January 7, 2019 (Meeting 1)
1 Narra Nickel Mining and Development Corp. v. Redmont
Consolidated Mines
G.R. No. 195580 | April 21, 2014
Digested by: Alvarez, Marjorie L.
Topic: Grandfather Rule
DOCTRINES:
● The “control test” is still the prevailing mode of determining
whether or not a corporation is a Filipino corporation, within
the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled
to undertake the exploration, development and utilization of
the natural resources of the Philippines. When in the mind
of the Court there is doubt, based on the attendant facts and
circumstances of the case, in the 60--40 Filipino- equity
ownership in the corporation, then it may apply the
“grandfather rule.”
● Under the liberal Control Test, there is no need to further
trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a
corporation which is at least 60% Filipino--owned is
considered as Filipino. Under the Strict Rule or Grandfather
Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced
(i.e.,‘grandfathered’) to determine the total percentage of
Filipino ownership.
FACTS:
1. Redmont, a domestic corporation, took interest in mining
and exploring certain areas in Palawan. It learned from the
DENR that such areas where already covered by Mineral
Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
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2. Redmont filed before the Panel of Arbitrators (POA) of the
DENR three separate petitions for the denial of the
petitioners’ applications for MPSA:
● alleging that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled
by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation;
● reasoning that since MBMI is a considerable
stockholder of petitioners, it was the driving force
behind petitioners’ filing of the MPSAs since it knows
that it can only participate in mining activities through
corporations which are deemed Filipino citizens;
● arguing 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.
3. Petitioners averred that under Section 3(aq) of RA 7942 or
the Philippine Mining Act of 1995, they were qualified
persons and that their nationality is immaterial because they
also applied for Financial or Technical Assistance
Agreements (FTAA), which are granted to foreign-owned
corporations.
● They also claimed that issue on nationality should not
be raised since McArthur, Tesoro and Narra are in fact
Philippine Nationals as 60% of their capital is owned
by citizens of the Philippines.
● They asserted that though MBMI owns 40% of the
shares of PLMC (which owns majority shares of
Narra), 40% of the shares of MMC (which owns
majority shares of McArthur) and 40% of the shares of
SLMC (which, in turn, owns majority shares of
Tesoro), the shares of MBMI will not make it the owner
of at least 60% of the capital stock of each of
petitioners.

● They added that the best tool in determining the
nationality of a corporation is the “control test.”
4. POA issued a Resolution disqualifying petitioners from
gaining MPSAs. It considered petitioners as foreign
corporations being “effectively controlled” by MBMI, and
declared the MPSAs null and void.
5. Petitioners appealed with the Mines Adjudication Board
(MAB) and pending resolution of such appeal, Redmont filed
a Complaint with the SEC for the revocation of the
certificates of registration of petitioners since they are
foreign-owned or controlled corporations engaged in mining
in violation of Philippine laws.
6. MAB found the appeal meritorious and reversed the POA
resolution. RTC issued an Order granting the issuance of a
writ of preliminary injunction enjoining the MAB from finally
disposing of the appeals. MAB issued a second Order
resolving the appeals filed by petitioners hence, a petition
for review was filed by Redmont before the CA.
7. CA reversed and set aside the MAB decision. In determining
the nationality of petitioners, it used the grandfather rule to
hold that MBMI in effect owned majority of the common
stocks of petitioners and thus the latter were foreign
corporations.
ISSUE/S: Whether petitioners Narra, Tesoro and McArthur are
foreign corporations based on the Grandfather Rule.
HELD:
1. YES. Corporate layering” is admittedly allowed by the
Foreign Investments Act; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes illegal.
Further, the pronouncement of petitioners that the
grandfather rule has already been abandoned must be
discredited for lack of basis. It is the intention of the framers
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January 7, 2019 (Meeting 1)
of the Constitution to apply the grandfather rule in cases
where corporate layering is present.
2. The first part of paragraph 7, DOJ Opinion No. 020, stating
“shares belonging to corporations or partnerships at least
60% of the capital of which is owned by Filipino citizens shall
be considered as of Philippine nationality,” pertains to the
control test or the liberal rule. On the other hand, the second
part of the DOJ Opinion which provides, “if the percentage
of the Filipino ownership in the corporation or partnership is
less than 60%, only the number of shares corresponding to
such percentage shall be counted as Philippine nationality,”
pertains to the stricter, more stringent grandfather rule.
3. Based on SEC Rule and DOJ Opinion, the Grandfather Rule
or the second part of the SEC Rule applies only when the
60--40 Filipino--foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with Filipino and
foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture
corporation which is either 60--40% Filipino--alien or the
59% less Filipino). Stated differently, where the 60--40
Filipino- foreign equity ownership is not in doubt, the
Grandfather Rule will not apply.
4. After a scrutiny of the evidence extant on record, the Court
finds that this case calls for the application of the
grandfather rule since, as ruled by the POA and affirmed by
the OP, doubt prevails and persists in the corporate
ownership of petitioners. Also, as found by the CA, doubt is
present in the 60--40 Filipino equity ownership of petitioners
 January 7, 2019 (Meeting 1)
Narra, McArthur and Tesoro, since their common investor,
the 100% Canadian corporation — MBMI, funded them.

5. Concluding from the above--stated facts, it is quite safe to

say that petitioners McArthur, Tesoro and Narra are not
Filipino since MBMI, a 100% Canadian corporation, owns
60% or
more of
their equity

interests. Such conclusion is derived from grandfathering

petitioners’ corporate owners, namely: MMI, SMMI and
PLMDC.

WHEREFORE, premises considered, the instant petition is

DENIED.

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 January 7, 2019 (Meeting 1)
2. Shrimp Specialists, Inc. vs. Fuji-Triumph Agri-industrial issued. However, the checks were again dishonored due to
Corporation another stop-payment order by Shrimp Specialists.
G.R. No. 168756 | 07 December 2009 · Fuji filed criminal charges against the officers of Shrimp
Specialists who signed the checks for violation of B.P. 22,
Digested by: Aves, Genelle Ann L. but the charges were dismissed.
Topic: Separate personality / Piercing the corporate veil
· Fuji then filed a civil complaint for sum of money against
Shrimp Specialists and Eugene Lim, the President of
DOCTRINE: A corporation is vested by law with a personality
Shrimp Specialists. The RTC held Shrimp Specialists and
separate and distinct from the people comprising it. Ownership
Eugene Lim solidarily liable to pay the amount of PDCs
by a single or small group of stockholders of nearly all of the
since Eugene was the one who negotiated with Fuji and
capital stock of the corporation is not by itself a sufficient ground
signed the Distributorship Agreement, which makes him
to disregard the separate corporate personality. Thus,
privy to the agreement.
obligations incurred by corporate officers, acting as corporate
· The CA affirmed the RTC Decision, but dismissed the
agents, are direct accountabilities of the corporation they
case against Eugene because there was no reason to
represent
pierce the corporate veil since there was no evidence that
Eugene and Shrimp Specialists are one and the same and
FACTS:
they dealt with Fuji in bad faith.
· In 1987, Fuji regularly supplies prawn feeds on a credit
basis to Shrimp Specialists.
· In 1989, Fuji delivered prawn feeds, and Shrimp
ISSUE: Whether or not the Court of Appeals erred in dismissing
Specialists issued 9 postdated checks as payment.
the case against Eugene Lim even if he was the one who
However, Shrimp Specialists issued a stop-payment order
negotiated with Fuji and signed the Distributorship Agreement.
for the 9 PDCs because the prawn feeds delivered were
contaminated.
HELD: No, Eugene is not accountable. The general rule is that
· Shrimp Specialists alleged that even the succeeding
obligations incurred by the corporation, acting through its
deliveries remained contaminated. On the other hand, Fuji
directors, officers, and employees, are its sole liabilities.
denied that the feeds were contaminated and asserted that
However, solidary liability may be incurred, but only under the
the reason for the stop-payment order was because of
following exceptional circumstances:
insufficient funds.
· Ervin Lim, Fuji’s VP and owner, met with Edward Lim,
1. When directors and trustees or, in appropriate cases, the
Shrimp Specialists’ Finance Officer to discuss the unpaid
officers of a corporation: (a) vote for or assent to patently
deliveries wherein Shrimp Specialists agreed in writing to
unlawful acts of the corporation; (b) act in bad faith or with gross
issue another set of checks to cover the 9 PDCs earlier
negligence in directing the corporate affairs; (c) are guilty of

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 January 7, 2019 (Meeting 1)
conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection
thereto;
3. When a director, trustee or officer has contractually agreed
or stipulated to hold himself personally and solidarily liable with
the corporation; or
4. When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate action.

In this case, none of these exceptional circumstances is

present. The RTC failed to provide a clear ground why Eugene
Lim was held solidarily liable with Shrimp Specialists. It merely
stated that Eugene Lim signed on behalf of the Shrimp
Specialists as President without explaining the need to
disregard the separate corporate personality

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3. Edsa Shangri-La Hotel and Resort, Inc., (ESHRI) Rufo B.
Colayco, Rufino L. Samaniego, Kuok Khoon Chen, and
Kuok Khoon Tsen vs. BF Corporation (G.R. No. 145842) -
1st petition
Cynthia Roxas-Del Castillo vs. BF Corporation (G.R. No.
145873) - 2nd petition
Digested By: Bonoan, Ramon
Topic: Separate Personality/ Piercing the Corporate Veil
Doctrine: The veil of corporate fiction shall be disregarded
when the separate juridical personality of a corporation is
abused or used to commit fraud and perpetrate a social
injustice, or used as a vehicle to evade obligations.
FACTS:
Both petitions stemmed from an Agreement for the Execution of
Builder’s Work contract for the Edsa Shang Hotel Proj. that
ESHRI and BF executed in building the Hotel starting 1 May
1991. The contract states that payment of the contract price
would be based on the work accomplished described in the
monthly progress billings. BF would submit a monthly progress
billing to ESHRI which would then re-measure the work
accomplished and prepare a Progress Payment Certificate for
that month's progress billing.
ESHRI, in its memorandum-letter laid down a procedure for BF
to follow:
(1) submission of the progress billing to ESHRI's
Engineering Department;
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January 7, 2019 (Meeting 1)
(2) following-up of the preparation of the Progress
Payment Certificate with the Head of the Quantity
Surveying Department; and
(3) following-up of the release of the payment with one
Evelyn San Pascual.
BF adhered to such procedure and submitted 19 progress
billings. From Progress Billing Nos. 1-13, ESHRI paid BF
PhP86,501,834.05. However, Progress Billing Nos. 14-19 was
left unpaid despite several attempts. BF filed a suit for sum of
money and damages before the RTC.
ESHRI claimed that BF should be ordered to refund their excess
payment due to incurring delay and inferior work
accomplishment. RTC ruled in favor of BF. MFR-denied. ESHRI
filed an appeal to the CA.
During the pendency of the appeal, RTC granted BF’s motion
for execution pending appeal. Sheriff garnished EHSRI’s bank
account. CA issued a writ of preliminary injunction upon
ESHRI’s posting of bond. CA set aside the RTC order. MFR of
BF-denied. BF filed a petition for review of the CA decision
before the SC. SC affirmed the CA order with modification that
recovery of ESHRI's garnished deposits shall be against BF's
bond. MFR-denied. ESHRI filed an application for restitution of
damages. BF filed separate MFR’s.
CA (appeal case) ruled in favor of BF. MFR-denied. ESHRI filed
a petition (1st petition) while Cynthia del-Castillo (2nd petition)
filed a separate petition assailing the CA decision as it adjudged
her jointly and severally liable with et al., alongside the other
individual petitioners in the 1st petition who were members of the
Board of ESHRI, to pay the monetary award decreed in the RTC
decision (P24,780,490.00-unpaid work, retention sum of

P5,810,000.00, legal interest of the unpaid work, 1M-moral
damages, 1M-exemplary damages, 1M-attorney’s fees and
costs of suit).
ISSUES / HELD: 1st petition is dismissed. 2nd petition is
granted. CA decision is affirmed with modification that Del
Castillo is absolved from any liability
● WON CA committed grave abuse of discretion in
admitting the photocopies of Progress Billings No. 14-
19? (1st petition) - No.
Sec. 6 of Rule 130 states that if the document is in the custody
or under control of the adverse party, he must have reasonable
notice to produce it. If after such notice and after satisfactory
proof of its existence, he fails to produce the document,
secondary evidence may be presented as in the case of loss.
Here, counsel for BF and ESHRI reveal that the original copies
are indeed under the custody of ESHRI but the counsel of
ESHRI was not able to hear from his client. The conditions for
the reception of photocopies of the original document as
secondary evidence have been met - (1) there is proof of the
original’s execution or existence; (2) there is proof of the cause
of the original’s unavailability; and (3) the offeror is in good faith.
When such party has the original of the writing and does not
voluntarily offer to produce it or refuses to produce it, secondary
evidence may be admitted.
● WON the restitution of garnished funds in favor of
ESHRI should be proper? (1stpetition) - No.
Petitioners ESHRI maintain that the CA erroneously prevented
restitution of ESHRI’s improperly garnished funds when it
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January 7, 2019 (Meeting 1)
nullified its own CA decision (case regarding the garnished
funds). ESHRI contends that they should be restored of their
own funds without awaiting the outcome of the main case
(appeal case with the CA). The restitution is without merit
because this was nullified simultaneously when the CA decision
affirmed the RTC decision on the execution pending appeal. CA
nullified the decision pursuant to Sec. 5, Rule 39: Sec. 5. Effect
of reversal of executed judgment. — Where the executed
judgment is reversed totally or partially, or annulled, on appeal
or otherwise, the trial court may, on motion, issue such orders
of restitution or reparation of damages as equity and justice may
warrant under the circumstances.
It is true that the Ca decision recognized the validity of the
issuance of the desired restitution order but the CA had decided
on the appeal case on the merits when it affirmed the RTC
decision (that ruled in favor of BF). This CA decision rendered
the decision on the incidental procedural matter on restitution
moot and academic. Allowing restitution would only prolong an
already protracted litigation.
● [RELEVANT ISSUE; 2nd petition] WON CA erred in
holding Cynthia Del-Castillo personally liable to
respondent? - Yes.
Roxas-del Castillo argues that the RTC decision violated the
requirements of due process and of Sec. 14, Article VII of the
Constitution- No decision shall be rendered by any court without
expressing therein clearly and distinctly the facts and the law on
which it is based.
Del Castillo is correct. The RTC decision does not provide the
factual or legal basis for holding her personally liable under the
premises. In fact, only in the dispositive portion of the decision

did her solidary liability crop up. Aside from her inclusion as
party defendant in the underlying complaint, no reference is
made in other pleadings thus filed as to her liability.
The CA, by affirming the RTC ruling, recognized the applicability
of the doctrine on piercing the veil of the separate corporate
identity. This cannot be followed. A corporation, upon coming
to existence, is invested by law with a personality separate
and distinct from those of the persons composing it.
Ownership by a single or a small group of stockholders of nearly
all of the capital stock of the corporation is not, without more,
sufficient to disregard the fiction of separate corporate
personality. Thus, obligations incurred by corporate
officers, acting as corporate agents, are not theirs, but
direct accountabilities of the corporation they represent.
Solidary liability on the part of corporate officers may at
times attach, but only under exceptional circumstances,
such as when they act with malice or in bad faith. Also, in
appropriate cases, the veil of corporate fiction shall be
disregarded when the separate juridical personality of a
corporation is abused or used to commit fraud and perpetrate
a social injustice, or used as a vehicle to evade obligations.
Here, no act of malice or dishonest purpose can be attributed to
Cynthia Del-Castillo to warrant the lifting of corporate veil.
Even if she was still the director when ESHRI defaulted in
paying BF, the conclusion is still the same. Before she could be
liable, Sec. 31 of the Corporation Code must be proven: Sec.
31. Directors or trustees who willfully or knowingly vote for or
assent to patently unlawful acts of the corporation or acquire
any pecuniary interest in conflict with their duty as such directors
or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders
or members and other persons.
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January 7, 2019 (Meeting 1)
Here, testimony of Crispin Balingit do not show that Del Castillo
made any misrepresentation respecting the payment. In fact,
the unpaid billings submitted were still being evaluated then.
Also, testimony states that there was no instance that Del
Castillo acted in bad faith.
Moreover, when the controversy started between ESHRI and
BF, Del Castillo was no longer sitting in the ESHRI Board which
was not disputed by BF. Hence, she has no participation in
ESHRI’s corporate affairs when the controversy started.The
rule is, contracts are binding only among parties to an
agreement pursuant to Art. 1311of the Civil Code, where
contracts take effect only between the parties, their assigns and
heirs, except in cases where the rights and obligations are not
transmissible by their nature, or by stipulation or by provision of
law.
It is impossible to hold Del Castillo liable for breaches of contract
committed by ESHRI after she severed official ties with it.
Hence, all other issues against her like her liability for damages
and attorney’s fees are not moot and academic.
4. PANTRANCO EMPLOYEES ASSOCIATION (PEA-
PTGWO) and PANTRANCO RETRENCHED EMPLOYEES
ASSOCIATION (PANREA) vs. NLRC
G.R. No. 170689 | March 17, 2009
Topic: Separate Personality / Piercing the Veil
Digested by: Cantimbuhan, Mariane Philine
DOCTRINE: The doctrine of piercing the corporate veil applies
only: 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
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.
The mere fact that a corporation owns all of the stocks of
another corporation, taken alone, is not sufficient to justify their
being treated as one entity. If used to perform legitimate
functions, a subsidiary’s separate existence 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.
FACTS: This present petition is a consolidation of cases
assailing the CA decision which affirmed the NLRC decision
pointing out that PNB, PNB-Madecor and Mega Prime are
corporations with personalities separate and distinct from
PNEI.
A brief background of this case goes back when the Gonzales
family had 2 corporations: (1) Pantranco North Express, Inc.
(PNEI) and (2) Macris Realty Corporation (Macris). The former
rendering transportation services and the latter as a real estate
corporation to which the terminals of PNEI were registered
under. Unfortunately, business turnt bad and they hit rock
bottom despite attempts to rehabilitate.
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January 7, 2019 (Meeting 1)
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) and
the latter took over the management of PNEI.
In 1992, PNEI applied with the Securities and Exchange
Commission (SEC) for suspension of payments.
● It was recommended to the SEC the sale of PNEI
through privatization and 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.

Labor Arbiter: On July 5, 2002, it issued the Sixth Alias Writ
of Execution commanding the NLRC Sheriffs to levy on the
assets of PNEI and proceed against PNB, PNB-Madecor and
Mega Prime in order to satisfy the ₱722,727,150.22 due its
former employees, as full and final satisfaction of the judgment
awards in the labor cases.
● Motions to quash the writ were separately filed by PNB-
Madecor and Mega Prime, and PNB.
● On September 10, 2002, it 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 PNB-Madecor
executed a promissory note in favor of PNEI for
₱7,884,000.00, the writ of execution to the extent of the
said amount was concerned was considered valid.
● PEA-PTWGO appealed before the NLRC.
NLRC: Affirmed LA decision. Hence, the matter was appealed
before the CA.
● In view of the ₱7,884,000.00 debt of PNB-Madecor to
PNEI, on June 23, 2004, an auction sale was
conducted over the Pantranco properties to satisfy the
claim of the PNEI employees, wherein CPAR Realty
was adjudged as the highest bidder.
CA: Affirmed NLRC decision. PNB-Madecor and Mega Prime
are corporations with personalities separate and distinct 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.
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January 7, 2019 (Meeting 1)
● Pantranco properties were never owned by PNEI;
rather, their titles were registered under the name of
PNB-Madecor. 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.
● Left usnatisifed, PEA-PTWGO raised as their argument
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.
○ 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 PNB’s shares over PNB-
Madecor.
ISSUE/S: Whether PEA-PTGWO can attach the properties
(specifically the Pantranco properties) of PNB, PNB-Madecor
and Mega Prime to satisfy their unpaid labor claims against
PNEI.
[NO. PNB, PNB-Madecor and Mega Prime are corporations
with personalities separate and distinct from that of PNEI.]
HELD: NO. First of all, the subject property is not owned by
the judgment debtor, PNEI. Nowhere in the records was it
shown that PNEI owned the Pantranco properties. The
 January 7, 2019 (Meeting 1)
employees, in fact, never alleged in any of their pleadings the
fact of such ownership. The properties were owned by Macris,
the predecessor of PNB-Madecor. Hence, they cannot be
pursued against by the creditors of PNEI.

Second, PNB, PNB-Madecor and Mega Prime are

corporations with personalities separate and distinct from that
of PNEI. PNB was only a stockholder of PNB-Madecor which
later sold its shares to Mega Prime; and that PNB-Madecor
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.

Lastly, the employees failed to discharge the burden of proving

that the involved corporations were one and the same. They
failed to show evidence that PNB was using PNEI as a mere
adjunct or instrumentality or has exploited or misused the
corporate privilege of PNEI.

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 January 7, 2019 (Meeting 1)
5. Espiritu v Petron Corporation but upon review, the Regional State Prosecutor ordered four
G.R. No. 170891 | November 24, 2009 informations of unfair competition to be filed.
Topic: Separate Personality / Piercing the Veil 8. CA ordered that the Bicol Gas stockholders be included in the
Digested by: Chua, Dane Larieze charges since the employees presumably acted under their
direct control.
DOCTRINE: A corporation is an entity separate and distinct
from the persons of its officers, directors and stockholders, but ISSUE/S: W/N the stockholders and members of BoD of Bicol
those officers through whose act or omission results in the Gas are liable for the charge of illegal refilling – NO
corporation committing a crime may be held individually
responsible for the crime. HELD: A corporation is an entity separate and distinct from the
persons of its officers, directors and stockholders, but those
FACTS: officers through whose act or omission results in the corporation
1. Petron sold and distributed LPG that carried its trademark committing a crime may be held individually responsible for the
“Gasul”, which was exclusively distributed in Sorsogon by KPE, crime.
owned by Carmen Doloiras, and managed by Jose Doloiras.
2. Bicol Gas, carrying the trademark Bicol Savers Gas and The owners of a corporation are the stockholders, while the
managed by Llona, was also in the business of selling and management of the same is vested in the BoD. Unless they are
distributing LPG in Sorsogon. directors or officers at the same time, the stockholders do not
3. In 2001, Bicol Gas had an agreement with KPE to swap 30 have a hand in the running of the business operations. Before
captured cylinders (gasul tanks) held by Bicol Gas in exchange he may be held criminally liable for acts committed by the
for assorted tanks by KPE. corporation, it must be shown that he had knowledge of the
4. Jose Doloiras noticed that Bicol Gas still had a number of criminal act committed in the corporation’s name and that he
gasul tanks in its yard but when he offered to swap, he was took part in the same, or gave his consent.
refused and later told there were none, even though he saw
Bicol Gas trucks loaded with gasul plying the streets. Although Jose Doloiras mentioned in his affidavit that he heard
5. In 2004, a Bicol Gas truck carried an unsealed 50kg gasul Llona say he would consult the owners of Bicol Gas regarding
and a 50 kg Shellane tank which was admitted by Sales Rep the swap, there was no indication which of the stockholders was
Misal and driver Leorena to belong to a customer who had it consulted. No evidence was also presented to establish the
filled up by Bicol Gas. names of the stockholders, or who among the said stockholders
6. KPE filed a complaint for illegal refilling, trademark sat in the BoD.
infringement and unfair competition against Misal, Leorena,
Mirabena, Llona and the directors & stockholders of Bicol Gas.
7. The provincial prosecutor found probable cause only for
illegal refilling to be charged against the 4 Bicol Gas employees
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6.) Queensland Tokyo Commodities Inc. vs. Thomas
George
G.R. No. 172727
Date: September 8, 2010
Digested by: Frances Claire S. Cruz
TOPIC: Separate Personality/ Piercing the Corporate Veil
DOCTRINE: A corporation is invested by law with a personality
separate and distinct from those of the persons composing it,
such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be
held personally liable for the liabilities of the latter.
FACTS:
QTCI is a duly licensed broker engaged in the trading of
commodity futures. Guillermo Mendoza, Jr. and Oniler Lontoc
of QTCI met with Thomas George, encouraging the latter to
invest with QTCI. George finally invested with QTCI. On the
same day, Collado, in behalf of QTCI, and George signed the
Customers Agreement. Forming part of the agreement was the
Special Power of Attorney executed by respondent, appointing
Mendoza as his attorney-in-fact with full authority to trade and
manage his account.
The Securities and Exchange Commission issued a Cease-
and-Desist Order (CDO) against QTCI. Alarmed by the
issuance of the CDO, respondent demanded from QTCI the
return of his investment, but it was not heeded. He then sought
legal assistance, and discovered that Mendoza and Lontoc
were not licensed commodity futures salesmen.
Respondent filed a complaint for Recovery of Investment with
Damages with the SEC against QTCI, Lau, and Collado, and
against the unlicensed salesmen, Mendoza and Lontoc. Only
COMREV G01 | 13
January 7, 2019 (Meeting 1)
petitioners answered the complaint, as Mendoza and Lontoc
had since vanished into thin air.
QTCI claimed that they were not aware of, nor were they privy
to, any arrangement which resulted in the account of
respondent being handled by unlicensed brokers. They added
that even assuming that the subject account was handled by an
unlicensed broker, respondent is now estopped from raising it
as a ground for the return of his investment. They pointed out
that respondent transacted business with QTCI for almost a
year, without questioning the license or the authority of the
traders handling his account.
SEC ruled in favor of the respondent. CA sustained the finding
that petitioners violated the Revised Rules and Regulations on
Commodity Futures Trading when they allowed an unlicensed
salesman, like Mendoza, to handle respondents account.
ISSUE/S:
1. Whether Collado and Lau could be held solidarily liable
for the payment of respondents claim.
HELD: YES.
A corporation is invested by law with a personality separate and
distinct from those of the persons composing it, such that, save
for certain exceptions, corporate officers who entered into
contracts in behalf of the corporation cannot be held personally
liable for the liabilities of the latter. Personal liability of a
corporate director, trustee, or officer, along (although not
necessarily) with the corporation, may validly attach, as a rule,
only when:
1. he assents to a patently unlawful act of the corporation,
or when he is guilty of bad faith or gross negligence in
 January 7, 2019 (Meeting 1)
directing its affairs, or when there is a conflict of interest It is therefore safe to conclude that although Lau may not have
resulting in damages to the corporation, its stockholders, participated nor been aware of the unlawful acts, he is however
or other persons; deemed to have been grossly negligence in directing the affairs
2. he consents to the issuance of watered down stocks or of QTCI.
who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection WHEREFORE, the challenged Decision and Resolution of the
thereto; Court of Appeals in CA-G.R. SP No. 58741 are AFFIRMED with
3. he agrees to hold himself personally and solidarily liable
with the corporation; or MODIFICATION that the awards for moral and exemplary
4. he is made by a specific provision of law personally damages are reduced to P50,000.00 and P30,000.00,
answerable for his corporate action.
respectively.
The findings contained in the report include the presence of
seven unlicensed investment consultants in QTCI, and the
company practice of changing deeds of Special Power of
Attorney bearing those who are licensed.

The presence of seven unlicensed investment consultants

within QTCI apart from Mendoza, and Collados participation in
the unlawful execution of orders under the respondents account
clearly established the fact that the management of QTCI failed
to implement the rules and regulations against the hiring of, and
associating with, unlicensed consultants or traders. How these
unlicensed personnel been able to pursue their unlawful
activities is a reflection of how negligent the management was.

Romeo Lau, as president of QTCI, cannot feign innocence on

the existence of these unlawful activities within the company,
especially so that Collado, himself a ranking officer of QTCI, is
involved in the unlawful execution of customers orders. Lau,
being the chief operating officer, cannot escape the fact that had
he exercised a modicum of care and discretion in supervising
the operations of QTCI, he could have detected and prevented
the unlawful acts of Collado and Mendoza.

COMREV G01 | 14

7. ERIC GODFREY STANLEY LIVESEY, Petitioner, vs.
BINSWANGER PHILIPPINES, INC. and KEITH ELLIOT,
Respondent. (G.R. No. 177493)
Digested by: Encarnacion, Fidea
Topic: Piercing the Corporate Veil
Doctrine: Piercing the veil of corporate fiction is an equitable
doctrine developed to address situations where the separate
corporate personality of a corporation is abused or used for
wrongful purposes. Under the doctrine, the corporate existence
may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligation,
or to justify a wrong, to shield or perpetrate fraud or to carry out
similar or inequitable considerations, other unjustifiable aims or
intentions, in which case, the fiction will be disregarded and the
individuals composing it and the two corporations will be treated
as identical.
In the present case, we see an indubitable link between CBB’s
closure and Binswanger’s incorporation.
Facts:
1. Petitioner Eric Godfrey Stanley Livesey filed a
complaint for illegal dismissal with money claims against
CBB Philippines Strategic Property Services, Inc. (CBB) and
Paul Dwyer.
a. CBB was a domestic corporation engaged in
real estate brokerage and Dwyer was its
President.
b. Livesey alleged that on April 12, 2001, CBB
hired him as Director and Head of Business
Space Development, with a monthly salary of
US$5,000.00; shareholdings in CBB’s
offshore parent company; and other benefits.
c. He was then was appointed as Managing
Director and his salary was increased to
US$16,000.00 a month.
d. Allegedly CBB failed to pay him a significant
portion of his salary.
COMREV G01 | 15
January 7, 2019 (Meeting 1)
e. Later, he was compelled to resign on
December 18, 2001. He claimed CBB owed
him US$23,000.00 in unpaid salaries.
2. CBB denied liability.
a. It alleged that it engaged Livesey as a
corporate officer in April 2001: he was
elected Vice-President (with a salary of
P75,000.00/month), and thereafter, he
became President (at P1,200,000.00/year).
b. Also, that Livesey was later designated as
Managing Director when it became an
extension office of its principal in Hongkong.
3. LABOR ARBITER: Livesey had been illegally
dismissed.
a. Parties entered into a compromise
agreement which LA Reyno approved.
b. CBB paid Livesey the initial amount of
US$13,000.00, but not the next two
installments as the company ceased
operations.
4. COMPULSORY ARBITRATION Rulings:
a. LA: denied Livesey’s motion for an alias writ
of execution, holding that the doctrine of
piercing the corporate veil was inapplicable
in the case. He explained that the
stockholders of the two corporations were
not the same.
b. NLRC: granted appeal; ordered and
declared the respondents jointly and
severally liable with CBB.
5. COURT OF APPEALS: CA disagreed with the NLRC
finding that the respondents are jointly and severally liable
with CBB in the case. It emphasized that the mere fact that
Binswanger and CBB have the same President is not in itself
sufficient to pierce the veil of corporate fiction of the two
entities, and that although Elliot was formerly CBB’s
President, this circumstance alone does not make him
 January 7, 2019 (Meeting 1)
answerable for CBB’s liabilities, there being no proof that he
was motivated by malice or bad faith.
Issue: WON it is proper to pierce the corporate veil in this case.
Held: YES.
The SC held that there is an indubitable link between CBB’s
closure and Binswanger’s incorporation. CBB ceased to exist
only in name; it re-emerged in the person of Binswanger for an
urgent purpose — to avoid payment by CBB of the last two
installments of its monetary obligation to Livesey, as well as its
other financial liabilities. Freed of CBB’s liabilities, especially
that owing to Livesey, Binswanger can continue, as it did
continue, CBB’s real estate brokerage business.
While the ostensible reason for Binswanger’s establishment is
to continue CBB’s business operations in the Philippines, which
by itself is not illegal, the close proximity between CBB’s
disestablishment and Binswanger’s coming into existence
points to an unstated but urgent consideration which was to
evade CBB’s unfulfilled financial obligation to Livesey under the
compromise agreement.
The ruling on Elliot (President and CEO): What happened to
CBB, the SC believes, supports Livesey's assertion that De
Guzman, CBB's former Associate Director, informed him that at
one time Elliot told her of CBB 's plan to close the corporation
and organize another for the purpose of evading CBB 's
liabilities to Livesey and its other financial liabilities. This
wrongful intent the SC could not condone, for it will give a
premium to an iniquitous business strategy where a corporation
is formed or used for a non-legitimate purpose, such as to evade
a just and due obligation. Therefore, Elliot was found to be as
liable as Binswanger for CBB 's unfulfilled obligation to
Livesey.

COMREV G01 | 16

08) Pacific Rehouse Corp. vs. Court of Appeals, et. al.
G.R. No. 199687 // 201537
March 24, 2014
Digested By: Alfonso Lopez
TOPIC: Separate Personality/Piercing the Veil
FACTS:
1. A complaint was instituted by Pacific Rehouse Corp. et.
al. against EIB Securities Inc. (E-Securities) for unauthorized
sale of 32 million DMCI shares of Pacific Rehouse Corp. et. al.
SC ruled in favor of Pacific Rehouse and ordered E-Securities
to return the DMCI shares, and for Pacific Rehouse to reimburse
E-Securities.
2. When execution was unsatisfied, Pacific Rehouse
moved for an alias writ of execution to hold Export and Industry
Bank, Inc. (EIB) liable for the judgment obligation as E-
Securities was allegedly a mere alter ego and business conduit
of EIB.
3. RTC granted and alias writ and garnished EIB and E-
Securities’ assets. EIB questioned the alias writ since it was not
impleaded as a party to the case, but RTC ruled that service of
summons upon E-Securities also bestowed jurisdiction over the
parent company.
4. EIB prayed for a TRO with the CA, citing several rulings
that upheld the separate and distinct personality of a
corporation, which the CA granted. Pacific Rehous commented
that the cited rulings does not apply to this cae as 499,995 out
of 500,000 shares of stock of E-Securities were owned by EIB,
and that both companies had the same lawyers.
5. CA granted the preliminary injunction. Hence, these
petitions by Pacific Rehouse Corporation, Paccific Concorde
Corporation, Mizpah Holdings, Inc., Forum Holdings
Corporation and East Asia Oil Company, Inc.
COMREV G01 | 17
January 7, 2019 (Meeting 1)
ISSUE: W/N the corporate veil should be pierced and EIB
should be held liable for the judgment obligation
HELD: No.
1. The principle of piercing the veil of corporate fiction, and
the resulting treatment of two related corporations as one and
the same juridical person with respect to a given transaction, is
basically applied only to determine established liability; it is not
available to confer on the court a jurisdiction it has not acquired,
in the first place, over a party not impleaded in a case. Elsewise
put, a corporation not impleaded in a suit cannot be subject
to the court’s process of piercing the veil of its corporate
fiction. Hence, the court must first and foremost acquire
jurisdiction over the parties; and only then would the parties be
allowed to present evidence for and/or against piercing the veil
of corporate fiction
2. As EIB was neither served with summons, nor has it
voluntarily appeared before the court, the judgment sought to
be enforced against E-Securities cannot be made against its
parent company, EIB.
3. [DOCTRINE] More importantly, the Alter Ego Doctrine
is not applicable. Where one corporation is so organized and
controlled and its affairs are conducted so that it is, in fact, a
mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the "instrumentality" may be disregarded.
The control necessary to invoke the rule is not majority or even
complete stock control but such domination of finances, policies
and practices that the controlled corporation has, so to speak,
no separate mind, will or existence of its own, and is but a
conduit for its principal.
4. The Court has laid down a three-pronged control test to
establish when the alter ego doctrine should be operative:
 January 7, 2019 (Meeting 1)
a. Control, not mere majority or complete stock control, but may serve as badges of control, but ownership, per se, without
complete domination, not only of finances but of policy and proof of actuality of the other conditions are insufficient to
business practice in respect to the transaction attacked so that establish an alter ego relationship or connection, which will
the corporate entity as to this transaction had at the time no justify the setting aside of the cover of corporate fiction.
separate mind, will or existence of its own;
b. Such control must have been used by the defendant to WHEREFORE, the petition in G.R. No. 199687 is hereby
commit fraud or wrong, to perpetuate the violation of a statutory DISMISSED for having been rendered moot and academic. The
or other positive legal duty, or dishonest and unjust act in petition in G.R. No. 201537, meanwhile, is hereby DENIED for
contravention of plaintiff’s legal right; and lack of merit.
c. The aforesaid control and breach of duty must [have]
proximately caused the injury or unjust loss complained of.
5. The RTC pierced the corporate veil based on the factors
raised by Pacific Rehouse, et. al.. Among others, the RTC
emphasized that the offices of both companies were in the same
building; that they share common key Directors and corporate
officers; that E-Securities were deemed a “controlled
subsidiary” by EIB and their financial statements were
consolidated and audited by the same auditing firm; and that
they had the same handling lawyers.
6. However, the RTC is incorrect. Control, by itself, does
not mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother company.
There must be a perpetuation of fraud behind the control or at
least a fraudulent or illegal purpose behind the control in order
to justify piercing the veil of corporate fiction. Such fraudulent
intent is lacking in this case.
7. Moreover, there was nothing on record demonstrative of
EIB’s wrongful intent in setting up a subsidiary, E-Securities. If
used to perform legitimate functions, a subsidiary’s 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 business.
8. Also, ownership by EIB of a great majority or all of stocks
of E-Securities and the existence of interlocking directorates
COMREV G01 | 18

9) HEIRS OF FE TAN UY vs. INTERNATIONAL EXCHANGE
BANK G.R. No. 166282, Feb. 13, 2013
TOPIC: Piercing the Veil & Liability of corporate officers (both
in this case)
Digested by: Jiggy Marquez
Note: two (2) companies; Hammer and Goldkey were treated as
one bec both were family corporations owned by Chua and his
family, they obtained a loan and tried to avoid it by submitting
falsified financial records, RTC held the treasurer Ong solidarily
liable to pay the loan but SC ruled she shouldn’t be liable
solidarily bec. The plaintiff did not pray for this.
FACTS: From June 23 1997 to Sep. 3 1997,
International Exchange Bank granted 9 loans totaling to P
24,938,898.08 (close to 25M) – granted loans to Hammer
Garments Corporation secured/covered by promissory notes
and deeds of assignment. These were made by Hammer
represented by its President and General Manager Manuel
“Chua”
The loans were furthermore secured by Several
properties of GoldKey over several of its properties and a P25
Million-Peso surety agreement siged by Chua and his wife Uy
(but later on RTC found this signature as a forgery) – Hammer
garments corporation defaulted on the 25 M loan which
prompted, International Exchange Bank / iBank to file a
complaint for sum of money to recover it.
RTC: found the signature of Uy as a forgery but still held her
solidarily liable as an officer and stockholder of Hammer
Garments Corp. and agreed with GoldKey (that its liability was
limited to its assets only) but found and concluded ultimately
that both HAMMER and GOLDKEY were one and the same bec
COMREV G01 | 19
January 7, 2019 (Meeting 1)
its officers, assets, place of business are the same and both are
fam corporations of the Chua & Uy. CA: affirmed.
ISSUES:
1) Whether Uy can be held liable to iBank/International
Exchange Bank for the loan – NO.
2) Whether Goldkey can be held liable for the obligation of
Hammer for being a mere alter ego of the latter(Hammer). -YES
HELD:
1) Uy is not liable, it was not shown that she committed or
participated in a commission of a wrong or was grossly
negligent. The Heirs of Uy are correct to allege that iBank never
said that Uy committed acts warranting for piercing of the
corporate veil. iBank did not demand that she be held solidarily
liable, the note that says she will be a surety was also found to
be forgery. At most Uy can only be charged with negligence as
treasuer for allowing the company to enter a loan when they
were in a precarious financial position.
(DOCTRINE) Before a director or officer of a corporation
can be held personally liable for corporate obligations,
however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or
officer assented to patently unlawful acts of the corporation,
or that the officer was guilty of gross negligence or bad faith;
and (2) the complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.
(DOCTRINE) Solidary liability will then attach to the
directors, officers or employees of the corporation in certain
circumstances, such as:
1. When directors and trustees or, in appropriate cases, the
officers of a corporation: (a) vote for or assent to patently

unlawful acts of the corporation; (b) act in bad faith or with
gross negligence in directing the corporate affairs; and (c)
are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other
persons;
2. When a director or officer has consented to the issuance
of watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written
objection thereto;
3. When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and solidarily
liable with the corporation; or
4. When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate action
2) GoldKey is/was reminded that it was being sued not because
of the mortgage but because it acted as an alter ego of Hammer
– Both corporations are family owned, the incorporators and
shareholders are relatives of Chua, The place of business is in
the same place, the Defendant Chua is the President and Chief
Operating Officer of both GoldKey and Hammer, the assets of
GoldKey and Hammer are comingled. When Chua
disappeared, Goldkey ceased to operate despite the claim that
the other officers are able to continue the business of GoldKey,
and GoldKey obviously suffered financial setback / ruin when
Hammer was in financial ruin.
(DOCTRINE) Concept Builders, Inc. v. NLRC provides for
probative factors for identity to apply piercing;
(1) Stock ownership by one or common ownership of both
corporations; (2) Identity of directors and officers;
(3) The manner of keeping corporate books and records, and
(4) Methods of conducting the business.
COMREV G01 | 20
January 7, 2019 (Meeting 1)
(DOCTRINE) 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 one and the same.
(General Credit Corporation v. Alsons Development and
Investment Corporation, 542 Phil. 219, 231; 513 SCRA 225, 238
(2007).)
10) PNB vs. Hydro Resources Contractors Corp.
G.R. No. 167530 | 13 March 2013
Digested by: Mercado, Hilary Faye A.
Topic: Separate Personality / Piercing the Veil
DOCTRINES:
● Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding
the separate corporate personality.
● 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.
FACTS:
1. Development Bank of the Philippines (DBP) and Philippine
National Bank (PNB) acquired the properties of Marinduque
Mining and Industrial Corporation (MMIC) through
foreclosure of the latter’s mortgages.
a. As a result, DBP and PNB acquires substantially all of
the assets of MMIC and resumed operations by
organizing NMIC (Nonoc Mining and Industrial
Corporation.)

b. DBP and PNB owned 57% and 43% of the shares of
NMIC, respectively. The board of directors also came
from either DBP or PNB.
2. NMIC acquired the services of Hercon Inc. for the former’s
Mine Stripping and Road Construction Program for a total of
P35m.
3. After computing the payments made by NMIC, Hercon
found that there was still an unpaid balance of P8m.
4. When Hercon’s demands were not heeded, it filed a case
for collection of sum of money with the RTC against NMIC,
DBP and PNB.
5. In the interim, Hercon, Inc was acquired by HRCC
(respondent, Hyrdro Resources Contractors Corp).
Meanwhile, Asset Privatization Trust (ATP) was created
through Proc. No. 50 and was impleaded as a defendant in
this case after the assets and liabilities of DPB and PNB in
NMIC were transferred to ATP.
6. NMIC’s argument: HRCC has no cause of action because
the contract with HRCC was entered by its then President
who had no authority.
7. DBP and PNB’s arguments: claimed that HRCC had no
cause of action because they were not privy to HRCC’s
contract with NMIC
8. RTC: ruled in favor of PNB and it pierced the corporate veil
of NMIC by holding DBP and PNB solidarily liable with
NMIC.
a. NMIC is owned by defendants DBP and PNB, with the
former owning 57% thereof, and the latter 43%
b. The business of NMIC was then also being conducted
and controlled by both DBP and PNB.
c. In fact, it was Rolando M. Zosa, then Governor of DBP,
who was signing and entering into contracts with third
persons, on behalf of NMIC
9. CA: affirmed the decision of RTC.
COMREV G01 | 21
January 7, 2019 (Meeting 1)
10. PETITIONERS: All three petitioners assert that NMIC is a
corporate entity with a juridical personality separate and
distinct from both PNB and DBP.
a. According to them, the application of the doctrine of
piercing the corporate veil is unwarranted as nothing in
the records would show that the ownership and control
of the shareholdings of NMIC by DBP and PNB were
used to commit fraud, illegality or injustice.
b. In the absence of evidence that the stock control by DBP
and PNB over NMIC was used to commit some fraud or
a wrong and that said control was the proximate cause
of the injury sustained by HRCC, resort to the doctrine
of "piercing the veil of corporate entity" is misplaced.
11. RESPONDENT: claims that NMIC was the alter ego of DBP
and PNB which owned, conducted and controlled the
business of NMIC as shown by the following circumstances:
NMIC was owned by DBP and PNB, the officers of DBP and
PNB were also the officers of NMIC, and DBP and PNB
financed the operations of NMIC.
ISSUE: Whether the doctrine of piercing the corporate veil
would apply to NMIC, thereby holding it solidarily liable with
DBP and PNB - NO
HELD:
● PRINCIPLE OF LIMITED LIABILITY: By virtue of the
separate juridical personality of a corporation, the corporate
debt or credit is not the debt or credit of the stockholder.
● PERICING THE CORPORATE VEIL: Equally well-settled is
the principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter
ego of a person or of another corporation. For reasons of
public policy and in the interest of justice, the corporate veil

will justifiably be impaled only when it becomes a shield for
fraud, illegality or inequity committed against third persons.
● Any application of the doctrine of piercing the corporate veil
should be done with caution. A court should be mindful of
the milieu where it is to be applied.
○ It must be certain that the corporate fiction was misused
to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights.
○ The wrongdoing must be clearly and convincingly
established; it cannot be presumed.
● Sarona v. NLRC has defined the scope of application of the
doctrine of piercing the corporate veil. The doctrine of
piercing the corporate veil applies only in three (3) basic
areas, namely:
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.
● Here, HRCC has alleged from the inception of this case that
DBP and PNB (and the APT as assignee of DBP and PNB)
should be held solidarily liable for using NMIC as alter ego.
● In this connection, case law lays down a three-pronged test
to determine the application of the alter ego theory, which is
also known as the instrumentality theory, namely:
1. Control, not mere majority or complete stock control,
but complete domination, not only of finances but of
policy and business practice in respect to the transaction
COMREV G01 | 22
January 7, 2019 (Meeting 1)
attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or
existence of its own;
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
and unjust act in contravention of plaintiff’s legal right;
and
3. The aforesaid control and breach of duty must have
proximately caused the injury or unjust loss
complained of.
● To summarize, piercing the corporate veil based on the alter
ego theory requires the concurrence of three elements:
control of the corporation by the stockholder or parent
corporation, fraud or fundamental unfairness imposed on
the plaintiff, and harm or damage caused to the plaintiff by
the fraudulent or unfair act of the corporation. The absence
of any of these elements prevents piercing the corporate
veil.
● This Court finds that none of the tests has been
satisfactorily met in this case.
● The conclusion of the trial and appellate courts that the DBP
and PNB fit the alter ego theory with respect to NMIC’s
transaction with HRCC on the premise of complete stock
ownership and interlocking directorates involved a quantum
leap in logic and law exposing a gap in reason and fact.
● While ownership by one corporation of all or a great majority
of stocks of another corporation and their interlocking
directorates may serve as indicia of control, by themselves
and without more, however, these circumstances are
insufficient to establish an alter ego relationship or
connection between DBP and PNB on the one hand and
NMIC on the other hand, that will justify the puncturing of the
latter’s corporate cover.

○ This Court has declared that "mere ownership by a
single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate
corporate personality."
○ This Court has likewise ruled that 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.”
FIRST ELEMENT: CONTROL
● In this case, nothing in the records shows that the corporate
finances, policies and practices of NMIC were dominated by
DBP and PNB in such a way that NMIC could be considered
to have no separate mind, will or existence of its own but a
mere conduit for DBP and PNB. On the contrary, the
evidence establishes that HRCC knew and acted on the
knowledge that it was dealing with NMIC, not with NMIC’s
stockholders.
● HRCC has presented nothing to show that DBP and PNB
had a hand in the act complained of, the alleged undue
disregard by NMIC of the demands of HRCC to satisfy the
unpaid claims for services rendered by HRCC in connection
with NMIC’s mine stripping and road construction program
in 1985. On the contrary, the overall picture painted by the
evidence offered by HRCC is one where HRCC was dealing
with NMIC as a distinct juridical person acting through its
own corporate officers.
January 7, 2019 (Meeting 1)
clearly and convincingly established; it cannot be presumed.
Without a demonstration that any of the evils sought to be
prevented by the doctrine is present, it does not apply.
● It is a recognition that, even assuming that DBP and PNB
exercised control over NMIC, there is no evidence that the
juridical personality of NMIC was used by DBP and PNB to
commit a fraud or to do a wrong against HRCC.
● There being a total absence of evidence pointing to a
fraudulent, illegal or unfair act committed against HRCC by
DBP and PNB under the guise of NMIC, there is no basis to
hold that NMIC was a mere alter ego of DBP and PNB.
THIRD ELEMENT: HARM/INJURY
● As regards the third element, in the absence of both control
by DBP and PNB of NMIC and fraud or fundamental
unfairness perpetuated by DBP and PNB through the
corporate cover of NMIC, no harm could be said to have
been proximately caused by DBP and PNB on HRCC for
which HRCC could hold DBP and PNB solidarily liable with
NMIC.

SECOND ELEMENT: FRAUD

● In relation to the second element, to disregard the separate
juridical personality of a corporation, the wrongdoing or
unjust act in contravention of a plaintiff’s legal rights must be
COMREV G01 | 23

11) Kukan International Corporation vs. Reyes
G.R. No. 182729, Sept. 29, 2010
Digested by: Penafiel, Wendy
TOPIC: Piercing the Corporate Veil
DOCTRINES:
● The principle of piercing the veil of corporate fiction is
applied only to determine established identity, not to
confer on the court a jurisdiction it has not acquired, in
the first place, over a party not impleaded in a case.
● Mere ownership by a single stockholder or by another
corporation of a substantial block of shares of a
corporation does not, standing alone, provide sufficient
justification for disregarding the separate corporate
personality.
FACTS: Kukan Inc. conducted a bidding for the supply and
installation of signages in a building being constructed in Makati
City. Morales won the bid and was awarded the Php 5 million
contract. Some items in the project award were later excluded
resulting in the reduction of the contract price to Php 3,388,502.
Morales was only paid Php 1,976,371.07, and Kukan Inc.
refused to pay the balance despite demands. Thus, Morales
filed a Complaint with the RTC against Kukan, Inc. for a sum of
money.
In Nov. 2000, Kukan Inc. no longer appear and was declared in
default. RTC ruled in favor of Morales. It ordered Kukan Inc. to
pay. It became final and executory; thus, Morales secured a writ
of execution against Kukan, Inc. The sheriff levied upon various
personal properties found at what was supposed to be Kukan,
Inc.’s office at Unit 2205, 88 Corporate Center, Salcedo Village,
Makati City.
COMREV G01 | 24
January 7, 2019 (Meeting 1)
Alleging that it owned the properties thus levied and that it was
a different corporation from Kukan, Inc., Kukan International
Corporation (KIC) filed an Affidavit of Third-Party Claim.
Notably, KIC was incorporated in August 2000, or shortly after
Kukan, Inc. had stopped participating in Civil Case. Morales
interposed an Omnibus Motion wherein it prayed, applying the
principle of piercing the veil of corporate fiction, that an order be
issued for the satisfaction of the judgment debt of Kukain, Inc.
with the properties under the name or in the possession of KIC,
it being alleged that both corporations are but one and the same
entity. The Court denied the omnibus motion.
Before the Manila RTC, Branch 21, Morales filed a Motion to
Pierce the Veil of Corporate Fiction to declare KIC as having no
existence separate from Kukan, Inc. RTC granted the motion,
declaring Kukan, Inc. and KIC as one and the same corporation;
and that the levy made on the properties of KIC is valid.
KIC filed a petition for certiorari before the CA which was
denied.
ISSUE/S:
1) Whether the trial court can, after the judgment against
Kukan, Inc. has attained finality, execute it against the
property of KIC -> No.
2) Whether the trial court acquired jurisdiction over KIC ->
No.
3) Whether the trial and appellate courts correctly applied,
under the premises, the principle of piercing the veil of
corporate fiction.
HELD:
1) The RTC Decision, in unequivocal terms, directed
Kukan, Inc. to pay the awards to Morales. Thus, making KIC,

thru the medium of a writ of execution, answerable for the
above judgment liability is a clear case of altering a decision,
an instance of granting relief not contemplated in the
decision sought to be executed. And the change does not
fall under any of the recognized exceptions to the doctrine
of finality and immutability of judgment. It is a settled rule
that a writ of execution must conform to the fallo of the
judgment; as an inevitable corollary, a writ beyond the terms
of the judgment is a nullity.
2) The CA deemed KIC to have voluntarily submitted itself
to the jurisdiction of the trial court owing to its filing of four
(4) pleadings. However, La Naval Drug Corp. v. CA
provides states, “A special appearance before the court
challenging its jurisdiction over the person through a motion
to dismiss even if the movant invokes other grounds —is not
tantamount to estoppel or a waiver by the movant of his
objection to jurisdiction over his person; and such is not
constitutive of a voluntary submission to the jurisdiction of
the court.” Thus, KIC cannot be deemed to have waived its
objection to the court’s lack of jurisdiction over its person as
it strongly asserted that it and Kukan, Inc. are different
entities.
3) In Pantranco Employees Association (PEA-PTGWO) v.
National Labor Relations Commission, the Court wrote:
“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
COMREV G01 | 25
January 7, 2019 (Meeting 1)
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. x x x”
KIC argues that the RTC violated its right to due process when,
in the execution of its Decision, the court authorized the
issuance of the writ against KIC for Kukan, Inc.’s judgment debt,
albeit KIC has never been a party to the underlying suit. Morales
argues that KIC’s specific concern on due process and on the
validity of the writ to execute the RTC’s Decision would be
mooted if it were established that KIC and Kukan, Inc. are
indeed one and the same corporation. Morales’ contention is
untenable.
The principle of piercing the veil of corporate fiction is applied
only to determine established identity, not to confer on the court
a jurisdiction it has not acquired, in the first place, over a party
not impleaded in a case. When the court has not acquired
jurisdiction over the corporation, any proceedings taken against
that corporation and its property would infringe on its right to due
process. Aguedo Agbayani, a recognized authority on
Commercial Law, stated that the doctrine comes to play only
during the trial of the case after the court has already acquired
jurisdiction over the corporation, and the doctrine of piercing the
veil of corporate entity can only be raised during a full-blown trial
over a cause of action duly commenced involving parties duly
brought under the authority of the court by way of service of
summons or what passes as such service. Here, there was no

full-blown trial involving KIC when the RTC disregarded its
corporate veil, simply because KIC was not impleaded in the
Civil Case and that the RTC did not acquire jurisdiction over it.
KIC was dragged by a mere motion of a party with whom it has
no privity of contract and after the decision in the main case had
already become final and executory. Morales’ adverted motion
to pierce stated a new cause of action, i.e. for the liability of
judgment debtor Kukan, Inc. to be borne by KIC, which must be
ventilated in another complaint.
January 7, 2019 (Meeting 1)
loss. Moreover, there must be at least a substantial identity of
stockholders for both corporations in order to consider this
factor to be constitutive of corporate identity.
Also, the fact that Kukan, Inc. entered into a PhP 3.3 million
contract when it only had a paid-up capital of PhP 5,000 is not
an indication of the intent on the part of its management to
defraud creditors. Paid-up capital is merely seed money to start
a corporation or a business entity.

In any event, the doctrine is not applicable. To justify the
piercing of the veil of corporate fiction, it must be shown by clear
and convincing proof that the separate and distinct personality
of the corporation was purposefully employed to evade a
legitimate and binding commitment and perpetuate a fraud or
like wrongdoings. Three factors for the Court to pierce:
Morales ought to have proved by convincing evidence that
Kukan, Inc. was collapsed and thereafter KIC purposely formed
and operated to defraud him. Morales has not to us discharged
his burden.
WHEREFORE, the petition is hereby GRANTED.

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a
second corporation to avoid a financial liability of the first
corporation; and
3. Both corporations are owned and controlled by the same
persons such that the second corporation should be
considered as a continuation and successor of the first
corporation.

Here, the 2nd and 3rd factors are absent. Michael Chan owns
40% of the common shares of both corporations. However,
mere ownership by a single stockholder or by another
corporation of a substantial block of shares of a corporation
does not, standing alone, provide sufficient justification for
disregarding the separate corporate personality. It must be
shown that Chan had control over both and used it to commit
fraud, which became the proximate cause for Morales’ financial

COMREV G01 | 26

12. Jose Bernas, et. al. vs. Jovencio Cinco, et. al.
G.R. Nos. 163356-57
Date: July 01, 2015
Digested by: Mercado, John Kristopher
TOPIC: Ultra Vires Acts
DOCTRINE: The illegal corporate acts contemplates the doing
of an act which are contrary to law, morals or public policy or
public duty, and are, like similar transactions between
individuals, void: They cannot serve as basis of a court action
nor acquire validity by performance, ratification or estoppel. On
the other hand, ultra vires acts or those which are not illegal or
void ab initio, are not merely within the scope of the articles of
incorporation, and are merely voidable and may become
binding and enforceable when ratified by the stockholders.
FACTS: Makati Sports Club (MSC) is a domestic corporation
duly organized and existing under Philippine laws. Alarmed with
the rumoured anomalies in handling the corporate funds, the
MSC Oversight Committee (MSCOC) which composed of the
past presidents of the club, demanded from the Bernas Group
(Petitioners) who were then incumbent officers of the
corporation, to resign from their respective positions. This was
supported by the stockholders of the corporation representing
at least 100 shares who sought the assistance of the MSCOC
to call for a special stockholders meeting (17 December 1997)
for the purpose of removing the sitting officers and electing new
ones. Thus, MSCOC called a Special Stockholders' Meeting.
For failure of the Bernas Group to secure an injunction before
the SEC, the meeting proceeded wherein the Bernas Group
were removed from office and were replaced by the Cinco
Group (Respondents).
COMREV G01 | 27
January 7, 2019 (Meeting 1)
Bernas Group initiated an action before the Securities
Investigation and Clearing Department (SICD) of the SEC
seeking for the nullification of the 17 December 1997 Special
Stockholders Meeting. The Bernas Group argued that the
authority to call a meeting lies with the Corporate Secretary and
not with the MSCOC as per the Corporation Code.Thus sought.
to declare the 17 December 1997 Special Stockholders'
Meeting, including the removal of the sitting officers and the
election of new ones, be nullified. On the other hand, MSCOC
reasoned that Section 25 of the MSC by-laws merely authorized
the Corporate Secretary to issue notices of meetings and
nowhere does it state that such authority solely belongs to him.
Meanwhile, the newly elected directors initiated an investigation
and found Bernas guilty of irregularities. The Board resolved to
expel him from the club by selling his shares at public auction.
Prior to the resolution of the SEC Case, an Annual Stockholders'
Meeting was held on 20 April 1998 pursuant MSC by-laws.
During the meeting, the majority resolved to approve, confirm
and ratify the calling and holding of the Special Stockholders'
Meeting, the acts and resolutions adopted therein including the
removal of Bernas Group from the Board and the election of
their replacements.
Due to the filing of several petitions, the SEC En Banc resolved
to supervise the holding of the 1999 Annual Stockholders'
Meeting. During the \meeting, the stockholders once again
approved and ratified the holding of the 17 December 1997
Special Stockholders' Meeting. This was likewise ratified during
the 2000 Annual Stockholders' Meeting.
The SICD rendered a Decision finding that the 17 December
1997 Special Stockholders' Meeting and the Annual
Stockholders' Meeting conducted on 20 April 1998 and 19 April
 January 7, 2019 (Meeting 1)
1999 are invalid. The SICD likewise nullified the expulsion of fails or neglects to call a meeting, then the stockholders
Bernas from the corporation and the sale of his share at the representing at least 100 shares, upon written request, may file
public auction. a petition to call a special stockholder's meeting.

On appeal, the SEC En Banc reversed the findings of the SICD
and validated the holding of the 17 December 1997 Special
Stockholders' Meeting as well as the Annual Stockholders'
Meeting held on 20 April 1998 and 19 April 1999.
The Court of Appeals rendered a Decision declaring the 17
December 1997 Special Stockholders' Meeting invalid for being
improperly called but affirmed the actions taken during the
Annual Stockholders' Meeting held on 20 April 1998, 19 April
1999 and 17 April 2000.
ISSUE/S: Whether the 1997 Special Stockholder’s meeting was
invalid
HELD: Yes, but the subsequent Annual Stockholders' Meeting
held on 1998, 1999 and 2000 are valid and binding except the
ratification of the removal of the Bernas Group and the sale of
Bernas' shares at the public auction effected by the body during
the said meetings.
In this case, the 1997 Special Stockholders' Meeting was called
neither by the President nor by the Board of Directors but by the
MSCOC. Nowhere in the by-laws does it state MSCOC is
authorized to exercise corporate powers. Needless to say, the
MSCOC is neither empowered by law nor by the MSC by-laws
to call a meeting and the subsequent ratification made by the
stockholders did not cure the substantive infirmity, the defect
having set in at the time the void act was done.
The 1997 Special Stockholder meeting is an an illegal corporate
act which is void ab initio and cannot be validated.
Consequently, such Special Stockholders' Meeting called by the
Oversight Committee cannot have any legal effect. The removal
of the Bernas Group, as well as the election of the Cinco Group,
effected by the assembly in that improperly called meeting is
void.

The Corporation Code laid down the rules on the removal of the
Directors of the corporation by providing the persons authorized
to call the meeting and the number of votes required for the
purpose of removal; requiring a vote of the stockholders holding
or representing at least 2/3 of the outstanding capital stock
which shall take place either at a regular meeting of the
corporation or at a special meeting called for the purpose. On
the other hand, only the President and the Board of Directors
are authorized by the MSC by-laws to call a special meeting. In
cases where the person authorized to call a meeting refuses,
COMREV G01 | 28

13. Magallanes Watercraft Asso., Inc., et. al. vs. Margarito
Auguis, et. al.
G.R. No. 211485
Date: May 30, 2016
Digested by: Rodriguez, Chaselle Angela
TOPIC: Ultra Vires Acts
DOCTRINE:
Corporate acts that are outside of those express definition under
the law or articles of incorporation or those “committed outside
the object for which a corporation is created” are ultra vires. The
only exception to this rule is when acts are necessary and
incidental to carry out the corporation’s purpose and to exercise
of powers conferred by the Corporation Code and under a
corporation’s articles of incorporation.
The test to be applied to determine if the corporate act is in
accordance with its purpose is “whether the act in question is in
direct and immediate furtherance of the corporation’s business,
fairly incidental to the express powers and reasonably
necessary to their exercise.
FACTS:
Petitioner Magallanes Watercraft Association, Inc. (MWAI) is a
local association of motorized banca owners and operations
ferrying cargos and passengers. On the other hand,
Respondents Margarito Auguis and Discoro Basnig were the
vice-president and secretary of of MWAI respectively.
On Dec. 5, 2003, the Board of Trustees passed a Resolution
and Memorandum suspending the rights and privileges of the
respondents as members of the association for their refusal to
pay membership dues and berthing fees because of their
COMREV G01 | 29
January 7, 2019 (Meeting 1)
pending oral complaint and demand for financial audit of
association dues. It also suspended the respondent’s right to
operate their bancas.
Respondents still refused to pay, hence, their suspension was
extended to another 30 days. This prompted the respondents to
file an action for damages before the RTC. The RTC ruled in
favor of the respondents. The CA affirmed that MWAI was guilty
of ultra vires act when it suspended the rights of the
respondents as members of MWAI because neither MWAI’s
Articles of Incorporation and By-Laws expressly or impliedly
vests power to its board to recommend sanctions for delinquent
members. CA further noted that MARINA has the sole authority
to suspend the franchise of the respondents. Hence, MWAI
acted beyond its scope of powers when it suspended the
respondent’s right to as members of MWAI and to operate their
bancas.
ISSUE:
Whether MWAI’s act constitutes as ultra vires? - NO
HELD:
Section 45 of the Corporation code provides that a corporation
has: (1) express powers, which are bestowed upon by law or by
the articles of incorporation; and (2) necessary and incidental
powers to the exercise of those expressly conferred.
As a rule, corporate acts that are outside of those express
definition under the law or articles of incorporation or those
“committed outside the object for which a corporation is created”
are ultra vires. The only exception to this rule is when acts are
necessary and incidental to carry out the corporation’s purpose
and to exercise of powers conferred by the Corporation Code
and under a corporation’s articles of incorporation.
 January 7, 2019 (Meeting 1)

The test to be applied to determine if the corporate act is in

accordance with its purpose is “whether the act in question is in
direct and immediate furtherance of the corporation’s business,
fairly incidental to the express powers and reasonably
necessary to their exercise.

In this case, Section 3(a) and 3(c) Article V of MWAI’s By-laws

obligates the respondents to pay the membership dues of which
they were delinquent. Hence, MWAI cannot be faulted in
suspending the rights and privileges of the respondents.

MWAI can proper impose sanctions on the respondents

considering that the payment of membership dues enables
MWAI to discharge its duties and functions under its charter.
Moreover, it was the respondent’s duty to pay the dues. The
suspension is not an ultra vires act because it was reasonably
necessary or proper in order to further the interest and welfare
of MWAI. Lastly, the imposition of the temporary ban on the use
of MWAI’s facilities was a reasonable measure to ensure
prompt payment of the membership dues.

WHEREFORE, the petition is GRANTED.

COMREV G01 | 30

14. Hyatt Elevators Inc. vs. Goldstar Elevators. Phils.,
G.R. No. 161026, Oct. 24, 2005
Digested by: Seneres, Franchesca
Topic: Residence of a Corporation
DOCTRINE: Since the principal place of business of a
corporation determines its residence or domicile, then the place
indicated in petitioners articles of incorporation becomes
controlling in determining the venue for this case.
FACTS: Petitioner Goldstar Elevator Philippines, Inc. and
private respondent Hyatt Elevators and Escalators Company
are both domestic corporations engaged in elevator
manufacturing and services.
On Feb. 23, 1999, HYATT filed a Complaint for unfair trade
practices and damages against LG Industrial Systems Co. Ltd.
(LGISC) and LG International Corporation (LGIC), alleging that
the latter was in bad faith in the negotiations of their Exclusive
Distributorship Agreement,
LGISC and LGIC filed a Motion to Dismiss on the grounded,
among others, upon improper venue, which was denied.
HYATT filed and was granted a motion for leave to amend its
complaint, alleging that, it later learned that LGISC transferred
all its organization, assets and goodwill to LG Otis. Thus, LGISC
was to be changed to LG Otis. It also averred that GOLDSTAR
was being utilized by LG Otis and LGIC in perpatrating their
unlawful and unjustified acts against HYATT, thus it impleaded
HYATT as a party-defendant.
GOLDSTAR filed a Motion to Dismiss the amended complaint,
raising among others, the ground of improper venue as neither
HYATT nor defendants reside in Mandaluyong City, where the
original case was filed.
The RTC denied the Motion to Dismiss. However, the CA
reversed, claiming that the venue was clearly improper because
COMREV G01 | 31
January 7, 2019 (Meeting 1)
none of the litigants resided in Mandaluyong City, where the
case was filed. The CA held that since Makati was the principal
place of business of both respondent and petitioner, as stated
in the latters Articles of Incorporation, that place was controlling
for purposes of determining the proper venue. The fact that
petitioner had abandoned its principal office in Makati years
prior to the filing of the original case did not affect the venue
where personal actions could be commenced and tried.
ISSUE: Whether or not the venue was improperly laid? - YES.
HELD: Residence is the permanent home -- the place to which,
whenever absent for business or pleasure, one intends to
return. Residence is vital when dealing with venue. A
corporation, however, has no residence in the same sense in
which this term is applied to a natural person. This is precisely
the reason why the Court in Young Auto Supply Company v.
Court of Appeals ruled that for practical purposes, a corporation
is in a metaphysical sense a resident of the place where its
principal office is located as stated in the articles of
incorporation.
This Court has also definitively ruled that for purposes of venue,
the term residence is synonymous with domicile as per Art. 51
of the Civil Code. It now becomes apparent that the residence
or domicile of a juridical person is fixed by the law creating or
recognizing it. Under Section 14(3) of the Corporation Code, the
place where the principal office of the corporation is to be
located is one of the required contents of the articles of
incorporation, which shall be filed with the Securities and
Exchange Commission (SEC).
In the present case, there is no question as to the residence of
respondent. What needs to be examined is that of petitioner.
Admittedly, the latter’s principal place of business is Makati, as
indicated in its Articles of Incorporation. Since the principal
place of business of a corporation determines its residence or
domicile, then the place indicated in petitioners articles of
 January 7, 2019 (Meeting 1)
incorporation becomes controlling in determining the venue for
this case.
Inconclusive are the bare allegations of petitioner that it had
closed its Makati office and relocated to Mandaluyong City, and
that respondent was well aware of those circumstances.
Assuming arguendo that they transacted business with each
other in the Mandaluyong office of petitioner, the fact remains
that, in law, the latter’s residence was still the place indicated in
its Articles of Incorporation.

WHEREFORE, the Petition is hereby DENIED, and the assailed

Decision and Resolution AFFIRMED.

COMREV G01 | 32

15. ABS-CBN Broadcasting Corp. vs. CA
G.R. No. 128690
Date: January 21, 1999
Digested By: Jasfer Tagacay
TOPIC: Claim for Moral Damages
DOCTRINE:
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 in People v.
Manero and Mambulao Lumber Co. v. PNB that a corporation
may recover moral damages if it has a good reputation that is
debased, resulting in social humiliation is an obiter dictum.
FACTS:
● ABS-CBN and VIVA executed a Film Exhibition Agreement
whereby VIVA gave ABS-CBN an exclusive right to exhibit
some of its films. VIVA offered ABS-CBN a list of 3 film
packages (36 titles) from which the latter may exercise its
right of first refusal. ABS-CBN, however, can tick off only 10
titles from the list and therefore did not accept.
● Del Rosario approached ABS-CBN’s Ms. Concio, with a list
consisting of 52 original movie titles including the 14 titles
subject of the present case, as well as 104 re-runs from
which it may choose another 52 titles, proposing to sell to
ABS-CBN airing rights over this package for P60 Million of
which half will be in cash and the other half, worth of
television spots.
● Later on, Del Rosario and ABS-CBNs general manager,
Eugenio Lopez III, met at the Tamarind Grill Restaurant in
Quezon City to discuss the package proposal of VIVA.
o Lopez argues that he and Mr. Del Rosario agreed
that ABS-CBN was granted exclusive film rights to
fourteen (14) films for a total consideration of P36
COMREV G01 | 33
January 7, 2019 (Meeting 1)
million, allegedly written in a napkin, signed and
gave it to Mr. Del Rosario
o Del Rosario denies such agreement, the existence
of a napkin, and insisted that what they discussed
was Vivas film package offer of 104 films (52
originals and 52 re-runs) for a total price of P60
million.
● Del Rosario received a handwritten note from Ms. Concio,
to which a draft exhibition agreement is attached and a
counter-proposal. The said counter proposal was rejected
by Viva’s Board of Directors.
● After the rejection of ABS-CBN and following several
negotiations and meetings, Del Rosario granted RBS the
exclusive right to air 104 Viva-produced and/or acquired
films including the 14 films subject of the present case.
● ABS-CBN then filed a complaint for specific performance
with prayer for injunction. RTC granted the prayer and
required ABS-CBN post a P35 million bond.
● While ABS-CBN was moving for reduction of the bond, RBS
offered to put up a counterbond and was allowed to post
P30 million. RTC then rendered a decision in favor of RBS
and VIVA, ordering ABS-CBN to pay RBS the amount it paid
for the print advertisement and premium on the
counterbond, moral damages, exemplary damages and
attorneys fee.
● ABS-CBN appealed to the Court of Appeals. Viva and Del
Rosario also appealed seeking moral and exemplary
damages and additional attorneys fees. The Court of
Appeals affirmed the RTC decision and sustained the
monetary awards, while VIVA’s and Del Rosario’s appeals
were denied. Hence, ABS-CBN’s Petition.
ISSUE: Whether or not RBS is entitled to moral damages.
(NO)
HELD:
As regards moral damages, RBS asserts that ABS-CBN filed
the case and secured injunctions for purposes of harassing and
prejudicing RBS. Pursuant to Articles 19 and 21 of the Civil
 January 7, 2019 (Meeting 1)
Code, ABS-CBN must be held liable for such damages based
on abuse of rights.

RBS also cited People v. Manero which states that a juridical

entity may recover moral and exemplary damages if it has a
good reputation that is debased resulting in social humiliation.

The Court bases its ruling on the law on moral damages found
in Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code.
RBS’s claim for moral damages could possibly fall only under
item (10) of Article 2219, which reads:

(10) Acts and actions referred to in Articles 21, 26, 27,

28, 29, 30, 32, 34 and 35.

Moral damages are in the category of an award designed to

compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer. The award is not meant to
enrich the complainant at the expense of the defendant, but to
enable the injured party to obtain means, diversion, or
amusements that will serve to obviate the moral suffering he has
undergone.

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 in People v.
Manero and Mambulao Lumber Co. v. PNB that a corporation
may recover moral damages if it has a good reputation that is
debased, resulting in social humiliation is an obiter dictum.
Thus, the award for damages must be set aside, since RBS is
a corporation.

ABS-CBN’s Petition is GRANTED except for the unappealed

Attorney’s Fees in favor of VIVA.

COMREV G01 | 34

16. Filipinas Broadcasting Network vs. Ago Medical
G.R. No. 128690. Jan. 21, 1999
Digested by: Talaman, Patricia
TOPIC: Claim for Moral Damages
DOCTRINE: A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish or moral shock. The
Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to
justify the award of moral damages. However, the Court’s
statement in Mambulao that “a corporation may have a good
reputation which, if besmirched, may also be a ground for the
award of moral damages” is an obiter dictum.
FACTS:
- “Expos” is a radio documentary hosted by Carmelo Mel Rima
(Rima) and Hermogenes Jun Alegre (Alegre), aired in DZRC-
AM owned by FBNI (Filipinas Broadcasting Network, Inc.)
- Rima and Alegre exposed various alleged complaints from
students, teachers, and parents against Ago Medical and
Educational Center-Bicol Christian College of Medicine
(AMEC) and its administrators.
- AMEC and Carmelita Ago (Dean of AMEC) filed a complaint
for damages against FBNI, Rima, and Alegre for such libelous
broadcasts.
- Alegre stated in his broadcast that:
• if you have children taking medical course at AMEC-
BCCM, advise them to pass all subjects because if they fail in
any subject they will repeat their year level, taking up all
subjects including those they have passed already.
• Earlier AMEC students in Physical Therapy had
complained that the course is not recognized by DECS.
• Students are required to take and pay for the subject
even if the subject does not have an instructor—such greed for
COMREV G01 | 35
January 7, 2019 (Meeting 1)
money on the part of AMEC’s administration.
• On the other hand, the administrators of AMEC-BCCM,
AMEC Science High School and the AMEC-Institute of Mass
Communication in their effort to minimize expenses in terms of
salary are absorbing or continues to accept “rejects”.
• AMEC is a dumping ground, garbage, not merely of
moral and physical misfits.
- Rima stated in his broadcast that:
• When they become members of society outside of
campus will be liabilities rather than assets.
- AMEC and Ago included FBNI as defendant for failing to
exercise due diligence in the selection and supervision of its
employees Rima and Alegre.
- FBNI, Rima, and Alegre filed and Answer alleging that they
were impelled by a sense of public duty to report the goings-on
in AMEC which is an institution imbued with public interest.
- Trial Court: FBNI and Alegre liable for libel except Rima,
because he only agreed with Alegre’s expos. Therefore, FBNI
and Alegre are jointly and severally ordered to pay P300,000
moral damages.
- CA: affirmed. Rima made solidarily liable with Alegre and
FBNI. Dean Ago not entitled to moral damages.
ISSUE: Whether AMEC is entitled to moral damages.
HELD: YES
- FBNI contends that AMEC is not entitled to moral damages
because it is a corporation.
- A juridical person is generally not entitled to moral damages
because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish or moral shock. The Court of
Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify
the award of moral damages. However, the Court’s statement

in Mambulao that “a corporation may have a good reputation
which, if besmirched, may also be a ground for the award of
moral damages” is an obiter dictum.
Nevertheless, AMEC’s claim for moral damages falls under
item 7 of Article 2219 of the Civil Code. This provision
expressly authorizes the recovery of moral damages in cases
of libel, slander or any other form of defamation. Article
2219(7) does not qualify whether the plaintiff is a natural or
juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of
defamation and claim for moral damages.
- However, we find the award of P300,000 moral damages
unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered any
substantial or material damage to its reputation. Therefore, we
reduce the award of moral damages from P300,000 to
P150,000.
17) Advance Paper Corporation v Arma Traders
GR No. 176897|December 11, 2013
By: Janine Tutanes
Topic: Doctrine of Apparent Authority
Doctrine: The doctrine of apparent authority provides that a
corporation will be estopped from denying the agent’s authority
if it knowingly permits one of its officers or any other agent to
act within the scope of an apparent authority, and it holds him
out to the public as possessing the power to do those acts
Facts:
 Petitioner Advance Paper is engaged in the business of
producing, printing, manufacturing, distributing and
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January 7, 2019 (Meeting 1)
selling of various paper products. The President of
Petitioner Corporation is George Haw and the general
manager is his wife.
 Respondent Arma Traders is a engaged in the
wholesale and distribution of school and office
supplies, and novelty products. Respondent Tan, the
former president, and Respondent Uy, the treasurer,
represented Arma Traders when dealing with Advance
Paper for 14 years.
 In 1994, Arma Traders purchased on credit notebooks
and other paper products amounting to P7,533,001.49
from Advance Paper. In addition, Tan and Uy obtained
three loans from Advance Paper for a total of
P7,788,796.76, to settle other obligations. Because of
good relations, Advance Paper extended the loans.
 To pay for the loans and credit transactions, Arma
Traders issued 82 postdated checks, which was signed
by Tan and Uy. Advance Paper presented the checks
to the drawee bank but these were dishonored either
for “insufficiency of funds” or “account closed.” Despite
demands, Arma Traders failed to settle its account with
Advance Paper.
 Advance Paper filed a complaint for collection of sum
of money with application for preliminary attachment
against Arma Traders, Tan, Uy, and other officers of
the corporation. They claim that Arma Traders
fraudulently issued the postdated checks knowing that
they did not have sufficient funds.
 Arma Traders claim that the purchases of credit were
simulated and fraudulent since there was no delivery of
P7 million worth of books. They denied that the
respondent corporation did not purchase the supplies
and that they focused on acquiring Christmas Items.

Respondent corporation raised that the loans made by
Tan and Uy were personal obligations.
 In addition, Respondent Corporation claimed that the
loan transactions were ULTRA VIRES because the
board of directors of Arma Traders did not issue a
board resolution authorizing Tan and Uy to obtain the
loans from Advance Paper.
 Advance Paper counters the defense of Arma traders
that the doctrine of apparent authority applies because
Arma Traders knowingly permitted one of its officers or
any other agent to act within the scope of an apparent
authority, it holds him out to the public as possessing
the power to do those acts, making the corporation
estopped from denying the agent’s authority.
Issue:
Whether or not Arma Traders is liable for the loans acquired
by Tan and Uy by virtue of the Doctrine of Apparent Authority?
Held:
Yes, Arma Traders is liable to pay the loans on the basis of the
doctrine of apparent authority.
 The Doctrine provides that “a corporation will be
estopped from denying the agent’s authority if it
knowingly permits one of its officers or any other agent
to act within the scope of an apparent authority, and it
holds him out to the public as possessing the power to
these acts. It does not apply if the principal did not
commit any acts of conduct which a third party knew
and relied upon in good faiths as a result of the
exercise of reasonable prudence. Moreover, the
agent’s acts or conduct must have produced a change
of position to the 3rd party’s detriment.”
COMREV G01 | 37
January 7, 2019 (Meeting 1)
 As a general rule: the power and responsibility to
decide whether the corporation should enter into a
contract that will bind the corporation is lodged in the
board, subject to the articles of incorporation, bylaws,
or law.
 However, corporations may delegate confer powers,
intentionally or impliedly, to officers that are usual and
incidental to the business. And because of custom and
usage, apparent powers may cause the person dealing
with the officer to believe such powers were conferred.
 Apparent authority is derived note merely from practice.
Its existence may be ascertained through
1. The general manner in which the corporation
holds out an officer or agent as having the power to act
or, in other words the apparent authority to act in
general, with which it clothes him;
2. The acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof,
within or beyond the scope of his ordinary powers.
 In the case of People’s Aircargo v CA, the SC ruled
that the doctrine of apparent authority is applied when
the petitioner, through its president, entered into a
contract without first securing board approval. The held
that in the absence of charter or bylaws, the president
is presumed to have the authority to act within the
domain of the general objectives of its business and
within the scope of usual duties.

In this case, it is indicated in the Articles of
Incorporation of Arma Traders that the corporation may
borrow or raise money to meet the financial
 January 7, 2019 (Meeting 1)
requirements of its business. And that the soles
management of the company was left to Tan and Uy. In
addition, for 14 years, the stockholders and the board
of directors of Arma Trader never had its meeting.

 Thus, the SC held that Tan and Uy maintained broad

powers by allowing them to transact with 3rd persons
without any written authority, and Arma Traders failed
to take precautions to prevent the abue of its corporate
officers. Therefore, Arma Traders is liable.

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18) Donnina C. Halley v. Printwell, Inc.
GR no. 157549 | May 30, 2011
By: Carmela Wenceslao
TOPIC: Trust fund doctrine – it is an established doctrine that
subscriptions to the capital stock constitute a fund to which
creditors have a right to look for satisfaction of their claims.
(PNB v. Bitulok Sawmill)
DOCTRINE: Under the trust fund doctrine, a corporation has no
legal capacity to release an original subscriber to its capital
stock from the obligation of paying for his shares, in whole or in
part, without a valuable consideration, or fraudulently, to the
prejudice of creditors. The creditor is allowed to maintain an
action upon any unpaid subscriptions and thereby steps into the
shoes of the corporation for the satisfaction of its debt.
FACTS:
 Petitioner was an incorporator and original director
of Business Media Phils. Inc. (BMPI) which, at its
incorporation on November 12, 1987 had an
authorized capital stock of P 3 Million divided into
300,000 shares each with a par value of P10.00 of
which, 75,000 were initially subscribed.
o One of the subscribers is petitioner Halley.
 Printwell, on the other hand, is engaged in
commercial and industrial printing. BMPI
commissioned Printwell for the printing of the
magazine Philippines, Inc.
o For the purpose, Printwell extended a 30-day
credit accommodations to BMPI.
 In the period from Oct. 11, 1988 until July 12, 1989,
BMPI placed with Printwell several orders on credit
totaling P316,342.76.
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January 7, 2019 (Meeting 1)
 BMPI paid only P25,000. Thus, a collection case
was filed for the unpaid balance in the RTC. The
original complaint was later on amended to implead
as defendants all original stockholders and
incorporators, including Halley, to recover on their
unpaid subscriptions.
 The defendants, on their part, denied such
allegations and contended that they had paid their
subscriptions in full. To prove payment of their
subscriptions, the stockholders presented Official
Receipts (ORs), an audit report which was submitted
to the SEC and the BIR, BMPI balance sheet and
income statement, BMPI income tax return, journal
vouchers, cash deposit slips, BPI savings account
passbook.
 RTC rendered a decision in favor of Printwell.
Applying the trust fund doctrine, the RTC declared
the defendant stockholders liable to Printwell pro
rata.
 CA affirmed RTC and held that the defedants’ resort
to the corporate personality would create injustice
because Printwell would thereby be at a loss against
whom it would assert the right to collect.
 Only Donnina Halley has come to Court to seek
further review contending the impropriety of the
application of piercing the corporate veil and the trust
fund doctrine.
ISSUE/S: Whether or not the trust fund doctrine applies to this
case?
HELD:
YES. Trust fund doctrine is a rule that the property of a
corporation is a trust fund for the payment of creditors, but such
 January 7, 2019 (Meeting 1)
property can be called a trust fund only by way of analogy or the book did not reflect the actual payment of her
metaphor. As between a corporation itself and its creditors, it is subscription.
a simple debtor, and as between its creditors and stockholders  Nor did the petitioner present any certificate of stock
its assets are in equity a fund for the payment of its debts. issued by BMPI to her. Such a certificate covering
her subscription might be a reliable evidence of full
Trust fund doctrine is not limited to reaching the stockholder’s payment.
unpaid subscriptions. All assets and property belonging to the
corporation held in trust for the benefit of creditors that were To reiterate, the petitioner was liable pursuant to the trust fund
distributed or in possession of the stockholders, regardless of doctrine for the corporate obligation of BMPI by virtue of her
full payment of their subscriptions, may be reached by the subscription being still unpaid. Printwell, as BMPI’s creditor, had
creditor in satisfaction of its claim. a right to reach her unpaid subscription of its claim. Petition is
DENIED.
Under the trust fund doctrine, a corporation has no legal
capacity to release an original subscriber to its capital stock
from the obligation of paying for his shares, in whole or in part,
without a valuable consideration, or fraudulently, to the
prejudice of creditors. The creditor is allowed to maintain an
action upon any unpaid subscriptions and thereby steps into the
shoes of the corporation for the satisfaction of its debt.
In this case, petitioner failed to prove her full payment to her
subscription to BMPI.
 The petitioner’s mere submission of the receipt
issued in exchange of the check did not satisfactorily
establish her allegation of full payment of her
subscription.
 Indeed, she could not even inform the trial court
about the identity of her drawee bank and did not
present the check itself used to pay BMPI. It is
notable too that the petitioner and her co-
stockholders did not support their allegation of
complete payment of their respective subscriptions
with the stock and transfer book of BMPI. Halley
tendered no explanation why the stock and transfer
book was not presented warrants the inference that
COMREV G01 | 40

19 Wilson Gamboa v. Finance Sec. Margarito Teves
G.R. No. 176579 | June 28, 2011
Digested by: Alvarez, Marjorie L.
Topic: Capital
DOCTRINES: 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.
FACTS:
1. In 1928, Act No. 3436 granted PLDT a franchise and the
right to engage in telecommunications business. In 1969, an
American company and a major PLDT stockholder, GTE
sold 26% of the outstanding common shares of PLDT to
PTIC.
2. Subsequently, PHI became the owner of 111,415 shares of
stock of PTIC by virtue of three Deed of Assignments. These
shares which represent about 46.125% of the outstanding
capital stock (OCS) of PTIC were sequestered by the PCGG
and were declared to be owned by the Republic.
3. In 1999, First Pacific, a Bermuda-registered, acquired the
remaining 54% OCS of PTIC. A public bidding was held for
the sale of the 46.125% OCS where Parallax won as the
highest bidder.
4. In 2007, First Pacific through its subsidiary, MPAH, bought
the 46.125% OCS of PTIC with the Philippine Government.
Since PTIC is a stockholder of PLDT, the sale by the
government is actually an indirect sale of 12 million shares
of about 6.3% of the outstanding common shares of PLDT.
5. With the sale, First Pacifics common shareholdings in PLDT
increased from 30.7% to 37%, thereby increasing the
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January 7, 2019 (Meeting 1)
common shareholdings of foreigners in PLDT to about
81.47%.
● This 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%.
6. Petitioner filed the instant petition for prohibition and the
declaration of nullity of sale of the 111,415 PTIC shares. The
Sanidads intervened joining petitioner Gamboa in seeking,
among others, to enjoin and/or nullify the sale by
respondents of the 111,415 PTIC shares to First Pacific or
assignee.
ISSUE:
Whether the term “capital” in Section 11, Article XII of the
Constitution refers to the total common shares only or to the
total outstanding capital stock (combined total of common and
non-voting preferred shares) of PLDT, a public utility. - ONLY
TO COMMON SHARES
HELD:
1. Section 11, Article XII of the 1987 Constitution provides that
“No franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty
per centum of whose capital is owned by such citizens.”
2. The term capital 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.
3. Indisputably, one of the rights of a stockholder is the right to
participate in the control or management of the corporation.
This is exercised through his vote in the election of directors

because it is the board of directors that controls or manages
the corporation. In the absence of provisions in the articles
of incorporation denying voting rights to preferred shares,
preferred shares have the same voting rights as common
shares. However, preferred shareholders are often
excluded from any control, that is, deprived of the right to
vote in the election of directors and on other matters, on the
theory that the preferred shareholders are merely investors
in the corporation for income in the same manner as
bondholders. In fact, under the Corporation Code only
preferred or redeemable shares can be deprived of the right
to vote. Common shares cannot be deprived of the right to
vote in any corporate meeting, and any provision in the
articles of incorporation restricting the right of common
shareholders to vote is invalid.
4. Considering that common shares have voting rights which
translate to control, as opposed to preferred shares which
usually have no voting rights, the term capital in Section 11,
Article XII of the Constitution refers only to common shares.
However, if the preferred shares also have the right to vote
in the election of directors, then the term capital shall include
such preferred shares because the right to participate in the
control or management of the corporation is exercised
through the right to vote in the election of directors. In short,
the term capital in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote
in the election of directors.
5. In this case, only holders of common shares can vote in the
election of directors, meaning only common shareholders
exercise control over PLDT. Conversely, holders of
preferred shares, who have no voting rights in the election
of directors, do not have any control over PLDT. In fact,
under PLDTs Articles of Incorporation, holders of common
shares have voting rights for all purposes, while holders of
COMREV G01 | 42
January 7, 2019 (Meeting 1)
preferred shares have no voting right for any purpose
whatsoever.
6. To repeat, (a) foreigners own 64.27% of the common shares
of PLDT, which class of shares exercises the sole right to
vote in the election of directors, and thus exercise control
over PLDT; (b) Filipinos own only 35.73% of PLDT’s
common shares, constituting a minority of the voting stock,
and thus do not exercise control over PLDT; (c) preferred
shares, 99.44% owned by Filipinos, have no voting rights;
(d) preferred shares earn only 1/70 of the dividends that
common shares earn; (e) preferred shares have twice the
par value of common shares; and (f) preferred shares
constitute 77.85% of the authorized capital stock of PLDT
and common shares only 22.15%. This kind of ownership
and control of a public utility is a mockery of the Constitution.
7. Construing the term capital in Section 11, Article XII of the
Constitution to include both voting and non-voting shares
will result in the abject surrender of our telecommunications
industry to foreigners, amounting to a clear abdication of the
States constitutional duty to limit control of public utilities to
Filipino citizens.
Petition partially granted.

20. Valle Verde Country Club, Inc.,Ernesto Villaluna, Ray
Gamboa, Amado Santiago, Jr. Fortunato Dee, Augusto
Sunico, Victor Salta, Francisco Ortigas III, Eric Roxas, in
their capacities as members of the Board of Directors of Valle
Verde Country Club, Inc., and Jose Ramirez vs. Victor Africa
G.R. No. 151969 | 04 September 2009
Digested by: Aves, Genelle Ann L.
Topic: Board of Directors / Powers of the BOD
DOCTRINE: The business and affairs of a corporation must be
governed by a board of directors whose members have stood
for election, and who have actually been elected by the
stockholders, on an annual basis. Only in that way can the
directors' continued accountability to shareholders, and the
legitimacy of their decisions that bind the corporation's
stockholders, be assured. The shareholder vote is critical to the
theory that legitimizes the exercise of power by the directors or
officers over properties that they do not own.
FACTS:
· In the 1996 Annual Stockholders’ Meeting of Valle Verde
Country Club, Inc. (VVCC), Ernesto Villaluna, Jaime C.
Dinglasan, Eduardo Makalintal, Francisco Ortigas III, Victor
Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto
Sunico, and Ray Gamboa were elected as Board of
Directors.
· In 1997-2001, the requisite quorum for holding a
stockholders’ meeting could not be obtained so the BOD
continued to serve in a hold-over capacity.
· In 1998, Dinglasan resigned. A Board meeting was held
and elected Eric Roxas to fill the vacancy caused by the
resignation of Dinglasan.
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January 7, 2019 (Meeting 1)
· A few months after, Makalintal also resigned. He was
then replaced by Jose Ramirez, who was elected by the
remaining members of the BOD.
· Africa, a member of VVCC, questioned the election of
Roxas and Ramirez with the SEC and RTC respectively. He
alleged that the election of Roxas was contrary to Section
29, in relation to Section 23 of the Corporation Code.
Sec. 23. The board of directors or trustees. -
Unless otherwise provided in this Code, the
corporate powers of all corporations formed
under this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among
the members of the corporation, who shall hold
office for one (1) year until their successors are
elected and qualified.
Sec. 29. Vacancies in the office of director or
trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by the
stockholders or members or by expiration of
term, may be filled by the vote of at least a
majority of the remaining directors or trustees, if
still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a
regular or special meeting called for that
purpose. A director or trustee so elected to fill a
vacancy shall be elected only for the unexpired
term of his predecessor in office.
· Africa claimed that a year after Makalintal's election as
member of the VVCC Board in 1996, Makalintal’s term

should be considered to have already expired. The resulting
vacancy should have been filled by the stockholders in a
regular or special meeting called for that purpose, and not
by the remaining members of the VVCC Board, as was done
in this case.
· The RTC declared the election of Ramirez as null and
void. The SEC also declared the election of Roxas as null
and void. The SEC became final and executory as there was
no appeal filed.
· VVCC appeals that the power to fill in a vacancy created
by a hold-over director is expressly granted by jurisprudence
to the remaining members of the BOD.
ISSUE: Whether or not the remaining directors of a BOD, still
constituting a quorum, can elect another director to fill in a
vacancy caused by the resignation of a holdover director.
January 7, 2019 (Meeting 1)
VVCC's contention is that the BOD has the authority to elect
officers for the vacancies caused by the resignation. However,
this construction of the Corporation Code effectively weakens
the stockholders' power to participate in the corporate
governance by electing their representatives to the board of
directors. The board of directors is the directing and controlling
body of the corporation. It is a creation of the stockholders and
derives its power to control and direct the affairs of the
corporation from them. The board of directors occupies a
position of trusteeship in relation to the stockholders, in the
sense that the board should exercise not only care and
diligence, but utmost good faith in the management of corporate
affairs.

HELD: No, the holdover period is no longer part of the term of

office of the BOD so they no longer have the power to elect.

“Term” is defined as the time the officer may claim to hold the
office as of right, and fixes the interval after which the several
incumbents shall succeed one another. The term is fixed by
statute and it does not change simply because the office may
have become vacant, nor because the incumbent holds over in
office beyond the end of the term due to the fact that a
successor has not been elected and has failed to qualify.

In this case, Makalintal's term of office began in 1996 and

expired in 1997, but, by virtue of the holdover doctrine in Section
23 of the Corporation Code, he continued to hold office until his
resignation on November 10, 1998. This holdover period,
however, is not to be considered as part of his term, which, as
declared, had already expired.
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