1. PNB vs.

Andrada, 381 SCRA 244

FACTS:
This case is a petition for review assailing the decision of the Court of Appeals in
CA-GR CV No. 57610. The plaintiff therein, Andrada Electric and Engineering
Company performed construction works and provided electrical equipments to
PASUMIL (Pampanga Sugar Mills). The latter was foreclosed by DBP ( Development
Bank of Philippines) . It was later then taken over by PNB (Philippine National Bank)
through its sugar arm, the National Sugar Development Corporation, therein
defendants.
PASUMIL had a total obligation of P777, 263. 80. It initially paid P250,000 and
later P14,000 in broken amounts. In its complaint, plaintiff demands from the
defendants the payment of the rest of the obligation on the grounds that PNB and
NASUDECO now owned the assets of PASUMIL and that they all benefited from the
works rendered by plaintiff.
Both defendants filed a motion to dismiss but were both denied. In their
answers, they reiterated the same grounds in the motion to dismiss such as they
were not privy to the contract entered by Andrada and PASUMIL, that pursuant to
LOI No. 189-A, as amended by LOI No. 311 they were not authorized to assume
corporate obligations of the latter, and that the takeover is solely for the purpose of
reconditioning the sugar mill and make a study of and submit recommendation on
the problems concerning the claims of PASUMIL creditors.
The Trial Court ruled in favor of the plaintiff and which was later affirmed by the
CA.
Hence, this instant Petiton.
ISSUE:
Whether or not the corporate existence of PASUMIL was legally extinguished
upon the take-over by PNB and NASUDECO.
DECISION:
It is basic that a corporation maintains a separate and distinct personality
from the persons composing it and from other legal entities related to it. Also is the
tenet that the corporate veil may be pierced when a corporation is just an alter ego
of another corporation.
Piercing the corporate veil to determine if whether a corporation is a mere
alter ego, the following elements must concur: (1) one corporation must have
control over another corporation, not just mere control but complete domination,
(2) such control must have been used by the defendant to commit a fraud or a
wrong against the plaintiffs legal right, (3) that said control must have proximately
caused the injury or loss complained of.
In the case at bar, the foregoing are absent. Despite PNBs control over
PASUMIL, there is no showing that corporate personalities were disregarded and

that control was used to commit fraud. Respondent was neither defrauded upon the
acquisition of the assets of PASUMIL by PNB.
The Court is not convinced that the transfer of assets was entered to defraud
and to escape liability to respondent Andrada. The latter likewise failed to present
clear and convincing evidence to set aside separate corporate personality rule.
There is also no merger or consolidation that took place as claimed by
respondent Andrada despite being authorized by LOI Nos. 189-A and 311 since the
procedure prescribed in Title IX of the Corporation Code was not followed. PNB also
neither expressly nor impliedly agreed to assume the debts of PASUMIL to
respondent. As explicitly stated in LOI No. 11, PNB shall only study and submit
recommendations on the claims of PASUMILs creditors. It is clear from the
foregoing that the corporate separateness of PNB and PASUMIL remains. Hence,
PNB nor NASUDECO can be held liable to the unpaid obligations of PASUMIL.
Wherefore, petition is granted and assailed decision set aside.

2. Stockholders of F. Guanzon vs. Register of Deeds (6 SCRA 373)

FACTS:
F. Guanzon and Sons, Inc. has been dissolved by virtue of a stockholders
resolution. Five stockholders of the latter corporation executed a certificate of
liquidation of assets. It is stated in the document that they have distributed, among
other things, real properties owned by the corporation located in Manila.
The stockholders then applied for registration with the Register of Deeds. Upon
presentation of the certificate of liquidation, it was denied due to lacking
requirements. Upon consulta elevated by the stockholders, one of the original
requirements was overruled yet three are sustained for them to comply. The
remaining three are: the number of parcels not certified to in the acknowledgment;
P430.50 Reg. fees need be paid; P940.45 documentary stamps need be attached to
the document.
Hence, the stockholders interpose this present appeal.
ISSUE:
Whether or not the certificate of liquidation merely involves a transfer of
assets or is a transfer or conveyance?
DECISION:
Appellants contend that the certificate of liquidation is not a conveyance or
transfer but merely a distribution of assets of a corporation which has been
dissolved. Hence, the aforementioned requirements are not applicable to their
registration.
But the Commissioner of Land Registration has a different view. Though
extrinsically a distribution of assets, in substance it is a transfer from the
corporation to the stockholders.
Properties owned and registered in the name of the corporation is separate
and distinct from properties of its members. While stockholders own shares of stock
of the corporation, they do not represent property of the corporation specifically
real estate. Despite owning shares of stock, the holder is not an owner of any part
of the capital of the corporation nor is entitled to possession of its property.
It is clear from the foregoing that the act of liquidation of the appellants is
not a partition of community property but rather a transfer or conveyance of title of
the corporations assets to the individual stockholders. It is only then logical that
they comply with the said requirements if they seek to obtain a registration with
the Register of Deeds.
The resolution appealed from is affirmed.

3. Manacop vs. Equitable PCIB, 468 SCRA

256

FACTS:
Lavine Loungewear Manufacturing, Inc. took out fire insurance policies with
Philippine Fire and Marine Insurance Corporation Rizal Surety and Insurance
Company, Tabacalera Insurance Company, First Lepanto-Taisho Insurance
Corporation, Equitable Insurance Corporation, and Reliance Insurance Corporation.
All policies except Policy No. 13798 issued by First Lepanto provide that in case
loss, proceeds shall be payable to Equitable Banking Corporation-Greenhills Branch,
subject to other terms, conditions, clauses and warranties.

On August 1, 1998, Lavine's buildings and their contents were consumed by

fire thus claims were made against the policies. As found by the Office of the
Insurance Commission, the insurance proceeds payable to Lavine is
P112,245,324.34.

Lavine was then represented by Harish C. Ramnani ("Harish") but his

authority was withdrawn on March 17, 2000 by the Board of Directors. Chandru C.
Ramnani ("Chandru") was appointed instead together with Atty. Mario A. Aguinaldo,
as Lavine's representatives in negotiating with the insurance companies.
Prior to the release of the proceeds, the insurance companies required Lavine
to sign a Sworn Statement in Proof of Loss and Subrogation Agreement whereby the
former would be absolved from their liabilities upon payment of the proceeds to
Equitable Bank. Only Harish signed the document while the rest of Lavine's
directors refused to sign.
Chandru's requested that payments be made first to Lavine who shall
thereafter pay Equitable Bank as the latter's interest may appear. Certain insurance
companies released the proceeds directly to Equitable Bank thus Chandru filed, in
behalf of Lavine, a Petition for the Issuance of a Writ of Preliminary Injunction with
Prayer for a Temporary Restraining Order before the RTC of Pasig City, against
PhilFire, Rizal Surety, TICO, First Lepanto and Equitable Bank.
Petitioners Harish, Jose F. Manacop, Chandru P. Pessumal, Maureen M.
Ramnani together with Salvador Cortez, moved to intervene claiming they were
Lavine's incumbent directors and that Harish was Lavine's authorized
representative. They disclaimed Chandru's designation as president of Lavine as
well as his and Atty. Aguinaldo's authority to file the action.
On February 14, 2001, the trial court granted the motion for intervention and
thereafter denied Lavine's motion for reconsideration as represented by Chandru.
Equitable Bank alleged it had sufficiently established the amount of its claim and as
beneficiary of the insurance policies, it was entitled to collect the proceeds

In the Amended Answer-in-Intervention with cross-claim of intervenors

against the insurance companies alleged that as of August 1, 1998, Lavine's
obligations to Equitable Bank amounted to P71,000,000.00 and since Equitable
Insurance and Reliance Insurance have already paid the bank more than this
amount, respondent insurance companies should be ordered to immediately deliver
to Lavine the remaining insurance proceeds through the intervenors and to pay
interests thereon from the time of submission of proof of loss.
The trial court rendered a decision in favor of Intervenors ordering the
respondent bank to refund to Lavine through the Intervenors the amount of
P65,819,936.05 representing the overpayment as actual or compensatory
damages, with legal rate of interest at six per cent per annum from the date of this
decision until full payment and ordering PhilFire, Rizal Surety, First Lapanto, and
TICO to pay Levine through Intervenors the certain amount representing unpaid
insurance proceeds as actual or compensatory damages, with twenty-nine per cent
interest per annum from October 1, 1998 until full payment.
Counterclaims filed by respondent bank and cross-claims filed by all
insurance companies against intervenors are hereby DISMISSED for lack of merit.
On April 3, 2002, the intervenors filed a Motion for Execution Pending Appeal
Judge Lavia granted intervenors' motion for execution pending appeal and
issued a writ of execution on May 20, 2002.
In view of the issuance of the writ of execution by the trial court, Equitable
Bank filed an Amended and/or Supplemental Petition for Certiorari, Prohibition and
Mandamus in CA-G.R. SP No. 70298 on June 11, 2002, assailing the trial court's
order granting execution pending appeal as well as the issuance of the writ of
execution. CA set aside the decision of lower court.
Hence the intervenors took recourse at the Supreme Court.
ISSUE:
Whether or not CA committed an error in voiding the writ of execution
pending appeal.
DECISION:
The petitioners assert that Lavine's financial distress is sufficient reason to
order execution pending appeal. Citing Borja v. Court of Appeals, they claim that
execution pending appeal may be granted if the prevailing party is already of
advanced age and in danger of extinction.
But Lavine is a juridical entity whose existence cannot be likened to a natural
person. Its precarious financial condition is not by itself a compelling circumstance
warranting immediate execution and does not outweigh the long standing general
policy of enforcing only final and executory judgments.

Furthermore Borja is not applicable to the case at bar because its factual
milieu is different. In Borja, the prevailing party was a natural person who, at 76
years of age, "may no longer enjoy the fruit of the judgment before he finally
passes away."
4. Firme vs Bukal, 414 SCRA190
FACTS:
Petitioner Spouses Constante and Azucena Firme are the registered owners
of a property located in Dahlia Avenue, Fairview Park, Quezon City. Renato de
Castro, vice president of Bukal Enterprises and Development Corporation,
authorized Teodoro Aviles to negotiate with the petitioners for the purchase of their
property.
On March 28, 1995, respondent corporation filed a complaint for specific
performance against the petitioners, alleging that they reneged on their agreement
to sell the property. During the trial, respondent presented five witnesses including
Aviles.
Aviles alleged that he twice met with the petitioners to discuss the purchase
of the property. The first meeting was on February wherein he presented to the
petitioners the First Draft of the deed of sale. Petitioners rejected it due to several
objectionable conditions. On their second meeting on March 1995, he presented a
Second Draft which was allegedly accepted by the petitioners due to the deletion of
the objectionable conditions contained in the First Draft.
Due to the alleged agreement, respondent corporation fenced the property,
constructed posts, relocated the squatters, and obtained a loan to purchase the
property.
In petitioners defense, Dr. Firme testified that they did met twice but they
did not accept the offer because they were reserving their property for their
property. In their second meeting, Dr. Firme further alleged that they were
presented a Third Draft which they did not accept for they found the provisions
one-sided.
The trial court rendered judgment against respondent. The decision was later
reversed on appeal. Hence, this instant petition.
ISSUE:
Whether or not that it was not legally and factually possible for respondent to
perfect a contract of sale?
DECISION:
Based on the testimony of Aviles, it was only De Castro who asked him to
negotiate with the Spouses Firme to buy the Property. De Castro affirmed this by
testifying that he authorized Aviles to buy the property. But there was no Board
Resolution authorizing this act.
As provided in Sec. 23 of the Corporation Code, it is the board of directors or
trustees which exercises almost all the corporate powers in a corporation, including

the power to purchase real property. The corporation may appoint agents to
negotiate the purchase but it is the Board which has the final say and its approval
finalizes the transaction.
Furthermore, none of the deeds of sale were signed by the president of Bukal
Enterprises. De Castro had not even met the Spouses Firme. Considering the
circumstances, it would have been improbable for Aviles to finalize any transaction
with the Spouses Firme pertaining to the sale of property.

5. Great Asian Sales vs. CA, 381 SCRA 557

FACTS:
Petitioner Great Asian secured a loan from respondent Bancasia in an amount
not to exceed P1.0 million. Arsenio who is the Treasurer and General Manager was
authorized by the board to sign all necessary papers to secure the loan. Another
loan was approved by the board in an amount not exceeding P2.0 million. Arsenio
was again the authorized signatory of all necessary papers.
The other petitioner, Tan Chong Lin, signed two surety agreements in favor of
respondent to guarantee, solidarily, the debts of Great Asian.
Great Asian signed four deed of assignments, assigning fifteen postdated
checks. All checks were endorsed by Arsenio. All checks were dishonored
amounting to P1.042,005.00.
Respondent through its lawyer, Atty Eladia Reyes, notified Tan Chiong Lin
twice of this matter and demanded payment by registered mail and by personal
delivery. None of the petitioners paid respondent the dishonored checks.
Respondent filed a complaint for a collection of a sum of money against
petitioners. The trial court rendered its decision in favor of respondent and was
later sustained by the Court of Appeals.
ISSUES:
Whether or not Arsenio had authority to execute the deed of assignment and
thus bind Great Asian.
DECISION:
The Corporation Code of the Philippines provides through Section 23 that it is
the board of directors that exercise the corporate powers of the corporation except
for those specific acts where the Code requires the stockholders approval. In order
for a corporation to borrow funds authority of the board of directors is required.
Normally, the board designates one or more corporate officers to sign the necessary
documents.
As evidenced by the two board resolutions authorizing Arsenio to sign in
behalf of petitioner corporation, there is no doubt that Great Asian gave full
authority to Arsenio to transact with respondent. Arsenio having the proper and
necessary authority from the board of directors clearly proves that Great Asian is
liable to pay respondent Biancasia.

6. Consolidated Bank (Solidbank) vs.CA 356 SCRA 671

FACTS:
Respondent Continental Cement Corporation and its Executive Vice President
Gregory Lim obtained from petitioner Solidbank a letter of credit amounting to
P1,068,150.00 on July 13, 1982. On the same date, respondent corporation paid a
marginal deposit of P320,445.00 to petitioner. The letter of credit was used to
purchase around five hundred thousand liters of bunker fuel oil from Petrophil
Corporation. The latter directly delivered the fuel to respondent corporation in its
Bulacan plant. A trust receipt was also executed by respondent Corporation with
Lim as signatory. The trust receipt amounted to P1,001,520.93.
Petitioner filed a complaint for sum of money with application of preliminary
attachment against respondents alleging that the latter failed to turn over the
goods covered by the trust receipt or the proceeds thereof. In their answer,
respondents averred that the transaction between them was a simple loan and not
a trust receipt. Further, Lim denied any personal liability in the subject transactions.
The trial court dismissed the complaint and ordered petitioner the amounts
prayed for in the counterclaim of respondents. Upon appeal, the Court of Appeals
partially modified the lower courts decision and instead ordered respondents to pay
attorneys fees and litigation expenses.
ISSUES:
Whether or not private respondent are liable under the trust receipt.
DECISION:
Private respondents Lim and his spouse cannot be held personally liable for
Lim entered into the subject transaction in his capacity as Executive Vice President
of respondent corporation. It is basic tenet that corporate personality is a shield
against personal liability of its officers. Lim signed the contract in behalf of the
corporation and not in his personal capacity making him not liable. His personality
is separate and distinct from the corporation he is an officer of.

7. Malayang Samahan vs. Ramos, 357 SCRA 77

FACTS:
The case at bar is a motion for partial reconsideration of the Courts decision
dated February 28, 2000. Petitioners allege that the Court erred in not making
respondent company officials liable for damages on account of employees
dismissal. They further contend that the corporate officers should not be considered
as mere agents but the actual wrongdoers. Also that the respondent officials are
the officers and incorporators of the satellite companies wherein jobs intended for
regular employees are diverted and that they are also engaged in the manufacture
of garments. They also prayed for the inclusion of names omitted in the caption.
ISSUE:
Whether or not respondent company officials should be made personally
liable for damages on account of petitioners dismissal.
DECISION:
This petition is not impressed with merit. It cannot be stressed enough that a
corporations has a separate and distinct personality from the people composing it.
Obligations incurred by the corporation through its directors or officers are its sole
liabilities. It is only during exceptional circumstances that solidary liabilities are
incurred as when a director consented to the issuance of watered stocks or a
director contractually agreed to hold himself personally and solidarily liable with
Corporation.
The Court in labor cases would hold corporate directors and officers solidarily
liable with the corporation for termination of employees when it attended with
malice or bad faith. In the instant case, there is no substantial evidence to prove
that the respondent officers acted in bad faith.

8. Remo vs. IAC, 172 SCRA 405

FACTS:
Petitioner is a member of the board of directors of Akron Customs Brokerage
Corporation. They adopted a resolution to purchase thirteen trucks to be used in
their business. The purchase shall be paid out from a loan to be secured by the
corporation from any lending institution.
Private respondent, representing E.B. Marcha Transport Company, Inc. sold
thirteen trucks to Feliciano Coprada, President and Chairman of Akron, for a
consideration of P525,000.00. It evidenced by a deed of absolute sale. A
downpayment of P50,000.00 was also agreed upon and the balance of P475,000.00
shall be paid with sixty days from the date of execution. Further that until the
balance is fully paid, the P50,000.00 shall accrue as rentals for the thirteen trucks
and if Akron fails to pay within the sixty day period, the balance shall constitute a
chattel mortgage lien covering the said trucks. An extension of thirty days may be
allowed and after that period private respondent may ask for the revocation of
contract and reconveyance of said trucks.
A promissory note executed by Coprada in favor of Akron further secured the
obligation. The promissory note states that the balance shall be paid from a loan
obtained from the DBP within sixty days. After ninety days, private respondent tried
to collect from Coprada the proceeds of the loan by sending a letter of demand.
Coprada replied by reiterating that he was applying for a loan from the DBP.
Concurrently, two of the subject trucks were sold under pacto de retro sale to
a Mr. Bais of Perpetual Loans and Savings Bank at Baclaran. The sale was
authorized by a board resolution dated March 15, 1978.
Subsequently, private respondent found out that no loan from DBP was ever
filed for by Akron. No rentals of P500.00 per day were then paid after the period
from April 27, 1978 to May 31, 1978.
Coprada wrote private respondent begging for a grace period and promising
to pay the obligation. Private respondent through counsel demanded the return of
the thirteen trucks and payment of back rentals amounting to P25,000.00.
Coprada again wrote asking for a grace period informing that ten trucks were
returned, and a deed of assignment to private respondent amounting to P475,000
was authorized by the board through a resolution.
Private respondent filed a complaint against Akron and its officers seeking
the recovery of P525,000.00 or the return of the thirteen trucks with damages.
Only petitioner Remo answered the complaint denying his participation to any of the
transaction. However, he was declared in default for being absent at the pre-trial.
Petitioner later sold all his shares in Akron to Coprada. Akron then amended
it articles of incorporation and changed its name into Akron Transport International,
Inc. which assumed liability to private respondent.
Trial court rendered decision in favor of respondent. Petitioner filed a motion
for new trial but was denied so appealed to then IAC. The latter decided in favor of

petitioner but was set aside and affirmed the appealed decision due to motion for
reconsideration raised by private respondent.
ISSUE:
Whether or not the petitioner is personally liable for the obligation of the
Corporation.
DECISION:
The factual milieu of the instant case does not provide a strong ground to
pierce the corporate veil of Akron and hold petitioner personally liable for its
obligation to private respondent. For this to take place, the corporate fiction must
be used to perpetuate fraud and commit wrong. While petitioner was still a member
of the board of directors when they adopted a resolution to purchase thirteen
trucks, it is not apparent that it was intended to defraud private respondent.
Moreover, private respondent only negotiated with Coprada. The latter was
also the signatory in the promissory note. It was executed in behalf of the
corporation as the word WE was used to refer to it. Petitioner did not sign the
promissory note so he cannot be personally liable. Same as to the resolution
authorizing the pacto de retro sale, petitioner asserts that he did not sign said
resolution.
Coprada should be the one accounted for fraud or misrepresentation as he
was the one who promised a forthcoming from the DBP.
The fact that petitioner sold his shares in Akron to Coprada during the case
also has no bearing. Since he does not have any personal obligation to private
respondent, it is his inherent right as stockholder to dispose of his shares of stock
whenever he shall please.
Furthermore, private respondent failed to establish clear and convincing
evidence of petitioners liability. Petition is granted.

9. PNB vs. Ritratto, 362 SCRA 216

FACTS:
Respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan
General Merchandise are domestic corporations, likewise, organized and existing
under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL), a subsidiary
company of PNB, organized and doing business in Hong Kong, extended a letter of
credit in favor of the respondents secured by real estate mortgages constituted
over four parcels of land in Makati City. Respondents made repayments of the loan
incurred by remitting those amounts to their loan account with PNB-IFL in Hong
Kong.
However, as of April 30, 1998, their outstanding obligations stood at
US$1,497,274.70. PNB-IFL, through its attorney-in-fact PNB, notified the
respondents of the foreclosure of all the real estate mortgages and that the
properties subject thereof were to be sold at a public auction.
On May 25, 1999, respondents filed a complaint for injunction with prayer
for the issuance of a writ of preliminary injunction and/or temporary restraining
order before the Regional Trial Court of Makati. 72-hour temporary restraining order
was granted.
On June 25, 1999, petitioner filed a motion to dismiss on the grounds of
failure to state a cause of action and the absence of any privity between the
petitioner and respondents. The motion to dismiss was denied by the trial court
judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the
issuance of the writ of preliminary injunction before the Court of Appeals but the
court dismissed the petition.
Hence this present petition.
ISSUE:
Whether or not the PNB is merely an alter ego or a business conduit of PNBIFL.
DECISION:
Petitioner is an agent with limited authority and specific duties under a
special power of attorney incorporated in the real estate mortgage. It is not privy to
the loan contracts entered into by respondents and PNB-IFL.
The mere fact that a corporation owns all of the stocks of another
corporation, taken alone is not sufficient to justify their being treated as one entity.

If used to perform legitimate functions, a subsidiary's separate existence

may be respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective business.
General rule the stock ownership alone by one corporation of the stock of
another does not thereby render the dominant corporation liable for the torts of the
subsidiary unless the separate corporate existence of the subsidiary is a mere
sham, or unless the control of the subsidiary is such that it is but an instrumentality
or adjunct of the dominant corporation.

10.

Strategic Alliance vs. Radstock 607 SCRA 413

FACTS:
CDCP Mining Corporation (CDCP Mining), an affiliate of CDCP, obtained loans
from Marubeni Corporation of Japan (Marubeni). A CDCP official issued letters of
guarantee for the loans although there was no CDCP Board Resolution authorizing
the issuance of such letters of guarantee. CDCP Mining secured the Marubeni loans
when CDCP and CDCP Mining were still privately owned and managed.
In 1983, CDCPs name was changed to Philippine National Construction
Corporation (PNCC) in order to reflect that the Government already owned 90.3%
of PNCC and only 9.70% is under private ownership. Meanwhile, the Marubeni loans
to CDCP Mining remained unpaid.
On 20 October 2000 and 22 November 2000, the PNCC Board of Directors
(PNCC Board) passed Board Resolutions admitting PNCCs liability to Marubeni.
Previously, for two decades the PNCC Board consistently refused to admit any
liability for the Marubeni loans.
In January 2001, Marubeni assigned its entire credit to Radstock Securities
Limited (Radstock), a foreign corporation. Radstock immediately sent a notice and
demand letter to PNCC.
PNCC and Radstock entered into a Compromise Agreement. Under this
agreement, PNCC shall pay Radstock the reduced amount of P6,185,000,000.00 in
full settlement of PNCCs guarantee of CDCP Minings debt allegedly totaling
P17,040,843,968.00 (judgment debt as of 31 July 2006). To satisfy its reduced
obligation, PNCC undertakes to (1) "assign to a third party assignee to be
designated by Radstock all its rights and interests" to the listed real properties of
PNCC; (2) issue to Radstock or its assignee common shares of the capital stock of
PNCC issued at par value which shall comprise 20% of the outstanding capital stock
of PNCC; and (3) assign to Radstock or its assignee 50% of PNCCs 6% share, for
the next 27 years, in the gross toll revenues of the Manila North Tollways
Corporation.
Strategic Alliance Development Corporation (STRADEC) moved for
reconsideration. STRADEC alleged that it has a claim against PNCC as a bidder of
the National Governments shares, receivables, securities and interests in PNCC.
ISSUE:
Whether or not the Compromise Agreement between PNCC and Radstock is
valid in relation to the Constitution, existing laws, and public policy.
DECISION:
Radstock, a foreign corporation with unknown owners whose nationalities are
also unknown, is not qualified to own land in the Philippines, and therefore also

disqualified to own the rights to ownership of lands in the Philippinesit is basic

that an assignor or seller cannot assign or sell something he does not own at the
time the ownership, or the rights to the ownership, are to be transferred to the
assignee or buyer. The assignment by PNCC of the real properties to a nominee to
be designated by Radstock is a circumvention of the constitutional prohibition
against a private foreign corporation owning lands in the Philippines.

11.

JG Summit vs. CA 450 SCRA 169

FACTS:
The National Investment and Development Corporation entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction,
operation and management of the Subic National Shipyard, Inc. (SNS) which
subsequently became the Philippine Shipyard and Engineering Corporation
(PHILSECO
Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the
capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its
salient features is the grant to the parties of the right of first refusal should either
of them decide to sell, assign or transfer its interest in the joint venture.
NIDC transferred all its rights, title and interest in PHILSECO to the Philippine
National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14.
Former President Corazon C. Aquino issued Proclamation No. 50 establishing
the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to
take title to, and possession of, conserve, manage and dispose of non-performing
assets of the National Government.
A trust agreement was entered into between the National Government and
the APT wherein the latter was named the trustee of the National Governments
share in PHILSECO.
In the interest of the national economy and the government, the COP and
the APT deemed it best to sell the National Governments share in PHILSECO to
private entities. After a series of negotiations between the APT and KAWASAKI, they
agreed that the latters right of first refusal under the JVA be exchanged for the
right to top by five percent (5%) the highest bid for the said shares. They further
agreed that KAWASAKI would be entitled to name a company in which it was a
stockholder, which could exercise the right to top. On September 7, 1990,
KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would exercise its right
to top.
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.
submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an
acknowledgement of KAWASAKI/Philyards right to top.
As petitioner was declared the highest bidder, the COP approved the sale on
December 3, 1993 "subject to the right of Kawasaki Heavy Industries, Inc./
[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in the bidding
rules."
On February 7, 1994, the APT notified petitioner that PHI had exercised its
option to top the highest bid and that the COP had approved the same on January
6, 1994.
Consequently, petitioner filed with this Court a Petition for Mandamus under
G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of

Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit.
It ruled that the petition for mandamus was not the proper remedy to question the
constitutionality or legality of the right of first refusal and the right to top that was
exercised by KAWASAKI/PHI, and that the matter must be brought "by the proper
party in the proper forum at the proper time and threshed out in a full blown trial."
The Court of Appeals further ruled that the right of first refusal and the right
to top are prima facie legal and that the petitioner, by participating in the public
bidding, with full knowledge of the right to top granted to KASAWASAKI/Philyards is
. . . estopped from questioning the validity of the award given to Philyards after the
latter exercised the right to top and had paid in full the purchase price of the
subject shares, pursuant to the ASBR. Petitioner filed a Motion for Reconsideration
of said Decision which was denied on March 15, 1996.
Petitioner thus filed a Petition for Certiorari with Supreme Court alleging
grave abuse of discretion on the part of the appellate court.
On November 20, 2000, Supreme Court ruled that a shipyard like PHILSECO
is a public utility whose capitalization must be sixty percent (60%) Filipino-owned.
Consequently, the right to top granted to KAWASAKI under the Asset Specific
Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National
Government in PHILSECO is illegal---not only because it violates the rules on
competitive bidding--- but more so, because it allows foreign corporations to own
more than 40% equity in the shipyard.
It also held that although the petitioner had the opportunity to examine the
ASBR before it participated in the bidding, it cannot be estopped from questioning
the unconstitutional, illegal and inequitable provisions thereof.
Thus, Supreme Court voided the transfer of the national governments
87.67% share in PHILSECO to Philyard Holdings, Inc., and upheld the right of JG
Summit, as the highest bidder, to take title to the said shares.
Respondents filed separate Motions for Reconsideration. In a Resolution
dated September 24, 2003, Supreme Court ruled in favor of the respondents. The
Court held that PHILSECO is not a public utility and that no law declares a shipyard
to be a public utility. It also ruled that they found nothing in the 1977 Joint Venture
Agreement (JVA) which prevents KAWASAKI from acquiring more than 40% of
PHILSECOs total capitalization. The Court held also that the right to top granted to
KAWASAKI in exchange for its right of first refusal did not violate the principles of
competitive bidding.
ISSUE:
Whether or not KAWASAKI, a foreign corporation, can exercise the right of
first refusal even it will exceed 40% shares of PHILSECOs total capitalization.
DECISION:
The Court upholds the validity of the mutual rights of first refusal under the
JVA between KAWASAKI and NIDC.
The right of first refusal is a property right of PHILSECO shareholders,
KAWASAKI and NIDC, under the terms of their JVA. This right allows them to
purchase the shares of their co-shareholder before they are offered to a third party.

The agreement of co-shareholders to mutually grant this right to each other, by

itself, does not constitute a violation of the provisions of the Constitution limiting
land ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts
it, if PHILSECO still owns land, the right of first refusal can be validly assigned to a
qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by
itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of any
fraudulent intent. The transfer could be made either to a nominee or such other
party which the holder of the right of first refusal feels it can comfortably do
business with.
Alternatively, PHILSECO may divest of its landholdings, in which case
KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECOs
equity. In fact, it can even be said that if the foreign shareholdings of a landholding
corporation exceeds 40%, it is not the foreign stockholders ownership of the shares
which is adversely affected but the capacity of the corporation to own land.
This finds support under the basic corporate law principle that the
corporation and its stockholders are separate juridical entities. In this vein, the
right of first refusal over shares pertains to the shareholders whereas the capacity
to own land pertains to the corporation. Hence, the fact that PHILSECO owns land
cannot deprive stockholders of their right of first refusal. No law disqualifies a
person from purchasing shares in a landholding corporation even if the latter will
exceed the allowed foreign equity, what the law disqualifies is the corporation from
owning land.

12.

Unchuan vs. Lozada 585 SCRA 421

FACTS:
Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the
registered co-owners of Lot Nos. 898-A-3 and 898-A-4 covered by Transfer
Certificates of Title (TCT) Nos. 53258 and 53257 in Cebu City.
The sisters, who were based in the United States, sold the lots to their
nephew Antonio J.P. Lozada (Antonio) under a Deed of Sale dated March 11, 1994.
Armed with a Special Power of Attorney from Anita, Peregrina went to the house of
their brother, Dr. Antonio Lozada (Dr. Lozada), located at Long Beach California. Dr.
Lozada agreed to advance the purchase price of US$367,000 or P10,000,000 for
Antonio, his nephew, in preparation for their plan to form a corporation. The lots
are to be eventually infused in the capitalization of Damasa Corporation, where he
and Antonio are to have 40% and 60% stake, respectively. The Deed of Sale was
later notarized and authenticated at the Philippine Consul's Office. Dr. Lozada then
forwarded the deed, special power of attorney, and owners' copies of the titles to
Antonio in the Philippines. Upon receipt of said documents, the latter recorded the
sale with the Register of Deeds of Cebu. Accordingly, TCT Nos. 128322 and 128323
were issued in the name of Antonio Lozada.
Pending registration of the deed, petitioner Marissa R. Unchuan caused the
annotation of an adverse claim on the lots claiming that Anita donated an undivided
share in the lots to her under an unregistered Deed of Donation dated February 4,
1987.
Antonio and Anita brought a case against Marissa for quieting of title with
application for preliminary injunction and restraining order. Marissa for her part,
filed an action to declare the Deed of Sale void and to cancel TCT Nos. 128322 and
128323. On motion, the cases were consolidated and tried jointly.
On June 9, 1997, RTC Judge Leonardo B. Caares held in favor of the plaintiff
Antonio and Anita.
On motion for reconsideration by petitioner, the RTC of Cebu City, Branch 10,
with Hon. Jesus S. dela Pea as Acting Judge, issued an Order dated April 5, 1999
declaring the Deed of Sale void and declared the Deed of Donation in favor of
Marissa valid. The RTC gave credence to the medical records of Peregrina.
Respondents moved for reconsideration. On July 6, 2000, now with Hon.
Soliver C. Peras, as Presiding Judge, the RTC of Cebu City, Branch 10, reinstated
the Decision dated June 9, 1997.
Petitioner appealed to the Court of Appeals. On February 23, 2006 the
appellate court affirmed with modification the July 6, 2000 Order of the RTC.
Petitioner raised the case at the Supreme Court. One of her contention is she
finds it anomalous that Dr. Lozada, an American citizen, had paid the lots for
Antonio. Thus, she accuses the latter of being a mere dummy of the former.

ISSUE:
Whether or not Dr. Lozada, an American, can own a lot in the Philippines.
DECISION:
The Court finds nothing to show that the sale between the sisters Lozada and
their nephew Antonio violated the public policy prohibiting aliens from owning lands
in the Philippines. Even as Dr. Lozada advanced the money for the payment of
Antonio's share, at no point were the lots registered in Dr. Lozada's name. Nor was
it contemplated that the lots be under his control for they are actually to be
included as capital of Damasa Corporation. According to their agreement, Antonio
and Dr. Lozada are to hold 60% and 40% of the shares in said corporation,
respectively. Under Republic Act No. 7042, particularly Section 3, a corporation
organized under the laws of the Philippines of which at least 60% of the capital
stock outstanding and entitled to vote is owned and held by citizens of the
Philippines, is considered a Philippine National. As such, the corporation may
acquire disposable lands in the Philippines.

13.

Arnold Hall vs. Piccio, 86 SCRA 634

FACTS:
This a petition seeking to set aside all the proceedings had in Civil Case No.
381 of the Court of First Instance of Leyte and to enjoin the respondent judge to
further act on the same.
The antecedent facts are that petitioners together with private respondents
signed and acknowledged the articles of incorporation of Far Eastern Lumber and
Commercial Co., Inc., attaching a treasurers affidavit, adopted by-laws, and elected
its officers. Then said articles were filed in the office of the Securities and Exchange
Commissioner for the issuance of certificate of incorporation.
However, pending action of said articles, respondents filed a civil case against
petitioners alleging that Far Eastern Lumber and Commercial Co., Inc. was an
unregistered partnership and that they wished its dissolution due to various
reasons. Petitioners filed a motion to dismiss but no avail respondent judge ordered
the dissolution and as requested by respondents, appointed Capuciong as receiver
upon filing of twenty thousand bond.
Petitioners offered a counter bond for the discharge of the receiver but
respondent judge refused. Hence, this instant petition.
ISSUE:
Whether or not the court has jurisdiction to decree the dissolution of the
company, because it being a de facto corporation, dissolution thereof may only be
ordered in a quo warranto proceeding.
DECISION:
As provided by Sec. 19, the due incorporation of any corporation claiming in
good faith to be a corporation under the Corporation Code and its right to exercise
corporate powers shall not be inquired into in any private suit which the corporation
is a party may be had at the suit of the Insular Government on information of the
Attorney-General.
However, this provision is not applicable in this case for subject corporation is
not yet incorporated. It is basic that the issuance of a certificate of incorporation
grants a corporation its being. Neither can petitioner or even the stockholders claim
that their corporation is in good faith to be a corporation.
Another reason is that the corporation is not a party to the present suit. The
case is between the stockholders for the purpose of alleged corporations
dissolution.
The alleged corporation clearly being not a de facto corporation holds valid
the jurisdiction of the court as exercised by respondent judge.
The petition is dismissed.

14.

Asia Banking Corp vs. Standard, 46 Phil 145

FACTS:
Plaintiff-appellee filed a complaint for sum of money against defendantappelant as evidenced by a promissory note executed by the latter. Trial court
rendered decision in favor of plaintiff-appellee.
During the trial, defendant-appellant alleges that plaintiff-appellee failed to
prove affirmatively the corporate existence of the parties and assigns the same
error to the trial court. The defendant-appellant reiterates this in its appeal.
ISSUE:
Whether or not the court erred in finding that the parties were corporations.
DECISION:
As derived from acts of defendant-appellant such as making a promissory
note in favor of plaintiff-appellee and making partial payments to the same clearly
signifies recognition of the latters corporate existence.
By dealing with plaintiff-appellee, the defendant-appellant is estopped from
denying its corporate existence.

15.

Lim Tong Lim vs. Philippine Fishing, 317 SCRA 728

FACTS:
On behalf of Ocean Quest Fishing Corporation, Antonio Chua and Peter Yao
entered into Contract with Philippine Fishing Gear Industries, Inc. (herein
respondent) for purchase of fishing nets of various sizes amounting to P532,045.00
and four hundred floats worth P68,000.00. Chua and Yao represent themselves that
they were engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement.
Yao and Chua admitted liability while Lim filed his answer. Trial court
rendered decision ruling that Philippine Fishing Gear Industries was entitled to the
Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly
liable to pay respondent.
ISSUE:
Whether or not Lim should be made jointly liable with Yao and Chua.
DECISION:
Petitioner contests that he should not be held liable since his name does not
appear in any of the contracts and never directly transacted with the respondent
corporation. However, petitioner was benefited from the use of the nets found on a
boat proven to be owned by the partnership. It is clear from the findings of the RTC
and CA that Chua, Yao and Lim decided to form a corporation but for unknown
reasons it was not legally formed, however, this does not preclude the liabilities of
the three as contracting parties in representation of it. Under the law on estoppels,
those acting on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners. Eventhough, petitioner
Lim did not act directly on behalf of the corporation, he has reaped the benefits of
the contract entered into by persons with whom he previously had an existing
relationship, he is deemed part of said associations and is therefore covered by the
scope of the doctrine of corporation by estoppels.
Moreover, it is clear that the partnership extended not only to the purchase of
the boat, but also to that of the nets and the floats. The fishing nets and the floats,
both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the
boat but not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.

16.

People vs. Garcia, 271 SCRA 621

FACTS:
Respondents are the accused in a criminal case for illegal recruitment
decided by the RTC of Mandaluyong. Six of the sixteen complainants in the criminal
case testified as witnesses. They testified that on various dates in March 1992, they
went to Ricorn Philippine International Shipping Lines, Inc., to apply as seamen,
cook, waiter, chambermaid or laundrywoman overseas. They passed requirements
for application, paid the processing fee, and were issued receipts under Ricorn's
heading.
When the complainants returned to check on their applications, they
discovered that Ricorn had abandoned its office at Jovan Building for non-payment
of rentals. They went back to the building several times to recover their money but
to no avail. Garcia and Botero were also nowhere to be found. Thus they filed their
complaints. They also found out with the Securities and Exchange Commission that
Ricorn was not yet incorporated and was not licensed by the Department of Labor
and Employment (DOLE) to engage in recruitment activities.
After trial, accused Garcia and Botero were convicted. Only accused Botero,
thru counsel, filed a Notice of Appeal.
ISSUE:
Whether or not Botero shall be solidarily liable with the illegal acts of Ricorn.
DECISION:
Since the Ricorn engaged in the recruitment of workers despite lacking a
POEA license, Botero should suffer the consequences of Ricorn's illegal act for if 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. Albeit Ricorn is not a duly incorporated corporation,
Botera cannot avoid his liabilities to the public for he held himself out as an
incorporator and officer 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."

17.

NTC vs. CA 311 SCRA 508

FACTS:
Instant petition is for Review on Certiorari under Rule 45 of the Revised Rules
of Court seeking to modify the decision and resolution of the CA in CA-G.R. SP No.
34063 between the NTC and PLDT.
Sometime in 1988, the National Telecommunications Commission served on
the Philippine Long Distance Telephone Company various assessment notices and
demands for payment. These are the amount of P7,495,161.00 as supervision and
regulation fee under Section 40 (e) of the PSA for the said year, 1988, computed at
P0.50 per P100.00 of the PLDTs outstanding capital stock as at December 31, 1987
which then consisted of Serial Preferred Stock amounting to P1,277,934,390.00 and
Common Stock of P221,097,785 or a total of P1,499,032,175.00; the amount of
P9.0 Million as permit fee under Section 40 (f) of the PSA for the approval of the
protestant's increase of its authorized capital stock from P2.7 Billion to P4.5 Billion;
the amounts of P12,261,600.00 and P33,472,030.00 as permit fees under Section
40 (g) of the PSA in connection with the Commission's decisions in NTC Cases Nos.
86-13 and 87-008 respectively, approving the PLDTs equity participation in the
Fiber Optic Interpacific Cable systems and X-5 Service Improvement and Expansion
Program.
PLDT protested these assessments and alleged that they were being made to
raise revenues and not as mere reimbursements for ctual regulatory expenses in
violation of the doctrine in PLDT vs. PSC, 66 SCRA 341. Further that, the
assessments should only have been on the basis of the par values of private
respondent's outstanding capital stock. Moreover, that petitioner has no authority to
compel private respondent's payment of the assessed fees under Section 40 (f) for
the increase of its authorized capital stock since petitioner did not render any
supervisory or regulatory activity and incurred no expenses in relation thereto.
NTC denied PLDTs protest. The latter interposed a Motion for Reconsideration
but is likewise denied. Upon appeal, NTCs decision was modified hence this instant
petition.
ISSUE:

Whether the the computation of supervision and regulation fees under

section 40 (f) of the public service act should be based on the par value of the
subscribed capital stock.

DECISION:

As decided by this Court in the case of Philippine Long Distance Telephone

Company vs. Public Service Commission, 66 SCRA 341, that the basis for
computation of the fee to be charged by NTC on PLDT, is "the capital stock
subscribed or paid and not, alternatively, the property and equipment."
Capital refers to the value of the property or assets of a corporation. The
capital subscribed is the total amount of the capital that subscribers or shareholders
have agreed to take and pay for, equivalent or can be more than the par value of
the shares. Briefly, it is the amount that the corporation receives, inclusive of the
premiums if any, in consideration of the original issuance of the shares.
The "Trust Fund" doctrine considers this subscribed capital as a trust fund for
the payment of the debts of the corporation, to which the creditors may look for
satisfaction. Until the liquidation of the corporation, no part of the subscribed
capital may be returned or released to the stockholder without violating this
principle.
Reiterating the aforesaid ruling of this Court in the case of Philippine Long
Distance Telephone Company vs. Public Service Commission, the proper basis for
the computation of subject fee under Section 40(e) of the Public Service Act, as
amended by Republic Act No. 3792, is "the capital stock subscribed or paid and not,
alternatively, the property and equipment.

18.

Ong Yong vs. Tiu, 401 SCRA 1

FACTS:
In 1994, the construction of the Masagana Citimall in Pasay City was
threatened with stoppage and incompletion when its owner, the First Landlink Asia
Development Corporation (FLADC), which was owned by the Tius, encountered dire
financial difficulties. It was heavily indebted to the Philippine National Bank (PNB)
for P190 million. To stave off foreclosure of the mortgage on the two lots where the
mall was being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong,
Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC.
Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius
agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to
1,000,000 shares at a par value of P100.00 each while the Tius were to subscribe
to an additional 549,800 shares at P100.00 each in addition to their already
existing subscription of 450,200 shares. Furthermore, they agreed that the Tius
were entitled to nominate the Vice-President and the Treasurer plus five directors
while the Ongs were entitled to nominate the President, the Secretary and six
directors (including the chairman) to the board of directors of FLADC. Moreover, the
Ongs were given the right to manage and operate the mall.
Accordingly, the Ongs paid P100 million in cash for their subscription to
1,000,000 shares of stock while the Tius committed to contribute to FLADC a fourstorey building and two parcels of land respectively valued at P20 million (for
200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for 49,800
shares) to cover their additional 549,800 stock subscription therein. The Ongs paid
in another P70 million to FLADC and P20 million to the Tius over and above their
P100 million investment, the total sum of which (P190 million) was used to settle
the P190 million mortgage indebtedness of FLADC to PNB.
The business harmony between the Ongs and the Tius in FLADC, however,
was shortlived because the Tius, on February 23, 1996, rescinded the PreSubscription Agreement. The Tius accused the Ongs of (1) refusing to credit to
them the FLADC shares covering their real property contributions; (2) preventing
David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their
duties as Vice-President and Treasurer, respectively, and (3) refusing to give them
the office spaces agreed upon.
The controversy was elevated to the Securities and Exchange Commission
(SEC) where then Hearing Officer Rolando G. Andaya issued a decision affirming the
rescission. Both parties appealed the decision to the SEC en banc. Unsatisfied with

the decision appeal to the Court of Appeals was made and then a petition for review
with the Supreme Court.
The Court also affirmed that both parties have violated their respective obligations
under the Pre-Subscription Agreement.
Tius filed before this Court a Motion for Issuance of a Writ of Execution,
while the Ongs filed a Motion for Reconsideration.
ISSUES:
Whether or not the Tius has the right to rescind the Pre-Subscription
Agreement.
DECISION:
Granting but not conceding that the Tius possess the legal standing to sue for
rescission based on breach of contract, said action will nevertheless still not prosper
since rescission will violate the Trust Fund Doctrine and the procedures for the valid
distribution of assets and property under the Corporation Code
In the instant case, the rescission of the Pre-Subscription Agreement will
effectively result in the unauthorized distribution of the capital assets and property
of the corporation, thereby violating the Trust Fund Doctrine and the Corporation
Code, since rescission of a subscription agreement is not one of the instances when
distribution of capital assets and property of the corporation is allowed.
Rescission will, in the final analysis, result in the premature liquidation of the
corporation without the benefit of prior dissolution in accordance with Sections 117,
118, 119 and 120 of the Corporation Code.

19.

Turner vs. Lorenzo, 636 SCRA 13

FACTS:
Philip Turner and Elnora Turner, petitioners in this case, are holders of
1,010,000 shares of stock of Lorenzo Shipping Corporation, respondent, a domestic
corporation engaged primarily in cargo shipping activities. In June 1999, the
respondent corporation decided to amend it articles of incorporation to remove the
stockholders pre-emptive right to newly issued shares of stocks. The petitioners
voted against the amendment and demanded payment of their shares at the rate of
P2.276/share based on the book value of the shares or a total of P2,298,760.00.
The respondent insist that the market value on the date before the action to
remove the pre-emptive right was taken should be the value or P0.41/share
totaling to P414,100.00 as the shares were listed in the Philippine Stock Exchange.
As the parties disagree as to the valuation of the shares, an appraisal committee
was constituted pursuant to Section 82 of the Corporation Code and the appraisal
committee came up with value of P2.54/share.
Petitioners demanded payment based on the appraisal committees valuation
plus 2%/month penalty from the date of their original demand. The respondents
refused to pay for the reason that under the Corporation Code, the dissenting
stockholders exercising their appraisal rights could only be paid only when the
corporation has unrestricted retained earnings to cover the fair value of the shares
but it had no retained earnings at the time of the petitioners demand. Petitioners
sued the respondent for collection and damages in the RTC where it granted the
petitioners motion.
Respondent filed a special civil action for certiorari on the Court of Appeals.
The decision of the CA was that the on the time when the complaint was filed the
petitioners have no right of actions since the company has no unrestricted retained
earnings, therefore the RTC judge has abused its discretion when it entertained the
complaint issued the assailed orders. The decision of the RTC was reversed. Hence,
this petition for review.
ISSUES:
Whether or not the petitioners have the right to demand payment of their
shares when the corporation has no unrestricted retained earnings.
DECISION:

A stockholder who dissents from certain corporate actions has the right to
demand payment of the fair value of his or her shares. This right, known as the
right of appraisal, is expressly recognized in Section 81 of the Corporation Code.
However, a corporation can purchase its own shares, provided payment is
made out of surplus profits and the acquisition is for legitimate corporate purposes.
Section 41 of the Corporation Code expressly provides for the procedure on
how a corporation can reacquire its shares, to wit:
Therefore as explicitly stated in the Corporation Code, no payment shall be
made to any dissenting stockholder unless the corporation has unrestricted retained
earnings in its books to cover the payment. In case the corporation has no available
unrestricted retained earnings in its books, Section 83 of the Corporation
Code provides that if the dissenting stockholder is not paid the value of his shares
within 30 days after the award, his voting and dividend rights shall immediately be
restored. The Trust Fund Doctrine also restricts the distribution of a corporations
share to its stockholders. Under the doctrine, the capital stock, property, and other
assets of a corporation are regarded as equity in trust for the payment of corporate
creditors, who are preferred in the distribution of corporate assets. The creditors of
a corporation have the right to assume that the board of directors will not use the
assets of the corporation to purchase its own stock for as long as the corporation
has outstanding debts and liabilities. There can be no distribution of assets among
the stockholders without first paying corporate debts. Thus, any disposition of
corporate funds and assets to the prejudice of creditors is null and void.

20.

Nautica vs. Yumul, 473 SCRA 415

FACTS:
Respondent is the Chief Operating Officer/General Manager of Nautica. He
was granted an Option to Purchase[5] up to 15% of the total stocks it subscribed
from Nautica. On June 22, 1995, a Deed of Trust and Assignment[6] was executed
between First Dominion Prime Holdings, Inc. and Yumul whereby the former
assigned 14,999 of its subscribed shares in Nautica to the latter. The deed stated
that the 14,999 "shares were acquired and paid for in the name of the ASSIGNOR
only for convenience, but actually executed in behalf of and in trust for the
ASSIGNEE."
The following year, Nautica declared a P35,000,000 cash dividend,
P8,250,000 of which was paid to Yumul representing his 15% share.
Upon respondents resignation, he wrote a letter to Dee requesting the latter
to formalize his offer to buy Yumul's 15% share in Nautica on or before August 20,
1996; and demanding the issuance of the corresponding certificate of shares in his
name should Dee refuse to buy the same. Deedenied the request claiming that
Yumul was not a stockholder of Nautica. Respondent then requested that the Deed
of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica, and
that he, as a stockholder, be allowed to inspect its books and records.
His requests were denied allegedly because he neither exercised the option to
purchase the shares nor paid for the acquisition price of the 14,999 shares and that
the cash dividend received by him is only held in trust for First Dominion Prime
Holdings, Inc.
This led respondent to file a a petition for mandamus with damages, with
prayer that the Deed of Trust and Assignment be recorded in the Stock and Transfer
Book of Nautica and that the certificate of stocks corresponding thereto be issued in
his name.
The SEC decided in favor of respondent. Upon appeal, the CA affirmed in
toto. Hence, petitioner corporation is assailing decision of appellate court through
this petition.
ISSUE:
Whether or not respondent is a stockholder of petitioner corporation
DECISION:
Surely, it is possible for a business to be completely controlled by one
individual. The validity of its incorporation is not impacted when such individual
gives apparent obligation regarding one offer of stock to each of the other four

incorporators. This is not necessarily illegal. But, this is just binding between or
among the incorporators aware of the agreement. It does not bind the corporation
which, at the time the agreement is made, was non-existent. Along these lines,
incorporators continue being stockholders of unless, following the incorporation,
they have trasnferred their subscriptions to the real interested partie. As between
the corporation and its shareholders and third persons on the other, the corporation
just needs to look into its books to determine who its shareholders are.
The SEC and the Court of Appeals are correct to state that Yumul is a
stockholder of Nautica, of one stock recorded in Yumul's name, albeit supposedly
held in trust for Dee. Nautica's Articles of Incorporation and By-laws, and in
addition the General Information Sheet filed with the SEC presents that Yumul was
an incorporator and incorporator of one share. Conceding that there was an
agreement between Yumul and Dee whereby the previous is holding the stock in
trust for Dee, the same is binding just between them.
In the eyes of the corporation, Yumul was the holder of one share of stock.
As indicated by the SEC, he has the privilege to examine the books and records of
Nautica as per Section 74 of BP Blg. 68 which expresses that the records of all
business transactions of the organization and the minutes of any meetings shall be
reviewed by any interested director, trustee, stockholder or member of the
corporation.

21.

Industrial Refractories vs. CA 390 SCRA 252

FACTS:
Both Petitioner and Respondent corporation are engaged in the business of
supplying monolithic gunning mix. Respondent filed on April 14, 1988 with the SEC
a petition to compel petitioner to change its corporate name on the ground that it is
confusingly similar with that of respondent so as that the public may not be
confused into believing that they are one and the same.
SEC decided in favor of respondent. Petitioner aggrieved, appealed to the
SEC en banc contending that the latter does not have jurisdiction over the case and
that respondent has no exclusive right over the use of the corporate name which is
composed of generic or common words.
SEC en banc modified the decision and ordered petitioner to drop the word
Refractories from its corporate name.
Petitioner then elevated decision on appeal. CA upheld the jurisdiction of the
SEC and that respondent had prior right over the use of the corporate name. Thus,
this petition to assail the CAs decision.
ISSUE:
Whether or not the SEC has jurisdiction over the case at bar.
DECISION:
As enclosed in Sec. 18 of the Corporation Code, It is the SEC's obligation to
prevent confusion in the use of corporate names not just for the security of the
corporations involved however all the more so for the protection of the public, and
it has power to de-register at all times and under all circumstances corporate
names which in its estimation are prone to produce confusion. Clearly along these
lines, the present case falls inside the jurisdiction of the SEC's regulatory powers.
Section 18 of the Corporation Code expressly prohibits the use of a corporate
name which is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws. The policy behind the foregoing prohibition
is to avoid fraud upon the public that will have occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the reduction of
difficulties of administration and supervision over corporation.

22.

Gala vs. Ellice Agro, 418 SCRA 431

FACTS:
The spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia
Gala, Raul Gala, and Rita Benson, together with Virgilio Galeon and Julian Jader
formed the Ellice Agro-Industrial Corporation.
The Gala children Guia Domingo, Ofelia Gala, Raul Gala, together again with
Virgilio Galeon and Julian Jader formed the Margo Management and Development
Corporation (Margo).
Margo then held a special stockholders' meeting where a new board of
directors was elected. That same day, the newly-elected board elected a new set of
officers. Raul Gala was elected as chairman, president and general manager.
During the meeting, the board approved several actions, including the
commencement of proceedings to annul certain dispositions of Margo's property
made by Alicia Gala.
The board also resolved to change the name of the
corporation to MRG Management and Development Corporation.
Similarly, a special stockholders' meeting of Ellice was held on August 24,
1990 to elect a new board of directors. In the ensuing organizational meeting later
that day, a new set of corporate officers was elected. Likewise, Raul Gala was
elected as chairman, president and general manager.
Respondents filed against petitioners with the SEC a petition for the
appointment of a management committee or receiver, accounting and restitution by
the directors and officers, and the dissolution of Ellice Agro-Industrial Corporation
for alleged mismanagement, diversion of funds, financial losses and the dissipation
of assets, docketed as SEC Case No. 3747.
Thus, petitioners initiated a complaint against the respondents on June 26,
1991, docketed as SEC Case No. 4027, praying for, among others, the nullification
of the elections of directors and officers of both Margo Management and
Development Corporation and Ellice Industrial Corporation; the nullification of all
board resolutions issued by Margo from June 23, 1990 up to the present and all
board resolutions issued by Ellice from August 24, 1990 up to the present; and the
return of all titles to real property in the name of Margo and Ellice, as well as all
corporate papers and records of both Margo and Ellice which are in the possession
and control of the respondents.
The two cases were consolidated. SEC dismissed respondents case and
issued orders in favor of petitioners case. Upon appeal, the SEC en banc reversed
and set aside the decision. Hence, this instant petition.

ISSUE
Whether or not the lower court erred in not piercing the veils of corporate
fiction of Respondent Corporations?
DECISION:
The petitioners pray that the veil of corporate fiction that shroud both Ellice
and Margo be pierced, consistent with their earlier allegation that both corporations
were formed for purposes contrary to law and public policy. In sum, they submit
that the respondent corporations are mere business conduits of the deceased
Manuel Gala and thus may be disregarded to prevent injustice, the distortion or
hiding of the truth or the "letting in" of a just defense.
However, to warrant resort to the extraordinary remedy of piercing the veil of
corporate fiction, there must be proof that the corporation is being used as a cloak
or cover for fraud or illegality, or to work injustice, [47] and the petitioners have
failed to prove that Ellice and Margo were being used thus. They have not
presented any evidence to show how the separate juridical entities of Ellice and
Margo were used by the respondents to commit fraudulent, illegal or unjust acts.
Hence, this contention, too, must fail.
It is always sad to see families torn apart by money matters and property
disputes. The concept of a close corporation organized for the purpose of running a
family business or managing family property has formed the backbone of Philippine
commerce and industry. Through this device, Filipino families have been able to
turn their humble, hard-earned life savings into going concerns capable of providing
them and their families with a modicum of material comfort and financial security
as a reward for years of hard work. A family corporation should serve as a rallying
point for family unity and prosperity, not as a flashpoint for familial strife. It is
hoped that people reacquaint themselves with the concepts of mutual aid and
security that are the original driving forces behind the formation of family
corporations and use these tenets in order to facilitate more civil, if not more
amicable, settlements of family corporate disputes.

23.

Hyatt vs. Goldstar, 473 SCRA 705

FACTS:
Petitioner filed a Complaint for unfair trade practices and damages under
Articles 19, 20 and 21 of the Civil Code of the Philippines against LG Industrial
Systems Co. Ltd. and LG International Corporation, alleging among others, that: in
1988, it was appointed by LGIC and LGISC as the exclusive distributor of LG
elevators and escalators in the Philippines under a "Distributorship Agreement".
That LGISC, in the latter part of 1996, made a proposal to change the exclusive
distributorship agency to that of a joint venture partnership. However, the various
meetings it had with LGISC and LGIC, through the latter's representatives, were
conducted in utmost bad faith and with malevolent intentions; in the middle of the
negotiations, in order to put pressures upon it, LGISC and LGIC terminated the
Exclusive Distributorship Agreement. As a consequence, Petitioner suffered
P120,000,000.00 as actual damages, representing loss of earnings and business
opportunities, P20,000,000.00 as damages for its reputation and goodwill,
P1,000,000.00 as and by way of exemplary damages, and P500,000.00 as and by
way of attorney's fees.
Subsequently, petitioner filed a motion for leave of court to amend the
complaint, alleging that subsequent to the filing of the complaint, it learned that
LGISC transferred all its organization, assets and goodwill, as a consequence of a
joint venture agreement with Otis Elevator Company of the USA, to LG Otis Elevator
Company (LG OTIS, for brevity). Thus, LGISC was to be substituted or changed to
LG OTIS, its successor-in-interest. Likewise, the motion averred that respondent
GOLDSTAR was being utilized by LG OTIS and LGIC in perpetrating their unlawful
and unjustified acts against petitioner. Consequently, in order to afford complete
relief, GOLDSTAR was to be additionally impleaded as a party-defendant. Hence, in
the Amended Complaint, HYATT impleaded GOLDSTAR as a party-defendant, and all
references to LGISC were correspondingly replaced with LG OTIS.
GOLDSTAR then filed a Motion to Dismiss the amended complaint, raising the
following grounds: (1) the venue was improperly laid, as neither HYATT nor
defendants reside in Mandaluyong City, where the original case was filed; and (2)
failure to state a cause of action against respondent, since the amended complaint
fails to allege with certainty what specific ultimate acts Goldstar performed in
violation of Hyatt's rights. The trial court denied the motion to dismiss.

GOLDSTAR filed a motion for reconsideration thereto but to no avail. On

appeal, The CA ruled that the trial court had committed palpable error amounting to
grave abuse of discretion when the latter denied respondent's Motion to Dismiss.
The appellate court held that the venue was clearly improper, because none of the
litigants "resided" in Mandaluyong City, where the case was filed.
According to the appellate court, since Makati was the principal place of business of
both respondent and petitioner, as stated in the latter's Articles of Incorporation,
that place was controlling for purposes of determining the proper venue. The fact
that petitioner had abandoned its principal office in Makati years prior to the filing
of the original case did not affect the venue where personal actions could be
commenced and tried.
ISSUE:
Whether or not the Court of Appeals, in reversing the ruling of the Regional
Trial Court, erred in holding that in the light of the peculiar facts of this case, venue
was improper.
DECISION:
Residence is the permanent home -- the place to which, whenever absent for
business or pleasure, one intends to return. Residence is vital when dealing with
venue. A corporation, however, has no residence in the same sense in which this
term is applied to a natural person. This is precisely the reason why the Court
in Young Auto Supply Company v. Court of Appeals ruled that "for practical
purposes, a corporation is in a metaphysical sense a resident of the place where its
principal office is located as stated in the articles of incorporation." Even before this
ruling, it has already been established that the residence of a corporation is the
place where its principal office is established.
Petitioner argues that the Rules of Court do not provide that when the
plaintiff is a corporation, the complaint should be filed in the location of its principal
office as indicated in its articles of incorporation. Jurisprudence has, however,
settled that the place where the principal office of a corporation is located, as stated
in the articles, indeed establishes its residence. This ruling is important in
determining the venue of an action by or against a corporation, as in the present
case.
Without merit is the argument of petitioner that the locality stated in its
Articles of Incorporation does not conclusively indicate that its principal office is still
in the same place. We agree with the appellate court in its observation that the
requirement to state in the articles the place where the principal office of the
corporation is to be located "is not a meaningless requirement. That proviso would
be rendered nugatory if corporations were to be allowed to simply disregard what is
expressly stated in their Articles of Incorporation.

24.

Lanuza vs. CA, 454 SCRA 54

FACTS:
The Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with
seven hundred founders shares and seventy-six common shares as its initial capital
stock subscription reflected in the articles of incorporation. However, private
respondents and their predecessors who were in control of PMMSI registered the
companys stock and transfer book for the first time in 1978, recording thirty-three
common shares as the only issued and outstanding shares of PMMSI. Sometime in
1979, a special stockholders meeting was called and held on the basis of what was
considered as a quorum of twenty-seven common shares, representing more than
two-thirds of the common shares issued and outstanding.
In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a
petition with the SEC for the registration of their property rights over one hundred
founders shares and twelve common shares owned by their father. The SEC
hearing officer held that the heirs of Acayan were entitled to the claimed shares and
called for a special stockholders meeting to elect a new set of officers. The SEC En
Banc affirmed the decision. As a result, the shares of Acayan were recorded in the
stock and transfer book.
In 1992, a special stockholders meeting was held to elect a new set of
directors. Private respondents thereafter filed a petition with the SEC questioning
the validity of the latter stockholders meeting, alleging that the quorum for the
said meeting should not be based on the 165 issued and outstanding shares as per
the stock and transfer book, but on the initial subscribed capital stock of seven
hundred seventy-six shares, as reflected in the 1952 Articles of Incorporation.
The petition was dismissed. Appeal was made to the SEC En Banc, which
granted said appeal, holding that the shares of the deceased incorporators should
be duly represented by their respective administrators or heirs concerned. The SEC
directed the
parties to call for a stockholders meeting on the basis of the
stockholdings reflected in the articles of incorporation for the purpose of electing a
new set of officers for the corporation.
The consolidated petitions essentially raised the following issues, viz:
(a)
whether the basis the outstanding capital stock and accordingly also for
determining the quorum at stockholders meetings it should be the 1978 stock and
transfer book or if it should be the 1952 articles of incorporation; and (b) whether
the Court of Appeals gravely erred in applying the Espejo Decision to the benefit of
respondents. The Espejo Decision is the decision of the SEC en banc in SEC Case
No. 2289 which ordered the recording of the shares of Jose Acayan in the stock
and transfer book.

The Court of Appeals held that for purposes of transacting business, the
quorum should be based on the outstanding capital stock as found in the articles of
incorporation.
Hence in the instant petition, petitioners claim that the 1992 stockholders
meeting was valid and legal. They submit that reliance on the 1952 articles of
incorporation for determining the quorum negates the existence and validity of the
stock and transfer book which private respondents themselves prepared. In
addition, they posit that private respondents cannot avail of the benefits secured by
the heirs of Acayan, as private respondents must show and prove entitlement to the
founders and common shares in a separate and independent action/proceeding.
ISSUE:
Whether or not it is the companys stock and transfer book, or its 1952
Articles of Incorporation, which determines stockholders shareholdings, and
provides the basis for computing the quorum.
DECISION:
The articles of incorporation has been described as one that defines the
charter of the corporation and the contractual relationships between the State and
the corporation, the stockholders and the State, and between the corporation and
its stockholders.
To base the computation of quorum solely on the obviously deficient, if not
inaccurate stock and transfer book, and completely disregarding the issued and
outstanding shares as indicated in the articles of incorporation would work injustice
to the owners and/or successors in interest of the said shares. This case is one
instance where resort to documents other than the stock and transfer books is
necessary. The stock and transfer book of PMMSI cannot be used as the sole basis
for determining the quorum as it does not reflect the totality of shares which have
been subscribed, more so when the articles of incorporation show a significantly
larger amount of shares issued and outstanding as compared to that listed in the
stock and transfer book.
This is precisely the reason why the Stock and Transfer Book was not given
probative value.
At the time the corporation was set-up, there were already seven hundred seventysix (776) issued and outstanding shares as reflected in the articles of
incorporation. No proof was adduced as to any transaction effected on these shares
from the time PMMSI was incorporated up to the time the instant petition was filed,
except for the thirty-three (33) shares which were recorded in the stock and
transfer book in 1978, and the additional one hundred thirty-two (132) in 1982.
But obviously, the shares so ordered recorded in the stock and transfer book are
among the shares reflected in the articles of incorporation as the shares subscribed
to by the incorporators named therein.

25.

Hornilla vs. Salunat, 405 SCRA 220

FACTS:
Complainants filed an administrative complaint with the Integrated Bar of the
Philippines Commission on Bar Discipline, against respondent for illegal and
unethical practice and conflict of interest. They alleged that respondent is a
member of the ASSA Law and Associates, which was the retained counsel of the
Philippine Public School Teachers Association. Respondent's brother, Aurelio S.
Salunat, was a member of the PPSTA Board which approved respondent's
engagement as retained counsel of PPSTA.
Complainants, who are members of the PPSTA, filed an intra-corporate case
against its members of the Board of Directors for the terms 1992-1995 and 19951997 before the Securities and Exchange Commission, which was docketed as SEC
Case No. 05-97-5657, and a complaint before the Office of the Ombudsman,
docketed as OMB Case No. 0-97-0695, for unlawful spending and the undervalued
sale of real property of the PPSTA. Respondent entered his appearance as counsel
for the PPSTA Board members in the said cases. Complainants contend that
respondent was guilty of conflict of interest because he was engaged by the PPSTA,
of which complainants were members, and was being paid out of its corporate
funds where complainants have contributed. Despite being told by PPSTA members
of the said conflict of interest, respondent refused to withdraw his appearance in
the said cases.
In his answer, respondent stressed that he entered his appearance as counsel
for the PPSTA Board Members for and in behalf of the ASSA Law and Associates. As
a partner in the said law firm, he only filed a "Manifestation of Extreme Urgency" in
OMB Case No. 0-97-0695.[4] On the other hand, SEC Case No. 05-97-5657 was
handled by another partner of the firm, Atty. Agustin V. Agustin. Respondent claims
that it was complainant Atty. Ricafort who instigated, orchestrated and
indiscriminately filed the said cases against members of the PPSTA and its Board.
After investigation, Commissioner Lydia A. Navarro recommended that
respondent be suspended from the practice of law for six months. The Board of
Governors thereafter adopted Resolution No. XV-3003-230 dated June 29, 2002,
approving the report and recommendation of the Investigating Commissioner.
Respondent filed with this Court a Motion for Reconsideration of the above
Resolution of the IBP Board of Governors.
ISSUE:
Whether or not a lawyer can be engaged by a corporation defend members of
the board of the same corporation in a derivative suit?
DECISION:
In this jurisdiction, a corporation's board of directors is understood to be that
body which (1) exercises all powers provided for under the Corporation Code; (2)
conducts all business of the corporation; and (3) controls and holds all property of

the corporation. Its members have been characterized as trustees or directors

clothed with a fiduciary character. It is clearly separate and distinct from the
corporate entity itself.
Where corporate directors have committed a breach of trust either by their
frauds, ultra vires acts, or negligence, and the corporation is unable or unwilling to
institute suit to remedy the wrong, a stockholder may sue on behalf of himself and
other stockholders and for the benefit of the corporation, to bring about a redress
of the wrong done directly to the corporation and indirectly to the
stockholders. This is what is known as a derivative suit, and settled is the doctrine
that in a derivative suit, the corporation is the real party in interest while the
stockholder filing suit for the corporation's behalf is only nominal party. The
corporation should be included as a party in the suit.
In the case at bar, the records show that SEC Case No. 05-97-5657, entitled
"Philippine Public School Teacher's Assn., Inc., et al. v. 1992-1995 Board of
Directors of the Philippine Public School Teacher's Assn. (PPSTA), et al.," was filed
by the PPSTA against its own Board of Directors. Respondent admits that the ASSA
Law Firm, of which he is the Managing Partner, was the retained counsel of PPSTA.
Yet, he appeared as counsel of record for the respondent Board of Directors in the
said case. Clearly, respondent was guilty of conflict of interest when he represented
the parties against whom his other client, the PPSTA, filed suit.
Therefore, respondent is guilty of representing conflicting interests.

26.

Manila Metal vs. PNB, 511 SCRA 444

FACTS:
Petitioner was the owner of a 8,015 square meter parcel of land located in
Mandaluyong City. To secure a P900,000.00 loan it had obtained from respondent
PNB, petitioner executed a real estate mortgage over the lot. Respondent PNB later
granted petitioner a new credit accommodation of P1,000,000.00; and, on
November 16, 1973, petitioner executed an Amendment of Real Estate Mortgage
over its property. On March 31, 1981, petitioner secured another loan of
P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00,
plus interests and other charges.
On August 5, 1982, respondent PNB filed a petition for extrajudicial
foreclosure of the real estate mortgage and sought to have the property sold at
public auction for P911,532.21, petitioner's outstanding obligation to respondent
PNB as of June 30, 1982, plus interests and attorney's fees.
The property was sold at public auction on September 28, 1982 where
respondent PNB was declared the winning bidder for P1,000,000.00.
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting
that it be granted an extension of time to redeem/repurchase the property.
However, Meanwhile, some PNB Pasay City Branch personnel informed petitioner
that as a matter of policy, the bank does not accept "partial redemption."
Meanwhile, the Special Assets Management Department (SAMD) had
prepared a statement of account, and as of June 25, 1984 petitioner's obligation
amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest,
advances of insurance premiums, advances on realty taxes, registration expenses,
miscellaneous expenses and publication cost. When apprised of the statement of
account, petitioner remitted P725,000.00 to respondent PNB as "deposit to
repurchase," and Official Receipt No. 978191 was issued to it.
Petitioner, however, did not agree to respondent PNB's proposal. Instead, it
wrote another letter dated December 12, 1984 requesting for a reconsideration.
Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated
its proposal that petitioner purchase the property for P2,660,000.00. PNB again
informed petitioner that it would return the deposit should petitioner desire to
withdraw its offer to purchase the property. On February 25, 1985, petitioner,
through counsel, requested that PNB reconsider its letter dated December 28,
1984. Petitioner declared that it had already agreed to the SAMD's offer to purchase
the property for P1,574,560.47, and that was why it had paid P725,000.00.
Petitioner warned respondent PNB that it would seek judicial recourse should PNB
insist on the position.
On June 4, 1985, respondent PNB informed petitioner that the PNB Board of
Directors had accepted petitioner's offer to purchase the property, but for
P1,931,389.53 in cash less the P725,000.00 already deposited with it.
Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It
maintained that respondent PNB had agreed to sell the property for P1,574,560.47,

and that since its P725,000.00 downpayment had been accepted, respondent PNB
was proscribed from increasing the purchase price of the property. Respondent PNB,
however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter
dated August 1, 1989.
On August 28, 1989, petitioner filed a complaint against respondent PNB for
"Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific
Performance with Damages." Petitioner later filed an amended complaint.
On May 31, 1994, the trial court rendered judgment dismissing the amended
complaint and respondent PNB's counterclaim. It ordered respondent PNB to refund
the P725,000.00 deposit petitioner had made. The trial court ruled that there was
no perfected contract of sale between the parties; hence, petitioner had no cause of
action for specific performance against respondent. The trial court declared that
respondent had rejected petitioner's offer to repurchase the property. Petitioner, in
turn, rejected the terms and conditions contained in the June 4, 1985 letter of the
SAMD. While petitioner had offered to repurchase the property per its letter of July
14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which
respondent PNB had demanded. It further declared that the P725,000.00 remitted
by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a
downpayment or earnest money.
On appeal, The CA rendered judgment on May 11, 2000 affirming the
decision of the RTC. It declared that petitioner obviously never agreed to the selling
price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on
insisting that the selling price should be lowered to P1,574,560.47. Clearly
therefore, there was no meeting of the minds between the parties as to the price or
consideration of the sale.
Petitioner filed a motion for reconsideration, which the CA likewise denied.
Thus, petitioner filed the instant petition for review on certiorari.
ISSUE:
Whether or not petitioner and respondent PNB had entered into a perfected
contract for petitioner to repurchase the property from respondent.
DECISION:
The statement of account prepared by the SAMD stating that the net claim of
respondent as of June 25, 1984 was P1,574,560.47 cannot be considered an
unqualified acceptance to petitioner's offer to purchase the property. The statement
is but a computation of the amount which petitioner was obliged to pay in case
respondent would later agree to sell the property, including interests, advances on
insurance premium, advances on realty taxes, publication cost, registration
expenses and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondent's Board of

Directors to accept petitioner's offer and sell the property for P1,574,560.47. Any

acceptance by the SAMD of petitioner's offer would not bind respondent. As this
Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:
Section 23 of the Corporation Code expressly provides that the corporate powers of
all corporations shall be exercised by the board of directors. Just as a natural
person may authorize another to do certain acts in his behalf, so may the board of
directors of a corporation validly delegate some of its functions to individual officers
or agents appointed by it. Thus, contracts or acts of a corporation must be made
either by the board of directors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the rule is that the declarations
of an individual director relating to the affairs of the corporation, but not in the
course of, or connected with the performance of authorized duties of such director,
are held not binding on the corporation.
Thus, a corporation can only execute its powers and transact its business
through its Board of Directors and through its officers and agents when authorized
by a board resolution or its by-laws.
In sum, then, there was no perfected contract of sale between petitioner and
respondent over the subject property.

27.

Woodchild vs. Roxas, 436 SCRA 235

FACTS:
The respondent Roxas Electric and Construction Company, Inc. (RECCI),
formerly the Roxas Electric and Construction Company, was the owner of two
parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer Certificate of
Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No. 78086. A
portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a dirt road
accessing to the Sumulong Highway, Antipolo, Rizal.
The respondents Board of Directors approved a resolution authorizing the
corporation, through its president, Roberto B. Roxas, to sell Lot No. 491-A-3-B-2
covered by TCT No. 78086, with an area of 7,213 square meters, at a price and
under such terms and conditions which he deemed most reasonable and
advantageous to the corporation; and to execute, sign and deliver the pertinent
sales documents and receive the proceeds of the sale for and on behalf of the
company.
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2
covered by TCT No. 78086 on which it planned to construct its warehouse building,
and a portion of the adjoining lot, Lot No. 491-A-3-B-1.
On July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as
President of WHI, as vendee, executed a contract to sell in which RECCI bound and
obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for
P7,213,000.
Later, WHI complained to Roberto Roxas that the vehicles of RECCI were
parked on a portion of the property over which WHI had been granted a right of
way. Roxas promised to look into the matter. Dy and Roxas discussed the need of
the WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT
No. 78085 as provided for in the deed of absolute sale. However, Roxas died soon
thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal
requests to purchase a portion of the said lot as provided for in the deed of
absolute sale, and complained about the latters failure to eject the squatters within
the
three-month
period
agreed
upon
in
the
said
deed.
The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof,
otherwise the appropriate action would be filed against it. RECCI rejected the
demand of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There
was no response from RECCI.
On June 17, 1992, the WHI filed a complaint against the RECCI with the
Regional Trial Court of Makati, for specific performance and damages.

On November 11, 1996, the trial court rendered judgment in favor of the
WHI. The RECCI appealed the decision to the CA, which rendered a decision on
November 9, 1999 reversing that of the trial court, and ordering the dismissal of
the complaint.
ISSUE:
Whether or not the respondent is bound by the provisions in the deed of
absolute sale granting to the petitioner beneficial use and a right of way over a
portion of Lot No. 491-A-3-B-1.
DECISION:
The petitioner avers that, under its Resolution of May 17, 1991, the
respondent authorized Roxas, then its president, to grant a right of way over a
portion of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the
respondent to buy a portion of the said property. The petitioner contends that when
the respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it
(respondent) was well aware of its obligation to provide the petitioner with a means
of ingress to or egress from the property to the Sumulong Highway, since the latter
had no adequate outlet to the public highway. The petitioner asserts that it agreed
to buy the property covered by TCT No. 78085 because of the grant by the
respondent of a right of way and an option in its favor to buy a portion of the
property covered by TCT No. 78085. It contends that the respondent never
objected to Roxas acceptance of its offer to purchase the property and the terms
and conditions therein; the respondent even allowed Roxas to execute the deed of
absolute sale in its behalf.
For its part, the respondent posits that Roxas was not so authorized under
the May 17, 1991 Resolution of its Board of Directors to impose a burden or to
grant a right of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less
convey a portion thereof to the petitioner. Hence, the respondent was not bound by
such provisions contained in the deed of absolute sale. Besides, the respondent
contends, the petitioner cannot enforce its right to buy a portion of the said
property since there was no agreement in the deed of absolute sale on the price
thereof as well as the specific portion and area to be purchased by the petitioner.
Generally, the acts of the corporate officers within the scope of their authority
are binding on the corporation. However, under Article 1910 of the New Civil Code,
acts done by such officers beyond the scope of their authority cannot bind the
corporation unless it has ratified such acts expressly or tacitly, or is estopped from
denying them.
As for any obligation wherein the agent has exceeded his power, the principal
is not bound except when he ratifies it expressly or tacitly.
Thus, contracts entered into by corporate officers beyond the scope of
authority are unenforceable against the corporation unless ratified by the
corporation.

28.

Filipinas Port vs. Go 518 SCRA 453

FACTS:
The case is actually an intra-corporate dispute involving Filport, a domestic
corporation engaged in stevedoring services with principal office in Davao City. It
was initially instituted with the Securities and Exchange Commission (SEC) where
the case hibernated and remained unresolved for several years until it was
overtaken by the enactment into law, on 19 July 2000, of Republic Act (R.A.) No.
8799, otherwise known as the Securities Regulation Code.
Petitioner Eliodoro C. Cruz, Filport's president from 1968 until he lost his bid
for reelection as Filport's president during the general stockholders' meeting in
1991, wrote a letter to the corporation's Board of Directors questioning the board's
creation of the certain positions with a monthly remuneration of P13,050.00 each,
and the election thereto of certain members of the board. In his aforesaid letter,
Cruz requested the board to take necessary action/actions to recover from those
elected to the aforementioned positions the salaries they have received.
On 15 September 1992, the board met and took up Cruz's letter. The records
do not show what specific action/actions the board had taken on the letter.
Evidently, whatever action/actions the board took did not sit well with Cruz.
On 14 June 1993, Cruz, purportedly in representation of Filport and its
stockholders, among which is herein co-petitioner Mindanao Terminal and
Brokerage Services, Inc. (Minterbro), filed with the SEC a petition which he
describes as a derivative suit against the herein respondents.
In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged
that despite demands made upon the respondent members of the board of directors
to desist from creating the positions in question and to account for the amounts
incurred in creating the same, the demands were unheeded. Cruz thus prayed that
the respondent members of the board of directors be made to pay Filport, jointly
and severally, the sums of money variedly representing the damages incurred as a
result of the creation of the offices/positions complained of and the aggregate
amount of the questioned increased salaries.
The respondents denied the allegations of mismanagement and further
averred that Cruz and his co-petitioner Minterbro, while admittedly stockholders of
Filport, have no authority nor standing to bring the so-called "derivative suit" for
and in behalf of the corporation; that respondent Mary Jean D. Co has already
ceased to be a corporate director and so with Fortunato V. de Castro, one of those
holding an assailed position; and that no demand to cease and desist from further
committing the acts complained of was made upon the board.
By way of affirmative defenses, respondents asserted that (1) the petition is
not duly verified by petitioner Filport which is the real party-in-interest; (2) Filport,
as represented by Cruz and Minterbro, failed to exhaust remedies for redress within
the corporation before bringing the suit; and (3) the petition does not show that the
stockholders bringing the suit are joined as nominal parties. In support of their
counterclaim, respondents averred that Cruz filed the alleged derivative suit in bad

faith and purely for harassment purposes on account of his non-reelection to the
board in the 1991 general stockholders' meeting.
RTC-Davao City rendered its decision against the respondents by ordering the
directors holding the positions of Assistant Vice President for Corporate Planning,
Special Assistant to the President and Special Assistant to the Board Chairman to
refund to the corporation the salaries they have received as such
officers "considering that Filipinas Port Services is not a big corporation requiring
multiple executive positions"and that said positions "were just created for
accommodation."
From the adverse decision of the trial court, herein respondents went on
appeal. CA granted the respondents' appeal, reversed and set aside the appealed
decision of the trial court and accordingly dismissed the so-called derivative suit
filed by Cruz.
Hence, petitioners' present recourse.
ISSUE:
Whether the CA erred in holding that Filport's Board of Directors acted within
its powers in creating the executive committee and the positions of AVPs for
Corporate Planning, Operations, Finance and Administration, and those of the
Special Assistants to the President and the Board Chairman, each with
corresponding remuneration, and in increasing the salaries of the positions of Board
Chairman, Vice-President, Treasurer and Assistant General Manager.
DECISION:
The governing body of a corporation is its board of directors. Section 23 of
the Corporation Code explicitly provides that unless otherwise provided therein, the
corporate powers of all corporations formed under the Code shall be exercised, all
business conducted and all property of the corporation shall be controlled and held
by a board of directors. Thus, with the exception only of some powers expressly
granted by law to stockholders (or members, in case of non-stock corporations),
the board of directors (or trustees, in case of non-stock corporations) has the sole
authority to determine policies, enter into contracts, and conduct the ordinary
business of the corporation within the scope of its charter, i.e., its articles of
incorporation, by-laws and relevant provisions of law. Verily, the authority of the
board of directors is restricted to the management of the regular business affairs of
the corporation, unless more extensive power is expressly conferred.
The raison d'etre behind the conferment of corporate powers on the board of
directors is not lost on the Court. Indeed, the concentration in the board of the
powers of control of corporate business and of appointment of corporate officers
and managers is necessary for efficiency in any large organization. Stockholders are
too numerous, scattered and unfamiliar with the business of a corporation to
conduct its business directly. And so the plan of corporate organization is for the
stockholders to choose the directors who shall control and supervise the conduct of
corporate
business.
In the present case, the board's creation of the positions of Assistant Vice

Presidents for Corporate Planning, Operations, Finance and Administration, and

those of the Special Assistants to the President and the Board Chairman, was in
accordance with the regular business operations of Filport as it is authorized to do
so by the corporation's by-laws, pursuant to the Corporation Code.
29.
Tan vs. Sycip, 499 SCRA 216
FACTS:
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit
educational corporation with fifteen regular members, who also constitute the board
of trustees. During the annual members' meeting held on April 6, 1998, there were
only eleven living member-trustees, as four had already died. Out of the eleven,
seven attended the meeting through their respective proxies. The meeting was
convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio
C. Pacis, who argued that there was no quorum. In the meeting, Petitioners Ernesto
Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four
deceased member-trustees.
When the controversy reached the Securities and Exchange Commission
(SEC), petitioners maintained that the deceased member-trustees should not be
counted in the computation of the quorum because, upon their death, members
automatically lost all their rights (including the right to vote) and interests in the
corporation.
Upon appeal, the CA dismissed the appeal of petitioners, because the
Verification and Certification of Non-Forum Shopping had been signed only by Atty.
Sabino Padilla Jr. No Special Power of Attorney had been attached to show his
authority to sign for the rest of the petitioners.
ISSUE:
Whether or not in NON-STOCK corporations, dead members should still be
counted in determination of quorum for purposed of conducting the Annual
Members' Meeting.
DECISION:
Membership in and all rights arising from a nonstock corporation are personal
and non-transferable, unless the articles of incorporation or the bylaws of the
corporation provide otherwise. In other words, the determination of whether or not
"dead members" are entitled to exercise their voting rights (through their executor
or administrator), depends on those articles of incorporation or bylaws.
Under the By-Laws of GCHS, membership in the corporation shall, among
others, be terminated by the death of the member. Section 91 of the Corporation
Code further provides that termination extinguishes all the rights of a member of
the corporation, unless otherwise provided in the articles of incorporation or the
bylaws.
Applying Section 91 to the present case, we hold that dead members who
are dropped from the membership roster in the manner and for the cause provided

for in the By-Laws of GCHS are not to be counted in determining the requisite vote
in corporate matters or the requisite quorum for the annual members' meeting.
With 11 remaining members, the quorum in the present case should be 6.
Therefore, there being a quorum, the annual members' meeting, conducted with six
members present, was valid.

30.

Estacio vs. Pampanga I 596 SGRA 542

FACTS:
Petitioner Estacio had been employed at respondent PELCO I as a bill
custodian since 1977, while petitioner Manliclic had been working for respondent
PELCO I as a bill collector since June 1992.
Respondent Engr. Allas filed administrative complaints against petitioners.
petitioners Estacio and Manliclic separately filed with the Board of Directors of
respondent PELCO I their memoranda of appeal.
The Board of Directors of respondent PELCO I subsequently passed two
resolutions, with essentially the same contents, i.e., Resolutions No. 38[19] dated 15
November 2002 and No. 39,[20] dated 25 November 2002, respectively. In said
Resolutions, the Board of Directors of respondent PELCO I reinstated petitioners to
their positions without loss of seniority, and ordered respondent Engr. Allas to pay
in full the salaries and other incentives accruing to petitioners after deducting the
first 15 days of their suspension.
Notwithstanding the approval of Resolutions No. 38 and No. 39, respondent
Engr. Allas refused to reinstate petitioners and proceeded to dismiss them from
service.
National Electrification Administration through Regional Director Alberto A.
Guiang issued another letter to the Board of Directors of respondent PELCO I dated
10 December 2002 stating that it was disapproving Resolution No. 39 issued by the
Board of Directors of respondent PELCO I granting the letter of appeal of
petitioners.
The foregoing events prompted petitioners to file with the NLRC, Regional
Arbitration Board (RAB)-III, City of San Fernando, Pampanga, their Complaints
against respondents for illegal dismissal and payment of backwages, 13 th month
pay, and other benefits.
In a Decision dated 30 April 2004, the Labor Arbiter ruled in favor of
respondents. Disgruntled with the Labor Arbiter's Decision, petitioners appealed to
the NLRC. NLRC ruled in favor of petitioners but upon appeal, CA decided for
respondents. Hence, this present petition.
ISSUE:
Whether or not the court of appeals acted in accordance with evidence on
record, applicable laws and jurisprudence when it ruled that resolutions nos. 38 and
39 granting the letters of appeal of estacio and manliclic and ordering their
reinstatement without loss of seniority rights and the payment of their backwages
invalid.
DECISION:
Petitioners have the knowledge and the means of knowledge of the truth as
to the facts in question. In issuing Resolutions No. 38 and No. 39, the Board of
Directors of respondent PELCO I relayed its initial determination that petitioners'
dismissal from service was harsh and drastic. These Resolutions merely expressed
the position of the Board of Directors of respondent PELCO I at the time of their

issuance. The subsequent passing of Board Resolution No. 53-06 by the same
Board of Directors of respondent PELCO I, explicitly conveyed a change of
mind, i.e., the Board now wanted to contest, through respondent Engr. Allas, the
finding
of
the
NLRC
that
petitioners
were
illegally
dismissed.
Also, Board Resolution No. 53-06 was unanimously passed by all the
directors of respondent PELCO I. There is no allegation, much less, evidence, of any
irregularity committed by the Board in the approval and issuance of said Board
Resolution. Hence, the Court cannot simply brush Board Resolution No. 53-06
aside. Questions of policy and of management are left to the honest decision of the
officers and directors of a corporation (or in this case, cooperative), and the courts
are without authority to substitute their judgment for the judgment of the board of
directors. The board is the business manager of the corporation, and so long as it
acts in good faith, its orders are not reviewable by the courts.

31.

Lipat vs. Pacific, 402 SCRA 339

FACTS:
The spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export
Trading" (BET), a single proprietorship with principal office at No. 814 Aurora
Boulevard, Cubao, Quezon City. BET was engaged in the manufacture of garments
for domestic and foreign consumption. The Lipats also owned the "Mystical
Fashions" in the United States.
Estelita Lipat executed on December 14, 1978, a special power of attorney
appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit
accommodations from respondent Pacific Banking Corporation (Pacific Bank). She
likewise authorized Teresita to execute mortgage contracts on properties owned or
co-owned by her as security for the obligations to be extended by Pacific Bank
including any extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney,
was able to secure for and in behalf of her mother, Mrs. Lipat and BET, a loan from
Pacific Bank amounting toP583,854.00 to buy fabrics to be manufactured by BET
and exported to Mystical Fashions in the United States. As security therefor, the
Lipat spouses, as represented by Teresita, executed a Real Estate Mortgage over
their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property
was likewise made to secure other additional or new loans, etc.
On September 5, 1979, BET was incorporated into a family corporation
named Belas Export Corporation (BEC) in order to facilitate the management of the
business. BEC was engaged in the business of manufacturing and exportation of all
kinds of garments of whatever kind and description [5] and utilized the same
machineries and equipment previously used by BET. Its incorporators and directors
included the Lipat spouses who owned a combined 300 shares out of the 420
shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives
and friends of the Lipats.[6]Estelita Lipat was named president of BEC, while Teresita
became the vice-president and general manager.
On September 5, 1979, BET was incorporated into a family corporation
named Belas Export Corporation (BEC) in order to facilitate the management of the
business. BEC was engaged in the business of manufacturing and exportation of all
kinds of garments of whatever kind and description [5] and utilized the same
machineries and equipment previously used by BET. Its incorporators and directors
included the Lipat spouses who owned a combined 300 shares out of the 420
shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives
and friends of the Lipats.[6]Estelita Lipat was named president of BEC, while Teresita
became the vice-president and general manager.
The promissory notes, export bills, and trust receipt eventually became due
and demandable. Unfortunately, BEC defaulted in its payments. After receipt of
Pacific Banks demand letters, Estelita Lipat went to the office of the banks
liquidator and asked for additional time to enable her to personally settle BECs

obligations. The bank acceded to her request but Estelita failed to fulfill her
promise.
Consequently, the real estate mortgage was foreclosed and after compliance
with the requirements of the law the mortgaged property was sold at public
auction. On January 31, 1989, a certificate of sale was issued to respondent
Eugenio D. Trinidad as the highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a
complaint for annulment of the real estate mortgage, extrajudicial foreclosure and
the certificate of sale issued over the property against Pacific Bank and Eugenio D.
Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152, alleged,
among others, that the promissory notes, trust receipt, and export bills were
all ultra vires acts of Teresita as they were executed without the requisite board
resolution of the Board of Directors of BEC. The Lipats also averred that assuming
said acts were valid and binding on BEC, the same were the corporations sole
obligation, it having a personality distinct and separate from spouses Lipat. It was
likewise pointed out that Teresitas authority to secure a loan from Pacific Bank was
specifically limited to Mrs. Lipats sole use and benefit and that the real estate
mortgage was executed to secure the Lipats and BETs P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that
petitioners Lipat cannot evade payments of the value of the promissory notes, trust
receipt, and export bills with their property because they and the BEC are one and
the same, the latter being a family corporation. Respondent Trinidad further
claimed that he was a buyer in good faith and for value and that petitioners are
estopped from denying BECs existence after holding themselves out as a
corporation.
After trial on the merits, the RTC dismissed the complaint. The Lipats timely
appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said
appeal, however, was dismissed by the appellate court for lack of merit.
The Lipats then moved for reconsideration, but this was denied by the
appellate court in its Resolution of February 23, 2000.
Hence this present petition.
ISSUE:
Whether or not BEC and BET are separate business entities, and thus the
Lipat Spouses can isolate themselves behind the corporate personality of BEC.
DECISION:
When the corporation is the mere alter ego or business conduit of a person,
the separate personality of the corporation may be disregarded. [12] This is
commonly referred to as the instrumentality rule or the alter ego doctrine, which
the courts have applied in disregarding the separate juridical personality of
corporations. Where one corporation is so organized and controlled and its affairs
are conducted so that it is, in fact, a mere instrumentality or adjunct of the other,
the fiction of the corporate entity of the instrumentality may be disregarded. The
control necessary to invoke the rule is not majority or even complete stock control
but such domination of finances, policies and practices that the controlled

corporation has, so to speak, no separate mind, will or existence of its own, and is
but a conduit for its principal.
the evidence on record demolishes, rather than buttresses, petitioners
contention that BET and BEC are separate business entities. (1) Estelita and Alfredo
Lipat are the owners and majority shareholders of BET and BEC, respectively; (2)
both firms were managed by their daughter, Teresita; (3) both firms were engaged
in the garment business, supplying products to Mystical Fashion, a U.S. firm
established by Estelita Lipat; (4) both firms held office in the same building owned
by the Lipats; (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of
Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds
were held by Estelita Lipat and the corporation itself had no visible assets; (8) the
board of directors of BEC was composed of the Burgos and Lipat family members;
(9) Estelita had full control over the activities of and decided business matters of
the corporation; and that (10) Estelita Lipat had benefited from the loans secured
from Pacific Bank to finance her business abroad and from the export bills secured
by BEC for the account of Mystical Fashion. It could not have been coincidental
that BET and BEC are so intertwined with each other in terms of ownership,
business purpose, and management. Apparently, BET and BEC are one and the
same and the latter is a conduit of and merely succeeded the
former. Petitioners attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific Bank is
precisely what the classical doctrine of piercing the veil of corporate entity seeks to
prevent and remedy.
BEC is a mere continuation and successor of BET, and petitioners cannot
evade their obligations in the mortgage contract secured under the name of BEC on
the pretext that it was signed for the benefit and under the name of BET. We are
thus constrained to rule that the Court of Appeals did not err when it applied the
instrumentality doctrine in piercing the corporate veil of BEC.

32.

Associated Bank vs. Pronstroller, 558 SCRA 113

FACTS:
On April 21, 1988, the spouses Eduardo and Ma. Pilar Vaca (spouses Vaca)
executed a Real Estate Mortgage (REM) in favor of the petitioner over their parcel of
residential land located at Quezon City. For failure of the spouses Vaca to pay their
obligation, the subject property was sold at public auction with the petitioner as the
highest bidder. The spouses Vaca, however, commenced an action for the
nullification of the real estate mortgage and the foreclosure sale.
During the pendency of the aforesaid cases, RespondentsRafael and Monaliza
Pronstroller offered to purchase the property for P7,500,000.00. Said offer was
made through Atty. Jose Soluta, Jr., petitioners Vice-President, Corporate Secretary
and a member of its Board of Directors. Petitioner accepted respondents offer
of P7.5 million. Consequently, respondents paid petitioner P750,000.00, or 10%
of the purchase price, as down payment.
On March 18, 1993, petitioner, through Atty. Soluta, and respondents,
executed a Letter-Agreement setting forth therein that respondents shall, within 90
days, deposit the balance of P6,750,000.00 under an escrow agreement.
On
July 14, 1993,respondents and Atty. Soluta, acting for the petitioner, executed
another Letter-Agreement allowing the former to pay the balance of the purchase
price upon receipt of a final order from this Court (in the Vaca case) and/or the
delivery of the property to them free from occupants.
In early 1994, Atty. Braulio Dayday became petitioners Assistant VicePresident and Head of the Documentation Section, while Atty. Soluta was relieved
of his responsibilities. Atty. Dayday reviewed petitioners records of its outstanding
accounts and discovered that respondents failed to deposit the balance of the
purchase price of the subject property. He, likewise, found that respondents
requested
for
an extension
of
time
within
which to pay. The said request was disapproved by
Asset Recovery and RemedialManagement Committee (ARRMC) on March 4, 1994 a
nd invoked the rescission or cancellation of the contract due to respondents breach
thereof.
Respondents went to the petitioners office, talked to Atty. Dayday and gave
him the Letter-Agreement of July 14, 1993 to show that they were granted an
extension. However, Atty. Dayday claimed that the letter was a mistake and that
Atty. Soluta was not authorized to give such extension.
On June 6, 1994, respondents proposed to pay the balance of the purchase
price as follows: P3,000,000.00 upon the approval of their proposal and
the balance after six (6)months. However, the proposal was disapproved by the
petitioners President. For failure of the parties to reach an agreement,

respondents, through their counsel, informed petitioner that they would

enforcing their agreement dated July 14, 1993. Petitioner countered that it was
aware of the existence of the July 14 agreement and that Atty. Soluta was
authorized to sign for and on behalf of the bank. It, likewise, reiterated
rescission of their previous agreement because of the breach committed
respondents.

be
not
not
the
by

On July 28, 1994, respondents commenced the instant suit by filing a

Complaint for Specific Performance before the RTC of Antipolo, Rizal. Respondents
prayed that petitioner be ordered to sell the subject property to them in accordance
with their letter-agreement of July 14, 1993. For its part, petitioner contended that
their contract had already been rescinded because of respondents failure to deposit
in escrow the balance of the purchase price within the stipulated period.
On November 14,1997,the trial court finally resolved thematter in favor of re
spondents. On appeal, the CA affirmed the RTC decision and upheld Atty. Solutas
authority to represent the petitioner. Petitioners motion for reconsideration was
denied on May 31, 2001.
Hence, the present petition.
ISSUE:
Whether or not the petitioner is bound by the July 14, 1993 LetterAgreement signed by Atty.Soluta under the doctrine of apparent authority?
DECISION:
The general rule is that, in the absence of authority from the board
of directors, no person, not even its officers, can validly bind a corporation. The
power and responsibility to decide whether the corporation should enter into
a contract that will bind the corporation is lodged in the board
of directors. However, just as a natural person may authorize another todo certain
acts for and on his behalf, the board may validly delegate some of its functions
and powers to officers, committees and agents.
The authority of such individuals to bind the corporation is generally
derived from law, corporate bylaws or authorization from the board, either
expressly or impliedly, by habit, custom, or acquiescence, in the general
course of business. The authority of a corporate officer or agent in dealing
with third persons may be actual or apparent. The doctrine of apparent
authority, with special reference to banks, had long been recognized in this
jurisdiction. Apparent authority is derived not merely from p r a c t i c e . I t s
existence may be ascertained through 1) the general manner in
w h i c h t h e corporation holds out an officer or agent as having the power
to act, or in other words, the apparent authority to act in general, with
which it clothes him; or 2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, within or beyond
the scope of his ordinary powers.

Accordingly, the authority to act for and to bind a corporation may be

presumed fromacts of recognition in other instances, wherein the power was
exercised without any objectionfrom its board or shareholders. Undoubtedly,
petitioner had previously allowed Atty. Solutato enter into the first agreement
without a board resolution expressly authorizing him; thus, ithad clothed him with
apparent authority to modify the same via the second letter-agreement.It is not the
quantity of similar acts which establishes apparent authority, but the vesting of
acorporate officer with the power to bind the corporation.

33.

Tan vs. Sycip, 499 SCRA 216

FACTS:
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit
educational corporation with fifteen regular members, who also constitute the board
of trustees. During the annual members' meeting held on April 6, 1998, there were
only eleven living member-trustees, as four had already died. Out of the eleven,
seven attended the meeting through their respective proxies. The meeting was
convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio
C. Pacis, who argued that there was no quorum. In the meeting, Petitioners Ernesto
Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four
deceased member-trustees.
When the controversy reached the Securities and Exchange Commission
(SEC), petitioners maintained that the deceased member-trustees should not be
counted in the computation of the quorum because, upon their death, members
automatically lost all their rights (including the right to vote) and interests in the
corporation.
Upon appeal, the CA dismissed the appeal of petitioners, because the
Verification and Certification of Non-Forum Shopping had been signed only by Atty.
Sabino Padilla Jr. No Special Power of Attorney had been attached to show his
authority
to
sign
for
the
rest
of
the
petitioners.
Hence, this present petition.
ISSUE:
Whether or not in NON-STOCK corporations, dead members should still be
counted in determination of quorum for purposed of conducting the Annual
Members' Meeting.
DECISION:
Membership in and all rights arising from a nonstock corporation are personal
and non-transferable, unless the articles of incorporation or the bylaws of the
corporation provide otherwise. In other words, the determination of whether or not
"dead members" are entitled to exercise their voting rights (through their executor
or administrator), depends on those articles of incorporation or bylaws.
Under the By-Laws of GCHS, membership in the corporation shall, among
others, be terminated by the death of the member. Section 91 of the Corporation
Code further provides that termination extinguishes all the rights of a member of
the corporation, unless otherwise provided in the articles of incorporation or the
bylaws.
Applying Section 91 to the present case, we hold that dead members who
are dropped from the membership roster in the manner and for the cause provided

for in the By-Laws of GCHS are not to be counted in determining the requisite vote
in corporate matters or the requisite quorum for the annual members' meeting.
With 11 remaining members, the quorum in the present case should be 6.
Therefore, there being a quorum, the annual members' meeting, conducted with six
members present, was valid.

34.

Garcia vs. Suarez, 67 Phil 441

FACTS:
On October 4, 1924, the appellant subscribed to sixteen shares of the capital
stock of the Compaia Hispano-Filipina, Inc., a corporation which is duly formed
and organized. Of the sixteen subscribed shares, at the par value of P100 each, the
appellant only paid P400, the value of four shares. On June 5, 1931, the plaintiffappellee was appointed by the court receiver of the Compaia Hispano-Filipina,
Inc., to collect all the credits of said corporation, pay its debts and dispose of the
remainder of its assets and of its properties. On June 18, 1931, the plaintiffappellee in vain made demand upon the defendant-appellant to pay the balance of
his subscription. On July 10, 1933, the plaintiff, as receiver, brought an action in the
Court of First Instance of Manila to recover from the defendant-appellant and other
shareholders the balance of their subscriptions, but the complaint was dismissed for
lack of prosecution. On October 10, 1935, a similar complaint was filed against the
appellant, and after trial, judgment was rendered therein ordering the said
defendant to pay to the plaintiff, as receiver of Compaia Hispano-Filipina, Inc., the
sum of P1,200, with legal interest thereon from October 4, 1924, and the costs.
The defendant appealed and in this instance contends that the trial court erred in
holding that the action of the plaintiff-appellee has not prescribed, and that the
appellant has not been released from his obligation to pay the balance of his
subscription.
ISSUE:
Whether or not the obligation contracted by the appellant to pay the value of
his subscription was demandable from the date of subscription in the absence of
any stipulation to the contrary.
DECISION:
Section 37 of the Corporation Law provides when the obligation to pay
interest arises and when payment should be made, but it is absolutely silent as to
when the subscription to a stock should be paid. Of course, the obligation to pay
arises from the date of the subscription, but the coming into being of an obligation
should not be confused with the time when it becomes demandable. In a loan for
example, the obligation to pay arises from the time the loan is taken; but the
maturity of that obligation, the date when the debtor can be compelled to pay, is
not the date itself of the loan, because this would be absurd. The date when
payment can be demanded is necessarily distinct from and subsequent to that the
obligation is contracted.
By the same token, the subscription to the capital stock of the corporation,
unless otherwise stipulation, is not payable at the moment of the subscription but
on a subsequent date which may be fixed by the corporation. Hence, section 38 of
the Corporation Law, amended by Act No. 3518, provides that: The board of

directors or trustees of any stock corporation formed, organized, or existing under

this Act may at any time declare due and payable to the corporation unpaid
subscriptions to the capital stock.
The board of directors of the Compaia Hispano-Filipino, Inc., not having
declared due and payable the stock subscribed by the appellant, the prescriptive
period of the action for the collection thereof only commenced to run from June 18,
1931 when the plaintiff, in his capacity as receiver and in the exercise of the power
conferred upon him by the said section 38 of the Corporation Law, demanded of the
appellant to pay the balance of his subscription. The present action having been
filed on October 10, 1935, the defense of prescription is entirely without basis.

35.

Gamboa vs. Teves, GR No. 176579, June 28 2011

FACTS:
This is a petition to nullify the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government of the
Republic of the Philippines, acting through the Inter-Agency Privatization Council
(IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific
Company Limited (First Pacific), a Hong Kong-based investment management and
holding company and a shareholder of the Philippine Long Distance Telephone
Company (PLDT). The petitioner questioned the sale on the ground that it also
involved an indirect sale of 12 million shares (or about 6.3 percent of the
outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this
sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to
37 percent, thereby increasing the total common shareholdings of foreigners in
PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article
XII of the 1987 Philippine Constitution which limits foreign ownership of the capital
of a public utility to not more than 40%, thus: Section 11. No franchise, certificate,
or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except under the condition that
it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate share in
its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.
ISSUE:
Whether or not the term capital in Section 11, Article XII of the
Constitution refer to the total common shares only, or to the total outstanding
capital stock (combined total of common and non-voting preferred shares) of PLDT,
a public utility.
DECISION:
Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting rights, the
term capital in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election
of directors, then the term capital shall include such preferred shares because the
right to participate in the control or management of the corporation is exercised

through the right to vote in the election of directors. In short, the term capital in
Section 11, Article XII of the Constitution refers only to shares of stock that can
vote in the election of directors.
To construe broadly the term capital as the total outstanding capital stock,
including both common and non-voting preferred shares, grossly contravenes the
intent and letter of the Constitution that the State shall develop a self-reliant and
independent national economy effectively controlled by Filipinos. A broad definition
unjustifiably disregards who owns the all-important voting stock, which necessarily
equates to control of the public utility.
Holders of PLDT preferred shares are explicitly denied of the right to vote in
the election of directors. PLDTs Articles of Incorporation expressly state that the
holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the
stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive
notice of any meeting of stockholders. On the other hand, holders of common
shares are granted the exclusive right to vote in the election of directors. PLDTs
Articles of Incorporation state that each holder of Common Capital Stock shall have
one vote in respect of each share of such stock held by him on all matters voted
upon by the stockholders, and the holders of Common Capital Stock shall have the
exclusive right to vote for the election of directors and for all other purposes.
It must be stressed, and respondents do not dispute, that foreigners hold a
majority of the common shares of PLDT. In fact, based on PLDTs 2010 General
Information Sheet (GIS), which is a document required to be submitted annually to
the Securities and Exchange Commission, foreigners hold 120,046,690 common
shares of PLDT whereas Filipinos hold only 66,750,622 common shares. In other
words, foreigners hold 64.27% of the total number of PLDTs common shares, while
Filipinos hold only 35.73%. Since holding a majority of the common shares equates
to control, it is clear that foreigners exercise control over PLDT. Such amount of
control unmistakably exceeds the allowable 40 percent limit on foreign ownership of
public utilities expressly mandated in Section 11, Article XII of the Constitution.
As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT
common shares is P5.00 per share, whereas the par value of preferred shares
is P10.00 per share. In other words, preferred shares have twice the par value of
common shares but cannot elect directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos
while foreigners own only a minuscule 0.56% of the preferred shares. Worse,
preferred shares constitute 77.85% of the authorized capital stock of PLDT while
common shares constitute only 22.15%. This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred shares but with the common
shares, blatantly violating the constitutional requirement of 60 percent Filipino
control and Filipino beneficial ownership in a public utility.

Corporation Law
Case Digests

Submitted to:
Atty. Alessandro Beato C. Dela Cruz

Submitted by:
Legaspi, Ray Anselmo M.
Date Submitted:
February, 2015