ECARMA, Kim D.

November 24, 2018

LLb – 2
5:30 – 7:00 F
6:30 – 9:00 Sat
Corporation Law
Case Digests

SAW v CA

FACTS:

A collection suit was filed by Equitable Bank against Freeman and Saw Chiao Lian.

But then there was a motion to intervene by petitioners Saw, contending that the loan
transactions between Saw and Freeman were not approved by at least 2/3; that Saw had no
authority to contract loans; and that Saw and Chiao Lian colluded as to said contraction of loans.
Such motion was denied but Saw appealed.

A compromise agreement was made by Freeman and Saw Chiao Lian.

The Court of Appeals (CA) affirmed the denial, contending that the compromise agreement
would not prejudice petitioners’ interest whose rights to corporate assets are at most inchoate,
prior to the dissolution of Freeman – only applies when one’s right is actual, material, direct and
immediate and not simply contingent or expectant.

ISSUE:

1. WON petitioners’ interest were merely inchoate;

2. WON appeal only confined to the denial of the motion to intervene

RULING:

1. YES. The action was in personam, and no right of the petitioner is prejudiced. The
contentions of the CA were affirmed.
2. YES. No more principal action was to be resolved as a writ of execution had already been
sued by the lower court and claim of Equitable had already been satisfied.

SIA v CA

FACTS:

Sia was the President and General Manager of the Metal Manufacturing of the Philippines Inc.
(MEMAP)
He obtained 150 M/T Cold Rolled Sheets consigned to Continental Bank and utilized it
personally instead of selling it and turning over the proceeds.

It resulted to a damage of P46,819, with an interest of P28,736.47, and forfeited deposit of

P71,023.60 to the prejudice of MEMAP.

ISSUE:

Whether or not Sia acted in behalf of MEMAP and, hence, held criminally liable

HELD:

NO. Sia did not act for and on behalf of MEMAP.

The act alleged to be a crime is not in the performance of an act directly ordained by law to be
performed by the corporation. The act is imposed by agreement of parties, as a practice observed
in the usual pursuit of a business or a commercial transaction. The offense may arise, if at all,
from the peculiar terms and condition agreed upon by the parties to the transaction, not by direct
provision of the law. The intention of the parties, therefore, is a factor determinant of whether a
crime was committed or whether a civil obligation alone intended by the parties. In the absence
of an express provision of law making the petitioner liable for the criminal offense committed by
the corporation of which he is a president as in fact there is no such provisions in the Revised
Penal Code under which petitioner is being prosecuted, the existence of a criminal liability on his
part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of
criminal liability for which the accused is made answerable must be clear and certain. The
maxim that all doubts must be resolved in favor of the accused is always of compelling force in
the prosecution of offenses. This Court has thus far not ruled on the criminal liability of an
officer of a corporation signing in behalf of said corporation a trust receipt of the same nature as
that involved herein.

PNB v CA

FACTS:

Rita Tapnio owes PNB an amount of P2,000.00 secured by her sugar crops due for harvest,
including her export quota allocation worth 1,000 piculs. Said export quota was later dealt by
Tapnio to a certain Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since said export
quota is mortgaged with PNB, the latter has to approve it. The branch manager of PNB
recommended that the price should be at P2.80 per picul which was the prevailing minimum
amount allowable. Tapnio and Tuazon agreed to the said amount. The bank manager
recommended the agreement to the Vice-President of PNB. The Vice-President in turn
recommended it to the Board of Directors of PNB.
However, the Board of Directors wanted to raise the price to P3.00 per picul. This Tuazon did
not agree to the price increase, so he backed out from the agreement. As a result, Tapnio was not
able to realize profit and at the same time rendered her unable to pay her P2,000.00 crop loan
which would have been covered by her agreement with Tuazon had the price remained at P2.80
per picul.

Eventually, Tapnio was sued by her other creditors, so she filed a third-party complaint against
PNB where she alleged that her failure to pay her debts was because of PNB’s negligence and
unreasonableness.

ISSUE:

Whether or not PNB is liable for negligence

HELD:

YES. It is unreasonable for PNB’s Board of Directors to disallow the agreement between Tapnio
and Tuazon because of the mere difference of 0.20 in the agreed price rate. What makes it more
unreasonable is the fact that the P2.80 was recommended both by the bank manager and PNB’s
VP yet it was disapproved by the Board. Further, the P2.80 per picul rate is the minimum
allowable rate pursuant to prevailing market trends that time. This unreasonable stand reflects
PNB’s lack of the reasonable degree of care and vigilance in attending to the matter. PNB is
therefore negligent.

A corporation is civilly liable in the same manner as natural persons for torts; “all of the
authorities agree that a principal or master is liable for every tort which it expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, a corporation is liable,
therefore, whenever a tortious act is committed by an officer or agent under express direction or
authority from the stockholders or members acting as a body, or, generally, from the directors as
the governing body.”

REYNOSO v CA

FACTS:

Commercial Credit Corporation (CCC) was a financing and investment firm; decided to organize
franchise companies in different parts of the country; employees were designated as franchise
managers; Reynoso was assigned to the Quezon City branch. CCC was to fully control CCC-QC.
DOSRI rule: The lending of funds by corporations to its directors, officers, shareholders and
members is prohibited. Hence, CCC created CCC-Equity, a wholly-owned subsidiary to which
CCC transferred its equity in CCC-QC with two seats in the latter’s Board of Directors. Several
officials of CCC became employees of CCC-Equity. Reynoso was the manager, and drew
salaries from the CCC-Equity.

A complaint for sum of money with preliminary attachment against Reynoso was filed for
allegedly embezzling the funds of CCC-QC amounting to P1.3M, of which P630K was used to
buy a house and lot. Reynoso was proven not to be liable; placements as shown by twenty three
(23) checks were issued to the company.

The RTC dismissed CCC-QC’s case against Reynoso while the latter filed counterclaim for
damages on the ground of humiliation. A final judgment in favour of Reynoso was promulgated,
but due to the dissatisfaction of the amount claimed, Reynoso moved for an alias writ of
execution.

CCC became General Credit Corporation (GCC), and contended that its property must no longer
be levied and must be enjoined from answering obligation; that CCC-QC must answer for it
instead.

ISSUE:

WON corporate fiction must be appreciated

RULING:

NO. Respondent seeks the protective shield of a corporation fiction whose veil could and should
be pierced as it was deliberately and maliciously designed to evade the financial obligation of its
employees.

If sustained, it becomes a handy deception to avoid a judgment debt and work injustice.

CCC also circumvented the DOSRI rule by creating CCC-Equity.

Identity rule: CCC and CCC-QC were engaged in the same principal line of business involving a
single transaction process: unity of interests, management and control; transfer of funds;
dominance of policy and practice by the mother corporation insure that CCC-QC was an
instrumentality or agency of CCC.
 LIVESEY v BINSWANGER

FACTS:

Livesey filed against CBB a complaint for illegal dismissal with money claims amounting to
unpaid salaries of 23,000 dollars as director and head of Business Space Development. CBB
denied liability, contending that Livesey became managing director of an extension of CBB in
Hong Kong.

Livesey’s contention: there was constructive dismissal due to unpaid salaries. The case was filed
with the Labor Arbiter to which CBB objected on the ground that the dispute was a corporate
one.

Labor Arbiter (LA): Ruled to reinstate Livesey and pay him 23,000 dollars and back salaries; but
the parties entered into a compromise agreement that 13,000 dollars must be paid upon its
signing and then two other instalments to satisfy the remaining balance amounting to a total of
around 31,000 dollars. A motion for an alias writ of execution was filed by Livesey. CBB was
then dissolved, and Biswanger appeared.

Compulsory arbitration: Piercing of Corporate veil was inapplicable since stockholders between
CBB and Binswanger were distinct.

NLRC: Reversed the ruling in the compulsory arbitration, but the Court of Appeals (CA)
reversed the NLRC ruling; disagreed that respondents are jointly and severally liable with CBB.
Contended that the identity of the president of both corporations was not sufficient to apply the
rule there being no proof of bad faith on Elliot’s part when he signed the compromise agreement.

ISSUE:

WON doctrine of piercing the corporate veil applies

RULING:

YES. Substantial evidence exists around attending circumstances of the establishment of

Binswanger after CBB ended operations. This was to evade CBB’s obligation to pay its liability
to Livesey. An equitable doctrine, the doctrine of piercing the corporate veil applies as an
exception to the general rule that corporate personality is separate from that of its stockholders or
members.
 NARRA, TESORO AND MCARTHUR MINING v REDMONT

FACTS:

Redmont wanted to mine and explore certain areas in the province of Palawan. It soon
discovered that such areas had already been covered by Mineral Product Sharing Agreement
(MPSA) applications by petitioners.

Redmont filed before the Panel of Arbitrators (POA) of the Department of the Environment and
Natural Resources (DENR) three separate petitions for the denial of the petitioners’ applications
for MPSA.

It further alleged that at least 60% of the capital stock of the petitioners are owned and controlled
by MBMI, a 100% Canadian corporation. It reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over
the areas covered by the applications since it knows that it can only participate in mining
activities through corporations which are deemed Filipino citizens. It argued that given that
petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified from
engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.

ISSUE:

WON the petitioner corporations are Filipino and can validly be issued MPSA and EP

RULING:

NO. The Security and Exchange Commission (SEC) provides for the computation of Filipino
interest in a corporation for the purpose, among others, of determining compliance with
nationality requirements (‘investee corporation’) since the latter may be owned both by
individual stockholders (‘investing individuals’) and partnerships (‘investing corporation’). Such
provide for the determination of the nationality depending on the ownership of the investee
corporation, or at times, investing corporation.

The strict rule (‘Grandfather rule’) must be applied in this case. If the percentage of Filipino
ownership of the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted of Philippine nationality. Totals of the
investee and investing corporation must be traced to determine total percentage of Filipino
ownership. This rule applies only where the 60-40 Filipino-foreign equity ownership is in doubt.

MBMI with petitioners were a partnership or a joint venture.

 WILSON GAMBOA v FINANCE SECRETARY

FACTS:

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications

Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting
through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a shareholder of the Philippine Long Distance
Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of 12
million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC
to First Pacific. With the this sale, First Pacific’s common shareholdings in PLDT increased from
30.7 percent to 37 percent, thereby increasing the total common shareholdings of foreigners in
PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of the
1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to
not more than 40%.

ISSUE:

Does the term “capital” in Section 11, Article XII of the Constitution refer to the total common
shares only, or to the total outstanding capital stock (combined total of common and non-voting
preferred shares) of PLDT, a public utility?

RULING:

[The Court partly granted the petition and held that the term “capital” in Section 11, Article XII
of the Constitution refers only to shares of stock entitled to vote in the election of directors of a
public utility, or in the instant case, to the total common shares of PLDT.]

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates
the Filipinization of public utilities

The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case only to common shares,
and not to the total outstanding capital stock comprising both common and non-voting preferred
shares [of PLDT].

To construe broadly the term “capital” as the total outstanding capital stock, including both
common and non-voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the “State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos.” A broad definition unjustifiably disregards who owns the
all-important voting stock, which necessarily equates to control of the public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the State’s grant of authority to operate a public utility.

Here, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the
dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII
of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock
market value of P2,328.00 per share, while PLDT preferred shares with a par value of P10.00 per
share have a current stock market value ranging from only P10.92 to P11.06 per share, is a
glaring confirmation by the market that control and beneficial ownership of PLDT rest with the
common shares, not with the preferred shares.