Corporation Law Case Digest 20 Cases For Merge

Atty.
Ventura MON-TUE 6:00-8:00
CORPORATION LAW case digest

ISSUE:
1) Bourns vs. Carman, 7 Phils. 117 (1906)

1. PARTNERSHIP OF "CUENTAS EN PARTICIPACION." A
partnership constituted in such a manner that its existence was
only known to those who had an interest in the same, there being
no mutual agreement between the partners, and without a
corporate name indicating to the public in some way that there
were other people besides the one who ostensibly managed and
conducted the business, is exactly the accidental partnership of
cuentas en participacion defined in article 239 of the Code of
Commerce.
2. ID. Those who contracted with the person in whose name the
business of a partnership of cuentas en participacion is conducted,
shall have only the right of action against such person and not
against the other persons interested, and the latter, on the other
hand, shall have no right of action against the third person who
contracted with the manager unless such manager formally
transferred his right to them. (Art. 242, Code of Commerce.)
FACTS:
An action to recover the sum of $437.50 balance due on a contract for the
sawing of lumber yard of Lo-Chim-Lim was filed by Bourns (Plaintiff). The
contract was entered into by Lo-Chim-Lim, acting as in his own name with the
plaintiff, and it appears that Lo-Chim-Lim personally agreed to pay for the
work himself. The plaintiff brought the action against Lo-Chim-Lim and his codefendants jointly, alleging that at the time the contract was made, they were
the joint proprietors and operators of the said lumber yard engaged in the
purchase and sale of lumber under the name and style of Lo-Chim-Lim,
hence were partners. The lower court dismissed the action on the ground that
defendants D.M. Carman, Fulgencio and Tan-Tongco, except Vicente
Palance and Go-Tauco were not the partners of Lo-Chim-Lim.
Whether appellants are deemed partners of Lo-Chim-Lim and hence are

liable to Bourns
HELD:
No. The alleged partnership between Lo-Chim-Lim and the appellants was
formed by verbal agreement only. There is no evidence tending to show that
the said agreement was reduced to writing, or that it was ever recorded in a
public instrument. Moreover, the partnership had no corporate name. The
partnership was engaged in business under the name and style of Lo-ChimLim only. Moreover, it does not appear that there was any mutual agreement
between the parties and if there were any, it has not been shown what the
agreement was. The contracts made with the plaintiff were made by Lo-ChimLim individually in his own name, and there is no evidence that the
partnership over contracted in any form. Hence, the partnership is one of
cuentasen participacion. It is but a simple business conducted by Lo-ChimLim exclusively in his own name. A partnership constituted in such a manner,
the existence of which was only known to those who had an interest in the
same, being no mutual agreements between the partners and without a
corporate name indicating to the public in some way that there were other
people besides the one who ostensibly managed and conducted the
business, is exactly the accidental partnership of cuentas en participacion
defined in Art. 239 of the Code of Commerce. Those who contract with the
person under whose name the business of such partnership of cuentas
en participacion is conducted, shall have only a right of action against
such person and not against the other persons interested, and the
latter, on the other hand, shall have no right of action against the third
person who contracted with the manager unless such manager formally
transfers his right to them.
Page 1 of 40
Atty. Ventura MON-TUE 6:00-8:00
2) HARDEN v BENGUET CONSOLIDATED MINING COMPANY G.R. No. L37331, March 18, 1933
Section 1. Title of the Code. - This Code shall be known as "The Corporation
Code of the Philippines".
The total cost incurred by Benguet in developing Balatoc was P1,417,952.15.

A certificate for 600,000 shares of the stock of the Balatoc Company was
given to Benguet and the excess value was paid to Benguet by Balatoc in
cash. Due to the improvements made by Benguet, the value of shares of
Balatoc increased in the market (from P1 to more than P11) and dividends
enriched its stockholders. Harden, the owner of thousands of shares of
Balatoc, questioned the transfer of 600,000 shares to Benguet with the
success of the development.
FACTS:
Benguet Consolidated Mining Co. was organized in June, 1903, as a

sociedad anonima in conformity with the provisions of Spanish law. Balatoc
Mining Co. was organized in December 1925, as a corporation, in conformity
with the provisions of the Corporation Law (Act No. 1459). Both were
organized for mining of gold and their respective properties are located only a
few miles apart in Benguet. Balatoc capital stock consists of one million
shares of the par value of one peso (P1) each.
When the Balatoc was first organized, its properties were largely
undeveloped. To improve its operations, the companys committee
approached A. W. Beam, then president and general manager of the Benguet
Company, to secure the capital necessary to the development of the Balatoc
property. A contract was entered into wherein Benguet will (1) construct a
milling plant for the Balatoc mine, of a capacity of 100 tons of ore per day,
and with an extraction of at least 85 per cent of the gold content; (2) erect an
appropriate power plant. In return, Benguet will receive from Balatoc shares
of a par value of P600,000.
ISSUE: W/N it is unlawful for Benguet Company to hold any interest in a

mining corporation.
W/N, assuming the first question to be answered in the affirmative, the
Benguet Company, which was organized as a sociedad anonima, is a
corporation within the meaning of the language used by the Congress
of the United States, and later by the Philippine Legislature,
prohibiting a mining corporation from becoming interested in
another mining corporation?
RULING:
1st Issue: The defendant Benguet Company has committed no civil wrong
against the plaintiffs, and if a public wrong has been committed, the directors
of the Balatoc Company, and the plaintiff Harden himself, were the active
inducers of the commission of that wrong. The contract, supposing it to have
been unlawful in fact, has been performed on both sides.
Page 2 of 40
2nd Issue: Having shown that the plaintiffs in this case have no right of action
against the Benguet Company for the infraction of law supposed to have
been committed, we forego any discussion of the further question whether a
sociedad anonima created under Spanish law, such as the Benguet
Company, is a corporation within the meaning of the prohibitory provision
already so many times mentioned.
A sociedad anonima is something very much like the English joint stock
company, with features resembling those of both the partnership is shown in
the fact that sociedad, the generic component of its name in Spanish, is the
same word that is used in that language to designate other forms of
partnership, and in its organization it is constructed along the same general
lines as the ordinary partnership.
in agriculture or in mining was so modified as merely to prohibit any such

member from holding more than fifteen per centum of the outstanding capital
stock of another such corporation. Moreover, the explicit prohibition against
the holding by any corporation (except for irrigation) of an interest in any
other corporation engaged in agriculture or in mining was so modified as to
limit the restriction to corporations organized for the purpose of engaging in
agriculture or in mining.
Further and more importantly, the Corporation Law of 1925 provides that if
the person who allegedly violated the provisions of said law is a corporation,
the proper action is a quo warranto which should be initiated by the AttorneyGeneral or its deputized provincial fiscal and not a private action as the one
filed by Harden.
In section 75 of the Corporation Law, a provision is found making the

sociedad anonima subject to the provisions of the Corporation Law "so far as
such provisions may be applicable", and giving to the sociedades anonimas
previously created in the Islands the option to continue business as such or to
reform and organize under the provisions of the Corporation Law.
3) Benguet Consolidated Mining Co. Vs. Mariano Pineda 098 Phil 711
G.R. No. L-7231 | 1956-03-28
The provision in Section 75 of the Act Congress of July 1, 1902 (Philippine
Bill), generally prohibiting corporations engaged in mining and members of
such from being interested in any other corporation engaged in mining, was
amended by section 7 of Act No. 3518 of the Philippine Legislature, approved
by Congress March 1, 1929. The change in the law effected by this
amendment was in the direction of liberalization. Thus, the inhibition
contained in the original provision against members of a corporation engaged
in agriculture or mining from being interested in other corporations engaged
Benguet Consolidated Mining Company was organized in 1903 under the

Spanish Code of Commerce of 1886 as a sociedad anonima. It was agreed
by the incorporators that Benguet Mining was to exist for 50 years.
Page 3 of 40
In 1906, Act 1459 (Corporation Law) was enacted which superseded the
Corporation Code of 1906 such right would have vested. But when the law
Code of Commerce of 1886. Act 1459 essentially introduced the American
was passed in 1906, Benguet Mining was already deprived of such right.
concept of a corporation. The purpose of the law, among others, is to

eradicate the Spanish Code and make sociedades anonimas obsolete.
To allow Benguet Mining to extend its life will be inimical to the purpose of the
law which sought to render obsolete sociedades anonimas. If this is allowed,
In 1953, the board of directors of Benguet Mining submitted to the Securities
Benguet Mining will unfairly do something which new corporations organized
and Exchange Commission an application for them to be allowed to extend
under the new Corporation Law cant do that is, exist beyond 50 years.
the life span of Benguet Mining. Then Commissioner Mariano Pineda denied
Plus, it would have reaped the benefits of being a sociedad anonima and
the application as it ruled that the extension requested is contrary to Section
later on of being a corporation. Further, under the Corporation Code of
18 of the Corporation Law of 1906 which provides that the life of a
1906, existing sociedades anonimas during the enactment of the law
corporation shall not be extended by amendment beyond the time fixed in
must choose whether to continue as such or be organized as a
their original articles.
corporation under the new law. Once a sociedad anonima chooses one of
CONTENTION oF BENGUET:
Benguet Mining contends that they have a vested right under the Code of
Commerce of 1886 because they were organized under said law; that under
these, it is already proscribed from choosing the other. Evidently, Benguet

Mining chose to exist as a sociedad anonima hence it can no longer
elect to become a corporation when its life is near its end.
said law, Benguet Mining is allowed to extend its life by simply amending its
articles of incorporation; that the prohibition in Section 18 of the Corporation
Code of 1906 does not apply to sociedades anonimas already existing prior
to the Laws enactment; that even assuming that the prohibition applies to
4) Dante V. Liban, et al vs. Richard J. Gordon,GRN, 175352 , July 15, 2009

En Banc Resolution of the Court in in the same case of Liban, issued on
January 18, 2011
Benguet Mining, it should be allowed to be reorganized as a corporation

under the said Corporation Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No. Benguet Mining has no vested right to extend its life. It is a
well settled rule that no person has a vested interest in any rule of law
entitling him to insist that it shall remain unchanged for his benefit. Had
Benguet Mining agreed to extend its life prior to the passage of the
DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI

vs.
RICHARD J. GORDON
G.R. No. 175352.July 15, 2009
FACTS:
Petitioners filed with this Court a Petition to Declare Richard J.
Gordon as Having Forfeited His Seat in the Senate. Petitioners are officers of
Page 4 of 40
the Board of Directors of the Quezon City Red Cross Chapter while
respondent is Chairman of the Philippine National Red Cross (PNRC) Board
of Governors.
During respondents incumbency as a member of the Senate of the
Philippines, he was elected Chairman of the PNRC during the February 23,
2006 meeting of the PNRC Board of Governors. Petitioners allege that by
accepting the chairmanship of the PNRC Board of Governors,
respondent has ceased to be a member of the Senate as provided in
Section 13, Article VI of the Constitution, which reads: No Senator or
Member of the House of Representatives may hold any other office or
employment in the Government, or any subdivision, agency, or
instrumentality thereof, including government-owned or controlled
corporations or their subsidiaries, during his term without forfeiting his seat.
Neither shall he be appointed to any office which may have been created or
the emoluments thereof increased during the term for which he was elected.
Petitioners cited the case of Camporedondo vs. NLRC, G.R. No.
129049, decided August 6, 1999, which held that the PNRC is a GOCC, in
supporting their argument that respondent Gordon automatically forfeited his
seat in the Senate when he accepted and held the position of Chairman of
the PNRC Board of Governors.
ISSUE:
Whether or not the office of the PNRC Chairman is a government
office or an office in a government-owned or controlled corporation for
purposes of the prohibition in Section 13, Article VI of the Constitution.
RULING:
NO.
PNRC is a Private Organization Performing Public Functions. The
Republic of the Philippines, adhering to the Geneva Conventions, established
the PNRC as a voluntary organization for the purpose contemplated in the

Geneva Convention of 27 July 1929. The PNRC must not appear to be an
instrument or agency that implements government policy; otherwise, it cannot
merit the trust of all and cannot effectively carry out its mission as a National
Red Cross Society. It is imperative that the PNRC must be autonomous,
neutral, and independent in relation to the State.To ensure and maintain its
autonomy, neutrality, and independence, the PNRC cannot be owned or
controlled by the government. Indeed, the Philippine government does not
own the PNRC. The PNRC does not have government assets and does not
receive any appropriation from the Philippine Congress. The PNRC is
financed primarily by contributions from private individuals and private entities
obtained through solicitation campaigns organized by its Board of
Governors.The government does not control the PNRC. Under the PNRC
Charter, as amended, only six of the thirty members of the PNRC Board of
Governors are appointed by the President of the Philippines.
The PNRC is not government-owned but privately owned. The vast
majority of the thousands of PNRC members are private individuals, including
students. Under the PNRC Charter, those who contribute to the annual fund
campaign of the PNRC are entitled to membership in the PNRC for one year.
Thus, the PNRC is a privately owned, privately funded, and privately run
charitable organization.
Hence, the office of the PNRC Chairman is
not a government office or an office in a government-owned or
controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution. However, since the PNRC Charter is void
insofar as it creates the PNRC as a private corporation, the PNRC should
incorporate under the Corporation Code and register with the Securities and
Exchange Commission if it wants to be a private corporation.
Formerly, in its Decision dated July 15, 2009, the Court, voting 7-5,
[1] held thatthe office of the PNRC Chairman is NOT a government office or
an office in a GOCC for purposes of the prohibition in Sec. 13, Article VI of
the 1987 Constitution. The PNRC Chairman is elected by the PNRC Board of
Governors; he is not appointed by the President or by any subordinate
Page 5 of 40
government official. Moreover, the PNRC is NOT a GOCC because it is a

privately-owned, privately-funded, and privately-run charitable organization
and because it is controlled by a Board of Governors four-fifths of which are
private sector individuals. Therefore, respondent Gordon did not forfeit his
legislative seat when he was elected as PNRC Chairman during his
incumbency as Senator.
The Court however held further that the PNRC Charter, R.A. 95, as
amended by PD 1264 and 1643, is void insofar as it creates the PNRC as a
private corporation since Section 7, Article XIV of the 1935 Constitution
states that [t]he Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations, unless such
corporations are owned or controlled by the Government or any subdivision
or instrumentality thereof. The Court thus directed the PNRC to incorporate
under the Corporation Code and register with the Securities and Exchange
Commission if it wants to be a private corporation. The fallo of the Decision
read:
WHEREFORE, we declare that the office of the Chairman of the
Philippine National Red Cross is not a government office or an office in a
government-owned or controlled corporation for purposes of the prohibition in
Section 13, Article VI of the 1987 Constitution. We also declare that Sections
1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine
National Red Cross, or Republic Act No. 95, as amended by Presidential
Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a
private corporation or grant it corporate powers.
Respondent Gordon filed a Motion for Clarification and/or for
Reconsideration of the Decision. The PNRC likewise moved to intervene
and filed its own Motion for Partial Reconsideration. They basically
questioned the second part of the Decision with regard to the pronouncement
on the nature of the PNRC and the constitutionality of some provisions
of the PNRC Charter.
II.
THE ISSUE
Was it correct for the Court to have passed upon and decided on the issue of
the constitutionality of the PNRC charter? Corollarily: What is the nature of
the PNRC?
III.
THE RULING
[The Court GRANTED reconsideration and MODIFIED the dispositive portion
of the Decision by deleting the second sentence thereof.]
NO, it was not correct for the Court to have decided on the
constitutional issue because it was not the very lis mota of the case.
The PNRC is sui generis in nature; it is neither strictly a GOCC nor a
private corporation.
The issue of constitutionality of R.A. No. 95 was not raised by the
parties, and was not among the issues defined in the body of the Decision;
thus, it was not the very lis mota of the case. We have reiterated the rule as
to when the Court will consider the issue of constitutionality in Alvarez v.
PICOP Resources, Inc., thus:
This Court will not touch the issue of unconstitutionality unless it is the
very lis mota. It is a well-established rule that a court should not pass upon a
constitutional question and decide a law to be unconstitutional or invalid,
unless such question is raised by the parties and that when it is raised, if the
record also presents some other ground upon which the court may [rest] its
Page 6 of 40
judgment, that course will be adopted and the constitutional question will be
left for consideration until such question will be unavoidable.
Charter and its amendatory laws have not been questioned or challenged on
constitutional grounds, not even in this case before the Court now.
[T]his Court should not have declared void certain sections of . . . the
PNRC Charter. Instead, the Court should have exercised judicial restraint on
this matter, especially since there was some other ground upon which the
Court could have based its judgment. Furthermore, the PNRC, the entity
most adversely affected by this declaration of unconstitutionality, which was
not even originally a party to this case, was being compelled, as a
consequence of the Decision, to suddenly reorganize and incorporate under
the Corporation Code, after more than sixty (60) years of existence in this
country.
[T]his Court [must] recognize the countrys adherence to the Geneva

Convention and respect the unique status of the PNRC in consonance with
its treaty obligations. The Geneva Convention has the force and effect of law.
Under the Constitution, the Philippines adopts the generally accepted
principles of international law as part of the law of the land. This constitutional
provision must be reconciled and harmonized with Article XII, Section 16 of
the Constitution, instead of using the latter to negate the former. By requiring
the PNRC to organize under the Corporation Code just like any other private
corporation, the Decision of July 15, 2009 lost sight of the PNRCs special
status under international humanitarian law and as an auxiliary of the State,
designated to assist it in discharging its obligations under the Geneva
Conventions.
Since its enactment, the PNRC Charter was amended several times,
particularly on June 11, 1953, August 16, 1971, December 15, 1977, and
October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264,
and P.D. No. 1643, respectively. The passage of several laws relating to the
PNRCs corporate existence notwithstanding the effectivity of the
constitutional proscription on the creation of private corporations by law is a
recognition that the PNRC is not strictly in the nature of a private corporation
contemplated by the aforesaid constitutional ban.
A closer look at the nature of the PNRC would show that there is none
like it[,] not just in terms of structure, but also in terms of history, public
service and official status accorded to it by the State and
the international community. There is merit in PNRCs contention that its
structure is sui generis. It is in recognition of this sui generis character of the
PNRC that R.A. No. 95 has remained valid and effective from the time of its
enactment in March 22, 1947 under the 1935 Constitution and during the
effectivity of the 1973 Constitution and the 1987 Constitution. The PNRC
The PNRC, as a National Society of the International Red Cross and

Red Crescent Movement, can neither be classified as an instrumentality of
the State, so as not to lose its character of neutrality as well as its
independence, nor strictly as a private corporation since it is regulated by
international humanitarian law and is treated as an auxiliary of the State.
Although [the PNRC] is neither a subdivision, agency, or
instrumentality of the government, nor a GOCC or a subsidiary thereof . . . so
much so that respondent, under the Decision, was correctly allowed to hold
his position as Chairman thereof concurrently while he served as a
Senator, such a conclusion does not ipso facto imply that the PNRC is a
private corporation within the contemplation of the provision of the
Constitution, that must be organized under the Corporation Code. [T]he sui
generis character of PNRC requires us to approach controversies involving
the PNRC on a case-to-case basis.
Page 7 of 40
In sum, the PNRC enjoys a special status as an important ally and

auxiliary of the government in the humanitarian field in accordance with
its commitments under international law. This Court cannot all of a
sudden refuse to recognize its existence, especially since the issue of the
constitutionality of the PNRC Charter was never raised by the parties. It
bears emphasizing that the PNRC has responded to almost all national
disasters since 1947, and is widely known to provide a substantial portion of
the countrys blood requirements. Its humanitarian work is unparalleled. The
Court should not shake its existence to the core in an untimely and drastic
manner that would not only have negative consequences to those who
depend on it in times of disaster and armed hostilities but also have adverse
effects on the image of the Philippines in the international community. The
sections of the PNRC Charter that were declared void must therefore stay.
[Thus, R.A. No. 95 remains valid and constitutional in its entirety. The
Court MODIFIED the dispositive portion of the Decision by deleting the
second sentence, to now read as follows:
WHEREFORE, we declare that the office of the Chairman of the
Philippine National Red Cross is not a government office or an office in a
government-owned or controlled corporation for purposes of the prohibition in
Section 13, Article VI of the 1987 Constitution.]
5) Tayag v. Benguet Consolidated, 26 SCRa 242 (1968)

Corporation Law Domicile of a Corporation By Laws Must Yield To a
Court OrderCorporation is an Artificial Being
Facts:
In March 1960, Idonah Perkins died in New York. She left behind properties
here and abroad. One property she left behind were two stock certificates
covering 33,002 shares of stocks of the Benguet Consolidated, Inc (BCI).
Said stock certificates were in the possession of the Country Trust Company
of New York (CTC-NY). CTC-NY was the domiciliary administrator of the
estate of Perkins in the USA. Meanwhile, in 1963, Renato Tayag was
appointed as the ancillary administrator of the properties of Perkins she
left behind in the Philippines. A dispute arose between CTC-NY and Tayag
as to who between them is entitled to possess the stock certificates. A case
ensued and eventually, the trial court ordered CTC-NY to turn over the
stock certificates to Tayag. CTC-NY refused. Tayag then filed with the
court a petition to have said stock certificates be declared lost and to compel
BCI to issue new stock certificates in replacement thereof. The trial court
granted Tayags petition.
BCI assailed said order as it averred that it cannot possibly issue new stock
certificates because the two stock certificates declared lost are not actually
lost; that the trial court as well Tayag acknowledged that the stock certificates
exists and that they are with CTC- NY; that according to BCIs by laws, it can
only issue new stock certificates, in lieu of lost, stolen, or destroyed
certificates of stocks, only after court of law has issued a final and executory
order as to who really owns a certificate of stock.
ISSUE:
Whether or not the arguments of Benguet Consolidated, Inc. are correct?
HELD:
No. Benguet Consolidated is a corporation who owes its existence to
Philippine laws. It has been given rights and privileges under the law.
Corollary, it also has obligations under the law and one of those is to follow
valid legal court orders. It is not immune from judicial control because it
is domiciled here in the Philippines. BCI is a Philippine corporation owing
full allegiance and subject to the unrestricted jurisdiction of local courts. Its
shares of stock cannot therefore be considered in any wise as immune
Page 8 of 40
from lawful court orders. Further, to allow BCIs opposition is to render the
court order against CTC-NY a mere scrap of paper. It will leave Tayag without
any remedy simply because CTC-NY, a foreign entity refuses to comply with
a valid court order. The final recourse then is for our local courts to create a
legal fiction such that the stock certificates in issue be declared lost even
though in reality they exist in the hands of CTC-NY. This is valid. As held time
and again, fictions which the law may rely upon in the pursuit of legitimate
ends have played an important part in its development. Further still, the
argument invoked by BCI that it can only issue new stock certificates in
accordance with its bylaws is misplaced. It is worth noting that CTC-NY did
not appeal the order of the court it simply refused to turn over the stock
certificates hence ownership can be said to have been settled in favor of
estate of Perkins here. Also, assuming that there really is a conflict
between BCIs bylaws and the court order, what should prevail is the
lawful court order. It would be highly irregular if court orders would yield to
the bylaws of a corporation. Again, a corporation is not immune from judicial
orders.
6) Arnold v. Willits & Patterson Limited, 44 Phils. 634 (1923)
signed without the authority of the defendant corporation and also filed
a counterclaim.
contract with Arnold whereby Arnold was to be employed for a period

of five years as the agent of the firm here in the PI to operate an oil
mill for which he was to receive a minimum salary of $200/mth, a 1%
brokerage fee from all purchases and sales of merchandise, and half
of the profits of the oil business and other businesses. provided if the
business was at a loss, Arnold would receive $400/mth.

Later, Patterson retired and Willits acquired all interests of the
business.
Willits organized a new Corp in San Francisco which took over and
acquired all assets of the Firm Willits & Patterson. Willits was the
owner of all the capital stock. New corp had the same name.
After, Willits, organized a new Corporation here in the PI to take over
all the business and assets of the firm here in the PI. Willits was the
FACTS:
Arnold and Willits and Patterson, Ltd. entered into a contract by which plaintiff
was appointed agent for a period of 5 years. A dispute arose as to the
amount which plaintiff should receive for his services. Patterson retired and
Willits became the sole owner of the assets of the firm. Willits then organized
a corporation. He became exclusive owner except for a few stocks (nominal
shares to qualify the directors) for organizational purposes. Another
instrument was executed between Arnold and Willits. Such defined and
specified the compensation of Arnold. Nothing shows that such was
formally ratified or approved by the corporation. A statement of the
corporation's account showed that there was due and owing the plaintiff a
sum of money. The corporation's creditor's committee protested against such
amount. Arnold filed suit to collect. Willits argued that the document was
1916. The Firm Willits & Patterson in San Francisco entered into a
owner of all the capital stock.

Later, there was dispute with regard to the construction of the contract
as a result, a new contract in the form of a letter was entered into.
Willits signed this.

The statements of account showed that 106K was due and owing to
Arnold.
W&P Corp was in financial trouble and all assets were turned over to
a creditors committee.
1922. Arnold filed this complaint to recover 106K from W&P.
Page 9 of 40
W&P argues that the 2nd contract was signed without authority. And as
counterclaim alleged that Arnold took 30K from the Corp but only
19.1K was due to him thus he owed 10.1K to W&P.

CFI ordered Arnold to return the 10.1K.
ISSUE:
Whether plaintiff may collect from defendant corporation.
HELD: Yes.
The proposition that a corporation has an existence separate and distinct
from its membership has its limitations. It must be noted that this separate
existence is for particular purposes. It must also be remembered that there
can be no corporate existence without persons to compose it; there can be
no association without associates.
This separate existence is to a certain extent a legal fiction. Whenever
necessary for the interests of the public or for the protection or enforcement
of the rights of the membership, courts will disregard this legal fiction and
operate upon both the corporation and the persons composing it.
He continued his employment and rendered his services after the corporation
was organized and the second document was signed just the same as he did
before, and both corporations recognized and accepted his services.
It was a one man corporation, and Willits, as the owner of all of the
stock, was the force and dominant power which controlled them. After
the document was signed it was recognized by Willits that the plaintiff's
services were to be performed and measured by its term and provisions, and
there never was any dispute between plaintiff and Willits upon that question.
Statements of account were made and prepared by the accountant on the
assumption that the document was in full force and effect as between the
plaintiff and the defendant. Previous financial statements show upon their
face that the account of plaintiff was credited with several small items on the
same basis, and it was not until the 23d of March, 1921, that any objection
was ever made by anyone.
The first Philippine case to apply the piercing doctrine was

actually Arnold v. Willets and Patterson, Ltd., and it was clearly an
alter ego case. It expressed the language of piercing doctrine when
applied to alter ego cases, as follows: "Where the stock of a
corporation is owned by one person whereby the corporation
functions only for the benefit of such individual owner, the
corporation and the individual should be deemed the same."
In Arnold the creditors' committee of the corporation opposed
the payment of compensation due to the plaintiff Arnold under a
contract-letter signed by Willits, the controlling stockholder, without
board approval.
The signing president was the controlling
stockholder of the corporation. The Court held the validity of
contract and "[a]lthough the plaintiff was the president of the local
corporation, the testimony is conclusive that both of them were
what is known as a one man corporation, and Willits, as the owner
of all the stocks, was the force and dominant power which
controlled them."
7) Pantranco Employees Asso., et al. Vs. NLRC, et al.,G.R. No.

170689 | 2009-03-17
former employees of a company sought to satisfy their unpaid labor claims

against another company that eventually acquired, and then sold, the
employer company.
The Gonzales family owned two corporations, namely, the Pantranco North
Express, Inc. (PNEI) and Macris Realty Corporation (Macris). PNEI provided
transportation services to the public, and had its bus terminal at the corner of
Quezon and Roosevelt Avenues in Quezon City. The terminal stood on four
valuable pieces of real estate (known as Pantranco properties) registered
Page 10 of 40
under the name of Macris. The Gonzales family later incurred huge
financial losses despite attempts of rehabilitation and loan infusion. In
March 1975, their creditors took over the management of PNEI and
Macris. By 1978, full ownership was transferred to one of their creditors, the
National Investment Development Corporation (NIDC), a subsidiary of the
PNB.
Macris was later renamed as the National Realty Development Corporation
(Naredeco) and eventually merged with the National Warehousing
Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor.
In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a
company owned by Gregorio Araneta III. In 1986, PNEI was among the
several companies placed under sequestration by the Presidential
Commission on Good Government (PCGG) shortly after the historic events
in EDSA. In January 1988, PCGG lifted the sequestration order to pave the
way for the sale of PNEI back to the private sector through the Asset
Privatization Trust (APT). APT thus took over the management of PNEI.
In 1992, PNEI applied with the Securities and Exchange Commission (SEC)
for suspension of payments. A management committee was thereafter
created which recommended to the SEC the sale of the company
through privatization. As a cost-saving measure, the committee likewise
suggested the retrenchment of several PNEI employees. Eventually, PNEI
ceased its operation. Along with the cessation of business came the
various labor claims commenced by the former employees of PNEI
where the latter obtained favorable decisions.
On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution
commanding the National Labor Relations Commission (NLRC) sheriffs to
levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its
former employees, as full and final satisfaction of the judgment awards in the
labor cases. The sheriffs were likewise instructed to proceed against PNB,
PNB-Madecor and Mega Prime. In implementing the writ, the sheriffs levied
upon the four valuable pieces of real estate located at the corner of Quezon
and Roosevelt Avenues, on which the former Pantranco Bus Terminal stood.
These properties were covered by Transfer Certificate of Title (TCT) Nos.
87881-87884, registered under the name of PNB-Madecor. Subsequently,
Notice of Sale of the foregoing real properties was published in the
newspaper and the sale was set on July 31, 2002.
Having been notified of the auction sale, motions to quash the writ were
separately filed by PNB-Madecor and Mega Prime, and PNB. They likewise
filed their Third-Party Claims. PNB-Madecor anchored its motion on its right
as the registered owner of the Pantranco properties, and Mega Prime as the
successor-in-interest. For its part, PNB sought the nullification of the writ on
the ground that it was not a party to the labor case. In its Third-Party Claim,
PNB alleged that PNB-Madecor was indebted to the former and that the
Pantranco properties would answer for such debt.
On September 10, 2002, the Labor Arbiter declared that the subject
Pantranco properties were owned by PNB-Madecor. It being a
corporation with a distinct and separate personality, its assets could
not answer for the liabilities of PNEI. Considering, however, that PNBMadecor executed a promissory note in favor of PNEI for P7,884,000.00, the
writ of execution to the extent of the said amount was concerned was
considered valid. PNBs third-party claim to nullify the writ on the ground
that it has an interest in the Pantranco properties being a creditor of PNBMadecor, on the other hand, was denied because it only had an inchoate
interest in the properties.
The NLRC affirmed the Labor Arbiters decision. The CA also affirmed the
NLRCs decision. The appellate court pointed out that PNB, PNB-Madecor
and Mega Prime are corporations with personalities separate and distinct
Page 11 of 40
from PNEI. As such, there being no cogent reason to pierce the veil of
corporate fiction, the separate personalities of the above corporations should
be maintained. The CA added that the Pantranco properties were never
owned by PNEI; rather, their titles were registered under the name of PNBMadecor. If PNB and PNB-Madecor could not answer for the liabilities of
PNEI, with more reason should Mega Prime not be held liable being a mere
successor-in-interest of PNB-Madecor.
The former PNEI employees argued before the Supreme Court that PNB,
through PNB-Madecor, directly benefited from the operation of PNEI
and had complete control over the funds of PNEI. Hence, they are
solidarily answerable with PNEI for the unpaid money claims of the
employees. Citing A.C. Ransom Labor Union-CCLU v. NLRC, the employees
insist that where the employer corporation ceases to exist and is no longer
able to satisfy the judgment awards in favor of its employees, the owner of
the employer corporation should be made jointly and severally liable.
RULING:The Supreme Court ruled that the former PNEI employees cannot
attach the properties (specifically the Pantranco properties) of PNB, PNBMadecor and Mega Prime to satisfy their unpaid labor claims against PNEI.
According to the Supreme Court:
First, the subject property is not owned by the judgment debtor, that is,
PNEI. Nowhere in the records was it shown that PNEI owned the Pantranco
properties. Petitioners, in fact, never alleged in any of their pleadings the fact
of such ownership. What was established, instead, in PNB MADECOR v. Uy
and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty
and Holdings Corporation v. PNB was that the properties were owned by
Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued
against by the creditors of PNEI. We would like to stress the settled rule that
the power of the court in executing judgments extends only to properties
unquestionably belonging to the judgment debtor alone. To be sure, one
mans goods shall not be sold for another mans debts. A sheriff is not
authorized to attach or levy on property not belonging to the judgment debtor,
and even incurs liability if he wrongfully levies upon the property of a third
person.
Second, PNB, PNB-Madecor and Mega Prime are corporations with

personalities separate and distinct from that of PNEI. PNB is sought to be
held liable because it acquired PNEI through NIDC at the time when PNEI
was suffering financial reverses. PNB-Madecor is being made to answer for
petitioners labor claims as the owner of the subject Pantranco properties and
as a subsidiary of PNB. Mega Prime is also included for having acquired
PNBs shares over PNB-Madecor.
The general rule is that a corporation has a personality separate and distinct
from those of its stockholders and other corporations to which it may be
connected. This is a fiction created by law for convenience and to prevent
injustice. Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are
corporations with their own personalities. The separate personalities of the
first three corporations had been recognized by this Court in PNB v. Mega
Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings
Corporation v. PNB where we stated that PNB was only a stockholder of
PNB-Madecor which later sold its shares to Mega Prime; and that PNBMadecor was the owner of the Pantranco properties. Moreover, these
corporations are registered as separate entities and, absent any valid reason,
we maintain their separate identities and we cannot treat them as one.
Neither can we merge the personality of PNEI with PNB simply because the
latter acquired the former. Settled is the rule that where one corporation
sells or otherwise transfers all its assets to another corporation for
value, the latter is not, by that fact alone, liable for the debts and
liabilities of the transferor.
Page 12 of 40
Lastly, while we recognize that there are peculiar circumstances or valid

grounds that may exist to warrant the piercing of the corporate veil, none
applies in the present case whether between PNB and PNEI; or PNB and
PNB-Madecor.
Under the doctrine of piercing the veil of corporate fiction, the court looks
at the corporation as a mere collection of individuals or an aggregation of
persons undertaking business as a group, disregarding the separate juridical
personality of the corporation unifying the group. Another formulation of this
doctrine is that when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or as one and the
same.
Whether the separate personality of the corporation should be pierced hinges

on obtaining facts appropriately pleaded or proved. However, any piercing of
the corporate veil has to be done with caution, albeit the Court will not
hesitate to disregard the corporate veil when it is misused or when necessary
in the interest of justice. After all, the concept of corporate entity was not
meant to promote unfair objectives.
As between PNB and PNEI, petitioners want us to disregard their separate
personalities, and insist that because the company, PNEI, has already
ceased operations and there is no other way by which the judgment in favor
of the employees can be satisfied, corporate officers can be held jointly and
severally liable with the company. Petitioners rely on the pronouncement of
this Court in A.C. Ransom Labor Union-CCLU v. NLRC and subsequent
cases.
This reliance fails to persuade. We find the aforesaid decisions inapplicable
to the instant case.
For one, in the said cases, the persons made liable after the companys
cessation of operations were the officers and agents of the corporation. The
rationale is that, since the corporation is an artificial person, it must have an
officer who can be presumed to be the employer, being the person acting in
the interest of the employer. The corporation, only in the technical sense, is
the employer. In the instant case, what is being made liable is another
corporation (PNB) which acquired the debtor corporation (PNEI).
Moreover, in the recent cases Carag v. National Labor Relations Commission
and McLeod v. National Labor Relations Commission, the Court explained
the doctrine laid down in AC Ransom relative to the personal liability of the
officers and agents of the employer for the debts of the latter. In AC Ransom,
the Court imputed liability to the officers of the corporation on the strength of
the definition of an employer in Article 212(c) (now Article 212[e]) of the Labor
Code. Under the said provision, employer includes any person acting in the
interest of an employer, directly or indirectly, but does not include any labor
organization or any of its officers or agents except when acting as employer.
It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by
itself, does not make a corporate officer personally liable for the debts of the
corporation. It added that the governing law on personal liability of directors
or officers for debts of the corporation is still Section 31 of the Corporation
Code.
More importantly, as aptly observed by this Court in AC Ransom, it appears
that Ransom, foreseeing the possibility or probability of payment of
backwages to its employees, organized Rosario to replace Ransom, with the
latter to be eventually phased out if the strikers win their case. The execution
could not be implemented against Ransom because of the disposition
posthaste of its leviable assets evidently in order to evade its just and due
obligations. Hence, the Court sustained the piercing of the corporate veil and
made the officers of Ransom personally liable for the debts of the latter.
Clearly, what can be inferred from the earlier cases is that the doctrine of
piercing the corporate veil applies only in three (3) basic areas, namely:
Page 13 of 40
1) defeat of public convenience as when the corporate fiction is used as

a vehicle for the evasion of an existing obligation; 2) fraud cases or
when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce
since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another
corporation. In the absence of malice, bad faith, or a specific provision of law
making a corporate officer liable, such corporate officer cannot be made
personally liable for corporate liabilities.
The Court ruled that assuming, for the sake of argument, that PNB may be
held liable for the debts of PNEI, petitioners still cannot proceed against the
Pantranco properties, the same being owned by PNB-Madecor,
notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The
general rule remains that PNB-Madecor has a personality separate and
distinct from PNB. 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 subsidiarys separate
existence shall be respected, and the liability of the parent corporation as well
as the subsidiary will be confined to those arising in their respective
businesses.
8) Ruperto Suldao Vs. Cimech System Construction, Inc., G.R. No.

171392 | 2006-10-30
FACTS
Respondent Cimech employed the services of petitioner Ruperto Suldao as a
machinist with a daily wage of P300.00 on a contractual status for a period of
five months, but was later on retained his services, making him a permanent
employee.
Petitioner alleged that owing to a dearth in projects being handled by the

respondent, he was ordered by Ms. Elsa Labocay to take a leave of absence
from November 1 to 6, 2002. He reported for work on November 7, 2002 but
was again ordered to take a leave of absence from November 7 to 14, 2002.
On November 15, 2002, he was purportedly ordered to make a letter-request
for field work transfer which he complied. The following day, he failed to
report back for work because he was sick. On November 17, 2002, he
reported for work but was allegedly barred from entering by the security
guard on duty. On November 21, 2002, he was again barred from entering
the premises. Hence he filed the instant complaint for constructive dismissal.
On the other hand, respondent alleged that due to lack of available work in
the machine shop, petitioner was temporarily transferred to its fabrication
department sometime in November 2002. Petitioner refused to accept the
transfer and insisted to work as a machinist. Because of petitioners arrogant
and unruly behavior, he was led away by a guard. When petitioner returned
for work, he purportedly demanded a salary increase and wages for the days
that he did not work. Respondent considered the actuations of petitioner
tantamount to insubordination, hence, it suspended the petitioner for six days.
After his suspension on November 28, 2002, petitioner accepted his transfer
to the fabrication department but worked for only one day. During the
companys Christmas party on December 21, 2002, petitioner came and
asked for his 13th month pay. On January 13, 2003, petitioner demanded to
get his one day salary deposit but was told to secure a clearance which he
failed to comply. Thereafter, petitioner filed the instant complaint for illegal
dismissal.
ISSUE
Whether or not petitioner was constructively dismissed.
Page 14 of 40

Petition is granted
HELD
YES
The SC held that petitioner was constructively dismissed.
Constructive dismissal or a constructive discharge has been defined as
quitting because continued employment is rendered impossible,
unreasonable or unlikely, as an offer involving a demotion in rank and a
diminution in pay. In the instant case, there is constructive dismissal
because the continued employment of petitioner is rendered impossible
so as to foreclose any choice on his part except to resign from such
employment.
While the decision to transfer employees to other areas of its operations
forms part of the well recognized prerogatives of management, it must be
stressed, however, that the managerial prerogative to transfer personnel must
not be exercised with grave abuse of discretion, bearing in mind the basic
elements of justice and fair play. Having the right should not be confused
with the manner in which that right is exercised. Thus it cannot be used as a
subterfuge by the employer to rid himself of an undesirable worker.
In the instant case, while petitioners transfer was valid, the manner by which
respondent unjustifiably prevented him from returning to work on several
occasions runs counter to the claim of good faith on the part of respondent
corporation. By reporting for work, petitioner manifested his willingness to
comply with the regulations of the corporation and his desire to continue
working for the latter. However, he was barred from entering the premises
without any explanation. This is a clear manifestation of disdain and
insensibility on the part of an employer towards a particular employee and a
veritable hallmark of constructive dismissal.
9) Mambulao Lumber Co. v. PNB. 22 SCRA 359 (1969)

MAMBULAO
LUMBER
COMPANY,
plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO
Deputy Provincial Sheriff of Camarines Norte, defendantsappellees. G.R. No. L-22973, January 30, 1968
ANGELES, J.:
FACTS: On May 5, 1956 the plaintiff applied for an industrial loan of
P155,000 (approved for a loan of P100,000 only) with the Naga
Branch of defendant PNB. To secure payment, the plaintiff
mortgaged a parcel of land, together with the buildings and
improvements existing thereon, situated in the poblacion of Jose
Panganiban (formerly Mambulao), province of Camarines Norte. The
PNB released from the approved loan the sum of P27,500, and
another release of P15,500.
The plaintiff failed to pay the amortization on the amounts released
to and received by it. It was found that the plaintiff had already
stopped operation about the end of 1957 or early part of 1958.
The unpaid obligation of the plaintiff as of September 22, 1961,
amounted to P57,646.59, excluding attorney's fees. A foreclosure
sale of the parcel of land, together with the buildings and
improvements thereon was, held on November 21, 1961, and the
said property was sold to the PNB for the sum of P56,908.00,
subject to the right of the plaintiff to redeem the same within a
period of one year.
Page 15 of 40
The plaintiff sent a letter reiterating its request that the foreclosure
sale of the mortgaged chattels be discontinued on the grounds that
the mortgaged indebtedness had been fully paid and that it could
not be legally effected at a place other than the City of Manila.
The trial court sentenced the Mambulao Lumber Company to pay to
the defendant PNB the sum of P3,582.52 with interest thereon at
the rate of 6% per annum. The plaintiff on appeal advanced that its
total indebtedness to the PNB as of November 21, 1961, was only
P56,485.87 and not P58,213.51 as concluded by the court a quo;
hence, the proceeds of the foreclosure sale of its real property
alone in the amount of P56,908.00 on that date, added to the sum
of P738.59 it remitted to the PNB thereafter was more than
sufficient to liquidate its obligation, thereby rendering the
subsequent foreclosure sale of its chattels unlawful;
That for the acts of the PNB in proceeding with the sale of the
chattels, in utter disregard of plaintiff's vigorous opposition thereto,
and in taking possession thereof after the sale thru force,
intimidation, coercion, and by detaining its "man-in-charge" of said
properties, the PNB is liable to plaintiff for damages and
attorney's fees.
ISSUE: Whether or not PNB may be held liable to plaintiff
Corporation for damages and attorneys fees.
HELD: Herein appellant's claim for moral damages, seems to have
no legal or factual basis. Obviously, an artificial person like
herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded
feelings, moral shock or social humiliation which are basis
of moral damages. A corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral
damages. The same cannot be considered under the facts of

this case, however, not only because it is admitted that
herein appellant had already ceased in its business
operation at the time of the foreclosure sale of the chattels,
but also for the reason that whatever adverse effects of the
foreclosure sale of the chattels could have upon its
reputation or business standing would undoubtedly be the
same whether the sale was conducted at Jose Panganiban,
Camarines Norte, or in Manila which is the place agreed upon by
the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy
sheriff of Camarines Norte in proceeding with the sale in utter
disregard of the agreement to have the chattels sold in Manila as
provided for in the mortgage contract, to which their attentions
were timely called by herein appellant, and in disposing of the
chattels in gross for the miserable amount of P4,200.00, herein
appellant should be awarded exemplary damages in the sum of
P10,000.00. The circumstances of the case also warrant the award
of P3,000.00 as attorney's fees for herein appellant.
10) ABS-CBN v. Court of Appeals, 310 SCRA 572 (1999)

Case: ABS-CBN BROADCASTING CORP. v. CA, REPUBLIC
BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL
ROSARIO (301 SCRA 589)
Date: January 21, 1999
Ponente: C.J. Davide, Jr.
Facts:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement
whereby VIVA gave ABS-CBN an exclusive right to exhibit some VIVA films.
According to the agreement, ABS-CBN shall have the right of first refusal to
Page 16 of 40
the next 24 VIVA films for TV telecast under such terms as may be agreed
upon by the parties, however, such right shall be exercised by ABS-CBN from
the actual offer in writing.
Sometime in December 1991, VIVA, through Vicente Del Rosario
(Executive Producer), offered ABS-CBN through VP Charo Santos-Concio, a
list of 3 film packages from which ABS-CBN may exercise its right of first
refusal. ABS-CBN, however through Mrs. Concio, tick off only 10 titles they
can purchase among which is the film Maging Sino Ka Man which is one of
the subjects of the present case, therefore, it did not accept the said list as
per the rejection letter authored by Mrs. Concio sent to Del Rosario.
Hence, the present petition, ABS-CBN argued that an agreement was

made during the meeting of Mr. Lopez and Del Rosario jotted down on a
napkin (this was never produced in court). Moreover, it had yet to fully
exercise its right of first refusal since only 10 titles were chosen from the first
list. As to actual, moral and exemplary damages, there was no clear basis in
awarding the same.
Issue: WON a contract was perfected between ABS-CBN and VIVA and
WON moral damages may be awarded to a corporation
Held: Both NO.
Subsequently, Del Rosario approached Mrs. Concio with another list

consisting of 52 original movie titles and 104 re-runs, proposing to sell to
ABS-CBN airing rights for P60M (P30M in cash and P30M worth of television
spots). Del Rosario and ABS-CBNs General Manager, Eugenio Lopez III,
met at the Tamarind Grill Restaurant in QC to discuss the package proposal
but to no avail.
Four days later, Del Rosario and Mr. Graciano Gozon, Senior VP of
Finance of Republic Broadcasting Corporation (RBS/Channel 7) discussed
the terms and conditions of VIVAs offer. A day after that, Mrs. Concio sent the
draft of the contract between ABS-CBN and VIVA which contained a counterproposal covering 53 films for P35M. VIVAs Board of Directors rejected the
counter-proposal as it would not sell anything less than the package of 104
films for P60M. After said rejection, ABS-CBN closed a deal with RBS
including the 14 films previously ticked off by ABS-CBN.
Consequently, ABS-CBN filed a complaint for specific performance
with prayer for a writ of preliminary injunction and/or TRO against RBS, VIVA
and Del Rosario. RTC then enjoined the latter from airing the subject films.
RBS posted a P30M counterbond to dissolve the injunction. Later on, the trial
court as well as the CA dismissed the complaint holding that there was no
meeting of minds between ABS-CBN and VIVA, hence, there was no basis
for ABS-CBNs demand, furthermore, the right of first refusal had previously
been exercised.
Ratio:
Contracts that are consensual in nature are perfected upon mere
meeting of the minds. Once there is concurrence between the offer and the
acceptance upon the subject matter, consideration, and terms of payment a
contract is produced. The offer must be certain. To convert the offer into a
contract, the acceptance must be absolute and must not qualify the terms of
the offer; it must be plain, unequivocal, unconditional, and without variance of
any sort from the proposal. A qualified acceptance, or one that involves a
new proposal, constitutes a counter-offer and is a rejection of the
original offer. Consequently, when something is desired which is not exactly
what is proposed in the offer, such acceptance is not sufficient to generate
consent because any modification or variation from the terms of the offer
annuls the offer.
After Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN to discuss
the package of films, ABS-CBN, sent through Ms. Concio, counter-proposal in
the form a draft contract. This counter-proposal could be nothing less than
the counter-offer of Mr. Lopez during his conference with Del
Rosario. Clearly, there was no acceptance of VIVAs offer, for it was met by a
counter-offer which substantially varied the terms of the offer.
In the case at bar, VIVA through its Board of Directors,
rejected
such
counter-offer. Even
if
it
be
conceded arguendo that Del Rosario had accepted the
Page 17 of 40
counter-offer, the acceptance did not bind VIVA, as there

was no proof whatsoever that Del Rosario had the specific
authority to do so.
Under
the
Corporation
Code, unless
otherwise
provided by said Code, corporate powers, such as the power
to enter into contracts, are exercised by the Board of
Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted
managers. The delegation, except for the executive
committee, must be for specific purposes . Delegation to
officers makes the latter agents of the corporation; accordingly, the
general rules of agency as to the binding effects of their acts would
apply. For such officers to be deemed fully clothed by the
corporation to exercise a power of the Board, the latter must
specially authorize them to do so. That Del Rosario did not have
the authority to accept ABS-CBNs counter-offer was best
evidenced by his submission of the draft contract to VIVAs
Board of Directors for the latters approval. In any event,
there was between Del Rosario and Lopez III no meeting of
minds.
The testimony of Mr. Lopez and the allegations in the
complaint are clear admissions that what was supposed to have
been agreed upon at the Tamarind Grill between Mr. Lopez and Del
Rosario was not a binding agreement. It is as it should be
because corporate power to enter into a contract is lodged
in the Board of Directors. (Sec. 23, Corporation
Code). Without such board approval by the Viva board,
whatever agreement Lopez and Del Rosario arrived at could
not ripen into a valid contact binding upon Viva.
However, the Court find for ABS-CBN on the issue of
damages. Moral damages are in the category of an award designed
to compensate the claimant for actual injury suffered and not to

impose a penalty on the wrongdoer. The award of moral
damages cannot be granted in favor of a corporation
because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions,
no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced
only by one having a nervous system. The statement that a
corporation may recover moral damages if it has a good reputation
that is debased, resulting in social humiliation is an obiter
dictum. On this score alone the award for damages must be set
aside, since RBS is a corporation.
11. NAPOCOR VS CA
G.R. No. 126204
November 20, 2001
Lessons Applicable: Who may recover (Torts and Damages)

FACTS:
May 14, 1987: National Power Corporation (NAPOCOR) issued

invitations to bid for the supply and delivery of 120,000 metric tons of
imported coal for its Batangas Coal-Fired Thermal Power Plant of
which Philipp Brothers Oceanic, Inc. (PHIBRO) bidded and was
accepted.
July 10, 1987: PHIBRO told NAPOCOR that disputes might soon
plague Australia that will seriously hamper its ability to supply coal
July 23 to July 31, 1987: PHIBRO informed NAPOCOR that unless a

"strike-free" clause is incorporated in the charter party or the contract
Page 18 of 40
of carriage shipowners are unwilling to load their cargo. In order to

hasten the transfer of coal, they should share the burden of
the "strike-free" clause but NAPOCOR refused.
November 17, 1987: PHIBRO effected its first shipment which was
suppose to be on the 30th dat after receipt of the letter of credit of
which it received on August 6, 1987
NAPOCOR's act of disapproving PHIBRO's application for prequalification to bid was without any intent to injure or a purposive
motive to perpetrate damage. Apparently, NAPOCOR acted on the
strong conviction that PHIBRO had a "seriously-impaired" track record
The circumstances under which NAPOCOR disapproved

PHIBRO's pre-qualification to bid do not show an intention to
cause damage to the latter. The measure it adopted was one of
self-protection. Consequently, we cannot penalize NAPOCOR for
the course of action it took. NAPOCOR cannot be made liable for
actual, moral and exemplary damages.
Corollarily, in awarding to PHIBRO actual damages in the amount of

$864,000, the Regional Trial Court computed what could have been
the profits of PHIBRO had NAPOCOR allowed it to participate in the
subsequent public bidding. - Erroneous
October 1987: NAPOCOR once more advertised for the delivery of

coal to its Calaca thermal plant of which PHIBRO applied but was
rejected since it was not able to satisfy the demand for damages
on its delay.
PHIBRO filed for damages in the RTC alleging that the rejection was
tainted with malice and bad faith
RTC: favored PHIBRO. Ordering NAPCOR to reinstate PHIBRO as

accredited bidder, to pay $864,000 actual damages, $100,000 moral
damages, $50,000 exemplary damages, $73,231.91 reimbursement
for expenses, cost of litigation and attorney's fees, cost of suit and
dismissed counterclaim of NAPOCOR.
CA: affirmed in toto. "Strikes" are undoubtedly included in the force

majeure clause of the Bidding Terms and Specifications
Moral damages are granted in recompense for physical suffering,

mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury. A
corporation, being an artificial person and having existence only in
legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental anguish.
Mental suffering can be experienced only by one having a nervous
system and it flows from real ills, sorrows, and griefs of life
a winning party may be awarded attorney's fees only in case plaintiff's

action or defendant's stand is so untenable as to amount to gross and
evident bad faith - none here
ISSUE: W/N PHIBRO is entitled to damages.

HELD: NO. Modified actual, moral and exemplary damages, reimbursement
for expenses, cost of litigation and attorney's fees, and costs of suit, is
DELETED
Since there is no evidence to prove bad faith and arbitrariness on

the part of the petitioners in evaluating the bids, we rule that the
private respondents are not entitled to damages representing lost
profits
Basic is the rule that to recover actual damages, the

amount of loss must not only be capable of proof but
must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence
obtainable of the actual amount thereof.
Page 19 of 40

o
12. MANILA ELECTRIC COMPANY vs. T.E.A.M. ELECTRONICS

CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and
MANAGEMENT PACIFIC CORPORATION; and ULTRA ELECTRONICS
INSTRUMENTS, INC.
On September 28, 1987, a team of petitioner's inspectors

conducted a surprise inspection of the electric meters installed at the
DCIM building which were found to be allegedly tampered with and
did not register the actual power consumption in the building.
MERALCO informed TEC of the results of the inspection and

demanded from the latter the payment representing its
unregistered consumption from February 10, 1986 until
September 28, 1987, as a result of the alleged tampering of the
meters.
Since Ultra was in possession of the subject building during the

covered period, TEC's Managing Director, Mr. Bobby Tan,
referred the demand letter to Ultra.
For failure of TEC to pay the differential billing, petitioner disconnected

the electricity supply to the DCIM building.
TEC demanded from petitioner the reconnection of electrical service,

claiming that it had nothing to do with the alleged tampering but the
latter refused to heed the demand.
Hence, TEC filed a complaint before the Energy Regulatory Board

(ERB) which immediately ordered the reconnection of the service.
However, prior to the reconnection, petitioner conducted a scheduled

inspection of the questioned meters and found them to have been
tampered anew.
FACTS:
-
T.E.A.M. Electronics Corporation (TEC) was formerly known as NS

Electronics (Philippines), Inc. before 1982 and National SemiConductors (Phils.) before 1988.
o
TEC is wholly owned by respondent Technology Electronics

Assembly and Management Pacific Corporation (TPC).
On the other hand, petitioner Manila Electric Company (Meralco) is a

utility company supplying electricity in the Metro Manila area.
MERALCO and NS Electronics (Philippines), Inc., the predecessor-ininterest of respondent TEC, entered into two separate contracts
denominated as Agreements for the Sale of Electric Energy wherein:
petitioner undertook to supply TEC's building known as

Dyna Craft International Manila (DCIM) with electric power.
Another contract was entered into for the supply of electric

power to TEC's NS Building under Account No. 19389-090010.
TEC, under its former name National Semi-Conductors (Phils.)

entered into a Contract of Lease with respondent Ultra
Electronics Industries, Inc. for the use of the former's DCIM
building for a period of five years or until September 1991.
Ultra was, however, ejected from the premises on February

12, 1988 by virtue of a court order, for repeated violation of the
terms and conditions of the lease contract.
Page 20 of 40
Meanwhile, on April 25, 1988, petitioner conducted another

inspection, this time, in TEC's NS Building. The inspection
allegedly revealed that the electric meters were not registering
the correct power consumption.
3) whether or not petitioner was justified in disconnecting the electric power

supply in TEC's DCIM building.
MERALCO sent a letter demanding payment of representing the

differential billing.
HELD: The petition must fail.
TEC denied petitioner's allegations and claim.
Petitioner, thus, sent TEC another letter demanding payment of the

aforesaid amount, with a warning that the electric service would be
disconnected in case of continued refusal to pay the differential billing.
To avert the impending disconnection of electrical service, TEC paid

the above amount, under protest.
TEC and TPC filed a complaint for damages against petitioner and
Ultra before the RTC which rendered a decision in their favor and
affirmed by CA.
Petitioner now comes before this Court in this petition for review on
certiorari.
ISSUES:
1) whether or not TEC tampered with the electric meters installed at its DCIM
and NS buildings;
2) If so, whether or not it is liable for the differential billing as computed by
petitioner; and
As to the alleged tampering of the electric meter in TEC's NS building, suffice

it to state that the allegation was not proven, considering that the meters
therein were enclosed in a metal cabinet the metal seal of which was
unbroken, with petitioner having sole access to the said meters.38
In view of the negative finding on the alleged tampering of electric meters on
TEC's DCIM and NS buildings, petitioner's claim of differential billing was
correctly denied by the trial and appellate courts. With greater reason,
therefore, could petitioner not exercise the right of immediate disconnection.
However, recourse to differential billing with disconnection was subject to the
prior requirement of a 48-hour written notice of disconnection.44
Petitioner, in the instant case, resorted to the remedy of disconnection
without prior notice. While it is true that petitioner sent a demand letter
to TEC for the payment of differential billing, it did not include any notice
that the electric supply would be disconnected. In fine, petitioner abused the
remedies granted to it under P.D. 401 and Revised General Order No. 1 by
outrightly depriving TEC of electrical services without first notifying it of
the impending disconnection. Accordingly, the CA did not err in
affirming the RTC decision.
We, however, deem it proper to delete the award of moral damages. TEC's
claim was premised allegedly on the damage to its goodwill and
reputation.50 As a rule, a corporation is not entitled to moral damages
because, not being a natural person, it cannot experience physical suffering
or sentiments like wounded feelings, serious anxiety, mental anguish and
Page 21 of 40
moral shock. The only exception to this rule is when the corporation has a
reputation that is debased, resulting in its humiliation in the business realm.51
But in such a case, it is imperative for the claimant to present proof to justify
the award. It is essential to prove the existence of the factual basis of the
damage and its causal relation to petitioner's acts.52 In the present case, the
records are bereft of any evidence that the name or reputation of TEC/TPC
has been debased as a result of petitioner's acts. Besides, the trial court
simply awarded moral damages in the dispositive portion of its decision
without stating the basis thereof.
13. Ching vs Secretary of Justice
Under the receipts, Ching agreed to hold the goods in trust for
RCBC, with authority to sell but not by way of conditional sale,
pledge or otherwise
In case such goods were sold, to turn over the

proceeds thereof as soon as received, to apply against
the relative acceptances and payment of other
indebtedness to respondent bank.
In case the goods remained unsold within the specified

period, the goods were to be returned to RCBC without
any need of demand.
goods, manufactured products or proceeds thereof,

whether in the form of money or bills, receivables, or
accounts separate and capable of identification RCBCs property
Lessons Applicable: Corp. Officers or employees, through whose act, default

or omission the corp. commits a crime, are themselves individually guilty of
the crime (Corporate Law)
FACTS:
Sept-Oct 1980: PBMI, through Ching, Senior VP of Philippine

Blooming Mills, Inc. (PBMI), applied with the Rizal Commercial
Banking Corporation (RCBC) for the issuance of commercial letters of
credit to finance its importation of assorted goods
RCBC approved the application, and irrevocable letters of credit were

issued in favor of Ching.
The goods were purchased and delivered in trust to PBMI.

o
Ching signed 13 trust receipts as surety, acknowledging

delivery of the goods
When the trust receipts matured, Ching failed to return the goods to
RCBC, or to return their value amounting toP6,940,280.66 despite
demands.
o
RCBC filed a criminal complaint for estafa against petitioner in

the Office of the City Prosecutor of Manila.
December 8, 1995: no probable cause to charge

petitioner with violating P.D. No. 115, as petitioners
liability was only civil, not criminal, having signed the
trust receipts as surety
RCBC appealed the resolution to the Department of Justice (DOJ) via

petition for review
o
On July 13, 1999: reversed the assailed resolution of the City

Prosecutor
Page 22 of 40

o
execution of said receipts is enough to indict the Ching as the

official responsible for violation of P.D. No. 115
respondent in RCBC vs. Court of Appeals case is clearly

separate and distinct from his criminal liability under PD 115
April 22, 2004: CA dismissed the petition for lack of merit and on
procedural grounds
Chings being a Senior Vice-President of the Philippine Blooming Mills

does not exculpate him from any liability
Ching filed a petition for certiorari, prohibition and mandamus with the
CA
The crime defined in P.D. No. 115 is malum prohibitum but is

classified as estafa under paragraph 1(b), Article 315 of the Revised
Penal Code, or estafa with abuse of confidence. It may be committed
by a corporation or other juridical entity or by natural persons.
However, the penalty for the crime is imprisonment for the periods
provided in said Article 315.
law specifically makes the officers, employees or other officers or

persons responsible for the offense, without prejudice to the civil
liabilities of such corporation and/or board of directors, officers, or
other officials or employees responsible for the offense
ISSUE: W/N Ching should be held criminally liable.

HELD: YES. DENIED for lack of merit
There is no dispute that it was the Ching executed the 13 trust

receipts.
o
law points to him as the official responsible for the offense
Since a corporation CANNOT be proceeded against criminally

because it CANNOT commit crime in which personal violence
or malicious intent is required, criminal action is limited to the
corporate agents guilty of an act amounting to a crime and
never against the corporation itself
execution by Ching of receipts is enough to indict him as the

official responsible for violation of PD 115
RCBC is estopped to still contend that PD 115 covers only

goods which are ultimately destined for sale and not goods,
like those imported by PBM, for use in manufacture.
Moreover, PD 115 explicitly allows the prosecution of

corporate officers without prejudice to the civil liabilities arising
from the criminal offense thus, the civil liability imposed on
rationale: officers or employees are vested with the authority

and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held
criminally accountable; thus, they have a responsible share in
the violations of the law
If the crime is committed by a corporation or other juridical entity, the

directors, officers, employees or other officers thereof responsible for
the offense shall be charged and penalized for the crime, precisely
because of the nature of the crime and the penalty therefor. A
corporation cannot be arrested and imprisoned; hence, cannot be
penalized for a crime punishable by imprisonment. However, a
corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and
imprisonment as penalty, a corporation may be prosecuted and, if
found guilty, may be fined
Page 23 of 40
When a criminal statute designates an act of a corporation or a crime

and prescribes punishment therefor, it creates a criminal offense
which, otherwise, would not exist and such can be committed only by
the corporation. But when a penal statute does not expressly apply to
corporations, it does not create an offense for which a corporation
may be punished. On the other hand, if the State, by statute, defines
a crime that may be committed by a corporation but prescribes the
penalty therefor to be suffered by the officers, directors, or employees
of such corporation or other persons responsible for the offense, only
such individuals will suffer such penalty. Corporate officers or
employees, through whose act, default or omission the corporation
commits a crime, are themselves individually guilty of the crime. The
principle applies whether or not the crime requires the consciousness
of wrongdoing. It applies to those corporate agents who themselves
commit the crime and to those, who, by virtue of their managerial
positions or other similar relation to the corporation, could be deemed
responsible for its commission, if by virtue of their relationship to the
corporation, they had the power to prevent the act. Benefit is not an
operative fact
14. JG Summit Holdings INC. vs. Court of Appeals G.R. No. 124293
January 31, 2005
Facts:
The National Investment and Development Corporation (NIDC), a
government corporation,
entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe,
Japan (KAWASAKI) 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 NDC and KAWASAKI will contribute P330M 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 an
Administrative Order.
When the former President 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 5%, the highest bid for the said shares.
They further agreed that KAWASAKI woul.d be entitled to name a company in
which it was a
stockholder, which could exercise the right to top. KAWASAKI then
informed APT that
Page 24 of 40
Philyards Holdings, Inc. (PHI) would exercise its right to top.

At the public bidding, petitioner J.G. Summit Holdings Inc. submitted a bid
of Two Billion and
Thirty Million Pesos (Php2,030,000,000.00) with an acknowledgement of
KAWASAKI/PHILYARDS right to top.
As petitioner was declared the highest bidder, the COP approved the sale
subject to the right of
Kawasaki Heavy Industries, Inc. / PHILYARDS Holdings Inc. to top JGs bid
by 5% as specified in the bidding rules.
On the other hand, the respondent by virtue of right to top by 5%, the
highest bid for the said
shares timely exercised the same.
Petitioners, in their motion for reconsideration, raised, inter alia, the
issue on the maintenance of
the 60%-40% relationship between the NIDC and KAWASAKI arising
from the Constitution
because PHILSECO is a landholding corporation and need not be a
public utility to be bound by
the 60%-40% constitutional limitation.
ISSUE:
o
Whether or not PHILSECO is a public utility
Whether or not Kawasaki/PHI can purchase beyond 40% of
SC stated that sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP
Blg. 391 and when BP Blg. 391 was subsequently repealed by EO 226, the
latter law did not revive sec. 1 of PD No. 666. Therefore, the law that states
that a shipyard is a public utility still stands.
A shipyard such as PHILSECO being a public utility as provided by law is
therefore required to comply with the 60%-40% capitalization under the
Constitution. Likewise, the JVA between NIDC and Kawasaki manifests an
intention of the parties to abide by this constitutional mandate. Thus, under
the JVA, should the NIDC opt to sell its shares of stock to a third party,
Kawasaki could only exercise its right of first refusal to the extent that its total
shares of stock would not exceed 40% of the entire shares of stock. The
NIDC, on the other hand, may purchase even beyond 60% of the total shares.
As a government corporation and necessarily a 100% Filipino-owned
corporation, there is nothing to prevent its purchase of stocks even beyond
60% of the capitalization as the Constitution clearly limits only foreign
capitalization.
Kawasaki was bound by its contractual obligation under the JVA that limits its
right of first refusal to 40% of the total capitalization of PHILSECO. Thus,
Kawasaki cannot purchase beyond 40% of the capitalization of the joint
venture on account of both constitutional and contractual proscriptions.
PHILSECOs stocks
HELD:
In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit
relied on sec. 13, CA No. 146. On the other hand, Kawasaki/PHI argued that
PD No. 666 explicitly stated that a shipyard was not a public utility. But the
15. General Credit Corp v. Alsons Dev. and Investment Corp

FACTS:
Petitioner General Credit Corporation (GCC), then known as
Commercial Credit Corporation (CCC), established CCC franchise
companies in different urban centers of the country. In furtherance
Page 25 of 40
of its business, GCC was able to secure license from Central Bank
(CB) and SEC to engage also in quasi-banking activities. On the
other hand, respondent CCC Equity Corporation (EQUITY) was
organized in by GCC for the purpose of, among other things,
taking over the operations and management of the various
franchise companies. At a time material hereto, respondent
Alsons Development and Investment Corporation (ALSONS) and the
Alcantara family, each owned, just like GCC, shares in the aforesaid
GCC franchise companies, e.g., CCC Davao and CCC Cebu.
ALSONS and the Alcantara family, for a consideration of P2M, sold
their shareholdings (101,953 shares), in the CCC franchise
companies to EQUITY.
EQUITY issued ALSONS et al., a "bearer"
promissory note for P2M with a one-year maturity date.4 years
later, the Alcantara family assigned its rights and interests over the
bearer note to ALSONS which became the holder thereof. But even
before the execution of the assignment deal aforestated, letters of
demand for interest payment were already sent to EQUITY. EQUITY
no longer then having assets or property to settle its
obligation nor being extended financial support by GCC,
pleaded inability to pay. ALSONS, having failed to collect on
the bearer note aforementioned, filed a complaint for a sum
of money against EQUITY and GCC. GCC is being impleaded as
party-defendant for any judgment ALSONS might secure against
EQUITY and, under the doctrine of piercing the veil of
corporate
fiction,
against
GCC,
EQUITY
having
been
organized as a tool and mere conduit of GCC.
According to EQUITY (cross-claim against GCC): it acted merely
as intermediary or bridge for loan transactions and other
dealings of GCC to its franchises and the investing public;
and is solely dependent upon GCC for its funding
requirements. Hence, GCC is solely and directly liable to ALSONS,
the former having failed to provide EQUITY the necessary funds to
meet its obligations to ALSONS. GCC filed its ANSWER to Cross-
claim, stressing that it is a distinct and separate entity from

EQUITY.
RTC, finding that EQUITY was but an instrumentality or
adjunct of GCC and considering the legal consequences and
implications of such relationship, rendered judgment for Alson.
CA affirmed.
ISSUE: WON the doctrine of "Piercing the Veil of Corporate Fiction"
should be applied in the case at bar.
HELD: YES.
The notion of separate personality, however, may be disregarded
under the doctrine "piercing the veil of corporate fiction" as in
fact the court will often look at the corporation as a mere collection
of individuals or an aggregation of persons undertaking business as
a group, disregarding the separate juridical personality of the
corporation unifying the group.
Another formulation of this doctrine is that when two (2)
business enterprises are owned, conducted and controlled
by
the
same parties,
both
law and
equity
will,
when
necessary
to
protect
the
rights
of
third
parties, disregard the legal fiction that two corporations are
distinct entities and treat them as identical or one and the
same. Authorities are agreed on at least three (3) basic areas
where piercing the veil, with which the law covers and isolates the
corporation from any other legal entity to which it may be related,
is allowed.
These are:
1) defeat of public convenience, as when the corporate
fiction is used as vehicle for the evasion of an existing
obligation;
Page 26 of 40
2) fraud cases or when the corporate entity is used to

justify a wrong, protect fraud, or defend a crime; or
respondent
EQUITY;
and
the
establishment
of
respondent EQUITY by the petitioner to circumvent CB rules.
3) alter ego cases, where a corporation is merely a farce

since it is a mere alter ego or business conduit of a person,
or where the corporation is so organized and controlled and
its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation.
Some of the detailed circumstances:
The CA found valid grounds to pierce the corporate veil of petitioner

GCC, there being justifiable basis for such action. When the
appellate court spoke of a justifying factor, the reference was to
what the trial court said in its decision, namely: the existence
of certain circumstances [which], taken together, gave rise to the
ineluctable conclusion that [respondent] EQUITY is but an
instrumentality or adjunct of [petitioner] GCC.
The Court agrees with the disposition of the CA on the application of
the piercing doctrine to the transaction subject of this case. Per the
Courts count, the trial court enumerated no less than 20
documented
circumstances and transactions, which, taken as a
package, indeed strongly supported the conclusion that respondent
EQUITY was but an adjunct, an instrumentality or business conduit
of petitioner GCC. This relation, in turn, provides a justifying ground
to pierce petitioners corporate existence as to ALSONS claim in
question. Foremost of what the trial court referred to as "certain
circumstances" are the commonality of directors, officers and
stockholders and even sharing of office between petitioner
GCC and respondent EQUITY; certain financing and
management arrangements between the two, allowing the
petitioner to handle
the funds of the latter; the virtual
domination if not control wielded by the petitioner
over
the
finances,
business
policies
and
practices
of
[respondent] EQUITY and [petitioner] GCC had

common directors and/or officers as well as
stockholders. Disclosed likewise is the fact that when
[EQUITYs President] Labayen sold the shareholdings of
EQUITY in said franchise companies, practically the entire
proceeds thereof were surrendered to GCC, and not
received by EQUITY
- GCC financed EQUITY and EQUITY was, in fact, a
wholly owned subsidiary of GCC, funds invested by
EQUITY in the CCC franchise companies actually
came from CCC Phils. or GCC
- GCC cause the incorporation of EQUITY and its business
affairs were considered as GCCs own business
endeavors.
- EQUITY never acted independently but took their
orders from GCC
- EQUITY was organized by GCC for the purpose of
circumventing [CB] rules and regulations and the
Anti-Usury Law ((a) using as a conduit its non-quasi
bank affiliates . (b) issuing without recourse facilities to
enable GCC to extend credit to affiliates like EQUITY which
go beyond the single borrowers limit without the need of
showing outstanding balance in the book of accounts.)
There being a parent-subsidiary corporation relationship between
EQUITY and GCC, GCC maybe held responsible for the acts and
contracts of its subsidiary EQUITY, especially that the latter has no
sufficient property to settle its obligations.For, after all, GCC was
the entity which initiated and benefited immensely from the
fraudulent scheme perpetrated in violation of the law.
-
16) Mel Velarde vs Lopez Inc, G.R. No. 153886 | 2004-01-14

Page 27 of 40
FACTS: On January 6, 1997, Eugenio Lopez Jr., then President of

respondent Lopez, Inc., as LENDER, and petitioner Mel Velarde,
then General Manager of Sky Vision Corporation, a
subsidiary of respondent, as BORROWER, forged a notarized
loan agreement covering the amount of P10,000,000.00. The
agreement expressly provided for, among other things, the manner
of payment and the circumstances constituting default which would
give the lender the right to declare the loan together with accrued
interest immediately due and payable. As petitioner failed to
pay the instalments as they became due, respondent,
apparently in answer to a proposal of petitioner respecting
the settlement of the loan, advised him by letter dated July
15, 1998 that he may use his retirement benefits in Sky
Vision in partial settlement of his loan after he settles his
accountabilities to the latter and gives his written instructions to
it. Petitioner protested the computation indicated in the July 15,
1998 letter, he asserting that the imputed unliquidated advances
from Sky Vision had already been properly liquidated. On August
18, 1998, respondent filed a complaint for collection of sum of
money with damages at the RTC of Pasig City against petitioner
because of failure to comply with the loan agreement and refusal to
pay upon demand. Respondent filed a manifestation and a motion
to dismiss the counterclaim for want of jurisdiction, which drew
petitioner to assert in his comment and opposition thereto that the
veil of corporate fiction must be pierced to hold respondent liable
for his counterclaims.
RTC of Pasig denied respondents motion to dismiss the
counterclaim and ruled that there is identity of interest between
respondent and Sky Vision to merit the piercing of the veil of
corporate fiction. Respondents motion for reconsideration having
been denied, it filed a Petition for Certiorari at the CA which held
that respondent is not the real party-in-interest on the counterclaim
and that there was failure to show the presence of any of the
circumstances to justify the application of the principle of "piercing
the veil of corporate fiction." Motion for Reconsideration was
likewise denied. Hence this Petition for Review on Certiorari.
ISSUE: Whether or not the veil of corporate fiction must be pierced
to hold respondent liable.
RULING: In applying the doctrine of piercing the veil of corporate
fiction, the following requisites must be established: (1) control,
not merely majority or complete stock control; (2) such control
must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive
legal duty, or dishonest acts in contravention of plaintiffs legal
rights; and (3) the aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of.
Nowhere, however, in the pleadings and other records of
the case can it be gathered that respondent has complete
control over Sky Vision, not only of finances but of policy
and business practice in respect to the transaction
attacked, so that Sky Vision had at the time of the
transaction no separate mind, will or existence of its own.
The existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of
corporate fiction in the absence of fraud or other public policy
considerations.
Petitioner muddles the issues by arguing that respondent
fraudulently took advantage of the control over the matter of
compensation and benefits of an employee of Sky Vision to deceive
petitioner into signing the loan agreement on the misleading
assurance that it was merely for the purpose of documenting the
reward to him of ten million pesos. This argument does not
Page 28 of 40
persuade. Petitioner, being a lawyer, is presumed to know the legal

and binding effects of loan agreements.
As for the trial courts ruling that the agreement to set-off is an
amendment of the loan agreement resulting to an identity of
interest between respondent and Sky Vision and, therefore,
sufficient to pierce the veil of corporate fiction, it is untenable. In
the letter sent to petitioner it was mentioned that, to effect
a set-off, it is a condition sine qua non that the approval
thereof by "Sky/Central" must be obtained, and that
petitioner liquidate his advances from Sky Vision. These
conditions hardly manifest that respondent possessed that
degree of control over Sky Vision as to make the latter its
mere instrumentality, agency or adjunct.
17. Heirs of Ramon Durano, Sr. vs. Uy (344 SCRA 238)

July 27, 2010
Separate Juridical Personality
Alter Ego: Piercing the Veil of Corporate Fiction
Facts: Ramon Durano III & wife instituted an action for damages against Uy,
etc. accusing them of officiating a hate campaign against them by lodging
complaints in the police for invasion of property; sending complaints to the
Office of the President depicting them as oppressors, landgrabbers &
usurpers; spreading false rumors & damaging tales w/c put them into public
contempt & ridicule.
In their answer, Uy, etc. lodged affirmative defenses, demanded the return of
their property & made counterclaims for actual, moral & exemplary damages.
They claim that in the first week of August 1970, they received
mimeographed notices signed by Durano, Sr. informing them that the land
they were tilling, formerly owned by Cepco was purchased by Durano & Co,
directing them to immediately turn over the property. Even before they could
vacate, Durano & Co. proceeded to bulldoze & destroy their property & fire at
air even. September 15, 1970 Durano & Co. sold the property to Durano III
who proceeded to register the lands in his name. They claim that they were
deprived of their independent source of income, were made victims of serious
violence & demanded damages for cost of improvements on the land that
were destroyed.
The Duranos moved for the dismissal of their complaint w/c the trial court
granted w/o prejudice to the right of Uy, etc. to maintain their counterclaim.
The counterclaim was later upheld. This decision was affirmed by the CA.
Hence this petition.
Issue: WON Durano can invoke the doctrine of separate corporate
personality to evade liability for damages
Held: Denied & CA decision modified. The Duranos hinge their claim on the
TCTs issued in the name of Durano III. Their validity was put into serious
doubt by the ff: a) the certificates reveal the lack of registered title of Cepoc to
the Properties; b) alleged reconstituted titles of Cepoc were not produced in
evidence; c) deed of sale between Cepoc & Durano & Co. was unnotarized &
thus unregisterable
Fraud in the issuance of a certificate of title may be raised only in an action
expressly instituted for that purpose; and not collaterally as in an action for
reconveyance & damages. The rule on indefeasibility of title Torrens titles
can only be attacked for fraud w/in 1 year from the date of issuance of the
decree of registration; an action for reconveyance may prosper if a property
wrongfully registered has not passed to an innocent purchaser for value. The
purchase of Durano & Co. could not be said to have been in good faith since
it is not disputed that Durano III acquired the property w/ full knowledge of
Uys occupancy thereon. Uys action for reconveyance will prosper, it being
clear that the property, wrongfully registered in the name of Durano III, has
not passed to an innocent purchaser for value.
Notarization of the deed of sale is essential to its registrability, & the action of
Page 29 of 40
the RD in allowing the registration of the unacknowledged deed of sale was

unauthorized & did not render validity to the registration of the document.
A buyer who could not have failed to know or discover that the land sold to
him was in the adverse possession of another is a buyer in bad faith. A
purchaser cannot just close his eyes to facts w/c should put a reasonable
man upon his guard, such as when the subject of the sale is in the
possession of persons other than the seller. Uy & company were in open
possession & occupancy of the properties when Durano & Co. supposedly
purchased the same from Cepoc.
In applying the instrumentality or alter ego doctrine, the courts are
concerned w/ reality & not form, w/ how the corp operated & the individual
defendants relationship to that operation.
Whether a corporation is a mere alter ego is purely one of fact. Shortly after
the sale by Cepco to Durano & Co., the latter sold the property to
Durano III, who immediately procured the registration of the property in
his name. Obviously, Durano & Co. was used by Durano III,etc. as an
instrumentality to appropriate the disputed property for themselves.
requires possession of the thing in good faith & w/ just title for a period of 10
years.
Remedies of an owner on whose land somebody has built in bad faith: a)
appropriate what has been built w/o any obligation to pay indemnity; b)
demand that the builder remove what he had built; c) compel the builder to
pay the value of the land. In any case, landowner is entitled to damages
(Art.451)
18. PNB VS RITRATTO GROUP

FACTS:
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 Ritratto Group, Inc. (Ritartto) in the amount
of US$300K secured by real estate mortgages constituted over 4 parcels of
land in Makati City
September 1996: increased successively to US$1,140,000.00
1996: to US$1,290,000.00
November
Test to enable piercing of the veil, except in express agency, estoppel or

direct tort:
February 1997: US$1,425,000.00

US$1,421,316.18
a)Control, not mere majority or complete domination; b)Such control must

have e=been used by the defendant to commit fraud or wrong, etc.; c)The
aforesaid control & breach of duty must approximately cause the injury or
unjust loss complained of.
Ritratto Group, Inc. made repayments of the loan incurred by remitting those
amounts to their loan account with PNB-IFL in Hong Kong.
Sec.8 Rule 51 indicates that the CA is not limited to reviewing only those
errors assigned by appellant but also those closely related to or dependent
on an assigned error. CA is imbued w/ sufficient discretion to review matters.
Ordinary acquisitive prescription, in the case of immovable property,
April 1998: decreased to
April 30, 1998: outstanding amounted to US$1,497,274.70

PNB-IFL, through its attorney-in-fact PNB, notified them of the
foreclosure of all the real estate mortgages and that the properties
subjected
Page 30 of 40
May 25, 1999: Ritratto Group, Inc filed a complaint for injunction with prayer
for the issuance of a writ of preliminary injunction and/or temporary
restraining order before the RTC. -granted 72-hour TRO
The Circumstance rendering the subsidiary an instrumentality (common

circumstances)
RTC and CA: dismissed motion to dismiss
(a) The parent corporation owns all or most of the capital stock of the
subsidiary.
PNB-IFL, is a wholly owned subsidiary of defendant Philippine National

Bank, the suit against the defendant PNB is a suit against PNB-IFL
(b) The parent and subsidiary corporations have common directors or

officers.
Rittratto: entire credit facility is void as it contains stipulations in violation of

the principle of mutuality of contracts
(c) The parent corporation finances the subsidiary.
ISSUE: W/N PNB is an alter ego of PNB-IFL
(d) The parent corporation subscribes to all the capital stock of the
subsidiary or otherwise causes its incorporation.
HELD: NO. Petition is granted
(e) The subsidiary has grossly inadequate capital.
PNB is an agent with limited authority and specific duties under a special
power of attorney incorporated in the real estate mortgage.
(f) The parent corporation pays the salaries and other expenses or losses
of the subsidiary.
not privy to the loan contracts entered into by PNB-IFL.
(g) The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent
corporation.
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.
(h) In the papers of the parent corporation or in the statements of its officers,
the subsidiary is described as a department or division of the parent
corporation, or its business or financial responsibility is referred to as the
parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its
own.
(j) The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take their orders from the
parent corporation.
Page 31 of 40
(k) The formal legal requirements of the subsidiary are not observed.
20. G. No. L-12719
May 31, 1962
19) Sunio vs.NLRC,127 SCRA 390
THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs.

THE CLUB FILIPINO, INC. DE CEBU, respondent.
EM Ramos & Co., Inc (EMRACO) and Cabugao Ice Plant, Inc. (CIPI), sister
corporations, sold an ice plant to Rizal Development and Finance, Corp.
(RDFC). To secure RDFCs payment of the purchase price, the ice plant was
mortgaged to EMRACO-CIPI. Because of the sale, EMRACO-CIPI
terminated all of their employees, including private respondents.
This is a petition to review the decision of the Court of Tax Appeals, reversing
the decision of the Collector of Internal Revenue, assessing against and
demanding from the "Club Filipino, Inc. de Cebu", the sum of P12,068.84
as fixed and percentage taxes, surcharge and compromise penalty, allegedly
due from it as a keeper of bar and restaurant.
Later, RDFC sold the ice plant, subject to the mortgage in favor of
EMRACO-CIPI, to petitioner Ilocos Commercial Corp. (ICC).
When RDFC and ICC defaulted on the payment of the balance of the
purchase price, EMRACO-CIPI extrajudicially foreclosed the ice plant. It then
sold it to Nilo Villanueva, subject to RDFCs right of redemption. Nilo
Villanueva rehired private respondents.
When RDFC redeemend the ice plant, private respondents were again
dismissed. Thus, the latter filed complaints against the petitioner corporation,
and its President and General Manager, Alberto Sunio, for illegal dismissal.
The Assistance Regional Director of the Ministry of Labor and Employment
ordered petitioners to reinstate private respondents. NLRC affirmed.
Petitioner Sunio, who owned of ICC, was made jointly and severally liable
with ICC and CIPI for the payment of backwages.
RATIO: A corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any
other legal entity to which it may be related. Mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not itself sufficient ground for disregarding the
separate corporate personality. Therefore, Sunio should not have been
made personally liable for the payment of backwages to private respondents.
As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club,
for short), is a civic corporation organized under the laws of the Philippines
with an original authorized capital stock of P22,000.00, which was
subsequently increased to P200,000.00, among others, to it "proporcionar,
operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego
de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no
prohibidos por leyes generales y ordenanzas generales; y desarollar y
cultivar deportes de toda clase y denominacion cualquiera para el recreo y
entrenamiento saludable de sus miembros y accionistas" (sec. 2, Escritura
de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or bylaws is there a provision relative to dividends and their distribution, although it
is covenanted that upon its dissolution, the Club's remaining assets, after
paying debts, shall be donated to a charitable Philippine Institution in Cebu
(Art. 27, Estatutos del Club, Exh. A-a.).
The Club owns and operates a club house, a bowling alley, a golf course (on
a lot leased from the government), and a bar-restaurant where it sells wines
and liquors, soft drinks, meals and short orders to its members and their
guests. The bar-restaurant was a necessary incident to the operation of the
club and its golf-course. The club is operated mainly with funds derived
from membership fees and dues. Whatever profits it had, were used to
defray its overhead expenses and to improve its golf-course. In 1951. as
a result of a capital surplus, arising from the re-valuation of its real properties,
Page 32 of 40
the value or price of which increased, the Club declared stock dividends;
but no actual cash dividends were distributed to the stockholders. In 1952,
a BIR agent discovered that the Club has never paid percentage tax on the
gross receipts of its bar and restaurant, although it secured B-4, B-9(a) and
B-7 licenses.
The Club wrote the Collector, requesting for the cancellation of the
assessment. The request having been denied, the Club filed the instant
petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of
12,068.84, as fixed and percentage taxes and surcharges prescribed in
sections 182, 183 and 191 of the Tax Code, under which the assessment was
made, in connection with the operation of its bar and restaurant, during the
periods mentioned above; and
2. Whether it is liable for the payment of the sum of P500.00 as compromise
penalty.
Section 182, of the Tax Code states, "Unless otherwise provided, every
person engaging in a business on which the percentage tax is imposed shall
pay in full a fixed annual tax of ten pesos for each calendar year or fraction
thereof in which such person shall engage in said business." Section 183
provides in general that "the percentage taxes on business shall be payable
at the end of each calendar quarter in the amount lawfully due on the
business transacted during each quarter; etc." And section 191, same Tax
Code, provides "Percentage tax . . . Keepers of restaurants, refreshment
parlors and other eating places shall pay a tax three per centum, and
keepers of bar and cafes where wines or liquors are served five per
centum of their gross receipts . . .".
It has been held that the liability for fixed and percentage taxes, as
provided by these sections, does not ipso facto attach by mere reason
of the operation of a bar and restaurant. For the liability to attach, the
operator thereof must be engaged in the business as a barkeeper and

restaurateur. The plain and ordinary meaning of business is restricted
to activities or affairs where profit is the purpose or livelihood is the
motive, and the term business when used without qualification, should
be construed in its plain and ordinary meaning, restricted to activities
for profit or livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the
BPOE [Manila Elks Club] & Court of Tax Appeals, G.R. No. L-11176, June 29,
1959, giving full definitions of the word "business"; Coll. of Int. Rev. v.
Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21,
1959, the facts of which are similar to the ones at bar; Manila Polo Club v. B.
L. Meer, etc., No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to develop and cultivate
sports of all class and denomination, for the healthful recreation and
entertainment of its stockholders and members; that upon its dissolution, its
remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu; that it is operated mainly with funds derived
from membership fees and dues; that the Club's bar and restaurant catered
only to its members and their guests; that there was in fact no cash dividend
distribution to its stockholders and that whatever was derived on retail from its
bar and restaurant was used to defray its overall overhead expenses and to
improve its golf-course (cost-plus-expenses-basis), it stands to reason that
the Club is not engaged in the business of an operator of bar and
restaurant (same authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and
restaurant, but such fact does not necessarily convert it into a profit-making
enterprise. The bar and restaurant are necessary adjuncts of the Club to
foster its purposes and the profits derived therefrom are necessarily
incidental to the primary object of developing and cultivating sports for the
healthful recreation and entertainment of the stockholders and members.
That a Club makes some profit, does not make it a profit-making Club. As has
been remarked a club should always strive, whenever possible, to have
surplus (Jesus Sacred Heart College v. Collector of Int. Rev., G.R. No. L6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R.
No. L-9276, Oct. 23, 1956).1wph1.t
Page 33 of 40
It is claimed that unlike the two cases just cited (supra), which are non-stock,
the appellee Club is a stock corporation. This is unmeritorious. The facts that
the capital stock of the respondent Club is divided into shares, does not
detract from the finding of the trial court that it is not engaged in the
business of operator of bar and restaurant. What is determinative of
whether or not the Club is engaged in such business is its object or
purpose, as stated in its articles and by-laws. It is a familiar rule that the
actual purpose is not controlled by the corporate form or by the commercial
aspect of the business prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation. From the extrinsic
evidence adduced, the Tax Court concluded that the Club is not engaged in
the business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied
with, to wit: (1) a capital stock divided into shares and (2) an authority to
distribute to the holders of such shares, dividends or allotments of the surplus
profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at
bar, nowhere in its articles of incorporation or by-laws could be found
an authority for the distribution of its dividends or surplus profits.
Strictly speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon
fraternal, civic, non-profit, nonstock organizations, unless the intent to the
contrary is manifest and patent" (Collector v. BPOE Elks Club, et al., supra),
which is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the
business as an operator of a bar and restaurant, and therefore, not liable for
fixed and percentage taxes, it follows that it is not liable for any penalty, much
less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.
21. Shipside Inc vs. Court of Appeals, G.R. No. 1433 | 2001-02-20
Doctrine:
Prescription of action does not run against the State: it is not
applicable to artificial bodies created by the State for special purpose.
Facts:
On October 29, 1958, Original Certificate of Title No. 0-381 was issued in
favor of Rafael Galvez, over four parcels of land - Lot 1; Lot 2,; Lot 3; and Lot
4,. On April 11, 1960, Lots No. 1 and 4 were conveyed by Rafael Galvez in
favor of Filipina Mamaril, Cleopatra Llana, Regina Bustos, and Erlinda
Balatbat in a deed of sale . August 16, 1960, Mamaril, et al. sold Lots No. 1
and 4 to Lepanto Consolidated Mining Company.
On February 1, 1963, unknown to Lepanto Consolidated Mining Company,
the Court of First Instance of La Union, issued an order declaring OCT No. 0381 of the Registry of Deeds for the Province of La Union issued in the name
of Rafael Galvez, null and void, and ordered the cancellation thereof.
On October 28, 1963, Lepanto Consolidated Mining Company sold to
Shipside Inc (petitioner) Lots No. 1 and 4. In the meantime, Rafael Galvez
filed his motion for reconsideration against the order issued by the trial court
declaring OCT No. 0-381 null and void. The motion was denied. The Court of
Appeals ruled in favor of the Republic of the Philippines.
Thereafter, the Court of Appeals issued an Entry of Judgment, certifying that
its decision dated August 14, 1973 became final and executory on October
23, 1973. Twenty four long years, on January 14, 1999, the Office of the
Solicitor General received a letter dated January 11, 1999 from Mr. Victor G.
Floresca, Vice-President, John Hay Poro Point Development Corporation,
stating that the aforementioned orders and decision of the trial court in L.R.C.
No. N-361 have not been executed by the Register of Deeds, San Fernando,
La Union despite receipt of the writ of execution. On April 21, 1999, the
Page 34 of 40
Office of the Solicitor General filed a complaint for revival of judgment

and cancellation of titles before the Regional Trial Court of the First
Judicial Region (Branch 26, San Fernando, La Union)
and be granted due course;and (2) petitioner was unable to show

that it had substantially complied with the rule requiring proof of
authority to institute an action or proceeding
In its complaint in Civil Case No. 6346, the Solicitor General argued that
since the trial court in LRC Case No. 361 had ruled and declared OCT No. 0381 to be null and void, which ruling was subsequently affirmed by the Court
of Appeals, the defendants-successors-in-interest of Rafael Galvez have no
valid title over the property covered by OCT No. 0-381, and the subsequent
Torrens titles issued in their names should be consequently cancelled.
Issue:
On July 22, 1999, petitioner Shipside, Inc. filed its Motion to Dismiss, based
on the following grounds: (1) the complaint stated no cause of action because
only final and executory judgments may be subject of an action for revival of
judgment; (2) the plaintiff is not the real party-in-interest because the real
property covered by the Torrens titles sought to be cancelled, allegedly part of
Camp Wallace (Wallace Air Station), were under the ownership and
administration of the Bases Conversion Development Authority (BCDA) under
Republic Act No. 7227; (3) plaintiffs cause of action is barred by prescription;
(4) twenty-five years having lapsed since the issuance of the writ of
execution, no action for revival of judgment may be instituted because under
Paragraph 3 of Article 1144 of the Civil Code, such action may be brought
only within ten (10) years from the time the judgment had been rendered.
An opposition to the motion to dismiss was filed by the Solicitor General on

August 23, 1999, alleging among others, that: (1) the real party-in-interest
is the Republic of the Philippines;and (2) prescription does not run against the
State.
Court
of
Appeals
denied
petitioners
motion
for
reconsideration on the grounds that: (1) a complaint filed on
behalf of a corporation can be made only if authorized by its Board
of Directors, and in the absence thereof, the petition cannot prosper
Whether or not the Republic may still for revival of judgment.

RULING
The Court of Appeals dismissed the petition for certiorari on the ground
that Lorenzo Balbin, the resident manager for petitioner, who was the
signatory in the verification and certification on non-forum shopping,
failed to show proof that he was authorized by petitioners board of
directors to file such a petition.
A corporation, such as petitioner, has no power except those expressly
conferred on it by the Corporation Code and those that are implied or
incidental to its existence. In turn, a corporation exercises said powers
through its board of directors and / or its duly authorized officers and agents.
Thus, it has been observed that the power of a corporation to sue and
be sued in any court is lodged with the board of directors that exercises
its corporate powers (Premium Marble Resources, Inc. v. CA, 264 SCRA 11
[1996]). In turn, physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly authorized for the
purpose by corporate by-laws or by a specific act of the board of directors.
It is undisputed that on October 21, 1999, the time petitioners Resident
Manager Balbin filed the petition, there was no proof attached thereto that
Balbin was authorized to sign the verification and non-forum shopping
certification therein, as a consequence of which the petition was dismissed by
the Court of Appeals. However, subsequent to such dismissal, petitioner filed
a motion for reconsideration, attaching to said motion a certificate issued by
its board secretary
On the other hand, the lack of certification against forum shopping
is generally not curable by the submission thereof after the filing of
Page 35 of 40
the petition. Section 5, Rule 45 of the 1997 Rules of Civil Procedure

provides that the failure of the petitioner to submit the required
documents that should accompany the petition, including the
certification against forum shopping, shall be sufficient ground for
the dismissal thereof. The same rule applies to certifications against
forum shopping signed by a person on behalf of a corporation which
are unaccompanied by proof that said signatory is authorized to file
a petition on behalf of the corporation
In the instant case, the merits of petitioners case should be considered
special circumstances or compelling reasons that justify tempering the
requirement in regard to the certificate of non-forum shopping.
Moreover, in Loyola, Roadway, and Uy, the Court excused noncompliance with the requirement as to the certificate of non-forum
shopping. With more reason should we allow the instant petition since
petitioner herein did submit a certification on non-forum shopping,
failing only to show proof that the signatory was authorized to do so.
That petitioner subsequently submitted a secretarys certificate attesting
that Balbin was authorized to file an action on behalf of petitioner
likewise mitigates this oversight.
It must also be kept in mind that while the requirement of the certificate of
non-forum shopping is mandatory, nonetheless the requirements must not be
interpreted too literally and thus defeat the objective of preventing the
undesirable practice of forum-shopping (Bernardo v. NLRC, 255 SCRA 108
[1996]). Lastly, technical rules of procedure should be used to promote, not
frustrate justice. While the swift unclogging of court dockets is a laudable
objective, the granting of substantial justice is an even more urgent ideal.
Second Issue:
The action instituted by the Solicitor General in the trial court is one for
revival of judgment which is governed by Article 1144(3) of the Civil Code
and Section 6, Rule 39 of the 1997 Rules on Civil Procedure. Article 1144(3)
provides that an action upon a judgment must be brought within 10 years
from the time the right of action accrues." On the other hand, Section 6, Rule
39 provides that a final and executory judgment or order may be executed on
motion within five (5) years from the date of its entry, but that after the lapse
of such time, and before it is barred by the statute of limitations, a judgment
may be enforced by action. Taking these two provisions into consideration, it
is plain that an action for revival of judgment must be brought within
ten years from the time said judgment becomes final.
From the records of this case, it is clear that the judgment sought to be
revived became final on October 23, 1973. On the other hand, the action for
revival of judgment was instituted only in 1999, or more than twenty-five (25)
years after the judgment had become final. Hence, the action is barred by
extinctive prescription considering that such an action can be instituted only
within ten (10) years from the time the cause of action accrues.
The Solicitor General, nonetheless, argues that the States cause of action
in the cancellation of the land title issued to petitioners predecessor-ininterest is imprescriptible because it is included in Camp Wallace, which
belongs to the government.
The argument is misleading.
While it is true that prescription does not run against the State, the same may
not be invoked by the government in this case since it is no longer interested
in the subject matter. While Camp Wallace may have belonged to the
government at the time Rafael Galvezs title was ordered cancelled in Land
Registration Case No. N-361, the same no longer holds true today.
Page 36 of 40
Republic Act No. 7227, otherwise known as the Bases Conversion and
Development Act of 1992, created the Bases Conversion and Development
Authority. Section 4 pertinently provides:
Section 4. Purposes of the Conversion Authority. The Conversion Authority

shall have the following purposes:
(a) To own, hold and/or administer the military reservations of John Hay Air
Station, Wallace Air Station, ODonnell Transmitter Station, San Miguel Naval
Communications Station, Mt. Sta. Rita Station (Hermosa, Bataan) and those
portions of Metro Manila military camps which may be transferred to it by the
President;
Section 2 of Proclamation No. 216, issued on July 27, 1993, also provides:
Section 2. Transfer of Wallace Air Station Areas to the Bases Conversion and
Development Authority. All areas covered by the Wallace Air Station as
embraced and defined by the 1947 Military Bases Agreement between the
Philippines and the United States of America, as amended, excluding those
covered by Presidential Proclamations and some 25-hectare area for the
radar and communication station of the Philippine Air Force, are hereby
transferred to the Bases Conversion Development Authority
With the transfer of Camp Wallace to the BCDA, the government no

longer has a right or interest to protect. Consequently, the Republic is not
a real party in interest and it may not institute the instant action. Nor may it
raise the defense of imprescriptibility, the same being applicable only in
cases where the government is a party in interest. Under Section 2 of

Rule 3 of the 1997 Rules of Civil Procedure, every action must be prosecuted
or defended in the name of the real party in interest. To qualify a person to be
a real party in interest in whose name an action must be prosecuted, he must
appear to be the present real owner of the right sought to enforced (Pioneer
Insurance v. CA, 175 SCRA 668 [1989]). A real party in interest is the party
who stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit. And by real interest is meant a present
substantial interest, as distinguished from a mere expectancy, or a future,
contingent, subordinate or consequential interest (Ibonilla v. Province of
Cebu, 210 SCRA 526 [1992]). Being the owner of the areas covered by
Camp Wallace, it is the Bases Conversion and Development Authority, not
the Government, which stands to be benefited if the land covered by TCT No.
T-5710 issued in the name of petitioner is cancelled.
We, however, must not lose sight of the fact that the BCDA is an entity
invested with a personality separate and distinct from the government.
Section 3 of Republic Act No. 7227 reads:
Section 3. Creation of the Bases Conversion and Development Authority.

There is hereby created a body corporate to be known as the Conversion
Authority which shall have the attribute of perpetual succession and shall be
vested with the powers of a corporation.
It may not be amiss to state at this point that the functions of government
have been classified into governmental or constituent and proprietary or
ministrant. While public benefit and public welfare, particularly, the promotion
of the economic and social development of Central Luzon, may be
attributable to the operation of the BCDA, yet it is certain that the functions
Page 37 of 40
performed by the BCDA are basically proprietary in nature. The promotion of

economic and social development of Central Luzon, in particular, and the
countrys goal for enhancement, in general, do not make the BCDA equivalent
to the Government. Other corporations have been created by government to
act as its agents for the realization of its programs, the SSS, GSIS, NAWASA
and the NIA, to count a few, and yet, the Court has ruled that these entities,
although performing functions aimed at promoting public interest and public
welfare, are not government-function corporations invested with
governmental attributes. It may thus be said that the BCDA is not a mere
agency of the Government but a corporate body performing proprietary
functions.
Having the capacity to sue or be sued, it should thus be the BCDA which may
file an action to cancel petitioners title, not the Republic, the former being the
real party in interest. One having no right or interest to protect cannot invoke
the jurisdiction of the court as a party plaintiff in an action (Ralla v. Ralla, 199
SCRA 495 [1991]). A suit may be dismissed if the plaintiff or the defendant is
not a real party in interest. If the suit is not brought in the name of the real
party in interest, a motion to dismiss may be filed, as was done by petitioner
in this case, on the ground that the complaint states no cause of action
(Tanpingco v. IAC, 207 SCRA 652 [1992]).
Moreover, to recognize the Government as a proper party to sue in this case

would set a bad precedent as it would allow the Republic to prosecute, on
behalf of government-owned or controlled corporations, causes of action
which have already prescribed, on the pretext that the Government is the real
party in interest against whom prescription does not run, said corporations
having been created merely as agents for the realization of government
programs.
Parenthetically, petitioner was not a party to the original suit for cancellation
of title commenced by the Republic twenty-seven years for which it is now
being made to answer, nay, being made to suffer financial losses.
It should also be noted that petitioner is unquestionably a buyer in good faith

and for value, having acquired the property in 1963, or 5 years after the
issuance of the original certificate of title, as a third transferee. If only not to
do violence and to give some measure of respect to the Torrens System,
petitioner must be afforded some measure of protection.
One more point.

Since the portion in dispute now forms part of the property owned and
administered by the Bases Conversion and Development Authority, it is
alienable and registerable real property.
We find it unnecessary to rule on the other matters raised by the herein
parties.
22. Roman Catholic Apostolic vs. Register of Deeds of Davao
G.R. No. L-8451
December 20, 1957
Lesson Applicable: Exploitation of Natural Resources (Corporate Law)
FACTS:
October 4, 1954: Mateo L. Rodis, a Filipino citizen and resident of the

City of Davao, executed a deed of sale of a parcel of land in favor
of the Roman Catholic Apostolic Administrator of Davao Inc.
(Roman), a corporation sole organized and existing in accordance
with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen,
as actual incumbent.
Page 38 of 40
The Register of Deeds of Davao for registration, having in mind a

previous resolution of the CFI in Carmelite Nuns of Davao were made
to prepare an affidavit to the effect that 60% of the members of their
corp. were Filipino citizens when they sought to register in favor of
their congregation of deed of donation of a parcel of land, required it
to submit a similar affidavit declaring the same.
ISSUE: W/N Roman is qualified to acquire private agricultural lands in the

Philippines pursuant to the provisions of Article XIII of the Constitution
HELD: YES. Register of Deeds of the City of Davao is ordered to register
the deed of sale
June 28, 1954: Roman in the letter expressed willingness to submit an

affidavit but not in the same tenor as the Carmelite Nuns because it
had five incorporators while as a corporation sole it has only one and
it was ownership through donation and this was purchased
As the Register of the Land Registration Commissioner (LRC) : Deeds

has some doubts as to the registerability, the matter was referred to
the Land Registration Commissioner en consulta for resolution
(section 4 of Republic Act No. 1151)
LRC:
o
In view of the provisions of Section 1 and 5 of Article XIII of the

Philippine Constitution, the vendee was not qualified to acquire
private lands in the Philippines in the absence of proof that at
least 60 per centum of the capital, property, or assets of the
Roman Catholic Apostolic Administrator of Davao, Inc., was
actually owned or controlled by Filipino citizens, there being no
question that the present incumbent of the corporation sole
was a Canadian citizen
ordered the Registered Deeds of Davao to deny registration of
the deed of sale in the absence of proof of compliance with
such condition
action for mandamus was instituted by Roman alleging the land is

held in true for the benefit of the Catholic population of a place
In this sense, the king is a sole corporation; so is a bishop, or

dens, distinct from their several chapters
corporation sole
1. composed of only one persons, usually the head or bishop of the

diocese, a unit which is not subject to expansion for the purpose of
determining any percentage whatsoever
2.
only the administrator and not the owner of the temporalities

located in the territory comprised by said corporation sole and such
temporalities are administered for and on behalf of the faithful residing
in the diocese or territory of the corporation sole
3. has no nationality and the citizenship of the incumbent and

ordinary has nothing to do with the operation, management or
administration of the corporation sole, nor effects the citizenship of the
faithful connected with their respective dioceses or corporation sole.
A corporation sole consists of one person only, and his successors

(who will always be one at a time), in some particular station, who are
incorporated by law in order to give them some legal capacities and
advantages, particularly that of perpetuity, which in their natural
persons they could not have had.
Constitution demands that in the absence of capital stock, the

controlling membership should be composed of Filipino citizens.
(Register of Deeds of Rizal vs. Ung Sui Si Temple)
Page 39 of 40
undeniable proof that the members of the Roman Catholic Apostolic

faith within the territory of Davao are predominantly Filipino citizens
o

source that the friars had to acquire their big haciendas during the
Spanish regime), is a clear indication that the requisite that bequests
or gifts of real estate be for charitable, benevolent, or educational
purposes, was, in the opinion of the legislators, considered sufficient
and adequate protection against the revitalization of religious
landholdings.
presented evidence to establish that the clergy and lay

members of this religion fully covers the percentage of Filipino
citizens required by the Constitution
fact that the law thus expressly authorizes the corporations sole
to receive bequests or gifts of real properties (which were the main
as in respect to the property which they hold for the corporation, they
stand in position of TRUSTEES and the courts may exercise the
same supervision as in other cases of trust
Page 40 of 40

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Atty.

Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

1) Bourns vs. Carman, 7 Phils. 117 (1906)

Whether appellants are deemed partners of Lo-Chim-Lim and hence are

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

The total cost incurred by Benguet in developing Balatoc was P1,417,952.15.

Benguet Consolidated Mining Co. was organized in June, 1903, as a

ISSUE: W/N it is unlawful for Benguet Company to hold any interest in a

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

in agriculture or in mining was so modified as merely to prohibit any such

In section 75 of the Corporation Law, a provision is found making the

Benguet Consolidated Mining Company was organized in 1903 under the

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

Code of Commerce of 1886. Act 1459 essentially introduced the American

concept of a corporation. The purpose of the law, among others, is to

In 1953, the board of directors of Benguet Mining submitted to the Securities

Benguet Mining will unfairly do something which new corporations organized

and Exchange Commission an application for them to be allowed to extend

the application as it ruled that the extension requested is contrary to Section

later on of being a corporation. Further, under the Corporation Code of

18 of the Corporation Law of 1906 which provides that the life of a

1906, existing sociedades anonimas during the enactment of the law

corporation shall not be extended by amendment beyond the time fixed in

must choose whether to continue as such or be organized as a

their original articles.

these, it is already proscribed from choosing the other. Evidently, Benguet

4) Dante V. Liban, et al vs. Richard J. Gordon,GRN, 175352 , July 15, 2009

Benguet Mining, it should be allowed to be reorganized as a corporation

DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

the PNRC as a voluntary organization for the purpose contemplated in the

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

government official. Moreover, the PNRC is NOT a GOCC because it is a

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

[T]his Court [must] recognize the countrys adherence to the Geneva

The PNRC, as a National Society of the International Red Cross and

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

In sum, the PNRC enjoys a special status as an important ally and

5) Tayag v. Benguet Consolidated, 26 SCRa 242 (1968)

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

6) Arnold v. Willits & Patterson Limited, 44 Phils. 634 (1923)

contract with Arnold whereby Arnold was to be employed for a period

business was at a loss, Arnold would receive $400/mth.

owner of all the capital stock.

Willits signed this.

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest

19.1K was due to him thus he owed 10.1K to W&P.

Whether plaintiff may collect from defendant corporation.

The first Philippine case to apply the piercing doctrine was

7) Pantranco Employees Asso., et al. Vs. NLRC, et al.,G.R. No.

former employees of a company sought to satisfy their unpaid labor claims

Atty. Ventura MON-TUE 6:00-8:00

CORPORATION LAW case digest