1. PHILIPPINE STOCK EXCHANGE, INC.

, petitioner,
vs.
THE HONOURABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION
and PUERTO AZUL LAND, INC., respondents.

G.R. No. 125469 October 27, 1997

Facts (long version):

● The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, wanted to offer its
shares to the public to raise revenues for the alleged development of its properties and
payment for their bank loans.
● SEC issued the permit for PALI to sell its shares, and Philippine Stock Exchange, Inc. (PSE)
was chosen to facilitate the trading of the shares.
● However, before the trade would be approved by the Board of Directors of PSE, a letter from
the heirs of Ferdinand Marcos Sr., indicated that they were the legal and beneficiaries of
some properties which were part of the Puerto Azul Beach Hotel and Resort Complex, in
addition, Ternate Development Corporation who is one of the stockholders of PALI is held in
trust by Rebecco Panlilio on behalf of Marcos Sr., for his estate.
● The aforementioned parties requested to defer PALI’s application. PALI answered that the
said properties were not claimed to be owned by PALI but was actually owned by Fantasia
Filipina Resort, Inc. and the Puerto Azul Country Club.
● PALI also added that Ternate Development Corporation owns only 1.20% of PALI. PSE
wrote to the Chairman Magtanggol Gunigundo of the Presidential Commission on Good
Government (PCGG) to comment on the claims of PALI and the Marcoses.
● PSE was then informed that there was TRO towards the Marcoses.
● The Board of Governors of the PSE have then decided to decline PALI’s application due to
serious claims related to the ownership of its assets.
● After PSE’s decision, PALI wrote to the acting chairman of SEC and sought its feedback
regarding the listing of its shares with PSE. They then requested the SEC to exercise its
supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-
A, review the PSE's action on PALI's listing application and institute such measures as are
just and proper under the circumstances.
● SEC gave its order and reversed PSEs decision, setting aside the decision of the Board of
Governors of PSE and ordered them to list the PALI shares in the Exchange. PSE was not
satisfied and filed a motion for reconsideration, though it was denied, hence the petition to
the CA.
● The CA dismissed PSE’s petition. Ruling that the SEC had the authority and jurisdiction to
ensure the fair administration of the exchange. Both as a corporation and as a stock
exchange, the petitioner is subject to public respondent's jurisdiction, regulation and control.

Facts (Short):
The Puerto Azul Land, Inc. (PALI), a real estate corporation in the Philippines, planned to offer its
shares to the public to raise funds for property development and loan payments. The Securities and
Exchange Commission (SEC) approved PALI's share sale, and the Philippine Stock Exchange, Inc.
(PSE) was chosen for share trading. However, heirs of Ferdinand Marcos Sr. claimed ownership of
some PALI properties, and Ternate Development Corporation, a PALI shareholder, was linked to
Marcos Sr.'s estate. These parties requested PALI's application be deferred. PALI argued that the
properties belonged to other entities, and Ternate Development Corp. owned only 1.20% of PALI.
PSE contacted the Presidential Commission on Good Government (PCGG) and learned of a
Temporary Restraining Order (TRO) against the Marcoses. The PSE's Board of Governors rejected
PALI's application due to ownership disputes. PALI appealed to the SEC, invoking its regulatory
authority over stock exchanges, and requested PALI's shares be listed. The SEC overturned PSE's
decision, ordering PALI's listing. PSE sought reconsideration, which was denied, leading to a petition
to the Court of Appeals (CA).

The CA upheld the SEC's jurisdiction, stating that it could regulate the fair functioning of the stock
exchange, including corporations like PSE.

ISSUE:
Whether SEC acted in grave abuse of its discretion in finding that PSE acted in an arbitrary and
abusive manner in disapproving of PALI’s listing application.

RULING::
The Court grants the petition. It was found that PALI on at least 2 points (Nos. 1 and 5) has failed to
support the propriety of its shares with an unfailing clarity.
(1) The registration statement is on its face incomplete or inaccurate in any material respect
or includes any untrue statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; or

(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale
of its security would not work to the prejudice of the public interest or as a fraud upon the purchasers
or investors. (Emphasis Ours)

The issue of the uncertainty of the ownership and alienability of the properties of PALI exists and
puts their qualifications to make the public offering.

In sum, the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion
of approving the application for listing in the PSE of the private respondent PALI, since this is
a matter addressed to the sound discretion of the PSE, a corporation entity, whose business
judgments are respected in the absence of bad faith.

In resume, the Court finds that the PSE has acted with justified circumspection, discounting,
therefore, any imputation of arbitrariness and whimsical animation on its part. Its action in refusing
to allow the listing of PALI in the stock exchange is justified by the law and by the
circumstances attendant to this case.

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 perquisites 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 of management are left to the honest decision of the
officers and directors of a corporation, and the courts are without authority to substitute their
judgment for the judgment 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.

Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to
reverse the PSE's decision in matters of application for listing in the market, the SEC may exercise
such power only if the PSE's judgment is attended by bad faith

“State's approval of the corp. form sets up prima facie case that the assets, liabilities and operation
of the corp. are those of the enterprise. BUT where the corp. entity is defective, or otherwise
challenged, its existence, extent and consequences may be determined by the actual existence and
operations of the underlying enterprise, which by these very qualified and operation acquires a
"being" of its own, recognized by law.”
 2. TAN BOON BEE & CO., INC., petitioner,
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 COMPANY, respondents.

G.R. No. L-41337 June 30, 1988

FACTS:
Anchor Supply Co., the petitioner, entered into a credit agreement with Graphic Publishing, Inc.
(GRAPHIC), the private respondent, involving paper products worth P55,214.73. After partial
payment and a promissory note, GRAPHIC failed to make required payments, leading Anchor
Supply Co. to file a Sum of Money case. The court rendered a default judgment in favor of Anchor
Supply Co., resulting in the issuance of a writ of execution that targeted a printing machine for
auction.

However, Philippine American Drug Company (PADCO) contested the auction, asserting ownership
of the printing machine and instructing the sheriff to halt the proceedings. Despite PADCO's
objection, the auction continued, with Anchor Supply Co. becoming the highest bidder. PADCO
subsequently submitted an "Affidavit of Third Party Claim" and filed a motion to void the execution
sale, which the trial court granted. Anchor Supply Co. appealed, challenging both the trial court's
jurisdiction and the court's failure to disregard PADCO's corporate identity.

ISSUE:
Whether the trial court erred by not piercing PADCO's corporate identity.

RULING:

YES. The Court ruled that though a corporation has its own distinct legal personality, this comes with
exceptions. Especially when the corporate identity is employed to perpetrate fraud, injustice, or
inequity. In the present case, the court identified compelling evidence to warrant the piercing of
PADCO's corporate veil due to the overlap of directors and officers between PADCO and GRAPHIC.
Additionally, other circumstances strongly suggested that PADCO was exploiting its corporate
identity for convenience. Consequently, the trial court should have disregarded the corporate veil.

As cited in the case, “Corporations are composed of natural persons and the legal fiction of a
separate corporate personality is not a shield for the commission of injustice and inequity” (Chenplex
Philippines, Inc., et al. vs. Hon. Pamatian et al., 57 SCRA 408 (19741).
 3. JOSE REMO, JR., petitioner, vs.
THE HON. INTERMEDIATE APPELLATE COURT and E.B. MARCHA TRANSPORT COMPANY,
INC., represented by APIFANIO B. MARCHA, respondents.
G.R. No. L-67626 April 18, 1989
FACTS:
This case involves a dispute over the purchase of thirteen trucks by Akron Customs Brokerage
Corporation, of which the petitioner Jose Remo, Jr. was a member of the board of directors. The
corporation authorized the purchase of the trucks to be paid for through a loan from a lending
institution. The respondent, E.B. Marcha Transport Company, Inc., sold the trucks to Akron, with
Feliciano Coprada, President and Chairman of Akron, signing a promissory note to guarantee the
payment of the unpaid balance of the purchase price. The promissory note indicated the
corporation's obligation, not the individual directors' or stockholders'. Later, private respondent found
out that no loan application was filed by Akron with the Development Bank of the Philippines (DBP).

Private respondent filed a complaint for the recovery of the purchase price or the return of the trucks
with damages against Akron and its officers and directors, including the petitioner. The trial court
rendered a decision in favor of the respondent, holding the defendants jointly and severally liable for
the purchase price, rentals, attorney's fees, and costs of suit. Petitioner was declared in default for
failing to attend pre-trial.
ISSUE:
Whether the corporate veil should be pierced to hold the petitioner personally liable for the
corporation's obligations.

RULING:
The court reversed the decision of the Intermediate Appellate Court (IAC) and held that the
corporate veil should not be pierced to hold the petitioner personally liable for the
corporation's obligations. The court emphasized that while a corporation is treated as a distinct
legal entity separate from its stockholders, this principle may be disregarded in certain cases, such
as when the corporate fiction is used to justify fraud or wrong, or when the corporation is the mere
alter ego of an individual.
In this case, the court found no compelling basis to disregard the corporate entity of Akron
and impose personal liability on the petitioner. The court noted that petitioner did not sign the
promissory note and was not personally bound by it. The negotiations, agreements, and dealings
were primarily conducted by Coprada, the President and Chairman of Akron. Therefore, if there was
any fraud or misrepresentation in the transaction, it was Coprada who should be held accountable.

The court also addressed the petitioner's sale of his shares in Akron during the case, stating
that it was within his right as a stockholder to dispose of his shares at any time. However, this action
did not impact his liability in the case.

In conclusion, the court reversed the IAC's decision and reinstated the trial court's decision,
affirming that the petitioner should not be personally liable for the corporation's obligations. The court
emphasized the need for clear and convincing evidence of fraud to hold an individual director or
stockholder personally liable for the corporation's acts.

“A corporation is an entity separate and distinct from its stockholders. While not in fact and
in reality a person, the law treats a corporation as though it were a person by process of
fiction or by regarding it as an artificial person distinct and separate from its individual
stockholders. “

However, the corporate fiction or the notion of legal entity may be disregarded when it "is
used to defeat public convenience, justify wrong, protect fraud, or defend crime" in which
instances "the law will regard the corporation as an association of persons, or in case of two
corporations, will merge them into one." The corporate fiction may also be disregarded when
it is the "mere alter ego or business conduit of a person.

This case underscores the principle that a corporation is a separate legal entity from its directors and
stockholders. To hold individuals personally liable for the corporation's obligations, there must be
clear and convincing evidence of wrongdoing or fraud on their part. The court highlighted that the
mere fact of being a director or stockholder is insufficient to establish personal liability and that the
corporate veil should only be pierced in exceptional circumstances where the corporation is used to
perpetrate fraud or wrong.
4. STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants, vs.
 REGISTER OF DEEDS OF MANILA, respondent-appellee.
G.R. No. L-18216 October 30, 1962

Provisions of the Civil Code indicating Strong/Solemn Juridical Personality:

Article. 44.
(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality,
separate and distinct from that of each shareholder, partner or member. (35a)
Article 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating or recognizing
them.
Private corporations are regulated by laws of general application on the subject.
Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning partnerships.
(36 and 37a)
Article 46. Juridical persons may acquire and possess property of all kinds, as well as incur obligations and bring civil or criminal
actions, in conformity with the laws and regulations of their organization. (38a)

FACTS:
On September 17, 1960, the stockholders of F. Guanzon and Sons, Inc., a corporation, adopted a
resolution dissolving the corporation. Subsequently, on September 19, 1960, the five stockholders
executed a certificate of liquidation of the corporation's assets. This certificate stated that the
stockholders, in proportion to their shareholdings, distributed the corporation's assets, including real
properties in Manila, as liquidating dividends.

The certificate of liquidation was presented for registration to the Register of Deeds of Manila, but
the registration was denied on various grounds. The disputed grounds, among others, were:

3. The number of parcels was not certified in the acknowledgment.

5. Registration fees of P430.50 needed to be paid.
6. Documentary stamps of P940.45 needed to be attached to the document.
7.. The judgment of the Court approving the dissolution and asset disposition of the corporation
needed to be presented (Rules of Court, Rule 104, Sec. 3).
Upon consultation, the Commissioner of Land Registration sustained requirements 3, 5, and 6, and
overruled ground 7.
The stockholders appealed the decision of the Commissioner of Land Registration.

ISSUE:
Whether the certificate of liquidation should be considered a transfer or conveyance of assets or
merely a distribution among stockholders.

RULING:
YES. The Supreme Court concurred with the Commissioner of Land Registration's view that the
certificate of liquidation, despite involving the distribution of the corporation's assets, should be
treated as a transfer or conveyance of assets to the individual stockholders. The Court emphasized
that a corporation is a separate legal entity from its members, and properties registered under the
corporation's name are owned by the entity itself. While shares of stock represent personal property,
they do not represent the corporation's property.

The Court concluded that the liquidation of the corporation's assets, as reflected in the certificate of
liquidation, constituted a transfer of title from the corporation to the individual stockholders. Thus, it
was reasonable to consider the certificate as a transfer or conveyance.

“Since a corporation has a separate juridical personality, its shareholders are not co-owners of
corporate assets; the transfer of corporate assets to the shareholders by way of dissolution is an
act of conveyance and not a partition among co-owners.” Stockholders of F. Guanzon and Sons,
Inc. v. Register of Deeds of Manila, 6 SCRA 373 (1962)

“it is clear that the act of liquidation was made by the stockholders of the F. Guanzon and Sons,
Inc. of the latter's assets is not and cannot be considered a partition of community property,
but rather a transfer or conveyance of the title of its assets to the individual stockholders.
Indeed, since the purpose of the liquidation, as well as the distribution of the assets of the
corporation, is to transfer their title from the corporation to the stockholders in proportion to their
shareholdings, — and this is in effect the purpose which they seek to obtain from the Register of
Deeds of Manila, — that transfer cannot be effected without the corresponding deed of conveyance
from the corporation to the stockholders. It is, therefore, fair and logical to consider the certificate of
liquidation as one in the nature of a transfer or conveyance.”
This case underscores the significance of recognizing that the liquidation of a corporation's assets,
even if framed as a "distribution," can indeed be interpreted as a transfer or conveyance of assets
from the corporation to its individual stockholders. The decision reinforces the principle that a
corporation maintains a distinct legal identity separate from its members, and assets registered in
the corporation's name are owned by the entity itself. Furthermore, the case highlights the
importance of adhering to established registration requirements as stipulated by legal authorities.

5. Manacop v. Equitable PCI Bank, 468 SCRA 256 (2005)

“Borja is not applicable to the case at bar because its factual milieu is different. In Borja, the prevailing party was a
natural person who, at 76 years of age, “may no longer enjoy the fruit of the judgment before he finally passes
away.” Lavine, on the other hand, is a juridical entity whose existence cannot be likened to a natural person. Its
precarious financial condition is not by itself a compelling circumstance warranting immediate execution and does
not outweigh the long standing general policy of enforcing only final and executory judgments.”

FACTS:
The case of Manacop v. Equitable PCI Bank involves the dispute over insurance proceeds arising
from a fire incident that damaged properties owned by Lavine Loungewear Manufacturing, Inc.
("Lavine"). Lavine had insurance policies with various insurance companies, containing a provision
designating Equitable Banking Corporation-Greenhills Branch ("Equitable Bank") as the beneficiary
of any loss under the policies, to the extent of their interest.

After the fire incident, Lavine filed claims against the insurance policies, resulting in an amount of
P112,245,324.34 in insurance proceeds. Equitable Bank asserted its claim over these proceeds
based on the insurance policies' beneficiary provision. Harish C. Ramnani initially represented
Lavine in the negotiations with insurance companies, but later, Chandru C. Ramnani was appointed
to take over these negotiations.

ISSUE:

whether Lavine's financial difficulties constitute sufficient grounds to warrant the release of
the insurance proceeds to Equitable Bank before the finality of the case on appeal.

RULING:

NO. The Supreme Court ruled that Lavine's financial distress does not offer a substantial basis for
the authorization of execution pending appeal in this context. The Court elucidated that while
financial difficulties may, under specific circumstances, serve as a justifiable ground for execution
pending appeal, such circumstances were not manifest in the present case.

The Court distinguished the case at hand from the precedent set in Borja v. Court of Appeals, a
decision relied upon by petitioners to advocate the propriety of execution pending appeal. In Borja,
the prevailing party was of advanced age and faced an imminent risk of extinction, thus warranting
expedited execution. However, the Court discerned a fundamental disparity between Borja and the
current case, chiefly due to the distinction between an elderly natural person and a juridical entity
like Lavine.

In its rationale, the Court underscored the legal differentiation between the exigencies faced by an
individual of advanced age and the financial challenges experienced by a corporate entity. Notably,
the Court emphasized that Lavine's juridical personality sets it apart from the individual
circumstance presented in Borja. Consequently, the Court opined that the asserted financial
distress of Lavine, as a juridical entity, does not parallel the compelling circumstances
embodied in the Borja scenario.

As a result, the Court maintained that Lavine's financial distress, in and of itself, does not
substantiate the requisite urgency that would justify the grant of execution pending appeal. While
acknowledging the potential relevance of financial challenges in executing judgments, the Court
reiterated that, in the context of a corporate entity, such considerations must be approached
with discernment and a recognition of the fundamental differences in legal personality.

6. GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN, petitioners,
vs.
THE COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT
CORPORATION, respondents.

G.R. No. 105774 April 25, 2002

FACTS::
Great Asian Sales Center Corporation ("Great Asian") was involved in buying and selling household
appliances. The board of directors authorized its Treasurer and General Manager, Arsenio Lim Piat,
Jr., to secure a loan from Bancasia Finance and Investment Corporation ("Bancasia") not exceeding
P1 million. Subsequently, Arsenio was authorized to obtain a discounting line of up to P2 million and
was designated as the authorized signatory for this purpose.

Tan Chong Lin, a petitioner, signed two Surety Agreements in favor of Bancasia, guaranteeing Great
Asian's debts. Great Asian assigned postdated checks to Bancasia through Deeds of Assignment,
representing accounts receivable at a discount.

Several checks assigned were dishonored by drawee banks. Bancasia sought payment from Tan
Chong Lin through demand letters, but neither Great Asian nor Tan Chong Lin paid the amounts
due.

Bancasia filed a complaint for collection against Great Asian and Tan Chong Lin. The trial court ruled
in favor of Bancasia, holding both defendants liable. On appeal, the Court of Appeals affirmed the
decision with a modification to delete the award of attorney's fees.

ISSUE::

Whether Arsenio Lim Piat, Jr. had authority to execute the Deeds of Assignment and bind Great
Asian.

RULING::

YES. The Court found that Arsenio Lim Piat, Jr. had proper authority to sign the Deeds of
Assignment on behalf of Great Asian, granted to him by the board of directors. The board resolutions
expressly authorized him to secure a loan or discounting line from Bancasia and to sign all
necessary documents for this purpose. Arsenio's actions were within the limits of his authority under
these resolutions.

The Corporation Code of the Philippines entrusts the board of directors with the corporate powers of
a corporation, save for instances where stockholders' approval is required for specific acts. The
pertinent provisions state that corporate powers are exercised and property controlled by the board
of directors. Two board resolutions were adopted by Great Asian's board of directors: one on March
17, 1981, and another on February 10, 1982. These resolutions authorized Arsenio, the Treasurer of
Great Asian, to secure a loan or credit line and to sign necessary documents, including checks and
promissory notes, with Bancasia Finance and Investment Corporation ("Bancasia").

The Deeds of Assignment were consistent with the purpose of securing funds for Great Asian's
operations, and the resolutions expressly authorized Arsenio to negotiate loan accommodations and
discounting lines. Arsenio effectively acted as an agent and authorized signatory of Great Asian, and
his signature on the Deeds of Assignment was legally binding on the corporation. Great Asian's
disavowal of the Deeds, despite receiving consideration for the assigned checks, demonstrated a
lack of good faith.

7. SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF
APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.

FACTS:

In this case, plaintiff-appellant San Juan Structural and Steel Fabricators, Inc. ("San Juan
Structural") entered into an agreement with defendant-appellee Motorich Sales Corporation
("Motorich") on February 14, 1989, to transfer a parcel of land in Acropolis Greens Subdivision,
Quezon City. The land was identified as Lot 30, Block 1, with an area of 414 square meters, covered
by Transfer Certificate of Title No. (362909) 2876. According to the agreement, San Juan Structural
paid a down payment of P100,000, and the balance was to be paid by March 2, 1989.

On March 1, 1989, San Juan Structural's president sent a letter to Motorich requesting a
computation of the balance. The computation was provided by Motorich's broker, Linda Aduca. On
March 2, 1989, San Juan Structural had the balance ready, covered by a Metrobank Cashier's
Check, but Motorich's treasurer, Nenita Lee Gruenberg, did not appear for the scheduled meeting.
San Juan Structural claimed that despite repeated demands, Motorich refused to execute the
necessary Transfer of Rights/Deed of Assignment to transfer the certificate of title. Consequently,
San Juan Structural suffered damages, including the inability to construct a residential building, legal
expenses, and other losses, due to Motorich's refusal.

Motorich's defense included the argument that its President and Chairman did not sign the
agreement and that Nenita Lee Gruenberg's signature was insufficient to bind the corporation. They
claimed that San Juan Structural knew that both signatures were necessary and that payment
should have been made in legal tender within the stipulated period.

The court a quo (the trial court) dismissed San Juan Structural's complaint, ruling that Motorich did
not have evidence of authorization from the corporation for the property disposition, and that the
Corporation Code required a majority vote of the board of directors to sell such property. There was
no such vote obtained. The court also found no substantial evidence to hold Nenita Lee Gruenberg
liable, as she did not misrepresent herself.

The Court of Appeals affirmed the trial court's decision with the modification that Nenita Lee
Gruenberg was ordered to refund the P100,000 down payment to San Juan Structural. This led to
the present petition before the Supreme Court.

ISSUE:

Whether or not authority was grant to Nenita Lee Gruenberg, to effect the sale in behalf of the
respondent, Motorich Sales Corporation.

RULING:

NO. The Court finds no merit in this contention.The petitioner contends that the contract is binding
on both parties as their respective representatives, Nenita Lee Gruenberg and Andres Co, affixed
their signatures on the said contract.

In the case at hand, Respondent Motorich Sales Corporation explicitly denies authorizing Nenita
Gruenberg, its treasurer, to effect the sale of the subject parcel of land. The burden of proof then
falls upon the petitioner to establish Gruenberg's authority to represent and bind Motorich in the
transaction. Regrettably, the petitioner has failed to discharge this burden, as its evidence presented
before the trial court failed to substantiate such authority. The petitioner has not provided any
provision from Motorich's articles of incorporation, bylaws, or board resolutions demonstrating that
Gruenberg possessed the requisite power.

The position of a corporate treasurer, such as Gruenberg, is limited in scope and does not inherently
encompass the authority to engage in real estate transactions. Selling real property is beyond the
normal functions of a corporate treasurer, whose primary responsibilities involve managing the
corporation's funds in accordance with the authority granted by the board or authorized officers.
Therefore, even assuming Gruenberg's position as treasurer, the petitioner cannot presume her
authority to sell corporate assets without clear and documented authorization.

The Court reiterates that the absence of a written authorization for the sale of real property through
an agent renders the sale void, as stipulated in Articles 1874 and 1878 of the Civil Code of the
Philippines. Thus, the contract entered into between the petitioner and Gruenberg, purportedly on
behalf of Respondent Motorich, lacks the required validity.

In light of these considerations, the Court concludes that the Agreement dated February 14, 1989, is
void and unenforceable under Article 1874 of the Civil Code. The absence of a valid contract
between the parties precludes the need to examine issues of ratification or acceptance of benefits.

The ruling stands that the petitioner failed to establish the authority of Nenita Gruenberg to
bind Respondent Motorich in the transaction. As a result, the concept of limited liability of
shareholders and the requirement for proper authorization in corporate transactions are
upheld, emphasizing the separation between corporate entities and their representatives.

A fundamental tenet of corporate law is the separate juridical personality of a corporation from its
stockholders or members. As such, the property of a corporation remains distinct from the property
of its stockholders. To this effect, any sale of corporate property must be duly authorized by the
corporation's board of directors, as stipulated in Section 23 of BP 68, commonly known as the
Corporation Code of the Philippines. This provision expressly mandates that the corporate powers
and property shall be controlled and held by the board of directors, who act on behalf of the
corporation.

Furthermore, the Court acknowledges the applicability of general agency principles in corporate
matters. A corporate officer or agent may represent and bind the corporation in transactions with
third parties, provided the authority to do so has been explicitly conferred upon them. This authority
may be conferred through provisions in the articles of incorporation, bylaws, board resolutions, or as
implied by the customary scope of the officer's role. It is incumbent upon third parties to ascertain not
only the fact of agency but also the extent of authority, and the burden of proof rests upon them.

8. PNB v. Hydro Resources Contractors Corp., 693 SCRA 294 (2013)

“A corporation is an artificial entity created by operation of law. It possesses the right of

succession and such powers, attributes, and properties expressly authorized by law or
incident to its existence.37 It has a personality separate and distinct from that of its
stockholders and from that of other corporations to which it may be connected. 38 As a
consequence of its status as a distinct legal entity and as a result of a conscious policy
decision to promote capital formation, 39 a corporation incurs its own liabilities and is legally
responsible for payment of its obligations. 40 In other words, by virtue of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of the
stockholder.41 This protection from liability for shareholders is the principle of limited
liability.42”

These consolidated petitions for review on certiorari challenged the Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 57553. The case revolves around the issue of whether the
corporate veil should be pierced and if Philippine National Bank (PNB), Development Bank of the
Philippines (DBP), and the Asset Privatization Trust (APT) should be held solidarily liable with Nonoc
Mining and Industrial Corporation (NMIC) for an unpaid debt.

FACTS:
The case stemmed from an unpaid balance of ₱8,370,934.74 owed by NMIC for services provided
by Hydro Resources Contractors Corporation (HRCC). NMIC was owned by DBP and PNB with 57%
and 43% shares respectively. HRCC alleged that NMIC was an alter ego of DBP and PNB, thus,
seeking to hold them solidarily liable for NMIC's debt. The Regional Trial Court (RTC) ruled in favor
of HRCC, piercing the corporate veil and holding DBP, PNB, and APT solidarily liable. The Court of
Appeals affirmed the RTC's decision.

ISSUE:
Whether the corporate veil should be pierced, and DBP, PNB, and APT should be held solidarily
liable for NMIC's debt.

RULING:
The Supreme Court held that the corporate veil should not be pierced, and DBP, PNB, and APT
should not be held solidarily liable. The Court emphasized that the control of the subsidiary by the
parent must be proven, along with fraud or wrongdoing committed against the plaintiff that caused
harm. The Court found that the alter ego theory was not proven, as DBP and PNB's control over
NMIC was not established. There was no indication that NMIC's separate existence was used to
commit fraud or wrong. As a result, the harm element was absent, preventing the piercing of the
corporate veil.

The petitions were granted, and the complaint against DBP, PNB, and APT was dismissed for lack
of merit. APT, as trustee of NMIC, was directed to ensure NMIC's compliance with the Court's
decision.

The case underscores the three-pronged test for piercing the corporate veil: control, fraud, and
harm. Mere ownership by a parent corporation or interlocking directorates is insufficient to disregard
the separate corporate personality. The case reiterates that the alter ego theory requires clear and
convincing evidence of fraud or wrongdoing, and harm must be proximately caused by the wrongful
act.