JURISDICTION penal laws in the Philippine Islands which corporation as such

may violate, still the courts are not authorized to go to the extent
of creating special procedure and special processes for the
WEST COAST LIFE INSURANCE CO. VS. GEO HURD, purpose of carrying out those penal statutes, when the
JUDGE OF COURT OF FIRST INSTANCE legislature itself has neglected to do so. To bring a corporation
March 30, 1914 into court criminally requires many additions to the present
G.R. No. L-8527 criminal procedure. While it may be said to be the duty of courts
to see to it that criminals are punished, it is no less their duty to
Facts: follow prescribed forms of procedure and to go out upon
Petitioner is a foreign life-insurance corporation, duly unauthorized ways or act in an unauthorized manner.
organized under and by virtue of the laws of the State of
California, doing business regularly and legally in the There are many cases cited by counsel for the
Philippine Islands pursuant to its laws. The assistant defendant which show that corporations have been proceeded
prosecuting attorney of the city of Manila filed an information against criminally by indictment and otherwise and have been
in a criminal action in the Court of First Instance of that city punished as malefactors by the courts. Of this, of course, there
against the plaintiff, said corporation, and also against John can be no doubt; but it is clear that, in those cases, the statute,
Northcott and Manuel C. Grey, charging said corporation and by express words or by necessary intendment, included
said individuals with the crime of libel. The defendant in his corporations within the persons who could offend against the
official capacity as judge of the court of First Instance signed criminal laws; and the legislature, at the same time established
and issued a process directed to the plaintiff and the other a procedure applicable to corporations.
accused in said criminal action, summoning them to appear
before him to answer the charges filed. It is adjudged that the Court of First Instance of the
city of Manila be and it is enjoined and prohibited from
However, the plaintiff, together with the other persons proceeding further in the criminal case so far as said
named as accused in said process filed with the clerk of the proceedings relate to the said West Coast Life Insurance
court a motion to quash said summons and the service thereof, Company, a corporation, the plaintiff in the case.
on the ground that the court had no jurisdiction over the said
company, there being no authority in the court for the issuance ABEJO VS. DE LA CRUZ
of the process, the order under which it was issued being void. G.R. No. L-63558
Plaintiffs argue that under the laws of the Philippine Islands, to May 19,1987
proceed against a corporation, as such, criminally, to bring it
into court for the purpose of making it amenable to the criminal Facts:
laws. The plaintiff, further attacking said process, alleges that Pocket Bell Philippines, Inc. is a tone and voice
the process is a mixture of civil and criminal process, that it is paging corporation, with petitioner spouses Jose Abejo and
not properly signed, that it does not direct or require an arrest; Aurora Abejo as its principal stockholders. Telectronic
that it is an order to appear and answer on a date certain without Systems, Inc. purchased their 133,000 minority shareholdings
restraint of the person, and that it is not in the form required by for P5 million and 63,000 shares registered in the name of
law. The court denied the motion and proceeded to hear the Virginia Braga which were covered by five stock certificates
case. endorsed in blank by her for P1,674,450.00. The spouses
Agapito Braga and Virginia Braga were the majority
Issue: Whether or not he court may, of itself and on its own stockholders, but with the said purchases, Telectronics would
motion, create not only a process but a procedure by which the become the majority stockholder, holding 56% of the
process may be made effective. outstanding stock and voting power of Pocket Bell.

Held: With the said purchases, Telectronics requested the

While having the inherent powers which usually go corporate secretary of the corporation, Norberto Braga, to
with courts of general jurisdiction, they have only such register and transfer to its name, and those of its nominees the
authority in criminal matters as is expressly conferred upon total 196,000 Pocket Bell shares in the corporation's transfer
them by statute or which it is necessary to imply from such book, cancel the surrendered certificates of stock and issue the
authority in order to carry out fully and adequately the express corresponding new certificates of stock. However, Braga
authority conferred. The Courts of First Instance do not have refused to do so asserting and claiming pre-emptive rights over
authority to create new procedure and new processes in criminal the 133,000 Abejo shares and that Virginia Braga never
law. The exercise of such power verges too closely on transferred her 63,000 shares to Telectronics but had lost the
legislation. Even though it be admitted that there are various five stock certificates representing those shares. The parties
filed independent actions with different jurisdictions. The TIME, INC.ET.AL. VS. VILLEGAS
Bragas assert that the regular civil court has original and G.R. No. L-28882
exclusive jurisdiction as against the Securities and Exchange May 31, 1971
Commission, while the Abejos claim the contrary. Facts:
Time, Inc. is an American corporation with principal
Issue: Who, between the CFI (RTC) and the SEC, has offices at Rocketfeller Center, New York City, N. Y., and is the
original and exclusive jurisdiction over the dispute? publisher of "Time", a weekly news magazine.

Held: Antonio J. Villegas and Juan Ponce Enrile seek to

The SEC has jurisdiction over the matter as supported recover from the herein petitioner damages upon an alleged
by the applicable provisions of P.D. No. 902-A which libel arising from a publication of Time (Asia Edition)
reorganized the SEC with additional powers including a more magazine, in its issue of 18 August 1967, of an essay, entitled
active public participation in the affairs of private corporations "Corruption in Asia".
and enterprises through which desirable activities may be
pursued for the promotion of economic development. Nowhere On motion of the respondents-plaintiffs, the
does the law empower any CFI to interfere with the orders of respondent judge, issued a writ of attachment on the real and
the Commission and consequently any ruling by the trial court personal estate of Time, Inc. When petitioner received the
on the issue of ownership of the shares of stock is not binding summons and a copy of the complaint at its offices in New
on the Commission for want of jurisdiction. A petition for York, it filed a motion to dismiss the complaint for lack of
mandamus in the SEC to compel the corporate secretary to jurisdiction and improper venue, relying upon the provisions of
register the transfers and issue new certificates in favor of Republic Act 4363. Private respondents opposed the motion.
Telectronics and its nominees was properly resorted to under Respondent judge issued an order re-affirming the previous
Rule XXI, Section 1 of the SEC's New Rules of order of deferment for the reason that "the rule laid down under
Procedure, which provides for the filing of such petitions with Republic Act. No. 4363, amending Article 360 of the Revised
the SEC. Section 3 of said Rules further authorizes the SEC to Penal Code, is not applicable to actions against non-resident
issue orders expediting the proceedings and to grant a defendants, and because questions involving harassment and
preliminary injunction for the preservation of the rights of the inconvenience, as well as disruption of public service do not
parties pending such proceedings. appear indubitable.

The dispute falls within the general classification of Issues:

cases within the SEC's original and exclusive jurisdiction to I. Whether or not the jurisdiction of the CFI, a
hear and decide, under Section 5 of the said law. Insofar as the Philippine Court may be challenged by a foreign corporation by
Bragas and their corporate secretary's refusal on behalf of the writ of certiorari or prohibition; and
corporation Pocket Bell to record the transfer of the 56%
majority shares to Telectronics may be deemed a device or II. Whether or not Republic Act 4363 is applicable to
scheme amounting to fraud and misrepresentation employed by action against a foreign corporation or non-resident defendant.
them to keep themselves in control of the corporation to the
detriment of Telectronics (as buyer and substantial investor in Held:
the corporate stock) and the Abejos (as substantial I. The dismissal of the present petition is asked on the
stockholders-sellers), the case falls under paragraph (a). The ground that the petitioner foreign corporation failed to allege its
dispute is likewise an intra-corporate controversy between and capacity to sue in the courts of the Philippines. Respondents
among the majority and minority stockholders as to the transfer rely on section 69 of the Corporation law.
and disposition of the controlling shares of the corporation,
failing under paragraph (b). An intra-corporate controversy is They also invoke the ruling in Marshall-Wells Co. vs.
one which arises between a stockholder and the corporation. Elser & Co., Inc. that no foreign corporation may be permitted
There is no distinction, qualification, nor any exemption to maintain any suit in the local courts unless it shall have the
whatsoever. The provision is broad and covers all kinds of license required by the law, and the ruling in Atlantic Mutual
controversies between stockholders and corporations. The issue Ins. Co., Inc. vs. Cebu Stevedoring Co., Inc. that "where ... the
of whether or not a corporation is bound to replace a law denies to a foreign corporation the right to maintain suit
stockholder's lost certificate of stock is a matter purely between unless it has previously complied with a certain requirement,
a stockholder and the corporation. It is a typical intra-corporate then such compliance or the fact that the suing corporation is
dispute. exempt therefrom, becomes a necessary averment in the
complaint." These doctrines cannot be a propos in the case at
bar, since the petitioner is not "maintaining any suit" but is
merely defending one against itself; it did not file any complaint
but only a corollary defensive petition to prohibit the lower In Laurel v. Desierto, we adopted the definition of
court from further proceeding with a suit that it had no Mechem of a public office, that it is "the right, authority and
duty, created and conferred by law, by which, for a given
jurisdiction to entertain.
period, either fixed by law or enduring at the pleasure of the
creating power, an individual is invested with some portion of
Petitioner's failure to aver its legal capacity to institute the sovereign functions of the government, to be exercised by
the present petition is not fatal, for a foreign corporation may, him for the benefit of the public." In the same case, we went on
by writ of prohibition, seek relief against the wrongful to adopt Mechem’s view that the delegation to the individual of
assumption of jurisdiction. And a foreign corporation seeking a some of the sovereign functions of government is "[t]he most
writ of prohibition against further maintenance of a suit, on the important characteristic" in determining whether a position is a
public office or not. Such portion of the sovereignty of the
ground of want of jurisdiction in which jurisdiction is not bound country, either legislative, executive or judicial, must attach to
by the ruling of the court in which the suit was brought, on a the office for the time being, to be exercised for the public
motion to quash service of summons, that it has jurisdiction. benefit. Unless the powers conferred are of this nature, the
individual is not a public officer. The most important
II. That respondents-plaintiffs could not file a criminal characteristic which distinguishes an office from an
case for libel against a non-resident defendant does not make employment or contract is that the creation and conferring of an
office involves a delegation to the individual of some of the
Republic Act No. 4363 incongruous of absurd, for such
sovereign functions of government, to be exercised by him for
inability to file a criminal case against a non-resident natural the benefit of the public; – that some portion of the sovereignty
person equally exists in crimes other than libel. It is a of the country, either legislative, executive or judicial, attaches,
fundamental rule of international jurisdiction that no state can for the time being, to be exercised for the public benefit. Unless
by its laws, and no court which is only a creature of the state, the powers conferred are of this nature, the individual is not a
can by its judgments or decrees, directly bind or affect property public officer. The issue, therefore, is whether the VFA’s
officers have been delegated some portion of the sovereignty of
or persons beyond the limits of the state. Not only this, but if
the country, to be exercised for the public benefit. In several
the accused is a corporation, no criminal action can lie against cases, we have dealt with the issue of whether certain specific
it, whether such corporation or resident or non-resident. At any activities can be classified as sovereign functions. These cases,
rate, the case filed by respondents-plaintiffs is case for which deal with activities not immediately apparent to be
damages. sovereign functions, upheld the public sovereign nature of
operations needed either to promote social justiceor to stimulate
patriotic sentiments and love of country. The growing
VETERAN FOUNDATION OF THE PHILIPPINES VS. complexities of modern society, however, have rendered this
REYES traditional classification of the functions of government [into
GR No. 155027 constituent and ministrant functions] quite unrealistic, not to
February 28, 2006 say obsolete. The areas which used to be left to private
enterprise and initiative and which the government was called
Facts: upon to enter optionally, and only "because it was better
Petitioner in this case is the Veterans Federation of the equipped to administer for the public welfare than is any private
Philippines (VFP), a corporate body organized under Republic individual or group of individuals," continue to lose their well-
Act No. 2640, dated 18 June 1960, as amended, and duly defined boundaries and to be absorbed within activities that the
registered with the Securities and Exchange Commission. government must undertake in its sovereign capacity if it is to
Respondent Angelo T. Reyes was the Secretary of National meet the increasing social challenges of the times. Here[,] as
Defense (DND Secretary) who issued the assailed Department almost everywhere else[,] the tendency is undoubtedly towards
Circular No. 04, dated 10 June 2002. Respondent Edgardo E. a greater socialization of economic forces. Here, of course, this
Batenga was the DND Undersecretary for Civil Relations and development was envisioned, indeed adopted as a national
Administration who was tasked by the respondent DND policy, by the Constitution itself in its declaration of principle
Secretary to conduct an extensive management audit of the concerning the promotion of social justice. In the case at bar,
records of petitioner. Petitioner claims that it is not a public nor the functions of petitioner corporation enshrined in Section 4 of
a governmental entity but a private organization, and advances Rep. Act No. 2640 should most certainly fall within the
this claim to prove that the issuance of DND Department category of sovereign functions. The protection of the interests
Circular No. 04 is an invalid exercise of respondent Secretary’s of war veterans is not only meant to promote social justice, but
control and supervision. is also intended to reward patriotism. All of the functions in
Section 4 concern the well-being of war veterans, our
Issue: Whether or not petitioner is a private corporation. countrymen who risked their lives and lost their limbs in
fighting for and defending our nation. It would be injustice of
Held: catastrophic proportions to say that it is beyond sovereignty’s
1. Petitioner claims that the VFP does not possess the power to reward the people who defended her.
elements which would qualify it as a public office, particularly
the possession/delegation of a portion of sovereign power of 2. Petitioner claims that VFP funds are not public funds.
government to be exercised for the benefit of the public;
The fact that no budgetary appropriations have been released to VFP "has not been a direct recipient of any funds released by
the VFP does not prove that it is a private corporation. The the DBM."
DBM indeed did not see it fit to propose budgetary
appropriations to the VFP, having itself believed that the VFP Respondents claim that the supposed declaration of the
is a private corporation. If the DBM, however, is mistaken as to DBM that petitioner is a non-government organization is not
its conclusion regarding the nature of VFP’s incorporation, its persuasive, since DBM is not a quasi-judicial agency. They aver
previous assertions will not prevent future budgetary that what we have said of the Bureau of Local Government
appropriations to the VFP. The erroneous application of the law Finance (BLGF) in Philippine Long Distance Telephone
by public officers does not bar a subsequent correct application Company (PLDT) v. City of Davao can be applied to DBM: In
of the law. It is important to note here that the membership dues any case, it is contended, the ruling of the Bureau of Local
collected from the individual members of VFP’s affiliate Government Finance (BLGF) that petitioner’s exemption from
organizations do not become public funds while they are still local taxes has been restored is a contemporaneous construction
funds of the affiliate organizations. A close reading of Section of Section 23 [of R.A. No. 7925 and, as such, is entitled to great
1 of Rep. Act No. 2640 reveals that what has been created as a weight. The ruling of the BLGF has been considered in this
body corporate is not the individual membership of the affiliate case. But unlike the Court of Tax Appeals, which is a special
organizations, but merely the aggregation of the heads of the court created for the purpose of reviewing tax cases, the BLGF
affiliate organizations. Thus, only the money remitted by the was created merely to provide consultative services and
affiliate organizations to the VFP partake in the public nature technical assistance to local governments and the general public
of the VFP funds. In Republic v. COCOFED, we held that the on local taxation and other related matters. Thus, the rule that
Coconut Levy Funds are public funds because, inter alia, (1) the "Court will not set aside conclusions rendered by the CTA,
they were meant to be for the benefit of the coconut industry, which is, by the very nature of its function, dedicated
one of the major industries supporting the national economy, exclusively to the study and consideration of tax problems and
and its farmers; and (2) the very laws governing coconut levies has necessarily developed an expertise on the subject, unless
recognize their public character. The same is true with regard there has been an abuse or improvident exercise of authority"
to the VFP funds. No less public is the use for the VFP funds, cannot apply in the case of the BLGF. On this score, though, we
as such use is limited to the purposes of the VFP which we have disagree with respondents and hold that the DBM’s appraisal is
ruled to be sovereign functions. Likewise, the law governing considered persuasive. Respondents misread the PLDT case in
VFP funds (Rep. Act No. 2640) recognizes the public character asserting that only quasi-judicial agencies’ determination can
of the funds as shown in the enumerated provisions above. be considered persuasive. What the PLDT case points out is
that, for an administrative agency’s opinion to be persuasive,
3. Petitioner argues that it is a civilian federation where the administrative agency involved (whether it has quasi-
membership is voluntary. judicial powers or not) must be an expert in the field they are
giving their opinion on.
Neither is the civilian nature of VFP relevant in this case. The
Constitution does not contain any prohibition, express or
implied, against the grant of control and/or supervision to the CORPORATE PERSONALITY AND EXISTENCE
Secretary of National Defense over a civilian organization. The
Office of the Secretary of National Defense is itself a civilian
office, its occupant being an alter ego of the civilian ALHAMBRA CIGAR vs. SEC
Commander-in-Chief. This set-up is the manifestation of the G.R. No. L-23606
constitutional principle that civilian authority is, at all times, July 29, 1968
supreme over the military. There being no such constitutional 24 SCRA 269
prohibition, the creation of a civilian public organization by
Rep. Act No. 2640 is not rendered invalid by its being placed Facts:
under the control and supervision of the Secretary of National
Alhambra Cigar was incorporated Jan 15, 1912. Under
Defense.
its articles, it had a corporate life of 50 years and on Jan 15,
4. Petitioner claims that the Administrative Code of 1987 does 1962, its term of existence expired. On that date it ceased
not provide that the VFP is an attached agency, and nor does it transacting business and entered into a state of liquidation. On
provide that it is an entity under the control and supervision of June 20, 1963, Republic Act 3531 was enacted empowering
the DND in the context of the provisions of said code. corporations to extend their life beyond the period fixed by its
articles for a term not exceeding 50 years. Prior to the law,
The Administrative Code, by giving definitions of the
Corporations had a non-extendable life of 50 years. On July 15,
various entities covered by it, acknowledges that its
enumeration is not exclusive. The Administrative Code could 1963, the Board of Alhambra resolved to amend the life of the
not be said to have repealed nor enormously modified Rep. Act Corporation for another 50 years which was approved by the
No. 2640 by implication, as such repeal or enormous stockholders on August 1963. The amended articles were then
modification by implication is not favored in statutory filed with the SEC but the SEC returned the amended articles
construction. and said that the law has no retroactive effect.
5. Petitioner offers as evidence the DBM opinion that the VFP
is a non-government organization in its certification that the Issue:
 Whether or not the SEC correctly denied the amended Whether or not the appellate court committed a grave
articles of Alhambra error in holding that Marquez needed a written authority from
respondent ETERNIT before the sale can be perfected.
Held:
Supreme Court affirms the decision of the SEC.
Continuance of a dissolved corporation for 3 years has only for Held:
its purpose the closure of its affairs and no other. The Respondents maintain that Glanville, Delsaux and
Corporation is enjoined from doing business for which it was Marquez had no authority from the stockholders of EC and its
established. Liquidation is necessary because the Corp’s life has Board of Directors to offer the properties for sale to the
ended. For this reason alone, the Corp’s life may no longer be petitioners.
extended. An extension, which is in fact an amendment, must
be made during the life of the Corp and before the expiration of Petitioners assert that there was no need for a written
the term of existence as fixed by the Articles. Moreover, the authority from the Board of Directors of EC for Marquez to
filing of the certificate of extension cannot retroact to the date validly act as broker. As broker, Marquez was not an ordinary
of the passing of the resolution extending the life. agent because his only job as a broker was to look for a buyer
and to bring together the parties to the transaction. He was not
authorized to sell the properties; hence, petitioners argue,
LINTONJUA, JR. vs ETERNIT CORPORATION Article 1874 of the New Civil Code does not apply.
GR. 144805
June 8, 2006 A corporation is a juridical person separate and
distinct from its stockholders and is not affected by the personal
Facts: rights, obligations and transactions of the latter. It may act only
The Eternit Corporation (EC) manufactures roofing through its board of directors or, when authorized by its board
materials and pipe products. Ninety (90%) percent of the shares resolution, through its officers or agents. The general principles
of stocks of EC were owned by Eteroutremer SA Corporation of agency govern the relation between the corporation and its
(ESAC), a corporation registered under the laws of Belgium. officers or agents, subject to the articles of incorporation, by-
Glanville was the General Manager and President of EC, while laws, or relevant provisions of law. Agency may be oral unless
Delsaux was the Regional Director for Asia of ESAC. In 1986, the law requires a specific form. However, to create or convey
because of the political situation in the Philippines the real rights over immovable property, a special power of
management of ESAC wanted to stop its operations and to attorney is necessary. Thus, when a sale of a piece of land or
dispose the land in Mandaluyong City. They engaged the any portion thereof is through an agent, the authority of the
services of realtor/broker Lauro G. Marquez. latter shall be in writing, otherwise, the sale shall be void.

Marquez thereafter offered the land to Eduardo B. In this case, the petitioners failed to adduce in evidence
Lintojua, Jr. for PhP 27,000,000.00. Lintonjua counter offered any resolution of the Board of Directors of EC empowering
PhP 20,000,000.00 cash. Marquez apprised Glanville and Marquez, Glanville or Delsaux as its agents, to sell, let alone
Delsaux of the offer. Delsaux sent a telex stating that, based on offer for sale, for and its behalf, the eight parcels of land owned
nthe “Belgian/Swiss decision,” the final offer was by it. Moreover, the evidence of petitioners shows that Adams
“US$1,000,000.00 and PhP 2,500,000.00. The Lintonjua and Glanville acted on the authority of Delsaux, who, in turn,
brothers deposited US$1,000,000.00 with the Security Bank & acted on authority of ESAC, through its Committee for Asia,
Trust Company, and drafted an Escrow Agreement to expedite and the Belgian/Swiss component of the management of ESAC.
the sale. The offer of Delsaux emanated only form the “Belgian/Swiss
Decision,” and not the entire management of Board of Directors
Meanwhile, with the assumption of Corazon C. of ESAC. While it is true that petitioners accepted the counter-
Aquino as President, the political situation improved. Marquez offer of ESAC was not a party to the transaction between them;
received a leet from Delsaux that the ESAC Regional Office hence, EC was not bount by such acceptance.
decided not to proceed with the sale. When informed of this, the
Lintonjuas, filed a complaint for specific performance and
payment of damages on account of the aborted sale. Both the SULO NG BAYAN vs. ARANETA
trial court and appellate court rendered a judgement in favor of GR L-31061
defendants and dismissed the complaint. August 17, 1976

Issue: Facts:
 On April 26, 19966, Sulo ng Bayan, Inc. filed an where it is used as a cloak or cover for fraud or illegality, or to
accion de revindicacion with the Court of First Instance of work an injustice, or where necessary to achieve equity. It has
Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms not been claimed that the members have assigned or transferred
Inc., Nationa Waterworks & Sewage Authority (NAWASA), whatever rights they may have on the land in question to the
Hacienda Caretas Inc., and the Register of Deeds of Bulacan to corporation. Absent any showing of interest, therefore, a
recover the ownership and possession of a large tract of land in corporation, has no personality to bring the action for and in
San Jose del Monte, Bulacan containing an area of 27,982,250 behalf of its stockholders or members for the purpose of
sq.ms., more or less, registered under the Torrens System in the recovering property which belongs to said stockholders or
name of GAI, et. Al’s predecessors-in-interest (who are members in their personal capacities.
members of the corporation). On September 2, 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 WOODCHILD HOLDINGS, INC. VS.
action, if any, is barred by prescription and laches. Paradise ROXAS ELECTRIC AND CONSTRUCTION
Farms Inc. and Hacienda Caretas Inc. filed motions to dismiss COMPANY, INC.
on the same grounds. NAWASA did not file any motion to G.R. No. 140667
dismiss. However, it pleaded in its answer as special and August 12, 2004
affirmative defense lack of cause of action by Sulo ng Bayan
Innc. And the barring of such action by prescription and laches. Facts:

Issue: The respondent Roxas Electric and Construction

Whether the corporation (non-stock) may institute an Company, Inc. (RECCI), formerly the Roxas Electric and
action in behalf of its individual members for the recovery of Construction Company, was the owner of two parcels of land,
certain parcels of land allegedly owned by said members, Lots A and B. A portion of a lot A (Lot No. 491-A-3-B-2) was
among others. a dirt road accessing to the Sumulong Highway, Antipolo,
Rizal.

Held: The respondent's Board of Directors approved a

It is a doctrine well-established and obtains both at law resolution authorizing the corporation, through its president,
and in equity that a corporation is a distinct legal entity to be Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 at a price and
considered as separate and apart from the stockholders or under such terms and conditions which he deemed most
members who compose it, and is not affected by the personal reasonable and advantageous to the corporation; and to execute,
rights, obligations and transactions of its stockholders or sign and deliver the pertinent sales documents and receive the
members. The property of the corporation is its property and not proceeds of the sale for and on behalf of the company. Petitioner
that of the stockholders, as owners, although they have equities wanted to buy Lot No. 491-A-3-B-2 to construct its warehouse
in it. Properties registered in the name of the corporation are building, and a portion of the adjoining lot, Lot No. 491-A-3-
owned by it as an entity separate and distinct from its members. B-1, so that its 45-foot container van would be able to readily
Conversely, a corporation, “even in the case of a one-man enter or leave the property. In a Letter to Roxas, WHI President
corporation.” The mere fact that one is president of a Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and
corporation does not render the property which he owns or conditions for P7,213,000. Roxas indicated his acceptance of
possesses the property of the corporation, since the president, the offer on page 2 of the deed. Less than a month later Roxas,
as individual, and the corporation are separate similatities. as President of RECCI, as vendor, and Dy, as President of WHI,
Similarly, stockholders in a corporation engaged in buying and as vendee, executed a contract to sell in which RECCI bound
dealing in real estate whose certificates of stock entitled the and obliged itself to sell to Dy Lot No. 491-A-3-B-2. A Deed
holder thereof to an allotment in the distribution of the land of of Absolute Sale in favor of WHI was issued, under which Lot
the corporation upon surrender of the stock certificated were No. 491-A-3-B-2 was sold for P5,000,000, receipt of which was
considered not to have such legal or equitable title or interest in acknowledged by Roxas.
the land, as would support a suit for title, especially against
parties other than the corporation. It must be noted, however, WHI complained to Roberto Roxas that the vehicles
that the juridical personality of the corporation, as separate and of RECCI were parked on a portion of the property over which
distinct from the persons composing it, is but a legal fiction WHI had been granted a right of way. Roxas promised to look
introduced for the purpose of convenience. into the matter. Dy and Roxas discussed the need of the WHI to
buy a 500-square-meter portion of Lot No. 491-A-3-B-1
This separate personality of the corporation may be covered by TCT No. 78085 as provided for in the deed of
disregarded, or the veil of corporate fiction pierced, in cases absolute sale. However, Roxas died soon thereafter. WHI wrote
the RECCI, reiterating its verbal requests to purchase a portion immovable property. Article 1358 of the New Civil Code
of the said lot as provided for in the deed of absolute sale, and requires that contracts which have for their object the creation
complained about the latter's failure to eject the squatters within of real rights over immovable property must appear in a public
the three-month period agreed upon in the said deed. The WHI document. The petitioner cannot feign ignorance of the need for
demanded that the RECCI sell a portion of Lot No. 491-A-3-B- Roxas to have been specifically authorized in writing by the
1 covered by TCT No. 78085 for its beneficial use within 72 Board of Directors to be able to validly grant a right of way and
hours from notice thereof, otherwise the appropriate action agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that
would be filed against it. RECCI rejected the demand of WHI. if the act of the agent is one which requires authority in writing,
WHI reiterated its demand in a Letter dated May 29, 1992. those dealing with him are charged with notice of that fact.
There was no response from RECCI.
Powers of attorney are generally construed strictly and
WHI filed a complaint against the RECCI with the courts will not infer or presume broad powers from deeds which
Regional Trial Court of Makati, for specific performance and do not sufficiently include property or subject under which the
damages. agent is to deal. The general rule is that the power of attorney
must be pursued within legal strictures, and the agent can
Issue: neither go beyond it; nor beside it. The act done must be legally
identical with that authorized to be done. In sum, then, the
Whether the respondent is bound by the provisions in consent of the respondent to the assailed provisions in the deed
the deed of absolute sale granting to the Petitioner beneficial of absolute sale was not obtained; hence, the assailed provisions
use and a right of way over a portion of Lot No. 491-A-3-B-1 are not binding on it.
accessing to the Sumulong Highway and granting the option to
the petitioner to buy a portion thereof, and, if so, whether such WENSHA SPA CENTER, INC. and/or XU ZHI JIE vs.
agreement is enforceable against the respondent LORETA T. YUNG

Facts:
Loreta stated that she used to be employed by Manmen
Held: Services Co., Ltd. (Manmen) where Xu was a client. Xu was
A corporation is a juridical person separate and apparently impressed by Loreta’s performance. After he
distinct from its stockholders or members. Accordingly, the established Wensha, he convinced Loreta to transfer and work
property of the corporation is not the property of its at Wensha. . Enticed, Loreta resigned from Manmen and
stockholders or members and may not be sold by the transferred to Wensha. Loreta was later on asked to resign from
stockholders or members without express authorization from Wensha because according to the Feng Shui master, her aura
the corporation's board of directors. Section 23 of BP 68, did not match that of Xu. Loreta refused but was informed that
otherwise known as the Corporation Code of the Philippines.\ she could no longer continue working at Wensha. That same
afternoon, Loreta went to the NLRC and filed a case for illegal
Generally, the acts of the corporate officers within the dismissal against Xu and Wensha.
scope of their authority are binding on the corporation.
However, under Article 1910 of the New Civil Code, acts done The Labor Arbiter dismissed Loreta’s complaint for
by such officers beyond the scope of their authority cannot bind lack of merit. He found it more probable that Loreta was
the corporation unless it has ratified such acts expressly or dismissed from her employment due to Wensha’s loss of trust
tacitly, or is estopped from denying them. and confidence in her. This ruling was affirmed by the NLRC.
The CA reversed the decision and orered Wensha Spa Center,
Evidently, Roxas was not specifically authorized Inc. and Xu Zhi Jie to, jointly and severally, pay Loreta T. Yung
under the said resolution to grant a right of way in favor of the her full backwages, other privileges, and benefits.
petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to
sell to the petitioner a portion thereof. The authority of Roxas, Issue: Whether Xu Zhi Jie should be held jointly and severally
under the resolution, to sell Lot No. 491-A-3-B-2did not include liable with Wensha Spa Center.
the authority to sell a portion of the adjacent lot, Lot No. 491-
A-3-B-1, or to create or convey real rights thereon. Neither may Held:
such authority be implied from the authority granted to Roxas Elementary is the rule that a corporation is invested
to sell Lot No. 491-A-3-B-2 to the petitioner "on such terms and by law with a personality separate and distinct from those of the
conditions which he deems most reasonable and advantageous." persons composing it and from that of any other legal entity to
Under paragraph 12, Article 1878 of the New Civil Code, a which it may be related. "Mere ownership by a single
special power of attorney is required to convey real rights over stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground certificates cannot be declared or considered as lost and that hat
for disregarding the separate corporate personality." there was a failure to observe certain requirements of its by-
laws before new stock certificates could be issued
In labor cases, corporate directors and officers may be
held solidarily liable with the corporation for the termination of Held:
employment only if done with malice or in bad faith. Bad faith A corporation is an artificial being created by
does not connote bad judgment or negligence; it imports a operation of law....It owes its life to the state, its birth being
dishonest purpose or some moral obliquity and conscious doing purely dependent on its will. As Berle so aptly stated:
of wrong. In the subject decision, the CA concluded that Classically, a corporation was conceived as an artificial person,
petitioner Xu and Wensha are jointly and severally liable to owing its existence through creation by a sovereign power."As
Loreta. However there is no evidence proving bad faith or a matter of fact, the statutory language employed owes much to
malice on the part of Xu. There is, therefore, no justification for Chief Justice Marshall, who in the Dartmouth College decision
such a ruling. To sustain such a finding, there should be an defined a corporation precisely as "an artificial being, invisible,
evidence on record that an officer or director acted maliciously intangible, and existing only in contemplation of law." The
or in bad faith in terminating the services of an employee. well-known authority Fletcher could summarize the matter
Moreover, the finding or indication that the dismissal was thus: "A corporation is not in fact and in reality a person, but
effected with malice or bad faith should be stated in the decision the law treats it as though it were a person by process of fiction,
itself. or by regarding it as an artificial person distinct and separate
from its individual stockholders.... It owes its existence to law.
It is an artificial person created by law for certain specific
purposes, the extent of whose existence, powers and liberties is
fixed by its charter." Dean Pound's terse summary, a juristic
TAYAG VS. BENGUET CONSOLIDATED INC. person, resulting from an association of human beings granted
GR NO. L-23145 legal personality by the state, puts the matter neatly.
NOVEMBER 29, 1968

Facts: As a matter of fact, a corporation once it comes into

Idonah Slade Perkins, who died on March 27, 1960 in being, following American law still of persuasive authority in
New York City, left among others, two stock certificates our jurisdiction, comes more often within the ken of the
covering 33,002 shares of appellant, the certificates being in the judiciary than the other two coordinate branches. It institutes
possession of the County Trust Company of New York, which the appropriate court action to enforce its right. Correlatively, it
as noted, is the domiciliary administrator of the estate of the is not immune from judicial control in those instances, where a
deceased. Then came this portion of the appellant's brief: "On duty under the law as ascertained in an appropriate legal
August 12, 1960, Prospero Sanidad instituted ancillary proceeding is cast upon it. To assert that it can choose which
administration proceedings in the Court of First Instance of court order to follow and which to disregard is to confer upon
Manila; Lazaro A. Marquez was appointed ancillary it not autonomy which may be conceded but license which
administrator, and on January 22, 1963, he was substituted by cannot be tolerated. It is to argue that it may, when so minded,
the appellee Renato D. Tayag. A dispute arose between the overrule the state, the source of its very existence; it is to
domiciary administrator in New York and the ancillary contend that what any of its governmental organs may lawfully
administrator in the Philippines as to which of them was entitled require could be ignored at will. So extravagant a claim cannot
to the possession of the stock certificates in question. On possibly merit approval.
January 27, 1964, the Court of First Instance of Manila ordered
the domiciliary administrator, County Trust Company, to
"produce and deposit" them with the ancillary administrator or
NON-ENTITLEMENT TO MORAL DAMAGES
with the Clerk of Court. The domiciliary administrator did not
comply with the order, and on February 11, 1964, the ancillary
administrator petitioned the court to "issue an order declaring
ABS-CBN VS. CA AND VIVA FILMS
the certificate or certificates of stocks covering the 33,002
G.R. No. 128690
shares issued in the name of Idonah Slade Perkins by Benguet
January 21, 1999
Consolidated, Inc., be declared [or] considered as lost." The
Facts:
court granted the petion.

In 1990, ABS-CBN and Viva executed a Film

Issue: Whether or not the respondent can refuse to follow the
Exhibition Agreement whereby ABS-CBN was given the right
lawful order of the court on the grounds that the stock
of first refusal to the next twenty-four (24) Viva films for TV
telecast under such terms as may be agreed upon by the parties and is a rejection of the original offer. Consequently,
hereto, provided, however, that such right shall be exercised by when something is desired which is not exactly what
ABS-CBN from the actual offer in writing. Consequently, Viva, is proposed in the offer, such acceptance is not
through defendant Del Rosario, offered ABS-CBN, through its sufficient to generate consent because any
vice-president Charo Santos-Concio, a list of three(3) film modification or variation from the terms of the offer
packages (36 titles) from which ABS-CBN may exercise its annuls the offer. Under Corporation Code, unless
right of first refusal under the afore-said agreement. ABS CBN otherwise provided by said Code, corporate powers,
rejected said list. On February 27, 1992, Del Rosario such as the power; to enter into contracts; are exercised
approached Ms. Concio, with a list consisting of 52 original by the Board of Directors. However, the Board may
movie titles, as well as 104 re-runs from which ABS-CBN may delegate such powers to either an executive committee
choose another 52 titles, or a total of 156 titles, proposing to sell or officials or contracted managers. The delegation,
to ABS-CBN airing rights over this package of 52 originals and except for the executive committee, must be for
52 re-runs for P60,000,000.00. The package was rejected by specific purposes, Delegation to officers makes the
ABS-CBN. On April 06, 1992, Del Rosario and Mr. Graciano latter agents of the corporation; accordingly, the
Gozon of RBS discussed the terms and conditions of Viva’s general rules of agency as to the bindings effects of
offer to sell the 104 films. On April 07, 1992, defendant Del their acts would apply. For such officers to be deemed
Rosario received through his secretary, a handwritten note from fully clothed by the corporation to exercise a power of
Ms. Concio which reads: “Here’s the draft of the contract. I the Board, the latter must specially authorize them to
hope you find everything in order,” to which was attached a do so. That Del Rosario did not have the authority to
draft exhibition agreement, a counter-proposal covering 53 accept ABS-CBN's counter-offer was best evidenced
films for a consideration of P35 million. The said counter- by his submission of the draft contract to VIVA's
proposal was however rejected by Viva’s Board of Directors. Board of Directors for the latter's approval. In any
On April 29, 1992, Viva granted RBS the exclusive right to air event, there was between Del Rosario and Lopez III no
104 Viva-produced and/or acquired films including the fourteen meeting of minds.
(14) films subject of the present case. ABS-CBN then filed a a
complaint for specific performance. RTC rendered a decision in 2. Moral damages are in the category of an award
favor of RBS and VIVA and against ABS-CBN, ruling that designed to compensate the claimant for actual injury
there was no meeting of minds on the price and terms of the suffered. And not to impose a penalty on the
offer. Furthermore, the right of first refusal under the 1990 Film wrongdoer. The award is not meant to enrich the
Exhibition Agreement had previously been exercised per Ms. complainant at the expense of the defendant, but to
Concio’s letter to Del Rosario ticking off ten titles acceptable enable the injured party to obtain means, diversion, or
to them, which would have made the 1992 agreement an amusements that will serve to obviate then moral
entirely new contract. The Court of Appeals affirmed the suffering he has undergone. It is aimed at the
decision of the RTC. Hence, this petition. restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate
to the suffering inflicted. Trial courts must then guard
ISSUES: against the award of exorbitant damages; they should
1. WHETHER THE CONTRACT BETWEEN LOPEZ exercise balanced restrained and measured objectivity
AND DEL ROSARIO WAS PERFECTED to avoid suspicion that it was due to passion, prejudice,
2. WHETHER THE RESPONDENT RBS IS or corruption on the part of the trial court. The award
ENTITLED TO MORAL DAMAGES of moral damages cannot be granted in favor of a
corporation because, being an artificial person and
HELD: having existence only in legal contemplation, it has no
1. Contracts that are consensual in nature are perfected feelings, no emotions, no senses, It cannot, therefore,
upon mere meeting of the minds, once there is experience physical suffering and mental anguish,
concurrence between the offer and the acceptance which call be experienced only by one having a
upon the subject matter, consideration, and terms of nervous system. The statement in People
payment a contract is produced. The offer must be v. Manero and Mambulao Lumber Co. v. PNB that a
certain. To convert the offer into a contract, the corporation may recover moral damages if it "has a
acceptance must be absolute and must not qualify the good reputation that is debased, resulting in social
terms of the offer; it must be plain, unequivocal, humiliation" is an obiter dictum. On this score alone
unconditional, and without variance of any sort from the award for damages must be set aside, since RBS is
the proposal. A qualified acceptance, or one that a corporation.
involves a new proposal, constitutes a counter-offer
 ASSET PRIVATIZATION TRUST VS. COURT OF Held:
APPEALS The MMIC cannot be entitled to a big amount of moral
damages when its credit reputation was not exactly something
Facts: to be considered sound and wholesome. Under Article 2217 of
The Philippine Government undertook to support the the Civil Code, moral damages include besmirched reputation
financing of Marinduque Mining and Industrial Corporation which a corporation may possibly suffer. A corporation whose
(MMIC). the Philippine Government obtained a firm overdue and unpaid debts to the Government alone reached a
commitment from the DBP and/or other government financing tremendous amount of P22 Billion Pesos cannot certainly have
institutions. DBP approved guarantees in favor of MMIC and a solid business reputation to brag about.
subsequent requests for guarantees were based on the unutilized
portion of the Government commitment. Thereafter, the It must be pointed out that when the supposed
Government extended accommodations to MMIC in various wrongful act of foreclosure was done, MMIC's credit
amounts. reputation was no longer a desirable one. The company then
was already suffering from serious financial crisis which
MMIC, PNB and DBP executed a Mortgage Trust definitely projects an image not compatible with good and
Agreement whereby MMIC, as mortgagor, agreed to constitute wholesome reputation. So it could not be said that there was a
a mortgage in favor or PNB and DBP as mortgagees, over all "reputation" besmirched by the act of foreclosure.
MMIC's assets.

MMIC was having a difficult time meeting its DOCTRINE OF PIERCING THE VEIL OF
financial obligations. MMIC had an outstanding loan with DBP CORPORATE ENTITY
in the amount of P13.7 billion and with PNB in the amount of
P8.7 billion. Thus, a financial restructuring plan (FRP was HI-CEMENT CORPORATION VS. INSULAR BANK OF
drafted by the Sycip Gorres Velayo accounting firm. ASIA AND AMERICA
G.R. No. 132403
The various loans and advances made by DBP and September 28, 2007
PNB to MMIC had become overdue. DBP and PNB as
mortgagees of MMIC assets, decided to exercise their right to Facts:
extrajudicially foreclose the mortgages in accordance with the Petitioners Enrique Tan and Lilia Tan were the
Mortgage Trust Agreement. controlling stockholders of E.T. Henry & Co., Inc., a company
engaged in the business of processing and distributing bunker
Jesus S. Cabarrus, Sr., together with the other fuel. Among E.T. Henry's customers were petitioner Hi-Cement
stockholders of MMIC, filed a derivative suit against DBP and Corporation, Riverside Mills Corporation and Kanebo
PNB before the RTC of Makati, Branch 62, for Annulment of Cosmetics Philippines, Inc. For their purchases, these
Foreclosures, Specific Performance and Damages. APT, as corporations issued postdated checks to E.T. Henry.
successor of the DBP and the PNB's interest in MMIC, mutually Respondent Insular Bank of Asia and America (later PCIB and
agreed to submit the case to arbitration. The issues to be now Equitable PCI-Bank) granted E.T. Henry a credit facility
submitted for the Committee's resolution shall be (a) Whether known as “Purchase of Short Term Receivables.” Through this
plaintiffs have the capacity or the personality to institute this arrangement, E.T. Henry was able to encash, with pre-deducted
derivative suit in behalf of the MMIC or its directors, (b) interest, the postdated checks of its clients (re-discounting of
Whether or not the actions leading to, and including,. the PNB- checks). For every transaction, respondent required E.T. Henry
DBP foreclosure of the MMIC assets were proper, valid and in to execute a promissory note and a deed of assignment bearing
good. the conformity of the client to the re-discounting.

The Committee finds, there is no foreclosure at all as E.T. Henry was able to re-discount its clients' checks
it was not legally and validly done. APT was ordered to pay (with deeds of assignment) with respondent. However, when 20
Marinduque Mining and Industrial Corporation the sum of checks of Hi-Cement (which were crossed and which bore the
P13,000.000.00, as and for moral and exemplary damages. restriction “deposit to payee’s account only”), Riverside, and
Kanebo were dishonoured, respondent filed a complaint for
On appeal, the Court of Appeals denied due course and sum of money in the then Court of First Instance of Rizal
dismissed the petition for certiorari. against E.T. Henry, the spouses Tan, Hi-Cement (including its
general manager and its treasurer as signatories of the postdated
Issues: Whether MMIC was entitled to moral damages. crossed checks), Riverside and Kanebo. Respondent sought for
the payment of actual damages and for the collection from E.T.
Henry and the spouses Tan other loan obligations (amounting discounting of the checks when the general manager did not
to P1,661,266.51 and P4,900,805, respectively) as deficiencies acquiesce to it as only the treasurer's signature appeared on the
resulting from the foreclosure of the real estate mortgage on deed of assignment. As a banking institution, it behooved
E.T. Henry's property in Sucat, Parañaque. respondent to act with extraordinary diligence
inevery transaction. Its business is impressed with public
Hi-Cement filed its answer alleging, among others, interest, thus, it was not expected to be careless and negligent,
that: (1) its general manager and treasurer were not authorized specially so where the checks it dealt with were crossed.
to issue the postdated crossed checks in E.T. Henry's favor; (2)
the deed of assignment purportedly executed by Hi-Cement Here, there was no doubt that it was E.T. Henry that
assigning them to respondent only bore the conformity of its re-discounted Hi-Cement's checks and received their value
treasurer and (3) respondent was not a holder in due course as from respondent. Since E.T. Henry had no justification to
it should not have discounted them for being “crossed checks.” refuse payment, it should pay respondent. Hi-Cement could not
In their answer (with counterclaim against respondent and also be made solidarily liable with Riverside and Kanebo for
cross-claims against Hi-Cement, Riverside and Kanebo), E.T. the face value of their checks. Hi-Cement had nothing to do
Henry and the spouses Tan claimed that: (1) the drawers of the with the checks of these two corporations. However, although
postdated checks failed to honor them due to the adverse the language of the trial court decision's dispositive portion
economic conditions prevailing at the time respondent seemed confusing, a reading of the decision in its entirety
presented them for payment; (2) the extra-judicial sale of the reveals that the fallo was for each corporation to be liable
mortgaged Sucat property was void due to gross inadequacy of solidarily with E.T. Henry and/or the spouses Tan for the
the bid price and (3) their loans were subjected to a usurious respective values of their checks. At any rate, the issue has
interest rate of 21% p.a. For their part, Riverside and Kanebo become moot in view of our ruling that Hi-Cement is not liable
sought the dismissal of the case against them, arguing that they for the checks.
were not privy to the re-discounting arrangement between
respondent and E.T. Henry. The trial court rendered judgment (2) The general rule is that the corporation will be
in favor of respondent and against E.T. Henry, spouses Tan, Hi- looked upon as a legal entity until sufficient reasons to the
Cement, Riverside and Kanebo. Only petitioners appealed the contrary appear. It is only when the fiction or notion of legal
decision to the CA which affirmed it in toto. entity is used to defeat public convenience, justify wrong,
perpetuate fraud or defend crime that the law will shred the
Issues: (1) Whether or not petitioners may be held liable for corporate legal veil and regard it as a mere association of
the dishonoured postdated cross checks. persons. This is referred to as the doctrine of piercing the veil
(2) Whether or not the doctrine of piercing the veil of of corporate entity.
corporate entity is applicable herein.
However, said doctrine may not be applied herein.
Held: (1) Both the general manager and treasurer of Hi- First, the trial court failed to provide a clear ground why the
Cement were authorized to issue the subjects checks. Hi- doctrine was used. It merely stated that it agreed with
Cement was already estopped from denying such authority respondent’s arguments but did not explain why the doctrine
since it never objected to the signatories' issuance of all was relevant to petitioner E.T. Henry's and the spouses Tan’s
previous checks to E.T. Henry which the latter, in turn, was able case. Similarly, the CA left a gaping hole by failing to provide
to re-discount with respondent. However, notwithstanding such the basis for its ruling that E.T. Henry and the spouses Tan
fact, respondent could not be considered a holder in due course. defrauded respondent. It did not also state what act
Absent any of the elements set forth in Section 52, the holder is constituted the fraud. Fraud is an allegation of fact that
not a holder in due course. In the case at bar, the last two demands clear and convincing evidence. It is never presumed.
requirements were not met.
Second, the mere ownership by a single stockholder or
The respondent's claim that it acted in good faith when by another corporation of all or nearly all of the capital stock of
it accepted and discounted Hi-Cement’s postdated crossed a corporation is not of itself sufficient ground for disregarding
checks from E.T. Henry (as payee therein) is unconvincing. the separate corporate personality. For this ground to stand in
Good faith becomes inconsequential amidst proof of this case, there must be proof that the spouses Tan: (1) had
respondent's grossly negligent conduct in dealing with the control or complete domination of E.T. Henry’s finances and
subject checks. Respondent was all too aware that subject that the latter had no separate existence with respect to the act
checks were crossed and bore restrictions that they were for complained of; (2) used such control to commit fraud or wrong
deposit to payee's account only; hence, they could not be further and (3) the control was the proximate cause of the loss or injury
negotiated to it. The records likewise reveal that respondent complained of by respondent. The records of this case do not
completely disregarded a telling sign of irregularity in the re- show that these elements were present.
 personality is merely a fiction created by law for convenience
Third, mere inadequacy of the price obtained at the and to promote justice. Accordingly, this separate personality
sheriff’s sale, unless shocking to the conscience, was not of the corporation may be disregarded, or the veil of corporate
sufficient to set aside the sale if there was no fiction pierced, in cases where it is used as a cloak or cover for
showing that, in the event of a regular sale, a better pri fraud or illegality, or to work an injustice, or where necessary
ce could be obtained.” Furthermore, in the absence of any to achieve equity or when necessary for the protection of
irregularity in the foreclosure proceeding or proof that it was creditors. Corporations are composed of natural persons and the
carried out without strict observance of the procedure, an legal fiction of a separate corporate personality is not a shield
assumption as to its regularity shall stay. for the commission of injustice and inequity. Likewise, this is
true when the corporation is merely an adjunct, business
conduit or alter ego of another corporation. In such case, the
TAN BOON BEE VS. JARENCIO fiction of separate and distinct corporation entities should be
163 SCRA 205 disregarded.

Facts: In the instant case, petitioner’s evidence established

that PADCO was never engaged in the printing business; that
Petitioner, doing business under the name and style of the board of directors and the officers of GRAPHIC and
Anchor Supply Co., sold on credit to herein private respondent PADCO were the same; and that PADCO holds 50% share of
Graphic Publishing, Inc. paper products. For failure of Graphic stock of GRAPHIC. Petitioner likewise stressed that PADCO’s
to pay any installment, as agreed on the contract of sale, own evidence shows that the printing machine in question had
petitioner filed with the CFI of Manila a collection suit for a been in the premises of GRAPHIC since May, 1965, long
sum of money to which the latter rendered judgment ordering before PADCO even acquired its alleged title on July 11, 1966
Graphic to pay the petitioner. On motion of petitioner, a writ of from Capitol Publishing. That the said machine was allegedly
execution was issued and the executing sheriff levied upon one leased by PADCO to GRAPHIC on January 24, 1966, even
unit printing machine identified as "Original Heidelberg before PADCO purchased it from Capital Publishing on July
Cylinder Press" Type H 222, NR 78048, found in the premises 11, 1966, only serves to show that PADCO’s claim of
of Graphic. However, private respondent, Philippine American ownership over the printing machine is not only farce and sham
Drug Company (PADCO), later informed the sheriff that the but also unbelievable.
printing machine is its property and not that of Graphic.
Nevertheless, the sheriff proceeded with the scheduled auction
sale, and sold the property to the petitioner. PADCO filed an A.C. RANSOM LABOR UNION-CCLU vs. NATIONAL
"Affidavit of Third Party Claim" with the Office of the City LABOR RELATIONS COMMISSION, First Division
Sheriff and thereafter a Motion to Nullify Sale on Execution A.C. RANSOM (PHIIS.) CORPORATION RUBEN
(With Injunction) with the CFI. Despite petitioner’s opposition, HERNANDEZ, MAXIMO C. HERNANDEZ, SR.,
the CFI ruled in favor of PADCO. Petitioner contends that the PORFIRIO R. VALENCIA, LAURA H. CORNEJO,
controlling stockholders of the PADCO are also the same FRANCISCO HERNANDEZ, CELESTINO C.
controlling stockholders of the Graphic and, therefore, the levy HERNANDEZ and MA. ROSARIO HERNANDEZ.
upon the said machinery which was found in the premises
occupied by the Graphic should be upheld. In addition,
petitioner contends that respondent judge gravely exceeded, if Facts:
not, acted without jurisdiction, in nullifying the sheriff’s sale
not only because Section 17, Rule 39 of the Rules of Court was Motions were filed by petitioner for the collection of
not complied with, but more importantly because PADCO back wages of the 22 employees of the corporation which
could not have litigated its claim in the same case, but in an RANSOM opposed stressing due to its financial condition. The
independent civil proceeding. officers of Ransom later on organized another corporation
named Rasario Industrial Corporation which is substantially the
Issue: Whether or not there is a need to pierce the corporate same as Ransom but the officers declared that ROSARIO is a
veil. distinct and separate corporation, which was organized long
before these instant cases were decided by the CIR adversely
Held:
against RANSOM.
The doctrine that a corporation is a legal entity distinct
The Labor arbiter held Ransom and its officers liable
and separate from the members and stockholders who compose
for the amount being demanded, but the NLRC modified the
it is recognized and respected in all cases which are within
decision limiting the liability to the president of Ransom, Ruben
reason and the law. However, this separate and distinct
Hernandez together with the other presidents of the same
corporation who was elected subsequently up to the termination Prior to 29 October 1971, PASUMIL engaged the services of
of the life of the corporation. the Andrada Electric & Engineering Company (AEEC) for
electrical rewinding and repair, most of which were partially
The UNION in its Motion for Reconsideration, prays paid by PASUMIL, leaving several unpaid accounts with
that the veil of corporate fiction be pierced and that all the AEEC. On 29 October 1971, AEEC and PASUMIL entered
individual private respondents and not only the President, into a contract for AEEC to perform the (a) Construction of a
should be held jointly and severally liable with RANSOM. power house building;3 reinforced concrete foundation for 3
units 350 KW diesel engine generating sets, 3 reinforced
Issue: Whether the officers together with Ransom should be
concrete foundation for the5,000 KW and 1,250 KW
held liable.
turbo generator sets, among others. Aside from the
Held: work contract, PASUMIL required AEEC to perform extra
work, and provide electrical equipment and spare parts. Out of
When the notion of legal entity is used as a means to the total obligation of P777,263.80, PASUMIL had paid only
perpetrate fraud or an illegal act or as a vehicle for the evasion P250,000.00, leaving an unpaid balance, as of 27 June1973,
of an existing obligation, the circumvention of statutes, and or amounting toP527,263.80. Out of said unpaid balance of
confuse legitimate issues the veil which protects the corporation P527,263.80, PASUMIL made a partial payment to AEEC of
will be lifted. P14,000.00, in broken amounts, covering the period from 5
January 1974 up to 23 May1974, leaving an unpaid balance
The alleged bankruptcy of RANSOM furnishes no of P513,263.80. PASUMIL and PNB, and now
justification for non-payment of back wages to the employees NASUDECO, allegedly failed and refused to pay AEEC their
concerned taking into consideration Article 110 of the Labor just, valid and demandable obligation (The President of the
Code, which gives preference to the claim of employees for NASUDECO is also the Vice-President of the PNB. AEEC
back wages. besought said official to pay the outstanding obligation of
PASUMIL, inasmuch as PNB and NASUDECO now owned
Aggravating RANSOM's clear evasion of payment of and possessed the assets of PASUMIL, and these defendants all
its financial obligations is the organization of a “run-away” benefited from the works, and the electrical, as well as the
corporation, ROSARIO at the time the unfair labor practice engineering and repairs, performed by AEEC). Because of
case was pending before the CIR by the same persons who were the failure and refusal of PNB, PASUMIL
the officers and stockholders of RANSOM, engaged in the and/or NASUDECO to pay their obligations, AEEC allegedly
same line of business as RANSOM, producing the same line of suffered actual damages in the total amount of P513,263.80;
products, occupying the same compound, using the same and that in order to recover these sums, AEEC was compelled
machineries, buildings, laboratory, bodega and sales and to engage the professional services of counsel, to whom AEEC
accounts departments used by RANSOM, and which is still in agreed to pay a sum equivalent to 25% of the amount of the
existence. Both corporations were closed corporations owned obligation due by way of attorney's fees.PNB and NASUDECO
and managed by members of the same family. Its organization filed a joint motion to dismiss on the ground that the complaint
proved to be a convenient instrument to avoid payment of failed to state sufficient allegations to establish a cause of action
backwages and the reinstatement of the 22 workers. This is against PNB and NASUDECO, inasmuch as there is lack or
another instance where the fiction of separate and distinct want of privity of contract between the them and AEEC. Said
corporate entities should be disregarded. motion was denied by the trial court in its 27November order,
and ordered PNB and NASUDECO to file their answers within
PNB vs. ANDRADA ELECTRIC AND ENGINEERING 15 days. After due proceedings, the Trial Court rendered
COMPANY judgment in favor of AEEC and against PNB, NASUDECO
GR No. 142936 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
Facts: September 1980 until fully paid; (2) the sum of P102,724.76 as
On 26 August 1975, the Philippine national Bank attorney's fees; and, (3) Costs. PNB and NASUDECO
(PNB) acquired the assets of the Pampanga Sugar Mills appealed. The Court of Appeals affirmed the decision of the
(PASUMIL)that were earlier foreclosed by the Development trial court in its decision of 17 April 2000 (CA-GR CV 57610.
Bank of the Philippines (DBP) under LOI311. The PNB PNB and NASUDECO filed the petition for review
organized the National Sugar Development Corporation
(NASUDECO) in September 1975, to take ownership and ISSUE: Whether PNB and NASUDECO may be held liable
possession of the assets and ultimately to nationalize and for PASUMIL’s liability to AEEC.
consolidate its interest in other PNB controlled sugar mills.
HELD:
Basic is the rule that a corporation has a legal SITUS / NATIONALITY OF CORPORATION
personality distinct and separate from the persons and entities
owning it. The corporate veil may be lifted only if it has been SEC En Banc Case No. 09-09-177
used to shield fraud, defend crime, justify a wrong, defeat
public convenience, insulate bad faith or perpetuate injustice. For: Review of CED Ruling
Thus, the mere fact that the Philippine National Bank Redmont Consolidated Mines Corporation vs. McArthur
(PNB)acquired ownership or management of some assets of the Mining Inc., Tesoro Mining and Development, Inc., Narra
Pampanga Sugar Mill (PASUMIL), which had earlier been Nickel Mining and Development Inc., Sara Marie Mining
foreclosed and purchased at the resulting public auction by the Inc., Patricia Louise Mining and Development
Development Bank of the Philippines (DBP), will not make Corporation, Madridejos Mining Corporation, Bethlehem
PNB liable for the PASUMIL's contractual debts to Andrada Nickel Corporation, San Juanico Nickel Corpoatration
Electric & Engineering Company (AEEC). Piercing the veil of and MBMI Resources, Inc.
corporate fiction may be allowed only if the following elements
concur: (1) control ² not mere stock control, but complete Facts:
domination² not only of finances, but of policy and business Redmont is a domestic corporation engaged in the
practice in respect to the transaction attacked, must have been mining business with a SEC Registration No. Respondent
such that the corporate entity as to this transaction had at the corporations are likewise corporations incorporated in the
time no separate mind, will or existence of its own; (2) such Philippines to engage in mining with their respective SEC
control must have been used by the defendant to commit a fraud Registration Nos. MBMI is a Canadian mining company
or a wrong to perpetuate the violation of a statutory or other focused on the exploration and development of nickel mineral
positive legal duty, or a dishonest and an unjust act in properties in the Philippines.
contravention of plaintiff's legal right; and (3) the said control
and breach of duty must have proximately caused the injury or Redmont filed a Complaint for Revocation before the CED,
unjust loss complained of. The absence of the foregoing praying that the certificates for registration of respondent
elements in the present case precludes the piercing of the corporations be revoked on the ground that they violated the
corporate veil. First, other than the fact that PNB and constitutional and statutory restriction on the foreign ownership
NASUDECO acquired the assets of PASUMIL, there is no of corporations engaged in the exploitation, development and
showing that their control over it warrants the disregard of utilization of natural resources. According to Redmont:: (1)
corporate personalities. Second, there is no evidence that their MBMI actually funded 99.78864%, 99.78571% and
juridical personality was used to commit a fraud or to do a 99.80039% of the paid up capital of Madridejos, Patricia
wrong; or that the separate corporate entity was farcically used Louise, Sara Marie and an Juanico, respectively; (2) MBMI
as a mere alter ego, business conduit or instrumentality of actually funded 69.35204%, 69.35204%, and 69.41678% of the
another entityor person. Third, AEEC was not defrauded paid up capital of McArthur, Tesoro and Bethlehem,
or injured when PNB and NASUDECO acquired the assets of respectively; in both cases, way above the maximum cap for
PASUMIL. Hence, although the assets of NASUDECO can be foreign ownership of 40% as shown by the corporations’
easily traced to PASUMIL, the transfer of the 15latter's assets respective Articles of Incorporation. Further, respondent
to PNB and NASUDECO was not fraudulently entered into in corporations employed fraudulent schemes of cascading or
order to escape liability for its debt to AEEC. Neither was company layering, hiding its actual direct ownership of stocks
there any merger or consolidation with respect to PASUMIL through a first layer corporation. Redmont arrived at such
and PNB. The procedure prescribed under Title IX of figures using the Grandfather Rule, which it argued must be
the Corporation Code 59 was not followed. In fact, PASUMIL's observed in determining the nationality of a corporation instead
corporate existence had not been legally extinguished or of the Control Test.
terminated. Further, prior to PNB's acquisition of the foreclosed
assets, PASUMIL had previously made partial payments to The Compliance and Enforcement Department (CED)
AEEC for the former's obligation in the amount of P777,263.80. of SEC issued a Letter-Resolution disposing of the Redmont’s
As of 27 June1973, PASUMIL had paid P250,000 to AEEC Complaint for revocation of certificates of registration against
and, from 5 January1974 to 23 May 1974, another P14,000. respondents, finding McArthur, Tesoro, Sara Marie,
Neither did PNB expressly or impliedly agree to assume the Madridejos, and Bethlehem to have not yet started their
debt of PASUMIL to AEEC. LOI 11 explicitly provides that commercial operations, while Narra and Patricia Louise were
PNB shall study and submit recommendations on the claims directed to cease from small-scale mining activity unless they
of PASUMIL's creditors. Clearly, the corporate separateness amend their Articles of Incorporation and pay the penalties to
between PASUMIL and PNB remains despite AEEC's SEC pursuant to the violations recorded. It also held that
insistence to the contrary. respondent corporations were in fact Philippine nationals, as
defined under Section 3 of the Foreign Investments Act of 1991 through their ownership of 40% in the investing corporation is
(R.A. 7042 as amended by R.A. 8179), except for MBMI which unduly ignored. On the other hand, if we apply the Grandfather
is registered in Canada. Rule, the foreigners would be barred from participating in such
nationalized area of investment, their actual and true
Issues: (1) As to McArthur, Tesoro and Narra: Whether or not participation having been established. Hence, the Grandfather
appellee-corporations are Philippine nationals qualified to Rule must be applied to accurately determine the actual
engage in mining. participation, both direct and indirect, of foreigners in a
(2) As to Madridejos, Patricia Louise, Sara Marie, San corporation engaged in a nationalized activity or business.
Juanico and Bethlehem: Which between the Grandfather Rule Lastly, it was the intent of the framers of the 1987 Constitution
and the Control Test should be used in the case at bar to to adopt the Grandfather Rule as may be gleaned from in the
determine the said corporations’ nationalities? discussions on Article XII.

Held: (1) In deference to the CA (where Redmont currently The case is thus remanded to the CED for further
has an appeal pending therein regarding the same matter, proceedings and the CRMD is directed to assist the CED. The
originating from the POA and MAB of the DENR which both CED Letter-Resolution is thus set aside.
declared the corporations to be Filipino nationals) the ruling of
the CED that McArthur, Tesoro and Narra are Philippine
nationals, are set aside and thus the complaint for revocation *Note:
against said corporations is dismissed. CONTROL TEST:

(2) Under DOJ Opinion No. 020, Series of 2005, 60% (Filipino equity in Corp. A) x 60% (Corp. A’s
which adopted the 1967 SEC Rules, the requirement of the equity in Corp. C) = 36% Filipino
__________________________________________
Constitution and other laws that the controlling interests in
enterprises engaged in the exploitation of natural resources 100
shall be owned by Filipino citizens is implemented. It is
provided therein that there are two cases in determining the
nationality of the Investee Corporation. The first case is the 40% (Filipino equity in Corp. A) x 60% (Corp. A’s
“liberal rule,” later coined by the SEC as the Control Test, and equity in Corp. C) = 24% Filipino
pertains to “the shares belonging to corporations or partnerships __________________________________________

at least 60% of the capital of which is owned by Filipino citizens 100

shall be considered as of Philippine nationality. Under the
liberal Control Test, there is no need to further trace the 24% foreign + 40% (direct foreign investment in Corp.
ownership of the 60% or more Filipino stockholdings of the C) = 64% total foreign investment
Investing Corporation since a corporation which is at least 60%
Filipino-owned is considered as Filipino.
CERTIFICATES OF STOCK
The second case is the Strict Rule or the
Grandfather Rule Proper and pertains to the portion referred SAN MIGUEL CORPORATION VS. SANDIGANBAYAN
to in the SEC Rules as the percentage of Filipino ownership in G.R. Nos. 104637-38
the corporation or partnership which is less than 60%, only the September 14, 2000
number of shares corresponding to such percentage shall be
counted as of Philippine nationality. Thus, the combined totals Facts:
in the Investing Corporation and the Investee Corporation must San Miguel Corporation involved the sale by the 14
be traced to determine the total percentage of Filipino CIIF Companies, through the United Coconut Planters Bank
ownership. Thus, based on the said SEC Rule and DOJ (UCPB), of 33,133,266 SMC shares, to the SMC. Before the
Opinion, applies only when the 60-40 Filipino-foreign equity perfection of the sale, however, the said shares were
ownership is in doubt. sequestered. Thus, the SMC group suspended payment of the
purchase price of the shares, while the UCPB group rescinded
Such doubt exists in this case because the foreign the sale. Later, the SMC and UCPB groups entered into
investor, MBMI, provided practically all the funds of the a Compromise Agreement and Amicable Settlement, whereby
remaining appellee-corporations. The legal fiction under the they undertook to continue with the sale of the subject shares of
Control Test that the 60% investment o the investing stock. They likewise agreed to pay an "arbitration fee" of
corporation is deemed Filipino actually favors foreigners 5,500,000 SMC shares composed of 3,858,831 “A” shares and
because their indirect interest in the investee corporation 1,641,169 “B” shares to the PCGG to be held in trust for the
Comprehensive Agrarian Reform Program. The Republic and Held:
COCOFED opposed the said agreement contending that the First. The cases at bar do not merely involve
involved coco-levy funds, whether in the form of earnings or a compromise agreement dealing with private interest. The
dividends therefrom, or in the form of the value of liquidated Compromise Agreement here involves sequestered shares of
corporate assets represented by all sequestered shares (like the stock now worth more than nine (9) billions of pesos, per
value of assets sold/mortgaged to finance the P500M first estimate given by COCOFED. Their ownership is still under
installment), or in the form of cash, or, as in the case of subject litigation. It is not yet known whether the shares are part of the
"Settlement," in the form of "proceeds" of sale or of "payments" alleged ill-gotten wealth of former President Marcos and his
of certain alleged obligations are public funds. As public funds, "cronies." Any Compromise Agreement concerning these
the coco-levy funds, in any form or transformation, are beyond sequestered shares falls within the unquestionable jurisdiction
or "outside the commerce," and perforce not within the private of and has to be approved by the Sandiganbayan. The parties
disposition of private individuals. themselves recognized this jurisdiction. In the Compromise
Agreement itself, the petitioners and the UCPB Group
Nevertheless, the parties moved for the approval of expressly acknowledged the need to obtain the approval by the
this agreement by the Sandiganbayan where the case was then Sandiganbayan of its terms and conditions. The PCGG
pending. Later, UCPB and the SMC groups implemented their Resolution of June 15, 1990 also imposed the approval of the
agreement extra-judicially, withdrawing, at the same time, their Sandiganbayan as a condition sine qua non for the transfer of
petition for the approval of their aforementioned compromise these sequestered shares of stock. Thus, the petitioners
agreement. Thereafter, the Sandiganbayan issued an Order voluntarily submitted to the jurisdiction of the Sandiganbayan
dated August 5, 1991, directing the SMC to deliver to the graft by asking for the approval of the said Compromise Agreement.
court the sequestered SMC shares that it bought from UCPB.
This was followed by another Order dated March 18, 1992, for Second. Given its undisputed jurisdiction, the
the delivery to the court of dividends pertaining to the subject Sandiganbayan ordered that the treasury shares should be
SMC shares. It was these two delivery Orders that were delivered to PCGG and that their dividends should be
submitted for the consideration of the SC. paid pending determination of their real ownership which is the
key to the question whether they are part of the alleged ill-
SMC contends that the questioned orders would gotten wealth of former President Marcos and his "cronies." In
deprive SMC of property already paid for. They unduly protect the exercise of its discretion, the Sandiganbayan can require a
the claimants of sequestered companies, at the expense of SMC. party-litigant to deliver a sequestered property to the PCGG.
The fact of sequestration, by itself, does not mean that the The order of the Sandiganbayan regarding the subject treasury
possessor of the sequestered assets must be dispossessed shares is merely preservative in nature - for the purpose of
thereof at all costs. In the present case, there are weighty preventing the destruction, concealment or dissipation of, and
reasons why the treasury shares and any "dividends" thereon otherwise conserving and preserving the same. the
should remain with SMC. The purported issue of ownership Sandiganbayan cautioned that "the PCGG, the UCPB and the
does not justify the dispossession of SMC of these shares. SMC Group shall always act with due regard to the sequestered
character of the shares of stock involved as well as the fruits
According to private respondent COCOFED, the thereof, more particularly to prevent the loss or dissipation of
transformation of the SMC shares into treasury shares is but their value.
part and parcel of the compromise agreement which has not yet
been approved. Thus, it is premature for the SMC Group to treat The Sandiganbayan observed that the conversion of
these shares as such and to refuse to turn over the same as well the SMC shares to treasury shares will result in a change in the
as the accrued dividends thereon to the PCGG, as ordered by status of the sequestered shares in that: (1) When the SMC
the Sandiganbayan. Moreover, the transformation is extremely converts these common shares to treasury stock, it is converting
disadvantageous to the CIIF Companies. Further, the CIIF those outstanding shares into the corporation's property for
Companies, being the disputed owners of the SMC shares, are which reasontreasury shares do not earn dividends; (2)
entitled to have the dividends on the SMC shares applied to its The retained dividends which would have accrued to those
indebtedness to UCPB. On the other hand, until the question of shares if converted to treasury would go into the
which entity is entitled thereto is settled, the SMC shares corporation and enhance the corporation as a whole. The
corresponding to the P500 million first installment and the enhancement to the specific sequestered shares, however,
dividends thereon should be turned over to the PCGG. would be only to the extent aliquot in relation to all the other
outstanding SMC shares; (3) By converting the 26.45 million
Issue: Whether or not the certificates of stock of SMC shares shares of stock into treasury shares, the SMC has altered not
and the dividends thereon should be delivered to the PCGG. only the voting power of those shares of stock since treasury
shares do not vote, but the SMC will have actually enhanced the
voting strength of the other outstanding shares of stock to the in the minimum wages. The paid-up capital stock of MSCI for
extent that these 26.45 million shares no longer vote. the period covered by the application for exemption still stood
at P5M. The impairment it has incurred reached 271.08% which
As to the payment to the PCGG of an arbitration fee in is beyond the 25% requirement to be an applicant.
the form of 5,500,000 of SMC shares is denounced as illegal,
shocking and unconscionable. COCOFED, et al. have assailed
the legal right of PCGG to act as arbiter as well as the fairness QUORUM
of its acts as arbiter. COCOFED, et al. estimate that the value
of the SMC shares given to PCGG as arbitration fee which TAN VS. SYCIP
allegedly is not deserved, can run toP1,966,635,000.00. This is G.R. No. 153468
a serious allegation and the Sandiganbayan cannot be charged August 17, 2006
with grave abuse of discretion when it ordered that SMC should
be temporarily dispossessed of the subject treasury shares and Facts:
that SMC should pay their dividends while the Compromise Grace Christian High School (GCHS) is a non-stock
Agreement involving them is still under question. non-profit educational corporation with 15 regular members,
who also constitute the board of trustees. During the annual
members’ meeting, there were only 11 living member-trustees
PAID-UP CAPITAL as 4 had already died. 7 attended the meeting through their
respective proxies. The meeting was convened and chaired by
MSCI VS. NATIONAL WAGE AND PRODUCTIVITY Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C.
COMMISSION Pacis who argued that there was no quorum. In the meeting,
G.R. No. 125198 Petitioners Ernesto Tanchi, Edwin Ngo, Virgin Khoo, and
Judith Tan were voted to replace the 4 deceased member-
Facts: trustees. According to the SEC, the meeting was void due to
Monomer Sugar Central Inc. (MSCI) was created by lack of quorum based on the AIC, also applying Section 24 and
the merger of Asturias Sugar Central,Inc. (ASCI) and tries, Inc. Section 89 of the Corporation Code. When it reached the CA,
(MTII). MSCI applied for exemption from the coverage of the latter dismissed the case due to technicalities.
Wage Order No. RO VI-01 issued by the Board on the ground
that it is a distressed employer. However, the Petitioners, local Issue: Whether or not the dead members should still be
union of MSCI, contested the application saying that the counted in the quorum.
documents submitted by the company does not reflect its true
and valid financial status and that the paid-up capital would
have been higher than P5 million and thus impairment would
have been lower than 25% had the pre-organization agreement Held:
between ASCI and MTII been complied with. Petitioners argue Based on the By-Laws of the corporation, the
that the paid-up capital should be P64M rather than P5M thus remaining members of the board of trustees of the GCHS may
making it impossible for the corporation to apply for a convene and fill up the vacancies in the board. Except as
distressed employer because at P64M, the loss would only be at provided, the vote necessary to approve a particular corporate
5.25% which does not reach the required 25% loss. act as provided in this Code shall be deemed to refer only to
stocks with voting rights: (1) Amendment of the articles of
Issue: Whether or not the paid up capital is P64M or P5M. incorporation; (2) Adoption and amendment of by-laws; (3)
Sale, lease, exchange, mortgage, pledge or other disposition of
Held: all or substantially all of the corporation property; (4) Incurring,
Since the paid-up capital is the portion of the capital creating or increasing bonded indebtedness; (5) Increase or
which has been subscribed and paid, the assets transferred to decrease of capital stock; (6) Merger or consolidation of the
and the loans extended to a corporation should not be corporation with another corporation or other corporations; (7)
considered in computing the paid-up capital of the corporation. Investment of corporate funds in another corporation or
Not all funds or assets received by the corporation can be business in accordance with this Code; and (8) Dissolution of
considered as paid-up capital for this term has a technical the corporation. A quorum in a members’ meeting is to be
signification in Corporation Law. Such must form part of the reckoned as the actual number of members of the corporation.
authorized capital of the corporation, subscribed and then
actually paid-up. The same test should also be applied in In stock corporations, the shareholders may generally
determining if the paid-up capital of the Corporation has been transfer their shares on the death of a shareholder, the executor
impaired so as to qualify it for the exemption from the increase or administrator duly appointed by the Court is vested with the
legal title to the stock and entitled to vote it. Until a settlement June 20, 1963, within Alhambra’s three-year statutory period
and division of the estate is effected, the stocks of the decedent for liquidation, Republic Act 3531 was enacted into law. It
are held by the administrator or executor. As to non-stock amended Section 18 of the Corporation Law by empowering
corporations, the same is personal and non-transferable unless domestic private corporations to extend their corporate life
the articles of incorporation or the bylaws of the corporation beyond the period fixed by the articles of incorporation for a
provide otherwise. term not to exceed fifty years in any one instance. Previous to
Republic Act 3531, the maximum non-extendible term of such
Under Section 91 of the Corporation Code, corporations was fifty years.
termination extinguishes all the rights of a member of the
corporation, unless otherwise provided in the articles of At a special meeting, Alhambra’s board of directors
incorporation or the bylaws. Whether or not "dead members" resolved to amend paragraph “Fourth” of its articles of
are entitled to exercise their voting rights (through their incorporation to extend its corporate life for an additional fifty
executor or administrator), depends on those articles of years, or a total of 100 years from its incorporation. Alhambra’s
incorporation or bylaws. Under the By-Laws of GCHS, stockholders, representing more than two-thirds of its
membership in the corporation shall be terminated by the death subscribed capital stock, voted to approve the foregoing
of the member. Hence, with 11 remaining members, the quorum resolution. Alhambra’s articles of incorporation, as amended,
is 6. was then submitted to the SEC. The latter however, returned
said amended articles of incorporation to Alhambra’s counsel
Under Section 29, vacancies in the office of the with the ruling that Republic Act 3531 “which took effect only
director or trustee is to be filled by a majority vote of the on June 20, 1963, cannot be availed of by the said corporation,
remaining directors or trustees if still constituting a quorum. for the reason that its term of existence had already expired
Otherwise, said vacancies must be filled by the stockholders in when the said law took effect in short, said law has no
a regular or special meeting called for that purpose. A director retroactive effect.”
or trustee so elected to fill a vacancy shall be elected only for
the unexpired term of his predecessor in office. Issue: May a corporation extend its life by amendment of its
articles of incorporation effected during the three-year statutory
The filling of vacancies in the board by the remaining period for liquidation when its original term of existence had
directors or trustees constituting a quorum is merely permissive, already expired?
not mandatory; either by the remaining directors constituting a
quorum, or by the stockholders or members in a regular or Held:
special meeting called for the purpose. The By-Laws of GCHS When Alhambra made its attempt to extend its
prescribed the specific mode of filling up existing vacancies in corporate existence, its original term of fifty years had already
its board of directors; that is, by a majority vote of the remaining expired and it was in the midst of the three-year grace period
members of the board. The said remaining member- statutorily fixed in Section 77 of the Corporation Law. Plain
trustees must sit as a board (as a body in a lawful meeting) in from the language of the provision is its meaning: continuance
order to validly elect the new ones. of a “dissolved” corporation as a body corporate for three years
has for its purpose the final closure of its affairs, and no other;
the corporation is specifically enjoined from “continuing the
TERM OF EXISTENCE business for which it was established”. The liquidation of the
corporation’s affairs set forth in said section became because its
ALHAMBRA CIGAR VS. SEC life had ended. For this reason alone, the corporate existence
G.R. No. L-23606 and juridical personality of that corporation to do business may
July 29, 1968 no longer be extended.

Facts: Since the privilege of extension is purely statutory, all

Petitioner Alhambra Cigar and Cigarette of the statutory conditions precedent must be complied with in
Manufacturing Company, Inc. was duly incorporated under order that the extension may be effectuated during the life of
Philippine laws on January 15, 1912. By its corporate articles it the corporation, and before the expiration of the term of
was to exist for 50 years from incorporation. When it expired, existence as original fixed by its charter or the general law,
it ceased transacting business and entered into a state of since, as a rule, the corporation is ipso facto dissolved as soon
liquidation. Thereafter, a new corporation, Alhambra as that time expires. The filing and recording of a certificate of
Industries, Inc., was formed to carry on the business of extension after that time cannot relate back to the date of the
Alhambra. Alhambra’s stockholders, by resolution, named passage of the stockholders’ resolution. The contrary is true,
Angel S. Gamboa trustee to take charge of its liquidation. On however, and the doctrine of relation will apply, where the
delay is due to the neglect of the officer with whom the corporation which gives it preferential right to buy its shares
certificate is required to be filed, or to a wrongful refusal to from retiring stockholders, is in conflict with Act No. 1459
receive it. (Corporation Law), especially with section 35 thereof; and
rendered a judgment ordering the defendant corporation,
A distinction is to be made between the extension of a through its board of directors, to register in the books of said
charter and the grant of a new one. To renew a charter is to corporation the said five shares of stock in the name of the
revive a charter which has expired, or, in other words, “to give plaintiff, Henry Fleischer, as the shareholder or owner thereof,
a new existence to one which has been forfeited, or which has instead of the original owner, Manuel Gonzalez, with costs
lost its vitality by lapse of time”. To “extend” a charter is “to against the defendant.
increase the time for the existence of one which would
otherwise reach its limit at an earlier period”. Nowhere in Issue:
Section 18 is the word “renew.” The law limits itself to Whether or not article 12 of the by-laws of the corporation is in
extension of corporate existence. conflict with the provisions of the Corporation Law (Act No.
1459)

Held:
BY LAWS As a general rule, the by-laws of a corporation are
valid if they are reasonable and calculated to carry into effect
FLEISCHER VS. BOTICA NOLASCO the objects of the corporation, and are not contradictory to the
Facts: general policy of the laws of the land. (Supreme Commandery
The plaintiff filed an amended complaint against the of the Knights of the Golden Rule vs. Ainsworth, 71 Ala., 436;
Botica Nolasco, Inc., alleging that he became the owner of five 46 Am. Rep., 332.)
shares of stock of said corporation, by purchase from their
original owner, one Manuel Gonzalez; that the said shares were On the other hand, it is equally well settled that by-
fully paid; and that the defendant refused to register said shares laws of a corporation must be reasonable and for a corporate
in his name in the books of the corporation in spite of repeated purpose, and always within the charter limits. They must always
demands to that effect made by him upon said corporation, be strictly subordinate to the constitution and the general laws
which refusal caused him damages amounting to P500. Plaintiff of the land. They must not infringe the policy of the state, nor
prayed for a judgment ordering the Botica Nolasco, Inc. to be hostile to public welfare. (46 Am. Rep., 332.) They must not
register in his name in the books of the corporation the five disturb vested rights or impair the obligation of a contract, take
shares of stock recorded in said books in the name of Manuel away or abridge the substantial rights of stockholder or
Gonzalez, and to indemnify him in the sum of P500 as damages, member, affect rights of property or create obligations unknown
and to pay the costs. The defendant again filed a demurrer on to the law. (People's Home Savings Bank vs. Superior Court,
the ground that the amended complaint did not state facts 104 Cal., 649; 43 Am. St. Rep., 147; Ireland vs. Globe Milling
sufficient to constitute a cause of action, and that said amended Co., 79 Am. St. Rep., 769.)
complaint was ambiguous, unintelligible, uncertain, which
demurrer was overruled by the court. The validity of the by-law of a corporation is purely a
question of law. (South Florida Railroad Co. vs. Rhodes, 25
The defendant answered the amended complaint Fla., 40.)
denying generally and specifically each and every one of the
material allegations thereof, and, as a special defense, alleged The power to enact by-laws restraining the sale and
that the defendant, pursuant to article 12 of its by-laws, had transfer of stock must be found in the governing statute or the
preferential right to buy from the plaintiff said shares at the par charter. Restrictions upon the traffic in stock must have their
value of P100 a share, plus P90 as dividends corresponding to source in legislative enactment, as the corporation itself cannot
the year 1922, and that said offer was refused by the plaintiff. create such impediments. By-law are intended merely for the
The defendant prayed for a judgment absolving it from all protection of the corporation, and prescribe regulation and not
liability under the complaint and directing the plaintiff to restriction; they are always subject to the charter of the
deliver to the defendant the five shares of stock in question, and corporation. The corporation, in the absence of such a power,
to pay damages in the sum of P500, and the costs. cannot ordinarily inquire into or pass upon the legality of the
transaction by which its stock passes from one person to
Upon the issue presented by the pleadings above another, nor can it question the consideration upon which a sale
stated, the cause was brought on for trial, at the conclusion of is based. A by-law cannot take away or abridge the substantial
which, and on August 21, 1924, the Honorable N. Capistrano, rights of stockholder. Under a statute authorizing by- laws for
judge, held that, in his opinion, article 12 of the by-laws of the the transfer of stock, a corporation can do no more than
prescribe a general mode of transfer on the corporate books and only PCGG has the authority to approve the proposed
cannot justify an unreasonable restriction upon the right of sale. conversion and seek the necessary Court approval.
(4 Thompson on Corporations, sec. 4137, p. 674.
Jovito R. Salonga and four others sought leave to
The right of unrestrained transfer of shares inheres in intervene asserting that the government bears the burden of
the very nature of a corporation, and courts will carefully showing that the conversion is indubitably advantageous to the
scrutinize any attempt to impose restrictions or limitations upon public interest or will result in clear and material benefit.
the right of stockholders to sell and assign their stock. The right Failure of the government to carry the burden means that the
to impose any restraint in this respect must be conferred upon current status of the sequestered stocks should be maintained
the corporation either by the governing statute or by the articles pending final disposition of G.R. Nos. 177857-58. They further
of the corporation. It cannot be done by a by-law without postulate that “even assuming that the proposal to convert the
statutory or charter authority. SMC shares is beneficial to the government, it cannot pursue
the exchange offer because it is without power to exercise acts
of strict dominion over the sequestered shares. Lastly, they
argue that “the proposed conversion x x x is not only not
advantageous to the public interest but is in fact positively
disadvantageous.

Respondent Republic filed a Supplemental Comment

PREFFERED AND COMMON STOCKS in which it cited the Partial Summary Judgment rendered by the
Sandiganbayan on May 27, 2004 in Civil Case No. 33-F,
PHILIPPINE COCONUT PRODUCERS FEDERATION, declaring the Republic as owner, in trust for the coconut
INC. (COCOFED),et. al. vs. RP farmers, of the subject CIIF SMC shares (27%). The same
G.R. Nos. 177857-58 comment also referred to Resolution No. 365-2009 passed on
September 17, 2009 August 28, 2009 by the United Coconut Planters Bank (UCPB)
Board of Directors expressing the sense that “the proposed
Facts: conversion of the CIIF SMC common shares to SMC Series I
preferred shares is financially beneficial.” By way of relief,
COCOFED seeks the Court’s approval of the respondent Republic prayed that the PCGG be allowed to
conversion of 753,848,312 Class “A” and Class “B” common proceed and effect the conversion.
shares of San Miguel Corporation (SMC) registered in the
names of Coconut Industry Investment Fund and the so-called Issue:
“14 Holding Companies” into 753,848,312 SMC Series 1 Whether or not PCGG, not COCOFED, was the
Preferred Shares. authorized party to seek the imprimatur on the conversion of the
Series 1 preferred shares
COCOFED proposes to constitute a trust fund to be
known as the “Coconut Industry Trust Fund (CITF) for the
Benefit of the Coconut Farmers,” with respondent Republic,
acting through the Philippine Coconut Authority (PCA), as Held:
trustee. As proposed, the constitution of the CITF shall be As records show, PCGG sequestered the 753,848,312
subject to terms and conditions which, for the most part, SMC common shares registered in the name of CIIF companies
reiterate the features of SMC’s conversion offer, albeit specific on April 7, 1986. From that time on, these sequestered shares
reference is made to the shares of the 14 CIIF companies. became subject to the management, supervision, and control of
PCGG, pursuant to Executive Order No. (EO) 1, Series of 1986.
Republic of the Philippines filed its Comment Eventually, the coconut levy funds that were used to acquire the
questioning COCOFED’s personality to seek the Court’s sequestered CIIF SMC common shares in question were
approval of the desired conversion. Respondent Republic also peremptorily determined to be prima facie public funds.
disputes COCOFED’s right to impose and prescribe terms and
conditions on the proposed conversion, maintaining that the PCGG’s authority to vote the sequestered shares
CIIF SMC common shares are sequestered assets and are in acquired from the coconut levy is based on the principle that
20ustodial egis under Presidential Commission on Good voting is an act of dominion that should be exercised by the
Government’s (PCGG’s) administration. It postulates that, share owner. One of the recognized rights of an owner is the
owing to the sequestrated status of the said common shares, right to vote at meetings of the corporation. The right to vote is
classified as the right to control. Voting rights may be for the
purpose of, among others, electing or removing directors, threshed out in a petition for settlement of estate. This was
amending a charter, or making or amending by laws. Because affirmed by the Court of Appeals.
the subject UCPB shares were acquired with government funds,
the government becomes their prima facie beneficial and true Issues: Whether or not there exists herein an intra-corporate
owner. controversy.

Ownership includes the right to enjoy, dispose of, Held:

exclude and recover a thing without limitations other than those Initially, the main consideration in determining
established by law or by the owner. X x x And the right to vote whether a dispute constitutes an intra-corporate controversy
shares is a mere incident of ownership. In the present case, the was limited to a consideration of the intra-corporate
government has been shown to be the prima facie owner of the relationship existing between or among the parties. The types
funds used to purchase the shares. Hence, it should be allowed of relationships embraced under Section 5(b), were as follows:
the rights and privileges flowing from such fact. (a) between the corporation, partnership, or
association and the public;
(b) between the corporation, partnership, or
TRANSFER OF STOCKS association and its stockholders, partners, members, or officers;
(c) between the corporation, partnership, or
REYES VS. RTC OF MAKATI association and the State as far as its franchise, permit or license
561 SCRA 593 (2008) to operate is concerned; and
(d) among the stockholders, partners, or associates
Facts: themselves. The existence of any of the above intra-corporate
Oscar and Rodrigo C. Reyes are two of the four relations was sufficient to confer jurisdiction to the SEC,
children of the spouses Pedro and Anastacia Reyes. Pedro, regardless of the subject matter of the dispute.
Anastacia, Oscar, and Rodrigo; each owned shares of stock of
Zenith Insurance Corporation. Zenith is a domestic corporation This came to be known as the relationship test.
established by their family. When Pedro and Anastacia died,
Pedro's estate was judicially partitioned among his heirs but not However, in the 1984 case of DMRC Enterprises v.
with Anastacia's estate, which included her shareholdings in Esta del Sol Mountain Reserve, Inc., the Court introduced
Zenith. the nature of the controversy test. The Court declared in this
case that it is not the mere existence of an intra-corporate
Zenith and Rodrigo filed a complaint with the SEC relationship that gives rise to an intra-corporate controversy; to
against Oscar, stating that it is "a derivative suit initiated and rely on the relationship test alone will divest the regular courts
filed by the complainant Rodrigo C. Reyes to obtain an of their jurisdiction for the sole reason that the dispute involves
accounting of the funds and assets of Zenith” which are now or a corporation, its directors, officers, or stockholders. Under the
formerly in the control, custody, and/or possession of Oscar nature of the controversy test, the incidents of that relationship
and to determine the shares of stock of deceased spouses Pedro must also be considered for the purpose of ascertaining whether
and Anastacia Reyes that were arbitrarily and fraudulently the controversy itself is intra-corporate. The controversy must
appropriated by Oscar for himself and which were not collated not only be rooted in the existence of an intra-corporate
and taken into account in the partition, distribution, and/or relationship, but must as well pertain to the enforcement of the
settlement of the estate of the deceased spouses, for which he parties' correlative rights and obligations under the Corporation
should be ordered to account for all the income from the time Code and the internal and intra-corporate regulatory rules of the
he took these shares of stock, and should now deliver to his corporation. If the relationship and its incidents are merely
brothers and sisters their just and respective shares. incidental to the controversy or if there will still be conflict even
if the relationship does not exist, then no intra-corporate
Oscar denied the charge and asserted, as a defense controversy exists.
asserted that he purchased the subject shares with his own funds
from the unissued stocks of Zenith. He claimed that the The Court then combined the two tests and declared
complaint is a mere nuisance or harassment suit and should, that jurisdiction should be determined by considering not only
according to the Interim Rules of Procedure for Intra-Corporate the status or relationship of the parties, but also the nature of the
Controversies, be dismissed; and that it is not a bona question under controversy. Thus under the relationship test,
fide derivative suit as it partakes of the nature of a petition for the transfer of title by means of succession, though effective and
the settlement of estate of the deceased Anastacia that is outside valid between the parties involved (i.e. between the decedent’s
the jurisdiction of a special commercial court. The trial court estate and her heirs) does not bind the corporation and third
ruled that it is not a derivative suit and should properly be parties. The transfer must be registered in the books of the
corporation to make the transferee-heir a stockholder entitled economic development. SEC has power of control &
recognition as such both by the corporation and by third parties. supervision over all corps to encourage active public
Therefore, each of the decedent’s heirs holds only an undivided participation in the affairs of private corps through investments.
interest in the shares. This interest is still inchoate and subject Jurisdiction over an action for mandamus lies with the SEC
to the outcome of a settlement proceeding; the right of the heirs even if the proponent is not yet a shareholder of record, as in
to specific, distributive shares of inheritance will not will not be the case of Abejo v. de la Cruz. SEC by express mandate has
determined until all the debts of the estate of the decedent are absolute jurisdiction to enforce the provisions of the Corp Code
paid. Insofar as the subject shares of stock are concerned—the among which is the stock purchaser’s right to secure the
heir of the deceased stockholder cannot be considered a corresponding certificate of stock in his name.
stockholder of the corporation. Applying the nature of the
controversy test, an accounting of funds and assets of the (2) Even if Lay were not a Share Holder, he is still a
corporation to determine the extent and value of the decedent’s member of the public whose investment in the corporate the law
shareholdings will be undertaken by the probate court and not seeks to protect and encourage, as his purchase of shares of
by a special commercial court is consistent with the probate stock has been established. Determination of whether or not a
court’s limited jurisdiction. Hence, the case is not considered Share Holder is entitled to exercise the rights of a Share Holder
intra-corporate controversy even if the dispute is among is within jurisdiction of the SEC. The SEC en banc found that
stockholders if the issue is determination and distribution of TCL did not refute the validity of the transfers of the shares of
successional rights to the shareholdings of a deceased stock – they conceded that they could not assail the documents
shareholder. evincing the transfer of the shares to Lay. Lay was able to
establish prima facie ownership through the deeds of transfer of
shares of stock of TCL. A listing of TCL’s Share Holders &
their respective shares before & after the execution of a certain
deed of assignment shows that Lay is indeed listed as a Share
Holder of TCL.

The dispute is an intra-corp controversy involving

TCL SALES CORP. VS. COURT OF APPEALS Share Holders of TCL. The duty of the corporate secretary to
G.R. No. 129777 record transfers of stocks is ministerial. It however, cannot be
January 5, 2001 compelled when the transferee’s title has no prima facie validity
or is uncertain. Mandamus will not issue to establish a right but
Facts: only to enforce one already established. Although during the
Ting Ping Lay, not one of the original subscribers of trial before the SEC, TCL admitted that they ignored Lay’s
the shares of stock of TCL Sales Corporation, acquired his request was based simply on the fact that they did not want to
shares by purchasing those of some of the original grant it. Having been capricious, whimsical & unwarranted, it
subscribers. In order to protect his shareholdings with TCL, constitutes bad faith. However, the SEC en banc modified &
Lay requested Anna Teng, TCL Corporate Secretary to enter deleted the said award for damages imposed on the corp. The
the transfer of shares of stock for proper recording of his matter of damages now concerns only Teng, the corporate
acquisitions in the Stock & Transfer Book of TCL. He too secretary. It was Teng’s refusal as corp secretary to record the
demanded issuance of new certificates of stock in his favor. transfer of the shares, without evidence that such refusal was
TCL, however, even after repeated demands, refused. Lay filed authorized by TCL’s Board of Directors that caused damage
a case with the SEC for mandamus against TCL and Teng. This
was in turn granted by the SEC denying a later MR as well. The
CA dismissed TCL’s petition as well for being filed out of time.
RURAL BANK OF LIPA CITY VS. COURT OF
Issues: APPEALS
(1 )Whether or not SEC has jurisdiction over the GR No. 124535
petition for mandamus filed by Lay. September 28, 2001
(2) Whether or not the alleged transfer of shares in
favor of Lay are valid and can be ordered recorded. Facts: Private respondent Reynaldo Villanueva, Sr., a
stockholder of the Rural Bank of Lipa City, executed a Deed of
Assignment, wherein he assigned his shares, as well as those of
Held:
eight (8) other shareholders under his control with a total of
(1) The principal function of SEC is supervision and 10,467 shares, in favor of the stockholders of the Bank
control of corps, partnerships, associations with the view of represented by its directors Bernardo Bautista, Jaime Custodio
protecting and encouraging investments for the protection of and Octavio Katigbak. Sometime thereafter, Reynaldo
Villanueva, Sr. and his wife, Avelina, executed an Agreement the issue of ownership and transfer of the shares in question is
wherein they acknowledged their indebtedness to the Bank in resolved with finality.
the amount of Four Million Pesos (P4,000,000.00), and
stipulated that said debt will be paid out of the proceeds of the
sale of their real property described in the Agreement. At a
meeting of the Board of Directors of the Bank on November 15,
1993, the Villanueva spouses assured the Board that their debt
would be paid on or before December 31 of that same year;
otherwise, the Bank would be entitled to liquidate their
shareholdings, including those under their control. In such an
event, should the proceeds of the sale of said shares fail to
satisfy in full the obligation, the unpaid balance shall be secured
by other collateral sufficient therefor. When the Villanueva CORPORATION BY ESTOPPEL
spouses failed to settle their obligation to the Bank on the due
date, the Board sent them a letter demanding: (1) the surrender
of all the stock certificates issued to them; and (2) the delivery LIM TONG LIM V. PHILIPPINE FISHING GEAR
of sufficient collateral to secure the balance of their debt INDUSTRIES, INC.
amounting to P3,346,898.54. The Villanuevas ignored the G.R. No. 136448
bank's demands, whereupon their shares of stock were
converted into Treasury Stocks. Later, the Villanuevas, through Facts:
their counsel, questioned the legality of the conversion of their On behalf of "Ocean Quest Fishing Corporation,"
shares. On January 15, 1994, the stockholders of the Bank met
Antonio Chua and Peter Yao entered into a Contract for the
to elect the new directors and set of officers for the year 1994.
The Villanuevas were not notified of said meeting. In a letter purchase of fishing nets of various sizes from the Philippine
dated January 19, 1994, Atty. Amado Ignacio, counsel for the Fishing Gear Industries, Inc. (PFGI). They claimed that they
Villanueva spouses, questioned the legality of the said were engaged in a business venture with Lim Tong Lim, who
stockholders' meeting and the validity of all the proceedings however was not a signatory to the agreement. The total price
therein. In reply, the new set of officers of the Bank informed of the nets amounted to P532,045. 400 pieces of floats worth
Atty. Ignacio that the Villanuevas were no longer entitled to
P68,000 were also sold to the Corporation. The buyers,
notice of the said meeting since they had relinquished their
rights as stockholders in favor of the Bank. Consequently, the however, failed to pay for the fishing nets and the floats; hence,
Villanueva spouses filed with the Securities and Exchange PFGI filed a collection suit against Chua, Yao and Lim Tong
Commission (SEC), a petition for annulment of the Lim with a prayer for a writ of preliminary attachment. The suit
stockholders' meeting and election of directors and officers on was brought against the three in their capacities as general
January 15, 1994, with damages and prayer for preliminary partners, on the allegation that "Ocean Quest Fishing
injunction. Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission.
Issue: Whether or not there is a valid transfer of shares of stocks
from private respondents to petitioners resulting to the The lower court issued a Writ of Preliminary Attachment,
withdrawal of the rights of the former as a shareholder. which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries Port,
Held: Navotas, Metro Manila. Lim Tong Lim, on the other hand, filed
The Supreme Court have uniformly held that for a an Answer with Counterclaim and Crossclaim and moved for
valid transfer of stocks, there must be strict compliance with the the lifting of the Writ of Attachment. Lim argues, among others,
mode of transfer prescribed by law. The requirements are: (a)
that under the doctrine of corporation by estoppel, liability can
There must be delivery of the stock certificate: (b) The
certificate must be endorsed by the owner or his attorney-in-fact be imputed only to Chua and Yao, and not to him, the formers
or other persons legally authorized to make the transfer; and (c) being those who dealt in the name of the ostensible corporation.
To be valid against third parties, the transfer must be recorded
in the books of the corporation. As it is, compliance with any of Issue: Whether Lim should be held jointly liable with Chua
these requisites has not been clearly and sufficiently shown. It and Yao.
may be argued that despite non-compliance with the requisite
endorsement and delivery, the assignment was valid between
the parties, meaning the private respondents as assignors and Held:
the petitioners as assignees. While the assignment may be valid In the first instance, an unincorporated association,
and binding on the petitioners and private respondents, it does which represented itself to be a corporation, will be estopped
not necessarily make the transfer effective. Consequently, the from denying its corporate capacity in a suit against it by a third
petitioners, as mere assignees, cannot enjoy the status of a person who relied in good faith on such representation. It cannot
stockholder, cannot vote nor be voted for, and will not be allege lack of personality to be sued to evade its responsibility
entitled to dividends, insofar as the assigned shares are
for a contract it entered into and by virtue of which it received
concerned Parenthetically, the private respondents cannot, as
yet, be deprived of their rights as stockholders, until and unless advantages and benefits. On the other hand, a third party who,
knowing an association to be unincorporated, nonetheless thus it is their nationality that has to be taken into consideration.
treated it as a corporation and received benefits from it, may be The corporation sole only holds the property in trust for the
barred from denying its corporate existence in a suit brought benefit of the Roman Catholic faithful.
against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible The Roman Catholic Church is a corporation by
corporation, despite knowledge of its legal defects, may be held prescription, with acknowledged juridical personality inasmuch
liable for contracts they impliedly assented to or took advantage as it is an institution which antedated almost a thousand years
of. Although technically it is true that Lim did not directly act any other personality in Europe. Since it is a corporation by
on behalf of the corporation; however, having reaped the prescription, it has no nationality, and hence, the nationality test
benefits of the contract entered into by persons with whom he does not apply.
previously had an existing relationship, he is deemed to be part
of said association and is covered by the scope of the doctrine
of corporation by estoppel.
CORPORATE ACTS

CORPORATION SOLE GOKONGWEI VS. SECURITIES AND EXCHANGE

COMMISSION
ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR GR L-45911
OF DAVAO VS. THE LRC 11 April 1979
G.R. No. L-8451
Facts:
Facts: [SEC Case 1375] On 22 October 1976, John
Mateo Rodis, a Filipino citizen and resident of Davao, Gokongwei Jr., as stockholder of San Miguel Corporation, filed
executed a deed of sale of a parcel of land located in the same with the Securities and Exchange Commission (SEC) a petition
city in favour of the Roman Catholic Administrator of Davao, for "declaration of nullity of amended by-laws, cancellation of
a “corporation sole” organized and existing in accordance with certificate of filing of amended by-laws, injunction and
Philippine laws whose incumbent administrator is Msgr. Clovis damages with prayer for a preliminary injunction" against the
Thibault, a Canadian citizen. When the deed was presented to majority of the members of the Board of Directors and San
the Register of Deeds for registration, it required them to submit Miguel Corporation as an unwilling petitioner. As a first cause
an affidavit stating that the ownership of the corporation is 60% of action, Gokongwei alleged that on 18 September 1976,
Filipino citizens as required under the Constitution. The Roman Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio
Catholic stated that it was a corporation sole and that the totality Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel Ortigas,
of the Catholic population in Davao would become the owner and Antonio Prieto amended by bylaws of the corporation,
of the property. The Register of Deeds doubted this and basing their authority to do so on a resolution of the
submitted the case of en consulta in the Land Registration stockholders adopted on 13 March 1961, when the outstanding
Commission. The LRC ruled that the requirement of the capital stock of the corporation was only P70,139.740.00,
Constitution must be followed. Hence, since the 60% cannot be divided into 5,513,974 common shares at P10.00 per share and
complied with, the registration should be denied. 150,000 preferred shares at P100.00 per share. At the time of
the amendment, the outstanding and paid up shares totalled
Issue: Whether or not the Roman Catholic Apostolic Church, 30,127,043, with a total par value of P301,270,430.00. It was
being a corporation sole, can lawfully acquire lands in the contended that according to section 22 of the Corporation Law
Philippines. and Article VIII of the by-laws of the corporation, the power to
amend, modify, repeal or adopt new by-laws may be delegated
Held: to the Board of Directors only by the affirmative vote of
A corporation sole is a special form of corporation stockholders representing not less than 2/3 of the subscribed
usually associated with the clergy designed to facilitate the and paid up capital stock of the corporation, which 2/3 should
exercise of the functions of ownership of the church which was have been computed on the basis of the capitalization at the time
registered as property owner. It is created not only to administer of the amendment. Since the amendment was based on the 1961
the temporalities of the church or religious society where the authorization, Gokongwei contended that the Board acted
corporator belongs, but also to hold and transmit the same to his without authority and in usurpation of the power of the
successor in said officer. stockholders. As a second cause of action, it was alleged that
the authority granted in 1961 had already been exercised in
The incumbent administrator is not the actual owner of 1962 and 1963, after which the authority of the Board ceased to
the land but the constituents or those that make up the church, exist. As a third cause of action, Gokongwei averred that the
membership of the Board of Directors had changed since the opposed by Soriano, et. al. Pending action on the motion,
authority was given in 1961, there being 6 new directors. As a Gokongwei filed an "Urgent Motion for the Issuance of a
fourth cause of action, it was claimed that prior to the Temporary Restraining Order", praying that pending the
questioned amendment, Gokogwei had all the qualifications to determination of Gokongwei's application for the issuance of a
be a director of the corporation, being a substantial stockholder preliminary injunction and or Gokongwei's motion for
thereof; that as a stockholder, Gokongwei had acquired rights summary judgment, a temporary restraining order be issued,
inherent in stock ownership, such as the rights to vote and to be restraining Soriano, et. al. from holding the special
voted upon in the election of directors; and that in amending the stockholders' meeting as scheduled. This motion was duly
by-laws, Soriano, et. al. purposely provided for Gokongwei's opposed by Soriano, et. al. On 10 February 1977, Cremation
disqualification and deprived him of his vested right as afore- issued an order denying the motion for issuance of temporary
mentioned, hence the amended by-laws are null and void. As restraining order. After receipt of the order of denial, Soriano,
additional causes of action, it was alleged that corporations et. al. conducted the special stockholders' meeting wherein the
have no inherent power to disqualify a stockholder from being amendments to the by-laws were ratified. On 14 February 1977,
elected as a director and, therefore, the questioned act is ultra Gokongwei filed a consolidated motion for contempt and for
vires and void; that Andres M. Soriano, Jr. and/or Jose M. nullification of the special stockholders' meeting. A motion for
Soriano, while representing other corporations, entered into reconsideration of the order denying Gokongwei's motion for
contracts (specifically a management contract) with the summary judgment was filed by Gokongwei before the SEC on
corporation, which was avowed because the questioned 10 March 1977.
amendment gave the Board itself the prerogative of determining
whether they or other persons are engaged in competitive or [SEC Case 1423] Gokongwei alleged that, having
antagonistic business; that the portion of the amended by-laws discovered that the corporation has been investing corporate
which states that in determining whether or not a person is funds in other corporations and businesses outside of the
engaged in competitive business, the Board may consider such primary purpose clause of the corporation, in violation of
factors as business and family relationship, is unreasonable and section 17-1/2 of the Corporation Law, he filed with SEC, on
oppressive and, therefore, void; and that the portion of the 20 January 1977, a petition seeking to have Andres M. Soriano,
amended by-laws which requires that "all nominations for Jr. and Jose M. Soriano, as well as the corporation declared
election of directors shall be submitted in writing to the Board guilty of such violation, and ordered to account for such
of Directors at least five (5) working days before the date of the investments and to answer for damages. On 4 February 1977,
Annual Meeting" is likewise unreasonable and oppressive. It motions to dismiss were filed by Soriano, et. al., to which a
was, therefore, prayed that the amended by-laws be declared consolidated motion to strike and to declare Soriano, et. al. in
null and void and the certificate of filing thereof be cancelled, default and an opposition ad abundantiorem cautelam were
and that Soriano, et. al. be made to pay damages, in specified filed by Gokongwei. Despite the fact that said motions were
amounts, to Gokongwei. On 28 October 1976, in connection filed as early as 4 February 1977, the Commission acted thereon
with the same case, Gokongwei filed with the Securities and only on 25 April 1977, when it denied Soriano, et. al.'s motions
Exchange Commission an "Urgent Motion for Production and to dismiss and gave them two (2) days within which to file their
Inspection of Documents", alleging that the Secretary of the answer, and set the case for hearing on April 29 and May 3,
corporation refused to allow him to inspect its records despite 1977. Soriano, et. al. issued notices of the annual stockholders'
request made by Gokongwei for production of certain meeting, including in the Agenda thereof, the "reaffirmation of
documents enumerated in the request, and that the corporation the authorization to the Board of Directors by the stockholders
had been attempting to suppress information from its at the meeting on 20 March 1972 to invest corporate funds in
stockholders despite a negative reply by the SEC to its query other companies or businesses or for purposes other than the
regarding their authority to do so. The motion was opposed by main purpose for which the Corporation has been organized,
Soriano, et. al. The Corporation, Soriano, et. al. filed their and ratification of the investments thereafter made pursuant
answer, and their opposition to the petition, respectively. thereto." By reason of the foregoing, on 28 April 1977,
Meanwhile, on 10 December 1976, while the petition was yet Gokongwei filed with the SEC an urgent motion for the
to be heard, the corporation issued a notice of special issuance of a writ of preliminary injunction to restrain Soriano,
stockholders' meeting for the purpose of "ratification and et. al. from taking up Item 6 of the Agenda at the annual
confirmation of the amendment to the By-laws", setting such stockholders' meeting, requesting that the same be set for
meeting for 10 February 1977. This prompted Gokongwei to hearing on 3 May 1977, the date set for the second hearing of
ask the SEC for a summary judgment insofar as the first cause the case on the merits. The SEC, however, cancelled the dates
of action is concerned, for the alleged reason that by calling a of hearing originally scheduled and reset the same to May 16
special stockholders' meeting for the aforesaid purpose, and 17, 1977, or after the scheduled annual stockholders'
Soriano, et. al. admitted the invalidity of the amendments of 18 meeting. For the purpose of urging the Commission to act,
September 1976. The motion for summary judgment was Gokongwei filed an urgent manifestation on 3 May 1977, but
this notwithstanding, no action has been taken up to the date of prescription that the corporate charter and the by-law shall be
the filing of the instant petition. subject to amendment, alteration and modification.

Gokongwei filed a petition for petition for certiorari, Issue [2]:

mandamus and injunction, with prayer for issuance of writ of
preliminary injunction, with the Supreme Court, alleging that Whether the disqualification of a competitor from
there appears a deliberate and concerted inability on the part of being elected to the Board of Directors is a reasonable exercise
the SEC to act. of corporate authority.

Issue: Held[2]:

Whether the corporation has the power to provide for Although in the strict and technical sense, directors of
the (additional) qualifications of its directors. a private corporation are not regarded as trustees, there cannot
be any doubt that their character is that of a fiduciary insofar as
Held: the corporation and the stockholders as a body are concerned.
As agents entrusted with the management of the corporation for
It is recognized by all authorities that "every the collective benefit of the stockholders, "they occupy a
corporation has the inherent power to adopt by-laws 'for its fiduciary relation, and in this sense the relation is one of trust."
internal government, and to regulate the conduct and prescribe "The ordinary trust relationship of directors of a corporation and
the rights and duties of its members towards itself and among stockholders is not a matter of statutory or technical law. It
themselves in reference to the management of its affairs.'" In springs from the fact that directors have the control and
this jurisdiction under section 21 of the Corporation Law, a guidance of corporate affairs and property and hence of the
corporation may prescribe in its by-laws "the qualifications, property interests of the stockholders. Equity recognizes that
duties and compensation of directors, officers and employees." stockholders are the proprietors of the corporate interests and
This must necessarily refer to a qualification in addition to that are ultimately the only beneficiaries thereof." A director is a
specified by section 30 of the Corporation Law, which provides fiduciary. Their powers are powers in trust. He who is in such
that "every director must own in his right at least one share of fiduciary position cannot serve himself first and his cestuis
the capital stock of the stock corporation of which he is a second. He cannot manipulate the affairs of his corporation to
director." Any person "who buys stock in a corporation does so their detriment and in disregard of the standards of common
with the knowledge that its affairs are dominated by a majority decency. He cannot by the intervention of a corporate entity
of the stockholders and that he impliedly contracts that the will violate the ancient precept against serving two masters. He
of the majority shall govern in all matters within the limits of cannot utilize his inside information and strategic position for
the act of incorporation and lawfully enacted by-laws and not his own preferment. He cannot violate rules of fair play by
forbidden by law." To this extent, therefore, the stockholder doing indirectly through the corporation what he could not do
may be considered to have "parted with his personal right or so directly. He cannot violate rules of fair play by doing
privilege to regulate the disposition of his property which he indirectly through the corporation what he could not do so
has invested in the capital stock of the corporation, and directly. He cannot use his power for his personal advantage
surrendered it to the will of the majority of his fellow and to the detriment of the stockholders and creditors no matter
incorporators. It can not therefore be justly said that the how absolute in terms that power may be and no matter how
contract, express or implied, between the corporation and the meticulous he is to satisfy technical requirements. For that
stockholders is infringed by any act of the former which is power is at all times subject to the equitable limitation that it
authorized by a majority." Pursuant to section 18 of the may not be exercised for the aggrandizement, preference, or
Corporation Law, any corporation may amend its articles of advantage of the fiduciary to the exclusion or detriment of the
incorporation by a vote or written assent of the stockholders cestuis. The doctrine of "corporate opportunity" is precisely a
representing at least two-thirds of the subscribed capital stock recognition by the courts that the fiduciary standards could not
of the corporation. If the amendment changes, diminishes or be upheld where the fiduciary was acting for two entities with
restricts the rights of the existing shareholders, then the competing interests. This doctrine rests fundamentally on the
dissenting minority has only one right, viz.: "to object thereto unfairness, in particular circumstances, of an officer or director
in writing and demand payment for his share." Under section taking advantage of an opportunity for his own personal profit
22 of the same law, the owners of the majority of the subscribed when the interest of the corporation justly calls for protection.
capital stock may amend or repeal any by-law or adopt new by- It is not denied that a member of the Board of Directors of the
laws. It cannot be said, therefore, that Gokongwei has a vested San Miguel Corporation has access to sensitive and highly
right to be elected director, in the face of the fact that the law at confidential information, such as: (a) marketing strategies and
the time such right as stockholder was acquired contained the pricing structure; (b) budget for expansion and diversification;
(c) research and development; and (d) sources of funding, be germane to the petitioner's interest as a stockholder, and has
availability of personnel, proposals of mergers or tie-ups with to be proper and lawful in character and not inimical to the
other firms. It is obviously to prevent the creation of an interest of the corporation. The "general rule that stockholders
opportunity for an officer or director of San Miguel are entitled to full information as to the management of the
Corporation, who is also the officer or owner of a competing corporation and the manner of expenditure of its funds, and to
corporation, from taking advantage of the information which he inspection to obtain such information, especially where it
acquires as director to promote his individual or corporate appears that the company is being mismanaged or that it is
interests to the prejudice of San Miguel Corporation and its being managed for the personal benefit of officers or directors
stockholders, that the questioned amendment of the by-laws or certain of the stockholders to the exclusion of others." While
was made. Certainly, where two corporations are competitive the right of a stockholder to examine the books and records of
in a substantial sense, it would seem improbable, if not a corporation for a lawful purpose is a matter of law, the right
impossible, for the director, if he were to discharge effectively of such stockholder to examine the books and records of a
his duty, to satisfy his loyalty to both corporations and place the wholly-owned subsidiary of the corporation in which he is a
performance of his corporation duties above his personal stockholder is a different thing. Stockholders are entitled to
concerns. The offer and assurance of Gokongwei that to avoid inspect the books and records of a corporation in order to
any possibility of his taking unfair advantage of his position as investigate the conduct of the management, determine the
director of San Miguel Corporation, he would absent himself financial condition of the corporation, and generally take an
from meetings at which confidential matters would be account of the stewardship of the officers and directors. herein,
discussed, would not detract from the validity and considering that the foreign subsidiary is wholly owned by San
reasonableness of the by-laws involved. Apart from the Miguel Corporation and, therefore, under Its control, it would
impractical results that would ensue from such arrangement, it be more in accord with equity, good faith and fair dealing to
would be inconsistent with Gokongwei's primary motive in construe the statutory right of petitioner as stockholder to
running for board membership — which is to protect his inspect the books and records of the corporation as extending to
investments in San Miguel Corporation. More important, such books and records of such wholly owned subsidiary which are
a proposed norm of conduct would be against all accepted in the corporation's possession and control.
principles underlying a director's duty of fidelity to the
corporation, for the policy of the law is to encourage and
enforce responsible corporate management.
Issue [4]:
Issue [3]:
Whether the SEC gravely abused its discretion in
Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel Corporation to ratify
denying Gokongwei's request for an examination of the records the investment of corporate funds in a foreign corporation.
of San Miguel International, Inc., a fully owned subsidiary of
San Miguel Corporation. Held [4]:
Section 17-1/2 of the Corporation Law allows a
Held [3]: corporation to "invest its funds in any other corporation or
business or for any purpose other than the main purpose for
Pursuant to the second paragraph of section 51 of the which it was organized" provided that its Board of Directors has
Corporation Law, "(t)he record of all business transactions of been so authorized by the affirmative vote of stockholders
the corporation and minutes of any meeting shall be open to the holding shares entitling them to exercise at least two-thirds of
inspection of any director, member or stockholder of the the voting power. If the investment is made in pursuance of the
corporation at reasonable hours." The stockholder's right of corporate purpose, it does not need the approval of the
inspection of the corporation's books and records is based upon stockholders. It is only when the purchase of shares is done
their ownership of the assets and property of the corporation. It solely for investment and not to accomplish the purpose of its
is, therefore, an incident of ownership of the corporate property, incorporation that the vote of approval of the stockholders
whether this ownership or interest be termed an equitable holding shares entitling them to exercise at least two-thirds of
ownership, a beneficial ownership, or a quasi-ownership. This the voting power is necessary. As stated by the corporation, the
right is predicated upon the necessity of self-protection. It is purchase of beer manufacturing facilities by SMC was an
generally held by majority of the courts that where the right is investment in the same business stated as its main purpose in its
granted by statute to the stockholder, it is given to him as such Articles of Incorporation, which is to manufacture and market
and must be exercised by him with respect to his interest as a beer. It appears that the original investment was made in 1947-
stockholder and for some purpose germane thereto or in the 1948, when SMC, then San Miguel Brewery, Inc., purchased a
interest of the corporation. In other words, the inspection has to beer brewery in Hongkong (Hongkong Brewery & Distillery,
Ltd.) for the manufacture and marketing of San Miguel beer Commissioner Datu Mama Sinsuat and Mayor Aminkadra
thereat. Restructuring of the investment was made in 1970-1971 Abubakar. In 1972, after the purchase of the land by the Libyan
thru the organization of SMI in Bermuda as a tax free government in the name of IDP, Martial Law was declared by
reorganization. Assuming arguendo that the Board of Directors the late President Ferdinand Marcos. Most of the members of
of SMC had no authority to make the assailed investment, there the 1971 Board of Trustees like Senators Mamintal Tamano,
is no question that a corporation, like an individual, may ratify Salipada Pendatun, Ahmad Alonto, and Congressman Al-
and thereby render binding upon it the originally unauthorized Rashid Lucman flew to the Middle East to escape political
acts of its officers or other agents. This is true because the persecution. Thereafter, two Muslim groups sprung, the
questioned investment is neither contrary to law, morals, public Carpizo Group, headed by Engineer Farouk Carpizo, and the
order or public policy. It is a corporate transaction or contract Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi
which is within the corporate powers, but which is defective Abbas. Both groups claimed to be the legitimate IDP.
from a purported failure to observe in its execution the Significantly, on 3 October 1986, the SEC, in a suit between
requirement of the law that the investment must be authorized these two contending groups, came out with a Decision in SEC
by the affirmative vote of the stockholders holding two-thirds Case 2687 declaring the election of both the Carpizo Group and
of the voting power. This requirement is for the benefit of the the Abbas Group as IDP board members to be null and void.
stockholders. The stockholders for whose benefit the Neither group, however, took the necessary steps prescribed by
requirement was enacted may, therefore, ratify the investment the SEC in its 3 October 1986 Decision, and no valid election
and its ratification by said stockholders obliterates any defect of the members of the Board of Trustees of IDP was ever called.
which it may have had at the outset. Besides, the investment Although the Carpizo Group attempted to submit a set of by-
was for the purchase of beer manufacturing and marketing laws, the SEC found that, aside from that Engineer Farouk
facilities which is apparently relevant to the corporate purpose. Carpizo and Atty. Musib Buat, those who prepared and adopted
The mere fact that the corporation submitted the assailed the by-laws were not bona fide members of the IDP, thus
investment to the stockholders for ratification at the annual rendering the adoption of the by-laws likewise null and void.
meeting of 10 May 1977 cannot be construed as an admission On 20 April 1989, without having been properly elected as new
that the corporation had committed an ultra vires act, members of the Board of Trustees of IDP, the Carpizo Group
considering the common practice of corporations of caused to be signed an alleged Board Resolution of the IDP,
periodically submitting for the ratification of their stockholders authorizing the sale of the subject two parcels of land to the
the acts of their directors, officers and managers. Iglesia ni Cristo (INC) for a consideration of P22,343,400.00,
which sale was evidenced by a Deed of Absolute Sale 12 dated
20 April 1989. On 30 May 1991, the 1971 IDP Board of
ISLAMIC DIRECTORATE OF THE PHILIPPINES VS. Trustees headed by former Senator Mamintal Tamano, or the
COURT OF APPEALS Tamano Group, filed a petition before the SEC (SEC Case
GR 117897 4012) seeking to declare null and void the Deed of Absolute
14 May 1997 Sale signed by the Carpizo Group and the INC since the group
of Engineer Carpizo was not the legitimate Board of Trustees
Facts: of the IDP. Meanwhile, INC, pursuant to the Deed of Absolute
Sometime in 1971, Islamic leaders of all Muslim Sale executed in its favor, filed an action for Specific
major tribal groups in the Philippines headed by Dean Cesar Performance with Damages against the vendor, Carpizo Group,
Adib Majul organized and incorporated the ISLAMIC before Branch 81 of the Regional Trial Court of Quezon City
DIRECTORATE OF THE PHILIPPINES (IDP), the primary (Civil Case Q-90-6937) to compel said group to clear the
purpose of which is to establish an Islamic Center in Quezon property of squatters and deliver complete and full physical
City for, the construction of a "Mosque (prayer place, Madrasah possession thereof to INC. Likewise, INC filed a motion in the
(Arabic School), and other religious infrastructures" so as to same case to compel one Mrs. Leticia P. Ligon to produce and
facilitate the effective practice of Islamic faith in the area. surrender to the Register of Deeds of Quezon City the owner's
Towards this end, that is, in the same year, the Libyan duplicate copy of TCTs RT-26521 and RT-26520 covering the
government donated money to the IDP to purchase land at two parcels of land, so that the sale in INC's favor may be
Culiat, Tandang Sora, Quezon City, to be used as a Center for registered and new titles issued in the name of INC. Mrs. Ligon
the Islamic populace. The land, with an area of 49,652 square was alleged to be the mortgagee of the two parcels of land
meters, we covered by two titles: TCTs RT-26520 (176616) and executed in her favor by certain Abdulrahman R.T. Linzag and
RT-26521 (170567), both registered in the name of IDP. In Rowaida Busran-Sampaco claimed to be in behalf of the
1971, the Board of Trustees of the IDP was composed of Carpizo Group. Judge Celia Lipana-Reyes of Branch 81,
Senator Mamintal Tamano, Congressman Ali Dimaporo, Regional Trial Court of Quezon City, denied IDP's motion to
Congressman Salipada Pendatun, Dean Cesar Adib Majul, intervene on the ground of lack of juridical personality of the
Sultan Harun Al-Rashid Lucman, Delegate Ahmad Alonto, IDP-Tamano Group and that the issues being raised by way of
intervention are intra-corporate in nature, jurisdiction thereto Whether the Tandang Sora property was legitimately
properly pertaining to the SEC. Apprised of the pendency of sold to the INC.
SEC Case 4012 involving the controverted status of the IDP-
Carpizo Group but without waiting for the outcome of said case, Held:
Judge Reyes, on 12 September 1991, rendered Partial Judgment As far back as 3 October 1986, the SEC, in Case 2687,
in Civil Case Q-90-6937 ordering the IDP-Carpizo Group to in a suit between the Carpizo Group and the Abbas Group,
comply with its obligation under the Deed of Sale of clearing already declared the election of the Carpizo Group (as well as
the subject lots of squatters and of delivering the actual the Abbas Group) to the IDP Board as null and void for being
possession thereof to INC. Thereupon Judge Reyes in another violative of the Articles of Incorporation. Nothing thus becomes
Order, dated 2 March 1992, pertaining also to Civil Case Q-90- more settled than that the IDP-Carpizo Group with whom INC
6937, treated INC as the rightful owner of the real properties contracted is a fake Board. Premises considered, all acts carried
and disposed. On 6 April 1992, the Order was amended by out by the Carpizo Board, particularly the sale of the Tandang
Judge Reyes directing Ligon "to deliver the owner's duplicate Sora property, allegedly in the name of the IDP, have to be
copies of TCT Nos. RT-26521 (170567) and RT-26520 struck down for having been done without the consent of the
(176616) to the Register of Deeds of Quezon City for the IDP thru a legitimate Board of Trustees. Article 1318 of the
purposes stated in the Order of March 2, 1992." Mortgagee New Civil Code lays down the essential requisites of contracts,
Ligon went to the Court of Appeals, thru a petition for certiorari and where all these elements must be present to constitute a
(CA-GR SP-27973), assailing the Orders of Judge Reyes. The valid contract. For, where even one is absent, the contract is
appellate court dismissed her petition on 28 October 1992. void. Specifically, consent is essential for the existence of a
Undaunted, Ligon filed a petition for review before the contract, and where it is wanting, the contract is non-existent.
Supreme Court (GR 107751). In the meantime, the SEC, on 5 Herein, the IDP, owner of the subject parcels of land, never
July 1993, finally came out with a Decision in SEC Case 4012, gave its consent, thru a legitimate Board of Trustees, to the
Declaring the by-laws submitted by the IDP-Caprizo group as disputed Deed of Absolute Sale executed in favor of INC. This
unauthorized, and hence, null and void; declaring the sale of the is, therefore, a case not only of vitiated consent, but one where
two (2) parcels of land in Quezon City covered by the Deed of consent on the part of one of the supposed contracting parties is
Absolute Sale entered into by Iglesia ni Kristo and the Islamic totally wanting. Ineluctably, the subject sale is void and
Directorate of the Philippines, Inc. null and void; declaring the produces no effect whatsoever. The Carpizo Group-INC sale is
election of the Board of Directors 23 of the corporation from further deemed null and void ab initio because of the Carpizo
1986 to 1991 as null and void; and Declaring the acceptance of Group's failure to comply with Section 40 of the Corporation
the respondents, except Farouk Carpizo and Musnib Buat, as Code pertaining to the disposition of all or substantially all
members of the IDP null and void. The INC filed a Motion for assets of the corporation. The Tandang Sora property, it appears
Intervention, dated 7 September 1993, in SEC Case 4012, but from the records, constitutes the only property of the IDP.
the same was denied on account of the fact that the decision of Hence, its sale to a third-party is a sale or disposition of all the
the case had become final and executory, no appeal having been corporate property and assets of IDP falling squarely within the
taken therefrom. INC elevated SEC Case 4012 to the Court of contemplation of the foregoing section. For the sale to be valid,
Appeals by way of a special civil action for certiorari (CA-GR the majority vote of the legitimate Board of Trustees, concurred
SP 33295). On 28 October 1994, the appeallate court in by the vote of at least 2/3 of the bona fide members of the
promulgated a Decision granting INC's petition. The portion of corporation should have been obtained. These twin
the SEC Decision in SEC Case 4012 which declared the sale of requirements were no met as the Carpizo Group which voted to
the two (2) lots in question to INC as void was ordered set aside sell the Tandang Sora property was a fake Board of Trustees,
by the Court of Appeals. Thus, the IDP-Tamano Group brought and those whose names and signatures were affixed by the
the petition for review, dated 21 December 1994, to the Carpizo Group together with the sham Board Resolution
Supreme Court. While the petition was pending, however, the authorizing the negotiation for the sale were, from all
Supreme Court rendered judgment in GR 107751 on the indications, not bona fide members of the IDP as they were
petition filed by Mrs. Leticia P. Ligon. The Decision, dated 1 made to appear to be. Apparently, there are only 15 official
June 1995, denied the Ligon petition and affirmed the 28 members of the IDP including the 8 members of the Board of
October 1992 Decision of the Court of Appeals in CA-GR SP- Trustees. All told, the disputed Deed of Absolute Sale executed
27973 which sustained the Order of Judge Reyes compelling by the fake Carpizo Board and INC was intrinsically void ab
mortgagee Ligon to surrender the owner's duplicate copies of initio.
TCTs RT-26521 (170567) and RT-26520 (176616) to the
Register of Deeds of Quezon City so that the Deed of Absolute
Sale in INC's favor may be properly registered. LIABILITY OF CORPORATION

Issue: PEPSI-COLA DISTRIBUTORS VS. NLRC

 G.R. No. 100686 bowed out and PCPPI came into being. There is no evidence
presented showing that PCPPI, as the new entity or purchasing
Facts: company is free from any liabilities incurred by the former
This case involves a maintenance electrician (private corporation.
respondent Yute), an employee of petitioner PCD, who was
dismissed from his employment on the alleged ground of
abandonment and/or absence without leave. When the private DR. ALFAFARA VS. ACEBEDO OPTICAL
respondent filed with the Labor Arbiter a case for illegal G.R. No. 148384
dismissal, the latter rendered a favorable decision to Yute and
against his employer. He was reinstated and included in the Facts:
payroll from May 22, 1989 pending PDC's appeal with the Petitioners were duly licensed optometrists and were all
NLRC, only to be dismissed again on July 24, 1989 on the members of the Samahan ng Optometrists ng Pilipinas (SOP)-
alleged ground that his employer, PCD, sold its business Cebu Chapter. The SOP-Cebu Chapter was a chapter of SOP
interest to PCPPI which, however, denied liability on the Incorporated, a national organization which had a program
ground that it is a new entity separate and distinct from PCD. called “Sight Saving Month.” This program is implemented
The NLRC rendered judgment in favour of private respondent. nationwide which provided free consultations. Respondent was
a corporation with several outlets in Cebu, selling optical
It is the contention of petitioner PCD that the dismissal products and “ready-to-wear” eyeglasses of limited grades,
of private respondent was premised on a just cause after advertising its services and products. Respondent hired
affording him due process because as early as the first two years optometrists who conducted eye examinations, prescribed
of his employment, he was twice reprimanded for being absent ophthalmic lenses, and rendered other optometry services.
without permission and when he was required to explain his While the hired optometrists received their salary from
absenc, he failed to appear before the administrative committee respondent, they are not precluded from seeking other sources
despite personal service of notice which he refused to sign. of income.
While petitioner asserts that the second dismissal of private
respondent was due to closure of PCD as a result of business Petitioners brought an injunctive suit in the Regional Trial
losses, it however argues that public respondent NLRC gravely Court to enjoin respondent Acebedo from practicing optometry
abused its discretion when it assumed jurisdiction and ruled on in the province of Cebu on the main ground of violation of the
the validity of the second dismissal. Petitioner maintains that its Code of Ethics for Optometrists. In addition, petitioners
right to due process of law was violated considering that there contend that respondent is engaged in the practice of optometry
was no formal complaint as regard's the second dismissal and by its act of employing licensed agents. Thus, an optometrist
no hearing was ever conducted to enable petitioner PCD to who is employed by a corporation, such as Acebedo, is not
present evidence on an issue which is separate and distinct from acting on his own capacity but as an employee or agent of the
the first dismissal. Corollary to the argument on violation of its corporation. They contend that, as a mere employee or agent,
right to due process of law, petitioner PCD further contends that such optometrist cannot be held personally liable for his acts
Pepsi Cola Products Philippines, Inc. (PCPPI), a corporation done in the course of his employment as an optometrist under
separate and distinct from PCDPI, should not be held liable for the provisions of the Civil Code.
reinstatement with backwages of private respondent since it is
not a party to this case. Respondent denies being engaged in the practice of
optometry and argues that incidental to its business of selling
Issue: Who may be held liable for illegal acts committed by optical products, it hired duly licensed optometrists who
the PCD? conducted eye examination, prescribed ophthalmic lenses, and
rendered other services; that it exercised neither control nor
Held: supervision over the optometrists under its employ; and that the
Pepsi Cola Distributors of the Philippines may have hired optometrists exercised neither control nor supervision in
ceased business operations and Pepsi-Cola Products the sale of optical products and accessories by respondent.
Philippines, Inc. may be a new company but it does not
necessarily follow that no one may now be held liable for illegal The trial court at first dismissed the suit but, on motion
acts committed by the earlier firm. The complaint was filed of petitioners, reinstated the action and granted their prayer for
when PCD was still in existence. Pepsi-Cola never stopped a writ of preliminary injunction and/or restraining order. After
doing business in the Philippines. The same soft drinks products hearing, judgment was rendered in favor of petitioners. The
sold when the complaint was initiated continue to be sold now. Court of Appeals reversed the trial court holding that
The sale of products, purchases of materials, payment of respondent was illegally engaged in the practice of Optometry.
obligations, and other business acts did not stop at the time PCD
Issue: Whether or not respondent corporation Acebedo was The Ongs later on discovered that FLADC had in
engaged in the practice of optometry and is thus liable for the reality owned the property all along, even before their Pre-
acts of its optometrist employees. Subscription Agreement was executed. This meant that the 151
square-meter property was at that time already the corporate
Held: property of FLADC for which the Tius were not entitled to the
An “optometrist” is a person who has been certified by issuance of new shares of stock.
the Board of Optometry and registered with the Professional
Regulation Commission as qualified to practice optometry in Issue: Whether the Tuis were correct in choosing rescission as
the Philippines. Thus, only natural persons can engage in the remedy.
practice of optometry and not corporations. Respondent, which
is not a natural person, cannot take the licensure examinations Held:
for optometrist and, therefore, it cannot be registered as an
optometrist under R.A. No. 1998. There is no reason to deviate The parties' Pre-Subscription Agreement was in fact a
from the ruling that a duly licensed optometrist is not prohibited subscription contract as defined under Section 60, Title VII of
from being employed by respondent and that respondent cannot the Corporation Code:
be said to be exercising the optometry profession by reason of
such employment. Any contract for the acquisition
of unissued stock in an existing
While the optometrists are employees of respondent, corporation or a corporation still to be formed
their practice of optometry is separate and distinct from the shall be deemed a subscription within the
business of respondent of selling optical products. They are meaning of this Title, notwithstanding the
personally liable for acts done in the course of their practice in fact that the parties refer to it as a purchase or
the same way that if respondent is sued in court in connection some other contract.
with its business of selling optical products, the optometrists
need not be impleaded as party defendants. In that regard, the A subscription contract necessarily involves the
Board of Optometry and the Professional Regulation corporation as one of the contracting parties since the subject
Commission regulate their practice and have exclusive original matter of the transaction is property owned by the corporation
jurisdiction over them. – its shares of stock. Considering therefore that the real
contracting parties to the subscription agreement were FLADC
and the Ongs alone, a civil case for rescission on the ground of
ONG YONG vs. DAVID S. TIU breach of contract filed by the Tius in their personal capacities
G.R. No. 144476 will not prosper. Assuming it had valid reasons to do so, only
April 8, 2003 FLADC had the legal personality to file suit rescinding the
subscription agreement with the Ongs inasmuch as it was the
Facts: real party in interest therein.

The construction of the Masagana Citimall was Granting that the Tius possess the legal standing to sue
threatened with stoppage and incompletion when its owner, the for rescission based on breach of contract, said action will still
First Landlink Asia Development Corporation (FLADC), not prosper since rescission will violate the Trust Fund Doctrine
which was owned by the Tius, encountered dire financial and the procedures for the valid distribution of assets and
difficulties. To prevent foreclosure of the mortgage on the two property under the Corporation Code. In the instant case, the
lots where the mall was being built, the Tius invited the Ongs, rescission of the Pre-Subscription Agreement will effectively
to invest in FLADC through a Pre-Subscription Agrrement. result in the unauthorized distribution of the capital assets and
property of the corporation, thereby violating the Trust Fund
Tius committed to contribute a four-storey building Doctrine and the Corporation Code, since rescission of a
and two parcels of land to cover their additional stock subscription agreement is not one of the instances when
subscription. The Tuis subsequently rescinded the Pre- distribution of capital assets and property of the corporation is
Subscription Agreement.and alleged that the Ongs refused to allowed.
give them the shares corresponding to their property
contributions of a four-story building, a 1,902.30 square-meter
lot and a 151 square-meter lot. Hence, they felt they were PHILIPPINE NATIONAL BANK & NATIONAL SUGAR
justified in setting aside their Pre-Subscription Agreement with DEVELOPMENT CORPORATION VS. ANDRADA
the Ongs who allegedly refused to comply with their ELECTRIC & ENGINEERING COMPANY
undertakings. G.R. No. 142936
 April 17, 2002 225 SCRA 678
Facts: FACTS:
Pampanga Sugar Mills (PASUMIL) hired the services Manuel Dulay Enterprises, Inc. (Dulay Corporation,
of respondent, since the latter is engaged in the business of for brevity) obtained several loans for the construction of its
general construction for repairs of buildings and machineries. hotel project. Dulay Corporation borrowed money from Atty.
The Development Bank of the Philippines (DBP) has Virgilio Dulay, its vice-president for the continuance of said
foreclosed the assets of PASUMIL. At the foreclosure sale, project. As a result of the said loan, Virgilio occupied one of the
Philippine National Bank (PNB) was the highest bidder, hence unit apartments of the subject property. Thereafter, by virtue of
it acquired the assets of PASUMIL. PNB organized the a board resolution, Dulay Corporation, through its president
National Sugar Development Corporation (NASUDECO) to Manuel Dulay, sold the subject property in favor of spouses
take ownership and possession of the assets of the PASUMIL. Maria Theresa and Castrense Veloso in the amount of
The latter failed to pay the balance of its total obligation to the P300,000.00 as evidenced by the Deed of Absolute Sale. The
respondent when PASUMIL hired the services of the parties executed a Memorandum to the Absolute Deed of Sale
respondent. Consequently, the respondent filed a case against giving Manuel Dulay two years within which to repurchase the
PNB, NASUDECO and PASUMIL. property from Spouses Veloso. However, a day after the
property was sold to the spouses, the spouses, in order to obtain
Issue: Whether or not PNB is liable for corporate a loan, mortgaged the same to Manuel Torres without the
debts. knowledge of Manuel Dulay.

By reason of the failure of Spouses Veloso to pay

Held: Torres, the said property was sold to the latter, as the highest
As a rule, a corporation that purchases the assets of bidder in an extrajudicial foreclosure sale. Maria Veloso
another will not be liable for the debts of the selling corporation, executed an Absolute Deed of Assignment of the Right to
provided the former acted in good faith and paid adequate Redeem in favor Manuel Dulay, but neither of them was able to
consideration for such assets, except when any of the following redeem the property within one year. As a result, Torres filed
circumstances is present: (1) where the purchaser expressly or an action against Dulay Corporation for the recovery of
impliedly agrees to assume the debts, (2) where the transaction possession. Dulay Corporation, in turn, filed an action for the
amounts to a consolidation or merger of the corporations, (3) cancellation of the Certificate of Sheriff’s Sale against Spouses
where the purchasing corporation is merely a continuation of Veloso and Torres.
the selling corporation, and (4) where the transaction is
fraudulently entered into in order to escape liability for those Issue: Whether or not the sale of the subject property by its
debts. president, Manuel Dulay in favor of spouses Veloso is null and
While we agree with respondent’s claim that the assets of the void as the alleged Board Resolution was passed without the
National Sugar Development Corporation (NASUDECO) can knowledge and consent of the other members of the board of
be easily traced to PASUMIL, we are not convinced that the directors
transfer of the latter’s assets to petitioners was fraudulently
entered into in order to escape liability for its debt to Held:
respondent. Consequently, petitioner corporation is liable for the
A careful review of the records reveals that DBP foreclosed the act of Manuel Dulay and the sale of the subject property to
mortgage executed by PASUMIL and acquired the assets as the private respondents by Manuel Dulay is valid and binding.
highest bidder at the public auction conducted. The bank was
justified in foreclosing the mortgage, because the PASUMIL Petitioners' contention that private respondent Torres
account had incurred arrearages of more than 20 percent of the never acquired ownership over the subject property since the
total outstanding obligation. Thus, DBP had not only a right, latter was never in actual possession of the subject property nor
but also a duty under the law to foreclose the subject properties. was the property ever delivered to him is also without merit.

Paragraph 1, Article 1498 of the New Civil Code

MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO provides: “When the sale is made through a public instrument,
E. DULAY AND NEPOMUCENO REDOVAN VS. the execution thereof shall be equivalent to the delivery of the
COURT OF APPEALS, EDGARDO D. PABALAN, thing which is the object of the contract, if from the deed the
MANUEL A. TORRES, JR., MARIA THERESA V. contrary do not appear or cannot clearly be inferred.”
VELOSO AND CASTRENSE C. VELOSO
G.R. No. 91889 Under the aforementioned article, the mere execution
August 27, 1993 of the deed of sale in a public document is equivalent to the
delivery of the property.Therefore, prior physical delivery or criminal liability; otherwise this liability as created by the law
possession is not legally required since the execution of the would be illusory, and the deterrent effect of the law, negated.
Deed of Sale in deemed equivalent to delivery. In the present case, a distinction is to be found with the Tan
Boon Kong case in that the act alleged to be a crime is not in
the performance of an act directly ordained by law to be
SIA VS. PEOPLE performed by the corporation. The act is imposed by agreement
Facts: of parties, as a practice observed in the usual pursuit of a
Accused Jose 0. Sia sometime prior to 24 May, 1963, business or a commercial transaction. The offense may arise, if
was General Manager of the Metal Manufacturing Company of at all, from the peculiar terms and condition agreed upon by the
the Philippines, Inc. engaged in the manufacture of steel office parties to the transaction, not by direct provision of the law. The
equipment; on 31 May, 1963, because his company was in need intention of the parties, therefore, is a factor determinant of
of raw materials to be imported from abroad, he applied for a whether a crime was committed or whether a civil obligation
letter of credit to import steel sheets from Mitsui Bussan alone intended by the parties. With this explanation, the
Kaisha, Ltd. of Tokyo, Japan, the application being directed to distinction adverted to between the Tan Boon Kong case and
the Continental Bank, herein complainant, Exhibit B and his the case at bar should come out clear and meaningful. In the
application having been approved, the letter of credit was absence of an express provision of law making the petitioner
opened on 5 June, 1963 in the amount of $18,300, Exhibit D; liable for the criminal offense committed by the corporation of
and the goods arrived sometime in July, 1963 according to which he is a president as in fact there is no such provisions in
accused himself, tsn. II:7; now from here on there is some the Revised Penal Code under which petitioner is being
debate on the evidence; according to Complainant Bank, there prosecuted, the existence of a criminal liability on his part may
was permitted delivery of the steel sheets only upon execution not be said to be beyond any doubt. In all criminal prosecutions,
of a trust receipt, Exhibit A; while according to the accused, the the existence of criminal liability for which the accused is made
goods were delivered to him sometime before he executed that answerable must be clear and certain. The maxim that all doubts
trust receipt in fact they had already been converted into steel must be resolved in favor of the accused is always of
office equipment by the time he signed said trust receipt, tsn. compelling force in the prosecution of offenses. This Court has
II:8; but there is no question - and this is not debated - that the thus far not ruled on the criminal liability of an officer of a
bill of exchange issued for the purpose of collecting the unpaid corporation signing in behalf of said corporation a trust receipt
account thereon having fallen due (see Exh. B) neither accused of the same nature as that involved herein. In the case of Samo
nor his company having made payment thereon vs. People, L-17603-04, May 31, 1962, the accused was not
notwithstanding demands, Exh. C and C-1, dated 17 and 27 clearly shown to be acting other than in his own behalf, not in
December, 1963, and the accounts having reached the sum in behalf of a corporation.
pesos of P46,818.68 after deducting his deposit valued at
P28,736.47; that was the reason why upon complaint by
Continental Bank, the Fiscal filed the information after THE BOARD OF DIRECTORS
preliminary investigation as has been said on 22 October, 1964.
GRACE CHRISTIAN HIGH SCHOOL vs. COURT OF
Issue: APPEALS, GRACE VILLAGE ASSOCIATION, INC.,
Whether petitioner Jose O. Sia, having only acted for ALEJANDRO G. BELTRAN, and ERNESTO L. GO
and in behalf of the Metal Manufacturing Company of the G.R. No. 108905
Philippines (Metal Company, for short) as President thereof in October 23, 1997
dealing with the complainant, the Continental Bank, (Bank for 281 SCRA 133
short) may be liable for the crime charged.
Facts:
Held: Grace Christian High School (Grace School, for
The case cited by the Court of Appeals in support of brevity) is an educational institution located in Quezon City
its stand-Tan Boon Kong case, supra-may however not be while Grace Village Association, Inc. (Grace Association, for
squarely applicable to the instant case in that the corporation short) on the other hand, is an organization of lot and/or
was directly required by law to do an act in a given manner, and building owners, lessees and residents at Grace Village, while
the same law makes the person who fails to perform the act in private respondents Alejandro G. Beltran and Ernesto L. Go
the prescribed manner expressly liable criminally. The were its president and chairman of the committee on election,
performance of the act is an obligation directly imposed by the respectively, in 1990, when this suit was brought.
law on the corporation. Since it is a responsible officer or
officers of the corporation who actually perform the act for the Sometime in 1968, the by-laws of Grace Association
corporation, they must of necessity be the ones to assume the provided that the Board of Directors were composed of 11
members to serve for 1 year until their successors are duly stockholders or members. There may be corporations in which
elected. However, in 1975, the board of directors prepared a there are unelected members in the board but it is clear that in
draft of an amendment to the by-laws, which granted Grace the examples cited by petitioner the unelected members sit as
School representative to be a permanent director of Grace ex officio members, i.e., by virtue of and for as long as they
Association.The said draft was never presented to the general hold a particular office. But in the case of petitioner, there is no
membership for approval but it was presumably submitted to reason at all for its representative to be given a seat in the board.
the board. Until the year 1990, Grace School was given a Nor does petitioner claim a right to such seat by virtue of an
permanent seat in the board of directors of the association. office held. In fact it was not given such seat in the beginning.
It was only in 1975 that a proposed amendment to the by-laws
However, on February 13, 1990, Grace Association’s sought to give it one.
committed on election informed the principal of Grace School
that to make an entity a permanent Director would deprive the Since the provision in question is contrary to law, the
right of the voters to vote for 15 members of the Board and it is fact that for fifteen years it has not been questioned or
undemocratic for an entity to hold office in perpetuity. Grace challenged but, on the contrary, appears to have been
School made a request on the committee on election that the implemented by the members of the association cannot forestall
latter should follow the procedures in the previous elections a later challenge to its validity. Neither can it attain validity
claiming that the notice issued for the 1990 elections will run through acquiescence because, if it is contrary to law, it is
counter to the practice in the previous years and was in violation beyond the power of the members of the association to waive
of the by-laws of 1975. It further claimed that the proposal of its invalidity. For that matter the members of the association
the committee on election would unlawfully deprive Grace may have formally adopted the provision in question, but their
School of its vested right to a permanent seat in the Board. action would be of no avail because no provision of the by-laws
can be adopted if it is contrary to law.
As a result of the denial of Grace Association of its
request, Grace School brought suit for mandamus in the Home It is probable that, in allowing petitioner’s
Insurance and Guaranty Corporation to compel the board of representative to sit on the board, the members of the
directors of the association to recognize its right to a permanent association were not aware that this was contrary to law. It
seat in the board. should be noted that they did not actually implement the
provision in question except perhaps insofar as it increased the
The officer of the Home Insurance and Guaranty number of directors from 11 to 15, but certainly not the
Corporation dismissed the action filed by Grace school stating allowance of petitioner’s representative as an unelected
among others that the by-laws of 1975 was merely a proposal member of the board of directors. It is more accurate to say that
although implemented in the past, had not yet been ratified by the members merely tolerated petitioner’s representative and
the members of the association nor approved by competent tolerance cannot be considered ratification.
authority. In 1990, the Board of Directors of Grace Association
declared the said proposed by-laws as null and void. Nor can petitioner claim a vested right to sit in the
board on the basis of “practice.” Practice, no matter how long
Issue: Whether or not Grace School has acquired a vested right continued, cannot give rise to any vested right if it is contrary
to a permanent seat in the Board of Directors. to law. Even less tenable is petitioner’s claim that its right is
“coterminus with the existence of the association.”
Held:
The present Corporation Code (B.P. Blg. 68), which
took effect on May 1, 1980, similarly provides: “23. The Board MID-PASIG LAND DEVELOPMENT CORPORATION
of Directors or Trustees. - Unless otherwise provided in this vs. MARIO TABLANTE
Code, the corporate powers of all corporations formed under G.R. No. 162924
this Code shall be exercised, all business conducted and all February 4, 2010
property of such corporations controlled and held by the board
of directors or trustees to be elected from among the holders of Facts:
stocks, or where there is no stock, from among the members of
the corporation, who shall hold office for one (1) year and until Mid-Pasig Land Development Corporation,
their successors are elected and qualified.” represented by its Chairman and President, Ronaldo Salonga,
and ECRM Enterprises, represented by its proprietor, Mario P.
These provisions of the former and present corporation Tablante, executed a lease agreement over a parcel of land.
law leave no room for doubt as to their meaning: the board of When the lease agreement expired, Tablante assigned all his
directors of corporations must be elected from among the rights and interests under the said agreement to Litam and/or
Rockland Construction Company, Inc. under a Deed of
Assignment. Mid-Pasig Land Development Corporation later
on discovered that Tablante had executed a Contract of Lease AUTHORITY OF AN OFFICER TO ACT ON BEHALF
with respondent MC Home Depot, Inc. over the same parcel of OF THE CORPORATION
land and consequently demanded that MC Home Depot vacate
the land. ST. MARY’S FARM, INC., VS. PRIMA REAL
PROPERTIES, INC.ET.AL.
When the matter reached the Court of Appeals via G.R. No. 158144
petition for certiorari, the appellate court dismissed the petition July 31, 2008
because the verification and certification against non-forum Facts:
shopping was signed by Antonio A. Merelos as General St. Mary’s Farm, Inc. was the registered owner of an
Manager of the petitioner-corporation without attaching originally twenty-five thousand five hundred ninety-eight
therewith a Corporate Secretary’s certificate or board resolution (25,598) square meters of land at, Las Piñas City. In compliance
that he is authorized to sign for and on behalf of the petitioner. with a final court decision of the RTC in a civil case, St. Mary’s
Farm Inc. passed and approved a board resolution authorizing
defendant Agana to cede to T.S. Cruz Subdivision four
thousand (4,000) square meters of the land. However, Agana
Issue: then did not return to St. Mary the borrowed title and forged a
Whether or not a verification and certification by a board resolution of the corporation making it appear that he was
General Manager requires a board resolution and/or a authorized to sell the remaining twenty-one thousand five
secretary’s certificate for its validity and admissibility hundred ninety-eight (21,598) square meters of the subject
property. Agana and Prima Real Properties, Inc. later on signed
Held: an absolute deed of sale, with Prima as the vendee. Prima then
Sec. 23, in relation to Sec. 25 of the Corporation Code, caused the transfer of the title in its name.
clearly enunciates that all corporate powers are exercised, all
business conducted, and all properties controlled by the board In its complaint, St. Mary alleged that the
of directors. A corporation has a separate and distinct authorization certified by its Corporate Secretary and used by
personality from its directors and officers and can only exercise Agana in selling the subject property to defendant Prima was a
its corporate powers through the board of directors. Thus, it is forged and that Prima wasn’t a buyer in good faith.
clear that an individual corporate officer cannot solely exercise
any corporate power pertaining to the corporation without Issue:
authority from the board of directors. However, the Supreme Whether or not a Corporation is liable for the acts of
Court has recognized the authority of the following corporate its agent and must necessarily bear whatever damage may have
officers to sign the verification and certification against forum been caused by this alleged breach of trust to buyer in good
shopping without need of a board resolution: (1) the faith and for value, who relied on the authority of a notarized
Chairperson of the Board of Directors, (2) the President of a board resolution
corporation, (3) the General Manager or Acting General
Manager, (4) Personnel Officer, and (5) an Employment Held:
Specialist in a labor case. A buyer in good faith has every reason to rely on a
person’s authority to sell a particular property owned by a
The determination of the sufficiency of the authority corporation on the basis of a notarized board resolution. Being
was done on a case to case basis. This is to justify the authority a buyer in good faith, he buys the property with the well-
of corporate officers or representatives of the corporation to founded belief that the person from whom he receives the thing
sign the verification or certificate against forum shopping, had title to the property and capacity to convey it.
being in a position to verify the truthfulness and correctness of
the allegations in the petition. Agana presented to Prima:
1. A notarized board resolution
From the foregoing, it is thus clear that the failure to which stated that at a special
attach the Secretary’s Certificate, attesting to General Manager meeting held on June 27, 1988
Antonio Merelos’s authority to sign the Verification and the board of directors
Certification of Non-Forum Shopping, should not be authorized Agana, Treasurer, to
considered fatal to the filing of the petition. Nonetheless, the sell the subject property;
requisite board resolution was subsequently submitted to the 2. A separate Certification by the
CA, together with the pertinent documents. St. Mary’s president,
 authorizing its Treasurer, representative about the Gasul tank in their truck who later
Agana, to sell said property; admitted that the Gasul and Shellane tanks on their truck
and belonged to a customer who had them filled up by Bicol Gas.
3. The title of the subject
property. KPE filed a complaint for violations of Republic Act
(R.A.) 623 (illegally filling up registered cylinder tanks), as
When a document under scrutiny is a special power of amended, and Sections 155 (infringement of trade marks) and
attorney that is duly notarized, acknowledgement is prima facie 169.1 (unfair competition) of the Intellectual Property Code
evidence of the fact of its due execution – a buyer presented (R.A. 8293) against the directors, officers, and stockholders of
with such document would have no choice between knowing Bicol Gas.
and finding out whether a forger lurks beneath the signature on
it. A person dealing with a seller who has [in his] possession Issue:
title to the property but whose capacity to sell is restricted, Whether or not the stockholders and members of the
qualifies as a buyer in good faith if he proves that he inquired board of directors of Bicol Gas are liable with respect to the
into the title of the seller as well as into the latter's capacity to charge of unlawfully filling up a steel cylinder or tank that
sell; and that in his inquiry, he relied on the notarial belonged to Petron
acknowledgment found in the seller's duly notarized special
power of attorney. He need not prove anything more for it is
already the function of the notarial acknowledgment to Held:
establish the appearance of the parties to the document, its due Corporate officers or employees through whose act,
execution and authenticity. default or omission the corporation commits a crime may
themselves be answerable for the crime. This is an exception to
The board resolution further averred that he was the general rule that a corporation has entity separate and
"authorized and empowered to sign any and all documents, distinct from the persons of its officers, directors, and
instruments, papers or writings which may be required and stockholders.
necessary for this purpose to bind the Corporation in this
undertaking." The certification of St. Mary’s President also Before a stockholder may be held criminally liable for
attests to this fact. With this notarized board resolution, acts committed by a corporation, it must be shown that he had
respondent Agana, undeniably, had the authority to cede the knowledge of the criminal act committed in the name of the
subject property, carrying with it all the concomitant powers corporation and that he took part in the same or gave his consent
necessary to implement said transaction. to its commission whether by action or inaction.

The "owners" of a corporate organization are its

ESPIRITU JR. et. al vs. PETRON CORPORATION and stockholders and they are to be distinguished from its directors
CARMEN J. DOLOIRAS, doing business under the name and officers. The petitioners here, with the exception of Audie
"KRISTINA PATRICIA ENTERPRISES (KPE)" Llona, are being charged in their capacities as stockholders of
GR No. 170891 Bicol Gas. But the Court of Appeals forgets that in a
November 24, 200 corporation, the management of its business is generally vested
Facts: in its board of directors, not its stockholders. Stockholders are
KPE and Bicol Gas Refilling Plant Corporation basically investors in a corporation. They do not have a hand in
(Bicol Gas) were in the business of selling and distributing running the day-to-day business operations of the corporation
LPGs in Sorsogon. The former was owned and operated by unless they are at the same time directors or officers of the
Carmen Dolorais but was manged by Jose Dolorais. The latter corporation. Before a stockholder may be held criminally liable
carried the trademark "Bicol Savers Gas" managed by Llona. for acts committed by the corporation, therefore, it must be
shown that he had knowledge of the criminal act committed in
In the course of trade and competition, any given the name of the corporation and that he took part in the same or
distributor of LPGs at times acquired possession of LPG gave his consent to its commission, whether by action or
cylinder tanks belonging to other distributors operating in the inaction.
same area. They called these "captured cylinders." In one
occasion, Jose saw a particular Bicol Gas truck on the
Maharlika Highway. While the truck carried mostly Bicol SAN MIGUEL BUKID HOMEOWNERS
Savers LPG tanks, it had on it one unsealed 50-kg Gasul tank ASSOCIATION, INC. vs. THE CITY OF
and one 50-kg Shellane tank. Jose followed the truck and when MANDALUYONG
it stopped at a store, he asked the driverand the Bicol Gas sales G.R. No. 153653
 October 2, 2009 to initiate, sign, file and prosecute another case for the special
civil action of certiorari.
Facts:
San Miguel Bukid Homeowners Association, Inc. The submission of a Secretary’s Certificate with the
entered into a Memorandum of Agreement with the City of Motion for Reconsideration is also insufficient to cure the initial
Mandaluyong whereby the City purchased lots and then defect because there was no certification as to when petitioner’s
transferred the same to petitioner with a first real estate Board of Trustees originally granted Mr. Barata authority to
mortgage in favor of the City. When the work on the project show that as of the date of the filing of the petition for certiorari,
stopped, petitioner filed the complaint praying that the City and Mr. Barata had been authorized to perform such acts.
its contractor be ordered to perform their respective
undertakings and obligations under the Contract Agreement and
to pay petitioner attorney’s fees, exemplary damages and
litigation expenses.

The City filed an Answer within the extended period

granted by the trial court. When the trial court dismissed LIABILITY OF BOARD OF DIRECTORS
petitioner’s petition to declare the City in default, the matter
was elevated by petitioner to the Court of Appeals via a petition FLIGHT ATTENDANTS AND STEWARDS
for certiorari. However Court of Appeals dismissed the petition ASSOCIATION OF THE PHILIPPINES VS.
because the person who signed the Verification/Certification of PHILIPPINE AIRLINES, PATRICIA CHIONG AND
Non-Forum Shopping thereof did not appear to be authorized COURT OF APPEALS
by San Miguel Bukid Homeowners Association, Inc. G.R. No. 178083
July 23, 2008
Issue: 569 SCRA 252
Whether or not a Board Resolution authorizing an Facts:
officer to initiate, sign, file and prosecute a complaint sufficient The Flight Attendants and Stewards Association of the
for a special civil action of certiorari Philippines (FASAP, for brevity) is the duly certified collective
bargaining representative of PAL’s flight attendants and
Held: stewards, while PAL, is a domestic corporation operating as a
Certiorari is an original and independent action that is common carrier transporting passengers and cargo through
not part of the trial or the proceedings on the complaint filed aircraft.
before the trial court – hence, a Board Resolution authorizing PAL adopted the retrenchment scheme due to its alleged
an officer to initiate, sign, file and prosecute the complaint is financial losses and as a result of the adoption of such
not and cannot be considered as an authorization to initiate, retrenchment scheme, PAL retrenched 5,000 of its employees
sign, file, and prosecute another case for the special civil action and a thousand of its cabin crew personnel.
of certiorari.
During the said period, PAL was placed under
Evidently, petitioner only authorized its President, corporate rehabilitation and a rehabilitation plan was approved
Evelio Barata, to initiate, sign, file and prosecute the Complaint by the Securities and Exhange Commission (SEC, for short).
for specific performance. Certiorari, as a special civil action, is Thereafter, PAL, through its Chairman and C.E.O, Lucio Tan,
an original action invoking the original jurisdiction of a court to made an offer to transfer shares of stock to its employees and
annul or modify the proceedings of a tribunal, board or officer three seats in its Board of Directors, on the condition that all the
exercising judicial or quasi-judicial functions. It is an original existing Collective Bargaining Agreements (CBAs) with its
and independent action that is not part of the trial or the employees would be suspended for 10 years, however, the
proceedings on the complaint filed before the trial court. The proposal was rejected by its employees.
petition for certiorari before the CA is, therefore, a separate and Consequently, PAL ceased its operations and sent notices of
distinct action from the action for specific performance termination to its employees. After sometime, PAL submitted a
instituted before the RTC, as the writ of certiorari being prayed "stand-alone" rehabilitation plan to the SEC by which it
for is directed against the judicial or quasi-judicial body, not undertook a recovery on its own while keeping its options open
against the private parties in the original action for specific for the entry of a strategic partner in the future. Accordingly, it
performance. Such being the case, the Resolution of the Board submitted an amended rehabilitation plan to the SEC with a
of Directors of petitioner association is not and cannot be proposed revised business and financial restructuring plan,
considered as an authorization for its President, Evelio Barata, which required the infusion of US$200 million in new equity
into the airline.
 The SEC approved the proposed "Amended and The dispute started when, in the absence of the
Restated Rehabilitation Plan" of PAL and appointed a required notice of cessation of its business, MAC ceased its
permanent rehabilitation receiver for the latter. The former, operations with the intention of completely closing its shop or
later on, issued an Order approving the foregoing plan. factory. Such intention was manifested in a letter, allegedly
claimed by MAC as its notice was filed only on the same day
However, FASAP, filed a complaint against PAL and that the operations closed. As a result of the said business
Patricia Chiong for unfair labor practice, illegal retrenchment closure, the workers who rendered their services were not paid
with claims for reinstatement and payment of salaries, their salaries or wages. Hence, the rank and file employees
allowances and backwages of affected FASAP members and claimed that the manner of closure of the operations of MAC
damages, and prayer to enjoin the retrenchment program then was illegal.
being implement. While the complaint was lodged before the Labor
Arbiter, the complaintant filed a motion to implead MAC’s
Issue: Whether or not PAL was suffering from substantial Chairman of the Board Antonio Carag and MAC’s President
actual and imminent losses to justify the adoption of the Armando David. The inclusion of Carag and David in the
retrenchment program. complaint is to guarantee the satisfaction of any judgment
favorable to the complainants.
Held: However, the counsel for respondents, submitted a position
What further belied PAL's allegation that it was paper and stated that complainants should not have impleaded
suffering from substantial actual and imminent losses was the Carag and David because MAC is actually owned by a
fact that in December 1998, PAL submitted a "stand-alone" consortium of banks. Carag and David own shares in MAC only
rehabilitation plan to the SEC, and on June 4, 1999, or less than to qualify them to serve as MAC's officers.
a year after the retrenchment, the amount of US$200 million
was invested directly into PAL by way of additional capital Issue: Whether or not Carag and David could be held
infusion for its operations.[81] These facts betray PAL's claim personally liable for corporate debts.
that it was in dire financial straits. By submitting a "stand-
alone" rehabilitation plan, PAL acknowledged that it could Held:
undertake recovery on its own and that it possessed enough This case also raises this issue: when is a director
resources to weather the financial storm, if any. personally liable for the debts of the corporation? The rule is
that a director is not personally liable for the debts of the
Thus said, it was grave error for the Labor Arbiter, the corporation, which has a separate legal personality of its own.
NLRC and the Court of Appeals, to have simply assumed that Section 31 of the Corporation Code lays down the exceptions
PAL was in grievous financial state, without requiring the latter to the rule, as follows: “Liability of directors, trustees or
to substantiate such claim. It bears stressing that in officers. - Directors or trustees who wilfully and knowingly
retrenchment cases, the presentation of proof of financial vote for or assent to patently unlawful acts of the corporation or
difficulties through the required documents, preferably audited who are guilty of gross negligence or bad faith in directing the
financial statements prepared by independent auditors, may not affairs of the corporation or acquire any personal or pecuniary
summarily be done away with. 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
ANTONIO C. CARAG vs. NATIONAL LABOR members and other persons.”
RELATIONS COMMISSION, ISABEL G.
PANGANIBAN-ORTIGUERRA, as Executive Labor Section 31 makes a director personally liable for
Arbiter, NAFLU and MARIVELES APPAREL corporate debts if he wilfully and knowingly votes for or assents
CORPORATION LABOR UNION to patently unlawful acts of the corporation. Section 31 also
G.R. No. 147590 makes a director personally liable if he is guilty of gross
April 2, 2007 negligence or bad faith in directing the affairs of the
520 SCRA 28 corporation.
Facts: Complainants did not allege in their complaint that Carag
The National Federation of Labor Unions (NAFLU) wilfully and knowingly voted for or assented to any patently
and Mariveles Apparel Corporation Labor Union (MACLU), unlawful act of MAC. Complainants did not present any
on behalf of the rank and file employees of Mariveles Apparel evidence showing that Carag wilfully and knowingly voted for
Corporation (MAC) filed a complaint against MAC for illegal or assented to any patently unlawful act of MAC. Neither did
dismissal brought about by its illegal closure of business.
Arbiter Ortiguerra make any finding to this effect in her Petition for Suspension of Payments by the SEC. The Petition
Decision. for Suspension of Payments, however, was dismissed. Impact
Corporation resumed operations but only for its winding up and
Complainants did not also allege that Carag is guilty dissolution. SSS-LCD later filed an amended Petition
of gross negligence or bad faith in directing the affairs of MAC. impleading the directors of Impact including Garcia who
Complainants did not present any evidence showing that Carag insisted that she was a mere director without managerial
is guilty of gross negligence or bad faith in directing the affairs functions, and she ceased to be such in 1982. Even as a
of MAC. Neither did Arbiter Ortiguerra make any finding to stockholder and director of Impact Corporation, she contended
this effect in her Decision. To hold a director personally liable that she cannot be made personally liable for the corporate
for debts of the corporation, and thus pierce the veil of corporate obligations of Impact Corporation since her liability extended
fiction, the bad faith or wrongdoing of the director must be only up to the extent of her unpaid subscription, of which she
established clearly and convincingly. Bad faith is never had none since her subscription was already fully paid.
presumed. 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 Issue:
interest. Bad faith partakes of the nature of fraud. Whether or not the only surviving director of a
corporation can be made solely liable for the corporate
Neither does bad faith arise automatically just because obligations pertaining to unremitted SSS premium
a corporation fails to comply with the notice requirement of contributions and penalties
labor laws on company closure or dismissal of employees. The
failure to give notice is not an unlawful act because the law does Held:
not define such failure as unlawful. Such failure to give notice A director, officer, and employee of a corporation are
is a violation of procedural due process but does not amount to generally not held liable for obligations incurred by the
an unlawful or criminal act. corporation because corporation is invested by law with a
personality separate and distinct from that of the persons
For a wrongdoing to make a director personally liable composing it as well as from that of any other legal entity to
for debts of the corporation, the wrongdoing approved or which it may be related. However, a corporate director, a
assented to by the director must be a patently unlawful act. Mere trustee, or an officer, maybe held solidarily liable with the
failure to comply with the notice requirement of labor laws on corporation when he is made, by specific provision of a law,
company closure or dismissal of employees does not amount to personally liable for his corporate action.
a patently unlawful act. Patently unlawful acts are those
declared unlawful by law which imposes penalties for As provided for in Section 31 of the Corporation Law,
commission of such unlawful acts. There must be a law a corporate director, a trustee or an officer, may be held
declaring the act unlawful and penalizing the act. solidarily liable with the corporation in the following instances:

GARCIA vs. SOCIAL SECURITY COMMISSION 1. When directors and

LEGAL AND COLLECTION, trustees or, in appropriate
SOCIAL SECURITY SYSTEM cases, the officers of
G. R. No . 1 7 0 7 3 5 a corporation--
Dece mb e r 1 7 , 2 0 0 7 (a) vote for or
assent to patently
Facts: unlawful acts of
Garcia was one of the directors of Impact Corporation, the corporation;
a corporation engaged in manufacturing aluminum tube (b) act in bad faith
containers and operated two factories. Due to financial or with gross
problems, Impact filed with the SEC a Petition for Suspension negligence in
of Payments. SSS, through its Legal and Collection Division directing the
(LCD), filed a case before the SSC for the collection of corporate affairs;
unremitted SSS premium contributions withheld by Impact (c) are guilty of
Corporation from its employees. conflict of
interest to the
Impact Corporation, through its then Vice President prejudice of the
Ricardo de Leon, explained that its operations had been corporation, its
suspended and that it was waiting for the resolution on its stockholders or
 members, and
other persons.

2. When a director or RIGHTS OF SHARE HOLDERS

officer has consented to the
issuance of watered stocks REPUBLIC PLANTERS BANK VS. AGANA, SR
or who, having knowledge G.R. No. 51765
thereof, did not forthwith March 3, 1997
file with the corporate Facts:
secretary his written Private respondent Robes-Francisco Realty &
objection thereto. Development Corporation secured a loan from petitioner in the
amount of P120,000.00. As part of the proceeds of the loan,
3. When a director, trustee preferred shares of stocks were issued to private respondent
or officer has contractually Corporation, through its officers then, private respondent
agreed or stipulated to hold Adalia F. Robes and one Carlos F. Robes. In other words,
himself personally and instead of giving the legal tender totaling to the full amount of
solidarily liable with the the loan, which is P120,000.00, petitioner lent such amount
Corporation. partially in the form of money and partially in the form of stock
certificates numbered 3204 and 3205, each for 400 shares with
4. When a director, trustee a par value of P10.00 per share, or for P4,000.00 each, for a
or officer is made, by total of P8,000.00. Said stock certificates were in the name of
specific provision of law, private respondent Adalia F. Robes and Carlos F. Robes, who
personally liable for his subsequently, however, endorsed his shares in favor of Adalia
corporate action. F. Robes.

When said corporation failed to remit the SSS Private respondents proceeded against petitioner and
premium contributions falls exactly under the fourth situation. filed a Complaint anchored on private respondents’ alleged
Section 28(f) of the Social Security Law imposes a civil liability rights to collect dividends under the preferred shares in question
for any act or omission pertaining to the violation of the Social and to have petitioner redeem the same under the terms and
Security Law against its managing head, directors or partners conditions of the stock certificates. Private respondents
shall be liable to the penalties provided in this Act for the attached to their complaint, a letter-demand dated January 5,
offense. 1979 which, significantly, was not formally offered in evidence.

Criminal actions for violations of the Social Security Petitioner filed a Motion to Dismiss but was denied by
Law are also provided under the Revised Penal Code. The the trial court in an Order. The trial court rendered the herein
Social Security Law provides, in Section 28, that any employer assailed decision in favor of private respondents ordering
who, after deducting the monthly contributions or loan petitioner to pay private respondents the face value of the stock
amortizations from his employees’ compensation, fails to remit certificates as redemption price, plus 1% quarterly interest
the said deductions to the SSS within thirty (30) days from the thereon until full payment.
date they became due shall be presumed to have
misappropriated such contributions or loan amortizations and Issue: Whether or not redemption of shares should be allowed
shall suffer the penalties provided in Article Three hundred
fifteen of the Revised Penal Code. Held:
Preferred share of stock, on one hand, is one which
The personal liability for the unremitted SSS premium entitles the holder thereof to certain preferences over the
contributions and the late penalty thereof attaches to the holders of common stock. The preferences are designed to
petitioner as a director of Impact Corporation during the period induce persons to subscribe for shares of a corporation.
the amounts became due and demandable by virtue of a direct Preferred shares take a multiplicity of forms. The most common
provision of law. Although a corporation once formed is forms may be classified into two: (1) preferred shares as to
conferred a judicial personality separate and distinct from the assets; and (2) preferred shares as to dividends. The former is a
persons comprising it, it is but a legal fiction introduced for share which gives the holder thereof preference in the
purposes of convenience and to subserve the ends of justice – distribution of the assets of the corporation in case of
the concept cannot be extended to a point beyond its reasons liquidation; the latter is a share the holder of which is entitled
and policy. to receive dividends on said share to the extent agreed upon
before any dividends at all are paid to the holders of common Code was then in force. Under Article VII of its Articles of
stock. There is no guaranty, however, that the share will receive Incorporation, only holders of class “A” shares have the right
any dividends. The present Corporation Code provides that the to vote and be voted for during their annual stockholders
board of directors of a stock corporation may declare dividends election. The said Articles of Incorporation was amended three
only out of unrestricted retained earnings. The Code, in Section times, however, only holders of class “B” shares are still
43, adopting the change made in accounting terminology, deprived to vote and be voted for. The petitioners protested
substituted the phrase “unrestricted retained earnings,” which claiming that Article VII was null and void for depriving them,
may be a more precise term, in place of “surplus profits arising as holders of class “B” shares, of their right to vote and be voted
from its business” in the former law. Thus, the declaration of upon, in violation of the New Corporation Code. They alleged
dividends is dependent upon the availability of surplus profit or that the phrase, under Artice VII, “except when otherwise
unrestricted retained earnings, as the case may be. Preferences provided by law” grants them the right to vote under the New
granted to preferred stockholders, moreover, do not give them Corporation Code.
a lien upon the property of the corporation nor make them
creditors of the corporation, the right of the former being always Issue: Whether or not the law referred to in the amendment to
subordinate to the latter. Dividends are thus payable only when Article VII refers to the New Corporation Code and as such
there are profits earned by the corporation and as a general rule, holders of class “B” shares have the right to vote and be voted
even if there are existing profits, the board of directors has the upon
discretion to determine whether or not dividends are to be
declared. 15 Shareholders, both common and preferred, are Held:
considered risk takers who invest capital in the business and The Supreme Court found and so held that the law
who can look only to what is left after corporate debts and referred to in the amendment to Article VII refers to the
liabilities are fully paid. Corporation Code and no other law. At the time of the
incorporation of MCPI in 1977, the right of a corporation to
Redeemable shares, on the other hand, are shares classify its shares of stock was sanctioned by Section 5 of Act
usually preferred, which by their terms are redeemable at a No. 1459. The law repealing Act No. 1459, B.P. Blg. 68,
fixed date, or at the option of either issuing corporation, or the retained the same grant of right of classification of stock shares
stockholder, or both at a certain redemption price. A redemption to corporations, but with a significant change. Under Section 6
by the corporation of its stock is, in a sense, a repurchase of it of B.P. Blg. 68, the requirements and restrictions on voting
for cancellation. The present Code allows redemption of shares rights were explicitly provided for, such that "no share may be
even if there are no unrestricted retained earnings on the books deprived of voting rights except those classified and issued as
of the corporation. This is a new provision which in effect "preferred" or "redeemable" shares, unless otherwise provided
qualifies the general rule that the corporation cannot purchase in this Code" and that "there shall always be a class or series of
its own shares except out of current retained earnings. However, shares which have complete voting rights." One of the rights of
while redeemable shares may be redeemed regardless of the a stockholder is the right to participate in the control and
existence of unrestricted retained earnings, this is subject to the management of the corporation that is exercised through his
condition that the corporation has, after such redemption, assets vote. The right to vote is a right inherent in and incidental to the
in its books to cover debts and liabilities inclusive of capital ownership of corporate stock, and as such is a property right.
stock. Redemption, therefore, may not be made where the The stockholder cannot be deprived of the right to vote his stock
corporation is insolvent or if such redemption will cause nor may the right be essentially impaired, either by the
insolvency or inability of the corporation to meet its debts as legislature or by the corporation, without his consent, through
they mature. amending the charter, or the by-laws.

ANG-ABAYA vs ANG
CECILIA CASTILLO, ET AL. VS. ANGELES G.R. No. 178511
BALINGHASAY, ET AL. December 4, 2008
G.R. No. 150976
October 18, 2004 Facts:
Vibelle Manufacturing Corporation and Genato
Facts: Investments, Inc. are family-owned corporations, where
Petitioners and respondents are stockholders of petitioners Ma. Belen Flordeliza C. Ang-Abaya , Jason A. Ang,
Medical Center Paranaque, Inc. (MCPI, for brevity) with the Vincent G. Genato, Hanna Ang and private respondent Eduardo
former holding class “B” shares while the latter owning class G. Ang (Eduardo) are shareholders, officers and members of
“A” shares. MCPI was incorporated when the Old Corporation the board of directors.
 books/records as provided for under Section 74 of the
Prior to the instant controversy, VMC, Genato, and Corporation Code, the following elements must be present:
Oriana Manufacturing Corporation (Oriana) filed a case for
damages with prayer for issuance of a TRO and/or writ of First. A director, trustee, stockholder or member has
preliminary injunction against Eduardo for allegedly conniving made a prior demand in writing for a copy of excerpts from the
to fraudulently wrest control/management of the corporations. corporation’s records or minutes;
Eduardo allegedly borrowed substantial amounts of money
from the said corporations without any intention to repay; that Second. Any officer or agent of the concerned
he repeatedly demanded for increases in his monthly allowance corporation shall refuse to allow the said director, trustee,
and for more cash advances contrary to existing corporate stockholder or member of the corporation to examine and copy
policies; that he harassed petitioner Flordeliza to transfer and/or said excerpts;
sell certain corporate and personal properties in order to pay off
his personal obligations etc. Third. If such refusal is made pursuant to a resolution
or order of the board of directors or trustees, the liability under
Eduardo sought permission to inspect the corporate this section for such action shall be imposed upon the directors
books of VMC and Genato on account of petitioners’ alleged or trustees who voted for such refusal; and,
failure and/or refusal to update him on the financial and
business activities of these family corporations. Petitioners Fourth. Where the officer or agent of the corporation
denied the request claiming that Eduardo would use the sets up the defense that the person demanding to examine and
information obtained from said inspection for purposes inimical copy excerpts from the corporation’s records and minutes has
to the corporations’ interests, considering that: a) he is improperly used any information secured through any prior
harassing the corporation into writing off his advances; b) he is examination of the records or minutes of such corporation or of
unjustly demanding that he be given an office/position already any other corporation, or was not acting in good faith or for a
occupied and usurping corporate powers as well as making legitimate purpose in making his demand, the contrary must be
demands with regard to corporate properties. shown or proved.

Because of petitioners’ refusal to grant his request to

inspect the corporate books of VMC and Genato, Eduardo filed Thus, in a criminal complaint for violation of Section
an Affidavit-Complaint against petitioners Flordeliza and 74 of the Corporation Code, the defense of improper use or
Jason, charging them with violation (two counts) of Section 74, motive is in the nature of a justifying circumstance that would
in relation to Section 144, of the Corporation Code of the exonerate those who raise and are able to prove the same.
Philippines. Accordingly, where the corporation denies inspection on the
ground of improper motive or purpose, the burden of proof is
The City Prosecutor issued a Resolution taken from the shareholder and placed on the corporation. This
recommending that petitioners be charged with two counts of being the case, it would be improper for the prosecutor, during
violation of Section 74 of the Corporation Code, but dismissed preliminary investigation, to refuse or fail to address the
the complaint against Belinda for lack of evidence. Petitioners defense of improper use or motive, given its express statutory
filed a Petition for Review before the DOJ, which reversed the recognition. Thus, contrary to Eduardo’s insistence, the
recommendation of the City Prosecutor. The DOJ denied stockholder’s right to inspect corporate books is not without
Eduardo’s Motion for Reconsideration. The Court of Appeals limitations. It is now expressly required as a condition for such
reversed the DOJ. examination that the one requesting it must not have been guilty
of using improperly any information secured through a prior
Issue: examination, or that the person asking for such examination
Whether or not the DOJ committed GADALEJ in must be acting in good faith and for a legitimate purpose in
reversing the resolution of the prosecutor finding probable making his demand.
cause against petitioners after preliminary investigation for
violation of section 74 of the corporation code of the The serious allegations against Eduardo are supported
Philippines by official and other documents, such as board resolutions,
treasurer’s affidavits and written communication from the
Held: respondent Eduardo himself, who appears to have withheld his
In order for the penal provision under Section 144 of objections to these charges. His silence virtually amounts to an
the Corporation Code to apply in a case of violation of a acquiescence. Taken together, all these serve to justify
stockholder or member’s right to inspect the corporate petitioners’ allegation that Eduardo was not acting in good faith
and for a legitimate purpose in making his demand for
inspection of the corporate books. Otherwise stated, there is KAWASAKI, they agreed that the latter's right of first refusal
lack of probable cause to support the allegation that petitioners under the JVA be "exchanged" for the right to top by five
violated Section 74 of the Corporation Code in refusing percent (5%) the highest bid for the said shares. They further
respondent’s request for examination of the corporation books. agreed that KAWASAKI would be entitled to name a company
in which it was a stockholder, which could exercise the right to
top. On September 7, 1990, KAWASAKI informed APT that
Philyards Holdings, Inc. (PHI) would exercise its right to top.

At the pre-bidding conference, interested bidders were

given copies of the JVA between NIDC and KAWASAKI, and
RIGHT OF FIRST REFUSAL of the Asset Specific Bidding Rules (ASBR) drafted for the
National Government's 87.6% equity share in PHILSECO. As
J.G. SUMMIT HOLDINGS, INC. VS. COURT OF petitioner was declared the highest bidder, the COP approved
APPEALS, ET.AL. the sale on December 3, 1993 "subject to the right of Kawasaki
G.R. No. 124293 Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top
January 31, 2005 JGSMI's bid by 5% as specified in the bidding rules."

Facts: Petitioner protested the offer of PHI to top its bid

because it had no right of first refusal can be exercised in a
The National Investment and Development public bidding or auction sale. Petitioner was notified that PHI
Corporation (NIDC), a government corporation, entered into a had fully paid the balance of the purchase price of the subject
Joint Venture Agreement (JVA) with Kawasaki Heavy bidding. The APT notified petitioner that PHI had exercised its
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the option to top the highest bid and that the COP had approved the
construction, operation and management of the Subic National same. The APT and PHI executed a Stock Purchase Agreement.
Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation Issue:
(PHILSECO). Under the JVA, the NIDC and KAWASAKI will Whether KAWASAKI had a valid right of first refusal
contribute P330 million for the capitalization of PHILSECO in over PHILSECO shares under the JVA considering that
the proportion of 60%-40% respectively. One of its salient PHILSECO owned land until the time of the bidding and
features was the grant to the parties of the right of first refusal KAWASAKI already held 40% of PHILSECO’s equity
should either of them decide to sell, assign or transfer its interest
in the joint venture.
Held:
NIDC later transferred all its rights, title and interest The Supreme Court upheld the validity of the mutual
in PHILSECO to the Philippine National Bank (PNB). Such rights of first refusal under the JVA between KAWASAKI and
interests were subsequently transferred to the National NIDC. First of all, the right of first refusal is a property right of
Government pursuant to Administrative Order No. 14. PHILSECO shareholders, KAWASAKI and NIDC, under the
President Corazon C. Aquino then issued Proclamation No. 50 terms of their JVA. This right allows them to purchase the
establishing the Committee on Privatization (COP) and the shares of their co-shareholder before they are offered to a third
Asset Privatization Trust (APT) to take title to, and possession party. The agreement of co-shareholders to mutually grant this
of, conserve, manage and dispose of non-performing assets of right to each other, by itself, does not constitute a violation of
the National Government. Thereafter, on February 27, 1987, a the provisions of the Constitution limiting land ownership to
trust agreement was entered into between the National Filipinos and Filipino corporations. As PHILYARDS correctly
Government and the APT wherein the latter was named the puts it, if PHILSECO still owns land, the right of first refusal
trustee of the National Government's share in PHILSECO. In can be validly assigned to a qualified Filipino entity in order to
1989, as a result of a quasi-reorganization of PHILSECO to maintain the 60%-40% ratio. This transfer, by itself, does not
settle its huge obligations to PNB, the National Government's amount to a violation of the Anti-Dummy Laws, absent proof
shareholdings in PHILSECO increased to 97.41% thereby of any fraudulent intent. The transfer could be made either to a
reducing KAWASAKI's shareholdings to 2.59%. nominee or such other party which the holder of the right of first
refusal feels it can comfortably do business with. Alternatively,
In the interest of the national economy and the PHILSECO may divest of its landholdings, in which case
government, the COP and the APT deemed it best to sell the KAWASAKI, in exercising its right of first refusal, can exceed
National Government's share in PHILSECO to private entities. 40% of PHILSECO’s equity. In fact, it can even be said that if
After a series of negotiations between the APT and the foreign shareholdings of a landholding corporation exceeds
40%, it is not the foreign stockholders’ ownership of the shares on the redemptions and exchange of stocks. The CTA ruled that
which is adversely affected but the capacity of the corporation ANSCOR’s redemption and exchange of the stocks of its
to own land – that is, the corporation becomes disqualified to foreign stockholders cannot be considered as “essentially
own land. equivalent to a distribution of taxable dividends” under Section
83(b) of the then 1939 Internal Revenue Act. ANSCOR avers
This finds support under the basic corporate law that it has no duty to withhold any tax either from the Don
principle that the corporation and its stockholders are separate Andres estate or from Doña Carmen based on the two
juridical entities. In this vein, the right of first refusal over transactions, because the same were done for legitimate
shares pertains to the shareholders whereas the capacity to own business purposes which are (a) to reduce its foreign exchange
land pertains to the corporation. Hence, the fact that remittances in the event the company would declare cash
PHILSECO owns land cannot deprive stockholders of their dividends, and to (b) subsequently “filipinized” ownership of
right of first refusal. No law disqualifies a person from ANSCOR, as allegedly, envisioned by Don Andres. It likewise
purchasing shares in a landholding corporation even if the latter invoked the amnesty provisions of P.D. 67.
will exceed the allowed foreign equity, what the law
disqualifies is the corporation from owning land.

As correctly observed by the public respondents, the Issues:

prohibition in the Constitution applies only to ownership of Whether ANSCOR’s redemption of stocks from its
land. It does not extend to immovable or real property as stockholder and the exchange of stocks can be considered as
defined under Article 415 of the Civil Code. Otherwise, we “essentially equivalent to the distribution of taxable dividend”
would have a strange situation where the ownership of making the proceeds thereof taxable under the provisions of the
immovable property such as trees, plants and growing fruit above-quoted law
attached to the land would be limited to Filipinos and Filipino
corporations only.
Held:
The three elements in the imposition of income tax are:
(1) there must be gain or and profit, (2) that the gain or profit is
DISTRIBUTION OF DIVIDENDS
realized or received, actually or constructively, and (3) it is not
exempted by law or treaty from income tax. The existence of
COMMISSIONER OF INTERNAL REVENUE VS. COURT OF legitimate business purposes in support of the redemption of
APPEALS stock dividends is immaterial in income taxation. The test of
GR NO. 108576 taxability under the exempting clause of Section 83(b) is
JANUARY 20, 1999
whether income was realized through the redemption of stock
dividends. The redemption converts into money the stock
dividends which become a realized profit or gain and
Facts: consequently, the stockholder’s separate property. Profits
Don Andres Soriano, a citizen and resident of the
derived from the capital invested cannot escape income tax. As
United States, formed the corporation “A. Soriano Y Cia”,
realized income, the proceeds of the redeemed stock dividends
predecessor of ANSCOR. ANSCOR is wholly owned and
can be reached by income taxation regardless of the existence
controlled by the family of Don Andres, who are all non-
of any business purpose for the redemption. Hence, the
resident aliens. Don Andres died, but his estate continued to
proceeds are essentially considered equivalent to a distribution
receive stock dividends as well as his wife Doña Carmen
of taxable dividends. As “taxable dividend” under Section
Soriano. Pursuant to a board resolution, ANSCOR redeemed a
83(b), it is part of the “entire income” subject to tax under
considerable number of common shares from Don Andres’
Section 22 ( tax on non-resident alien individual) in relation to
estate. As stated in the Board Resolutions, ANSCOR’s business
Section 21 (rates of tax on citizens or residents) of the then 1939
purpose for both redemptions of stocks is to partially retire said
Code. As income, it is subject to income tax which is required
stocks as treasury shares in order to reduce the company’s
to be withheld at source.
foreign exchange remittances in case cash dividends are
declared. ANSCOR also reclassified some of Doña Carmen’s
common shares to preferred shares. After examining
ANSCOR’s books of account and records, Revenue examiners MERGER AND CONSOLIDATION
issued a report proposing that ANSCOR be assessed for
deficiency withholding tax-at-source based on the transactions JOHN F. MCLEOD VS.NLRC, FILIPINAS SYNTHETIC
of exchange and redemption of stocks. ANSCOR filed a FIBER CORP. (FILSYN), FAR EASTERN TEXTILE
petition for review with the CTA assailing the tax assessments
 MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS transferred its assets to Sta. RosaI to settle its
MILLS, INC.), PATRICIO L. LIM, AND ERIC HU. obligation. PMI did not fraudulently transferred its assets to
escape its liability for any of its debts. PMI had already paid its
employees, except McLeod, their money claims.

Facts: In the present case, there is no showing that the subject

dation in payment involved any corporate merger or
John F. McLeod filed a complaint for retirement and
consolidation. Neither is there any showing of those indicative
several benefits plus damages against respondents.
factors that SRTI is a mere instrumentality of PMI. Moreover,
Complainant alleged that respondent FILSYN has controlling
SRTI did not expressly or impliedly agree to assume any of
interest in PEGGY MILLS and that he was absorbed by Peggy
PMI’s debts. There being no proof of employer-employee
Mills as its Vice President and Plant Manager. He likewise
relationship between McLeod and respondent corporations,
alleged that Filsyn sold Peggy Mills, Inc. to Far Eastern Textile
McLeod’s cause of action is only against his former employer,
Mills, Inc and it was renamed Sta. Rosa Textile. The owners of
PMI.
Far Eastern Textiles decided for cessation of operations of Sta.
Rosa Textiles consequently complainant wrote letters
requesting for his retirement and other benefits. He alleged that ASSOCIATED BANK vs. CA
respondents offered him compromise settlement of only G. R. No. 123793
P300,000.00 which he rejected. June 29, 1998
Respondent alleged that the assets of PEGGY MILLS
Facts:
were acquired by Sta. Rosa Textile Corporation but PEGGY
Associated Banking Corporation and Citizens Bank
MILLS still exists. Respondents alleged that except for Peggy
and Trust Company (CBTC) merged to form just one banking
Mills, the other respondents are not proper persons in interest
corporation known as Associated Citizens Bank (later renamed
due to the lack of employer-employee relationship between
Associated Bank), the surviving bank. After the merger
them and complainant.
agreement had been signed, but before a certificate of merger
The Labor Arbiter awarded complainant his back was issued, respondent Lorenzo Sarmiento, Jr. executed in
wages plus moral damages which was deleted by the NLRC. favor of Associated Bank a promissory note, promising to pay
The Court of Appeals rejected McLeod’s theory that all the bank P2.5 million on or before due date at 14% interest per
respondent corporations are the same corporate entity which annum, among other accessory dues. For failure to pay the
should be held solidarily liable for the payment of his monetary amount due, Sarmiento was sued by Associated Bank.
claims. It upheld the NLRC’s finding that no employer-
employee relationship existed between McLeod and respondent Respondent argued that the plaintiff is not the proper
corporations except PEGGY MILLS and stated that considering party in interest because the promissory note was executed in
that PEGGY MILLS was no longer in operation, its officer favor of CBTC. Also, while respondent executed the
should be held liable for acting on behalf of the corporation. promissory note in favor of CBTC, said note was a contract
pour autrui, one in favor of a third person who may demand its
Issue: Whether there was a merger or consolidation resulting fulfillment. Also, respondent claimed that he received no
into the assumption by Sta. Rosa of the liabilities of PEGGY consideration for the promissory note and, in support thereof,
Mills. cites petitioner's failure to submit any proof of his loan
application and of his actual receipt of the amount loaned.
Held:

What took place between PEGGY MILLS and Sta. Issues:

RosaI was dation in payment with lease. As a rule, a corporation
that purchases the assets of another will not be liable for the 1.) Whether or not Associated Bank, the surviving
debts of the selling corporation, provided the former acted in corporation, may enforce the promissory note made by private
good faith and paid adequate consideration for such assets, respondent in favor of CBTC, the absorbed company, after the
except when any of the following circumstances is present: (1) merger agreement had been signed, but before a certificate of
where the purchaser expressly or impliedly agrees to assume merger was issued?
the debts, (2) where the transaction amounts to a consolidation
or merger of the corporations, (3) where the purchasing 2.) Whether or not the promissory note was a contract
corporation is merely a continuation of the selling corporation, pour autrui and was issued without consideration?
and (4) where the selling corporation fraudulently enters into
the transaction to escape liability for those debts.PEGGY Held:
 1.) 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 BPI vs. BPI Employee’s Union
the surviving corporation automatically acquires all their rights, GR NO. 164301
privileges and powers, as well as their liabilities. The merger,
however, does not become effective upon the mere agreement Facts:
of the constituent corporations. The Securities and Exchange On March 23, 2000, the Bangko Sentral ng Pilipinas approved
Commission (SEC) and majority of the respective stockholders the Articles of Merger executed on January 20, 2000 by and
of the constituent corporations must have approved the merger. between BPI, herein petitioner, and FEBTC.[ This Article and
(Section 79, Corporation Code) It will be effective only upon Plan of Merger was approved by the Securities and Exchange
the issuance by the SEC of a certificate of merger. Records do Commission on April 7, 2000.Pursuant to the Article and Plan
not show when the SEC approved the merger. of Merger, all the assets and liabilities of FEBTC were
transferred to and absorbed by BPI as the surviving corporation.
But assuming that the effectivity date of the merger FEBTC employees, including those in its different branches
was the date of its execution, we still cannot agree that across the country, were hired by petitioner as its own
petitioner no longer has any interest in the promissory note. The employees, with their status and tenure recognized and salaries
agreement itself clearly provides that all contracts — and benefits maintained. Respondent BPI Employees Union-
irrespective of the date of execution — entered into in the name Davao Chapter - Federation of Unions in BPI Unibank is the
of CBTC shall be understood as pertaining to the surviving exclusive bargaining agent of BPI’s rank and file employees in
bank, herein petitioner. Such must have been deliberately Davao City. The former FEBTC rank-and-file employees in
included in the agreement in order to avoid giving the merger Davao City did not belong to any labor union at the time of the
agreement a farcical interpretation aimed at evading fulfillment merger. Prior to the effectivity of the merger, or on March 31,
of a due obligation. Thus, although the subject promissory note 2000, respondent Union invited said FEBTC employees to a
names CBTC as the payee, the reference to CBTC in the note meeting regarding the Union Shop Clause of the existing CBA
shall be construed, under the very provisions of the merger between petitioner BPI and respondent Union After the meeting
agreement, as a reference to petitioner bank. called by the Union, some of the former FEBTC employees
joined the Union, while others refused. Later, however, some
2.) On the issue that the promissory note was a contract
of those who initially joined retracted their membership.
pour autrui and was issued without consideration, the Supreme
Respondent Union then sent notices to the former FEBTC
Court held it was not. In a contract pour autrui, an incidental
employees who refused to join, as well as those who retracted
benefit or interest, which another person gains, is not sufficient.
their membership, and called them to a hearing regarding the
The contracting parties must have clearly and deliberately
matter. When these former FEBTC employees refused to
conferred a favor upon a third person. The "fairest test" in
attend the hearing, the president of the Union requested BPI to
determining whether the third person's interest in a contract is a
implement the Union Shop Clause of the CBA and to terminate
stipulation pour autrui or merely an incidental interest is to
their employment pursuant thereto. After two months of
examine the intention of the parties as disclosed by their
management inaction on the request, respondent Union
contract. It did not indicate that a benefit or interest was created
informed petitioner BPI of its decision to refer the issue of the
in favor of a third person. The instrument itself says nothing on
implementation of the Union Shop Clause of the CBA to the
the purpose of the loan, only the terms of payment and the
Grievance Committee. However, the issue remained
penalties in case of failure to pay.
unresolved at this level and so it was subsequently submitted
Private respondent also claims that he received no for voluntary arbitration by the parties.
consideration for the promissory note, citing petitioner's failure
to submit any proof of his loan application and of his actual Issue: Whether or not the former FEBTC employees that were
receipt of the amount loaned. These arguments deserve no absorbed by petitioner upon the merger between FEBTC and
merit. Res ipsa loquitur. The instrument, bearing the signature BPI should be covered by the Union Shop Clause found in the
of private respondent, speaks for itself. Respondent Sarmiento existing CBA between petitioner and respondent Union.
has not questioned the genuineness and due execution thereof.
That he partially paid his obligation is itself an express Held:
acknowledgment of his obligation. All employees in the bargaining unit covered by a
Union Shop Clause in their CBA with management are subject
to its terms. However, under law and jurisprudence, the
following kinds of employees are exempted from its coverage,
namely, employees who at the time the union shop agreement
takes effect are bona fide members of a religious organization
which prohibits its members from joining labor unions on
religious grounds; employees already in the service and already
members of a union other than the majority at the time the union DOCUMENTARY STAMP TAX
shop agreement took effect confidential employees who are
excluded from the rank and file bargaining JOSE ANTONIO GABUCAN vs.HON. JUDGE LUIS D.
unit;[ and employees excluded from the union shop by express MANTA JOSEFA G. VDA. DE YSALINA and NELDA G.
terms of the agreement. ENCLONAR

When certain employees are obliged to join a particular union Facts:

as a requisite for continued employment, as in the case of Union
Security Clauses, this condition is a valid restriction of the This case is about the dismissal of a petition for the
freedom or right not to join any labor organization because it is probate of a notarial will on the ground that it does not bear a
in favor of unionism. This Court, on occasion, has even held thirty-centavo documentary stamp.
that a union security clause in a CBA is not a restriction of the
right of freedom of association guaranteed by the Constitution. The Court of First Instance in its "decision" in Special
Proceeding for the probate of the will of the late Rogaciano
Moreover, a closed shop agreement is an agreement Gabucan, dismissed the proceeding (erroneously characterizes
whereby an employer binds himself to hire only members of the as an "action"). The proceeding was dismissed because the
contracting union who must continue to remain members in requisite documentary stamp was not affixed to the notarial
good standing to keep their jobs. It is “the most prized acknowledgment in the will and, hence, according to
achievement of unionism.” It adds membership and respondent Judge, it was not admissible in evidence.
compulsory dues. By holding out to loyal members a promise Respondent Judge refused to reconsider the dismissal in spite
of employment in the closed shop, it wields group solidarity. of petitioner's manifestation that he had already attached the
documentary stamp to the original of the will. The case was
Indeed, the situation of the former FEBTC employees in this brought to the Supreme by means of a petition for mandamus
case clearly does not fall within the first three exceptions to the to compel the lower court to allow petitioner's appeal from its
application of the Union Shop Clause discussed earlier. No decision
allegation or evidence of religious exemption or prior
membership in another union or engagement as a confidential Issue: Whether the probate of the will should be dismissed.
employee was presented by both parties. The sole category
therefore in which petitioner may prove its claim is the fourth Held:
recognized exception or whether the former FEBTC employees
are excluded by the express terms of the existing CBA between
The lower court manifestly erred in declaring that,
petitioner and respondent.
because no documentary stamp was affixed to the will, there
was "no will and testament to probate" and, consequently, the
To reiterate, petitioner insists that the term “new
alleged "action must of necessity be dismissed".
employees,” as the same is used in the Union Shop Clause of
the CBA at issue, refers only to employees hired by BPI as non-
What the probate court should have done was to
regular employees who later qualify for regular employment
require the petitioner or proponent to affix the requisite thirty-
and become regular employees, and not those who, as a legal
centavo documentary stamp to the notarial acknowledgment of
consequence of a merger, are allegedly automatically deemed
the will which is the taxable portion of that document.
regular employees of BPI. However, the CBA does not make a
distinction as to how a regular employee attains such a
That procedure may be implied from the provision of
status. Moreover, there is nothing in the Corporation Law and
section 238 that the non-admissibility of the document, which
the merger agreement mandating the automatic employment as
does not bear the requisite documentary stamp, subsists only
regular employees by the surviving corporation in the merger.
"until the requisite stamp or stamps shall have been affixed
thereto and cancelled."

Thus, it was held that the documentary stamp may be

affixed at the time the taxable document is presented in
evidence. If the promissory note does not bear a documentary
stamp, the court should have allowed plaintiff's tender of a
stamp to supply the deficiency. Note that the lack of the
documentary stamp on a document does not invalidate such Lee and Lacdao attached thereto a copy of the voting trust
document. agreement between all the stockholders of ALFA (Lee and
Lacdao included), on the one hand, and the DBP, on the other
hand, whereby the management and control of ALFA became
vested upon the DBP. On 25 April 1989, the trial court reversed
VOTING TRUST AGREEMENT itself by setting aside its previous Order dated 2 January 1989
and declared that service upon Lee and Lacdao who were no
LEE VS. COURT OF APPEALS
longer corporate officers of ALFA cannot be considered as
GR 93695
proper service of summons on ALFA. On 15 May 1989, Sacoba
4 February 1992
Manufacturing, et. al. moved for a reconsideration of the Order
which was affirmed by the court in is Order dated 14 August
1989 denying Sacoba Manufacturing, et. al.'s motion for
Facts:
reconsideration. On 18 September 1989, a petition for certiorari
On 15 November 1985, a complainant for sum of
was belatedly submitted by Sacoba Manufacturing, et. al.
money was filed by the International Corporate Bank, Inc.
before the Court of Appeals which, nonetheless, resolved to
against Sacoba Manufacturing Corp., Pablo Gonzales Jr., and
give due course thereto on 21 September 1989. On 17 October
Tomas Gonzales who, in turn, filed a third party complaint
1989, the trial court, not having been notified of the pending
against Alfa Integrated Textile Mills (ALFA), Ramon C. Lee
petition for certiorari with the appellate court issued an Order
(ALFA's president) and Antonio DM. Lacdao (ALFA's vice
declaring as final the Order dated 25 April 1989. Sacoba
president) on 17 March 1986. On 17 September 1987, Lee and
Manufacturing, et. al. in the said Order were required to take
Lacdao filed a motion to dismiss the third party complaint
positive steps in prosecuting the third party complaint in order
which the Regional Trial Court of Makati, Branch 58 denied in
that the court would not be constrained to dismiss the same for
an Order dated 27 June 1988. On 18 July 1988, Lee and Lacdao
failure to prosecute. Subsequently, on 25 October 1989 Sacoba
filed their answer to the third party complaint. Meanwhile, on
Manufacturing, et. al. filed a motion for reconsideration on
12 July 1988, the trial issued an order requiring the issuance of
which the trial court took no further action. On 19 March 1990,
an alias summons upon ALFA through the DBP as a
after Lee and Lacdao filed their answer to Sacoba
consequence of Lee and Lacdao's letter informing the court that
Manufacturing, et. al.'s petition for certiorari, the appellate
the summons for ALFA was erroneously served upon them
court rendered its decision, setting aside the orders of trial court
considering that the management of ALFA had been transferred
judge dated 25 April 1989 and 14 August 1989. On 11 April
to the DBP. In a manifestation dated 22 July 1988, the DBP
1990, Lee and Lacdao moved for a reconsideration of the
claimed that it was not authorized to receive summons on behalf
decision of the appellate court which resolved to deny the same
of ALFA since the DBP had not taken over the company which
on 10 May 1990. Lee and Lacdao filed the petition for
has a separate and distinct corporate personality and existence.
certiorari. In the meantime, the appellate court inadvertently
On 4 August 1988, the trial court issued an order advising
made an entry of judgment on 16 July 1990 erroneously
Sacoba Manufacturing, et. al. to take the appropriate steps to
applying the rule that the period during which a motion for
serve the summons to ALFA. On 16 August 1988, Sacoba
reconsideration has been pending must be deducted from the
Manufacturing, et. al. filed a Manifestation and Motion for the
15-day period to appeal. However, in its Resolution dated 3
Declaration of Proper Service of Summons which the trial court
January 1991, the appellate court set aside the aforestated entry
granted on 17 August 1988. On 12 September 1988, Lee and
of judgment after further considering that the rule it relied on
Lacdao filed a motion for reconsideration submitting that the
applies to appeals from decisions of the Regional Trial Courts
Rule 14, section 13 of the Revised Rules of Court is not
to the Court of Appeals, not to appeals from its decision to the
applicable since they were no longer officers of ALFA and
Supreme Court pursuant to the Supreme Court's ruling in the
Sacoba Manufacturing, et. al. should have availed of another
case of Refractories Corporation of the Philippines v.
mode of service under Rule 14, Section 16 of the said Rules,
Intermediate Appellate Court, 176 SCRA 539 [1989].
i.e., through publication to effect proper service upon ALFA.
On 2 January 1989, the trial court upheld the validity of the
Issue:
service of summons on ALFA through Lee and Lacdao, thus,
(1) Whether the execution of the voting trust
denying the latter's motion for reconsideration and requiring
agreement by Lee and Lacdao whereby
ALFA to file its answer through Lee and Lacdao as its corporate
all their shares to the corporation have
officers. On 19 January 1989, a second motion for
been transferred to the trustee deprives
reconsideration was filed by Lee and Lacdao reiterating their
the stockholder of their positions as
stand that by virtue of the voting trust agreement they ceased to
directors of the corporation.
be officers and directors of ALFA, hence, they could no longer
(2) Whether the five-year period of the
receive summons or any court processes for or on behalf of
voting trust agreement in question had
ALFA. In support of their second motion for reconsideration,
 lapsed in 1986 so that the legal title to the January 1989 of the Vice President of the DBP's
stocks covered by the said voting trust Special Accounts Department II. In the same
agreement ipso facto reverted to Lee and certification, it is stated that the DBP, from 1987 until
Lacdao as beneficial owners pursuant to 1989, had handled s account which included ALFA's
the 6th paragraph of section 59 of the assets pursuant to a management agreement by and
new Corporation Code. between the DBP and APT. Hence, there is evidence
on record that at the time of the service of summons
Held: on ALFA through Lee and Lacdao on 21 August 1987,
(1) Lee and Lacdao, by virtue of the voting trust the voting trust agreement in question was not yet
agreement executed in 1981 disposed of all their terminated so that the legal title to the stocks of ALFA,
shares through assignment and delivery in favor of the then, still belonged to the DBP.
DBP, as trustee. Consequently, Lee and Lacdao ceased In Re: Petition for Assistance in the Liquidation in the
to own at least one share standing in their names on Rural Bank of Bokod (Benguet), PDIC
the books of ALFA as required under Section 23 of the vs. Bureau of Internal Revenue
GR No. 158261
new Corporation Code. They also ceased to have
December 18, 2006
anything to do with the management of the enterprise. 511 SCRA 123
Lee and Lacdao ceased to be directors. Hence, the
transfer of their shares to the DBP created vacancies in Facts:
their respective positions as directors of ALFA. The A special examination of Rural Bank of Bokod
transfer of shares from the stockholders of ALFA to (Benguet), Inc. (RBBI) was conducted by the Supervision and
the DBP is the essence of the subject voting trust Examination Sector (SES) Department III of what is now the
Bangko Sentral ng Pilipinas (BSP), wherein various loan
agreement. Considering that the voting trust
irregularities were uncovered. SES Department III required the
agreement between ALFA and the DBP transferred RRBI management to infuse fresh capital into the bank, within
legal ownership of the stocks covered by the 30 days from date of the advice, and to correct all the exceptions
agreement to the DBP as trustee, the latter because the noted. However, up to the termination of the subsequent general
stockholder of record with respect to the said shares of examination conducted by the SES Department III, no concrete
stocks. In the absence of a showing that the DBP had action was taken by the RBBI management. In view of the
caused to be transferred in their names one share of irregularities noted and the insolvent condition of RBBI, the
members of the RBBI Board of Directors were called for a
stock for the purpose of qualifying as directors of
conference at the BSP. Only one RBBI Director, a certain Mr.
ALFA, Lee and Lacdao can no longer be deemed to Wakit, attended the conference, and the examination findings
have retained their status as officers of ALFA which and related recommendations were discussed with him.
was the case before the execution of the subject voting In a letter, receipt of which was acknowledged by Mr.
trust agreement. There is no dispute from the records Wakit, the SES Department III warned the RBBI Board of
that DBP has taken over full control and management Directors that, unless substantial remedial measures are taken
to rehabilitate the bank, it will recommend that the bank be
of the firm.
placed under receivership. In a subsequent letter, a copy of
which was sent to every member of th RBBI Board of Directors
(2) The 6th paragraph of section 59 of the new via registered mail, the SES Department III reiterated its
Corporation Code reads that "Unless expressly warning that it would recommend the closure of the bank,
renewed, all rights granted in a voting trust agreement unless the needed fresh capital was immediately infused.
shall automatically expire at the end of the agreed Despite these notices, the SES Department III received no word
period, and the voting trust certificates as well as the from RBBI or from any of its Directors.
certificates of stock in the name of the trustee or
In a meeting, the Monetary Board of the BSP decided
trustees shall thereby be deemed cancelled and new to take the following: forbid the bank to do business in the
certificates of stock shall be reissued in the name of Philippines and place its assets and affairs under receivership in
the transferors." However, it is manifestly clear from accordance with Section 29 of RA No. 265 as amended;
the terms of the voting trust agreement between ALFA designate the Special Assistant to the Governor and Head, SES
and the DBP that the duration of the agreement is Department III, as Receiver of the bank; refer the cases of
contingent upon the fulfillment of certain obligations irregularities/frauds to the Office of Special Investigation for
further investigation and possible filing of appropriate charges
of ALFA with the DBP. Had the five-year period of
against the following present/former officers and employees of
the voting trust agreement expired in 1986, the DBP the bank. A memorandum and report, were submitted by the
would not have transferred an its rights, titles and Director of the SES Department III concluding that the RBBI
interests in ALFA "effective June 30, 1986" to the remained in insolvent financial condition and it can no longer
national government through the Asset Privatization safely resume business with the depositors, creditors, and the
Trust (APT) as attested to in a Certification dated 24 general public. The Monetary Board, after determining and
confirming the said memorandum and report, ordered the corporation under the New Central Bank Act, so that the
liquidation of the bank and designated the Director of the SES requirements in one cannot simply be imposed in the other.
Department III as liquidator. The designated BSP liquidator of
RBBI caused the filing with the RTC of a Petition for
Assistance in the Liquidation of RBBI. Subsequently, the
Monetary Board transferred to herein Philippine Deposit POWER HOMES UNLIMITED CORPORATION vs.SEC
Insurance Corporation (PDIC) the receivership/liquidation of G.R. No. 164182
RBBI. February 26, 2008
546 SCRA 567
PDIC then filed a Motion for Approval of Project of
Distribution of the assets of RBBI, in accordance with Section
31, in relation to Section 30 of Republic Act No. 7653, Facts:
otherwise known as the New Central Bank Act. During the Petitioner is a domestic corporation duly registered
hearing, the Bureau of Internal Revenue (BIR), through Atty. with public respondent SEC. Its primary purpose is: To engage
Justo Reginaldo, manifested that PDIC should secure a tax in the transaction of promoting, acquiring, managing, leasing,
clearance certificate from the appropriate BIR Regional Office, obtaining options on, development, and improvement of real
pursuant to Section 52(C) of the Tax Code of 1997 within 30 estate properties for subdivision and allied purposes, and in the
days from receipt of a copy of the said order. Pending purchase, sale and/or exchange of said subdivision and
compliance therewith, the RTC held in abeyance the Motion for properties through network marketing.”
Approval of Project of Distribution. In order therefore that all Noel Manero requested public respondent SEC to
taxes due the government should be paid, petitioner should investigate petitioner’s business. He claimed that he attended a
secure a tax clearance from the BIR. seminar conducted by petitioner where the latter claimed to sell
properties that were inexistent and without any broker’s license.
Hence, PDIC filed the present Petition for Review on One Romulo E. Munsayac, Jr. inquired from public respondent
Certiorari, under Rule 45 of the revised Rules of Court, raising SEC whether petitioner’s business involves "legitimate network
pure questions of law. PDIC argues that the closure of banks marketing." To address the issue, SEC conducted a conference
under Section 30 of the New Central Bank Act is summary in with the incorporators. Also, thepetitioner submitted their
nature and procurement of tax clearance as required under marketing modules and their letters of accreditation authority
Section 52(C) of the Tax Code of 1997 is not a condition from Crown Asia, Fil-Estate Network and Pioneer 29 Realty
precedent thereto; that under Section 30, in relation to Section Corporation. SEC visited the business premises of petitioner
31, of the New Central Bank Act, asset distribution of a closed wherein it gathered documents such as certificates of
bank requires only the approval of the liquidation court; and accreditation to several real estate companies, list of members
that the BIR is not without recourse since, subject to the with web sites, sample of member mail box, webpages of two
applicable provisions of the Tax Code of 1997, it may therefore (2) members, and lists of Business Center Owners who are
assess the closed RBBI for tax liabilities, if any. qualified to acquire real estate properties and materials on
computer tutorials.
Issue: SEC found that the petitioner is engaged in the sale or
Whether or not RBBI, as represented by its liquidator, offer for sale or distribution of investment contracts, which are
PDIC, still needs to secure a tax clearance from the BIR before considered securities under Sec. 3.1 (b) of Republic Act (R.A.)
the RTC could approve the Project of Distribution of the assets No. 8799 (The Securities Regulation Code), but failed to
of RBBI. register them in violation of Sec. 8.1 of the same Act, and issued
a Cease and Desist Order. The order was appealed but the Court
Held: of Appeals affirmed the SEC.
Section 30 of the New Central Bank Act lays down the
proceedings for receivership and liquidation of a bank. The said Issue:
provision is silent as regards the securing of a tax clearance Whether the business of petitioner involves an
from the BIR. The omission, nonetheless, cannot compel this investment contract that is considered security11 and thus, must
Court to apply by analogy the tax clearance requirement of the be registered prior to sale or offer for sale or distribution to the
SEC, as stated in Section 52(C) of the Tax Code of 1997 and public pursuant to Section 8.1 of R.A. No. 8799
BIR-SEC Regulations No. 1, since, again, the dissolution of a
corporation by the SEC is a totally different proceeding from Held:
the receivership and liquidation of a bank by the BSP. This Yes. The business of the petitioner involves an
Court cannot simply replace any reference by Section 52(C) of investment contract. It is a “contract, transaction or scheme
the Tax Code of 1997 and the provisions of the BIR-SEC (collectively ‘contract’) whereby a person invests his money in
Regulations No. 1 to the "SEC" with the "BSP." To do so would a common enterprise and is led to expect profits primarily from
be to read into the law and the regulations something that is the efforts of others.” (R.A. 8799)
simply not there and would be tantamount to judicial The HOWEY TEST is the test established to
legislation. determine whether a transaction falls within the scope of an
investment contract. It requires that a person:
It should be noted that there are substantial differences 1. Makes an investment of money;
in the procedure for involuntary dissolution and liquidation of 2. In a common enterprise;
a corporation under the Corporation Code, and that of a banking 3. With the expectation of profits;
 4. To be derived primarily from the efforts of others. No general rule or governing principle can be laid
“We therefore rule that the business operation or the down as to what constitutes "doing" or "engaging in" or
scheme of petitioner constitutes an investment contract that is a "transacting" business. The true test, however, seems to be
security under R.A. No. 8799. Thus, it must be registered with whether the foreign corporation is continuing the body or
public respondent SEC before its sale or offer for sale or substance of the business or enterprise for which it was
distribution to the public. As petitioner failed to register the organized or whether it has substantially retired from it and
same, its offering to the public was rightfully enjoined by public turned it over to another. The term implies a continuity of
respondent SEC. The CDO was proper even without a finding commercial dealings and arrangements, and contemplates, to
of fraud. As an investment contract that is security under R.A. that extent, the performance of acts or works or the exercise of
No. 8799, it must be registered with public respondent SEC, some of the functions normally incident to, and in progressive
otherwise the SEC cannot protect the investing public from prosecution of, the purpose and object of its organization.
fraudulent securities. The strict regulation of securities is Herein, Mentholatum Co., through its agent, the Philippine-
founded on the premise that the capital markets depend on the American Drug Co., Inc., has been doing business in the
investing public’s level of confidence in the system.” Philippines by selling its products here since the year 1929, at
least. Whatever transactions the Philippine-American Drug
Co., Inc., had executed in view of the law, the Mentholatum
The Mentholatum Co. Inc. vs. Mangaliman Co., Inc., being a foreign corporation doing business in the
GR 47701 Philippines without the license required by section 68 of the
27 June 1941 Corporation Law, it may not prosecute this action for violation
78 Phil. 525 of trade mark and unfair competition. Neither may the
Philippine-American Drug Co., Inc., maintain the action here
Facts: for the reason that the distinguishing features of the agent being
The Mentholatum Co., Inc., is a Kansas corporation his representative character and derivative authority, it cannot
which manufactures "Mentholatum," a medicament and salve now, to the advantage of its principal, claim an independent
adapted for the treatment of colds, nasal irritations, chapped standing in court. Further, the recognition of the legal status of
skin, insect bites, rectal irritation and other external ailments of a foreign corporation is a matter affecting the policy of the
the body. The Philippine-American Drug Co., Inc., is its forum, and the distinction drawn in Philippine Corporation Law
exclusive distributing agent in the Philippines authorized by it is an expression of the policy.
to look after and protect its interests. On 26 June 1919 and on
21 January 1921, the Mentholatum Co., Inc., registered with the Agilent Technologies Singapore vs. Integrated Silicon
Bureau of Commerce and Industry the word, "Mentholatum", Techngology Philippines Corp.
as trade mark for its products. The Mangaliman brothers GR 154618
prepared a medicament and salve named "Mentholiman" which 14 April 2004
they sold to the public packed in a container of the same size, 427 SCRA 593
color and shape as "Mentholatum." As a consequence of these
acts of the Mangalimans, Mentholatum suffered damages from Facts:
the diminution of their sales and the loss of goodwill and Agilent Technologies Singapore (Pte.), Ltd. is a
reputation of their product in the market. On 1 October 1935, foreign corporation, which, by its own admission, is not
the Mentholatum Co., Inc., and the Philippine-American Drug, licensed to do business in the Philippines. Integrated Silicon
Co., Inc. instituted an action in the Court of First Instance (CFI) Technology Philippines Corporation is a private domestic
of Manila against Anacleto Mangaliman, Florencio corporation, 100% foreign owned, which is engaged in the
Mangaliman and the Director of the Bureau of Commerce for business of manufacturing and assembling electronics
infringement of trade mark and unfair competition. components. Teoh Kiang Hong, Teoh Kiang Seng and Anthony
Mentholatum prayed for the issuance of an order restraining Choo, Malaysian nationals, are current members of Integrated
Mangalimans from selling their product "Mentholiman," and Silicon’s board of directors, while Joanne Kate M. dela Cruz,
directing them to render an accounting of their sales and profits Jean Kay M. dela Cruz, and Rolando T. Nacilla are its former
and to pay damages. After a protracted trial, the Court of First members.
Instance of Manila rendered judgment in favor of Mentholatum. The juridical relation among the various parties in the
In the Court of Appeals, the decision of the trial court was case can be traced to a 5-year Value Added Assembly Services
reversed, said tribunal holding that the activities of the Agreement (VAASA), entered into on 2 April 1996 between
Mentholatum Inc., were business transactions in the Integrated Silicon and the Hewlett-Packard Singapore (Pte.)
Philippines, and that by section 69 of the Corporation Law, it Ltd., Singapore Components Operation (HP-Singapore). Under
may not maintain the suit. Hence, Mentholatum filed the instant the terms of the VAASA, Integrated Silicon was to locally
petition for certiorari. manufacture and assemble fiber optics for export to HP-
Singapore. HP-Singapore, for its part, was to consign raw
Issue: materials to Integrated Silicon; transport machinery to the plant
Whether Mentholatum could prosecute the instant of Integrated Silicon; and pay Integrated Silicon the purchase
action without having secured the license required in section 69 price of the finished products. The VAASA had a five-year
of the Corporation Law. term, beginning on 2 April 1996, with a provision for annual
renewal by mutual written consent. On 19 September 1999,
Held: with the consent of Integrated Silicon, HP-Singapore assigned
all its rights and obligations in the VAASA to Agilent. On 25
May 2001, Integrated Silicon filed a complaint for “Specific doing business in the Philippines may bring suit in Philippine
Performance and Damages” against Agilent and its officers Tan courts against a Philippine citizen or entity who had contracted
Bian Ee, Lim Chin Hong, Tey Boon Teck and Francis Khor with and benefited from said corporation. Such a suit is
alleging that Agilent breached the parties’ oral agreement to premised on the doctrine of estoppel. A party is estopped from
extend the VAASA. Integrated Silicon thus prayed that Agilent challenging the personality of a corporation after having
be ordered to execute a written extension of the VAASA for a acknowledged the same by entering into a contract with it. This
period of five years as earlier assured and promised; to comply doctrine of estoppel to deny corporate existence and capacity
with the extended VAASA; and to pay actual, moral, exemplary applies to foreign as well as domestic corporations. The
damages and attorney’s fees. On 1 June 2001, summons and a application of this principle prevents a person contracting with
copy of the complaint were served on Atty. Ramon a foreign corporation from later taking advantage of its
Quisumbing, who returned these processes on the claim that he noncompliance with the statutes chiefly in cases where such
was not the registered agent of Agilent. Later, he entered a person has received the benefits of the contract. The principles
special appearance to assail the court’s jurisdiction over the regarding the right of a foreign corporation to bring suit in
person of Agilent. On 2 July 2001, Agilent filed a separate Philippine courts may thus be condensed in four statements: (1)
complaint against Integrated Silicon, Teoh Kang Seng, Teoh if a foreign corporation does business in the Philippines without
Kiang Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean a license, it cannot sue before the Philippine courts; (2) if a
Kay M. dela Cruz and Rolando T. Nacilla, for “Specific foreign corporation is not doing business in the Philippines, it
Performance, Recovery of Possession, and Sum of Money with needs no license to sue before Philippine courts on an isolated
Replevin, Preliminary Mandatory Injunction, and Damages”, transaction or on a cause of action entirely independent of any
before the Regional Trial Court, Calamba, Laguna, Branch 9). business transaction; (3) if a foreign corporation does business
Agilent prayed that a writ of replevin or, in the alternative, a in the Philippines without a license, a Philippine citizen or
writ of preliminary mandatory injunction, be issued ordering entity which has contracted with said corporation may be
Integrated Silicon, et. al. to immediately return and deliver to estopped from challenging the foreign corporation’s corporate
Agilent its equipment, machineries and the materials to be used personality in a suit brought before Philippine courts; and (4) if
for fiber-optic components which were left in the plant of a foreign corporation does business in the Philippines with the
Integrated Silicon; and that the latter be ordered to pay actual required license, it can sue before Philippine courts on any
and exemplary damages and attorney’s fees. Integrated Silicon, transaction.
et. al. filed a Motion to Dismiss in Civil Case No. 3123-2001-
C, on the grounds of lack of Agilent’s legal capacity to sue; litis Issue [2]: Whether Agilent was doing business in the
pendentia; forum shopping; and failure to state a cause of Philippines.
action. On 4 September 2001, the trial court denied the Motion
to Dismiss and granted Agilent’s application for a writ of Held [2]: The challenge to Agilent’s legal capacity to file suit
replevin. Without filing a motion for reconsideration, Integrated hinges on whether or not it is doing business in the Philippines.
Silicon, et. al. filed a petition for certiorari with the Court of However, there is no definitive rule on what constitutes
Appeals. In the meantime, upon motion filed by Integrated “doing”, “engaging in”, or “transacting” business in the
Silicon, et. al., Judge Antonio S. Pozas of Branch 92 voluntarily Philippines, the Corporation Code itself is silent as to what acts
inhibited himself in Civil Case 3123-2001-C. The case was re- constitute doing or transacting business in the Philippines. An
raffled and assigned to Branch 35, the same branch where Civil analysis of the relevant case law, in conjunction with Section 1
Case 3110-2001-C is pending. On 12 August 2002, the Court of the Implementing Rules and Regulations of the Foreign
of Appeals granted Integrated Silicon, et. al.’s petition for Investments Act of 1991 (FIA, as amended by RA 8179), would
certiorari, set aside the assailed Order of the trial court dated 4 demonstrate that the acts enumerated in the VAASA do not
September 2001, and ordered the dismissal of Civil Case 3123- constitute “doing business” in the Philippines.
2001-C. Agilent filed the petition for review. By and large, to constitute “doing business”, the
activity to be undertaken in the Philippines is one that is for
Issue [1]: Whether a foreign corporation without a license is profit-making. Herein, by the clear terms of the VAASA,
incapacitated from bringing an action in Philippine courts. Agilent’s activities in the Philippines were confined to (1)
maintaining a stock of goods in the Philippines solely for the
Held [1]: A foreign corporation without a license is not ipso purpose of having the same processed by Integrated Silicon;
facto incapacitated from bringing an action in Philippine courts. and (2) consignment of equipment with Integrated Silicon to be
A license is necessary only if a foreign corporation is used in the processing of products for export. As such, Agilent
“transacting” or “doing business” in the country. Section 133 of cannot be deemed to be “doing business” in the Philippines.
the Corporation Code provides that "No foreign corporation Integrated Silicon, et. al.’s contention that Agilent lacks the
transacting business in the Philippines without a license, or its legal capacity to file suit is therefore devoid of merit. As a
successors or assigns, shall be permitted to maintain or foreign corporation not doing business in the Philippines, it
intervene in any action, suit or proceeding in any court or needed no license before it can sue before our court.
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 GELANO vs COURT of APPEALS
under Philippine laws." The aforementioned provision prevents G.R. No. L-39050
an unlicensed foreign corporation “doing business” in the February 24, 1981
Philippines from accessing our courts. In a number of cases,
however, the Court held that an unlicensed foreign corporation
Facts: Private respondent Insular Sawmill, Inc. is a corporation On May 29, 1959 the corporation, thru Atty. German
organized on September 17, 1945 with a corporate life of fifty Lee, filed a complaint for collection against herein petitioners
(50) years, or up to September 17, 1995, with the primary before the Court of First Instance of Manila. Trial was held and
purpose of carrying on a general lumber and sawmill business. when the case was at the stage of submitting memorandum,
To carry on this business, private respondent leased the Atty. Lee retired from active law practice and Atty. Eduardo F.
paraphernal property of petitioner-wife Guillermina M. Gelano Elizalde took over and prepared the memorandum.
at the corner of Canonigo and Otis, Paco, Manila for P1,200.00
a month. It was while private respondent was leasing the In the meantime, private respondent amended its
aforesaid property that its officers and directors had come to Articles of Incorporation to shorten its term of existence up to
know petitioner-husband Carlos Gelano who received from the December 31, 1960 only. The amended Articles of
corporation cash advances on account of rentals to be paid by Incorporation was filed with, and approved by the Securities
the corporation on the land. and Exchange Commission, but the trial court was not notified
of the amendment shortening the corporate existence and no
Between November 19, 1947 to December 26, 1950 substitution of party was ever made. On November 20, 1964
petitioner Carlos Gelano obtained from private respondent cash and almost four (4) years after the dissolution of the
advances of P25,950.00. The said sum was taken and received corporation, the trial court rendered a decision in favor of
by petitioner Carlos Gelano on the agreement that private private respondent.
respondent could deduct the same from the monthly rentals of
the leased premises until said cash advances are fully paid. Out
of the aforementioned cash advances in the total sum of
Issue: Whether or not a corporation, whose corporate life had
P25,950.00, petitioner Carlos Gelano was able to pay only
ceased by the expiration of its term of existence, could still
P5,950.00 thereby leaving an unpaid balance of P20,000.00
continue prosecuting and defending suits after its dissolution
which he refused to pay despite repeated demands by private
and beyond the period of three years provided for under Act No.
respondent. Petitioner Guillermina M. Gelano refused to pay on
1459, otherwise known as the Corporation law, to wind up its
the ground that said amount was for the personal account of her
affairs, without having undertaken any step to transfer its assets
husband asked for by, and given to him, without her knowledge
to a trustee or assignee.
and consent and did not benefit the family.

On various occasions from May 4, 1948 to September

11, 1949 petitioners husband and wife also made credit Held: Yes. The complaint in this case was filed on May 29,
purchases of lumber materials from private respondent with a 1959 when private respondent Insular Sawmill, Inc. was still
total price of P1,120.46 in connection with the repair and existing. While the case was being tried, the stockholders
improvement of petitioners' residence. On November 9, 1949 amended its Articles of Incorporation by shortening the term of
partial payment was made by petitioners in the amount of its existence from December 31, 1995 to December 31, 1960,
P91.00 and in view of the cash discount in favor of petitioners which was approved by the Securities and Exchange
in the amount of P83.00, the amount due private respondent on Commission.
account of credit purchases of lumber materials is P946.46
which petitioners failed to pay. In American corporate law, upon which our
Corporation Law was patterned, it is well settled that, unless the
On July 14, 1952, in order to accommodate and help statutes otherwise provide, all pending suits and actions by and
petitioners renew previous loans obtained by them from the against a corporation are abated by a dissolution of the
China Banking Corporation, private respondent, through corporationSection 77 of the Corporation Law provides that the
Joseph Tan Yoc Su, executed a joint and several promissory corporation shall "be continued as a body corporate for three (3)
note with Carlos Gelano in favor of said bank in the amount of years after the time when it would have been ... dissolved, for
P8,000.00 payable in sixty (60) days. For failure of Carlos the purpose of prosecuting and defending suits By or against it
Gelano to pay the promissory note upon maturity, the bank ...," so that, thereafter, it shall no longer enjoy corporate
collected from the respondent corporation the amount of existence for such purpose. For this reason, Section 78 of the
P9,106.00 including interests, by debiting it from the same law authorizes the corporation, "at any time during said
corporation's current account with the bank. Petitioner Carlos three years ... to convey all of its property to trustees for the
Gelano was able to pay private respondent the amount of benefit of members, Stockholders, creditors and other
P5,000.00 but the balance of P4,106.00 remained unsettled. interested," evidently for the purpose, among others, of
Guillermina M. Gelano refused to pay on the ground that she enabling said trustees to prosecute and defend suits by or
had no knowledge about the accommodation made by the against the corporation begun before the expiration of said
corporation in favor of her husband. period. Commenting on said sections, Justice Fisher said: “It is
to be noted that the time during which the corporation, through
its own officers, may conduct the liquidation of its assets and counsel to whom was entrusted in the instant case, the
sue and be sued as a corporation is limited to three years from prosecution of the suit filed by the corporation. The purpose in
the time the period of dissolution commences; but that there is the transfer of the assets of the corporation to a trustee upon its
no time limited within which the trustees must complete a dissolution is more for the protection of its creditor and
liquidation placed in their hands. It is provided only (Corp. stockholders. Debtors like the petitioners herein may not take
Law, Sec. 78) that the conveyance to the trustees must be made advantage of the failure of the corporation to transfer its assets
within the three-year period. It may be found impossible to to a trustee, assuming it has any to transfer which petitioner has
complete the work of liquidation within the three-year period or failed to show, in the first place. To sustain petitioners'
to reduce disputed claims to judgment. The authorities are to contention would be to allow them to enrich themselves at the
the effect that suits by or against a corporation abate when it expense of another, which all enlightened legal systems
ceased to be an entity capable of suing or being sued (7 R.C.L. condemn.
Corps., Par. 750); but trustees to whom the corporate assets
have been conveyed pursuant to the authority of Section 78 may
sue and be sued as such in all matters connected with the
PHILIPPINE STOCK EXCHANGE, INC. vs. COURT OF
liquidation. By the terms of the statute the effect of the
APPEALS
conveyance is to make the trustees the legal owners of the G.R. No. 125469
property conveyed, subject to the beneficial interest therein of October 27, 1997
creditors and stockholders.”
Facts: The Puerto Azul Land, Inc. (PALI), a domestic real
When Insular Sawmill, Inc. was dissolved on estate corporation, had sought to offer its shares to the public in
December 31, 1960, under Section 77 of the Corporation Law, order to raise funds allegedly to develop its properties and pay
it still has the right until December 31, 1963 to prosecute in its its loans with several banking institutions. In January, 1995,
name the present case. After the expiration of said period, the PALI was issued a Permit to Sell its shares to the public by the
corporation ceased to exist for all purposes and it can no longer Securities and Exchange Commission (SEC). To facilitate the
trading of its shares among investors, PALI sought to course the
sue or be sued. trading of its shares through the Philippine Stock Exchange,
Inc. (PSE), for which purpose it filed with the said stock
However, a corporation that has a pending action and exchange an application to list its shares, with supporting
which cannot be terminated within the three-year period after documents attached. On February 8, 1996, the Listing
its dissolution is authorized under Section 78 to convey all its Committee of the PSE, upon a perusal of PALI's application,
property to trustees to enable it to prosecute and defend suits by recommended to the PSE's Board of Governors the approval of
or against the corporation beyond the Three-year period PALI's listing application. On February 14, 1996, before it
although private respondent (did not appoint any trustee, yet the could act upon PALI's application, the Board of Governors of
the PSE received a letter from the heirs of Ferdinand E. Marcos,
counsel who prosecuted and defended the interest of the
claiming that the late President Marcos was the legal and
corporation in the instant case and who in fact appeared in beneficial owner of certain properties forming part of the Puerto
behalf of the corporation may be considered a trustee of the Azul Beach Hotel and Resort Complex which PALI claims to
corporation at least with respect to the matter in litigation only. be among its assets and that the Ternate Development
Said counsel had been handling the case when the same was Corporation, which is among the stockholders of PALI,
pending before the trial court until it was appealed before the likewise appears to have been held and continue to be held in
Court of Appeals and finally to this Court. We therefore hold trust by one Rebecco Panlilio for then President Marcos and
now, effectively for his estate, and requested PALI's application
that there was a substantial compliance with Section 78 of the
to be deferred. PALI was requested to comment upon the said
Corporation Law and as such, private respondent Insular letter.
Sawmill, Inc. could still continue prosecuting the present case
even beyond the period of three (3) years from the time of its PALI's answer stated that the properties forming part
dissolution. of the Puerto Azul Beach Hotel and Resort Complex were not
claimed by PALI as its assets. On the contrary, the resort is
From the above quoted commentary of Justice Fisher, actually owned by Fantasia Filipina Resort, Inc. and the Puerto
the trustee may commence a suit which can proceed to final Azul Country Club, entities distinct from PALI. Furthermore,
judgment even beyond the three-year period. No reason can be the Ternate Development Corporation owns only 1.20% of
conceived why a suit already commenced By the corporation PALI. The Marcoses responded that their claim is not confined
to the facilities forming part of the Puerto Azul Hotel and Resort
itself during its existence, not by a mere trustee who, by fiction,
Complex, thereby implying that they are also asserting legal
merely continues the legal personality of the dissolved and beneficial ownership of other properties titled under the
corporation should not be accorded similar treatment allowed name of PALI. On February 20, 1996, the PSE wrote Chairman
— to proceed to final judgment and execution thereof. The Magtanggol Gunigundo of the Presidential Commission on
word "trustee" as sued in the corporation statute must be Good Government (PCGG) requesting for comments on the
understood in its general concept which could include the letters of the PALI and the Marcoses. On March 4, 1996, the
PSE was informed that the Marcoses received a Temporary judgment of the board of directors. The board is the business
Restraining Order on the same date, enjoining the Marcoses manager of the corporation, and so long as it acts in good faith,
from, among others, "further impeding, obstructing, delaying or its orders are not reviewable by the courts.
interfering in any manner by or any means with the
consideration, processing and approval by the PSE of the initial Thus, notwithstanding the regulatory power of the
public offering of PALI." The TRO was issued by Judge Martin SEC over the PSE, and the resultant authority to reverse the
S. Villarama, Executive Judge of the RTC of Pasig City in Civil PSE's decision in matters of application for listing in the market,
Case No. 65561, pending in Branch 69 thereof. In its regular the SEC may exercise such power only if the PSE's judgment is
meeting held on March 27, 1996, the Board of Governors of the attended by bad faith. In Board of Liquidators vs. Kalaw, 13 it
PSE reached its decision to reject PALI's application, citing the was held that bad faith does not simply connote bad judgment
existence of serious claims, issues and circumstances or negligence. It imports a dishonest purpose or some moral
surrounding PALI's ownership over its assets that adversely obliquity and conscious doing of wrong. It means a breach of a
affect the suitability of listing PALI's shares in the stock known duty through some motive or interest of ill will,
exchange. partaking of the nature of fraud.

On April 11, 1996, PALI wrote a letter to the SEC In reaching its decision to deny the application for
addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., listing of PALI, the PSE considered important facts, which, in
bringing to the SEC's attention the action taken by the PSE in the general scheme, brings to serious question the qualification
the application of PALI for the listing of its shares with the PSE, of PALI to sell its shares to the public through the stock
and requesting that the SEC, in the exercise of its supervisory exchange. During the time for receiving objections to the
and regulatory powers over stock exchanges under Section 6(j) application, the PSE heard from the representative of the late
of P.D. No. 902-A, review the PSE's action on PALI's listing President Ferdinand E. Marcos and his family who claim the
application and institute such measures as are just and proper properties of the private respondent to be part of the Marcos
under the circumstances. On the same date, or on April 11, estate. In time, the PCGG confirmed this claim. In fact, an order
1996, the SEC wrote to the PSE, attaching thereto the letter of of sequestration has been issued covering the properties of
PALI and directing the PSE to file its comments thereto within PALI, and suit for reconveyance to the state has been filed in
five days from its receipt and for its authorized representative the Sandiganbayan Court. How the properties were effectively
to appear for an "inquiry" on the matter. On April 22, 1996, the transferred, despite the sequestration order, from the TDC and
PSE submitted a letter to the SEC containing its comments to MSDC to Rebecco Panlilio, and to the private respondent PALI,
the April 11, 1996 letter of PALI. On April 24, 1996, the SEC in only a short span of time, are not yet explained to the Court,
rendered its Order, reversing the PSE's decision. but it is clear that such circumstances give rise to serious doubt
as to the integrity of PALI as a stock issuer. The petitioner was
Issue: Whether or not SEC has the power or jurisdiction to in the right when it refused application of PALI, for a contrary
reverse the ruling of Philippine Stock Exchange in this case. ruling was not to the best interest of the general public. The
purpose of the Revised Securities Act, after all, is to give
Held: No. The role of the SEC in our national economy cannot adequate and effective protection to the investing public against
be minimized. The legislature, through the Revised Securities fraudulent representations, or false promises, and the
Act, Presidential Decree No. 902-A, and other pertinent laws, imposition of worthless ventures.
has entrusted to it the serious responsibility of enforcing all
laws affecting corporations and other forms of associations not Also, as the primary market for securities, the PSE has
otherwise vested in some other government office. This is not established its name and goodwill, and it has the right to protect
to say, however, that the PSE's management prerogatives are such goodwill by maintaining a reasonable standard of
under the absolute control of the SEC. The PSE is, alter all, a propriety in the entities who choose to transact through its
corporation authorized by its corporate franchise to engage in facilities. It was reasonable for the PSE, therefore, to exercise
its proposed and duly approved business. One of the PSE's main its judgment in the manner it deems appropriate for its business
concerns, as such, is still the generation of profit for its identity, as long as no rights are trampled upon, and public
stockholders. Moreover, the PSE has all the rights pertaining to welfare is safeguarded. In this connection, it is proper to
corporations, including the right to sue and be sued, to hold observe that the concept of government absolutism is a thing of
property in its own name, to enter (or not to enter) into contracts the past, and should remain so.
with third persons, and to perform all other legal acts within its
allocated express or implied powers. In any case, for the purpose of determining whether
PSE acted correctly in refusing the application of PALI, the true
A corporation is but an association of individuals, allowed to ownership of the properties of PALI need not be determined as
transact under an assumed corporate name, and with a distinct an absolute fact. What is material is that the uncertainty of the
legal personality. In organizing itself as a collective body, it properties' ownership and alienability exists, and this puts to
waives no constitutional immunities and perquisites appropriate question the qualification of PALI's public offering. In sum, the
to such a body. 11 As to its corporate and management decisions, Court finds that the SEC had acted arbitrarily in arrogating unto
therefore, the state will generally not interfere with the same. itself the discretion of approving the application for listing in
Questions of policy and of management are left to the honest the PSE of the private respondent PALI, since this is a matter
decision of the officers and directors of a corporation, and the addressed to the sound discretion of the PSE, a corporation
courts are without authority to substitute their judgment for the
entity, whose business judgments are respected in the absence of arbitrariness and whimsical animation on its part. Its action
of bad faith. in refusing to allow the listing of PALI in the stock exchange is
justified by the law and by the circumstances attendant to this
The question as to what policy is, or should be relied case.
upon in approving the registration and sale of securities in the
SEC is not for the Court to determine, but is left to the sound
discretion of the Securities and Exchange Commission. In LITTON MILLS INC. vs COURT of APPEALS
mandating the SEC to administer the Revised Securities Act, GR NO. 9488
and in performing its other functions under pertinent laws, the May 15,1996
Revised Securities Act, under Section 3 thereof, gives the SEC
the power to promulgate such rules and regulations as it may Facts: Petitioner Litton Mills, Inc. (Litton) entered into an
consider appropriate in the public interest for the enforcement agreement with Empire Sales Philippines Corporation
of the said laws. The second paragraph of Section 4 of the said (Empire), as local agent of private respondent Gelhaar Uniform
law, on the other hand, provides that no security, unless exempt Company (Gelhaar), a corporation organized under the laws of
by law, shall be issued, endorsed, sold, transferred or in any the United States, whereby Litton agreed to supply Gelhaar
other manner conveyed to the public, unless registered in 7,770 dozens of soccer jerseys. The agreement stipulated that
accordance with the rules and regulations that shall be before it could collect from the bank on the letter of credit,
promulgated in the public interest and for the protection of Litton must present an inspection certificate issued by Gelhaar's
investors by the Commission. Presidential Decree No. 902-A, agent in the Philippines, Empire Sales, that the goods were in
on the other hand, provides that the SEC, as regulatory agency, satisfactory condition. Litton sent four shipments totalling
has supervision and control over all corporations and over the 4,770 dozens of the soccer jerseys between December 2 and
securities market as a whole, and as such, is given ample December 30, 1983. A fifth shipment, consisting of 2,110
authority in determining appropriate policies. Pursuant to this dozens of the jerseys, was inspected by Empire from January 9
regulatory authority, the SEC has manifested that it has adopted to January 19, 1984, but Empire refused to issue the required
the policy of "full material disclosure" where all companies, certificate of inspection. Alleging that Empire's refusal to issue
listed or applying for listing, are required to divulge truthfully a certificate was without valid reason, Litton filed a complaint
and accurately, all material information about themselves and with the Regional Trial Court of Pasig (Branch 158) on January
the securities they sell, for the protection of the investing public, 23, 1984, for specific performance and prayed for the issuance
and under pain of administrative, criminal and civil sanctions. of writ of preliminary injunction to compel Empire to issue the
In connection with this, a fact is deemed material if it tends to inspection certificate covering the 2,110 dozens of jerseys and
induce or otherwise effect the sale or purchase of its securities. for damages. The trial court issued the writ which compelled
15
While the employment of this policy is recognized and Empire to issue the inspection certificate. Atty. Noval filed on
sanctioned by the laws, nonetheless, the Revised Securities Act behalf of Gelhaar Company a motion for extension of time to
sets substantial and procedural standards which a proposed file an answer/responsive pleading.
issuer of securities must satisfy.
Afterwards, the law firm of Sycip, Salazar, Feliciano and
A reading of the foregoing grounds reveals the Hernandez entered a special appearance for the purpose of
intention of the lawmakers to make the registration and issuance objecting to the jurisdiction of the court over Gelhaar. On
of securities dependent, to a certain extent, on the merits of the February 4, 1985, it moved to dismiss the case and to quash the
securities themselves, and of the issuer, to be determined by the summons on the ground that Gelhaar was a foreign corporation
Securities and Exchange Commission. This measure was meant not doing business in the Philippines, and as such, was beyond
to protect the interests of the investing public against fraudulent the reach of the local courts. It contended that Litton failed to
and worthless securities, and the SEC is mandated by law to allege and prove that Gelhaar was doing business in the
safeguard these interests, following the policies and rules Philippines, which they argued was required by the ruling in
therefore provided. The absolute reliance on the full disclosure Pacific Micronisian Lines, Inc., v. Del Rosario, 1 before
method in the registration of securities is, therefore, untenable. summons could be served under Rule 14, §14. It likewise
As it is, the Court finds that the private respondent PALI, on at denied the authority of Atty. Noval to appear for Gelhaar and
least two points (nos. 1 and 5) has failed to support the propriety contended that the answer filed by Atty. Noval on June 15, 1984
of the issue of its shares with unfailing clarity, thereby lending could not bind Gelhaar and its filing did not amount to Gelhaar's
support to the conclusion that the PSE acted correctly in submission to the jurisdiction of the court. Litton opposed the
refusing the listing of PALI in its stock exchange. This does not motion. On the other hand, Empire moved to dismiss on the
discount the effectivity of whatever method the SEC, in the ground of failure of the complaint to state a cause of action since
exercise of its vested authority, chooses in setting the standard the complaint alleged that Empire only acted as agent of
for public offerings of corporations wishing to do so. However, Gelhaar; that it was made party-defendant only for the purpose
the SEC must recognize and implement the mandate of the law, of securing the issuance of an inspection certificate; and that it
particularly the Revised Securities Act, the provisions of which had already issued such certificate and the shipment had already
cannot be amended or supplanted by mere administrative been shipped on time. the trial court issued an order denying for
issuance. lack of merit Gelhaar's motion to dismiss and to quash the
summons. It held that Gelhaar was doing business in the
In resume, the Court finds that the PSE has acted with Philippines, and that the service of summons on Gelhaar was
justified circumspection, discounting, therefore, any imputation therefore valid. Gelhaar filed a motion for reconsideration, but
its motion was denied. On appeal, the Court of Appeals irrevocable letter of credit in favor of Litton is a sufficient
reversed the ruling of trial court. The appellate court held that allegation that Gelhaar was doing business in the Philippines.
neither did the trial court acquire jurisdiction over Gelhaar
through voluntary submission because the authority of Atty. Second. Gelhaar contends that the contract with Litton was a
Noval to represent Gelhaar had been questioned. Hence, this single, isolated transaction and that it did not constitute "doing
appeal. business." Reference is made to Pacific Micronisian in which
the only act done by the foreign company was to employ a
Issue: Whether or not respondent Gelhaar Uniform Company Filipino as a member of the crew on one of its ships. This court
is doing business for the purpose of applying Rule 14, Section held that the act was an isolated, incidental or casual
14 of Rules of Court? transaction, not sufficient to indicate a purpose to engage in
business.
Held: Yes. The trial court acquired jurisdiction over Gelhaar by
service of summons upon its agent pursuant to Rule 14, §14. It is not really the fact that there is only a single act done that is
First. The appellate court invoked the ruling in Pacific material. The other circumstances of the case must be
Micronisian, in which it was stated that the fact of doing considered. Thus, in Wang Laboratories, Inc. v. Mendoza, 4 it
business must first be established before summons can be was held that where a single act or transaction of a foreign
served in accordance with Rule 14, §14. The Court of Appeals corporation is not merely incidental or casual but is of such
quoted the following portion of the opinion in that case: character as distinctly to indicate a purpose on the part of the
foreign corporation to do other business in the state, such act
The above section [referring to Rule 14, Section 14] provides will be considered as constituting doing business. 5 This Court
for three modes of effecting service upon a private corporation, referred to acts which were in the ordinary course of business
namely: [enumerates the three modes of service of summons]. of the foreign corporation.
But, it should be noted, in order that service may be effected in
the manner above stated said section also requires that the In the case at bar, the trial court was certainly correct in holding
foreign corporation be one which is doing business in the that Gelhaar' s act in purchasing soccer jerseys to be within the
Philippines. This is a sine qua non requirement. This fact must ordinary course of business of the company considering that it
first be established in order that summons can made and was engaged in the manufacture of uniforms. The acts noted
jurisdiction acquired. (Emphasis by the Court of Appeals) above are of such a character as to indicate a purpose to do
business.
In the later case of Signetics Corporation v. Court of Appeals, 3
however, we clarified the holding in Pacific Micronisian, thus: In accordance with Rule 14, §14, service upon Gelhaar could
be made in three ways: (1) by serving upon the agent designated
The petitioner opines that the phrase, "(the) fact (of doing in accordance with law to accept service of summons; (2) if
business in the Philippines) must first be established in order there is no resident agent, by service on the government official
that summons be made and jurisdiction acquired," used in the designated by law to that effect; and (3) by serving on any
above pronouncement, would indicate that a mere allegation to officer or agent of said corporation within the Philippines. 6
that effect in the complaint is not enough — there must instead Here, service was made through Gelhaar's agent, the Empire
be proof of doing business. In any case, the petitioner points Sales Philippines Corp. There was, therefore, a valid service of
out, the allegations themselves did not sufficiently show the fact summons on Gelhaar, sufficient to confer on the trial court
of its doing business in the Philippines. jurisdiction over the person of Gelhaar.

It should be recalled that jurisdiction and venue of actions are, MR HOLDINGS INC. vs. BAJAR
as they should so be, initially determined by the allegations of GR No. 138104
the complaint. Jurisdiction cannot be made to depend on April 11,2002
independent pleas set up in a mere motion to dismiss, otherwise
jurisdiction would become dependent almost entirely upon the Facts: Marcopper Mining Corporation, a domestic corporation
defendant. The fact of doing business must then, in the first whose 40% share capital are owned by Placer Dome Inc.,
place, be established by appropriate allegations in the obtained a loan from Asian Development Bank through the
complaint. This is what the Court should be seen to have meant support of Place Dome Inc. Placer Dome Inc. and its subsidiary
in the Pacific Micronisian case. The complaint, it is true, may MR Holdings Inc. are both foreign corporations. To secure the
have been vaguely structured but, taken correlatively, not loan, Marcopper executed in favor of ADB a deed of real estate
disjunctively as the petitioner would rather suggest, it is not and chattel mortgage. Upon default of payment by Marcopper,
really so weak as to be fatally deficient in the above Placer Dome in fulfillment of its undertaking to support the loan
requirement. agreed to have its subsidiary MR Holdings assumed
Marcopper’s obligation. Consequently, in an "Assignment
Hence, a court need not go beyond the allegations in the Agreement"7 dated March 20, 1997, ADB assigned to petitioner
complaint to determine whether or not a defendant foreign all its rights, interests and obligations under the principal and
corporation is doing business for the purpose of Rule 14, §14. complementary loan agreements. Meanwhile, it appeared that
In the case at bar, the allegation that Empire, for and in behalf Solidbank Corporation obtained partial judgment against
of Gelhaar, ordered 7,770 dozens of soccer jerseys from Litton Marcopper from another RTC and moved for the issuance of
and for this purpose Gelhaar caused the opening of an writ of execution pending appeal. Thereafter, respondent Bajar
issued two notices of levy on Marcopper’s personal and real principles governing the jurisdictional authority of the state
properties, and over all its stocks of scrap iron and over such corporations.
unserviceable mining equipment. Together with sheriff
Ferdinand M. Jandusay (also a respondent) of the RTC, Branch Batas Pambansa Blg. 68, otherwise known as "The
94, Boac, Marinduque, respondent Bajar issued two notices Corporation Code of the Philippines," is silent as to what
setting the public auction sale of the levied properties on August constitutes doing" or "transacting" business in the Philippines.
27, 1998 at the Marcopper mine site. Having learned of the Fortunately, jurisprudence has supplied the deficiency and has
scheduled auction sale, petitioner MR Holdings Inc. served an held that the term "implies a continuity of commercial dealings
"Affidavit of Third-Party Claim" upon respondent sheriffs on and arrangements, and contemplates, to that extent, the
August 26, 1998, asserting its ownership over all Marcopper’s performance of acts or works or the exercise of some of the
mining properties, equipment and facilities by virtue of the functions normally incident to, and in progressive prosecution
"Deed of Assignment." Upon the denial of its "Affidavit of of, the purpose and object for which the corporation was
Third–Party Claim" by the RTC of Manila, petitioner organized."23 In Mentholatum Co. Inc., vs. Mangaliman,24 this
commenced with the RTC of Boac, Marinduque, presided by Court laid down the test to determine whether a foreign
Judge Leonardo P. Ansaldo, a complaint for reivindication of company is "doing business," thus:
properties, etc., with prayer for preliminary injunction and
temporary restraining order against respondents Solidbank,
" x x x The true test, however, seems to be whether the
Marcopper, and sheriffs Bajar and Jandusay. In an Order dated
foreign corporation is continuing the body or substance of
October 6, 1998, Judge Ansaldo denied petitioner’s application
the business or enterprise for which it was organized or
for a writ of preliminary injunction on the ground that a)
whether it has substantially retired from it and turned it
petitioner has no legal capacity to sue, it being a foreign over to another. (Traction Cos. vs. Collectors of Int. Revenue
corporation doing business in the Philippines without license;
[C.C.A., Ohio], 223 F. 984,987.) x x x."
b) an injunction will amount "to staying the execution of a final
judgment by a court of co-equal and concurrent jurisdiction;"
and c) the validity of the "Assignment Agreement" and the The traditional case law definition has metamorphosed into a
"Deed of Assignment" has been "put into serious question by statutory definition, having been adopted with some
the timing of their execution and registration." Unsatisfied, qualifications in various pieces of legislation in our jurisdiction.
petitioner appealed before the Court of Appeals which affirmed For instance, Republic Act No. 7042, otherwise known as the
the decision of RTC. Hence, this appeal. "Foreign Investment Act of 1991," defines "doing business" as
follows:
Issue: Whether or not petitioner has legal capacity to sue and
seek redress from Philippine courts as it is a non-resident "d) The phrase ‘doing business’ shall include soliciting orders,
foreign corporations not doing business in the Philippines and service contracts, opening offices, whether called ‘liaison’
suing on isolated transactions. 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 totalling one hundred
Held: Yes. The Court of Appeals ruled that petitioner has no eight(y) (180) days or more; participating in the management,
legal capacity to sue in the Philippine courts because it is a
supervision or control of any domestic business, firm, entity, or
foreign corporation doing business here without license. A
corporation in the Philippines; and any other act or acts that
review of this ruling does not pose much complexity as the
imply a continuity of commercial dealings or arrangements,
principles governing a foreign corporation’s right to sue in local
and contemplate to that extent the performance of acts or
courts have long been settled by our Corporation Law. These
works; or the exercise of some of the functions normally
principles may be condensed in three statements, to wit: a) if a
incident to, and in progressive prosecution of, commercial
foreign corporation does business in the Philippines without a
gain or of the purpose and object of the business
license, it cannot sue before the Philippine courts; b) if a
organization; Provided, however, That the phrase ‘doing
foreign corporation is not doing business in the Philippines, it
business’ shall not be deemed to include mere investment as a
needs no license to sue before Philippine courts on an isolated shareholder by a foreign entity in domestic corporations duly
transaction or on a cause of action entirely independent of any registered to do business, and/or the exercise of rights as such
business transaction; and c) if a foreign corporation does
investor, nor having a nominee director or officer to represent
business in the Philippines with the required license, it can sue
its interests in such corporation, nor appointing a representative
before Philippine courts on any transaction. Apparently, it is not
or distributor domiciled in the Philippines which transacts
the absence of the prescribed license but the "doing (of)
business in its own name and for its own account." (Emphasis
business" in the Philippines without such license which debars supplied)25
the foreign corporation from access to our courts.
Likewise, Section 1 of Republic Act No. 5455,26 provides that:
The task at hand requires us to weigh the facts vis-à-
vis the established principles. The question whether or not a
foreign corporation is doing business is dependent principally "SECTION. 1. Definition and scope of this Act. - (1) x x x the
upon the facts and circumstances of each particular case, phrase ‘doing business’ shall include soliciting orders,
considered in the light of the purposes and language of the purchases, service contracts, opening offices, whether called
pertinent statute or statutes involved and of the general ‘liaison’ offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any
calendar year stay in the Philippines for a period or periods
totaling one hundred eighty days or more; participating in the recover its huge financial investments which it poured into
management, supervision or control of any domestic business Marcopper’s rehabilitation without it (petitioner) continuing
firm, entity or corporation in the Philippines; and any other act Marcopper’s business in the country." 30 This is a mere
or acts that imply a continuity of commercial dealings or presumption. Absent overt acts of petitioner from which we
arrangements, and contemplate to that extent the may directly infer its intention to continue Marcopper’s
performance of acts or works, or the exercise of some of the business, we cannot give our concurrence. Significantly, a view
functions normally incident to, and in progressive subscribed upon by many authorities is that the mere ownership
prosecution of, commercial gain or of the purpose and by a foreign corporation of a property in a certain state,
object of the business organization." unaccompanied by its active use in furtherance of the
business for which it was formed, is insufficient in itself to
There are other statutes27 defining the term "doing business" in constitute doing business.31 In Chittim vs. Belle Fourche
the same tenor as those above-quoted, and as may be observed, Bentonite Products Co.,32 it was held that even if a foreign
one common denominator among them all is the concept of corporation purchased and took conveyances of a mining
"continuity." claim, did some assessment work thereon, and endeavored
to sell it, its acts will not constitute the doing of business so
In the case at bar, the Court of Appeals categorized as "doing as to subject the corporation to the statutory requirements
for the transacting of business. On the same vein, petitioner,
business" petitioner’s participation under the "Assignment
a foreign corporation, which becomes the assignee of mining
Agreement" and the "Deed of Assignment." This is simply
properties, facilities and equipment cannot be automatically
untenable. The expression "doing business" should not be given
such a strict and literal construction as to make it apply to any considered as doing business, nor presumed to have the
corporate dealing whatever.28 At this early stage and with intention of engaging in mining business.
petitioner’s acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended One important point. Long before petitioner assumed
to continue the business for which it was organized. It may not Marcopper’s debt to ADB and became their assignee under the
be amiss to point out that the purpose or business for which two assignment contracts, there already existed a "Support and
petitioner was organized is not discernible in the records. Standby Credit Agreement" between ADB and Placer Dome
No effort was exerted by the Court of Appeals to establish whereby the latter bound itself to provide cash flow support for
the nexus between petitioner’s business and the acts Marcopper’s payment of its obligations to ADB. Plainly,
supposed to constitute "doing business." Thus, whether the petitioner’s payment of US$ 18,453,450.12 to ADB was more
assignment contracts were incidental to petitioner’s of a fulfillment of an obligation under the "Support and Standby
business or were continuation thereof is beyond Credit Agreement" rather than an investment. That petitioner
determination. We cannot apply the case cited by the Court of had to step into the shoes of ADB as Marcopper’s creditor was
Appeals, Far East Int’l Import and Export Corp. vs. Nankai just a necessary legal consequence of the transactions that
Kogyo Co., Ltd.,29 which held that a single act may still transpired. Also, we must hasten to add that the "Support and
constitute "doing business" if "it is not merely incidental or Standby Credit Agreement" was executed four (4) years prior
casual, but is of such character as distinctly to indicate a purpose to Marcopper’s insovency, hence, the alleged "intention of
on the part of the foreign corporation to do other business in the petitioner to continue Marcopper’s business" could have no
state." In said case, there was an express admission from an basis for at that time, Marcopper’s fate cannot yet be
official of the foreign corporation that he was sent to the determined.
Philippines to look into the operation of mines, thereby
revealing the foreign corporation’s desire to continue engaging In the final analysis, we are convinced that petitioner was
in business here. But in the case at bar, there is no evidence of engaged only in isolated acts or transactions. Single or isolated
similar desire or intent. Unarguably, petitioner may, as the acts, contracts, or transactions of foreign corporations are not
Court of Appeals suggested, decide to operate Marcopper’s regarded as a doing or carrying on of business. Typical
mining business, but, of course, at this stage, that is a mere examples of these are the making of a single contract, sale, sale
speculation. Or it may decide to sell the credit secured by the with the taking of a note and mortgage in the state to secure
mining properties to an offshore investor, in which case the acts payment therefor, purchase, or note, or the mere commission of
will still be isolated transactions. To see through the present a tort.33 In these instances, there is no purpose to do any other
facts an intention on the part of petitioner to start a series business within the country.
of business transaction is to rest on assumptions or
probabilities falling short of actual proof. Courts should
never base its judgments on a state of facts so inadequately
developed that it cannot be determined where inference ABACUS SECURITIES CORPORATION VS. RUBEN
ends and conjecture begins.
AMPIL

Indeed, the Court of Appeals’ holding that petitioner was

G.R. NO. 160016 FEBRUARY 27, 2006
determined to be "doing business" in the Philippines is based
mainly on conjectures and speculation. In concluding that the
"unmistakable intention" of petitioner is to continue Panganiban, C.J. :
Marcopper’s business, the Court of Appeals hangs on the
wobbly premise that "there is no other way for petitioner to Facts: Ruben Ampil opened a cash account with Abacus
Securities Corporation (Abacus, for brevity). Abacus is
engaged in a business as a broker and dealer of securities of obligations. Ineludibly, this Court would not hesitate to grant
listed companies at the Philippine Stock Exchange Center. relief in accordance with good faith and conscience.
Ampil actively traded his account, and as a result of such
trading activities, he accumulated an outstanding obligation in Fallo: WHEREFORE, the assailed Decision and Resolution of
favor of Abacus in the sum of P6,617,036.22. The purchases of the Court of Appeals are hereby MODIFIED. Respondent is
Ampil were continuously unpaid, but notwithstanding Ampil’s ordered to pay petitioner the difference between the former’s
failure to cover his initial deficiency, Abacus subsequently outstanding obligation as of April 11, 1997 less the proceeds
purchased and sold securities for Ampil’s account. Abacus did from the mandatory sell out of shares pursuant to the RSA
not cancel or liquidate a substantial amount of Ampil’s stock Rules, with interest thereon at the legal rate until fully paid.
transactions. The RTC of Makati City ruled that Abacus
violated Secs. 23 and 25 of the Revised Securities Act (SRA)
EXPERTRAVEL & TOURS, INC. vs.
when Abacus failed to require Ampil to pay for his stock
COURT OF APPEALS and KOREAN
purchases within 3 or 4 days from trading and request from the
AIRLINES
appropriate authority an extension of time for the payment of
Ampil’s cash purchases. According to the lower court, by
allowing Ampli to trade his account actively without cash, G.R. No. 152392 May 26, 2005
Abacus effectively induced him to purchase securities thereby
incurring excessive credits, hence, both Abacus and Ampil CALLEJO, SR., J.:
were in pari delicto and they are without recourse against each
other. Facts: Korean Airlines (KAL) is a corporation established and
registered in the Republic of South Korea and licensed to do
Issue: Whether or not both Abacus and Ampil violated the business in the Philippines. Its general manager in the
provisions of RSA, hence the pari delicto rule can be applied. Philippines is Suk Kyoo Kim, while its appointed counsel was
Atty. Mario Aguinaldo and his law firm.
Ruling: Yes. In the present case, respondent cannot escape
payment of stocks validly traded by petitioner on his behalf. KAL, through Atty. Aguinaldo, filed a Complaint against
These transactions took place before both parties violated the Expert Travel & Tours, Inc. (ETI) with the RTC of Manila, for
trading law and rules. Hence, they fall outside the purview of the collection of the principal amount of P260,150.00, plus
the pari delicto rule. The law places the burden of compliance attorney’s fees and exemplary damages. The verification and
with margin requirements primarily upon the brokers and certification against forum shopping was signed by Atty.
dealers. Sections 23 and 25 and Rule 25-1, otherwise known as Aguinaldo, who indicated therein that he was the resident agent
the "mandatory close-out rule,” clearly vest upon petitioner the and legal counsel of KAL and had caused the preparation of the
obligation, not just the right, to cancel or otherwise liquidate a complaint.
customer’s order, if payment is not received within three days
from the date of purchase. For transactions subsequent to an ETI, on the other hand, filed a motion to dismiss the complaint
unpaid order, the broker should require its customer to deposit on the ground that Atty. Aguinaldo was not authorized to
funds into the account sufficient to cover each purchase execute the verification and certificate of non-forum shopping
transaction prior to its execution. These duties are imposed as required by Section 5, Rule 7 of the Rules of Court. KAL
upon the broker to ensure faithful compliance with the margin opposed the motion, contending that Atty. Aguinaldo was its
requirements of the law, which forbids a broker from extending resident agent and was registered as such with the Securities
undue credit to a customer. The obligation of respondent for and Exchange Commission (SEC) as required by the
stock transactions made and entered into on April 10 and 11, Corporation Code of the Philippines.
1997 remains outstanding. These transactions were valid and
the obligations incurred by respondent concerning his stock During the hearing of the case, Atty. Aguinaldo claimed that he
purchases on these dates subsist. At the time, there was no had been authorized to file the complaint through a resolution
violation of the RSA yet. In the final analysis, both parties acted of the KAL Board of Directors approved during a special
in violation of the law and did not come to court with clean meeting.
hands with regard to transactions subsequent to the initial trades
made on April 10 and 11, 1997. Thus, the peculiar facts of the
Finally, KAL submitted an Affidavit executed by its general
present case bar the application of the pari delicto rule --
manager Suk Kyoo Kim, alleging that the board of directors
expressed in the maxims "Ex dolo malo non oritur action" and
conducted a special teleconference and in that same
"In pari delicto potior est conditio defendentis" -- to all the
teleconference, the board of directors approved a resolution
transactions entered into by the parties. The pari delecto rule
authorizing Atty. Aguinaldo to execute the certificate of non-
refuses legal remedy to either party to an illegal agreement and
forum shopping and to file the complaint. Suk Kyoo Kim also
leaves them where they were. In this case, the pari delicto rule
alleged, however, that the corporation had no written copy of
applies only to transactions entered into after the initial trades
the aforesaid resolution.
made on April 10 and 11, 1997. Since the initial trades are valid
and subsisting obligations, respondent is liable for them. Justice
and good conscience require all persons to satisfy their debts. Issue: Whether or not Atty. Aguinaldo, as the resident agent of
Ours are courts of both law and equity; they compel fair KAL has the authority to sign the certificate on non-forum
dealing; they do not abet clever attempts to escape just shopping.
Ruling: No. In a case where the plaintiff is a private The respondent knew that its counsel, Atty. Aguinaldo, as its
corporation, the certification may be signed, for and on behalf resident agent, was not specifically authorized to execute the
of the said corporation, by a specifically authorized person, said certification. It attempted to show its compliance with the
including its retained counsel, who has personal knowledge of rule subsequent to the filing of its complaint by submitting, on
the facts required to be established by the documents. March 6, 2000, a resolution purporting to have been approved
by its Board of Directors during a teleconference held on June
In turn, a corporation exercises said powers through its board of 25, 1999, allegedly with Atty. Aguinaldo and Suk Kyoo Kim in
directors and/or its duly-authorized officers and agents. attendance.
Physical acts, like the signing of documents, can be performed
only by natural persons duly-authorized for the purpose by However, such attempt of the respondent casts veritable doubt
corporate by-laws or by specific act of the board of directors. not only on its claim that such a teleconference was held, but
also on the approval by the Board of Directors of the resolution
Indeed, the certificate of non-forum shopping may be authorizing Atty. Aguinaldo to execute the certificate of non-
incorporated in the complaint or appended thereto as an integral forum shopping.
part of the complaint. The rule is that compliance with the rule
after the filing of the complaint, or the dismissal of a complaint In the Philippines, teleconferencing and videoconferencing of
based on its non-compliance with the rule, is impermissible. members of board of directors of private corporations is a
However, in exceptional circumstances, the court may allow reality, in light of Republic Act No. 8792. The Securities and
subsequent compliance with the rule. If the authority of a Exchange Commission issued SEC Memorandum Circular No.
party’s counsel to execute a certificate of non-forum shopping 15, on November 30, 2001, providing the guidelines to be
is disputed by the adverse party, the former is required to show complied with related to such conferences. Thus, the Court
proof of such authority or representation. agrees with the RTC that persons in the Philippines may have a
teleconference with a group of persons in South Korea relating
In this case, the petitioner, as the defendant in the RTC, assailed to business transactions or corporate governance.
the authority of Atty. Aguinaldo to execute the requisite
verification and certificate of non-forum shopping as the Even given the possibility that Atty. Aguinaldo and Suk Kyoo
resident agent and counsel of the respondent. It was, thus, Kim participated in a teleconference along with the
incumbent upon the respondent, as the plaintiff, to allege and respondent’s Board of Directors, the Court is not convinced that
establish that Atty. Aguinaldo had such authority to execute the one was conducted; even if there had been one, the Court is not
requisite verification and certification for and in its behalf. The inclined to believe that a board resolution was duly passed
respondent, however, failed to do so. specifically authorizing Atty. Aguinaldo to file the complaint
and execute the required certification against forum shopping.
As gleaned from the aforequoted certification, there was no
allegation that Atty. Aguinaldo had been authorized to execute Fallo: IN LIGHT OF ALL THE FOREGOING, the petition is
the certificate of non-forum shopping by the respondent’s GRANTED. The Decision of the Court of Appeals in CA-G.R.
Board of Directors; moreover, no such board resolution was SP No. 61000 is REVERSED and SET ASIDE. The Regional
appended thereto or incorporated therein. Trial Court of Manila is hereby ORDERED to dismiss, without
prejudice, the complaint of the respondent.
While Atty. Aguinaldo is the resident agent of the
respondent in the Philippines, this does not mean that he is
authorized to execute the requisite certification against
forum shopping. MERRILL LYNCH FUTURES, INC. VS. HON. COURT
OF APPEALS, AND THE SPOUSES PEDRO M. LARA
Under Section 127, in relation to Section 128 of the Corporation AND ELISA G. LARA
Code, the authority of the resident agent of a foreign
corporation with license to do business in the Philippines is to G.R. No. 97816, July 24, 1992
receive, for and in behalf of the foreign corporation, services
and other legal processes in all actions and other legal
NARVASA, C.J.:
proceedings against such corporation.
The capacity of a foreign corporation to maintain an action in
Under the law, Atty. Aguinaldo was not specifically authorized
the Philippines against residents thereof, is the principal
to execute a certificate of non-forum shopping as required by
question in the appellate proceedings at bar.
Section 5, Rule 7 of the Rules of Court. This is because while a
resident agent may be aware of actions filed against his
principal (a foreign corporation doing business in the Facts: Merrill Lynch Futures, Inc. (MLF) filed a complaint
Philippines), such resident may not be aware of actions initiated with the RTC of Quezon City against the Spouses Pedro Lara
by its principal, whether in the Philippines against a domestic and Elisa Lara for the recovery of a debt and interest thereon,
corporation or private individual, or in the country where such damages, and attorney's fees.
corporation was organized and registered, against a Philippine
registered corporation or a Filipino citizen. It also defined a "futures contract" as a "contractual
commitment to buy and sell a standardized quantity of a
particular item at a specified future settlement date and at a The RTC sustained the motion to dismiss, directing the
price agreed upon, with the purchase or sale being executed on dismissal of the case and discharging the writ of preliminary
a regulated futures exchange." attachment.

MLF alleged that: (1) MLF entered into a Futures Customer On appeal to the Court of Appeals, the appellate court the
Agreement with spouses Lara, in virtue of which it agreed to decision of the RTC.
act as the latter's broker for the purchase and sale of futures
contracts in the U.S.; Issue: Whether or not Merrill Lynch Futures, Inc. (MLF), being
a foreign corporation not licensed to do business in the
(2) that pursuant to the contract, orders to buy and sell futures Philippines, has the capacity to maintain an action in the
contracts were transmitted to MLFby the Lara Spouses Philippines against residents thereof (spouses Lara).
"through the facilities of Merrill Lynch Philippines, Inc., a
Philippine corporation and a company servicing plaintiff’s Ruling: Yes. The Court is satisfied that the facts on record
customers;" adequately establish that ML FUTURES, operating in the
United States, had indeed done business with the Lara Spouses
(3) that from the outset, the Lara Spouses "knew and were duly in the Philippines over several years, had done so at all times
advised that Merrill Lynch Philippines, Inc. was not a broker in through Merrill Lynch Philippines, Inc. (MLPI), a corporation
futures contracts," and that it "did not have a license from the organized in this country and had executed all these transactions
Securities and Exchange Commission to operate as a without ML FUTURES being licensed to so transact business
commodity trading advisor (i.e., ‘an entity which, not being a here, and without MLPI being authorized to operate as a
broker, furnishes advice on commodity futures to persons who commodity futures trading advisor.
trade in futures contracts’);
These are the factual findings of both the Trial Court and the
(4) that in line with the above mentioned agreement and through Court of Appeals. These, too, are the conclusions of the
said Merrill Lynch Philippines, Inc., the Lara Spouses actively Securities & Exchange Commission which denied MLPI's
traded in futures contracts, including "stock index futures" for application to operate as a commodity futures trading advisor,
four years or so; a denial subsequently affirmed by the Court of Appeals.

(5) that because of a loss amounting to US$160,749.69 incurred Prescinding from the proposition that factual findings of the
in respect of three (3) transactions involving "index futures," Court of Appeals are generally conclusive, this Court has been
and after setting this off against an amount of US$75,913.42 cited to no circumstance of substance to warrant reversal of said
then owing by ML FUTURES to the Lara Spouses, said spouses Appellate Court's findings or conclusions in this case.
became indebted to ML FUTURES for the ensuing balance of
US$84,836.27, which the latter asked them to pay; and The Court is satisfied, too, that the Laras did transact business
with ML FUTURES through its agent corporation organized in
(6) that the Lara Spouses however refused to pay this balance, the Philippines, it being unnecessary to determine whether this
“alleging that the transactions were null and void because domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or
Merrill Lynch Philippines, Inc., the Philippine company Merrill Lynch Pierce Fenner & Smith, (MLPI's alleged
servicing accounts of plaintiff, ** had no license to operate as a predecessor).
‘commodity and/or financial futures broker.’"
The fact is that ML FUTURES did deal with futures contracts
However, spouses Lara filed a motion to dismiss based on the in exchanges in the United States in behalf and for the account
following grounds: of the Lara Spouses, and that on several occasions the latter
received account documents and money in connection with
a) although not licensed to do so, MLF had been doing business those transactions.
in the Philippines "at least for the last 4 years," this being clear
from the very allegations of the complaint; consequently, ML In other words, if it be true that during all the time that they
FUTURES is prohibited by law "to maintain or intervene in any were transacting with ML FUTURES, the Laras were fully
action, suit or proceeding in any court or administrative agency aware of its lack of license to do business in the Philippines,
of the Philippines;" and and in relation to those transactions had made payments to,
and received money from it for several years, the question
b) they had never been informed that Merrill Lynch Philippines, is whether or not the Lara Spouses are now estopped to
Inc. was not licensed to do business in this country; and contrary impugn ML FUTURES’ capacity to sue them in the courts
to the allegations of the complaint, all their transactions had of the forum.
actually been with MERRILL LYNCH PIERCE FENNER &
SMITH, INC., and not with ML FUTURES (Merrill Lynch The rule is that a party is estopped to challenge the personality
Futures, Inc.), in proof of which they attached to their motion of a corporation after having acknowledged the same by
to dismiss copies of 8 agreements, receipts or reminders, etc., entering into a contract with it. And the "doctrine of estoppel to
executed on standard printed forms of said Merrill Lynch Pierce deny corporate existence applies to foreign as well as to
Fenner & Smith Inc. domestic corporations;" “one who has dealt with a corporation
of foreign origin as a corporate entity is estopped to deny its obligated to pay the agreed purchase price. However,
corporate existence and capacity.” commencing October 31, 1994 up to the present, GTVL has
failed and refused to pay the agreed purchase price for several
The principle "will be applied to prevent a person contracting deliveries ordered by it and delivered by ZUIDEN.
with a foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such Instead of filing an answer, respondent filed a Motion
person has received the benefits of the contract where such to Dismiss on the ground that petitioner has no legal capacity to
person has acted as agent for the corporation and has violated sue. Respondent alleged that petitioner is doing business in the
his fiduciary obligations as such, and where the statute does not Philippines without securing the required license. Accordingly,
provide that the contract shall be void, but merely fixes a special petitioner cannot sue before Philippine courts. The trial court
penalty for violation of the statute. issued an Order on 10 November 1999 dismissing the
complaint. On appeal, the Court of Appeals sustained the trial
court’s dismissal of the complaint.
The general rule that in the absence of fraud a person who has
contracted or otherwise dealt with an association in such a way
as to recognize and in effect admit its legal existence as a Issue: Whether or not Zuiden is doing business in the
Philippines
corporate body is thereby estopped to deny its corporate
existence in any action leading out of or involving such contract
or dealing, unless its existence is attacked for causes which have
arisen since making the contract or other dealing relied on as an Held:
estoppel and this applies to foreign as well as domestic
corporations. Section 133 of the Corporation Code is clear. An unlicensed
foreign corporation doing business in the Philippines cannot sue
before Philippine courts. On the other hand, an unlicensed
Considerations of equity dictate that, at the very least, the issue foreign corporation not doing business in the Philippines can
of whether the Laras are in truth liable to ML FUTURES and if sue before Philippine courts. In the present controversy,
so in what amount, and whether they were so far aware of the petitioner is a foreign corporation which claims that it is not
absence of the requisite licenses on the part of ML FUTURES doing business in the Philippines. As such, it needs no license
and its Philippine correspondent, MLPI, as to be estopped from to institute a collection suit against respondent before
alleging that fact as a defense to such liability, should be Philippine courts. The series of transactions between petitioner
ventilated and adjudicated on the merits by the proper trial and respondent cannot be classified as “doing business” in the
court. Philippines under Section 3(d) of RA 7042. An essential
condition to be considered as “doing business” in the
Fallo: WHEREFORE, the decision of the Court of Appeals in Philippines is the actual performance of specific commercial
CA-G.R. CV No. 16478 dated November 27, 1990 and its acts within the territory of the Philippines for the plain reason
Resolution of March 7, 1991 are REVERSED and SET ASIDE, that the Philippines has no jurisdiction over commercial acts
and the Regional Trial Court at Quezon City, Branch 84, is performed in foreign territories. Here, there is no showing that
ORDERED to reinstate Civil Case No. Q-52360 and forthwith petitioner performed within the Philippine territory the specific
conduct a hearing to adjudicate the issues set out in the acts of doing business mentioned in Section 3(d) of RA
preceding paragraph on the merits. 7042. Petitioner did not also open an office here in the
Philippines, appoint a representative or distributor, or manage,
B. VAN ZUIDEN BROS., LTD vs. GTVL supervise or control a local business. While petitioner and
MANUFACTURING INDUSTRIES, INC., respondent entered into a series of transactions implying a
G.R. No. 147905 continuity of commercial dealings, the perfection and
May 28, 2007 consummation of these transactions were done outside the
Philippines.

CARPIO, J.: An exporter in one country may export its products to

many foreign importing countries without performing in the
Facts: importing countries specific commercial acts that would
On several occasions, GTVL purchased lace products from constitute doing business in the importing countries. The mere
Zuiden, a corporation, incorporated under the laws of Hong act of exporting from one’s own country, without doing any
Kong, not engaged in business in the Philippines, but is suing specific commercial act within the territory of the importing
before the Philippine Courts. The procedure for these country, cannot be deemed as doing business in the importing
purchases, as per the instructions of GTVL, was that ZUIDEN country. The importing country does not acquire jurisdiction
delivers the products purchased by GTVL, to a certain Hong over the foreign exporter who has not performed any specific
Kong corporation, known as Kenzar Ltd. and the products are commercial act within the territory of the importing
then considered as sold, upon receipt by KENZAR of the goods country. Without jurisdiction over the foreign exporter, the
purchased by GTVL. KENZAR had the obligation to deliver importing country cannot compel the foreign exporter to secure
the products to the Philippines and/or to follow whatever a license to do business in the importing country.
instructions GTVL had on the matter. Insofar as ZUIDEN is
concerned, upon delivery of the goods to KENZAR in Hong Otherwise, Philippine exporters, by the mere act alone of
Kong, the transaction is concluded; and GTVL became exporting their products, could be considered by the importing
countries to be doing business in those countries. This will contract treaties between the foreign insurance companies and
require Philippine exporters to secure a business license in the international insurance broker C.J. Boatright, acting as
every foreign country where they usually export their products, agent for respondent Worldwide Surety and Insurance
even if they do not perform any specific commercial act within Company. Inasmuch as petitioners are not engaged in business
the territory of such importing countries. Such a legal concept in the Philippines with no offices, places of business or agents
will have a deleterious effect not only on Philippine exports, but in the Philippines, the reinsurance treaties having been rendered
also on global trade. abroad, service of summons upon motion of respondent
Yupangco, was made upon petitioners through the office of the
To be doing or “transacting business in the Philippines” Insurance Commissioner. Petitioners, by counsel on special
for purposes of Section 133 of the Corporation Code, the appearance, seasonably filed motions to dismiss disputing the
foreign corporation must actually transact business in the jurisdiction of RTC and the extra-territorial service of
Philippines, that is, perform specific business transactions summons. Respondent Yupangco filed its opposition to the
within the Philippine territory on a continuing basis in its own motion to dismiss, petitioners filed their reply, and respondent
name and for its own account. Actual transaction of business Yupangco filed its rejoinder. RTC denied the motions to
within the Philippine territory is an essential requisite for the dismiss and directed petitioners to file their answer.
Philippines to acquire jurisdiction over a foreign corporation
and thus require the foreign corporation to secure a Philippine Issue: Whether or not the petitioners were determined to be
business license. If a foreign corporation does not transact such “doing business in the Philippines”
kind of business in the Philippines, even if it exports its products
to the Philippines, the Philippines has no jurisdiction to require Held:
such foreign corporation to secure a Philippine business In relation with Article 44 of the Omnibus Investments
license. Code of 1987, “doing business” ordinarily implies a continuity
of commercial dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the exercise of
the functions normally incident to and in progressive
AVON INSURANCE PLC, BRITISH RESERVE prosecution of the purpose and object of its organization. A
INSURANCE. CO. LTD. et.al. vs. COURT OF APPEALS, single act or transaction made in the Philippines, however,
et.al. could not qualify a foreign corporation to be doing business in
G.R. No. 97642 the Philippines, if such singular act is not merely incidental or
August 29, 1997 casual, but indicates the foreign corporation’s intention to do
business in the Philippines. There is no sufficient basis in the
TORRES, JR., J.: records which would merit the institution of this collection suit
in the Philippines. More specifically, there is nothing to
Facts: substantiate the private respondent’s submission that the
Yupangco Cotton Mills engaged to secure with petitioners had engaged in business activities in this
Worldwide Security and Insurance Co. Inc., several of its country. This is not an instance where the erroneous service of
properties for the periods July 6, 1979 to July 6, 1980 as under summons upon the defendant can be cured by the issuance and
Policy No. 20719 for a coverage of P100,000,000.00 and from service of alias summons, as in the absence of showing that
October 1, 1980 to October 1, 1981, under Policy No. 25896, petitioners had been doing business in the country, they cannot
also forP100,000,000.00. Both contracts were covered by be summoned to answer for the charges leveled against them.
reinsurance treaties between Worldwide Surety and Insurance The purpose of the law in requiring that foreign corporations
and several foreign reinsurance companies, including the doing business in the country be licensed to do so, is to subject
petitioners. The reinsurance arrangements had been made the foreign corporations doing business in the Philippines to the
through international broker C.J. Boatright and Co. Ltd., acting jurisdiction of the courts, otherwise, a foreign corporation
as agent of Worldwide Surety and Insurance. The properties illegally doing business here because of its refusal or neglect to
therein insured were razed by fire , thereby giving rise to the obtain the required license and authority to do business may
obligation of the insurer to indemnify the Yupangco Cotton successfully though unfairly plead such neglect or illegal act so
Mills. Partial payments were made by Worldwide Surety and as to avoid service and thereby impugn the jurisdiction of the
Insurance and some of the reinsurance companies. Worldwide local courts.
Surety and Insurance, in a deed of Assignment, acknowledge a
remaining balance of P19,444,447.75 still due Yupangco There is no showing that petitioners had performed
Cotton Mills, and assigned to the latter all reinsurance proceeds any act in the country that would place it within the sphere of
still collectible from all the foreign reinsurance the court’s jurisdiction. The assertion that a resident of the
companies. Thus, in its interest as assignee and original Philippines will be inconvenienced by an out-of-town suit
insured, Yupangco Cotton Mills instituted this collection suit against a foreign entity, is irrelevant and unavailing to sustain
against the petitioners. Service of summons upon the petitioners the continuance of a local action, for jurisdiction is not
was made by notification to the Insurance Commissioner, dependent upon the convenience or inconvenience of a party. If
pursuant to Section 14, Rule 14 of the Rules of Court the appearance of a party in a suit is precisely to question the
jurisdiction of the said tribunal over the person of the defendant,
Yupangco Cotton Mills filed a complaint against then this appearance is not equivalent to service of summons,
several foreign reinsurance companies (among which are nor does is constitute an acquiescence to the court’s
petitioners) to collect their alleged percentage liability under jurisdiction. Thus it cannot be argued that the petitioners had
abandoned their objections to the jurisdiction of the court, as the defendant are within the jurisdiction of the court. It is not
their motions to dismiss in the trial court, and all their the absence of the prescribed license but “doing business” in the
subsequent posturings, were all in protest of the private Philippines without such license which debars the foreign
respondent's insistence on holding them so answer a charge in corporation from access to our courts. In other words, although
a forum where they believe they are not subject to. Clearly, to a foreign corporation is without license to transact business in
continue the proceedings in a case such as those before Us the Philippines, it does not follow that it has no capacity to bring
would just “be useless and a waste of time.” an action. Such license is not necessary if it is not engaged in
business in the Philippines.
COLUMBIA PICTURES, INC., ORION PICTURES
CORPORATION, et.al. vs. COURT OF APPEALS The true tests, however, seem to be whether the foreign
G.R. No. 110318 corporation is continuing the body or substance of the business
August 28, 1996 or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. As a
REGALADO, J.: general proposition upon which many authorities agree in
principle, subject to such modifications as may be necessary in
Facts: view of the particular issue or of the terms of the statute
Complainants lodged a formal complaint with the NBI involved, it is recognized that a foreign corporation is “doing,”
for violation of PD No. 49 and sought its assistance in their anti- “transacting,” “engaging in,” or “carrying on” business in the
film piracy drive. Agents of the NBI and private researchers State when, and ordinarily only when, it has entered the State
made discreet surveillance on various video establishments in by its agents and is there engaged in carrying on and transacting
Metro Manila including Sunshine Home Video Inc. (Sunshine through them some substantial part of its ordinary or customary
for brevity), owned and operated by Danilo A. Pelindario. business, usually continuous in the sense that it may be
distinguished from merely casual, sporadic, or occasional
NBI Senior Agent Lauro C. Reyes applied for a search transactions and isolated acts.
warrant with the trial court against Sunshine seeking the
seizure, among others, for piracy. In the course of the search Certainly, a corporation whose legal rights have been
of the premises indicated in the search warrant, the NBI Agents violated is undeniably such, if not the only, real party-in-interest
found and seized various video tapes of duly copyrighted to bring suit thereon although, for failure to comply with the
motion pictures/films owned or exclusively distributed by licensing requirement, it is not capacitated to maintain any suit
private complainants, and machines, equipment, television sets, before our courts. The doctrine of lack of capacity to sue based
paraphernalia, materials, accessories all of which were included on failure to first acquire a local license is based on
in the receipt for properties accomplished by the raiding considerations of public policy. It was never intended to favor
team. Copy of the receipt was furnished and/or tendered to Mr. nor insulate from suit unscrupulous establishments or nationals
Danilo A. Pelindario, registered owner-proprietor of Sunshine in case of breach of valid obligations or violations of legal rights
Home Video. of unsuspecting foreign firms or entities simply because they
are not licensed to do business in the country.
A “Motion To Lift the Order of Search Warrant” was
filed but was later denied for lack of merit (p. 280, Records). CARGILL, INC.,vs. INTRA STRATA ASSURANCE
The motion however wa sltaer granted by the trial court. Private CORPORATION
respondents aver that being foreign corporations, petitioners G.R. No. 168266
should have such license to be able to maintain an action in March 15, 2010
Philippine courts under Section 1(f) (1) and (2), Rule 1 of the
Rules of the Board of Investments as well as Section 133 of the
Corporation Code. CARPIO, J.:

Issue: Whether or not private respondents are doing business in Facts:

the Philippines Cargill, Inc. is a corporation organized and existing
under the laws of the State of Delaware, United States of
Held: America. Cargil and Northern Mindanao Corporation (NMC)
executed a contract NMC agreed to sell to petitioner 20,000 to
The obtainment of a license prescribed by Section 125 24,000 metric tons of molasses, to be delivered from
of the Corporation Code is not a condition precedent to the 1 January to 30 June 1990 at the price of $44 per metric ton.
maintenance of any kind of action in Philippine courts by a The contract provides that petitioner would open a Letter of
foreign corporation. However, under the aforequoted Credit with the Bank of Philippine Islands. Under the “red
provision, no foreign corporation shall be permitted to transact clause” of the Letter of Credit, NMC was permitted to draw up
business in the Philippines, as this phrase is understood under to $500,000 representing the minimum price of the contract
the Corporation Code, unless it shall have the license required upon presentation of some documents.
by law, and until it complies with the law in transacting business
here, it shall not be permitted to maintain any suit in local The contract was amended three times. In compliance
courts. As thus interpreted, any foreign corporation not doing with the terms of the third amendment of the contract,
business in the Philippines may maintain an action in our courts respondent Intra Strata Assurance Corporation issued a
upon any cause of action, provided that the subject matter and performance bondto guarantee NMC’s delivery of the 10,500
tons of molasses, and a surety bond[to guarantee the repayment dealings or arrangements,
of downpayment as provided in the contract. NMC was only and contemplate to that
able to deliver 219.551 metric tons of molasses out of the agreed extent the performance of
10,500 metric tons. Thus, Cargil sent demand letters to acts or works, or the
respondent claiming payment under the performance and surety exercise of some of the
bonds. When respondent refused to pay, petitioner filed a functions normally
complaint[for sum of money against NMC and respondent. incident to, and in
progressive prosecution of,
Cargil, NMC, and respondent entered into a commercial gain or of the
compromise agreement,[which the trial court approved. The purpose and object of the
compromise agreement provides that NMC would pay business
petitioner P3,000,000 upon signing of the compromise organization: Provided,
agreement and would deliver to petitioner 6,991 metric tons of however, That the phrase
molasses. However, NMC still failed to comply with its ‘doing business’ shall not
obligation under the compromise agreement. Hence, trial be deemed to include mere
proceeded against respondent and the trial court ruled later for investment as a
Cargil. shareholder by a foreign
entity in domestic
On appeal, the Court of Appeals reversed the trial court’s corporations duly
decision and dismissed the complaint. registered to do business,
and/or the exercise of
Issues: rights as such investor; nor
Whether petitioner is doing or transacting business in having a nominee director
the Philippines in contemplation of the law and established or officer to represent its
jurisprudence; interests in such
1 corporation; nor
Held: appointing a representative
Under Article 133 of the Corporation Code, a foreign or distributor domiciled in
corporation must first obtain a license and a certificate from the Philippines which
the appropriate government agency before it can transact transacts business in its
business in the Philippines. Where a foreign corporation does own name and for its own
business in the Philippines without the proper license, it cannot account.
maintain any action or proceeding before Philippine courts .
Since respondent is relying on Section 133 of the
Republic Act No. 7042 (RA 7042), otherwise known Corporation Code to bar petitioner from maintaining an action
as the Foreign Investments Act of 1991, which repealed in Philippine courts, respondent bears the burden of proving
Articles 44-56 of Book II of the Omnibus Investments Code of that petitioner’s business activities in the Philippines were not
1987, enumerated not only the acts or activities which just casual or occasional, but so systematic and regular as to
constitute “doing business” but also those activities which are manifest continuity and permanence of activity to constitute
not deemed “doing business.” Section 3(d) of RA 7042 states: doing business in the Philippines. In this case, we find that
respondent failed to prove that petitioner’s activities in the
The phrase “doing Philippines constitute doing business as would prevent it from
business” shall include bringing an action.The determination of whether a foreign
“soliciting orders, service corporation is doing business in the Philippines must be based
contracts, opening offices, on the facts of each case.
whether called ‘liaison’
offices or branches; The Implementing Rules and Regulations of RA 7042
appointing representatives provide under Section 1(f), Rule I, that “doing business” does
or distributors domiciled in not include the following acts:
the Philippines or who in
any calendar year stay in 1. Mere investment as a
the country for a period or shareholder by a foreign
periods totallingone entity in domestic
hundred eighty (180) days corporations duly
or more; participating in registered to do business,
the management, and/or the exercise of rights
supervision or control of as such investor;
any domestic business, 2. Having a nominee
firm, entity or corporation director or officer to
in the Philippines; and any represent its interests in
other act or acts that imply such corporation;
a continuity of commercial
 3. Appointing a GR 105364 28 June 2001
representative or distributor
domiciled in Facts: The Central Bank of the Philippines filed with the
the Philippines which trans
RTC of Manila a Petition for Assistance in the Liquidation of
acts business in the
representative's or the Philippine Veterans Bank. Thereafter, the Philippine
distributor's own name and Veterans Bank Employees Union-N.U.B.E., represented by
account; Perfecto V. Fernandez, filed claims for accrued and unpaid
4. The publication of a employee wages and benefits with said court. After lengthy
general advertisement proceedings, partial payment of the sums due to the employees
through any print or were made. However, due to the piecemeal hearings on the
broadcast media;
benefits, many remain unpaid. Fernandez moved to disqualify
5. Maintaining a stock of
goods in the presiding judge thereat (RTC Br. 39), Judge Benjamin
the Philippines solely for Vega, from hearing the case on grounds of bias and hostility
the purpose of having the towards petitioners.
same processed by another Congress enacted RA 7169 entitled "An Act To
entity in the Philippines; Rehabilitate The Philippine Veterans Bank Created Under
6. Consignment by a Republic Act 3518, Providing The Mechanisms Therefor, And
foreign entity of equipment
For Other Purposes.” Thereafter, Fernandez filed with the labor
with a local company to be
used in the processing of tribunals their residual claims for benefits and for reinstatement
products for export; upon reopening of the bank. RA 7169 provides in part for the
7. Collecting information reopening of the Philippine Veterans Bank together with all its
in the Philippines; and branches within the period of 3 years from the date of the
8. Performing services reopening of the head office. The law likewise provides for the
auxiliary to an existing
creation of a rehabilitation committee in order to facilitate the
isolated contract of sale
which are not on a implementation of the provisions of the same. Pursuant to
continuing basis, such as thereto, the Rehabilitation Committee submitted the proposed
installing in the Philippines Rehabilitation Plan of the PVB to the Monetary Board for its
machinery it has approval. Meanwhile, PVB filed a Motion to Terminate
manufactured or exported Liquidation of Philippine Veterans Bank with Judge Vega
to the Philippines, servicing praying that the liquidation proceedings be immediately
the same, training domestic
terminated in view of the passage of RA 7169.
workers to operate it, and
similar incidental services. The Monetary Board issued Monetary Board
Resolution 348 which approved the Rehabilitation Plan
submitted by the Rehabilitation Committee. Thereafter, the
Other factors which support the finding that petitioner is Monetary Board issued a Certificate of Authority allowing PVB
not doing business in the Philippines are: (1) petitioner does not to reopen. The Central Bank issued a certificate of authority
have an office in the Philippines; (2) petitioner imports allowing the PVB to reopen. Despite the legislative mandate for
products from the Philippines through its non-exclusive local
rehabilitation and reopening of PVB, Judge Vega continued
broker, whose authority to act on behalf of petitioner is limited
to soliciting purchases of products from suppliers engaged in with the liquidation proceedings of the bank. The Central Bank
the sugar trade in the Philippines; and (3) the local broker is an was set to order the payment and release of employee benefits
independent contractor and not an agent of petitioner. In the upon motion of another lawyer, while employees’ union claims
present case, petitioner is a foreign company merely importing have been frozen to their prejudice. The liquidator filed A
molasses from a Philipine exporter. A foreign company that Motion for the Termination of the Liquidation Proceedings of
merely imports goods from a Philippine exporter, without
the Philippine Veterans Bank with Judge Vega. Fernandez, on
opening an office or appointing an agent in the Philippines, is
not doing business in the Philippines. the other hand, filed the petition for Prohibition with Petition
for Preliminary Injunction and application for Ex Parte
Temporary Restraining Order. The Supreme Court resolved to
issue a Temporary Restraining Order enjoining the trial court
from further proceeding with the case. MOP Security &
Detective Agency (VOPSDA) and its 162 security guards filed
a Motion for Intervention with prayer that they be excluded
Philippine Veterans Bank Employees Union-NUBE vs. from the operation of the Temporary Restraining Order issued
Vega by the Court. The Philippine Veterans Bank opened its doors to
the public and started regular banking operations.
 Philippines, Inc. (PCPPI). The PCDP alleged that it had ceased
Issue: Whether a liquidation court can continue with to exist as a corporation and that it has winded up its corporate
liquidation proceedings of the Philippine Veterans Bank when affairs in accordance with law. It also averred that it was now
Congress had mandated its rehabilitation and reopening. owned by PCPPI. Thus, the NLRC dismissed the complaint of
PCEWU ruling that it was not competent for it to proceed
Held: The enactment of Republic Act 7169, as well as the against the PCDP because it had ceased to exist as a juridical
subsequent developments has rendered the liquidation court entity.
functus officio. Consequently, Judge Vega has been stripped of The petitioner filed a petition for the nullification of the
the authority to issue orders involving acts of liquidation. Resolution of the NLRC which the Supreme Court referred to
Liquidation, in corporation law, connotes a winding up or the Court of Appeals. For its part, the respondent averred that
settling with creditors and debtors. It is the winding up of a notwithstanding the dissolution of the PCDP while the
corporation so that assets are distributed to those entitled to complaint was pending resolution by the NLRC, the latter
receive them. It is the process of reducing assets to cash, continued existing as a corporation for a period of three years
discharging liabilities and dividing surplus or loss. On the from the time when it would have been dissolved, conformably
opposite end of the spectrum is rehabilitation which connotes a to Section 122 of the Corporation Code. In its comment on the
reopening or reorganization. Rehabilitation contemplates a petition, the Office of the Solicitor General recommended that
continuance of corporate life and activities in an effort to restore the petition be granted and that the NLRC be ordered to resolve
and reinstate the corporation to its former position of successful the motions for reconsideration of the petitioner and respondent
operation and solvency. It is crystal clear that the concept of therein.
liquidation is diametrically opposed or contrary to the concept The CA rendered judgment annulling the resolution of the
of rehabilitation, such that both cannot be undertaken at the NLRC. The CA declared that the PCDP was still in existence
same time. To allow the liquidation proceedings to continue when the complaint was filed, and that the supervening
would seriously hinder the rehabilitation of the subject bank. dissolution of the corporation did not warrant the dismissal of
the complaint against it. Every corporation is given 3 years to
wind up its affairs. Hence, in case any litigation is filed by or
Pepsi-Cola Products vs. Court of Appeals against the corporation within the period which could not be
G.R. No. 145855. November 24, 2004 terminated within the expiration of the same, such period must
necessarily be prolonged until the final determination of the
Facts: Pepsi-Cola Products Philippines, Inc. Employees and case, for if the rule were otherwise, corporations in liquidation
Workers Union (PCEWU) is a duly- registered labor union of would lose what should justly belong to them or would be
the employees of the Pepsi-Cola Distributors of the Philippines exempt from the payment of just obligations through mere
(PCDP). PCEWU, through its local union president Bombeo, technicality, something that courts should not countenance. The
filed a Complaint against PCDP with the DOLE for payment of CA set aside the decision of the NLRC and reinstated the
overtime pay of 53 of its members working as salesman, decision of the ELA.
warehousemen, truck helpers, route salesmen, route sales
workers, distributors, conductors and forklift operators, on 8 Issue: WON the PCDP was still in existence and thus
days duly- designated as Muslim holidays for 1985. PCDP does not warrant dismissal of the labor complaint against
maintained that there were only 5 legal Muslim holidays under it.
the Muslim Code. It asserted that under the law, the cities of
Cagayan de Oro and Dipolog were not included in the areas that Held: Yes. Under Section 122 of the Corporation Code, a
officially observed the Muslim holidays, and that the said corporation whose corporate existence is terminated in any
holidays were only applicable to Muslims. It also argued that manner continues to be a body corporate for 3 years after its
even assuming that the employees were entitled to such dissolution for purposes of prosecuting and defending suits by
overtime pay, only the rank-and-file employees and not the and against it and to enable it to settle and close its affairs,
managerial employees should be given such benefit. culminating in the disposition and distribution of its remaining
The Executive Labor Arbiter (ELA) rendered a Decision assets. It may, during the 3-year term, appoint a trustee or a
in favor of PCEWU while the NLRC, upon appeal, affirmed the receiver who may act beyond that period.
decision of the ELA with modification that the Labor Arbiter is At any time during the said 3 years, the corporation is
directed to conduct further proceedings and that the monetary authorized and empowered to convey all of its properties to
award is vacated. trustees for the benefit of stockholders, members, creditors, and
The PCDP and the employees filed their respective other persons in interest. From and after any such conveyance
motions for partial reconsideration of the NLRC decision. by the corporation of its properties in trust for the benefit of its
Pending resolution thereof, ownership of various Pepsi-Cola stockholders, members, creditors and others in interest, all
bottling plants was transferred to petitioner Pepsi-Cola Products interest which the corporation had in the properties terminates
the legal interest vests in the trustees, and the beneficial interest disposition of the case, the Securities Regulation Code was
in the stockholders, members, creditors or other persons in passed thereby effectively repealing PD 902-A and abolishing
interest. the PED. They also contended that their right to due process
Upon the winding up of the corporate affairs, any asset was violated when the SEC required them to appear before the
distributable to any creditor or stockholder or member, who is SEC to show cause why sanctions should not be imposed upon
unknown or cannot be found, shall be escheated to the city or them since such requirement shifted the burden of proof to
municipality where such assets are located. Except by decrease respondents.
of capital stock and as otherwise allowed by this Code, no The case reached the CA and said court ruled in favor
corporation shall distribute any of its assets or property except of the respondents and effectively enjoined the SEC from filing
upon lawful dissolution and after payment of all its debts and any criminal, civil or administrative cases against respondents.
liabilities. In its resolution, the CA stated that since there are no rules and
The termination of the life of a corporate entity does not regulations implementing the rules regarding disclosure, insider
by itself cause the extinction or diminution of the rights and trading, or any of the provisions of the Revised Securities Act,
liabilities of such entity. If the three-year extended life has the SEC has no statutory authority to file any suit against
expired without a trustee or receiver having been expressly respondents. The CA, therefore, prohibited the SEC from taking
designated by the corporation, within that period, the board of cognizance or initiating any action against the respondents for
directors (or trustees) itself, may be permitted to so continue as the alleged violations of the Revised Securities Act.
"trustees" by legal implication to complete the corporate While this case was pending in this Court, Republic
liquidation. Act No. 8799, otherwise known as the Securities Regulation
Code, took effect on 8 August 2000. Section 8 of Presidential
SEC vs. INTERPORT RESOURCES CORPORATION Decree No. 902-A, as amended, which created the PED, was
G. R. No . 1 3 5 8 0 8 O ct o b er 6 , 2 0 0 8 already repealed as provided for in Section 76 of the Securities
Regulation Code
Facts: The Board of Directors of IRC approved a
Memorandum of Agreement with GHB (Ganda Holdings Issues: (1) Whether or not the SEC has authority to file suit
Berhad). Under said memorandum of agreement, IRC acquired against respondents for violations of the RSA
100% of the entire capital stock of GEHI (Ganda Energy (2) Whether or not their right to due process was
Holdings Inc.) which would own and operate a 102 megawatt violated when the SEC denied the parties of their right to cross-
gas turbine power generating barge. In exchange, IRC will issue examination
to GHB 55% of the expanded capital stock of IRC. On the side,
IRC would acquire 67% of the entire capital of PRCI Held: (1) Yes. Sections 8, 30 and 36 of the Revised
(Philippine Racing Club). Securities Act do not require the enactment of implementing
It is alleged herein that a press release announcing the rules to make them binding and effective. The provisions of the
approval of the agreement was sent to the Philippine Stock RSA are sufficiently clear and complete by themselves. The
Exchange through facsimile and the SEC, but the facsimile requirements are specifically set out and the acts which are
machine of the SEC could not receive it. However, the SEC enjoined are determinable. To rule that absence of
received reports that the IRC failed to make timely public implementing rules can render ineffective an act of Congress
disclosures of its negotiations with GHB and that some of its would empower administrative bodies to defeat the legislative
directors, heavily traded IRC shares utilizing this material will by delaying the implementing rules. Where the statute
insider information. For this reason, the SEC required the contains sufficient standards and an unmistakable intent there
directors to appear before the SEC to explain the alleged failure should be no impediment as to its implementation.
to disclose material information as required by the Rules on The provision explains in simple terms that the
Disclosure of Material Facts. Unsatisfied with the explanation, insider's misuse of non-public and undisclosed information is
the SEC issued an order finding that the IRC violated the Rules the gravamen of illegal conduct and that the intent of the law is
in connection with the then Old Securities Act when it failed to the protection of investors against fraud committed when an
make timely disclosures of its negotiations with GHB. In insider, using secret information, takes advantage of an
addition, the SEC found that the directors of IRC entered into uninformed investor. Insiders are obligated to disclose material
transactions involving IRC shares in violation of the Revised information to the other party or abstain from trading the shares
Securities Act. of his corporation. This duty to disclose or abstain is based on
Respondents, however, questioned the authority of the 2 factors: (1) the existence of a relationship giving access,
SEC to investigate on said matter since according to PD 902-A, directly or indirectly to information intended to be available
jurisdiction upon the matter was conferred upon the PED only for a corporate purpose and not for the personal benefit of
(Prosecution and Enforcement Department) of the SEC – anyone; and (2) the inherent unfairness involved when a party
however, this issue is already moot since pending the
takes advantage of such information knowing it is unavailable Regulations Code was passed thereby repealing the RSA.
to those with whom he is dealing. However, the repeal cannot deprive the SEC of its jurisdiction
This obligation to disclose is imposed upon "insiders" to continue investigating the case.
which are particularly officers, directors or controlling Investigations by the SEC is a requisite before a criminal
stockholders but that definition has already been expanded and case may be referred to the DOJ since the SEC is an
does not include those persons whose relationship of former administrative agency with the special competence to do so.
relationship to the issuer or the security that is not generally According to the doctrine of primary jurisdiction, the courts
available and the one who learns such a fact from an insider will not determine a controversy involving a question within the
knowing that the person from whom he learns such fact is an jurisdiction of an administrative tribunal where the question
insider. In some case, however, there may be valid corporate demands the exercise of sound administrative discretion
reasons for the nondisclosure of material information but it requiring the specialized knowledge and expertise of said
should not be used for non-corporate purposes. administrative tribunal to determine technical and intricate
Respondent contends that the terms "material fact", matters of fact.
"reasonable person", "nature and reliability" and
"generally available" are vaguely used in the RSA because
under the provision of the said law what is required to be
disclosed is a fact of special significance. But the court UNIVERSAL RUBBER PRODUCTS, INC., petitioner,
dismissed said contention and stated that material fact is vs.
already defined and explained as one which induces or tends HON. COURT OF APPEALS, CONVERSE RUBBER
CORPORARION, EDWARDSON MANUFACTURING
to induce or otherwise affect the sale or purchase of
CO., INC. AND HON. PEDRO C.
securities. On the other hand, "reasonable person" has NAVARRO, respondents.
already been used many times in jurisprudence and in law since
it is a standard on which most of legal doctrines stand (even the FACTS:
doctrine on negligence uses such standard) and it has been held
to mean "a man who relies on the calculus of common sense Two respondent corporations herein sued the present
of which all reasonable men have in abundance" petitioner before the Court of First Instance of Rizal for unfair
As to "nature and reliability" the proper competition with damages and attorney's fees. After they have
adjudicative body would be able to determine if facts of a presented about nine witnesses and various pieces of
certain nature and reliability can influence a reasonable documentary evidence, herein private respondents made a
request to the respondent Judge to issue a subpoena duces
person's decision to retain, buy or sell securities and thereafter
tecum against the treasurer of herein petitioner. Acting
explain and justify its factual findings in its decision since the favorably on that request, said respondent Judge issued a
same must be viewed in connection with the particular subpoena duces tecum. Petitioner filed a motion in the court
circumstances of a case. As to "generally available", the court below praying that the subpoena duces tecum be quashed on the
held also that such is a matter which may be adjudged given the grounds that: (1) the said subpoena is both unreasonable and
particular circumstances of the case. The standards of which oppressive as the books and documents caned for are numerous
and voluminous; (2) there is no good cause shown for the
cannot remain at a standstill.
issuance thereof; and (3) the books and documents are not
relevant to the case pending below. The private respondents
(2) No. There is no violation of due process in this case herein opposed that motion of the petitioner. Acting on the said
since the proceedings before the PED are summary in nature. motion and on the opposition thereto, respondent Judge issued
The hearing officer may require the parties to submit their the first controverted order denying the motion to quash the
respective verified position papers together will all supporting subpoena duces tecum. Consequently, petitioner Universal
documents and affidavits of witnesses. A formal hearing is not Rubber Products, Inc. filed its present petition for certiorari
with preliminary injunction, alleging that in so denying its
mandatory and it is within the discretion of the hearing officer
motion to quash the subpoena duces tecumand its subsequent
to determine whether or not there is a need for a formal hearing. motion for reconsideration, respondent Judge acted with grave
Moreover, the law creating the PED empowers it to investigate abuse of discretion amounting to an excess of jurisdiction. The
violations of the rules and regulations and to file and prosecute respondent Court rendered its decision denying the petition for
such cases. It does not have adjudicatory powers. Thus, the PED certiorari filed by petitioner for lack of merit.
need not comply with the provisions of the Administrative Code
on adjudication. ISSUE: whether the issuance of the "subpoena duces tecum" is
The SEC retained jurisdiction to investigate violations proper in a suit for unfair competition.
of the RSA, reenacted in the Securities Regulations Code
HELD:
despite the abolition of the PED. In this case, the SEC already
commenced investigating the respondents for violations of the Well-settled is Our jurisprudence that, in order to entitle a party
RSA but during the pendency of the case the Securities and to the issuance of a "subpoena duces tecum ", it must appear, by
clear and unequivocal proof, that the book or document sought Mayer Steel Pipe Corporation of Binondo, Manila,
to be produced contains evidence relevant and material to the loaded 581 bundles of ERW black steel pipes on board the
issue before the court, and that the precise book, paper or vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping,
for shipment to Davao City. Petitioner Lorenzo Shipping
document containing such evidence has been so designated or
issued a clean bill of lading designated for the account of the
described that it may be identified. A "subpoena duces tecum consignee, Sumitomo Corporation of San Francisco, California,
once issued by the court may be quashed upon motion if the USA, which in turn, insured the goods with respondent Chubb
issuance thereof is unreasonable and oppressive or the and Sons, Inc. The M/V Lorcon IV arrived at
relevancy of the books, documents or things does not appear, or the Sasa Wharf in Davao City. Respondent Transmarine
if the persons in whose behalf the subpoena is issued fails to Carriers received the subject shipment which was discharged
advance the reasonable cost of production thereof. Petitioner and discovered seawater in the hatch of M/V Lorcon IV, and
found the steel pipes submerged in it. Del Pan’s Survey Report
also assails that private respondent is a foreign corporation not
showed that the subject shipment was no longer in good
licensed to do business in the Philippines and that respondent condition, as in fact, the pipes were found with rust formation
Edwardson is merely its licensee; that respondent Converse has on top and/or at the sides. Due to its heavily rusted condition,
no goodwill to speak of and that it has no registrable right over the consignee Sumitomo rejected the damaged steel pipes and
its own name. We have already answered this issue squarely in declared them unfit for the purpose they were intended It then
Our decision of the case of Converse Rubber Corporation vs. filed a marine insurance claim with respondent Chubb and
Jacinto Rubber & Plastic Co., Inc., where We explained: Sons, Inc. Respondent Chubb and Sons, Inc. filed a
complaint for collection of a sum of money, against
respondents Lorenzo Shipping, Gearbulk, and
“The disability of a foreign Transmarine. Respondent Chubb and Sons, Inc. alleged that it
corporation from suing in is not doing business in the Philippines, and that it is suing
the Philippines is limited to under an isolated transaction. Respondents Gearbulk and
suits to enforce any legal of Transmarine filed their answer with counterclaim and cross-
contract rights arising claim against petitioner Lorenzo Shipping denying liability on
from, or growing out, of the following grounds: (a) respondent Chubb and Sons, Inc.
any business which it has has no capacity to sue before Philippine courts; (b) the action
transacted in the Philippine should be dismissed on the ground of forum non conveniens;
Islands ... On the other (c) damage to the steel pipes was due to the inherent nature of
hand, where the purpose of the goods or to the insufficiency of packing thereof; (d) damage
the suit is "to protect its to the steel pipes was not due to their fault or negligence; and,
reputation, its corporate (e) the law of the country of destination, U.S.A., governs the
name, its goodwill, contract of carriage. he Regional Trial Court ruled in favor of
whenever that reputation, the respondent Chubb and Sons, Inc., finding that: (1)
corporate name or respondent Chubb and Sons, Inc. has the right to institute this
goodwill have, through the action; and, (2) petitioner Lorenzo Shipping was negligent in
natural development of its the performance of its obligations as a carrier. Petitioner
trade, established Lorenzo Shipping appealed to the Court of Appeals insisting
themselves", an unlicensed that: (a) respondent Chubb and Sons does not have capacity to
foreign corporation may sue before Philippine courts; and, (b) petitioner Lorenzo
sue in the Philippines. So Shipping was not negligent in the performance of its obligations
interpreted by the Supreme as carrier of the goods. The appellate court denied the petition
Court, it is clear that and affirmed the decision of the trial court. Petitioner argues
Section 29 of the that respondent Chubb and Sons is a foreign corporation not
Corporation Law does not licensed to do business in the Philippines, and is not suing on
disqualify plaintiff- an isolated transaction. It contends that because the respondent
appellee Converse Rubber, Chubb and Sons is an insurance company, it was merely
which does not have a subrogated to the rights of its insured, the consignee
branch office in any part of Sumitomo, after paying the latter’s policy claim. Sumitomo,
the Philippines and is not however, is a foreign corporation doing business in
"doing business" in the the Philippines without a license and does not have capacity to
Philippines, from filing sue before Philippine courts. Since Sumitomo does not have
and prosecuting this action capacity to sue, petitioner then concludes that, neither the
for unfair competition.” subrogee-respondent Chubb and Sons could sue before
Philippine courts
LORENZO SHIPPING CORP., petitioner, vs. CHUBB
and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE ISSUE: Whether the respondent has the right to sue in the
TRANSMARINE CARRIERS, INC.,respondents. Philippines

FACTS: HELD:
 Yes. in the first place, petitioner failed to raise the defense The law does not prohibit foreign corporations from performing
that Sumitomo is a foreign corporation doing business in single acts of business. A foreign corporation needs no license
the Philippines without a license. It is therefore estopped from to sue before Philippine courts on an isolated transaction.
litigating the issue on appeal especially because it involves a
question of fact which this Court cannot resolve. Secondly, What is determinative of "doing business" is not really the
assuming arguendo that Sumitomo cannot sue in number or the quantity of the transactions, but more
the Philippines, it does not follow that respondent, as subrogee, importantly, the intention of an entity to continue the body of
has also no capacity to sue in our jurisdiction. Subrogation is its business in the country. The number and quantity are merely
the substitution of one person in the place of another with evidence of such intention. The phrase "isolated
reference to a lawful claim or right, so that he who is substituted transaction" has a definite and fixed meaning, i.e. a transaction
succeeds to the rights of the other in relation to a debt or claim, or series of transactions set apart from the common business of
including its remedies or securities. The principle covers the a foreign enterprise in the sense that there is no intention to
situation under which an insurer that has paid a loss under an engage in a progressive pursuit of the purpose and object of the
insurance policy is entitled to all the rights and remedies business organization. Whether a foreign corporation is "doing
belonging to the insured against a third party with respect to any business" does not necessarily depend upon the frequency of its
loss covered by the policy. It contemplates full substitution transactions, but more upon the nature and character of the
such that it places the party subrogated in the shoes of the transactions.
creditor, and he may use all means which the creditor could
employ to enforce payment
When the insurer succeeds to the rights of the insured, he CEMCO HOLDINGS, INC. VS. NATIONAL LIFE
does so only in relation to the debt. The person substituted (the INSURANCE COMPANY OF THE PHILIPPINES, INC.
insurer) will succeed to all the rights of the creditor (the
insured), having reference to the debt due the latter. In the FACTS:
instant case, the rights inherited by the insurer, respondent
Chubb and Sons, pertain only to the payment it made to the Union Cement Corporation (UCC), a publicly-listed
insured Sumitomo as stipulated in the insurance contract company, has two principal stockholders – UCHC, a non-listed
between them, and which amount it now seeks to recover from company, with shares amounting to 60.51%, and
petitioner Lorenzo Shipping which caused the loss sustained by petitioner Cemco with 17.03%. Majority of UCHC’s stocks
the insured Sumitomo. The capacity to sue of respondent were owned by BCI with 21.31% and ACC with
Chubb and Sons could not perchance belong to the group of 29.69%. Cemco, on the other hand, owned 9% of UCHC
rights, remedies or securities pertaining to the stocks. In a disclosure letter dated 5 July 2004, BCI informed
payment respondent insurer made for the loss which was the Philippine Stock Exchange (PSE) that it and its subsidiary
sustained by the insured Sumitomo and covered by the contract ACC had passed resolutions to sell to Cemco BCI’s stocks in
of insurance. Capacity to sue is a right personal to its holder. It UCHC equivalent to 21.31% and ACC’s stocks in UCHC
is conferred by law and not by the parties. Lack of legal equivalent to 29.69%. In the PSE Circular for Brokers No.
capacity to sue means that the plaintiff is not in the exercise of 3146-2004 dated 8 July 2004, it was stated that as a result of
his civil rights, or does not have the necessary qualification to petitioner Cemco’s acquisition of BCI and ACC’s shares in
appear in the case, or does not have the character or UCHC, petitioner’s total beneficial ownership, direct and
representation he claims. It refers to a plaintiff’s general indirect, in UCC has increased by 36% and amounted to at least
disability to sue, such as on account of minority, insanity, 53% of the shares of UCC. As a consequence of this disclosure,
incompetence, lack of juridical personality, or any other the PSE, in a letter to the SEC dated 15 July 2004, inquired as
disqualifications of a party. Respondent Chubb and Sons who to whether the Tender Offer Rule under Rule 19 of the
was plaintiff in the trial court does not possess any of these Implementing Rules of the Securities Regulation Code is not
disabilities. On the contrary, respondent Chubb and Sons has applicable to the purchase by petitioner of the majority of shares
satisfactorily proven its capacity to sue, after having shown that of UCC. In a letter dated 16 July 2004,
it is not doing business in the Philippines, but is suing only Director Justina Callangan of the SEC’s Corporate Finance
under an isolated transaction, i.e., under the one (1) marine Department responded to the query of the PSE that while it was
insurance policy issued in favor of the consignee Sumitomo the stance of the department that the tender offer rule was not
covering the damaged steel pipes. applicable, the matter must still have to be confirmed by the
SEC en banc. Director Callangan confirmed that the SEC en
Art. 133 of the Corporation Code states: banc had resolved that the Cemco transaction was not covered
by the tender offer rule. Respondent, a minority stockholder of
Doing business without a license. – No foreign corporation UCC, sent a letter to Cemco demanding the latter to comply
transacting business in the Philippines without a license, or its with the rule on mandatory tender offer. Cemco, however,
successors or assigns, shall be permitted to maintain or refused. A Share Purchase Agreement was executed by ACC
intervene in any action, suit or proceeding in any court or and BCI, as sellers, and Cemco, as buyer. Respondent filed a
administrative agency of the Philippines; but such corporation complaint with the SEC asking it to reverse its 27 July
may be sued or proceeded against before Philippine courts or 2004 Resolution and to declare the purchase agreement
administrative tribunals on any valid cause of action of Cemco void and praying that the mandatory tender offer rule
recognized under Philippine laws. be applied to its UCC shares. Impleaded in the complaint
were Cemco, UCC, UCHC, BCI and ACC, which were then
required by the SEC to file their respective comment on the
complaint. In their comments, they were uniform in arguing activities of persons to ensure compliance with the
that the tender offer rule applied only to a direct acquisition of
Securities Regulation Code, more specifically the
the shares of the listed company and did not extend to an
indirect acquisition arising from the purchase of the shares of a provision on mandatory tender offer under Section 19
holding company of the listed firm. The SEC ruled in favor of thereof.
the respondent by reversing and setting aside its 27 July 2004 Moreover, petitioner is barred from questioning
Resolution and directed petitioner Cemco to make a tender the jurisdiction of the SEC. It must be pointed out
offer for UCC shares to respondent and other holders of UCC that petitioner had participated in all the
shares similar to the class held by UCHC in accordance with proceedings before the SEC and had prayed for
Section 9(E), Rule 19 of the Securities Regulation affirmative relief.
Code. Petitioner filed a petition with the Court of Appeals
challenging the SEC’s jurisdiction to take cognizance of 2. Tender offer is a publicly announced
respondent’s complaint and its authority to require Cemco to intention by a person acting alone or in
make a tender offer for UCC shares, and arguing that the tender concert with other persons to acquire equity
offer rule does not apply, or that the SEC’s re-interpretation of securities of a public company. A public
the rule could not be made to retroactively apply company is defined as a corporation which is
to Cemco’s purchase of UCHC shares. The Court of Appeals listed on an exchange, or a corporation with
rendered a decision affirming the ruling of the SEC. It ruled assets exceeding P50,000,000.00 and with
that the SEC has jurisdiction to render the questioned decision 200 or more stockholders, at least 200 of
and, in any event, Cemco was barred by estoppel from them holding not less than 100 shares of such
questioning the SEC’s jurisdiction. company[ Stated differently, a tender offer
is an offer by the acquiring person to
ISSUE: stockholders of a public company for them to
tender their shares therein on the terms
1. Whether or not the SEC has jurisdiction over specified in the offer. Tender offer is in place
respondent’s complaint and to to protect minority shareholders against any
require Cemco to make a tender offer for scheme that dilutes the share value of their
respondent’s UCC shares. investments. It gives the minority
shareholders the chance to exit the company
2. Whether or not the rule on mandatory tender under reasonable terms, giving them the
offer applies to the indirect acquisition of opportunity to sell their shares at the same
shares in a listed company, in this case, the price as those of the majority shareholders.
indirect acquisition by Cemco of 36% of Under existing SEC Rules, the 15% and 30%
UCC, a publicly-listed company, through its threshold acquisition of shares under the
purchase of the shares in UCHC, a non-listed foregoing provision was increased to thirty-
company. five percent (35%). It is further provided
therein that mandatory tender offer is still
applicable even if the acquisition is less than
HELD: 35% when the purchase would result in
ownership of over 51% of the total
1. YES. In taking cognizance of respondent’s complaint against outstanding equity securities of the public
company.
petitioner and eventually rendering a judgment which ordered
the latter to make a tender offer, the SEC was acting pursuant
to Rule 19(13) of the Amended Implementing Rules and
Regulations of the Securities Regulation Code, to wit:

13. Violation
PHILIPPINE SAVINGS BANK VS. SENATE
IMPEACHMENT COURT
If there shall be violation of this
Rule by pursuing a purchase of equity shares G.R NO. 200238
of a public company at threshold amounts
without the required tender offer, the FACTS: Philippine Savings Bank (PS Bank) and its President,
Commission, upon complaint, may nullify Pascual M. Garcia III, filed before the Supreme Court an
the said acquisition and direct the holding of original civil action for certiorari and prohibition with
a tender offer. This shall be without application for temporary restraining order and/or writ of
prejudice to the imposition of other sanctions preliminary injunction. The TRO was sought to stop the Senate,
under the Code. sitting as impeachment court, from further implementing the
Subpoena Ad Testificandum et Duces Tecum, dated February
6, 2012, that it issued against the Branch Manager of PS Bank,
The foregoing rule emanates from the SEC’s power Katipunan Branch. The subpoena assailed by petitioners covers
and authority to regulate, investigate or supervise the the foreign currency denominated accounts allegedly owned by
the impeached Chief Justice Renato Corona of the Philippine
Supreme Court.

ISSUE: Should a TRO be issued against the impeachment court

to enjoin it from further implementing the subpoena with
respect to the alleged foreign currency denominated accounts
of CJ Corona?

HELD:

YES, a TRO should be issued against the impeachment court to

enjoin it from further implementing the subpoena with respect
to the alleged foreign currency denominated accounts of CJ
Corona.

There are two requisite conditions for the issuance of a

preliminary injunction:

(1) the right to be protected exists prima facie, and

(2) the acts sought to be enjoined are violative of that right. It

must be proven that the violation sought to be prevented would
cause an irreparable injustice.

A clear right to maintain the confidentiality of the foreign

currency deposits of the Chief Justice is provided under Section
8 of Republic Act No. 6426, otherwise known as the Foreign
Currency Deposit Act of the Philippines (RA 6426). This law
establishes the absolute confidentiality of foreign currency
deposits:

Under R.A. No. 6426 there is only a single exception to the

secrecy of foreign currency deposits, that is, disclosure is
allowed only upon the written permission of the depositor. In
Intengan v. Court of Appeals, the Court ruled that where the
accounts in question are U.S. dollar deposits, the applicable law
is not Republic Act No. 1405 but RA 6426. Similarly, in the
recent case of Government Service Insurance System v. 15th
Division of the Court of Appeals, the Court also held that RA
6426 is the applicable law for foreign currency deposits and not
Republic Act No. 1405. The written consent under RA 6426
constitutes a waiver of the depositor’s right to privacy in
relation to such deposit. In the present case, neither the
prosecution nor the Impeachment Court has presented any such
written waiver by the alleged depositor, Chief Justice Renato C.
Corona. Also, while impeachment may be an exception to the
secrecy of bank deposits under RA 1405, it is not an exemption
to the absolute confidentiality of foreign currency deposits
under RA 6426.