Harden vs Benguet Consolidated

FACTS: In 1927, Benguet Consolidated Mining Company, registered as a

sociedad anonima under the Spanish Law, agreed to invest and build
capital equipments in favor of Balatoc Mining Company, a corporation
registered under the then relatively new Corporation Law of 1925. In
exchange, Balatoc Mining agreed to give Benguet Mining 600,000 shares.
The venture proved to be profitable and Balatoc Mining earned and so did
its stockholders, and of course, Benguet Mining was earning big too
because it now owns 600k shares. This prompted, Fred Harden a
stockholder of Balatoc Mining who also owns thousands of shares to sue
Benguet Mining on the ground that under the Corporation Law a
corporation like Benguet Mining which is engaged in the mining industry is
prohibited from being interested in other corporations which are also
engaged in the mining industry like Balatoc Mining.
ISSUE: Whether or not Harden’s suit should prosper.
HELD: No. The Corporation Law of 1925 subjects sociedades anonimas to
its provisions “so far as such provisions may be applicable”. In 1929, the
Corporation Law was amended and the prohibition cited by Harden was so
modified as merely to prohibit any such corporation from holding more than
fifteen per centum of the outstanding capital stock of another such
corporation.
Further and more importantly, the Corporation Law of 1925 provides that if
the person who allegedly violated the provisions of said law is a
corporation, the proper action is a quo warranto which should be initiated
by the Attorney-General or its deputized provincial fiscal and not a private
action as the one filed by Harden.
Tan Boon Bee & Co. vs Hilarion Jarencio
FACTS: In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee,
entered into a contract of sale with Graphic Publishing Inc. (GPI) whereby
ASC shall deliver paper products to GPI. GPI paid a down payment but
defaulted in paying the rest despite demand from ASC. ASC sued GPI and
ASC won. To satisfy the indebtedness, the trial court, presided by Judge
Hilarion Jarencio, ordered that one of the printing machines of GPI be
auctioned. But before the auction can be had, Philippine American Drug
Company (PADCO) notified the sheriff that PADCO is the actual owner of
said printing machine. Notwithstanding, the sheriff still went on with the
auction sale where Tan Boon Bee was the highest bidder.

Later, PADCO filed with the same court a motion to nullify the sale on
execution. The trial court ruled in favor of PADCO and it nullified said
auction sale. Tan Boon Bee assailed the order of the trial court. Tan Boon
Bee averred that PADCO holds 50% of GPI; that the board of directors of
PADCO and GPI is the same; that the veil of corporate fiction should be
pierced based on the premises. PADCO on the other hand asserts
ownership over the said printing machine; that it is merely leasing it to GPI.

ISSUE: Whether or not the veil of corporate fiction should be pierced.

HELD: Yes. PADCO, as its name suggests, is a drug company not

engaged in the printing business. So it is dubious that it really owns the
said printing machine regardless of PADCO’s title over it. Further, the
printing machine, as shown by evidence, has been in GPI’s premises even
before the date when PADCO alleged that it acquired ownership thereof.
Premises considered, the veil of corporate fiction should be pierced;
PADCO and GPI should be considered as one. When a corporation is
merely an adjunct, business conduit or alter ego of another corporation the
fiction of separate and distinct corporation entities should be disregarded.
Kilosbayan Inc vs Teofisto Guingona, Jr.
FACTS: In 1993, the Philippine Charity Sweepstakes Office decided to put
up an on-line lottery system which will establish a national network system
that will in turn expand PCSO’s source of income.
A bidding was made. Philippine Gaming Management Corporation (PGMC)
won it. A contract of lease was awarded in favor of PGMC.
Kilosbayan opposed the said agreement between PCSO and PGMC as it
alleged that:
1. PGMC does not meet the nationality requirement because it is 75%
foreign owned (owned by a Malaysian firm Berjaya Group Berhad);
2. PCSO, under Section 1 of its charter (RA 1169), is prohibited from
holding and conducting lotteries “in collaboration, association or joint
venture with any person, association, company or entity”;
3. The network system sought to be built by PGMC for PCSO is a
telecommunications network. Under the law (Act No. 3846), a
franchise is needed to be granted by the Congress before any person
may be allowed to set up such;
4. PGMC’s articles of incorporation, as well as the Foreign Investments
Act (R.A. No. 7042) does not allow it to install, establish and operate
the on-line lotto and telecommunications systems.
PGMC and PCSO, through Teofisto Guingona, Jr. and Renato Corona,
Executive Secretary and Asst. Executive Secretary respectively, alleged
that PGMC is not a collaborator but merely a contractor for a piece of work,
i.e., the building of the network; that PGMC is a mere lessor of the network
it will build as evidenced by the nature of the contract agreed upon, i.e.,
Contract of Lease.
ISSUES: A.)Whether the petitioners have locus standi (legal standing); and
B.)Whether or not Kilosbayan is correct.

HELD: A.) The petitioners have locus standi due to the transcendental
importance to the public that the case demands. The ramifications of such
issues immeasurably affect the social, economic and moral well-being of
the people. The legal standing then of the petitioners deserves recognition,
and in the exercise of its sound discretion, the Court brushes aside the
procedural barrier.
B.) Yes, but only on issues 2, 3, and 4.
1. On the issue of nationality, it seems that PGMC’s foreign ownership
was reduced to 40% though.
2. On issues 2, 3, and 4, Section 1 of R.A. No. 1169, as amended by
B.P. Blg. 42, 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.” There is
undoubtedly a collaboration between PCSO and PGMC and not
merely a contract of lease. The relations between PCSO and PGMC
cannot be defined simply by the designation they used, i.e., a
contract of lease. Pursuant to the wordings of their agreement,
PGMC at its own expense shall build, operate, and manage the
network system including its facilities needed to operate a
nationwide online lottery system. PCSO bears no risk and all it does
is to provide its franchise – in violation of its charter. Necessarily, the
use of such franchise by PGMC is a violation of Act No. 3846.
NDC VS PHILIPPINE VETERANS BANK
Facts: The particular enactment in question is Presidential Decree No.
1717, which ordered the rehabilitation of the Agrix Group of Companies to
be administered mainly by the National Development Company. The law
outlined the procedure for filling claims against the Agrix Companies and
created a claims committee to process these claims. Especially relevant to
this case, and noted at the outset, is section 4(1) thereof providing that “all
mortgages and other liens presently attaching to any of the assets of the
dissolved corporations are hereby extinguished.” Earlier, the Agrix
Marketing Inc. had executed in favor of private respondent Philippine
Veterans Bank a real estate mortgage dated July 7, 1978 over three
parcels of land situated in Los Baños, Laguna. During the existence of the
mortgage, Agrix went bankrupt. It was the expressed purpose of salvaging
this and the other Agrix companies that the aforementioned decree was
issued by President Marcos. A claim for the payment of its loan credit was
filed by PNB against herein petitioner, however the latter alleged and
invoked that the same was extinguished by PD 1717.
Issue: Whether or not Philippine Veterans Bank as creditor of Agrix is still
entitled for payment without prejudice to PD 1717.
Held: Yes. A mortgage lien is a property right derived from contract and so
comes under the protection of Bill of rights so do interests on loans, as well
s penalties and charges, which are also vested rights once they accrue.
Private property cannot simply be taken by law from one person and given
to another without just compensation and any known public purpose. This
is plain arbitrariness and is not permitted under the constitution.
The court also feels that the decree impairs the obligation of the contract
between Agrix and the private respondent without justification. While it is
true that the police power is superior to the impairment clause, the principle
will apply only where the contract is so related to the public welfare that it
will be considered congenitally susceptible to change by the legislature in
the interest of greater number.
Our finding in sum, is that PD 1717 is an invalid exercise of the police
power, not being in conformity with the traditional requirements of a lawful
subject and a lawful method. The extinction of the mortgage and other liens
and of the interest and other charges pertaining to the legitimate creditors
of Agrix constitutes taking without due process of law, and this is
compounded by the reduction of the secured creditors to the category of
unsecured creditors in violation of the equal protection clause. Moreover,
the new corporation being neither owned nor controlled by the government,
should have been created only by general and not special law. And in so
far as the decree also interferes with purely private agreements without any
demonstrated connection with the public interest, there is likewise an
impairment of the obligation of the contract.
Sergio Naguiat vs NLRC
FACTS: Sergio Naguiat was the president of Clark Field Taxi, Inc. (CFTI)
which supplied taxi services to Clark Air Base. At the same time, Naguiat
was a director of the Sergio F. Naguiat Enterprises, Inc. (SFNEI), their
family owned corporation along with CFTI.
In 1991, CFTI had to close due to “great financial losses and lost business
opportunity” resulting from the phase-out of Clark Air Base brought about
by the Mt. Pinatubo eruption and the expiration of the RP-US military bases
agreement.
CFTI then came up with an agreement with the drivers that the latter be
entitled to a separation pay in the amount of P500.00 per every year of
service. Most of the drivers accepted this but some drivers did not. The
drivers who refused to accept the separation pay offered by CFTI instead
sued the latter before the labor arbiter.
The labor arbiter ruled in favor of the taxi drivers. The National Labor
Relations Commission affirmed the labor arbiter. It was established that
when CFTI closed, it was in profitable standing and was not incurring
losses. It ruled that the drivers are entitled to $120.00 per every year of
service subject to exchange rates prevailing that time.
The NLRC likewise ruled that SFNEI as well as CFTI’s president and vice
president Sergio Naguiat and Antolin Naguiat should be held jointly and
severally liable to pay the drivers. The NLRC ruled that SFNEI actively
managed CFTI and its business affairs hence it acted as the employer of
the drivers.
ISSUE: Whether or not the ruling of the NLRC is correct.
HELD: It is only partially correct.
1. It is correct when it ruled that the Sergio Naguiat is jointly and
severally liable to pay the drivers the award of separation pay in the
amount so determined. As president of CFTI, Sergio Naguiat is
considered an “employer” of the dismissed employees who is
therefore liable for the obligations of the corporation to its dismissed
employees. Moreover, CFTI, being a close family corporation, is
 liable for corporate torts and stockholders thereof shall be personally
liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance (par. 5, Section 100, “Close
Corporations”, Corporation Code). Antolin Naguiat is absolved
because there was insufficient evidence as against him.
2. SFNEI is not liable jointly or severally with CFTI. SFNEI has nothing
to do with CFTI. There is no sufficient evidence to prove that it
actively managed CFTI especially so when even the drivers testified
that their employer is CFTI and that their payroll comes from CFTI.
Further, SFNEI was into trading business while CFTI was into taxi
services.
Cometa vs Court of Appeals
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.
SOLID HOMES VS. COURT OF APPEALS

FACTS: Solid Homes and State Financing executed a Memorandum of

Agreement in which the former promised to pay the latter 60% of the loan
obligation within 180 days from signing thereof. On the other hand, said
Memorandum grants Solid Homes the right to repurchase the subject
properties. Solid Homes failed to pay 60% of the loan obligation as
stipulated in the Memorandum.Before the expiration of the period within
which to repurchase the subject property, Solid Homes sought the
annulment of the memorandum, alleging among others that the same
violates the prohibition against pactum commisorium under Art. 2088 of the
Civil Code. The trial court, however, ruled against Solid homes and
declared that the said memorandum is valid and binding. Both parties
appealed to the CA which rendered judgment in favour of State Financing.
The appellate court ordered Solid Homes to deliver possession of the
subject properties to State Financing.

ISSUE: Whether Solid Homes is entitled to the subject properties.

HELD: The Supreme Court says YES.RATIO:The only legal transgression

of State Financing was its failure to observe the proper procedure in
effecting the consolidation of the titles in its name. But this does not
automatically entitle the petitioner to damages absent convincing proof of
malice and bad faith on the part of private respondent and actual damages
suffered by petitioner as a direct and probable consequence thereof. In
fact, the evidence proffered by petitioner consists of mere conjectures and
speculations with no factual moorings. Furthermore,such transgression was
addressed by the lower courts when they nullified the consolidation of
ownership over the subject properties in the name of respondent
corporation, because it had been effected in contravention of the provisions
of Article 1607 of the Civil Code. Such rulings are consistent with law and
jurisprudence.
Francisco Tatad vs Jesus Garcia, Jr.
FACTS: In 1989, the government planned to build a railway transit line
along EDSA. No bidding was made but certain corporations were invited to
prequalify. The only corporation to qualify was the EDSA LRT Consortium
which was obviously formed for this particular undertaking. An agreement
was then made between the government, through the Department of
Transportation and Communication (DOTC), and EDSA LRT Consortium.
The agreement was based on the Build-Operate-Transfer scheme provided
for by law (RA 6957, amended by RA 7718). Under the agreement, EDSA
LRT Consortium shall build the facilities, i.e., railways, and shall supply the
train cabs. 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. Thereafter, EDSA LRT Consortium shall sell the facilities to
the government for $1.00.
However, Senators Francisco Tatad, John Osmeña, and Rodolfo Biazon
opposed the implementation of said agreement as they averred that EDSA
LRT Consortium is a foreign corporation as it was organized under Hong
Kong 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.
The petition was filed against Jesus Garcia, Jr. in his capacity as DOTC
Secretary.
ISSUE: Whether or not the petition shall prosper.
HELD: No. The Supreme Court made a clarification. The SC ruled that
EDSA LRT Consortium, under the agreement, does not and will not
become the owner of a public utility hence, the question of its nationality is
misplaced. It is true that a foreign corporation cannot own a public utility but
in this case what EDSA LRT Consortium will be owning are the facilities
that it will be building for the EDSA railway project. There is no prohibition
against a foreign corporation to own facilities used for a public utility.
Further, it cannot be said that EDSA LRT Consortium will be the one
operating the public utility for it will be DOTC that will operate the railway
transit. DOTC will be the one exacting fees from the people for the use of
the railway and from the proceeds, it shall be paying the rent due to EDSA
LRT Consortium. All that EDSA LRT Consortium has to do is to build the
facilities and receive rent from the use thereof by the government for 25
years – it will not operate the railway transit. Although EDSA LRT
Consortium is a corporation formed for the purpose of building a public
utility it does not automatically mean that it is operating a public utility. The
moment for determining the requisite Filipino nationality is when the entity
applies for a franchise, certificate or any other form of authorization for that
purpose.
DBP VS NLRC
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.
LBP vs Court of Appeals
FACTS: In 1980, ECO Management Corporation (ECO) obtained loans
amounting to about P26 million from Land Bank. ECO defaulted in its
payment but in 1981, ECO submitted a Payment Plan with the hope of
restructuring its loan. The plan was rejected and Land Bank sued ECO. It
impleaded Emmanuel C. Oñate, the majority stockholder of ECO who is
serving as the Chairman and treasurer of ECO.
The trial court ruled in favor of Land Bank but Oñate was absolved from
liabilities. The Court of Appeals affirmed the decision of the trial court.
Land Bank appealed as it wanted Oñate to be personally liable on the
following grounds (among others): a) ECO stands for Emmanuel C. Oñate,
b) Oñate is the majority stockholder, c) ECO was formed ostensibly to allow
Oñate to acquire loans from Land Bank which he used for his personal
advantage, d) Oñate holds two positions in the corporation, and e) ECO
never held any board meeting which just shows only Oñate was in control
of the corporation.
ISSUE: Whether or not Oñate should be held personally.
HELD: No. Land Bank was not able to produce sufficient evidence to prove
its claim. A corporation, upon coming into existence, is invested by law with
a personality separate and distinct from those persons composing it as well
as from any other legal entity to which it may be related. The corporate
fiction is only disregarded when the fiction is used to defeat public
convenience, justify wrong, protect fraud, defend crime, confuse legitimate
legal or judicial issues, perpetrate deception or otherwise circumvent the
law. This is likewise true where the corporate entity is being used as an
alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate entity. None of the foregoing was
proved by Land Bank.
The mere fact that Oñate owned the majority of the shares of ECO is not a
ground to conclude that Oñate and ECO is one and the same. Mere
ownership by a single stockholder of all or nearly all of the capital stock of a
corporation is not by itself sufficient reason for disregarding the fiction of
separate corporate personalities.
Anent the issue of the corporate name, the fact that Oñate’s initials
coincide with the corporate name ECO is not sufficient to disregard the
corporate fiction. Even if ECO does stand for “Emmanuel C. Oñate”, it does
not mean that the said corporation is merely a dummy of Oñate. A
corporation may assume any name provided it is lawful. There is nothing
illegal in a corporation acquiring the name or as in this case, the initials of
one of its shareholders.