Escolar Documentos
Profissional Documentos
Cultura Documentos
CORPORATION LAWS
SAINT LOUIS UNIVERSITY
SCHOOL OF LAW
SUBMITTED TO:
ATTY. H.V. BELMES
Professor
SUBMITTED BY:
Historical Background
Concepts
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Arcilla v. CA
GR. No. 89804, October 23, 1992
Rustan Pulp v. IAC
GR. No. 70789, October 19, 1992
Reahs Corporation v. NLRC
GR. No. 117473, April 15, 1997
AHS/ Philippines v. CA
GR. No. 111807, June 14, 1996
NAPOCOR v. CA
GR. No. 113103, June 13, 1997
Uichico v. NLRC
GR. No. 121434, June 2, 1997
Brent Hospital v. NLRC
GR. No. 117593, July 10, 1998
Nicario v. NLRC
GR. No. 125340, September 17, 1998
Restaurante Las Conchas v. Llego
GR. No. 119085, September 9, 1999
Camelcraft Corporation v. NLRC
GR. No. 90634-35, June 6, 1990
Villa Rey Transit, Inc. v. Far East Motor Corp.
GR. No. L-31339, January 31, 1978
Esguerra v. Court of Appeals
GR. No. 119310, February 3, 1997
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annul the contract by which such interest was acquired. The remedy must be sought in a criminal
proceeding or Quo Warranto action, under Section 190 (A), instituted by the government. Until thus assailed
in a direct proceeding, the contract by which the interest was acquired will be treated as valid between the
parties.
The Corporation Law of 1925 subjects SociedadesAnonimas to its provisions so far as such
provisions may be applicable. In 1929, the Corporation Law was amended and the prohibition cited by
Harden was so modified as merely to prohibit any such corporation from holding more than fifteen per
centum of the outstanding capital stock of another such corporation.
Further and more importantly, the Corporation Law of 1925 provides that if the person who
allegedly violated the provisions of said law is a corporation, the proper action is a quo warranto which
should be initiated by the Attorney-General or its deputized provincial fiscal and not a private action as the
one filed by Harden.
Securities and Exchange Commissions functions are: supervision of all corporations, partnerships
and/or associations who are grantees of franchise, license or permit issued by the government to operate in
the Philippines. Puerto Azul Land Inc. (PALI) sought to offer its shares to the public in order to raise funds to
develop its properties and pay loans. PALI was issued Permit to Sell its shares by SEC. To facilitate trading
of shares, PALI sought to course the trading of its shares through the PSE. Thus, it filed application to list its
shares. Listing Committee recommended the approval. February 14, 1996, PSE received a letter from the
heirs of Ferdinand Marcos claiming that Marcos is the owner of certain properties forming part of PALIs
properties. Ternate Development Corporation (TDC) is a stockholder of PALI appears to be held in trust by
Rebecca Panlilio for Marcos and now for his estate.
PALIs application was requested to be deferred. PALIs answer: the properties mentioned were not
being claimed by PALI. TDC owns 1.20% of PALI. Marcoses answer: asserted legal and beneficial
ownership of other properties titled under the name of PALI. Marcoses received TRO, enjoining them from
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further impeding, obstructing, delaying or interfering in any manner or means with the consideration,
processing and approval by the PSE of the initial public hearing of PALI. Board of governors of PSE rejected
PALIs application. PALI wrote to SEC, bringing to SECs attention the action taken by the PSE; requesting
that the SEC in the exercise of supervisory and regulatory powers over stock exchanges under PD 902-A
Section 6 (j) review PSEs action; institute measure as are just and proper. PSE filed its comments.
SEC rendered its order reversing PSEs decisions. Commissioners authority under Securities Act
in conjunction with PD 902-A was invoked. PSE was ordered to cause the listing of PALI shares in the
exchange. PSEs Motion for Reconsideration was denied. PSE filed a petition for Review with the CA. CA
dismissed PSEs Petition for Review.
Issue:
Whether SEC has the power to order the listing and sale of shares and to review and substitute
decisions of PSE on listing application.
Ruling:
The Supreme Court affirms that the SEC is the entity with the primary say as to whether or not
securities, including shares of stock may be traded. Its function is vital to the national economy as the
business is affected with public interest.
The role of SEC under PD 902-A: it has the responsibility of enforcing all laws affecting
corporations and other forms of associations not otherwise vested in other government office. However, the
PSEs management prerogatives are not under the absolute control of the SEC. The PSE is a corporation
authorized by its corporate franchise to engage in its proposed approved business. PSEs main concern is
the generation of profit. PSE has all the right pertaining to corporations: right to sue and be sued, to hold
property in its own name, to enter or not into contracts, to perform all other legal acts.
In organizing itself as a collective body, a corporation waives no constitutional immunities and
perquisites appropriate to a corporation. The state will generally not interfere with its corporate and
management decisions. Questions of policy and management are left to the honest decisions of the officers
and directors of a corporation, and the courts have no authority to substitute their judgment for the judgment
of the board. The board is the business manager of the corporation and as long as it acts in good faith, its
orders are not reviewable by the courts. Thus, notwithstanding the regulatory power of the SEC over the
PSE, and the resultant authority to reverse the PSEs decision in matters of application for listing in the
market, the SEC may exercise such power ONLY if the PSEs judgment is attended by bad faith. Bad faith
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does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest
of ill will in the nature of fraud. SEC had acted arbitrarily in arrogating unto itself the discretion of approving
the application for listing in the PSE, since this is a matter addressed to the sound discretion of the PSE.
As to what policy should be relied upon in approving the registration and sale of securities, the
same is left to the sound discretion of the SEC. SEC has the power to promulgate rules and regulations in
the interest of the public. SEC has supervision and control over all corporations. PSEs action is justified by
the law. Decisions of SEC and CA are reversed.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was
intended to publicly identify it as a component of the CCC Group of Companies engaged income and the
same business i.e investment and finance. Aside from CCC-QC, other franchise companies were organized.
The organization of subsidiary corporations is usually resorted to for the aggrupation of capital, the
ability to cover more territory and population, the decentralization of activities best decentralized, and the
securing of other legitimate advantages. But when the mother corporation and its subsidiary cease to act in
good faith and honest business judgment, when the corporate device is used by the parent to avoid its
liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetuate fraud
or promote injustice, the law steps in to remedy the problem. When that happens, the corporate character is
not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to remedy
injustice. The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent
of its parent. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the
veil of a corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong,
protect fraud or defend crime.
The Discounting Agreements through which CCC controlled the finances of its subordinates
became unlawful when the Central Bank adopted the DOSRI prohibition. Under this rule, directors, officers,
stockholders and other persons with related interests are prohibited from borrowing money from their
company.
comply with the contract hence San Juan sued Motorich. Motorich, in its defense, argued that it is not bound
by the acts of its treasurer, Nenita, since her act in contracting with San Juan was not authorized by the
corporate board.
San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that
Nenita and her husband owns 98% of the corporations capital stocks; that as such, it is a close corporation
and that makes Nenita and the President as principal stockholders who do not need any authorization from
the corporate board; that in this case, the corporate veil may be properly pierced.
Issues:
1. May a corporate treasurer sell a parcel of land owned by the corporation?
2. May the veil of corporate fiction be pierced on the ground that almost all of the shares of stocks
are owned by the treasurer and her husband?
Ruling:
1. NO. True, Gruenberg and company signed the agreement but such contract cannot bind
Motorich because it never authorized or ratified the sale. A corporation is a juridical person separate and
distinct from its stockholders. The property of the corporation is not the property of the stockholders. A
corporation may act only through its Board of Directors or through its officers/agents when authorized by its
by-laws or board resolution.
Persons dealing with an agent whether general or special are bound at their peril to ascertain not
only the fact of the agency but also the nature and extent of authority. The treasurer in this case is also not
cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the
scope of her general authority.
2. NO. the question of piercing the veil of corporate fiction is a matter of proof. Petitioner failed to
establish that the corporation was formed or operated for the purpose of shielding any alleged fraudulent or
illegal activities of its officers or stockholders or that the veil was used to conceal fraud, illegality or inequity
at the expense of third persons. Motorich is not a close corporation. The Articles of Incorporation of Motorich
does not contain any provision stating that:
a. the number of stockholders shall not exceed 20 or;
b. a pre-emption of shares is restricted in favor of any stockholder or of the corporation or;
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c. listing its stocks in any stock exchange or making a public offering of the stocks is prohibited.
Motorich does not become a close corporation just because Reynaldo and Nenita owned 99.86%
of the subscribed capital stock. The mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not sufficient ground to disregard the separate
personalities.
The principle in Dulay Enterprises Inc. vs. CA which treated the family corporation as a close
corporation even without looking into the provisions of the Articles of Incorporation does not apply because
in Dulay, the sale of real properties was contracted by the President of a close corporation with the
knowledge and acquiescence of its Board of Directors.
What legal rules govern the relationship among co-investors whose agreement was to do business
through the corporate vehicle but failed to incorporate the entity in which they had chosen to invest.
Ruling:
No de facto partnership was created among the parties which could entitle Lim to a reimbursement
of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his
own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare
parts.
While it has been held that as between themselves, the rights of the stockholders in a defective
corporation should be governed by the supposed charter and the laws of the state relating thereto not by the
rules governing partners. It is ordinarily held that persons who attempt to form a corporation, but failed, and
who carry on business under the corporate name occupy the position of partners inter se.
However, such a relation does not necessarily exist, for ordinarily, persons cannot be made to
assume the relation of partners, as between themselves when their purpose is that no partnership shall
exist. It should be implied only when necessary to do justice between the parties. Thus, one who took no
part except to subscribe for stock in a proposed corporation which is never legally formed does not become
a partner with other subscribers who engage in business under the pretended corporation, so as to be liable
as such in an action for settlement.
6 Re: Corporation compared with Joint Venture
KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.
CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE
CUNANAN, QUINTIN S. DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAADA, and REP.
JOKER P. ARROYO,
vs.
TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the President; RENATO
CORONA, in his capacity as Assistant Executive Secretary and Chairman of the Presidential review
Committee on the Lotto, Office of the President; PHILIPPINE CHARITY SWEEPSTAKES OFFICE; and
PHILIPPINE GAMING MANAGEMENT CORPORATION
G.R. No. 113375
May 5, 1994
Pursuant to Section1 of the Charter of the PCSO as amended by BP Blg. 42 which grants it the
authority to hold and conduct charity sweepstakes races, lotteries and other similar activities, the PCSO
decided to establish an on-line lottery system for the purpose of increasing its revenue base and diversifying
its sources of funds. After learning that the PCSO was interested in operating an on-line lottery system, the
Berjaya Group Berjad, a multinational company in Malaysia became interested to offer its services and
resources to PCSO. Berjaya group organized with some Filipino investors in March 1993 a Philippine
corporation known as the Philippine Gaming Management Corporation which was intended to be the
medium through which the technical and management services required for the project would be offered
and delivered to PCSO.
PCSO formally issued a request for proposal for the lease Contract of an on-line lottery system for
the PCSO. The bid submitted by PGMC was evaluated. The office of the President announced that
respondent PGMC may finally operate the countrys on-line lottery system and that the corresponding
contract would be for approval. KILOSBAYAN sent an open letter to the President strongly opposing the
setting up of the on-line lottery system on the basis of serious moral and ethical considerations. Petitioners
also submit that the PCSO cannot validly enter into the assailed Contract of Lease with PGMC because it is
an arrangement wherein the PCSO would hold and conduct the on-line lottery system in collaboration or
association with the PGMC in violation of Section 1(B) of RA 1169, as amended by BP Blg. 42 which
prohibits the PCSO from holding and conducting charity sweepstakes races, lotteries and other similar
activities in collaboration, association or joint venture with any person, association, company or entity,
foreign or domestic. Petitioner seeks to prohibit and restrain the implementation of the Contract of Lease
executed by the PCSO and PGMC.
Issue:
Whether or not the opposition made by the petitioner is valid
Ruling:
YES. The preliminary issue on the locus standi of the petitioner which was raised by the
respondents should be resolved in favor of the petitioners. The court finds the petition to be of
transcendental importance to the public. The issues it raised are of paramount public interest.
The provision in Section 1 of RA 1169 as amended by BP Blg 42 is indisputably clear with respect
to its franchise or privilege to hold and conduct charity sweepstakes, races lotteries and other similar
activities. Meaning, the PCSO cannot exercise it in collaboration, association or joint venture with any
other party. Thus, the challenged contract of Lease violates the exception provided for in paragraph B,
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Section 1 of RA 1169 as amended by BP Blg. 42 and is therefore invalid for being contrary to law.
7 Re: SociedadAnonima
CHARLES W. MEAD, plaintiff-appellant,
vs.
E. C. McCULLOUGH, ET AL., and THE PHILIPPINE ENGINEERING AND CONSTRUCTION
COMPANY,defendant-appellants.
G.R. No. 6217 December 26, 1911
TRENT, J.:
Facts:
Charles Mead, Edwin McCullough and three others organized the corporation called The Philippine
Engineering and Construction Company (PECC). The 4 organizers, except Mead, contributed to the majority
of the capital stock of PECC, the remaining shares were offered to the public. Mead contributed some
personal properties. Mead was assigned as a manager but he resigned as such when he accepted an
engineering job in China. But even so, he remained as one of the five directors (the organizers). At that time,
PECC was already incurring losses. McCullough, the president, proposed that he shall buy the assets of the
corporation. The three other directors then voted in favor of this proposal hence the assets were transferred
to McCullough. Mead learned of this and so he opposed it because the personal properties he contributed
were also transferred to McCullough. Mead also argued that under the Articles of Incorporation of PECC,
the board of directors only have ordinary powers; that the authorization made by the three directors to allow
the sale of company assets to McCullough constitutes an act of agency which is invalid at that because no
express commission was made, i.e., no power of attorney was made in favor of the directors. The
requirement for a commission can be inferred from Article 1713 of the Civil Code which provides: An agency
stated in general terms only includes acts of administration. In order to compromise, alienate, mortgage, or
execute any other act of strict ownership an express commission is required. Mead also insists that under
their charter, no resolution affecting the administration of the affairs of PECC should be binding upon the
corporation unless the unanimous consent of the entire board was first obtained
Issue:
Whether or not the three directors had the authority to allow the sale/transfer of the company
assets to McCullough.
Ruling:
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Where the Articles of Incorporation prescribe that all meetings of the stockholder, a majority of
votes of those present shall be necessary to determine any question discussed, the sale or transfer to one
of its members of the corporate property is a matter which the majority of the stockholders can properly
consider and generally speaking, the voice of the majority of the stockholders is the law of the corporation.
A majority of the stockholders or directors have the power to sell or transfer to one of its members
the corporate property, where the stockholders or directors have general ordinary powers and where there is
nothing in the Articles of Incorporation which expressly prohibits such a sale.
While a private corporation remains solvent, there is no reason why a director or officer by authority
of the majority of its stockholders or board of managers may not deal with the corporation, loan it money or
buy property from it in like manner as a stranger. This is likewise true of an insolvent corporation, but in all
cases, such officer or director must act in good faith and pay an adequate consideration, their acts being
subject to the most scrutiny at all times.
There is nothing in the provisions of the civil code, nor of the code of commerce dealing with the
manner of dissolving a corporation which expressly or impliedly prohibits the sale of corporate property to
one of its members. Where a director in a corporation accepts a position in which his duties are
incompatible with those as such director, it is presumed that he has abandoned his office as director of the
corporation.
8 Re: SociedadAnonima
BENGUET CONSOLIDATED MINING CO
vs.
MARIANO PINEDA, in his capacity as Securities and Exchange Commissioner, CONSOLIDATED
MINES, INC.
G.R. No. L-7231. March 28, 1956.
REYES, J. B. L., J.
Facts:
Benguet Consolidated Mining was organized on June 24, 1903 as a SociedadAnonima regulated
by Article 151 of the Spanish Code of Commerce. The Articles Of Incorporation provided that it was
organized for a term of 50 years. In 1906, Corporation Code was enacted to take effect on April 1, 1906. At
the expiration of the 50-year period, the Board of Directors of Benguet Mining adopted in 1946 a resolution
to extend its life for another 50 years and submitted it for registration to the SEC. Registration was denied.
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After 60 years, the shareholders of Benguet Consolidated adopted a resolution empowering the
Director to effectuate the extension of the companys business life for not less than 20 and not more than 50
years by (1) amendment to the AOI (2) by reforming and reorganizing the company as a Philippine
Corporation (3) by both (4) by any other means. Benguet submitted to the SEC 2 documents for alternative
registration, but the SEC denied it.
Issue:
Could Benguet Consolidated Mining still exercise the option of reforming and reorganizing as a
corporation since the law is silent as to time when such option may be exercised or availed of
Ruling:
While no express period of time is fixed by the law within which SociedadAnonimas may elect
under Sec. 75 of Act No. 1459, either to reform or to retain their status quo, there are powerful reasons to
conclude that the legislature intended such choice to be made within a reasonable time from the effectivity
of the Act.
To enable a SociedadAnonima to choose reformation when its stipulated period of existence is
nearly ended would be to allow it to enjoy a term of existence for longer than that granted to corporations
organized under the Corporation Code. In Benguets case, 50 years as SociedadAnonima and 50 years as
corporation which is a result incompatible with the avowed purpose of Act 1459 to hasten the disappearance
of SociedadAnonimas. It would permit sociedadanonimas to prolong their corporate existence indirectly by
belated reformation into corporations.
The prohibition contained in Section 18 of Act 1459 against extending the period of corporate
existence by amendment of the original articles was intended to apply and does apply to SociedadAnonimas
already formed, organized and existing at the time of effectivity of the Corporation Law.
9 Re: SociedadesAnonimas
PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant,
vs.
PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR: PRIMATERIA (PHILIPPINES)
INC., ALEXANDER G. BAYLIN and JOSE M. CRAME, defendants-appellees.
G.R. No. L-17160
November 29, 1965
BENGZON, C.J.:
Facts:
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Whether defendant Primateria Zurich may be considered a foreign corporation within the meaning
of Sections 68 and 69 of the Corporation Law;
Ruling:
The lower court ruled that the Primateria Zurich was not duly proven to be a foreign corporation;
nor that a societeanonyme ("sociedadanomima") is a corporation; and that failing such proof, the societe
cannot be deemed to fall within the prescription of Section 68 of the Corporation Law. We agree with the
said court's conclusion. In fact, our corporation law recognized the difference between sociedadesanonimas
and corporations. At any rate, we do not see how the plaintiff could recover from both the principal
(Primateria Zurich) and its agents. It has been given judgment against the principal for the whole amount. It
asked for such judgment, and did not appeal from it. It clearly stated that its appeal concerned the other
three defendants.
December 4, 1906
MAPA, J.:
Facts:
The plaintiff in this action seeks to recover the sum of $437.50, United States currency, balance
due on a contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. The contract relating to the
said work was entered into by the said Lo-Chim-Lim, acting as in his own name with the plaintiff, and it
appears that the said Lo-Chim-Lim and his codefendants at the time the contract was made, they were the
joint proprietors and operators of the said lumber yard engaged in the purchase and sale of lumber under
the name and style of Lo-Chim-Lim. plaintiff tries to show that the other defendants were the partners of LoChim-Lim in the said lumber -yard business. The evidence of record show, according to the judgment of the
court below, "That Lo-Chim-Lim had a certain lumber yard in CalleLemery of the city of Manila, and that he
was the manager of the same, having ordered the plaintiff to do some work for him at his sawmill in the city
of Manila; and that Vicente Palanca was his partner, and Manila; and that Vicente Palanca was his partner,
and had an interest in the said business as well as in the profits and losses thereof . The court below
accordingly found that "Lo-Chim-Lim, Vicente Palanca, and Go-Tauco had a lumber yard in CalleLemery of
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the city of Manila in the year 1904, participated in the profits and losses of the business and that Lo-ChimLim in the business in question.
Issue:
Whether or not the partnership is Cuentas En Participacion.
Ruling:
The court ruled in the affirmative. It seems that the alleged partnership between Lo-Chim-Lim and
the appellants was formed by verbal agreement only. At least there is no evidence tending to show that said
agreement was reduced to writing, or that it was ever recorded in a public instrument. Moreover, that
partnership had no corporate name. The plaintiff himself alleges in his complaint that the partnership was
engaged in business under the name and style of Lo-Chim-Lim only, which according to the evidence was
the name of one of the defendants. On the other hand, and this is very important, it does not appear that
there was any mutual agreement between the parties, and if there were any, it has not been shown what
that agreement was. As far as the evidence shows it seems that the business was conducted by Lo-ChimLim in his own name, although he gave to the appellants a share of the earnings of the business; but what
that share was has not been shown with certainty. The contract made with the plaintiff was made by LoChim-Lim individually in his own name, and there is no evidence that the partnership ever contracted in any
other form. Under such circumstances we find nothing upon which to consider this partnership other than as
a partnership of cuentas en participacion. But a simple business conducted by Lo-Chim-Lim exclusively, in
his own name, and under his own personal management, he having effected every transaction connected
therewith also in his own name, the names of the other persons interested in the profits and losses of the
business nowhere appearing. A partnership constituted in such a manner, the existence of which was only
known to those who had an interest in the same, there being no mutual agreements between the partners,
and without a corporate name indicating to the public in some way that there were other people besides the
one who ostensibly managed and conducted the business, in exactly the accidental partnership of cuentas
en participacion defined in article 239 of the Code of Commerce. Those who contract with the person under
whose name the business of such partnership of cuentas en participacion is conducted, shall have only a
right of action against such person and not against the other person interested, and the latter, on the other
hand, shall have no right of action against the third person who contracted with the manager unless such
manager formally transfers his right to them. (Art. 242 of the Code of Commerce.) It follows, therefore, that
the plaintiff has no right to demand from the appellants the payment of the amount claimed in the complaint,
as Lo-Chim-Lim was the only one who contracted with him.
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distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the
interest of each of them in said corporations, and whatever the offices they hold therein may be. Indeed, it is
well settled that the legality of a seizure can be contested only by the party whose rights have been impaired
thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of
by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them
of the documents, papers and things seized from the offices and premises of the corporations adverted to
above, since the right to object to the admission of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in
proceedings against them in their individual capacity. Indeed, it has been held:. . . that the Government's
action in gaining possession of papers belonging to the corporation did not relate to nor did it affect the
personal defendants. If these papers were unlawfully seized and thereby the constitutional rights of or any
one was invaded, they were the rights of the corporation and not the rights of the other defendants. Next, it
is clear that a question of the lawfulness of a seizure can be raised only by one whose rights have been
invaded. the warrants for the search of three (3) residences of herein petitioners, as specified in the
Resolution of June 29, 1962, are null and void; that the searches and seizures therein made are illegal; that
the writ of preliminary injunction made permanent; that the writs prayed for are granted, insofar as the
documents, papers and other effects so seized in the aforementioned residences are concerned; that the
aforementioned motion for Reconsideration and Amendment should be, as it is hereby, denied; and that the
petition herein is dismissed and the writs prayed for denied, as regards the documents, papers and other
effects seized in the twenty-nine (29) places, offices and other premises enumerated in the same
Resolution, without special pronouncement as to costs.
guaranteed by plaintiff's bond. It has been established during the trial that Mrs.Tapnio had an export sugar
quota of 1,000 piculs for the agricultural year 1956-1957 which she did not need. She agreed to allow
Mr.Jacobo C. Tuazon to use said quota for the consideration of P2,500.00. This agreement was called a
contract of lease of sugar allotment. At the time of the agreement, Mrs.Tapnio was indebted to the Philippine
National Bank at San Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured
by a mortgage on her standing crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop. This arrangement was necessary in order that when Mrs.Tapnio
harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against her. This is the
arrangement entered into between Mrs.Tapnio and Mr. Tuazon regarding the former's excess quota for
1956-1957. Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said
Bank, The same was submitted to the branch manager at San Fernando, Pampanga. The latter required the
parties to raise the consideration of P2.80 per picul or a total of P2, 800.00. Mr. Tuazon informed the
manager that he was agreeable to raising the consideration to P2.80 per picul but the board of directors
required that the amount be raised to 13.00 per picul. Tuazon, request for reconsideration to the board of
directors with another recommendation for the approval of the lease at P2.80 per picul, but the board
returned the recommendation unacted upon, considering that the current price prevailing at the time was
P3.00 per picul. Tuazon informed the Bank that he was no longer interested to continue the deal, referring to
the lease of sugar quota allotment in favor of defendant Rita GuecoTapnio. The result is that the latter lost
the sum of P2,800.00 which she should have received from Tuazon and which she could have paid the
Bank to cancel off her indebtedness,
Issue:
Whether or not petitioner is liable for the damage caused.
Ruling:
The court ruled in the affirmative. We concur that failure of the negotiation for the lease of the sugar
quota allocation of Rita GuecoTapnio to Tuazon was due to the fault of the directors of the Philippine
National Bank, The refusal on the part of the bank to approve the lease at the rate of P2.80 per picul which,
as stated above, would have enabled Rita GuecoTapnio to realize the amount of P2,800.00 which was more
than sufficient to pay off her indebtedness to the Bank, and its insistence on the rental price of P3.00 per
picul thus unnecessarily increasing the value by only a difference of P200.00. inevitably brought about the
rescission of the lease contract to the damage and prejudice of Rita GuecoTapnio in the aforesaid sum of
P2,800.00. While petitioner had the ultimate authority of approving or disapproving the proposed lease since
the quota was mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for
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the protection of the interest of private respondents, that degree of care, precaution and vigilance which the
circumstances justly demand in approving or disapproving the lease of said sugar quota. The law makes it
imperative that every person "must in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith, 4 This petitioner failed to do. A
corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the
rules governing the liability of a principal or master for a tort committed by an agent or servant are the same
whether the principal or master be a natural person or a corporation, and whether the servant or agent be a
natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which
he expressly directs or authorizes, and this is just as true of a corporation as of a natural person, A
corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express
direction or authority from the stockholders or members acting as a body, or, generally, from the directors as
the governing body."
Service Manager, Pacific Region, and AAFES Taxi Drivers Association with Eduardo Castillo as President,"
for payment of separation pay due to termination/phase-out.
Issue:
Whether or not the petitioners are liable.
Ruling:
The court ruled in the affirmative. However private respondents failed to substantiate their claim
that Naguiat Enterprises managed, supervised and controlled their employment. It appears that they were
confused on the personalities of Sergio F. Naguiat as an individual who was the president of CFTI, and
Sergio F. Naguiat Enterprises, Inc., as a separate corporate entity with a separate business. They
presumed that Sergio F. Naguiat, who was at the same time a stockholder and director[27] of Sergio F.
Naguiat Enterprises, Inc., was managing and controlling the taxi business on behalf of the latter. A closer
scrutiny and analysis of the records, however, evince the truth of the matter: that Sergio F. Naguiat, in
supervising the-taxi drivers and determining their employment terms, was rather carrying out his
responsibilities as president of CFTI. Hence, Naguiat Enterprises as a separate corporation does not
appear to be involved at all in the taxi business. Petitioner-corporations would likewise want to avoid the
solidary liability of their officers. We, however, hold that Sergio F. Naguiat, in his capacity as president of
CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual
respondents. Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the
business. .Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family
corporations"[34] owned by the Naguiat family. Section 100, paragraph 5, of the Corporation Code,
states:5)
To the extent that the stockholders are actively engage(d) in the management or operation of the
business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each
other and among themselves. Said stockholders shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance." Nothing in the records show whether
CFTI obtained "reasonably adequate liability insurance;" thus, what remains is to determine whether there
was corporate tort. Simply stated, tort is a breach of a legal duty. As pointed out earlier, the fifth paragraph of
Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively
managing or operating the business and affairs of the close corporation. Only Sergio F. Naguiat, in his
individual and personal capacity, principally bound himself to comply with the obligation there under, i.e., "to
guarantee the payment to private respondents of any damages which they may incur by reason of the
issuance of a temporary restraining order sought, if it should be finally adjudged that said principals were not
entitled thereto.Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat, president and co-owner
28 | P a g e
thereof, are ORDERED to pay, jointly and severally, the individual respondents their separation pay
computed at US$120.00 for every year of service, or its peso equivalent at the time of payment or
satisfaction of the judgment; Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T. Naguiat
are ABSOLVED from liability in the payment of separation pay to individual respondents.
29 | P a g e
The court ruled in the affirmative. , Citibank assets that the proximate cause of Ford's injury is the
gross negligence of PCIBank. Since the questionedcrossed check was deposited with PCIBank, which
claimed to be a depository/collecting bank of the BIR, it had the responsibility to make sure that the check in
questions is deposited in Payee's account only. In this case, there was no evidence presented confirming
the conscious particiapation of PCIBank in the embezzlement. As a general rule, however, a banking
corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the
course and scope of their employment.28 A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It may be liable for the tortuous acts of
its officers even as regards that species of tort of which malice is an essential element. In this case, we find
a situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in which
its own management employees had particiapted. , Remberto Castro pro-manager of San Andres Branch of
PCIBank, received Citibank Check Numbers SN-10597 and 16508. He passed the checks to a coconspirator, an Assistant Manager of PCIBank'sMeralco Branch, who helped Castro open a Checking
account of a fictitious person named "Reynaldo Reyes." Castro deposited a worthless Bank of America
Check in exactly the same amount of Ford checks. The syndicate tampered with the checks and succeeded
in replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and
16508. The PCIBankPtro-manager, Castro, and his co-conspirator Assistant Manager apparently performed
their activities using facilities in their official capacity or authority but for their personal and private gain or
benefit. A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by
the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment;
nor will t be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the
bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or representations of an
officer or agent acting within the course and apparent scope of his employment or authority. And if an officer
or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness lodged
with his bank for collection, the bank is liable for his misappropriation of such sum.
30 | P a g e
The petitioner is a foreign life-insurance corporation, was charged of criminal action joining John
Northcott and Manuel C. Grey g with the crime of libel. The said defendants West Coast Life Insurance
Company, John Northcott, and Manuel C. Grey, conspiring and confederating together, did then and there
willfully, unlawfully, and maliciously, and to the damage of the Insular Life Insurance Company, a domestic
corporation duly organized, registered, and doing business in the Philippine Islands, and with intent o cause
such damage and to expose the said Insular Life Insurance Company to public hatred, contempt, and
ridicule, compose and print, and cause to be printed a large number of circulars. The lower court ruled that it
has no power or authority, under the laws of the Philippine Islands, to proceed against a corporation, as
such, criminally, to bring it into court for the purpose of making it amenable to the criminal laws. It is
contended that the court had no jurisdiction to issue the process in evidence against the plaintiff corporation;
that the issuance and service thereof upon the plaintiff corporation were outside of the authority and
jurisdiction of the court, were authorized by no law, conferred no jurisdiction over said corporation, and that
they were absolutely void and without force or effect.
Issue:
Whether or not the plaintiff is liable.
Ruling:
The court ruled in the negative. No case has been cited to us where a corporation has been
proceeded against under a criminal statute where the court did not exercise its common law powers or
where there was not in force a special procedure applicable to corporations further attacking said process,
alleges that the process is a mixture of civil and criminal process, that it is not properly signed, that it does
not direct or require an arrest; that it s an order to appear and answer on a date certain without restraint of
the person, and that it is not in the form required by law.It is undoubted that, under the Spanish criminal law
and procedure, a corporation could not have been proceeded against criminally, as such, if such an entity as
a corporation in fact existed under the Spanish law, and as such it could not have committed a crime in
which a willful purpose or a malicious intent was required. Criminal actions would have been restricted or
limited, under that system, to the officials of such corporations and never would have been directed against
the corporation itself. This was the rule with relation to associations or combinations of persons
approaching, more or less, the corporation as it is now understood, and it would undoubtedly have been the
rue with corporations. From this source, then, the courts derive no authority to bring corporations before
them in criminal actions, nor to issue processes for that purpose.
31 | P a g e
social humiliation, and similar injury. A corporation, being an artificial person and having existence only in
legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system
and it flows from real ills, sorrows, and griefs of life all of which cannot be suffered by respondent bank as
an artificial person. While Chua Pac is included in the case, the complaint, however, clearly states that he
has merely been so named as a party in representation of petitioners corporation.
33 | P a g e
asked for the amount of P3,000,000.00 by way of moral damages. In LBC Express, Inc. vs. Court of
Appeals, we have said:
"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A
corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental
suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and
griefs of life - all of which cannot be suffered by respondent bank as an artificial person."
While Chua Pac is included in the case, the complaint, however, clearly states that he has merely
been so named as a party in representation of petitioner corporation.
in order, to which was attached a draft exhibition agreement, a counter-proposal covering 53 films for a
consideration of P35 million. The said counter-proposal was however rejected by Vivas Board of Directors.
On April 29, 1992, Viva granted RBS the exclusive right to air 104 Viva-produced and/or acquired
films including the fourteen (14) films subject of the present case.
ABS-CBN then filed aa complaint for specific performance. RTC rendered a decision in favor of
RBS and VIVA and against ABS-CBN, ruling that there was no meeting of minds on the price and terms of
the offer. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously
been exercised per Ms.Concios letter to Del Rosario ticking off ten titles acceptable to them, which would
have made the 1992 agreement an entirely new contract. The Court of Appeals affirmed the decision of the
RTC. Hence, this petition.
Issue:
Whether or not Private Respondent Corporation is entitled to actual, moral, and exemplary
damages under the circumstances of the present case.
Ruling:
No. We find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter
2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as
provided by law or by stipulation, one is entitled to compensation for actual damages only for such
pecuniary loss suffered by him as he has duly proved. The indemnification shall comprehend not only the
value of the loss suffered, but also that of the profits that the obligee failed to obtain. In contracts and quasicontracts the damages which may be awarded are dependent on whether the obligor acted with good faith
or otherwise, in case of good faith, the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could have reasonably
foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or
wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. In crimes and quasi-delicts, the defendant shall be liable for all damages
which are the natural and probable consequences of the act or omission complained of, whether or not such
damages has been foreseen or could have reasonably been foreseen by the defendant.
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiff's business standing or commercial credit.
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It
35 | P a g e
arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of
action. Needless to state the award of actual damages cannot be comprehended under the above law on
actual damages.
As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may
be recovered as actual or compensatory damages under any of the circumstances provided for in Article
2208 of the Civil Code. The general rule is that attorney's fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate. They are not to be awarded
every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands
factual, legal, and equitable justification. Even when claimant is compelled to litigate with third persons or to
incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of
bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the
righteousness of his cause.
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article
2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases where
they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract
where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall
only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual
injury suffered. and not to impose a penalty on the wrongdoer. The award is not meant to enrich the
complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or
amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the restoration,
within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering
inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise
balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or
corruption on the part of the trial court.
The award of moral damages cannot be granted in favor of a corporation because, being an
artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no
senses, It cannot, therefore, experience physical suffering and mental anguish, which could be experienced
only by one having a nervous system. The statement in People v. Manero andMambulao Lumber Co. v.
PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in
36 | P a g e
social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since
RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil
Code. These are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages. They are recoverable in criminal cases as part of the civil
liability when the crime was committed with one or more aggravating circumstances; in quasi-contracts, if
the defendant acted with gross negligence; and in contracts and quasi-contracts, if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasicontract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on
Articles 19, 20, and 21 of the Civil Code. But since ABS-CBN did not act with bad faith or malice, moral
damages and exemplary damages based on Articles 19, 20 and 21 of the Civil Code cannot be granted
likewise.
37 | P a g e
GIDC then filed a request for clarification with the trial court and the latter directed SITI to accept
the proposal. Meanwhile, HBI filed a request with the HLURB asking the latter to grant them the right to
develop the mortgaged assets. HBI submitted an affidavit allegedly signed by Cometa. The affidavit
purported that Cometa and SITI is not opposing HBIs petition with the HLURB.
Cometa assailed the affidavit as it was apparently forged as proven by an NBI investigation.
Subsequently, Cometa filed a criminal action for falsification of public document against Guevara. The
prosecutor initially did not file the information as he finds no cause of action but the then DOJ Secretary
(Drilon) directed the fiscal to file an information against Guevara. The case was dismissed. In turn, Guevara
filed a civil case for malicious prosecution against Cometa. Guevara, in his complaint, included HBI as a coplaintiff.
Issue:
Whether or not private respondent HBI should have been dropped as a party plaintiff upon
petitioners motion therefor.
Ruling:
No. The contention is without merit. We think the Court of Appeals correctly ruled: Section 11 of
Rule 3 of the Rules of Court provides:
Misjoinder and non-joinder of parties. Misjoinder of parties is not a ground for dismissal of an
action. Parties may be dropped or added by order of the court or on motion of any party or on its own
initiative at any stage of the action and on such terms as are just.
Given (1) the foregoing rule, (2), the fact that Guevara, in his capacity as president of HBI, filed
HBIs application to sell at the HLURB and it was in the same capacity and in connection with the application
that he was criminally charged, and (3) the allegations in the complaint including that stating that by the filing
of the criminal case against Guevara, the application of HBI with the HLURB for a regular license to sell
the condominium units . . . had been delayed, resulting in the corresponding delay in the sale thereof on
account of which plaintiffs incurred over runs in development, marketing and financial costs and charges,
resulting in actual damages, the deferral by public respondent of petitioners motion to drop HBI as party
plaintiff cannot be said to have been attended with grave abuse of discretion. It bears emphasis that the
phraseology of Section 11 of Rule 3 is that parties may be dropped . . . at any stage of the action.
It is true that a criminal case can only be filed against the officers of a corporation and not against
the corporation itself. It does not follow from this, however, that the corporation cannot be a real-party-in38 | P a g e
interest for the purpose of bringing a civil action for malicious prosecution. As pointed out by the trial judge,
and as affirmed by the Court of Appeals, the allegation by Cometathat Guevara has no cause of action with
HBI not being a real party in interest is a matter of defense which can only be decisively determined in a full
blown trial.
39 | P a g e
Ruling:
No. In law, there is a clear distinction between the "operation" of a public utility and the ownership
of the facilities and equipment used to serve the public.
The right to operate a public utility may exist independently and separately from the ownership of
the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one
may operate a public utility without owning the facilities used to serve the public. The devotion of property to
serve the public may be done by the owner or by the person in control thereof who may not necessarily be
the owner thereof.
The Supreme Court made a clarification. The SC ruled that EDSA LRT Consortium, under the
agreement, does not and will not become the owner of a public utility hence, the question of its nationality is
misplaced. It is true that a foreign corporation cannot own a public utility but in this case what EDSA LRT
Consortium will be owning are the facilities that it will be building for the EDSA railway project. There is no
prohibition against a foreign corporation to own facilities used for a public utility. Further, it cannot be said
that EDSA LRT Consortium will be the one operating the public utility for it will be DOTC that will operate the
railway transit. DOTC will be the one exacting fees from the people for the use of the railway and from the
proceeds, it shall be paying the rent due to EDSA LRT Consortium. All that EDSA LRT Consortium has to do
is to build the facilities and receive rent from the use thereof by the government for 25 years it will not
operate the railway transit. Although EDSA LRT Consortium is a corporation formed for the purpose of
building a public utility it does not automatically mean that it is operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any other
form of authorization for that purpose.
an International Digital Gateway Facility (IDGF). In its application, Eastern alleged that it is a domestic
corporation and that it has the "franchise to land, construct, maintain and operate telecommunications
systems by cable, or any other means now known to science or which in the future may be developed for
the reception and transmission of messages to and between any point in the Philippines to point exterior
thereto . . . (R.A. 5002)
On July 22, 1987, NTC issued a notice of hearing, requiring publication of Eastern's application and
submission of financial and technical requirements and setting the case for initial hearing on May 31, 1988.
On June 23, 1988, petitioner Philippine Long Distance Telephone Company (PLDT) filed an "Opposition to
Main Application and to Prayer for Provisional Authority". On November 10, 1989, the NTC through
Commissioner Jose Luis A. Alcuaz rendered a decision granting Eastern's application.
Issue:
Whether or not the franchises granted to Eastern can be interpreted to include a telephone
exchange system.
Ruling:
No. Franchises are always interpreted strictly against the franchise holder, never liberally and
certainly not in a strained and exaggerated manner. The legislative history of the law granting Eastern's
franchise is most instructive and belies the arguments of Eastern.Eastern is actually not the original grantee
of the franchise under RA 5002. It acquired its franchise from Eastern Extension Australasia and China
Telegraph Co., Ltd., a foreign corporation organized and existing under the laws of Great Britain which was
engaged in international telecommunications in Manila since Spanish times. This company was given a
concession for the construction, operation and maintenance of a submarine telegraph cable from Hongkong
to Manila. On June 21, 1952, when the concession expired, RA 808 was approved granting a legislative
franchise "to land, construct, maintain and operate at Manila in the Philippines a submarine telegraph cable
connecting Manila with Hongkong."
The original legislative grant was a franchise for a submarine telegraph (not telephone) cable. The
grantee upon whom Congress vested the franchise was a telegraph and not a telephone company. From
1952 until the franchise was assigned to Eastern and, in fact since Spanish times, it's predecessor never
operated any telephone service. The assignment of the franchise contemplated only what the transfer could
convey which is a telegraph system. And even from the time of the transfer in 1974, Eastern never operated
a telephone service. Eastern has always been aware of the limits of its franchise and the exact nature of its
operations.
41 | P a g e
The clear intention of the law granting the franchise cannot be disputed. If Congress had
contemplated the use of telephone, the law would have stated so. Undeniably, telephone technology was
already existing in 1952 when R.A. 808 was enacted. To construe the phrased "telecommunication system
by cable or any other means now known to science or which in the future may be developed for the
reception and transmission of messages" so as to include telephones is well-nigh preposterous. Indeed,
telephones did not have to be discovered or developed. They were not for the future. They were already
existing at that time. As held in De los Santos v. Mallare (87 Phil. 289 [1950]), the history of the times and
state of things when the act was framed must be followed. Conditions of the things at the time of enactment
of the law should be considered to determine the legislative intent.
Eastern's franchise was intended from the beginning and has been interpreted to cover only record
or data telecommunications services. This is bolstered by the fact that at present, Eastern is the holder of
various CPCN's from the NTC to operate only non-voice telecommunications services.
42 | P a g e
Whether or not tie up between San Jose Petroleum, Inc. (SJP) and San Jose Oil Company, Inc.
(SJO) is violative of the constitution
Ruling:
Yes.The relationship of these corporations involved or affected in this case is admitted and
established through the papers and documents which are parts of the records: SAN JOSE OIL, is a
domestic mining corporation, 90% of the outstanding capital stock of which is owned by respondent SAN
JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest of which is owned by OIL
INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation in turn is wholly
(100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A.,
both organized and existing under the laws of Venezuela. As of September 30, 1956, there were 9,976
stockholders of PANCOASTAL PETROLEUM found in 49 American states and U.S. territories, holding
3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to
have 3,077,916 shares held by 12,373 stockholders scattered in 49 American state. In the two lists of
stockholders, there is no indication of the citizenship of these stockholders, or of the total number of
authorized stocks of each corporation, for the purpose of determining the corresponding percentage of
these listed stockholders in relation to the respective capital stock of said corporation.
Under the Constitution, the privilege to utilize, exploit, and develop the natural resources of this
country was granted, by Article XIII of the Constitution, to Filipino citizens or to corporations or associations
60% of the capital of which is owned by such citizens. With the Parity Amendment to the Constitution, the
same right was extended to citizens of the United States and business enterprises owned or controlled
directly or indirectly, by citizens of the United States.
Thus, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled to
parity rights in the Philippines? The answer must be in the negative, for the following reasons: Firstly It is
not owned or controlled directly by citizens of the United States, because it is owned and controlled by a
corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.
Secondly Neither can it be said that it is indirectly owned and controlled by American citizens
through the OIL INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of
the United States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and
PANCOASTAL PETROLEUM.
Thirdly Although it is claimed that these two last corporations are owned and controlled
respectively by 12,373 and 9,979 stockholders residing in the different American states, there is no showing
43 | P a g e
in the certification furnished by respondent that the stockholders of PANCOASTAL or those of them holding
the controlling stock, are citizens of the United States.
Fourthly Granting that these individual stockholders are American citizens, it is yet necessary to
establish that the different states of which they are citizens, allow Filipino citizens or corporations or
associations owned or controlled by Filipino citizens, to engage in the exploitation, etc. of the natural
resources of these states. Respondent has presented no proof to this effect.
Fifthly But even if the requirements mentioned in the two immediately preceding paragraphs are
satisfied, nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening foreign
corporations, comes within the purview of the Parity Amendment regarding business enterprises indirectly
owned or controlled by citizens of the United States, is to unduly stretch and strain the language and intent
of the law. For, to what extent must the word "indirectly" be carried? Must we trace the ownership or control
of these various corporations ad infinitum for the purpose of determining whether the American ownershipcontrol-requirement is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and
PANCOASTAL which are allegedly owned or controlled directly by citizens of the United States, are traded
in the stock exchange in New York, and you have a situation where it becomes a practical impossibility to
determine at any given time, the citizenship of the controlling stock required by the law. In the
circumstances, we have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is
not a business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the
Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.
As a conclusion, the parity rights agreement is not applicable to San Jose Oil Company, Inc. (SJO).
The parity rights are only granted to American business enterprises or enterprises directly or indirectly
controlled by US citizens. SJP is a Panamanian corporate citizen. The other owners of SJO are Venezuelan
corporations, not Americans. SJP was not able to show contrary evidence. Further, the stocks of these
corporations are being traded in stocks exchanges abroad which renders their foreign ownership subject to
change from time to time. This fact renders a practical impossibility to meet the requirements under the
parity rights. Hence, the tie up between SJP and SJO is illegal, SJP not being a domestic corporation or an
American business enterprise contemplated under the Laurel-Langley Agreement
COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC., ACTIVE
DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY, INC., respondents.
G.R. No. 124715
January 24, 2000
BUENA, J.:
Facts:
`On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly
represented by her nephew George Luy, filed on 17 March 1995, a joint petition for the administration of the
estate of Pastor Y. Lim before the Regional Trial Court of Quezon City.
Private respondent corporations, whose properties were included in the inventory of the estate of
Pastor Y. Lim, then filed a motion for the lifting of lispendens and motion for exclusion of certain properties
from the estate of the decedent. On 04 September 1995, the probate court appointed Rufina Lim as special
administrator and Miguel Lim and Lawyer Donald Lee, as co-special administrators of the estate of Pastor Y.
Lim, after which letters of administration were accordingly issued. In an order dated 12 September 1995, the
probate court denied anew private respondents motion for exclusion.
Issue:
Whether or not a corporation, in its universality, be the proper subject of and be included in the
inventory of the estate of a deceased person.
Ruling:
No. Inasmuch as the real properties included in the inventory of the estate of the Late Pastor Y. Lim
are in the possession of and are registered in the name of private respondent corporations, which under the
law possess a personality separate and distinct from their stockholders, and in the absence of any cogency
to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private
respondents should stand undisturbed.
Accordingly, the probate court was remiss in denying private respondents motion for exclusion.
While it may be true that the Regional Trial Court, acting in a restricted capacity and exercising limited
jurisdiction as a probate court, is competent to issue orders involving inclusion or exclusion of certain
properties in the inventory of the estate of the decedent, and to adjudge, albeit, provisionally the question of
title over properties, it is no less true that such authority conferred upon by law and reinforced by
jurisprudence, should be exercised judiciously, with due regard and caution to the peculiar circumstances of
each individual case.
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Notwithstanding that the real properties were duly registered under the Torrens system in the name
of private respondents, and as such were to be afforded the presumptive conclusiveness of title, the probate
court obviously opted to shut its eyes to this gleamy fact and still proceeded to issue the impugned orders.
Moreover, petitioner urges that not only the properties of private respondent corporations are
properly part of the decedents estate but also the private respondent corporations themselves.
It is settled that a corporation is clothed with personality separate and distinct from that of the persons
composing it. It may not generally be held liable for that of the persons composing it. It may not be held
liable for the personal indebtedness of its stockholders or those of the entities connected with it.
Rudimentary is the rule that a corporation is invested by law with a personality distinct and
separate from its stockholders or members. In the same vein, a corporation by legal fiction and convenience
is an entity shielded by a protective mantle and imbued by law with a character alien to the persons
comprising it.
24 RE: Majority ownership of or dealings in shareholdings; Piercing the veil of corporate fiction.
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners,
vs.
RITA C. MEJIA, as Executrix of Testate Estate of ANDREA CORDOVA VDA. DE GUTIERREZ,
respondent.
G.R. No. 141617 August 14, 2001
GONZAGA-REYES, J.
Facts:
Adalia Francisco was the Treasurer of Cardale Financing and Realty Corporation (Cardale).
Cardale, through Francisco, contracted with Andrea Gutierrez for the latter to execute a deed of sale over
certain parcels of land in favor of Cardale. It was agreed that Gutierrez shall hand over the titles to Cardale
but Cardale shall only give a downpayment, and later on full payment in installment. As security, Gutierrez
shall retain a lien over the properties by way of mortgage. Nonetheless, Cardale defaulted in its payment.
Gutierrez then filed a petition with the trial court to have the Deed rescinded.
While the case was pending, Gutierrez died, and Rita Mejia, being the executrix of the will of
Gutierrez took over the affairs of the estate.
The case dragged on for 14 years because Francisco lost interest in presenting evidence. And
while the case was pending, Cardale failed to pay real estate taxes over the properties in litigation hence,
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the local government subjected said properties to an auction sale to satisfy the tax arrears. The highest
bidder in the auction sale was Merryland Development Corporation (Merryland).
Apparently, Merryland is a corporation in which Francisco was the President and majority
stockholder. Mejia then sought to nullify the auction sale on the ground that Francisco used the two
corporations as dummies to defraud the estate of Gutierrez especially so that these circumstances are
present:
1.
Francisco did not inform the lower court that the properties were delinquent in taxes; 2.
That there was notice for an auction sale and Francisco did not inform the Gutierrez estate and as such, the
estate was not able to perform appropriate acts to remedy the same; 3.That without knowledge of the
auction, the Gutierrez estate cannot exercise their right of redemption; 4.That Francisco failed to inform the
court that the highest bidder in the auction sale was Merryland, her other company; 5.That thereafter,
Cardale was dissolved and the subject properties were divided and sold to other people.
Issue:
Whether or not Merryland and Francisco shall be held solidarily liable.
Ruling:
No. If any general rule can be laid down, in the present state of authority, it is that a corporation will
be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears. Under
the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a
corporation is an entity with a juridical personality separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will be considered as a mere association of persons.
The members or stockholders of the corporation will be considered as the corporation, that is, liability will
attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made 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 the corporation 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. The Court, after an assiduous study of
this case, is convinced that the totality of the circumstances appertaining conduce to the inevitable
conclusion that petitioner Francisco acted in bad faith.
It is exceedingly apparent to the Court that the totality of Francisos actions clearly betray an
intention to conceal the tax delinquencies, levy and public auction of the subject properties from the estate
47 | P a g e
of Gutierrez and the trial court in Civil Case No. Q-12366 until after the expiration of the redemption period
when the remotest possibility for the recovery of the properties would be extinguished.
That Merryland acquired the property at the public auction only serves to shed more light upon
Franciscos fraudulent purposes. Based on the findings of the Court of Appeals, Francisco is the controlling
stockholder and President of Merryland. Thus, aside from the instrumental role she played as an officer of
Cardale, in evading that corporations legitimate obligations to Gutierrez, it appears that Franciscos actions
were also oriented towards securing advantages for another corporation in which she had a substantial
interest. We cannot agree, however, with the Court of Appeals decision to hold Merrylandsolidarily liable
with Francisco. The only act imputable to Merryland in relation to the mortgaged properties is that it
purchased the same and this by itself is not a fraudulent or wrongful act. No evidence has been adduced to
establish that Merryland was a mere alter ego or business conduit of Francisco. Time and again it has been
reiterated that mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality. Neither has it been alleged or proven that Merryland is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of Cardale. Even
assuming that the businesses of Cardale and Merryland are interrelated, this alone is not justification for
disregarding their separate personalities, absent any showing that Merryland was purposely used as a
shield to defraud creditors and third persons of their rights. Thus, Merrylands separate juridical personality
must be upheld.
25 RE: Dealings between the Corporation and stockholders; Piercing the veil of corporate fiction.
ARB CONSTRUCTION CO., INC., and MARK MOLINA, petitioners,
vs.
COURT OF APPEALS, TBS SECURITY AND INVESTIGATION AGENCY represented by CECILIA R.
BACLAY, respondents.
G.R. No. 126554.
May 31, 2000
BELLOSILLO, J.:
Facts:
In 1993, ARB Construction Co., Inc. (ARB) entered into a contract with TBS Security and
Investigation Agency (TBS) for the latter to provide security guards to guard the premises of ARB. But in
1994, while the contract is still subsisting, ARB, through its Vice President for Operations Mark Molina,
preterminated the contract because it alleged that the TBS guards were grossly negligent and inefficient.
TBS opposed the same. ARB reconsidered but it removed all other TBS guards except for one. ARB,
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through Molina, also withheld payroll payments to TBS as it alleged that due to the negligence of the
guards, the premises of ARB incurred losses through burglary that happened while the guards were on duty.
TBS filed an injunction case against ARB. It later amended said complaint to include claims for damages
against ARB as well as against Molina in his personal capacity as it was alleged that Molina concocted
some of these facts.
Issue:
Whether or not Private respondent Molina may be held liable in his personal capacity as Vice
President for Operations of Petitioner Corporation.
Ruling:
No. It is basic that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other legal entity to which it may be related. As
a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of
the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be
pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not
have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud,
or defend crime; or to perpetuate deception; or as an alter ego, adjunct or business conduit for the sole
benefit of the stockholders.
Prescinding from the foregoing, the general rule is that officers of a corporation are not personally
liable for their official acts unless it is shown that they have exceeded their authority.
On the basis hereof, petitioner Molina could not be held jointly and severally liable for any
obligation which petitioner ARBC may be held accountable for, absent any proof of bad faith or malice on his
part. Corollarily, it is also incorrect on the part of the Court of Appeals to conclude that there was a sufficient
cause of action against Molina as to make him personally liable for his actuations as Vice President for
Operations of ARBC. A cursory reading of the records of the instant case would reveal that Molina did not
summarily withhold certain amounts from the payroll of TBSS. Instead, he enumerated instances which in
his view were enough bases to do so.
shall be maintained as to the other, there is nothing else which could lead the court under circumstance to
disregard their corporate personalities.Traders Royal Bank failed to show that the corporate fiction is used
by the two corporations to defeat public convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person. TRB merely showed that PUFC owns 90%
of FGAC and that their directors are the same. The identity of PUFC cant be maintained as that of FGAC
because of this mere fact; there is nothing else which could lead the court under the circumstance to
disregard their corporate personalities. Further, TRB cant argue that it was defrauded into buying those
certificates. In the first place, TRB as a banking institution is not ignorant about these types of transactions.
It should know for a fact that a certificate of indebtedness is not negotiable because the payee therein is
inscribed specifically and that the Central Bank is obliged to pay the named payee only and no one else.
51 | P a g e
Philippine Machinery Parts Manufacturing Corporation (PMPMC). PMPMC then demanded Mauricia et al to
vacate the premises of said property.
While all this was going on, Mauricia died. Her successor-administratrix, Buenaflor Umali,
questioned the foreclosure made by ICP. Umali alleged that all the transactions are void and simulated
hence they were defrauded; that through Bormahecos machinations, Mauricia was fooled into entering into
a surety agreement with ICP; that Bormaheco even made the premium payments to ICP for said surety
bond; that the president of Bormaheco is a director of PMPMC; that the counsel who assisted in all the
transactions, Atty. Martin De Guzman, was the legal counsel of ICP, Bormaheco, and PMPMC.
Issue:
Whether or not the veil of corporate fiction should be pierced.
Ruling:
No. There is no clear showing of fraud in this case. The mere fact that Bormaheco paid said
premium payments to ICP does not constitute fraud per se. As it turned out, Bormaheco is an agent of ICP.
SRC, through Rivera, agreed that part of the payment of the mortgage shall be paid for the insurance.
Naturally, when Rivera was paying some portions of the mortgage to Bormaheco, Bormaheco is applying
some parts thereof for the payment of the premium and this was agreed upon beforehand. Further,
piercing the veil of corporate fiction is not the proper remedy in order that the foreclosure conducted by ICP
be declared a nullity. The nullity may be attacked directly without disregarding the separate identity of the
corporations involved. Further still, Umali et al are not enforcing a claim against the individual members of
the corporations. They are not claiming said members to be liable. Umali et al are merely questioning the
validity of the foreclosure.
The veil of corporate fiction cant be pierced also by the simple reason that the businesses of two
or more corporations are interrelated, absent sufficient showing that the corporate entity was purposely used
as a shield to defraud creditors and third persons of their rights. In this case, there is no justification for
disregarding their separate personalities.
QUISUMBING, J.:
Facts:
In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover from a him a
sum of money in the amount of P23,000.00+. Said amount was allegedly owed to them by Manuel for the
purchase of a jeep body plus repairs thereto. Manuel filed a counterclaim in the amount of P50,000.00. In
his counterclaim, Manuel alleged that he was the Assistant Legal Officer for FMC; that the Francisco Family,
owners of FMC, engaged his services for the intestate estate proceedings of one Benita Trinidad; that he
was not paid for his legal services; that he is filing the counterclaim against FMC because said corporation
was merely a conduit of the Francisco Family. The trial court as well as the Court of Appeals granted
Manuels counterclaim on the ground that the legal fees were owed by the incorporators of FMC (an
application of the doctrine of piercing the veil of corporation fiction in a reversed manner).
Issue:
Whether or not the doctrine of piercing the veil of corporate fiction was properly used by the Court
of Appeals.
Ruling:
No. Basic in corporation law is the principle that a corporation has a separate personality distinct
from its stockholders and from other corporations to which it may be connected. However, under the
doctrine of piercing the veil of corporate entity, the corporations separate juridical personality may be
disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as to make
it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality
may be ignored. In these circumstances, the courts 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, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no
relevant application here. In the first place, the doctrine is to be used in disregarding corporate fiction and
making the incorporators liable in appropriate circumstances. In the case at bar, the doctrine is applied
upside down where the corporation is held liable for the personal obligations of the incorporators such was
uncalled for and erroneous. It must be noted that that Atty. Manuels legal services were secured by the
Francisco Family to represent them in the intestate proceedings over Benita Trinidads estate. The
indebtedness was incurred by the Francisco Family in their separate and personal capacity. These estate
53 | P a g e
proceedings did not involve any business of FMC. The proper remedy is for Manuel to sue the concerned
members of the Francisco Family in their individual capacity.
the creation of said corporation was to defraud him. The eventual transfer of Posadas property to Luxuria
was with the full knowledge of Bravo. The agreement between Posadas and Bravo was entered into even
before Luxuria existed hence Luxuria was never a party thereto. Whatever liability Posadas incurred arising
from said agreement must be borne by her solely and not in solidum with Luxuria. To disregard the separate
juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot
be presumed. The separate personality of the corporation may be disregarded only 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. Obviously in the instant case, 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.
55 | P a g e
Issue:
Whether or not the action of Dalisay is correct.
Ruling:
No. What Dalisay did is tantamount to piercing the veil of corporate fiction. He actually usurped the power of
the court. He also overstepped his duty as a deputy sheriff. His duty is merely ministerial and it is incumbent
upon him to execute the decision of the court according to its tenor and only against the persons obliged to
comply. In this case, the person judicially named to comply was QLSI and not Cruz. It is a well-settled
doctrine both in law and in equity that as a legal entity, a corporation has a personality distinct and separate
from its individual stockholders or members. The mere fact that one is president of a corporation does not
render the property he owns or possesses the property of the corporation, since the president, as individual,
and the corporation are separate entities. Respondents actuation in enforcing a judgment against
complainant who is not the judgment debtor in the case calls for disciplinary action. Considering the
ministerial nature of his duty in enforcing writs of execution, what is incumbent upon him is to ensure that
only that portion of a decision ordained or decreed in the dispositive part should be the subject of execution.
No more, no less. That the title of the case specifically names complainant as one of the respondents is of
no moment as execution must conform to that directed in the dispositive portion and not in the title of the
case. It has been held that the desistance of complainant does not preclude the taking of disciplinary action
against respondent. Neither does it dissuade the Court from imposing the appropriate corrective sanction.
One who holds a public position, especially an office directly connected with the administration of justice and
the execution of judgments, must at all times be free from the appearance of impropriety.
appeal Emilio died. The Canos lost on appeal and an order of execution was levied against ECEIs property.
ECEI filed an ex parte motion to quash the writ as ECEI avers that it is a corporation with a separate and
distinct personality from the Canos. Their motion was denied and ECEI filed a petition for certiorari with the
Supreme Court.
Issue:
Whether or not the judgment of the Court of Industrial Relations is correct.
Ruling:
Yes. This is an instance where the corporation and its members can be considered as one. ECEI is
a close family corporation the incorporators are members of the Cano family. Further, the Canos were
sued in their capacity as officers of ECEI not in their private capacity. Having been sued officially their
connection with the case must be deemed to be impressed with the representation of the corporation. The
judgment against the Canos has a direct bearing to ECEI. Verily, the order against them is in effect against
the corporation. Further still, even if this technicality be strictly observed, what will simply happen is for this
case to be remanded, change the name of the party, but the judgment will still be the same there can be
no real benefit and will only subversive to the ends of justice. In this case, to hold ECEI liable is not to ignore
the legal fiction but merely to give meaning to the principle that such fiction cannot be invoked if its purpose
is to use it as a shield to further an end subversive of justice.
Labor Arbiter, affirmed by the NLRC, ruled that it has no jurisdiction over the case because PNRC is a
government owned and controlled corporation (GOCC). Baltazar however argues that PNRC impliedly
became a private corporation when its charter was amended to give it authority to secure loans, etc.
Issue:
Whether or not the Philippine National Red Cross is a private corporation.
Ruling:
No. The simple test is to find out whether or not a corporation is public or private is to determine if it
has its own charter for the exercise of a public function or was it incorporated under the general corporation
law. PNRC has its own charter (R.A. 95). Its subsequent amendment did not convert it into a private
corporation. As a GOCC, it is subject to its own charter and its employees are under the jurisdiction of the
Civil Service Commission, and are compulsory members of the Government Service Insurance System.
58 | P a g e
from liability as it held that the Board Members merely acted in their official capacity. BENECO, being the
only party adjudged to be liable, then appealed said decision.
Issue:
Whether or not BENECO can be treated as a corporation.
Ruling:
Yes. The act of the Board Members is ultra vires. There was no legal basis for them to suspend
Cosalanindefinitely for under the Implementing Rules of the Labor Code the maximum period form
preventive suspension should not go beyond 30 days. Further, it was found that Cosalan was never
informed of the charges against him nor was he afforded the opportunity to present his case. He was
deprived of due process. Nor was Cosalans suspension approved by the NEA, which is also required for
due process purposes.
These acts by the Board Members are tainted with bad faith. A very strong presumption arises that
the Board Members are acting in reprisal against the reforms sought to be introduced by Cosalan in order to
address the irregularities within BENECO. The Board Members are therefore liable for damages under
Section 31 of the Corporation Code. And even though BENECO is a cooperative, it is still covered by the
Corporation Code because under PD 269, cooperatives are considered as corporations.
The Supreme Court ruled that BENECO and the BENECO Board Members are liable for the
damages caused against Cosalan. However BENECO can seek reimbursement from the Board Members
so as not to unduly penalize the innocent members of BENECO.
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In 1955 and 1973, the Iglesiani Cristo (INC) purchased two parcels of land in CamarinesNorte. In
1976, INC filed an application for confirmation of title over said parcels of land. The Director of Lands
opposed the application. The Iglesianicristo and its predecessors claimed to have actual, public, peaceful,
continuous and uninterrupted possession of the two lots in the concept of an owner for more than 30 years
preceding the filing of the application. No realty taxes were paid by the INC because it is an exempt
corporation.
Issue:
Whether or not the Iglesiani Cristo may register land under its name.
Ruling:
No. The Iglesia in Cristo is not a Filipino Citizen. The lands in question are still public lands
registered. Moreover, under the aforecited section 11 of Article XIV, it I disqualified as a corporation to hold
lands o the public domain except by lease.Under the Public Land Law, only Filipino citizens are entitled to
register alienable public lands. A corporation, even a corporation sole like the INC (solely incorporated by
one man, Erao Manalo, a Filipino citizen), is disqualified from registering public land under its name. It can
only hold alienable public land through lease. It cannot even register said lands under its name as a trustee.
The INC in its brief has not shown that it is not covered by the said constitutional and statutory provisions.
Its statement that it is not a religious corporation when it filed its application is belied by the facts. It
contends that it is entitled to register the lands as a trustee. This contention is erroneous.
attendance during the briefing and they were there assured that their transfer to Davao del Norte would not
involve any diminution in salary, and that each of them would receive a relocation allowance equivalent to
one (1) month's basic pay. This assurance, however, failed to persuade private respondents to abandon
their opposition to the transfer orders issued by the BSP Secretary-General On 21 November 1984 (or the
day immediately following the date of scheduled transfer), the BSP Camp Manager in Makiling issued a
Memorandum requiring the five (5) private respondents to explain why they should not be charged
administratively for insubordination. The Memorandum was a direct result of the refusal by private
respondents, two (2) days earlier, to accept from petitioner BSP their respective boat tickets to Davao del
Norte and their relocation allowances. Petitioner BSP consequently imposed a five-day suspension on the
five (5) private respondents, in the latter part of January 1985.
Subsequently, by Special Order dated 12 February 1985 issued by the BSP Secretary-General,
private respondents' services were ordered terminated effective 15 February 1985. On 22 February 1985,
private respondents amended their original complaint to include charges of illegal dismissal and unfair labor
practice against petitioner BSP.
Issues:
1.
2.
Resolution
Ruling:
1.
Yes. While the BSP may be seen to be a mixed type of entity, combining aspects of both public and
private entities, the Court ruled that considering the character of its purposes and its functions, the statutory
designation of the BSP as "a public corporation" and the substantial participation of the Government in the
selection of members of the National Executive Board of the BSP, the BSP, as presently constituted under
its charter, is a government-controlled corporation within the meaning of Article IX. (B) (2) (1) of the
Constitution.
Administrative Code.
2.
No.BSP may be regarded as both a "government controlled corporation with an original charter"
and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution.
It follows that the employees of petitioner BSP are embraced within the Civil Service and are accordingly
governed by the Civil Service Law and Regulations. There should no longer be any question at this time that
61 | P a g e
employees of government-owned or controlled corporations are governed by the civil service law and civil
service rules and regulations.
Both the Labor Arbiter and public respondent NLRC had no jurisdiction over the complaint filed by
private respondents in NLRC Case No. 1637-84; neither labor agency had before it any matter which could
validly have been passed upon by it in the exercise of original or appellate jurisdiction. The appealed
Decision and Resolution in this case, having been rendered without jurisdiction, vested no rights and
imposed no liabilities upon any of the parties here involved. That neither party had expressly raised the
issue of jurisdiction in the pleadings poses no obstacle to this ruling of the Court, which may motuproprio
take cognizance of the issue of existence or absence of jurisdiction and pass upon the same.
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petitioner. But as the petitioner insisted on his claim the Auditor General Informed him on June 19, 1950, of
his refusal to modify his decision. Hence this petition for review.
Issue:
Whether or not NAFCO is Government controlled corporation subject to the provisions of Republic
Act No. 51 and the executive order No. 93
Ruling:
Yes. With its controlling stock owned by the Government and the power of appointing its directors
vested in the President of the Philippines, there can be no question that the NAFCO is Government
controlled corporation subject to the provisions of Republic Act No. 51 and the executive order No. 93
promulgated in accordance therewith. Consequently, it was also subject to the powers of the Control
Committee created in said executive order, among which is the power of supervision for the purpose of
insuring efficiency and economy in the operations of the corporation and also the power to pass upon the
program of activities and the yearly budget of expenditures approved by the board of directors. It can hardly
be questioned that under these powers the Control Committee had the right to pass upon, and consequently
to approve or disapprove, the resolution of the NAFCO board of directors granting quarters allowance to the
petitioners as such allowance necessarily constitute an item of expenditure in the corporation's budget. That
the Control Committee had good grounds for disapproving the resolution is also clear, for, as pointed out by
the Auditor General and the NAFCO auditor, the granting of the allowance amounted to an illegal increase of
petitioner's salary beyond the limit fixed in the corporate charter and was furthermore not justified by the
precarious financial condition of the corporation.
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arbiter and/or the National Labor Relations Commission (NLRC) has no jurisdiction over PNOC-EDC
because it is a subsidiary of the Philippine National Oil Company (PNOC), a government owned or
controlled corporation, and as a subsidiary, it is also a GOCC and as such, the proper forum for Mercados
suit is the Civil Service Commission.
Issue:
Whether or not PBOC-EDC is correct.
Ruling:
No. The issue in this case has been decided already in the case of PNOC-EDC vsLeogardo. It is
true that PNOC is a GOCC and that PNOC-EDC, being a subsidiary of PNOC, is likewise a GOCC. It is also
true that under the 1973 Constitution, all GOCCs are under the jurisdiction of the CSC. However, the 1987
Constitution change all this as it now provides: The Civil Service embraces all branches, subdivisions,
instrumentalities and agencies of the Government,including government-owned or controlled corporations
with original charters. (Article IX-B, Section 2 [1]) Hence, the above provision sets the rule that the mere fact
that a corporation is a GOCC does not automatically place it under the CSC. Under this provision, the test in
determining whether a GOCC is subject to the Civil Service Law is the manner of its creation such that
government corporations created by special charter are subject to its provisions while those incorporated
under the general Corporation Law are not within its coverage.
In the case at bar, PNOC-EDC, even though it is a GOCC, was incorporated under the general
Corporation Law it does not have its own charter, hence, it is under the jurisdiction of the MOLE. Even
though the facts of this case occurred while the 1973 Constitution was still in force, the provisions of the
1987 Constitution regarding the legal matters [procedural aspect] are applicable because it is the law in
force at the time of the decision.
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In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement with
Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in favor Manuel over a
parcel of land, the sisters received no cash payment from Manuel but the promise of profits (60% for the
sisters and 40% for Manuel) said parcel of land is to be developed as a subdivision.
Manuel then had the title of the land transferred in his name and he subsequently mortgaged the
property. He used the proceeds from the mortgage to start building roads, curbs and gutters. Manuel also
contracted an engineering firm for the building of housing units. But due to adverse claims in the land,
prospective buyers were scared off and the subdivision project eventually failed. The sisters then filed a civil
case against Manuel for damages equivalent to 60% of the value of the property, which according to the
sisters, is whats due them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court. The
sisters then appealed before the Supreme Court where they argued that there is no partnership between
them and Manuel because the joint venture agreement is void.
Issue:
Whether or not there exists a partnership.
Ruling:
Yes. The joint venture agreement the sisters entered into with Manuel is a partnership agreement
whereby they agreed to contribute property (their land) which was to be developed as a subdivision. While
on the other hand, though Manuel did not contribute capital, he is an industrial partner for his contribution for
general expenses and other costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage (60-40). Clearly, the contract manifested the intention of the parties
to form a partnership. Further still, the sisters cannot invoke their right to the 60% value of the property and
at the same time deny the same contract which entitles them to it.
At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be blamed to
Manuel (the sisters on their appeal did not show evidence as to Manuels fault in the failure of the
partnership). The sisters must then bear their loss (which is 60%). Manuel does not bear the loss of the
other 40% because as an industrial partner he is exempt from losses.
in GPIs premises even before the date when PADCO alleged that it acquired ownership thereof. Premises
considered the veil of corporate fiction should be pierced; PADCO and GPI should be considered as one.
When a corporation is merely an adjunct, business conduit or alter ego of another corporation the fiction of
separate and distinct corporation entities should be disregarded.
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known to Sycip. He knew that AFCI was not in a position to transact with NAMARCO because it could not
possibly comply with its obligations. Sycips assurances that AFCI can deliver said refined sugar products is
obviously fashioned to defraud NAMARCO into delivering the raw sugar to AFCI. Consequently, Sycip
cannot now seek refuge behind the general principle that a corporation has a personality distinct and
separate from that of its stockholders and that the latter are not personally liable for the corporate
obligations. He is therefore liable jointly and severally with AFCI to pay the amount claim for the raw sugar
delivered plus other damages claimed by NAMARCO with interest. It is settled law in this and other
jurisdictions that when the corporation is the mere alter ego of a person, the corporate fiction may be
disregarded; the same being true when the corporation is controlled, and its affairs are so conducted as to
make it merely an instrumentality, agency or conduit of another.
Ramoso et al then sued GCC before the Securities and Exchange Commission. The hearing officer
ruled in favor of Ramoso et al. He pierced the veil of corporate fiction and he declared that the franchise
branches, GCC, and CCC equity are one and the same corporation; that as such, the franchise branches, in
whom Ramoso et al invested, are not liable to the obligations incurred by GCC. The SEC en banc however
reversed the ruling of the hearing officer. The Court of Appeals affirmed the SEC en banc.
Issue:
Whether or not the veil of corporate fiction should be pierced.
Ruling:
No. Ramoso et al did not properly plead their cause. They merely alleged that CCC Equity is a
conduit of GCC. As found by the SEC en banc, Ramoso et al were not able to prove that CCC Equity was
incorporated in order to perpetrate fraud against them. Whether the existence of the corporation should be
pierced depends on questions of facts, appropriately pleaded. Mere allegation that a corporation is the alter
ego of the individual stockholders is insufficient. The presumption is that the stockholders or officers and the
corporation are distinct entities. The burden of proving otherwise is on the party seeking to have the court
pierce the veil of the corporate entity. It was not shown that the debts incurred by GCC were actually
incurred in bad faith. Further, there is a pending case relating to the liability of Ramoso et al as guarantors
that will be the proper forum to raise their respective liability as regards said debts.
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the Filipinas Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co-defendants in
the lower court.
Issue:
The issue in this case is whether or not Caram, et al are also and personally liable for such
expenses and, if so, to what extent.
Ruling:
The Supreme Court ruled in the negative. It would appear from the above justification that the
petitioners were not really involved in the initial steps that finally led to the incorporation of the Filipinas
Orient Airways. Elsewhere in the decision, Barretto was described as "the moving spirit." The finding of the
respondent court is that the project study was undertaken by the private respondent at the request of
Barretto and Garcia who, upon its completion, presented it to the petitioners to induce them to invest in the
proposed airline. The study could have been presented to other prospective investors. At any rate, the
airline was eventually organized on the basis of the project study with the petitioners as major stockholders
and, together with Barretto and Garcia, as principal officers.
The petitioners cannot be held personally liable for the compensation claimed by the private
respondent for the services performed by him in the organization of the corporation. To repeat, the
petitioners did not contract such services. It was only the results of such services that Barretto and Garcia
presented to them and which persuaded them to invest in the proposed airline. The most that can be said is
that they benefited from such services, but that surely is no justification to hold them personally liable
therefor. Otherwise, all the other stockholders of the corporation, including those who came in later, and
regardless of the amount of their share holdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.
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Manuela T. Vda. deSalvatierra appeared was the owner of a parcel of land which was the subject
of a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a corporation "duly organized
and existing under the laws of the Philippines, represented in this instance by Mr.Segundino Q. Refuerzo as
the President. It was provided in said contract that the land would be planted with kenaf, ramie or other
crops and that the lessor would be entitled to 30 per cent of the net income accruing from the harvest of any,
crop without being responsible for the cost of production thereof. After every harvest, the lessee was bound
to declare at the earliest possible time the income derived therefrom and to deliver the corresponding share
due the lessor. These obligations were not complied with, however, prompting a certain Alanuela T. Vda, de
Salvatierra to file a suit for accounting, rescission and damages. As defendants apparently failed to file their
answer to the complaint, of which they were allegedly notified, the Court declared them in default and the
case ended with the attachment of 3 parcels of land registered in the name of SegundinoRefuerzo as no
property of the Philippine Fibers Producers Co., Inc., was found available for attachment.
Issue:
The issue in this case is whether or not the attachment of SegundinoRefuerzos property is valid.
Ruling:
The Supreme Court ruled in the affirmative. There can be no question that a corporation when
registered has a juridical personality separate and distinct from its component members or stockholders and
officers such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if
he should be its president. Conversely, a stockholder or member cannot be held personally liable for any
financial obligation of the corporation in excess of his unpaid subscription. But this rule is understood to refer
merely to registered corporations and cannot be made applicable to the liability of members of an
unincorporated association.
The reason behind this doctrine is obvious -since an organization which before the law is nonexistent has no personality and would be incompetent to act and appropriate for itself the powers and
attribute of a corporation as provided by law; it cannot create agents or confer authority on another to act in
its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and
at their own risk. And as it is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed of all the rights and subject to
all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as its agent. In acting on behalf of a corporation which he knew to
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be unregistered, Segundino Refuerzo assumed the risk of reaping the consequential damages or resultant
rights, if any, arising out of such transaction.
connected with the regulation of the corporation, partnership or association or deal with the internal affairs of
the corporation, partnership or association.
There is no intracorporate nor partnership relation between petitioner and private respondent. The
controversy between them arose out of their plan to consolidate their respective jeepney drivers' and
operators' associations into a single common association. This unified association was, however, still a
proposal. It had not been approved by the SEC, neither had its officers and members submitted their articles
of consolidation is accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes
effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation
by the SEC. When the SEC, upon processing and examining the articles of consolidation, is satisfied that
the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and
existing laws, it issues a certificate of consolidation which makes the reorganization official. The new
consolidated corporation comes into existence and the constituent corporations dissolve and cease to exist.
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established that Garcia convinced him to become one of the incorporators of Ricorn. He gave money to
Garcia for Ricorn's registration with the SEC.
Issue:
The issue in this case is whether or not Botero can be held liable.
Ruling:
The Supereme Court ruled in the affirmative. It is a fact that Ricorn had no license to recruit from
DOLE. In the office of Ricorn, a notice was posted informing job applicants that its recruitment license is still
being processed. Yet, Ricorn already entertained applicants and collected fees for processing their travel
documents.
For engaging in recruitment of workers without obtaining the necessary license from the POEA,
Boteros should suffer the consequences of Ricorn's illegal act for "(i)f the offender is a corporation,
partnership, association or entity, the penalty shall be imposed upon the officer or officers of the corporation,
partnership, association or entity responsible for violation; . . . " The evidence shows that appellant Botero
was one of the incorporators of Ricorn. For reasons that cannot be discerned from the records, Ricorn's
incorporation was not consummated. Even then, appellant cannot avoid his liabilities to the public as an
incorporator of Ricorn. He and his co-accused Garcia held themselves out to the public as officers of Ricorn.
They received money from applicants who availed of their services. They are thus estopped from claiming
that they are not liable as corporate officials of Ricorn. Section 25 of the Corporation Code provides that
"(a)ll persons who assume to act as a corporation knowing it to be without authority to do so shall be liable
as general partners for all the debts, liabilities and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality."
Sofronio T. Bayla, Josefa Naval, and Paz Toledo individually agreed to take and pay for under
certain specified terms and conditions shares of stock of Silang Traffic Co., Inc. The agreement was
denominated to be one for installment sale of shares. The agreement provided for, among others, the
payment of the subscriber for the shares of stock in an installment basis to the seller. It provided that
there would be an interest rate for deferred payments pegged at SIX (6%) per cent per annum until paid.
One paragraph in the agreement, however, also provided that if the subscriber fails to pay for any
installment, the said shares are to revert to the seller and the payments already made are to be forfeited in
favor of said seller, and the latter may then take possession, without resorting to court proceedings. A
resolution of the Board was the root of the controversy. It was of the tenor that the sale of some shares of
stock will be rescinded and the amount paid by the subscribers of these shares of stock will be returned to
them. Silang, however, did not return the amounts paid by Bayla, Naval and Toledo because their
subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by
them had already been forfeited.
Issue:
Whether or not the amounts paid by Bayla, Naval and Toledo may be returned to them.
Ruling:
The Supreme Court ruled in the affirmative. The parties have interpreted or considered the said
agreement as a contract of subscription to the capital stock of the respondent corporation. It should be
noted, however, that said agreement is entitled "Agreement for Installment Sale of Shares in the Silang
Traffic Company, Inc.,"; that while the purchaser is designated as "subscriber," the corporation is described
as "seller"; that the agreement was entered into on March 30, 1935, long after the incorporation and
organization of the corporation, which took place in 1927; and that the price of the stock was payable in
quarterly installments spread over a period of five years.
It seems clear from the terms of the contracts in question that they are contracts of sale and not of
subscription. A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay
for the stock of a corporation, while a purchase is an independent agreement between the individual and the
corporation to buy shares of stock from it at stipulated price. Unpaid subscription and assessment of stock
do not apply to a purchase of stock; likewise the rule that a corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation to pay for his shares is inapplicable to a contract of
purchase of shares.
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Since the contract is one of purchase and not one of subscription, there exists no legal impediment
to its rescission by agreement of the parties. The resolution was able to benefit other shareholders
mentioned in the resolution who are similarly situated as petitioners so there should be no cogent reason
why the benefit received by the others should be withheld from them.
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estate, the balance of 82,752.5 (108,000 less 25,247.5) must have come from stock dividends. Besides, in
the absence of evidence to the contrary, the Tax Code presumes that every distribution of corporate
property, in whole or in part, is made out of corporate profits such as stock dividends. The capital cannot be
distributed in the form of redemption of stock dividends without violating the trust fund doctrine wherein
the capital stock, property and other assets of the corporation are regarded as equity in trust for the
payment of the corporate creditors. Once capital, it is always capital. That doctrine was intended for the
protection of corporate creditors.
the corporation. The SEC has exclusive supervision, control and regulatory jurisdiction to investigate
whether the corporation has unrestricted retained earnings to cover the payment for the shares, and
whether the purchase is for a legitimate corporate purpose. The requirement of unrestricted retained
earnings to cover the shares is based on the trust fund doctrine which means that the capital stock, property
and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors. The
reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate
assets. There can be no distribution of assets among the stockholders without first paying corporate
creditors. Hence, any disposition of corporate funds to the prejudice of creditors is null and void.
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liabilities. The corporation continues, as before, responsible in its new name for all debts or other liabilities
which it had previously contracted or incurred.
Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of
name meant only the continuation of the old juridical entity, the corporation bearing the same name is still
bound by the acts of its agents if authorized by the Board. Where the agent signs his name but nowhere in
the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the
third party for whom he might have acted as agent, the agent is personally liable to take holder of the
instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or
extrinsic evidence is not admissible to avoid the agent's personal liability.
the SEC found that there exist possible confusion considering that both corporations are engaged in almost
the same line of business. The court even stated that it could not fathom why of all names, it had to choose
something already being used by another firm engaged in the same business for more than a decade
enjoying an established goodwill when a lot of options can resorted to.
Thus, to avoid confusion in the mind of the public which could mislead even its own customers, the
court ruled that it is but proper to change the name of Petitioner Corporation.
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Issue:
Whether or not Bormaheco is estopped from questioning the personality of LIDECOas the same
as petitioner corporation
Ruling:
Yes. The record shows that it was indeed Bormaheco which initially used the acronym LIDECO to
refer to petitioner corporation when it filed its first motion to strike. Private respondent therefore is estopped
from denying that LIDECO and petitioner corporation are one and the same.
In one case, the Supreme Court elaborated on the essence of equitable doctrine of estoppel ,to wit Under
the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying thereon. A party may not go back on his
own acts and representations to the prejudice of the other party who relied upon them.
However, this is not a sufficient ground to justify the use of LIDECO instead of its full name in its motion to
Intervene. Under the Corporation Code, a corporation may sue and be sued in its name. LIDECO is
certainly not the registered name of petitioner corporation. The court agreed with the trial court that if
petitioner legally and truly wanted to intervene, it should have used its corporate name as the law requires
and not another name which it had not registered. Had petitioner wanted to use the name LIDECO, it should
have shown in the complaint in intervention that Lideco Corporation stands for Laureano Investment and
Development Corporation.
NB. Although Bormaheco, Inc., is estopped from denying that LIDECO and Laureano Investment and Devt
Corporation are one and the same, t is not estopped from questioning the juridical personality of
LidecoCorporation, even after the trial court had allowed it to intervene in the case.
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This case involves an illegal dismissal suit filed by several employees of Hacienda Lanutan against
said corporation and its administrator Jose EdmundoLanuta.. Private respondents were employed as
regular sugar farm workers. Hacienda Lanutan on the other hand was owned by Pison-Arceo Agricultural
and Development Corporation. In deciding the case, the Labor Arbiter ruled that private respondents were
indeed illegally dismissed and ordered Hacienda Lanutan and Jose EdmundoPison to pay jointly and
severally the claims for backwages and separation pay of private respondents. Upon appeal with the NLRC,
the latter tribunal affirmed the Labor Arbiters decision including Pison-Arceo Agricultural and Development
Corporation as jointly and severally liable with Hacienda Lanutan and Pison.
Issue:
Whether or not public respondent NLRC can make petitioner corporation equally liable with the
original respondents in the illegal dismissal case considering that it was never impleaded as defendant in
the first place
Ruling:
Yes. The initial consideration should be on the fact that the proceeding below is a quasi-judicial
proceeding hence strict compliance with service of summons can be relaxed. Substantial compliance in the
instant case is sufficient to justify the inclusion of petitioner corporation as defendant in illegal dismissal
case. Substantial compliance could be gleaned from the fact that Hacienda Lanutan is solely owned by
petitioner corporation. Furthermore, it cannot be denied that the former was impleaded and heard. Thus,
petitioner corporation could not argue that it was denied due process.
Also, it is undisputed that summons and all notices of hearing were duly served upon Jose
EdmundoPison. Since Pison is the administrator and representative of petitioner in its property (Hacienda
Lanutan) and recognized as such by the workers therein, the court deemed the service of summons upon
him as sufficient and substantial compliance with the requirements for service of summons and other notices
in respect of petitioner corporation. Insofar as the complainants are concerned, Jose EdmundoPison was
their employer and/or their employers representative. In view of the peculiar circumstances of the case, the
court ruled that JosePisons knowledge of the labor case and effort to resist it can be deemed knowledge
and action of the corporation. Indeed, to apply the normal precepts on corporate fiction and the technical
rules on service of summons would be to overturn the bias of the Constitution and the laws in favor of labor.
On the petitioners contention that a dissolved corporation does not become an extinguished entity during
the liquidation period is without merit. The Corporation Law is very clear and unequivocal as it provides that
the three-year granted to a corporation after the expiration of its corporate life is solely for the purpose of
settlement of its unfinished business and for the liquidation of the corporations assets and for no other
purpose.
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registration of homeowners associations.(Section 2 [a], E.O. 535, series 1979, transferred the powers and
authorities of the SEC over homeowners associations to the HIGC.)
to be a member of the Board of Directors. Obviously, the PROPOSED AMENDMENT of the by-laws is
contrary to law, therefore considered as invalid or void.
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Indeed, an employer has all the prerogative to amend its by-laws as it deems it necessary,
however, amendments should not cause any violation of any existing obligations of contracts, otherwise the
same will be deemed void for being contrary to law.
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WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED for lack of merit
while the resolution of the National Labor Relations Commission dated August 4, 1995 is hereby
AFFIRMED.
3844, as amended, Sec. 74). Section 75 of its Charter vests in LBP specific powers normally exercised by
banking institutions, such as the authority to grant short, medium and long-term loans and advances against
security of real estate and/or other acceptable assets; to guarantee acceptance(s), credits, loans,
transactions or obligations; and to borrow from, or rediscount notes, bills of exchange and other commercial
papers with the Central Bank. In addition to the enumeration of specific powers granted to LBP, Section 75
of its Charter also authorizes it to exercise the general powers mentioned in the Corporation Law and the
General Banking Act. One of the general powers mentioned in the General Banking Act is the Writing-off
ofloans and advances with an outstanding amount of one hundred thousand pesos or more shall require the
prior approval of the Monetary Board.
LBP is a unique and specialized banking institution, not an ordinary "government agency". As a
bank, it is specifically placed under the supervision and regulation of the Central Bank of the Philippines
pursuant to its Charter. In so far as loans and advances are concerned, therefore, it should be deemed
primarily governed by Central Bank Circular No. 958, Series of 1983, which vests the determination of the
frequency of writing-off loans in the Board of Directors of a bank provided that the loans written-off do not
exceed a certain aggregate amount.
The authority to write-off loans and advances should be construed to include within its scope the
waiver of penalty charges on past due loans, which are of a lesser category.Concededly, the power to writeoff is not expressly granted in the LBP Charter. It can be logically implied however, from LBP's authority to
exercise the general powers vested in banking institutions as provided in the General Banking Act. The clear
intendment of its Charter is for LBP to be clothed not only with the express powers granted to it, but also
with those implied, incidental and necessary for the exercise of those express powers.
But while we rule that LBP is empowered by its corporate charter to waive penalty charges, thereby
overHELD COA's avowed exclusive prerogative to settle and compromise liabilities to the Government,
nevertheless, pursuant to Pres. Decree No. 1445, LBP is still subject to COA's general audit jurisdiction to
see to it that the fiscal responsibility that rests directly with the head of the government agency has been
properly and effectively discharged.
WHEREFORE, the Decisions of the Commission on Audit sought to be reviewed are hereby SET
ASIDE in so far as they hold that the Commission on Audit, vis-a-vis the Land Bank, has the exclusive
prerogative to settle and compromise liabilities to the Government.
Concio, in a letter to Del Rosario, proposed a counterproposal of 53 films (including the 14 films initially
requested) for P35 million. Del Rosario presented the counter offer to Vivas Board of Directors but the
Board rejected the counter offer. Several negotiations were subsequently made but on April 29, 1992, Viva
made an agreement with Republic Broadcasting Corporation (referred to as RBS or GMA 7) which gave
exclusive rights to RBS to air 104 Viva films including the 14 films initially requested by ABS-CBN.
ABS-CBN now filed a complaint for specific performance against Viva as it alleged that there is
already a perfected contract between Viva and ABS-CBN in the April 2, 1992 meeting. Lopez testified that
Del Rosario agreed to the counterproposal and he (Lopez) even put the agreement in a napkin which was
signed and given to Del Rosario. ABS-CBN also filed an injunction against RBS to enjoin the latter from
airing the films. The injunction was granted. RBS now filed a countersuit with a prayer for moral damages as
it claimed that its reputation was debased when they failed to air the shows that they promised to their
viewers. The trial court ruled in favor of Viva and RBS. The Court of Appeals affirmed the trial court.
ISSUE:
Whether or not a contract was perfected in the April 2, 1992 meeting between the representatives
of the two corporations
HELD:
No.
There is no proof that a contract was perfected in the said meeting. Lopez testimony about the
contract being written in a napkin is not corroborated because the napkin was never produced in court.
Further, there is no meeting of the minds because Del Rosarios offer of 104 films for P60 million was not
accepted. And that the alleged counter-offer made by Lopez on the same day was not also accepted
because theres no proof of such. The counter offer can only be deemed to have been made days after the
April 2 meeting when Santos-Concio sent a letter to Del Rosario containing the counter-offer. Regardless,
there was no showing that Del Rosario accepted. But even if he did accept, such acceptance will not bloom
into a perfected contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power; to enter into contracts; are exercised by the Board
of Directors. But this power may be delegated to a corporate committee, a corporate officer or corporate
manager. Such a delegation must be clear and specific. In the case at bar, there was no such delegation to
Del Rosario. The fact that he has to present the counteroffer to the Board of Directors of Viva is proof that
the contract must be accepted first by the Vivas Board. Hence, even if Del Rosario accepted the counteroffer, it did not result to a contract because it will not bind Viva sans authorization.
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FACTS:
In 1967, HI Cement Corporation was granted authority to operate mining facilities in Bulacan.
However, the areas allowed for it to explore cover areas which were also being explored by Ignacio Vicente,
Juan Bernabe, and Moises Angeles. And so a dispute arose between the three and HI Cement as neither
side wanted to give up their mining claims over the disputed areas. Eventually, HI Cement filed a civil case
against the three. During pre-trial, the possibility of an amicable settlement was explored where HI Cement
offered to purchase the areas of claims of Vicente et al at the rate of P0.90 per square meter. Vicente et al
however wanted P10.00 per square meter.
In 1969, the lawyers of HI Cement agreed to enter into a compromise agreement with the three
whereby commissioners shall be assigned by the court for the purpose of assessing the value of the
disputed areas of claim. An assessment was subsequently made pursuant to the compromise agreement
and the commissioners recommended a price rate of P15.00 per square meter.
One of the lawyers of HI Cement, Atty. Francisco Ventura, then notified the Board of Directors of HI
Cement for the approval of the compromise agreement. But the Board disapproved the compromise
agreement hence Atty. Ventura filed a motion with the court to disregard the compromise agreement.
Vicente et al naturally assailed the motion. Vicente et al insisted that the compromise agreement is binding
because prior to entering into the compromise agreement, the three lawyers of HI Cement declared in open
court that they are authorized to enter into a compromise agreement for HI Cement; that one of the lawyers
of HI Cement, Atty. Florentino Cardenas, is an executive official of HI Cement; that Cardenas even
nominated one of the commissioners; that such act ratified the compromise agreement even if it was not
approved by the Board. HI Cement, in its defense, averred that the lawyers were not authorized and that in
fact there was no special power of attorney executed in their favor for the purpose of entering into a
compromise agreement. Judge AmbrosioGeraldez ruled in favor of HI Cement.
ISSUE:
Whether or not a Compromise Agreement entered into by a lawyer in behalf of the corporation is
valid without a written authority.
HELD:
NO.
Corporations may compromise only in the form and with the requisites which may be necessary to
alienate their property. Under the corporation law the power to compromise or settle claims in favor of or
against the corporation is ordinarily and primarily committed to the Board of Directors but such power may
be delegated. The delegation must be clearly shown for as a general rule an officer or agent of the
corporation has no power to compromise or settle a claim by or against the corporation, except to the extent
that such power is given to him either expressly or by reasonable implication from the circumstances. In the
case at bar, there was no special power of attorney authorizing the three lawyers to enter into a compromise
agreement. This is even if the lawyers declared in open court that they are authorized to do so by the
corporation.
The fact that Cardenas, an officer of HI Cement, acted in effecting the compromise agreement, i.e.
nominating a commissioner, does not ratify the compromise agreement. There is no showing that Cardenas
act binds HI Cement; no proof that he is authorized by the Board; no proof that there is a provision in the
Articles of Incorporation of HI-Cement that he can bind the corporation.
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Issue:
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Whether or not the "dealership agreement" referred by the President and Chairman of the Board of
petitioner corporation is a valid and enforceable contract.
Held:
No.
Under the Corporation Law, which was then in force at the time this 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 like silence or acquiescence; by acts showing approval or adoption of the
contract; or by acceptance and retention of benefits flowing therefrom. 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 corporation, is dealing with a third person, i. e., a
person outside the corporation.
The situation is quite different where a director or officer is dealing with his own corporation. In the
instant case respondent 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. This trust relationship "is not a matter of statutory or technical law. It springs
from the fact that directors have the control and guidance of corporate affairs and property and hence of the
property interests of the stockholders.
On the other hand, a director's contract with his corporation is not in all instances void or voidable.
If the contract is fair and reasonable under the circumstances, it may be ratified by the stockholders
provided a full disclosure of his adverse interest is made.
Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if
entered into with a person other than a director or officer of the corporation, the fact that the other party to
the contract was a Director and Auditor of the petitioner corporation changes the whole situation. First of all,
we believe that the contract was neither fair nor reasonable. The "dealership agreement" entered into in
July, 1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five years
starting September, 1970, at thefixed price of P9.70 per bag. At the time of the contract, petitioner
Corporation had not even commenced the manufacture of white cement, the reason why delivery was not to
begin until 14 months later. He must have known that within that period of six years, there would be a
considerable rise in the price of white cement. In fact, respondent Te's own Memorandum shows that in
September, 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag.
Despite this, no provision was made in the "dealership agreement" to allow for an increase in price mutually
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acceptable to the parties. Instead, the price was pegged at P9.70 per bag for the whole five years of the
contract. Fairness on his part as a director of the corporation from whom he was to buy the cement, would
require such a provision. In fact, this unfairness in the contract is also a basis which renders a contract
entered into by the President, without authority from the Board of Directors, void or voidable, although it may
have been in the ordinary course of business. We believe that the fixed price of P9.70 per bag for a period
of five years was not fair and reasonable.
The contract is not binding upon the private respondent. Mr. Maglana, its President and Chairman,
was not empowered to execute it. Since a corporation, such as the private respondent, can act only through
its officers and agents, all acts within the powers of said corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or
statutory provisions, the same general principles of law which govern the relation of agency for a natural
person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act
for the corporation; and agents when once appointed, or members acting in their stead, are subject to the
same rules, liabilities and incapacities as are agents of individuals and private persons. Moreover, . . . a
corporate officer or agent may represent and bind the corporation in transactions with third persons to the
extent that authority to do so has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation
has caused persons dealing with the officer or agent to believe that it has conferred.
While there can be no question that Mr. Maglana was an officer the President and Chairman
of private respondent corporation at the time he signed the letter-offer, the private respondents By-Laws do
not in any way confer upon the President the authority to enter into contracts for the corporation
independently, of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless, to
expedite or facilitate the execution of the contract, only the President and not all the members of the
Board, or so much thereof as are required for the act shall sign it for the corporation. This is the import of
the words through the president and the clear intent of the power of the chairman to execute and sign for
and in behalf of the corporation all contracts and agreements which the corporation may enter into. Both
powers presuppose a prior act of the corporation exercised through the Board of Directors. No greater
power can be implied from such express, but limited, delegated authority. Neither can it be logically claimed
that any power greater than that expressly conferred is inherent in Mr. Maglanas position as president and
chairman of the corporation.
Although there is authority that if the president is given general control and supervision over the
affairs of the corporation, it will be presumed that he has authority to make contract and do acts within the
course of its ordinary business, We find such inapplicable in this case. We note that the private corporation
has a general manager who, under its By-Laws has, inter alia, the following powers: (a) to have the active
and direct management of the business and operation of the corporation, conducting the same accordingly
to the order, directives or resolutions of the Board of Directors or of the president. It goes without saying
then that Mr. Maglana did not have a direct and active hand in the management of the business and
operations of the corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past,
entered into contracts similar to that of Exhibit A either with the petitioner or with other parties.
Petitioners last refuge then is his alternative proposition, namely, that private respondent had
clothed Mr. Maglana with the apparent power to act for it and had caused persons dealing with it to believe
that he was conferred with such power. The rule is of course settled that although an officer or agent acts
without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which
the corporation has clothed him by holding him out or permitting him to appear as having such authority, the
corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such
apparent authority, as where an officer is allowed to exercise a particular authority with respect to the
business, or a particular branch of it, continuously and publicly, for a considerable time. Also, if a private
96 | P a g e
corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for
it, the corporation will be estopped to deny that such apparent authority in real, as to innocent third persons
dealing in good faith with such officers or agents. This apparent authority may result from (1) the general
manner, by which the corporation holds out an officer or agent as having power to act or, in other words, the
apparent authority with which it clothes him to act in general or (2) acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, whether within or without the scope of his ordinary
powers.
It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr.
Maglana with the apparent power to execute Exhibit A or any similar contract. This could have been easily
done by evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably
failed to do that. Upon the other hand, private respondents evidence overwhelmingly shows that no contract
can be signed by the president without first being approved by the Board of Directors.
63Re: Doctrine of apparent authority
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA,petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE
JANOLO, respondents.
G.R. No. 115849
January 24, 1996
PANGANIBAN, J.:
Facts:
In the course of its banking operations, the defendant Producer Bank of the Philippines acquired
six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna, and covered by
Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME
Investment and Development Corporation which had them mortgaged with the bank as collateral for a loan.
The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus
initiated negotiations for that purpose.
In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investments legal
counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management
Department of the defendant bank. The meeting was held pursuant to plaintiffs plan to buy the property.
After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to
the bank.
On May 3, 1988, plaintiff, through counsel, made a final demand for compliance by the bank with
its obligations under the considered perfected contract of sale. As recounted by the trial court, in a reply
letter dated May 12, 1988, the defendants through Acting Conservator Encarnacion repudiated the authority
of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5
Million are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of
payment and the non-compliance with the obligations under what the plaintiffs considered to be a perfected
contract of sale.
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On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its
Manager Rivera and Acting Conservator Encarnacion. The basis of the suit was that the transaction had
with the bank resulted in a perfected contract of sale. The defendants took the position that there was no
such perfected sale because the defendant Rivera is not authorized to sell the property, and that there was
no meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the
Banks outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991,
the trial court issued an order denying the motion to intervene on the ground that it was filed after trial had
already been concluded.
Issues:
Whether or not there was a perfected contract of sale with the application of the doctrine of
apparent authority.
Held:
Yes.
The authority of a corporate officer in dealing with third persons may be actual or apparent. The
doctrine of apparent authority, with special reference to banks, was laid out in Prudential Bank vs. Court of
Appeals, where it was held that:
Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agents apparent representation yields to the principals true representation
and the contract is considered as entered into between the principal and the third person (citing National
Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of
dealings of the officers in their representative capacity but not for acts outside the scope of their authority. A
bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds
they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to
shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons where the representation is made in
the course of its business by an agent acting within the general scope of his authority even though, in the
particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204
NW 818, 40 ALR 1021).
Application of these principles is especially necessary because banks have a fiduciary relationship
with the public and their stability depends on the confidence of the people in their honesty and efficiency.
Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its
employees, resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or
implied authority to act for the Bank in the matter of selling its acquired assets.
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To be sure, petitioners attempted to repudiate Riveras apparent authority through documents and
testimony which seek to establish Riveras actual authority. These pieces of evidence, however, are
inherently weak as they consist of Riveras self-serving testimony and various inter-office memoranda that
purport to show his limited actual authority, of which private respondent cannot be charged with knowledge.
In any event, since the issue is apparent authority, the existence of which is borne out by the respondent
Courts findings, the evidence of actual authority is immaterial insofar as the liability of a corporation is
concerned.
Issue:
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Whether or not IVOs President, DominadorMonteverde, validly entered into the 1986 contracts for
and on behalf of IVO.
Held:
No.
Under the provision of IVOs By-lawsMonteverde had no blanket authority to bind IVO to any
contract. He must act according to the instructions of the Board of Directors. Even in instances when he was
authorized to act according to his discretion that discretion must not conflict with prior Board orders,
resolutions and instructions. The evidence shows that the IVO Board knew nothing of the 1986
contracts and that it did not authorize Monteverde to enter into speculative contracts. In fact, Monteverde
had earlier proposed that the company engage in such transactions but the IVO Board rejected his
proposal.Since the 1986 contracts marked a sharp departure from past IVO transactions, Safic should have
obtained from Monteverde the prior authorization of the IVO Board. Safic cannot rely on the doctrine of
implied agency because before the controversial 1986 contracts, IVO did not enter into identical contracts
with Safic. The basis for agency is representation and a person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent.
The most prudent thing petitioner should have done was to ascertain the extent of the authority of
DominadorMonteverde. Being remiss in this regard, petitioner cannot seek relief on the basis of a supposed
agency.
Under Article 1898 of the Civil Code, the acts of an agent beyond the scope of his authority do not
bind the principal unless the latter ratifies the same expressly or impliedly. It also bears emphasizing that
when the third person knows that the agent was acting beyond his power or authority, the principal cannot
be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the
principals ratification.
There was no such ratification in this case. When Monteverde entered into the speculative
contracts with Safic, he did not secure the Boards approval.He also did not submit the contracts to the
Board after their consummation so there was, in fact, no occasion at all for ratification. The contracts were
not reported in IVOs export sales book and turn-out book. Neither were they reflected in other books and
records of the corporation.It must be pointed out that the Board of Directors, not Monteverde, exercises
corporate power. Clearly, Monteverdes speculative contracts with Safic never bound IVO and Safic cannot
therefore enforce those contracts against IVO.
SAFIC claims that there is no distinction between the 1985 and 1986 contracts, both of which
groups of contracts were signed and authorized by IVOs President, DominadorMonteverde. SAFIC
concludes that the 1986 contracts were equally binding, as the 1985 contracts were, on IVO.We remain
unconvinced. The so-called wash out agreements are clearly ultra vires and not binding on IVO.
vs.
HON. RAMON P. MAKASIAR (in his Capacity as Presiding Judge of the Regional Trial Court of
Manila, Branch 35) and ZENON DE GUIA (in his capacity as Chief State Prosecutor), respondents.
GR No. 122452 January 29, 2001
QUISUMBING, J.:
Facts:
Petitioner, as a director of Concord-World Properties Inc., filed a complaint affidavit charging Vic
Ang Siong for violation of BP 22 in the QC Prosecutors Office. It was alleged in the said affidavit that the
check issued by the latter to the company was dishonored when presented for encashment. Ang Siong
moved to dismiss the said case on the ground that petitioner had no authority to file the said case and that
he and the company had agreed to settle amicably after paying partially the dishonored check. On March
23, 1994, the City Prosecutor dismissed the said case on the grounds given by Ang Siong. The Chief State
Prosecutor denied petitioners appeal andMotion for Reconsideration; hence he filed a civil case for
mandamus in the RTC of QC to compel the Chief State Prosecutor to file the information charging Ang
Siong for violating BP 22. The trial court also dismissed the case for lack of merit, thus the petition for review
on certiorari in the Supreme Court.
Issue:
Whether or not the petitioner had the personality to file the said case.
Held:
The court ruled in the negative, it is not disputed in the instant case that Concord, a domestic
corporation, was the payee of the bum check, not petitioner. Therefore, it is Concord, as payee of the
bounced check, which is the injured party. Since petitioner was neither a payee nor a holder of the bad
check, he had neither the personality to sue nor cause of action against Vic Ang Siong. Under Section 36 of
the Corporation Code, in relation to Section 23, it is clear that where a corporation is an injured party, its
power to sue is lodged with its board of directors or trustees. Note that petitioner failed to show any proof
that he was authorized or deputized or granted specific powers by Concord's board of director to sue Victor
Ang Siong for and on behalf of the firm. Clearly, petitioner as a minority stockholder and member of the
board of directors had no such power or authority to sue on Concord's behalf. Nor uphold his act as 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.
There is no showing that petitioner has complied with the foregoing requisites. It is obvious that petitioner
has not shown any clear legal right which would warrant the overturning of the decision of public
respondents to dismiss the complaint against Vic Ang Siong. A public prosecutor, by the nature of his office,
is under no compulsion to file a criminal information where no clear legal justification has been shown, and
no sufficient evidence of guilt nor prima facie case has been presented by the petitioner. No reversible error
may be attributed to the court a quo when it dismissed petitioner's special civil action for mandamus.
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Issue:
Whether or not the sale is valid.
Held:
The court ruled in the negative.
The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo
Group's failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or
substantially all assets of the corporation:
Sec. 40. Sale or other disposition of assets. Subject to the provisions of existing laws on illegal
combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell,
lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets,
including its goodwill, upon terms and conditions and for such consideration, which may be money, stocks,
103 | P a g e
bonds or other instruments for the payment of money or other property or consideration, as its board of
directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at
least two-thirds (2/3) of the members, in a stockholders' or members' meeting duly called for the purpose.
Written notice of the proposed action and of the time and place of the meeting shall be addressed to each
stockholder or member at his place of residence as shown on the books of the corporation and deposited to
the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting
stockholder may exercise his appraisal right under the conditions provided in this Code.A sale or other
disposition shall be deemed to cover substantially all the corporate property and assets if thereby the
corporation would be rendered incapable of continuing the business or accomplishing the purpose for which
it was incorporated.
68 RE: Dividends
Republic Planters Bank
vs.
Honorable Enrique A. Agana, Sr. & ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION
and ADALIA F. ROBES [March 3, 1997]
[G.R. No. 51765. March 3, 1997]
HERMOSISIMA, JR., J.:
Facts:
Private respondent Robes Francisco Realty & Devt Corp. secured a loan from petitioner in the
amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to
private respondent-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. The latter
constitutes terms and conditions.
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.
Held:
The court ruled in the negative.
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There is no guarantee, however, that the share will receive any dividends. 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 petitionerbank from
redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to
theprejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and
valid reason. 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.
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Pantukan, Davao" of the consortium composed of Black Mountain, Inc., Energy Corporation, and Tetra
Management Corporation .
Issue:
Whether or not the Operating Agreement relative to the Kingking Minesentered into on March 25,
1981 between NADECOR, then represented by the Aguinaldo-Aytona Group, and the consortium composed
of Black Mountain, Inc., Tetra Management Corporation, and Energy Corporation was valid
Held:
No.
The Operating Agreement with the Black Mountain Consortium of March 25, 1981 was never
ratified by the NADECOR stockholders; indeed, it was explicitly rejected by said stockholders. Considering
that the Kingking Mines comprise all or substantially all the assets of NADECOR, the operating agreement
of March 25, 1981 had to be ratified by the stockholders in order to be valid and effective. This, in
accordance with Section 44 of the Corporation Code. That no such ratification was ever given constitutes
yet another reason to invalidate the same.
Under these circumstances, the agreement executed on March 25, 1981 was entered into in
defiance of valid orders of a court of competent jurisdiction and was in fact subsequently nullified by it; it was
entered into against the wishes of the majority of the stockholders and directors and in truth, was not
only not ratified by the majority of said stockholders as required by the Corporation Code, but explicitly
rejected and disowned by them at a meeting duly convoked, said stockholders thereafter approving an
operating agreement with Benguet Corporation; the agreement was sought to be vindicated and enforced by
individuals who no longer represented the majority of the stockholders of NADECOR, over the objection and
against the wishes of the legitimate majority; the authority granted to the consortium (Black Mountain, Inc.,
Energy Corporation, and Tetra Management Corporation) to implement the agreement of March 25, 1981
was rescinded and revoked by the Office of the President of the Philippines; and one of the companies in
said consortium is now, admittedly, no longer capable on account of bankruptcy of complying with its
contractual commitmentsit is impossible to accord the agreement any validity or effect whatsoever.
It thus clearly appears, not only that upon purely legal considerations, the operating agreement of
March 25, 1981 is, if not outrightly void, unenforceable for want of requisite valid ratification and conferred
upon private respondents no actionable, vindicable rights, but also that, from a practical standpoint, any
issue about said respondents' rights under the agreement has been mooted by supervening events
effectively precluding their exercise in any case
PANGANIBAN, J.:
Facts:
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In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) alleged that it entered into a
contract of sale with Motorich Sales Corporation (Motorich) through the latters treasurer, Nenita Gruenberg.
The subject of the sale was a parcel of land owned by Motorich. San Juan advanced P100k to Nenita as
earnest money.
On the day agreed upon on which Nenita was supposed to deliver the title of the land to Motorich,
Nenita did not show up. Nenita and Motorich did not heed the subsequent demand of San Juan to comply
with the contract hence San Juan sued Motorich. Motorich, in its defense, argued that it is not bound by the
acts of its treasurer, Nenita, since her act in contracting with San Juan was not authorized by the corporate
board.
San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that
Nenita and her husband owns 98% of the corporations capital stocks; that as such, it is a close corporation
and that makes Nenita and the President as principal stockholders who do not need any authorization from
the corporate board; that in this case, the corporate veil may be properly pierced.
Issue:
Whether or not San Juan is correct.
HELD:
No.
Motorich is right in invoking that it is not bound by the acts of Nenita because her act in entering
into a contract with San Juan was not authorized by the board of directors of Motorich. Nenita is however
ordered to return the P100k.
There is no merit in the contention that the corporate veil should be pierced even though it is true
that Nenita and her husband own 98% of the capital stocks of Motorich. The corporate veil can only be
pierced if the corporate fiction is merely used by the incorporators to shield themselves against liability for
fraud, illegality or inequity committed on third persons. It is incumbent upon San Juan to prove that Nenita or
her husband is merely using Motorich to defraud San Juan. In this case however, San Juan utterly failed to
establish that Motorich was formed, or that it is operated, for the purpose of shielding any alleged fraudulent
or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or
inequity at the expense of third persons like San Juan.
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agreement be recorded in its books. In a letter dated 27 September 1974, VGCCI replied that the deed of
pledge executed by Calapatia in petitioner's favor was duly noted in its corporate books.
On 3 August 1983, 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, on 12 April 1985, filed a petition for extrajudicial
foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public
auction sale of the pledged stock.
On 14 May 1985, petitioner informed VGCCI of the 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, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in
view of Calapatia's unsettled accounts with the club. Despite the foregoing, Notary Public de Vera held a
public auction on 17 September 1985 and petitioner emerged as the highest bidder at P20,000.00 for the
pledged stock. Consequently, petitioner was issued the corresponding certificate of sale.
On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No.
1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new
certificate of stock be issued in its name. On 2 March 1990, VGCCI replied that "for reason of delinquency"
Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00.
On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter
filed a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and
for the issuance of a new stock certificate in its name. On 18 June 1990, the Regional Trial Court of Makati
dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intracorporate dispute and on 27 August 1990 denied petitioner's motion for reconsideration.
On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission
(SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock
certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for
damages, attorney's fees and costs of litigation. On 3 January 1992, SEC Hearing Officer Manuel P. Perea
rendered a decision in favor of VGCCI, stating in the main that "considering that the said share is
delinquent, VGCCI had valid reason not to transfer the share in the name of the petitioner in the books of
VGCCI until liquidation of delinquency." Consequently, the case was dismissed.
On appeal, Court of Appeals rendered its decision nullifying and setting aside the orders of the
SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and, consequently,
dismissed petitioner's original complaint. The Court of Appeals declared that the controversy between CBC
and VGCCI is not intra-corporate. Hence, this petition.
Issue:
Whether or not the action of the corporation was proper.
Held:
No.
VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the
Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good
father of a family, fails to convince. a membership share is quite different in character from a pawn ticket and
to reiterate, petitioner was never informed of Calapatia' s unpaid accounts and the restrictive provisions in
VGCCI's by-laws.
108 | P a g e
Under Sec. 63 of the Corporation Code which provides that "no shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be utilized
by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to
any indebtedness which a subscriber or stockholder may owe the corporation arising from any other
transaction." In the case at bar, the subscription for the share in question has been fully paid as evidenced
by the issuance of Membership Certificate No. 1219. What Calapatia owed the corporation were merely the
monthly dues. Hence, the aforequoted provision does not apply.
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In the case at bench, it was established that petitioner corporation did not issue any resolution
revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid
the gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina
Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista.Despite the alleged lack of notice to
petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from
the records that she was aware of the corporation's obligation under the said resolutions. More importantly,
she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed
her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing
the 2nd installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha.
As such, the Court ruled that the conduct of petitioners after the passage of resolutions dated
August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board
resolution.
agreement was formally executed he was assured by said Directors that there would be no need of formal
approval by the Board. Absence any resolution to this effect should not be used to prejudice a party who
was assured by the directors themselves of their acquiescence.
There is abundant authority in support of the proposition that ratification may be express or implied, and that
implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or
adoption of the contract; or by acceptance and retention of benefits flowing therefrom.
111 | P a g e
2. The act of the directors was tantamount sale of all or substantially all of the assets of the corporation as
the right to redeem the property was basically the only asset of the corporation hence the need for the vote
of atleast 2/3s of the stockholders.
3. In the latest Annual Information sheet of the corporation, the names of the alleged Board of Directors who
issued the resolution were not listed as shareholders of the corporation. In effect, they lack the qualifying
share to be directors of the corporation.
was shown that the Board really intended to withdraw respondents appointment but opted to do it in a
diplomatic way so as to avoid embarrassment on the part of respondent. Hence, in cases of abstention, the
purpose for which should be considered. In the absence of any explanation for abstention, the general rule
shall apply.
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.
considered an officer of MICC, elected and/or designated by its board of directors. Following Section 5(c) of
P.D. No. 902-A, the SEC exercises exclusive jurisdiction over controversies regarding the election and/or
designation of directors, trustees, officers or managers of a corporation, partnership or association. This
provision is indubitably applicable to the petitioners case. Jurisdiction here is not with the Labor Arbiter nor
the NLRC, but with the SEC.
president, vice-president, secretary and treasurer are commonly regarded as the principal or executive
officers of a corporation, and modern corporation statutes usually designate them as the officers of the
corporation. However, other offices are sometimes created by the charter or by-laws of a corporation, or the
board of directors may be empowered under the by-laws of a corporation to create additional offices as may
be necessary. It has been held that an office is created by the charter of the corporation and the officer is
elected by the directors or stockholders. On the other hand, an employee usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to such employee.In the case at bar,
considering that herein petitioner, unlike an ordinary employee, was appointed by respondent corporations
Board of Trustees in its memorandum of October 30, 1990,[9] she is deemed an officer of the corporation.
Perforce, Section 5(c) of Presidential Decree No. 902-A, which provides that the SEC exercises exclusive
jurisdiction over controversies in the election or appointment of directors, trustees, officers or managers of
corporations, partnerships or associations, applies in the present dispute. Accordingly, jurisdiction over the
same is vested in the SEC, and not in the Labor Arbiter or the NLRC.
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ISSUE:
Whether or not the contention of the petitioners is tenable.
HELD:
No. The respondent is a bona fide corporation. As such, it has a juridical personality of its own
separate from the members composing it.There is no dispute that title over the questioned land where the
Hidden Valley Springs Resort is located is registered in the name of the corporation. The records also show
that the staff house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was
later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the
respondent corporation.Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock constitute personal property, they do not
represent property of the corporation. The corporation has property of its own which consists chiefly of real
estate.A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its
proceeds to that extent when distributed according to law and equity, but its holder is not the owner of any
part of the capital of the corporation. Nor is he entitled to the possession of any definite portion of its
property or assets. The stockholder is not a co-owner or tenant in common of the corporate property.
The issue in this case is whether or not Antonio Vasquez entered into the contract with in his
personal capacity and can be held liable personally for the amount.
HELD:
The Supreme Court ruled in the negative. It is well known that a corporation is an artificial being
invested by law with a personality of its own, separate and distinct from that of its stockholders and from that
of its officers who manage and run its affairs. The mere fact that its personality is owing to a legal fiction and
that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly
entered into, or for an act lawfully performed, by them for an in its behalf. The legal fiction by which the
personality of a corporation is created is a practical reality and necessity. Without it no corporate entities
may exists and no corporate business may be transacted. Such legal fiction may be disregarded only when
an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been
alleged or proven in this case.
It has not been alleged nor even intimated that Vazquez personally benefited by the contract of
sale in question and that he is merely invoking the legal fiction to avoid personal liability. Neither is it
contended that he entered into said contract for the corporation in bad faith and with intent to defraud the
plaintiff.
The trial court and the Court of Appeals found Vasquez guilty, however, on the ground of
negligence. The fault and negligence referred to in articles 1101-1104 of the Civil Code are those incidental
to the fulfillment or non-fulfillment of a contractual obligation; while the fault or negligence referred to in
article 1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the common law,
which gives rise to an obligation independently of any contract.
The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the
fulfillment of the contract did not make Vazquez principally or even subsidiarily liable for such negligence.
Since it was the corporation's contract, its non-fulfillment, whether due to negligence or fault or to any other
cause, made the corporation and not its agent, liable.
that it would cease operations due to serious financial losses. Operations did cease as announced. The
union filed a complaint with the Department of Labor against CarmelCraft for illegal lockout, unfair labor
practice and damages, followed the next day with another complaint for payment of unpaid wages,
emergency cost of living allowances, holiday pay, and other benefits. The Labor Arbiter declared the
shutdown illegal and violative of the employees' right to self-organization. CarmelCraft Corporation now
assails the Decision made by the Labor Arbiter on the ground that it is tainted with grave abuse of discretion.
Issue:
The issue in this case is whether or not the Decision rendered by the Labor Arbiter is tainted with
grave abuse of discretion.
HELD:
The Supreme Court ruled in the affirmative. The reason invoked by the petitioner company to justify
the cessation of its operations is hardly credible; in fact, it is preposterous when viewed in the light of the
other relevant circumstances. Its justification is that it sustained losses in the amount of P 1,603.88 but there
is no report, however, of its operations during the period after that date, that is, during the succeeding seven
and a half months before it decided to close its business. Significantly, the company is capitalized at P 3
million. Considering such a substantial investment, we hardly think that a loss of the paltry sum of less than
P 2,000.00 could be considered serious enough to call for the closure of the company.
The Court agreed with the Carmelcraft Employees Union that the real reason for the decision of the
Carmelcraft Corp. to cease operations was the establishment of Carmelcraft Employees Union. It was
apparently unwelcome to the corporation, which would rather shut down than deal with the union. There is
the allegation from CarmelCraft Employees Union that the company had suggested that it might decide not
to close the business if the employees were to affiliate with another union which the management preferred
which was not sufficiently disproved.
It is also untenable that Carmen Yulo is not liable for the acts of the company, assuming it had
acted illegally, because the Carmelcraft Corporation is a distinct and separate entity with a legal personality
of its own. Yulo claims she is only an agent of the company carrying out the decisions of its board of
directors but it was found that she is in fact and legal effect the corporation, being not only its president and
general manager but also its owner.
WHEREFORE, the petition is DISMISSED and the challenged decision is AFFIRMED, with costs
against the petitioner. It is so ordered.
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Facts:
On October 27, 1983, Maria Andrea Saavedra, herein private respondent, filed a complaint against
the COMMODEX (Phils.), Inc., petitioner Consuelo Valderrama as owner, Tranquilino Valderrama as
executive vice president and Jose Ma. Togle as vice president and general manager, for reinstatement and
backwages. On December 2, 1986, the Labor Arbiter rendered a decision, finding private respondent to
have been illegally dismissed and holding the respondent COMMODEX liable. It was shown that private
respondent had been dismissed from her employment due to her pregnancy, contrary to allegations of
petitioner and her co-respondents therein that the termination of her employment was due to redundancy
and retrenchment. A writ of execution was granted, but it was returned unsatisfied. The sheriff reported that
COMMODEX had ceased operation, while the individual officers, who were co-respondents in the case, took
the position that the writ could not be enforced against them on the ground that the dispositive portion of the
decision mentioned only COMMODEX.
Issue:
The issue in this case is whether or not the Decision of the Labor Arbiter may still be satisfied
notwithstanding the cessation of COMMODEXs operations.
HELD:
The Supreme Court ruled in the affirmative. The rule that once a judgment becomes final it can no
longer be disturbed, altered, or modified is not an inflexible one. It admits of exceptions, as where facts and
circumstances transpire after a judgment has become final and executory which render its execution
impossible or unjust. In such a case the modification of the decision may be sought by the interested party
and the court will modify and alter the judgment to harmonize it with justice and the facts. In the case at bar,
modification of the judgment is appropriate considering that the company is no longer in operation and there
is no showing that it has filed bankruptcy proceedings in which private respondent might file a claim and
pursue her remedy under Article 110 of the Labor Code.
A corporation can only act through its officers and agents. The case of A. C. Ransom Labor UnionCCLU v. NLRC clearly also holds that any decision against the company can be enforced against the
officers in their personal capacities should the corporation fail to satisfy the judgment against it.
Agreeably with the HELD in A. C. Ransom Labor Union-CCLU it was held in another case that
where the Employer corporation is no longer existing and is unable to satisfy the judgment in favor of the
employee, the officer should be held liable for acting on behalf of the corporation.
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Facts:
E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office address at 102 Juan
Luna St., Davao City and with branch offices at 2492 Bay View Drive, Tambo, Paraaque, Metro Manila and
Kolambog, Lapasan, Cagayan de Oro City. It executed a Deed of Sale with Development Agreement with
Imperial Development Corporation wherein the former agreed to develop certain parcels of land located at
Barrio Carmen, Cagayan de Oro belonging to the latter into a housing subdivision for the construction of low
cost housing units but the latter subsequently filed a Complaint for Breach of Contract and Damages for
failure of E.B. Villarosa & Partner Co., Ltd. to comply with its contractual obligation in that, other than a few
unfinished low cost houses, there were no substantial developments at Barrio Carmen. The Summons was
served upon E.B. Villarosa & Partner Co., Ltd. through its Branch Manager Engr. Wendell Sabulbero at
Cagayan de Oro City. E.B. Villarosa & Partner Co., Ltd. moved to dismiss the case because summons
intended for it was served upon Engr. Wendell Sabulbero, an employee at its branch office at Cagayan de
Oro City. It prayed for the dismissal of the complaint on the ground of improper service of summons and for
lack of jurisdiction over the person of the defendant. It contends that the trial court did not acquire
jurisdiction over its person since the summons was improperly served upon its employee in its branch office
at Cagayan de Oro City who is not one of those persons named in Section 11, Rule 14 of the 1997 Rules of
Civil Procedure upon whom service of summons may be made.
Issue:
The issue in this case is whether or not the Court was able to acquire jurisdiction over the person
of the defendant.
HELD:
The Supreme Court ruled in the negative. When the complaint was filed in 1998, the 1997 Rules of
Civil Procedure was already in force. Sec. 11, Rule 14 of the 1997 Rules of Civil Procedure provides that:
when the defendant is a corporation, partnership or association organized under the laws of the Philippines
with a juridical personality, service may be made on the president, managing partner, general manager,
corporate secretary, treasurer, or in-house counsel. The rule now states "general manager" instead of only
"manager"; "corporate secretary" instead of "secretary"; and "treasurer" instead of "cashier." The phrase
"agent, or any of its directors" is conspicuously deleted in the new rule. The old rule, Section 13 of Rule 14,
was revised because its terms were obviously ambiguous and susceptible of broad and sometimes illogical
interpretations, especially the word "agent" of the corporation. The service of summons upon the branch
manager of E.B. Villarosa & Partner Co., Ltd. at its branch office at Cagayan de Oro, instead of upon the
general manager at its principal office at Davao City is improper. Consequently, the trial court did not acquire
jurisdiction over the person of the E.B. Villarosa & Partner Co., Ltd.
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FACTS:
The case originated from a complaint filed with the Labor Arbiter by private respondent Celso B.
Balbastro against MAM Realty Development Corporation ("MAM") and its Vice President Manuel P.
Centeno, for wage differentials, "ECOLA," overtime pay, incentive leave pay, 13th month pay, holiday pay
and rest day pay. Balbastro alleged that he was employed by MAM as a pump operator in 1982 and had
since performed such work at its Rancho Estate, Marikina, Metro Manila. He earned a basic monthly salary
of P1,590.00 for seven days of work a week.MAM countered that Balbastro had previously been employed
by Francisco Cacho and Co., Inc., the developer of Rancho Estates. Sometime in May 1982, his services
were contracted by MAM for the operation of the Rancho Estates' water pump. He was engaged, however,
not as an employee, but as a service contractor, at an agreed fee of P1,590.00 a month.
Similar arrangements were likewise entered into by MAM with one Rodolfo Mercado and with a
security guard of Rancho Estates III Homeowners' Association. Under the agreement, Balbastro was merely
made to open and close on a daily basis the water supply system of the different phases of the subdivision
in accordance with its water rationing scheme. He worked for only a maximum period of three hours a day,
and he made use of his free time by offering plumbing services to the residents of the subdivision. He was
not at all subject to the control or supervision of MAM for, in fact, his work could so also be done either by
Mercado or by the security guard. On 23 May 1990, prior to the filing of the complaint, MAM executed a
Deed of Transfer, effective 01 July 1990, in favor of the Rancho Estates Phase III Homeowners Association,
Inc., conveying to the latter all its rights and interests over the water system in the subdivision. Centeno was
held solidarily liable with the corporation.
ISSUE:
Whether or not it is proper to hold a corporate officer solidarily liable with the corporation
HELD:
NO.
NLRC erred in holding Centeno jointly and severally liable with MAM. A corporation, being a
juridical entity, may act only through its directors, officers and employees. Obligations incurred by them,
acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they
represent. True, solidary liabilities may at times be incurred but only when exceptional circumstances
warrant such as, generally, in the following cases:
1. When directors and trustees or, in appropriate cases, the officers of a corporation
(a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members,
and other persons.
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto.
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3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the Corporation.
4 When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.
In labor cases, for instance, the Court has held corporate directors and officerssolidarily liable with
the corporation for the termination of employment of employees done with malice or in bad faith.In the case
at Bench, there is nothing substantial on record that can justify, prescinding from the foregoing, petitioner
Centeno's solidary liability with the corporation.
WHEREFORE, the order of 21 March 1994 is MODIFIED. The case is REMANDED to the NLRC
for a re-computation of private respondent's monetary awards, which, conformably with this opinion, shall be
paid solely by petitioner MAM Realty.
FACTS:
This is a Workmen's Compensation Case, the compensability of the injuries suffered by the
claimants, Pablo C. Reyes, and Cesar Curata, being admitted by all the parties.
In the evening of January 13, 1961, respondents Pablo Reyes and Cesar Curata suffered burns of
various degrees, while painting the building of the Pacific Products, Inc., caused by a fire of accidental
origin, resulting in their temporary disability from work. For said injuries they filed claims for disability and
medical expenses against the R. F. Sugay& Co., Inc., Romulo F. Sugay and the Pacific Products, Inc. The
R. F. Sugay& Co., Inc., answered the claim, alleging that the corporation was not the employer of the
claimants but it was the Pacific Products, Inc., which had an administration and supervision job contract with
Romulo F. Sugay, who, aside from being the President of the corporation, bearing his name, had also a
business of his own, distinct and separate from said corporation; Romulo F. Sugay did not file an Answer,
but voluntarily appeared during the hearing and disclaimed liability.The Answer of Pacific Products, Inc.
averred that its business was mainly in the manufacture and sale of lacquer and other painting materials. As
defenses, it stated that the claimants were the employees of respondents R. F. Sugay Construction Co.,
Inc., and/or Romulo F. Sugay.
The Hearing Officer dismissed the case with respect, to R. F. Sugay& Co., Inc., and Romulo F.
Sugay "for want of employer-employee relationship with the claimants, either directly or through an
independent contractor".
Commissioner Jose Sanchez modified the decision of the Hearing Officer, by finding that R. F.
Sugay& Co., Inc., was the statutory employer of the claimants and should be liable to them. Pacific
Products, Inc., was absolved from all responsibility.
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ISSUE:
Who among the three (3) persons (Romulo Sugay, R. F. Sugay& Co., Inc., and Pacific Products,
Inc.) is the statutory employer of said claimants and who should be liable for their disability compensation.
HELD:
In the case at bar, We find that the findings of facts made by the Commissioner and concurred in
by the Commission en banc are fully supported by the evidence on record which clearly points out that R. F.
Sugay& Co., is the statutory employer of the claimants. The decisive elements showing that it is the
employer, are present: such as selection and engagement; payment of wages; power of dismissal, and
control. These powers were lodged in R. F. Sugay& Co.
There was a faint attempt by the petitioning corporation, to evade liability, by advancing the theory
that Romulo P. Sugay, its President, was the one who entered into a contract of administration and
supervision for the painting of the factory of the Pacific Products, Inc., and making it appear that said
Romulo F. Sugay acted as an agent of the Pacific Products, Inc., and as such, the latter should be made
answerable to the compensation due to the claimants.
We agree with the Commission that "the dual roles of Romulo F. Sugay should not be allowed to
confuse the facts relating to employer-employee relationship." It is a legal truism that when the veil of
corporate fiction is made as a shield to perpetrate a fraud and/or confuse legitimate issues (here, the
relation of employer-employee), the same should be pierced. Verily the R. F. Sugay& Co., Inc. is a business
conduit of R. F. Sugay.
IN VIEW HEREOF, the judgment appealed from, is hereby affirmed, in all respects. Costs taxed
against petitioner R. F. Sugay& Co., Inc., in both instances.
private respondent paid all the monthly rentals due the petitioners until December 1976; that the petitioner
refused to accept the rental for January 1977 and asked the private respondent to vacate and leave the
premises instead thereby terminating his services and forfeiting his guarantee bond; that on January 16,
1977, the petitioners, assisted by Metrocom soldiers, entered the private respondent's office and through
intimidations, forcibly ejected him from the premises, assumed full control and supervision of the business
and put another person in his place who immediately took possession of all cash sales for the day; that the
private respondent returned to the business premises the following day but he was refused entry and there
was a notice to all the employees in front of the premises signed by the petitioners to the effect that the
private respondent's services had been terminated and that another person had been appointed to take his
place;
After trial, the lower court rendered judgment in favor of the private respondent.
On appeal, the then Intermediate Appellate Court affirmed in toto the decision of the trial court.
ISSUE:
Whether or not petitioner UY is severally liable with the corporation
HELD:
YES.
In HELD that the subject contract is a lease contract and not a management contract, the Court
adopts the findings of fact made by the trial court and affirmed by the respondent court.
The claim of the petitioners that respondent Ng is their manager-administrator is untenable since it
fails to pass the control test pertinent to the existence of an employer-employee relationship. The control
test asks whether the employer controls or has reserved the right to control the employee not only as to the
result of the work but also as to the means and methods by which the said work is to be accomplished.
Such control by the petitioners over respondent Ng is lacking.
Anent the argument that the respondent Court, in holding petitioner Uy severally liable with the
petitioner corporation, departed from the rule that a stockholder or officer of a corporation has a personality
distinct from the corporation, we hold that the corporate entity theory cannot apply in the instant case where
it is being invoked as a cloak or shield for illegality. Being a party to a simulated contract of management,
petitioner Uy cannot be permitted to escape liability under the said contract by using the corporate entity
theory. This is one instance when the veil of corporate entity has to be pierced to avoid injustice and
inequity.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is DISMISSED. The judgment
appealed from is AFFIRMED with the MODIFICATION that the award of moral and exemplary damages is
hereby reduced to a total of P20,000. The term of the lease having expired, the order to return the massage
clinic to the private respondent is DELETED.
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In sum, we hold that the lower court did not err in holding EPG liable for the repair of the airconditioning system at its expense pursuant to the guarantee provision in the construction contract with UP.
However, Emmanuel de Guzman is not solidarily liable with it, having acted on its behalf within the scope of
his authority and without any demonstrated malice or bad faith.
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BELLOSILLO, J.:
Facts:
Petitioner corporation was engaged in the sale and manufacture of medicines and pharmaceuticals
in the country and did substantial business with government hospitals. On 1 June 1970 it hired private
respondent as an Area Manager for Visayas and Mindanao, and later appointed him Manager of its Cebu
branch. On 30 January 1978 private respondent was dismissed from the service. At that time he was
receiving a monthly compensation of P3,180.00.
Private respondent filed a complaint for damages before the trial court alleging that in the course of
their business petitioners were directly encouraging, abetting and promoting bribery in the guise of
"commissions," "entertainment expenses" and "representation expenses" which were given to various
government hospital officials in exchange for favorable recommendations, approvals and actual purchases
of medicines and pharmaceuticals. For his refusal to take direct and personal hand in giving "bribe money"
he was dismissed. In his complaint he asked for an amount of not less than P520,000.00 as moral and
consequential damages, P25,000.00 as exemplary damages and P50,000.00 for attorney's fees. On the
other hand petitioner in its answer claims that private respondent was not dismissed but that he himself
resigned on his own volition.
The trial court ruled found that private respondent was illegally dismissed. On appeal, respondent
Court of Appeals affirmed in toto the decision of the trial court; hence this petition for review.
Issue:
Whether or not petitioner Amistoso as president of petitioner corporation, and of petitioner Halili as
vice-president of the same corporation are jointly and solidarily liable.
Held:
NO.
As a rule, corporate officers are not personally liable for money claims of discharged corporate
employees unless they acted with evident malice and bad faith in terminating their employment.
In the case at bar, while petitioners Amistoso and Halili may have had a hand in the relief of
respondent. Bayani, there are no indications of malice and bad faith on their part. We take exception to the
conclusion of respondent Court of Appeals that "the manner by which Halili and Amistoso acted is
characterized by bad faith and malice, thus binding them personally liable to plaintiff-appellee,'' On the
contrary it is apparent that the relief order was a business judgment on the part of the officers, with the best
interest of the corporation in mind, based on their opinion that respondent Bayani had failed to perform the
duties expected of him. Hence both the trial court and respondent Court of Appeals committed a reversible
error in holding petitioners Amistoso and Halili jointly and solidarily liable with petitioner corporation. Despite
such, the Court ruled that because of the unlawful act of petitioner corporation, private respondent is entitled
to recover attorney's fees as he was compelled to litigate and incur expenses to protect his interests.
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4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate
action.
In labor cases, particularly, corporate directors and officers are solidarily liable with the corporation for the
termination of employment of corporate employees done with malice or in bad faith. In this case, it is
undisputed that petitioners have a direct hand in the illegal dismissal of respondent employees. They were
the ones, who as high-ranking officers and directors of Crispa, Inc., signed the Board Resolution retrenching
the private respondents on the feigned ground of serious business losses that had no basis apart from an
unsigned and unaudited Profit and Loss Statement which, to repeat, had no evidentiary value whatsoever.
This is indicative of bad faith on the part of petitioners for which they can be held jointly and severally liable
with Crispa, Inc. for all the money claims of the illegally terminated respondent employees in this case.
respondent filed a case for illegal dismissal and damages against Brent.Labor Arbiterrendered a decision in
favor of respondent. On appeal, the above decision was affirmed by theNLRC.PetitionerMorlitoApuzen
argues that he should not be held liable.
ISSUE:
Whether or not MorlitoApuzen should be held liable with the corporation.
HELD:
NO. Evidence and records of the case show no cause of action against petitioner MorlitoApuzen
not being the party in interest and not the one who terminated or even responsible for private respondents
dismissal. A corporation, being a juridical entity, may act only through its directors, officers and employees
and obligations incurred by them, acting as corporate agents, are not theirs but the direct accountabilities of
the corporation they represent.
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means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues.
In the case at hand, there is no showing that Antonio Mancao, as manager of respondent company
deliberately and maliciously evaded the respondents company financial obligation to the petitioner. Hence,
there appearing to be no evidence on record that Antonio Mancao acted maliciously or deliberately in nonpayment of benefits to petitioner, he cannot be held jointly liable with Mancao supermarket.
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Based on the particular facts of this case, service of summons upon Atty. Virgilio A. Reyes has
served the purpose of the law. As he refused to receive the summons, tender unto him was sufficient to
confer jurisdiction over the petitioner.
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decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of Section 40
of the Corporation Code.
Furthermore, Julieta Esguerra is estopped from contesting the validity of VECCIs corporate action
in selling the aforementioned building to Sureste Properties on the basis of said resolutions and certification
because she never raised this issue in VECCIs prior sales of the other properties sold. The same identical
resolutions and certification were used in such prior sales.
WHEREFORE, the petition is hereby DENIED for lack of merit, no reversible error having been
committed by respondent Court. The assailed Decision is AFFIRMED in toto. Costs against petitioner.
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