commission a written
power of attorney designating some persons who must be a resident of the Philippines, on whom any
summons and other legal processes may be served in all actions or other legal proceedings against such
corporation, and consenting that service upon such resident agent shall be admitted and held as valid as if
served upon the duly-authorized officers of the foreign corporation as its home office.

Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum
shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent
may be aware of actions filed against his principal (a foreign corporation doing business in the
Philippines), such resident may not be aware of actions initiated by its principal, whether in the
Philippines against a domestic corporation or private individual, or in the country where such corporation
was organized and registered, against a Philippine registered corporation or a Filipino citizen.

The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not specifically
authorized to execute the said certification. It attempted to show its compliance with the rule subsequent
to the filing of its complaint by submitting, on March 6, 2000, a resolution purporting to have been
approved by its Board of Directors during a teleconference held on June 25, 1999, allegedly with Atty.
Aguinaldo and Suk Kyoo Kim in attendance. However, such attempt of the respondent casts veritable
doubt not only on its claim that such a teleconference was held, but also on the approval by the Board of
Directors of the resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping.
SC believes that the alleged teleconference on June 25, 1999 never took place, and that the resolution
allegedly approved by the respondent's Board of Directors during the said teleconference was a mere
concoction purposefully foisted on the RTC, the CA and this Court, to avert the dismissal of its complaint
against the petitioner.





B. VAN ZUIDEN BROS., LTD., Petitioner,
vs.
GTVL MANUFACTURING INDUSTRIES, INC., Respondent.
G.R. No. 147905 May 28, 2007

Facts:
On 13 July 1999, petitioner filed a complaint for sum of money against respondent, docketed as Civil
Case No. 99-0249. The pertinent portions of the complaint read:
1. Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong Kong. x x x
ZUIDEN is not engaged in business in the Philippines, but is suing before the Philippine Courts,
for the reasons hereinafter stated.
x x x x
3. ZUIDEN is engaged in the importation and exportation of several products, including lace
products.
4. On several occasions, GTVL purchased lace products from [ZUIDEN].
5. The procedure for these purchases, as per the instructions of GTVL, was that ZUIDEN delivers
the products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd.
(KENZAR), x x x and the products are then considered as sold, upon receipt by KENZAR of the
goods purchased by GTVL.
KENZAR had the obligation to deliver the products to the Philippines and/or to follow whatever
instructions GTVL had on the matter.
Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in Hong Kong, the
transaction is concluded; and GTVL became obligated to pay the agreed purchase price.
x x x x
7. However, commencing October 31, 1994 up to the present, GTVL has failed and refused to
pay the agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN, as
above-mentioned.
x x x x
9. In spite [sic] of said demands and in spite [sic] of promises to pay and/or admissions of
liability, GTVL has failed and refused, and continues to fail and refuse, to pay the overdue
amount of U.S.$32,088.02 [inclusive of interest].
4

Instead of filing an answer, respondent filed a Motion to Dismiss
5
on the ground that petitioner has no
legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines without
securing the required license. Accordingly, petitioner cannot sue before Philippine courts.
After an exchange of several pleadings
6
between the parties, the trial court issued an Order on 10
November 1999 dismissing the complaint.
On appeal, the Court of Appeals sustained the trial courts dismissal of the complaint.
Hence, this petition.

Issue:
Whether or not petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine
courts.

Held:
Section 133 of the Corporation Code provides:

Doing business without license. No foreign corporation transacting business in the Philippines without
a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.
The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before
Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the
Philippines can sue before Philippine courts.
In the present controversy, petitioner is a foreign corporation which claims that it is not doing business in
the Philippines. As such, it needs no license to institute a collection suit against respondent before
Philippine courts.
To be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation
Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific
business transactions within the Philippine territory on a continuing basis in its own name and for its own
account. Actual transaction of business within the Philippine territory is an essential requisite for the
Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to
secure a Philippine business license. If a foreign corporation does not transact such kind of business in the
Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require
such foreign corporation to secure a Philippine business license.