MAGSAYSAY-LABRADOR vs.

COURT OF APPEALS
G.R. No. 58168. December 19, 1989.
Fernan,
C.J.
FACTS:
Private respondent Adelaida Rodriguez Magsaysay filed an action against Subic Land
Corporation (SUBIC), among others, to annul the deed of assignment and deed of mortgage executed in favor of
the latter by her late husband.
Private respondent alleged that the subject land of the two deeds was acquired through conjugal funds. Since her
consent to the disposition of the same was not obtained, she claimed that the acts of assignment and mortgage
were done to defraud the conjugal partnership. She further contended that the same were done without
consideration and hence null and void.
Petitioners, sisters of the deceased husband of the private respondent, filed a motion for intervention on the
ground that their brother conveyed to them one-half of his shareholdings in SUBIC, or about 41%. The trial court
denied the motion for intervention ruling that petitioners have no legal interest because SUBIC has a personality
separate and distinct from its stockholders. The CA confirmed the denial on appeal. Hence, this petition.

ISSUE:
Whether petitioners, as stockholders of SUBIC, have a legal interest in the action for annulment of the deed of
assignment and deed of mortgage in favor of the corporation.

HELD:
NO. The Court noted that the interest which entitles person to intervene in a suit between other parties must be
in the matter in litigation and of such direct and immediate character that the intervenor will either gain or lose
by the direct legal operation and effect of the judgment. In the instant petition, it was said that the interest, if it
exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral. At
the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot
interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any
of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in
no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person

Magsaysay-Labrador, et. al. vs. Court of Appeals

[GR 58168, 19 December 1989]

Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate
of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an
action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank
(FILMANBANK) and the Register of Deeds of Zambales, for the annulment of the Deed of Assignment
executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was cancelled and TCT
22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage executed by SUBIC in
favor of FILMANBANK (dated 28 April 1977 in the amount of P 2,700,000.00), and cancellation of TCT
22431 by the Register of Deeds, and for the latter to issue a new title in her favor. On 7 March 1979,
Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad
Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on the
ground that on 20 June 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of
416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC,
they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest
in the success of the suit with respect to SUBIC. On 26 July 1979, the trial court denied the motion for
intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their
being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene
because SUBIC has a personality separate and distinct from its stockholders.

On appeal, the Court of Appeals found no factual or legal justification to disturb the findings of the lower
court. The appellate court further stated that whatever claims the Magsaysay sisters have against the late
Senator or against SUBIC for that matter can be ventilated in a separate proceeding. The motion for
reconsideration of the Magsaysay sisters was denied. Hence, the petition for review on certiorari.
Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested parties in a case
where corporate properties are in dispute.

Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay sisters have
no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings. To be
permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in
the success of either of the parties or an interest against both, or he must be so situated as to be adversely
affected by a distribution or other disposition of the property in the custody of the court or an officer thereof .
Here, the interest, if it exists at all, of the Magsaysay sisters is indirect, contingent, remote, conjectural,
consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a
right in the management of the corporation and to share in the profits thereof and in the properties and
assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock
represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner
thereof with any legal right or title to any of the property, his interest in the corporate property being
equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which
is owned by the corporation as a distinct legal person.

Sulo ng Bayan vs. Araneta

[GR L-31061, 17 August 1976]

Facts: On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance
of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms
Inc., National Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., and the Register of
Deeds of Bulacan to recover the ownership and possession of a large tract of land in San Jose del Monte,
Bulacan, containing an area of 27,982,250 sq. ms., more or less, registered under the Torrens System in the
name of GAI, et. al.'s predecessors-in-interest (who are members of the corporation). On 2 September 1966,
GAI filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause
of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and
Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. NAWASA did not file any
motion to dismiss. However, it pleaded in its answer as special and affirmative defenses lack of cause of
action by Sulo ng Bayan Inc. and the barring of such action by prescription and laches. On 24 January 1967,
the trial court issued an Order dismissing the (amended) complaint. On 14 February 1967, Sulo ng Bayan
filed a motion to reconsider the Order of dismissal, arguing among others that the complaint states a
sufficient cause of action because the subject matter of the controversy in one of common interest to the
members of the corporation who are so numerous that the present complaint should be treated as a class
suit. The motion was denied by the trial court in its Order dated 22 February 1967.

Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of Appeals, upon finding
that no question of fact was involved in the appeal but only questions of law and jurisdiction, certified the
case to the Supreme Court for resolution of the legal issues involved in the controversy.

Issue:
1 Whether the corporation (non-stock) may institute an action in behalf of its individual members for the
recovery of certain parcels of land allegedly owned by said members, among others.
2 Whether the complaint filed by the corporation in behalf of its members may be treated as a class suit
Held:

1. It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal
entity to be considered as separate and apart from the individual stockholders or members who compose it,
and is not affected by the personal rights, obligations and transactions of its stockholders or members. The
property of the corporation is its property and not that of the stockholders, as owners, although they have
equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and
distinct from its members. Conversely, a corporation ordinarily has no interest in the individual property of its
stockholders unless transferred to the corporation, "even in the case of a one-man corporation." The mere
fact that one is president of a corporation does not render the property which he owns or possesses the
property of the corporation, since the president, as individual, and the corporation are separate similarities.
Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose certificates of
stock entitled the holder thereof to an allotment in the distribution of the land of the corporation upon
surrender of their stock certificates were considered not to have such legal or equitable title or interest in the
land, as would support a suit for title, especially against parties other than the corporation. It must be noted,
however, that the juridical personality of the corporation, as separate and distinct from the persons
composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of
justice. This separate personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where
necessary to achieve equity. It has not been claimed that the members have assigned or transferred
whatever rights they may have on the land in question to the corporation. Absent any showing of interest,
therefore, a corporation, has no personality to bring an action for and in behalf of its stockholders or
members for the purpose of recovering property which belongs to said stockholders or members in their
personal capacities.

2. In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter
of the controversy is one of common or general interest to many persons; and (2) that the parties are so
numerous that it is impracticable to bring them all before the court. Here, there is only one party plaintiff, and
the corporation does not even have an interest in the subject matter of the controversy, and cannot,
therefore, represent its members or stockholders who claim to own in their individual capacities ownership of
the said property. Moreover, a class suit does not lie in actions for the recovery of property where several
persons claim partnership of their respective portions of the property, as each one could alleged and prove
his respective right in a different way for each portion of the land, so that they cannot all be held to have
identical title through acquisition/prescription.

LUXURIA HOMES vs CA [G.R. No. 125986. January 28, 1999]

Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she entered into an agreement with
Jaime Bravo for the latter to draft a development and architectural design for the said property. The contract price
was P450,000.00. Posadas gave a down payment of P25,000.00. Later, Posadas assigned her property to Luxuria
Homes, Inc. One of the witnesses to the deed of assignment and articles of incorporation was Jaime Bravo.
In 1992, Bravo finished the architectural design so he proposed that he and his company manage the development of
the property. But Posadas turned down the proposal and thereafter the business relationship between the two went
sour. Bravo then demanded Posadas to pay them the balance of their agreement as regards the architectural design
(P425k). Bravo also demanded payment for some other expenses and fees he incurred i.e., negotiating and
relocating the informal settlers then occupying the land of Posadas. Posadas refused to make payment. Bravo then
filed a complaint for specific performance against Posadas but he included Luxuria Homes as a co-defendant as he
alleged that Luxuria Homes was a mere conduit of Posadas; that the said corporation was created in order to defraud
Bravo and avoid the payment of debt.
ISSUE: Whether or not Luxuria Homes should be impleaded.
HELD: No. It was Posadas who entered into a contract with Bravo in her personal capacity. Bravo was not able to
prove that Luxuria Homes was a mere conduit of Posadas. Posadas owns just 33% of Luxuria Homes. Further, when
Luxuria Homes was created, Bravo was there as a witness. So how can he claim that the creation of said corporation
was to defraud him. The eventual transfer of Posadas’ property to Luxuria was with the full knowledge of Bravo. The
agreement between Posadas and Bravo was entered into even before Luxuria existed hence Luxuria was never a
party thereto. Whatever liability Posadas incurred arising from said agreement must be borne by her solely and not
in solidum with Luxuria. To disregard the separate juridical personality of a corporation, the wrongdoing must be
clearly and convincingly established. It cannot be presumed.

FRANCISCO MOTORS CORPORATION V. CA AND SPS. MANUEL (G.R. NO. 100812)

.entry-header
Facts:
Petitioner Francisco Motors Corp filed a complaint to recover from respondent spouses Manuel the unpaid
balance of the jeepney bought by the latter from them. As their answer, respondent spouses interposed a
counterclaim for unpaid legal services by Gregorio Manuel which was not paid by petitioner corporation’s
directors and officers. Respondent Manuel alleges that he represented members of the Francisco family who
were directors and officers of herein petitioner corporation in an intestate estate proceeding but even after its
termination, his services were not paid. The trial court ruled in favor of petitioner but also allowed respondent
spouses’ counterclaim. CA affirmed.
Issue:
Whether or not petitioner corporation may be held liable for the liability incurred by its directors and officers in
their personal capacity.

Ruling: NO.
In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil
has no relevant application here. Respondent court erred in permitting the trial court’s resort to this doctrine.
In the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the
situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the
personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us
that the doctrine has been turned upside down because of its erroneous invocation. Note that according to
private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family
to represent them in the intestate proceedings over Benita Trinidad’s estate. These estate proceedings did not
involve any business of petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators,
directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors
and officers of a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege
that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefore by
piercing its corporate veil.

BATAAN SHIPYARD AND ENGINEERINGS CORPORATION VS PCGG PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT G.R. No. 75885 May 27, 1987

When President Corazon Aquino took power, the Presidential Commission on Good Government (PCGG) was
formed in order to recover ill gotten wealth allegedly acquired by former President Marcos and his cronies. Aquino
then issued two executive orders in 1986 and pursuant thereto, a sequestration and a takeover order were issued
against Bataan Shipyard & engineering Co., Inc. (BASECO). BASECO was alleged to be in actuality owned and
controlled by the Marcoses through the Romualdez family, and in turn, through dummy stockholders.
The sequestration order issued in 1986 required, among others, that BASECO produce corporate records from 1973
to 1986 under pain of contempt of the PCGG if it fails to do so. BASECO assails this order as it avers, among others,
that it is against BASECO’s right against self incrimination and unreasonable searches and seizures.
ISSUE: Whether or not BASECO is correct.
HELD: No. First of all, PCGG has the right to require the production of such documents pursuant to the power
granted to it. Second, and more importantly, right against self-incrimination has no application to juridical persons.
There is a reserve right in the legislature to investigate the contracts of a corporation and find out whether it has
exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation like BASECO
to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been
employed, and whether they had been abused, and demand the production of the corporate books and papers for
that purpose.
Neither is the right against unreasonable searches and seizures applicable here. There were no searches made and
no seizure pursuant to any search was ever made. BASECO was merely ordered to produce the corporate records.

Coastal Pacific Trading, Inc. vs. Southern Rolling Mills Co.

G.R. No. 118692
July 28, 2006

FACTS: Southern Rolling Mills was renamed into Visayan Integrated Steel Corp (VISCO). On Dec. 11,
1961-VISCO obtained a loan from DBP amounting to P836,000. It was secured by a Real Estate
Mortgage covering VISCO's 3 parcels of land including the machinery and equipments therein. Second
Loan: VISCO entered a Loan Agreement with respondent banks ( referred as "Consortium") to finance its
importation for various raw materials. VISCO executed a second mortgage over the previous properties
mentioned, however they were unrecorded VISCO was unable to pay its second mortgage with the
consortium, which resulted in the latter acquiring 90% of the equity of VISCO giving the Consortium the
control and management of VISCO. Despite the acquisition, VISCO still remained indebted to the
Consortium.

Transaction to Coastal: Between 1964 to 1965, VISCO entered a processing agreement with Coastal
wherein Coastal delivered 3,000 metric tons of hot rolled steel coils which VISCO would process into block
iron sheets. However, VISCO was only able to return 1,600 metric tons of those sheets.
On the loan to DBP: To pay its first mortgage with DBP, VISCO sold 2 of its generators to FILMAG
Phils, Inc. DBP executed a Deed of Assignment of the mortgage in favor of the consortium. The
Consortium foreclosed the mortgage and was the highest bidder in an auction sale of VISCO's properties.
The Consortium later sold the properties in favor of National Steel Corporation.
Coastal files a civil action for Annulment or Rescission of Sale, Damages with Preliminary Injunction.
Coastal imputes bad faith on the action of the Consortium, the latter being able to sell the properties of
VISCO despite the attachment of the properties, placing them beyond the reach of VISCO's other creditors.
The lower court ruled in favor of VISCO, declaring the sale valid and legal. The CA affirmed this.

ISSUE 1: Whether the consortium disposed VISCO's assets in fraud of creditors?

HELD: Yes. What the consortium did was to pay to them the proceeds from the sale of the generator sets
which in turn they used to pay DBP. Due to the Deed of Assignment issued by DBP, the respondent banks
recovered what they remitted to DBP & it allowed the Consortium to acquire DBP's primary lien on the
mortgaged properties. Allowing them as unsecured creditors ( as the mortgage was unrecorded) to foreclose
on the assets of the corporation without regard to inferior claims

ISSUE 2: Whether petitioner is entitled to moral damages?

No. As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot
experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and
moral shock. The only exception to this rule is when the corporation has a good reputation that is debased,
resulting in its humiliation in the business realm. In the present case, the records do not show any evidence
that the name or reputation of petitioner has been sullied as a result of the Consortium's fraudulent acts.
Accordingly, moral damages are not warranted.
Petitioner was able to recover exemplary damages.

TIMES TRANSPORTATION COMPANY, INC. vs. SANTOS SOTELO

[G.R. No. 163786. February 16, 2005]

YNARES-SANTIAGO, J.:

FACTS:
Petitioner (Times) is a corporation engaged in the business of land transportation. Prior to its closure, the Times
Employees Union (TEU) was formed.
Respondents were retrenched after Times’ management implemented a retrenchment program in the height of
a labor dispute between Times and TEU.
In the meantime, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over
Times’ Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale.
Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority
stockholder of Times.
After the closure of Times, the retrenched employees filed cases for illegal dismissal, money claims and unfair
labor practices against Times. The Labor Arbiter ruled that Times and Rondaris are liable for unfair labor
practice.

ISSUE: WON the doctrine of piercing the veil of corporate fiction was properly applied.
HELD:
YES. Piercing the corporate veil may be allowed only if the following elements concur:
(1) control—not mere stock control, but complete domination—not only of finances, but of policy and business
practice in respect to the transaction attacked;
(2) such control must have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or
other positive legal duty, or a dishonest and an unjust act in contravention of a legal right; and
(3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of.

The sale of Times’ franchise as well as most of its bus units to a company owned by
Rondaris’ daughter and family members, right in the middle of a labor dispute, is highly suspicious.
It is evident that the transaction was made in order to remove Times’ remaining assets from the reach of any
judgment that may be rendered in the unfair labor practice cases filed against it.

Yao, Sr. vs. People

G.R. No. 168306 June 19, 2007
FACTS:
Petitioners William Yao, Sr. and several others were incorporators and officers of
Masagana Gas Corporation.
In 2003, the NBI, acting on reports that petitioners unlawfully and in violation of intellectual property rights of
Petron Corporation and Pilipinas Shell, produce, sell, distribute LPG products using LPG cylinders owned by
Petron and Shell and by virtue of search warrants, raided the premises of Masagana and confiscated, among
other things, the motor compressor and refilling machine owned by Masagana.
Masagana Corporation intervened in the case and asked for the return of said pieces of equipment. It argued that
even if the same was being used by petitioners in their unlawful activity, the equipment cannot be confiscated
because having a personality separate and distinct from that of its incorporators, directors and officers, said
properties are owned by the corporation and not by the petitioners.
The court denied Masagana’s motion.

ISSUE:
Whether or not the doctrine of piercing the veil of corporate entity is applicable in the case.

RULING:
The Supreme Court reiterated that it is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders, directors or officers. However, when the notion of legal entity is
used to defeat public convenience, justify wrong, protect fraud or defend crime, the law will regard the
corporation as an association of persons or in the case of two corporations merge them into one. Hence, in this
case, liability will attach personally or directly to the officers and stockholders.

Concept Builders vs NLRC

GR 108734; 29 May 1996
Facts:
Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction business. Private
respondents were employed by said company as laborers, carpenters and riggers. However, they were illegally
dismissed.
Aggrieved, private respondents filed a complaint for illegal dismissal. The Labor Arbiter rendered judgment
ordering petitioner to reinstate private respondents and to pay them back wages. It became final and executory.
The alias Writ of Execution cannot be enforced by the sheriff because all the employees inside petitioner’s
premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by petitioner. Thus, NLRC issued a break-open order against Concept Builders
and HPPI.

Issue: Whether the piercing the veil of corporate entity is proper.

Held: Yes.
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when
the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation.
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and
circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some
probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:
3 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.
4 Methods of conducting the business.
The SEC en banc explained the “instrumentality rule” which the courts have applied in disregarding the separate
juridical personality of corporations as follows:
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 instances, 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. It must be kept in mind that the control
must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and
breach of duty must proximately cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
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 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
rights; and
3 The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents “piercing the corporate veil.” In applying the
“instrumentality” or “alter ego” doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to that operation.
Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back
wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of
petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already
attached to petitioner corporation.

ARNOLD HALL vs. EDMUNDO PICCIO

G.R. No. L-2598 / June 29, 1950
FACTS:
On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma
Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the articles of
incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber
business to carry on as general contractors, operators and managers, etc. Attached to the articles was an
affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain
properties transferred to the corporation described in a list appended thereto.
Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with
the adoption of by-laws and the election of its officers. On December 2, 1947, the said articles of incorporation
were filed in the office of the Securities and Exchange Commission for the issuance of the corresponding
certificate of incorporation.
On March 22, 1948, pending action on the articles of incorporation by the SEC, respondents Fred Brown, Emma
Brown, Hipolita D. Chapman and Ceferino S. Abella filed a suit against petitioners before the Court of First
Instance of Leyte alleging among other things that the Far Eastern Lumber and Commercial Co. was an
unregistered partnership; that they wished to have it dissolved because of bitter dissension among the
members, mismanagement and fraud by the managers and heavy financial losses.
The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the
court’s jurisdiction and the sufficiency of the cause of action.
After hearing the parties, the Hon. Edmundo S. Piccio ordered the dissolution of the company; and at the request
of plaintiffs, appointed the respondent Pedro A. Capuciong as receiver of the properties thereof, upon the filing
of a P20,000 bond.
The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but
the respondent judge refused to accept the offer and to discharge the receiver.
Hence, this petition.

ISSUE:
Whether or not the trial court has jurisdiction over the case?

HELD:
No. The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being
a de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in
accordance with section 19 of the Corporation Law.
Under our statute it is to be noted that it is the issuance of a certificate of incorporation by the Director of the
Bureau of Commerce and Industry which calls a corporation into being. The immunity of collateral attack is
granted to corporations ‘claiming in good faith to be a corporation under this act.’
Further, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the
alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may
be terminated in a private suit for its dissolution between stockholders, without the intervention of the state.
WHEREFORE, the petition is dismissed.

SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SOUTHERN PHILIPPINES, INC., and/or

represented by MANASSEH C. ARRANGUEZ, BRIGIDO P. GULAY, FRANCISCO M. LUCENARA, DIONICES
O. TIPGOS, LORESTO C. MURILLON, ISRAEL C. NINAL, GEORGE G. SOMOSOT, JESSIE T. ORBISO, LORETO
PAEL and JOEL BACUBAS, petitioners vs. NORTHEASTERN MINDANAO MISSION OF SEVENTH DAY
ADVENTIST, INC., and/or represented by JOSUE A. LAYON, WENDELL M. SERRANO, FLORANTE P. TY
and JETHRO CALAHAT and/or SEVENTH DAY ADVENTIST CHURCH [OF] NORTHEASTERN MINDANAO
MISSION, Respondents
G.R. No. 150416 July 21, 2006
FACTS: This case involves two supposed transfers of the lot previously owned by the spouses Cosio. The first
transfer was a donation to petitioners’ alleged predecessors-in-interest in 1959 while the second transfer was
through a contract of sale to respondents in 1980. A TCT was later issued in the name of respondents.
Claiming to be the alleged donee’s successors-in-interest, petitioners filed a case for cancellation of title, quieting
of ownership and possession, declaratory relief and reconveyance with prayer for preliminary injunction and
damages against respondents. Respondents, on the other hand, argued that at the time of the donation,
petitioners’ predecessors-in-interest has no juridical personality to accept the donation because it was not yet
incorporated. Moreover, petitioners were not members of the local church then.
The RTC upheld the sale in favor of respondents, which was affirmed by the Court of Appeals, on the ground that
all the essential requisites of a contract were present and it also applied the indefeasibility of title.

ISSUE: Whether or not the donation was void.

HELD: Yes, the donation was void because the local church had neither juridical personality nor capacity to
accept such gift since it was inexistent at the time it was made.
The Court denied petitioners’ contention that there exists a de facto corporation.
While there existed the old Corporation Law (Act 1459), a law under which the local church could have been
organized, petitioners admitted that they did not even attempt to incorporate at that time nor the organization
was registered at the Securities and Exchange Commission. Hence, petitioners obviously could not have claimed
succession to an entity that never came to exist. And since some of the representatives of petitioner Seventh Day
Adventist Conference Church of Southern Philippines, Inc. were not even members of the local church then, it
necessarily follows that they could not even claim that the donation was particularly for them

LIM TONG LIM vs PHIL FISHING GEAR INDUSTRIES INC.

It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him and one Antonio
Chua. The three agreed to purchase two fishing boats but since they do not have the money they borrowed from one
Jesus Lim (brother of Lim Tong Lim). They again borrowed money and they agreed to purchase fishing nets and
other fishing equipments. Now, Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing
Corporation” (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets
amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names because apparently OQFC is a
non-existent corporation. Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong
Lim however argued that he’s not liable because he was not aware that Chua and Yao represented themselves as a
corporation; that the two acted without his knowledge and consent.

ISSUE: Whether or not Lim Tong Lim is liable.

HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage
in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus
Lim. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds
of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term “common fund” under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the
parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them
also shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to Yao and Chua.
Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boats, the boat which has earlier been
proven to be an asset of the partnership. Lim, Chua and Yao decided to form a corporation. Although it was never
legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general partners.

International Express Travel & Tour Services, Inc. vs. Court of Appeals
[GR 119002, 19 October 2000]

Facts: On 30 June 1989, the International Express Travel and Tour Services, Inc. (IETTSI), through its
managing director, wrote a letter to the Philippine Football Federation (Federation), through its president,
Henri Kahn, wherein the former offered its services as a travel agency to the latter. The offer was accepted.
IETTSI secured the airline tickets for the trips of the athletes and officials of the Federation to the South East
Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane.
The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation made two
partial payments, both in September of 1989, in the total amount of P176,467.50. On 4 October 1989,
IETTSI wrote the Federation, through Kahn a demand letter requesting for the amount of P265,894.33. On
30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00. On 27
December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation.

Thereafter, no further payments were made despite repeated demands. This prompted IETTSI to file a civil
case before the Regional Trial Court of Manila. IETTSI sued Henri Kahn in his personal capacity and as
President of the Federation and impleaded the Federation as an alternative defendant. IETTSI sought to
hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that
Henri Kahn allegedly guaranteed the said obligation. Kahn filed his answer with counterclaim, while the
Federation failed to file its answer and was declared in default by the trial court. In due course, the trial court
rendered judgment and ruled in favor of IETTSI and declared Henri Kahn personally liable for the unpaid
obligation of the Federation. The complaint of IETTSI against the Philippine Football Federation and the
counterclaims of Henri Kahn were dismissed, with costs against Kahn. Only Henri Kahn elevated the
decision to the Court of Appeals. On 21 December 1994, the appellate court rendered a decision reversing
the trial court. IETTSI filed a motion for reconsideration and as an alternative prayer pleaded that the
Federation be held liable for the unpaid obligation. The same was denied by the appellate court in its
resolution of 8 February 1995. IETTSI filed the petition with the Supreme Court.
Issue
4 Whether the Philippine Football Federation has a corporate existence of its own.
5 Whether Kahn should be made personally liable for the unpaid obligations of the Philippine Football
Federation.
6 Whether the appellate court properly applied the doctrine of corporation by estoppel.
Held

1. Both RA 3135 (the Revised Charter of the Philippine Amateur Athletic Federation) and PD 604 recognized
the juridical existence of national sports associations. This may be gleaned from the powers and functions
granted to these associations (See Section 14 of RA 3135 and Section 8 of PD 604). The powers and
functions granted to national sports associations indicate that these entities may acquire a juridical
personality. The power to purchase, sell, lease and encumber property are acts which may only be done by
persons, whether natural or artificial, with juridical capacity. However, while national sports associations may
be accorded corporate status, such does not automatically take place by the mere passage of these laws. It
is a basic postulate that before a corporation may acquire juridical personality, the State must give its
consent either in the form of a special law or a general enabling act. The Philippine Football Federation did
not come into existence upon the passage of these laws. Nowhere can it be found in RA 3135 or PD 604
any provision creating the Philippine Football Federation. These laws merely recognized the existence of
national sports associations and provided the manner by which these entities may acquire juridical
personality. Section 11 of RA 3135 and Section 8 of PD 604 require that before an entity may be considered
as a national sports association, such entity must be recognized by the accrediting organization, the
Philippine, Amateur Athletic Federation under RA 3135, and the Department of Youth and Sports
Development under PD 604. This fact of recognition, however, Henri Kahn failed to substantiate. A copy of
the constitution and by-laws of the Philippine Football Federation does not prove that said Federation has
indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the
Department of Youth and Sports Development. Accordingly, the Philippine Football Federation is not a
national sports association within the purview of the aforementioned laws and does not have corporate
existence of its own.

2. Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of
a corporation which has no valid existence assumes such privileges and becomes personally liable for
contract entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn
is presumed to have known about the corporate existence or non-existence of the Federation.

3. The Court cannot subscribe to the position taken by the appellate court that even assuming that the
Federation was defectively incorporated, IETTSI cannot deny the corporate existence of the Federation
because it had contracted and dealt with the Federation in such a manner as to recognize and in effect
admit its existence. The doctrine of corporation by estoppel is mistakenly applied by the appellate court to
IETTSI. The application of the doctrine applies to a third party only when he tries to escape liabilities on a
contract from which he has benefited on the irrelevant ground of defective incorporation. Herein, IETTSI is
not trying to escape liability from the contract but rather is the one claiming from the contract.

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL
CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO,
respondents. G.R. No. 141994. January 17, 2005

Facts:
Rima & Alegre were host of FBNI radio program “Expose”. Respondent Ago was the owner of the Medical &
Educational center, subject of the radio program “Expose”. AMEC claimed that the broadcasts were
defamatory and owner Ago and school AMEC claimed for damages. The complaint further alleged that
AMEC is a reputable learning institution. With the supposed expose, FBNI, Rima and Alegre “transmitted
malicious imputations and as such, destroyed plaintiff’s reputation. FBNI was included as defendant for
allegedly failing to exercise due diligence in the selection and supervision of its employees. The trial court
found Rima’s statements to be within the bounds of freedom of speech and ruled that the broadcast was
libelous. It ordered the defendants Alegre and FBNI to pay AMEC 300k for moral damages.”

ISSUE: Whether or not AMEC is entitled to moral damages.

RULING: YES.
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. Nevertheless, AMEC’s claim, or moral damages fall under item 7 of Art – 2219 of the NCC.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other
form of defamation. Art 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. Moreover, where the broadcast is libelous per se, the law implied
damages. In such a case, evidence of an honest mistake or the want of character or reputation of the party
libeled goes only in mitigation of damages. In this case, the broadcasts are libelous per se. thus, AMEC is
entitled to moral damages. However, we find the award P500,000 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 to P150k.

Ang Mga Kaanib vs. Iglesia (December 12, 2001)

FACTS: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in
Christ Jesus, the Pillar and Ground of Truth), is a non-stock religious society or corporation registered in
1936. Sometime in 1976, one Eliseo Soriano and several other members of respondent corporation
disassociated themselves from the latter and succeeded in registering on March 30, 1977 a new non-stock
religious society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.
Respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi
at Saligan ng Katotohanan to change its corporate name to another name that is not similar or identical to
any name already used by a corporation, partnership or association registered with the Commission.
Petitioner is compelled to change its corporate name and be barred from using the same or similar name on
the ground that the same causes confusion among their members as well as the public. SEC rendered a
decision ordering petitioner to change its corporate name. The Court of Appeals rendered the assailed
decision affirming the decision of the SEC En Banc.

ISSUE: Whether the court of appeals failed to properly appreciate the scope of the constitutional guarantee
on religious freedom

RULING: The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in petitioner's name are,
as correctly observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of
respondent who are likewise residing in the Philippines. These words can hardly serve as an effective
differentiating medium necessary to avoid confusion or difficulty in distinguishing petitioner from respondent.
This is especially so, since both petitioner and respondent corporations are using the same acronym —
H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in the same place.
The fact that there are other non-stock religious societies or corporations using the names Church of the
Living God, Inc., Church of God Jesus Christ the Son of God the Head, Church of God in Christ & By the
Holy Spirit, and other similar names, is of no consequence. It does not authorize the use by petitioner of the
essential and distinguishing feature of respondent's registered and protected corporate name. Ordering
petitioner to change its corporate name is not a violation of its constitutionally guaranteed right to religious
freedom. In so doing, the SEC merely compelled petitioner to abide by one of the SEC guidelines in the
approval of partnership and corporate names, namely its undertaking to manifest its willingness to change
its corporate name in the event another person, firm, or entity has acquired a prior right to the use of the said
firm name or one deceptively or confusingly similar to it. The instant petition for review is DENIED. The
appealed decision of the Court of Appeals is AFFIRMED in toto.

LYCEUM OF THE PHILIPPINES vs. CA- Doctrine of Secondary Meaning

Doctrine of secondary meaning can be extended to corporation name but must comply with the requirement that it has
been used so long and so exclusively by one and that the said name has come to mean that it is referred to as that
corporation.
FACTS:
Petitioner is an educational institution duly registered with the SEC since Sept 1950. Before the case at bar,
Petitioner commenced a proceeding against Lyceum of Baguio with the SEC to require it to change its corporate
name and adopt a new one not similar or identical to the Petitioner. SEC granted noting that there was substantial
because of the dominant word “Lyceum”. CA and SC affirmed. Petitioner filed similar complaint against other
schools and obtain a favorable decision from the hearing officer. On appeal, SEC En banc reversed the decision and
held that the word Lyceum have not become so identified with the petitioner and that the use thereof will cause
confusion to the general public.

ISSUE:
1. Whether or not the corporate names of the private respondents are identical with or deceptively similar to that of
the petitioner.

2. Whether or not the use by the petitioner of Lyceum in its corporate name has been for such length of time and
with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the
general public (Doctrine of Secondary meaning).

RULING: NO to both.
True enough, the corporate names of the parties carry the word “Lyceum” but confusion and deception are
precluded by the appending of geographic names. Lyceum generally refers to a school or an institution of learning
and it is natural to use this word to designate an entity which is organized and operating as an educational
institution.

Doctrine of Secondary meaning is a word of phrase originally incapable of exclusive appropriation, might
nevertheless have been used so long and so exclusively by one producer with reference to his article that, in trade
and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product.

Lyceum of the Philippines has not gained exclusive use of “Lyceum” by long passage of time. The number alone of
the private respondents suggests strongly that the use of Lyceum has not been attended with the exclusivity
essential for the applicability of the doctrine. It may be noted that one of the respondents – Western Pangasinan
Lyceum used such term 17 years before the petitioner registered with the SEC. Moreover, there may be other
schools using the name but not registered with the SEC because they have not adopted the corporate form of
organization.

Young Auto Supply vs. Court of Appeals

[GR 104175, 25 June 1993]

Facts: On 28 October 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its
president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing &
Development Corporation (CMDC) to George C. Roxas. The purchase price was P8,000,000.00 payable as
follows: a down payment of P4,000,000.00 and the balance of P4,000,000.00 in four postdated checks of
P1,000,000.00 each. Immediately after the execution of the agreement, Roxas took full control of the four
markets of CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full
payment of the balance of the purchase price. The first check of P4,000,000.00, representing the down
payment, was honored by the drawee bank but the four other checks representing the balance of
P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the
proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00.

Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of
the CMDC shares to Nemesio Garcia. On 10 June 1988, YASCO and Garcia filed a complaint against
Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that Roxas be ordered to pay them the
sum of P3,400,000.00 or that full control of the three markets be turned over to YASCO and Garcia. The
complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the payment of
attorney's fees and costs. Failing to submit his answer, and on 19 August 1988, the trial court declared
Roxas in default. The order of default was, however, lifted upon motion of Roxas. On 22 August 1988,
Roxas filed a motion to dismiss. After a hearing, wherein testimonial and documentary evidence were
presented by both parties, the trial court in an Order dated 8 February 1991 denied Roxas' motion to
dismiss. After receiving said order, Roxas filed another motion for extension of time to submit his answer. He
also filed a motion for reconsideration, which the trial court denied in its Order dated 10 April 1991 for being
pro-forma. Roxas was again declared in default, on the ground that his motion for reconsideration did not toll
the running of the period to file his answer. On 3 May 1991, Roxas filed an unverified Motion to Lift the Order
of Default which was not accompanied with the required affidavit of merit. But without waiting for the
resolution of the motion, he filed a petition for certiorari with the Court of Appeals. The Court of Appeals
dismissal of the complaint on the ground of improper venue. A subsequent motion for reconsideration by
YASCO was to no avail. YASCO and Garcia filed the petition.

Issue: Whether the venue for the case against YASCO and Garcia in Cebu City was improperly laid.

Held: A corporation has no residence in the same sense in which this term is applied to a natural person.
But 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. The Corporation Code precisely requires
each corporation to specify in its articles of incorporation the "place where the principal office of the
corporation is to be located which must be within the Philippines." The purpose of this requirement is to fix
the residence of a corporation in a definite place, instead of allowing it to be ambulatory. Actions cannot be
filed against a corporation in any place where the corporation maintains its branch offices. The Court ruled
that to allow an action to be instituted in any place where the corporation has branch offices, would create
confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed
to file personal actions in a place other than its principal place of business unless such a place is also the
residence of a co-plaintiff or a defendant. With the finding that the residence of YASCO for purposes of
venue is in Cebu City, where its principal place of business is located, it becomes unnecessary to decide
whether Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the
choice of Cebu City as the venue. The decision of the Court of Appeals was set aside.

Gamboa v. Teves etal., GR No. 176579, October 9, 2012

Facts:
The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost 12 million
shares of the Philippine Long Distance Telephone Company (PLDT) owned by PTIC to First Pacific. Thus,
First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing
the total common shareholdings of foreigners in PLDT to about 81.47%. The petitioner contends that it
violates the Constitutional provision on filipinazation of public utility, stated in 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%. Then, in 2011, the court ruled the case in favor of the petitioner, hence this new case, resolving the
motion for reconsideration for the 2011 decision filed by the respondents.
Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its 2011 decision?
Held/Reason: The Court said that the Constitution is clear in expressing its State policy of developing an
economy ‘effectively controlled’ by Filipinos. Asserting the ideals that our Constitution’s Preamble want to
achieve, that is – to conserve and develop our patrimony , hence, the State should fortify a Filipino-
controlled economy. In the 2011 decision, the Court finds no wrong in the construction of the term ‘capital’
which refers to the ‘shares with voting rights, as well as with full beneficial ownership’ (Art. 12, sec. 10)
which implies that the right to vote in the election of directors, coupled with benefits, is tantamount to an
effective control. Therefore, the Court’s interpretation of the term ‘capital’ was not erroneous. Thus, the
motion for reconsideration is denied.

CASE DIGEST: WILSON P. GAMBOA v. FINANCE SECRETARY MARGARITO B. TEVES, et al.

FACTS:

In 1969, General Telephone and Electronics Corporation (GTE), sold 26 percent of the outstanding common
shares of PLDT to Philippine Telecommunications Investment Corporation (PTIC). In 1977, Prime Holdings, Inc.
(PHI) became the owner of 111,415 shares of stock of PTIC. In 1986, the 111,415 shares of stock of PTIC held by
PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this Court
to be owned by the Republic of the Philippines.
In 1999, First Pacific, a Bermuda-registered acquired the remaining 54 percent of the outstanding capital stock
of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government
through a public bidding sold the same shares to Parallax Venture who won with a bid of P25.6 billion or
US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy
the 111,415 PTIC shares by matching the bid price of Parallax. On 14 February 2007, First Pacific, through its
subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or
46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government for the price of
P25,217,556,000 or US$510,580,189. The sale was completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT.
With the sale, First Pacific common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This, according to
petitioner, violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of
the capital of a public utility to not more than 40 percent.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and
declaration of nullity of sale of the 111,415 PTIC shares.

ISSUE: Does the term "capital" in Section 11, Article XII of the Constitution refer to the total common
shares only or to the total outstanding capital stock of PLDT, a public utility?

HELD:

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

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it shall be subject to amendment, alteration,
or repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing
officers of such corporation or association must be citizens of the Philippines.

The intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and
partially nationalized activities is for Filipino nationals to be always in control of the corporation undertaking
said activities. Otherwise, if the Trial Court ruling upholding respondent's arguments were to be given credence,
it would be possible for the ownership structure of a public utility corporation to be divided into one percent
(1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Court ruling adopting
respondent's arguments, the common shares can be owned entirely by foreigners thus creating an absurd
situation wherein foreigners, who are supposed to be minority shareholders, control the public utility
corporation.

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.

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.

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.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of
Filipino citizens the control and management of public utilities. Thus, 60 percent of the "capital" assumes, or
should result in, "controlling interest" in the corporation and thus in the present case, only to common shares,
and not to the total outstanding capital stock (common and non-voting preferred shares).

Heirs of Gamboa v. Teves, et al., G.R. No. 176579, 09 October 2012

[CARPIO, J.]
FACTS
Movants Philippine Stock Exchange’s (PSE) President, Manuel V. Pangilinan, Napoleon L. Nazareno, and
the Securities and Exchange Commission (SEC) contend that the term “capital” in Section 11, Article XII of
the Constitution has long been settled and defined to refer to the total outstanding shares of stock, whether
voting or non-voting. In fact, movants claim that the SEC, which is the administrative agency tasked to
enforce the 60-40 ownership requirement in favor of Filipino citizens in the Constitution and various statutes,
has consistently adopted this particular definition in its numerous opinions. Movants point out that with the
28 June 2011 Decision, the Court in effect introduced a “new” definition or “midstream redefinition” of the
term “capital” in Section 11, Article XII of the Constitution.
ISSUE
Whether the term “capital” includes both voting and non-voting shares.
RULING
NO.
The Constitution expressly declares as State policy the development of an economy “effectively
controlled” by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the ownership
and operation of public utilities to Philippine nationals, who are defined in the Foreign Investments Act of
1991 as Filipino citizens, or corporations or associations at least 60 percent of whose capital with voting
rights belongs to Filipinos. The FIA’s implementing rules explain that “[f]or stocks to be deemed owned and
held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino
equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential.” In
effect, the FIA clarifies, reiterates and confirms the interpretation that the term “capital” in Section 11, Article
XII of the 1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership.
This is precisely because the right to vote in the election of directors, coupled with full beneficial ownership
of stocks, translates to effective control of a corporation.

Narra Nickel Mining vs Redmont

G.R. No. 195580, January 28, 2015
→ Full Text ←
Facts:
Narra and its co-petitioner corporations – Tesoro and MacArthur, filed a motion before the SC to reconsider its April
21, 2014 Decision which upheld the denial of their MPSA applications. The SC affirmed the CA ruling that there is a
doubt to their nationality, and that in applying the Grandfather Rule, the finding is that MBMI, a 100% Canadian-
owned corporation, effectively owns 60% of the common stocks of petitioners by owning equity interests of the
petitioners’ other majority corporate shareholders. Narra, Tesoro and MacArthur argued that the application of the
Grandfather Rule to determine their nationality is erroneous and allegedly without basis in the Constitution, the FIA,
the Philippine Mining Act, and the Rules issued by the SEC. These laws and rules supposedly espouse the application
of the Control Test in verifying the Philippine nationality of corporate entities for purposes of determining
compliance with Sec. 2, Art. XII of the Constitution that only corporations or associations at least 60% of whose
capital is owned by such Filipino citizens may enjoy certain rights and privileges, like the exploration and
development of natural resources.
Issue: W/N the application by the SC of the grandfather resulted to the abandonment of the ‘control test’
Held:
No. The ‘control test’ can be applied jointly with the Grandfather Rule to determine the observance of foreign
ownership restriction in nationalized economic activities. The Control Test and the Grandfather Rule are not
incompatible ownership-determinant methods that can only be applied alternative to each other. Rather, these
methods can, if appropriate, be used cumulatively in the determination of the ownership and control of corporations
engaged in fully or partly nationalized activities, as the mining operation involved in this case or the operation of
public utilities.
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a
corporation, as it could result in an otherwise foreign corporation rendered qualified to perform nationalized or
partly nationalized activities. Hence, it is only when the Control Test is first complied with that the Grandfather Rule
may be applied. Put in another manner, if the subject corporation’s Filipino equity falls below the threshold 60%, the
corporation is immediately considered foreign-owned, in which case, the need to resort to the Grandfather Rule
disappears.
In this case, using the ‘control test’, Narra, Tesoro and MacArthur appear to have satisfied the 60-40 equity
requirement. But the nationality of these corporations and the foreign-owned common investor that funds them
was in doubt, hence, the need to apply the Grandfather Rule.

Issue 1: W/N the Grandfather Rule must be applied in this case

Yes. It is the intention of the framers of the Constitution to apply the Grandfather Rule in cases where corporate
layering is present.
First, as a rule in statutory construction, when there is conflict between the Constitution and a statute, the
Constitution will prevail. In this instance, specifically pertaining to the provisions under Art. XII of the Constitution on
National Economy and Patrimony, Sec. 3 of the FIA will have no place of application. Corporate layering is
admittedly allowed by the FIA, but if it is used to circumvent the Constitution and other pertinent laws, then it
becomes illegal.
Second, under the SEC Rule1 and DOJ Opinion2 , the Grandfather Rule must be applied when the 60-40 Filipino-
foreign equity ownership is in doubt. Doubt is present in the Filipino equity ownership of Narra, Tesoro, and
MacArthur since their common investor, the 100% Canadian-owned corporation – MBMI, funded them.
Under the Grandfather Rule, it is not enough that the corporation does have the required 60% Filipino stockholdings
at face value. To determine the percentage of the ultimate Filipino ownership, it must first be traced to the level of
the investing corporation and added to the shares directly owned in the investee corporation. Applying this rule, it
turns out that the Canadian corporation owns more than 60% of the equity interests of Narra, Tesoro and
MacArthur. Hence, the latter are disqualified to participate in the exploration, development and utilization of the
Philippine’s natural resources.

GRACE CHRISTIAN HIGH SCHOOL vs CA

Grace Christian High School (GCHS) is an educational institution in Grace Village (QC?). Grace Village Association,
Inc. (GVAI)is the homeowners association in Grace Village. GVAI has an existing by-laws which was already in effect
since 1968. But in 1975, the board of directors made a draft amending the by-laws whereby the representative of
GCHS shall have a permanent seat in the 15-seat board. The draft however was never presented to the general
membership for approval. But nevertheless, the representative of GCHS held a seat in the board for 15 years until in
1990 when a proposal was made to the board to reconsider the practice of allowing the GCHS representative in
taking a permanent seat. Thereafter, an election was scheduled for the 15 seat in the board. GCHS opposed the
election as it insists that the election should only be for 14 directors because it has a permanent seat. GVAI argued
that GCHS claim has no basis because the 1975 proposed amendment was never ratified. GCHS averred that it was
ratified when it was allowed to take the seat for 15 years and as such its right has already vested.
ISSUE: Whether or not the representative from Grace Christian High School should be allowed to have a permanent
seat in the board of directors.
HELD: No. The Corporation Code is clear when it provides that members of the board of a corporation must be
elected by the stockholders (stock corporation) or the members (non-stock corporation). Admittedly, there are
corporations who allow some of their directors to sit in the board without being elected – but such practice cannot
prevail over provisions of law. Practice, no matter how long continued, cannot give rise to any vested right if it is
contrary to law. Further, there is no reason as to why a representative from GCHS should be given an automatic seat.
It should therefore go through the process of election. It cannot also be argued that the draft of the by-laws in 1975
was ratified when GCHS was allowed to take its seat for 15 years without an election. In the first place, the proposal
was merely a draft and even if passed and approved by the general membership, it cannot be given effect because it
is void and contrary to the law. GCHS’ seat in the corporate board is at best merely tolerated by GVAI.

PEOPLE’S AIRCARGO AND WAREHOUSING CO. vs CA

Facts: Petitioner is a domestic corporation organized in 1986 to operate a customs bonded warehouse at
the old Manila International Airport (MIA). To obtain a license from the Bureau of Customs, Antonio
Punsalan, Jr., the corporation president, solicited a proposal from private respondent Stefani Sano for the
preparation of a feasibility study. Sano submitted a letter proposal dated October 17, 1986 (First Contract) to
Punsalan regarding his request for professional engineering consultancy services which services are offered
in the amount of P350,000.00. Initially, Cheng Yang, the majority stockholder of petitioner, objected to said
offer as another company can provide for the same service at a lower price. However, Punsalan preferred
Sano’s services because of latter’s membership in the task force, which task force was supervising the
transition of the Bureau from the Marcos to the Aquino government. Petitioner, through Punsalan, thereafter
confirmed the contract.

On December 4, 1986, upon Punsalan’s request, private respondent sent petitioner another letter-proposal
(Second Contract) which offers the same service already at P400,000.00 instead of the previous
P350,000.00 offer. On January 10, 1987, Andy Villaceren, vice-president of petitioner, received the
operations manual prepared by Sano and which manual operations was submitted by petitioner to the
Bureau in compliance for its application to operate a bonded warehouse. Thereafter, in May 1987, the
Bureau issued to it a license to operate. Private respondent also conducted in the third week of January
1987 in the warehouse of petitioner, a three-day training seminar for the petitioner’s employees.

On February 9, 1988, private respondent filed a collection suit against petitioner. He alleged that he had
prepared an operations manual for petitioner, conducted a seminar-workshop for its employees and
delivered to it a computer program but that despite demand, petitioner refused to pay him for his services.
Petitioner, on its part, denied that Sano had prepared such manual operations and at the same time alleged
that the letter-agreement was signed by Punsalan without authority and as such unenforceable. It alleges
that the disputed contract was not authorized by its board of directors.

Issue: Whether or not the Second Contract signed by Punsalan is enforceable and binding against
petitioner.

Held: Yes, the Second Contract is binding and enforceable. The general rule is that, in the absence of
authority from the board of directors, no person, not even its officers, can validly bind a corporation. A
corporation is a juridical person, separate and distinct from its stockholders and members having xxx
powers, attributes and properties expressly authorized by law or incident to its existence. Being a juridical
entity, a corporation may act through its board of directors, which exercises almost all corporate powers,
lays down all corporate business policies and is responsible for the efficiency of management, as provided in
Section 23 of the Corporation Code.

However, it is familiar doctrine that if a corporation knowingly permits 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 and thus, the corporation witll, as against anyone who has in good faith dealt with it through such
agent, be estopped from denying the agent’s authority. Thus private respondent shall not be faulted for
believing that Punsalan’s conformity to the contract in dispute was also binding on petitioner. In the case at
bar, petitioner, through its president Antonio Punsalan Jr., entered into the First Contract without first
securing board approval. Despite such lack of board approval, petitioner did not object to or repudiate said
contract, thus "clothing" its president with the power to bind the corporation. The grant of apparent authority
to Punsalan is evident in the testimony of Yong — senior vice president, treasurer and major stockholder of
petitioner. Furthermore, private respondent prepared an operations manual and conducted a seminar for the
employees of petitioner in accordance with their contract. Petitioner accepted the operations manual,
submitted it to the Bureau of Customs and allowed the seminar for its employees. As a result of its
aforementioned actions, petitioner was given by the Bureau of Customs a license to operate a bonded
warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the
president, petitioner's ratification of said contract and acceptance of benefits have made it binding,
nonetheless. The enforceability of contracts under Article 1403(2) is ratified "by the acceptance of benefits
under them" under Article 1405.

Inter-Asia Investments Industries vs. Court of Appeals

[GR 125778, 10 June 2003]

Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock Purchase Agreement (the
Agreement), sold to Asia Industries, Inc. (Asia Industries) for and in consideration of the sum of
P19,500,000.00 all its right, title and interest in and to all the outstanding shares of stock of FARMACOR,
INC. (FARMACOR). The Agreement was signed by Leonides P. Gonzales and Jesus J. Vergara, presidents
of Inter-Asia and Asia Industries, respectively. Under paragraph 7 of the Agreement, Inter-Asia as seller
made warranties and representations. The Agreement was later amended with respect to the "Closing
Date," originally set up at 10:00 a.m. of 30 September 1978, which was moved to 31 October 1978, and to
the mode of payment of the purchase price. The Agreement, as amended, provided that pending submission
by SGV of FARMACOR's audited financial statements as of 31 October 1978, Asia Industries may retain the
sum of P7,500,000.00 out of the stipulated purchase price of P19,500,000.00; that from this retained amount
of P7,500,000.00, Asia Industries may deduct any shortfall on the Minimum Guaranteed Net Worth of
P12,000,000.00; and that if the amount retained is not sufficient to make up for the deficiency in the
Minimum Guaranteed Net Worth, Inter-Asia shall pay the difference within 5 days from date of receipt of the
audited financial statements.

Asia Industries paid Inter-Asia a total amount of P12,000,000.00: P5,000,000.00 upon the signing of the
Agreement, and P7,000,000.00 on 2 November 1978. From the STATEMENT OF INCOME AND DEFICIT
attached to the financial report dated 28 November 1978 submitted by SGV, it appears that FARMACOR
had, for the 10 months ended 31 October 1978, a deficit of P11,244,225.00. Since the stockholder's equity
amounted to P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed
net worth shortfall thus amounted to P13,244,225.00 after adding the net worth deficiency of P1,244,225.00
to the Minimum Guaranteed Net Worth of P12,000,000.00. The adjusted contract price, therefore, amounted
to P6,225,775.00 which is the difference between the contract price of P19,500,000.00 and the shortfall in
the guaranteed net worth of P13,224,225.00. Asia Industries having already paid Inter-Asia P12,000,000.00,
it was entitled to a refund of P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24 January 1980,
signed by its president, that Asia Industries's claim for refund be reduced to P4,093,993.00, it promising to
pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of
P759,570.00. To the proposal respondent agreed. Inter-Asia, however, welched on its promise.

Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00) exclusive of
interest. On 5 April 1983, Asia Industries filed a complaint against Inter-Asia with the Regional Trial Court of
Makati, one of two causes of action of which was for the recovery of above-said amount of P4,853,503.00
17 plus interest. Denying Asia Industries's claim, Inter-Asia countered that Asia Industries failed to pay the
balance of the purchase price and accordingly set up a counterclaim. Finding for Asia Industries, the trial
court rendered on 27 November 1991 a Decision, ordering Inter-Asia to pay Asia Industries the sum of
P4,853,503.00 plus interest thereon at the legal rate from the filing of the complaint until fully paid, the sum
of P30,000.00 as attorney's fees and the costs of suit; and (b) dismissing the counterclaim. On appeal to the
Court of Appeals, and by Decision of 25 January 1996, the Court of Appeals affirmed the trial court's
decision. Inter-Asia's motion for reconsideration of the decision having been denied by the Court of Appeals
by Resolution of 11 July 1996, Inter-Asia filed the petition for review on certiorari.

Issue: Whether the 24 January 1980 letter signed by Inter-Asia’s president is valid and binding.

Held: The 24 January 1980 letter signed by Inter-Asia's president is valid and binding. As held in the case of
People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, the general rule is that, in the absence of
authority from the board of directors, no person, not even its officers, can validly bind a corporation. A
corporation is a juridical person, separate and distinct from its stockholders and members, "having . . .
powers, attributes and properties expressly authorized by law or incident to its existence." Being a juridical
entity, a corporation may act through its board of directors, which exercises almost all corporate powers,
lays down all corporate business policies and is responsible for the efficiency of management, as provided in
Section 23 of the Corporation Code of the Philippines. Under this provision, 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 relevant provisions of law. However, just as a
natural person may authorize another to do certain acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to officers, committees or agents. The authority of such
individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the
board, either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz:
"A corporate officer or agent may represent and bind the corporation in transactions with third persons to the
extent that [the] authority to do so has been conferred upon him, and this includes powers as, in the usual
course of the particular business, are incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and
such apparent powers as the corporation has caused person dealing with the officer or agent to believe that
it has conferred.... [A]pparent authority is derived not 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; or (2) the
acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers. It requires presentation of evidence of similar acts executed either
in its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent
authority, but the vesting of a corporate officer with the power to bind the corporation." Hence, an officer of a
corporation who is authorized to purchase the stock of another corporation has the implied power to perform
all other obligations arising therefrom, such as payment of the shares of stock. By allowing its president to
sign the Agreement on its behalf, Inter-Asia clothed him with apparent capacity to perform all acts which are
expressly, impliedly and inherently stated therein.

Case Digest: Megan vs. RTC of Iloilo

G.R. No. 193840 : June 15, 2011

MEGAN SUGAR CORPORATION, Petitioner, v. REGIONAL TRIAL COURT OF ILOILO, BRANCH 68,
DUMANGAS, ILOILO; NEW FRONTIER SUGAR CORP. AND EQUITABLE PCI BANK, Respondents.

PERALTA, J.:

FACTS:

Respondent New Frontier Sugar Corporation (NFSC) obtained a loan from respondent Equitable PCI Bank
(EPCIB) which was secured by a real estate mortgage over NFSC land consisting of ninety-two (92)
hectares located in Passi City, Iloilo, and a chattel mortgage over NFSC sugar mill.

NFSC subsequently entered into a Memorandum of Agreement (MOA) with Central Iloilo Milling Corporation
(CIMICO), whereby the latter agreed to take-over the operation and management of the NFSC raw sugar
factory and facilities.

NFSC filed a compliant for specific performance and collection against CIMICO for the latter failure to pay its
obligations under the MOA.

CIMICO filed with the Regional Trial Court (RTC) of Dumangas, Iloilo, Branch 68, a case against NFSC for
sum of money and/or breach of contract. For NFSC failure to pay its debt, EPCIB instituted extra-judicial
foreclosure proceedings over NFSC land and sugar mill. During public auction, EPCIB was the sole bidder
and was thus able to buy the entire property and consolidate the titles in its name.

The RTC issued a restraining order, directing EPCIB and PISA to desist from taking possession over the
property in dispute. Hence, CIMICO was able to continue its possession over the property.

CIMICO and petitioner Megan Sugar Corporation (MEGAN) entered into a MOA whereby MEGAN assumed
CIMICO rights, interests and obligations over the property.

During the hearing on the motion for intervention, Atty. Reuben Mikhail Sabig (Atty. Sabig) appeared before
the RTC and entered his appearance as counsel for MEGAN.Several counsels objected to Atty. Sabig
appearance since MEGAN was not a party to the proceedings; however, Atty. Sabig explained to the court
that MEGAN had purchased the interest of CIMICO and manifested that his statements would bind
MEGAN./span>
In denying MEGAN petition, the CA ruled that since Atty. Sabig had actively participated before the RTC,
MEGAN was already estopped from assailing the RTC jurisdiction.

ISSUE: Whether Atty. Sabig is the agent of MEGAN and is thus estopped from assailing the jurisdiction of
the RTC.

HELD: YES.

CIVIL LAW: Doctrine of Estoppel, Relationship of Principal and Agent

After a judicial examination of the records pertinent to the case at bar, this Court agrees with the finding of
the CA that MEGAN is already estopped from assailing the jurisdiction of the RTC./span>

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and
its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of
one to whom they were directed and who reasonably relied thereon.The doctrine of estoppel springs from
equitable principles and the equities in the case. It is designed to aid the law in the administration of justice
where without its aid injustice might result. It has been applied by this Court wherever and whenever special
circumstances of a case so demand.

Based on the events and circumstances surrounding the issuance of the assailed orders, this Court rules
that MEGAN is estopped from assailing both the authority of Atty. Sabig and the jurisdiction of the RTC.
While it is true, as claimed by MEGAN, that Atty. Sabig said in court that he was only appearing for the
hearing of Passi Sugar motion for intervention and not for the case itself, his subsequent acts, coupled with
MEGAN inaction and negligence to repudiate his authority, effectively bars MEGAN from assailing the
validity of the RTC proceedings under the principle of estoppel.

MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed him with apparent
authority to act in their behalf. It must be remembered that when Atty. Sabig entered his appearance, he was
accompanied by Concha, MEGAN director and general manager.Concha himself attended several court
hearings, and on December 17, 2002, even sent a letter to the RTC asking for the status of the case. A
corporation may be held in estoppel from denying as against innocent third persons the authority of its
officers or agents who have been clothed by it with ostensible or apparent authority. Atty. Sabig may not
have been armed with a board resolution, but the appearance of Concha made the parties assume that
MEGAN had knowledge of Atty. Sabig actions and, thus, clothed Atty. Sabig with apparent authority such
that the parties were made to believe that the proper person and entity to address was Atty. Sabig. Apparent
authority, or what is sometimes referred to as the "holding out" theory, or doctrine of ostensible agency,
imposes liability, not as the result of the reality of a contractual relationship, but rather because of the
actions of a principal or an employer in somehow misleading the public into believing that the relationship or
the authority exists.

One of the instances of estoppel is when the principal has clothed the agent with indicia of authority as to
lead a reasonably prudent person to believe that the agent actually has such authority. With the case of
MEGAN, it had all the opportunity to repudiate the authority of Atty. Sabig since all motions, pleadings and
court orders were sent to MEGAN office. However, MEGAN never questioned the acts of Atty. Sabig and
even took time and effort to forward all the court documents to him.

To this Court mind, MEGAN cannot feign knowledge of the acts of Atty. Sabig, as MEGAN was aware from
the very beginning that CIMICO was involved in an on-going litigation.

PETITION DENIED.

doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the
law in the administration of justice where without its aid injustice might result. It has been applied by this
Court wherever and whenever special circumstances of a case so demand.

Based on the events and circumstances surrounding the issuance of the assailed orders, this Court rules
that MEGAN is estopped from assailing both the authority of Atty. Sabig and the jurisdiction of the RTC.
While it is true, as claimed by MEGAN, that Atty. Sabig said in court that he was only appearing for the
hearing of Passi Sugar’s motion for intervention and not for the case itself, his subsequent acts, coupled with
MEGAN’s inaction and negligence to repudiate his authority, effectively bars MEGAN from assailing the
validity of the RTC proceedings under the principle of estoppel.

G.R. No. L-60502 July 16, 1991

Lessons Applicable: Preemptive Rights (Sec.39) (Corporate Law)

FACTS:

7 1954: Naga Telephone Company (Natelco), Inc. was organized with P100K authorized
capital
8 1974: Natelco decided to increase its authorized capital to P3,000,000.00
As required by the Public Service Act, Natelco filed an application for the
approval of the increased authorized capital with the then Board of Communications
(BOC)
9 January 8, 1975: approved with conditions:
That the issuance of the shares of stocks will be for a period of one year from the date
hereof, "after which no further issues will be made without previous authority from this Board."
10 Natelco filed its Amended Articles of Incorporation with the SEC
the original authorized capital of P100K was already paid
increased capital of P2.9M the subscribers subscribed to P580K of which P145K was
fully paid
11 capital stock of Natelco was divided into 213K CS and 87K PS, both at a par value of P10/shares
12 April 12, 1977: Without no prior authorization from the BOC (now National Telecommunications
Commission) (NTC), Natelco entered into a contract with Communication Services, Inc. (CSI) for the
"manufacture, supply, delivery and installation" of telephone equipment
Natelco issued 24K shares of CS to CSI as downpayment
May 5, 1979: issued another 12K shares of CS to CSI
13 May 19, 1979: annual stockholders' meeting to elect their 7 directors to their BOD for the year
1979-1980
Pedro Lopez Dee (Dee) was unseated as Chairman of the Board and President but was
elected as one of the directors, together with his wife, Amelia Lopez Dee
CSI was able to gain control when their legal counsel, Atty. Luciano Maggay (Maggay)
won a seat in the Board
Atty. Maggay became president upon reorganization
14 Among the directors: Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee and Mrs Amelia C. Lopez
Dee never attended the Maggay Board thereby only Maggay representatives and Atty. Maggay attended
as per contract they issued 113,800 shares of stock in favor of CSI
15 Dee having been unseated filed a petition in the SEC questioning the validity of the elections
ground: no valid list of stockholders through which the right to vote could be determined
16 As prayed for a restraining order was issued by the SEC placing officers of the 1978-1979 Natelco
Board in hold-over capacity
17 Upon elevation to the SC: dismissed the petition for being premature; restraining order was
restrained
resulted in the unseating of the Maggay group from the BOD in a "hold-over" capacity
18 SEC: ordering the holding of special stockholder' meeting to elect the new members of the BOD
based on its findings of who are entitled to vote
19 June 23, 1981: Dee filed a petition for certiorari/appeal with the SEC en banc
SEC en banc: dismissed for lack of merit
20 May 20, 1982: Antonio Villasenor filed w/ the CFI claiming that he was an assignee of an option to
repurchase 36K shares of CS of Natelco under a Deed of Assignment executed in his favor
21 May 21, 1982: restraining order dwas issued by the lower court commanding desistance from the
scheduled election until further orders
22 May 22, 1982: controlling majority of the stockholders proceeded with the elections under the
supervision of the SEC representatives
23 May 25, 1982: SEC recognized the election and the duly elected directors
Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez Dee kept insisting
no elections were held and refused to vacate their positions
24 May 28, 1982: SEC issued another order directing the hold-over directors and officers to turn over
their respective posts and directing the Sheriff of Naga City and other enforcement agencies to enforce its
 order
25 May 29, 1982: hold-over officers peacefully vacated
26 June 2, 1982: Villasenor filed a charge for contempt
27 September 7, 1982: lower court rendered CSI Nilda Ramos, Luciano Maggay, Desiderio Saavedra,
Augusto Federis and Ernesto Miguel, guilty of contempt of court
28 September 17, 1982: CSI group filed a petition for certiorari and prohibition with preliminary
injunction or restraining order against the CFI
29 April 14, 1983: IAC: Annuling contempt charge

ISSUES:
3 W/N SEC has the power and jurisdiction to declare null and void shares of stock issued by
NATELCO to CSI for violation of Sec. 20 (h) of the Public Service Act - NO
4 W/N Natelco stockholders have a right of preemption to the 113,800 shares
5 W/N the May 22, 1982 election was valid

HELD: Dismissed for lack of merit

4 NO
5 The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of
corporations, partnerships and associations and those dealing with internal affairs of such entities; P.D. 902-A
does not confer jurisdiction to SEC over all matters affecting corporations
The jurisdiction of the SEC is limited to deciding the controversy in the election of the
directors and officers of Natelco
The SEC is empowered by P.D. 902-A to decide intra-corporate controversies and that is
precisely the only issue in this case.
2. NO
3 There is distinction between:
an order to issue shares on or before May 19, 1979; and
actual issuance of the shares after May 19, 1979 - CSI was in control of voting shares
and the Board
4 The power to issue shares of stocks in a corporation is lodged in the board of directors and no
stockholders meeting is required to consider it because additional issuance of shares of stocks does not need
approval of the stockholders - no violation of preemptive right
3. YES.
4 Clear from records that it was held
5 within the jurisdiction of the lower court as it does not involve an intra-corporate matter but merely
a claim of a private party of the right to repurchase common shares of stock of Natelco and that the
restraining order was not meant to stop the election duly called for by the SEC and a matter purely within the
exclusive jurisdiction of the SEC
6 temporary restraining order amounted to an injunctive relief against the SEC
since the trial judge in the lower court did not have jurisdiction in issuing the questioned restraining
order, disobedience thereto did not constitute contempt

jiao vs SEC (check phone)

Global business bank

THE petitioners were regular employees of the Philippine Banking Corp. (Philbank). In February 2000, Philbank
merged with Global Business Bank, Inc. (Global Bank), with the former as the surviving corporation and the
latter as the absorbed corporation, but the bank operated under the name Global Business Bank, Inc.
In August 2002, respondent Metropolitan Bank and Trust Company (Metrobank) acquired the assets and
liabilities of Globalbank through a Deed of Assignment and Assumption of Liabilities.
Subsequently, the petitioners filed separate complaints for non-payment of separation pay with prayer for
damages and attorney’s fees impleading, among others, Metrobank as a respondent.

Can the petitioners’ claims against Metrobank prosper?

Ruling: No.
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid adequate consideration for such assets, except
when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to
assume the debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3)
where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the selling
corporation fraudulently enters into the transaction to escape liability for those debts.
Under the Deed of Assignments of Assets and Assumption of Liabilities between Globalbank and Metrobank, the
latter accepted the former’s assets in exchange for assuming its liabilities.
The liabilities that Metrobank assumed, which were clearly set out in Annex “A” of the instrument, are: deposit
liabilities; interbank loans payable; bills payable; manager’s checks and demand drafts outstanding; accrued
taxes, interest and other expenses; and deferred credits and other liabilities.
Based on this enumeration, the liabilities that Metrobank assumed can be characterized as those pertaining to
Globalbank’s banking operations. They do not include Globalbank’s liabilities to pay separation pay to its former
employees. This must be so because it is understood that the same liabilities ended when the petitioners were
paid the amounts embodied in their respective acceptance letters and quitclaims. Hence, this obligation could
not have been passed on to Metrobank.
The petitioners insist that Metrobank is liable because it is the “parent” company of Globalbank and that
majority of the latter’s board of directors are also members of the former’s board of directors.
While the petitioners’ allegations are true, one fact cannot be ignored – that Globalbank has a separate and
distinct juridical personality. The petitioners’ own evidence – Global Business Holdings, Inc.’s General
Information Sheet filed with the Securities and Exchange Commission – bears this out (Ma. Corina C. Jiao, et. al.
vs. NLRC, et. al., G.R. No. 182331, April 18, 2012).

Loyola Grandvillas Homeowners Association vs. CA, 276 SCRA 681

In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was incorporated by the homeowners of the Loyola Grand
Villas (LGV), a subdivision. The Securities and Exchange Commission (SEC) issued a certificate of incorporation under
its official seal to LGVAI in the same year. LGVAI was likewise recognized by the Home Insurance and Guaranty
Corporation (HIGC), a government-owned-and-controlled corporation whose mandate is to oversee associations like
LGVAI.
Later, LGVAI later found out that there are two homeowners associations within LGV, namely: Loyola Grand Villas
Homeowners (South) Association, Inc. (LGVAI-South) and Loyola Grand Villas Homeowners (North) Association, Inc.
(LGVAI-North). The two associations asserted that they have to be formed because LGVAI is inactive. When LGVAI
inquired about its status with HIGC, HIGC advised that LGVAI was already terminated; that it was automatically
dissolved when it failed to submit it By-Laws after it was issued a certificate of incorporation by the SEC.
ISSUE: Whether or not a corporation’s failure to submit its by-laws results to its automatic dissolution.
HELD: No. A private corporation like LGVAI commences to have corporate existence and juridical personality from
the date the Securities and Exchange Commission (SEC) issues a certificate of incorporation under its official seal.
The submission of its by-laws is a condition subsequent but although it is merely such, it is a MUST that it be
submitted by the corporation. Failure to submit however does not warrant automatic dissolution because such a
consequence was never the intention of the law. The failure is merely a ground for dissolution which may be raised in
a quo warranto proceeding. It is also worthwhile to note that failure to submit can’t result to automatic dissolution
because there are some instances when a corporation does not require a by-laws.

China Banking Corporation vs. Court of Appeals, 270 SCRA 503 , March 26, 1997
Securities and Exchange Commission; Actions; Jurisdiction; The better policy in determining which body
has jurisdiction over a case would be to consider not only the status of relationship of the parties but
also the nature of the question that is the subject of their controversy.—The basic issue we must first
hurdle is which body has jurisdiction over the controversy, the regular courts or the SEC. P.D. No. 902-A
conferred upon the SEC the following pertinent powers: * * * The aforecited law was expounded upon in
Viray v. CA and in the recent cases of Mainland Construction Co., Inc. v. Movilla and Bernardo v. CA, thus:
. . . . The better policy in determining which body has jurisdiction over a case would be to consider not
only the status or relationship of the parties but also the nature of the question that is the subject of
their controversy.

Same; Same; Same; Corporation Law; The purchase of a share or membership certificate at public
auction by a party (and the issuance to it of the corresponding Certificate of Sale) transfers ownership of
the same to the latter and thus entitle it to have the said share registered in its name as a member.—As
to the first query, there is no question that the purchase of the subject share or membership certificate
at public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred
ownership of the same to the latter and thus entitled petitioner to have the said share registered in its
name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has
in fact, in its letter of 27 September 1974, expressly recognized the pledge agreement executed by the
original owner, Calapatia, in favor of petitioner and has even noted said agreement in its corporate
books. In addition, Calapatia, the original owner of the subject share, has not contested the said transfer.
By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and,
therefore, the conflict that arose between petitioner and VGCCI aptly exemplifies an intra-corporate
controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.

Same; Same; Same; Same; By-Laws; The proper interpretation and application of a corporation’s by-laws
is a subject which irrefutably calls for the special competence of the SEC.—An important consideration,
moreover, is the nature of the controversy between petitioner and private respondent corporation. VGCCI
claims a prior right over the subject share anchored mainly on Sec. 3, Art. VIII of its by-laws which
provides that “after a member shall have been posted as delinquent, the Board may order his/her/its
share sold to satisfy the claims of the Club . . .” It is pursuant to this provision that VGCCI also sold the
subject share at public auction, of which it was the highest bidder. VGCCI caps its argument by asserting
that its corporate by-laws should prevail. The bone of contention, thus, is the proper interpretation and
application of VGCCI’s aforequoted bylaws, a subject which irrefutably calls for the special competence
of the SEC.

Same; Same; Same; Estoppel; The plaintiff who files a complaint with one court which has no jurisdiction
over it is not estopped from filing the same complaint later with the competent court.—In Zamora v.
Court of Appeals, this Court, through Mr. Justice Isagani A. Cruz, declared that: It follows that as a rule
the filing of a complaint with one court which has no jurisdiction over it does not prevent the plaintiff
from filing the same complaint later with the competent court. The plaintiff is not estopped from doing
so simply because it made a mistake before in the choice of the proper forum. . .

Appeals; Procedural Rules; Remand of Cases; The remand of the case or of an issue to the lower court
for further reception of evidence is not necessary where the Supreme Court is in position to resolve the
dispute based on the records before it and particularly where the ends of justice would not be subserved
by the remand thereof.—Applicable to this case is the principle succinctly enunciated in the case of Heirs
of Crisanta Y. Gabriel-Almoradie v. Court of Appeals, citing Escudero v. Dulay and The Roman Catholic
Archbishop of Manila v. Court of Appeals: In the interest of the public and for the expeditious
administration of justice the issue on infringement shall be resolved by the court considering that this
case has dragged on for years and has gone from one forum to another. It is a rule of procedure for the
Supreme Court to strive to settle the entire controversy in a single proceeding leaving no root or branch
to bear the seeds of future litigation. No useful purpose will be served if a case or the determination of
an issue in a case is remanded to the trial court only to have its decision raised again to the Court of
Appeals and from there to the Supreme Court. We have laid down the rule that the remand of the case or
of an issue to the lower court for further reception of evidence is not necessary where the Court is in
position to resolve the dispute based on the records before it and particularly where the ends of justice
would not be subserved by the remand thereof. Moreover, the Supreme Court is clothed with ample
authority to review matters, even those not raised on appeal if it finds that their consideration is
necessary in arriving at a just disposition of the case.

Loans; Pledge; The contracting parties to a pledge agreement may stipulate that the said pledge will
also stand as security for any future advancements (or renewals thereof) that the pledgor may procure
from the pledgee.—VGCCI assails the validity of the pledge agreement executed by Calapatia in
petitioner’s favor. It contends that the same was null and void for lack of consideration because the
pledge agreement was entered into on 21 August 1974 but the loan or promissory note which it secured
was obtained by Calapatia much later or only on 3 August 1983. VGCCI’s contention is unmeritorious. A
careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly
stipulated therein that the said pledge will also stand as security for any future advancements (or
renewals thereof) that Calapatia (the pledgor) may procure from petitioner.

Corporation Law; By-Laws; In order to be bound, a third party must have acquired knowledge of the
pertinent by-laws at the time the transaction or agreement between said third person and the
shareholder was entered into.—In order to be bound, the third party must have acquired knowledge of
the pertinent by—laws at the time the transaction or agreement between said third party and the
shareholder was entered into, in this case, at the time the pledge agreement was executed. VGCCI could
have easily informed petitioner of its by-laws when it sent notice formally recognizing petitioner as
pledgee of one of its shares registered in Calapatia’s name. Petitioner’s belated notice of said by-laws at
the time of foreclosure will not suffice.

Same; Words and Phrases; A membership share is quite different in character from a pawn ticket.—
Similarly, VGCCI’s contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of
the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of
a good father of a family, fails to convince. The case of Cruz & Serrano v. Chua A. H. Lee, is clearly not
applicable: In applying this provision to the situation before us it must be borne in mind that the ordinary
pawn ticket is a document by virtue of which the property in the thing pledged passes from hand to hand
by mere delivery of the ticket; and the contract of the pledge is, therefore, absolvable to bearer. It
results that one who takes a pawn ticket in pledge acquires domination over the pledge; and it is the
holder who must renew the pledge, if it is to be kept alive. It is quite obvious from the aforequoted case
that a membership share is quite different in character from a pawn ticket and to reiterate, petitioner
was never informed of Calapatia’s unpaid accounts and the restrictive provisions in VGCCI’s by-laws.

Same; Same; The term “unpaid claim” in Sec. 63 of the Corporation Code refers to “any unpaid claim
arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe
the corporation arising from any other transaction,” such as monthly dues.—Finally, Sec. 63 of the
Corporation Code which provides that “no shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation” cannot be utilized by VGCCI. The term
“unpaid claim” refers to “any unpaid claim arising from unpaid subscription, and not to any indebtedness
which a subscriber or stockholder may owe the corporation arising from any other transaction.” In the
case at bar, the subscription for the share in question has been fully paid as evidenced by the issuance of
Membership Certificate No. 1219. What Calapatia owed the corporation were merely the monthly dues.
Hence, the aforequoted provision does not apply.

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent
Valley Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner
China Banking Corporation (CBC, for brevity).[if !supportFootnotes][1][endif]
On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be
recorded in its books.[if !supportFootnotes][2][endif]
In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in
petitioner's favor was duly noted in its corporate books. [if !supportFootnotes][3][endif]
On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured
by the aforestated pledge agreement still existing between Calapatia and petitioner. [if !supportFootnotes][4][endif]
Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial
foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public
auction sale of the pledged stock.[if !supportFootnotes][5][endif]
On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and
requested that the pledged stock be transferred to its (petitioner's) name and the same be recorded in the
corporate books. However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to
petitioner's request in view of Calapatia's unsettled accounts with the club.[if !supportFootnotes][6][endif]
Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner
emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued the
corresponding certificate of sale.[if !supportFootnotes][7][endif]
On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in
the amount of P18,783.24.[if !supportFootnotes][8][endif] Said notice was followed by a demand letter dated 12
December 1985 for the same amount[if !supportFootnotes][9][endif] and another notice dated 22 November 1986 for
P23,483.24.[if !supportFootnotes][10][endif]
On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction
sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein
was Calapatia's own share of stock (Stock Certificate No. 1219).
Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership
due to the sale of his share of stock in the 10 December 1986 auction. [if !supportFootnotes][11][endif]
On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No. 1219
by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate
of stock be issued in its name.[if !supportFootnotes][12][endif]
On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public
auction held on 10 December 1986 for P25,000.00.[if !supportFootnotes][13][endif]
On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed a
case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the
issuance of a new stock certificate in its name.[if !supportFootnotes][14][endif]
On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the
subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied
petitioner's motion for reconsideration.
On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC) for
the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate
issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages,
attorney's fees and costs of litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in
the main that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to transfer the
share in the name of the petitioner in the books of (VGCCI) until liquidation of delinquency." [if
!supportFootnotes][15][endif] Consequently, the case was dismissed. [if !supportFootnotes][16]

Associated Bank vs. Court of Appeals

CASE DIGEST: G. R. No. 123793, June 29, 1998

Commercial Law, Corporation, Merger, Negotiable Instruments, Promissory Note

FACTS:

Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged to form just one
banking corporation known as Associated Citizens Bank (later renamed Associated Bank), the surviving
bank. After the merger agreement had been signed, but before a certificate of merger was issued,
respondent Lorenzo Sarmiento, Jr. executed in favor of Associated Bank a promissory note, promising to
pay the bank P2.5 million on or before due date at 14% interest per annum, among other accessory dues.
For failure to pay the amount due, Sarmiento was sued by Associated Bank.

Respondent argued that the plaintiff is not the proper party in interest because the promissory note was
executed in favor of CBTC. Also, while respondent executed the promissory note in favor of CBTC, said
note was a contract pour autrui, one in favor of a third person who may demand its fulfillment. Also,
respondent claimed that he received no consideration for the promissory note and, in support thereof, cites
petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount loaned.

ISSUE:

1.) Whether or not Associated Bank, the surviving corporation, may enforce the promissory note made by
private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed,
but before a certificate of merger was issued?

2.) Whether or not the promissory note was a contract pour autrui and was issued without consideration?

HELD:

The petition is impressed with merit.

Associated Bank assumed all the rights of CBTC. Although absorbed corporations are dissolved, there is no
winding up of their affairs or liquidation of their assets, because the surviving corporation automatically
acquires all their rights, privileges and powers, as well as their liabilities. The merger, however, does not
become effective upon the mere agreement of the constituent corporations. The Securities and Exchange
Commission (SEC) and majority of the respective stockholders of the constituent corporations must have
approved the merger. (Section 79, Corporation Code) It will be effective only upon the issuance by the SEC
of a certificate of merger. Records do not show when the SEC approved the merger.

But assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that
petitioner no longer has any interest in the promissory note. The agreement itself clearly provides that all
contracts — irrespective of the date of execution — entered into in the name of CBTC shall be understood
as pertaining to the surviving bank, herein petitioner. Such must have been deliberately included in the
agreement in order to avoid giving the merger agreement a farcical interpretation aimed at evading
fulfillment of a due obligation. Thus, although the subject promissory note names CBTC as the payee, the
reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a
reference to petitioner bank.

On the issue that the promissory note was a contract pour autrui and was issued without consideration, the
Supreme Court held it was not. In a contract pour autrui, an incidental benefit or interest, which another
person gains, is not sufficient. The contracting parties must have clearly and deliberately conferred a favor
upon a third person. The "fairest test" in determining whether the third person's interest in a contract is a
stipulation pour autrui or merely an incidental interest is to examine the intention of the parties as disclosed
by their contract. It did not indicate that a benefit or interest was created in favor of a third person. The
instrument itself says nothing on the purpose of the loan, only the terms of payment and the penalties in
case of failure to pay.

Private respondent also claims that he received no consideration for the promissory note, citing petitioner's
failure to submit any proof of his loan application and of his actual receipt of the amount loaned. These
arguments deserve no merit. Res ipsa loquitur. The instrument, bearing the signature of private respondent,
speaks for itself. Respondent Sarmiento has not questioned the genuineness and due execution thereof.
That he partially paid his obligation is itself an express acknowledgment of his obligation.

WHEREFORE, the petition is GRANTED.

Mindanao vs willkom
First Iligan Savings and Loan Association, Inc. (FISLAI) and Davao Savings and Loan Association, Inc. (DSLAI) are
entities duly registered with the SEC primarily engaged in the business of granting loans and receiving deposits
from the
general public, and treated as banks. In 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the
surviving
corporation but their articles of merger were not registered with the SEC due to incomplete documentation.

Issue:
Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective?

Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC,
subject to its prior determination that the merger is not inconsistent with the Corporation Code or
existing laws. Where a party to the merger is a special corporation governed by its own charter, the Code
particularly mandates that a favorable recommendation of the appropriate government agency should first
be obtained.

In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not
registered with the SEC due to incomplete documentation. Consequently, the SEC did not issue the required
certificate of merger. Even if it is true that the Monetary Board of the Central Bank of
the Philippines recognized such merger, the fact remains that no certificate was issued by the SEC. Such
merger is still incomplete without the certification.

The issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval
but it also marks the moment when the consequences of a merger take place. By operation of law,
upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties, as
well as liabilities, shall be taken and deemed transferred to and vested in the surviving corporation.

The same rule applies to consolidation which becomes effective not upon mere agreement of the members
but only upon issuance of the certificate of consolidation by the SEC. When the SEC, upon processing and
examining the articles of consolidation, is satisfied that the consolidation of the corporations is not
inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of
consolidation which makes the reorganization official. The new consolidated corporation comes into
existence and the constituent corporations are dissolved and cease to exist."(MINDANAO SAVINGS AND
LOAN ASSOCIATION, INC., vs. EDWARD WILLKOM, G.R. No. 178618, October 11, 2010)

Lee vs CA
G.R. No. 93695 February 4, 1992
Lessons Applicable: Voting Trust Agreements (Corporate Law)

FACTS:

30 November 15, 1985: a complaint for a sum of money was filed by the
International Corporate Bank, Inc. (ICB) against the private respondents
31
32 March 17, 1986: private respondents, in turn, filed a 3rd-party
complaint against ALFA and ICB
33
34 September 17, 1987: petitioners filed a motion to dismiss the third
party complaint - denied
35
36 July 12, 1988: trial court issued an order requiring the issuance of
an alias summons upon ALFA through the DBP
37
consequence of the petitioner's letter that ALFA management
was transferred to DBP

38 July 22, 1988: DBP claimed that it was not authorized to receive
summons on behalf of ALFA
39
40 August 4, 1988: trial court issued an order advising the private
respondents to take the appropriate steps to serve the summons to ALFA
41
42 September 12, 1988: petitioners filed a motion for reconsideration
submitting that Rule 14, section 13 of the Revised Rules of Court is not
applicable since they were no longer officers of ALFA and that the private
respondents should have availed of another mode of service under Rule 14,
Section 16 of the said Rules, i.e., through publication to effect proper service
upon ALFA - denied
43
44 January 19, 1989: 2nd motion for reconsideration was filed by the
petitioners reiterating their stand that by virtue of the voting trust agreement
they ceased to be officers and directors of ALFA
45
attached a copy of the voting trust agreement between all the
stockholders of ALFA and the DBP whereby the management and
control of ALFA became vested upon the DBP

46 April 25, 1989: trial court reversed itself by setting aside its previous
Order dated January 2, 1989 and declared that service upon the petitioners
who were no longer corporate officers of ALFA cannot be considered as
proper service of summons on ALFA
47
48 October 17, 1989: trial court (NOT notified of the petition for
certiorari) declared final its decision on April 25, 1989
49
ISSUE: W/N the voting trust agreement is valid despite being contrary to the general
principle that a corporation can only be bound by such acts which are within the
scope of its officers' or agents' authority

HELD:
6 voting trust
7
trust created by an agreement between a group of the
stockholders of a corporation and the trustee or by a group of identical
agreements between individual stockholders and a common trustee,
whereby it is provided that for a term of years, or for a period
contingent upon a certain event, or until the agreement is terminated,
control over the stock owned by such stockholders, either for certain
purposes or for all purposes, is to be lodged in the trustee, either with
or without a reservation to the owners, or persons designated by
them, of the power to direct how such control shall be used
(Ballentine's Law Dictionary)

Sec. 59. Voting

Trusts — One or more stockholders of a stock corporation may create a voting trust
for the purpose of conferring upon a trustee or trustees the right to vote and other
rights pertaining to the share for a period rights pertaining to the shares for a period
not exceeding 5 years at any one time: Provided, that in the case of a voting trust
specifically required as a condition in a loan agreement, said voting trust may be for
a period exceeding 5 years but shall automatically expire upon full payment of the
loan. A voting trust agreement must be in writing and notarized, and shall specify
the terms and conditions thereof. A certified copy of such agreement shall be filed
with the corporation and with the Securities and Exchange Commission; otherwise,
said agreement is ineffective and unenforceable. The certificate or certificates of
stock covered by the voting trust agreement shall be cancelled and new ones shall
be issued in the name of the trustee or trustees stating that they are issued
pursuant to said agreement. In the books of the corporation, it shall be noted that
the transfer in the name of the trustee or trustees is made pursuant to said voting
trust agreement.

REPUBLIC OF THE PHILIPPINES v. SANDIGANBAYAN et al . 402 SCRA 84(2003)

The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or to amend
the Articles of Incorporation for the purpose of increasing the authorized capital stock
unless there is a prima facie evidence showing that said shares are ill-gotten and there is an
imminent danger of dissipation.
Two sets of board and officers of Eastern Telecommunications, Philippines, Inc. (ETPI)
were elected, one by the Presidential Commission on Good Government (PCGG) and the
other by the registered ETPI stockholders.Victor Africa, a stockholder of ETPI filed a
petition for Certiorari before the Sandiganbayan alleging that the PCGG had been “illegally
exercising the rights of stockholders of ETPI,” in the election of the members of the board of
directors. The Sandiganbayan ruled that only the registered owners, their duly authorized
representatives or their proxies may vote their corresponding shares. The PCGG filed a
petition for certiorari, mandamus and prohibition before the Court which was granted. The
Court referred the PCGG’s petition to hold the special stockholders’ meeting to the
Sandiganbayan for reception of evidence and resolution. The Sandiganbayan granted the
PCGG “authority to cause the holding of a special stockholders’ meeting of ETPI and held
that there was an urgent necessity to increase ETPI’s authorized capital stock; there existed
a prima facie factual foundation for the issuance of the writ of sequestration covering the
Class “A” shares of stock; and the PCGG was entitled to vote the sequestered shares of stock.
The PCGG-controlled ETPI board of directors held a meeting and the increase in ETPI’s
authorized capital stock from P250 Million to P2.6 Billion was “unanimously approved”.
Africa filed a motion to nullify the stockholders meeting, contending that only the Court,
and not the Sandiganbayan, has the power to authorize the PCGG to call a stockholders
meeting and vote the sequestered shares. The Sandiganbayan denied the motions for
reconsideration of prompting Africa to file before the Court a second petition, challenging
the Sandiganbayan Resolutions authorizing the holding of a stockholders meeting and the
one denying the motion for reconsideration.

ISSUES:
1. Whether or not the Sandiganbayan gravely abused its discretion in ordering the
holding of a stockholders meeting to elect the ETPI board of directors without first
setting in place, through the amendment of the articles of incorporation and the by-
laws of ETPI
2. Whether the PCGG can vote the sequestered ETPI Class “A” shares in the
stockholders meeting for the election of the board of directors.

HELD:
First Issue :
On the PCGG’s imputation of grave abuse of discretion upon the Sandiganbayan for
ordering the holding of a stockholders meeting to elect the ETPI board of directors without
first setting in place, through the amendment of the articles of incorporation and the by-
laws of ETPI, the safeguards prescribed in Cojuangco, Jr. v. Roxas. The Court laid down
those safeguards because of the obvious need to reconcile the rights of the stockholder
whose shares have been sequestered and the duty of the conservator to preserve what could
be ill-gotten wealth. There is nothing in the Cojuangco case that would suggest that the
above measures should be incorporated in the articles and by-laws before a stockholders
meeting for the election of the board of directors is held. The PCGG nonetheless insists that
those measures should be written in the articles and by-laws before such meeting,
“otherwise, the {Marcos] cronies will elect themselves or their representatives, control the
corporation, and for an appreciable period of time, have every opportunity to disburse
funds, destroy or alter corporate records, and dissipate assets.” That could be a possibility,
but the peculiar circumstances of the case require that the election of the board of directors
first be held before the articles of incorporation are amended. Section 16 of the Corporation
Code requires the majority vote of the board of directors to amend the articles of
incorporation. At the time Africa filed his motion for the holding of the annual stockholders
meeting, there were two sets of ETPI directors, one controlled by the PCGG and the other by
the registered stockholders. Which of them is the legitimate board of directors? Which of
them may rightfully vote to amend the articles of incorporation and integrate the
safeguards laid down in Cojuangco? It is essential, therefore, to cure the aberration of two
boards of directors sitting in a single corporation before the articles of incorporation are
amended to set in place the Cojuangco safeguards. The danger of the so-called Marcos
cronies taking control of the corporation and dissipating its assets is, of course, a legitimate
concern of the PCGG, charged as it is with the duties of a conservator. Nevertheless, such
danger may be averted by the “substantially contemporaneous” amendment of the articles
after the election of the board.

Second Issue :
The principle laid down in Baseco vs. PCGG was further enhanced in the subsequent cases of
Cojuangco v. Calpo and Presidential Commission on Good Government v. Cojuangco, Jr.,
where the Court developed a “two-tiered” test in determining whether the PCGG may vote
sequestered shares. The issue of whether PCGG may vote the sequestered shares in SMC
necessitates a determination of at least two factual matters: a.) whether there is prima facie
evidence showing that the said shares are ill-gotten and thus belong to the state; and b.)
whether there is an immediate danger of dissipation thus necessitating their continued
sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan.
The two-tiered test, however, does not apply in cases involving funds of “public character.”
In such cases, the government is granted the authority to vote said shares, namely: (1)
Where government shares are taken over by private persons or entities who/which
registered them in their own names, and (2) Where the capitalization or shares that were
acquired with public funds somehow landed in private hands. In short, when sequestered
shares registered in the names of private individuals or entities are alleged to have been
acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the
sequestered shares in the name of private individuals or entities are shown, prima facie, to
have been (1) originally government shares, or (2) purchased with public funds or those
affected with public interest, then the two-tiered test does not apply. The rule in the
jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of
sequestered property. It is a mere conservator. It may not vote the shares in a corporation
and elect members of the board of directors. The only conceivable exception is in a case of a
takeover of a business belonging to the government or whose capitalization comes from
public funds, but which landed in private hands as in BASECO. In short, the Sandiganbayan
held that the public character exception does not apply, in which case it should have
proceeded to apply the two-tiered test. This it failed to do. The questions thus remain if
there is prima facie evidence showing that the subject shares are ill- gotten and if there is
imminent danger of dissipation. The Court is not, however, a trier of facts, hence, it is not in
a position to rule on the correctness of the PCGG’s contention. Consequently, the issue must
be remanded to the Sandiganbayan for resolution.

REPUBLIC v. COCOFED, G.R. No. 147062-64, December 14, 2001

Facts:
The PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of
allegedly ill-gotten companies, assets and properties, real or personal. Among the properties sequestered by the
Commission were shares of stock in the United Coconut Planters Bank (UCPB) registered in the names of the
alleged “one million coconut farmers,” the so-called Coconut Industry Investment Fund companies (CIIF
companies) and Private Respondent Eduardo Cojuangco Jr. In connection with the sequestration of the said
UCPB shares, the PCGG, on July 31, 1987, instituted an action for reconveyance, reversion, accounting,
restitution and damages docketed as Case No. 0033 in the Sandiganbayan.
On November 15, 1990, upon Motion of Private Respondent COCOFED, the Sandiganbayan issued a Resolution
lifting the sequestration of the subject UCPB shares on the ground that herein private respondents – in
particular, COCOFED and the so-called CIIF companies – had not been impleaded by the PCGG as parties-
defendants in its July 31, 1987 Complaint for reconveyance, reversion, accounting, restitution and damages.
This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari docketed as GR No.
96073 in this Court. Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of elections
for the Board of Directors of UCPB. However, the PCGG applied for and was granted by this Court a Restraining
Order enjoining the holding of the election. Subsequently, the Court lifted the Restraining Order and ordered the
UCPB to proceed with the election of its board of directors. Furthermore, it allowed the sequestered shares to be
voted by their registered owners.
On February 23, 2001, “COCOFED, et al. and Ballares, et al.” filed the “Class Action Omnibus Motion” referred to
earlier in Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F, asking the court a quo:
“1. To enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the more than
one million coconut farmers; and
“2. To enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding companies
including those registered in the name of the PCGG.”

Issue: Whether the PCGG can vote the sequestered UCPB shares.

Held: The registered owner of the shares of a corporation exercises the right and the privilege of voting.
This principle applies even to shares that are sequestered by the government, over which the PCGG as a
mere conservator cannot, as a general rule, exercise acts of dominion. On the other hand, it is authorized to
vote these sequestered shares registered in the names of private persons and acquired with allegedly ill-
gotten wealth, if it is able to satisfy the two-tiered test devised by the Court in Cojuangco v. Calpo and
PCGG v. Cojuangco Jr. Two clear “public character” exceptions under which the government is granted the
authority to vote the shares exist (1) Where government shares are taken over by private persons or entities
who/which registered them in their own names, and (2) Where the capitalization or shares that were
acquired with public funds somehow landed in private hands. The exceptions are based on the common-
sense principle that legal fiction must yield to truth; that public property registered in the names of non-
owners is affected with trust relations; and that the prima facie beneficial owner should be given the privilege
of enjoying the rights flowing from the prima facie fact of ownership. In short, when sequestered shares
registered in the names of private individuals or entities are alleged to have been acquired with ill-gotten
wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of private
individuals or entities are shown, prima facie, to have been (1) originally government shares, or (2)
purchased with public funds or those affected with public interest, then the two-tiered test does not apply.
Rather, the public character exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the
government shall vote the shares. Herein, the money used to purchase the sequestered UCPB shares came
from the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the coconut levy funds. The
sequestered UCPB shares are confirmed to have been acquired with coco levies, not with alleged ill-gotten
wealth. As the coconut levy funds are not only affected with public interest, but are in fact prima facie public
funds, the Court believes that the government should be allowed to vote the questioned shares, because
they belong to it as the prima facie beneficial and true owner. The Sandiganbayan committed grave abuse of
discretion in grossly contradicting and effectively reversing existing jurisprudence, and in depriving the
government of its right to vote the sequestered UCPB shares which are prima facie public in character.

Chua vs. CA and Hao G.R. No. 150793 November 19, 2004

Facts: PR Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit against petitioner for
committing acts of falsification by falsifying the Minutes of the Annual Stockholders meeting of the Board of
Directors by causing it to appear in said Minutes that LYDIA HAO CHUA was present and has participated in
said proceedings, when in truth and in fact, as the said accused fully well knew that said Lydia Hao was
never present during the meeting.
Petitioner alleges that respondent Lydia Hao has no the authority to bring a suit in behalf of the Corporation
since there was no Board Resolution authorizing her to file the suit. For her part, respondent Hao claimed
that the suit was brought under the concept of a derivative suit.

Issue: (1) Is the criminal complaint in the nature of a derivative suit? (2) Is Siena Realty Corporation a proper
petitioner in SCA No. 99-94846?

Held: Under Section 36 of the Corporation Code, read in relation to Section 23, where a corporation is an
injured party, its power to sue is lodged with its board of directors or trustees. An individual stockholder is
permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect
or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be
sued, or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal
party, with the corporation as the real party in interest.
A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a
necessary party to the suit. And the relief which is granted is a judgment against a third person in favor of
the corporation. Similarly, if a corporation has a defense to an action against it and is not asserting it, a
stockholder may intervene and defend on behalf of the corporation.
In the Criminal Case, the complaint was instituted by respondent against petitioner for falsifying corporate
documents whose subject concerns corporate projects of Siena Realty Corporation. Clearly, SRC is an
offended party. Hence, SRC has a cause of action. And the civil case for the corporate cause of action is
deemed instituted in the criminal action.
However, the board of directors of the corporation in this case did not institute the action against petitioner.
Private respondent was the one who instituted the action. Private respondent asserts that she filed a
derivative suit in behalf of the corporation. This assertion is inaccurate. Not every suit filed in behalf of the
corporation is a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder
suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause
of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him
in the suit. It is a condition sine qua non that the corporation be impleaded as a party because not only is the
corporation an indispensable party, but it is also the present rule that it must be served with process. The
judgment must be made binding upon the corporation in order that the corporation may get the benefit of the
suit and may not bring subsequent suit against the same defendants for the same cause of action. In other
words, the corporation must be joined as party because it is its cause of action that is being litigated and
because judgment must be a res adjudicata against it.
In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf
and for the benefit of the corporation. Thus, the criminal complaint including the civil aspect thereof could not
be deemed in the nature of a derivative suit.
EXPERTRAVEL & TOURS, INC., petitioner,
vs.
COURT OF APPEALS and KOREAN AIRLINES, respondent.
G.R. No. 152392 May 26, 2005

FACTS:
Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do
business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was
Atty. Mario Aguinaldo and his law firm.

On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint in RTC for the collection of the principal
amount etc. against Expertravel and Tours, Inc. (ETI). Where the latter sought for the dismissal of the case, however,
private respondent filed the verification and certification against forum shopping was signed by Atty. Aguinaldo, who
indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the
complaint where He claimed that he had been authorized to file the complaint through a resolution of the KAL Board
of Directors approved during a special meeting held on June 25, 1999. KAL also contended that Atty. Aguinaldo was
its resident agent and was registered as such with the Securities and Exchange Commission (SEC). It was further
alleged that Atty. Aguinaldo was also the corporate secretary of KAL, showing that he was the lawyer of KAL.

The petitioner on the other hand, maintains that the RTC cannot take judicial notice of the said teleconference without
prior hearing, nor any motion therefore. Finally, KAL submitted on March 6, 2000 an Affidavit of even date, executed
by its general manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference on June
25, 1999, which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of
directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file
the complaint. Suk Kyoo Kim also alleged, however, that the corporation had no written copy of the aforesaid
resolution.

But, the petitioner pointed out that there are no rulings on the matter of teleconferencing as a means of conducting
meetings of board of directors for purposes of passing a resolution; until and after teleconferencing is recognized as a
legitimate means of gathering a quorum of board of directors, such cannot be taken judicial notice of by the court. The
RTC and CA dismiss the petition, hence this appeal.

ISSUE: Whether or not teleconferencing is a valid means of holding its corporate meetings.

HELD:
No. In this age of modern technology, the courts may take judicial notice that business transactions may be made by
individuals through teleconferencing. Teleconferencing is interactive group communication (three or more people in
two or more locations) through an electronic medium. In general terms, teleconferencing can bring people together
under one roof even though they are separated by hundreds of miles.

A teleconference represents a unique alternative to face-to-face (FTF) meetings. It was first introduced in the 1960’s
with American Telephone and Telegraph’s Picture phone. At that time, however, no demand existed for the new
technology. Travel costs were reasonable and consumers were unwilling to pay the monthly service charge for using
the picture phone, which was regarded as more of a novelty than as an actual means for everyday communication. In
time, people found it advantageous to hold teleconferencing in the course of business and corporate governance,
because of the money saved.

In the Philippines, teleconferencing and videoconferencing of members of board of directors of private corporations is
a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum
Circular No. 15, on November 30, 2001, providing the guidelines to be complied with related to such
conferences. Thus, the Court agrees with the RTC that persons in the Philippines may have a teleconference with a
group of persons in South Korea relating to business transactions or corporate governance.

Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference along with the
respondent’s Board of Directors, the Court is not convinced that one was conducted; even if there had been one, the
Court is not inclined to believe that a board resolution was duly passed specifically authorizing Atty. Aguinaldo to file
the complaint and execute the required certification against forum shopping.

Petition Granted.
G.R. No. L-33320 May 30, 1983 RAMON A. GONZALES, petitioner, vs. THE PHILIPPINE NATIONAL BANK,
respondent. VASQUEZ, J.:

FACTS The petitioner requested from the respondent that he be allowed to examine the records of the latter.
Petitioner claimed that he wanted to determine the veracity of reports that the respondent has guaranteed the
obligation of another corporation in the purchase of a sugar mill and that the respondent financed the
construction of a bridge and a sugar mill. When the respondent denied his request, the petitioner sought
mandamus from the CFI of Manila, adding that he acquired one (1) share of stock in PNB and was thus entitled
to examine the respondent’s records. The CFI dismissed the petition on the ground that the petitioner had
improper motives and his purpose was not germane to his interest as a stockholder. The petitioner argued that
his right was unconditional.

ISSUE The issue was whether the petitioner could examine the records of the respondent.

RULING NO. The former Corporation Law was already replaced by the Corporation Code which requires that the
person requesting the examination of a corporation’s records must be acting in good faith and for a legitimate
purpose. Examination could not be granted on the ground of mere curiosity. The petitioner acquired only one
share of stock and did so only after making a request to examine acts done by the respondent when the former
was still a stranger to the same. The circumstances showed that the petitioner’s purpose was not germane to his
interest as a stockholder. Lastly, the right to examine the records of a corporation under the Corporation Code
was violative of the PNB’s charter. The petition was dismissed

Nestor Ching and Andrew Wellington v. Subic Bay Golf and Country Club, Inc., G.R. No. 174353, September 10, 2014

Nestor Ching and Andrew Wellington vs. Subic Bay Golf And Country Club, Inc., Hu Ho Hsiu Lien alias Susan Hu,
Hu Tsung Chieh alias Jack Hu, Hu Tsung Hui, Hu Tsung Tzu and Reynald R. Suarez, G.R. No. 174353, September
10, 2014 FACTS: Petitioners Nestor Ching and Andrew Wellington own stocks of the Subic Bay Golf and Country
Club, Inc. (SBGCCI). On June 27, 1996, Securities and Exchange Commission (SEC) approved amendments to
SBGCCI Articles of Incorporation which the petitioners allege make their shares non-proprietary. Petitioners
allege that this change was made without the appropriate disclosure of SBGCCI to its shareholders. Furthermore,
petitioners allege several instances of fraud committed by SBGCCIâs board of directors in its February 26,
2003 complaint. Respondentâs answered the complaint by refuting allegations made by petitioners. As a
way of defense, respondents underscored petitionersâ failure to: show that it was authorized by SBGSI to
file complaint on said companyâs behals comply with the requisites for filing a derivative suit and an action
for receivership justify their prayer for injunctive relief since the complaint may be considered a nuisance or
harassment suit Thus, respondents prayed for dismissal of the complaint. On July 28, 2003, the RTC held that the
action is a derivative suit and issued an order dismissing the complaint. Petitioners elevated the case to the
Court of Appeals but the appellate court affirmed the RTC decision.

ISSUE: WON the petitioners are proper party in interest WON the complaint is a derivative suit

RULING: Petitioners did not offer proof that they were authorized to represent SBGSI. The Court ruling in Cua, Jr.
v. Tan elaborated the three (3) types of suit: individual, class or representative, and derivative suit. The reliefs
prayed for by petitioners, to wit: (i) enjoining defendants from acting as officers and Board of Directors of the
corporation, (ii) the appointment of receiver, (iii) damages, clearly show that the complaint was filed to curb the
alleged mismanagement of SBGCCI. The cause of action pleaded by petitioners do not accrue to a single
shareholder or a class of shareholders but to the corporation itself. While there were allegations of fraud in the
subscription, petitioners do not wish to have their subscription rescinded. Instead, the petitioners asked that the
respondents be removed from the management of the corporation. Petitionerâs only possible cause of
action as the minority shareholder against the actions of the board is to file the common law right to file a
derivative suit. As minority shareholders, petitioners do not have any statutory right to override the business
judgements of SBGCCIâs officers and board of directors on the ground of the latterâs alleged lack of
qualification to manage a golf course. The legal standing of the petitioners is not a statutory right, there being no
provision in the Corporation Code or related statutes, but is instead a product of jurisprudence based on equity.
However, a derivative suit cannot prosper without first complying with the legal requisites for its institution:
Interim Rules Governing Intra-Corporate Controversies. Petitioners failed to comply with second requisite:
ââ¦exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all
remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desiresâ¦â Thus, a complaint which contained no allegation whatsoever
of any effort to avail of intra-corporate remedies allows the court to dismiss it, even motu proprio. Indeed, even
if petitioners thought it was futile to exhaust intra-corporate remedies, they should have stated the same in the
Complaint and specified the reasons for such opinion. The requirement of this allegation in the Complaint is not
a useless formality which may be disregarded at will

G.R. No. 144476 April 8, 2003

Lessons Applicable: Pre-incorporation Subscription (Corporate Law)

FACTS:

50 1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when its
owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became heavily
indebted to the Philippine National Bank (PNB) for P190M
51 To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong,
Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest
in FLADC.
52 Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in FLADC
Ongs: subscribe to 1,000,000 shares
Tius: subscribe to an additional 549,800 shares in addition to their already existing
subscription of 450,200 shares
53 Tius: nominate the Vice-President and the Treasurer plus 5 directors
54 Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the board of
directors of FLADC and right to manage and operate the mall.
55 Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M
(for 300K shares) and P49.8M (for 49,800 shares)
56 Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their
subscription to 1M shares)
57 February 23, 1996: Tius rescinded the Pre-Subscription Agreement
58 February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking
confirmation of their rescission of the Pre-Subscription Agreement
59 SEC: confirmed recission of Tius
60 Ongs filed reconsideration that their P70M was not a premium on capital stock but an advance loan
61 SEC en banc: affirmed it was a premium on capital stock
62 CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to
rescission) but, "for practical considerations," that is, their inability to work together, it was best to separate
the two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs
and awarding practically everything else to the Tius.
ISSUE: W/N Specific performance and NOT recission is the remedy

HELD: YES. Ongs granted.

8 did not justify the rescission of the contract
9 providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,
respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the
obligation pertained to FLADC itself
10 failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also
pertained to the corporation and not to the Ongs
11 the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was
to raise the P190 million
12 law requires that the breach of contract should be so "substantial or fundamental" as to defeat the
primary objective of the parties in making the agreement
13 since the cash and other contributions now sought to be returned already belong to FLADC, an
innocent third party, said remedy may no longer be availed of under the law.
14 Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to
be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract
15 allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of
Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the corporation,
regardless of the existence of unrestricted retained earnings,25 and (3) dissolution and eventual liquidation of
the corporation.
16 They want this Court to make a corporate decision for FLADC.
The Ongs' shortcomings were far from serious and certainly less than substantial; they were in fact
remediable and correctable under the law. It would be totally against all rules of justice, fairness and equity to deprive
the Ongs of their interests on petty and tenuous grounds.

STA CLARA HOA VS GASTON JAN. 23, 2002 (CASE DIGEST)

Facts:

Spouses Victor Ma. Gaston and Lydia Gaston, the private respondents, filed a complaint for damages with
preliminary injunction/preliminary mandatory injunction and temporary restraining order before the Regional Trial Court against
petitioners Sta Clara Homeowners Association (SCHA).

The complaint alleged that the private respondents purchased their lots in Sta. Clara Subdivision and at the time of the purchase,
there was no mention or requirement of membership in any homeowners’ association. From that time on, they have remained
non-members of the SCHA. They also stated that an arrangement was made wherein homeowners who were non-members of
the association were issued non-member gate pass stickers for their vehicles for identification by the security guards manning the
subdivision’s entrances and exits. This arrangement remained undisturbed until sometime in the middle of March 1998, when
SCHA disseminated a board resolution which decreed that only its members in good standing were to be issued stickers for use in
their vehicles.

Petitioners filed a motion to dismiss arguing that the trial court had no jurisdiction over the case as it involved an intra-corporate
dispute between SCHA and its members. The proper forum must be the Home Insurance and Guarantee Corporation
(HIGC). They stated that that the Articles of Incorporation of SCHA, which was duly approved by the Securities and Exchange
Commission , provides that the association shall be a non-tock corporation with all the homeowners of Sta. Clara constituting its
membership. Its by-laws also contains a provision that all real estate owners automatically become members of the
association. Moreover, the private respondents allegedly enjoyed the privileges of membership and abided by the rules of the
association, and even attended the general special meeting of the association members.

Issue:
Whether or not the private respondents are members of SCHA

Ruling:

The constitutionally guaranteed freedom of association includes the freedom not to associate. The right to choose with whom
one will associate oneself is the very foundation and essence of the partnership. It should be noted that the provision guarantees
the right to form an association. It does not compel others to form or join one.

Private respondents cannot be compelled to become members of SCHA by the simple expedient of including them in its
Articles of Incorporation and By-Laws without their express or implied consent. True, it may be to the mutual advantage of lot
owners in a subdivision to band themselves together to promote their common welfare. But that is possible only if the owners
voluntarily agree, directly or indirectly, to become members of the association. True also, membership in homeowners’ association
may be acquired in various ways – often through deeds of sale, Torrens certificates or other forms of evidence of property
ownership. However, when private respondents purchased their property and obtained Transfer Certificates of Title, there was no
annotation showing automatic membership in the SCHA. Thus, no privity of contract arising from the title certificate exists between
petitioners and private respondents.

[G.R. No. 146807. May 9, 2002]

PADCOM CONDOMINIUM CORPORATION, petitioner, vs. ORTIGAS CENTER ASSOCIATION, INC.,
respondent.
DECISION
DAVIDE, JR., C.J.:
Challenged in this case is the 30 June 2000 decision[if !supportFootnotes][1][endif] of the Court of Appeals in CA-G.R.
CV No. 60099, reversing and setting aside the 1 September 1997 decision [if !supportFootnotes][2][endif] of the Regional Trial
Court of Pasig City, Branch 264, in Civil Case No. 63801. [if !supportFootnotes][3][endif]
Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns and manages the Padilla Office
Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas Center, Pasig City. The land on
which the building stands was originally acquired from the Ortigas & Company, Limited Partnership (OCLP), by
Tierra Development Corporation (TDC) under a Deed of Sale dated 4 September 1974. Among the terms and
conditions in the deed of sale was the requirement that the transferee and its successor-in-interest must become
members of an association for realty owners and long-term lessees in the area later known as the Ortigas Center.
Subsequently, the said lot, together with improvements thereon, was conveyed by TDC in favor of PADCOM in a
Deed of Transfer dated 25 February 1975.[if !supportFootnotes][4][endif]
In 1982, respondent Ortigas Center Association, Inc. (hereafter the Association) was organized to advance the
interests and promote the general welfare of the real estate owners and long-term lessees of lots in the Ortigas Center. It
sought the collection of membership dues in the amount of two thousand seven hundred twenty-four pesos and forty
centavos (P2,724.40) per month from PADCOM. The corporate books showed that PADCOM owed the Association
P639,961.47, representing membership dues, interests and penalty charges from April 1983 to June 1993. [if
!supportFootnotes][5][endif] The letters exchanged between the parties through the years showed repeated demands for payment,

requests for extensions of payment, and even a settlement scheme proposed by PADCOM in September 1990.
In view of PADCOMs failure and refusal to pay its arrears in monthly dues, including interests and penalties
thereon, the Association filed a complaint for collection of sum of money before the trial court below, which was
docketed as Civil Case No. 63801. The Association averred that purchasers of lands within the Ortigas Center complex
from OCLP are obligated under their contracts of sale to become members of the Association. This obligation was
allegedly passed on to PADCOM when it bought the lot from TDC, its predecessor-in-interest.[if !supportFootnotes][6][endif]
In its answer, PADCOM contended that it is a non-stock, non-profit association, and for it to become a special
member of the Association, it should first apply for and be accepted for membership by the latters Board of Directors.
No automatic membership was apparently contemplated in the Associations By-laws. PADCOM added that it could not
be compelled to become a member without violating its right to freedom of association. And since it was not a member
of the Association, it was not liable for membership dues, interests and penalties.[if !supportFootnotes][7][endif]
During the trial, the Association presented its accountant as lone witness to prove that PADCOM was, indeed,
one of its members and, as such, did not pay its membership dues.
PADCOM, on the other hand, did not present its evidence; instead it filed a motion to dismiss by way of
demurrer to evidence. It alleged that the facts established by the Association showed no right to the relief prayed for. It
claimed that the provisions of the Associations By-laws and the Deed of Transfer did not contemplate automatic
membership. Rather, the owner or long-term lessee becomes a member of the Association only after applying with and
being accepted by its Board of Directors. Assuming further that PADCOM was a member of the Association, the latter
failed to show that the collection of monthly dues was a valid corporate act duly authorized by a proper resolution of
the Associations Board of Directors.[if !supportFootnotes][8][endif]
After due consideration of the issues raised in the motion to dismiss, the trial court rendered a decision
dismissing the complaint.[if !supportFootnotes][9][endif]
The Association appealed the case to the Court of Appeals, which docketed the appeal as CA-G.R. CV No.
60099. In its decision[if !supportFootnotes][10][endif] of 30 June 2000, the Court of Appeals reversed and set aside the trial courts
dismissal of Civil Case No. 63801, and decreed as follows:
WHEREFORE, the appealed decision dated September 1, 1997 is REVERSED and SET ASIDE and, in lieu thereof,
a new one is entered ordering the appellee (PADCOM) to pay the appellant (the Association) the following:
1) P639,961.47 as and for membership dues in arrears inclusive of earned interests and penalties; and
2) P25,000.00 as and for attorneys fees.
Costs against the appellees.
SO ORDERED.
The Court of Appeals justified its ruling by declaring that PADCOM automatically became a member of the
Association when the land was sold to TDC. The intent to pass the obligation to prospective transferees was evident
from the annotation of the same clause at the back of the Transfer Certificate of Title covering the lot. Despite
disavowal of membership, PADCOMs membership in the Association was evident from these facts: (1) PADCOM was
included in the Associations list of bona fide members as of 30 March 1995; (2) Narciso Padilla, PADCOMs President,
was one of the Associations incorporators; and (3) having received the demands for payment, PADCOM not only
acknowledged them, but asked for and was granted repeated extensions, and even proposed a scheme for the settlement
of its obligation. The Court of Appeals also ruled that PADCOM cannot evade payment of its obligation to the
Association without violating equitable principles underlying quasi-contracts. Being covered by the Associations
avowed purpose to promote the interests and welfare of its members, PADCOM cannot be allowed to expediently deny
and avoid the obligation arising from such membership.
Dissatisfied with the adverse judgment of the Court of Appeals, PADCOM filed the petition for review in this
case. It raises the sole issue of whether it can be compelled to join the association pursuant to the provision on
automatic membership appearing as a condition in the Deed of Sale of 04 September 1974 and the annotation thereof
on Transfer Certificate of Title No. 457308.
PADCOM contends that it cannot be compelled to be a member of the Association solely by virtue of the
automatic membership clause that appears on the title of the property and the Deed of Transfer. In 1975, when it bought
the land, the Association was still inexistent. Therefore, the provision on automatic membership was anticipatory in
nature, subject to the actual formation of the Association and the subsequent formulation of its implementing rules.
PADCOM likewise maintains that the Associations By-laws requires an application for membership. Since it
never sought membership, the Court of Appeals erred in concluding that it was a member of the Association by
implication. Aside from the lack of evidence proving such membership, the Association has no basis to collect monthly
dues since there is no board resolution defining and prescribing how much should be paid.
For its part, the Association claims that the Deed of Sale between OCLP and TDC clearly stipulates automatic
membership for the owners of lots in the Ortigas Center, including their successors-in-interest. The filing of
applications and acceptance thereof by the Board of Directors of the Association are, therefore, mere formalities that
can be dispensed with or waived. The provisions of the Associations By-laws cannot in any manner alter or modify the
automatic membership clause imposed on a property owner by virtue of an annotation of encumbrance on his title.
The Association likewise asserts that membership therein requires the payment of certain amounts for its
operations and activities, as may be authorized by its Board of Directors. The membership dues are for the common
expenses of the homeowners for necessary services.
After a careful examination of the records of this case, the Court sees no reason to disturb the assailed decision.
The petition should be denied.
Section 44 of Presidential Decree No. 1529[if !supportFootnotes][11][endif] mandates that:
SEC. 44. Statutory liens affecting title. Every registered owner receiving a certificate of title in pursuance of a decree of
registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith,
shall hold the same free from all encumbrances except those noted on said certificate and any of the following
encumbrances which may be subsisting, namely: xxx
Under the Torrens system of registration, claims and liens of whatever character, except those mentioned by
law, existing against the land binds the holder of the title and the whole world. [if !supportFootnotes][12][endif]
It is undisputed that when the land in question was bought by PADCOMs predecessor-in-interest, TDC, from
OCLP, the sale bound TDC to comply with paragraph (G) of the covenants, conditions and restrictions of the Deed of
Sale, which reads as follows:[if !supportFootnotes][13][endif]
G. AUTOMATIC MEMBERSHIP WITH THE ASSOCIATION:
The owner of this lot, its successor-in-interest hereby binds himself to become a member of the ASSOCIATION which
will be formed by and among purchasers, fully paid up Lot BUYERS, Building Owners and the COMPANY in respect
to COMPANY OWNED LOTS.
The OWNER of this lot shall abide by such rules and regulations that shall be laid down by the ASSOCIATION in the
interest of security, maintenance, beautification and general welfare of the OFFICE BUILDING zone. The
ASSOCIATION when organized shall also, among others, provide for and collect assessments which shall constitute a
lien on the property, junior only to liens of the Government for taxes.
Evidently, it was agreed by the parties that dues shall be collected from an automatic member and such fees or
assessments shall be a lien on the property.
This stipulation was likewise annotated at the back of Transfer Certificate of Title No. 457308 issued to TDC.[if
!supportFootnotes][14][endif] And when the latter sold the lot to PADCOM on 25 February 1975, the Deed of Transfer expressly

stated:[if !supportFootnotes][15][endif]
NOW, THEREFORE, for and in consideration of the foregoing premises, the DEVELOPER, by these presents, cedes,
transfers and conveys unto the CORPORATION the above-described parcel of land evidenced by Transfer Certificate
of Title No. 457308, as well as the Common and Limited Common Areas of the Condominium project mentioned and
described in the Master Deed with Declaration of Restrictions (Annex A hereof), free from all liens and encumbrances,
except those already annotated at the back of said Transfer Certificate of Title No. 457308, xxx
This is so because any lien annotated on previous certificates of title should be incorporated in or carried over to the
new transfer certificates of title. Such lien is inseparable from the property as it is a right in rem, a burden on the
property whoever its owner may be. It subsists notwithstanding a change in ownership; in short, the personality of the
owner is disregarded.[if !supportFootnotes][16][endif] As emphasized earlier, the provision on automatic membership was
annotated in the Certificate of Title and made a condition in the Deed of Transfer in favor of PADCOM. Consequently,
it is bound by and must comply with the covenant.
Moreover, Article 1311 of the Civil Code provides that contracts take effect between the parties, their assigns
and heirs. Since PADCOM is the successor-in-interest of TDC, it follows that the stipulation on automatic membership
with the Association is also binding on the former.
We are not persuaded by PADCOMs contention that the By-laws of the Association requires application for
membership and acceptance thereof by the Board of Directors. Section 2 of the By-laws[if !supportFootnotes][17][endif] reads:
Section 2. Regular Members. Upon acceptance by the Board of Directors of Ortigas Center Association, Inc., all real
estate owners, or long-term lessees of lots within the boundaries of the Association as defined in the Articles of
Incorporation become regular members, provided, however that the long-term lessees of a lot or lots in said area shall
be considered as the regular members in lieu of the owners of the same. Likewise, regular membership in the
Association automatically ceases upon the cessation of a member to be an owner or long-term lessee of real estate in
the area.
A lessee shall be considered a long-term lessee if his lease is in writing and for a period of two (2) years or more.
Membership of a long-term lessee in the Association shall be co-terminus with his legal possession (or his lease) of the
lot/s in the area. Upon the lessees cessation of membership in the Association, the owner shall automatically succeed
the lessee as member thereat.
As lot owner, PADCOM is a regular member of the Association. No application for membership is necessary.
If at all, acceptance by the Board of Directors is a ministerial function considering that PADCOM is deemed to be a
regular member upon the acquisition of the lot pursuant to the automatic membership clause annotated in the
Certificate of Title of the property and the Deed of Transfer.
Neither are we convinced by PADCOMs contention that the automatic membership clause is a violation of its
freedom of association. PADCOM was never forced to join the association. It could have avoided such membership by
not buying the land from TDC. Nobody forced it to buy the land when it bought the building with the annotation of the
condition or lien on the Certificate of Title thereof and accepted the Deed. PADCOM voluntarily agreed to be bound by
and respect the condition, and thus to join the Association.
In addition, under the principle of estoppel, PADCOM is barred from disclaiming membership in the
Association. In estoppel, a person, who by his act or conduct has induced another to act in a particular manner, is
barred from adopting an inconsistent position, attitude or course of conduct that thereby causes loss or injury to
another.[if !supportFootnotes][18][endif]
We agree with the Court of Appeals conclusion from the facts or circumstances it enumerated in its decision
and enumerated above that PADCOM is, indeed, a regular member of the Association. These facts and circumstances
are sufficient grounds to apply the doctrine of estoppel against PADCOM.
Having ruled that PADCOM is a member of the Association, it is obligated to pay its dues incidental thereto.
Article 1159 of the Civil Code mandates:
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.
Assuming in gratis argumenti that PADCOM is not a member of the Association, it cannot evade payment
without violating the equitable principles underlying quasi-contracts. Article 2142 of the Civil Code provides:
Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that
no one shall be unjustly enriched or benefited at the expense of another.
Generally, it may be said that a quasi-contract is based on the presumed will or intent of the obligor dictated by
equity and by the principles of absolute justice. Examples of these principles are: (1) it is presumed that a person agrees
to that which will benefit him; (2) nobody wants to enrich himself unjustly at the expense of another; or (3) one must
do unto others what he would want others to do unto him under the same circumstances. [if !supportFootnotes][19][endif]
As resident and lot owner in the Ortigas area, PADCOM was definitely benefited by the Associations acts and
activities to promote the interests and welfare of those who acquire property therein or benefit from the acts or
activities of the Association.
Finally, PADCOMs argument that the collection of monthly dues has no basis since there was no board
resolution defining how much fees are to be imposed deserves scant consideration. Suffice it is to say that PADCOM
never protested upon receipt of the earlier demands for payment of membership dues. In fact, by proposing a scheme to
pay its obligation, PADCOM cannot belatedly question the Associations authority to assess and collect the fees in
accordance with the total land area owned or occupied by the members, which finds support in a resolution dated 6
November 1982 of the Associations incorporating directors[if !supportFootnotes][20][endif] and Section 2 of its By-laws.[if
!supportFootnotes][21][endif]

WHEREFORE, the petition is hereby DENIED for lack of merit.

Costs against petitioner.
SO ORDERED.

G.R. No. 153468 August 17, 2006

Lessons Applicable: Release from Subscription Obligation (Corporate Law)

FACTS:

63 Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation w/ 15

regular members, who also constitute the board of trustees.
64 April 6, 1998: During the annual members’ meeting only 11 living member-trustees, as 4 had
already died.
7 attended the meeting through their respective proxies.
 The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of
Atty. Antonio C. Pacis, who argued that there was no quorum.
In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan
were voted to replace the 4 deceased member-trustees.
65 SEC: meeting void due to lack of quorum (NOT living but based on AIC)
Sec 24 read together with Sec 89
66 CA: Dismissed due to technicalities
ISSUE: W/N dead members should still be counted in the quorum - NO based on by-laws

HELD: NO. remaining members of the board of trustees of GCHS may convene and fill up the vacancies in the board
17 Except as provided, the vote necessary to approve a particular corporate act as provided in this
Code shall be deemed to refer only to stocks with voting rights:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all
of the corporation property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance with
this Code; and
8. Dissolution of the corporation.
18 quorum in a members’ meeting is to be reckoned as the actual number of members of the
corporation
19 stock corporations - shareholders may generally transfer their shares
on the death of a shareholder, the executor or administrator duly appointed by the Court
is vested with the legal title to the stock and entitled to vote it
Until a settlement and division of the estate is effected, the stocks of the decedent are
held by the administrator or executor
20 nonstock corporation - personal and non-transferable unless the articles of incorporation or the
bylaws of the corporation provide otherwise
Section 91 of the Corporation Code: termination extinguishes all the rights of a member
of the corporation, unless otherwise provided in the articles of incorporation or the bylaws.
whether or not "dead members" are entitled to exercise their voting rights (through their
executor or administrator), depends on those articles of incorporation or bylaws
By-Laws of GCHS: membership in the corporation shall be terminated by the
death of the member
With 11 remaining members, the quorum = 6.
21 SECTION 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.
the filling of vacancies in the board by the remaining directors or trustees constituting a
quorum is merely permissive, not mandatory
either by the remaining directors constituting a quorum, or by the stockholders
or members in a regular or special meeting called for the purpose
By-Laws of GCHS prescribed the specific mode of filling up existing
vacancies in its board of directors; that is, by a majority vote of the remaining
members of the board
remaining member-trustees must sit as a board (as a body in a lawful meeting)
 in order to validly
elect the new ones

San Juan Structural Steel Fabricators, 296 SCRA 632

In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) alleged that it entered into a contract of sale with
Motorich Sales Corporation (Motorich) through the latter’s treasurer, Nenita Gruenberg. The subject of the sale was
a parcel of land owned by Motorich. San Juan advanced P100k to Nenita as earnest money.
On the day agreed upon on which Nenita was supposed to deliver the title of the land to Motorich, Nenita did not
show up. Nenita and Motorich did not heed the subsequent demand of San Juan to comply with the contract hence
San Juan sued Motorich. Motorich, in its defense, argued that it is not bound by the acts of its treasurer, Nenita, since
her act in contracting with San Juan was not authorized by the corporate board.
San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that Nenita and her husband
owns 98% of the corporation’s capital stocks; that as such, it is a close corporation and that makes Nenita and the
President as principal stockholders who do not need any authorization from the corporate board; that in this case,
the corporate veil may be properly pierced.

ISSUE: Whether or not San Juan is correct.

HELD: No. Motorich is right in invoking that it is not bound by the acts of Nenita because her act in entering into a
contract with San Juan was not authorized by the board of directors of Motorich. Nenita is however ordered to return
the P100k.
There is no merit in the contention that the corporate veil should be pierced even though it is true that Nenita and
her husband own 98% of the capital stocks of Motorich. The corporate veil can only be pierced if the corporate fiction
is merely used by the incorporators to shield themselves against liability for fraud, illegality or inequity committed on
third persons. It is incumbent upon San Juan to prove that Nenita or her husband is merely using Motorich to defraud
San Juan. In this case however, San Juan utterly failed to establish that Motorich was formed, or that it is operated,
for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said
veil was used to conceal fraud, illegality or inequity at the expense of third persons like San Juan.

Iglesia Evangelica vs. Bishop Lazaro, 6 July 2010

The present dispute resolves the issue of whether or not a corporation may change its character as a
corporation sole into a corporation aggregate by mere amendment of its articles of incorporation without first going
through the process of dissolution.

The Facts and the Case

In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las Islas
Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its General Superintendent. Thirty-nine
years later in 1948, the IEMELIF enacted and registered a by-laws that established a Supreme Consistory of Elders (the
Consistory), made up of church ministers, who were to serve for four years. The by-laws empowered the Consistory to
elect a General Superintendent, a General Secretary, a General Evangelist, and a Treasurer General who would manage
the affairs of the organization. For all intents and purposes, the Consistory served as the IEMELIFs board of directors.

Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate powers
theoretically lodged in the hands of one member, the General Superintendent), it had always acted like a corporation
aggregate. The Consistory exercised IEMELIFs decision-making powers without ever being challenged. Subsequently,
during its 1973 General Conference, the general membership voted to put things right by changing IEMELIFs
organizational structure from a corporation sole to a corporation aggregate. On May 7, 1973 the Securities and
Exchange Commission (SEC) approved the vote. For some reasons, however, the corporate papers of the IEMELIF
remained unaltered as a corporation sole.

Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the IEMELIF, the
SEC replied on April 3, 2001 that, although the SEC Commissioner did not in 1948 object to the conversion of the
IEMELIF into a corporation aggregate, that conversion was not properly carried out and documented. The SEC said
that the IEMELIF needed to amend its articles of incorporation for that purpose. [if !supportFootnotes][1][endif]

Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation aggregate.
Respondent Bishop Nathanael Lazaro, its General Superintendent, instructed all their congregations to take up the
matter with their respective members for resolution. Subsequently, the general membership approved the conversion,
prompting the IEMELIF to file amended articles of incorporation with the SEC. Bishop Lazaro filed an affidavit-
certification in support of the conversion.[if !supportFootnotes][2][endif]
 Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the
conversion, filed a civil case for Enforcement of Property Rights of Corporation Sole, Declaration of Nullity of
Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate with Application for Preliminary
Injunction and/or Temporary Restraining Order in IEMELIFs name against respondent members of its Consistory
before the Regional Trial Court (RTC) of Manila.[if !supportFootnotes][3][endif] Petitioners claim that a complete shift from
IEMELIFs status as a corporation sole to a corporation aggregate required, not just an amendment of the IEMELIFs
articles of incorporation, but a complete dissolution of the existing corporation sole followed by a re-incorporation.

Unimpressed, the RTC dismissed the action in its October 19, 2005 decision.[if !supportFootnotes][4][endif] It held
that, while the Corporation Code on Religious Corporations (Chapter II, Title XIII) has no provision governing the
amendment of the articles of incorporation of a corporation sole, its Section 109 provides that religious corporations
shall be governed additionally by the provisions on non-stock corporations insofar as they may be applicable. The RTC
thus held that Section 16 of the Code[if !supportFootnotes][5][endif] that governed amendments of the articles of incorporation of
non-stock corporations applied to corporations sole as well. What IEMELIF needed to authorize the amendment was
merely the vote or written assent of at least two-thirds of the IEMELIF membership.

Petitioners Pineda, et al. appealed the RTC decision to the Court of Appeals (CA).[if !supportFootnotes][6][endif]
On October 31, 2007 the CA rendered a decision,[if !supportFootnotes][7][endif] affirming that of the RTC. Petitioners moved for
reconsideration, but the CA denied it by its resolution of August 1, 2008, [if !supportFootnotes][8][endif] hence, the present
petition for review before this Court.

The Issue Presented

The only issue presented in this case is whether or not the CA erred in affirming the RTC ruling that a
corporation sole may be converted into a corporation aggregate by mere amendment of its articles of incorporation.

The Courts Ruling

Petitioners Pineda, et al. insist that, since the Corporation Code does not have any provision that allows a
corporation sole to convert into a corporation aggregate by mere amendment of its articles of incorporation, the
conversion can take place only by first dissolving IEMELIF, the corporation sole, and afterwards by creating a new
corporation in its place.

Religious corporations are governed by Sections 109 through 116 of the Corporation Code. In a 2009 case
involving IEMELIF, the Court distinguished a corporation sole from a corporation aggregate. [if !supportFootnotes][9][endif]
Citing Section 110 of the Corporation Code, the Court said that a corporation sole is one formed by the chief
archbishop, bishop, priest, minister, rabbi or other presiding elder of a religious denomination, sect, or church, for the
purpose of administering or managing, as trustee, the affairs, properties and temporalities of such religious
denomination, sect or church. A corporation aggregate formed for the same purpose, on the other hand, consists of two
or more persons.

True, the Corporation Code provides no specific mechanism for amending the articles of incorporation of
a corporation sole. But, as the RTC correctly held, Section 109 of the Corporation Code allows the application to
religious corporations of the general provisions governing non-stock corporations.

For non-stock corporations, the power to amend its articles of incorporation lies in its members. The code
requires two-thirds of their votes for the approval of such an amendment. So how will this requirement apply to a
corporation sole that has technically but one member (the head of the religious organization) who holds in his hands its
broad corporate powers over the properties, rights, and interests of his religious organization?

Although a non-stock corporation has a personality that is distinct from those of its members who
established it, its articles of incorporation cannot be amended solely through the action of its board of trustees. The
amendment needs the concurrence of at least two-thirds of its membership. If such approval mechanism is made to
operate in a corporation sole, its one member in whom all the powers of the corporation technically belongs, needs to
get the concurrence of two-thirds of its membership. The one member, here the General Superintendent, is but a trustee,
according to Section 110 of the Corporation Code, of its membership.

There is no point to dissolving the corporation sole of one member to enable the corporation aggregate to
emerge from it. Whether it is a non-stock corporation or a corporation sole, the corporate being remains distinct from
its members, whatever be their number. The increase in the number of its corporate membership does not change the
complexion of its corporate responsibility to third parties. The one member, with the concurrence of two-thirds of the
membership of the organization for whom he acts as trustee, can self-will the amendment. He can, with membership
concurrence, increase the technical number of the members of the corporation from sole or one to the greater number
authorized by its amended articles.

Here, the evidence shows that the IEMELIFs General Superintendent, respondent Bishop Lazaro, who
embodied the corporation sole, had obtained, not only the approval of the Consistory that drew up corporate policies,
but also that of the required two-thirds vote of its membership.

The amendment of the articles of incorporation, as correctly put by the CA, requires merely that a) the
amendment is not contrary to any provision or requirement under the Corporation Code, and that b) it is for a legitimate
purpose. Section 17 of the Corporation Code[if !supportFootnotes][10][endif] provides that amendment shall be disapproved if,
among others, the prescribed form of the articles of incorporation or amendment to it is not observed, or if the purpose
or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and
regulations, or if the required percentage of ownership is not complied with. These impediments do not appear in the
case of IEMELIF.

Besides, as the CA noted, the IEMELIF worked out the amendment of its articles of incorporation upon
the initiative and advice of the SEC. The latters interpretation and application of the Corporation Code is entitled to
respect and recognition, barring any divergence from applicable laws. Considering its experience and specialized
capabilities in the area of corporation law, the SECs prior action on the IEMELIF issue should be accorded great
weight.

WHEREFORE, the Court DENIES the petition and AFFIRMS the October 31, 2007 decision and August 1, 2008
resolution of the Court of Appeals in CA-G.R. SP 92640.

G.R. No. L-39050 February 24, 1981

Lessons Applicable: Who are liable after dissolution and winding-up? (Corporate
Law)

FACTS:

67 Insular Sawmill, Inc. leased the paraphernal property of Guillermina

M. Gelano (wife) for P1.2K/month
68
69 November 19, 1947-December 26, 1950: Carlos Gelano (husband)
obtained cash advances of P25,950 on account of rentals
70
agreement: Insular Sawmill, Inc. could deduct the same from
the monthly rentals of the leased premises until the cash advances are
fully paid

Carlos Gelano was able to pay only P5,950.00 thereby leaving

an unpaid balance of P20,000.00 which he refused to pay

Guillermina M. Gelano refused to pay on the ground that said

amount was for the personal account of her husband asked for by, and
given to him, without her knowledge and consent and did not benefit
the family

71 May 4, 1948 to September 11, 1949: Spouses Gelanos

purchased lumber materials on credit leaving P946.46 unpaid
72
73 July 14, 1952: Joseph Tan Yoc Su, as accomdating party, executed a
joint and several promissory note with Carlos Gelano in favor of China
Banking Corporation bank in the amount of P8,000.00 payable in 60 days to
help renew the previous loan of the spouses
74
the bank collected P9,106.00 including interests by debiting the
 current account of the corp.

Carlos only paid P5,000

Guillermina refused to pay on the ground that she had no

knowledge of such accomodation

75 May 29, 1959: Insular thru Atty. German Lee, filed a complaint for
collection against the spouses before the CFI
76
In the meantime, private respondent amended its Articles of
Incorporation to shorten its term of existence up to December 31,
1960 only

77 November 20, 1964: CFI favored Insular holding Carlos Gelano liable
78
79 August 23, 1973: held spouses jointly ad severally liable
80
ISSUE: W/N a corporation, whose corporate life had ceased by the expiration of its
term of existence, could still continue prosecuting and defending suits after its
dissolution and beyond the period of 3 years provided for under Act No. 1459,
otherwise known as the Corporation law, to wind up its affairs, without having
undertaken any step to transfer its assets to a trustee or assignee.

HELD: YES. Affirmed with mod - conjugal property is liable

22 time during which the corporation, through its own officers, may
conduct the liquidation of its assets and sue and be sued as a corporation is
limited to 3 years from the time the period of dissolution commences; but
that there is no time limited within which the trustees must complete a
liquidation placed in their hands
23
only the conveyance to the trustees must be made within the
3-year period

effect of the conveyance is to make the trustees the legal

owners of the property conveyed, subject to the beneficial interest
therein of creditors and stockholders

24 trustee may commence a suit which can proceed to final judgment

even beyond the 3-year period
25
26 "trustee" = general concept - include the counsel to whom was
entrusted in the instant case
27
28 The purpose in the transfer of the assets of the corporation to a
trustee upon its dissolution is more for the protection of its creditor and
stockholders
29
Debtors may not take advantage of the failure of the
corporation to transfer its assets to a trustee

Section 77 of the Corporation Law, when the corporate existence is terminated in

any legal manner, the corporation shall nevertheless continue as a body corporate
for 3 years after the time when it would have been dissolved, for the purpose of
prosecuting and defending suits by or against it

Clarion Printing House Inc vs NLRC

(GR No 148372, June 27, 2005, Carpio-Morales)
Facts:
The petitioner company filed with the SEC a petition for suspension of payment as
well as an appointment of a rehabilitation receiver. While the petitioner was placed
under receivership, a certain Mr. Miclat, a former employee of a corporation filed a
case for illegal dismissal.

Issue:
Should his claim in this case be suspended?

Held:
The SC held that even labor cases are suspended. Upon the appointment of a
receiver, all claims and all pending cases against the corporation are deemed
suspended the purpose being in order to give the receiver sufficient time to proceed
with rehabilitation work.

RUBBER world v. NLRC [G. R No. 128003, July 26, 2000]

Tuesday, January 27, 2009 Posted by Coffeeholic Writes

Labels: Case Digests, Labor Law

FACTS: Petitioner Rubberworld, Inc filed with the DOLE a notice of temporary
shutdown of operation; but even before the effectivity of such, was forced to
prematurely shutdown its operation. Private Respondents filed with the NLRC a
petition for illegal dismissal and non- payment of separation pay. Rubberworld then
filed the SEC a petition for declaration of suspension of payments with a proposed
rehabilitation plan. SEC then ordered an order, stating that “all action for claims
against Rubberworld Philippines, Inc. pending before any court, tribunal, office,
board, body, Commission or sheriff are hereby deemed SUSPENDED.’’ Petitioner
submitted to the labor arbiter a motion to suspend the proceedings invoking the SEC
order. The Labor arbiter ignored the motion and thereafter rendered a decision
finding Rubberworld quality of illegal shutdown ordering it to pay separation pay;
and moral and exemplary damages. On appeal, the NLRC affirmed the decision with
modification deleting the award for moral and exemplary damages.

ISSUE: W/N the DOLE, Labor arbiter, or NLRC may legally act on claims despite an
order of the SEC suspending all actions against a company under rehabilitation by a
management committee.

HELD: Yes. PD 902-A is clear that “ all action for claims against corporation,
partnerships or association under management or receivership pending before any
court, tribunal, board or body shall be suspended accordingly.’’ The law did not make
any exception in favor of labor claims. The justification for such to enable the
management committee to exercise its powers free from interference that might
hinder or prevent the “rescue’’ of the debtor company. To allow the labor case to
proceed would open the defeat the rescue effort of the management committee.
Even if an award is given, the ruling could not enforce as long as petitioner is under
management committee.

GARCIA AND DUMAGO V. PHILIPPINE AIRLINES (G.R. NO. 164856)

.entry-header
Facts:
Petitioners-employees filed a complaint for illegal dismissal against respondent PAL who dismissed them after
they were allegedly caught in the act of sniffing shabu within its premises. The Labor Arbiter ruled for the
petitioners and ordered immediately for their reinstatement. Prior to this decision, SEC had placed PAL under an
Interim Rehabilitation Receiver, and subsequently under a Permanent Rehabilitation Receiver. PAL appealed
and the Labor Tribunal ruled in their favor. Subsequently, the Labor Arbiter issued a writ of execution for the
reinstatement and issued a notice of garnishment. The Labor Tribunal affirmed the writ and notice but
suspended and referred the action to the Rehabilitation Receiver of PAL. On appeal, CA found for respondent
PAL.
Issue:
Whether or not PAL being under corporate rehabilitation suspends any monetary claims to it.
Ruling: YES.
It is settled that upon appointment by the SEC of a rehabilitation receiver, all actions for claims before any court,
tribunal or board against the corporation shall ipso jure be suspended. As stated early on, during the pendency of
petitioners’ complaint before the Labor Arbiter, the SEC placed respondent under an Interim Rehabilitation
Receiver. After the Labor Arbiter rendered his decision, the SEC replaced the Interim Rehabilitation Receiver
with a Permanent Rehabilitation Receiver.
While reinstatement pending appeal aims to avert the continuing threat or danger to the survival or even the life
of the dismissed employee and his family, it does not contemplate the period when the employer-corporation
itself is similarly in a judicially monitored state of being resuscitated in order to survive.

Spouses Sobrejuanite
v.
ASB Development Corp., G.R. No. 165675

FACTS OF THE CASE

1. On March 7, 2001, spouses Eduardo and Fidela Sobrejuanite (Sobrejuanite) filed a Complaint for
rescission of contract, refund of payments and damages, against ASB Development Corporation (ASBDC)
before the Housing and Land Use Regulatory Board (HLURB).

2. Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a condominium unit and a
parking space in the BSA Twin Tower-B Condominum located at Bank Drive, Ortigas Center, Mandaluyong
City. They averred that despite full payment and demands, ASBDC failed to deliver the property on or
before December 1999 as agreed. They prayed for the rescission of the contract; refund of payments
amounting to P2,674,637.10; payment of moral and exemplary damages, attorney’s fees, litigation
expenses, appearance fee and costs of the suit.

3. ASBDC filed a motion to dismiss or suspend proceedings in view of the approval by the Securities and
Exchange Commission (SEC) on April 26, 2001 of the rehabilitation plan of ASB Group of Companies, which
includes ASBDC, and the appointment of a rehabilitation receiver. The HLURB arbiter however denied the
motion and ordered the continuation of the proceedings.

ISSUE:
Whether the SEC’s approval of the corporate rehabilitation plan has the effect of suspending the proceeding
before HLURB.

RULING:
Yes. Section 6(c) of PD No. 902-A empowers the SEC:

c) To appoint one or more receivers of the property, real and personal, which is the subject of the
action pending before the Commission … whenever necessary in order to preserve the rights of the parties-
litigants and/or protect the interest of the investing public and creditors: … Provided, finally, That upon
appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all
actions for claims against corporations, partnerships or associations under management or receivership
pending before any court, tribunal, board or body shall be suspended accordingly.

The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage or
preference over another and to protect and preserve the rights of party litigants as well as the interest of the
investing public or creditors. Such suspension is intended to give enough breathing space for the
management committee or rehabilitation receiver to make the business viable again, without having to divert
attention and resources to litigations in various fora.

The suspension would enable the management committee or rehabilitation receiver to effectively exercise
its/his powers free from any judicial or extra-judicial interference that might unduly hinder or prevent the
“rescue” of the debtor company.

To allow such other action to continue would only add to the burden of the management committee or
rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the
corporation instead of being directed toward its restructuring and rehabilitation

Panlilio, et al. v. Regional Trial Court

On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal, as
corporate officers of Silahis International Hotel, Inc. (SIHI), filed with the Regional Trial Court (RTC)
of Manila, Branch 24, a petition for Suspension of Payments and Rehabilitation in SEC Corp. Case
No. 04-111180.

RTC of Manila, Branch 24, issued an Order staying all claims against SIHI upon finding the petition
sufficient in form and substance.
At the time, however, of the filing of the petition for rehabilitation, there were a number of criminal
charges pending against petitioners in Branch 51 of the RTC of Manila. These criminal charges
were initiated by respondent Social Security System (SSS) and involved charges of violations of
Section 28 (h) of Republic Act 8282, or the Social Security Act of 1997 (SSS law), in relation to Ar-
ticle 315 (1) (b) of the Revised Penal Code, or Estafa.
Consequently, petitioners filed with the RTC of Manila, Branch 51, a Manifestation and Motion to
Suspend Proceedings.
Petitioners argued that the stay order issued by Branch 24 should also apply to the criminal
charges pending in Branch 51. Petitioners, thus, prayed that Branch 51 suspend its proceedings
until the petition for rehabilitation was finally resolved.

Corporate rehabilitation connotes the restoration of the debtor to a position of successful operation and
solvency, if it is shown that its continued operation is economically feasible and its creditors can recover
more, by way of the present value of payments projected in the rehabilitation plan, if the corporation
continues as a going concern than if it is immediately liquidated.It contemplates a continuance of corporate
life and activities in an effort to restore and reinstate the corporation to its former position of successful
operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its
creditors to be paid their claims out of its earnings. A principal feature of corporate rehabilitation is the
suspension of claims against the distressed corporation.

ALFREDO L. VILLAMOR, JR., Petitioner, v. JOHN S. UMALE, IN SUBSTITUTION OF HERNANDO F.

BALMORES, Respondent. 
 
 G.R. NO. 172881
RODIVAL E. REYES, HANS M. PALMA AND DOROTEO M. PANGILINAN, Petitioners, v. HERNANDO F.
BALMORES, Respondent.
DECISION
LEONEN, J.:
Before us is a petition for review on certiorari 1 under Rule 45 of the Rules of Court, assailing the
decision2 of the Court of Appeals dated March 2, 2006 and its resolution3 dated May 29, 2006,
denying petitioners' motions for reconsideration. The Court of Appeals placed Pasig Printing
Corporation (PPC) under receivership and appointed an interim management committee for the
corporation.4cralawlawlibrary
MC Home Depot occupied a prime property (Rockland area) in Pasig. The property was part of the
area owned by Mid-Pasig Development Corporation (Mid-Pasig).5cralawlawlibrary

On March 1, 2004, PPC obtained an option to lease portions of Mid-Pasig's property, including the
Rockland area.6cralawlawlibrary

On November 11, 2004, PPC's board of directors issued a resolution7 waiving all its rights,
interests, and participation in the option to lease contract in favor o£ the law firm of Atty. Alfredo
Villamor, Jr. (Villamor), petitioner in G.R. No. 172843. PPC received no consideration for this
waiver in favor of Villamor's law firm.8cralawlawlibrary

On November 22, 2004, PPC, represented by Villamor, entered into a memorandum of agreement
(MOA) with MC Home Depot.9 Under the MO A, MC Home Depot would continue to occupy the area
as PPC's sub-lessee for four (4) years, renewable for another four (4) years, at a monthly rental
of P4,500,000.00 plus goodwill of P18,000,000.00.10cralawlawlibrary

In compliance with the terms of the MOA, MC Home Depot issued 20 post-dated checks
representing rental payments for one year and the goodwill money. The checks were given to
Villamor who did not turn these or the equivalent amount over to PPC, upon
encashment.11cralawlawlibrary

Hernando Balmores, respondent in G.R. No. 172843 and G.R. No. 172881 and a stockholder and
director of PPC,12 wrote a letter addressed to PPJC's directors, petitioners in G.R. No. 172881, on
April 4, 2005.13 He informed them that Villamor should be made to deliver to PPC and account for
MC Home Depot's checks or their equivalent value.14cralawlawlibrary

Due to the alleged inaction of the directors, respondent Balmores filed with the Regional Trial
Court an intra-corporate controversy complaint under Rule 1, Section 1(a)(1) of the Interim
Rules for Intra-Corporate Controversies15 (Interim Rules) against petitioners for their alleged
devices or schemes amounting to fraud or misrepresentation "detrimental to the interest of the
Corporation and its stockholders."16cralawlawlibrary

Respondent Balmores alleged in his complaint that because of petitioners' actions, PPC's assets
were ". . . not only in imminent danger, but have actually been dissipated, lost, wasted and
destroyed."17cralawlawlibrary

Respondent Balmores prayed that a receiver be appointed from his list of nominees. 18 He also
prayed for petitioners' prohibition from "selling, encumbering, transferring or disposing in any
manner any of [PPC's] properties, including the MC Home [Depot] checks and/or their
proceeds."19 He prayed for the accounting and remittance to PPC of the MC Home Depot checks or
their proceeds and for the annulment of the board's resolution "vaiving PPC's rights in favor of
Villamor's law firm.20cralawlawlibrary

Ruling of the
Regional Trial Court

In its resolution21 dated June 15, 2005, the Regional Trial Court denied respondent Balmores'
prayer for the appointment of a receiver or the creation of a management committee. The
dispositive portion reads:chanRoblesvirtualLawlibrary

WHEREFORE, premises considered the appointment of a Receiver and the creation of a

Management Committee applied for by plaintiff Hernando F. Balmores are, as they are hereby,
DENIED.22 (Emphasis in the original)

According to the trial court, PPC's entitlement to the checks was doubtful. The resolution issued
by PPC's board of directors; waiving its rights to the option to lease contract in favor of Villamor's
law firm, must be accorded prima facie validity.23cralawlawlibrary

The trial court also noted that there was a pending case filed by one Leonardo Umale against
Villamor, involving the same checks. Umale was also claiming ownership of the checks. 24 This,
according to the trial court, weakened respondent Balmores' claim that the checks were
properties of PPC.25cralawlawlibrary

The trial court also found that there was "no clear and positive showing of dissipation, loss,
wastage, or destruction of [PPC's] assets . . . [that was] prejudicial to the interest of the minority
stockholders, parties-litigants or the general public."26 The board's failure to recover the disputed
amounts was not an indication of mismanagement resulting in the dissipation of
assets.27cralawlawlibrary

The trial court noted that PPC was earning substantial rental income from its other sub-
lessees.28cralawlawlibrary

The trial court added that the failure to implead PPC was. fatal. PPC should have been impleaded
as an indispensable party, without which, there would be no final determination of the
action.29cralawlawlibrary

Ruling of the
Court of Appeals

Respondent Balmores filed with the Court of Appeals a petition for certiorari under Rule 65 of the
Rules of Court.30 He assailed the decision of the trial court, which denied his "application for the
appointment of a [r]eceiver and the creation of a [management [c]ommittee."31cralawlawlibrary

In the decision promulgated on March 2, 2006, the Court of Appeals gave due course to
respondent Balmores' petition. It reversed the trial court's decision, and issued a new order
placing PPC under receivership and creating an interim management committee.32 The dispositive
portion reads:chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, the instant petition is hereby GRANTED and GIVEN DUE
COURSE and the June 15, 2005 Order/Resolution of the commercial court, the Regional Trial
Court of Pasig City, Branch 167, in S.E.C. Case No. 05-62, is hereby REVERSED and SET ASIDE and
a NEW ORDER is ISSUED that, during the pendency of the derivative suit, until judgment on the
merits is rendered by the commercial court, in order to prevent dissipation, loss, wastage or
destruction of the assets, in order to prevent paralization of business operations which may be
prejudicial to the interest of stockholders, parties-litigants or the general public, and in order to
prevent violations of the corporation laws: (1) Pasig Printing Corporation (PPC) is hereby placed
under receivership pursuant to the Rules Governing Intra-Corporate Controversies under R.A. No.
8799; (2) an Interim Management Committee is hereby created for Pasig Printing Corporation
(PPC) composed of Andres Narvasa, Jr., Atty. Francis Gustilo and Ms Rosemarie Salvio-Leonida;
(3) the interim management committee is hereby directed to forthwith, during the pendency of
the derivative suit until judgment on the merits is rendered by the commercial court, to: (a) take
over the business of Pasig Printing Corporation (PPC), (b) take custody and control of all assets
and properties owned and possessed by Pasig Printing Corporation (PPC), (c) take the place of
the management and the board of directors of Pasig Printing Corporation (PPC), (d) preserve
Pasig Printing Corporation's assets and properties, (e) stop and prevent any disposal, in any
manner, of any of the properties of Pasig Printing Corporation (PPC) including the MC Home
Depot checks and/or their proceeds; and (3) [sic] restore the status quo ante prevailing by
directing respondents their associates and agents to account and return to the Interim
Management Committee for Pasig Printing Corporation (PPC) all the money proceeds of the 20
MC Home Depot checks taken by them and to account and surrender to the Interim Management
Committee all subsequent MC Home Depot checks or proceeds.33 (Citation omitted)

The Court of Appeals characterized the assailed order/resolution of the trial court as an
interlocutory order that is not appealable.34 In reversing tie trial court order/resolution, the
Court of Appeals considered the danger of dissipation, wastage, and loss of PPC's assets if the
review of the trial court's judgment would be delayed.35cralawlawlibrary

The Court of Appeals ruled that the case filed by respondent Balmores with the trial court "[was]
a derivative suit because there were allegations of fraud or ultra vires acts ... by [PPC's
directors]."36cralawlawlibrary

According to the Court of Appeals, the trial court abandoned its duty to the stockholders in a
derivative suit when it refused to appoint a receiver or create a management committee, all
during the pendency of the proceedings. The assailed order of the trial court removed from the
stockholders their right, in an intra-corporate controversy, to be allowed the remedy of
appointment of a receiver during the pendency of a derivative suit, leaving the corporation under
the control of an outsider and its assets prone to dissipation.37 The Court of Appeals also ruled
that this amounts to "despotic, capricious, or whimsical exercise of judicial power" 38 on the part
of the trial court.

In justifying its decision to place PPC under receivership and to create a management committee,
the Court of Appeals stated that the board's waiver of PPC's rights in favor of Villamor's law firm
without any consideration and its inaction on Villamor's failure to turn over the proceeds of rental
payments to PPC warrant the creation of a management committee.39 The circumstances resulted
in the imminent danger of loss, waste, or dissipation of PPC's assets.40cralawlawlibrary

Petitioners filed separate motions for reconsideration. Both motions were denied by the Court of
Appeals on May 29, 2006. The dispositive portion of the Court of Appeals' resolution
reads:chanRoblesvirtualLawlibrary

WHEREFORE, for lack of merit, respondents' March 10/2006 and March 20, 2006 Motions for
Reconsideration are hereby DENIED.41chanrobleslaw

Petitioners filed separate petitions for review under Rule 45, raising the following threshold
issues:chanRoblesvirtualLawlibrary

81 Whether the Court of Appeals correctly characterized respondent Balmores' action as a

derivative suit
82
83 Whether the Court of Appeals properly placed PPC under receivership and created a
receiver or management committee

PPC's directors argued that the Court of Appeals erred in characterizing respondent Balmores'
suit as a derivative suit because of his failure to implead PPC as party in the case. Hence, the
appellate court did not acquire jurisdiction over the corporation, and the appointment of a
receiver or management committee is not valid.42cralawlawlibrary

The directors further argued that the requirements for the appointment of a receiver or
management committee under Rule 943 of the Interim Rules were not satisfied. The directors
pointed out that respondent Balmores failed to prove that the assets of the corporation were in
imminent danger of being dissipated.44cralawlawlibrary

According to the directors, assuming that a receiver or management committee may be appointed
in the case, it is the Regional Trial Court only arid not the. Court of Appeals that must appoint
them.45cralawlawlibrary

Meanwhile, Villamor argued that PPC's entitlement to the checks or their proceeds was still in
dispute. In a separate civil case against Villamor, a certain Leonardo Umale was claiming
ownership of the checks.46cralawlawlibrary

Villamor also argued that the Court of Appeals' order to place PPC under receivership and to
appoint a management committee does not endanger PPC's assets because the MC Home Depot
checks were not the only assets of PPC.47 Therefore, it would not affect the operation of PPC or
result in its paralysation.48cralawlawlibrary

In his comment, respondent Balmores argued that Villamor's and the directors' petitions raise
questions of facts, which cannot be allowed in a petition for review under Rule
45.49cralawlawlibrary

On the appointment of a receiver or management committee, respondent Balmores stated that

the ". . . very practice of waiving assets and income for no consideration can in fact lead, not only
to the paralyzation of business, but to the complete loss or cessation of business of PPC[.] It is
precisely because of this fraudulent practice that a receiver/management committee must be
appointed to protect the assets of PPC from further fraudulent acts, devices and
schemes."50cralawlawlibrary

The petitions have merit.

Petition for review on

certiorari under Rule 45
was proper

First, we rule on the issue of whether petitioners properly filed a petition for review on certiorari
under Rule 45.

Respondent Balmores argued that the petition raises questions of fact.

Under Rule 45, only questions of law may be raised.51 There is a question of law "when there is
doubt or controversy as to what the law is on a certain [set] of facts."52 The test is "whether the
appellate court can determine the issue-raised without reviewing or evaluating the evidence."53
Meanwhile, there is a question of fact when there is "doubt... as to the truth or falsehood of
facts."54 The question must involve the examination of probative value of the evidence presented.

In this case, petitioners raise issues on the correctness of the Court of Appeals' conclusions.

Specifically, petitioners ask (1) whether respondent Balmores' failure to implead PPC in his
action with the trial court was fatal; (2) whether the Court of Appeals correctly characterized
respondent Balmores' action as a derivative suit; (3) whether the Court of Appeals' appointment
of a management committee was proper; and (4) whether the Court of Appeals may exercise the
power to appoint a management committee.

These are questions of law that may be determined without looking into the evidence presented.
The question of whether the conclusion drawn by the Court of Appeals from a set of facts is
correct is a question of law, cognizable by this court.55cralawlawlibrary

Petitioners, therefore, properly filed, a petition for review under Rule 45.

II

Respondent Balmores' action in

the trial court is not a derivative suit

A derivative suit is an action filed by stockholders to enforce a corporate action. 56 It is an

exception to the general rule that the corporation's power to sue57 is exercised only by the board
of directors or trustees.58cralawlawlibrary

Individual stockholders may be allowed to sue on behalf of the corporation whenever the
directors or officers of the corporation refuse to sue to vindicate the rights of the corporation or
are the ones to be sued and are in control of the corporation.59 It is allowed when the "directors
[or officers] are guilty of breach of . . . trust, [and] not of mere error of judgment." 60 In
derivative suits, the real party in interest is the corporation, and the suing stockholder is a mere
nominal party.61 Thus, this court noted:chanRoblesvirtualLawlibrary
The Court has recognized that a stockholder's right to institute a derivative suit is not based on
any express provision of the Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate directors or officers liable for damages
suffered by the corporation and its stockholders for violation of their fiduciary duties. In effect,
the suit is an action for specific performance of an obligation, owed by the corporation to the
stockholders, to assist its rights of action when the corporation has been put in default by the
wrongful refusal of the directors or management to adopt suitable measures for its
protection.62chanrobleslaw

Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim
Rules) provides the five (5) requisites63 for filing derivative suits:chanRoblesvirtualLawlibrary

SECTION 1. Derivative action. - A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:chanRoblesvirtualLawlibrary

(1) He was a stockholder or member at the time the acts or transactions subject of the action
occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

In case of nuisance or harassment suit, the court shall forthwith dismiss the case.

The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in
the first paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the
stockholder or member must be "in the name of [the] corporation or association. ..." This
requirement has already been settled in jurisprudence.

Thus, in Western Institute of Technology, Inc., et al v. Solas, et al,64 this court said that "[a]mong
the basic requirements for a derivative suit to prosper is that the minority shareholder who is
suing for and on behalf of the corporation must allege in his complaint before the proper forum
that he is suing on a derivative cause of action on behalf of the corporation and all other
shareholders similarly situated who wish to join [him]."65 This principle on derivative suits has
been repeated in, among other cases, Tarn Wing Tak v. Hon. Makasiar and De Guia66 and in Chua
v. Court of Appeals,67 which was cited in Hi-Yield Realty, Incorporated v. Court of
Appeals.68cralawlawlibrary

Moreover, it is important that the corporation be made a party to the case.69cralawlawlibrary

This court explained in Asset Privatization Trust v. Court of Appeals70 why it is a condition sine
qua non that the corporation be impleaded as party in derivative suits.
Thus:chanRoblesvirtualLawlibrary

Not only is the corporation an indispensible party, but it is also the present rule that it must be
served with process. The reason given is that the judgment must be made binding upon the
corporation in order that the corporation may get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the same cause of action. In other words the
corporation must be joined as party because it is its cause of action that is being litigated and
because judgment must be a res judicata against it.71chanrobleslaw

In the same case, this court enumerated the reasons for disallowing a direct individual suit.

The reasons given for not allowing direct individual suit are:chanRoblesvirtualLawlibrary

(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title legal
or equitable to the corporate property; that both of. these are in the corporation itself for the
benefit of the stockholders." In other words, to allow shareholders to sue separately would
 conflict with the separate corporate entity principle;
(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in
the case of Evangelista v. Santos, that 'the stockholders may not directly claim those damages
for themselves for that would result in the appropriation by, and the distribution among them
of part of the corporate assets before the dissolution of the corporation and the liquidation of
its debts and liabilities, something which cannot be legally done in view of Section 16 of the
Corporation Law. . .";
(3) the filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of partial recovery by an individual on the
damages recoverable by the corporation for the same act.72

While it is true that the basis for allowing stockholders to file derivative suits on behalf of
corporations is based on equity, the above legal requisites for its filing must necessarily be
complied with for its institution.73cralawlawlibrary

Respondent Balmores' action in the trial court failed to satisfy all the requisites of a derivative
suit.

Respondent Balmores failed to exhaust all available remedies to obtain the reliefs he prayed for.
Though he tried to communicate with PPC's directors about the checks in Villamor's possession
before he filed an action with the trial court, respondent Balmores was not able to show that this
comprised -all the remedies available under the articles of incorporation, by-laws, laws, or rules
governing PPC.

An allegation that appraisal rights were not available for the acts complained of is another
requisite for filing derivative suits under Rule 8, Section 1(3) of the Interim Rules.

Section 81 of the Corporation Code provides the instances of appraisal

right:chanRoblesvirtualLawlibrary

SEC. 81. Instances of appraisal right.— Any stockholder of a corporation shah1 have the right to
dissent and demand payment of the fair value of his shares in the following instances:
30 In case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholders or class of shares, or of authorizing preferences
in any respect superior to those of outstanding shares of any class, or of extending or
shortening the term of corporate existence;
31 In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in this Code; and
32 In case of merger or consolidation.

Section 82 of the Corporation Code provides that the stockholder may exercise the right if he or
she voted against the proposed corporate action and if he made a written demand for payment on
the corporation within thirty (30) days after the date of voting.

Respondent Balmores complained about the alleged inaction of PPC's directors in his letter
informing them that Villamor should be made to deliver to PPC and account for MC Home Depot's
checks or their equivalent value. He alleged that these are devices or schemes amounting to
fraud or misrepresentation detrimental to the corporation's and the stockholders' interests. He
also alleged that the directors' inaction placed PPC's assets in imminent and/or actual
dissipation, loss, wastage, and destruction.

Granting that (a) respondent Balmores' attempt to communicate with the other PPC directors
already comprised all the available remedies that he could have exhausted and (b) the
corporation was under full- control of petitioners that exhaustion of remedies became impossible
or futile,74 respondent Balmores failed to allege that appraisal rights were not available for the
acts complained of here.
Neither did respondent Balmores implead PPC as party in the case nor did he allege that he was
filing on behalf of the corporation.

The non-derivative character of respondent Balmores' action may also be gleaned from his
allegations in the trial court complaint. In the complaint, he described the nature of his action as
an action under Rule 1, Section l(a)(l) of the Interim Rules, and not an action under Rule 1,
Section l(a)(4) of the Interim Rules, which refers to derivative suits. Thus, respondent Balmores
said:chanRoblesvirtualLawlibrary

1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim Rules of Procedure for Intra-
corporate Controversies, involving devices or schemes employed by, or acts of, the defendants as
board of directors, business associates and officers of Pasig Printing Corporation (PPC),
amounting to fraud or misrepresentation, which are detrimental to the interest of the plaintiff as
stockholder of PPC.75 (Emphasis supplied)

Rule 1, Section 1 (a)(1) of the Interim Rules refers to acts of the board, associates, and officers,
amounting to fraud or misrepresentation, which may be detrimental to the interest of the
stockholders. This is different from a derivative suit.

While devices and schemes of the board of directors, business associates,-or officers amounting
to fraud under Rule 1, Section l(a)(l) of the Interim Rules are causes of a derivative suit, it is not
always the case that derivative suits are limited to such causes or that they are necessarily
derivative suits. Hence, they are separately enumerated in Rule 1, Section 1 (a) of the Interim
Rules:chanRoblesvirtualLawlibrary

SECTION 1. (a) Cases covered. - These Rules shall govern the procedure to be observed in civil
cases involving the following:chanRoblesvirtualLawlibrary

(1) Devices or schemes employed by, or any act of, the board of directors, business associates,
officers or partners, amounting to fraud or misrepresentation which may be detrimental to the
interest of the public and/or of the stockholders, partners, or members of any corporation,
partnership, or association;
(2) Controversies arising out of intra-corporate, partnership, or association relations, between
and among stockholders, members, or associates; and between, any or all of them and the
corporation, partnership, or association of which they are stockholders, members, or
associates, respectively;
(3) Controversies in the election or appointment of directors, trustees, officers, or managers of
corporations, partnerships, or associations;
(4) Derivative suits; and
(5) Inspection of corporate books. (Emphasis supplied)

Stockholder/s' suits based on fraudulent or wrongful acts of directors, associates, or officers may
also be individual suits or class suits.

Individual suits are filed when the cause of action belongs to the individual stockholder
personally, and not to the stockholders as a group or to the corporation, e.g., denial of right to
inspection and denial of dividends to a stockholder.76 If the cause of action belongs to a group of
stockholders, such as when the rights violated belong to preferred stockholders, a class or
representative suit may be filed to protect the stockholders in the group.77cralawlawlibrary

In this case, respondent Balmores filed an individual suit. His intent was very clear from his
manner of describing the nature of his action:chanRoblesvirtualLawlibrary

1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim Rules of Procedure for Intra-
corporate Controversies, involving devices or schemes employed by, or acts of, the defendants as
board of directors, business associates and officers of Pasig Printing Corporation (PPC),
amounting to fraud or misrepresentation, which are detrimental to the interest of the plaintiff as
stockholder of PPC.78 (Emphasis supplied)
His intent was also explicit from his prayer:chanRoblesvirtualLawlibrary

WHEREFORE, plaintiff respectfully prays that the Honorable Court -

2. After notice and due proceedings -

Declare that the acts of defendant Directors in allowing defendant VILLAMOR to retain custody of
the MC Home checks and encash them upon maturity, as well as their refusal or failure to take
any action against defendant VILLAMOR to make him account and deliver the MC Home checks
and/or their proceeds to Pasig Printing Corporation are devices, schemes or acts amounting to
fraud that are detrimental to plaintiff's interest as a stockholder of PPC;79 (Emphasis supplied)

Respondent Balmores did not bring the action for the benefit of the corporation. Instead, he was
alleging that the acts of PPC's directors, specifically the waiver of rights in favor of Villamor's law
firm and their failure to take back the MC Home Depot checks from Villamor, were detrimental to
his individual interest as a stockholder. In filing an action, therefore, his intention was to
vindicate his individual interest and not PPC's or a group of stockholders'.

The essence of a derivative suit is that it must be filed on behalf of the corporation. This is
because the cause of action belongs, primarily, to the corporation. The stockholder who sues on
behalf of a corporation is merely a nominal party.

Respondent Balmores' intent to file an individual suit removes it from the coverage of derivative
suits.

III

Respondent Balmores has no

cause of action that would entitle
him to the reliefs sought

Corporations have a personality that is separate and distinct from their stockholders and
directors. A wrong to the corporation does not necessarily create an individual cause of action. "A
cause of action is the act or omission by which a party violates the right of another." 80 A cause of
action must pertain to complainant if he or she is to be entitled to the reliefs sought.

Thus, in Cua v. Tan,81 this court emphasized:chanRoblesvirtualLawlibrary

. . . where the acts complained of constitute a wrong to the corporation itself, the cause of action
belongs to the corporation and not to the individual stockholder or member. Although in most
every case of wrong to the corporation, each stockholder is necessarily affected because the
value of his interest therein would be impaired, this fact of itself is not sufficient to give him an
individual cause of action since the corporation is a person distinct and separate from him, and
can and should itself sue the wrongdoer. Otherwise, not only would the theory of separate entity
be violated, but there would be multiplicity of suits as well as a violation of the priority rights of
creditors. Furthermore, there is the difficulty of determining the amount of damages that should
be paid to each individual stockholder.82chanrobleslaw

In this case, respondent Balmores did not allege any cause of action that is personal to him. His
allegations are limited to the facts that PPC's directors waived their rights to rental income in
favor of Villamor's law firm without consideration and that they failed to take action when
Villamor refused to turn over the amounts to PPC. These are wrongs that pertain to PPC.
Therefore, the cause of action belongs to PPC — not to respondent Balmores or any stockholders
as individuals.

For this reason, respondent Balmores is not entitled to the reliefs sought in the complaint. Only
the corporation, or arguably the stockholders as a group, is entitled to these reliefs, which should
have been sought in a proper derivative suit filed on behalf of the corporation.
PPC will not be bound by a decision granting the application for the appointment of a receiver or
management committee. Since it was not impleaded in the complaint, the courts did not acquire
jurisdiction over it. On this matter, it is an indispensable party, without which, no final
determination can be had.

Hence, it is not only respondent Balmores' failure to implead PPC that is fatal to his action, as
petitioners point out. It is the fact that he alleged no cause of action that pertains personally to
him that disqualifies him from the reliefs he sought in his complaint.

On this basis alone, the Court of Appeals erred in giving due course to respondent Balmores'
petition for certiorari , reversing the trial court's decision, and issuing a new order placing PPC
under receivership and creating an interim management committee.

IV

Appointment of a management
committee was not proper

Assuming that respondent Balmores has an individual cause of action, the Court of Appeals still
erred in placing PPC under receivership and in creating and appointing a management committee.

A corporation may be placed under receivership, or management committees may be created to

preserve properties involved in a suit and to protect the rights of the parties under the control
and supervision of the court.83 Management committees and receivers are appointed when the
corporation is in imminent danger of "(1) [dissipation, loss, wastage or destruction of assets or
other properties; and (2) [p]aralysation of its business operations that may be prejudicial to' the
interest of the minority stockholders, parties-litigants, or the general public."84cralawlawlibrary

Applicants for the appointment of a receiver or management committee need to establish the
confluence of these two requisites. This is because appointed receivers and management
committees will immediately take over the management of the corporation and will have the
management powers specified in law.85 This may have a negative effect on the operations and
affairs of the corporation with third parties,86 as persons who are more familiar with its
operations are necessarily dislodged from their positions in favor of appointees who are
strangers to the corporation's operations and affairs.

Thus, in Sy Chim v. Sy Sly Ho & Sons, Inc.,87 this court said:chanRoblesvirtualLawlibrary

. . . the creation and appointment of a management committee and a receiver is an extraordinary

and drastic remedy to be exercised with care and caution; and only when the requirements under
the Interim Rules are shown. It is a drastic course for the benefit of the minority stockholders,
the parties-litigants or the general public are allowed only under pressing circumstances and,
when there is inadequacy, ineffectual or exhaustion of legal or other remedies . . . The power of
the court to continue a business of a corporation . . . must be exercised with the greatest care
and caution. There should be a full consideration of all the attendant facts, including the interest
of all the parties concerned.88chanrobleslaw

PPC waived its rights, without any consideration in favor of Villamor. The checks were already in
Villamor's possession. Some of the checks may have already been encashed. This court takes
judicial notice that the goodwill money of PI 8,000,000.00 and the rental payments of
P4,500,000.00 every month are not meager amounts only to be waived without any
consideration. It is, therefore, enough to constitute loss or dissipation of assets under the
Interim Rules.

Respondent Balmores, however, failed to show that there was an imminent danger of paralysis of
PPC's business operations. Apparently, PPC was- earning substantial amounts from its other sub-
lessees. Respondent Balmores did not prove otherwise. He, therefore, failed to show at least one
of the requisites for appointment of a receiver or management committee.
V

The Court of Appeals had no

jurisdiction to appoint the receiver
or management committee

The Court of Appeals has no power to appoint a receiver or management committee. The Regional
Trial Court has original and exclusive jurisdiction89 to hear and decide intra-corporate
controversies,90 including incidents of such controversies.91 These incidents include applications
for the appointment of receivers or management committees.

"The receiver and members of the management committee . . . are considered officers of the
court and shall be under its control and supervision."92 They are required to report to the court
on the status of the corporation within sixty (60) days from their appointment and every three
(3) months after.93cralawlawlibrary

When respondent Balmores filed his petition for certiorari with the Court of Appeals, there was
still a pending action in the trial court. No less than the Court of Appeals stated that it allowed
respondent Balmores' petition under Rule 65 because the order or resolution in question was an
interlocutory one. This means that jurisdiction over the main case was still lodged with the trial
court.

The court making the appointment controls and supervises the appointed receiver or
management committee. Thus, the Court of Appeals' appointment of a management committee
would result in an absurd scenario wherein while the main case is still pending before the trial
court, the receiver or management committee reports' to the Court of Appeals.

WHEREFORE, the petitions are GRANTED. The decision of the Court of Appeals dated March 2,
2006 and its resolution dated May 29, 2006 are SET ASIDE.

SO ORDERED

Facilities Management Corporation vs. Dela Rosa [G.R. No. L-38649 March 26, 1979]
Post under case digests, labor law at Monday, March 19, 2012 Posted by Schizophrenic Mind
Facts: Leonardo dela Rosa sought his reinstatement. with full backwages, as well as the recovery of his
overtime compensation, swing shift and graveyard shift differentials. Petitioner alleged that he was
employed by respondents as, painter, houseboy and cashier. He further averred that from December, 1965
to August, 1966, inclusive, he rendered overtime services daily and that this entire period was divided into
swing and graveyard shifts to which he was assigned, but he was not paid both overtime and night shift
premiums despite his repeated demands from respondents.

The petitioner, a foreign corporation domiciled outside the Philippines was ordered by CIR then to pay the
unpaid overtime and premium pay. However, on certiorari, the petitioner contended that because it was
domiciled outside and not doing business in Philippines, it could not be sued in the country.

Issue: Whether or not petitioner has been doing business in the Philippines so that the service of summons
upon its agent in the Philippines vested the Court of First Instance of Manila with jurisdiction.

Held: Yes, the object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign
corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of
business without taking the steps necessary to render it amenable to suit in the local courts. It was never the
purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for
business from the Philippines, from securing redress in the Philippine courts.
Indeed, if a foreign corporation, not engaged in business in the Philippines, is not banned from seeking
redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being
sued in Philippine courts for acts done against a person or persons in the Philippines.

Home Insurance Company vs. Eastern Shipping Lines

[GR L-34382, 20 July 1983];
Home Insurance vs. Nedlloyd Lijnen [GR L-34383]

Facts: [GR L-34382] On or about 13 January 1967, S. Kajita & Co., on behalf of Atlas Consolidated Mining
& Development Corporation, shipped on board the SS Eastern Jupiter from Osaka, Japan, 2,361 coils of
Black Hot Rolled Copper Wire Rods. The said VESSEL is owned and operated by Eastern Shipping Lines.
The shipment was covered by Bill of Lading O-MA-9, with arrival notice to Phelps Dodge Copper Products
Corporation of the Philippines at Manila. The shipment was insured with the Home Insurance Company
against all risks in the amount of P1,580,105.06 under its Insurance Policy AS-73633. The coils discharged
from the VESSEL numbered 2,361, of which 53 were in bad order. What the Phelps Dodge ultimately
received at its warehouse was the same number of 2,361 coils, with 73 coils loose and partly cut, and 28
coils entangled, partly cut, and which had to be considered as scrap. Upon weighing at Phelps Dodge's
warehouse, the 2,361 coils were found to weight 263,940.85 kilos as against its invoiced weight of
264,534.00 kilos or a net loss/shortage of 593.15 kilos, or 1,209,56 lbs., according to the claims presented
by the Phelps Dodge against Home Insurance, the Eastern Shipping, and Angel Jose Transportation Inc.
For the loss/damage suffered by the cargo, Home Insurance paid the Phelps Dodge under its insurance
policy the amount of P3,260.44, by virtue of which Home Insurance became subrogated to the rights and
actions of the Phelps Dodge. Home Insurance made demands for payment against the Eastern Shipping
and the Angel Jose Transportation for reimbursement of the aforesaid amount but each refused to pay the
same."

[GR L-34383] On or about 22 December 1966, the Hansa Transport Kontor shipped from Bremen,
Germany, 30 packages of Service Parts of Farm Equipment and Implements on board the VESSEL, SS
'NEDER RIJN' owned by N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the
Columbian Philippines, Inc.. The shipment was covered by Bill of Lading No. 22 for transportation to, and
delivery at, Manila, in favor of International Harvester Macleod, Inc. The shipment was insured with Home
Insurance company under its Cargo Policy AS-73735 'with average terms' for P98,567.79. The packages
discharged from the VESSEL numbered 29, of which seven packages were found to be in bad order. What
International Harvester ultimately received at its warehouse was the same number of 29 packages with 9
packages in bad order. Out of these 9 packages, 1 package was accepted by International Harvester in
good order due to the negligible damages sustained. Upon inspection at International Harvester's
warehouse, the contents of 3 out of the 8 cases were also found to be complete and intact, leaving 5 cases
in bad order. The contents of these 5 packages showed several items missing in the total amount of
$131.14; while the contents of the undelivered 1 package were valued at $394.66, or a total of $525.80 or
P2,426.98. For the short-delivery of 1 package and the missing items in 5 other packages, Home Insurance
paid International Harvester under its Insurance Cargo Policy the amount of P2,426.98, by virtue of which
Home Insurance became subrogated to the rights and actions of International Harvester. Demands were
made on N.V. Nedlloyd Lijnen and International Harvester for reimbursement thereof but they failed and
refused to pay the same."

When the insurance contracts which formed the basis of these cases were executed, Home Insurance had
not yet secured the necessary licenses and authority; but when the complaints in these two cases were filed,
Home Insurance had already secured the necessary license to conduct its insurance business in the
Philippines. In both cases, Home Insurance made the averment regarding its capacity to sue, as that it "is a
foreign insurance company duly authorized to do business in the Philippines through its agent, Mr. Victor H.
Bello, of legal age and with office address at Oledan Building, Ayala Avenue, Makati, Rizal." The Court of
First Instance of Manila, Branch XVII, however, dismissed the complaints in both cases, on the ground that
Home Insurance had failed to prove its capacity to sue. Home Insurance filed the petitions for review on
certiorari, which were consolidated.

Issue: Whether Home Insurance, a foreign corporation licensed to do business at he time of the filing of the
case, has the capacity to sue for claims on contracts made when it has no license yet to do business in the
Philippines.

Held: As early as 1924, the Supreme Court ruled in the leading case of Marshall Wells Co. v. Henry W.
Elser & Co. (46 Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to subject the
foreign corporation doing business in the Philippines to the jurisdiction of Philippine courts. The Corporation
Law must be given a reasonable, not an unduly harsh, interpretation which does not hamper the
development of trade relations and which fosters friendly commercial intercourse among countries. The
objectives enunciated in the 1924 decision are even more relevant today when we commercial relations are
viewed in terms of a world economy, when the tendency is to re-examine the political boundaries separating
one nation from another insofar as they define business requirements or restrict marketing conditions. The
court distinguished between the denial of a right to take remedial action and the penal sanction for non-
registration. Insofar as transacting business without a license is concerned, Section 69 of the Corporation
Law imposed a penal sanction — imprisonment for not less than 6 months nor more than 2 years or
payment of a fine not less than P200.00 nor more than P1,000.00 or both in the discretion of the court.
There is a penalty for transacting business without registration. And insofar as litigation is concerned, the
foreign corporation or its assignee may not maintain any suit for the recovery of any debt, claim, or demand
whatever. The Corporation Law is silent on whether or not the contract executed by a foreign corporation
with no capacity to sue is null and void ab initio. Still, there is no question that the contracts are enforceable.
The requirement of registration affects only the remedy. Significantly, Batas Pambansa 68, the Corporation
Code of the Philippines has corrected the ambiguity caused by the wording of Section 69 of the old
Corporation Law. Section 133 of the present Corporation Code provides that "No foreign corporation
transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or administrative agency in the
Philippines; but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws." The old Section 69
has been reworded in terms of non-access to courts and administrative agencies in order to maintain or
intervene in any action or proceeding. The prohibition against doing business without first securing a license
is now given penal sanction which is also applicable to other violations of the Corporation Code under the
general provisions of Section 144 of the Code. It is, therefore, not necessary to declare the contract null and
void even as against the erring foreign corporation. The penal sanction for the violation and the denial of
access to Philippine courts and administrative bodies are sufficient from the viewpoint of legislative policy.
Herein, the lack of capacity at the time of the execution of the contracts was cured by the subsequent
registration is also strengthened by the procedural aspects of these cases. Home Insurance averred in its
complaints that it is a foreign insurance company, that it is authorized to do business in the Philippines, that
its agent is Mr. Victor H. Bello, and that its office address is the Oledan Building at Ayala Avenue, Makati.
These are all the averments required by Section 4, Rule 8 of the Rules of Court. Home Insurance sufficiently
alleged its capacity to sue.

Eriks Pte. Ltd. vs. Court of Appeals

[GR 118843, 6 February 1997]

Facts: Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the manufacture and sale of elements
used in sealing pumps, valves and pipes for industrial purposes, valves and control equipment used for
industrial fluid control and PVC pipes and fittings for industrial uses. On various dates covering the period
January 17 — August 16, 1989, Delfin Enriquez, Jr., doing business under the name and style of Delrene
EB Controls Center and/or EB Karmine Commercial, ordered and received from Eriks Pte. Ltd. various
elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings. The transfers
of goods were perfected in Singapore, for Enriquez's account, F.O.B. Singapore, with a 90-day credit term.
Subsequently, demands were made by Eriks upon Enriquez to settle his account, but the latter
failed/refused to do so. On 28 August 1991, Eriks filed with the Regional Trial Court of Makati, Branch 138,
Civil Case 91-2373 for the recovery of S$41,939.63 or its equivalent in Philippine currency, plus interest
thereon and damages. Enriquez responded with a Motion to Dismiss, contending that Eriks had no legal
capacity to sue. In an Order dated 8 March 1993, the trial court dismissed the action on the ground that
Eriks is a foreign corporation doing business in the Philippines without a license.

On appeal and on 25 January 1995, the appellate court (CA GR CV 41275) affirmed said order as it deemed
the series of transactions between Eriks and Enriquez not to be an "isolated or casual transaction." Thus,
the appellate court likewise found Eriks to be without legal capacity to sue. Eriks filed the petition for review.

Issue: Whether a foreign corporation which sold its products 16 times over a five-month period to the same
Filipino buyer without first obtaining a license to do business in the Philippines, is prohibited from
maintaining an action to collect payment therefor in Philippine courts.

Held: Section 133 of the Corporation Code provides that "No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any
action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may
be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of
action recognized under Philippine laws." The provision prohibits, not merely absence of the prescribed
license, but it also bars a foreign corporation "doing business" in the Philippines without such license access
to Philippine courts. A foreign corporation without such license is not ipso facto incapacitated from bringing
an action. A license is necessary only if it is "transacting or doing business" in the country. However, there is
no definitive rule on what constitutes "doing," "engaging in," or "transacting" business. The Corporation Code
itself does not define such terms. To fill the gap, the evolution of its statutory definition has produced a rather
all-encompassing concept in Republic Act 7042 in this wise: "The phrase 'doing business' shall include
soliciting orders, service contracts, opening offices, whether called 'liaison' offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for
a period or periods totaling one hundred eight(y) (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other
act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent
the performance of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business organization:
Provided, however, That the phrase 'doing business' shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise
of rights as such investor; nor having a nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account." The accepted rule in jurisprudence is that each case
must be judged in the light of its own environmental circumstances. It should be kept in mind that the
purpose of the law is to subject the foreign corporation doing business in the Philippines to the jurisdiction of
Philippine courts. It is not to prevent the foreign corporation from performing single or isolated acts, but to
bar it from acquiring a domicile for the purpose of business without first taking the steps necessary to render
it amenable to suits in the local courts. Herein, more than the sheer number of transactions entered into, a
clear and unmistakable intention on the part of Eriks to continue the body of its business in the Philippines is
more than apparent. As alleged in its complaint, it is engaged in the manufacture and sale of elements used
in sealing pumps, valves, and pipes for industrial purposes, valves and control equipment used for industrial
fluid control and PVC pipes and fittings for industrial use.

Thus, the sale by Eriks of the items covered by the receipts, which are part and parcel of its main product
line, was actually carried out in the progressive prosecution of commercial gain and the pursuit of the
purpose and object of its business, pure and simple. Further, its grant and extension of 90-day credit terms
to Enriquez for every purchase made, unarguably shows an intention to continue transacting with Enriquez,
since in the usual course of commercial transactions, credit is extended only to customers in good standing
or to those on whom there is an intention to maintain long-term relationship. The series of transactions in
question could not have been isolated or casual transactions. What is determinative of "doing business" is
not really the number or the quantity of the transactions, but more importantly, the intention of an entity to
continue the body of its business in the country. The number and quantity are merely evidence of such
intention. The phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of
transactions set apart from the common business of a foreign enterprise in the sense that there is no
intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether
a foreign corporation is "doing business" does not necessarily depend upon the frequency of its
transactions, but more upon the nature and character of the transactions. Given the facts of the case, the
Court cannot see how Eriks' business dealings will fit the category of "isolated transactions" considering that
its intention to continue and pursue the corpus of its business in the country had been clearly established. It
has not presented any convincing argument with equally convincing evidence for the Court to rule otherwise.
Accordingly and ineluctably, Eriks must be held to be incapacitated to maintain the action a quo against
Enriquez.
The Mentholatum Co. Inc. et al., v. Mangaliman, et al., G.R. No. L-47701, 27 June 1941.
FACTS
The Mentholatum Co., Inc., a foreign corporation, and the Philippine-American Drug Co., Inc., the former’s
exclusive distributing agent of the product “Mentholatum” in the Philippine Islands, instituted an action
against Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce for
infringement of trade mark and unfair competition, praying for the issuance of an order restraining Anacleto
and Florencio Mangaliman from selling their product “Mentholiman,” and directing them to render an
accounting of their sales and profits and to pay damages. Mentholatum, not licensed to do business in the
Philippines, claims that they have not sold personally any of their products in the Philippines and that
products were imported from them by local entities including Philippine-American Drug under their own
account.

ISSUES
(1) Is Mentholatum Co. Inc. “doing business” in the Philippines?
(2) Is Mentholatum Co. Inc. allowed prosecute its action?

HELD
(1) YES.
[The test is] whether the foreign corporation is continuing the body or substance of the business or
enterprise for which it was organized or whether it has substantially retired from it and turned it over to
another. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization.
[Here] the Philippine-American Drug Co., Inc., is the exclusive distributing agent in the Philippine Islands of
the Mentholatum Co., Inc., in the sale and distribution of its product known as the Mentholatum. xxx It
follows that whatever transactions the Philippine-American Drug Co., Inc., had executed in view of the law,
the Mentholatum Co., Inc., did it itself.

(2) NO.
Section 69 of Act No. 1459 provides that “No foreign corporation or corporation formed, organized, or
existing under any laws other than those of the Philippine Islands shall be permitted to… maintain by itself or
assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license
xxx.”
The Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines without the license
required by section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark
and unfair competition. Neither may the Philippine-American Drug Co., Inc., maintain the action here for the
reason that the distinguishing features of the agent being his representative character and derivative
authority.

Merrill Lynch Futures vs. CA Case Digest

Merrill Lynch Futures vs. Court of Appeals

[GR 97816, 24 July 1992]

Facts: On 23 November 1987, Merrill Lynch futures, Inc. (ML FUTURES) filed a complaint with the Regional
Trial Court at Quezon City against the Spouses Pedro M. Lara and Elisa G. Lara for the recovery of a debt
and interest thereon, damages, and attorney's fees. In its complaint ML FUTURES described itself as (a) "a
non-resident foreign corporation, not doing business in the Philippines, duly organized and existing under
and by virtue of the laws of the state of Delaware, U.S.A.;" as well as (b) a 'futures commission merchant'
duly licensed to act as such in the futures markets and exchanges in the United States, . . . essentially
functioning as a broker (executing) orders to buy and sell futures contracts received from its customers on
U.S. futures exchanges." In its complaint ML FUTURES alleged (1) that on 28 September 1983 it entered
into a Futures Customer Agreement with the spouses (Account 138-12161), in virtue of which it agreed to
act as the latter's broker for the purchase and sale of futures contracts in the U.S.; (2) that pursuant to the
contract, orders to buy and sell futures contracts were transmitted to ML FUTURES by the Lara Spouses
"through the facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a company servicing ML
Futures' customers;" (3) that from the outset, the Lara Spouses "knew and were duly advised that Merrill
Lynch Philippines, Inc. was not a broker in futures contracts," and that it "did not have a license from the
Securities and Exchange Commission to operate as a commodity trading advisor (i.e., "and entity which, not
being a broker, furnishes advice on commodity futures to persons who trade in futures contracts"); (4) that in
line with the above mentioned agreement and through said Merill Lynch Philippines, Inc., the Lara Spouses
actively traded in futures contracts, including "stock index futures" for four years or so, i.e., from 1983 to
October, 1987, there being more or less regular accounting and corresponding remittances of money (or
crediting or debiting) made between the spouses and ML FUTURES; (5) that because of a loss amounting
to US $160,749.69 incurred in respect of 3 transactions involving "index futures," and after setting this off
against an amount of US $75,913.42 then owing by ML FUTURES to the Lara Spouses, said spouses
became indebted to ML FUTURES for the ensuing balance of US $84,836.27, which the latter asked them
to pay; (6) that the Lara Spouses however refused to pay this balance, "alleging that the transactions were
null and void because Merrill Lynch Philippines, Inc., the Philippine company servicing accounts of ML
Futures, had no license to operate as a "commodity and/or financial futures broker."

On the foregoing essential facts, ML FUTURES prayed (1) for a preliminary attachment against the spouses'
properties "up to the value of at least P2,267,139.50," and (2) for judgment, after trial, sentencing the
spouses to pay ML FUTURES: (a) the Philippine peso equivalent of $84,836.27 at the applicable exchange
rate on date of payment, with legal interest from the date of demand until full payment; (b) exemplary
damages in the sum of at least P500,000,00; and (c) attorney's fees and expenses of litigation as may be
proven at the trial. Preliminary attachment issued ex parte on 2 December 1987, and the spouses were duly
served with summons. The spouses filed a motion to dismiss dated 18 December 1987 on the grounds that
(1) ML FUTURES had "no legal capacity to sue" and (2) its "complaint states no cause of action since it is
not the real party in interest." On 12 January 1988, the Trial Court promulgated an Order sustaining the
motion to dismiss, directing the dismissal of the case and discharging the writ of preliminary attachment. It
later denied ML FUTURES's motion for reconsideration, by Order dated 29 February 1988. ML FUTURES
appealed to the Court of Appeals. In its own decision promulgated on 27 November 1990, the Court of
Appeals affirmed the Trial Court's judgment. Its motion for reconsideration having been denied, ML
FUTURES appealed to the Supreme Court on certiorari.

Issue:
84 Whether ML FUTURES was doing business in the Philippines without license.
85 Whether – in light of the fact that the Laras were fully aware of its lack of license to do business in the
Philippines, and in relation to those transactions had made payments to, and received money from
it for several years –the Lara Spouses are estopped to impugn ML FUTURES capacity to sue them
in the courts of the forum.
Held:

1. The facts on record adequately establish that ML FUTURES, operating in the United States, had indeed
done business with the Lara Spouses in the Philippines over several years, had done so at all times through
Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in this country, and had executed all these
transactions without ML FUTURES being licensed to so transact business here, and without MLPI being
authorized to operate as a commodity futures trading advisor. These are the factual findings to both the Trial
Court and the Court of Appeals. These, too, are the conclusions of the Securities & Exchange Commission
which denied MLPI's application to operate as a commodity futures trading advisor, a denial subsequently
affirmed by the Court of Appeals. Prescinding from the proposition that factual findings of the Court of
Appeals are generally conclusive, the Supreme Court has been cited to no circumstance of substance to
warrant reversal of said Appellate Court's findings or conclusions in this case. Further, the Laras did transact
business with ML FUTURES through its agent corporation organized in the Philippines, it being unnecessary
to determine whether this domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce
Fenner & Smith (MLPI's alleged predecessor). The fact is that ML FUTURES did deal with futures contracts
in exchanges in the United States in behalf and for the account of the Lara Spouses, and that on several
occasions the latter received account documents and money in connection with those transactions. Given
these facts, if indeed the last transaction executed by ML FUTURES in the Laras's behalf had resulted in a
loss amounting to US $160,749.69; that in relation to this loss, ML FUTURES had credited the Laras with
the amount of US $ 75,913.42 — which it (ML FUTURES) then admittedly owed the spouses — and
thereafter sought to collect the balance, US $84,836.27, but the Laras had refused to pay (for the reasons
already above stated).

2. The Laras received benefits generated by their business relations with ML FUTURES. Those business
relations, according to the Laras themselves, spanned a period of 7 years; and they evidently found those
relations to be of such profitability as warranted their maintaining them for that not insignificant period of
time; otherwise, it is reasonably certain that they would have terminated their dealings with ML FUTURES
much, much earlier. In fact, even as regards their last transaction, in which the Laras allegedly suffered a
loss in the sum of US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML
FUTURES credited them with the amount of US $75,913.42 then due to them, thus reducing their debt to
US $84,836.27. Given these facts, and assuming that the Lara Spouses were aware from the outset that ML
FUTURES had no license to do business in this country and MLPI, no authority to act as broker for it, it
would appear quite inequitable for the Laras to evade payment of an otherwise legitimate indebtedness due
and owing to ML FUTURES upon the plea that it should not have done business in this country in the first
place, or that its agent in this country, MLPI, had no license either to operate as a "commodity and/or
financial futures broker." Considerations of equity dictate that, at the very least, the issue of whether the
Laras are in truth liable to ML FUTURES and if so in what amount, and whether they were so far aware of
the absence of the requisite licenses on the part of ML FUTURES and its Philippine correspondent, MLPI,
as to be estopped from alleging that fact as a defense to such liability, should be ventilated and adjudicated
on the merits by the proper trial court.

AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., vs. INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORP
et al
G.R. No. 154618
April 14, 2004
FACTS: Petitioner Agilent is a foreign corporation, which, by its own admission, is not licensed to do business in
the Philippines. Respondent Integrated Silicon is a private domestic corporation, 100% foreign owned, which is
engaged in the business of manufacturing and assembling electronics components.
The juridical relation among the various parties in this case can be traced to a 5-year Value Added Assembly
Services Agreement (VAASA), between Integrated Silicon and HP-Singapore. Under the terms of the VAASA,
Integrated Silicon was to locally manufacture and assemble fiber optics for export to HP-Singapore. HP-
Singapore, for its part, was to consign raw materials to Integrated Silicon. The VAASA had a five-year term with a
provision for annual renewal by mutual written consent. Later, with the consent of Integrated Silicon, HP-
Singapore assigned all its rights and obligations in the VAASA to Agilent.
Later, Integrated Silicon filed a complaint for “Specific Performance and Damages” against Agilent and its
officers. It alleged that Agilent breached the parties’ oral agreement to extend the VAASA. Agilent filed a separate
complaint against Integrated Silicon for “Specific Performance, Recovery of Possession, and Sum of Money with
Replevin, Preliminary Mandatory Injunction, and Damages”.
Respondents filed a MTD in the 2nd case, on the grounds of lack of Agilent’s legal capacity to sue; litis
pendentia; forum shopping; and failure to state a cause of action.
The trial court denied the MTD and granted petitioner Agilent’s application for a writ of replevin. Without filing
a MR, respondents filed a petition for certiorari with the CA. The CA granted respondents’ petition for certiorari,
set aside the assailed Order of the trial court (denying the MTD) and ordered the dismissal of the 2nd case.
Hence, the instant petition.

ISSUE: WON an unlicensed foreign corporation not doing business in the Philippines lacks the legal capacity to
file suit.

HELD: The petition is GRANTED. The Decision of the CA which dismissed the 2nd case is REVERSED and SET
ASIDE. The Order denying the MTD is REINSTATED. Agilent’s application for a Writ of Replevin is GRANTED.
NO
A foreign corporation without a license is not ipso facto incapacitated from bringing an action in Philippine
courts. A license is necessary only if a foreign corporation is “transacting” or “doing business” in the country. The
Corporation Code provides:
Sec. 133. Doing business without a license. — No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.
The aforementioned provision prevents an unlicensed foreign corporation “doing business” in the Philippines
from accessing our courts.
[In a number of cases, however, we have held that an unlicensed foreign corporation doing business in the
Philippines may bring suit in Philippine courts against a Philippine citizen or entity who had contracted with
and benefited from said corporation. Such a suit is premised on the doctrine of estoppel. A party is estopped
from challenging the personality of a corporation after having acknowledged the same by entering into a
contract with it. This doctrine of estoppel to deny corporate existence and capacity applies to foreign as well as
domestic corporations. The application of this principle prevents a person contracting with a foreign
corporation from later taking advantage of its noncompliance with the statutes chiefly in cases where such
person has received the benefits of the contract.]
The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be
condensed in four statements:
if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine
courts;
if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine
courts on an isolated transaction or on a cause of action entirely independent of any business transaction;
if a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which
has contracted with said corporation may be estopped from challenging the foreign corporation’s corporate
personality in a suit brought before Philippine courts; and
if a foreign corporation does business in the Philippines with the required license, it can sue before Philippine
courts on any transaction.
**
The challenge to Agilent’s legal capacity to file suit hinges on whether or not it is doing business in the
Philippines. However, there is no definitive rule on what constitutes “doing”, “engaging in”, or “transacting”
business in the Philippines. The Corporation Code itself is silent as to what acts constitute doing or transacting
business in the Philippines.
[Jurisprudence has it, however, that the term “implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to or in progressive prosecution of the purpose and subject of its organization.”
In the Mentholatum case this Court discoursed on the two general tests to determine whether or not a foreign
corporation can be considered as “doing business” in the Philippines. The first of these is the substance test,
thus:
The true test [for doing business], however, seems to be whether the foreign corporation is continuing the body
of the business or enterprise for which it was organized or whether it has substantially retired from it and
turned it over to another.
The second test is the continuity test, expressed thus:
The term [doing business] implies a continuity of commercial dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and
in the progressive prosecution of, the purpose and object of its organization.]
**
The Foreign Investments Act of 1991 (the “FIA”; Republic Act No. 7042, as amended), defines “doing business”
as follows:
Sec. 3, par. (d). The phrase “doing business” shall include soliciting orders, service contracts, opening offices,
whether called “liaison” offices or branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty
(180) days or more; participating in the management, supervision or control of any domestic business, firm,
entity, or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in the progressive prosecution of, commercial gain or of the purpose and
object of the business organization.
An analysis of the relevant case law, in conjunction with Sec 1 of the IRR of the FIA (as amended by RA 8179),
would demonstrate that the acts enumerated in the VAASA do not constitute “doing business” in the Philippines.
The said provision provides that the following shall not be deemed “doing business”:
(1) Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor;
(2) Having a nominee director or officer to represent its interest in such corporation;
(3) Appointing a representative or distributor domiciled in the Philippines which transacts business in the
representative’s or distributor’s own name and account;
(4) The publication of a general advertisement through any print or broadcast media;
(5) Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by
another entity in the Philippines;
(6) Consignment by a foreign entity of equipment with a local company to be used in the processing of products
for export;
(7) Collecting information in the Philippines; and
(8) Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis,
such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the
same, training domestic workers to operate it, and similar incidental services.
By and large, to constitute “doing business”, the activity to be undertaken in the Philippines is one that is for
profit-making.
By the clear terms of the VAASA, Agilent’s activities in the Philippines were confined to (1) maintaining a stock
of goods in the Philippines solely for the purpose of having the same processed by Integrated Silicon; and (2)
consignment of equipment with Integrated Silicon to be used in the processing of products for export. As such,
we hold that, based on the evidence presented thus far, Agilent cannot be deemed to be “doing business” in the
Philippines. Respondents’ contention that Agilent lacks the legal capacity to file suit is therefore devoid of merit.
As a foreign corporation not doing business in the Philippines, it needed no license before it can sue before our
courts.

Steelcase, Inc. v. Design International Selections, Inc. (DISI), G.R. No. 171995, 18 April 2012

FACTS
Steelcase, Inc. (Steelcase) granted Design International Selections, Inc. (DISI) the right to market, sell,
distribute, install, and service its products to end-user customers within the Philippines.Steelcase argues
that Section 3(d) of R.A. No. 7042 or the Foreign Investments Act of 1991 (FIA) expressly states that the
phrase doing business excludes the appointment by a foreign corporation of a local distributor domiciled in
the Philippines which transacts business in its own name and for its own account. On the other hand, DISI
argues that it was appointed by Steelcase as the latter’s exclusive distributor of Steelcase products. The
dealership agreement between Steelcase and DISI had been described by the owner himself as basically a
buy and sell arrangement.

ISSUE
Whether Steelcase had been doing business in the Philippines.
RULING
NO.
[T]he appointment of a distributor in the Philippines is not sufficient to constitute doing business unless it is
under the full control of the foreign corporation. On the other hand, if the distributor is an independent entity
which buys and distributes products, other than those of the foreign corporation, for its own name and its
own account, the latter cannot be considered to be doing business in the Philippines. Here, DISI was an
independent contractor which sold Steelcase products in its own name and for its own account. As a result,
Steelcase cannot be considered to be doing business in the Philippines by its act of appointing a distributor
as it falls under one of the exceptions under R.A. No. 7042

___________________________________________end of syllabus needed to digest

Lapu-Lapu Foundation vs. Court of Appeals

[GR 126006, 29 January 2004]

Facts: Sometime in 1977, Elias Q. Tan, then President of Lapulapu Foundation, Inc., obtained four loans
from Allied Banking Corporation covered by four promissory notes in the amounts of P100,000 each. As of
23 January 1979, the entire obligation amounted to P493,566.61 and despite demands made on them by
the Bank, Tan and the foundation failed to pay the same. The Bank was constrained to file with the Regional
Trial Court of Cebu City, Branch 15, a complaint seeking payment by Tan and the foundation, jointly and
solidarily, of the sum of P493,566.61 representing their loan obligation, exclusive of interests, penalty
charges, attorney’s fees and costs. In its answer to the complaint, the Foundation denied incurring
indebtedness from the Bank alleging that the loans were obtained by Tan in his personal capacity, for his
own use and benefit and on the strength of the personal information he furnished the Bank. The Foundation
maintained that it never authorized Tan to co-sign in his capacity as its President any promissory note and
that the Bank fully knew that the loans contracted were made in Tan’s personal capacity and for his own use
and that the Foundation never benefited, directly or indirectly, therefrom.

The Foundation then interposed a cross-claim against Tan alleging that he, having exceeded his authority,
should be solely liable for said loans, and a counterclaim against the Bank for damages and attorney’s fees.
For his part, Tan admitted that he contracted the loans from the Bank in his personal capacity. The parties,
however, agreed that the loans were to be paid from the proceeds of Tan’s shares of common stocks in the
Lapulapu Industries Corporation, a real estate firm. The loans were covered by promissory notes which were
automatically renewable (“rolled-over”) every year at an amount including unpaid interests, until such time as
Tan was able to pay the same from the proceeds of his aforesaid shares. According to Tan, the Bank’s
employee required him to affix two signatures on every promissory note, assuring him that the loan
documents would be filled out in accordance with their agreement. However, after he signed and delivered
the loan documents to the Bank, these were filled out in a manner not in accord with their agreement, such
that the Foundation was included as party thereto. Further, prior to its filing of the complaint, the Bank made
no demand on him.

After due trial, the court rendered judgment (1) requiring Tan and the Foundation to pay jointly and solidarily
to the Bank the amount of P493,566.61 as principal obligation for the four promissory notes, including all
other charges included in the same, with interest at 14% per annum, computed from 24 January 1979, until
the same are fully paid, plus 2% service charges and 1% monthly penalty charges; (2) requiring Tan and the
Foundation to pay jointly and solidarily, attorney’s fees in the equivalent amount of 25% of the total amount
due from them on the promissory notes, including all charges; and (3) requiring Tan and the Foundation to
pay jointly and solidarily litigation expenses of P1,000.00 plus costs of the suit. On appeal, the CA affirmed
with modification the judgment of the court a quo by deleting the award of attorney’s fees in favor of the
Bank for being without basis. Tan and the foundation filed the petition for review on certiorari.

Issue:
86 Whether Tan and the foundation should be held jointly and solidarily liable.
87 Whether the foundation gave Tan an apparent authority to deal with the Bank.
Held:

1. The appellate court did not err in holding Tan and the foundation jointly and solidarily liable as it applied
the doctrine of piercing the veil of corporate entity. Tan and the foundation cannot hide behind the corporate
veil under the following circumstances: "The evidence shows that Tan has been representing himself as the
President of Lapulapu Foundation, Inc. He opened a savings account and a current account in the names of
the corporation, and signed the application form as well as the necessary specimen signature cards twice,
for himself and for the foundation. He submitted a notarized Secretary’s Certificate from the corporation,
attesting that he has been authorized, inter alia, to sign for and in behalf of the Lapulapu Foundation any
and all checks, drafts or other orders with respect to the bank; to transact business with the Bank, negotiate
loans, agreements, obligations, promissory notes and other commercial documents; and to initially obtain a
loan for P100,000.00 from any bank. Under these circumstances, the foundation is liable for the transactions
entered into by Tan on its behalf.

2. Per its Secretary’s Certificate, the Foundation had given its President, Tan, ostensible and apparent
authority to inter alia deal with the Bank. Accordingly, the Foundation is estopped from questioning Tan’s
authority to obtain the subject loans from the respondent Bank. It is a familiar doctrine that if a corporation
knowingly permits 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; and thus, the corporation will, as
against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s
authority.

G.R. No. 147590 April 2, 2007

ANTONIO C. CARAG, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ISABEL G. PANGANIBAN-ORTIGUERRA, as
Executive Labor Arbiter, NAFLU, and MARIVELES APPAREL CORPORATION LABOR UNION,
Respondents.
 DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 assailing the Decision dated 29 February 20002 and the Resolution
dated 27 March 20013 of the Court of Appeals (appellate court) in CA-G.R. SP Nos. 54404-06. The
appellate court affirmed the decision dated 17 June 1994 4 of Labor Arbiter Isabel Panganiban-Ortiguerra
(Arbiter Ortiguerra) in RAB-III-08-5198-93 and the resolution dated 5 January 19955 of the National Labor
Relations Commission (NLRC) in NLRC CA No. L-007731-94.
Arbiter Ortiguerra held that Mariveles Apparel Corporation (MAC), MAC's Chairman of the Board Antonio
Carag (Carag), and MAC's President Armando David (David) (collectively, respondents) are guilty of illegal
closure and are solidarily liable for the separation pay of MAC's rank and file employees. The NLRC denied
the motion to reduce bond filed by MAC and Carag.

The Facts
National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU)
(collectively, complainants), on behalf of all of MAC's rank and file employees, filed a complaint against MAC
for illegal dismissal brought about by its illegal closure of business. In their complaint dated 12 August 1993,
complainants alleged the following:
2. Complainant NAFLU is the sole and exclusive bargaining agent representing all rank and file employees
of [MAC]. That there is an existing valid Collective Bargaining Agreement (CBA) executed by the parties and
that at the time of the cause of action herein below discussed happened there was no labor dispute between
the Union and Management except cases pending in courts filed by one against the other.
3. That on July 8, 1993, without notice of any kind filed in accordance with pertinent provisions of the Labor
Code, [MAC], for reasons known only by herself [sic] ceased operations with the intention of completely
closing its shop or factory. Such intentions [sic] was manifested in a letter, allegedly claimed by [MAC] as its
notice filed only on the same day that the operations closed.
4. That at the time of closure, employees who have rendered one to two weeks work were not paid their
corresponding salaries/wages, which remain unpaid until time [sic] of this writing.
5. That there are other benefits than those above-mentioned which have been unpaid by [MAC] at the time it
decided to cease operations, benefits gained by the workers both by and under the CBA and by operations
[sic] of law.
6. That the closure made by [MAC] in the manner and style done is perce [sic] illegal, and had caused
tremendous prejudice to all of the employees, who suffered both mental and financial anguish and who in
view thereof merits [sic] award of all damages (actual, exemplary and moral), [illegible] to set [an] example
to firms who in the future will [illegible] the idea of simply prematurely closing without complying [with] the
basic requirement of Notice of Closure.6 (Emphasis supplied)
Upon receipt of the records of the case, Arbiter Ortiguerra summoned the parties to explore options for
possible settlement. The non-appearance of respondents prompted Arbiter Ortiguerra to declare the case
submitted for resolution "based on the extant pleadings."
In their position paper dated 3 January 1994, complainants moved to implead Carag and David, as follows:
x x x x In the present case, it is unfortunate for respondents that the records and evidence clearly
demonstrate that the individual complainants are entitled to the reliefs prayed for in their complaint.
However, any favorable judgment the Honorable Labor Arbiter may render in favor of herein complainants
will go to naught should the Office fails [sic] to appreciate the glaring fact that the respondents [sic]
corpora-tion is no longer existing as it suddenly stopped business operation since [sic] 8 July 1993. Under
this given circumstance, the complainants have no option left but to implead Atty. ANTONIO CARAG, in his
official capacity as Chairman of the Board along with MR. ARMANDO DAVID as President. Both are also
owners of the respondent corporation with office address at 10th Floor, Gamon Centre, Alfaro Street,
Salcedo Village[,] Makati[,] Metro Manila although they may be collectively served with summons and other
legal processes through counsel of record Atty. Joshua Pastores of 8th Floor, Hanston Bldg., Emerald
Avenue, Ortigas[,] Pasig, Metro Manila. This inclusion of individual respondents as party respondents in the
present case is to guarantee the satisfaction of any judgment award on the basis of Article 212(c) of the
Philippine Labor Code, as amended, which says:
"Employer includes any person acting in the interest of an employer, directly or indirectly. It does not,
however, include any labor organization or any of its officers or agents except when acting as employer."
The provision was culled from Section 2, Republic Act 602, the Minimum Wage Act. If the employer is an
artificial person, it must have an officer who can be presumed to be the employer, being "the person acting
in the interest of the employer." The corporation is the employer, only in the technical sense. (A.C. Ransom
Labor Union CCLU VS. NLRC, G.R. 69494, June 10, 1986). Where the employer-corporation, AS IN THE
PRESENT CASE, is no longer existing and unable to satisfy the judgment in favor of the employee, the
officer should be held liable for acting on behalf of the corporation. (Gudez vs. NLRC, G.R. 83023, March
22, 1990). Also in the recent celebrated case of Camelcraft Corporation vs. NLRC, G.R. 90634-35 (June 6,
1990), Carmen contends that she is not liable for the acts of the company, assuming it had [acted] illegally,
because Camelcraft in a distinct and separate entity with a legal personality of its own. She claims that she
is only an agent of the company carrying out the decisions of its board of directors, "We do not agree," said
the Supreme Court. "She is, in fact and legal effect, the corporation, being not only its president and general
manager but also its owner." The responsible officer of an employer can be held personally liable not to say
even criminally liable for nonpayment of backwages. This is the policy of the law. If it were otherwise,
corporate employers would have devious ways to evade paying backwages. (A.C. Ransom Labor Union-
CCLU V. NLRC, G.R. 69494, June 10, 1986). If no definite proof exists as to who is the responsible officer,
the president of the corporation who can be deemed to be its chief operation officer shall be presumed to be
the responsible officer. In Republic Act 602, for example, criminal responsibility is with the "manager" or in
his default, the person acting as such (Ibid.)7 (Emphasis supplied)
Atty. Joshua L. Pastores (Atty. Pastores), as counsel for respondents, submitted a position paper dated 21
February 1994 and stated that complainants should not have impleaded Carag and David because MAC is
actually owned by a consortium of banks. Carag and David own shares in MAC only to qualify them to serve
as MAC's officers.
Without any further proceedings, Arbiter Ortiguerra rendered her Decision dated 17 June 1994 granting the
motion to implead Carag and David. In the same Decision, Arbiter Ortiguerra declared Carag and David
solidarily liable with MAC to complainants.
The Ruling of the Labor Arbiter
In her Decision dated 17 June 1994, Arbiter Ortiguerra ruled as follows:
This is a complaint for illegal dismissal brought about by the illegal closure and cessation of business filed by
NAFLU and Mariveles Apparel Corporation Labor Union for and in behalf of all rank and file employees
against respondents Mariveles Apparel Corporation, Antonio Carag and Armando David [who are] its
owners, Chairman of the Board and President, respectively.
This case was originally raffled to the sala of Labor Arbiter Adolfo V. Creencia. When the latter went on sick
leave, his cases were re-raffled and the instant case was assigned to the sala of the undersigned. Upon
receipt of the record of the case, the parties were summoned for them to be able to explore options for
settlement. The respondents however did not appear prompting this Office to submit the case for resolution
based on extant pleadings, thus this decision.
The complainants claim that on July 8, 1993 without notice of any kind the company ceased its operation as
a prelude to a final closing of the firm. The complainants allege that up to the present the company has
remained closed.
The complainants bewail that at the time of the closure, employees who have rendered one to two weeks of
work were not given their salaries and the same have remained unpaid.
The complainants aver that respondent company prior to its closure did not even bother to serve written
notice to employees and to the Department of Labor and Employment at least one month before the
intended date of closure. The respondents did not even establish that its closure was done in good faith.
Moreover, the respondents did not pay the affected employees separation pay, the amount of which is
provided in the existing Collective Bargaining Agreement between the complainants and the respondents.
The complainants pray that they be allowed to implead Atty. Antonio Carag and Mr. Armando David[,]
owners and responsible officer[s] of respondent company to assure the satisfaction of the judgment, should
a decision favorable to them be rendered. In support of their claims, the complainants invoked the ruling laid
down by the Supreme Court in the case of A.C. Ransom Labor Union CCLU vs. NLRC, G.R. No. 69494,
June 10, 1986 where it was held that [a] corporate officer can be held liable for acting on behalf of the
corporation when the latter is no longer in existence and there are valid claims of workers that must be
satisfied.
The complainants pray for the declaration of the illegality of the closure of respondents' business.
Consequently, their reinstatement must be ordered and their backwages must be paid. Should reinstatement
be not feasible, the complainants pray that they be paid their separation pay in accordance with the
computation provided for in the CBA. Computations of separation pay due to individual complainants were
adduced in evidence (Annexes "C" to "C-44", Complainants' Position Paper). The complainants also pray for
the award to them of attorney's fee[s].
The respondents on the other hand by way of controversion maintain that the present complaint was filed
prematurely. The respondents deny having totally closed and insist that respondent company is only on a
temporary shut-down occasioned by the pending labor unrest. There being no permanent closure any claim
for separation pay must not be given due course.
Respondents opposed the impleader of Atty. Antonio C. Carag and Mr. Armando David saying that they are
not the owners of Mariveles Apparel Corporation and they are only minority stockholders holding qualifying
shares. Piercing the veil of corporate fiction cannot be done in the present case for such remedy can only be
availed of in case of closed or family owned corporations.
Respondents pray for the dismissal of the present complaint and the denial of complainants' motion to
implead Atty. Antonio C. Carag and Mr. Armando David as party respondents.
This Office is now called upon to resolve the following issues:
1. Whether or not the respondents are guilty of illegal closure;
2. Whether or not individual respondents could be held personally liable; and
3. Whether or not the complainants are entitled to an award of attorney's fees.
After a judicious and impartial consideration of the record, this Office is of the firm belief that the
complainants must prevail.
The respondents described the cessation of operations in its premises as a temporary shut-down. While
such posturing may have been initially true, it is not so anymore. The cessation of operations has clearly
exceeded the six months period fixed in Article 286 of the Labor Code. The temporary shutdown has ripened
into a closure or cessation of operations for causes not due to serious business losses or financial reverses.
Consequently, the respondents must pay the displaced employees separation pay in accordance with the
computation prescribed in the CBA, to wit, one month pay for every year of service. It must be stressed that
respondents did not controvert the verity of the CBA provided computation.
The complainants claim that Atty. Antonio Carag and Mr. Armando David should be held jointly and
severally liable with respondent corporation. This bid is premised on the belief that the impleader of the
aforesaid officers will guarantee payment of whatever may be adjudged in complainants' favor by virtue of
this case. It is a basic principle in law that corporations have personality distinct and separate from the
stockholders. This concept is known as corporate fiction. Normally, officers acting for and in behalf of a
corporation are not held personally liable for the obligation of the corporation. In instances where corporate
officers dismissed employees in bad faith or wantonly violate labor standard laws or when the company had
already ceased operations and there is no way by which a judgment in favor of employees could be
satisfied, corporate officers can be held jointly and severally liable with the company. This Office after a
careful consideration of the factual backdrop of the case is inclined to grant complainants' prayer for the
impleader of Atty. Antonio Carag and Mr. Armando David, to assure that valid claims of employees would
not be defeated by the closure of respondent company.
The complainants pray for the award to them of moral and exemplary damages, suffice it to state that they
failed to establish their entitlement to aforesaid reliefs when they did not adduce persuasive evidence on the
matter.
The claim for attorney's fee[s] will be as it is hereby resolved in complainants' favor. As a consequence of
the illegal closure of respondent company, the complainants were compelled to litigate to secure benefits
due them under pertinent laws. For this purpose, they secured the services of a counsel to assist them in the
course of the litigation. It is but just and proper to order the respondents who are responsible for the closure
and subsequent filing of the case to pay attorney's fee[s].
WHEREFORE, premises considered, judgment is hereby rendered declaring respondents jointly and
severally guilty of illegal closure and they are hereby ordered as follows:
1. To pay complainants separation pay computed on the basis of one (1) month for every year of service, a
fraction of six (6) months to be considered as one (1) year in the total amount of ₱49,101,621.00; and
2. To pay complainants attorney's fee in an amount equivalent to 10% of the judgment award.
The claims for moral, actual and exemplary damages are dismissed for lack of evidence.
SO ORDERED.8 (Emphasis supplied)
MAC, Carag, and David, through Atty. Pastores, filed their Memorandum before the NLRC on 26 August
1994. Carag, through a separate counsel, filed an appeal dated 30 August 1994 before the NLRC. Carag
reiterated the arguments in respondents' position paper filed before Arbiter Ortiguerra, stating that:
2.1 While Atty. Antonio C. Carag is the Chairman of the Board of MAC and Mr. Armando David is the
President, they are not the owners of MAC;
2.2 MAC is owned by a consortium of banks, as stockholders, and Atty. Antonio C. Carag and Mr. Armando
David are only minority stockholders of the corporation, owning only qualifying shares;
2.3 MAC is not a family[-]owned corporation, that in case of a close [sic] corporation, piercing the corporate
veil its [sic] possible to hold the stockholders liable for the corporation's liabilities;
2.4 MAC is a corporation with a distinct and separate personality from that of the stockholders; piercing the
corporate veil to hold the stockholders liable for corporate liabilities is only true [for] close corporations
(family corporations); this is not the prevailing situation in MAC;
2.5 Atty. Antonio Carag and Mr. Armando David are professional managers and the extension of shares to
them are just qualifying shares to enable them to occupy subject position. 9
Respondents also filed separate motions to reduce bond.
The Ruling of the NLRC
In a Resolution promulgated on 5 January 1995, the NLRC Third Division denied the motions to reduce
bond. The NLRC stated that to grant a reduction of bond on the ground that the appeal is meritorious would
be tantamount to ruling on the merits of the appeal. The dispositive portion of the Resolution of the NLRC
Third Division reads, thus:
PREMISES CONSIDERED, Motions to Reduce Bond for both respondents are hereby DISMISSED for lack
of merit. Respondents are directed to post cash or surety bond in the amount of forty eight million one
hundred one thousand six hundred twenty one pesos (₱48,101,621.00) within an unextendible period of
fifteen (15) days from receipt hereof.
No further Motions for Reconsideration shall be entertained.
SO ORDERED.10
Respondents filed separate petitions for certiorari before this Court under Rule 65 of the 1964 Rules of
Court. Carag filed his petition, docketed as G.R. No. 118820, on 13 February 1995. In the meantime, we
granted MAC's prayer for the issuance of a temporary restraining order to enjoin the NLRC from enforcing
Arbiter Ortiguerra's Decision. On 31 May 1995, we granted complainants' motion for consolidation of G.R.
No. 118820 with G.R. No. 118839 (MAC v. NLRC, et al.) and G.R. No. 118880 (David v. Arbiter Ortiguerra,
et al.). On 12 July 1999, after all the parties had filed their memoranda, we referred the consolidated cases
to the appellate court in accordance with our decision in St. Martin Funeral Home v. NLRC.11 Respondents
filed separate petitions before the appellate court.
The Ruling of the Appellate Court
On 29 February 2000, the appellate court issued a joint decision on the separate petitions. The appellate
court identified two issues as essential: (1) whether Arbiter Ortiguerra properly held Carag and David, in
their capacities as corporate officers, jointly and severally liable with MAC for the money claims of the
employees; and (2) whether the NLRC abused its discretion in denying the separate motions to reduce bond
filed by MAC and Carag.
The appellate court held that the absence of a formal hearing before the Labor Arbiter is not a cause for
Carag and David to impute grave abuse of discretion. The appellate court found that Carag and David, as
the most ranking officers of MAC, had a direct hand at the time in the illegal dismissal of MAC's employees.
The failure of Carag and David to observe the notice requirement in closing the company shows malice and
bad faith, which justifies their solidary liability with MAC. The appellate court also found that the
circumstances of the present case do not warrant a reduction of the appeal bond. Thus:
IN VIEW WHEREOF, the petitions are DISMISSED. The decision of Labor Arbiter Isabel Panganiban-
Ortiguerra dated June 17, 1994, and the Resolution dated January 5, 1995, issued by the National Labor
Relations Commission are hereby AFFIRMED. As a consequence of dismissal, the temporary restraining
order issued on March 2, 1995, by the Third Division of the Supreme Court is LIFTED. Costs against
petitioners.
SO ORDERED.12 (Emphasis in the original)
The appellate court denied respondents' separate motions for reconsideration. 13
In a resolution dated 20 June 2001, this Court's First Division denied the petition for Carag's failure to show
sufficiently that the appellate court committed any reversible error to warrant the exercise of our
discretionary appellate jurisdiction. Carag filed a motion for reconsideration of our resolution denying his
petition. In a resolution dated 13 August 2001, this Court's First Division denied Carag's reconsideration with
finality.
Despite our 13 August 2001 resolution, Carag filed a second motion for reconsideration with an omnibus
motion for leave to file a second motion for reconsideration. This Court's First Division referred the motion to
the Court En Banc. In a resolution dated 25 June 2002, the Court En Banc resolved to grant the
omnibus motion for leave to file a second motion for reconsideration, reinstated the petition, and required
respondents to comment on the petition. On 25 November 2003, the Court En Banc resolved to suspend the
rules to allow the second motion for reconsideration. This Court's First Division referred the petition to the
Court En Banc on 14 July 2004, and the Court En Banc accepted the referral on 15 March 2005.
The Issues
Carag questions the appellate court's decision of 29 February 2000 by raising the following issues before
this Court:
1. Has petitioner Carag's right to due process been blatantly violated by holding him personally liable for
over ₱50 million of the corporation's liability, merely as board chairman and solely on the basis of the motion
to implead him in midstream of the proceedings as additional respondent, without affording him the right to
present evidence and in violation of the accepted procedure prescribed by Rule V of the NLRC Rules of
Procedure, as to render the ruling null and void?
2. Assuming, arguendo, that he had been accorded due process, is the decision holding him solidarily liable
supported by evidence when the only pleadings (not evidence) before the Labor Arbiter and that of the Court
of Appeals are the labor union's motion to implead him as respondent and his opposition thereto, without
position papers, without evidence submitted, and without hearing on the issue of personal liability, and even
when bad faith or malice, as the only legal basis for personal liability, was expressly found absent and
wanting by [the] Labor Arbiter, as to render said decision null and void?
3. Did the NLRC commit grave abuse of discretion in denying petitioner's motion to reduce appeal bond? 14
The Ruling of the Court
We find the petition meritorious.
On Denial of Due Process to Carag and David
Carag asserts that Arbiter Ortiguerra rendered her Decision of 17 June 1994 without issuing summons on
him, without requiring him to submit his position paper, without setting any hearing, without giving him notice
to present his evidence, and without informing him that the case had been submitted for decision - in
violation of Sections 2,15 3,16 4,17 5(b),18 and 11(c) 19 of Rule V of The New Rules of Procedure of the
NLRC.20
It is clear from the narration in Arbiter Ortiguerra's Decision that she only summoned complainants and
MAC, and not Carag, to a conference for possible settlement. In her Decision, Arbiter Ortiguerra stated that
she scheduled the conference "upon receipt of the record of the case." At the time of the conference,
complainants had not yet submitted their position paper which contained the motion to implead Carag.
Complainants could not have submitted their position paper before the conference since procedurally the
Arbiter directs the submission of position papers only after the conference.21 Complainants submitted their
position paper only on 10 January 1994, five months after filing the complaint. In short, at the time of the
conference, Carag was not yet a party to the case. Thus, Arbiter Ortiguerra could not have possibly
summoned Carag to the conference.
Carag vigorously denied receiving summons to the conference, and complainants have not produced any
order of Arbiter Ortiguerra summoning Carag to the conference. A thorough search of the records of this
case fails to show any order of Arbiter Ortiguerra directing Carag to attend the conference. Clearly, Arbiter
Ortiguerra did not summon Carag to the conference.
When MAC failed to appear at the conference, Arbiter Ortiguerra declared the case submitted for resolution.
In her Decision, Arbiter Ortiguerra granted complainants' motion to implead Carag and at the same time, in
the same Decision, found Carag personally liable for the debts of MAC consisting of ₱49,101,621 in
separation pay to complainants. Arbiter Ortiguerra never issued summons to Carag, never called him to a
conference for possible settlement, never required him to submit a position paper, never set the case for
hearing, never notified him to present his evidence, and never informed him that the case was submitted for
decision - all in violation of Sections 2, 3, 4, 5(b), and 11(c) of Rule V of The New Rules of Procedure of the
NLRC.
Indisputably, there was utter absence of due process to Carag at the arbitration level. The procedure
adopted by Arbiter Ortiguerra completely prevented Carag from explaining his side and presenting his
evidence. This alone renders Arbiter Ortiguerra's Decision a nullity insofar as Carag is concerned. While
labor arbiters are not required to conduct a formal hearing or trial, they have no license to dispense with the
basic requirements of due process such as affording respondents the opportunity to be heard. In Habana v.
NLRC,22 we held:
The sole issue to be resolved is whether private respondents OMANFIL and HYUNDAI were denied due
process when the Labor Arbiter decided the case solely on the basis of the position paper and supporting
documents submitted in evidence by Habana and De Guzman.
We rule in the affirmative. The manner in which this case was decided by the Labor Arbiter left much to be
desired in terms of respect for the right of private respondents to due process -
First, there was only one conciliatory conference held in this case. This was on 10 May 1996. During the
conference, the parties did not discuss at all the possibility of amicable settlement due to petitioner's
stubborn insistence that private respondents be declared in default.
Second, the parties agreed to submit their respective motions - petitioner's motion to declare respondents in
default and private respondents' motion for bill of particulars - for the consideration of the Labor Arbiter. The
Labor Arbitration Associate, one Ms. Gloria Vivar, then informed the parties that they would be notified of the
action of the Labor Arbiter on the pending motions.
xxx
Third, since the conference on 10 May 1996 no order or notice as to what action was taken by the Labor
Arbiter in disposing the pending motions was ever received by private respondents. They were not declared
in default by the Labor Arbiter nor was petitioner required to submit a bill of particulars.
Fourth, neither was there any order or notice requiring private respondents to file their position paper, nor an
order informing the parties that the case was already submitted for decision. What private respondents
received was the assailed decision adverse to them.
It is clear from the foregoing that there was an utter absence of opportunity to be heard at the arbitration
level, as the procedure adopted by the Labor Arbiter virtually prevented private respondents from explaining
matters fully and presenting their side of the controversy. They had no chance whatsoever to at least
acquaint the Labor Arbiter with whatever defenses they might have to the charge that they illegally
dismissed petitioner. In fact, private respondents presented their position paper and documentary evidence
only for the first time on appeal to the NLRC.
The essence of due process is that a party be afforded a reasonable opportunity to be heard and to submit
any evidence he may have in support of his defense. Where, as in this case, sufficient opportunity to be
heard either through oral arguments or position paper and other pleadings is not accorded a party to a case,
there is undoubtedly a denial of due process.
It is true that Labor Arbiters are not bound by strict rules of evidence and of procedure. The manner by
which Arbiters dispose of cases before them is concededly a matter of discretion. However, that discretion
must be exercised regularly, legally and within the confines of due process. They are mandated to use every
reasonable means to ascertain the facts of each case, speedily, objectively and without regard to
technicalities of law or procedure, all in the interest of justice and for the purpose of accuracy and
correctness in adjudicating the monetary awards.
In this case, Carag was in a far worse situation. Here, Carag was not issued summons, not accorded a
conciliatory conference, not ordered to submit a position paper, not accorded a hearing, not given an
opportunity to present his evidence, and not notified that the case was submitted for resolution. Thus, we
hold that Arbiter Ortiguerra's Decision is void as against Carag for utter absence of due process. It was error
for the NLRC and the Court of Appeals to uphold Arbiter Ortiguerra's decision as against Carag.
On the Liability of Directors for Corporate Debts
This case also raises this issue: when is a director personally liable for the debts of the corporation? The
rule is that a director is not personally liable for the debts of the corporation, which has a separate legal
personality of its own. Section 31 of the Corporation Code lays down the exceptions to the rule, as follows:
Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote for or assent
to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or 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.
xxxx
Section 31 makes a director personally liable for corporate debts if he wilfully and knowingly votes for or
assents to patently unlawful acts of the corporation. Section 31 also makes a director personally liable if he
is guilty of gross negligence or bad faith in directing the affairs of the corporation.
Complainants did not allege in their complaint that Carag wilfully and knowingly voted for or assented to any
patently unlawful act of MAC. Complainants did not present any evidence showing that Carag wilfully and
knowingly voted for or assented to any patently unlawful act of MAC. Neither did Arbiter Ortiguerra make
any finding to this effect in her Decision.
Complainants did not also allege that Carag is guilty of gross negligence or bad faith in directing the affairs
of MAC. Complainants did not present any evidence showing that Carag is guilty of gross negligence or bad
faith in directing the affairs of MAC. Neither did Arbiter Ortiguerra make any finding to this effect in her
Decision.
Arbiter Ortiguerra stated in her Decision that:
In instances where corporate officers dismissed employees in bad faith or wantonly violate labor standard
laws or when the company had already ceased operations and there is no way by which a judgment in favor
of employees could be satisfied, corporate officers can be held jointly and severally liable with the
company.23
After stating what she believed is the law on the matter, Arbiter Ortiguerra stopped there and did not make
any finding that Carag is guilty of bad faith or of wanton violation of labor standard laws. Arbiter Ortiguerra
did not specify what act of bad faith Carag committed, or what particular labor standard laws he violated.
To hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate fiction,
the bad faith or wrongdoing of the director must be established clearly and convincingly. 24 Bad faith is never
presumed.25 Bad faith does not connote bad judgment or negligence. Bad faith imports a dishonest purpose.
Bad faith means breach of a known duty through some ill motive or interest. Bad faith partakes of the nature
of fraud.26 In Businessday Information Systems and Services, Inc. v. NLRC,27 we held:
There is merit in the contention of petitioner Raul Locsin that the complaint against him should be dismissed.
A corporate officer is not personally liable for the money claims of discharged corporate employees unless
he acted with evident malice and bad faith in terminating their employment. There is no evidence in this case
that Locsin acted in bad faith or with malice in carrying out the retrenchment and eventual closure of the
company (Garcia vs. NLRC, 153 SCRA 640), hence, he may not be held personally and solidarily liable with
the company for the satisfaction of the judgment in favor of the retrenched employees.
Neither does bad faith arise automatically just because a corporation fails to comply with the notice
requirement of labor laws on company closure or dismissal of employees. The failure to give notice is not an
unlawful act because the law does not define such failure as unlawful. Such failure to give notice is a
violation of procedural due process but does not amount to an unlawful or criminal act. Such procedural
defect is called illegal dismissal because it fails to comply with mandatory procedural requirements, but it is
not illegal in the sense that it constitutes an unlawful or criminal act.
For a wrongdoing to make a director personally liable for debts of the corporation, the wrongdoing approved
or assented to by the director must be a patently unlawful act. Mere failure to comply with the notice
requirement of labor laws on company closure or dismissal of employees does not amount to a patently
unlawful act. Patently unlawful acts are those declared unlawful by law which imposes penalties for
commission of such unlawful acts. There must be a law declaring the act unlawful and penalizing the act.
An example of a patently unlawful act is violation of Article 287 of the Labor Code, which states that
"[V]iolation of this provision is hereby declared unlawful and subject to the penal provisions provided under
Article 288 of this Code." Likewise, Article 288 of the Labor Code on Penal Provisions and Liabilities,
provides that "any violation of the provision of this Code declared unlawful or penal in nature shall be
punished with a fine of not less than One Thousand Pesos (₱1,000.00) nor more than Ten Thousand Pesos
(₱10,000.00), or imprisonment of not less than three months nor more than three years, or both such fine
and imprisonment at the discretion of the court."
In this case, Article 28328 of the Labor Code, requiring a one-month prior notice to employees and the
Department of Labor and Employment before any permanent closure of a company, does not state that non-
compliance with the notice is an unlawful act punishable under the Code. There is no provision in any other
Article of the Labor Code declaring failure to give such notice an unlawful act and providing for its penalty.
Complainants did not allege or prove, and Arbiter Ortiguerra did not make any finding, that Carag approved
or assented to any patently unlawful act to which the law attaches a penalty for its commission. On this
score alone, Carag cannot be held personally liable for the separation pay of complainants.
This leaves us with Arbiter Ortiguerra's assertion that "when the company had already ceased operations
and there is no way by which a judgment in favor of employees could be satisfied, corporate officers can be
held jointly and severally liable with the company." This assertion echoes the complainants' claim that Carag
is personally liable for MAC's debts to complainants "on the basis of Article 212(e) of the Labor Code, as
amended," which says:
'Employer' includes any person acting in the interest of an employer, directly or indirectly. The term shall not
include any labor organization or any of its officers or agents except when acting as employer. (Emphasis
supplied)
Indeed, complainants seek to hold Carag personally liable for the debts of MAC based solely on Article
212(e) of the Labor Code. This is the specific legal ground cited by complainants, and used by Arbiter
Ortiguerra, in holding Carag personally liable for the debts of MAC.
We have already ruled in McLeod v. NLRC29 and Spouses Santos v. NLRC30 that Article 212(e) of the Labor
Code, by itself, does not make a corporate officer personally liable for the debts of the corporation. The
governing law on personal liability of directors for debts of the corporation is still Section 31 of the
Corporation Code. Thus, we explained in McLeod:
Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently
unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing its affairs,
or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other
persons; (2) they consent to the issuance of watered down stocks or when, having knowledge of such
issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to hold
themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of
law personally answerable for their corporate action.
http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%3E9,df
%7C2007/jan2007/146667.htm -
xxx
The ruling in A.C. Ransom Labor Union-CCLU v.
NLRC,http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%
3E9,df%7C2007/jan2007/146667.htm - which the Court of Appeals cited, does not apply to this case. We
quote pertinent portions of the ruling, thus:
(a) Article 265 of the Labor Code, in part, expressly provides:
"Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be
entitled to reinstatement with full backwages."
Article 273 of the Code provides that:
"Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not
exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6)
months."
(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is
found in Article 212 (c) of the Labor Code which provides:
"(c) 'Employer' includes any person acting in the interest of an employer, directly or indirectly. The term shall
not include any labor organization or any of its officers or agents except when acting as employer."
The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial
person, it must have an officer who can be presumed to be the employer, being the "person acting in the
interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer.
The responsible officer of an employer corporation can be held personally, not to say even criminally, liable
for non-payment of back wages. That is the policy of the law.
xxxx
(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading
payment of back wages. In the instant case, it would appear that RANSOM, in 1969, foreseeing the
possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace
RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM
actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial
Relations was promulgated against RANSOM.
http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%3E9,df
%7C2007/jan2007/146667.htm - (Emphasis supplied)
Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade payment of
backwages to the 22 strikers. This situation, or anything similar showing malice or bad faith on the part of
Patricio, does not obtain in the present case. In Santos v. NLRC,
http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip%3E9,df
%7C2007/jan2007/146667.htm - the Court held, thus:
It is true, there were various cases when corporate officers were themselves held by the Court to be
personally accountable for the payment of wages and money claims to its employees. In A.C. Ransom
Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the
responsible officer of an employer corporation could be held personally liable for nonpayment of backwages
for "(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for
evading payment of backwages." In the absence of a clear identification of the officer directly responsible for
failure to pay the backwages, the Court considered the President of the corporation as such officer. The
case was cited in Chua vs. NLRC in holding personally liable the vice-president of the company, being the
highest and most ranking official of the corporation next to the President who was dismissed for the latter's
claim for unpaid wages.
A review of the above exceptional cases would readily disclose the attendance of facts and circumstances
that could rightly sanction personal liability on the part of the company officer. In A.C. Ransom, the corporate
entity was a family corporation and execution against it could not be implemented because of the
disposition posthaste of its leviable assets evidently in order to evade its just and due obligations.
The doctrine of "piercing the veil of corporate fiction" was thus clearly appropriate. Chua likewise
involved another family corporation, and this time the conflict was between two brothers occupying the
highest ranking positions in the company. There were incontrovertible facts which pointed to extreme
personal animosity that resulted, evidently in bad faith, in the easing out from the company of one of the
brothers by the other.
The basic rule is still that which can be deduced from the Court's pronouncement in Sunio vs. National Labor
Relations Commission, thus:
We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible
with petitioner company and CIPI for the payment of the backwages of private respondents. This is
reversible error. The Assistant Regional Director's Decision failed to disclose the reason why he was made
personally liable. Respondents, however, alleged as grounds thereof, his being the owner of one-half (½)
interest of said corporation, and his alleged arbitrary dismissal of private respondents.
Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner
corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in
terminating the services of private respondents. His act, therefore, was within the scope of his authority and
was a corporate act.
It is basic that a corporation is invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it may be related. 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. Petitioner
Sunio, therefore, should not have been made personally answerable for the payment of private respondents'
back
salaries.http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007.zip
%3E9,df%7C2007/jan2007/146667.htm -
Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the absence of malice,
bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be
made personally liable for corporate liabilities. Neither Article 212[e] nor Article 273 (now 272) of the Labor
Code expressly makes any corporate officer personally liable for the debts of the corporation. As this Court
ruled in H.L. Carlos Construction, Inc. v. Marina Properties
Corporation:http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan2007
.zip%3E9,df%7C2007/jan2007/146667.htm -
We concur with the CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas
Pambansa Blg. 68) provides:
"Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote
for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith ...
shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders and other persons."
The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful
act of the corporation; or (b) they are guilty of bad faith or gross negligence in directing its affairs; or (c) they
incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons.31
(Boldfacing in the original; boldfacing with underscoring supplied)
Thus, it was error for Arbiter Ortiguerra, the NLRC, and the Court of Appeals to hold Carag personally liable
for the separation pay owed by MAC to complainants based alone on Article 212(e) of the Labor Code.
Article 212(e) does not state that corporate officers are personally liable for the unpaid salaries or separation
pay of employees of the corporation. The liability of corporate officers for corporate debts remains governed
by Section 31 of the Corporation Code.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 29 February 2000 and the
Resolution dated 27 March 2001 of the Court of Appeals in CA-G.R. SP Nos. 54404-06 insofar as petitioner
Antonio Carag is concerned.
SO ORDERED.

MARCH II MARKETING VS JOSON

FACTS: Respondent Alfredo Joson was the General Manager, incorporator, director and stockholder of
Marc II Marketing (petitioner corporation). Before petitioner corporation was officially incorporated,
respondent has already been engaged by petitioner Lucila Joson, in her capacity as President of Marc
Marketing Inc., to work as the General Manager of petitioner corporation through a management contract.

However, petitioner corporation decided to stop and cease its operation wherein respondent's services were
then terminated. Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim
against petitioners before the Labor Arbiter which ruled in favor of respondent. The National Labor and
Relations Commission (NLRC) reversed said decision. The Court of Appeals (CA) however, upheld the
ruling of the Labor Arbiter. Hence, this petition.

ISSUE: Whether or nor the Labor Arbiter has jurisdiction over the controversy at bar

RULING: Yes. While Article 217(a) 229 of the Labor Code, as amended, provides that it is the Labor Arbiter
who has the original and exclusive jurisdiction over cases involving termination or dismissal of workers when
the person dismissed or terminated is a corporate officer, the case automatically falls within the province of
the Regional Trial Court (RTC). The dismissal of a corporate officer is always regarded as a corporate act
and/or an intra-corporate controversy.

In conformity with Section 25 of the Corporation Code, whoever are the corporate officers enumerated in the
by-laws are the exclusive officers of the corporation and the Board has no power to create other officers
without amending first the corporate by-laws. However, the Board may create appointive positions other
than the positions of the corporate officers, but the persons occupying such positions are not considered as
corporate officers within the meaning of Section 25 of the Corporation Code and are not empowered to
exercise the functions of the corporate officers, except those functions lawfully delegated to them. Their
functioning and duties are to be determined by the Board of Directors/Trustees.

In the case at bar, the respondent was not a corporate officer of petitioner corporation because his position
as General Manager was not specifically mentioned in the roster of corporate officers in its corporate by-
laws. Thus respondent, can only be regarded as its employee or subordinate official. Accordingly,
respondent's dismissal as petitioner corporation's General Manager did not amount to an intra-corporate
controversy. Jurisdiction therefore properly belongs with the Labor Arbiter and not with the RTC.

G.R. No. 159795 July 30, 2004 SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP,
INC., petitioners, vs. CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS.
NARCISO & AIDA QUIAMBAO, respondents.

FACTS : Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in the construction
business, with petitioner-spouses ROBERTO and EVELYN DAVID as its President and Treasurer,
respectively. respondent-spouses NARCISO and AIDA QUIAMBAO engaged the services of petitioner CGI
to design and construct a five-storey concrete office/residential building on their land in Tondo, Manila. The
Design/Build Contract of the parties provided that:

(a) petitioner CGI shall prepare the working drawings for the construction project;
(b) respondents shall pay petitioner CGI the sum of Seven Million Three Hundred Nine Thousand Eight
Hundred Twenty-One and 51/100 Pesos (P7,309,821.51) for the construction of the building, including the
costs of labor, materials and equipment, and Two Hundred Thousand Pesos (P200,000.00) for the cost of
the design; and
(c) the construction of the building shall be completed within nine (9) months after securing the building
permit.

The completion of the construction was initially scheduled on or before July 16, 1998 but was extended to
November 15, 1998 upon agreement of the parties but petitioners failed to follow the specifications and
plans as previously agreed upon. Respondents demanded the correction of the errors but petitioners failed
to act on their complaint. Consequently, respondents rescinded the contract on October 31, 1998, after
paying 74.84% of the cost of construction

Respondents then engaged the services of another contractor, RRA and Associates, It was found that
petitioners revised and deviated from the structural plan of the building without notice to or approval by the
respondents.

Respondents filed a case for breach of contract against petitioners before the Regional Trial Court (RTC) of
Manila. At the pre-trial conference, the parties agreed to submit the case for arbitration to CIAC. The RTC of
Manila then dismissed the case and transmitted its records to the CIAC.
The arbitrator rendered judgment against petitioners. Petitioners appealed to the Court of Appeals which
affirmed the arbitrator’s Decision but deleted the award for lost rentals

ISSUE : WON THE FACTUAL FINDINGS OF CIAC ARE FINAL AND CONCLUSIVE AND NOT
REVIEWABLE BY THE SUPREME COURT ON APPEAL.

HELD: Executive Order No. 1008 entitled, "Construction Industry Arbitration Law" provided for an arbitration
mechanism for the speedy resolution of construction disputes other than by court litigation. It recognized the
role of the construction industry in the country’s economic progress as it utilizes a large segment of the labor
force and contributes substantially to the gross national product of the country. Thus, E.O. No. 1008 vests
on the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction
contracts entered into by parties who have agreed to submit their case to voluntary arbitration. Section 19 of
E.O. No. 1008 provides that its arbitral award shall be appealable to the Supreme Court only on questions of
law.
There is a question of law when the doubt or difference in a given case arises as to what the law is on a
certain set of facts, and there is a question of fact when the doubt arises as to the truth or falsity of the
alleged facts.

In the case at bar, it is readily apparent that petitioners are raising questions of fact. In their first assigned
error, petitioners claim that at the time of rescission, they had completed 80% of the construction work and
still have 15 days to finish the project. They likewise insist that they constructed the building in accordance
with the contract and any modification on the plan was with the consent of the respondents. The second
assigned error likewise involves a question of fact. It is contended that petitioner-spouses David cannot be
held jointly and severally liable with petitioner CGI in the payment of the arbitral award as they are merely its
corporate officers

Clearly, the case at bar does not raise any genuine issue of law. We reiterate the rule that factual findings of
construction arbitrators are final and conclusive and not reviewable by this Court on appeal, except when the
petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other undue means;
(2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were guilty
of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear
evidence pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified to act
as such under section nine of Republic Act No. 876 and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of any party have been materially
prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final
and definite award upon the subject matter submitted to them was not made.12 Petitioners failed to show
that any of these exceptions applies to the case at bar.
GOKONGWEI JR vs SEC
Facts: Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity
of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that
the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote
of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation,
which 2/3 could have been computed on the basis of the capitalization at the time of the amendment.
Petitioner contends that the amendment was based on the 1961 authorization, the Board acted without
authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He also
contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the
amendment deprived him of his right to vote and be voted upon as a stockholder (because it disqualified
competitors from nomination and election in the BOD of SMC), thus the amended by-laws were null and
void. While this was pending, the corporation called for a stockholder’s meeting for the ratification of the
amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the
SEC. In another case filed by petitioner, he alleged that the corporation had been using corporate funds in
other corps and businesses outside the primary purpose clause of the corporation in violation of the
Corporation Code.

Issue: Are amendments valid?

Held: The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in
conflict with the law of the land, or with the charter of the corporation or is in legal sense unreasonable and
therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law is a
mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not
be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-
laws and who have exercised authority. The Court held that a corporation has authority prescribed by law to
prescribe the qualifications of directors. It has the inherent power to adopt by-laws for its internal
government, and to regulate the conduct and prescribe the rights and duties of its members towards itself
and among themselves in reference to the management of its affairs. A corporation, under the Corporation
law, may prescribe in its by-laws the qualifications, duties and compensation of directors, officers, and
employees. Any person who buys stock in a corporation does so with the knowledge that its affairs are
dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall
govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not
forbidden by law. Any corporation may amend its by-laws by the owners of the majority of the subscribed
stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be elected director, in
the face of the fact that the law at the time such stockholder's right was acquired contained the prescription
that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. A
Director stands in a fiduciary relation to the corporation and its shareholders, which is characterized as a
trust relationship. An amendment to the corporate by-laws which renders a stockholder ineligible to be
director, if he be also director in a corporation whose business is in competition with that of the other
corporation, has been sustained as valid. This is based upon the principle that where the director is
employed in the service of a rival company, he cannot serve both, but must betray one or the other. The
amendment in this case serves to advance the benefit of the corporation and is good. Corporate officers are
also not permitted to use their position of trust and confidence to further their private needs, and the act
done in furtherance of private needs is deemed to be for the benefit of the corporation. This is called the
doctrine of corporate opportunity.

PNB vs. Andrada Electric & Engineering Co.Case Digest

Philippine National Bank vs. Andrada Electric & Engineering Co.

[GR 142936, 17 April 2002]

Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of the Pampanga Sugar
Mills (PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI
311. The PNB organized the ational Sugar Development Corporation (NASUDECO) in September 1975, to
take ownership and possession of the assets and ultimately to nationalize and consolidate its interest in
other PNB controlled sugar mills. Prior to 29 October 1971, PASUMIL engaged the services of the Andrada
Electric & Engineering Company (AEEC) for electrical rewinding and repair, most of which were partially
paid by PASUMIL, leaving several unpaid accounts with AEEC. On 29 October 1971, AEEC and PASUMIL
entered into a contract for AEEC to perform the (a) Construction of a power house building; 3 reinforced
concrete foundation for 3 units 350 KW diesel engine generating sets, 3 reinforced concrete foundation for
the 5,000 KW and 1,250 KW turbo generator sets, among others. Aside from the work contract, PASUMIL
required AEEC to perform extra work, and provide electrical equipment and spare parts. Out of the total
obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of 27 June
1973, amounting to P527,263.80. Out of said unpaid balance of P527,263.80, PASUMIL made a partial
payment to AEEC of P14,000.00, in broken amounts, covering the period from 5 January 1974 up to 23 May
1974, leaving an unpaid balance of P513,263.80. PASUMIL and PNB, and now NASUDECO, allegedly
failed and refused to pay AEEC their just, valid and demandable obligation (The President of the
NASUDECO is also the Vice-President of the PNB. AEEC besought said official to pay the outstanding
obligation of PASUMIL, inasmuch as PNB and NASUDECO now owned and possessed the assets of
PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the engineering
and repairs, performed by AEEC).

Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations, AEEC
allegedly suffered actual damages in the total amount of P513,263.80; and that in order to recover these
sums, AEEC was compelled to engage the professional services of counsel, to whom AEEC agreed to pay a
sum equivalent to 25% of the amount of the obligation due by way of attorney's fees. PNB and NASUDECO
filed a joint motion to dismiss on the ground that the complaint failed to state sufficient allegations to
establish a cause of action against PNB and NASUDECO, inasmuch as there is lack or want of privity of
contract between the them and AEEC. Said motion was denied by the trial court in its 27 November order,
and ordered PNB nad NASUDECO to file their answers within 15 days. After due proceedings, the Trial
Court rendered judgment in favor of AEEC and against PNB, NASUDECO and PASUMIL; the latter being
ordered to pay jointly and severally the former (1) the sum of P513,623.80 plus interest thereon at the rate of
14% per annum as claimed from 25 September 1980 until fully paid; (2) the sum of P102,724.76 as
attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of Appeals affirmed the decision
of the trial court in its decision of 17 April 2000 (CA-GR CV 57610. PNB and NASUDECO filed the petition
for review.

Issue: Whether PNB and NASUDECO may be held liable for PASUMIL’s liability to AEEC.

Held: Basic is the rule that a corporation has a legal personality distinct and separate from the persons and
entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime,
justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that
the Philippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga
Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting public auction by
the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual
debts to Andrada Electric & Engineering Company (AEEC). Piercing the veil of corporate fiction may be
allowed only if the following elements concur: (1) control — not mere stock control, but complete domination
— not only of finances, but of policy and business practice in respect to the transaction attacked, must have
been such 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 a fraud or a wrong to
perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in
contravention of plaintiff's legal right; and (3) the said control and breach of duty must have proximately
caused the injury or unjust loss complained of. The absence of the foregoing elements in the present case
precludes the piercing of the corporate veil. First, other than the fact that PNB and NASUDECO acquired the
assets of PASUMIL, there is no showing that their control over it warrants the disregard of corporate
personalities. Second, there is no evidence that their juridical personality was used to commit a fraud or to
do a wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit
or instrumentality of another entity or person. Third, AEEC was not defrauded or injured when PNB and
NASUDECO acquired the assets of PASUMIL. Hence, although the assets of NASUDECO can be easily
traced to PASUMIL, the transfer of the latter's assets to PNB and NASUDECO was not fraudulently entered
into in order to escape liability for its debt to AEEC. Neither was there any merger or consolidation with
respect to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code 59 was not
followed. In fact, PASUMIL's corporate existence had not been legally extinguished or terminated. Further,
prior to PNB's acquisition of the foreclosed assets, PASUMIL had previously made partial payments to
AEEC for the former's obligation in the amount of P777,263.80. As of 27 June 1973, PASUMIL had paid
P250,000 to AEEC and, from 5 January 1974 to 23 May 1974, another P14,000. Neither did PNB expressly
or impliedly agree to assume the debt of PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall study
and submit recommendations on the claims of PASUMIL's creditors. Clearly, the corporate separateness
between PASUMIL and PNB remains, despite AEEC's insistence to the contrary.

G.R. No. 129434 August 18, 2006

TRANS MIDDLE EAST (PHILS.) EQUITIES, INC., Petitioner,
vs.
SANDIGANBAYAN (SECOND DIVISION), Respondent.

DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as
amended, assailing the June 17, 1997 Resolution 1 of the Sandiganbayan in Civil Case No. 0035, entitled
"Republic of the Philippines, petitioner, versus Benjamin ‘Kokoy’ Romualdez, et al; respondents."
Sometime in 1983, Atty. Edilberto S. Narciso, Jr. and his law firm organized into a corporation the Trans
Middle East (Phils.) Equities, Incorporated (TMEPEI), petitioner herein, with a capital stock of
P30,000,000.00 divided into 300,000 shares at P100.00 per share. Atty. Narciso acted as Treasurer.
On October 17, 1983, petitioner’s Articles of Incorporation and By-laws were registered with the Securities
and Exchange Commission (SEC).
On December 27, 1985, a special meeting of petitioner’s stockholders was held and a new set of directors
was elected. Atty. Narciso retained his position as Treasurer.
Meanwhile, on March 13, 1998, then President Corazon C. Aquino issued Executive Order (EO) No. 2 partly
quoted as follows:
Executive Order No. 2
REGARDING THE FUNDS, MONEYS, ASSETS, AND PROPERTIES ILLEGALLY ACQUIRED OR
MISAPPROPRIATED BY FORMER PRESIDENT FERDINAND E. MARCOS, MRS. IMELDA ROMUALDEZ
MARCOS, THEIR CLOSE RELATIVES, SUBORDINATES, BUSINESS ASSOCIATES, DUMMIES,
AGENTS, OR NOMINEES.
WHEREAS, the Government of the Philippines is in possession of evidence showing that there are assets
and properties purportedly pertaining to former President Ferdinand E. Marcos, and/or his wife, Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees
which had been or were acquired by them directly or indirectly, through or a result of the improper or illegal
use of funds or properties owned by the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office,
authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the Republic of the Philippines;
WHEREAS, said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of
stocks, buildings, shopping centers, condominium, mansions, residences, estates, and other kinds of real
and personal properties in the Philippines and in various countries of the world;
WHEREAS, a Presidential Commission on Good Government has been established primarily charged with
the responsibility of recovering the aforesaid assets and properties for the Philippine Government.
xxx
(3) Require all persons in the Philippines holding such assets or properties, whether located in the
Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to
the Commission on Good Government within thirty (30) days from the publication of this Executive Order, or
the substance thereof, in at least two (2) newspapers of general circulation in the Philippines.
On April 10, 1986, pursuant to the said EO No. 2, Atty. Narciso, in his capacity as petitioner’s Treasurer,
sent a letter2 to the Presidential Commission on Good Government (PCGG), which reads:
Dear Sirs:
Re: PHILIPPINE COMMERCIAL INTERNATIONAL BANK SHARES UNDER EXECUTIVE ORDER NO. 2
I have the honor to inform that TRANS MIDDLE EAST PHILS. EQUITIES, INC. (TMEPEI) IS THE OWNER
OF 6,299,177 SHARES of Philippine Commercial International Bank (PCIB) which are registered in the
books of PCIB as follows:
Name of Registered Owner Number of Shares
TRANS MIDDLE EAST PHILS. EQUITIES, INC. 6,119,067 shares
Edilberto S. Narciso, Jr. 180,110 shares
TOTAL 6,299,177 shares
This matter is being reported conformable to Executive Order No. 2 of President Aquino, as the beneficial
owner of said shares is former Gov. Benjamin Romualdez and it would thus appear that these shares are
within the jurisdiction or cognizance of the Commission under Executive Order No. 2.
However, as of March 31, 1986, these shares have outstanding claims, liens and charges against them in
the approximate amount of P70,000,000.00 which are due and payable.
Thus, on April 15, 1986, the PCGG sequestered the 6,119,067 shares held by petitioner in Philippine
Commercial and International Bank (PCIB) and the 180,110 shares held by Atty. Narciso in the same bank
or a total of 6,299,177 shares.
In July 1987, the PCGG filed with the Sandiganbayan (hereinafter referred to as respondent court) Civil
Case No. 0035, entitled "Republic of the Philippines versus Benjamin ‘Kokoy’ Romualdez, Juliette
Romualdez, President Ferdinand E. Marcos, Imelda R. Marcos, Jose F.S. Bengzon, Jr., Jose Vicente
Jimenez, Armando V. Faustino, Jr., Leonardo C. Cruz, and Atty. Edilberto Narciso, Jr., et al." The complaint
is for reconveyance, reversion, restitution, accounting, and damages for ill-gotten wealth.
In its Second Amended Complaint dated January 22, 1988, the PCGG alleged, among others, that:
Defendants Benjamin "Kokoy" Romualdez and Juliette Romualdez acting by themselves and/or in unlawful
concert with defendants Ferdinand E. Marcos and Imelda R. Marcos, and taking undue advantage of their
relationship, influence and connection with the latter defendant spouses, engaged in devices, schemes and
stratagems to unjustly enrich themselves at the expense of plaintiff and the Filipino people, among others:
xxx
[j] effected, with the active collaboration among others, Edilberto S. Narciso, Jr., Jose F.S. Bengzon, Jr.,
Jose Vicente E. Jimenez, Amando V. Faustino, Jr., and Leonardo C. Cruz, the sale of shareholdings of the
First Philippine Holdings Corporation in the Philippine and Commercial and International Bank (PCIB) to
Trans Middle East Philippines Equities, Inc., a front organization of defendant Benjamin Romualdez. The
acquisition of PCIB shares was packed by PCIB and financed by PCIB and Philippine Commercial Capital,
Inc., through loan extended to SOLOIL Inc., for and in behalf of Trans Middle East Equities, Inc. The manner
by which PCIB in effect funded the purchase of shares of its own capital stock was done in violation of
banking laws, rules and regulations on (i) loans to directors, officers, stockholders and other related interest
(DOSRI), (ii) single borrower’s Limit (SBL), (iii) disclosure requirements, and (iv) duty to ascertain identity of
borrower and purpose of the loan.
In his Answer dated September 23, 1988, Atty. Narciso denied the above allegations, thus:
They [he and other lawyers in the law firm] have not singly or collectively made any attempt to conceal, hide
or dispose of any or all of the assets and properties of Benjamin Romualdez; to the contrary, said persons
shortly after the revolution and in compliance with Executive Order Nos. 1 and 2 of President Corazon C.
Aquino, voluntarily and without bargaining for immunity, disclosed to the PCGG all of the assets and
properties of Benjamin Romualdez known to them. More particularly, the ownership by Benjamin Romualdez
of Trans Middles East Philippines Equities, Inc. which, in turn, owns 6,299,177 PCIBank shares was
voluntarily disclosed to the PCGG by answering defendant himself. This disclosure enables the PCGG to
immediately place all of the 6,299,177 PCIBank shares under sequestration and subsequently to received
approximately P6,600,000.00 in cash dividends accruing to those shares.
The answers of Attys. Bengzon, Jimenez, and Faustino state the same allegations contained in Atty.
Narciso’s answer.
On March 24, 1988, petitioner TMEPEI filed with respondent court a Motion to Intervene alleging that it is the
registered owner of 6,119,067 common shares of the PCIB and the recognized owner of 180,110 shares or
a total of 6,299,177 shares which correspond to only 12.97% of the common shares of the bank; and that
the PCGG sequestered its shares without due process and exercised all rights of ownership thereof.
Petitioner thus prayed for the issuance of a temporary restraining order (TRO) and a writ of preliminary
injunction to enjoin the PCGG from exercising acts of ownership.
On April 14, 1988, the PCGG filed its Opposition to petitioner’s motion to intervene, contending that
Benjamin Romualdez is the beneficial owner of the sequestered shares as shown by the letter of Atty.
Narciso dated April 10, 1986, quoted earlier.
On April 27, 1988, respondent court issued a Resolution granting petitioner’s motion to intervene and
accordingly admitted its complaint-in-intervention.
On May 7, 1991, petitioner filed an urgent motion for the issuance of a TRO to enjoin the PCGG from voting
its sequestered shares in the PCIB stockholders’ meeting to be held on May 9, 1991.
On May 8, 1991, respondent court granted the motion and issued a TRO.
On October 3, 1991, respondent court promulgated a Resolution perpetually enjoining the PCGG from
voting petitioner’s 6,299,177 shares (which increased to 10,853,481) in any PCIB stockholders’ meeting and
allowing petitioner to vote the same shares in all elections.
The PCGG filed its Motion for Reconsideration but the same was denied by respondent court.
Hence, the PCGG filed with this Court a petition for certiorari assailing the Resolutions of respondent court
dated October 3, 1991 and May 26, 1992, contending that they were issued with grave abuse of discretion.
The petition was docketed as G.R. No. 105808.
On June 18, 1996, this Court issued a Resolution granting PCGG’s petition and setting aside respondent
court’s challenged Orders. It held that the question of who has the right to vote the sequestered shares is
not yet ripe for adjudication. It hinges on the determination of the issue of whether the subject shares of
stock constitute ill-gotten wealth, a factual matter which only respondent court can determine. This Court
then directed respondent court to resolve the issue with reasonable dispatch.
On January 16, 1997, respondent court issued a Resolution setting the case for hearing. Upon the PCGG’s
request, respondent court issued a subpoena to Atty. Narciso, requiring him to appear and testify on March
11 and 12, 1997 regarding petitioner’s assets and transactions, specifically its shares of stocks with the
PCIB.
On March 6, 1997, Atty. Narciso filed a Manifestation and Motion seeking a "directive" from respondent court
whether he should testify on matters relative to petitioner’s assets and transactions considering that he and
his law firm acted as its counsel in 1981 for the purpose of incorporating or registering said petitioner with
the SEC.
On March 17, 1997, the PCGG filed its Comment stating, among others, that Atty. Narciso is being
subpoenaed to identify the documents he filed with the PCGG. The fact that he filed those documents shows
that their contents are not confidential.
On April 29, 1997, the PCGG served on Atty. Narciso a Request for Admission, asking him to admit or deny
14 matters specified therein, including the genuineness, due execution, and truth of the contents of his letter
to the PCGG dated April 10, 1986. This prompted Atty. Narciso to file a second Manifestation and Motion on
May 15, 1997. He prayed for a ruling on whether he will be violating the lawyer-client privileged
communication rule should he testify and admit the truth of the matters indicated in the PCGG’s Request for
Admission.
On June 17, 1997, respondent court, acting on the two manifestations and motions of Atty. Narciso issued
the assailed Resolution,3 directing him to respond to the PCGG’s Request for Admission and to testify on
matters not specified therein, subject to the court’s ruling on the objections seasonably raised by the proper
party. Respondent court held that the letter dated April 10, 1986 sent by Atty. Narciso to the PCGG is "not
confidential or intended to be so" as it was made for the purpose of communicating it to others pursuant to
EO No. 2. Moreover, Section 24 (b), Rule 130 of the Revised Rules of Court on privileged communication by
a client to his lawyer "was reenacted" in the 1989 Rules on Evidence. It is general in its terms, for it covers
all confidential communications by all clients to their lawyers in the course of the latter’s professional
employment. On the other hand, EO No. 2 was passed in March 1986. It applies only to disclosures of
assets or properties constituting ill-gotten wealth allegedly amassed during the Marcos regime placed in the
names of nominees, agents or trustees. This being so, EO No. 2 shall control.
Hence, the present petition anchored on the following grounds:
I.
RESPONDENT SANDIGANBAYAN ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION WHEN IT ISSUED THE RESOLUTION DATED JUNE 17, 1997 DEPRIVING
PETITIONER OF DUE PROCESS.
II.
RESPONDENT SANDIGANBAYAN ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION WHEN IT RULED THAT THE SUBJECT SUBPOENA AS WELL AS THE
REQUEST FOR ADMISSION IS NOT VIOLATIVE OF THE LAWYER-CLIENT PRIVILEGE RULE.
In its Comment, the PCGG alleged that respondent court did not gravely abuse its discretion when it issued
its assailed Resolution. Petitioner cannot claim denial of due process since it failed to file seasonably its
comment on the two manifestations and motions of Atty. Narciso despite notice. When those incidents were
heard on March 11 and May 23, 1997, petitioner’s Opposition To/Comment on Manifestation and Motion
was not yet filed. It was submitted to respondent court only on May 29, 1997, without even an accompanying
motion for leave to admit the same. Hence, there was no denial of due process because petitioner was
given the opportunity to be heard.
The petition lacks merit for the following reasons:
First, a motion for reconsideration is needed before a petition for certiorari can be resorted to, 4 subject to
some exceptions.5 In this case, petitioner did not file with respondent court a motion for reconsideration of its
assailed Resolution before it resorted to certiorari. Neither did it explain why it should be excused from
complying with such requirement.
Second, on petitioner’s contention that it was denied due process, let it be stressed that where a party was
given an opportunity to participate in the proceedings but failed to do so, he cannot complain of deprivation
of due process.6
Here, petitioner was afforded the opportunity to be heard. "To be heard" does not only mean presentation of
testimonial evidence in court – one may also be heard through pleadings, and where opportunity to be
heard through pleadings is accorded, as in this case, there is no denial of due process.7
Respondent court directed petitioner to file its comment on the manifestations and motions of Atty. Narciso.
However, despite notice,
petitioner did not file any comment. Records disclose that if filed the same only on May 29, 1997 after the
incidents were deemed submitted for resolution. Therefore, petitioner cannot complain it was deprived of
due process.
Where the opportunity to be heard, either through verbal arguments or pleadings, is accorded, and the party
can present its side or defend its interests in due course, there is no denial of procedural due process. 8
What is repugnant to due process is the denial of the opportunity to be heard, 9 which is not present here.
Lastly, it bears stressing Atty. Narciso, in his two manifestations and motions, was seeking advice or
"directive" from respondent court. It is not the duty of any court to give advice or "directive." The court only
decides actual controversies involving rights legally demandable and enforceable, and to determine whether
there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.10 Thus, the motions should have been dismissed outright. At
any rate, we fail to discern any taint of grave abuse of discretion on the part of respondent court when it
issued the challenged Resolution. If at all, it only committed an error of judgment.
Onelast word. It has been confirmed that Atty. Narciso is now dead. Verily, the issues raised by petitioner
and the PCGG and the questioned Resolution of respondent court have become moot.
WHEREFORE, the petition is DISMISSED.
SO ORDERED