1 BAIRD

Bases Conversion and Development Authority v. CIR, G.R. No. 205925, [June 20, 2018]
Corporate Concepts and Doctrines

FACTS: BCDA filed a petition for review with the CTA in order to preserve its right to pursue its claim for refund of the
Creditable Withholding Tax (CWT) in the amount of Php122,079,442.53, which was paid under protest in connection with its
sale of the BCDA-allocated units as its share in the Serendra Project pursuant to the Joint Development Agreement with
Ayala Land, Inc. 

The petition for review was filed with a Request for Exemption from the Payment of Filing Fees in the amount of
Php1,209,457.90. On October 20, 2010, the CTA First Division denied BCDA's Request for Exemption and ordered it to pay
the filing fees within five days from notice. BCDA moved for reconsideration which was denied by the CTA First Division on
February 8, 2011. BCDA was once again ordered to pay the filing fees within five days from notice, otherwise, the petition for
review will be dismissed. BCDA filed a petition for review with the CTA En Banc on February 25, 2011, which petition was
returned and not deemed filed without the payment of the correct legal fees. On March 28, 2011, the petition before the CTA
First Division was dismissed. BCDA attempted to tile its Motion for Reconsideration, however, the Officer-In-Charge of the
First Division refused to receive the checks for the payment of the filing fees, and the Motion for Reconsideration. BCDA then
filed its Motion for Reconsideration by registered mail.
The CTA First Division. finding no reason to deny receipt of the supposed Motion for Reconsideration of the [BCDA] on the
dismissal of its Petition for Review, the Executive Clerk of Court III of this Division, Atty. Margarette Y. Guzman, is hereby
DIRECTED to allow petitioner BCDA to file the same, or to accept said pleading which was allegedly mailed. BCDA moved for
reconsideration BCDA moved for reconsideration. Undeterred, BCDA filed a Motion for Reconsideration but was likewise
denied by the CTA En Banc in the assailed Resolution Hence, this petition.

ISSUE: whether or not BCDA is a government instrumentality or a government-owned and – controlled corporation (GOCC)

NOTE: [If it is an instrumentality, it is exempt from the payment of docket fees. lf it is a GOCC, it is not exempt and as such
non-payment thereof would mean that the tax court did not acquire jurisdiction over the case and properly dismissed it for
BCDA's failure to settle the fees on time.

RULING:  BCDA is a government instrumentality vested with corporate powers. As such, it is exempt from the payment
of docket fees.

RULE 141 - LEGAL FEES - SEC. 21. Government exempt. – The Republic of the Philippines, its agencies and
instrumentalities, are exempt from paying the legal fees provided in this rule. Local governments and government-
owned or controlled corporations with or without independent charters are not exempt from paying such fees.

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government. not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent
of at least fifty-one (51) percent of its capital stock: 
The grant of these corporate powers is likewise stated in Section 3 of Republic Act (R.A.) No. 7227; also known as The Bases
Conversion and Development Act of 1992 which provides for BCDA's manner of creation, to wit:
Sec. 3. Creation of the Bases Conversion and Development Authority. - There is hereby created a body corporate to be known
as the Bases Conversion and Development Authority, which shall have the attribute of perpetual succession and  shall be
vested with the powers of a corporation.

From the foregoing, it is clear that a government instrumentality may be endowed with corporate powers and at the same
time retain its classification as a government "instrumentality" for all other purposes.

As previously mentioned, in order to qualify as a GOCC, one must be organized either as a stock or non-stock corporation.
Section 3[21] of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x x x
authorized to distribute to the holders of such shares dividends Based on the foregoing, it is clear that BCDA has an
authorized capital of Php100 Billion, however, it is not divided into shares of stock. BCDA has no voting shares. There is
likewise no provision which authorizes the distribution of dividends and allotments of surplus and profits to BCDA's
stockholders. Hence, BCDA is not a stock corporation.

BCDA also does not qualify as a non-stock corporation because it is not organized for any of the purposes mentioned under
Section 88 of the Corporation Code. A cursory reading of Section 4 of R.A. No. 7227 shows that BCDA is organized for a
specific purpose - to own, hold and/or administer the military reservations in the country and implement its conversion to
other productive uses. From the foregoing, it is clear that BCDA is neither a stock nor a non-stock corporation. BCDA is a
government instrumentality vested with corporate powers.

2. Chua

Corporation as a Civil Person

Manila Electric Co. v. Nordec Philippines, 861 SCRA 515 (2018)

FACTS: Meralco was contracted to supply electricity to Marvex under an Agreement for Sale of Electric Energy.

Meralco service inspectors inspected Marvex's electric metering facilities and found that the main meter terminal
and cover seals had been tampered with. During a second inspection Meralco found that the metering devices were
tampered with again. Subsequently, Meralco assessed Marvex a differential billing. Meralco sent demand letters and
disconnected Marvex's electric service when it did not pay.

Nordec, the new owner of Marvex, sued Meralco for damages with prayer for preliminary mandatory injunction. It
alleged that Meralco's service inspectors conducted the 1985 inspections without its consent or approval. Nordec claimed
that Meralco then disconnected its service without prior notice resulting to loss of income and cancellation of other business
opportunities.

ISSUE: whether Manila Electric Company was inexcusably negligent when it disconnected Nordec Philippines' electric
supply

RULING: Yes, Meralco’s argument that the degree of diligence imposed upon it was beyond the prevailing law which
only required it to test metering devices once every two (2) years and to be penalized for taking four (4) months to
rectify and repair the defective meter, was tantamount to judicial legislation is without merit. Distribution utilities
are public utilities vested with public interest, and thus, are held to a higher degree of diligence. Should a
distribution utility not exercise the standard of care required of it due to its negligence in the inspection and repair
of its apparatus, then it can no longer recover the amounts of allegedly used but uncharged electricity.

Further, contrary to Meralco's claim, the duty imposed upon it pursuant to Ridjo is not beyond the standard of care
imposed by law. Distribution utilities are public utilities vested with public interest, and thus, are held to a higher degree of
diligence. In Ridjo:

The rationale behind this ruling is that public utilities should be put on notice, as a deterrent, that if they
completely disregard their duty of keeping their electric meters in serviceable condition, they run the risk of
forfeiting, by reason of their negligence, amounts originally due from their customers. Certainly, we cannot
sanction a situation wherein the defects in the electric meter are allowed to continue indefinitely until suddenly the
public utilities concerned demand payment for the unrecorded electricity utilized when, in the first place, they
should have remedied the situation immediately. If we turn a blind eye on MERALCO's omission, it may encourage
negligence on the part of public utilities, to the detriment of the consuming public.

To summarize, it is worth emphasizing that it is not our intention to impede or diminish the business viability of
MERALCO, or any public utility company for that matter. On the contrary, we would like to stress that, being a public utility
vested with vital public interest, MERALCO is impressed with certain obligations towards its customers and any omission on
its part to perform such duties would be prejudicial to its interest. For in the final analysis, the bottom line is that those who
do not exercise such prudence in the discharge of their duties shall be made to bear the consequences of such oversight.

3
Ambassador Hotel, Inc. v. Social Security System, 827 SCRA 641 (2017)

FACTS: SSS filed a complaint with the City Prosecutor's Office of Quezon City against Ambassador Hotel and its officers for
non-remittance of SSS contributions and penalty liabilities for the period from June 1999 to March 2001. Yoland Chan
(President of the Hotel) and other officers were charged for the violation of Section 22(a), in relation to Section 22(d) and
Section 28(e) of Republic Act (R.A.) No. 1161, as amended by R.A. No. 8282. Only Yolanda was arrested. Upon arraignment,
she pleaded not guilty. RTC held that Yolanda could not be held criminally liable for the non-payment of SSS contributions
because she was not performing the duties of the hotel's president from June 1999 to March 2001. The RTC, however, ruled
that the acquittal of Yolanda did not absolve Ambassador Hotel from its civil liabilities

ISSUE: Whether or not Ambassador Hotel should pay its civil liabilities (including non-remittance of SSS contributions) even
their president (Yolanda) acquitted from the said criminal case.

RULING: YES. The Social Security System is a government agency imbued with a salutary purpose to carry out the policy of
the State to establish, develop, promote and perfect a sound and viable tax-exempt social security system suitable to the
needs of the people throughout the Philippines which shall promote social justice and provide meaningful protection to
members and their beneficiaries against the hazards of disability, sickness, maternity, old- age, death and other
contingencies resulting in loss of income or financial burden. Under SSS Law, even a corporate employer can be held liable
for the non-remittance of SSS contributions; but it is the head, directors or officers responsible for the non-remittance who
shall suffer the personal criminal liability. Although a corporation is invested with a personality separate from that of the
persons composing it, the corporate veil is pierced when a director, trustee or officer is made personally liable by specific
provision of law. Thus, a corporation cannot invoke its separate judicial entity to escape its liability for non-payment of SSS
contributions.

4. HALID

Gamboa v. Teves, 652 SCRA 690 (2011), expanded in 682 SCRA 397 (2012)

Corporation as a civil person

Facts: On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right
to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American
company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime
Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI
became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the
Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of
the outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of the Philippines. Since
PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect
sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacifics
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of
foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which
limits foreign ownership of the capital of a public utility to not more than 40 percent.

Issue: Whether or not the term capital in Section 11, Article XII of the Constitution refers to the common shares of PLDT, a
public utility.

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

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

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement
prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public
utility, at least 60 percent of its capital must be owned by Filipino citizens

The Constitution “provides for the Filipinization of public utilities by requiring that any form of authorization for the
operation of public utilities should be granted only to ‘citizens of the Philippines or to corporation or associations organized
under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens.’ The provision is [an
express] recognition of the sensitive and vital position of public utilities both in the national economy and for
national security.” The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public
utilities, which may be inimical to the national interest. The term “capital” in Sec. 11, Art. XII of the Constitution should (a)
the control test that covers only shares entitled to vote in the election of directors, and (b) the beneficial interest test that
shall apply to each and every class of shares, voting and non-voting.

5
JOSE M. ROY III vs. CHAIRPERSON TERESITA HERBOSA,
THE SECURITIES AND EXCHANGE COMMISSION, and PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY
G.R. No. 207246, April 18, 2017

Other parties in the case: WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P.
GABINETE, ANTONIO V. PESINA, JR., MODESTO MARTIN Y. MAMON III, and GERARDO C. EREBAREN, petitioners-in-intervention,
PHILIPPINE STOCK EXCHANGE, INC., respondent-in-intervention, SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES, INC.,
respondent-in-intervention.

FACTS: The Supreme Court's Decision and Resolution in Gamboa v. Finance Secretary Teves, jurisprudentially established the
proper interpretation of capital in Section 11, Article XII of the Constitution.

the term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock
(common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is
DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign ownership in
respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution,
to impose the appropriate sanctions under the law.

The SEC, through Chairperson Herbosa, issued SEC-MC No. 8 which provided for the guidelines on compliance with
the Filipino-Foreign ownership requirements prescribed in the constitution and/or existing laws by corporations engaged in
nationalized and partly nationalized activities. Section 2 of which provides:

Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For
purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a)
the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote in the election of directors.

On June 10, 2013, Roy, as a lawyer and taxpayer, assailed the validity of SEC-MC No. 8 for not conforming to the
letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with grave abuse of discretion.
Roy seeks to apply the 60-40 Filipino ownership requirement separately to each class of shares of a public utility
corporation, whether common, preferred non-voting, preferred voting or any other class of shares. Petitioner Roy also
questions the ruling of the SEC that PLDT is compliant with the constitutional rule on foreign ownership.

Respondents Chairperson Teresita Herbosa and SEC sought the dismissal of the petitions on the grounds that the
petitioner did not have a locus standi, SEC did not abuse its discretion and the challenge on PLDT's compliance with the
capital requirement is premature considering that the SEC has not yet issued a definitive ruling thereon. PLDT filed an
intervention adopting a similar stance with the SEC. Thereafter, the Philippine Stock Exchange, Inc. ("PSE") also intervened.
ISSUE: Whether or not SEC-MC No. 8 SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa
Decision and Gamboa Resolution.

RULING: NO. SEC did not commit grave abuse of discretion when it issued SEC-MC No. 8. To the contrary, the Court finds
SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and Resolution.

In Gamboa the Court consistently defined the term "capital" as follows: "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the election of directors.

Considering that common shares have voting rights which translate to control, as opposed to preferred shares
which usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares also have the right to vote in the election of directors, then the
term "capital" shall include such preferred shares
because the right to participate in the control or management of the corporation is exercised through the right to vote in the
election of directors. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of
stock that can vote in the election of directors.

If Filipinos own at least 60% of the outstanding shares of stock entitled to vote directors, which is what the
Constitution precisely requires, then the Filipino stockholders control the corporation, i.e., they dictate corporate actions
and decisions, and they have all the rights of ownership including, but not limited to, offering certain preferred shares
that may have greater economic interest to foreign investors — as the need for capital for corporate pursuits (such as
expansion), may be good for the corporation that they own. As owners of the corporation, the economic benefits will
necessarily accrue to them. It is illogical to speculate that they will create shares which have features that will give greater
economic interests or benefits than they are holding and not benefit from such offering, or that they will allow foreigners to
profit more than them from their own corporation — unless they are dummies. Commonwealth Act No. 108, the Anti-
Dummy Law deals with that possibility.

Notably, even if the shares of a particular public utility were owned 100% Filipino, that does not discount the
possibility of a dummy situation from arising. Hence, even if the 60-40 ownership in favor of Filipinos rule is applied
separately to each class of shares of a public utility corporation, as the petitioners insist, the rule can easily be side-stepped
by a dummy relationship.

The Implementing Rules and Regulations of the Foreign Investments Act of 1991 ("FIA-IRR") provides:
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough
to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is
essential. Thus, stocks, the voting rights of which have been assigned or transferred to aliens cannot be considered held by
Philippine citizens or Philippine nationals.

Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation
is a "Philippine national" and that a "Philippine national," as defined in the FIA and all its predecessor statutes, is "a
Filipino citizen, or a domestic corporation "at least sixty percent (60%) of the capital stock outstanding and entitled to vote, "
is owned by Filipino citizens. A domestic corporation is a "Philippine national" only if at least 60% of its voting stock
is owned by Filipino citizens."

These FIA-IRR’s provisions were echoed in the Gamboa Decision.

6. Narra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines Corp., (Resolution), 748 SCRA 455 (2015)

Corporation as a Civil Person

FACTS: [From 2014 case] Redmont Consolidated Mines Corp. wanted to conduct exploration and mining activities in certain
areas of Palawan but it discovered that 3 companies (Narra, McArthur, and Tesoro) already had filed Mineral Production
Share Agreement application for the certain areas. These companies were structured in a way that 60% of their capital are
Filipino owned while 40% were owned by Canadian company, MBMI in order to comply with PH laws. (Check structure of
Narra after ratio as a guide) So Redmont wanted to have their applications cancelled since there was a corporate layering
scheme done by the 3 companies where MBMI was the actual driving force of the licensing applications instead of the 60-40
split presented on paper of the corporations.
The challenged Decision sustained the appellate court's ruling that petitioners, being foreign corporations, are not entitled to
Mineral Production Sharing Agreements (MPSAs). In reaching its conclusion, this Court upheld with approval the appellate
court's finding that there was doubt as to petitioners' nationality since a 100% Canadian-owned firm, MBMI Resources, Inc.
(MBMI), effectively owns 60% of the common stocks of the petitioners by owning equity interest of petitioners' other
majority corporate shareholders. To petitioners, the Court’s application of the Grandfather Rule to determine their
nationality is erroneous and allegedly without basis in the Constitution, the Foreign Investments Act of 1991 (FIA), the
Philippine Mining Act of 1995,3 and the Rules issued by the Securities and Exchange Commission (SEC). These laws and
rules supposedly espouse the application of the Control Test in verifying the Philippine nationality of corporate entities for
purposes of determining compliance withSec. 2, Art. XII of the Constitution that only "corporations or associations at least
sixty per centum of whose capital is owned by such [Filipino] citizens" may enjoy certain rights and privileges, like the
exploration and development of natural resources.

ISSUE: The application of the Grandfather Rule in the present case does not eschew the Control Test -- YES
RULING: Nowhere in that disposition did the Court foreclose the application of the Control Test in determining which
corporations may be considered as Philippine nationals. Instead, the Court used the Grandfather Rule as a "supplement" to
the Control Test so that the intent underlying the averted Sec. 2, Art. XII of the Constitution be given effect. In ending, the
"control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit
of Sec. 2, Art. XII of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural
resources of the Philippines. When in the mind of the Court, there is doubt, based on the attendant facts and circumstances of the
case, in the 60-40 Filipino equity ownership in the corporation, then it may apply the "grandfather rule.”

 To reiterate, Sec. 2, Art. XII of the Constitution reserves the exploration, development, and utilization of natural
resources to Filipino citizens and "corporations or associations at least sixty per centum of whose capital is owned
by such citizens.
 Consistent with this objective, the Grandfather Rule was originally conceived to look into the citizenship of the
individuals who ultimately own and control the shares of stock of a corporation for purposes of determining
compliance with the constitutional requirement of Filipino ownership. It cannot, therefore, be denied that the
framers of the Constitution have not foreclosed the Grandfather Rule as a tool in verifying the nationality of
corporations for purposes of ascertaining their right to participate in nationalized or partly nationalized activities.
The Grandfather Rule is "the method by which the percentage of Filipino equity in a corporation engaged in nationalized
and/or partly nationalized areas of activities, provided for under the Constitution and other nationalization laws, is
computed, in cases where corporate shareholders are present, by attributing the nationality of the second or even
subsequent tier of ownership to determine the nationality of the corporate shareholder." 4 Thus, to arrive at the actual
Filipino ownership and control in a corporation, both the direct and indirect shareholdings in the corporation are
determined.

The Court held that a corporation investing in another corporation engaged in a nationalized activity cannot be considered
as a citizen for purposes of the Constitutional provision restricting foreign exploitation of natural resources. We must look
into the citizenship of the individual stockholders, i.e. natural persons, of that investor-corporation in order to determine if
the Constitutional and statutory restrictions are complied with. If the shares of stock of the immediate investor corporation
is in turn held and controlled by another corporation, then we must look into the citizenship of the individual stockholders of
the latter corporation. In other words, if there are layers of intervening corporations investing in a mining joint venture, we
must delve into the citizenship of the individual stockholders of each corporation. This is the strict application of the
grandfather rule, which the Commission has been consistently applying prior to the 1990s. Indeed, the framers of the
Constitution intended for the "grandfather rule" to apply in case a 60%-40% Filipino-Foreign equity corporation invests in
another corporation engaging in an activity where the Constitution restricts foreign participation.

 The SEC en banc applied the Grandfather Rule despite the fact that the subject corporations ostensibly have
satisfied the 60-40 Filipino equity requirement. The SEC en banc held that to attain the Constitutional objective of
reserving to Filipinos the utilization of natural resources, one should not stop where the percentage of the capital
stock is 60%.
 The purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural resources.
Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish that right through the
legal fiction of corporate ownership and control. But the constitutional provision, as interpreted and practiced via
the 1967 SEC Rules, has favored foreigners contrary to the command of the Constitution. Hence, the Grandfather
Rule must be applied to accurately determine the actual participation, both direct and indirect, of foreigners in a
corporation engaged in a nationalized activity or business.
 The method employed in the Grandfather Rule of attributing the shareholdings of a given corporate shareholder to
the second or even the subsequent tier of ownership hews with the rule that the "beneficial ownership" of
corporations engaged in nationalized activities must reside in the hands of Filipino citizens. Thus, even if the 60-40
Filipino equity requirement appears to have been satisfied, the DOJ stated that an agreement that may distort the
actual economic or beneficial ownership of a mining corporation may be struck down as violative of the
constitutional requirement.
 The "beneficial ownership" requirement was subsequently used in tandem with the "situs of control" to determine
the nationality of a corporation in DOJ Opinion No. 84, [Link] 1988, through the Grandfather Rule, despite the fact that
both the investee and investor corporations purportedly satisfy the 60-40 Filipino equity requirement: 9
The nationality requirement is not satisfied unless it meets the criterion of beneficial ownership, i.e. Filipinos are the
principal beneficiaries in the exploration of natural resources, and that in applying the same "the primordial consideration is
situs of control, whether in a stock or nonstock corporation" xxx  obviously toinsure that corporations and associations
allowed to acquire agricultural land or to exploit natural resources "shall be controlled by Filipinos." 

  The "Grandfather Rule" is applied specifically in cases where the corporation has corporate stockholders with alien
stockholdings, otherwise, if the rule is not applied, the presence of such corporate stockholders could diminish the
effective control of Filipinos.
 This pairing of the concepts "beneficial ownership" and the "situs of control" in determining what constitutes
"capital"

Application of the Grandfather Rule with the Control Test.

Control Test can be, as it has been, applied jointly with the Grandfather Rule to determine the observance of foreign
ownership restriction in nationalized economic activities. The Control Test and the Grandfather Rule are not, as it were,
incompatible ownership-determinant methods that can only be applied alternative to each other. Rather, these methods can,
if appropriate, be used cumulatively in the determination of the ownership and control of corporations engaged in fully or
partly nationalized activities.
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a corporation,
as it could result in an otherwise foreign corporation rendered qualified to perform nationalized or partly nationalized
activities. Hence, it is only when the Control Test is first complied with that the Grandfather Rule may be applied. Put in
another manner, if the subject corporation’s Filipino equity falls below the threshold 60%, the corporation is immediately
considered foreign-owned, in which case, the need to resort to the Grandfather Rule disappears. On the other hand, a
corporation that complies with the 60-40 Filipino to foreign equity requirement can be considered a Filipino corporation if
there is no doubt as to who has the "beneficial ownership" and "control" of the corporation. In that instance, there is no need
for a dissection or further inquiry on the ownership of the corporate shareholders in both the investing and investee
corporation or the application of the Grandfather Rule. 12 As a corollary rule, even if the 60-40 Filipino to foreign equity ratio
is apparently met by the subject or investee corporation, a resort to the Grandfather Rule is necessary if doubt exists as to
the locus of the "beneficial ownership" and "control." In this case, a further investigation as to the nationality of the
personalities with the beneficial ownership and control of the corporate shareholders in both the investing and investee
corporations is necessary.
 The "doubt" that demands the application of the Grandfather Rule in addition to or in tandem with the Control Test
is not confined to, or more bluntly, does not refer to the fact that the apparent Filipino ownership of the
corporation’s equity falls below the 60% threshold. Rather, "doubt" refers to various indicia that the "beneficial
ownership" and "control" of the corporation do not in fact reside in Filipino shareholders but in foreign
stakeholders. 
 As provided in DOJ Opinion No. 165, Series of 1984, which applied the provisions of the Anti-DummyLaw in
relation to the minimum Filipino equity requirement in the Constitution, "significant indicators of the dummy
status" have been recognized in view of reports "that some Filipino investors or businessmen are being utilized or
[are] allowing themselves to be used as dummies by foreign investors" specifically in joint ventures for national
resource exploitation. These indicators are: a)  That the foreign investors provide all the funds for the joint
investment undertaken by these Filipino businessmen and their foreign partner; b)  That the foreign investors
undertake to provide practically all the technological support for the joint venture; c)  That the foreign investors,
while being minority stockholders, manage the company and prepare all economic viability studies.
 Thus, when foreigners contribute more capital to an enterprise, doubt exists as to the actual control and
ownership of the subject corporation even if the 60% Filipino equity threshold is met. Even if at first glance the
petitioners comply with the 60-40 Filipino to foreign equity ratio, doubt exists in the present case that gives rise to
a reasonable suspicion that the Filipino shareholders do not actually have the requisite number of control and
beneficial ownership in petitioners Narra, Tesoro, and McArthur.  Hence, a further investigation and dissection of
the extent of the ownership of the corporate shareholders through the Grandfather Rule is justified.
The application of the Grandfather Rule is impractical as tracing the shareholdings to the point when natural persons hold
rights to the stocks may very well lead to an investigation ad infinitum. Suffice it to say in this regard that, while the
Grandfather Rule was originally intended to trace the shareholdings to the point where natural persons hold the shares, the
SEC had already set up a limit as to the number of corporate layers the attribution of the nationality of the corporate
shareholders may be applied. In a 1977 internal memorandum, the SEC suggested applying the Grandfather Rule on two (2)
levels of corporate relations for publicly-held corporations or where the shares are traded in the stock exchanges, and to
three (3) levels for closely held corporations or the shares of which are not traded in the stock exchanges. 14 These limits
comply with the requirement in Palting v. San Jose Petroleum, Inc. 15 that the application of the Grandfather Rule cannot go
beyond the level of what is reasonable.

A doubt exists as to the extent of control and beneficial ownership of MBMI over the petitioners and their investing
corporate stockholders.
Supposedly Filipino corporation Sara Marie Mining, Inc. (Sara Marie) holds 59.97% of the 10,000 common shares of
petitioner Tesoro while the Canadian-owned company, MBMI, holds 39.98% of its shares. In turn, the Filipino corporation
Olympic Mines & Development Corp. (Olympic) holds 66.63% of Sara Marie’s shares while the same Canadian company
MBMI holds 33.31% of Sara Marie’s shares. Nonetheless, it is admitted that Olympic did not pay a single peso for its shares. On
the contrary, MBMI paid for 99% of the paid-up capital of Sara Marie. The fact that MBMI had practically provided all the funds
in Sara Marie and Tesoro creates serious doubt as to the true extent of its (MBMI) control and ownership over both Sara Marie
and Tesoro since, as observed by the SEC, "a reasonable investor would expect to have greater control and economic rights than
other investors who invested less capital than him." The application of the Grandfather Rule is clearly called for, and as shown
below, the Filipinos’ control and economic benefits in petitioner Tesoro (through Sara Marie) fall below the threshold 60%.

Filipino participation in petitioner Tesoro: 40.01%

66.67

(Filipino equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 39.98%

100

39.98% + .03% (shares of individual Filipino shareholders [SHs] in Tesoro)

=40.01%

Foreign participation in petitioner Tesoro: 59.99%

33.33

(Foreign equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 19.99%

100

19.99% + 39.98% (MBMI’s direct participation in Tesoro) + .02% (shares of foreign individual SHs in Tesoro)
= 59.99%

With only 40.01% Filipino ownership in petitioner Tesoro, as compared to 59.99% foreign ownership of its shares, it is clear
that petitioner Tesoro does not comply with the minimum Filipino equity requirement.

McArthur:
Petitioner McArthur follows the corporate layering structure of Tesoro, as 59.97% of its 10, 000 common shares is owned by
supposedly Filipino Madridejos Mining Corporation (Madridejos), while 39.98% belonged to the Canadian MBMI. In turn,
66.63% of Madridejos’ shares were held by Olympic while 33.31% of its shares belonged to MBMI. Yet again, Olympic did not
contribute to the paid-up capital of Madridejos and it was MBMI that provided 99.79% of the paid-up capital of Madridejos.
Again, the fact that MBMI had practically provided all the funds in Madridejos and McArthur creates serious doubt as to the
true extent of its control and ownership of MBMI over both Madridejos and McArthur. The application of the Grandfather
Rule is clearly called for, and as will be shown below, MBMI, along with the other foreign shareholders, breached the
maximum limit of 40% ownership in petitioner McArthur, rendering the petitioner disqualified to an MPSA:

Filipino participation in petitioner McArthur: 40.01%

66.67

(Filipino equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 39.98%

100

39.98% + .03% (shares of individual Filipino SHs in McArthur)

=40.01%

Foreign participation in petitioner McArthur: 59.99%

33.33
(Foreign equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 19.99%

19.99% + 39.98% (MBMI’s direct participation inMcArthur) + .02% (shares of foreign individual SHs in McArthur)
= 59.99%

Narra:

petitioner Narra, 59.97% of its shares belonged to Patricia Louise Mining & Development Corporation (PLMDC), while
Canadian MBMI held 39.98% of its [Link]’s shares, in turn, were held by Palawan Alpha South Resources
Development Corporation (PASRDC), which subscribed to 65.96% of PLMDC’s shares, and the Canadian MBMI, which
subscribed to 33.96% of PLMDC’s shares. Yet again, PASRDC did not pay for any of its subscribed shares, while MBMI
contributed 99.75% of PLMDC’s paid-up capital. This fact creates serious doubt as to the true extent of MBMI’s control and
ownership over both PLMDC and Narra since "a reasonable investor would expect to have greater control and economic
rights than other investors who invested less capital than him." Thus, the application of the Grandfather Rule is justified. And
as will be shown, it is clear that the Filipino ownership in petitioner Narra falls below the limit prescribed in both the
Constitution and the Philippine Mining Act of 1995.

Filipino participation in petitioner Narra: 39.64%

66.02

(Filipino equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 39.59%

100

39.59% + .05% (shares of individual Filipino SHs in McArthur)

=39.64%

Foreign participation in petitioner Narra: 60.36%

33.98

(Foreign equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 20.38%

100

20.38% + 39.96% (MBMI’s direct participation in Narra) + .02% (shares of foreign individual SHs in McArthur)
= 60.36%

It must be noted that the foregoing determination and computation of petitioners’ Filipino equity composition was based on
their common shareholdings, not preferred or redeemable shares. Section 6 of the Corporation Code of the Philippines
explicitly provides that "no share may be deprived of voting rights except those classified as ‘preferred’ or ‘redeemable’
shares." Further, as Justice Leonen puts it, there is "no indication that any of the shares x x x do not have voting rights, [thus]
it must be assumed that all such shares have voting rights."

 Section 2. All covered corporations shall, at all times, observe the constitutional or statutory
requirement.1âwphi1 For purposes of determining compliance therewith, the required percentage of Filipino
ownership shall be applied to BOTH (a) the total outstanding shares of stock entitled to vote in the election of
directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of
directors.
  In fact, there is no indication that herein petitioners issued any other class of shares besides the 10,000 common
shares. Neither is it suggested that the common shares were further divided into voting or non-voting common
shares. Hence, for purposes of this case, items a) and b) in SEC Memo No. 8 both refer to the 10,000 common shares
of each of the petitioners, and there is no need to separately apply the 60-40 ratio to any segment or part of the said
common shares.

[Link]

People v. Quasha, 93 Phil. 333 (1953)

Corporation as a Civil Person

FACTS: William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with the
crime of falsification of a public and commercial document in that, having been entrusted with the preparation and
registration of the article of incorporation of the Pacific Airways Corporation, a domestic corporation organized for the
purpose of engaging in business as a common carrier, he caused it to appear in said article of incorporation that one Arsenio
Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 per cent of the subscribed capital stock of the
corporation when in reality, as the accused well knew, such was not the case, the truth being that the owner of the portion of
the capital stock subscribed to by Baylon and the money paid thereon were American citizen whose name did not appear in
the article of incorporation, and that the purpose for making this false statement was to circumvent the constitutional
mandate that no corporation shall be authorize to operate as a public utility in the Philippines unless 60 per cent of its
capital stock is owned by Filipinos. Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused
has appealed to SC.

(include ko lang, fine details, can skip this) On November 4,1946, the Pacific Airways Corporation registered its articles of
incorporation with the Securities and Exchanged Commission. The article were prepared and the registration was effected
by the accused, who was in fact the organizer of the corporation. The article stated that the primary purpose of the
corporation was to carry on the business of a common carrier by air, land or water xxx and the names of the subscribers
were Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the
first being a Filipino and the other five all Americans; that Baylon's subscription was for 1,145 preferred shares, of the total
value of P114,500, and for 6,500 common shares, of the total par value of P6,500, while the aggregate subscriptions of the
American subscribers were for 200 preferred shares, of the total par value of P20,000, and 59,000 common shares, of the
total par value of P59,000; and that Baylon and the American subscribers had already paid 25 per cent of their respective
subscriptions.

(include ko lang, fine details, can skip this) Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed
capital stock of the corporation, Baylon nevertheless did not have the controlling vote because of the difference in voting
power between the preferred shares and the common shares. Still, with the capital structure as it was, the article of
incorporation were accepted for registration and a certificate of incorporation was issued by the Securities and Exchange
Commission. here is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the
corporation. But it is admitted that the money paid on his subscription did not belong to him but to the Americans
subscribers to the corporate stock. In explanation, the accused testified, without contradiction, that in the process of
organization Baylon was made a trustee for the American incorporators, 

ISSUE: w/n the formation of the corporation is prohibited – NO

RULING: NO. If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital,
then how can the accused be charged with having wrongfully intended to circumvent that fundamental law by not revealing
in the articles of incorporation that Baylon was a mere trustee of his American co-incorporation and that for that reason the
subscribed capital stock of the corporation was wholly American? For the mere formation of the corporation such revelation
was not essential, and the Corporation Law does not require it. Defendant was, therefore, under no obligation to make it. In
the absence of such obligation and of the allege wrongful intent, defendant cannot be legally convicted of the crime with
which he is charged.

It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing in the
name of Baylon was an indispensable preparatory step to the subversion of the constitutional prohibition and the laws
implementing the policy expressed therein. This view is not correct. For a corporation to be entitled to operate a public
utility it is not necessary that it be organized with 60 per cent of its capital owned by Filipinos from the start. A corporation
formed with capital that is entirely alien may subsequently change the nationality of its capital through transfer of shares to
Filipino citizens. conversely, a corporation originally formed with Filipino capital may subsequently change the national
status of said capital through transfer of shares to foreigners. What need is there then for a corporation that intends to
operate a public utility to have, at the time of its formation, 60 per cent of its capital owned by Filipinos alone? That
condition may anytime be attained thru the necessary transfer of stocks. The moment for determining whether a
corporation is entitled to operate as a public utility is when it applies for a franchise, certificate, or any other form
of authorization for that purpose. And that can be done after the corporation has already come into being and not while it
is still being formed. And at that moment, the corporation must show that it has complied not only with the requirement of
the Constitution as to the nationality of its capital, but also with the requirements of the Civil Aviation Law if it is a common
carrier by air, the Revised Administrative Code if it is a common carrier by water, and the Public Service Law if it is a
common carrier by land or other kind of public service.

Lanuza, Jr. v. BF Corp.

737 SCRA 275 (2014)

Separate Juridical Personality and

the Doctrine of Piercing the Veil of Corporate Fiction

Facts: In 1993, BF Corporation filed a collection complaint with the RTC against Shangri-La and the members of its
board of directors. BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into
agreements with Shangri-La wherein it undertook to construct for Shangri-La a mall and a multilevel parking structure along
[Link]-La had been consistent in paying BF Corporation in accordance with its progress billing statements. However,
by October 1991, Shangri-La started defaulting in payment. BF Corporation alleged that Shangri-La induced BF Corporation
to continue with the construction of the buildings using its own funds and credit despite Shangri-La’s default. According to
BF Corporation, Shangri-La misrepresented that it had funds to pay for its obligations with BF Corporation, and the delay in
payment was simply a matter of delayed processing of BF Corporation’s progress billing statements. BF Corporation
eventually completed the construction of the buildings. Shangri-La allegedly took possession of the buildings while still
owing BF Corporation an outstanding balance. BF Corporation alleged that despite repeated demands, Shangri-La refused to
pay the balance owed to it. It also alleged that the Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs.
Therefore, they should be held jointly and severally liable with Shangri-La for its obligations as well as for the damages that
BF Corporation incurred as a result of Shangri-La’s default. On August 3, 1993, Shangri-La filed a motion to suspend the
proceedings in view of BF Corporation’s failure to submit its dispute to arbitration, in accordance with the arbitration clause
provided in its contract. Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they be
excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF Corporation’s agreement.

Issue: W/N as directors of Shangri-La is personally liable for the contractual obligations entered into by the corporation.
Ruling: No. Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers through its
directors, officers, or agents, who are all natural persons. A corporation cannot sue or enter into contracts without them. A
consequence of a corporation’s separate personality is that consent by a corporation through its representatives is not
consent of the representative, personally. Its obligations, incurred through official acts of its representatives, are its own. A
stockholder, director, or representative does not become a party to a contract just because a corporation executed a contract
through that stockholder, director or representative. Hence, a corporation’s representatives are generally not bound by the
terms of the contract executed by the corporation. They are not personally liable for obligations and liabilities incurred on or
in behalf of the corporation.

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties
thereto, as well as their assigns and heirs. When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons and the corporation should be
treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of corporate fiction
should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the courts or tribunals must first determine
whether circumstances exist to warrant the courts or tribunals to disregard the distinction between the corporation and the
persons representing it.

9
Francisco Motors Corp. v CA
309 SCRA 72 (1999)

FACTS: On 23 January 1985, Francisco Motors Corp. filed a complaint against Spouses Gregorio and Librada Manuel to
recover P3,412.06, representing the balance of the jeep body purchased by the Manuels from Francisco Motors; an
additional sum of P20,454.80 representing the unpaid balance on the cost of repair of the vehicle; and P6,000.00 for cost of
suit and attorney’s fees. To the original balance on the price of jeep body were added the costs of repair.

In their answer, the Manuel spouses interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount
of P50,000 which was not paid by the incorporators, directors and officers of Francisco Motors. The trial court decided the
case in favor of Francisco Motors in regard to its claim for money, but also allowed the counter-claim of the Manuel spouses.
CA affirmed.

ISSUE: W/N the Francisco Motors Corporation should be liable for the legal services of Gregorio Manuel rendered in the
intestate proceedings over Benita Trinidad’s estate (of the Francisco family)?

RULING: NO. Basic in corporation law is the principle that a corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be connected. However, under the doctrine of piercing the veil of
corporate entity, the corporation’s separate juridical personality may be disregarded, for example, when the corporate
identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a
mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct
personality may be ignored. In these circumstances, the courts will treat the corporation as a mere aggrupation of persons
and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for
reasons of public policy and in the interest of justice, will be justifiably set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no
relevant application here. The rationale behind piercing a corporation’s identity in a given case is to remove the barrier
between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding
certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as
a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and
incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous
invocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel for members of
the Francisco family to represent them in the intestate proceedings over Benita Trinidad’s estate. These estate proceedings
did not involve any business of petitioner.

Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner
corporation on the claims that its management had requested his services and he acceded thereto as an employee of
petitioner from whom it could be deduced he was also receiving a salary. His move to recover unpaid legal fees through a
counterclaim against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body
could only result from an obvious misapprehension that petitioner’s corporate assets could be used to answer for the
liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily prejudice the
corporation, its own creditors, and even other stockholders; hence, clearly inequitous to petitioner.

Considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable
to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or
promoting injustice, and be thereby held liable therefor by piercing its corporate veil.
CASE NO. 10
Separate Juridical Personality and the Doctrine of Piercing the Veil of Corporate Fiction
Int’l Academy of Management and Economics (I/AME) v. Litton and Co., Inc., 848 SCRA 437 (2017)

FACTS: Litton filed a complaint for unlawful detainer against Santos for non-payment of rentals and realty taxes. The MeTC
ruled in favor of Litton. Sheriff levied on real property registered in the name of petitioner I/AME. I/AME claimed that it has
a separate and distinct personality from Santos. Moreover, it alleged that the doctrine of piercing the veil of corporate fiction
does not apply because it was not impleaded in the case, and that the doctrine does not apply to natural persons.

On appeal, CA took note of how Santos had utilized I/AME to insulate the Makati real property from the execution of the
judgment rendered against him, for the following reasons:

First, the Deed of Absolute Sale dated 31 August 1979 indicated that Santos, being the President, was representing
I/AME as the vendee. However, records show that it was only in 1985 that I/AME was organized as a juridical
entity. Obviously, Santos could not have been President of a non-existent corporation at that time.

Second, the CA noted that the subject real property was transferred to I/AME during the pendency of the appeal for
the revival of the judgment in the ejectment case in the CA.

Finally, the CA observed that the Register of Deeds of Makati City issued TCT only on 17 November 1993, fourteen
(14) years after the execution of the Deed of Absolute Sale and more than eight (8) years after I/AME was
incorporated. 

Thus, the CA concluded that Santos merely used I/AME as a shield to protect his property from the coverage of the writ of
execution; therefore, piercing the veil of corporate fiction is proper.

ISSUE: WON the piercing of the corporate veil was proper.

RULING: YES. Piercing of the corporate veil is premised on the fact that the corporation concerned must have been
properly served with summons or properly subjected to the jurisdiction of the court a quo. Corollary thereto, it
cannot be subjected to a writ of execution meant for another in violation of its right to due process. There exists,
however, an exception to this rule: if it is shown "by clear and convincing proof that the separate and distinct
personality of the corporation was purposefully employed to evade a legitimate and binding commitment and
perpetuate a fraud or like wrongdoings.”

Santos used I/AME as a means to evade his obligation to Litton. Thus, even while I/AME was not impleaded in the main case,
it is vulnerable to the piercing of its corporate veil. Moreover, the corporate veil may be pierced when a corporation is just
but the alter ego of a person or of another corporation. I/AME is the alter ego of Santos and Santos - the natural person - is
the alter ego of I/AME because (1) Santos is the implementor of I/AME; (2) Santos' contribution is P1.2M out of the P1.5M,
making him the major contributor and (3) the building being occupied by I/AME is named after Santos. 

"The doctrine of alter ego is based upon the misuse of a corporation by an individual for wrongful or inequitable purposes,
and in such case the court merely disregards the corporate entity and holds the individual responsible for acts knowingly
and intentionally done in the name of the corporation." This, Santos has done in this case. Santos formed I/AME, using the
non-stock corporation, to evade paying his judgment creditor, Litton.

The piercing of the corporate veil may apply to corporations as well as natural persons involved with corporations. This
Court has held that the "corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but
the alter ego of a person or of another corporation.”

Reverse-piercing makes the corporation liable for the debt of the shareholders. It has 2 types. Outsider reverse piercing
occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a corporation
owned or substantially controlled by the defendant. In insider reverse piercing, the controlling members will attempt to
ignore the corporate fiction in order to take advantage of a benefit available to the corporation. Outsider reverse piercing
applies here. 
 11
La Campana Coffee Factory vs. Kaisahan ng Manggagawa
Separate Juridical Personality and the Doctrine of Piercing the Veil of Corporate Fiction

FACTS: Tan Tong has been engaged in buying and selling gaugau under the trade name La Campana Gaugau Packing.
Subsequently, Tan Tong and his family members formed a corporation known as La Campana Coffee Factory, with its
principal office located in the same place as that of La Campana Gaugau Packing. About a year later, the Kaisahan ng
Manggagawa Sa La Campana was formed, composing of members, all of which are workers from both factories, demanding
for higher wages and benefits against La Campana Gaugau Packing and La Campana Coffee Factory. As this was not made and
no settlement was made, the dispute was certified to the Court of Industrial Relations. Tan Tong and La Campana Coffee
Factory contend that the Court of Industrial Relations had no jurisdiction to try the case as against La Campana Coffee
Factory because since it only has 14 employees, of which only 5 are union members, there is absence of the jurisdictional
number of 30 required by law.

ISSUE: W/N the Court of Industrial Relations has jurisdiction over the case.

RULING: YES. The petitioners’ argument that the Court of Industrial Relations has no jurisdiction to try the case against La
Campana Coffee Factory as there was absence of the jurisdictional number of 30 is without merit because La Campana
Gaugau Packing and La Campana Coffee Factory are operating under one single management, that is, as one business though
with two trade names. Although the coffee factory is a corporation and, by legal fiction, an entity existing separate and apart
from the persons composing it, that is, Tan Tong and his family, the doctrine that a corporation is a legal entity existing
separate and apart from the person composing it is a legal theory introduced for purposes of convenience and to
subserve the ends of justice. The concept cannot, therefore, be extended to a point beyond its reason and policy, and
when invoked in support of an end subversive of this policy, will be disregarded by the courts . Thus, in an appropriate
case and in furtherance of the ends of justice, a corporation and the individual or individuals owning all its stocks and assets
will be treated as identical, the corporate entity being disregarded where used as a cloak or cover for fraud or illegality.

In this case, Tan Tong appears to be the owner of the gaugau factory; and the coffee factory, though an incorporated
business, is in reality owned exclusively by Tan Tong and his family. As found by the Court of Industrial Relations:

1. The two factories have but one office, one management and one payroll, except the day after the case was certified
to the Court of Industrial Relations, when the person who was discharging the office of cashier for both branches of
the business began preparing separate payrolls for the two; and
2. The laborers of the two factories were interchangeable, that is, the laborers from the gaugau factory were
sometimes transferred to the coffee factory and vice-versa.

In view of all these, the attempt to make the two factories appear as two separate businesses, when in reality they are but
one, is but a device to defeat the ends of the law and should not be permitted to prevail.

12 - Rizon
Mayor vs. Tiu
G.R. No. 203770, November 23, 2016
Doctrine of Piercing the Veil of Corporate Fiction

Facts: This involves probate proceedings of the estate of Rosario Casilan (Rosario), the widow of the late Primo Villasin
(Primo) who passed away and left a holographic Last Will and Testament, wherein she named her sister, Remedios Tiu
(Remedios), and her niece, Manuela Azucena Mayor (Manuela), as executors.

Marty averred claimed that she was the adopted daughter of Rosario. That Remedios kept the decedent Rosario a virtual
hostage for the past ten (10) years and her family was financially dependent on her which led to the wastage and disposal of
the properties owned by her and her husband, Primo. Marty averred that until the alleged will of the decedent could be
probated and admitted, Remedios and her ten (10) children had no standing to either possess or control the properties
comprising the estate of the Villasins. She prayed for the probate court to: 1) order an immediate inventory of all the
properties subject of the proceedings; 2) direct the tenants of the estate, namely, Mercury Drug and Chowking, located at
Primrose Hotel, to deposit their rentals with the court; 3) direct Metrobank, P. Burgos Branch, to freeze the accounts in the
name of Rosario, Primrose Development Corporation (Primrose) or Remedios; and 4) lock up the Primrose Hotel in order to
preserve the property until final disposition by the court.
Marty cited that the veil of corporate entity of Primrose may be pierced on the ground that it was a closed family corporation
controlled by Rosario after Primo's death. That "piercing" was proper because the incorporation of Primrose was founded on
a fraudulent consideration, having been done in contemplation of Primo's death.

RTC applied the doctrine of piercing the corporate veil considering that Rosario had no other properties that comprised her
estate other than Primrose.

CA reversed the RTC’s decision, it held that Primrose had a personality separate and distinct from the estate of the decedent
and that the probate court had no jurisdiction to apply the doctrine of piercing the corporate veil. The probate court had no
jurisdiction to adjudicate ownership of a property claimed by another based on adverse title; and that questions like this
must be submitted to a court of general jurisdiction and not to a probate court.

Issue: W/N the doctrine of piercing the corporate veil was properly applied in this case. W/N the doctrine can be applied in
acquiring jurisdiction.

Ruling: The doctrine of piercing the corporate veil has no relevant application in this case. Under this doctrine, the court
looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is
that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities
and treat them as identical or as one and the same. The purpose behind piercing a corporation's identity is to remove the
barrier between the corporation and the persons comprising it to thwart the fraudulent and illegal schemes of those who use
the corporate personality as a shield for undertaking certain proscribed activities.

Here, instead of holding the decedent's interest in the corporation separately as a stockholder, the situation was reversed.
Instead, the probate court ordered the lessees of the corporation to remit rentals to the estate's administrator without taking
note of the fact that the decedent was not the absolute owner of Primrose but only an owner of shares thereof. Mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of a corporation is not of
itself a sufficient reason for disregarding the fiction of separate corporate personalities. Moreover, to disregard the separate
juridical personality of a corporation, the wrongdoing cannot be presumed, but must be clearly and convincingly established.

The probate court in this case has not acquired jurisdiction over Primrose and its properties. Piercing the veil of
corporate entity applies to determination of liability not of jurisdiction; it is basically applied only to determine
established liability. It is not available to confer on the court a jurisdiction it has not acquired, in the first place, over
a party not impleaded in a case. This is so because the doctrine of piercing the veil of corporate fiction comes to play
only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before
this doctrine can be even applied, based on the evidence presented, it is imperative that the court must first have
jurisdiction over the corporation. Hence, a corporation not impleaded in a suit cannot be subject to the court's process of
piercing the veil of its corporate fiction. Resultantly, any proceedings taken against the corporation and its properties would
infringe on its right to due process.

In the case at bench, the probate court applied the doctrine of piercing the corporate veil ratiocinating that Rosario had no
other properties that comprise her estate other than her shares in Primrose. Although the probate court's intention to
protect the decedent's shares of stock in Primrose from dissipation is laudable, it is [Link] error to order the corporation's
tenants to remit their rental payments to the estate of Rosario.

13 - Sabtaluh
Emilio Cano Enterprises v. CIR, 13 SCRA 291 (1965)
Separate Juridical Personality and the Doctrine of Piercing the Veil of Corporate Fiction

FACTS: A complaint for unfair labor practice was filed against Emilio Cano Enterprises, Inc. Emilio, Ariston and Rodolfo, all
surnamed Cano, were made respondents in their capacity as president and proprietor, field supervisor and manager, of
Emilio Cano Enterprises, Inc. Judgement was rendered finding Emilio Cano and Rodolfo Cano guilty of the unfair labor
practice charge. As a consequence, the two were ordered, jointly and severally, to reinstate Honorata Cruz, to her former
position with payment of backwages from the time of her dismissal up to her reinstatement, together with all other rights
and privileges thereunto appertaining.

The order of execution having been directed against the properties of Emilio Cano Enterprises, Inc. instead of those of the
respondents named in the decision, said corporation filed an ex parte motion to quash the writ on the ground that the
judgment sought to be enforced was not rendered against it which is a juridical entity separate and distinct from its officials.
ISSUE: WON the judgment rendered against Emilio and Rodolfo Cano in their capacity as officials of the corporation Emilio
Cano Enterprises, Inc. cab be made effective against the property of the Emilio cano enterprise inc. corporation which was
not a party to the case?

RULING: YES. While it is an undisputed rule that a corporation has a personality separate and distinct from its members or
stockholders because of a fiction of the law, here we should not lose sight of the fact that the Emilio Cano Enterprises, Inc. is
a closed family corporation where the incorporators and directors belong to one single family. Thus, the following are its
incorporators: Emilio Cano, his wife Juliana, his sons Rodolfo and Carlos, and his daughter-in-law Ana D. Cano. Here is an
instance where the corporation and its members can be considered as one. And to hold such entity liable for the acts of
its members is not to ignore the legal fiction but merely to give meaning to the principle that such fiction cannot be invoked
if its purpose is to use it as a shield to further an end subversive of justice. 1 And so it has been held that while a corporation
is a legal entity existing separate and apart from the persons composing it, that concept cannot be extended to a point
beyond its reason and policy, and when invoked in support of an end subversive of this policy it should be disregarded by
the courts.

A factor that should not be overlooked is that Emilio and Rodolfo Cano are here indicted, not in their private capacity, but as
president and manager, respectively, of Emilio Cano Enterprises, Inc. Having been sued officially their connection with the
case must be deemed to be impressed with the representation of the corporation. In fact, the court's order is for them to
reinstate Honorata Cruz to her former position in the corporation and incidentally pay her the wages she had been deprived
of during her separation. Verily, the order against them is in effect against the corporation.

[Link]
Missionary Sisters of Our Lady of Fatima v. Alzona, G.R. No. 224307, [August 6, 2018]
IV. Contracts with a Non-Existing/Defective Corporation

Missionary Sisters of Our Lady of Fatima - is a religious and charitable group established under the patronage of the Roman
Catholic Bishop of San Pablo on May 30, 1989 where Mother Ma. Concepcion R. Realon is its uperior General.

Alzona - Heirs of the late Purificacion (who donated her house and lot to the said corporation)

FACTS: In 1996, Purificacion became a benefactor of the petitioner by giving support to the community and its work. In
1997, Purificacion accompanied by Mother Concepcion at the hospital discovered that she was suffering from lung cancer --
it was Mother Concepcion who took care of her.
 Aug 2001 - at the request of Purificacion, Mother Concepcion went to see Atty. Arcillas where the latter was advised
to file the corresponding registration application with SEC (Aus 28,2001)
 Aug 29, 2001 - Purificacion executed a Deed f Donation Inter Vivos in favor of the petitioner and such donation was
accepted by mother Concepcion. However, the Register of Deeds denied the registration on account of an adverse
claim by the brother of Purificacion, Amando.
 April 2002 - Amando filed a Complaint sekeing to annul the Deed of Donation executed between Purificacion and
the petitioner, on the ground that at the time the donation was made, the latter was not registered with the SEC and
therefore has no juridical personality and cannot legally accept the donation (the Certificate of Incorporation was
issued after two days the donation was made).
 RTC - held that all the essential elements of a donation are present.
 CA - held that the petitioner cannot be considered as a de facto corporation considering that at the time of the
donation, there was no bona fide attempt on its part to incorporate. As an unregistered corporation, the CA
concluded that the petitioner cannot exercise the powers, rights, and privileges expressly granted by the
Corporation Code. Ultimately, bereft of juridical personality, the CA ruled that the petitioner cannot enter into a
contract of Donation with Purificacion.

ISSUE: WN the Deed executed by Purificacion in favor of the petitioner is valid and binding.

RULING: YES. Petition Granted. There is no question that the true intent of Purificacion, the donor and the owner of the
properties in question, was to give, out of liberality the subject house and lot, which she owned, to the petitioner. This act,
was then contained in a public document, the deed having been acknowledged before Atty. Arcillas, a Notary Public. The
acceptance of the donation is made on the same date that the donation was made and contained in the same instrument as
manifested by Mother Concepcion's signature.

As to the issue of it being a de facto corp - NOT A DE FACTO CORP. At the outset, it must be stated that as correctly pointed
out by the CA, the RTC erred in holding that the petitioner is a de facto corporation. Jurisprudence settled that "the filing of
articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto
corporation". In fine, it is the act of registration with SEC through the issuance of a certificate of incorporation that marks the
beginning of an entity's corporate existence. Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001.
However, the SEC issued the corresponding Certificate of Incorporation only on August 31, 2001, two (2) days after
Purificacion executed a Deed of Donation on August 29, 2001. Clearly, at the time the donation was made, the Petitioner
cannot be considered a corporation de facto.

As to the issue of the petitioner's personality - Under Article 737 of the Civil Code, "[t]he donor's capacity shall be
determined as of the time of the making of the donation." By analogy, the legal capacity or the personality of the donee, or
the authority of the latter's representative, in certain cases, is determined at the time of acceptance of the donation.

This case calls for the application of doctrine of corporation by estoppel; to wit:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a
result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered
by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the
ground that there was in fact no corporation. (Emphasis Ours)

The doctrine of corporation by estoppel is founded on principles of equity and is designed to prevent injustice and
unfairness. It applies when a non-existent corporation enters into contracts or dealings with third persons. In which case, the
person who has contracted or otherwise dealt with the non-existent corporation is estopped to deny the latter's legal
existence in any action leading out of or involving such contract or dealing. While the doctrine is generally applied to protect
the sanctity of dealings with the public, nothing prevents its application in the reverse, in fact the very wording of the law
which sets forth the doctrine of corporation by estoppel permits such interpretation. Such that a person who has assumed an
obligation in favor of a non-existent corporation, having transacted with the latter as if it was duly incorporated, is prevented
from denying the existence of the latter to avoid the enforcement of the contract. Jurisprudence dictates that the doctrine of
corporation by estoppel applies for as long as there is no fraud and when the existence of the association is attacked for
causes attendant at the time the contract or dealing sought to be enforced was entered into, and not thereafter.

In this controversy, Purificacion dealt with the petitioner as if it were a corporation. This is evident from the fact that
Purificacion executed two (2) documents conveying her properties in favor of the petitioner – first, on October 11, 1999 via
handwritten letter, and second, on August 29, 2001 through a Deed; the latter having been executed the day after the
petitioner filed its application for registration with the SEC. Thus, in that instance, the Court affords upon the unorganized
entity corporate fiction and juridical personality for the sole purpose of upholding the contract or transaction. In this case,
while the underlying contract which is sought to be enforced is that of a donation, and thus rooted on liberality, it cannot be
said that Purificacion, as the donor failed to acquire any benefit therefrom so as to prevent the application of the doctrine of
corporation by estoppel. To recall, the subject properties were given by Purificacion, as a token of appreciation for the
services rendered to her during her illness. In fine, the subject deed partakes of the nature of a remuneratory or
compensatory donation, having been made "for the purpose of rewarding the donee for past services, which services do not
amount to a demandable debt." Further, apart from the foregoing, the subsequent act by Purificacion of re-conveying the
property in favor of the petitioner is a ratification by conduct of the otherwise defective donation.

In this controversy, while the initial conveyance is defective, the genuine intent of Purificacion to donate the subject
properties in favor of the petitioner is indubitable. Also, while the petitioner is yet to be incorporated, it cannot be said that
the initial conveyance was tainted with fraud or misrepresentation. Contrarily, Purificacion acted with full knowledge of
circumstances of the Petitioner. This is evident from Purificacion's act of referring Mother Concepcion to Atty. Arcillas, who,
in turn, advised the petitioner to apply for registration. Further, with the execution of two (2) documents of conveyance in
favor of the petitioner, it is clear that what Purificacion intended was for the sisters comprising the petitioner to have
ownership of her properties to aid them in the pursuit of their charitable activities, as a token of appreciation for the services
they rendered to her during her illness. Ultimately, the subsequent incorporation of the petitioner and its affirmation of
Mother Concepcion's authority to accept on its behalf cured whatever defect that may have attended the acceptance of the
donation.
15 – Tan
Albert vs. University Publishing Co., Inc.
G.R. No. L-19118, January 30, 1965

FACTS: In Albert vs. University Publishing Co., Inc., L-9300, we found plaintiff entitled to damages (for breach of contract)
but reduced the amount from P23,000 to P15,000. Then in Albert vs. University Publishing Co., Inc., L-15275, we held that
the judgment for P15,000, which had become final and executory, should be executed to its full amount, since in fixing it,
payment already made had been considered.

On September 24, 1949, Mariano A. Albert sued University Publishing. Plaintiff alleged inter alia that defendant was a
corporation duly organized and existing under the laws of the Philippines; that defendant, through Jose Aruego, its President,
entered into a contract with plaintifif; that defendant had thereby agreed to pay plaintiff P30,000 for the exclusive right to
publish his revised Commentaries on the RPC and for his share in previous sales of the book's 1 st edition.

Plaintiff petitioned for a writ of execution against Aruego, as the real defendant, stating, "plaintiff's counsel and the Sheriff of
Manila discovered that there is no such entity as University Publishing Co., Inc." Plaintiff annexed to his petition a
certification from the SEC, attesting: "The records of this Commission do not show the registration of UNIVERSITY
PUBLISHING CO., INC., either as a corporation or partnership." University Publishing countered by filing, through counsel
(Aruego's own law firm), a "manifestation" stating that "Jose Aruego is not a party to this case," and that, therefore, plaintiff's
petition should be denied.

ISSUE: W/N the judgment may be executed against Aruego, supposed President of University Publishing., as the real
defendant.

RULING: YES. The fact of non-registration of University Publishing in the SEC has not been disputed. Defendant would only
raise the point that University Publishing and not Aruego, is the party defendant; thereby assuming that University
Publishing is an existing corporation with an independent juridical personality. Precisely, however, on account of the non-
registration it cannot be considered a corporation, not even a corporation de facto. It has therefore no personality separate
from Aruego; it cannot be sued independently.

The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is inapplicable here. Aruego represented a
non-existent entity and induced not only the plaintiff but even the court to believe in such representation. He signed the
contract as "President" of "University Publishing, stating that this was "a corporation duly organized and existing under the
laws of the Philippines," and obviously misled plaintiff into believing the same. One who has induced another to act upon his
willful misrepresentation that a corporation was duly organized and existing under the law, cannot thereafter set up against
his victim the principle of corporation by estoppel.

16
Paz v. New International Environmental Universality, Inc.,
G . R. No . 203993, April20, 2015
Contracts with a Non-Existing/Defective Corporation

MAIN POINT: Section 21 of the Corporation Code explicitly provides that one who assumes an obligation to an ostensible
corporation, as such, cannot resist performance thereof on the ground that there was in fact no corporation. (Doctrine of
Estoppel)

FACTS: Priscillo Paz, entered into a MOA with Captain Allan J. Clarke, president of International Environmental University ,
for the use of the aircraft hangar space at the said airport exclusively for “company aircraft/helicopter” for a period of four
years, unless pre-terminated with 6-months notice.

By letters to “MR ALLAN J. CLARK, International Environmental Universality Inc. , Paz threatened to cancel the contract since
the company was using it to park trucks and equipments instead of aircraft. More letters were sent demanding compliance
with the MOA, to no avail.

Paz then caused disconnection of electric and telephone lines of respondent’s premises; and ordered security guards to
prevent respondent’s employees from entering the premises - without giving respondent the 6- month notice as required
under the MOA

Respondent then filed an action for breach of contract against Paz, alleging that his acts violated the terms of the MOA In his
answer, Paz alleged that the company had no cause of action since he dealt with Mr. Allan J. Clark in his personal capacity;
there was no need to wait for the expiration of the contract since the company was performing high risk works in the leased
premises and the six-month notice was given thru his letters given to Mr. Allan J. Clarke.

RTC rendered judgment in favour of the corporation. CA dismissed Priscillo’s appeal, ruling that, while there was no
corporate entity at the time of the execution of the MOA on March 1, 2000 when Capt. Clarke signed as “President of
International Environmental University,” petitioner is nonetheless estopped from denying that he had contracted with
respondent as a corporation, having recognized the latter as the “Second Party” in the MOA that “will use the hangar space
exclusively for company aircraft/ helicopter.”

Paz elevated his case to the SC, contending that case should be dismissed for failure to implead Allan J. Clarke, and lack of
legal capacity of the corporation.

ISSUE/S: (1) WON Capt. Clarke should have been impleaded in the case as an indispensable party?
(2) WON there was breach of contract on the part of petitioner?
RULING: (1) NO. Capt. Clarke was not an indispensable party because he was merely an agent of respondent company. While
Capt. Clarke’s name and signature appeared on the MOA, his participation was, nonetheless, limited to being a representative
of respondent. As a mere representative, Capt. Clarke acquired no rights whatsoever, nor did he incur any liabilities, arising
from the contract between petitioner and respondent. Therefore, he was not an indispensable party to the case at bar. CA
had correctly pointed out that, from the very language itself of the MOA entered into by petitioner whereby he obligated
himself to allow the use of the hangar space "for company aircraft/helicopter," petitioner cannot deny that he contracted
with respondent. Petitioner further acknowledged this fact in his final demand letter where he reiterated and strongly
demanded the respondent to immediately vacate the hangar space his "company is occupying/utilizing” Section 21 of the
Corporation Code explicitly provides that one who assumes an obligation to an ostensible corporation, as such, cannot resist
performance thereof on the ground that there was in fact no corporation. Clearly, petitioner is bound by his obligation under
the MOA not only on estoppel but by express provision of law. Courts have no power to relieve parties from obligations they
voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments.

(2) YES. Petitioner is liable for breach of contract for effectively evicting respondent from the leased premises even before
the expiration of the term of the lease.1 If it were true that respondent was violating the terms and conditions of the lease,
"[petitioner] should have gone to court to make the [former] refrain from its 'illegal' activities or seek rescission of the
[MOA], rather than taking the law into his own hands."
17 BAIRD
TESDA v. Abragar, G.R. No. 201022, 17 March 2021
Contracts with a Non-Existing/Defective Corporation

FACTS: On April 29, 2003, respondent Ernesto Abragar (Abragar) filed a complaint 6 before the Regional Arbitration Branch
of the NLRC for underpayment and non-payment of salaries/wages, service incentive leave, and 13 th month pay against a
certain Marble Center ith address at TESDA, Guiguinto, Bulacan, and his supervisor, Philip Bronio. An amended
complaint was later filed to include constructive dismissal, non-payment of separation pay and retirement pay, and payment
of damages and attorney's fees. In his Position Paper, Abragar described the Center as a corporation organized and existing
in accordance with Philippine laws. He further claimed that he was hired in September 1997 as a marble operator for the
Center and was tasked to cut and trim marbles in accordance with the prescribed orders, until sometime in December 2002
when the Center suddenly cut down his working days from six to twice or thrice a week, without giving him the usual salary
he received for the week. Respondent claimed that the reduction of his work schedule and pay amounted to constructive
dismissal. On the other hand, the Center and Bronio failed to submit their position paper. A) found that Abragar was
constructively dismissed and granted his claim. There being no appeal filed within the reglementary period, Abragar moved
for the issuance of a writ of execution to carry out the aforementioned decision. 

Bronio filed a Motion for Reconsideration 16 before the LA insisting that there was no employer-employee relationship
between Abragar and the Center. He asserted that the Center is a mere cooperative and training center of TESDA under the
cooperation of the Department of Trade and Industry (DTI), Provincial Government of Bulacan. The Center merely serves as
a training ground for workers who intend to work in the private sector upon completion of the training courses under
TESDA. Bronio filed a Petition for Relief from Judgment, 17 where he reiterated that the Center is a non-juridical entity but a
mere training facility run by TESDA and created pursuant to a Memorandum of Agreement (MOA)  executed by and among
the DTI, the Provincial Government of Bulacan, the Marble Association of the Philippines (MAP), the National Manpower and
Youth Council (now renamed TESDA; hereinafter referred to collectively as the MOA Parties). Under the MOA, the said
parties undertook to pool and share their resources, facilities, and expertise for the establishment of a functional marble
production and training center. Moreover, Bronio alleged that he is merely an employee and trainor-supervisor of MAP and
thus cannot be held liable for any of the acts of the Center, and that respondent is not an employee but a trainee of the
Center. The LA thereafter issued a Writ of Execution directing the sheriff to enforce the Decision. However, the sheriff
reported that he and Abragar were denied thus, Abragar filed a Motion (For Issuance Of A Break Open Order. Bronio filed a
Motion to Quash the Writ of Execution 26 which Abragar opposed on the ground that the Decision of the NLRC is already fmal
and executory and must be carried out without further delay. NLRC stressed that nothing on record shows that the Center is
a juridical person authorized to be made a party to any case as it is not clothed with legal personality to be sued, and the
question remained on how it can be held liable for illegal dismissal and payment of money claims. Abragar filed an
Opposition30 thereto and alleged that the same must be denied outright for failure to comply with procedural requirements.
He likewise insists that TESDA slept on its right to appeal and that the said Order had long become final and executory. 

Petitioner argues that the Center against whom the labor complaint was filed below is not a juridical entity nor authorized
by law to sue or be sued but merely a training and skill development facility operated by petitioner in TESDA's premises
pursuant to the MO A. Accordingly, since only natural or juridical persons, or entities authorized by law may be parties in a
civil action and the joinder of indispensable parties is mandatory, the Center should not have been impleaded as a party to
the complaint below. Instead, the parties who created it should have been impleaded as party-respondents in the labor
complaint below as indispensable parties.40
On the other hand, respondent contends that petitioner's claim that the Center is a non-juridical entity with no legal
personality to sue or be sued is a belated claim raised for the first time on appeal.

ISSUE: whether the CA erred in annulling the NLRC's grant of petitioner's Appeal Memorandum in Intervention. 

RULING: Yes. 
The Center has no juridical personality and thus has no legal capacity to be sued. Hence, the indispensable parties
should be impleaded in the proceedings. Sections 1 and 2, Rule 3 of the Rules of Court mandate that only natural or
juridical persons, or entities authorized by law may be parties in a civil action and every action must be prosecuted and
defended in the name of the real parties-in-interest. 

To be sure, the Court, in the interest of preventing injustice and unfairness, has previously prevented non-existent
corporations from raising its lack of juridical personality as a means to avoid fulfillment of its contracts or obligations by
applying the doctrine of corporation by estoppel. This doctrine has been codified in Section 20 of the Corporation Code,
which provides that all persons who assume to act as a corporation knowing it to be without the authority to do so shall be
liable as general partners for all debts, liabilities, and damages incurred or arising as a result thereof.

However, the attendant circumstances do not call for the application of the said doctrine. While the Center appears to be
managed by TESDA in collaboration with MAP and involves a pooling of resources by the DTI, TESDA, Provincial
Government of Bulacan, and MAP, a careful review of the records fails to show that the MOA Parties represented that the
Center had its own juridical personality in its dealings with respondent or third persons. In fact, as pertinently alleged by
petitioner, the employment contract submitted by respondent in evidence was with MAP Multi-Purpose Cooperative
Incorporated.

Moreover, this Court is not inclined to rule that TESDA and the other parties to the MOA shall be held liable as general
partners to respondent's claims against the Center for non-payment of wages, benefits, and illegal dismissal without giving
them their day in court. It is a basic tenet of due process of law that a person cannot be prejudiced by a ruling rendered in an
action or proceeding in which he was not made a party. Given the foregoing, the proper remedy in this case is the joinder of
the proper parties.
In view of the lack of juridical personality of the Center, any judgment in favor of respondent against the Center would have
to be enforced against the properties contributed by the MOA Parties

The failure to implead TESDA and the other parties to the MOA renders the proceedings void, which may be
questioned at any time.

18. Chua

Articles of Incorporation

De La Salle Montessori International of Malolos, Inc. v. De La Salle Brothers, Inc., G.R. No. 205548, [February 7, 2018]

FACTS: Respondent filed a petition with the SEC seeking to compel petitioner to change its corporate name. Respondents
claim that petitioner's corporate name is misleading or confusingly similar to that which respondents have acquired a prior
right to use, and that respondents' consent to use such name was not obtained. According to respondents, petitioner's use of
the dominant phrases "La Salle" and "De La Salle" gives an erroneous impression that De La Salle Montessori International of
Malolos, Inc. is part of the "La Salle" group, which violates Section 18 of the Corporation Code of the Philippines. Moreover,
being the prior registrant, respondents have acquired the use of said phrases as part of their corporate names and have
freedom from infringement of the same.

The SEC OGC issued an Order directing petitioner to change or modify its corporate name. It held, among others,
that respondents have acquired the right to the exclusive use of the name "La Salle" with freedom from infringement by
priority of adoption, as they have all been incorporated using the name ahead of petitioner. Furthermore, the name "La Salle"
is not generic in that it does not particularly refer to the basic or inherent nature of the services provided by respondents.
Neither is it descriptive in the sense that it does not forthwith and clearly convey an immediate idea of what respondents'
services are. 

It held, among others, that the Lyceum of the Philippines case does not apply since the word "lyceum" is a generic
word that pertains to a category of educational institutions and is widely used around the world. Further, the Lyceum of the
Philippines failed to prove that "lyceum" acquired secondary meaning capable of exclusive appropriation. Petitioner also
failed to establish that the term "De La Salle" is generic for the principle enunciated in Lyceum of the Philippines to apply.
ISSUE: Whether the CA erred in not applying the ruling in the Lyceum of the Philippines case which petitioner argues have
"the same facts and events"

RULING: No, A corporate name is a property right, a right in rem, which it may assert and protect against the world
in the same manner as it may protect its tangible property, real or personal, against trespass or conversion. The
policy under what is Sec. 16 of Corporation Code on “identical or deceptively or confusing similar” corporate name
is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion
of legal obligation and duties, and the reduction of difficulties of administration and supervision over corporations.

Recognizing the intrinsic importance of corporate names, our Corporation Code established a restrictive rule
insofar as corporate names are concerned.

The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical
or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently
confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with
the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and
supervision over corporations.

19
Ching v. Quezon City Sports Club, Inc., 807 SCRA 46 (2016)
Bylaws

FACTS: Quezon City Sports Club (QCSC) is a duly registered domestic corporation providing recreational activities, and
sports facilities. Catherine Ching became a member where her membership privileges were extended to immediate family
members. Because QCSC was not in a financial position to pay the monetary awards in an NLRC case, a special assessment
was approved where the members would be required to pay P2,500.00 payable in 5 equal monthly installments. Catherine
was duly notified of its implementation through a letter. Catherine avoided payment. The Board of Directors then passed a
board resolution suspending the privilege of the QCSC members who had not paid the special assessment. QCSC then refused
to accommodate Catherine and her family members. After failed attempts at demanding the recall of the suspension of her
privileges, the petitioners filed a complaint against QCSC. The RTC rendered judgement in favor petitioners, but CA reversed
it.

ISSUE: Whether or not Catherine’s suspension was done in violation of her right to due process

RULING: Yes. Petition partly granted. In Forest Hills Golf and Country Club, Inc. v. Gardpro, Inc., the Court ruled that articles
of incorporation and by-laws of a country club are the fundamental documents governing the conduct of the corporate
affairs of said club; they establish the norms of procedure for exercising rights, and reflected the purposes and intentions of
the incorporators. The by-laws are self-imposed private laws binding on all members, directors, and officers of the country
club. The prevailing rule is that the provisions of the articles of incorporation and the by-laws must be strictly complied with
and applied to the letter. In the case at bar, Sec. 35(a) of the club’s By-Laws apply, which requires notice and hearing prior to
a member’s suspension. In this case, Catherine did not receive notice specifically advising her that she could be suspended
for nonpayment of the special assessment. The respondent’s contention that Sec. 33(a) of the By-Laws should apply, which
allows suspension of a member with unpaid bills after notice, is incorrect. Such By-Law refers to regular dues and ordinary
accounts that requires immediate payment for the club’s day-to-day operations. But the special assessment arose from an
extraordinary circumstances. However, there is no doubt that Catherine’s suspension was justifiable for not paying the
special assessment. The Court finds no bad faith on the part of respondents in implementing Catherine’s suspension. There
was no evidence of malice or ill will on their part. However, her right to due process was violated as she was not afforded
notice and hearing prior to the suspension.

Thus, the respondent Club shall be liable for the nominal damages because in the absence of malice and bad faith, officers of
a corporation cannot be made personally liable for the liabilities of the corporation which, by legal fiction, has a personality
separate and distinct from its officers, stockholders, and members.

[Link]
 Bernas v. Cinco, 761 SCRA 104 (2015)

By laws

FACTS: Bernas vs. Cinco 2015Facts:The Makati Sports Club is a domestic corporation organized under Philippine laws for
the primary purpose of establishing, maintaining and providing social, cultural, recreational and athletic activities among its
members. Petitioners Bernas, et. Al, were among the Members of the board of Directors and Officers whose terms were to
expire either in 1998 or [Link] with the rumored anomalies in handling the corporate funds, the MSC Oversight
Committee composed of the past presidents of the club, demanded from the Bernas Group to resign from their respective
positions to pave the way for the election of a new set of officers. The clamor was echoed by the stockholders of the
corporation representing at least 100 shares, who with the assistance of the MSCOC called a Special Stockholders’ Meeting.
Eventually elections were held, and the Bernas Group were removed from office and replaced by new officers (the
Cinco Group).Citing Section 28 of the Corporation Code, the Bernas Group argued that the authority to call a  meeting lies
with the Corporate Secretary and not with the MSCOC, being merely an oversight body. The Bernas Group insists that the
meeting not having been called by the persons authorized to do so, such was void and the results of the election should be
nullified. The Cinco Group on the other hand argues that the stockholders’ meeting is sanctioned by the Corporation Code
and the MSC by-laws. They reason that Section 25 of the MSC by-laws merely authorized the Corporate Secretary to issue
notices of meetings and nowhere does it state that such authority solely belongs to him. They  further argue that the
Corporate Secretary had repeatedly refused to call a special stockholders’ meeting despite demands. Prior to the resolution
of the case, two Annual Stockholders’ Meeting were held, in 1998 and 1999where majority resolved to approve, confirm and
ratify the elections previously held.

ISSUE: WN the meetings conducted are valid.

RULING: no. Textually, only the president and the boards of directors are authorized by the by-laws to call for a special
meeting. The mscoc is not authorized to exercise corporate powers, such as power to call a special meeting. The subsequent
ratification made by the stockholders did not cure the substantive infirmity, the defect having set in at the time the void act
was done. The defect goes into the very authority of the persons who made the call for the meeting. Board of Directors
should act in the manner and within the formalities, if any, prescribed in its charter or bylaws. Thus, Board must act as a
body in a meeting called pursuant to the law or the corporation’s bylaws; otherwise, any action taken therein may be
questioned by the objecting director or shareholder. Certainly, the rules set in the bylaws are mandatory for every member
to respect; they are the fundamental law with which the corporation and its officers and members must comply. It is on

this score that we cannot sustain the Bernas Group’s stance that the subsequent annual shareholders’

meetings were valid.

21.
China Banking Corp. v. Court of Appeals, 270 SCRA 503 (1997)

Facts: On 21 August 1974, Galicano Calapatia, Jr. a stockholder of private respondent Valley Golf & Country Club, Inc.
(VGCCI), pledged his Stock Certificate No. 1219 to petitioner China Banking Corporation (CBC).- Calapatia obtained a loan of
P20,000.00 from petitioner, payment of which was secured by the pledge agreement between Calapatia and petitioner.

Due to Calapatia's failure to pay his obligation, petitioner filed a petition for extrajudicial foreclosure before a Notary Public,
requesting the latter to conduct a public auction sale of the pledged stock.- On 14 May 1985, petitioner informed VGCCI of
the above-mentioned foreclosure proceedings and requested that the pledged stock be transferred to its (petitioner's) name
and the same be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote petitioner expressing its inability
to accede to petitioner's request in view of Calapatia's unsettled accounts with the club.- Notary Public de Vera held a public
auction on 17 September 1985 and petitioner emerged as the highest bidder at P20,000.00 for the pledged stock.
Consequently, petitioner was issued the corresponding certificate of sale.- VGCCI sent Calapatia a notice demanding full
payment of his overdue account in the amount of P18,783.24. Said notice was followed by 2 demand letters on 2 different
dates.- VGCCI then informed Calapatia of the termination of his membership due to the sale of his share of stock in the 10
December 1986 auction.- On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate
No. 1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of
stock be issued in its name.- VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction
held on 10 December 1986 for P25,000.00.- On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of
stock and thereafter filed a case with the RTC for the nullification of the 10 December 1986 auction and for the issuance of a
new stock certificate in its name.

The Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that
it involves an intra- corporate dispute and on 27 August 1990 denied petitioner's motion for reconsideration.- Petitioner
filed a complaint with SEC for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock
certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's
fees and costs of litigation. - SEC rendered a decision in favor of VGCCI, stating in the main that "considering that the said
share is delinquent, (VGCCI) had valid reason not to transfer the share in the name of the petitioner in the books of (VGCCI)
until liquidation of delinquency." Consequently, the case was dismissed.- Petitioner appealed to the SEC and the Commission
issued an order reversing the decision of its hearing [Link] sought reconsideration. However, the SEC denied the
same in its resolution dated 7 December 1993. VGCCI appealed to CA.- CA rendered its decision nullifying and setting aside
the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and, consequently,
dismissed petitioner's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not
intra-corporate.- Case was elevated to the High Court.

Issues: WON RESPONDENT COURT OF APPEALS GRAVELY ERRED WHEN:

1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER DATED DECEMBER 07, 1993 OF THE
SECURITIES AND EXCHANGE COMMISSION EN BANC, AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER
AGAINST RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE CASE;

2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC DATED JUNE 04,
1993 DESPITE PREPONDERANT EVIDENCE SHOWING THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP
CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF.

Held: Yes. The CA gravely erred.

To ascertain which tribunal has jurisdiction it must determined whether or notpetitioner is a stockholder of VGCCI and
whether or not the nature of thecontroversy between petitioner and private respondent corporation is intra-corporate.

There is no question that the purchase of the subject share or membershipcertificate at public auction by petitioner (and the
issuance to it of thecorresponding Certificate of Sale) transferred ownership of the same to the latterand thus entitled
petitioner to have the said share registered in its name as amember of VGCCI. It is readily observed that VGCCI did not assail
the transferdirectly and has in fact, in its letter of 27 September 1974, expressly recognizedthe pledge agreement executed
by the original owner, Calapatia, in favor ofpetitioner and has even noted said agreement in its corporate books. 25
Inaddition, Calapatia, the original owner of the subject share, has not contestedthe said [Link] virtue of the afore-
mentioned sale, petitioner became a bona fide stockholderof VGCCI and, therefore, the conflict that arose between petitioner
and VGCCI aptly exemplies an intra-corporate controversy between a corporation and itsstockholder under Sec. 5(b) of P.D.
902-A.

In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the meticulous
analysis and correctinterpretation of a corporation's by-laws as well as the applicable provisions ofthe Corporation Code in
order to determine the validity of VGCCI's claims. TheSEC, therefore, took proper cognizance of the instant case.

VGCCI assails the validity of the pledge agreement executed by Calapatia inpetitioner's favor---the pledge agreement was
entered into on 21 August 1974but the loan or promissory note which it secured was obtained by Calapatiamuch later or
only on 3 August 1983. However, the pledge agreement readilyreveals that the contracting parties explicitly stipulated
therein that the saidpledge will also stand as security for any future advancements (or renewalsthereof) that Calapatia (the
pledgor) may procure from petitioner. Hence, thevalidity of the pledge agreement between petitioner and Calapatia cannot
thusbe held suspect by VGCCI.

VGCCI likewise insists that due to Calapatia's failure to settle his delinquentaccounts, it had the right to sell the share in
question in accordance with theexpress provision found in its by-laws. However, it is significant to note thatVGCCI began
sending notices of delinquency to Calapatia after it was informedby petitioner (through its letter dated 14 May 1985) of the
foreclosureproceedings initiated against Calapatia's pledged share, although Calapatia hasbeen delinquent in paying his
monthly dues to the club since 1975. Stranger still,petitioner, whom VGCCI had officially recognized as the pledgee of
Calapatia'sshare, was neither informed nor furnished copies of these letters of overdueaccounts until VGCCI itself sold the
pledged share at another public auction. Bydoing so, VGCCI completely disregarded petitioner's rights as pledgee. It
evenfailed to give petitioner notice of said auction sale. Such actuations of VGCCIthus belie its claim of good faith. Therefore,
this contention is unmeritorious.

VGCCI likewise maintains that petitioner is bound by its [Link] is the generally accepted rule that third persons are not
bound by by-laws,except when they have knowledge of the provisions either actually orconstructively. In the case of Fleisher
v. Botica Nolasco, 47 Phil. 584, theSupreme Court held that the by-law restricting the transfer of shares cannothave any
effect on the transferee of the shares in question as he "had noknowledge of such by-law when the shares were assigned to
him. He obtainedthem in good faith and for a valuable consideration. He was not a privy to thecontract created by the by-law
between the shareholder . . . and the BoticaNolasco, Inc. Said by-law cannot operate to defeat his right as a purchaser.

VGCCI's contention that petitioner is duty-bound to know its by-laws because ofArt. 2099 of the Civil Code which stipulates
that the creditor must take care ofthe thing pledged with the diligence of a good father of a family, failed toconvince the
court. The petitioner was never informed of Calapatia's unpaidaccounts and the restrictive provisions in VGCCI's by-laws.

Finally, Sec. 63 of the Corporation Code which provides that "no shares of stockagainst which the corporation holds any
unpaid claim shall be transferable in thebooks of the corporation" cannot be utilized by VGCCI. The term "unpaid claim"
refers to "any unpaid claim arising from unpaid subscription, and not to anyindebtedness which a subscriber or stockholder
may owe the corporation arisingfrom any other transaction." In the case at bar, the subscription for the share inquestion has
been fully paid as evidenced by the issuance of MembershipCertificate No. 1219. What Calapatia owed the corporation were
merely themonthly dues. Hence, the aforequoted provision does not apply.

22. Boman Environmental Dev. Corp. v. Court of Appeals, 167 SCRA 540 (1988)

Trust Fund Doctine

FACTS: Respondent Nilcar Y. Fajilan resigned as President and Member of the Board of Directors of petitioner, Boman
Environmental Development Corporation (BEDECO), and to sell to the company all his shares, rights, and interests therein
for P300,000 plus the transfer to him of the company's Isuzu pick-up truck which he had been using.
 At a meeting of the Board of Directors of BEDECO, Fajilan's resignation as president was accepted and his offer to
sell his shares back to the corporation was approved, payment is to be on a staggered basis.
 In order to assure the payment of the P300,000, the company executed a promissory note. In addition to this, the
Ford Courier Pick-up will belong to him subject to his assumption of the outstanding obligation thereof with Fil-
Invest. It is understood that upon his full payment of the pick-up, arrangement will be made and negotiated with
Fil-Invest regarding the transfer of the ownership of the vehicle in his name.
 A promissory note, was signed by BEDECO'S new president, Alfredo Pangilinan, in the presence of two directors,
committing BEDECO to pay him P300,000 over a six-month period.
However, BEDECO paid only P50,000 and another P50,000 and defaulted in paying the balance of P200,000.
 Fajilan filed a complaint in the RTC of Makati for collection of that balance from BEDECO.
The trial court dismissed the complaint for lack of jurisdiction. It ruled that the controversy arose out of intra-
corporate relations, hence, the Securities and Exchange Commission has original and exclusive jurisdiction to hear
and decide it.
 His motion for reconsideration of that order having been denied, Fajilan filed a "Petition for Certiorari, and
mandamus with Preliminary Attachment" in the Intermediate Appellate Court.
CA set aside RTC’s order of dismissal and directed the RTC Judge Paredes to take cognizance of the case.
 BEDECO's MR was denied. CA characterized the case as a suit for collection of a sum of money as Fajilan "was
merely suing on the balance of the promissory note" which BEDECO failed and refused to pay in full.
CA held that while it is true that the circumstances which led to the execution of the promissory note by the Board
of Directors of respondent corporation was an intra-corporate matter, there arose no controversy as to the sale of
petitioner's interests and rights as well as his shares as Member of the Board of Directors and President of
respondent corporation. The intra-corporate matter of the resignation of petitioner as Member of the Board of
Directors and President of respondent corporation has long been settled without issue.
 The Board of Directors of respondent corporation has likewise long settled the sale by petitioner of all his shares,
rights and interests in favor of the corporation. No controversy arose out of this transaction. The jurisdiction of the
Securities and Exchange Commission therefore need not be invoked on this matter.
ISSUE: WoN this case involves an issue arising from intra-corporate relations – YES, it deals with a stockholder and the
corporation
WoN SEC has jurisdiction over this case – YES, because of Section 5(b) of P.D. No. 902-A
RULING: Section 5(b) of P.D. No. 902-A, as amended, grants the SEC original and exclusive jurisdiction to hear and decide
cases involving—
b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders members, or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; ...
This case involves an intra-corporate controversy because the parties are a stockholder and the corporation. As correctly
observed by the trial court, the perfection of the agreement to sell Fajilan's participation and interests in BEDECO and the
execution of the promissory note for payment of the price of the sale did not remove the dispute from the coverage of
Section 5(b) of P.D. No. 902, as amended, for both the said agreement and the promissory note arose from intra-corporate
relations.
Indeed, all the signatories of both documents were stockholders of the corporation at the time of signing the same. It was an
intra-corporate transaction, hence, this suit is an intra-corporate controversy.

Fajilan's offer to resign as president and director "effective as soon as my shares and interests thereto are sold and fully
paid" implied that he would remain a stockholder until his shares and interests were fully paid for, for one cannot be a
director or president of a corporation unless he is also a stockholder thereof.

The fact that he was replaced as president of the corporation did not necessaryily mean that he ceased to be a stockholder
considering how the corporation failed to complete payment of the consideration for the purchase of his shares of stock and
interests in the goodwill of the business. There has been no actual transfer of his shares to the corporation.

The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation has
unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a legitimate corporate
purpose as provided in Sections 41 and 122 of the Corporation Code.

 These provisions of the Corporation Code should be deemed written into the agreement between the corporation
and the stockholders even if there is no express reference to them in the promissory note.
 The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which
means that the capital stock, property and other assets of a corporation are regarded as equity in trust for the
payment of corporate creditors. Creditors of a corporation are preferred over the stockholders in the distribution
of corporate assets. There can be no distribution of assets among the stockholders without first paying corporate
creditors. Hence, any disposition of corporate funds to the prejudice of creditors is null and void. Creditors of a
corporation have the right to assume that so long as there are outstanding debts and liabilities, the board of
directors will not use the assets of the corporation to purchase its own stock

[Link]
Salido, Jr. v. Aramaywan Metals Dev. Corp., G.R. No. 233857, 18 March 2021
Trust Fund Doctrine

FACTS: This case is an intra-corporate dispute involving two different factions within Aramaywan, a corporation duly
organized under the laws of the Philippines. Sometime in April 2005, San Juan, Mangune, and Salido, along with four other
individuals (collectively, Salido faction), agreed to form two mining corporations, namely Aramaywan and Narra Mining
Corporation. San Juan was tasked to finance the initial operations of the intended corporation, Mangune was in charge of the
technical aspect of the operations, while Salido and the Salido faction were in charge of the mining site and securing the
necessary permits. They entered into an Agreement to Incorporate, wherein it was stipulated that San Juan would advance
the paid-up subscription for Aramaywan amounting to P2.5M and would assure the payment of the subscription of the
capital stock of Narra Mining. In exchange, San Juan would own 55% of the stocks of Aramaywan and 35% of the stocks of
Narra Mining. In line with the said Agreement, San Juan then advanced the P2.5M paid-up subscription of Aramaywan. This
is evidenced by a Standard Chartered Bank Certificate indicating that the amount of P2.5M was deposited in San Juan's name
as treasurer, held by him in trust for the corporation. Aramaywan was then subsequently incorporated with nine named
directors.
On November 25-26, 2005, the BoD of Aramaywan had its first Board Meeting. In the said meeting, the Salido faction claimed
that San Juan delivered only P932,209.16 in cash during the incorporation process of the corporation. The Salido faction
claimed that the rest of the P2.5M remained undelivered as it remained under San Juan's name. Thus, the Salido faction
claimed that San Juan was in breach of his undertaking to advance the payment of Aramaywan's capital stock. As regards the
incorporation of Narra Mining, it is undisputed that San Juan has yet to register the same, although San Juan claimed that the
Salido faction has not yet demanded its registration. Because of these supposed breaches by San Juan of his obligations
under the Agreement, Salido made a proposal to reduce San Juan's shares in Aramaywan from 55% to 15%. It is not clear
whether San Juan accepted this proposal or not.

Several other meetings were called by the Salido faction through Atty. Pay. The supposed approved acts of the corporation in
these meetings were similarly questioned by the San Juan faction. The San Juan faction, on the other hand, in its belief that it
still had control over the corporation, called for stockholders' and board meetings and approved supposed corporate acts.
Both contending parties then submitted to the SEC conflicting General Information Sheets. Thereafter, the San Juan faction
filed with the RTC a complaint which sought to invalidate the acts of the Salido faction.

RTC dismissed the complaint. The RTC also held that San Juan voluntarily and expressly agreed to the reduction of his
shares, hence he could no longer repudiate the same. The RTC held that the 40% share of San Juan was converted into
treasury shares in exchange for the termination of San Juan's obligation (1) to release the rest of the P1,567,790.84 to the
corporation and (2) to incorporate Narra Mining. The RTC upheld the validity of the meetings of the Salido faction as they
were supposedly already in control of the corporation because of the reduction of San Juan's shares. CA reversed, stating that
while San Juan failed to incorporate Narra Mining, admittedly contrary to what was agreed upon in the Agreement, this did
not merit the reduction of San Juan's shares in Aramaywan as San Juan's breach pertained to his obligation to incorporate
Narra Mining.

ISSUE: w/n the CA erred in holding that San Juan's shares were not validly reduced, thus converted into treasury shares –
NO

RULING: NO. According to Section 9 of the Corporation Code, "[t]reasury shares are shares of stock which have been issued
and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through
some other lawful means." Apart from reacquiring the shares through some lawful means, the Corporation Code is also
explicit that while a corporation has the power to purchase or acquire its own shares, the corporation must have
unrestricted retained earnings in its books to cover the shares to be purchased or acquired. In addition, in cases where the
reason for reacquiring the shares is because of the unpaid subscription, the Corporation Code is likewise explicit that the
corporation must purchase the same during a delinquency sale. All the foregoing requirements were not met in the
reduction of San Juan's shares. At the outset, the records are bereft of any showing that Aramaywan had unrestricted
retained earnings in its books at the time the reduction of shares was made. During that time, Aramaywan had just been
existing for a few months, and had not in fact been able to perform mining activities yet. It is thus both highly doubtful and
unsupported by the record that Aramaywan had unrestricted retained earnings to be able to purchase its own shares. 

The Court has observed that: "The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund
the payment of the shares of stocks of the withdrawing stockholders." Under the trust fund doctrine, "the capital stock,
property, and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors, who are
preferred in the distribution of corporate assets." Thus, "[t]he creditors of a corporation have the right to assume that the
board of directors will not use the assets of the corporation to purchase its own stock for as long as the corporation has
outstanding debts and liabilities. There can be no distribution of assets among the stockholders without first paying
corporate debts."

In this case, there was no showing that, at the time the reduction of San Juan's shares was made, Aramaywan had
unrestricted retained earnings in its books. Neither was it shown that it did not have creditors or that they were already paid
before the agreement to release San Juan was made.  Moreover, it must be emphasized that San Juan's subscriptions have
already been fully paid by him, and as such, Aramaywan cannot validly reduce his shares without giving a corresponding
return of his investment. As earlier stated, San Juan contributed P2,500,000.00 evidenced by a Standard Chartered Bank
certificate in San Juan's name which indicates that he holds that money in trust for Aramaywan.

The RTC itself, in narrating its factual findings, noted that "the payment for the subscription of shares of all the subscribers
were paid by plaintiff Cerlito San Juan as his contribution in the formation and running of the corporation. The payment for
the subscribed shares, however, was under the name of plaintiff Cerlito San Juan  in trust for plaintiff corporation." It is well
established that when there is a trust relationship, there is a separation of the legal title and equitable ownership of the
property. In a trust relation, legal title is vested in the fiduciary or trustee, while equitable ownership is vested in the cestui
que trust or beneficiary. Here, it is clear that San Juan's name was reflected in the bank certificate only because he is the
trustee in the trust relation, but Aramaywan is nevertheless the beneficiary. This means that San Juan only had legal title
over the money, but the ownership of the same ultimately remained with Aramaywan. 

Considering that San Juan's subscriptions have been fully paid, Aramaywan cannot thus reduce his shares without a
corresponding return of his investment. It is undisputed, however, that San Juan received nothing for the reduction of his
shares.  In any event, if it were true that San Juan had unpaid subscriptions, the Corporation Code has provided a procedure
for the demand of such payment 37 and the holding of a delinquency sale in case of continued non-payment. Thus, even
assuming it was true that San Juan had unpaid subscriptions, simply agreeing in a meeting for their reduction, thereby
releasing the stockholder from his obligation to pay the unpaid subscriptions, cannot be the mode by which said unpaid
subscriptions are settled. To allow corporations to do such an act would violate the aforementioned  trust fund doctrine in
corporation law

24

Ong Yong v. Tiu

401 SCRA 1 (2003)

Trust Fund Doctrine

Facts: In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and incompletion
when its owner, the First Landlink Asia Development Corporation (FLADC), which was owned by the Tius encountered dire
financial difficulties. It was heavily indebted to the Philippine National Bank for P190 Million. To stave off the foreclosure,
Tiu invited the petitioners to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and Tius
agreed to maintain equal shareholdings in FLADC. Ong subscribed 1,000,000 shares at a par value of P100.00 each while
Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing subscription of
450,200 shares. On February 23,1996, Tius rescinded the Pre-Subscription Agreement, accusing Ongs of refusing to credit to
them the FLADC shares covering their real property contributions, preventing them from assuming the positions of and
performing their duties. Ongs in their defense, said that the Tius had in fact assumed the positions of Vice-  president and
Treasurer of FLADC but it was they who refused to comply with the corporate duties assigned to them. Tius, according to
Ongs, refused to pay P570,690 for capital gains tax and documentary stamp tax so it is impossible for them to secure anew
TCT over the property in FLADC name.

Issue: W/N the Pre-Subscription Agreement can be rescinded.

Ruling: No. The rescission of the Agreement was not proper. FLADC was originally incorporated with an authorized capital
stock of 500,000 shares with the Tius owning the 450,200 shares representing the paid-up capital. When the Tius invited the
Ongs to invest in FLADC as stockholders, and increase of the authorized capital stock became necessary to give each group
equal shareholding as agreed upon the Pre-subscription agreement. The authorized capital stock was increased from
500,000 shared to 2,000,000 shares with par value of P100 each. The subject matter of the contract was the 1 million
unissued shares of FLADC stock allocated to the Ongs. A subscription contract necessarily involves the corporations one of
the contracting  parties since the subject matter of the transaction is property owned by the corporation its shares of stock.
Thus, the subscription contract was one between the Ongs and FLADC and not between the Ongs and the Tius.

All this notwithstanding, granting but not conceding that the Tius possess the legal standing to sue for rescission based on
breach of contract, said action will nevertheless still not prosper since rescission will violate the Trust Fund Doctrine and the
procedures for the valid distribution of assets and property under the Corporation Code.

The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of  Philippine Trust Co. vs. Rivera, provides that
subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the
satisfaction of their claims. This doctrine is the underlying principle in the procedure for the distribution of capital assets,
embodied in the Corporation Code, which allows the distribution of corporate capital only in three instances: (1) amendment
of the Articles of Incorporation to reduce the authorized capital stock,  (2) purchase of redeemable shares by the corporation,
regardless of the existence of unrestricted retained earnings, and (3) dissolution and eventual liquidation of the corporation.
Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own shares and in Section
122 on the prohibition against the distribution of corporate assets and property unless the stringent requirements therefor
are complied with.

In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution
of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code,
since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of
the corporation is allowed.

25
University of Mindanao v. Bangko Sentral ng Pilipinas
778 SCRA 458 (2016)

FACTS: Guillermo and Dolores Torres incorporated and operated two (2) thrift banks: (1) First Iligan Savings & Loan
Association, Inc. (FISLAI); and (2) Davao Savings and Loan Association, Inc. (DSLAI). Guillermo Torres chaired both thrift
banks. He acted as FISLAI's President, while his wife, Dolores Torres, acted as DSLAI's President and FISLAI's Treasurer.
Upon Guillermo Torres' request, Bangko Sentral ng Pilipinas issued a P1.9 million standby emergency credit to FISLAI. On
May 25, 1982, University of Mindanao's Vice President for Finance, Saturnino Petalcorin, executed a deed of real estate
mortgage over University of Mindanao's property in Cagayan de Oro City in favor of Bangko Sentral ng Pilipinas. "The
mortgage served as security for FISLAI's PI.9 Million loan." It was allegedly executed on University of Mindanao's behalf. As
proof of his authority to execute a real estate mortgage for University of Mindanao, Saturnino Petalcorin showed a
Secretary's Certificate signed by University of Mindanao's Corporate Secretary, Aurora de Leon. Saturnino Petalcorin
executed another deed of real estate mortgage, allegedly on behalf of University of Mindanao, over its two properties in
Iligan City. This mortgage served as additional security for FISLAI's loans. FISLAI and DSLAI eventually merged with DSLAI
as the surviving corporation in an effort to rehabilitate the thrift banks due to the heavy withdrawals of depositors. DSLAI
later became known as Mindanao Savings and Loan Association, Inc. (MSLAI). MSLAI failed to recover from its losses. Bangko
Sentral ng Pilipinas later on foreclosed the mortgaged properties.

University of Mindanao filed two Complaints for nullification and cancellation of mortgage. One Complaint was filed before
the RTC of Cagayan de Oro City, and the other Complaint was filed before the RTC of Iligan City. University of Mindanao
alleged that it did not obtain any loan from Bangko Sentral ng Pilipinas and that Aurora De Leon’s certification was
anomalous. That it never authorized Saturnino Petalcorin to execute real estate mortgage contracts involving its properties
to secure FISLAI's debts and it never ratified the execution of the mortgage contracts. The Regional Trial Courts ruled in
favor of University of Mindanao. The CA however ruled that "although BSP failed to prove that the UM Board of Trustees
actually passed a Board Resolution authorizing Petalcorin to mortgage the subject real properties, Aurora de Leon's
Secretary's Certificate" clothed Petalcorin with apparent and ostensible authority to execute the mortgage deed on its behalf.
Bangko Sentral ng Pilipinas merely relied in good faith on the Secretary's Certificate. University of Mindanao is estopped
from denying Saturnino Petalcorin's authority.

ISSUE: W/N petitioner University of Mindanao is bound by the real estate mortgage contracts executed by Saturnino
Petalcorin.
RULING: NO. Acts of an officer that are not authorized by the board of directors/trustees do not bind the corporation unless
the corporation ratifies the acts or holds the officer out as a person with authority to transact on its behalf. Petitioner argues
that it did not authorize Saturnino Petalcorin to mortgage its properties on its behalf. There was no board resolution to that
effect. Thus, the mortgages executed by Saturnino Petalcorin were unenforceable. The mortgage contracts executed in favor
of respondent do not bind petitioner. They were executed without authority from petitioner. Being a juridical person,
petitioner cannot conduct its business, make decisions, or act in any manner without action from its Board of Trustees. The
Board of Trustees must act as a body in order to exercise corporate powers. Individual trustees are not clothed with
corporate powers just by being a trustee. Hence, the individual trustee cannot bind the corporation by himself or herself. The
corporation may, however, delegate through a board resolution its corporate powers or functions to a representative,
subject to limitations under the law and the corporation's articles of incorporation. The relationship between a corporation
and its representatives is governed by the general principles of agency. Article 1317 of the Civil Code provides that there
must be authority from the principal before anyone can act in his or her name.

Hence, without delegation by the board of directors or trustees, acts of a person - including those of the corporation's
directors, trustees, shareholders, or officers —executed on behalf of the corporation are generally not binding on the
corporation. The unenforceable status of contracts entered into by an unauthorized person on behalf of another is based on
the basic principle that contracts must be consented to by both parties. Consent of a person cannot be presumed from
representations of another, especially if obligations will be incurred as a result. Thus, authority is required to make actions
made on his or her behalf binding on a person. Contracts entered into by persons without authority from the corporation
shall generally be considered ultra vires and unenforceable against the corporation.
CASE NO. 26
Corporate Powers and Capacity
De la Rama v. Ma-ao Sugar Central Co., 27 SCRA 247 (1969)

FACTS: This was a representative or derivative suit commenced on October 20, 1953, in the Court of First Instance of Manila
by 4 minority stockholders against the Ma-ao Sugar Central Co., Inc. and J. Amado Araneta and three other directors of the
corporation.

The complaint stated five causes of action, among others, for alleged illegal and ultra-vires acts consisting of self-dealing
irregular loans, and unauthorized investments.

Plaintiffs alleged that in 1950 the Ma-ao Sugar Central Co., Inc., through its President, subscribed to capital stocks of the
Philippine Fiber Processing Co. Inc., a company engaged in the manufacture of sugar bags; and that it was only on November
26, 1951, that the President of Ma-ao Sugar Central Co., Inc., was so authorized by the Board of Directors. On May 1951,
additional shares were subscribed. Again, the "investment" was made without prior board resolution, the authorizing
resolution having been subsequentIy approved only on June 4, 1952.

Plaintiffs also contend that even assuming, arguendo, that the said Board Resolutions are valid, the transaction, is still
wanting in legality, no resolution having been approved by the affirmative vote of stockholders holding shares in the
corporation entitling them to exercise at least 2/3 of the voting power, as required in Sec. 17-½ of the Corporation Law.

On the other hand, the defendants invoked Sec. 13, par. 10 of the Corporation Law. SEC. 13. — Every corporation has the
power:

(9) To enter into any obligation or contract essential to the proper administration of its corporate affairs or
necessary for the proper transaction of the business or accomplishment of the purpose for which the corporation
was organized;

(10) Except as in this section otherwise provided, and in order to accomplish its purpose as stated in the articles of
incorporation, to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities and other evidences of
indebtedness of any domestic or foreign corporation.

ISSUE: WON the investments made by the defendants were not in violation of law.

RULING: YES. Investment by a sugar central in the equity of a jute-bag manufacturing company used in packing
sugar falls within the implied powers of the sugar central as part of its primary purpose; it does not need
shareholders’ ratification.

The SC explained by quoting the explanation of Professor Sulpicio S. Guevara of the University of the Philippines, College of
Law, a well-known authority in commercial law:

“[Sec. 13] Power to acquire or dispose of shares or securities. — A private corporation, in order to accomplish its purpose as
stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to
acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidences of indebtedness of any domestic
or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of the
stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish
the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such
shares or securities must be subject to the limitations established by the Corporation Law.“

[Sec. 17-½] Power to invest corporate funds. — A private corporation has the power to invest its corporate funds in any
other corporation or business, or for any purpose other than the main purpose for which it was organized, provided that 'its
board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the
corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a stockholders' meeting
called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in
any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as
stated in it articles of incorporation, the approval of the stockholders is not necessary.”

27
Stradcom Corp. vs. Pilapil (2022)
Board of Directors/Trustees and Officers

FACTS:

 There was an intra-corporate controversy between the Quiambao Group and the Sumbilla Group, who both claim
to be the duly constituted Board of Directors and officers of Stradcom.
 Due to several suits therefrom, the Sumbilla Group engaged the law firm of Castillo Laman Tan Pantaleon & San
Jose (CLTPSJ) to file a petition for the issuance of an interim measure of protection. Sumbilla alleged that he was
authorized to bring the suit in Stradcom’s behalf and in support thereof, he attached a Secretary’s Certificate
executed by Millare, the alleged Assistant Corporate Secretary of Stradcom.
 However, Atty. Pilapil, the alleged Corporate Secretary and Vice President for Legal of Stradcom in the Quiambao
Group’s set of officers, sent CLTPSJ a letter demanding they cease and desist from representing themselves as
counsel for Stradcom; otherwise, civil, criminal and administrative actions will be instituted against them.
Subsequently, CLTPSJ withdrew as counsel.
 Sumbilla, purportedly on behalf of Stradcom, and as President and CEO thereof, filed a disbarment complaint
against Atty. Pilapil for sending the said letter in which he harassed and threated CLTPSJ with baseless suits to
prevent them from representing Stradcom and to deprive its choice of counsel in violation of the CPR. Moreover,
Sumbilla claimed that when they engaged the services of Atty. Austria as Stradcom’s new counsel, Atty. Pilapil made
utterances during the hearings which were intended to intimidate Sumbilla and Atty. Austria, in violation of the
CPR.
 Atty. Pilapil contended that Sumbilla has no authority to represent Stradcom in the instant disbarment case, nor is
he a stockholder of record, director or officer of Stradcom. Moreover, he contended that he was merely complying
with his ethical duties as a lawyer and as Stradcom’s Corporate Secretary and Vice President for Legal.

ISSUE: W/N Atty. Pilapil should be disbarred for demanding CLTPSJ to desist from representing Stradcom for its lack of
authority.

RULING: NO. The Supreme Court dismissed the disbarment complaint and ruled that Atty. Pilapil’s demand for CLTPSJ to
desist from representing Stradcom in view of its lack of authority to represent the corporation is based on a legitimate cause
and is at the heart of the Quiambao Group’s primary claim that it has the rightful control and management over Stradcom.
Section 22, in relation to Section 24 of the Revised Corporation Code, clearly states that all corporate powers are
exercised, all business conducted, and all properties controlled by the board of directors. Therefore, an individual
corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from
the board of directors. Here, as Corporate Secretary and Vice President for Legal of Stradcom, Atty. Pilapil was duty-bound
to protect Stradcom’s interests and correct any misrepresentation of parties who purport to represent Stradcom despite
lacking authority from its board. This includes preventing any individual from hiring a counsel to represent Stradcom
despite lack of authority from the corporation.

Moreover, the Rules of Court mandate that every action must be prosecuted or defended in the name of the real-party-in-
interest, and in turn, the power of a corporation to sue and be sued in any court is lodged with the board of directors that
exercises its corporate powers. Considering CLTPSJ’s purported authority to file the suit springs only from Sumbilla, who
purportedly has no authority to represent the corporation, Atty. Pilapil’s demand for CLTPSJ to cease from representing
Stradcom is relevant to the suits instituted by CLTPSJ, or any counsel engaged by Sumbilla purportedly on behalf of
Stradcom, since it is a ground for the dismissal of the said suits. In sending the letter, Atty. Pilapil was merely protecting his
client’s interest within the bounds of the law.

28 - Rizon
Toms v. Rodriguez, 761 SCRA 679 (2015); 797 SCRA 60 (2016)
Board of Directors/Trustees and Officers

Facts: Golden Dragon International Terminals, Inc. (GDITI) is the exclusive Shore Reception Facility (SRF) Service Provider
of the Philippine Ports Authority (PPA) tasked to collect, treat, and dispose of all ship-generated oil wastes in all bases and
private ports under the PPA’s jurisdiction.

Initially this case involves 2 sale, Cu sold his shares to Ramos and Basalo. When the latter failed to pay the purchase price, Cu
sold same shares in favor of Ong and Gunnacao, who also did not pay the consideration therefor.

The elected officers of GDITI filed an action for injunction and damages before the RTC against a group led by Ramos et al
composed of individuals who were not elected as officers of GDITI – which included Tom – forcibly took over the GDITI
offices and performed the functions of its officers. Cu (the unpaid seller) intervened claiming that he was still the legal owner
of the shares of stock, considering the price was not paid. The RTC-Manila granted Cu’s application for Preliminary
Mandatory and Preliminary Prohibitory Injunctions, and thereafter directed the foregoing parties to cease and desist from
performing or causing the performance of any and all acts of management and control over GDITI, and to give Cu, as
intervenor, the authority to put in order GDITI’s business operations.

Cu executed SPA in favor of Mancao and Basalo constituting the latter as his duly authorized representative to exercise the
powers granted to him, but subsequently revoked the SPA, effectively reinstating the power to control and manage the
affairs of GDITI unto himself. Thus, Mancao and Basalo filed the present Complaint for Specific Performance with Prayer for the
Issuance of a Temporary Restraining Order (TRO) and a Writ of Preliminary Injunction against Cu, Tom, and several John and
Jane Does before the RTC of Nabunturan

Samuel Rodriguez filed a Complaint-in-Intervention, alleging that in a MOA, Basalo authorized him to take over, manage, and
control the operations of GDITI in the Luzon area, that Basalo and Rodriguez agreed to divide between them the monthly net
profit of GDITI equally. However, Basalo refused to honor the terms and conditions of the MOA despite demand, Rodriguez
sought to intervene in the specific performance case to compel Basalo to faithfully comply with his undertaking. Rodriquez
also prayed for the issuance of a writ of preliminary injunction directing Basalo, his agents, deputies, and successors, and all
other persons acting for and on his behalf, to honor his obligations under the MOA.

RTC granted Rodriguez’s application for the issuance of a writ of preliminary mandatory injunction on the basis of the MOA
and ordered Basalo to: (a) place the management and control of GDITI in Luzon to Rodriguez as representative of Basalo;
(b)allocate the power to administer and manage the Visayas and Mindanao regions of GDITI to Rodriguez in the concept of a
partner of Basalo; (c) allow Rodriguez to provide the manpower services for the operations of GDITI; and (d) give to
Rodriguez his share in the monthly net proceeds from GDITI’s operations, subject to the rules of the corporation on fees
relative to the management contracts.

Issue: W/N the writ of injunction in favor of Rodriguez is valid, pursuant to the MOA entered between Rodriguez and Basalo
or W/N the MOA is valid.

Ruling: No. The issuance of an injunctive writ against tom et al is not warranted. This pronouncement follows the well-
entrenched rule that a corporation exercises its powers through its board of directors and/or its duly authorized officers and
agents, except in instances where the Corporation Code requires stockholders’ approval for certain specific acts. The
management and control of GDITI, being a stock corporation, are vested in its duly elected Board of Directors, the body that:
(1) exercises all powers provided for under the Corporation Code; (2) conducts all business of the corporation; and (3)
controls and holds all property of the corporation. Its members have been characterized as trustees or directors clothed with
a fiduciary character.

The powers granted to the Board of Directors are directly vested to them by law pursuant to what is now Sec. 22 of
RCC. Thus, the MOA executed among the feuding shareholders that arranges that the affairs of the corporation shall
be in the hands of one set of shareholders would be void and cannot serve to oust the duly elected Board of
Directors from the exercise of corporate powers.

Thus, by denying Tom's prayer for the issuance of a TRO and/or writ of preliminary injunction, the CA effectively affirmed
the RTC's Order placing the management and control of GDITI to Rodriguez, a mere intervenor, on the basis of a MOA
between the latter and Basalo, in violation of the foregoing provision of the Corporation Code. In so doing, the CA committed
grave abuse of discretion amounting to lack or excess of jurisdiction, which is correctible by certiorari. MOA is, clearly and in
all respects, contrary to law. Therefore, the writ of preliminary injunction must stand.

2016 MR Decision.

To reiterate, the Court granted the writ of preliminary injunction in favor of Tom et al on the ground that a corporation can
only exercise its powers and transact its business through its board of directors and through its officers and agents when
authorized by a board resolution or its by-laws.

29 - Sabtaluh

Colegio Medico-Farmaceutico De Filipinas, Inc. v. Lim, G.R. No. 212034, [July 2, 2018]

Board of Directors/Trustees and Officers

FACTS: Petitioner the lot owner, entered into a Contract of Lease with St. John Berchman School of Manila for the period
June 2005 to May 2006; upon the expiration of the lease contract, the petitioner, thru its president, Dr. Virgilio C. Del Castillo,
sent another contract of lease for the period June 2006 to May 2007 for its signature, but despite several follow ups, the
respondent failed to return the contract of lease, thus in a board meeting in December, 2007, the petitioner informed the
respondent that it is not renewing the lease anymore, and on March 6, 2008, Del Castillo, the president, demanded the
payment of back rentals with a request to vacate the leased property. Despite demand, the respondent refused to vacate,
hence, it filed a complaint for Ejectment with Damages against the respondent.

The MTC dismissed the complaint for lack of a valid demand letter. It ruled that the demand letter was legally non-existent
for failure of petitioner to show that Del Castillo was duly authorized by the Board to issue the same. The MeTC stressed that
a demand letter is a jurisdictional requirement the absence of which opens the case susceptible to dismissal.

ISSUE: WON a president of a corporation can send a demand letter without board resolution.

RULING: YES. In the absence of a charter or by-law provision to the contrary, the president is presumed to have the
authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties. In
this case, the issuance of the demand letter dated March 5, 2008 to collect the payment of unpaid rentals from respondent
and to demand the latter to vacate the subject property was done in the ordinary course of business, and thus, within the
scope of the powers of Del Castillo.
In fact, it was his duty as President to manage the affairs of petitioner, which included the collection of receivables. Article
IV, Section 2 of the By-laws of petitioner expressly states that the President has the power to:
 xx xx
 Exercise general [supervision], control and direction of the business and affairs of the Colegio;
xx xx 
Execute in behalf of the Colegio, bonds, mortgages, and all other contracts and agreements which the Colegio may enter into.
xx xx 
Exercise or perfonn such other duties as are incident to his office or such powers and duties as the Board may from time to
time.
 Accordingly, even without a board resolution, Del Castillo had the power and authority to issue the demand letter dated
March 5, 2008.
In any case, even if, for the sake of argument, Del Castillo acted beyond the scope of his authority in issuing the demand letter
dated March 5, 2008, the subsequent issuance of the Board Resolution dated May 13, 2008 cured any defect possibly arising
therefrom as it was a clear indication that the Board agreed to, consented to, acquiesced in, or ratified the issuance of the
said demand letter.

[Link]
Virata v. Ng Wee, G.R. Nos. 220926, 221058, 221109, 221135 & 221218 (Resolution), [March 21, 2018]
X. Board of Directors/Trustees and Officers

FACTS: Before the Court are the Motion for Reconsiderations filed in view of its 5 July 2017 Decision holding the directors
and officers of Wincorp jointly and severally liable with the company for the unpaid investments of Ng Wee made to Power
Merge through Wincorp. Ng Wee was a valued client of Westmont Bank. Sometime in 1998, he was enticed by the bank
manager to make money placements with Westmont Investment Corporation (Wincorp), a domestic corporation organized
and licensed to operate as an investment house, and one of the bank's affiliates.
 Ng Wee’s initial investments were matched with Hottick which fully availed the loan facility but defaulted in
payment during the Asian financial crisis. Ng Wee confronted Wincorp about the default of Hottick. Wincorp
assured Ng Wee that it will absorb the losses from Hottick and Ng Wee’s investments will be transferred to another
borrower, Power Merge. Virata is the majority stockholder of Power Merge owning 374,996 out of its 375,000
subscribed capital stock.
 In a special meeting of Wincorp’s board of directors approved Power Merge’s application for a P1.3bn credit line.
On 11 March 1999, Wincorp, through another board meeting, increased the credit limit to P2.5bn.
 Ng Wee was not able to collect his investment from Power Merge. On 19 October 2000, he instituted a Complaint
for Sum of Money with Damages against 17 defendants of which only Virata, Power Merge, UPDI, UEM-MARA,
Wincorp, Ong, Reyes, Cua, Tankiansee, Santos-Tan, Vicente and Henry Cualoping, and Estrella were duly served
with summons. The last six were board directors of Wincorp.
 On the basis of fraud, the Court pierced the veil of Wincorp and held the directors and officers personally liable to
Ng Wee. The basis of the liability was Section 31 of the Corporation Code when they assented to the grant of the
Credit Line Agreement and its Amendment to Power Merge.
 Santos-Tan however did not appeal the decision of the CA holding her liable with her co-parties to Ng Wee and was
only participating in the proceedings in her plea of reconsideration. She argues that the cross-claim should not have
been granted because the Side Agreements which served as the basis thereof never got the imprimatur of the Board
of Directors. Moreover, considering the P2.18bn drawdowns of Power Merge, she found it iniquitous and immoral
to require her and her co-directors to reimburse Virata of whatever he was required to pay Ng Wee.

ISSUE: WN the BOD are personally liable to Ng Wee for the investment he placed with Power Merge through Wincorp?

RULING: YES. Section 31 of the Corporation Code provides: Section 31. Liability of directors, trustees or officers . —
Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest
in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquire, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability
upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which
otherwise would have accrued to the corporation.

A. For Cua and the Cualopings - the totality of the circumstances proves that they are either complicit to the fraud or at the
very least guilty of gross negligence:
The board is charged with a fiduciary duty which it failed to fulfill when it did not heed the warning signs which would have
cautioned it from approving the loan in haste: (1) Power Merge has only been in existence for two years when it was granted
a credit facility; (2) Power Merge was thinly capitalized with only P37,500,000.00 subscribed capital; (3) Power Merge was
not an ongoing concern since it never secured the necessary permits and licenses to conduct business, it never engaged in
any lucrative business, and it did not file the necessary reports with the SEC; and (4) no security other than its Promissory
Notes was demanded by Wincorp or was furnished by Power Merge in relation to the latter's drawdowns. It is immaterial
therefore if they approved or not the Side Agreements or authorized its signing.

B. For Tankiansee - absolved because his immigration records clearly show that he was outside the country during the dates
when the Agreements were approved by the board.

C. For Estrella - failed to offer concrete evidence for this alibi.

D. For Santos-Tan - liability n is no different from Cua and the Cualopings in their personal capacity under Section 31 of the
Corporation Code. The contention that the Side Agreements were without the imprimatur of its board of directors cannot be
given credence. The totality of circumstances supports the conclusion that the Wincorp directors impliedly ratified, if not
furtively authorized, the signing of the Side Agreements in order to lay the groundwork for the fraudulent scheme.
 Virata had existing obligations to Wincorp from the Hottick account. However, the board excluded Virata as a party
respondent to its collection suit against Hottick and, on the same day, approved the P1.3bn credit line to Power
Merge.
 Proceeds of the credit line were released to Power Merge before the corresponding Agreements were signed. This
lends credence to Virata’s claim that Wincorp did not intend for Power Merge to be strictly bound by the terms of
the credit facility.

DOCTRINE: The Board of Directors is expected to be more than a mere rubber stamp of the corporation and its subordinate
departments. It wields all corporate powers bestowed by the Corporation Code, including the control over its properties and
the conduct of its business. Being stewards of the company, the Board is primarily charged with protecting the assets of the
corporation in behalf of its stakeholders.

31 – Tan
Lim vs. Moldex Land, Inc.
G.R. No. 206038, January 25, 2017

FACTS: Mary Lim is a registered unit owner of Golden Empire Tower, a condominium project of Moldex, a real estate
company engaged in the construction and development of high-end condominium projects and in the marketing and sale of
the units. Condocor, a non-stock, non-profit corporation, is the registered condominium corporation for the Golden Empire
Tower. Lim is a member of Condocor. Lim claimed that the respondents are non-unit buyers, but all are members of the BOD
of Condocor, having been elected during its organizational meeting. Moldex became a member of Condocor on the basis of its
ownership of the 220 unsold units in the Golden Empire Tower. The individual respondents acted: as its representatives.

Condocor held its annual general membership meeting. Its corporate secretary certified and declared the existence of a
quorum even though only 29/1088 unit buyers were present. The declaration of quorum was based on the presence of the
majority of the voting rights. Lim objected to the validity of the meeting. The objection was denied. Thus, Lim and all the
other unit owners present, except for 1, walked out and left the meeting. Despite the walkout, the individual respondents
and the other unit owner proceeded with the annual general membership meeting and elected the new members of the BOD
for 2012-2013. All 4 individual respondents were voted as members of the board, together with 3 others whose election was
conditioned on their subsequent confirmation. Thereafter, the newly elected members of the board conducted an
organizational meeting and proceeded with the election of its officers

ISSUE: W/N the individual respondents be elected as directors of Condocor.

RULING: NO. The governance and management of corporate affairs in a corporation lies with its board of directors in case of
stock corporations, or BOT in case of non-stock corporations. As the board exercises all corporate powers and authority
expressly vested upon it by law and by the corporations' by-laws, there are minimum requirements set in order to be a
director or trustee, one of which is ownership of a share in one's name or membership in a non-stock corporation. Sec. 23 of
the Corporation Code provides:

Section 23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1)
year until their successors are elected and qualified.

Every director must own at least 1 share of the capital stock of the corporation of which he is a director, which share shall
stand in his name on the books of the corporation. Any director who ceases to be the owner of at least 1 share of the capital
stock of the corporation of which he is a director shall thereby cease to be a director. Trustees of non-stock corporations
must be members thereof. A majority of the directors or trustees of all corporations organized under this Code must be
residents of the Philippines.

This rule was reiterated in Sec. 92 of the Corporation Code, which states:

Section 92. Election and term of trustees. – x x x No person shall be elected as trustee unless he is a member of the
corporation. x x x

While Moldex may rightfully designate proxies or representatives, the latter, however, cannot be elected as directors or
trustees of Condocor. First, the Corporation Code clearly provides that a director or trustee must be a member of record of
the corporation. Further, the power of the proxy is merely to vote. If said proxy is not a member in his own right, he cannot
be elected as a director or proxy.

Following Section 25 of the Corporation Code, the election of individual respondents, as corporate officers, was likewise
invalid.

32
Lopez v. Lopez
GR. No. 254957-58, 15 June 2022

FACTS:
PROCEEDINGS IN THE QUEZON CITY RTC:
  On 1 March 2019, Petitioner Lily Lopez, along with Ma. Christina Lopez, filed before the RTC, QC a case for election
contest against Lolito Lopez, Ma. Rachel Lopez, Barbara Villas, Benedicto Villafuerte, Ma. Luisa Paras, Ruel
Villacorta, Teresita Fernando, and iSpecialist Development Corporation (respondents, collectively).

 Respondent iSpecialist Development Corporation is engaged in the management and operation of a public market.
It leases out market stalls in New Nova Plaza Market. Since its incorporation in 2011, it was being run by petitioner
and her husband, respondent Lolito, who is also the president of said corporation.

 Petitioner and respondent Lolito own the majority shares of iSpecialist. On 14 February 2019, respondent Lolito, in
his capacity as president of iSpecialist, called a special stockholders' meeting of said corporation, to be held at
Anabel's Restaurant in Quezon City. During said meeting, new members of the Board of Directors were elected:
namely, respondent Lolito, Ma. Rachel Lopez, Teresita Fernando, Barbara Villas and Benedicto Villafuerte.

 Petitioner filed the Complaint a quo seeking to declare the nullity of the special stockholders' meeting and
consequent election on the ground that they were conducted in violation of the By-Laws and Articles of
Incorporation of iSpecialist, alleging that:
o the meeting was null and void as it was not held in the principal office of iSpecialist, as required by its by-
laws. Furthermore, it was held on a date different from that explicitly mandated by the same by-laws;
o the conduct of the meeting was also void on the additional ground that Christina, who claimed to be a
stockholder of iSpecialist, was prevented from attending it;
o the elections should be nullified, as 33,495 unissued shares were allowed to vote and were actually used
to elect the new Board of Directors;
o said shares could not be utilized without violating her right to pre-emptive right;
o respondent Lolito had no right at all to vote any or all of his shares of stock as said shares were conjugal in
nature, having been acquired during the existence of their marriage.

 Respondents Lolita and his co-defendants insisted on the validity of the meeting and the subsequent elections
contending that under Section 2, Article II of the corporation's By-Laws, special meetings of stockholders may at
any time be called by the president of the corporation. The venue was also valid as under Section 51 of the
Corporation Code, regular or special meetings may be held in the city or municipality where the principal office is
located, in this case, Quezon City.

 The court declared the elections null and void. The trial court found that in iSpecialist's 2013 General Infonnation
Sheet (GIS), the total number of common shares was only 12,500, with respondent Lolito and petitioner holding
44.75% each of the total shareholdings, or 5,592 common shares for each of them. Respondent Lolito allegedly
infused his personal money into the corporation as additional capital by purchasing 33,495 unissued shares.
However, the trial court held that the unissued shares in excess of the 12,500 shares originally issued by the
corporation may only be issued by authority of the Board of Directors.

PROCEEDINGS IN THE MARIKINA CITY RTC:

 Petitioner, together with Christina and John Rusty Lito Lopez as plaintiffs, also filed an election contest alleging that
they were stockholders and directors of LC Lopez Resources, Inc., Conqueror International, Inc. and Russ
Marketing, Inc. They questioned the validity of a stockholders' meeting held on 11 February 2019. According to
petitioner and her co-plaintiffs, who are her children with respondent Lolito, on 29 January 2019, they individually
received notice for the said meeting, signed by respondent Lolita in his capacity as chairman of the board of
directors and president of said corporations. Both Christina and John Rusty sent proxies to the said meeting, but
they were turned away because allegedly, their principals (Christina and John Rusty) were not stockholders of the
corporations. Petitioner, meanwhile, walked out of the venue after she was not allowed to have her lawyer around
for the said meeting. However, the meeting went ahead and resulted in the election of a new set of board of
directors for the aforesaid corporations. According to petitioner, on 26 November 2018, or some 2 months prior to
the meeting, respondent Lolito acquired 252,125 unissued shares of stock in LC Lopez, and 97,050 unissued shares
of stock in Conqueror. He used said shares, which were purchased without any board resolution of the two
aforesaid corporations, to ostensibly elect, or cause to be elected, his codefendants as directors for the two
aforesaid corporations, in the process ousting petitioner, Christina, and John Rusty as directors and officers thereof.
Petitioner and her co-plaintiffs thereafter filed the complaint a quo, assailing the alleged invalidity of the meeting
and the eventual election of a new board of directors.

 RTC-Marikina declared the special stockholders' meeting held on 11 February 2019 and all activities made in its
course, including the election of a new set of board of directors to be null and void. The court a quo found that both
Christina and John Rusty were indeed stockholders of the subject corporations despite the fact that their names
were not listed in the subject corporation's Stock and Transfer Book (STB), although they did appear as
stockholders in the GIS submitted to the SEC. The court a quo also ruled that the issuance of the stock certificates to
respondent
  Respondents filed Petitions for Review before the CA to question the decisions of the courts a quo (in both cases –
Quezon City and Marikina City). Respondents insisted on the validity of the two special stockholders' meeting,
maintaining that in both instances, a quorum had been attained. They likewise asserted that respondent Lolito's
purchase of the unissued shares of stock were not in fact void, but was merely voidable, as it should be deemed an
ultra vires act. They claimed that the purchase was justified as there was, at the time, an extreme need to infuse
capital into the subject corporations, adding that their assets were misused by petitioner. Respondents also
challenged the two decisions for declaring Christina to be a stockholder of the subject corporations because her
name was not mentioned in the STB.

 The CA reversed and set aside the decisions of the QC RTC and Marikina RTC. The Special Stockholders' Meeting of
iSpecialist on February 14, 2019, of LC Lopez Resources, Inc. and Conqueror International, Inc. held on February
11, 2019 are hereby declared VALID.

ISSUES:
(1) W/N Christina is a stockholder of the subject corporations – YES
(2) W/N Respondent Lolito Lopez's purchase of the unissued shares of stock was valid - NO

RULINGS:
(1) YES. Christina was able to prove her stockholder status by evidence other than the GIS. There were testimonies of
respondents Lolito, Benedicto Villafuerte and Teresita Fernando, all of whom confirmed that Christina and John
Rusty were indeed stockholders of the corporation. Respondent Lolito even sent notices to the two to attend the
special stockholders' meeting. The court a quo likewise made no mistake in declaring respondent Lolito estopped
from denying Christina's standing as stockholder. Having presented Christina as a stockholder during his
transactions with banks, respondent Lolito cannot later be allowed to deny such status when doing so would prove
prejudicial to his interests.

(2) NO. Anent respondent Lolita's purchase of the unissued shares, we agree with the rulings of the courts a quo that
the same could not be done in the absence of any board resolution authorizing the transaction. This is explicitly
provided by Section 23 of the Corporation Code which reads as follows: Section 23. The board of directors or
trustees - Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall
be exercised, all business conducted and all property of such corporations controlled and held by the board of directors
or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for 1 year and until their successors are elected and qualified.

It is clear then that without the board resolution authorizing the sale of the erstwhile unissued shares, respondent
Lolita could not have validly purchased them. The sale being invalid, respondent Lolita could not have legally used
the same in voting for a new set of directors in the concerned corporations. For yet another reason to invalidate the
sale, and as judiciously held by RTC-Marikina, it was concluded in violation of petitioner's right of preemption
granted her and the other stockholders under Section 39 of the Corporation Code. Not only is the sale invalid, but
we find the special stockholders' meeting to be void itself for lack of quorum. In determining the quorum, We
would have to refer to the GIS of the subject corporations, instead of the STB, in view of the undisputed findings of
the court a quo that the entries therein were of doubtful veracity, considering that first, it was made by Edna, who
was not the corporate secretary, and second, it was admitted by respondents Mario that the entries therein, and the
stock certificates themselves, were made a few days before the special stockholders' meeting and that there
apparently were no documents to support said entries. Therefore, the latest GIS would have given a more accurate
presentation of the actual stockholdings to determine whether or not a quorum indeed was constituted during the
meeting. The GIS of LC Lopez showed that there were 162,500 outstanding shares therein, and only respondent
Lolito's share of 61,750 was represented during the meeting, as the other stockholders, by themselves or through
their proxies, were prevented from attending it. In the case of Conqueror, only the 17,000 shares of respondent
Lolita, out of its 45,000 outstanding shares, were represented, due also to the absence of the other stockholders.
Very clearly, the shareholdings of respondent Lolito alone could not have constituted the one-half plus one of the
total outstanding shares required to have a quorum. It is beyond doubt that the special stockholders' meeting, and
the sale and voting of the unissued shares of stock, were both void and thus could not have produced any legal
effect.

33 BAIRD
Board of Directors/Trustees and Officers
Wesleyan University-Philippines v. Maglaya, Sr., 815 SCRA 171 (2017)

FACTS: WUP is a non-stock, non-profit, non-sectarian educational corporation duly organized and existing under the
Philippine laws. Respondent Atty. Guillenno T. Maglaya, Sr. (Maglaya) was appointed as a corporate member, and was
elected as a member of the Board of Trustees on January 9, 2004 both for a period of 5 years. He was re-elected as a trustee.
In a Memorandum, the incumbent Bishops of the United Methodist Church  (Bishops) apprised all the corporate members of
the expiration of their terms on December 31, 2008, unless renewed by the former. Dr. Dominador Cabasal, Chairman of the
Board, informed the Bishops of the cessation of corporate terms of some of the members and/or trustees since the by-laws
provided that the vacancy shall only be filled by the Bishops upon the recommendation of the Board. Maglaya learned that
the Bishops created an Ad Hoc Committee to plan the efficient and orderly turnover of the administration of the WUP in view
of the alleged "gentleman's agreement" On April 24, 2009, the Bishops, through a formal notice to all the officers, deans, staff,
and employees of WUP, introduced the new corporate members, trustees, and officers. In the said notice, it was indicated
that the new Board met, organized, and elected the new set of officers. Manuel Palomo  (Palomo), the new Chairman of the
Board, informed Maglaya of the termination of his services s the President of the University. Thereafter, Maglaya and other
fonner members of the Board (Plaintiffs) filed a Complaint for Injunction and Damages before the RTC of Cabanatuan City.
RTC dismissed the case declaring the same as a nuisance or harassment suit prohibited under Section 1(b),  Rule 1 of the
Interim Rules for Intra-Corporate Controversies. Moreover, their continued stay in their office beyond their terms was only
in hold-over capacities, which ceased when the Bishops appointed new members of the corporation and the Board. The CA,
in a Decision, affirmed the decision of the RTC, and dismissed the petition for certiorari filed by the plaintiffs for being the
improper remedy. 

Thereafter, Maglaya filed the present illegal dismissal case against WUP, Palomo, Bishop Lito C. Tangonan (Tangonan), and
Bishop Leo A. Soriano (Soriano). Maglaya claimed that he was unceremoniously dismissed in a wanton, reckless, oppressive
and malevolent manner on the eve of April 27, 2009. Tangonan and Soriano acted in evident bad faith when they disregarded
his five-year term of office and delegated their protege Palomo as the new university president.

WUP, on the other hand, asseverated that the dismissal or removal of Maglaya, being a corporate officer and not a regular
employee, is a corporate act or intra-corporate controversy under the jurisdiction of the RTC. Meanwhile, this Court, in a
Resolution dated June 13, 2011, denied the petition for review on certiorari filed by Maglaya and the other former members
of the Board for failure to show any reversible error in the decision of the CA.

Labor Arbiter (LA) ruled in favor of WUP. The LA held that the action between employers and employees where the
employer-employee relationship is merely incidental is within the exclusive and original jurisdiction of the regular
courts.29 Since he was appointed as President of the University by the Board, Maglaya was a corporate officer and not a mere
employee. The instant case involves intra-corporate dispute which was definitely beyond the jurisdiction of the labor
tribunal.

National Labor Relations Commission (NLRC), reversed and set aside the Decision of the LA ruling that the illegal dismissal
case falls within the jurisdiction of the labor tribunals. Since the reasons for his termination cited by WUP were not among
the just causes provided under Article 282 33 (now 297) of the Labor Code, Maglaya was illegally dismissed. NLRC explicated
that although the position of the President of the University is a corporate office, the manner of Maglaya's appointment, and
his duties, salaries, and allowances point to his being an employee and subordinate. In a Resolution, the CA dismissed the
petition for certiorari filed by WUP. The CA noted that the decision and resolution of the NLRC became final and executory on
March 16, 2013.

ISSUE: whether Maglaya is a corporate officer or a mere employee. 

RULING: Corporate Officer. The president, vice-president, secretary and treasurer are commonly regarded as the principal
or executive officers of a corporation, and they are usually designated as the officers of the corporation. However, other
officers are sometimes created by the charter or by-laws of a corporation, or the board of directors may be empowered
under the by-laws of a corporation to create additional offices as may be necessary. This Court expounded that an  "office" is
created by the charter of the corporation and the officer is elected by the directors or stockholders, while
an "employee" usually occupies no office and generally is employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be paid to such employee. From the foregoing,
that the creation of the position is under the corporation's charter or by-laws, and that the election of the officer is by the
directors or stockholders must concur in order for an individual to be considered a corporate officer, as against an ordinary
employee or officer. It is only when the officer claiming to have been illegally dismissed is classified as such corporate officer
that the issue is deemed an intra-corporate dispute which falls within the jurisdiction of the trial courts. It is apparent from
the By-laws of WUP that the president was one of the officers of the corporation, and was an honorary member of the Board.
He was appointed by the Board and not by a managing officer of the corporation. We held that one who is included in the by-
laws of a corporation in its roster of corporate officers is an officer of said corporation and not a mere employee. The alleged
"appointment" of Maglaya instead of "election" as provided by the by-laws neither convert the president of university as a
mere employee, nor amend its nature as a corporate officer. 
A corporate officer's dismissal is always a corporate act, or an intra -corporate controversy which arises between a
stockholder and a corporation, and the nature is not altered by the reason or wisdom with which the Board of Directors may
have in taking such action.59 The issue of the alleged termination involving a corporate officer, not a mere employee, is not a
simple labor problem but a matter that comes within the area of corporate affairs and management and is a corporate
controversy in contemplation of the Corporation Code.

In sum, this Court finds that the NLRC erred in assuming jurisdiction over, and thereafter in failing to dismiss, Maglaya's
complaint for illegal dismissal against WUP, since the subject matter of the instant case is an intra-corporate controversy
which the NLRC has no jurisdiction.

34. Chua

Corporate Governance (CG) Principles of “Competence and Independence”

Agdao Landless Residents Assn. v. Maramion, 806 SCRA 74 (2016)

FACTS: Petitioners ALRAI, a non-stock, non-profit corporation duly organized and existing under and by virtue of the laws of
the Republic of the Philippines, and its board of directors, namely, Javonillo, Armentano, Alcantara.

In the board of directors and stockholders meetings members of ALRAI resolved to directly transfer 10 of the
donated lots to individual members (Javonillo(president), Armentano (secretary), alcantara (wife of legal counsel of ALRAI)
and non members of ALRAI (Loy, Dela Cruz).

Respondents filed a Complaint which alleged that petitioners were engaged in the following anomalous and illegal acts: (1)
requiring ALRAI's members to pay exorbitant arrear fees when ALRAI's By-Laws only set membership dues at P1.00 per
month; (2) partially distributing the lands donated by Dakudao to some officers of ALRAI and to some non-members
in violation of the Deeds of Donation; (3) illegally expelling them as members of ALRAI without due process; and (4) being
unable to show the books of accounts of ALRAI.

ISSUE: Whether the transfers of the donated lots are valid.

RULING: No, It is well settled that directors presumptively serve without compensation. Hence, even though director
assigning themselves additional duties which still fall within their power much less do they amount to
extraordinary or unusual services to the company, they would then be acting in excess of their authority by voting
for themselves compensation for such additional duties. Thus, transfer of corporate properties by way of payment
of compensation amounts to self-dealing covered by what is now Sec. 31 of RCC.

The lack of legitimate corporate purpose is even more emphasized when Javonillo and Armentano, as a director and an
officer of ALRAI, respectively, violated the fiduciary nature of their positions in the corporation.

Section 32 of the Corporation Code provides, thus: (section 31 sa RCCP)

Sec. 32. Dealings of directors, trustees or officers with the corporation. —A contract of the corporation with one or
more of its directors or trustees or officers is voidable, at the option of such corporation, unless all of the following
conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary
to constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in case of an officer, the contract has been previously authorized by the board of directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director
or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two thirds (2/3) of the members in a meeting called for the purpose: Provided, That
full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That
the contract is fair and reasonable under the circumstances.

Being the corporation's agents and therefore, entrusted with the management of its affairs, the directors or trustees and
other officers of a corporation occupy a fiduciary relation towards it, and cannot be allowed to contract with the corporation,
directly or indirectly, or to sell property to it, or purchase property from it, where they act both for the corporation and for
themselves. One situation where a director may gain undue advantage over his corporation is when he enters into a contract
with the latter.

Here, we note that Javonillo, as a director, signed the Board Resolutions confirming the transfer of the corporate properties
to himself, and to Armentano. Petitioners cannot argue that the transfer of the corporate properties to them is valid by virtue
of the Resolution by the general membership of ALRAI confirming the transfer for three reasons.

First, as cited, Section 32 requires that the contract should be ratified by a vote representing at least two-thirds of the
members in a meeting called for the purpose. Records of this case do not show whether the Resolution was indeed voted by
the required percentage of membership. In fact, respondents take exception to the credibility of the signatures of the
persons who voted in the Resolution. They argue that, "from the alleged 134 signatures, 24 of which are non-members, 4 of
which were signed twice under different numbers, and 27 of which are apparently proxies unequipped with the proper
authorization. Obviously, on such alleged general membership meeting the majority of the entire membership was not
attained."

Second, there is also no showing that there was full disclosure of the adverse interest of the directors involved when the
Resolution was approved. Full disclosure is required under the aforecited Section 32 of the Corporation Code.

Third, Section 32 requires that the contract be fair and reasonable under the circumstances. As previously discussed, we find
that the transfer of the corporate properties to the individual petitioners is not fair and reasonable for (1) want of legitimate
corporate purpose, and for (2) the breach of the fiduciary nature of the positions held by Javonillo and Armentano. Lacking
any of these (full disclosure and a showing that the contract is fair and reasonable), ratification by the two-thirds vote would
be of no avail.

We rule that the transfers of ALRAI's corporate properties to Javonillo, Armentano, Dela Cruz, Alcantara and Loy are void.
We affirm the finding of the court a quo when it ruled that "no proof was shown to justify the transfer of the titles, hence,
said transfer should be annulled."

35
Land Bank of the Philippines v. COA, G.R. No. 213409, 5 October 2021
Corporate Governance (CG) Principles of “Competence and Independence

FACTS: In the 2003 Annual Audit Report of the LBP submitted by the COA Supervising Auditor, the COA noted that certain
individuals had been (a) officers and/or employees of the Parent Company and, at the same time, (b) members of the Board
and/or corporate officers in the Subsidiaries. In exchange for their services in the latter, the Subsidiaries granted them
various forms7 of benefits and allowances (in the aggregate amount of P2,783.300.02), 8 in violation of the constitutional
prohibition against double compensation. 9Subsequently, the Subsidiaries pointed out that they had already discontinued
paying some of the benefits and allowances identified in the report. Further, members of the Subsidiaries' respective Boards
were paid "token rates" to compensate for their contribution to the Subsidiaries' revenues/income, as well as their time and
effort in helping the Subsidiaries on top of their bank functions. Despite the explanation, COA, disallowed payments
amounting to P5,133,830.02,representing additional benefits and allowances granted to Board Members of LBP Subsidiaries,
for lack of legal basis.
The COA cited the following grounds for the disallowance: first, Section 30 of the Corporation Code of the Philippines
provides that directors shall not receive compensation other than reasonable per diems unless granted by the vote of the
stockholders representing at least a majority of the outstanding capital stock. However, aside from the payment of per diems,
the Subsidiaries' respective by-laws do not provide for any grant of additional benefits and allowances in favor of members
of the Board.13 Second, the Constitution proscribes payments to any elective or appointive officer/employee amounting to
double compensation, unless specifically authorized by law and approved by the President. On the other hand, the payments
of additional benefits and allowances to Parent Company officers for services they rendered to the Subsidiaries, as Board
member or corporate officer, were not justified by any statute and did not bear the requisite executive approval.

ISSUE: Whether COA erred in disallowing payments.

RULING: NO. A board resolution granting additional allowances and benefits to directors would be ultra vires acts since it
amounts to an arrogation of power reserved to the stockholders. Stockholders have the sole power to determine
compensation of directors, and even when the corporation’s bylaws may provide for compensation to the board members,
the adoption thereof requires prior stockholders’ approval.

36. halid

Home Insurance Co. v. Eastern Shipping Lines, 123 SCRA 424 (1983)

principles of transparency, accountability and responsibility

CONSOLIDATED CASES:

S. Kajita & Co., on behalf of Atlas Consolidated Mining &Development Corporation, shipped on board the

“SS EasternJupiter”  from Osaka, Japan, 2,361 coils of "Black Hot Rolled Copper Wire Rods." The said vessel is owned and
operated by Eastern Shipping Lines (Eastern). The shipment was covered by Bill of Lading No.O-MA-9, with arrival notice to
Phelps Dodge Copper Products Corporation of the Philippines (Phelps Dodge) at Manila. The shipment was insured with
Home Insurance Co. against all risks in the amount of P1.5M in favor of the consignee, Phelps Dodge. Some of the coils
discharged from the vessel were in bad order .Some were loose and partly cut, and some were entangled, partly cut, and
which had to be considered as scrap. So, Home Insurance Co. paid Phelps Dodge under its insurance policy which plaintiff
became subrogated to the rights and actions of Phelps Dodge. Home Insurance Co. made demands for payment against the
Eastern and the transportation company for reimbursement of the aforesaid amount but each refused to pay the same.

L-34383

 Hansa Transport Kontor shipped from Bremen, Germany, 30packages of Service Parts of Farm Equipment and Implements
onboard the vessel, SS "NEDER RIJN" owned by the defendant, N. [Link] Lijnen, and represented in the Philippines by its
local agent, the defendant Columbian Philippines, Inc. (Columbian). The shipment was covered by Bill of Lading No. 22 for
transportation to, and delivery at, Manila, in favor of the consignee, international Harvester Macleod, Inc. (Harvester). The
shipment was insured with Home Insurance Co. The packages discharged from the vessel wereound to be in bad order and
the delivery was short of one package. Home Insurance then paid the consignee, Harvester under its Insurance Cargo Policy
Demands were made on N. V. NedlloydLijnen and Columbian for reimbursement thereof but they failed and refused to pay
the same.
ISSUE: Whether Home Insurance, a foreign corporation licensed to do business at the time of the filing of the case, has the
capacity to sue for claims on contracts made when it had no license yet to do business in the PH.

RULING: YES. There is no question that the contracts are enforceable. The requirement of registration affects only the
remedy. Section 133 of the present Corporation Code provides:

SEC. 133. Doing business without a license.-No foreign corporation transacting business in the Philippines without a license,
or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency in the Philippines; but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine law

The prohibition against doing business without first securing a license is now given penal sanction which is also applicable
to other violations of the Corporation Code under the general provisions of Section 144 of the Code. This implies that failure
of a foreign corporation to do obtain license to do business, when one is required, does not affect the validity of the
transactions, but simply removes the legal standing of such foreign corporation to sue.

Section 133 of the old Corporation Code, unlike its counterpart Sec. 69 in the old Corporation Law which specifically
provided for penal sanctions for foreign corporations engaging in business in the Philippines without obtaining the requisite
license, should be deemed to have a penal sanction by virtue of Sec. 144 of the (old) Corporation Code

37
United Coconut Planters Bank v. Secretary of Justice, G.R. No. 209601, [January 12, 2021])

Facts: [UCPB], through its Legal Services Division Head, filed the Complaint-Affidavit dated 23 July 2007, for violation of
Section 31 in relation to Section 144 of the Corporation Code against private respondents [Tirso Antiporda Jr. (Antiporda)
and Gloria Carreon (Carreon)], docketed as I.S. No. 2007-633, before the [DOJ].

The Complaint-Affidavit alleged: [Antiporda and Carreon] were [UCPB's] former Chairman and Chief Executive Officer
("CEO"), and former President and Chief Operating Officer ("COO"), respectively; UCPB Capital, Inc. ("UCAP"), a wholly
owned subsidiary of [UCPB], was engaged in trading, underwriting of securities and syndication of loans from 1996 to 1998;
sometime in 1998, [Antiporda] filed [a] Counter-Affidavit and alleged: his actions as Chairman and CEO were not done in bad
faith as he was merely guided by [UCPB's] audited Financial Statements, by-laws and policies; [UCPB's] by-laws provided
that 10% of [UCPB's] net profit is allot[t]ed as bonuses to its directors and officers, and, what is subject to Board approval is
only the manner by which [UCPB's] President distributes the 4% of the net profit to other officers; it had been the practice of
[UCPB] to pay bonuses without a board resolution.

[UCPB] filed [a] Consolidated Reply-Affidavit and alleged: the release of the bonuses was surreptitious since there was no
board approval as certified by the Certification dated 9 January 2007; [Antiporda and Carreon] were aware of [UCPB's]
losses since they participated in the board meeting where UCAP's financial problems were discussed, particularly, the Php 4
billion worth of UCAP's liabilities; [Antiporda] admitted in his counter-affidavit that he had knowledge of [UCPB's] losses; as
high-ranking officers of [UCPB, Antiporda and Can-eon] cannot just rely on the findings of a subordinate controller; x x x
Carreon's argument that her participation was limited, was negated by the demands and the seniority of her position and the
bonuses will not be released without [Antiporda's and Carreon's] authorization; while the 10% bonus is specifically
authorized by [UCPB's] by-laws, the manner and the procedure of the grant of the bonus[es] require the approval of the
board of directors; the action had not prescribed since the reckoning period is not the commission of the violation but from
discovery and institution of judicial proceedings, since, the issuance of bonuses was concealed from [UCPB]; and,
prescription should only run upon the discovery of the unauthorized payment of bonuses through the special audit report of
KPMG [o]n 30 June 2003.

Issues: (1) whether the CA erred in ruling that Section 144 of the Corporation Code does not apply to Section 31 thereof; and

(2) whether the CA erred in ruling that the action based on Section 31 of the Corporation Code had prescribed.
Held: The present case calls for the application of Sections 31 and 144 of the Corporation Code. As noted at the outset, the
Corporation Code has been repealed by the Revised Corporation Code (RCC), which became effective on February 23, 2019.
Despite the passage of the later law, the former is to be applied in this case because the alleged violation committed by
Antiporda and Carreon happened in 1998 while the Corporation Code was in effect.

Proceeding to the first issue, UCPB argues that the civil sanction for damages under Section 31 of the Corporation Code is
not the same as the imposition of penalty because damages refer to the sum of money that the law awards or imposes as
pecuniary compensation, recompense or satisfaction for an injury done or a wrong sustained as a consequence of a breach of
a contractual obligation, a tortious act or an illegal act while a penalty is the suffering inflicted by the State for the
transgression of a law.36Citing Ramos v. Gonong,37 UCPB posits that civil liability is not part of the penalty of the crime
committed and when it is imposed for the commission of crimes, it is neither part of, nor intended to be merged into, the
punishment of the crime.

UCPB further argues that since Section 31 of the Corporation Code refers to "all damages x x x suffered by the corporation"
and considering that civil liability is not a penalty for the commission of a crime, the violation of Section 31 is not, by the
words used in Section 144 of the Corporation Code, "specifically penalized therein."39 UCPB thus concludes that Section 144
should apply.

UCPB's arguments are not persuasive enough for the Court to overturn or abandon its ruling in Ient.

As mentioned at the outset, the Court has already ruled in Ient on the issue of the applicability of Section 144 to Section 31 of
the Corporation Code. The Court, applying the rule of lenity, ruled in Ient that any violation of Section 31 of the Corporation
Code was not considered as a violation of any provision of such Code not otherwise specifically penalized therein pursuant
to Section 144. In other words, Section 144 did not apply to or include in its coverage Section 31 of the Corporation Code.
The Court justified its ruling in Ient, as follows:

After a meticulous consideration of the arguments presented by both sides, the Court comes to the conclusion that there is a
textual ambiguity in Section 144; moreover, such ambiguity remains even after an examination of its legislative history and
the use of other aids to statutory construction, necessitating the application of the rule of lenity in the case at bar.

There is no provision in the Corporation Code using similarly emphatic language46 that evinces a categorical legislative
intent to treat as a criminal offense each and every violation of that law. Consequently, there is no compelling reason for the
Court to construe Section 144 as similarly employing the term "penalized" or "penalty" solely in terms of criminal liability.

Thus, under the RCC, the Commission has now the authority to impose any or all of the foregoing sanctions in case "any
provision of [the RCC,] rules or regulations, or any of the Commission's orders has been violated x x x, taking into
consideration the extent of participation, nature, effects, frequency and seriousness of the violation."

As to the second issue, UCPB's argument is anchored on the applicability of Section 144 of the Corporation Code to Section
31.49 Since Section 144 provided as penalty imprisonment for not less than 30 days but not more than 5 years, then the
period of prescription, according to UCPB, should be 8 years for violations penalized under special laws by imprisonment for
2 years or more, but less than 6 years pursuant to Act No. 3326.50 Citing Section 2 of Act No. 3326, which provides that
"[prescription shall begin to run from the day of the commission of the violation of the law, and if the same be not known at
the time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment," UCPB
posits that at the time of the commission of the alleged violation in 1998, there was no way that it could have taken action on
the undue payment of bonuses because the recipients of the bonuses comprised the management of the bank with Antiporda
and Carreon being the top two officers, and even when the bank changed administrations, i.e., from the administration of
Antiporda and Carreon to the next administration, there was no way the new administration could have taken action against
Antiporda and Carreon until it had evidentiary basis, which came through only with the KPMG report of 2003.51 To UCPB,
the prescriptive period should have started to run only in 2003 when UCPB allegedly discovered the undue payment of
bonuses from the KPMG report.52

The Court having already ruled on the first issue that Section 144 of the Corporation Code did not include violations of
Section 31 as "[violations of any provisions of [that] Code or its amendments not otherwise specifically penalize therein,"
wherein imprisonment for not less than 30 days but not more than 5 years was the imposable penalty, then Act No. 3326 is
not the applicable law on prescription.

The liability of the erring director, trustee or officer under Section 31 of the Corporation Code being purely civil, i.e., "all
damages resulting [from its violation] suffered by the corporation, its stockholders or members and other persons," the
Court holds that it is the Civil Code that is the controlling law.
To recall, the questioned bonuses were paid through 50 manager's checks amounting to P117,872,269.43, which were
released to the concerned UCPB corporate officers and directors from April 6 to July 31, 1998. The KPMG special audit
report53 was dated June 30, 2003. The Complaint-Affidavit of UCPB is dated July 23, 2007 and filed on even date with the
DOJ.54

Even if the Court were to uphold UCPB's actual discovery theory, the action upon the injury to its right under Section 31 of
the Corporation Code or the damages that it had suffered by virtue of the alleged unauthorized payment of bonuses had
prescribed on July 1, 2007 or four years from June 30, 2003, the purported day of actual discovery by UCPB. This is pursuant
to Commissioner of Internal Revenue v. Primetown Property Group, Inc.,55 where the Court held that Section 31 of the
Administrative Code of 1987, which provides that "year" shall be understood to be twelve calendar months, governs the
computation of periods, being the more recent law as compared to the Article 13 of the Civil Code, which provides that a year
consists of 365 days. When UCPB thus filed its Complaint-Affidavit on July 23, 2007, the four years or 48 calendar months
prescriptive period had already lapsed.ℒαwρhi ৷

Under Article 1155 of the Civil Code, the prescription of actions is interrupted when they are filed before the court, when
there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the
debtor. The filing of the Complaint-Affidavit by UCPB with the DOJ did not interrupt the prescription of its action not only
because this was beyond the 48 calendar months prescriptive period based on Section 31 of the Corporation Code, but also
because it was not filed before the proper court and finally because the Complaint-Affidavit cannot even be deemed as an
extrajudicial demand for damages given its prayer: "On the basis of the foregoing, [Antiporda and Carreon] should be held
liable under Section 31, in relation to Section 144 of the Corporation Code for being guilty of gross bad faith/and/or gross
negligence in directing the affairs of the corporation."56 Put simply, UCPB did not make a claim for any damage in the
Complaint-Affidavit it filed.

Given that there is no factual basis from which actual discovery of the payment of the questioned bonuses by UCPB,
assuming the same to have been concealed by Antiporda and Carreon, can be based and that, according to the CA, said
payment had been widely and publicly known given that UCPB belongs to the heavily-regulated banking industry whose
transactions are documented and audited by the BSP on a regular basis, the filing of the action for damages based on Section
31 of the Corporation Code had already prescribed 48 calendar months or 4 years from July 31, 1998, the last release date of
the 50 manager's checks, at the latest.

Parenthetically, if the second issue is to be resolved under the aegis of the RCC and assuming that Section 170 applies to
Section 30 of the RCC, prosecution of any violation of Section 30 prescribes in a year or 12 calendar months pursuant to
Section 1, Act No. 3326, given that the penalty of any Section 30 violation is fine only.

38. TOPROS, Inc. v. Chang, Jr., G.R. Nos. 200070-71, 7 December 2021

CG Principles of “Transparency, Accountability and Responsibility” Duty of Loyalty (Secs. 30, 31 and 33)
FACTS: The Ty Family gave Chang 10% shares in the corporation with the assurance from Chang that he will render
competent, exclusive, and loyal service thereto. On January 31, 1983, TOPROS was incorporated with an authorized capital
stock of P4,000,000.00. Among the incorporators, Chang was the only one who is not a member of the Ty Family . The Ty
Family elected Chang as President and General Manager and entrusted to him the management as well as the funds of
TOPROS. Upon Chang's request, Elizabeth, Hector, and Cecilia, all employees of Pantrade, were transferred to TOPROS.
 TOPROS grew into a multi-million enterprise; thus, Spouses Ty increased its authorized capital stock to
P10,000,000.00 and Chang's share to 20%. TOPROS included in its line of business the distribution of various office
equipment and supplies utilizing the brand names Ultimax, Maruzen, Taros, and Intimus. However, despite its
success, no substantial cash dividends were distributed to the stockholders because, according to Chang, the
corporation was investing its funds in several real properties in Metro Manila, Visayas, and Mindanao.
 Ty Family sensed irregularities in Chang's dealings when their friends and relatives began questioning the manner
in which products and services from TOPROS were issued receipts and vouchers from TOPGOLD, Golden Exim, and
Identic. The Ty Family requested Chang to return all corporate records of TOPROS. Chang, however, offered to buy
them out of their interest at TOPROS. This prompted the Ty Family to conduct an investigation which revealed that
while still a Corporate Director and an officer of TOPROS, Chang, together with the individual respondents,
incorporated the respondent-corporations to siphon the assets, funds, goodwill, equipment, and resources of
TOPROS. According to TOPROS, Chang used its properties in organizing the respondent-corporations and obtained
opportunities properly belonging to it and its stockholders to their damage and prejudice. Chang was, thereafter,
ousted as Corporate Director and officer of TOPROS; and the instant case was filed against him.
Petitioner asserts that: (1) Chang is guilty of violating the Corporation Code particularly Section 31, as he brazenly
disregarded the director's duty of loyalty; (2) he established the respondent-corporations to acquire and utilize the assets,
funds, properties, and resources of TOPROS; and (3) he also violated Section 74 of the Corporation Code in failing to provide
the other directors access to the financial records of TOPROS. According to TOPROS, Chang's acts amounted to violation of the
"doctrine of corporate opportunity" which rests on the unfairness, in particular circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit when the interest of the corporation calls for protection. If, in such
circumstances the interests of the corporation are betrayed, the corporation may elect to claim all the benefits of the
transaction for itself and the law will impress a trust in favor of the corporation upon the property interest and profits acquired.
Chang avers that: (1) the doctrine of corporate opportunity does not apply in the case because he was advised to allow the
corporation to go under due to its indebtedness; (2) the doctrine of corporate opportunity applies only if the corporation is
financially able to undertake its business; (3) TOPROS failed to prove the claim of fraud by preponderance of evidence of
fraud; (4) TOPROS' witnesses admitted that Chang and Ramon had always been in close coordination in handling the affairs
of TOPROS, while members of the family formed part of the new businesses alleged to be part of the scheme to defraud
TOPROS; and (5) when Ramon advised Chang that they were no longer interested to pursue the business and was willing to
just have the business go under, TOPROS' witnesses admitted that Chang was in constant communication with Ramon.
ISSUE: Chang committed several acts showing personal or pecuniary interest that were in conflict with his duties as director
and officer of TOPROS. -- YES
RULING: A person cannot serve two masters without detriment to one of them. It is from this basic human frailty that
the "doctrine of corporate opportunity" was recognized and laws were put in place to deter corporate officers from using
their position of trust and confidence to further private interests.
Evidently, the intent of the framers of Section 31 (sec. 30 of RCC) was to codify the duty of loyalty of directors and corporate
officers that is to inform and offer to the corporation business opportunities which, by reason of their office, they acquire
or become aware of. Only when the corporation, after having been offered the business opportunities, and rejects them, that
a director can take advantage thereof. That the intent of the legislators to make a director or corporate officer liable to
account for any profits derived from business opportunities which should have belonged to the corporation, unless his acts
were ratified in accordance with Section 34 (sec. 33 of RCC) .

 Xxx it must not only be made known to the corporation; the corporation must be formally advised and if he really
would like to be assured that he is protected against the consequences provided for in Section 34, he should take
steps whereby the opportunity is clearly presented to the corporation and the corporation has the opportunity to
decide on whether to avail of it or not and then let the corporation reject it, after which then he may avail of it. x x x.
x x x [N]ow with the statutory rule, any director who comes to know of an opportunity that may be available to the
corporation would be aware of the consequences in case he avails of that opportunity without giving the
corporation the privilege of deciding beforehand on whether to take advantage of it or not. x x x x x x x [A] prudent
director, who would assure that he does not become liable under Section 34, should not only be sure that the
corporation has official knowledge, that is, the Board of Directors, but must take steps, positive steps, which will
demonstrate that the matter or opportunity was brought before the corporation for its decision whether to avail of
it or not, and the corporation rejected it.
Doctrine on corporate opportunity "is precisely a recognition by the courts that the fiduciary standards could not be upheld
where the fiduciary was acting for two entities with competing interests." It "rests fundamentally on the unfairness, in
particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the
interest of the corporation justly calls for protection.

 A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. In case
his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit.
As corporate managers, directors are committed to seek the maximum amount of profits for the corporation. This
trust relationship "is not a matter of statutory or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and hence of the property interests of the stockholders."
 3-fold duty of members of the board of directors: duty of obedience, duty of diligence, and duty of loyalty. This
means that directors: (1) shall direct the affairs of the corporation only in accordance with the purposes for which
it was organized; (2) shall not willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or act in bad faith or with gross negligence in directing the affairs of the corporation; and (3) shall not
acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees.
The duty of loyalty in particular prohibits corporate directors, trustees, and officers from acquiring or attempting to acquire
any personal or pecuniary interest—or any other interest for that matter—in conflict with or adverse to their duty as
corporate fiduciaries

The relationship of the doctrine of corporate opportunity to the duty of loyalty

"corporate opportunity exists when a proposed activity is reasonably an incident to the corporation's present or prospective
business and is one in which the corporation has the capacity to engage."

 Guth test: The corporate opportunity doctrine holds that a corporate officer or director may not take a business
opportunity for his own if: (a) the corporation is financially able to exploit the opportunity; (b) the opportunity is
within the corporation's line of business; (c) the corporation has an interest or expectancy in the opportunity; and (d)
 by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimicable to his
duties to the corporation.
 As clarified by Broz, however, the Guth test only sets guidelines, and that ultimately, "[n]o one factor is dispositive
and all factors must be taken into account insofar as they are applicable." Thus, the determination of whether or
not a corporate director/officer has violated the doctrine "is a factual question to be decided by reasonable
inference from objective facts."
The doctrine of corporate opportunity arises out of the fundamental obligation of a fiduciary not to allow a conflict of their
duty with their own interests. The doctrine limits the ability of those who owe a fiduciary duty to a corporation to take
advantage of business opportunities that might otherwise be available to them in the absence of the fiduciary relationship.
According to a branch of common law, these business opportunities refer to those that either already belongs to the
company or even for which it has been negotiating.
 doctrine of corporate opportunity governs the legal responsibility of directors, officers and controlling
shareholders in a corporation, under the duty of loyalty, not to take such opportunities for themselves, without first
disclosing the opportunity to the board of directors of the corporation and giving the board the option to decline
the opportunity on behalf of the corporation. If the procedure is violated and a corporate fiduciary takes the
corporate opportunity anyway, the fiduciary violates its duty of loyalty and the corporation will be entitled to a
constructive trust of all profits obtained from the wrongful transaction
In determining paragraph (b), whether the opportunity is within the corporation's line of business, the involved
corporations must be shown to be in competition with one another. They must be engaged in related areas of businesses,
producing the same products with overlapping markets.
 Consequently, it is not enough to impute bare acts of transactions in which the claimant subjectively perceives the
duty of loyalty to be breached. Sufficient evidence must be presented to show that the claim of damages is indeed
premised on a concrete corporate opportunity falling under the parameters above-stated. Only then may actual
damages relative to such lost opportunity be awarded.

Chang's Liability
 Chang established Identic in 1989, Golden Exim in 1990, and TOPGOLD in 1998 which were in the same line of business and
while still an officer and director of TOPROS. The Articles of Incorporation of Golden Exim and TOPGOLD show that Chang
owned 80% of the shares of Golden Exim; and Chang, together with his son, owned 99.76% of the shares in TOPGOLD. The
General Information Sheet of Identic also showed that Chang owned 65% of Identic.

 The service report of Linde, which was a client of TOPROS, as well as the provisional receipts issued by Golden
Exim, showed that Golden Exim entered into a service contract with the same client at the same time that TOPROS
was servicing it. In 1998, TOPGOLD published printed advertisements which were strikingly similar to those
previously printed by TOPROS in 1997, with the difference that the phrase "now available at TOPROS" was changed
to "now available at TOPGOLD."
 TOPGOLD uses the same address as TOPROS which not only gives it the opportunity to use TOPROS' resources but
leads the public to believe that they are one and the same entity, if not intimately related to each other. 
Further, the fact that Chang risked his own funds in running TOPROS and paying off its obligations will not absolve him of his
duties as director and officer of TOPROS.
 Even if admitted, the circumstances cited by Chang, which suggest of knowledge, tolerance, or even acquiescence of
TOPROS to his establishment of the respondent-corporations which are in the same business as TOPROS, do not
amount to the compliance required of Section 34 to absolve a director of disloyalty. The law explicitly requires that
where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the
corporation, he must account to the latter for all profits by refunding them, unless his act has been ratified by a vote
of the stockholders owning or representing at least two-thirds of the outstanding capital stock.
 Even if the incorporation of the respondent-corporations was with the full knowledge of the members of the Ty
Family, this does not equate to consent to the prejudicial transfer and acquisition of properties and opportunities of
TOPROS which Chang, through his corporations, has shown to have committed.
 Chang failed to show that his actions have been ratified by a vote of the stockholders representing at least two-
thirds of the outstanding capital stock of TOPROS.
However, to determine the exact liability of Chang, the instant case should be remanded to the trial court for the reception of
additional evidence and the reevaluation of evidence already submitted, guided by the parameters aforementioned. That is,
TOPROS as claimant bears the burden of proving the specific business opportunities that gave rise to its claim of damages
under Section 34 of the Corporation Code. In turn, Chang may present evidence to support his claim that: (a) the corporation
was already heavily in debt and that TOPROS' patriarch, Ramon Ty, was no longer interested in corporate rehabilitation, so
much so that he was already letting Chang to allow TOPROS to go bankrupt; and (b) that the corporation had already closed
down prior to respondents' taking of certain corporate opportunities, among others. Also it should be made clear that the
claim for damages under Section 34 of the Corporation Code necessitates factual determinations which—while it may be
arrived at with the aid of an accounting committee—must be ultimately made by the RTC itself in the exercise of its judicial
functions, embodied in a final judgment.
 [Link]
Andaya v. Rural Bank of Cabadbaran, 799 SCRA 325 (2016)
Shareholders and Members

FACTS: Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran for P220,000. The transaction was
evidenced by a notarized document denominated as Sale of Shares of Stocks. Chute duly endorsed and delivered the
certificates of stock to Andaya and, subsequently, requested the bank to register the transfer and issue new stock certificates
in favor of the latter. Andaya also separately communicated with the bank's corporate secretary, respondent Oraiz,
reiterating Chute's request for the issuance of new stock certificates in petitioner's favor. A few days later, the bank's
corporate secretary wrote Chute to inform her that he could not register the transfer. He explained that under a previous
stockholders' Resolution, existing stockholders were given priority to buy the shares of others in the event that the latter
offered those shares for sale (i.e., a right of first refusal). He then asked Chute if she, instead, wished to have her shares
offered to existing stockholders. He told her that if no other stockholder would buy them, she could then proceed to sell her
shares to outsiders.

Meanwhile, the bank's legal counsel informed Andaya that the latter's request had been referred to the bank's board of
directors for evaluation. Gonzalez also furnished him a copy of the bank's previous reply to Chute concerning a similar
request from her. Andaya responded by reiterating his earlier request for the registration of the transfer and the issuance of
new certificates of stock in his favor. Citing Section 98 of the Corporation Code, he claimed that the purported restriction on
the transfer of shares of stock agreed upon during the 2001 stockholders' meeting could not deprive him of his right as a
transferee. He pointed out that the restriction did not appear in the bank's articles of incorporation, bylaws, or certificates of
stock.

The bank eventually denied the request of Andaya. It reasoned that he had a conflict of interest, as he was then president and
chief executive officer of the Green Bank of Caraga, a competitor bank. Respondent bank concluded that the purchase of
shares was not in good faith, and that the purchase "could be the beginning of a hostile bid to take-over control of Rural Bank
of Cabadbaran."  It also maintained that Chute should have first offered her shares to the other stockholders, as agreed upon
during the 2001 stockholders' meeting. Consequently, Andaya instituted an action for mandamus and damages against the
Rural Bank of Cabadbaran; its corporate secretary, Oraiz; and its legal counsel, Gonzalez. Petitioner sought to compel them to
record the transfer in the bank's stock and transfer book and to issue new certificates of stock in his name.

ISSUE: (1) w/n Andaya, as a transferee of shares of stock, may initiate an action for mandamus compelling the Rural Bank of
Cabadbaran to record the transfer of shares in its stock and transfer book, as well as issue new stock certificate in his name –
YES

(2) w/n mandamus should be granted – remanded to RTC for further proceedings (close corp)

RULING: (1) YES. the registration of a transfer of shares of stock is a ministerial duty on the part of the corporation.
Aggrieved parties may then resort to the remedy of mandamus to compel corporations that wrongfully or unjustifiably
refuse to record the transfer or to issue new certificates of stock. This remedy is available even upon the instance of a  bona
fidetransferee who is able to establish a clear legal right to the registration of the transfer. This legal right inherently flows
from the transferee's established ownership of the stocks. Consequently, transferees of shares of stock are real parties in
interest having a cause of action for mandamus to compel the registration of the transfer and the corresponding issuance of
stock certificates.

Andaya has been able to establish that he is a bona fide transferee of the shares of stock of Chute. In proving this fact, he
presented to the RTC the following documents evidencing the sale: (1) a notarized Sale of Shares of Stocks showing Chute's
sale of 2,200 shares of stock to petitioner; (2) a Documentary Stamp Tax Declaration/Return (3) Capital Gains Tax Return;
cralawred  and (4) stock certificates covering the subject shares duly endorsed by Chute. The  existence,  genuineness,  and
due execution of these documents have been admitted and remain undisputed. There is no doubt that Andaya had the
standing to initiate an action for mandamus to compel the Rural Bank of Cabadbaran to record the transfer of shares in its
stock and transfer book and to issue new stock certificates in his name. As the transferee of the shares, petitioner stands to
be benefited or injured by the judgment in the instant petition, a judgment that will either order the bank to recognize the
legitimacy of the transfer and petitioner's status as stockholder or to deny the legitimacy thereof.
(2) Remanded. It must be noted that Section 98 applies only to close corporations. Hence, before the Court can allow the
operation of this section in the case at bar, there must first be a factual determination that respondent Rural Bank of
Cabadbaran is indeed a close corporation. There needs to be a presentation of evidence on the relevant restrictions in the
articles of incorporation and bylaws of the said bank. From the records or the RTC Decision, there is apparently no such
determination or even allegation that would assist this Court in ruling on these two major factual matters. With the
foregoing, the validity of the transfer cannot yet be tested using that provision. These are the factual matters that the parties
must first thresh out before the RTC.  

40

Tee Ling Kiat v. Ayala Corp.

G.R. No. 192530, [March 7, 2018]

Shareholders and Members

Facts: Spouses Dewey and Lily Dee, in their personal capacities, were sureties of a money market line transaction extended
by Ayala Corp. The money market line was not paid; Ayala thus filed an action for collection against Spouses Dee. Ruling in
favor of Ayala, the court issued a notice to levy upon "the rights, claims, shares, interest, title and participation" that the
Spouses Dee may have in parcels of land registered in the name of Vonnel Industrial Park, Inc. (VIP) in which Dewey was an
incorporator. Tee Ling Kiat filed a third-party claim, alleging that although Dewey is an incorporator of VIP, he is no longer a
stockholder thereof. Dewey had already sold to him all his stocks in VIP. He presents as evidence: (1) a cancelled check
which Dewey issued in his favor; and (2) a photocopy of the deed of sale of the stocks. Assuming that Dewey is still a
stockholder of VIP, at most he merely has rights, claims, shares, interest, title and participation to its shares of stocks, but not
as to the real properties registered under its name. VIP is a corporate entity which has a legal personality separate and
distinct from Dewey or Lily. Thus, the subject parcels of land are the sole and exclusive properties of VIP. RTC disallowed the
claim. On the ground that Tee Ling Kiat failed to present evidence of the sale of Dewey’s shares of stock to him. CA Affirmed
the RTC.

Issue: W/N there was a valid sale of shares and that Tee Ling Kiat a shareholder of VIP in place of Dewey.

Ruling: No. In this case, that the only evidence adduced by Tee Ling Kiat to support his claim are a cancelled check issued by
Tee Ling Kiat in favor of Dewey Dee and a photocopy of the deed of sale. A photocopy of a document has no probative value
and is inadmissible in evidence. Assuming that the sale had indeed transpired, such transfer is not binding on the
corporation if the same is not recorded in the books of the corporation. Sec. 63, Corporation Code: "No transfer, x x x shall be
valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares
transferred." The purported transaction between Tee Ling Kiat and Dewey has never been recorded in VIP's corporate
books. Thus, the transfer is not binding as to the corporation.

41
Villongco v. Yabut
GR. Nos. 225022 & 225024, February 5, 2018

FACTS: Phil-Ville is a family corporation founded by Geronima Que engaged in real estate business. The authorized capital
stock of Phil-Ville is Php 20 million divided into 200,000 shares with a par value of Php100 per share. During her lifetime,
Geronima owned 3,140 shares while the remaining shares were equally distributed among her 6 children – Carolina, Ana
Maria, Angelica, Cecilia, Corazon and Maria Luisa. When Geronima died, her daughter Cecilia purportedly executed a Sale of
Shares of Stock as the attorney-in-fact of Geronima which effected an inequitable distribution of the 3,410 shares. Such
distribution was reflected in the General Information Sheets filed in 2010 and 2011.

Cecilia Que, et al. wrote a letter to Ana Maria, corporate secretary, to send out notices for the holding of the annual
stockholders’ meeting. However, before the corporate secretary could reply, several letters were sent to the stockholders
containing a document captioned “Notice of Annual Stockholders’ Meeting” signed by Cecilia and Ma. Corazon as directors.
Thereafter, Carolina, Ana Maria, Angelica, comprising of the majority of BOD held an emergency meeting and made a
decision to postpone the annual stockholders’ meeting until the issue of distribution of the 3,410 shares is settled. All the
stockholders were appraised of the postponement. Despite the postponement and pendency of a civil case for annulment of
sale/distribution of shares, Cecilia et al proceeded with the scheduled annual stockholders’ meeting participated only by a
few stockholders. In the said meeting were elected new members of the Board of Directors and officers of Phil-Ville.

Consequently, an election case before the RTC was filed questioning the validity of the holding of the meeting, lack of quorum
and the manner it was conducted, including the invalid inclusion in the voting of the shares of the late Geronima, the
representation and exercise of voting rights by alleged proxies and proclamation of winners. RTC declared the election of
Cecilia, et al. as void and of no effect considering the lack of quorum during the annual stockholders meeting. CA affirmed in
such aspect the declaration of the void election.

ISSUE: W/N the total undisputed shares should be the basis of determining the presence of a quorum?

RULING: NO. Total outstanding capital stocks, without distinction as to disputed or undisputed shares of stock, is the basis in
determining the presence of quorum. The right to vote is inherent in and incidental to the ownership of corporate stocks. It
is settled that unissued stocks may not be voted or considered in determining whether a quorum is present in a
stockholders' meeting. Only stocks actually issued and outstanding may be voted. Thus, for stock corporations, the quorum is
based on the number of outstanding voting stocks. The distinction of undisputed or disputed shares of stocks is not provided
for in the law or the jurisprudence. When the law does not distinguish, we should not distinguish. Thus, the 200,000
outstanding capital stocks of Phil-Ville should be the basis for determining the presence of a quorum, without any
distinction. Therefore, to constitute a quorum, the presence of 100,001 shares of stocks in Phil-Ville is necessary. CA is
correct when it held that only 98,430 shares of stocks were present during the stockholders meeting, therefore, no quorum
had been established. There is no evidence that the 3,140 shares which allegedly had been transferred to the grandchildren
of the Geronima were transferred and recorded in the stocks and transfer book of Phil-Ville. A transfer of shares of stock not
recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As between
the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books
for the purpose of determining who its shareholders are. It is only when the transfer has been recorded in the stock and
transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the
consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises.

The claim that Cecilia et. al should not be faulted for their failure to present the stock and transfer book because it was in the
possession of Ana Maria as corporate secretary who has an interest adverse from them has no merit . It is basic that a
stockholder has the right to inspect the books of the corporation, and if the stockholder is refused by an officer of the
corporation to inspect or examine the books of the corporation, the stockholder is not without any remedy. The Corporation
Code grants the stockholder a remedy — to file a case in accordance with Section 144. In this case, there is no evidence that
the disputed shares were recorded in the stocks and transfer book of Phil-Ville. Thus, insofar as Phil-Ville is concerned, the
3,140 shares of the late Geronima allegedly transferred to several persons is non-existent. Therefore, the transferees of the
said shares cannot exercise the rights granted unto stockholders of a corporation, including the right to vote and to be voted
upon.

CASE NO. 42
Shareholders and Members
Ongkingco v. Sugiyama, G.R. No. 217787, 18 Sept. 2019

FACTS: Respondent Sugiyama entered into a "Contract Agreement" with New Rhia Car Services, Inc. where petitioner
Socorro is the President and Chairperson of the Board of Directors, and petitioner Maria Paz B. Ongkingco is a Board
Director. Under the Agreement, Sugiyama would receive a monthly dividend of P90,675.00 for five years in exchange
for his investment of P2,200,000.00 in New Rhia Car Services, Inc. To cover Sugiyama's monthly dividends, petitioners
issued six (6) checks. The first three (3) checks were good checks, but the remaining 3 checks bounced for having been draw
against insufficient funds.

In a Memorandum of Agreement , Socorro obtained a loan from Sugiyama amounting to P500,000.00 with a 5% interest for a
period of 1 month. As a guarantee and payment for the said obligation, Socorro issued an Allied Bank Check. When the check
was presented for payment, it was dishonored for having been drawn against insufficient funds, just like the 3 other checks
initially issued by petitioners. A formal demand letter was delivered to Socorro's office, but no payment was made. Thus,
Sugiyama filed a complaint against petitioners for four (4) counts of violation of Batas Pambansa Bilang (B.P.) 22. MeTC, RTC
and CA found petitioners liable. Hence, this present petition.

ISSUE: WON the dividend payment in the agreement validly complied with the corporation code.

RULING: NO. The power to declare dividends under [Sec. 43 (now 42) of RCC] is with the Board of Directors, and can
be declared only out of its unrestricted retained earnings. Assuming arguendo that Socorro as corporate director
was authorized by the Board to fix the monthly dividends of Sugiyama, it appears that she committed an ultra vires
act because dividends can be declared only out of unrestricted retained earnings of a corporation, which earnings
cannot obviously be fixed and pre-determined 5 years in advance.”

As a general rule, when an officer issues a worthless check in the corporation’s name, he or she may be held
criminally liable for violating the Bouncing Checks Law (B.P. 22); however, such officer can only be held civilly liable
when he or she is convicted, and that conversely, once acquitted, an officer is discharged of any civil liability arising
from the issuance of the worthless check in the name of the corporation he or she represents. In the case however,
the officer was made civilly liable on the bounced checks in spite his acquittal because he had voluntarily bound
himself to the personally liable for the amounts covered by the checks.

Granted that Socorro is authorized to sign checks as corporate officer and authorized signatory of New Rhia Car Services,
Inc., there is still no evidence on record that she was duly authorized, through a Board Resolution or Secretary's Certificate,
to guarantee a corporate director thereof [Sugiyama] fixed monthly dividends for 5 years, to enter into a loan, and to adopt a
new schedule of payment with the same director, all in behalf of the corporation.

43
Chua vs. People
Shareholders and Members

FACTS: Joselyn invoked her right as a stockholder to inspect the records of the books of the business transactions of the
corporation, the minutes of the meetings of the board of directors and stockholders, as well as the financial statements of
Chua Tee Corporation. Since her demands were left unheeded, Joselyn filed a complaint against petitioners Alfredo
(President and Chairman of the Board), Tomas (corporate secretary and board member), and Mercedes
(accountant/bookkeeper) for violation of Section 73, in relation to Section 170, of the RCCP.

The petitioners denied liability and argued that they did not prevent Joselyn from inspecting the records because the
accountant/bookkeeper was severely occupied with winding up the affairs of the corporation after it ceased operations.
Moreover, petitioners argued that since the corporation had ceased business operations prior to Joselyn’s filing of the
complaint, there was no longer any duty pertaining to corporate officers to allow a stockholder to inspect the records. The
MeTC convicted the petitioners and sentencing them to suffer the penalty of 30 days of imprisonment, which was affirmed
by the RTC and the CA.

ISSUE: W/N the petitioners are guilty for denying Joselyn’s right as to inspect corporate records as a stockholder.

RULING: YES. The corporation continues to be a body corporate for three (3) years after its dissolution for purposes of
prosecuting and defending suits by and against it and for enabling it to settle and close its affairs, culminating in the
disposition and distribution of its remaining assets. The termination of the life of a juridical entity does not by itself cause the
extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors. Moreover, the rights
and remedies against, or liabilities of, the officers shall not be removed or impaired by reason of the dissolution of the
corporation. Corollarily then, a stockholder's right to inspect corporate records subsists during the period of
liquidation. Hence, Joselyn, as a stockholder, had the right to demand for the inspection of records lodged upon the
corporation is the corresponding duty to allow the said inspection.

Proof of malice or deliberate intent is not essential in offenses punishable by special laws, which are mala prohibita .
Here, the petitioners were charged with violations of Section 73, in relation to Section 170, of the RCCP, a special law.
Accordingly, since Joselyn was deprived of the exercise of an effective right of inspection, offenses had in fact been
committed, regardless of the petitioners' intent. The RCCP provides for penalties relative to the commission of offenses,
which cannot be trivialized, lest the public purpose for which they are crafted be defeated and put to naught.

However, in lieu of the penalty of 30 days of imprisonment, the Supreme Court finds it more just to impose upon each of the
petitioners a fine of Ten Thousand Pesos (P10,000.00) considering the reasons below. First. Malicious intent was seemingly
wanting. Permission to check the records was granted, albeit not effected. Second. Joselyn had predeceased Alfredo and
Tomas, her uncles, who are in their twilight years. Third. Joselyn's mother, Rosario, had executed an Affidavit of Desistance
stating that the filing of the complaint before was merely the result of a serious misunderstanding anent the management
and operation of the corporation, which had long ceased to exist as a corporate entity even prior to the alleged commission
of the crime in question, rather than by reason of any criminal intent or actuation on the part of the petitioners.

44 - Rizon
Makati Sports Club, Inc. v. Cheng, 621 SCRA 103 (2010)
Shares and Capital Stock

Facts: On October 20, 19914, plaintiff's (Makati Club) BOD adopted a resolution authorizing the sale of 19 unissued shares at
a floor price of P400,000 and P450,000 per share for Class A and B, respectively.

On November 28, 1995 - McFoods acquired shares of stocks(Class A) and paid P1.8M

On December 15, 1995 - deed of absolute sale covering the November sale was executed.

December 27, 1995 - McFoods sent a letter to the plaintiff giving advise (sic) of its offer to resell the share.

January 5, 1996 – stock certificates were issued.

It appears that while the sale between the plaintiff and McFoods was still under negotiations, there were negotiations
between McFoods and Hodreal for the purchase by the latter of a share of the plaintiff. On November 24, 1995, Hodreal paid
McFoods P1,400,000. Another payment of P1,400,000 was made by Hodreal to McFoods on December 27, 1995, to complete
the purchase price of P2,800,000.

An investigation was conducted by Makati Club and the committee held that there is prima facie evidence to show that
defendant Cheng (Treasurer and Director of Makati Club) profited from the transaction because of her knowledge. It was
alleged that the company was deprived of 1M (Purchase price of Hodreal P2.8M – Purchase of McFoods – P1.8M)because had
the shares been directly sold to Hordeal it would have received P2.8M. MSCI asserts that Mc Foods never intended to become
a legitimate holder of its purchased Class "A" share. MSCI further claims that Cheng confabulated with Mc Foods by
providing it with an insider's information as to the status of the shares of stock of MSCI and even, allegedly with unusual
interest, facilitated the transfer of ownership of the subject share of stock from Mc Foods to Hodreal, instead of an original,
unissued share of stock.

Makati club sought judgment that would order respondents to pay the sum of P1,000,000.00, representing the amount
allegedly defrauded, together with interest and damages.

Issue: W/N the transfer of the shares from McFoods to Hordeal valid or sale transfer ownership to Hordeal?

Ruling: Yes.

Undeniably, on December 27, 1995, when Mc Foods offered for sale one Class "A" share of stock to MSCI for the price of
P2,800,000.00 for the latter to exercise its pre-emptive right as required by Section 30(e) of MSCI's Amended By-Laws, it
legally had the right to do so since it was already an owner of a Class "A" share by virtue of its payment on November 28,
1995, and the Deed of Absolute Share dated December 15, 1995, notwithstanding the fact that the stock certificate was
issued only on January 5, 1996. A certificate of stock is the paper representative or tangible evidence of the stock itself and of
the various interests therein. The certificate is not a stock in the corporation but is merely evidence of the holder's interest
and status in the corporation, his ownership of the share represented thereby. It is not in law the equivalent of such
ownership. It expresses the contract between the corporation and the stockholder, but is not essential to the existence of a
share of stock or the nature of the relation of shareholder to the corporation.

Certificates of stock are not the actual shares of stock in the corporation and merely expresses the contract between
the corporation and the shareholder. Therefore, when a buyer of shares gives notice to original seller for the latter’s
exercise of his right of first refusal and the original seller failed to respond, there was already the valid offer by the
buyer that triggered the running of the period for the exercise of the right of first refusal in spite the fact that no
certificate of stock had been issued yet in the name of the buyer.

45 - Sabtaluh

Teng v. SEC, 784 SCRA 216 (2016)

Share and Capital Stock

FACTS: Ting Ping purchased 480 shares of TCL Sales Corporation (TCL) from Peter Chiu 1,400 shares from his brother Teng
Ching who was also the president and operations manager of TCL; and 1,440 shares from Ismaelita Maluto. To protect his
shareholdings with TCL, Ting Ping requested TCL's Corporate Secretary, herein petitioner Teng, to enter the transfer
in the Stock and Transfer Book of TCL for the proper recording of his acquisition . he also demanded the issuance of
new certificates of stock in his favor. TCL and Teng, however, refused despite repeated demands. Because of their refusal,
Ting Ping filed a petition for mandamus with the SEC against TCL and Teng the SEC granted Ting Ping's petition. Teng and
TCL filed their respective motions to quash the writ of execution, which was opposed by Ting Ping, who also expressed his
willingness to surrender the original stock certificates of Chiu and Maluto to facilitate and expedite the transfer of the shares
in his favor. Teng pointed out, however, that the annexes in Ting Ping's opposition did not include the subject certificates of
stock, surmising that they could have been lost or destroyed.

Ting Ping belied this, claiming that his counsel Atty. Simon V. Lao already communicated with TCL's counsel regarding the
surrender of the said certificates of stock. Teng then filed a counter manifestation where she pointed out a discrepancy
between the total shares of Maluto based on the annexes, which is only 1305 shares, as against the 1440 shares acquired by
Ting Ping based on the SEC Order dated August 9, 2006. the SEC denied the motions to quash filed by Teng and TCL,
Unperturbed, Teng filed a petition for certiorari and prohibition under Rule 65 of the Rules of Court. Hence, Teng filed the
present petition

ISSUES: WON the surrender of the certificates of stock is a requisite before registration of the transfer may be made in the
corporate books and for the issuance of new certificates in its stead.

RULING: Yes. The surrender of the original certificate of stock is necessary before the issuance of a new one so that the old
certificate may be cancelled. A corporation is not bound and cannot be required to issue a new certificate unless the original
certificate is produced and surrendered. Surrender and cancellation of the old certificates serve to protect not only the
corporation but the legitimate shareholder and the public as well, as it ensures that there is only one document covering a
particular share of stock.

In the case at bench, Ting Ping manifested from the start his intention to surrender the subject certificates of stock to
facilitate the registration of the transfer and for the issuance of new certificates in his name. It would be sacrificing
substantial justice if the Court were to grant the petition simply because Ting Ping is yet to surrender the subject certificates
for cancellation instead of ordering in this case such surrender and cancellation, and the issuance of new ones in his name.
Respondent Ting Ping Lay is hereby ordered to surrender the certificates of stock covering the shares respectively
transferred by Ismaelita Maluto and Peter Chiu.

46. SALVADOR
Tee Ling Kiat v. Ayala Corp., G.R. No. 192530, [March 7, 2018]
XIV. Shares and Capital Stock

FACTS: Spouses Dewey and Lily Dee, in their personal capacities, were sureties of a money market line transaction extended
by Ayala Corp. The money market line was not paid; Ayala thus filed an action for collection against Spouses Dee.
 Ruling in favor of Ayala, the court issued a notice to levy upon "the rights, claims, shares, interest, title and
participation" that the Spouses Dee may have in parcels of land registered in the name of VIP. Dewey was an
incorporator of VIP.
 Tee Ling Kiat filed a third-party claim, alleging that:
o Although Dewey is an incorporator of VIP, he is no longer a stockholder thereof. Dewey had already sold
to him all his stocks in VIP. He presents as evidence: (1) a cancelled check which Dewey issued in his
favor; and (2) a photocopy of the deed of sale of the stocks.
o Assuming that Dewey is still a stockholder of VIP, at most he merely has rights, claims, shares, interest,
title and participation to its shares of stocks, but not as to the real properties registered under its name.
VIP is a corporate entity which has a legal personality separate and distinct from Dewey or Lily. Thus, the
subject parcels of land are the sole and exclusive properties of VIP.
 RTC - Disallowed the claim. Tee Ling Kiat failed to present evidence of the sale of Dewey’s shares of stock to him.
 CA - affirmed the RTC.

ISSUE(s): (1) WN the parcels of lands are Dewey's properties. NO.

(2) WN the third-party claim should prosper. NO

RULING: (1) NO. Money judgments are enforceable only against property incontrovertibly belonging to the judgment debtor.
In this case, the judgment obtained by Ayala Corp. was against the Spouses Dewey and Lily Dee in their personal capacities
as sureties. Being a corporation, VIP is a juridical entity with personality separate and distinct from Dewey, its incorporator.

(2) NO. A person other than the judgment debtor who claims ownership over the levied properties is not precluded from
challenging the levy through any of the remedies provided for under the Rules of Court. In the pursuit of such remedies,
however, the third-party must, to reiterate, unmistakably establish ownership over the levied property,82 which Tee Ling
Kiat failed to do. In this case, that the only evidence adduced by Tee Ling Kiat to support his claim are a cancelled check
issued by Tee Ling Kiat in favor of Dewey Dee and a photocopy of the deed of sale. A photocopy of a document has no
probative value and is inadmissible in evidence.

Assuming that the sale had indeed transpired, such transfer is not binding on the corporation if the same is not recorded in
the books of the corporation.
Sec. 63, Corporation Code: "No transfer, x x x shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares transferred."

The purported transaction between Tee Ling Kiat and Dewey has never been recorded in VIP's corporate books. Thus, the
transfer is not binding as to the corporation.
47 – Tan
Batangas Laguna Tayabas Bus Company, Inc. (BLTB) vs. Bitanga
G.R. No. 206038, January 25, 2017

FACTS: For 4 generations, the Potencianos owned 87.5% of the outstanding capital stock of BLTB. On October 28, 1997,
shares of stock, representing 47.98% of the total OCS of BLTB, was sold to BMB Property Holdings, Inc., represented by its
President, Bitanga. The purchase price for the shares of stock was P72mil, the downpayment of which, in the sum of
P44.3mil, was made payable upon signing of Agreement, while the balance of P27.7mil was payable on November 26, 1997.
Declaration of Trust made by the sellers in favor of the buyer acknowledging that the subject shares shall be held in trust by
the sellers for the buyer pending their transfer to the latter's name; and subsequently members of the Bitanga Group were
elected as directors and officers.

Michael Potencianos requested a postponement of the annual stockholders’ meeting due to absence of a 30-day notice.
Inasmuch as there was no notice of postponement prior to that, a total of 286 stockholders, representing 87% of the shares
of stock of BLTB, arrived and attended the meeting. The majority of the stockholders present rejected the postponement and
voted to proceed with the meeting. The Potenciano group was re-elected to the BOD, and a new set of officers was thereafter
elected. However, the Bitanga group refused to relinquish their positions and continued to act as directors and officers of
BLTB. The conflict between the Potencianos and the Bitanga group escalated to levels of unrest and even violence among
laborers and employees of the bus company.

The Bitanga group filed with the SEC a Complaint for Damages and Injunction, arguing there was improper notice and
quorum was not had.

ISSUE: W/N the BLTB stockholders' meeting was valid.

RULING: YES. Indeed, until registration is accomplished, the transfer, though valid between the parties, cannot be effective
as against the corporation. Thus, the unrecorded transferee, the Bitanga group in this case, cannot vote nor be voted for. The
purpose of registration, therefore, is two-fold: to enable the transferee to exercise all the rights of a stockholder, including
the right to vote and to be voted for, and to inform the corporation of any change in share ownership so that it can ascertain
the persons entitled to the rights and subject to the liabilities of a stockholder. Until challenged in a proper proceeding, a
stockholder of record has a right to participate in any meeting; his vote can be properly counted to determine whether a
stockholders' resolution was approved, despite the claim of the alleged transferee. On the other hand, a person who has
purchased stock, and who desires to be recognized as a stockholder for the purpose of voting, must secure such a standing
by having the transfer recorded on the corporate books. Until the transfer is registered, the transferee is not a stockholder
but an outsider

48
NEMESIO GARCIA vs. NICOLAS JOMOUAD, Ex-Officio Provincial Sheriff of Cebu, and SPOUSES JOSE ATINON & SALLY
ATINON
323 SCRA 424 (2000)
Shares and Capital Stock

MAIN POINT: A bona fide transfer of the shares of a corporation, not registered or noted in the books of the corporation, is
not valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual
notice of said transfer or not. All transfers not so entered on the books of the corporation are absolutely void not because
they are without notice or fraudulent in law or fact, but because they are made so void by statute.

FACTS: Petitioner filed an action for injunction with prayer for preliminary injunction against respondents spouses Jose and
Sally Atinon and Nicolas Jomouad, e.x-oficio sheriff of Cebu. The action stemmed from an earlier case for collection of sum of
money filed by the spouses Atinon against Jaime Dico. In that case (collection of sum of money), the trial court rendered
judgment ordering Dico to pay the spouses Atinon the sum of P900,000.00 plus interests. After said judgment became final
and executory, respondent sheriff proceeded with its execution.

In the course thereof, the Proprietary Ownership Certificate (POC) No. 0668 in the Cebu Country Club, which was in
the name of Dico, was levied on and scheduled for public auction. Claiming ownership over the subject certificate, petitioner
filed the aforesaid action for injunction with prayer for preliminary injunction to enjoin respondents from proceeding with
the auction.

Petitioner avers that Dico, the judgment debtor of the spouses Atinon, was employed as manager of his
(petitioner's) Young Auto Supply. In order to assist him in entertaining clients, petitioner "lent" his POC, then bearing the
number 1459, in the Cebu Country Club to Dico so the latter could enjoy the "signing" privileges of its members. The Club
issued POC No. 0668 in the name of Dico. Thereafter, Dico resigned as manager of petitioner's business. Upon demand of
petitioner, Dico returned POC No. 0668 to him. Dico then executed a Deed of Transfer, dated 18 November 1992, covering
the subject certificate in favor of petitioner. The Club was furnished with a copy of said deed but the transfer was not
recorded in the books of the Club because petitioner failed to present proof of payment of the requisite capital gains tax.

ISSUE: WON a a bona fide transfer of the shares of a corporation, not registered or noted in the books of the corporation, is
valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual notice
of said transfer or not.

RULING: NO.. In Uson vs. Diosomito The Court held that the attachment prevails over the unrecorded transfer. In applying
the jurisprudence in this case, the Court held that the transfer of the subject certificate made by Dico to petitioner was not
valid as to the spouses Atinon, the judgment creditors, as the same still stood in the name of Dico, the judgment debtor, at the
time of the levy on execution. In addition, as correctly ruled by the CA, the entry in the minutes of the meeting of the Club's
board of directors noting the resignation of Dico as proprietary member thereof does not constitute compliance with Section
63 of the Corporation Code. Said provision of law strictly requires the recording of the transfer in the books of the
corporation, and not elsewhere, to be valid as against third parties.

In addition, as correctly ruled by the CA, the entry in the minutes of the meeting of the Club's board of directors
noting the resignation of Dico as proprietary member thereof does not constitute compliance with Section 63 of the
Corporation Code. Said provision of law strictly requires the recording of the transfer in the books of the corporation, and
not elsewhere, to be valid as against third parties.
49 BAIRD
Edward J. Nell Co. v. Pacific, 15 SCRA 415 (1965) (NELL DOCTRINE)
Acquisitions, Mergers and Consolidation

FACTS: Appellant Edward J. Nell Co. secured in Civil Case against Insular Farms, Inc. a judgment for the sum of P1,853.80 —
representing the unpaid balance of the price of a pump sold by appellant to Insular Farms — with interest on said sum, plus
P125.00 as attorney's fees and P84.00 as costs. A writ of execution, issued after the judgment had become final, was, on
August 14, 1959, returned unsatisfied, stating that Insular Farms had no leviable property. Soon thereafter, or on November
13, 1959, appellant filed with said court the present action against Pacific Farms, Inc. — for the collection of the judgment
aforementioned, upon the theory that appellee is the alter ego of Insular Farms, which appellee has denied. In due course,
the municipal court rendered judgment dismissing appellant's complaint. Appellant appealed, with the same result, to the
court of first instance and, subsequently, to the Court of Appeals. Hence this appeal by certiorari, upon the ground that the
Court of Appeals had erred: (1) in not holding the appellee liable for said unpaid obligation of the Insular Farms; 

With respect to the first ground, it should be noted that appellant's complaint in the municipal court was anchored upon the
theory that appellee is an alter ego of Insular Farms, because the former had purchased all or substantially all of the shares
of stock, as well as the real and personal properties of the latter, including the pumping equipment sold by appellant to
Insular Farms. The record shows that, on March 21, 1958, appellee purchased 1,000 shares of stock of Insular Farms for
P285,126.99; that, thereupon, appellee sold said shares of stock to certain individuals, who forthwith reorganized said
corporation; and that the board of directors thereof, as reorganized, then caused its assets, including its leasehold rights over
a public land in Bolinao, Pangasinan, to be sold to herein appellee for P10,000.00.

ISSUE: whether or not appellee is an alter ego of Insular Farms.

RULING: No. In the case at bar, there is neither proof nor allegation that appellee had expressly or impliedly agreed to
assume the debt of Insular Farms in favor of appellant herein, or that the appellee is a continuation of Insular Farms, or that
the sale of either the shares of stock or the assets of Insular Farms to the appellee has been entered into fraudulently, in
order to escape liability for the debt of the Insular Farms in favor of appellant herein. In fact, these sales took place (March,
1958) not only over six (6) months before the rendition of the judgment (October 9, 1958) sought to be collected in the
present action, but, also, over a month before the filing of the case (May 29, 1958) in which said judgment was rendered.
Moreover, appellee purchased the shares of stock of Insular Farms as the highest bidder at an auction sale held at the
instance of a bank to which said shares had been pledged as security for an obligation of Insular Farms in favor of said bank.
It has, also, been established that the appellee had paid P285,126.99 for said shares of stock, apart from the sum of
P10,000.00 it, likewise, paid for the other assets of Insular Farms.

Neither is it claimed that these transactions have resulted in the consolidation or merger of the Insular Farms and appellee
herein. On the contrary, appellant's theory to the effect that appellee is an alter ego of the Insular Farms negates such
consolidation or merger, for a corporation cannot be its own alter ego. It is urged, however, that said P10,000.00 paid by
appellee for other assets of Insular Farms is a grossly inadequate price, because, appellant now claims, said assets were
worth around P285,126.99, and that, consequently, the sale must be considered fraudulent. However, the sale was submitted
to and approved by the Securities and Exchange Commission. It must be presumed, therefore, that the price paid was fair
and reasonable. 

Generally where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable
for the debts and liabilities of the transferor, except: (1) where the purchaser expressly or impliedly agrees to assume such
debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing
corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in
order to escape liability for such debts.
50. Chua

Acquisitions, Mergers and Consolidation

Y-I Leisure Phils., Inc. v. Yu, 770 SCRA 56 (2015)

FACTS: respondent Yu bought several golf and country club shares from MADCI. Regrettably, the latter did not develop the
supposed project. Yu then demanded the return of his payment, but MADCI could not return it anymore because all its assets
had been transferred. Through the acts of YIL, MADCI sold all its lands to YILPI and, subsequently to YICRI. Thus, Yu now
claims that the petitioners inherited the obligations of MADCI. On the other hand, the petitioners counter that they did not
assume such liabilities because the transfer of assets was not committed in fraud of the MADCI's creditors.

ISSUE:1. whether the transfer of all or substantially all the assets of a corporation under Section 40 of the Corporation Code
carries with it the assumption of corporate liabilities. Yes

2. whether fraud must exist in the transfer of all the corporate assets in order for the transferee to assume the liabilities of
the transferor. – No

RULING: An evaluation of our contract and corporation laws validates that the Nell Doctrine is fully supported by
Philippine statutes. The general rule expressed by the doctrine reflects the principle of relativity under Article 1311
to 34 of the Civil Code. Contracts, including the rights and obligations arising therefrom, are valid and binding only
between the contracting parties and their successors-in-interest. Thus, despite the sale of all corporate assets, the
transferee corporation cannot be prejudiced as it is not in privity with the contracts between the transferor
corporation and its creditors. Jurisprudence has held that in a businessenterprise transfer, the transferee is liable
for the debts and liabilities of his transferor arising from the business enterprise conveyed. Many of the application
of the business-enterprise transfer have been related by the Court to the application of the piercing doctrine.

Nell Doctrine : Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the transferor, except:

1. Where the purchaser expressly or impliedly agrees to assume such debts;

2. Where the transaction amounts to a consolidation or merger of the corporations;
3. Where the purchasing corporation is merely a continuation of the selling corporation; and
4. Where the transaction is entered into fraudulently in order to escape liability for such debts.

The exception of the Nell doctrine, which finds its legal basis under Section 40, provides that the transferee corporation
assumes the debts and liabilities of the transferor corporation because it is merely a continuation of the latter's business. A
cursory reading of the exception shows that it does not require the existence of fraud against the creditors before it takes full
force and effect. Indeed, under the Nell Doctrine, the transferee corporation may inherit the liabilities of the transferor
despite the lack of fraud due to the continuity of the latter's business.

The purpose of the business-enterprise transfer is to protect the creditors of the business by allowing them a remedy against
the new owner of the assets and business enterprise. Otherwise, creditors would be left "holding the bag," because they may
not be able to recover from the transferor who has "disappeared with the loot," or against the transferee who can claim that
he is a purchaser in good faith and for value. Based on the foregoing, as the exception of the Nell doctrine relates to the
protection of the creditors of the transferor corporation, and does not depend on any deceit committed by the transferee -
corporation, then fraud is certainly not an element of the business enterprise doctrine.

51
Spouses Ong v. BPI Family Savings Bank, Inc., G.R. No. 208638, [January 24, 2018]
Acquisitions, Mergers and Consolidation

FACTS: Petitioners are engaged in the business of printing under the name and style "Melbros Printing Center”. Sometime in
December 1996, Bank of Southeast Asia's (BSA) managers visited petitioners' office and discussed the various loan and
credit facilities offered by their bank. In view of petitioners' business expansion plans and the assurances made by BSA's
managers, they applied for the credit facilities offered by the [Link] 1997, they executed a real estate mortgage
over their property in favor of BSA as security for a P15M term loan and P5M credit line or a total of P20M. Thus, with regard
to the term loan, only P10,444,271.49 was released by BSA, while with regard to the P5M credit line, only P3M was released.
BSA promised to release the remaining P2M conditioned upon the payment of the P3M initially released to petitioners.
Petitioners acceded to the condition and paid the P3M in full. However, BSA still refused to release the P2M. Petitioners then
refused to pay the amortizations due on their term loan. Later on, BPI Family Savings Bank (BPI) merged with BSA, thus,
acquired all the latter's rights and assumed its obligations. BPI filed a petition for extrajudicial foreclosure of the REM for
petitioners' default in the payment of their term loan. In order to enjoin the foreclosure, petitioners instituted an action for
damages with Temporary Restraining Order and Preliminary Injunction against BPI praying for P23,570,881.32 as actual
damages; P1,000,000.00 as moral damages; P500,000.00 as attorney's fees, litigation expenses and costs of suit.

The RTC ruled in favor of the petitioners, however BPI appeal before the CA. The CA reversed the decision of the lower court
and ruled in favor of BPI

ISSUES:

1. Whether there was already an existing and binding contract between Petitioners and BSA with regard to the
Omnibus Credit Line;
2. Whether the BPI can foreclose the mortgage on the land of herein petitioners

RULING: 1. YES As a rule, a contract is perfected upon the meeting of the minds of the two parties. It is perfected by mere
consent, that is, from the moment that there is a meeting of the offer and acceptance upon the thing and the cause that
constitute the contract.

In the case of Spouses Palada v. Solidbank Corporation, et al., this Court held that under Article 1934 of the Civil Code, a loan
contract is perfected only upon the delivery of the object of the contract. In that case, although therein petitioners applied for
a P3,000,000.00 loan, only the amount of P1,000,000.00 was approved by therein respondent bank because petitioners
became collaterally deficient. Nonetheless, the loan contract was deemed perfected on March 17, 1997, the date when
petitioners received the P1,000,000.00 loan, which was the object of the contract and the date when the REM was
constituted over the property.

Applying this to the case at bench, there is no iota of doubt that when BSA approved and released the P3,000,000.00 out of
the original P5,000,000.00 credit facility, the contract was perfected.

2. NO. In a merger of two banks, the surviving bank cannot claim to be in good faith for the default committed by the
absorbed bank, since it is not an excuse from the legal consequences of the effects of a merger or consolidation. Under what
is now Sec. 79 of RCC, the surviving entity not only acquires all the rights, privileges, and assets of the absorbed corporation,
but also the liabilities and obligations of the latter as if the surviving company itself incurred it. In this case, since BSA was
remised in its obligations under the loan agreement, BPI as the surviving bank in the merger with BSA cannot feign
ignorance of transactions entered by the former especially when it seeks to benefit from the same by foreclosing the
mortgage thereon.

[Link]

BPI. v. BPI Employees Union, 658 SCRA 828 (2011)

acquisitions, mergers and consolidation

FACTS: In 2000, Far East Bank and trust Company (FEBTC) merged with Bank of the Philippine Islands. Petitioner had a
Union Shop agreement with respondent BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank (the
Union).Pursuant to the merger, respondent requested BPI to terminate the employment of those new employees from
FEBTC who did not join the union. BPI refused to undertake such action and brought the controversy before a voluntary
arbitrator. Although BPI won the initial battle at the Voluntary Arbitrator level, BPIs position was rejected by the Court of
Appeals which ruled that the Voluntary Arbitrators interpretation of the Union Shop Clause was at war with the spirit and
rationale why the Labor Code allows the existence of such provision. This was followed and affirmation by the Supreme
Court of the CA decision holding that former employees of the Far East Bank and Trust Company (FEBTC) "absorbed" by BPI
pursuant to the two banks merger. The absorbed employees were covered by the Union Shop Clause in the then existing
collective bargaining agreement (CBA)of BPI with respondent BPI Employees Union-Davao Chapter-Federation of Unions in
BPI Unibank (the Union). Petitioners, despite the August 2010 decision moved for a Motion for reconsideration of the
decision.

ISSUE: May the "absorbed" FEBTC employees fell within the definition of "new employees," under the Union Shop Clause,
such that they be required to join respondent union or suffer termination upon request by the union?

RULING: It is more in keeping with social justice according full protection to labor to deem employment contracts as
automatically assumed by the surviving corporation in a merger, even in the absence of an express stipulation in the articles
of merger or the merger plan. This ruling strengthens judicial protection

of the right to security of tenure of employees affected by a merger and avoids confusion regarding the status of their various
benefits.

By upholding the automatic assumption of the non-surviving corporations existing employment contracts by the surviving
corporation in a merger, the Court strengthens judicial protection of the right to security of tenure of employees affected by
a merger and avoid confusion regarding the status of their various benefits. However, it shall be noted that nothing in the
Resolution shall impair the right of an employer to terminate the employment of the absorbed employees for a lawful or
authorized cause or the right of such an employee to resign, retire or otherwise sever his employment, whether before or
after the merger, subject to existing contractual obligations. Although by virtue of the merger BPI steps into the shoes of
FEBTC as a successor employer as if the former had been the employer of the latters employees from the beginning it must
be emphasized that, in reality, the legal consequences of the merger only occur at a specific date ,i.e.,upon its effectivity
which is the date of approval of the merger by the SEC. Thus, the court observed in the Decision that BPI and FEBTC
stipulated in the Articles of Merger that they will both continue their respective business operations until the SEC issues the
certificate of merger and in the event no such certificate is issued, they shall hold each other blameless for the non-
consummation of the merger.

53
Chua v. People, 801 SCRA 436, 449 (2016)
FACTS: Joselyn Chua was a stockholder of Chua Tee Corporation of Manila (CTCM). Alfredo Chua was the president and
chairman of the board, while Tomas Chua was the corporate secretary and also a member of the board of the same
corporation. Mercedes Diaz was the accountant/bookkeeper tasked with the physical custody of the corporate records.
Joselyn invoked her right as a stockholder pursuant to Section 74 of the Corporation Code to inspect the records of the books
of the business transactions of the corporation, the minutes of the meetings of the board of directors and stockholders, as
well as the financial statements of the corporation. She hired a lawyer to send demand letters to each of the petitioners for
her right to inspect to be heeded. However, she was denied of such right to inspect. Joselyn likewise hired the services of Mr.
Velayo from an accounting firm to assist her in examining the books of the corporation. Armed with a letter request, together
with the list of schedules of audit materials, Mr. Velayo and his group visited the corporation's premises for the supposed
examination of the accounts. However, the books of accounts were not formally presented to them and there was no list of
schedules, which would allow them to pursue their inspection. Mr. Velayo testified that they failed to complete their
objective of inspecting the books of accounts and examine the recorded documents.

Joselyn alleged that despite written demands, the petitioners conspired in refusing without valid cause the exercise of her
right to inspect CTCM’s business transactions records, financial statements and minutes of the meetings of both the board of
directors and stockholders. The petitioners denied liability. They argued that the custody of the records sought to be
inspected by Joselyn did not pertain to them. Besides, the physical records were merely kept inside the cabinets in the
corporate office. Further, they did not prevent Joselyn from inspecting the records. What happened was that Mercedes was
severely occupied with winding up the affairs of CTCM after it ceased operations. Joselyn and her lawyers then failed to set
up an appointment with Mercedes.

ISSUE: Whether petitioners are guilty of violating of Section 74, in relation to Section 144, of the Corporation Code for
denying Joselyn’s right as a stockholder to inspect the records of the books of the business transactions, the minutes of the
meetings o, as well as the financial statements of the corporation - YES

HELD: In this case, the Court takes exception and notes the following circumstances: (a) during cross-examination, Joselyn
admitted that permission was granted for her to see the documents, but she was unable to actually view them as she was
represented by her accountant; (b) Joselyn lacked personal knowledge as to whether or not the petitioners in fact allowed or
denied the checking of the records she had requested; (c) Velayo stated that the letter requesting for the examination of
CTCM's records was addressed to the Accounting Department, and he and his colleagues did not have personal dealings with
the petitioners.

From the foregoing, it is apparent that a complete examination of CTCM's records did not occur resulting to an effective
deprivation of Joselyn's right as a stockholder. However, from Joselyn and Velayo's testimonies, it can be inferred that
permission to view the records was granted, albeit not fully effected. The petitioners, on their part, explained that they never
prevented Joselyn from exercising her right of inspection, but when the latter made her request, Mercedes was too occupied
in winding up the affairs of CTCM.

While a cloud of doubt is cast upon the existence of criminal intent on the part of the petitioners, it is jurisprudentially
settled that proof of malice or deliberate intent (mens rea) is not essential in offenses punishable by special laws, which are
mala prohibit.

In the case at bar, the petitioners were charged with violations of Section 74, in relation to Section 144, of the Corporation
Code, a special law. Accordingly, since Joselyn was deprived of the exercise of an effective right of inspection, offenses had in
fact been committed, regardless of the petitioners' intent. The Corporation Code provides for penalties relative to the
commission of offenses, which cannot be trivialized, lest the public purpose for which they are crafted be defeated and put to
naught.

54
Reyes v. Bancom Development Corp., G.R. No. 190286, [January 11, 2018]

FACTS: A Continuing Guaranty executed in favor of respondent Bancom by Angel E. Reyes, Sr., Florencio Reyes, Jr., Rosario R.
Du, Olivia Arevalo, and the two petitioners herein, Ramon E. Reyes and Clara R. Pastor (the Reyes Group). In the instrument,
the Reyes Group agreed to guarantee the full and due payment of obligations incurred by Marbella under an Underwriting
Agreement with Bancom. This is to secure Marbella’s promissory notes in favor of Bancom.
 Because of Marbella’s failure to pay the said promissory notes, Bancom instituted a complaint for sum of money
against Marbellla and herein petitioners.
 One of the defenses raised by the petitioners is that the action must be considered abated pursuant to Section 122
of the Corporation Code since the Certificate of Registration issued to Bancom had been revoked by the SEC and
that no trustee or receiver had been appointed to continue the suit. They attached a Certificate of Corporate
 Filing/Information issued by the SEC. The latter confirmed that Bancom's Certificate of Registration had been
revoked on 26 May 2003 for noncompliance with the SEC's reportorial requirements.
 However, the RTC still found them to be solidarily liable with Marbella.
ISSUE: Whether the present suit should be deemed abated by the revocation by the SEC of the Certificate of Registration
issued to Bancom – NO
RULIG: The revocation of Bancom's Certificate of Registration does not justify the abatement of these proceedings. Mere
revocation of the charter of a corporation does not result in the abatement of the proceedings since the Board of
Directors are considered trustees by legal implication even without Bancom conveying its assets to a
receiver/assignee. Under what is now Sec. 184 of RCC, the corresponding liabilities of the debtors of a dissolved
corporation remain subsisting; otherwise, this would sanction the unjust enrichment of debtors. It must also be
emphasized that the dissolution of a creditor-corporation does not extinguish any right or remedy in its favor.
Sec 122 (184 RCC) provides that a corporation whose charter is annulled, or whose corporate existence is otherwise
terminated, may continue as a body corporate for a limited period of three years, but only for certain specific
purposes enumerated by law. These include the prosecution and defense of suits by or against the corporation, and
other objectives relating to the settlement and closure of corporate affairs.
 Based on the provision, a defunct corporation loses the right to sue and be sued in its name upon the
expiration of the three-year period provided by law. Jurisprudence, however, has carved out an exception to
this rule: an appointed receiver, an assignee, or a trustee may institute suits or continue pending actions on
behalf of the corporation, even after the winding-up period.
 When a corporation is dissolved and the liquidation of its assets is placed in the hands of a receiver or
assignee, the period of three years prescribed by section 77 of Act No. 1459 known as the Corporation Law
is not applicable, and the assignee may institute all actions leading to the liquidation of the assets of the
corporation even after the expiration of three years.
 The Court further clarified that a receiver or an assignee need not even be appointed for the purpose of
bringing suits or continuing those that are pending. Suits may even be instituted or continued by a trustee
specifically designated for a particular matter, such as a lawyer representing the corporation in a certain case. The
board of directors of the corporation may be considered trustees by legal implication for the purpose of winding
up its affairs.
It must also be emphasized that the dissolution of a creditor-corporation does not extinguish any right or remedy in its favor
(Sec 184 RCC)

[Link]
Rich v. Paloma III, G.R. No. 210538, [March 7, 2018]
Corporate Dissolution and Liquidation

FACTS: Sometime in 1997, Dr. Gil Rich (petitioner) lent P1M to his brother, Estanislao Rich (Estanislao). The agreement was
secured by a real estate mortgage over a 1000-square-meter parcel of land with improvements. When Estanislao failed to
make good on his obligations under the loan agreement, the petitioner foreclosed on the subject property via a public
auction sale conducted on March 14, 2005 by respondent Guillermo Paloma III, Sheriff IV of the RTC. The petitioner was
declared the highest bidder, and subsequently, was issued a Certificate of Sale as purchaser/mortgagee. Without the
petitioner's knowledge, however, and prior to the foreclosure, it appeared from the records that on January 24, 2005,
Estanislao entered into an agreement with Maasin Traders Lending Corporation (MTLC), where loans and advances
amounting to P2.6M were secured by a real estate mortgage over the same property.

On the strength of this document, respondent Servacio, as president of MTLC, exercised equitable redemption after the
foreclosure proceedings. She tendered the amount of P2M as the redemption money in the extra-judicial foreclosure sale.  On
March 15, 2006, respondent Paloma III, again as sheriff of the RTC, issued a Deed of Redemption in favor of MTLC. The deed
then became the subject of the complaint for "Annulment of Deed of Redemption, etc." filed before the RTC by the petitioner
against respondent Servacio.

According to the petitioner, MTLC no longer has juridical personality to effect the equitable redemption as it has already
been dissolved by the SEC as early as September 2003. He also asserted that there was a pending case against respondent
Servacio for allegedly forging Estanislao's signature on the same real estate mortgage that respondent Servacio used as basis
for her equitable redemption of the subject property

ISSUE: w/n a corporation not invested with corporate personality at the time of redemption redeem the property – NO
RULING: NO. A corporation which has already been dissolved, be it voluntarily or involuntarily, retains no juridical
personality to conduct its business save for those directed towards corporate liquidation. Two things must be said of the
foregoing in relation to the facts of this case. First, if MTLC entered into the real estate mortgage agreement with
Estanislao after its dissolution, then resultantly, such real estate mortgage agreement would be void ab initio because of the
non-existence of MTLC's juridical personality. Second, if, however, MTLC entered into the real estate mortgage
agreement prior to its dissolution, then MTLC's redemption of the subject property, even if already after its dissolution (as
long as it would not exceed three years thereafter), would still be valid because of the liquidation/winding up powers
accorded by Section 122 of the Corporation Code to MTLC.

The discourse of this case then turns to one of proven facts. The Court scoured the records, and after a perusal of all the
submissions herein and the rulings of the lower and appellate courts, the Court finds that: (1) MTLC has already been
dissolved by the Securities and Exchange Commission as early as September 2003; (2) Estanislao and MTLC entered into the
real estate mortgage agreement only on January 24, 2005; 36 and (3) MTLC, through respondent Servacio, redeemed the
property on December 15, 2005, for which a Deed of Redemption was issued by respondent Paloma III on March 15, 2006.
From the foregoing, it is clear that, by the time MTLC executed the real estate mortgage agreement, its juridical personality
has already ceased to exist. The agreement is void as MTLC could not have been a corporate party to the same. To be sure, a
real estate mortgage is not part of the liquidation powers that could have been extended to MTLC. It could not have been for
the purposes of "prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of
and convey its property and to distribute its assets." It is, in fact, a new business in which MTLC no longer has any business
pursuing. Consequently, and contrary to the CA Decision, any redemption exercised by MTLC pursuant to this void real
estate mortgage is likewise void, and could not be given any effect.

56

Vigilla v. Philippine College of Criminology, Inc.

698 SCRA 247 (2013)

Corporate Dissolution and Liquidation

Facts: PCCr is a non-stock educational institution, while the petitioners were janitors, janitresses and supervisor in the
Maintenance Department of PCCr under the supervision and control of Atty. Florante A. Seril (Atty. Seril), PCCr’s Senior Vice
President for Administration. The petitioners, however, were made to understand, upon application with respondent school,
that they were under MBMSI, a corporation engaged in providing janitorial services to clients. Atty. Seril is also the President
and General Manager of MBMSI.

Sometime in 2008, PCCr discovered that the Certificate of Incorporation of MBMSI had been revoked as of July 2, 2003. On
March 16, 2009, PCCr, through its President, respondent Gregory Alan F. Bautista (Bautista), citing the revocation,
terminated the school’s relationship with MBMSI, resulting in the dismissal of the employees or maintenance personnel
under MBMSI, except Alfonso Bongot (Bongot) who was retired.

In September, 2009, the dismissed employees, led by their supervisor, Benigno Vigilla (Vigilla), filed their respective
complaints for illegal dismissal, reinstatement, back wages, separation pay (for Bongot), underpayment of salaries, overtime
pay, holiday pay, service incentive leave, and 13th month pay against MBMSI, Atty. Seril, PCCr, and Bautista. In their
complaints, they alleged that it was the school, not MBMSI, which was their real employer because (a) MBMSI’s certification
had been revoked; (b) PCCr had direct control over MBMSI’s operations; (c) there was no contract between MBMSI and
PCCr; and (d) the selection and hiring of employees were undertaken by PCCr. Petitioners further argue that MBMSI had no
legal personality to incur civil liabilities as it did not exist as a corporation on account of the fact that its Certificate of
Incorporation had been revoked on July 2, 2003. Petitioners ask this Court to exempt MBMSI from its liabilities because it is
no longer existing as a corporation.

Issue: W/N MBMSI is should be exempt from its liabilities because it is no longer existing as a corporation.
Ruling: No. The Court cannot accommodate the prayer of petitioners.

The executed releases, waivers and quitclaims are valid and binding notwithstanding the revocation of MBMSI’s Certificate
of Incorporation. The revocation does not result in the termination of its liabilities. Section 122 27 of the Corporation Code
provides for a three-year winding up period for a corporation whose charter is annulled by forfeiture or otherwise to
continue as a body corporate for the purpose, among others, of settling and closing its affairs.

Even if said documents were executed in 2009, six (6) years after MBMSI’s dissolution in 2003, the same are still valid and
binding upon the parties and the dissolution will not terminate the liabilities incurred by the dissolved corporation pursuant
to Sections 122 and 145 of the Corporation Code. In the case of Premiere Development Bank v. Flores, the Court held that a
corporation is allowed to settle and close its affairs even after the winding up period of three (3) years. The Court wrote:As
early as 1939, this Court held that, although the time during which the corporation, through its own officers, may conduct
the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of
dissolution commences, there is no time limit within which the trustees must complete a liquidation placed in their hands.
What is provided in Section 122 of the Corporation Code is that the conveyance to the trustees must be made within the
three-year period. But it may be found impossible to complete the work of liquidation within the three-year period or to
reduce disputed claims to judgment. The trustees to whom the corporate assets have been conveyed pursuant to the
authority of Section 122 may sue and be sued as such in all matters connected with the liquidation.

Furthermore, Section 145 of the Corporation Code clearly provides that "no right or remedy in favor of or against any
corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation,
stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of
said corporation." Even if no trustee is appointed or designated during the three-year period of the liquidation of the
corporation, the Court has held that the board of directors may be permitted to complete the corporate liquidation by
continuing as "trustees" by legal implication.

57
Alabang Dev. Corp. v. Alabang Hills Village Assn.
724 SCRA 321 (2014)

FACTS:
 Alabang Development Corporation filed a complaint for Injunction and Damages against Alabang Hills Village
Association Inc., and its president, Rafael for allegedly starting the construction of a multi-purpose hall and a
swimming pool on one of the parcels of land still owned by ADC, without the latter’s consent and approval, and
despite demand, failed to desist from constructing thereof.
 In its answer with counter-claim, AHVAI denied ADC’s allegations and made the following claims:
o That ADC has no legal capacity to sue because its corporate existence was already dissolved by the SEC on
May 26, 2003;
o That ADC has no cause of action as it was merely holding the property in trust for AHVAI as beneficial
owner thereof;
o That the lot is part of the open space required by law to be provided in the subdivision.
 The RTC dismissed ADC’s complaint holding that:
o It has no personality to sue and that subject area is a reserved area for the benefit of the homeowners as
required by law;
o HLURB has exclusive jurisdiction over the dispute between ADC and AHVAI.
 ADC filed a Notice of Appeal to elevate the case to the CA, which also denied its appeal, holding that it had no
capacity to sue as it was already defunct.

ISSUE: W/N Petitioner lacks capacity to sue?

RULING: YES. Indeed, as held by this Court and as correctly cited by the CA in the case of Columbia: “lack of legal capacity to
sue means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary qualification to appear in
the case, or does not have the character or representation he claims[;] ‘lack of capacity to sue’ refers to a plaintiff’s general
disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality or any other general
disqualifications of a party.”
In the instant case, petitioner lacks capacity to sue because it no longer possesses juridical personality by reason of its
dissolution and lapse of the three-year grace period provided under Section 122 of the Corporation Code. Section 122 of the
Corporation Code provides as follows: “Every corporation whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for
the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and
convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was
established. At any time during said three (3) years, said corporation is authorized and empowered to convey all of its
property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any
such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others
in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members, creditors or other persons in interest.”

Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown
or cannot be found shall be escheated to the city or municipality where such assets are located. Except by decrease of capital
stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful
dissolution and after payment of all its debts and liabilities. This Court has held that: It is to be noted that the time during
which the corporation, through its own officers, may conduct the liquidation of its assets and sue and be sued as a
corporation is limited to three years from the time the period of dissolution commences; but there is no time limit within
which the trustees must complete a liquidation placed in their hands. It is provided only that the conveyance to the trustees
must be made within the three year period. It may be found impossible to complete the work of liquidation within the three-
year period or to reduce disputed claims to judgment. The authorities are to the effect that suits by or against a corporation
abate when it ceased to be an entity capable of suing or being sued; but trustees to whom the corporate assets have been
conveyed pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters connected with the
liquidation. In the absence of trustees, this Court ruled, thus: Still in the absence of a board of directors or trustees, those
having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation,
acting for and in its behalf, might make proper representations with the Securities and Exchange Commission, which has
primary and sufficiently broad jurisdiction in matters of this nature, for working out a final settlement of the corporate
concerns. In the instant case, there is no dispute that petitioner’s corporate registration was revoked on May 26, 2003. Based
on the above-quoted provision of law, it had three years, or until May 26, 2006, to prosecute or defend any suit by or against
it. The subject complaint, however, was filed only on October 19, 2006, more than three years after such revocation. It is
likewise not disputed that the subject complaint was filed by petitioner corporation and not by its directors or trustees.

In the present case, petitioner filed its complaint not only after its corporate existence was terminated but also beyond the
three-year period allowed by Section 122 of the Corporation Code. Thus, it is clear that at the time of the filing of the subject
complaint petitioner lacks the capacity to sue as a corporation. To allow petitioner to initiate the subject complaint and
pursue it until final judgment, on the ground that such complaint was filed for the sole purpose of liquidating its assets,
would be to circumvent the provisions of Section 122 of the Corporation Code.

58
NATIONAL ELECTRIFICATION ADMINISTRATION (NEA) v. MAGUINDANAO ELECTRIC COOPERATIVE, INC. (MAGELCO)
Corporate Dissolution and Liquidation

FACTS: Cotabato Electric Cooperative Inc. (COTELCO) is also a duly organized cooperative with a franchise to distribute
electric light, and power to the province of Cotabato except for the PPALMA Area. In 2000, COTELCO filed before the NEA an
application for the amendment of its franchise to include the six municipalities in Cotabato, namely Pigcawayan, Alamada,
Libungan, Midsayap, Aleosan, and Pikit (PPALMA Area). MAGELCO, which was the distributor of electricity in the area,
opposed the application at that time. NEA conducted hearings attended by both COTELCO and MAGELCO.  In a Decision, the
NEA, through the National Electrification Commission (NEC), granted COTELCO's application and ordered the transfer of
MAGELCO's assets in the PPALMA Area to COTELCO upon payment of just compensation.
MAGELCO filed before the CA a petition for review to challenge this NEA Decision. Hereafter, this petition shall be referred to
as the First CA Case. CA affirmed with modifications the decision of NEA (no payment of just compensation). While the First
CA Case was pending, MAGELCO passed General Assembly Resolution No. 4 which amended the MAGELCO by laws by
creating "two (2) separate and independent branch units, MAGELCO Main and MAGELCO-PPALMA”. The NEA approved GA
Resolution No. 4 subject to its recommended modifications and the outcome of the pending First CA Case.

The NEA issued two letter-directives. The first letter-directive, among others, approved MAGELCO Main Board Resolution
No. 40, Series of 2008 (declaring the cancellation of the memorandum of agreement and transition plan executed by and
between MAGELCO Main and MAGELCO-PALMA) and COTELCO Board Resolution No. 98-2008 (requesting the NEA to
revoke MAGELCO GA Resolution No. 4).
On the same date, the NEA issued a second letter-directive approving COTELCO Board Resolution No. 99-2008 which,
among others, declared that the PPALMA Area is under the coverage of COTELCO and not MAGELCO Main or MAGELCO-
PALMA, subject to the mediation proceedings between MAGELCO and COTELCO as to the disposition of assets.

MAGELCO-PALMA filed a petition for certiorari and prohibition with application for status quo ante order, temporary
restraining order and/or writ of preliminary injunction, before the CA on the ground that NEA's two letter-directives were
issued in grave abuse of discretion. CA ruled in favor of MAGELCO-PALMA.

Aggrieved, COTELCO filed a special civil action for certiorari before the CA challenging these orders. The CA consolidated the
COTELCO petition with the MAGELCO-PALMA petition challenging the two NEA letter-directives.

ISSUE: WON MAGELCO-PALMA has the legal capacity to sue.

RULING: NO. When an entity has no separate juridical personality, it has no legal capacity to sue. Section 1, Rule 3 of the
Rules of Court states that "only natural or juridical persons or entities authorized by law may be parties in a civil action."
Article 44 of the Civil Code enumerates the entities that are considered as juridical persons:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as
soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder, partner or member.

We applied these rules in Alabang Development Corporation v. Alabang Hills Village Association, where we held that
after the dissolution of a corporation and the lapse of the three-year period under Section 122 of the Corporation
Code, this defunct corporation no longer has the capacity to sue because it has lost its juridical personality. Thus, it
has no legal capacity to sue or be sued.
MAGELCO Main is a duly-organized cooperative under PD 269. When its board of directors amended its by-laws and
established two branches within MAGELCO Main, it did not create a separate cooperative. PD 269 details the process by
which cooperatives are formed. This process does not allow for the creation of a cooperative from an existing one by mere
amendment of its by-laws. Thus, no new cooperative arose from MAGELCO Main's act of amending its own by-laws. It
affected only the internal operations of MAGELCO Main itself.

In view of all these, the CA erred in holding that through the compromise agreement with MAGELCO Main, MAGELCO-
PALMA acquired ownership over the assets in the PPALMA Area. No ownership can be transferred to a mere branch without
a separate legal personality. MAGELCO Main retained ownership over the assets. Through the amendment of its by-laws, as
well as the memorandum of agreement and transition plan, MAGELCO Main merely streamlined its operations by granting
its branch control to the assets in the PPALMA Area. No transfer of ownership took place precisely because the parent
cooperative cannot transfer ownership to its unit within the same cooperative.

MAGELCO-PALMA was created as a branch within a cooperative. It never existed as a juridical person. Hence, in accordance
with the established rules and jurisprudence, MAGELCO-PALMA does not have the legal capacity to institute the special civil
action for certiorari before the CA. The CA erred in granting due course to the petition.

In the light of these discussions, we find that only COTELCO's recourse to this Court merits adjudication.

59
San Juan Structural vs. CA
Close Corporations

FACTS: Petitioner entered into an agreement with Motorich for the transfer to it of a parcel of land. Petitioner demanded
payment of the balance and were supposed to meet in their office, but Motorich did not appear; that despite repeated
demands, Motorich refused to execute the deed of assignment to transfer the certificate of title; that ACL Development
Corporation was impleaded as a necessary party since the TCT was still in the name thereof; that subsequently, ACL and
Motorich entered into a deed of absolute sale whereby the former transferred to the latter the subject property and by
reason thereof, a new certificate of title was issued in the name of Motorich, represented by Nenita.

Petitioner claims for damages and argues that the veil of corporate fiction of Motorich should be pierced, because the latter
is a close corporation. Since Spouses Reynaldo and Nenita Gruenberg owned all or almost all or 99.866% to be accurate, of
the subscribed capital stock of Motorich, petitioner argues that Gruenberg needed no authorization from the board to enter
into the subject contract. It adds that, being solely owned by the Spouses Gruenberg, the company can be treated as a close
corporation which can be bound by the acts of its principal stockholder who needs no specific authority.

ISSUE: W/N Motorich is a close corporation.

RULING: NO. Section 95 of the RCCP defines a close corporation as one whose articles of incorporation provide that: (1) All
of the corporations issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or
more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or
make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a
close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code.

In this case, the articles of incorporation of Motorich does not contain any provision stating that (1) the number of
stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation,
or (3) listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its articles, it is
clear that Respondent Motorich is not a close corporation. Motorich does not become one either, just because Spouses
Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personalities. So too, a narrow distribution of ownership
does not, by itself, make a close corporation.

The Court is not unaware that there are exceptional cases where an action by a director, who singly is the controlling
stockholder, may be considered as a binding corporate act and a board action as nothing more than a mere formality. The
present case, however, is not one of them. As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own almost
99.866% of Respondent Motorich. Since Nenita is not the sole controlling stockholder of Motorich, the aforementioned
exception does not apply. Granting arguendo that the corporate veil of Motorich is to be disregarded, the subject parcel of
land would then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during their
marriage. There being no indication that said spouses, who appear to have been married before the effectivity of the Family
Code, have agreed to a different property regime, their property relations would be governed by conjugal partnership of
gains. As a consequence, Nenita Gruenberg could not have effected a sale of the subject lot because there is no co-ownership
between the spouses in the properties of the conjugal partnership of gains. Hence, neither spouse can alienate in favor of
another his or her interest in the partnership or in any property belonging to it; neither spouse can ask for a partition of the
properties before the partnership has been legally dissolved.

Assuming further, for the sake of argument, that the spouses property regime is the absolute community of property, the sale
would still be invalid. Under this regime, alienation of community property must have the written consent of the other
spouse or the authority of the court without which the disposition or encumbrance is void.

60
Andaya v. Rural Bank of Cabadbaran, 799 SCRA 325 (2016)
Close Corporation

Facts: Joseph Omar O. Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran. The transaction
was evidenced by a notarized document denominated as Sale of Shares of Stocks. Chute duly endorsed and delivered the
certificates of stock to Andaya and, subsequently, requested the bank to register the transfer and issue new stock certificates
in favor of the latter. Andaya also separately communicated with the bank’s corporate secretary, respondent Oraiz,
reiterating Chute’s request for the issuance of new stock certificates in petitioner’s favor.

A few days later, the bank’s corporate secretary wrote Chute to inform her that he could not register the transfer. The
secretary explained that under a previous stockholders’ Resolution, existing stockholders were given priority to buy the
shares of others in the event that the latter offered those shares for sale (i.e., a right of first refusal). He then asked Chute if
she, instead, wished to have her shares offered to existing stockholders. He told her that if no other stockholder would buy
them, she could then proceed to sell her shares to outsiders.

Andaya cited Section 98 of the Corporation Code, he claimed that the purported restriction on the transfer of shares of stock
agreed upon during the 2001 stockholders' meeting could not deprive him of his right as a transferee. He pointed out that
the restriction did not appear in the bank's articles of incorporation, bylaws, or certificates of stock.

The bank eventually denied the request of Andaya.

Hence, Andaya instituted an action for mandamus and damages. Petitioner sought to compel the bank to record the transfer
in the bank’s stock and transfer book and to issue new certificates of stock in his name.

The RTC issued a Decision dismissing the complaint. The trial court ruled that Andaya had no standing to compel the bank to
register the transfer and issue stock certificates in his name.

Respondents primarily challenge the mandamus suit on the grounds that the transfer violated the bank
stockholders' right of first refusal and that petitioner was a buyer in bad faith.

Issue: Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus compelling the Rural
Bank of Cabadbaran to record the transfer of shares in its stock and transfer book, as well as issue new stock certificates in
his name.

Ruling: SC found that petitioner has legal standing to initiate an action for mandamus, the Court now reinstates the action he
filed and remands the case to the RTC to resolve the propriety of issuing a writ of mandamus. The application of what is
now Sec. 97 of RCC on validity of restrictions on transfer of shares applies only to close corporations. Before courts
can allow the operation of Sec. 97 of RCC to a case, there must first be a factual determination that the corporation is
indeed a close corporation; there needs to be a presentation of evidence on the relevant restrictions in the articles
and bylaws. Here, there is no such determination or even allegation based on the records or the RTC decision that
would assist this Court in ruling on these two major factual matters.

[Link]
Florete, Sr. v. Florete, Jr., G.R. No. 223321, [April 2, 2018]
Close corporation

Facts: Marsal & Co., Inc. (Marsal) was organized as a close corporation by Marcelino, Sr., Salome, Rogelio, Marcelino, Jr., Ma.
Elena, and Teresita (all surnamed Florete). Since its incorporation, the AOI had been amended several times to increase its
authorized capital stocks of P500,000.00 to P5,000,000.00. Notwithstanding the amendments, paragraph 7 of their AOI
which provides for the procedure in the sale of the shares of stocks of a stockholder remained the same, to wit:

SEVENTH. x x x Any stockholder who desires to sell his share of stock in the company must notify in writing the Board
of Directors of the company of his intention to sell. The Board of Directors upon receipt of such notice must
immediately notify all stockholders of record within five days upon receipt of the letter of said stockholder. Any
stockholder of record has the preemptive right to buy any share offered for sale by any stockholder of the company on
book value base[d] on the balance sheet approved by the Board of Directors. The aforementioned preemptive right
must be exercised by any stockholder of the company within ten (10) days upon his receipt of the written notice sent to
him by the Board of Directors of the offer to sell. Any sale or transfer in violation of the above terms and conditions
shall be null and void. The above terms and conditions must be printed at the back of the stock certificate.

Upon Teresita Florete Menchavez death, her husband’s, Ephraim, the special administrator, entered into a Compromise
Agreement and Deed of Assignment with petitioner Rogelio ceding all the shareholdings of Teresita in various corporations
owned and controlled by the Florete family, which included the 3,464 shares in Marsal corporation to petitioner Rogelio.

Respondents Marcelino Jr. and Ma. Elena filed with the RTC a case for annulment/rescission of sale of shares of stocks and
the exercise of their preemptive rights in Marsal corporation and damages against petitioners Rogelio Florete, Sr.
Respondents claimed that the sale of Teresita’s 3,464 Marsal shares of stocks made by petitioner estate to petitioner Rogelio
was void ab initio as it violated paragraph 7 of Marsal’s AOI, since the sale was made sans written notice to the Board of
Directors who was not able to notify respondents in writing of the petitioner estate and heirs’ intention to sell and convey
the Marsal.
ISSUE: Whether the sale of Teresita’s 3,464 Marsal shares of stocks made by petitioner estate of Teresita to petitioner
Rogelio was in violation of par. 7 of Marsal’s AOI and hence null and void and must be annulled or rescinded.

RULING: NO. As Marsal is a close corporation, it is allowed under the Corporation Code to provide for restrictions on the
transfer of its stocks, as stipulated in Sec. 97 (Articles of incorporation) and Sec. 98 (Sec. 98. Validity of restrictions on
transfer of shares)

In this case, the lack of notification in writing to the BOD of the intention to sell, does not make the sale null and void. While it
would appear that petitioner estate of Teresita, through its administrator Ephraim and petitioner Rogelio, did not comply
with the procedure on the sale of Teresita’s Marsal shares as stated under paragraph 7 of the AOI, however, it appeared in
the records that respondents had nonetheless been informed of such sale to which they had already given their consent
thereto.

First. Teresita died on September 19, 1989. Her husband Ephraim filed a petition for letters of administration of her estate
in 1992. Petitioner Rogelio filed an Opposition thereto which was later amended to include MARSAL & CO., INC. as
represented by its President, herein petitioner.

Second. The sale of all of Teresita’s shares which she inherited from her deceased parents which were sold to petitioner
Rogelio, and which included the 3,464 Marshal shares, had also been made known to respondents in the intestate
proceedings to settle the estate of Marcelino Florete, Sr., who died on October 3, 1990. Petitioner Rogelio was later
appointed as the administrator of the estate. There was already substantial compliance with paragraph 7 of the AOI
when respondents obtained actual knowledge of the sale of Teresita’s 3,464 Marsal shares to petitioner Rogelio as
early as 1995. In fact, respondents had already given their consent and conformity to such sale by their inaction for 17 years
despite knowledge of the sale. Moreover, they had already waived the procedure of the stockholder’s sale of stocks as
provided under paragraph 7 of the AOI.

Clearly, even if the transfer of stocks is made in violation of the restrictions enumerated under Section 99, such transfer is
still valid if it has been consented to by all the stockholders of the close corporation and the corporation cannot refuse to
register the transfer of stock in the name of the transferee. In this case, We find that the sale of Teresita’s 3,464 Marsal
shares had already been consented to by respondents as We have discussed, and may be registered in the name of petitioner
Rogelio. We find that there is indeed no violation of paragraph 7 of Marsal’s Articles of Incorporation. We need not discuss
the other issues raised in the petition.
 [Link]
Bustos v. Millians Shoe, Inc., 824 SCRA 67 (2017)
XVIII. Close Corporations

FACTS: Petitioner Hernand Bustos was the winning bidder from the levied property auctioned off by the Government of Marikina for non-
payment of real estate taxes by Spoueses Fernando and Amelia Cruz. Bustos filed for an application to canel original TCT of the Spouses Cruz
which the court rendered final and executory. Meanwhile, notice of lis pendens were annotated on the TCT of the property, indicated that in
a SEC Corp. Case No. 036-04, which was filed before the RTC and involved the rehabilitation proceedings for respondent Millians Shoe, Inc.
(MSI), covered the subject property and included it in the Stay Order issued by the RTC.
 Bustos moved for the exclusion of the subject property from the Stay Order. He claimed that the lot belonged to Spouses Cruz who
were mere stockholders and officers of MSI. He further argued that since he had won the bidding of the property or before the
annotation of the title the auctioned property could no longer be part of the Stay Order.
 RTC - denied the entreaty of Bustos; that the period of redemption had not yet lapsed at the time of the issuance of the Stay Order,
the ownership thereof had not yet been transferred to petitioner.
 CA - rationed that “The Cruz Spouses were still the owners of the land at the time of the issuance of the stay order. The said parcel
of land which secured several mortgage liens for the account of MSI remains to be an asset of the Cruz Spouses, who are the
stockholders and/or officers of MSI, a close corporation. Incidentally, as an exception to the general rule, in a close corporation, the
stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e.,
personally liable for corporate debts and obligations. Thus, the Cruz Spouses being stockholders of MSI are personally liable for the
latter’s debt and obligations.”

ISSUE: (1) WN MSI is a close corporation. NO

(2) WN the Spouses Cruz cannot be considered as stockholders of a close corporation and thus not liable for the debts of MSI. YES

RULING: (1) NO. To be considered a close corporation, an entity must abide by the requirements laid out in Section 96 of the Corporation
Code which reads: Sec. 96. Definition and applicability of Title.—A close corporation, within the meaning of this Code, is one whose articles
of incorporation provide that: (1) All the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not
more than a specified number of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more
specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public
offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least
two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within
the meaning of this Code.

A narrow distribution of ownership does not, by itself, make a close corporation. Courts look into the articles of incorporation to find
provisions expressly stating that (1) the number of stockholders shall not exceed 20; or (2) a preemption of shares is restricted in favor of
any stockholder or of the corporation; or (3) the listing of the corporate stocks in any stock exchange or making a public offering of those
stocks is prohibited. Here, neither the CA nor the RTC showed its basis for finding that MSI is a close corporation. The courts a quo did not at
all refer to the Articles of Incorporation of MSI. The Petition submitted by respondent in the rehabilitation proceedings before the RTC did
not even include those Articles of Incorporation among its attachments. In effect, the CA and the RTC deemed MSI a close corporation based
on the allegation of Spouses Cruz that it was so. However, mere allegation is not evidence and is not equivalent to proof. Hence, the CA
rulings that MSI is a closed corporation should be set aside.

(2) YES. Section 97 of the Corporation Code only specifies that “the stockholders of the corporation shall be subject to all liabilities of
directors.” No inference can be taken that stockholders of a close corporation are automatically liable for corporate debts and obligations.
Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly provides for personal liability of stockholders of close
corporation,
Sec. 100. Agreements by stockholders.—x x x x 5. To the extent that the stockholders are actively engaged in the management or
operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other
and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance.

As can be read in that provision, several requisites must be present for its applicability. None of these were alleged in the case of Spouses
Cruz. Neither did the RTC or the CA explain the factual circumstances for this Court to discuss the personally liability of respondents to their
creditors because of “corporate torts.”

With this in mind, the general doctrine of separate juridical personality shall be applied, which provides that a corporation has a legal
personality separate and distinct from that of people comprising it. By virtue of that doctrine, stockholders of a corporation enjoy the
principle of limited liability: the corporate debt is not the debt of the stockholder. Being an officer or a stockholder of a corporation does not
make one’s property the property also of the corporation. Hence, the import of Section 97 of the Corporation Code was misapplied. Given
that the true owner the subject property is not the corporation, petitioner cannot be considered a creditor of MSI but a holder of a claim
against respondent spouses. (Bustos should file an opposition to petitions for rehabilitation)
 63 – Tan
CIR vs. Club Filipino, [Link] Cebu
G.R. No. L-12719, May 31, 1962

FACTS: Club Filipino, Inc. de Cebu is a civic corporation organized under the laws of the Philippines with an original authorized capital stock
of P22,000, which was subsequently increased to P200,000, among others, to provide, operate, and maintain a golf course, tennis,
gymnasiums, bowling alleys, billiards and pool tables, and all kinds of games not prohibited by general laws and general ordinances; and
develop and cultivate sports of all kinds and any denomination for the recreation and healthy training of its members and shareholders.
Neither in the articles or by-laws is there a provision relative to dividends and their distribution, although it is covenanted that upon its
dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu

The Club owns and operates a club house, a bowling alley, a golf course, and a bar-restaurant where it sells wines and liquors, soft drinks,
meals and short orders to its members and their guests. The bar-restaurant was a necessary incident to the operation of the club and its golf-
course. The club is operated mainly with funds derived from membership fees and dues. Whatever profits it had, were used to defray its
overhead expenses and to improve its golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation of its real properties,
the value or price of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to the stockholders.
In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant.

ISSUE: W/N the Club is a nonstock corporation.

RULING: YES. The Club was organized to develop and cultivate sports of all class and denomination, for the healthful recreation and
entertainment of its stockholders and members; that upon its dissolution, its remaining assets, after paying debts, shall be donated to a
charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from membership fees and dues; that the Club's bar
and restaurant catered only to its members and their guests; that there was in fact no cash dividend distribution to its stockholders and that
whatever was derived on retail from its bar and restaurant was used to defray its overall overhead expenses and to improve its golf-course
(cost-plus-expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant.

A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock organizations, unless the intent to
the contrary is manifest and patent. Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a
bar and restaurant, and therefore, not liable for fixed and percentage taxes.

64
Valley Golf & Country Club, Inc. v. Rosa Vda. De Caram
G.R. No. 158805, April 16, 2009
Non-stock Corporations

FACTS: The respondent’s deceased husband, Caram owned subscribed and fully paid for one share in the capital stock of Valley Golf in 1961,
and was correspondingly issued a Certificate of Stock for the said purchase. Since 1980 Mr. Caram however stopped paying his monthly
membership dues to the Valley Golf, and had not paid the same despite continued demands for payment. As a consequence, he was declared
a delinquent, and his share was sold at public auction to satisfy his membership dues in 1987, in line with Valley Golf’s by-laws. Unknown to
Valley Golf, Mr. Caram had died in October 1986, and his heirs only came to know about the sale of his share in Valley Golf during the
settlement of his estate, forcing them to file a case for reconveyance with SEC. SEC, SEC en-banc, and CA ruled in favor of Mrs. Caram holding
that the By-Laws of the corporation does not justify the sale of the shares of its member for non-payment of dues by virtue of Sec. 67 of the
Corporation Code.

ISSUE: Whether or not a Corporation can dispose a fully-paid share of a member on account of its unpaid debts to the Corporation when it is
authorized to do so under the corporate by-laws.

RULING: NO. The arrangement provided for in the afore-quoted by-laws of Valley Golf whereby a lien is constituted on the membership
share to answer for subsequent obligations to the corporation finds applicable parallels under the Civil Code. Membership shares are
considered as movable or personal property, and they can be constituted as security to secure a principal obligation, such as the dues and
fees. There are at least two contractual modes under the Civil Code by which personal property can be used to secure a principal obligation.
The first is through a contract of pledge, while the second is through a chattel mortgage. In this case, Caram had not signed any document
that manifests his agreement to constitute his Golf Share as security in favor of Valley Golf to answer for his obligations to the club. There is
no document we can assess that it is substantially compliant with the form of chattel mortgages under Section 5 of Act No. 1508. The by-laws
could not suffice for that purpose since it is not designed as a bilateral contract between Caram and Valley Golf, or a vehicle by which Caram
expressed his consent to constitute his Golf Share as security for his account with Valley Golf.

65 BAIRD
Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 525 (1941)
Foreign Corporations

FACTS: On October 1, 1935, the Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc. instituted an action in the Court of First
Instance of Manila, civil case against Respondents. laintiffs prayed for the issuance of an order restraining Anacleto and Florencio
Mangaliman from selling their product "Mentholiman," and directing them to render an accounting of their sales and profits and to pay
damages. The complaint stated, among other particulars, that the Mentholatum Co., Inc., is a Kansas corporation which manufactures
Mentholatum," a medicament and salve adapted for the treatment of colds, nasal irritations, chapped skin, insect bites, rectal irritation and
other external ailments of the body; that the Philippine-American Drug co., Inc., is its exclusive distributing agent in the Philippines
authorized by it to look after and protect its interests; that on June 26, 1919 and on January 21, 1921, the Mentholatum Co., Inc., registered
with the Bureau of Commerce and Industry the word, "Mentholatum," as trade mark for its products; that the Mangaliman brothers
prepared a medicament and salve named "Mentholiman" which they sold to the public packed in a container of the same size, color and
shape as "Mentholatum"; and that, as a consequence of these acts of the defendants, plaintiffs suffered damages from the dimunition of their
sales and the loss of goodwill and reputation of their product in the market.

CFI of Manila, on October 29, 1937, rendered judgment in favor of the complainants. In the Court of Appeals,  he decision of the trial court
was, on June 29, 1940, reversed, said tribunal holding that the activities of the Mentholatum Co., Inc., were business transactions in the
Philippines, and that, by section 69 of the Corporation Law, it may not maintain the present suit. Hence, this petition for certiorari.

Petitioners maintain that the Mentholatum Co., Inc., has not sold personally any of its products in the Philippines; that the Philippine-
American Drug Co., Inc., was merely an importer of the products of the Mentholatum Co., Inc., and that the sales of the Philippine-American
Drug Co., Inc., were its own and not for the account of the Mentholatum Co., Inc. Upon the other hand, the defendants contend that the
Philippine-American Drug Co., Inc., is the exclusive distributing agent in the Philippines of the Mentholatum Co., Inc., in the sale and
distribution of its product known as "Mentholatum"; that, because of this arrangement, the acts of the latter; and that the Mentholatum Co.,
Inc., being thus engaged in business in the Philippines, and not having acquired the license required by section 68 of the Corporation Law,
neither it nor the Philippine-American Drug co., Inc., could prosecute the present action.

ISSUE: Whether or not the petitioners could prosecute the instant action without having secured the license required in section 69 of the
Corporation Law;

RULING: No. Section 69 of Act No. 1459 reads: No foreign corporation or corporation formed, organized, or existing under any laws other
than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or maintain by itself or assignee any suit
for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding XXX

In the present case, no dispute exists as to facts: (1) that the plaintiff, the Mentholatum Co., Inc., is a foreign corporation; (2) that it is not
licensed to do business in the Philippines. 

No general rule or governing principle can be laid down as to what constitutes "doing" or "engaging in" or "transacting" business. Indeed,
each case must be judged in the light of its peculiar environmental circumstances. The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially
retired from it and turned it over to another. he term implies a continuity of commercial dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of,
the purpose and object of its organization.

The complaint filed in the Court of First Instance of Manila on October 1, 1935, clearly stated that the Philippine-American Drug Co., Inc., is
the exclusive distributing agent in the Philippine Islands of the Mentholatum Co., Inc., in the sale and distribution of its product known as the
Mentholatum." The object of the pleadings being to draw the lines of battle between litigants and to indicate fairly the nature of the claims or
defenses of both parties. It follows that whatever transactions the Philippine-American Drug Co., Inc., had executed in view of the law, the
Mentholatum Co., Inc., did it itself. And, the Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines without the
license required by section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair competition.
Neither may the Philippine-American Drug Co., Inc., maintain the action here for the reason that the distinguishing features of the agent
being his representative character and derivative authority.

The right of the petitioner conditioned upon compliance with the requirements of section 69 of the Corporation Law to protect its rights, is
hereby reserved.

The writ prayed for should be, as it hereby is, denied, with costs against the petitioners.

Separate Opinions: MORAN, J., dissenting:

Section 69 of the Corporation Law provides that, without license no foreign corporation may maintain by itself or assignee any suit in the
Philippine courts for the recovery of any debt, claim or demand whatever. But this provision, as we have held in Western Equipment & Supply
Company vs. Reyes, does not apply to suits for infringement of trade marks and unfair competition, the theory being that "the right to the use
of the corporate and trade name of a foreign corporation is a property right, a right in rem, which it may assert and protect in any of the
courts of the world even in countries where it does not personally transact any business," and that "trade mark does not acknowledge any
territorial boundaries but extends to every mark where the traders' goods have become known and identified by the use of the mark." For
this reason, I dissent from the majority opinion.
 66. Chua
Foreign corporation
MARUBENI NEDERLAND VS TENSUAN
FACTS: In Tokyo, Japan, petitioner Marubeni and DBT entered into a contract whereby petitioner agreed to supply all the necessary
equipment, machinery, materials, technical know-how and the general design of the construction of DBT's lime plant at the Guimaras Islands
in Iloilo for a total contract price of US$5,400,000.00 on a deferred payment basis. The obligation of DBT to pay the loan amortizations on
their due dates under the contracts were absolutely and unconditionally guaranteed by the National Investment and Development
Corporation (NIDC).
Private respondent Artemio Gatchalian, a stockholder of DBT sued petitioner Marubeni for contractual breach.
petitioner Marubeni entered a limited and special appearance and sought the dismissal of the complaint on the ground that the
court a quo had no jurisdiction over the person of petitioner since it is a foreign corporation neither doing nor licensed to do business in the
Philippines.
Petitioner claims that it is a foreign corporation not doing business in the country and as an entity with its own capitalization, it is
separate and distinct from Marubeni Corporation, Japan which is doing business in the Philippines through its Manila branch; that the three
(3) contracts entered into with DBT were perfected and consummated in Tokyo, Japan; that the sale and purchase of the machineries and
equipment for the Guimaras lime plant were isolated contracts and in no way indicated a purpose to engage in business; and that the
services performed by petitioner in the Philippines were merely auxillary to the aforesaid isolated transactions entered into and perfected
outside the Philippines.
ISSUE: whether petitioner Marubeni Nederland B.V. can be considered as "doing business" in the Philippines and therefore subject to the
jurisdiction of our courts.
RULING: Yes, petitioner can be sued in the regular courts because it is doing business in the Philippines. The applicable law is Republic Act
No. 5455 as implemented by the following rules and regulations of the Board of Investments which took effect on February 3, 1969. Thus:
(f) the performance within the Philippines of any act or combination of acts enumerated in Section 1 (1) of the Act shall constitute
"doing business" therein. In particular, "doing business" includes:

1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm amounting to
negotiation or fixing of the terms and conditions of sales or service contracts, regardless of whether the contracts are actually
reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the
Philippines. . . .

2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an
independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account of the
principal.

4) Opening offices whether called "liaison" offices, agencies or branches, unless proved otherwise.

10) Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally incident to, or in the progressive prosecution of,
commercial gain or of the purpose and objective of the business organization.

It cannot be denied that petitioner had solicited the lime plant business from DBT through the Marubeni Manila branch. Records show that
the "turn-key proposal for the . . . 300 T/D Lime Plant" was initiated by the Manila office through its Mr. T. Hojo. In a follow-up letter dated
August 3, 1976, Hojo committed the firm to a price reduction of $200,000.00 and submitted the proposed contract forms. As reflected in the
letterhead used, it was Marubeni Corporation, Tokyo, Japan which assumed an active role in the initial stages of the negotiation. Petitioner
Marubeni Nederland B.V. had no visible participation until the actual signing of the October 28, 1976 agreement in Tokyo and even there, in
the space reserved for petitioner, it was the signature. of "S. Adachi as General Manager of Marubeni Corporation, Tokyo on behalf of
Marubeni Nederland B.V." which appeared.

Even assuming for the sake of argument that Marubeni Nederland B.V. is a different and separate business entity from Marubeni Japan and
its Manila branch, in this particular transaction, at least, Marubeni Nederland B.V. through the foregoing acts, had effectively solicited
"orders, purchases (sales) or service contracts" as well as constituted Marubeni Corporation, Tokyo, Japan and its Manila Branch as its
representative in the Philippines to transact business for its account as principal. These circumstances, taken singly or in combination,
constitute "doing business in the Philippines" within the contemplation of the law.
67
Aetna Casualty & Surety Co. v. Pacific Star Line, 80 SCRA 635 (1977)
Foreign Corporations
FACTS: Smith Bell & Co. (Philippines), Inc. and Aetna Surety Casualty & Surety Co. Inc., as subrogee, instituted Civil Case No. 53074 in the
Court of First Instance of Manila against Pacific Star Line, The Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc. to
recover the amount of US $2,300.00 representing the value of the stolen and damaged cargo. The complaint stated that the defendant Pacific
Star Line, as a common carrier, was operating the vessel SS Ampal on a commercial run between United States and Philippine Ports including
Manila; that the defendant, The Bradman Co. Inc., was the ship agent in the Philippines for the SS Ampal and/or Pacific Star Line; that the
Manila Railroad Co. Inc. and Manila Port Service were the arrastre operators in the port of Manila and were authorized to delivery cargoes
discharged into their custody  SS Ampal delivered from New York cargo for which Star Line issued Bill of Lading with Shalom Co as shipper
and Judy Phil Inc as consignee. Due to the negligence of defendants, the shipment sustained damages. Shalom Co filed a claim against
defendants but they refused to pay. Since the shipment was insured, Aetna paid the value of the cargo to Shalom Inc. Thus this action by
Aetna as subrogee to the rights of Shalom Inc.

The trial court dismissed the complaint because there has been a ruling that foreign corporation may file a suit in the Philippines in isolated
cases. But the case of the plaintiff here is not that. The evidence shows that the plaintiff has been filing actions in the Philippines not just in
isolated instances, but in numerous cases and therefore, has been doing business in this country, contrary to Philippine law.

ISSUE: Whether Aetna Casualty & Surety Company, has been doing business in the Philippines.

RULING: NO. Aetna is not engaged in the business of insurance in the Philippines but is merely collecting a claim assigned to it by the
consignee, it is not barred from filing the instant case although it has not secured a license to transact insurance business in the Philippines.
Those that file collection suits with Philippine courts arising from insurance contracts entered into and premiums paid abroad are not doing
business in the Philippines.

[Link]

Agilent Technologies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp., 427 SCRA 593 (2004)

Foreign corporation

FACTS: Petitioner Agilent is a foreign corporation, which, by its own admission, is not licensed to do business in the Philippines.  Respondent
Integrated Silicon is a private domestic corporation, 100% foreign owned, which is engaged in the business of manufacturing and
assembling electronics components. The juridical relation among the various parties in this case can be traced to a 5-year Value Added
Assembly Services Agreement (VAASA), between Integrated Silicon and HP-Singapore.  Under the terms of the VAASA, Integrated Silicon was
to locally manufacture and assemble fiber optics for export to HP-Singapore. HP-Singapore, for its part, was to consign raw materials to
Integrated Silicon. The VAASA had a five-year term with a provision for annual renewal by mutual written consent. Later, with the consent of
Integrated Silicon, HP-Singapore assigned all its rights and obligations in the VAASA to Agilent. Later, Integrated Silicon filed a complaint for
“Specific Performance and Damages” against Agilent and its officers. It alleged that Agilent breached the parties’ oral agreement to extend
the VAASA. Agilent filed a separate complaint against Integrated Silicon for “Specific Performance, Recovery of Possession, and Sum of
Money with Replevin, Preliminary Mandatory Injunction, and Damages”. Respondents filed a MTD in the 2nd case, on the grounds of lack of
Agilent’s legal capacity to sue; litis pendentia; forum shopping; and failure to state a cause of action.

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

RULING: The challenge to Agilent’s legal capacity to file suit hinges on whether or not it is doing business in the Philippines. However, there
is no definitive rule on what constitutes “doing”, “engaging in”, or “transacting” business in the Philippines, the Corporation Code itself is
silent as to what acts constitute doing or transacting business in the Philippines. An analysis of the relevant case law, in conjunction with
Section 1 of the Implementing Rules and Regulations of the Foreign Investments Act of 1991 (FIA, as amended by RA 8179), would
demonstrate that the acts enumerated in the VAASA do not constitute “doing business” in the Philippines. Section 1 of the Implementing
Rules and Regulations of the FIA (as amended by RA 8179) provides that the following shall not be deemed “doing business”: (1) Mere
investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such
investor; (2) Having a nominee director or officer to represent its interest in such corporation; (3) Appointing a representative or distributor
domiciled in the Philippines which transacts business in the representative’s or distributor’s own name and account; (4) The publication of a
general advertisement through any print or broadcast media; (5) Maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines; (6) Consignment by a foreign entity of equipment with a local company to be
used in the processing of products for export; (7) Collecting information in the Philippines; and (8) Performing services auxiliary to an
existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or
exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services. By and large, to
constitute “doing business”, the activity to be undertaken in the Philippines is one that is for profit-making. Herein, by the clear terms of the
VAASA, Agilent’s activities in the Philippines were confined to (1) maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by Integrated Silicon; and (2) consignment of equipment with Integrated Silicon to be used in the processing of
products for export. As such, Agilent cannot be deemed to be “doing business” in the Philippines. Integrated Silicon, et. al.’s contention that
Agilent lacks the legal capacity to file suit is therefore devoid of merit. As a foreign corporation not doing business in the Philippines, it
needed no license before it can sue before our courts.

Profit-Seeking Transactions Rule” – Although each case must be judged in the light of

attendant circumstances, jurisprudence has evolved several guiding principles for the application

of these tests. “By and large, to constitute ‘doing business,’ the activity to be undertaken in the

Philippines is one that is for profit-making.”

69
Magna Ready Mix Concrete Corp. v. Andersen Bjornstad Kane Jacobs, Inc., G.R. No. 196158, 20 January 2021

Doctrine: The number of the transactions entered into is not determinative whether a foreign corporation is doing business in the
Philippines; the intention to continue the body of its business prevails. The number or quantity is merely an evidence of such intention. A
single act or transaction may then be considered as doing business when a corporation performs acts for which it was created or exercises
some of the functions for which it was organized.

Facts: This case stemmed from a complaint for collection of a sum of money and damages filed by Andersen against MAGNA. MAGNA is a
corporation organized and existing under the laws of the Philippines. ANDERSEN is a corporation organized and existing under the laws of
the State of Washington, United States of America. In its Complaint, ANDERSEN alleged that it was neither doing business in the Philippines
nor licensed to do business herein; and that it is suing on an isolated transaction that it entered into with MAGNA.

In 1996, MAGNA ordered from ANDERSEN the form design and drawing development for its project on the development of a precast plant
and P/C double tee design. In this connection, MAGNA issued a purchase order. The parties also allegedly executed an Agreement for
Professional Services which provided that MAGNA would compensate ANDERSEN for the performance of services described therein. MAGNA
also asked ANDERSEN to prepare a preliminary design for its Ecocentrum Garage Project. Pursuant to the contract, ANDERSEN delivered the
designs.

MAGNA made partial payments, but left an unpaid balance in the amount of US$60,[Link] made repeated demands for MAGNA
to pay, but to no avail; hence the filing of the complaint. On the other hand, MAGNA claimed that ANDERSEN did not render any inspection or
consultation services for it. Gene Lim (Lim), MAGNA's general manager, testified that the services Andersen allegedly rendered were not for
MAGNA's benefit.

During the trial, MAGNA filed a Motion to Dismiss with Motion to Cancel Hearing claiming that it later discovered (after filing its answer)
that ANDERSEN previously filed a case against another Philippine corporation. In that earlier case, ANDERSEN sought to collect a sum of
money from the defendant for the design and development of the latter's projects. MAGNA claimed that the earlier case covered several
transactions different from the subject of the instant case but involved the same Ecocentrum design drawing. Due to this discovery, MAGNA
asserted that ANDERSEN was indeed doing business in the Philippines but without the necessary license. Hence, it filed the motion to
dismiss alleging that ANDERSEN has no legal capacity to sue.

RTC: ruled in favor of ANDERSEN. RTC ruled that ANDERSEN was able to establish by preponderance of evidence that a contract (Agreement
for Professional Services) indeed existed between the parties. On the other hand, MAGNA contended that the RTC erred in: (a) not
dismissing the complaint despite ANDERSEN's concealment of the fact that it is a foreign corporation doing business in the Philippines
without a license, and filing a suit not based on an isolated transaction. CA: ruled in favor of Anderson. CA ruled that ANDERSEN's filing of
another case against another domestic corporation covering transactions different from the subject of the instant case does not necessarily
prove that it is doing business in the Philippines without the requisite license. As the subject matter or transaction in the earlier case is not
related nor relevant to the subject of the instant case, the latter is still deemed isolated. Further, the CA held that MAGNA has already waived
its right to contest Andersen’s legal capacity to sue. Prior -to filing of the motion to dismiss, MAGNA had already filed an answer and
participated in the proceedings without assailing ANDERSEN's legal capacity to sue.

Issue: Whether or not ANDERSEN has legal capacity to sue in the Philippines?

Held: No. ANDERSEN has no legal capacity to sue in the Philippines.

The Court resolves that ANDERSEN has no legal capacity to sue for doing business in the Philippines without procuring the necessary
license. It is not suing on an isolated transaction on the basis of the contract it entered into with MAGNA. However, MAGNA is already
estopped from challenging Andersen’s legal capacity when it entered into a contract with it.
Section 133 of the Corporation Code of the Philippines (1980) provides:

Section 133. Doing Business Without License. - No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of
the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.

Thus, a foreign corporation that conducts business in the Philippines must first secure a license for it to be allowed to initiate or intervene in
any action in any court or administrative agency in the Philippines. Acorporation has legal status only in the state that granted it personality.
Hence, a foreign corporation has no personality in the Philippines, much less legal capacity to file a case, unless it procures a license as
provided by law.

The case of Agilent Technologies v. Integrated Silicon, citing Mentholated v. Mangaliman, discusses the two tests to determine whether a
foreign corporation is doing business in the Philippines:

1. Substance Test: The true test [for doing business], is whether the foreign corporation is continuing the body of the business or enterprise
for which it was organized or whether it has substantially retired from it and turned it over to another. 2. Continuity test: The term [doing
business] implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works
or the exercise of some of the functions normally incident to, and in the progressive prosecution of, the purpose and object of its
organization. The number of the transactions entered into is not determinative whether a foreign corporation is doing business in the
Philippines; the intention to continue the body of its business prevails. The number or quantity is merely an evidence of such intention. A
single act or transaction may then be considered as doing business when a corporation performs acts for which it was created or exercises
some of the functions for which it was organized.

Whether a foreign corporation is "doing business" does not necessarily depend upon the frequency of its transactions, but more upon the
nature and character of the transactions.

Based on the foregoing, a single act may be considered as either doing business or an isolated transaction depending on its nature. It may be
considered as doing business if it implies a continuity of commercial dealings and contemplates the performance of acts or the exercise of
functions normally incidental to and in the progressive pursuit of its purpose. Contrarily, it may be considered as an isolated transaction if it
is different from or not related to the common business of the foreign corporation in the sense that there is no objective to increasingly
pursue its purpose or object. And as stated, a license is not required if the foreign corporation is suing on an isolated transaction.

Application:

ANDERSEN's act of entering into a contract with MAGNA does not fall into the category of isolated transactions. The contract clearly shows
that ANDERSEN was to render professional services to MAGNA for a fee. These professional services included the following: (1) providing
master plant site layout and plant design; (2) providing plant operation procedures and organization matrix; (3) providing plant
management and production staff training; (4) providing plant construction and operation start-up services; and (5) providing consultation
services for developing a precast plant program. It is clear then that ANDERSEN, in entering into that contract with MAGNA, was performing
acts that were in progressive pursuit of its business purpose, which, as found by the RTC, involved consultation and design services.

Though it was a single transaction, ANDERSEN's act of entering into a contract with MAGNA constitutes doing business in the Philippines. It
cannot be considered as an isolated transaction because the act is related to ANDERSEN's specific business purpose. Thus, in doing business
without a license, ANDERSEN had no legal capacity to sue in the Philippines.

However, in this case, MAGNA is already estopped from challenging ANDERSEN's legal capacity to sue due to its prior dealing with the latter,
that is, entering into a contract with it. As ruled by the lower court, there was a perfected and binding contract between the parties. By such
contract, MAGNA effectively acknowledged ANDERSEN's personality.