Concepts: Corporation Law Cases 2018

CORPORATION LAW CASES 2018
CONCEPTS
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG

vs. BENGUET CONSOLIDATED, INC.
G.R. No. L-23145 November 29, 1968
FACTS: In March 1960, Idonah Perkins died in New York. She left behind properties here and abroad. One property
she left behind were two stock certificates covering 33,002 shares of stocks of the Benguet Consolidated, Inc (BCI).
Said stock certificates were in the possession of the Country Trust Company of New York (CTC-NY). CTC-NY was the
domiciliary administrator of the estate of Perkins (obviously in the USA). Meanwhile, in 1963, Renato Tayag was
appointed as the ancillary administrator (of the properties of Perkins she left behind in the Philippines).
A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess the stock certificates. A
case ensued and eventually, the trial court ordered CTC-NY to turn over the stock certificates to Tayag. CTC-NY
refused. Tayag then filed with the court a petition to have said stock certificates be declared lost and to compel BCI
to issue new stock certificates in replacement thereof. The trial court granted Tayag’s petition.
BCI assailed said order as it averred that it cannot possibly issue new stock certificates because the two stock
certificates declared lost are not actually lost; that the trial court as well Tayag acknowledged that the stock
certificates exists and that they are with CTC-NY; that according to BCI’s by laws, it can only issue new stock
certificates, in lieu of lost, stolen, or destroyed certificates of stocks, only after court of law has issued a final and
executory order as to who really owns a certificate of stock.
ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.
HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine laws. It has been given rights
and privileges under the law. Corollary, it also has obligations under the law and one of those is to follow valid legal
court orders. It is not immune from judicial control because it is domiciled here in the Philippines. BCI is a Philippine
corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot
therefore be considered in any wise as immune from lawful court orders. Further, to allow BCI’s opposition is to
render the court order against CTC-NY a mere scrap of paper. It will leave Tayag without any remedy simply because
CTC-NY, a foreign entity refuses to comply with a valid court order. The final recourse then is for our local courts to
create a legal fiction such that the stock certificates in issue be declared lost even though in reality they exist in the
hands of CTC-NY. This is valid. As held time and again, fictions which the law may rely upon in the pursuit of
legitimate ends have played an important part in its development.
Further still, the argument invoked by BCI that it can only issue new stock certificates in accordance with its bylaws
is misplaced. It is worth noting that CTC-NY did not appeal the order of the court – it simply refused to turn over the
stock certificates hence ownership can be said to have been settled in favor of estate of Perkins here. Also, assuming
that there really is a conflict between BCI’s bylaws and the court order, what should prevail is the lawful court order.
It would be highly irregular if court orders would yield to the bylaws of a corporation. Again, a corporation is not
immune from judicial orders.
ANG PUE & COMPANY, ET AL.

vs. SECRETARY OF COMMERCE AND INDUSTRY
G.R. No. L-17295 July 30, 1962

FACTS: Ang Pue and Tan Siong organized a partnership for a term of 5 years. Their agreement provides that they
can extend the partnership for another 5 years by mutual consent. In 1954, RA 1180 was enacted to regulate the
retail business. Said law provided that, after its enactment, a partnership not wholly formed by Filipinos could
continue to engage in the retail business until the expiration of its term so registration of said Ang was refused on
the ground that the extension was in violation of the aforesaid Act.

Plaintiff Company filed a petition for declaratory relief contending their original articles of partnership provided that
they could extend the term of their partnership; that it constitutes a property right of which the partners cannot be
PAGADUAN JD P a g e 1 | 46
deprived without due process or without their consent; and that the provisions of RA 1180 cannot adversely affect
them. Lower court dismissed their petition. Plaintiff Co. interposed an appeal.

ISSUE: WON extension of the partnership established before the enactment of RA 1180, is in violation of the said
act.

HELD: The SC ruled that organizing a corporation is not a matter of right but a mere privilege which may be
enjoyed under the terms provided by state / law. When the partners amended the articles of partnership, the
provisions of RA 1180 were already in force, and so the right claimed by plaintiff-appellants to extend the original
term of their partnership to another five years would be in violation of the clear intent and purpose of the said law.
To organize a corporation or a partnership that could claim a juridical personality of its own and transact business as
such, is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may
deem necessary to impose. That the State, through Congress, and in the manner provided by law, had the right to
enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos may
engage in the retail business cannot be seriously disputed. That this provision was clearly intended to apply to
partnership already existing at the time of the enactment of the law is clearly showing by its provision giving them
the right to continue engaging in their retail business until the expiration of their term or life.
To argue that because the original articles of partnership provided that the partners could extend the term of the
partnership, the provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to erroneously
assume that the aforesaid provision constitute a property right of which the partners can not be deprived without
due process or without their consent. The agreement contain therein must be deemed subject to the law existing at
the time when the partners came to agree regarding the extension. In the present case, as already stated, when the
partners amended the articles of partnership, the provisions of Republic Act 1180 were already in force, and there
can be not the slightest doubt that the right claimed by appellants to extend the original term of their partnership to
another five years would be in violation of the clear intent and purpose of the law aforesaid.
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC.,

vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION
G.R. No. 119002. October 19, 2000
FACTS: In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the Philippine Football
Federation (PFF) its travel services for the South East Asian Games. PFF, through Henri Kahn, its president, agreed.
IETTI then delivered the plane tickets to PFF, PFF in turn made a down payment. However, PFF was not able to
complete the full payment in subsequent installments despite repeated demands from IETTI. IETTI then sued
PFF and Kahn was impleaded as a co-defendant.
Kahn averred that he should not be impleaded because he merely acted as an agent of PFF which he averred is a
corporation with separate and distinct personality from him. The trial court ruled against Kahn and held him
personally liable for the said obligation (PFF was declared in default for failing to file an answer). The trial court ruled
that Kahn failed to prove that PFF is a corporation. The Court of Appeals however reversed the decision of the trial
court. The Court of Appeals took judicial notice of the existence of PFF as a national sports association; that as such,
PFF is empowered to enter into contracts through its agents; that PFF is therefore liable for the contract entered into
by its agent Kahn. The CA further ruled that IETTI is in estoppel; that it cannot now deny the corporate existence of
PFF because it had contracted and dealt with PFF in such a manner as to recognize and in effect admit its existence.
ISSUE: Whether or not the Court of Appeals is correct.
HELD: No. PFF, upon its creation, is not automatically considered a national sports association. It must first be
recognized and accredited by the Philippine Amateur Athletic Federation and the Department of Youth and Sports
Development. This fact was never substantiated by Kahn. As such, PFF is considered as an unincorporated sports
association. And under the law, any person acting or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and becomes personally liable for contract entered into or for other acts
performed as such agent. Kahn is therefore personally liable for the contract entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI is in estoppel. The application of the doctrine of
corporation by estoppel applies to a third party only when he tries to escape liability on a contract from which he
has benefited on the irrelevant ground of defective incorporation. In the case at bar, IETTI is not trying to escape
liability from the contract but rather is the one claiming from the contract.
MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S.
JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN
vs. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY &
DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T.
MORALES and DANTE D. MORALES.
G.R. No. 120138 September 5, 1997
FACTS: The late Manuel A. Torres, Jr. was the major stockholder of Tormil Realty & Development Corporation while
private respondents who are the children of Judge Torres' deceased brother Antonio A. Torres, constituted the
minority stockholders. In particular, their respective shareholdings and positions in the corporation.
In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an "estate planning" scheme
under which he assigned to Tormil Realty & Development Corporation (Tormil for brevity) various real properties he
owned and his shares of stock in other corporations in exchange for 225,972 Tormil Realty shares. Hence, on various
dates in July and August of 1984, ten (10) deeds of assignment were executed by the late Judge
Torres.Consequently, the aforelisted properties were duly recorded in the inventory of assets of Tormil Realty and
the revenues generated by the said properties were correspondingly entered in the corporation's books of account
and financial records.
Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal of private
respondents to approve the needed increase in the corporation's authorized capital stock (to cover the shortage of
972 shares due to Judge Torres under the "estate planning" scheme), on 11 September 1986, Judge Torres revoked
the two (2) deeds of assignment covering the properties in Makati and Pasay City.
ISSUE: Whether or not the deed of assignment executed can be revoked.
RULING: NO. The shortage of 972 shares would not be valid ground for respondent Torres to unilaterally revoke
the deeds of assignment he had executed on July 13, 1984 and July 24, 1984 wherein he voluntarily assigned to
TORMIL real properties covered by TCT No. 374079 (Makati) and TCT No. 41527, 41528 and 41529 (Pasay)
respectively. A comparison of the number of shares that respondent Torres received from TORMIL by virtue of the
"deeds of assignment" and the stock certificates issued by the latter to the former readily shows that TORMIL had
substantially performed what was expected of it. In fact, the first two issuances were in satisfaction to the properties
being revoked by respondent Torres. Hence, the shortage of 972 shares would never be a valid ground for the
revocation of the deeds covering Pasay and Quezon City properties.
Moreover, we agree with the contention of the Solicitor General that the shortage of shares should not have
affected the assignment of the Makati and Pasay City properties which were executed in 13 and 24 July 1984 and the
consideration for which have been duly paid or fulfilled but should have been applied logically to the last assignment
of property — Judge Torres' Ayala Fund shares — which was executed on 29 August 1984.
TAN BOON BEE & CO., INC.

vs. THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the Court of
First Instance of Manila, GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN CAN DRUG CO.
G.R. No. L-41337. June 30, 1988
FACTS: Petitioner herein, doing business under the name and style of Anchor Supply Co., sold on credit to herein
private respondent Graphic Publishing, Inc. (GRAPHIC) paper products amounting to P55,214.73. On December 20,
1972, GRAPHIC made partial payment by check to petitioner in the total amount of P24,848.74; and on December
21, 1972, a promissory note was executed to cover the balance of P30,365.99. In the said promissory note, it was
stipulated that the amount will be paid on monthly installments and that failure to pay any installment would make
the amount immediately demandable with an interest of 12% per annum. On September 6, 1973, for failure of
GRAPHIC to pay any installment, petitioner filed a complaint for collection of Sum of Money.
A decision was rendered and became final and executory, where one (1) unit printing machine identified as
"Original Heidelberg Cylinder Press" Type H 222, NR 78048, found in the premises of GRAPHIC was levied. However,
a third party claim was filed by Philippine American Drug Company (PADCO), hence after trial the levy was rendered
to be without force.
ISSUE: Whether or not the properties of PADCO could be levied due to the allegation that it is mere an adjunct or
conduit of Graphic.
RULING: YES. In the instant case, petitioner's evidence established that PADCO was never engaged in the printing
business; that the board of directors and the officers of GRAPHIC and PADCO were the same; and that PADCO holds
50% share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own evidence shows that the printing
machine in question had been in the premises of GRAPHIC since May, 1965, long before PADCO even acquired its
alleged title on July 11, 1966 from Capitol Publishing. That the said machine was allegedly leased by PADCO to
GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital Publishing on July 11, 1966, only
serves to show that PADCO's claim of ownership over the printing machine is not only farce and sham but also
unbelievable.
Considering the aforestated principles and the circumstances established in this case, respondent judge should have
pierced PADCO's veil of corporate identity.
PHILIPPINE STOCK EXCHANGE, INC.

vs. THE HONORABLE COURT OF APPEALS, SEC and PUERTO AZUL LAND, INC.
G.R. No. 125469. October 27, 1997
FACTS: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the
public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In
January, 1995, PALI was issued a permit to sell its shares to the public by the Securities and Exchange Commission
(SEC). To facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through
the Philippine Stock Exchange Inc. (PSEi), for which purpose it filed with the said stock exchange an application to
list its shares, with supporting documents attached pending the approval of the PALI’s listing application, a letter was
received by PSE from the heirs of Ferdinand Marcos to which the latter claims to be the legal and beneficial owner of
some of the properties forming part of PALI’s assets. As a result, PSE denied PALI’s application which caused the
latter to file a complaint before the SEC. The SEC issued an order to PSE to grant listing application of PALI on the
ground that PALI have certificate of title over its assets and properties and that PALI have complied with all the
requirements to enlist with PSE.
ISSUE: Whether or not the denial of PALI’s application is proper.
HELD: Yes. This is in accord with the “Business Judgement Rule” whereby the SEC and the courts are barred from
intruding into business judgements of corporations, when the same are made in good faith. The same rule precludes
the reversal of the decision of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion
to accept of reject applications for listing. Thus, even if an issuer has complied with the PSE listing rules and
requirements, PSE retains the discretion to accept or reject the issuer’s listing application if the PSE determines that
the listing shall not serve the interests of the investing public.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the markings
of a corporate entity, it functions as the primary channel through which the vessels of capital trade ply. The PSEi’s
relevance to the continued operation and filtration of the securities transaction in the country gives it a distinct color
of importance such that government intervention in its affairs becomes justified, if not necessarily. Indeed, as the
only operational stock exchange in the country today, the PSE enjoys monopoly of securities transactions, and as
such it yields a monopoly of securities transactions, and as such, it yields an immerse influence upon the country’s
economy.
The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as
necessary or incidental to the carrying out of the SEC’s express power to insure fair dealing in securities traded upon
a stock exchange or to ensure the fair administration of such exchange. It is likewise, observed that the principal
function of the SEC is the supervision and control over corporations, partnerships and associations with the end in
view that investment in these entities may be encouraged and protected and their activities for the promotion of
economic development.
A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a
distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and
requisites appropriate to such a body as to its corporate and management decisions, therefore, the state will
generally not interfere with the same. Questions of policy and management are left to the honest decision of the
officers and directors of a corporation, and the courts are without authority to substitute their judgements for the
judgement of the board of directors. The board is the business manager of the corporation and so long as it acts in
good faith, its orders are not reviewable by the courts.
In matters of application for listing in the market the SEC may exercise such power only if the PSE’s judgement is
attended by bad faith.
The petitioner was in the right when it refused application of PALI, for a contrary ruling was not to the best interest
of the general public.
BIBIANO O. REYNOSO, IV vs. HON. COURT OF APPEALS and GENERAL CREDIT CORP.
G.R. Nos. 116124-25. November 22, 2000]
FACTS: The Commercial Credit Corporation (CCC) decided to organize franchise companies in different parts of the
country, wherein it shall hold thirty percent (30%) equity. Employees of the CCC were designated as resident
managers of the franchise companies. Petitioner Bibiano O. Reynoso, IV was designated as the resident manager of
the franchise company in Quezon City, known as the Commercial Credit Corporation of Quezon City (CCC-QC). CCC-
QC entered into an exclusive management contract with CCC whereby the latter was granted the management and
full control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its
receivables to CCC. Subsequently, this discounting arrangement was discontinued pursuant to the so-called DOSRI
Rule, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with
related interests therein. On account of the new restrictions imposed by the Central Bank policy by virtue of the
DOSRI Rule, CCC decided to form CCC Equity Corporation, (CCC-Equity), a wholly-owned subsidiary, to which CCC
transferred its thirty (30%) percent equity in CCC-QC, together with two seats in the latter’s Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became
employees of CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries
and allowances from CCC-Equity. The business activities of CCC-QC pertain to the acceptance of funds from
depositors who are issued interest-bearing promissory notes. The amounts deposited are then loaned out to various
borrowers. Petitioner, in order to boost the business activities of CCC-QC, deposited his personal funds in the
company. In return, CCC-QC issued to him its interest bearing promissory notes. CCC-QC to file a complaint for sum
of money against Reynoso. The cases were dismissed and Reynoso was exonerated and at the same time CCC-QC
was ordered to pay Reynoso’s counterclaims which amounted to millions. A writ of execution was issued against
CCC-QC. The writ was opposed by CCC-QC as it now claims that it has already closed and that its assets were taken
over by the mother company, CCC. Meanwhile, Commercial Credit Corporation (CCC) changed its name to
General Credit Corporation (GCC). Reynoso then filed a petition for an alias writ of execution. GCC opposed the
writ as it argued that it is a separate and distinct corporation from CCC and CCC-QC, in short, it raises the defense of
corporate fiction.
ISSUE: Whether or not General Credit Corporation (GCC) a corporation separate and distinct from CCC-QC can raise
the defense of corporate fiction
HELD: No. Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to
use its supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve an
inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court
decision. The corporate fiction has to be disregarded when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al., we held: When the fiction is urged as a means of
perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to
allow for its consideration merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases
where it was used, among others, to avoid a judgment credit; to avoid inclusion of corporate assets as part of the
estate of a decedent; to avoid liability arising from debt; when made use of as a shield to perpetrate fraud and/or
confuse legitimate issues; or to promote unfair objectives or otherwise to shield them.
In the appealed judgment, the Court of Appeals sustained respondent’s arguments of separateness and its character
as a different corporation which is a non-party or stranger to this case. The defense of separateness will be
disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the
extent that it becomes an instrument or agent of its parent. But even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime. We stated in Tomas Lao Construction v. National
Labor Relations Commission, that the legal fiction of a corporation being a judicial entity with a distinct and separate
personality was envisaged for convenience and to serve justice. Therefore, it should not be used as a subterfuge to
commit injustice and circumvent the law.
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.

vs. COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP.
G.R. No. 129459. September 29, 1998
FACTS: A parcel of land was sold by Nenita Lee Gruenberg, the corporate treasurer of defendant corporation
Motorich Sale in favor of San Juan Structural and Steel Fabricators, Inc. However, the latter failed to execute the
necessary Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant. Hence a case for damages was filed.
The defendant corporation questions the validity of the contract entered by its treasurer in its behalf without
authorization from the corporation’s Board.
ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction be applied to Motorich.
RULING: NO. The contract cannot bind Motorich, because it never authorized or ratified such sale. A corporation is
a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members and may not be sold by the stockholders or members
without express authorization from the corporation’s board of directors. The corporation may act only through its
board of directors, or, when authorized either by its bylaws or by its board resolution, through its officers or agents
in the normal course of business. The general principles of agency govern the relation between the corporation and
its officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law.
As to the piercing of the corporate veil, the same is not applicable. In the present case, the Court finds no
reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation
was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third
persons, like petitioner.
PIONEER INSURANCE & SURETY CORPORATION

vs. THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO),
CONSTANCIO M. MAGLANA and JACOB S. LIM
G.R. No. 84197. July 28, 1989
FACTS: In 1965, Jacob S. Lim, owner-operator of Southern Airlines (SAL), a single proprietorship entered into a
sales contract with regarding Japan Domestic Airlines (JDA) regarding 2 DC-#A type aircrafts, 1 set of necessary
spare parts where a Total of $ 190,000 in instalments are to be paid. Pioneer Insurance and Surety Corp. as surety
executed its surety bond in favor of JDA on behalf of its principal Lim. Border Machinery and Heavy Equipment Co,
Inc. of Francisco and Modesto Cervantes and Constancio Maglana contributed funds for the transaction based on the
misrepresentation of Lim that they will form a new corporation to expand his business.
Lim as owner operator for SAL executed in favor of Pioneer a deed of chattel mortgage as security. A
restructuring of obligation to change the maturity was done twice without the knowledge of other defendants made
the surety of JDA prescribed so not entitled to reimbursement. Upon default on the 2/8 payments, Pioneer paid for
him and filed a petition for the foreclosure of chattel mortgage as security. CA affirmed Trial of Merits: Only Lim is
liable to pay
ISSUE: Whether or not there is failure of respondents to incorporate leading to a de facto partnership.
RULING: NO. Partnership inter se does not necessarily exist, for ordinarily CANNOT be made to assume the
relation of partners as between themselves, when their purpose is that no partnership shall exists. It should be
implied only when necessary to do justice between the parties (i.e. only pretend to make others liable). Lim never
intended to form a corporation.
Kilosbayan, Incorporated, et. al. vs. Teofisto Guingona, PCSO and PGMC
G.R. No. 11337 05 May 1994
FACTS: Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants
it the authority to hold and conduct “charity sweepstakes races, lotteries and other similar activities,” the PCSO
decided to establish an on-line lottery system for the purpose of increasing its revenue base and diversifying its
sources of funds. Sometime before March 1993, after learning that the PCSO was interested in operating an on-line
lottery system, the Berjaya Group Berhad, “a multinational company and one of the ten largest public companies in
Malaysia,” “became interested to offer its services and resources to PCSO.” As an initial step, Berjaya Group Berhad
(through its individual nominees) organized with some Filipino investors in March 1993 a Philippine corporation
known as the Philippine Gaming Management Corporation (PGMC), which “was intended to be the medium through
which the technical and management services required for the project would be offered and delivered to PCSO.”
Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of an on-line
lottery system for the PCSO. On 15 August 1993, PGMC submitted its bid to the PCSO. On 21 October 1993, the
Office of the President announced that it had given the respondent PGMC the go-signal to operate the country’s on-
line lottery system and that the corresponding implementing contract would be submitted not later than 8 November
1993 “for final clearance and approval by the Chief Executive.”
On 4 November 1993, KILOSBAYAN sent an open letter to President Fidel V. Ramos strongly opposing the setting up
of the on-line lottery system on the basis of serious moral and ethical considerations. Considering the denial by the
Office of the President of its protest and the statement of Assistant Executive Secretary Renato Corona that “only a
court injunction can stop Malacañang,” and the imminent implementation of the Contract of Lease in February 1994,
KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this petition.
Petitioner claims that it is a non-stock domestic corporation composed of civic-spirited citizens, pastors, priests, nuns,
and lay leaders. The rest of the petitioners, except Senators Freddie Webb and WigbertoTañada and Representative
Joker P. Arroyo, are suing in their capacities as members of the Board of Trustees of KILOSBAYAN and as taxpayers
and concerned citizens. Senators Webb and Tañada and Representative Arroyo are suing in their capacities as
members of Congress and as taxpayers and concerned citizens of the Philippines. The public respondents, meanwhile
allege that the petitioners have no standing to maintain the instant suit, citing the Court’s resolution in Valmonte vs.
Philippine Charity Sweepstakes Office.
ISSUES:
1. Whether or not the petitioners have locus standi
2. Whether or the Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which
prohibits the PCSO from holding and conducting lotteries “in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or foreign.” is legal and valid.
HELD:
1. Yes. We find the instant petition to be of transcendental importance to the public. The ramifications of such issues
immeasurably affect the social, economic, and moral well-being of the people even in the remotest barangays of the
country and the counter-productive and retrogressive effects of the envisioned on-line lottery system are as
staggering as the billions in pesos it is expected to raise. The legal standing then of the petitioners deserves
recognition and, in the exercise of its sound discretion, this Court hereby brushes aside the procedural barrier which
the respondents tried to take advantage of.
2. The language of Section 1 of R.A. No. 1169 is indisputably clear. The PCSO cannot share its franchise with
another by way of collaboration, association or joint venture. Neither can it assign, transfer, or lease such franchise.
Whether the contract in question is one of lease or whether the PGMC is merely an independent contractor should
not be decided on the basis of the title or designation of the contract but by the intent of the parties, which may be
gathered from the provisions of the contract itself. Animus hominisest anima scripti. The intention of the party is the
soul of the instrument.
Undoubtedly, from the very inception, the PCSO and the PGMC mutually understood that any arrangement between
them would necessarily leave to the PGMC the technical, operations, and management aspects of the on-line lottery
system while the PSCO would, primarily, provide the franchise. The so-called Contract of Lease is not, therefore,
what it purports to be. Woven therein are provisions which negate its title and betray the true intention of the parties
to be in or to have a joint venture for a period of eight years in the operation and maintenance of the on-line lottery
system.
We thus declare that the challenged Contract of Lease violates the exception provided for in paragraph B, Section 1
of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law. This conclusion
renders unnecessary further discussion on the other issues raised by the petitioners.
NATURE AND ATTRIBUTES OF A CORPORATION
SMITH, BELL & COMPANY (LTD.), v. JOAQUIN NATIVIDAD 40 PHIL 136
FACTS: Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A
majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it in the
Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the present year for the
purpose of transporting plaintiff's merchandise between ports in the Islands. Application (Certificate of Philippine
Regitry) was made at Cebu, the home port of the vessel, to the Collector of Customs for a certificate of Philippine
registry. The Collector refused to issue the certificate, giving as his reason that all the stockholders of Smith, Bell &
Co., Ltd., were not citizens either of the United States or of the Philippine Islands under Act No. 2761 which
provides:
SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic ownership, and of
more than fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of domestic
ownership and of fifteen tons gross or less, the taking of the certificate of Philippine register shall be optional with
the owner.
SEC. 1176. Investigation into character of vessel. — No application for a certificate of Philippine register
shall be approved until the collector of customs is satisfied from an inspection of the vessel that it is engaged or
destined to be engaged in legitimate trade and that it is of domestic ownership as such ownership is defined in
section eleven hundred and seventy-two of this Code.
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it,
in effect, prohibits the corporation from owning vessels, and because classification of corporations based on the
citizenship of one or more of their stockholders is capricious, and that Act No. 2761 deprives the corporation of its
properly without due process of law because by the passage of the law company was automatically deprived of every
beneficial attribute of ownership in the Bato and left with the naked title to a boat it could not use.
ISSUE: Whether the legislature through Act no. 2761 can deny registry of vessel with foreign stockholders.
HELD: Yes. We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is
entitled to the protection afforded by the due-process of law and equal protection of the laws clause of the Philippine
Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell
&. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not belong to that vicious species of
class legislation which must always be condemned, but does fall within authorized exceptions, notably, within the
purview of the police power, and so does not offend against the constitutional provision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights,
are universal in their application to all person within the territorial jurisdiction, without regard to any differences of
race, color, or nationality. The word "person" includes aliens. Private corporations, likewise, are "persons" within the
scope of the guaranties in so far as their property is concerned. Classification with the end in view of providing
diversity of treatment may be made among corporations, but must be based upon some reasonable
ground and not be a mere arbitrary selection.
A literal application of general principles to the facts before us would, of course, cause the inevitable
deduction that Act No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole members are
foreigners, of the equal protection of the laws.
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of
Philippine registry only on condition that they be composed wholly of citizens of the Philippine Islands or of the
United States or both, as not infringing Philippine Organic Law, it must be done under some one of the exceptions.
One of the exceptions to the general rule, most persistent and far reaching in influence is, broad and
comprehensive as it is, nor any other amendment, "was designed to interfere with the power of the State, sometimes
termed its `police power,' to prescribe regulations to promote the health, peace, morals, education, and good
order of the people, and legislate so as to increase the industries of the State, develop its resources and add to its
wealth and prosperity. From the very necessities of society, legislation of a special character, having these objects in
view, must often be had in certain districts. This is the same police power which the United States Supreme Court
say "extends to so dealing with the conditions which exist in the state as to bring out of them the greatest welfare in
of its people." For quite similar reasons, none of the provision of the Philippine Organic Law could have had the
effect of denying to the Government of the Philippine Islands, acting through its Legislature, the right to exercise that
most essential, insistent, and illimitable of powers, the sovereign police power, in the promotion of the general
welfare and the public interest.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-
alien shipping act. The ultimate purpose of the Legislature is to encourage Philippine ship-building.
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO)

vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, et al.
1987 May 27, G.R. No. 75885
FACTS: This case arose from a sequestration order issued by the PCGG under authority given by the president.
Such sequestration order was sent and received by petitioner. Pursuant to this sequestration orders, take over orders
were also issued to protect public interest and to prevent the disposal or dissipation of business enterprises and
properties taken over by the government of the Marcos Administration or by entities or persons close to former
President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the
appropriate authorities. However, among other facts, the petitioner questions the exercise of PCGGs right of
ownership and management when it terminated several contracts without the consent of both parties, to enter
contracts, and to operate its quarry business, and especially its right of vote during stockholders’ meetings.
ISSUE: Whether or not PCGG may vote in stockholders’ meetings.
RULING: YES. PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it
by the President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the
PCGG, pending the outcome of proceedings to determine the ownership of sequestered shares of stock, to vote such
shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of
directors, declaration of dividends, amendment of the Articles of Incorporation, etc. Moreover, in the case at bar,
there was adequate justification to vote the incumbent directors out of office and elect others in their stead because
the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of
any stock in the firm, if they ever were at all.
PHILIPPINE NATIONAL BANK vs.

THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, INC.
G.R. No. L-27155 May 18, 1978
FACTS: Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her sugar crops about to be
harvested including her export quota allocation worth 1,000 piculs. The said export quota was later dealt by Tapnio
to a certain Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since the subject of the deal is mortgaged with
PNB, the latter has to approve it. The branch manager of PNB recommended that the price should be at P2.80 per
picul which was the prevailing minimum amount allowable. Tapnio and Tuazon agreed to the said amount. And so
the bank manager recommended the agreement to the vice president of PNB. The vice president in turn
recommended it to the board of directors of PNB.
However, the Board of Directors wanted to raise the price to P3.00 per picul. This Tuazon does not want hence he
backed out from the agreement. This resulted to Tapnio not being able to realize profit and at the same time
rendered her unable to pay her P2,000.00 crop loan which would have been covered by her agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and Tapnio filed a third party complaint against PNB where she
alleged that her failure to pay her debts was because of PNB’s negligence and unreasonableness.
ISSUE: Whether or not Tapnio is correct.
HELD: Yes. In this type of transaction, time is of the essence considering that Tapnio’s sugar quota for said year
needs to be utilized ASAP otherwise her allotment may be assigned to someone else, and if she can’t use it, she
won’t be able to export her crops. It is unreasonable for PNB’s board of directors to disallow the agreement between
Tapnio and Tuazon because of the mere difference of 0.20 in the agreed price rate. What makes it more
unreasonable is the fact that the P2.80 was recommended both by the bank manager and PNB’s VP yet it was
disapproved by the board. Further, the P2.80 per picul rate is the minimum allowable rate pursuant to prevailing
market trends that time. This unreasonable stand reflects PNB’s lack of the reasonable degree of care and vigilance
in attending to the matter. PNB is therefore negligent.
A corporation is civilly liable in the same manner as natural persons for torts, because “generally speaking, the rules
governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable for every tort which it expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, a corporation is liable, therefore, whenever
a tortious act is committed by an officer or agent under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the governing body.”
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA),
vs. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.
G.R. No. 121413 January 29, 2001
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank), G.R. No. 121479
(Ford vs CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479
FACTS: In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in favor of the
Commissioner of the Internal Revenue (CIR). The check represents Ford’s tax payment for the third quarter of 1977.
On the face of the check was written “Payee’s account only” which means that the check cannot be encashed and
can only be deposited with the CIR’s savings account (which is with Metrobank). The said check was however
presented to PCIB and PCIB accepted the same. PCIB then indorsed the check for clearing to Citibank. Citibank
cleared the check and paid PCIB P4,746,114.41. CIR later informed Ford that it never received the tax payment.
An investigation ensued and it was discovered that Ford’s accountant Godofredo Rivera, when the check was
deposited with PCIB, recalled the check since there was allegedly an error in the computation of the tax to be paid.
PCIB, as instructed by Rivera, replaced the check with two of its manager’s checks.
It was further discovered that Rivera was actually a member of a syndicate and the manager’s checks were
subsequently deposited with the Pacific Banking Corporation by other members of the syndicate. Thereafter, Rivera
and the other members became fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and P6,311,591.73
respectively. Both checks are again for tax payments. Both checks are for “Payee’s account only” or for the CIR’s
bank savings account only with Metrobank. Again, these checks never reached the CIR.
In an investigation, it was found that these checks were embezzled by the same syndicate to which Rivera was a
member. It was established that an employee of PCIB, also a member of the syndicate, created a PCIB account
under a fictitious name upon which the two checks, through high end manipulation, were deposited. PCIB unwittingly
endorsed the checks to Citibank which the latter cleared. Upon clearing, the amount was withdrawn from the
fictitious account by syndicate members.
ISSUE: What are the liabilities of each party?
HELD:
G.R. No. 121413/G.R. No. 121479
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been negligent in verifying
the authority of Rivera to negotiate the check. It failed to ascertain whether or not Rivera can validly recall the check
and have them be replaced with PCIB’s manager’s checks as in fact, Ford has no knowledge and did not authorize
such. A bank (in this case PCIB) which cashes a check drawn upon another bank (in this case Citibank), without
requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the
proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third
party. Hence, PCIB is liable for the amount of the embezzled check.
G.R. No. 128604

PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course and apparent
scope of their employment or authority. Hence, PCIB is liable for the fraudulent act of its employee who set up the
savings account under a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its obligations with respect to its agreement
with Ford. The checks which were drawn against Ford’s account with Citibank clearly states that they are payable to
the CIR only yet Citibank delivered said payments to PCIB. Citibank however argues that the checks were indorsed
by PCIB to Citibank and that the latter has nothing to do but to pay it. The Supreme Court cited Section 62 of the
Negotiable Instruments Law which mandates the Citibank, as an acceptor of the checks, to engage in paying the
checks according to the tenor of the acceptance which is to deliver the payment to the “payee’s account only”.
But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only negligent
parties. Ford is also negligent for failing to examine its passbook in a timely manner which could have avoided
further loss. But this negligence is not the proximate cause of the loss but is merely contributory. Nevertheless, this
mitigates the liability of PCIB and Citibank hence the rate of interest, with which PCIB and Citibank is to pay Ford, is
lowered from 12% to 6% per annum.
JOSE O. SIA vs. PEOPLE OF THE PHILIPPINES

G.R. No. L-30896 April 28, 1983
FACTS: Petitioner, Jose O. Sia, was the president and general manager of Metal Manufacturing of the Philippines
(MEMAP). He was convicted of estafa for his failure to return the cold rolled steel sheets or account for the proceeds
of those which were sold, to Continental Bank, herein complainant. Petitioner contended that he cannot be made
liable for the crime charged as he only acted for and in behalf of MEMAP as its president.
ISSUE: Whether petitioner could be held liable for estafa.
RULING: The Court ruled in the negative. The case of People vs. Tan Boon Kong (54 Phil. 607) provides for the
general principle that for crimes committed by a corporation, the responsible officers thereof would personally bear
the criminal liability as a corporation is an artificial person, an abstract being. However, the Court ruled that such
principle is not applicable in this case because the act alleged to be a crime is not in the performance of an act
directly ordained by law to be performed by the corporation. The act is imposed by agreement of parties, as a
practice observed in the usual pursuit of a business or a commercial transaction. The offense may arise, if at all, from
the peculiar terms and condition agreed upon by the parties to the transaction, not by direct provision of the law. In
the absence of an express provision of law making the petitioner liable for the criminal offense committed by the
corporation of which he is a president as in fact there is no such provisions in the Revised Penal Code under which
petitioner is being prosecuted, the existence of a criminal liability on his part may not be said to be beyond any
doubt. In all criminal prosecutions, the existence of criminal liability for which the accused is made answerable must
be clear and certain. Further, the civil liability imposed by the trust receipt is exclusively on the Metal Company.
Speaking of such liability alone, the petitioner was never intended to be equally liable as the corporation. Without
being made so liable personally as the corporation is, there would then be no basis for holding him criminally liable,
for any violation of the trust receipt.
MAMBULAO LUMBER COMPANY

vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Prov’l Sheriff of Camarines Norte
G.R. No.L-22973.January 30, 1968
FACTS: Plaintiff applied for an industrial loan of P155, 000.00 with the PNB and the former offered real estate,
machinery, logging and transportation equipment as collaterals. The application was approved for a loan of P100,
000.00 only. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together
with the buildings and improvements existing thereon, situated in the province of Camarines Norte, and covered by
TCT No. 381 of the land records of said province, as well as various sawmill equipment, rolling unit and other fixed
assets of the plaintiff, all situated in its compound in the aforementioned municipality.
PNB released from the approved loan the sum of P27, 500.00, for which the plaintiff signed a promissory
note wherein it promised to pay to the PNB. PNB made another release of P15, 500.00 as part of the approved loan
granted to the plaintiff and so on the said date, the latter executed another promissory note. Plaintiff failed to pay
the amortization on the amounts released to and received by it. Repeated demands were made upon the plaintiff to
pay its obligation but it failed or otherwise refused to do so. Upon inspection and verification made by employees of
the PNB, it was found that the plaintiff had already stopped operation.
PNB initiated steps to have the properties extrajudicially foreclosed. The Plaintiff opposed. The foreclosure
sale of the parcel of land, together with the buildings and improvements thereon, was held and the said property was
sold to the PNB for the sum of P56, 908.00, subject to the right of the plaintiff to redeem the same within a period of
one year. PNB sold the properties to Mariano Bundok. The Security guard of the properties refused to let PNB’s
successor in interest to retrieve properties inside the premises of the property bought by them.
RTC sentenced the Mambulao Lumber Company to pay to the defendant PNB. Mambulao therefore
appealed.
ISSUE: Whether or not a corporation can be awarded moral damages.
RULING: NO. An artificial person like herein appellant corporation cannot experience physical sufferings, mental
anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis or moral
damages.
A Corporation may have a good reputation if besmirched, may also be a ground for the award of moral
damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that
herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but
also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its
reputation or business standing would undoubtedly be the same whether the sale was conducted at Camarines
Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding
with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage
contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for
the miserable amount of P4, 200.00, herein appellant should be awarded exemplary damages in the sum of P10,
000.00. The circumstances of the case also warrant the award of P3, 000.00 as attorney's fees for herein appellant.
Solid Homes, Inc. v. Court of Appeals, 275 SCRA 267
Asset Privatization Trust vs Court of Appeals

300 SCRA 579 [GR No. 121171 December 29, 1998]
Facts: The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have
been authorized by the Republic Act No. 1528, as amended by Republic Act No. 2077 and Republic Act No. 4167, by
virtue of which laws, a memorandum of agreement was drawn on July 3, 1968, whereby the Republic of the
Philippines thru the Surigao Mineral Reservation Board, granted MMIC the exclusive right to explore, develop and
exploit nickel, cobalt, and other minerals in the Surigao Mineral Reservation. MMIC is a domestic corporation engaged
in mining with respondent Jesus S. Cabarrus Sr. as president and among its original stockholders.
The Philippine government undertook to support the financing of MMIC by purchase of MMIC debenture bonds and
extension of guarantees. Further, from the DBP and/or the government financing institutions to subscribe in MMIC
and issue guarantee/s of foreign loans or deferred payment arrangements secured from the US Eximbank, Asian
Development Bank (ADB), Kobe steel of amount not exceeding US$100 million. On July 13, 1981, MMIC, PNB, and
DBP executed a mortgage trust agreement whereby MMIC as mortgagor, agreed to constitute a mortgage in favor of
PNB and DBP as mortgages, over all MMIC assets; subject of real estate and chattel mortgage executed by the
mortgagor, and additional assets described and identified, including assets of whatever kind, nature or description,
which the mortgagor may acquire whether in substitution of, in replenishment or in addition thereto. Due to the
unsettled obligations, a financial restructuring plan (FRP) was suggested, however not finalized. The obligations
matured and the mortgage was foreclosed.
The foreclosed assets were sold to PNB as the lone bidder and were assigned to the newly formed corporations
namely Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation and Island Cement Corporation. In
1986, these assets were transferred to the asset privatization trust. On February 28, 1985, Jesus S. Cabarrus Sr.
together with the other stockholders of MMIC, filed a derivative suit against DBP and PNB before the RTC of Makati
branch 62, for annulment of foreclosures, specific performance and damages. The suit docketed as civil case no.
9900, prayed that the court: 1.) Annul the foreclosures, restore the foreclosed assets to MMIC, and require the banks
to account for their use and operation in the interim; 2.) Direct the banks to honor and perform their commitments
under the alleged FRP; 3.) Pay moral and exemplary damages, attorney’s fees, litigation expenses and costs. A
compromise and arbitration agreement was entered by the parties to which committee awarded damages in favor of
Cabarrus.
Issue: Whether or not the award granted to Cabarrus was proper.
Held: No. Civil case no. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a
party. It was not joined as a part plaintiff or party defendant at any stage before of the proceedings as it is, the
award for damages to MMIC, which was not party before the arbitration committee is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing
suit for the corporation’s behalf is only a nominal party. The corporation should be included s a party in the suit.
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds
stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are
the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real part in interest.
It is a condition sine qua non that the corporation be impleaded as a party because – not only is the corporation an
indispensable party, but it is also the present rule that it must be served with process. The reason given is that the
judgement must be made binding upon the corporation in order that the corporation may get the benefit of the suit
and may not bring a subsequent suit against the same defendants for the same cause of action. In other words the
corporation must be joined as a party because it is its cause of action that is being litigated and because judgement
must be a res judicata against it.
The reasons given for not allowing direct individual suit are:
1. That the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of
Evangelista vs Santos that the “Stockholders may not directly claim those damages for themselves for that
would result in the appropriation by, and the distribution among them of part of the corporate assets before
the
2. The universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the
corporate property; that both of these are in the corporation itself for the benefit of the stockholders. In
other words, to allow shareholders to sue separately would conflict with the separate corporate entity
principle.
3. dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be
legally done in view of section 16 of the corporation law.
4. The filing of such suits would conflict with the duty of the management to sue for the protection of all
concerned;
5. It would produce wasteful multiplicity of suits; and
6. It would involve confusion in ascertaining the effect of partial recovery by an individual on the damages
recoverable by the corporation for the same act.
ABS-CBN BROADCASTING CORPORATION vs.

HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC.,
and VICENTE DEL ROSARIO,
G.R. No. 128690 January 21, 1999
FACTS: In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo Santos-Concio, requested Viva
Production, Inc. to allow ABS-CBN to air at least 14 films produced by Viva. Pursuant to this request, a meeting was
held between Viva’s representative (Vicente Del Rosario) and ABS-CBN’s Eugenio Lopez (General Manager) and
Santos-Concio was held on April 2, 1992. During the meeting Del Rosario proposed a film package which will allow
ABS-CBN to air 104 Viva films for P60 million. Later, Santos-Concio, in a letter to Del Rosario, proposed a
counterproposal of 53 films (including the 14 films initially requested) for P35 million. Del Rosario presented the
counter offer to Viva’s Board of Directors but the Board rejected the counter offer. Several negotiations were
subsequently made but on April 29, 1992, Viva made an agreement with Republic Broadcasting Corporation (referred
to as RBS – or GMA 7) which gave exclusive rights to RBS to air 104 Viva films including the 14 films initially
requested by ABS-CBN.
ABS-CBN now filed a complaint for specific performance against Viva as it alleged that there is already a perfected
contract between Viva and ABS-CBN in the April 2, 1992 meeting. Lopez testified that Del Rosario agreed to the
counterproposal and he (Lopez) even put the agreement in a napkin which was signed and given to Del Rosario.
ABS-CBN also filed an injunction against RBS to enjoin the latter from airing the films. The injunction was granted.
RBS now filed a countersuit with a prayer for moral damages as it claimed that its reputation was debased when they
failed to air the shows that they promised to their viewers. RBS relied on the ruling in People vs Manero and
Mambulao Lumber vs PNB which states that a corporation may recover moral damages if it “has a good reputation
that is debased, resulting in social humiliation”. The trial court ruled in favor of Viva and RBS. The Court of Appeals
affirmed the trial court.
ISSUE:
1. Whether or not a contract was perfected in the April 2, 1992 meeting between the representatives of the two
corporations.
2. Whether or not a corporation, like RBS, is entitled to an award of moral damages upon grounds of debased
reputation.
HELD:
1. No. There is no proof that a contract was perfected in the said meeting. Lopez’ testimony about the contract being
written in a napkin is not corroborated because the napkin was never produced in court. Further, there is no meeting
of the minds because Del Rosario’s offer was of 104 films for P60 million was not accepted. And that the alleged
counter-offer made by Lopez on the same day was not also accepted because there’s no proof of such. The counter
offer can only be deemed to have been made days after the April 2 meeting when Santos-Concio sent a letter to Del
Rosario containing the counter-offer. Regardless, there was no showing that Del Rosario accepted. But even if he did
accept, such acceptance will not bloom into a perfected contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power; to enter into contracts; are exercised by the Board of Directors. But
this power may be delegated to a corporate committee, a corporate officer or corporate manager. Such a delegation
must be clear and specific. In the case at bar, there was no such delegation to Del Rosario. The fact that he has to
present the counteroffer to the Board of Directors of Viva is proof that the contract must be accepted first by the
Viva’s Board. Hence, even if Del Rosario accepted the counter-offer, it did not result to a contract because it will not
bind Viva sans authorization.
2. No. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person
and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore,
experience physical suffering and mental anguish, which call be experienced only by one having a nervous
system. No moral damages can be awarded to a juridical person. The statement in the case of People vs Manero and
Mambulao Lumber vs PNB is a mere obiter dictum hence it is not binding as a jurisprudence .
REYNALDO T. COMETA and STATE INVESTMENT TRUST, INC., petitioners, vs. COURT OF APPEALS,
HON.GEORGE MACLI-ING, in his capacity as Presiding Judge, Regional Trial Court, Quezon City Branch
100, REYNALDO S. GUEVARA and HONEYCOMB BUILDERS, INC.
G.R. No. 124062 January 21, 1999
FACTS: Reynaldo Cometa is the president of State Investment Trust, Inc. (SITI), a lending firm. Reynaldo Guevara
is the president of Honeycomb Builders, Inc. (HBI), a real estate developer. Guevara is also the chairman of the
board of Guevent Industrial Development Corp., (GIDC).
GIDC took out a loan from SITI and secured the loan by mortgaging some of its properties to SITI. GIDC defaulted in
paying and so SITI foreclosed the mortgaged assets. GIDC later sued SITI as it alleged that the foreclosure was
irregular. While the case was pending, the parties entered into a compromise agreement where GIDC accepted HBI’s
offer to purchase the mortgaged assets. But SITI did not approve of said proposal.
GIDC then filed a request for clarification with the trial court and the latter directed SITI to accept the proposal.
Meanwhile, HBI filed a request with the HLURB asking the latter to grant them the right to develop the mortgaged
assets. HBI submitted an affidavit allegedly signed by Cometa. The affidavit purported that Cometa and SITI is not
opposing HBI’s petition with the HLURB.
Cometa assailed the affidavit as it was apparently forged as proven by an NBI investigation. Subsequently, Cometa
filed a criminal action for falsification of public document against Guevara. The prosecutor initially did not file the
information as he finds no cause of action but the then DOJ Secretary (Drilon) directed the fiscal to file an
information against Guevara.
The case was dismissed. In turn, Guevara filed a civil case for malicious prosecution against Cometa. Guevara, in his
complaint, included HBI as a co-plaintiff.
ISSUE: Whether or not HBI is appropriately added as a co-plaintiff.
HELD: Yes. It is true that a criminal case can only be filed against the officers of a corporation and not against the
corporation itself. But it does not follow that the corporation cannot be a real-party-in-interest for the purpose of
bringing a civil action for malicious prosecution. As pointed out by the trial judge, and as affirmed by the Court of
Appeals, the allegation by Cometa that Guevara has no cause of action with HBI not being a real party in interest is a
matter of defense which can only be decisively determined in a full blown trial.
Roman Catholic Apostolic Administrator of Davao, Inc.

vs. The Land Registration Commission and the Register of Deeds of Davao City,
G.R. No. L-8451, December 20,1957
FACTS: On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of
sale of a parcel of land located in the same city covered by Transfer Certificate No. 2263, in favor of the Roman
Catholic Apostolic Administrator of Davao Inc.,(RCADI) is corporation sole organized and existing in accordance with
Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. Registry of Deeds Davao (RD)
required RCADI to submit affidavit declaring that 60% of its members were Filipino Citizens. As the RD entertained
some doubts as to the registerability of the deed of sale, the matter was referred to the Land Registration
Commissioner (LRC) en consulta for resolution. LRC hold that pursuant to provisions of sections 1 and 5 of Article XII
of the Philippine Constitution, RCADI is not qualified to acquire land in the Philippines in the absence of proof that at
leat 60% of the capital, properties or assets of the RCADI is actually owned or controlled by Filipino citizens. LRC also
denied the registration of the Deed of Sale in the absence of proof of compliance with such requisite. RCADI’s Motion
for Reconsideration was denied. Aggrieved, the latter filed a petition for mandamus.
ISSUE: Whether or not the Universal Roman Catholic Apostolic Church in the Philippines, or better still, the
corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire private
agricultural lands in the Philippines pursuant to the provisions of Article XIII of the Constitution.
RULING: RCADI is qualified. While it is true and We have to concede that in the profession of their faith, the
Roman Pontiff is the supreme head; that in the religious matters, in the exercise of their belief, the Catholic
congregation of the faithful throughout the world seeks the guidance and direction of their Spiritual Father in the
Vatican, yet it cannot be said that there is a merger of personalities resultant therein. Neither can it be said that the
political and civil rights of the faithful, inherent or acquired under the laws of their country, are affected by that
relationship with the Pope. The fact that the Roman Catholic Church in almost every country springs from that
society that saw its beginning in Europe and the fact that the clergy of this faith derive their authorities and receive
orders from the Holy See do not give or bestow the citizenship of the Pope upon these branches. Citizenship is a
political right which cannot be acquired by a sort of “radiation”. We have to realize that although there is a fraternity
among all the catholic countries and the dioceses therein all over the globe, the universality that the word “catholic”
implies, merely characterize their faith, a uniformity in the practice and the interpretation of their dogma and in the
exercise of their belief, but certainly they are separate and independent from one another in jurisdiction, governed by
different laws under which they are incorporated, and entirely independent on the others in the management and
ownership of their temporalities. To allow theory that the Roman Catholic Churches all over the world follow the
citizenship of their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of a
country who embrace the Catholic faith and become members of that religious society, likewise citizens of the
Vatican or of Italy. And this is more so if We consider that the Pope himself may be an Italian or national of any
other country of the world. The same thing be said with regard to the nationality or citizenship of the corporation
sole created under the laws of the Philippines, which is not altered by the change of citizenship of the incumbent
bishops or head of said corporation sole.
We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every Roman
Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in accordance with the
laws of the country where it is located, is considered an entity or person with all the rights and privileges granted to
such artificial being under the laws of that country, separate and distinct from the personality of the Roman Pontiff or
the Holy See, without prejudice to its religious relations with the latter which are governed by the Canon Law or their
rules and regulations.
It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less
than 5 incorporators, is composed of only one persons, usually the head or bishop of the diocese, a unit which is not
subject to expansion for the purpose of determining any percentage whatsoever; (2) the corporation sole is only
the administrator and not the owner of the temporalities located in the territory comprised by said corporation sole;
(3) such temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the
corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent Ordinary has
nothing to do with the operation, management or administration of the corporation sole, nor effects the citizenship of
the faithful connected with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of the
Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers of the
same did not have in mind or overlooked this particular form of corporation. If this were so, as the facts and
circumstances already indicated tend to prove it to be so, then the inescapable conclusion would be that this
requirement of at least 60 per cent of Filipino capital was never intended to apply to corporations sole, and the
existence or not a vested right becomes unquestionably immaterial.
REGISTER OF DEEDS OF RIZAL v. UNG SUI SI TEMPLE (97 Phil 58, 1955)
NATURE:
Ordinary appeal with defendant claiming: (1) that the acquisition of the land in question, for religious purposes, is
authorized and permitted by Act No. 271 of the old Philippine Commission, and (2) that the refusal of the Register of
Deeds violates the freedom of religion clause of the Constitution.
FACTS: The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in
due form on January 22, 1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan,
Rizal, known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious
organization "Ung Siu Si Temple", operating through three trustees all of Chinese nationality. The donation was duly
accepted by Yu Juan, of Chinese nationality, founder and deaconess of the Temple, acting in representation and in
behalf of the latter and its trustees.
The refusal of the Registrar was elevated en Consulta to the IVth Branch of the Court of First Instance of Manila.
Upon finding out that the trustees of Ung Sui Si Temple were all Chinese citizens, the Register of Deeds of Rizal
refused to accept for record a deed of donation by Filipino Jesus Dy, conveying a parcel of residential land in favor of
said unregistered religious organization.
ISSUE: Whether a deed of donation of a parcel of land executed in favor of a religious organization whose founder,
trustees and administrator are Chinese citizens should be registered or not.
HELD:
NO. The Constitution makes no exception in favor of religious associations. A deed of donation of a parcel of land
executed by a Filipino citizen in favor of a religious organization, whose founder, trustees and administrator are non-
Filipinos, can not be admitted for registration.
The registration of the donation of land to an unincorporated religious organization, whose trustees are foreigners,
would violate the constitutional prohibition and the refusal would not be in violation of the freedom of religion clause.
The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional
inhibition, since it is admitted that its members are of foreign nationality… the spirit of the Constitution demands that
in the absence of capital stock, the controlling membership should be composed of Filipino citizens.
PEOPLE v. WILLIAM H. QUASHA

GR No. L-6055, Jun 12, 1953
FRANCISCO S. TATAD, et al.

vs. Secretary of DOTC JESUS B. GARCIA, JR., EDSA LRT CORPORATION, LTD.
G.R. No. 114222 06 April 1995
FACTS: Petitioners Francisco S. Tatad, John H. Osmeña and Rodolfo G. Biazon are members of the Philippine Senate
and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent
Secretary of the Department of Transportation and Communications (DOTC), while private respondent EDSA LRT
Corporation, Ltd. is a private corporation organized under the laws of Hongkong.
In 1989, Department of Transportation and Communication (DOTC) planned to build a railway transit line along
EDSA which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. Certain corporations were then
invited to prequalify but no bidding was made. EDSA LRT Consortium was the only one to qualify and hence, an
agreement was made between the former and DOTC. Said agreement was based on the Build-Operate-Transfer
scheme provided for by law (RA 6957 as amended by RA 7718. Under the agreement, EDSA LRT Consortium shall
build the facilities, i.e. railways, and shall supply the train cabs. It was also agreed that every phase that is
completed shall be turned over to the DOTC and the latter shall pay rent for the same for 25 years. By the end of 25
years, it was projected that the government shall have fully paid EDSA LRT Consortium and thereafter, it shall sell
teh facilities to the government for $1.00.
However, petitioners opposed the implementation of the agreement as they argued that EDSA LRT Consortium is a
foreign corporation as it was organized under Hongkong laws; that as such, it cannot own a public utility such as the
EDSA railway transit because this falls under the nationalized areas of activities.
ISSUE: Whether or not an owner and lessor of the facilities used by a public utility constitute a public utility?
HELD: No, it does not constitute public utility. EDSA LRT Corporation, Ltd. Is admittedly a foreign corporation “duly
incorporated and existing under the laws of Hong Kong”. However, there is no dispute that once the EDSA LRT III is
constructed, the private respondent, as lessor, will turn it over to DOTC as lessee, for the latter to operate the
system and pay rentals for the said use.
What private respondent owns are the rail tracks, rolling stocks, rail stations, terminals and the power plant, not a
public utility. While a franchise is needed to operate these facilities to serve the public, they do not themselves
constitute a public utility. What constitutes a public utility is not their ownership but their use to serve the public.
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not
require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate
them to serve the public. In law, there is a clear distinction between the “operation” of a public utility and the
ownership of the facilities and the equipment used to serve the public.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY vs.

NATIONAL TELECOMMUNICATIONS COMMISSION, JOSEPH A.SANTIAGO, in his capacity as NTC
Commissioner, and EDGARDO CABARRIOS
G.R. No. 152685 4 December 2007
FACTS: Case pertains to Section 40 (e) the Public Service Act (PSA), as amended on March 15, 1984, pursuant to
Batas Pambansa Blg This. 325, which authorized the NTC to collect from public telecommunications companies
Supervision and Regulation Fees (SRF) of PhP 0.50 for every PhP 100 or a fraction of the capital and stock
subscribed or paid for of a stock corporation, partnership or single proprietorship of the capital invested, or of the
property and equipment, whichever is higher. Under Section 40 (e) of the PSA, the NTC sent SRF assessments to
petitioner Philippine Long Distance Telephone Company (PLDT) starting sometime in 1988. The SRF assessments
were based on the market value of the outstanding capital stock, including stock dividends, of PLDT. PLDT protested
the assessments contending that the SRF ought to be based on the par value of its outstanding capital stock. Its
protest was denied by the NTC and likewise, its motion for reconsideration. PLDT appealed before the CA. The CA
modified the disposition of the NTC by holding that the SRF should be assessed at par value of the outstanding
capital stock of PLDT, excluding stock dividends.
ISSUE: Whether or not the value transferred from the unrestricted retained earnings of PLDT to the capital stock
account pursuant to the issuance of stock dividends is the proper basis for the assessment of the SRF.
RULING: NO. In the case of stock dividends, it is the amount that the corporation transfers from its surplus profit
account to its capital account. It is the same amount that can be loosely termed as the "trust fund" of the
corporation. The "Trust Fund" doctrine considers this subscribed capital as a trust fund for the payment of the debts
of the corporation, to which the creditors may look for satisfaction. Until the liquidation of the corporation, no part of
the subscribed capital may be returned or released to the stockholder (except in the redemption of redeemable
shares) without violating this principle. Thus, dividends must never impair the subscribed capital; subscription
commitments cannot be condoned or remitted; nor can the corporation buy its own shares using the subscribed
capital as the considerations therefore.
When stock dividends are distributed, the amount declared ceases to belong to the corporation but is
distributed among the shareholders. Consequently, the unrestricted retained earnings of the corporation are
diminished by the amount of the declared dividend while the stockholders equity is increased. Furthermore, the
actual payment is the cash value from the unrestricted retained earnings that each shareholder foregoes for
additional stocks/shares which he would otherwise receive as required by the Corporation Code to be given to the
stockholders subject to the availability and conditioned on a certain level of retained earnings.
In essence, therefore, the stockholders by receiving stock dividends are forced to exchange the monetary
value of their dividend for capital stock, and the monetary value they forego is considered the actual payment for the
original issuance of the stocks given as dividends. Therefore, stock dividends acquired by shareholders for the
monetary value they forego are under the coverage of the SRF and the basis for the latter is such monetary value as
declared by the board of directors.
NATIONAL TELECOMMUNICATIONS COMMISSION vs.

HONORABLE COURT OF APPEALS and PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
G.R. No. 127937 July 28, 1999
FACTS: Sometime in 1988, the NTC served on the PLDT the following assessment notices and demands for
payment: 1. the amount of P7,495,161.00 as supervision and regulation fee under Section 40 (e) of the PSA for the
said year, 1988, computed at P0.50 per P100.00 of the Protestant's (PLDT) outstanding capital stock as at December
31, 1987 which then consisted of Serial Preferred Stock amounting to P1,277,934,390.00 and Common Stock of
P221,097,785 (Million) or a total of P1,499,032,175.00; 2. the amount of P9.0 Million as permit fee under Section 40
(f) of the PSA for the approval of the protestant's increase of its authorized capital stock from P2.7 Billion to P4.5
Billion; and the amounts of P12,261,600.00 and P33,472,030.00 as permit fees under Section 40(g) of the PSA in
connection with the Commission's decisions in NTC Cases Nos. 86-13 and 87-008 respectively, approving the
Protestant's equity participation in the Fiber Optic Interpacific Cable systems and X-5 Service Improvement and
Expansion Program.
ISSUE: Whether or not the Court of Appeals erred in holding that the computation of supervision and regulation
fees under section 40 (f) of the public service act should be based on the par value of the subscribed capital stock.
RULING: NO. The basis for computation of the fee to be charged by NTC on PLDT, is the capital stock subscribed
or paid and not, alternatively, the property and equipment. The term "capital" and other terms used to describe the
capital structure of a corporation are of universal acceptance, and their usages have long been established in
jurisprudence. Briefly, capital refers to the value of the property or assets of a corporation. The capital subscribed is
the total amount of the capital that persons (subscribers or shareholders) have agreed to take and pay for, which
need not necessarily be, and can be more than, the par value of the shares. In fine, it is the amount that the
corporation receives, inclusive of the premiums if any, in consideration of the original issuance of the shares. In the
case of stock dividends, it is the amount that the corporation transfers from its surplus profit account to its capital
account. It is the same amount that can loosely be termed as the "trust fund" of the corporation. The "Trust Fund"
doctrine considers this subscribed capital as a trust fund for the payment of the debts of the corporation, to which
the creditors may look for satisfaction. Until the liquidation of the corporation, no part of the subscribed capital may
be returned or released to the stockholder (except in the redemption of redeemable shares) without violating this
principle. Thus, dividends must never impair the subscribed capital; subscription commitments cannot be condoned
or remitted; nor can the corporation buy its own shares using the subscribed capital as the consideration therefor.
FILIPINAS COMPANIA DE SEGUROS

vs. CHRISTERN HUENEFELD and CO., INC.
89 Phil 54
FACTS: On October 1, 1941, the respondent corporation, Christern Huenefeld and Co., Inc., after payment of
corresponding premium, obtained from the petitioner, Filipinas Cia de Seguros fire policy covering merchandise
contained in a building located at Binondo, Manila. On February 27, 1942 or during the Japanese military occupation,
the building and insured merchandise were burned. In due time, the respondent submitted to the petitioner its claim
under the policy. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent
that ceased to be a force on the date the United States declared war against Germany, the respondent corporation
(through organized under and by virtue of the laws of Philippines) being controlled by German subjects and the
petitioner being a company under American jurisdiction when said policy was issued on October 1, 1941. The theory
of the petitioner is that the insured merchandise was burned after the policy issued in 1941 had ceased to be
effective because the outbreak of the war between United States and Germany on December 10, 1941, and that the
payment made by the petitioner to the respondent corporation during the Japanese military occupation was under
pressure.
ISSUE: Whether or not the respondent corporation is a corporation of public enemy.
RULING: Since the majority of stockholders of the respondent corporation were German subjects, the respondent
became an enemy of the state upon the outbreak of the war between US and Germany. The English and American
cases relied upon by the Court of Appeals lost in force upon the latest decision of the Supreme Court of US in which
the control test has adopted.
Since World War I, the determination of enemy nationality of corporations has been discussed in many countries,
belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely
managed under the influence of individuals or corporations themselves considered as enemies…
The Philippine Insurance Law (Act No 2427, as amended), in Section 8, provides that “anyone except a public enemy
may be insured”. It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes
a public enemy.
The respondent having an enemy corporation on December 10, 1941, the insurance policy issued in its favor on
October 1, 1941, by the petitioner had ceased to be valid and enforceable, and since the insured good were burned
during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However,
elementary rule of justice (in the absence of specific provisions in the Insurance Law) require that the premium paid
by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner.
PALTING vs.
SAN JOSE PETROLEUM INC.
G.R. No.L-14441. December 17, 1966
FACTS: SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of which is owned by
respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest of which is owned by
OIL INVESTMENTS, INC., another foreign (Panamanian) company.
This latter corporation in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C. A., and
PANCOASTAL PETROLEUM COMPANY, C. A., both organized and existing under the laws of Venezuela. As of
September 30, 1956, there were 9,979 stockholders of PANCOASTAL PETROLEUM found in 49 American states and
U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY
was said to have 3,077,916 shares held by 12,373 stockholders scattered in 49 American states.
In the two lists of stockholders, there is no indication of the citizenship of these stockholders, or of the total
number of authorized stocks of each corporation for the purpose of determining the corresponding percentage of
these listed stockholders in relation to the respective capital stock of said corporation.
ISSUE: Whether or not the "tie-up" between the two corporations is violative of the Constitution, the Laurel-Langley
Agreement, the Petroleum Act of 1949, and the Corporation Law.
RULING: YES. The privilege to utilize, exploit, and develop the natural resources of this country was granted, by
Article III of the Constitution, to Filipino citizens or to corporations or associations 60% of the capital of which is
owned by such citizens. With the Parity Amendment to the Constitution, the same right was extended to citizens of
the United States and business enterprises owned or controlled, directly or indirectly, by citizens of the United States.
There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned
provisions of the Constitution. The right was granted to 2 types of persons: natural persons (Filipino or American
citizens) and juridical persons (corporations 60% of which capital is owned by Filipinos and business enterprises
owned or controlled directly or indirectly, by citizens of the United States). In American law, "citizen" has been
defined as "one who, under the constitution and laws of the United States, has a right to vote for representatives in
congress and other public officers, and who is qualified to fill offices in the gift of the people."
SAN JOSE PETROLEUM an American business is not entitled to parity rights in the Philippines. In the
circumstances, we have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a
business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley
Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.
SEPARATE JURIDICAL PERSONALITY AND DOCTRINE OF

PIERCING VEIL OF CORPORATE FICTION
Lim vs. Court of Appeals

323 SCRA 102 [GR No. 124715 January 24, 2000]
FACTS: Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is the subject of probate
proceedings in special proceedings Q-95-23334 entitled, “In re: Intestate Estate Of Pastor Y. Lim Rufina Luy Lim,
represented by George Luy, petitioner.” Private respondents auto truck corporation, alliance marketing corporation,
speed distributing inc, active distributing inc, and action company are corporations formed, organized and existing
under Philippine laws and which owned real properties covered under the Torrens system. On June 11, 1994, Pastor
Y. Lim died intestate. Herein petitioner, as surviving spouse and duly represented by her nephew, George Luy filed
on March 17, 1995, a joint petition for the administration of the estate of Pastor Y. Lim before the Regional Trial
Court of Quezon City. Private respondents corporations whose properties were included in the inventory of the estate
of Pastor Y. Lim, then filed a motion for the lifting of his pendens an motion for exclusion of certain properties from
the estate of the decedent.
ISSUE: Whether or not the doctrine of piercing the veil of corporate entity is applicable to be able to include in the
probate proceedings the company formed by deceased Pastor Y. Lim.
HELD: No. It is settled that a corporation is clothed with personality separate and distinct from that of the persons
composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for
the personal indebtedness of its stockholders or those of the entities connected with it.
Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its
stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by
protective mantle and imbued with by law with a character alien to the persons comprising it.
Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its
stockholders from liabilities that ordinarily, they could subject to, or distinguishes one corporation from a seemingly
separate one, were it not for the existing corporate fiction.
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. Where badges of fraud exist, where public convenience is defeated; where a
wrong is sought to be justified thereby, the corporate fiction or the notion of the legal entity should come to naught.
1.) Control, not merely the majority or complete stock control, but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction
had at the time so separate mind, will or existence of its own; 2.) Such control must have been used by the
defendant to commit fraud on wrong to perpetuate the violation of a statutory or other positive legal duty, on
dishonest and unjust act in contravention of plaintiffs legal right; and 3.) The aforesaid control and breach of duty
must proximately cause the injury or unjust loss complained of. The absence of any of these elements prevent
“piercing the corporate veil.”
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 a sufficient reason for disregarding the fiction of separate personalities.
Moreover, to disregard the separate juridical personality of a corporation, the wrong doing must be clearly and
convincingly established, it cannot be presumed.
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC. vs.

COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT
CORP. and JNM REALTY AND DEVELOPMENT CORP.
G.R. No. 129459. September 29, 1998
FACTS: A parcel of land was sold by Nenita Lee Gruenberg, the corporate treasurer of defendant corporation
Motorich Sale in favor of San Juan Structural and Steel Fabricators, Inc. However, the latter failed to execute the
necessary Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant. Hence a case for damages was filed.
The defendant corporation questions the validity of the contract entered by its treasurer in its behalf without
authorization from the corporation’s Board.
ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction be applied to Motorich.
RULING: NO. The contract cannot bind Motorich, because it never authorized or ratified such sale. A corporation is
a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members and may not be sold by the stockholders or members
without express authorization from the corporation’s board of directors. The corporation may act only through its
board of directors, or, when authorized either by its bylaws or by its board resolution, through its officers or agents
in the normal course of business. The general principles of agency govern the relation between the corporation and
its officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law.
As to the piercing of the corporate veil, the same is not applicable. In the present case, the Court finds no
reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation
was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third
persons, like petitioner.
Development Bank of the Philippines vs National Labor Relations Commission

186 SCRA 8413 [GR No. 86932 June 27, 1990]
FACTS: Philippine Smelters Corporation (PSC), a corporation registered under Philippine law, obtained a loan in 1983
from the Development Bank of the Philippines (DBP), a government-owned financial institution created and operated
in accordance with Executive Order No. 81, to finance its iron smelting and steel manufacturing business. To secure
said loan, PSC mortgaged to DBP real properties with all the buildings and improvements thereon and chattels, with
its president, Jose T. Marcelo Jr. as co-obligor. By virtue of the said loan agreement, DBP became the majority
stockholder of PSC, with stock holdings in the amount of Php31,000,000 of the total Php80,226,000 subscribed and
paid up capital stock. Subsequently, it took over the management of PSC. When PSC failed to pay its obligations with
DBP, which amounted to Php75,752,445.83 as of March 31, 1986, DBP foreclosed and acquired the mortgaged real
properties and chattels of PSC in the auction sale held on February 25, 1987 and March 4, 1987. PSC’s employees
filed a petition against herein petitioner for the unpaid wages and other benefits to which the labor arbiter ordered
DBP to pay.
ISSUE: Whether or not DBP, as foreclosing creditor can be held liable for the unpaid wages, 13th moth pay,
incentive leave pay, and separation pay of the employees of PSC.
HELD: No. A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first
ahead of other claims which may be established against the debtor. Logically, it becomes material only when the
properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his
various creditors, if full, how can the necessity exist to determine which of his creditors shall be paid first or whether
they shall be paid out of the proceeds of the sale of the debtor’s specific property? Indubitably, the preferential right
of credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the
claims held by his various creditors have been established.
A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do
not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as
regards unpaid wages recognized by article 110 does not constitute a lien on the property of the insolvent debtor in
favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to
determine and specify the order in which credits should be paid in the final distribution of the proceeds of the
insolvent’s assets. It is a right to a preference in the discharge of funds of the judgement debtor.
Article 110 of the labor code does not purport to create a lien in favor of workers or on employees for unpaid wages
either upon all of the properties or upon any particular property owned b their employer. Claims for unpaid wages do
not therefore fall within the category of specially preferred claims established under articles 2241 and 2242 of the
civil code, except to the extent that such claims for unpaid wages are already covered by article 2241 number 6;
claims for laborer’s wages, on the goods manufactured or the work done; or by article 2242 number 3; claims of
laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other
works, upon said buildings, canals or other works. To the extent that claims for unpaid wages fall outside the scope
of article 2241, number 6 and article 2242 number 3, they would come within the ambit of the category of ordinary
preferred credits under article 2244.
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION

vs. RITA C. MEJIA, as Executrix of ANDREA CORDOVA VDA. DE GUTIERREZ
G.R. No. 141617. August 14, 2001
FACTS: Gutierrez was the registered owner of a parcel of land which was later subdivided into five lots. In 1964,
Gutierrez and Cardale Financing and Realty Corporation executed a Deed of Sale with Mortgage relating to the four
of the five lots for the consideration of P800,000.00. Upon the execution of the deed, Cardale paid Gutierrez
P171,000.00. To secure payment of the balance of the purchase price, Cardale constituted a mortgage on three of
the four parcels of land.
In 1968, owing to Cardale's failure to settle its mortgage obligation, Gutierrez filed a complaint for rescission
of the contract with the Quezon City Regional Trial Court. In 1969, during the pendency of the rescission case,
Gutierrez died and was substituted by her executrix, respondent Rita C. Mejia.
In the meantime, the mortgaged parcels of land became delinquent in the payment of real estate taxes,
which culminated in their levy and auction sale in satisfaction of the tax arrears. The highest bidder for the three
parcels of land was petitioner Merryland Development Corporation, whose President and majority stockholder is
Francisco.
ISSUES:
Whether or not the corporate fiction of Cardale will be pierced.
Whether or not the corporate entity of Merryland must be pierced.
RULING: YES. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the
legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or
stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons.
The members or stockholders of the corporation will be considered as the corporation, that is, liability will attach
directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate
issues, or where a corporation is the 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.
NO. Merryland cannot be solidarily liable with Francisco. The only act imputable to Merryland in relation to
the mortgaged properties is that it purchased the same and this by itself is not a fraudulent or wrongful act. No
evidence has been adduced to establish that Merryland was a mere alter ego or business conduit of Francisco. Time
and again it has been reiterated that mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality. Neither has it been alleged or proven that Merryland is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of Cardale. Even assuming that the
businesses of Cardale and Merryland are interrelated, this alone is not justification for disregarding their separate
personalities, absent any showing that Merryland was purposely used as a shield to defraud creditors and third
persons of their rights. Thus, Merryland's separate juridical personality must be upheld.
REMO, JR. V. IAC

172 SCRA 405 [G.R. NO. L-67626]
FACTS: The Board of Directors of Akron Corporation composed of petitioner Remo, Feliciano Coprada, et al.
adopted a resolution authorizing the purchase of 13 trucks for use in its business. Feliciano Coprada as President and
Chairman of Akron, purchased 13 trucks from respondent E.B. Marcha Transport with a downpayment of P50,000
and a security by way of promissory note executed by Coprada in favor of Akron. Akron paid rentals a day but
sometime after lapsed in payment. Coprada wrote respondent asking for grace period and eventually returned the 10
trucks. Respondent filed a complaint for the recovery of the sum or 13 trucks against Akron and its officers/directors.
The trial court and later the IAC found for respondent. Petitioner contends that he should not be held personally
liable for the corporation’s liabilities.
ISSUE: Whether or not petitioner may be held personally liable for the corporation’s liabilities.
RULING: NO. The environmental facts of this case show that there is no cogent basis to pierce the corporate veil of
Akron and hold petitioner personally liable for its obligation to private respondent. While it is true that petitioner was
still a member of the board of directors of Akron and that he participated in the adoption of a resolution authorizing
the purchase of 13 trucks for the use in the brokerage business of Akron to be paid out of a loan to be secured from
a lending institution, it does not appear that said resolution was intended to defraud anyone and more particularly
private respondent. It was Coprada, President and Chairman of Akron, who negotiated with said respondent for the
purchase of 13 cargo trucks. It was Coprada who signed a promissory note to guarantee the payment of the unpaid
balance of the purchase price out of the proceeds of a loan he supposedly sought from the DBP. The word “WE’ in
the said promissory note must refer to the corporation which Coprada represented in the execution of the note and
not its stockholders or directors. Petitioner did not sign the said promissory note so he cannot be personally bound
thereby.
ASIONICS PHILIPPINES, INC. and/or FRANK YIH vs.

NATIONAL LABOR RELATIONS COMMISSION, YOLANDA BOAQUINA, and JUANA GAYOLA
G.R. No. 124950. May 19, 1998
FACTS: API is a domestic corporation engaged in the business of assembling semi-conductor chips and other
electronic products mainly for export. Yolanda Boaquina and Juana Gayola are working as material control clerk and
as production operator. API commenced negotiations with the duly recognized bargaining agent of its employees,
the Federation of Free Workers ("FFW"), for a Collective Bargaining Agreement ("CBA"). A deadlock, however,
ensued and the union decided to file a notice of strike. This event prompted the two customers of API, Indala and
CP Clare Theta J, to thereupon refrain from sending to API additional kits or materials for assembly. API, given the
circumstance that its assembly line had to thereby grind to a halt, was forced to suspend operations pursuant to
Article 286 of the Labor Code. Private respondents Boaquina and Gayola were among the employees asked to take a
leave from work.
Dissatisfied with their union (FFW), Boaquina and Gayola, together with some of other co-employees, joined the
Lakas ng Manggagawa sa Pilipinas Labor Union ("Lakas Union") where they eventually became members of its Board
of Directors. Lakas Union filed a notice of strike against API on the ground of unfair labor practice.API filed for a
petition for declaration of illegality of the strike.
Lakas Union countered that their strike was valid and staged as a measure of self-preservation and as self-defense
against the illegal dismissal of petitioners aimed at union busting in the guise of a retrenchment program.
ISSUE: Whether a stockholder/director/officer of a corporation can be held liable for the obligation of the
corporation absent any proof and finding of bad faith.
RULING: No, API’s president and main stockholder Frank Yih cannot be held liable for the obligation of the
corporation to its employees. A corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the
corporation, acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a mere
fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done sparingly, the disregard of
its independent being and the lifting of the corporate veil. As a rule, this situation might arise when a corporation is
used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar
unjustifiable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law.
RUFINA LUY LIM vs.

COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC., ACTIVE
DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY, INC.
G.R. No. 124715, January 24, 2000
proceedings. The respondent herein is the owner of the properties subject of this. Said properties were included in
the inventory of estate late Pastor Lim. Thus he respondents moved for the exclusion of said properties which was
denied by the trial court. Petitioner contended upon filing an amended petition that the properties were actually
owned by Pastor Lim and the same were registered under his name, hence they should be included in the inventory
of his estate, and that during his lifetime, he organized and wholly-owned the five corporations, which are the private
respondents in the instant case.
ISSUE: Whether or not the doctrine of piercing the corporate veil is applicable.
RULING: NO. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows: 1) Control, not mere majority or complete stock control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by
the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiffs legal right; and (3) The aforesaid control and breach of duty
must proximately cause the injury or unjust loss complained of. The absence of any of these elements prevents
piercing the corporate veil.
In this case there is no showing that the elements are present. Furthermore, it was proven that said
properties were registered in the name of the corporation, hence the same were owned by the corporation despite
the fact that, assuming true, it was Pastor Lim who organized the corporation.
RUFINA LUY LIM vs.

COURT OF APPEALS, AUTO TRUCK TBA CORP., et al.
GR 124715, 24 January 2000
FACTS: On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly represented
by her nephew George Luy, filed on 17 March 1995, a joint petition for the administration of the estate of Pastor Y.
Lim before the Regional Trial Court of Quezon City.
Private respondent corporations, whose properties were included in the inventory of the estate of Pastor Y.
Lim, then filed a motion6 for the lifting of lis pendens and motion for exclusion of certain properties from the estate
of the decedent.
Although the defendant corporations dealt and engaged in business with the public as corporations, all their
capital, assets and equity were however, personally owned by the late Pastor Y Lim. Hence the alleged stockholders
and officers appearing in the respective articles of incorporation of the above business entities were mere dummies
of Pastor Y. Lim, and they were listed therein only for purposes of registration with the Securities and Exchange
Commission.
Petitioner argues that the parcels of land covered under the Torrens system and registered in the name of
private respondent corporations should be included in the inventory of the estate of the decedent Pastor Y. Lim,
alleging that after all the determination by the probate court of whether these properties should be included or not is
merely provisional in nature, thus, not conclusive and subject to a final determination in a separate action brought
for the purpose of adjudging once and for all the issue of title.
ISSUE: Whether or not the properties of the corporation-defendants be included in the estate of the deceased.
RULING: NO. They hold separate personalities from the deceased. In as much as the real properties included in
the inventory of the estate of the late Pastor Y. Lim are in the possession of and are registered in the name of
private respondent corporations, which under the law possess a personality separate and distinct from their
stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of
conclusiveness of said titles in favor of private respondents should stand undisturbed.
Notwithstanding that the real properties were duly registered under the Torrens system in the name of
private respondents, and as such were to be afforded the presumptive conclusiveness of title, the probate court
obviously opted to shut its eyes to this gleamy fact and still proceeded to issue the impugned orders.
corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.
THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD. vs.
NATIONAL LABOR RELATIONS COMMISSION, ARB. CEFERINA J. DIOSANA & MARCELO G. SANTOS
G.R. No. 120077. October 13, 2000
FACTS: MHICL is a corporation duly organized and existing under the laws of Hong Kong. MHC is an “incorporator”
of MHICL, owning 50% of its capital stock. By virtue of a “management agreement” with the Palace Hotel (Wang Fu
Company Limited), MHICL trained the personnel and staff of the Palace Hotel at Beijing, China.
Respondent Santos accepted an employment offer from Palace Hotel. On November 5, 1988, respondent
Santos left for Beijing, China. He started to work at the Palace Hotel. A year later he received a letter stating that his
employment is being terminated due to business reverses brought about by the political upheaval in China. On
February 20, 1990, respondent Santos filed a complaint for illegal dismissal.
ISSUE: Whether or not the doctrine of piercing the corporate veil is available to make MHC liable for damages.
RULING: NO. MHC, as a separate and distinct juridical entity cannot be held liable. True, MHC is an incorporator
of MHICL and owns fifty percent (50%) of its capital stock. However, this is not enough to pierce the veil of
corporate fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud or defend a crime. It is done only when a corporation
is a mere alter ego or business conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals, the court held that “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 a sufficient reason for
disregarding the fiction of separate corporate personalities.”
The tests in determining whether the corporate veil may be pierced are: First, the defendant must have
control or complete domination of the other corporation’s finances, policy and business practices with regard to the
transaction attacked. There must be proof that the other corporation had no separate mind, will or existence with
respect the act complained of. Second, control must be used by the defendant to commit fraud or wrong. Third, the
aforesaid control or breach of duty must be the proximate cause of the injury or loss complained of. The absence of
any of the elements prevents the piercing of the corporate veil.
It is basic that a corporation has a personality separate and distinct from those composing it as well as from
that of any other legal entity to which it may be related. Clear and convincing evidence is needed to pierce the veil of
corporate fiction. In this case, the court found no evidence to show that MHICL and MHC are one and the same
entity.

G.R. No. 141617. August 14, 2001
Francisco.
ISSUES:
SOL LAGUIO, et al. vs.

NATIONAL LABOR RELATIONS COMMISSION, WELL WORLD TOYS, INC., et al.
G.R. No. 108936. October 4, 1996
FACTS: Private respondent April Toy, Inc. is a domestic corporation, for the purpose of "manufacturing, importing,
exporting, buying , selling, sub-contracting or otherwise dealing in, at wholesale and retail," stuffed toys. On
December 20, 1989, or after almost a year of operation, April posted a memorandum 2 within its premises and
circulated a copy of the same among its employees informing them of its dire financial condition. April decided to
shorten its corporate term "up to February 28, 1990,”
In view of April's cessation of operations, petitioners who initially composed of seventy-seven employees
below filed a complaint for "illegal shutdown/retrenchment/dismissal and unfair labor practice." On June 21, 1990,
petitioners amended their complaint to implead private respondent Well World Toys, Inc. (Well World for brevity), a
corporation also engaged in the manufacture of stuffed toys for export.
Petitioners further alleged that the original incorporators and principal officers of April were likewise the
original incorporators of Well World, thus both corporations should be treated as one corporation liable for their
claims. The Labor Arbiter found as valid the closure of April, and treated April and Well World as two distinct
corporations.
ISSUE: Whether or not April and Well World are two distinct corporations.
RULING: YES. The two corporations have two different set of officers managing their respective affairs in two
separate offices. It is basic that a corporation is invested by law with a personality separate and distinct from those
of the persons composing it as well as from that of any other legal entity to which it may be related. Mere substantial
identity of the incorporators of the two corporations does not necessarily imply fraud, 15 nor warrant the piercing of
the veil of corporate fiction. In the absence of clear and convincing evidence that April and Well World's corporate
personalities were used to perpetuate fraud, or circumvent the law said corporations were rightly treated as distinct
and separate from each other.
ARB CONSTRUCTION and MARK MOLINA vs.

COURT OF APPEALS, TBS SECURITY AND INVESTIGATION
GR 126554, 31 May 2000
FACTS: On 15 August 1993 TBS Security and Investigation Agency (TBSS) entered into two (2) Service Contracts
with ARBC wherein TBSS agreed to provide and post security guards in the five (5) establishments being maintained
by ARBC. The contract shall be effective for one (1) year and shall be considered renewed for the same period unless
the same is terminated after a notice is given to the parties thirty (30) days in advance.
In a letter dated 23 February 1994 ARBC informed TBSS of its desire to terminate the Service Contracts
effective thirty (30) days after receipt of the letter. Also, in a letter dated 22 March 1994, ARBC through its Vice
President for Operations, Mark Molina, informed TBSS that it was replacing its security guards with those of Global
Security Investigation Agency (GSIA).
In response to both letters, TBSS informed ARBC that the latter could not preterminate the Service
Contracts nor could it post security guards from GSIA as it would run counter to the provisions of their service
contracts. Nevertheless, Molina decreased the security guards to only one (1) as a right provided under the service
contract. TBSS thereafter filed a case for breach of contract against ARBC and Mark Molina.
ISSUE: Whether or not Mark Molina should be held liable together with ARBC.
RULING: NO. He merely acted within his capacity as an officer of the corporation. It is basic that a corporation is
invested by law with a personality separate and distinct from those of the persons composing it as well as from that
of any other legal entity to which it may be related. As a general rule, a corporation may not be made to answer for
acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa.
However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of
justice; or for purposes that could not have been intended by the law that created it; or to defeat public
convenience, justify wrong, protect fraud, or defend crime; or to perpetuate deception; or as an alter ego, adjunct or
business conduit for the sole benefit of the stockholders.
On the basis hereof, petitioner Molina could not be held jointly and severally liable for any obligation which
petitioner ARBC may be held accountable for, absent any proof of bad faith or malice on his part. Corollarily, it is also
incorrect on the part of the Court of Appeals to conclude that there was a sufficient cause of action against Molina as
to make him personally liable for his actuations as Vice President for Operations of ARBC.
Good Earth Emporium Inc. vs. Court of Appeals

194 SCRA 544 [GR No. 82797 February 27, 1991]
FACTS: A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes Realty Inc. as
lessor, and Good Earth Emporium Inc. (GEE) as lessee for a term of three years beginning November 1, 1981 and
ending October 31, 1984 at a monthly rental of Php65,000. The building which was the subject of the contract of
lease is a five story building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. From March
1983 up to the complaint was filed, the lessee had defaulted in the payment of rentals, as a consequence of which,
private respondent Roces-Reyes Realty Inc. filed on October 14, 1984 an ejectment case against herein petitioners,
Good Earth Emporium Inc. and Lim Ka Ring. After the latter had tendered their responsive pleading, the lower court
on motion of Roces rendered judgement on the pleadings dated April 17, 1984 to which petitioners were ordered to
vacate the premises and surrender the same to the plaintiffs. On May 16, 1984, Roces filed a motion for execution
which was opposed by petitioners on May 28, 1984 simultaneous with the latter’s filing of a notice of appeal.
However, on August 15, 1984, GEE thru counsel filed a motion to withdraw said appeal citing as reason that they are
satisfied with the decision of the lower court.
ISSUE: Whether or not the payment made by GEE to the Roces brothers constitute payment to private respondent
corporation which would result to the extinguishment of the obligation.
HELD: No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the person in whose
favor the obligation has been constituted, on his successor in interest or any person authorized to receive it.
In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its successors in interest
nor is there positive evidence that payment was made to a person authorized to receive it. No such proof was
submitted but merely inferred by the RTC from Marcos Roces having signed the lease contract as President which
was witnessed by Jesus Marcos Roces. The later, however, was no longer President or even an officer of the Roces-
Realty Inc at the time he received the money and signed the sale with pacto de retro. He, in fact denied being in
possession of authority to receive payment for the respondent corporation nor does the receipt show that he signed
in the same capacity as he did in the lease contract at a time when he was President for respondent corporation.
A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or
stockholder of a corporation does not make one’s property also of the corporation, and vice-versa, for they are
separate entities. Share owners are in no legal sense the owners corporate property which is owned by the
corporation as a distinct legal person. As a consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder’s debt or credit that of the
corporation.
VIRGINIA GOCHAN et al. vs.
RICHARD YOUNG, et al.

GR 131889, 12 March 2001
FACTS: Felix Gochan and Sons Realty Corporation (Gochan Realty, for brevity) was registered with the SEC on
June, 1951, with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and
Crispo Gochan as its incorporators.
Felix Gochan Sr.'s daughter, Alice, mother of respondents, inherited 50 shares of stock in Gochan Realty
from the former. She died in 1955, leaving the 50 shares to her husband, John Young, Sr.
In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of these shares to her children, Richard Young,
David Young, Jane Young Llaban, John Young Jr., Mary Young Hsu and Alexander Thomas Young.
Having earned dividends, these stocks numbered 179 by 20 September 1979. Five days later (25
September), at which time all the children had reached the age of majority, their father John Sr., requested Gochan
Realty to partition the shares of his late wife by cancelling the stock certificates in his name and issuing in lieu
thereof, new stock certificates in the names of the children.
ISSUE: Whether or not respondents have the legal personality to file a derivative suit on behalf of the corporation.
RULING: NO. Where corporate directors have committed a breach of trust either by their frauds, ultra vires acts, or
negligence, and the corporation is unable or unwilling to institute suit to remedy the wrong, a single stockholder may
institute that suit, suing on behalf of himself and other stockholders and for the benefit of the corporation, to bring
about a redress of the wrong done directly to the corporation and indirectly to the stockholders.
In the present case, the Complaint alleges all the components of a derivative suit. The allegations of injury
to the Spouses Uy can coexist with those pertaining to the corporation. The personal injury suffered by the spouses
cannot disqualify them from filing a derivative suit on behalf of the corporation. It merely gives rise to an additional
cause of action for damages against the erring directors. This cause of action is also included in the Complaint filed
before the SEC.
The Spouses Uy have the capacity to file a derivative suit in behalf of and for the benefit of the corporation.
The reason is that, as earlier discussed, the allegations of the Complaint make them out as stockholders at the time
the questioned transaction occurred, as well as at the time the action was filed and during the pendency of the
action.
As to the Intestate Estate of John Young, Sr., permitting an executor or administrator to represent or to
bring suits on behalf of the deceased, do not prohibit the heirs from representing the deceased. These rules are
easily applicable to cases in which an administrator has already been appointed. But no rule categorically addresses
the situation in which special proceedings for the settlement of an estate have already been instituted, yet no
administrator has been appointed. In such instances, the heirs cannot be expected to wait for the appointment of an
administrator; then wait further to see if the administrator appointed would care enough to file a suit to protect the
rights and the interests of the deceased; and in the meantime do nothing while the rights and the properties of the
decedent are violated or dissipated.
PIERCING THE VEIL OF CORPORATION FICTION

G.R. No. 141617. August 14, 2001
Francisco.
ISSUES:
TRADER’S ROYAL BANK vs.

COURT OF APPEALS
G.R. No. L-78412 September 26, 1989
FACTS: On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly submitted to the
Securities and Exchange Commission a petition for suspension of payments (SEC No. 2250) where Alfredo Ching was
joined as co-petitioner because under the law, he was allegedly entitled, as surety, to avail of the defenses of PBM
and he was expected to raise most of the stockholders' equity of Pl00 million being required under the plan for the
rehabilitation of PBM. Traders Royal Bank was included among PBM's creditors named in Schedule A accompanying
PBM's petition for suspension of payments.
On May 13, 1983, the petitioner bank filed a case against PBM and Alfredo Ching, to collect P22,227,794.05
exclusive of interests, penalties and other bank charges representing PBM's outstanding obligation to the bank.
Alfredo Ching, a stockholder of PBM, was impleaded as co-defendant for having signed as a surety for PBM's
obligations to the extent of ten million pesos (Pl0,000,000) under a Deed of Suretyship dated July 21, 1977.
In its en banc decision, the SEC declared that it had assumed jurisdiction over petitioner Alfredo Ching
pursuant to Section 6, Rule 3 of the new Rules of Procedure of the SEC providing that "parties in interest without
whom no final determination can be had of an action shall be joined either as complainant, petitioner or respondent"
to prevent multiplicity of suits.
On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets and liabilities, under
rehabilitation receivership, and ordered that "all actions for claims listed in Schedule A of the petition pending before
any court or tribunal are hereby suspended in whatever stage the same may be, until further orders from the
Commission". As directed by the SEC, said order was published once a week for three consecutive weeks in the
Bulletin Today, Philippine Daily Express and Times Journal at the expense of PBM and Alfredo Ching.
ISSUE: Whether or not the court a quo could acquire jurisdiction over Ching in his personal and individual capacity
as a surety of PBM in the collection suit filed by the bank, despite the fact that PBM's obligation to the bank had been
placed under receivership by the SEC.
RULING: YES. Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC could not
assume jurisdiction over his person and properties. The Securities and Exchange Commission was empowered, as
rehabilitation receiver, to take custody and control of the assets and properties of PBM only, for the SEC has
jurisdiction over corporations only not over private individuals, except stockholders in an intra-corporate dispute (Sec.
5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Ching's properties were not
included in the rehabilitation receivership that the SEC constituted to take custody of PBM's assets.
Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for PBM. An
anomalous situation would arise if individual sureties for debtor corporations may escape liability by simply co- filing
with the corporation a petition for suspension of payments in the SEC whose jurisdiction is limited only to
corporations and their corporate assets.
Lim vs. Court of Appeals

323 SCRA 102 [GR No. 124715 January 24, 2000]
proceedings in special proceedings Q-95-23334 entitled, “In re: Intestate Estate Of Pastor Y. Lim Rufina Luy Lim,
represented by George Luy, petitioner.” Private respondents auto truck corporation, alliance marketing corporation,
speed distributing inc, active distributing inc, and action company are corporations formed, organized and existing
under Philippine laws and which owned real properties covered under the Torrens system. On June 11, 1994, Pastor
Y. Lim died intestate. Herein petitioner, as surviving spouse and duly represented by her nephew, George Luy filed
on March 17, 1995, a joint petition for the administration of the estate of Pastor Y. Lim before the Regional Trial
Court of Quezon City. Private respondents corporations whose properties were included in the inventory of the estate
of Pastor Y. Lim, then filed a motion for the lifting of his pendens an motion for exclusion of certain properties from
the estate of the decedent.
ISSUE: Whether or not the doctrine of piercing the veil of corporate entity is applicable to be able to include in the
probate proceedings the company formed by deceased Pastor Y. Lim.
HELD: No. It is settled that a corporation is clothed with personality separate and distinct from that of the persons
composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for
the personal indebtedness of its stockholders or those of the entities connected with it.
Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its
stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by
protective mantle and imbued with by law with a character alien to the persons comprising it.
Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its
stockholders from liabilities that ordinarily, they could subject to, or distinguishes one corporation from a seemingly
separate one, were it not for the existing corporate fiction.
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. Where badges of fraud exist, where public convenience is defeated; where a
wrong is sought to be justified thereby, the corporate fiction or the notion of the legal entity should come to naught.
1.) Control, not merely the majority or complete stock control, but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction
had at the time so separate mind, will or existence of its own; 2.) Such control must have been used by the
defendant to commit fraud on wrong to perpetuate the violation of a statutory or other positive legal duty, on
dishonest and unjust act in contravention of plaintiffs legal right; and 3.) The aforesaid control and breach of duty
must proximately cause the injury or unjust loss complained of. The absence of any of these elements prevent
“piercing the corporate veil.”
corporation is not of itself a sufficient reason for disregarding the fiction of separate personalities.
Moreover, to disregard the separate juridical personality of a corporation, the wrong doing must be clearly and
convincingly established, it cannot be presumed.
Avelina G. Ramoso, et al,

vs. Court of Appeals, General Credit Corp.
G.R. No. 117416. December 8, 2000]
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C. RADA,

MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA
vs. COURT OF APPEALS, BORMAHECO, INC. and PHIL. MACHINERY PARTS MANUF. CO., INC.
G.R. No. 89561. September 13, 1990
FACTS: Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo family is the owners
of a parcel of land located in Lucena City which was given as security for a loan from the Development Banks of the
Philippines. For their failure to pay the amortization, foreclosure of the said property was about to be initiated. This
problem was made known to Santiago Rivera, who proposed to them the conversion into subdivision of the four (4)
parcels of land adjacent to the mortgaged property to raise the necessary fund. The idea was accepted by the
Castillo family and to carry out the project, a Memorandum of Agreement was executed by and between Slobec
Realty and Development, Inc., represented by its President Santiago Rivera and the Castillo family. In this
agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of P70,000.00 immediately after the
execution of the agreement and to pay the additional amount of P400,000.00 after the property has been converted
into a subdivision. Rivera, armed with the agreement, approached Mr. Modesto Cervantes, President of defendant
Bormaheco, and proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8. Subsequently, a Sales
Agreement was executed on December 28, 1970, which was accepted by the latter and executed Sales Agreement.
The balance of the consideration was secured by a surety bond from ICP (Insurance Corporation of the Phil.) which
was in turn secured by a mortagage, the properties of the Castillos.
ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction is applicable.
RULING: NO. Petitioners seek to pierce the veil of corporate entity of Bormaheco, ICP and PM Parts, alleging that
these corporations employed fraud in causing the foreclosure and subsequent sale of the real properties belonging to
petitioners.
In the instant case, petitioners do not seek to impose a claim against the individual members of the three
corporations involved; on the contrary, it is these corporations which desire to enforce an alleged right against
petitioners. Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the
mortgaged properties, this fact alone is not, under the circumstances, sufficient to justify the piercing of the
corporate fiction, since petitioners do not intend to hold the officers and/or members of respondent corporations
personally liable therefore. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale, which
relief may be obtained without having to disregard the aforesaid corporate fiction attaching to respondent
corporations. Secondly, petitioners failed to establish by clear and convincing evidence that private respondents were
purposely formed and operated, and thereafter transacted with petitioners, with the sole intention of defrauding the
latter.
The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, absent sufficient showing that the corporate entity was
purposely used as a shield to defraud creditors and third persons of their rights.
Indophil Textile Mill Workers Union‐PTGWO v. Calica

INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO VS. VOLUNTARY ARBITRATOR TEODORICO P.
CALICA AND INDOPHIL TEXTILE MILLS, INC.
FEBRUARY 3, 1992
The corporation as an entity – exception: doctrine of piercing the veil of corporate fiction – when not applicable
SUMMARY: Union sought to pierce corporate veil of Acrylic, alleging that the creation of Acrylic was Indophil’s
devise to evade the application of its CBA with them. Court held that there was no need to pierce Acrylic’s corporate
veil. The legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable
for a corporate debt or obligation. Union did not seek to impose such claim against Acrylic. The mere fact that
businesses were related, that some of the employees of Indophil were the same persons manning and providing for
auxiliary services to the other company, and that physical plants, officers and facilities are situated in the same
compound – were not sufficient to apply the doctrine. The doctrine of piercing the veil of corporate entity applies
when corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it
is made as a shield to confuse the legitimate issues or where a corporation is the 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.
FACTS: Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization and the exclusive bargaining
agent of all the rank-and-file employees of Indophil Textile Mills, Incorporated. Teodorico P. Calica is the Voluntary
Arbitrator of the National Conciliation and Mediation Board of the Department of Labor and Employment, while
Indophil Textile Mills, Inc. is a corporation engaged in the manufacture, sale and export of yarns of various counts
and kinds and of materials of kindred character.
Indophil Textile Mill Workers Union-PTGWO and Indophil Textile Mills, Inc. executed a collective bargaining
agreement.
Seven (7) months later, Indophil Acrylic Manufacturing Corporation was formed and registered with the Securities
and Exchange Commission (different from above Indophil Textile). Acrylic applied for registration with the Board of
Investments for incentives under the 1987 Omnibus Investments Code. The application was approved on a preferred
non-pioneer status.
Acrylic became operational and hired workers according to its own criteria and standards. The workers of Acrylic
unionized and a duly certified collective bargaining agreement was executed. A year after, the union claimed that the
plant facilities built and set up by Acrylic should be considered as an extension or expansion of the facilities of
Indophil Textile Mills pursuant to Section 1(c), Article I of the CBA. In other words, it is the Union's contention that
Acrylic is part of the Indophil bargaining unit. The union alleged that:
1. Both corporations are engaged in the same line of business.
2. Both have their physical plants, offices and facilities in the same compound.
3. Many of Indophil Textile’s machines were transferred and installed and were being used in Acrylic.
4. Services of a number of units, departments and sections were being provided to Acrylic.
5. Employees of Indophil Textile were the same persons manning and servicing Acrylic.
Indophil Textile opposed, saying it was a juridical entity separate and distinct from Acrylic. It argued through the
SolGen that Acrylic was not an alter ego or an adjunct or business conduit of Indophil Textile Mills because it had a
separate business purpose. Indophil Textile engaged in the business of manufacturing yarns of various counts and
kinds and textiles., while Acrylic manufactured, bough, sold, at wholesale basis, bartered, imported, exported and
otherwise dealt in yarns of various counts and kinds. Acrylic cannot manufacture textiles while Indophil cannot buy or
import yarns.
The existing impasse led the parties to enter into a submission agreement. The parties jointly requested Calica to act
as voluntary arbitrator in the resolution of the pending labor dispute pertaining to the proper interpretation of the
CBA provision. Calica ruled that the proper interpretation and application of Sec. 1, (c), Art. I of the 1987 CBA does
not extend to the employees of Acrylic as an extension or expansion of Indophil Textile Mills, Inc.
ISSUE: Were the operations in Indophil Acrylic Corporation an extension or expansion of Indophil Textile Mills?
HELD: NO, they were separate corporations. The CBA did not apply to Acrylic.
 Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction
that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders
may be disregarded.
o In such cases, the corporation will be considered as a mere association of persons.
o The members or stockholders or the corporation will be considered as the corporation, that is, liability will
attach directly to the officers and stockholders.
o The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a
corporation is the 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
 In the case at bar, the union seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of
the corporation is a devise to evade the application of the CBA between the Union and Indophil Textile. While
the Court does not discount the possibility of the similarities of the businesses of Indophil Textile Mills and
Acrylic, neither is it inclined to apply the doctrine invoked by the union in granting the relief sought.
 The fact that the businesses of Indophil Textile and Acrylic are related, that some of the employees of Indophil
Textile are the same persons manning and providing for auxiliary services to the units of Acrylic, and that the
physical plants, offices and facilities are situated in the same compound, it is the Court’s opinion that these facts
are not sufficient to justify the piercing of the corporate veil of Acrylic.
 Although it was shown that the two corporations’ businesses are related, that some of the employees of the two
corporations are interchanged, and that the physical plants, offices, and facilities, are situated in the same
compound, were not considered sufficient bases to pierce the veil in order to treat the two corporations as one
bargaining unit. The legal corporate entity is disregarded only if it is sought to hold the officers and stockholders
directly liable for a corporate debt or obligation.
THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD. vs.
NATIONAL LABOR RELATIONS COMM., ARBITER CEFERINA J. DIOSANA & MARCELO G. SANTOS
G.R. No. 120077. October 13, 2000
FACTS: MHICL is a corporation duly organized and existing under the laws of Hong Kong. MHC is an “incorporator”
of MHICL, owning 50% of its capital stock. By virtue of a “management agreement” with the Palace Hotel (Wang Fu
Company Limited), MHICL trained the personnel and staff of the Palace Hotel at Beijing, China.
Respondent Santos accepted an employment offer from Palace Hotel. On November 5, 1988, respondent
Santos left for Beijing, China. He started to work at the Palace Hotel. A year later he received a letter stating that his
employment is being terminated due to business reverses brought about by the political upheaval in China. On
February 20, 1990, respondent Santos filed a complaint for illegal dismissal.
ISSUE: Whether or not the doctrine of piercing the corporate veil is available to make MHC liable for damages.
RULING: NO. MHC, as a separate and distinct juridical entity cannot be held liable. True, MHC is an incorporator
of MHICL and owns fifty percent (50%) of its capital stock. However, this is not enough to pierce the veil of
corporate fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud or defend a crime. It is done only when a corporation
is a mere alter ego or business conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals, the court held that “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 a sufficient reason for
disregarding the fiction of separate corporate personalities.”
The tests in determining whether the corporate veil may be pierced are: First, the defendant must have
control or complete domination of the other corporation’s finances, policy and business practices with regard to the
transaction attacked. There must be proof that the other corporation had no separate mind, will or existence with
respect the act complained of. Second, control must be used by the defendant to commit fraud or wrong. Third, the
aforesaid control or breach of duty must be the proximate cause of the injury or loss complained of. The absence of
any of the elements prevents the piercing of the corporate veil.
It is basic that a corporation has a personality separate and distinct from those composing it as well as from
that of any other legal entity to which it may be related. Clear and convincing evidence is needed to pierce the veil of
corporate fiction. In this case, the court found no evidence to show that MHICL and MHC are one and the same
entity.
BIBIANO O. REYNOSO, IV vs. HON. COURT OF APPEALS and GENERAL CREDIT CORP.
G.R. Nos. 116124-25. November 22, 2000]
FACTS: The Commercial Credit Corporation (CCC) decided to organize franchise companies in different parts of the
country, wherein it shall hold thirty percent (30%) equity. Employees of the CCC were designated as resident
managers of the franchise companies. Petitioner Bibiano O. Reynoso, IV was designated as the resident manager of
the franchise company in Quezon City, known as the Commercial Credit Corporation of Quezon City (CCC-QC). CCC-
QC entered into an exclusive management contract with CCC whereby the latter was granted the management and
full control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its
receivables to CCC. Subsequently, this discounting arrangement was discontinued pursuant to the so-called DOSRI
Rule, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with
related interests therein. On account of the new restrictions imposed by the Central Bank policy by virtue of the
DOSRI Rule, CCC decided to form CCC Equity Corporation, (CCC-Equity), a wholly-owned subsidiary, to which CCC
transferred its thirty (30%) percent equity in CCC-QC, together with two seats in the latter’s Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became
employees of CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries
and allowances from CCC-Equity. The business activities of CCC-QC pertain to the acceptance of funds from
depositors who are issued interest-bearing promissory notes. The amounts deposited are then loaned out to various
borrowers. Petitioner, in order to boost the business activities of CCC-QC, deposited his personal funds in the
company. In return, CCC-QC issued to him its interest bearing promissory notes. CCC-QC to file a complaint for sum
of money against Reynoso. The cases were dismissed and Reynoso was exonerated and at the same time CCC-QC
was ordered to pay Reynoso’s counterclaims which amounted to millions. A writ of execution was issued against
CCC-QC. The writ was opposed by CCC-QC as it now claims that it has already closed and that its assets were taken
over by the mother company, CCC. Meanwhile, Commercial Credit Corporation (CCC) changed its name to
General Credit Corporation (GCC). Reynoso then filed a petition for an alias writ of execution. GCC opposed the
writ as it argued that it is a separate and distinct corporation from CCC and CCC-QC, in short, it raises the defense of
corporate fiction.
ISSUE: Whether or not General Credit Corporation (GCC) a corporation separate and distinct from CCC-QC can raise
the defense of corporate fiction
HELD: No. Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to
use its supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve an
inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court
decision. The corporate fiction has to be disregarded when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al., we held: When the fiction is urged as a means of
perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to
allow for its consideration merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases
where it was used, among others, to avoid a judgment credit; to avoid inclusion of corporate assets as part of the
estate of a decedent; to avoid liability arising from debt; when made use of as a shield to perpetrate fraud and/or
confuse legitimate issues; or to promote unfair objectives or otherwise to shield them.
In the appealed judgment, the Court of Appeals sustained respondent’s arguments of separateness and its character
as a different corporation which is a non-party or stranger to this case. The defense of separateness will be
disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the
extent that it becomes an instrument or agent of its parent. But even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime. We stated in Tomas Lao Construction v. National
Labor Relations Commission, that the legal fiction of a corporation being a judicial entity with a distinct and separate
personality was envisaged for convenience and to serve justice. Therefore, it should not be used as a subterfuge to
commit injustice and circumvent the law.
Philippine National Bank vs.

Ritratto Group, Inc., Riatto International, Inc. & Dadasan General Merchandise
G.R. No. 142616 July 31, 2001
FACTS: PNB-IFL, a subsidiary company of PNB extended credit to Ritratto and secured by the real estate
mortgages on four parcels of land. Since there was default, PNB-IFL thru PNB, foreclosed the property and were
subject to public auction. Ritratto Group filed a complaint for injunction. PNB filed a motion to dismiss on the grounds
of failure to state a cause of action and the absence of any privity between respondents and petitioner.
ISSUE: Is PNB privy to the loan contracts entered into by respondent & PNB-IFL being that PNB-IFL is owned by
PNB?
HELD: No. The contract questioned is one entered into between Ritratto and PNB-IFL. PNB was admittedly an agent
of the latter who acted as an agent with limited authority and specific duties under a special power of attorney
incorporated in the real estate mortgage.
The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify
their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence may be
respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their
respective business. The courts may, in the exercise of judicial discretion, step in to prevent the abuses of separate
entity privilege and pierce the veil of corporate entity.
CLASSIFICATION OF CORPORATIONS
National Coal Company vs. Collector of Internal Revenue

46 Phil 583 [GR No. L-22619 December 2, 1924]
FACTS: The plaintiff corporation was created on the 10th day of March 1917, by Act No. 2705, for the purpose of
developing the coal industry in the Philippine Islands , in harmony with the general plan of the government to
encourage the development of natural resources of the country, and to provide facilities therefore. By the said act,
the company was granted the general powers of a corporation and such other powers as may be necessary to enable
it to prosecute the business of developing coal deposits in the Philippine Islands of mining, extracting, transporting,
and selling the coal contained in said deposits. By the same law, the government of the Philippine Islands is made
the majority stockholder, evidently in order to ensure proper government supervision and control and thus to place
the government in a position to render all possible encouragement, assistance, and help in the prosecution and
furtherance of the company’s business. On May 14, 1917, two months after the passage of Act no. 2705, creating
the national coal company, the Philippine legislature passed Act 2719, “to provide for the leasing and development of
coal lands in the Philippine islands.” On October 18, 1917, upon petition of the national coal company, the governor-
general, by proclamation no. 39, withdrew from settlement, entry, sale or other deposition, all coal-bearing public
lands within the province of Zamboanga, Department of Mindanao and Sulu, and the island of Polillo, Province of
Tayabas. Almost immediately after the issuance of said proclamation the national coal company took possession of
the coal lands within the said reservation with an area of about 400 hectares, without any further formality, contract
of lease. Of the 30,000 shares of stock issued by the company, the government of the Philippine islands is the owner
of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.
ISSUE: Whether or not plaintiff is a private corporation.
HELD: Yes. The plaintiff is a private corporation. The mere fact that the government happens to the majority
stockholder does not make it a public corporation. Act 2705, as amended by Act 2822, makes it subject to all the
provisions of the corporation law, in so far as they are not inconsistent with said act. No provisions of Act 2705 are
found to be inconsistent with the provisions of the corporation law. As a private corporation, it has no greater rights,
powers or privileges than any other corporation which might be organized for the same purpose under the
corporation law, and certainly it was not the intention of the legislature to give it a preference or right or privilege
over other legitimate private corporations in the mining of coal. While it is true that said proclamation no. 39
withdrew from settlement entry, sale or other disposition of coal-bearing public lands within the province of
Zamboanga, and the islands of Polillo, it made no provision for the occupation and operation by the plaintiff, to the
exclusion of other persons or corporations who might under proper permission, enter upon to operate the coal
mines.
BOY SCOUTS OF THE PHILIPPINES vs.

NATIONAL LABOR RELATIONS COMMISSION, FORTUNATO ESGUERRA, ROBERTO MALABORBOR,
ESTANISLAO MISA, VICENTE EVANGELISTA, and MARCELINO GARCIA
FACTS: Private respondents Fortunato C. Esquerra, Roberto O. Malaborbor, Estanislao M. Misa, Vicente N.
Evangelista and Marcelino P. Garcia, had all been rank-and-file employees of petitioner Boy Scouts of the Philippines
("BSP"). At the time of termination of their services, private respondents were stationed at the BSP Camp in Makiling,
Los Baños, Laguna.
The Sec Gen of BSP issued special orders addressed separately to the 5 respondents informing them to be
transferred from the BSP Camp in Makiling to the BSP Land Grant in Asuncion, Davao del Norte. Private respondents
opposed and appealed the matter to the BSP National Pres.
Petitioner BSP conducted a pre-transfer briefing at its National Headquarters in Manila. Private respondents were
there assured that their transfer to Davao del Norte would not involve any diminution in salary, and that each of
them would receive a relocation allowance equivalent to one month's basic pay. However, it failed to persuade
private respondents to abandon their opposition.
A complaint for illegal transfer was filed by Private Respondents with the then Ministry of Labor and Employment,
Sub-Regional Arbitration Branch IV, San Pablo City, Laguna to enjoin implementation of Special Orders, alleging that
said orders were "indubitable and irrefutable action[s] prejudicial not only to [them] but to [their] families and
[would] seriously affect [their] economic stability and solvency considering the present cost of living."
The BSP National President said that their refusal to comply with the Special Orders was not sufficiently justified and
constituted rank disobedience. Memoranda subsequently issued by the BSP Secretary-General stressed that such
refusal as well as the explanations proffered therefor, were unacceptable and could altogether result in termination
of employment with petitioner BSP. Still, private respondents continued to disobey the disputed transfer orders.
A five-day suspension was imposed on the 5 private respondents. Subsequently, by Special Order issued by the BSP
Secretary-General, private respondents' services were ordered terminated.
The private respondents then amended their complaint to include charges of illegal dismissal and unfair labor
practice against petitioner BSP. The Labor Arbiter ordered the dismissal of private respondents' complaint for lack of
merit. However, the ruling of the Labor Arbiter was reversed by public respondent, NLRC.
Solicitor General on behalf of public respondent NLRC; private respondents stated in their Appeal
Memorandum 11 with the NLRC that petitioner BSP is "by mandate of law a Public Corporation"
ISSUE: Whether or not the BSP is embraced within the Civil Service as that term is defined in Article IX (B) (2) (1)
of the 1987 Constitution (The Civil Service embraces all branches, subdivisions, instrumentality mentalities and
agencies of the Government, including government-owned or controlled corporations with original charters.) will
determine whether or not private respondent NLRC had jurisdiction to render the Decision and Resolution which are
here sought to be nullified.
HELD: While the BSP may be seen to be a mixed type of entity, combining aspects of both public and private
entities, we believe that considering the character of its purposes and its functions, it thus appears that the BSP may
be regarded as both a "government controlled corporation with an original charter" and as an
"instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution. It follows that
the employees of petitioner BSP are embraced within the Civil Service and are accordingly governed by the Civil
Service Law and Regulations. The Administrative Code of 1987 designates the BSP as one of the attached agencies
of the Department of Education, Culture and Sports ("DECS"). 20 An "agency of the Government" is defined as
referring to any of the various units of the Government including a department, bureau, office, instrumentality,
government-owned or-controlled corporation, or local government or distinct unit therein.
We hold that both the Labor Arbiter and public respondent NLRC had no jurisdiction over the complaint filed by
private respondents in NLRC Case No. 1637-84; neither labor agency had before it any matter which could validly
have been passed upon by it in the exercise of original or appellate jurisdiction. The appealed Decision and
Resolution in this case, having been rendered without jurisdiction, vested no rights and imposed no liabilities upon
any of the parties here involved. That neither party had expressly raised the issue of jurisdiction in the pleadings
poses no obstacle to this ruling of the Court, which may motu proprio take cognizance of the issue of existence or
absence of jurisdiction and pass upon the same. Both decisions are hereby set aside.
BOY SCOUTS OF THE PHILIPPINES vs.

COMMISSION ON AUDIT
G.R. No. 177131 June 7, 2011
FACTS: The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of
patriotism, courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the
Constitution and discussed by the Court in Boy Scouts of the Philippines v. National Labor Relations
Commission. The COA contends that any attempt to classify the BSP as a private corporation would be
incomprehensible since no less than the law which created it had designated it as a public corporation and its
statutory mandate embraces performance of sovereign functions. The COA claims that the only reason why the BSP
employees fell within the scope of the Civil Service Commission even before the 1987 Constitution was the fact that it
was a government-owned or controlled corporation; that as an attached agency of the Department of Education,
Culture and Sports (DECS), the BSP is an agency of the government; and that the BSP is a chartered institution
under Section 1(12) of the Revised Administrative Code of 1987, embraced under the term government
instrumentality. The COA concludes that being a government agency, the funds and property owned or held by the
BSP are subject to the audit authority of the COA pursuant to Section 2(1), Article IX (D) of the 1987 Constitution.
BSP claims that it has a unique characteristic which "neither classifies it as a purely public nor a purely
private corporation"; that it is not a quasi-public corporation; and that it may belong to a different class altogether.
ISSUE: Whether or not the BSP is public corporation.
RULING: YES. BSP is a public corporation and its funds are subject to the COA’s audit jurisdiction. It is a public
corporation or a government agency or instrumentality with juridical personality, which does not fall within the
constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not all
corporations, which are not government owned or controlled, are ipso facto to be considered private corporations as
there exist another distinct class of corporations or chartered institutions which are otherwise known as "public
corporations." These corporations are treated by law as agencies or instrumentalities of the government which are
not subject to the tests of ownership or control and economic viability but to different criteria relating to their public
purposes/interests or constitutional policies and objectives and their administrative relationship to the government or
any of its Departments or Offices.
Note that the Administrative Code of 1987 designates the BSP as one of the attached agencies of the
Department of Education, Culture and Sports ("DECS"). An "agency of the Government" is defined as referring to any
of the various units of the Government including a department, bureau, office, and instrumentality, government-
owned or -controlled corporation, or local government or distinct unit therein. BSP still remains an instrumentality of
the national government. It is a public corporation created by law for a public purpose, attached to the DECS
pursuant to its Charter and the Administrative Code of 1987. It is not a private corporation which is required to be
owned or controlled by the government and be economically viable to justify its existence under a special law.
BLISS DEVELOPMENT CORP. EMPLOYEES UNION SENTRO NG DEMOKRATIKONG MANGGAGAWA

(BDCEU-SDM) vs. HON. PURA FERRER CALLEJA
G.R. No. 80887 September 30, 1994
FACTS: Petitoner, BDCEU-SDM is a duly registered labor union. It filed with the Department of Labor, National
Capital Region, a petition for certification election of private respondent Bliss Development Corporation (BDC).
Med-Arbiter Fernando dismissed the petition for lack of jurisdiction stating that the majority of BDC’s stocks is owned
by the Human Settlement Development Corporation (HSDC), a wholly-owned government corporation. Therefore,
BDC is subject to Civil Service law, rules and regulations. Its employees therefore, are prohibited to join or form labor
organization.
Petitioner then filed an appeal with Bureau of Labor Relations.
In the meantime, President Corazon Aquino issued Executive Order No. 180, extending to government employees the
right to organize and bargain collectively.
Respondent Director Calleja (BLR) issued an order dismissing the appeal ruling that Bliss Development Corporation
which is under the then Ministry of Human Settlement, is a government Corporation where the workers are
prohibited from organizing and joining labor unions.
However, with the issuance of EO 180 (government employees are now given the right to bargain), the BLR enjoins
the petitioner to register in accordance with the provisions in said executive order.
ISSUE: W/N BDC is a government-owned controlled corporation subject to Civil Service Laws, rules and regulations.
Corollary to this issue is the question of W/N petitioner is covered by Executive Order No. 180 and must register as a
precondition for filing a petition for certification election.
RULING: In determining whether a corporation created under the Corporation Code is government owned or
controlled or not, the rule applied is the ownership test whereby a corporation will be deemed owned by the
government if the majority of its voting stocks are owned by the government.
It appearing that Human Settlement Development Corporation (HSDC), which is a wholly-owned government
corporation, owns a majority of the stocks of Bliss Development Corporation (BDC), our conclusion is that BDC is a
government-owned corporation subject to the coverage of the Civil Service law, rules and regulations.
Section 1 of Executive Order No. 180 expressly limits its application to only government-owned or controlled
corporations with original charters . Hence, public respondent's order dated August 7, 1987 requiring petitioner to
register in accordance with Section 7 of executive Order No. 180 is without legal basis.
A government-owned corporation could create several subsidiary corporations. Conceivably, all government-owned or
controlled corporations could be created, no longer by special charters, but through incorporations under the general
law.
The Civil Service embraces government-owned or controlled corporations with original charter; and, therefore, by
clear implication, the Civil Service does not include government-owned or controlled corporations which are
organized as subsidiaries of government-owned or controlled corporations under the general corporation law.
A corporation is created by operation of law. It acquires a judicial personality either by special law or a general law.
The general law under which a private corporation may be formed or organized is the Corporation Code, the
requirements of which must be complied with by those wishing to incorporate. Only upon such compliance will the
corporation come into being and acquire a juridical personality, thus giving rise to its right to exist and act as a legal
entity. On the other hand, a government corporation is normally created by special law, referred to often as a
charter.
BDC is a government-owned corporation created under the Corporation Law. It is without a charter hence, Executive
Order No. 180 does not apply to it.
Consequently, public respondent committed grave abuse of discretion in ordering petition to register under Section 7,
of Executive Order No. 180 as a precondition for filing a petition for certification election.
BENGUET ELECTRIC COOPERATIVE vs. NLRC

GR No. 89070, May 18, 1992
Roman Catholic Apostolic Administrator of Davao, Inc. vs.

The Land Registration Commission and the Register of Deeds of Davao City,
G.R. No. L-8451, December 20,1957
FACTS: On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of
sale of a parcel of land located in the same city covered by Transfer Certificate No. 2263, in favor of the Roman
Catholic Apostolic Administrator of Davao Inc.,(RCADI) is corporation sole organized and existing in accordance with
Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. Registry of Deeds Davao (RD)
required RCADI to submit affidavit declaring that 60% of its members were Filipino Citizens. As the RD entertained
some doubts as to the registerability of the deed of sale, the matter was referred to the Land Registration
Commissioner (LRC) en consulta for resolution. LRC hold that pursuant to provisions of sections 1 and 5 of Article XII
of the Philippine Constitution, RCADI is not qualified to acquire land in the Philippines in the absence of proof that at
leat 60% of the capital, properties or assets of the RCADI is actually owned or controlled by Filipino citizens. LRC also
denied the registration of the Deed of Sale in the absence of proof of compliance with such requisite. RCADI’s Motion
for Reconsideration was denied. Aggrieved, the latter filed a petition for mandamus.
ISSUE: Whether or not the Universal Roman Catholic Apostolic Church in the Philippines, or better still, the
corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire private
agricultural lands in the Philippines pursuant to the provisions of Article XIII of the Constitution.
RULING: RCADI is qualified. While it is true and We have to concede that in the profession of their faith, the
Roman Pontiff is the supreme head; that in the religious matters, in the exercise of their belief, the Catholic
congregation of the faithful throughout the world seeks the guidance and direction of their Spiritual Father in the
Vatican, yet it cannot be said that there is a merger of personalities resultant therein. Neither can it be said that the
political and civil rights of the faithful, inherent or acquired under the laws of their country, are affected by that
relationship with the Pope.
The fact that the Roman Catholic Church in almost every country springs from that society that saw its beginning in
Europe and the fact that the clergy of this faith derive their authorities and receive orders from the Holy See do not
give or bestow the citizenship of the Pope upon these branches. Citizenship is a political right which cannot be
acquired by a sort of “radiation”. We have to realize that although there is a fraternity among all the catholic
countries and the dioceses therein all over the globe, the universality that the word “catholic” implies, merely
characterize their faith, a uniformity in the practice and the interpretation of their dogma and in the exercise of their
belief, but certainly they are separate and independent from one another in jurisdiction, governed by different laws
under which they are incorporated, and entirely independent on the others in the management and ownership of
their temporalities. To allow theory that the Roman Catholic Churches all over the world follow the citizenship of their
Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of a country who embrace
the Catholic faith and become members of that religious society, likewise citizens of the Vatican or of Italy. And this
is more so if We consider that the Pope himself may be an Italian or national of any other country of the world. The
same thing be said with regard to the nationality or citizenship of the corporation sole created under the laws of the
Philippines, which is not altered by the change of citizenship of the incumbent bishops or head of said corporation
sole.
We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every Roman
Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in accordance with the
laws of the country where it is located, is considered an entity or person with all the rights and privileges granted to
such artificial being under the laws of that country, separate and distinct from the personality of the Roman Pontiff or
the Holy See, without prejudice to its religious relations with the latter which are governed by the Canon Law or their
rules and regulations.
It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less
than 5 incorporators, is composed of only one persons, usually the head or bishop of the diocese, a unit which is not
subject to expansion for the purpose of determining any percentage whatsoever; (2) the corporation sole is only
the administrator and not the owner of the temporalities located in the territory comprised by said corporation sole;
(3) such temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the
corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent Ordinary has
nothing to do with the operation, management or administration of the corporation sole, nor effects the citizenship of
the faithful connected with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of the
Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers of the
same did not have in mind or overlooked this particular form of corporation. If this were so, as the facts and
circumstances already indicated tend to prove it to be so, then the inescapable conclusion would be that this
requirement of at least 60 per cent of Filipino capital was never intended to apply to corporations sole, and the
existence or not a vested right becomes unquestionably immaterial.
DIRECTOR OF LANDS vs.

INTERMEDIATE APPELLATE COURT and ACME PLYWOOD & VENEER Co. INC., ETC.
146 SCRA 509 [G.R. No. 73002] December 29, 1986
Lessons Applicable: Sec. 3 Art. XII, 1987 Constitution (Land Titles and Deeds)
FACTS: Acme Plywood & Veneer Co., Inc., a corp. represented by Mr. Rodolfo Nazario, acquired from Mariano and
Acer Infiel, members of the Dumagat tribe 5 parcels of land possession of the Infiels over the landdates back before
the Philippines was discovered by Magellan.
The land sought to be registered is a private land pursuant to RA 3872 granting absolute ownership to members of
the non-Christian Tribes on land occupied by them or their ancestral lands, whether with the alienable or disposable
public land or within the public domain. The Acme Plywood & Veneer Co. Inc., has introduced more than P45M
worth of improvements. Ownership and possession of the land sought to be registered was duly recognized by the
government when the Municipal Officials of Maconacon, Isabela donated part of the land as the townsite of
Maconacon Isabela. The IAC affirmed and the CFI in favor of.
ISSUES:
1. W/N the land is already a private land - YES
2. W/N the constitutional prohibition against their acquisition by private corporations or associations applies-
NO
HELD: IAC affirmed Acme Plywood & Veneer Co., Inc

1. YES. It was already acquired, by operation of law not only a right to a grant, but a grant of the Government, for
it is not necessary that a certificate of title should be issued in order that said grant may be sanctioned by the courts,
an application therefore is sufficient. It had already ceased to be of the public domain and had become private
property, at least by presumption.
The application for confirmation is mere formality, the lack of which does not affect the legal sufficiency of the title
as would be evidenced by the patent and the Torrens title to be issued upon the strength of said patent.
The effect of the proof, wherever made, was not to confer title, but simply to establish it, as already conferred by the
decree, if not by earlier law;
2. NO. If it is accepted-as it must be-that the land was already private land to which the Infiels had a legally
sufficient and transferable title on October 29, 1962 when Acme acquired it from said owners, it must also be
conceded that Acme had a perfect right to make such acquisition. The only limitation then extant was that
corporations could not acquire, hold or lease public agricultural lands in excess of 1,024 hectares
CORPORATE CONTRACT LAW
BAYLA, et al., vs.

SILANG TRAFFIC CO., INC.
G.R. Nos. L-48195 and 48196 May 1, 1942
FACTS: Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite against the
respondent Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover certain sums of money which they
had paid severally to the corporation on account of shares of stock they individually agreed to take and pay for under
certain specified terms and conditions. The agreements signed by the other petitioners were of the same date (March
30, 1935) and in identical terms as the foregoing except as to the number of shares and the corresponding purchase
price. The petitioners agreed to purchase a total of 46 shares and, up to April 30, 1937, had paid the corresponding
amount on account thereof.Petitioners' action for the recovery of the sums above mentioned is based on a resolution
by the board of directors of the respondent corporation on August 1, 1937.
The respondent corporation set up the following defenses: (1) That the above-quoted resolution is not
applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their
subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by them
had already been forfeited"; and (2) that said resolution of August 1, 1937, was revoked and cancelled by a
subsequent resolution of the board of directors of the defendant corporation dated August 22, 1937.
ISSUE: Whether or not the agreement was a contract of subscription to the capital stock of the respondent
corporation.
RULING: NO. Whether a particular contract is a subscription or a sale of stock is a matter of construction and
depends upon its terms and the intention of the parties. In the Unson case just cited, this Court held that a
subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract
of purchase and sale.
It seems clear from the terms of the contracts in question that they are contracts of sale and not of
subscription. The lower courts erred in overlooking the distinction between subscription and purchase "A
subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a
corporation, while a purchase is an independent agreement between the individual and the corporation to buy shares
of stock from it at stipulated price." In some particulars the rules governing subscriptions and sales of shares are
different. For instance, the provisions of our Corporation Law regarding calls for unpaid subscription and assessment
of stock do not apply to a purchase of stock. Likewise the rule that corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of
purchase of shares.
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO

G.R. No. L-48627. June 30, 1987
FACTS: The petitioners claim that this order has no support in fact and law because they had no contract
whatsoever with the private respondent regarding the above-mentioned services. Their position is that as mere
subsequent investors in the corporation that was later created, they should not be held solidarily liable with the
Filipinas Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co-defendants in the lower
court, ** who were the ones who requested the said services from the private respondent.
ISSUE: Whether or not the petitioners should be held liable.
RULING: NO. The petitioners were not involved in the initial stages of the organization of the airline. They were
merely among the financiers whose interest was to be invited and who were in fact persuaded, on the strength of
the project study, to invest in the proposed airline.
There was no showing that the Airline was a fictitious corporation and did not have a separate juridical
personality to justify making the petitioners, as principal stockholders thereof, responsible for its obligations. As a
bona fide corporation, the Airline should alone be liable for its corporate acts as duly authorized by its officers and
directors. Granting that the petitioners benefited from the services rendered, such is no justification to hold them
personally liable therefor. Otherwise, all the other stockholders of the corporation, including those who came in late,
and regardless of the amount of their shareholdings, would be equally and personally liable also with the petitioner
for the claims of the private respondent.
Petitioners cannot be held personally liable for the compensation claimed by the private respondent for the
services performed by him in the organization of the corporation. To repeat, the petitioners did not contract such
services. It was only the results of such services that Barretto and Garcia presented to them and which persuaded
them to invest in the proposed airline. The most that can be said is that they benefited from such services, but that
surely is no justification to hold them personally liable therefor.
A promoter could not have acted as agent for a corporation that had no legal existence. A corporation, until
organized, has no life therefore no faculties. The corporation had no juridical personality to enter into a contract.
C. ARNOLD HALL and BRADLEY P. HALL ,vs.

EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA BROWN,
HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber & Commercial Co., Inc.,
G.R. No. L-2598. June 29, 1950
FACTS: In 1947, the petitioners and the respondents signed and acknowledged in Leyte, the article of incorporation
of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on
as general contractors, operators and managers, etc. Attached to the article was an affidavit of the treasurer stating
that 23,428 shares of stock had been subscribed and fully paid with certain properties transferred to the corporation
described in a list appended thereto.
Immediately after the execution of said articles of incorporation, the corporation proceeded to do business
with the adoption of by-laws and the election of its officers.
In 1947, the said articles of incorporation were filed in the office of the SEC for the issuance of the
corresponding certificate of incorporation. Thereafter, pending action on the articles of incorporation by the SEC, the
respondents filed before the Court of First Instance of Leyte a civil case, alleging among other things that the Far
Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to have it dissolved because
of bitter dissension among the members, mismanagement and fraud by the managers and heavy financial losses.
The petitioners alleged that the court had no jurisdiction over the civil case decree the dissolution of the company,
because it being a de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding
instituted in accordance with section 19 of the Corporation Law.
ISSUES: Whether or not the Far Eastern Lumber and Commercial Co., Inc. is a de facto corporation.
RULING: NO. Inasmuch as the Far Eastern Lumber and Commercial Co., is a de facto corporation, section 19 of
the Corporation Law applies, and therefore the court had not jurisdiction to take cognizance of said civil case.
There are least two reasons why this section does not govern the situation. (1) First, not having obtained
the certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders — may not
probably claim "in good faith" to be a corporation.
Under our statue it is to be noted that it is the issuance of a certificate of incorporation by the Director of
the Bureau of Commerce and Industry (now SEC) which calls a corporation into being. The immunity if collateral
attack is granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is
compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could
not be made "in good faith."
(2) Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of
the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may
be terminated in a private suit for its dissolution between stockholders, without the intervention of the state.
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES vs.

HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION
G.R. No. 119002. October 19, 2000
FACTS: Petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter
to the Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the
former offered its services as a travel agency to the latter, which was accepted. Petitioner secured the airline tickets
for the trips of the athletes and officials of the Federation which amounted to P449,654.83. For failure to pay the
unpaid amount after demands, the petitioner filed a collection case against Henri Kahn in his personal capacity and
as President of the Federation and impleaded the Federation as an alternative defendant. Kahn denied liability and
averred that it merely acted as the agent of the Federation and did not guaranty the payment of the purchased
tickets. The trial court ruled against Kahn.
ISSUE: Whether or not Kahn is personally liable.
RULING: YES. Kahn avers that he should not be made personally liable because it should be the Federation, as a
corporation having juridical existence, which must be held liable. He merely acted as an agent of the latter.
The Court was not persuaded. It ruled that under R.A. 3135, and the Department of Youth and Sports
Development under P.D. 604, for a Federation to acquire juridical existence it is a requirement that the federation
must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation. And Kahn failed to
prove that such requirement was complied with by the Federation. It is a settled principal in corporation law that
any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and becomes personally liable for contract entered into or for other acts performed as such agent. As
president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence
of the Federation.
REYNALDO M. LOZANO vs. HON. ELIEZER R. DE LOS SANTOS

274 SCRA 452 [G.R. No. 125221 June 19, 1997]
FACTS: In August 1995, upon the request of the Sangguniang Bayan of Mabalacat, Pampanga, petitioner Reynaldo
M. Lozano and private respondent Antonio Anda agreed to consolidate their respective associations and form the
Unified Mabalacat-Angeles Jeepney Operators' and Drivers Association, Inc. Elections were held on October 29, 1995
and both petitioner and private respondent ran for president. When petitioner won, private respondent protested and
alleging fraud, refused to recognize the results of the election. Private respondent also refused to abide by their
agreement and continued collecting the dues from the members of his association despite several demands to desist.
Petitioner was thus constrained to file the complaint before Municipal Circuit Trial Court, Mabalacat and Magalang,
Pampanga to restrain private respondent from collecting the dues and to order him to pay damages. Private
respondent moved to dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was lodged with the
SEC. The MCTC denied the motion. It likewise denied the motion for reconsideration. Private respondent filed a
petition for certiorari before the RTC, Branch 58, Angeles City.
The trial court found the dispute to be intracorporate, hence, subject to the jurisdiction of the SEC, and ordered the
MCTC to dismiss the Civil Case accordingly. It denied reconsideration, hence this petition. Private respondent raised
the defense of corporation by estoppel thus within SEC jurisdiction.
ISSUE: Whether or not there exists an intracorporate or partnership relation between petitioner and private
respondent.
RULING: The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law.
This jurisdiction is determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2)
the nature of the question that is the subject of their controversy. There is no intracorporate nor partnership relation
between petitioner and private respondent. The controversy between them arose out of their plan to consolidate
their respective jeepney drivers' and operators' associations into a single common association. This unified
association was, however, still a proposal. It had not been approved by the SEC, neither had its officers and
members submitted their articles of consolidation is accordance with Sections 78 and 79 of the Corporation Code.
Consolidation becomes effective not upon mere agreement of the members but only upon issuance of the certificate
of consolidation by the SEC. When the SEC, upon processing and examining the articles of consolidation, is satisfied
that the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing
laws, it issues a certificate of consolidation which makes the reorganization official. The new consolidated
corporation comes into existence and the constituent corporations dissolve and cease to exist.
The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC,
but these associations are two separate entities. The dispute between petitioner and private respondent is not within
the KAMAJDA nor the SAMAJODA. It is between members of separate and distinct associations. Petitioner and private
respondent have no intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has
no jurisdiction over the complaint.
The doctrine of corporation by estoppel advanced by private respondent cannot override jurisdictional requirements.
Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot be acquired through or
waived, enlarged or diminished by, any act or omission of the parties; neither can it be conferred by the
acquiescence of the court.
Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It
applies when persons assume to form a corporation and exercise corporate functions and enter into business
relations with third person. Where there is no third person involved and the conflict arises only among those
assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by
estoppel.
ARTICLES OF INCORPORATION

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CORPORATION LAW CASES 2018

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG

ANG PUE & COMPANY, ET AL.

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC.,

ISSUE: Whether or not the deed of assignment executed can be revoked.

TAN BOON BEE & CO., INC.

PHILIPPINE STOCK EXCHANGE, INC.

ISSUE: Whether or not the denial of PALI’s application is proper.

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.

PIONEER INSURANCE & SURETY CORPORATION

NATURE AND ATTRIBUTES OF A CORPORATION

SMITH, BELL & COMPANY (LTD.), v. JOAQUIN NATIVIDAD 40 PHIL 136

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO)

ISSUE: Whether or not PCGG may vote in stockholders’ meetings.

PHILIPPINE NATIONAL BANK vs.

ISSUE: What are the liabilities of each party?

G.R. No. 128604

JOSE O. SIA vs. PEOPLE OF THE PHILIPPINES

ISSUE: Whether petitioner could be held liable for estafa.

MAMBULAO LUMBER COMPANY

ISSUE: Whether or not a corporation can be awarded moral damages.

Solid Homes, Inc. v. Court of Appeals, 275 SCRA 267

Asset Privatization Trust vs Court of Appeals

Issue: Whether or not the award granted to Cabarrus was proper.

ABS-CBN BROADCASTING CORPORATION vs.

Roman Catholic Apostolic Administrator of Davao, Inc.

PEOPLE v. WILLIAM H. QUASHA

FRANCISCO S. TATAD, et al.

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY vs.

NATIONAL TELECOMMUNICATIONS COMMISSION vs.

FILIPINAS COMPANIA DE SEGUROS

ISSUE: Whether or not the respondent corporation is a corporation of public enemy.

SEPARATE JURIDICAL PERSONALITY AND DOCTRINE OF

Lim vs. Court of Appeals

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC. vs.

Development Bank of the Philippines vs National Labor Relations Commission

ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION

REMO, JR. V. IAC

ASIONICS PHILIPPINES, INC. and/or FRANK YIH vs.

RUFINA LUY LIM vs.

RUFINA LUY LIM vs.

ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION

SOL LAGUIO, et al. vs.

ARB CONSTRUCTION and MARK MOLINA vs.

Good Earth Emporium Inc. vs. Court of Appeals

VIRGINIA GOCHAN et al. vs.

RICHARD YOUNG, et al.

PIERCING THE VEIL OF CORPORATION FICTION

ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION

TRADER’S ROYAL BANK vs.

Lim vs. Court of Appeals

Avelina G. Ramoso, et al,

BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C. RADA,

Indophil Textile Mill Workers Union‐PTGWO v. Calica

Philippine National Bank vs.

National Coal Company vs. Collector of Internal Revenue

ISSUE: Whether or not plaintiff is a private corporation.