Justice Leonen Cases

1. Aboitiz Equity Ventures, Inc. vs. Chiongbian, 729 SCRA 580, July 09, 2014 - Antonio
2. Stanley Fine Furniture vs. Gallano, 743 SCRA 306, November 26, 2014 Bartolome
3. Metropolitan Bank and Trust Company vs. S.F. Naguiat Enterprises, Inc., 753 SCRA
474, March 18, 2015 Basco
4. Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc.,
762 SCRA 283, July 08, 2015 Briones
5. Rivera vs. Genesis Transport Service, Inc., 764 SCRA 653, August 03, 2015 Bunag
6. Lorenzo Shipping Corporation vs. National Power Corporation, 772 SCRA 113,
October 07, 2015 Carreon
7. Metropolitan Bank & Trust Company vs. G & P Builders, Incorporated., 775 SCRA
198, November 23, 2015 Caylao
8. University of Mindanao, Inc. vs. Bangko Sentral ng Pilipinas, 778 SCRA 458, January
11, 2016 Dano
9. Florete, Jr. vs. Florete, Sr., 781 SCRA 255, January 20, 2016 David, A
10. Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc., 784 SCRA 173, February
17, 2016 David D
11. Philippine Geothermal, Inc. Employees Union vs. Unocal Philippines, Inc. (now
known as Chevron Geothermal Philippines Holdings, Inc.), 804 SCRA 286,
September 28, 2016 David J
12. Philippine Associated Smelting and Refining Corporation vs. Lim, 804 SCRA 600,
October 05, 2016 De Leon
13. Metropolitan Bank and Trust Company vs. Liberty Corrugated Boxes Manufacturing
Corporation, 815 SCRA 458, January 25, 2017 Garcia
14. Commissioner of Internal Revenue vs. San Miguel Corporation, 815 SCRA 563,
January 25, 2017 Gonzales
15. Pilipinas Shell Petroleum Corporation vs. Royal Ferry Services, Inc., 815 SCRA 379,
February 01, 2017 Meneses
16. Development Bank of the Philippines vs. Sta. Ines Melale Forest Products
Corporation, 816 SCRA 425, February 01, 2017 Ocampo
17. Securities and Exchange Commission vs. Price Richardson Corporation, 832 SCRA
560, July 26, 2017 Pangan
18. Oca vs. Custodio, 832 SCRA 615, July 26, 2017 Punzalan
19. Lao vs. Yao Bio Lim, 836 SCRA 341, August 09, 2017 Rivato
20. Belo Medical Group, Inc. vs. Santos, 838 SCRA 142, August 30, 2017 Santos
21. Erma Industries, Inc. vs. Security Bank Corporation, 848 SCRA 34, December 06,
2017 Sotiangco
22. Citigroup v. Citystate Savings Bank, G.R. No. 205409, June 13, 2018 Tobias
23.
 Aboitiz Equity Ventures, Inc. vs. Chiongbian, 729 SCRA 580, July 09, 2014

Mercantile Law; Corporations; It is basic that a corporation has a personality separate

and distinct from that of its individual stockholders.-

—It is basic that a corporation has a personality separate and distinct from that of its
individual stockholders. Thus, a stockholder does not automatically assume the liabilities of
the corporation of which he is a stockholder. As explained in Philippine National Bank v.
Hydro Resources Contractors Corporation, 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.
It has a personality separate and distinct from that of its stockholders and from that of
other corporations to which it may be connected. As a consequence of its status as a distinct
legal entity and as a result of a conscious policy decision to promote capital formation, a
corporation incurs its own liabilities and is legally responsible for payment of its
obligations. 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. This protection
from liability for shareholders is the principle of limited liability.

Stanley Fine Furniture vs. Gallano, 743 SCRA 306, November 26, 2014

Mercantile Law; Sole Proprietorship; A sole proprietorship does not possess a juridical
personality separate and distinct from the personality of the owner of the enterprise.-

—Respondents did not refute Elena’s allegation that Stanley Fine is a sole proprietorship. In
Excellent Quality Apparel, Inc. v. Win Multi-Rich Builders, Inc., 578 SCRA 272 (2009), this
court stated that: A sole proprietorship does not possess a juridical personality separate
and distinct from the personality of the owner of the enterprise. The law merely recognizes
the existence of a sole proprietorship as a form of business organization conducted for
profit by a single individual and requires its proprietor or owner to secure licenses and
permits, register its business name, and pay taxes to the national government. The law does
not vest a separate legal personality on the sole proprietorship or empower it to file or
defend an action in court. (Emphasis supplied) Thus, Stanley Fine, being a sole
proprietorship, does not have a personality separate and distinct from its owner, Elena
Briones. Elena, being the proprietress of Stanley Fine, can be considered as a real party-in-
interest and has standing to file this petition for review.

Metropolitan Bank and Trust Company vs. S.F. Naguiat Enterprises, Inc., 753 SCRA 474,
March 18, 2015

Mercantile Law; Insolvency Proceedings; Bankruptcy; The objective in insolvency

proceedings is “to effect an equitable distribution of the bankrupt’s properties among his
creditors and to benefit the debtor by discharging him from his liabilities and enabling him
to start afresh with the property set apart for him as exempt.”-
—The objective of suspension of payments is the deferment of the payment of debts until
such time as the debtor, which possesses sufficient property to cover all its debts, is able to
convert such assets into cash or otherwise acquires the cash necessary to pay its debts. On
the other hand, the objective in insolvency proceedings is “to effect an equitable
distribution of the bankrupt’s properties among his creditors and to benefit the debtor by
discharging him from his liabilities and enabling him to start afresh with the property set
apart for him as exempt.”

Same; Financial Rehabilitation and Insolvency Act of 2010; Rehabilitation

Proceedings; Act No. 1956 continued to remain in force and effect until its express repeal
on July 18, 2010 when Republic Act (RA) No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act of 2010, took effect.-

—Act No. 1956 continued to remain in force and effect until its express repeal on July 18,
2010 when Republic Act No. 10142, otherwise known as the Financial Rehabilitation and
Insolvency Act of 2010, took effect. Republic Act No. 10142 now provides for court
proceedings in the rehabilitation or liquidation of debtors, both juridical and natural
persons, in a “timely, fair, transparent, effective and efficient” manner. The purpose of
insolvency proceedings is “to encourage debtors . . . and their creditors to collectively and
realistically resolve and adjust competing claims and property rights” while “maintain[ing]
certainty and predictability in commercial affairs, preserv[ing] and maximiz[ing] the value
of the assets of these debtors, recogniz[ing] creditor rights and respect[ing] priority of
claims, and ensur[ing] equitable treatment of creditors who are similarly situated.” It has
also been provided that whenever rehabilitation is no longer feasible, “it is in the interest of
the State to facilitate a speedy and orderly liquidation of [the] debtors’ assets and the
settlement of their obligations.”

Same; Insolvency Proceedings; With the declaration of insolvency of the debtor,

insolvency courts “obtain full and complete jurisdiction over all property of the insolvent
and of all claims by and against it.”-

—With the declaration of insolvency of the debtor, insolvency courts “obtain full and
complete jurisdiction over all property of the insolvent and of all claims by and against [it.]”
It follows that the insolvency court has exclusive jurisdiction to deal with the property of
the insolvent. Consequently, after the mortgagor-debtor has been declared insolvent and
the insolvency court has acquired control of his estate, a mortgagee may not, without the
permission of the insolvency court, institute proceedings to enforce its lien. In so doing, it
would interfere with the insolvency court’s possession and orderly administration of the
insolvent’s properties.

Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc., 762
SCRA 283, July 08, 2015

Corporations; Separate Legal Personality; Questions of Fact; Issues such as whether the
separate and distinct personality of a corporation was used for fraudulent ends, or whether
the evidence warrants a piercing of the corporate veil, involve questions of fact.-
—Only questions of law may be raised in a petition for review. Factual findings of the Court
of Appeals are generally “final and conclusive, and cannot be reviewed on appeal by [this
court], provided they are borne out by the record or based on substantial evidence.” Issues
such as whether the separate and distinct personality of a corporation was used for
fraudulent ends, or whether the evidence warrants a piercing of the corporate veil, involve
questions of fact. Jurisprudence established exceptions from the general rule against a
factual review by this court. These exceptions include cases when the judgment appears to
be based on a “patent misappreciation of facts.”

Same; Unlike other business associations such as partnerships, the corporate framework
encourages investment by allowing even small capital contributors to be part of a big
business endeavor made possible by the aggregation of their capital funds.-

—The corporate legal structure draws its “economic superiority” from key features such as
a separate corporate personality. Unlike other business associations such as partnerships,
the corporate framework encourages investment by allowing even small capital
contributors to be part of a big business endeavor made possible by the aggregation of their
capital funds. The consequent limited liability feature, since corporate assets will answer
for corporate debts, also proves attractive for investors. However, this legal structure
should not be abused.

Same; Separate Legal Personality; A separate corporate personality shields corporate

officers acting in good faith and within their scope of authority from personal liability
except for situations enumerated by law and jurisprudence.-

—A separate corporate personality shields corporate officers acting in good faith and
within their scope of authority from personal liability except for situations enumerated by
law and jurisprudence, thus: Personal liability of a corporate director, trustee or officer
along (although not necessarily) with the corporation may so validly attach, as a rule, only
when — ‘1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith
or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in
damages to the corporation, its stockholders or other persons; 2. He consents to the
issuance of watered stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto; 3. He agrees to hold himself
personally and solidarily liable with the corporation; or 4. He is made, by a specific
provision of law, to personally answer for his corporate action.’

Same; Same; Same; The Supreme Court (SC) has held that the “existence of interlocking
directors, corporate officers and shareholders is not enough justification to pierce the veil
of corporate fiction in the absence of fraud or other public policy considerations.”-

—This court has held that the “existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate fiction in the absence
of fraud or other public policy considerations.”
 Rivera vs. Genesis Transport Service, Inc., 764 SCRA 653, August 03, 2015

Mercantile Law; Corporations; Separate Legal Personality; Liability of Corporate

Officers; A corporation has a personality separate and distinct from those of the persons
composing it. Thus, as a rule, corporate directors and officers are not liable for the illegal
termination of a corporation’s employees. It is only when they acted in bad faith or with
malice that they become solidarily liable with the corporation.-

—Respondent Riza A. Moises may not be held personally liable for the illegal termination of
petitioner’s employment. As we explained in Saudi Arabian Airlines v. Rebesencio, 746
SCRA 140 (2015): A corporation has a personality separate and distinct from those of the
persons composing it. Thus, as a rule, corporate directors and officers are not liable for the
illegal termination of a corporation’s employees. It is only when they acted in bad faith or
with malice that they become solidarily liable with the corporation. In Ever Electrical
Manufacturing, Inc. (EEMI) v. Samahang Manggagawa ng Ever Electrical, this court clarified
that “[b]ad faith does not connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it means breach of a
known duty through some motive or interest or ill will; it partakes of the nature of fraud.”
Petitioner has not produced proof to show that respondent Riza A. Moises acted in bad faith
or with malice as regards the termination of his employment. Thus, she did not incur any
personal liability.

Lorenzo Shipping Corporation vs. National Power Corporation, 772 SCRA 113, October 07,
2015

Mercantile Law; Ships and Shipping; The Supreme Court’s (SC’s) citation in Yu Con v. Ipil,
41 Phil. 770 (1916), of General Review of Legislation and Jurisprudence explains that
“Master” and “Captain” are synonymous terms.-

—A Master’s designation as the commander of a vessel is long-settled. This court’s citation

in Yu Con v. Ipil, 41 Phil. 770 (1916), of General Review of Legislation and Jurisprudence
explains that “Master” and “Captain” are synonymous terms: “The name of captain or
master is given, according to the kind of vessel, to the person in charge of it. “The first
denomination is applied to those who govern vessels that navigate the high seas or ships of
large dimensions and importance, although they be engaged in the coastwise trade.
“Masters are those who command smaller ships engaged exclusively in the coastwise trade.
“For the purposes of maritime commerce, the words ‘captain’ and ‘master’ have the same
meaning; both being the chiefs or commanders of ships.”

Same; Same; Pilotage Services; There are recognized instances when control of a vessel is
yielded to a pilot.-

—There are recognized instances when control of a vessel is yielded to a pilot. Section 8 of
Philippine Ports Authority (PPA) Administrative Order No. 03-85, otherwise known as the
Rules and Regulations Governing Pilotage Services, the Conduct of Pilots and Pilotage Fees
in Philippine Ports, enumerates instances when vessels are subjected to compulsory
pilotage: Sec. 8. Compulsory Pilotage Service.—For entering a harbor and anchoring
thereat, or passing through rivers or straits within a pilotage district, as well as docking and
undocking at any pier/wharf, or shifting from one berth or another, every vessel engaged in
coastwise and foreign trade shall be under compulsory pilotage. However, in the Ports of
Manila and Cebu, and in such other ports as may be allowed by this Authority, Ship Captains
may pilot their vessels engaged in coastwise trade provided they meet/comply with the
following minimum qualifications/requirements:

4. Same; Same; Same; Harbor Pilots; Section 32(f) of Philippine Ports Authority (PPA)
Administrative Order No. 03-85 specifies the foremost responsibility of a Harbor Pilot, that
is, the direction of the vessel being piloted.-

—Section 32(f) of PPA Administrative Order No. 03-85 specifies the foremost responsibility
of a Harbor Pilot, that is, the direction of the vessel being piloted. In addition, Section 32(f)
spells out the duration within which the Harbor Pilot is to fulfill this responsibility. It
likewise provides that the Master’s failure to carry out the Harbor Pilot’s orders is a ground
for absolving the Harbor Pilot of liability: Sec. 32. Duties and Responsibilities of the Pilots
or Pilots’ Association.—The duties and responsibilities of the Harbor Pilot shall be as
follows: . . . . f) A pilot shall be held responsible for the direction of a vessel from the time he
assumes his work as a pilot thereof until he leaves it anchored or berthed safely; Provided,
however, that his responsibility shall cease at the moment the Master neglects or refuses to
carry out his order.

Metropolitan Bank & Trust Company vs. G & P Builders, Incorporated., 775 SCRA 198,
November 23, 2015

‘Mercantile Law; Corporations; Corporate Rehabilitation; Corporate rehabilitation is a

special proceeding. The proceeding seeks to establish the “inability of the corporate debtor
to pay its debts when they fall due so that a rehabilitation plan, containing the formula for
the successful recovery of the corporation, may be approved in the end.”-

—Corporate rehabilitation is a special proceeding. The proceeding seeks to establish the

“inability of the corporate debtor to pay its debts when they fall due so that a rehabilitation
plan, containing the formula for the successful recovery of the corporation, may be
approved in the end.” There is no relief sought for “an injury caused by another party.”
Corporate rehabilitation is one of the remedies that a financially stressed company can opt
for to raise itself from insolvency: [It] is one of many statutorily provided remedies for
businesses that experience a downturn. Rather than leave the various creditors
unprotected, legislation now provides for an orderly procedure of equitably and fairly
addressing their concerns. Corporate rehabilitation allows a court-supervised process to
rejuvenate a corporation. Rehabilitation proceedings allow the financially stressed
company “to gain a new lease on life and . . . allow creditors to be paid their claims from its
earnings.”

University of Mindanao, Inc. vs. Bangko Sentral ng Pilipinas, 778 SCRA 458, January 11,
2016
Mercantile Law; Corporations; Ultra Vires Acts; A corporation may exercise its powers
only within those definitions. Corporate acts that are outside those express definitions
under the law or articles of incorporation or those “committed outside the object for which
a corporation is created” are ultra vires.-

—Corporations are artificial entities granted legal personalities upon their creation by their
incorporators in accordance with law. Unlike natural persons, they have no inherent
powers. Third persons dealing with corporations cannot assume that corporations have
powers. It is up to those persons dealing with corporations to determine their competence
as expressly defined by the law and their articles of incorporation. A corporation may
exercise its powers only within those definitions. Corporate acts that are outside those
express definitions under the law or articles of incorporation or those “committed outside
the object for which a corporation is created” are ultra vires. The only exception to this rule
is when acts are necessary and incidental to carry out a corporation’s purposes, and to the
exercise of powers conferred by the Corporation Code and under a corporation’s articles of
incorporation.

Same; Same; Same; Schools; Securing loans is not an adjunct of the educational
institution’s conduct of business.-

—Petitioner does not have the power to mortgage its properties in order to secure loans of
other persons. As an educational institution, it is limited to developing human capital
through formal instruction. It is not a corporation engaged in the business of securing loans
of others. Hiring professors, instructors, and personnel; acquiring equipment and real
estate; establishing housing facilities for personnel and students; hiring a concessionaire;
and other activities that can be directly connected to the operations and conduct of the
education business may constitute the necessary and incidental acts of an educational
institution. Securing FISLAI’s loans by mortgaging petitioner’s properties does not appear
to have even the remotest connection to the operations of petitioner as an educational
institution. Securing loans is not an adjunct of the educational institution’s conduct of
business. It does not appear that securing third party loans was necessary to maintain
petitioner’s business of providing instruction to individuals.

Mercantile Law; Corporations; Ultra Vires Acts; Appropriate amendments must be made
either to the law or the articles of incorporation before a corporation can validly exercise
powers outside those provided in law or the articles of incorporation. In other words,
without an amendment, what is ultra vires before a corporation acquires shares in other
corporations is still ultra vires after such acquisition.-

—Acquiring shares in another corporation is not a means to create new powers for the
acquiring corporation. Being a shareholder of another corporation does not automatically
change the nature and purpose of a corporation’s business. Appropriate amendments must
be made either to the law or the articles of incorporation before a corporation can validly
exercise powers outside those provided in law or the articles of incorporation. In other
words, without an amendment, what is ultra vires before a corporation acquires shares in
other corporations is still ultra vires after such acquisition.

Same; Same; Separate Legal Personality; The separate personality of corporations

means that they are “vest[ed] [with] rights, powers, and attributes [of their own] as if
they were natural persons”; Corporate interests are separate from the personal interests
of the natural persons that comprise corporations.-

—The separate personality of corporations means that they are “vest[ed] [with] rights,
powers, and attributes [of their own] as if they were natural persons[.]” Their assets and
liabilities are their own and not their officers’, shareholders’, or another corporation’s. In
the same vein, the assets and liabilities of their officers and shareholders are not the
corporations’. Obligations incurred by corporations are not obligations of their officers and
shareholders. Obligations of officers and shareholders are not obligations of corporations.
In other words, corporate interests are separate from the personal interests of the natural
persons that comprise corporations. Corporations are given separate personalities to allow
natural persons to balance the risks of business as they accumulate capital. They are,
however, given limited competence as a means to protect the public from fraudulent acts
that may be committed using the separate juridical personality given to corporations.

Same; Same; Same; Piercing the Veil of Corporate Fiction; There are instances when we
disregard the separate corporate personalities of the corporation and its stockholders,
directors, or officers. This is called piercing of the corporate veil.-

—Indeed, there are instances when we disregard the separate corporate personalities of
the corporation and its stockholders, directors, or officers. This is called piercing of the
corporate veil. Corporate veil is pierced when the separate personality of the corporation is
being used to perpetrate fraud, illegalities, and injustices. In Lanuza, Jr. v. BF Corporation,
737 SCRA 275 (2014): Piercing the corporate veil is warranted when “[the separate
personality of a corporation] is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues.” It is also warranted in alter ego cases “where a corporation is merely a
farce since it is a mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.”

Same; Same; Being a juridical person, petitioner cannot conduct its business, make
decisions, or act in any manner without action from its Board of Trustees; The
corporation may, however, delegate through a board resolution its corporate powers or
functions to a representative, subject to limitations under the law and the corporation’s
articles of incorporation.-

—Being a juridical person, petitioner cannot conduct its business, make decisions, or act in
any manner without action from its Board of Trustees. The Board of Trustees must act as a
body in order to exercise corporate powers. Individual trustees are not clothed with
corporate powers just by being a trustee. Hence, the individual trustee cannot bind the
corporation by himself or herself. The corporation may, however, delegate through a board
resolution its corporate powers or functions to a representative, subject to limitations
under the law and the corporation’s articles of incorporation. The relationship between a
corporation and its representatives is governed by the general principles of agency. Article
1317 of the Civil Code provides that there must be authority from the principal before
anyone can act in his or her name: ART. 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has by law a right to represent him.

Same; Same; Ultra Vires Acts; Contracts entered into by persons without authority from
the corporation shall generally be considered ultra vires and unenforceable against the
corporation.-

—The unenforceable status of contracts entered into by an unauthorized person on behalf

of another is based on the basic principle that contracts must be consented to by both
parties. There is no contract without meeting of the minds as to the subject matter and
cause of the obligations created under the contract. Consent of a person cannot be
presumed from representations of another, especially if obligations will be incurred as a
result. Thus, authority is required to make actions made on his or her behalf binding on a
person. Contracts entered into by persons without authority from the corporation shall
generally be considered ultra vires and unenforceable against the corporation.

Same; Same; Same; Not having the proper board resolution to authorize Saturnino
Petalcorin to execute the mortgage contracts for petitioner, the contracts he executed are
unenforceable against petitioner.-

—Well-entrenched is the rule that this court, not being a trier of facts, is bound by the
findings of fact of the trial courts and the Court of Appeals when such findings are
supported by evidence on record. Hence, not having the proper board resolution to
authorize Saturnino Petalcorin to execute the mortgage contracts for petitioner, the
contracts he executed are unenforceable against petitioner. They cannot bind petitioner.

Same; Same; Same; Personal liabilities may be incurred by directors who assented to such
unauthorized act and by the person who contracted in excess of the limits of his or her
authority without the corporation’s knowledge.-

—Personal liabilities may be incurred by directors who assented to such unauthorized act
and by the person who contracted in excess of the limits of his or her authority without the
corporation’s knowledge.

Mercantile Law; Corporations; Doctrine of Apparent Authority; The doctrine of

apparent authority does not go into the question of the corporation’s competence or power
to do a particular act. It involves the question of whether the officer has the power or is
clothed with the appearance of having the power to act for the corporation.-

—The doctrine of apparent authority does not go into the question of the corporation’s
competence or power to do a particular act. It involves the question of whether the officer
has the power or is clothed with the appearance of having the power to act for the
corporation. A finding that there is apparent authority is not the same as a finding that the
corporate act in question is within the corporation’s limited powers. The rule on apparent
authority is based on the principle of estoppel. The Civil Code provides: ART. 1431. Through
estoppel an admission or representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying thereon. . . . . ART. 1869.
Agency may be express, or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is acting on his
behalf without authority. Agency may be oral, unless the law requires a specific form. A
corporation is estopped by its silence and acts of recognition because we recognize that
there is information asymmetry between third persons who have little to no information as
to what happens during corporate meetings, and the corporate officers, directors, and
representatives who are insiders to corporate affairs.

Same; Same; Same; There can be no apparent authority and the corporation cannot be
estopped from denying the binding affect of an act when there is no evidence pointing to
similar acts and other circumstances that can be interpreted as the corporation holding out
a representative as having authority to contract on its behalf.-

—There can be no apparent authority and the corporation cannot be estopped from
denying the binding affect of an act when there is no evidence pointing to similar acts and
other circumstances that can be interpreted as the corporation holding out a representative
as having authority to contract on its behalf. In Advance Paper Corporation v. Arma Traders
Corporation, 712 SCRA 313 (2013), this court had the occasion to say: The doctrine of
apparent authority does not apply if the principal did not commit any acts or conduct which
a third party knew and relied upon in good faith as a result of the exercise of reasonable
prudence. Moreover, the agent’s acts or conduct must have produced a change of position to
the third party’s detriment.

Florete, Jr. vs. Florete, Sr., 781 SCRA 255, January 20, 2016

Mercantile Law; Corporations; Stockholder’s Suit; A stockholder suing on account of

wrongful or fraudulent corporate actions (undertaken through directors, associates,
officers, or other persons) may sue in any of three (3) capacities: as an individual; as
part of a group or specific class of stockholders; or as a representative of the
corporation.-

—A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken

through directors, associates, officers, or other persons) may sue in any of three (3)
capacities: as an individual; as part of a group or specific class of stockholders; or as a
representative of the corporation.

Same; Same; Same; Derivative Suits; Words and Phrases; A derivative suit “is an action
filed by stockholders to enforce a corporate action.” A derivative suit, therefore, concerns “a
wrong to the corporation itself.” The real party-in-interest is the corporation, not the
stockholders filing the suit. The stockholders are technically nominal parties but are
nonetheless the active persons who pursue the action for and on behalf of the corporation.-

—Villamor, Jr. v. Umale, 736 SCRA 325 (2014), distinguished individual suits from class or
representative suits: Individual suits are filed when the cause of action belongs to the
individual stockholder personally, and not to the stockholders as a group or to the
corporation, e.g., denial of right to inspection and denial of dividends to a stockholder. If the
cause of action belongs to a group of stockholders, such as when the rights violated belong
to preferred stockholders, a class or representative suit may be filed to protect the
stockholders in the group. Villamor, Jr. further explained that a derivative suit “is an action
filed by stockholders to enforce a corporate action.” A derivative suit, therefore, concerns “a
wrong to the corporation itself.” The real party-in-interest is the corporation, not the
stockholders filing the suit. The stockholders are technically nominal parties but are
nonetheless the active persons who pursue the action for and on behalf of the corporation.
Remedies through derivative suits are not expressly provided for in our statutes — more
specifically, in the Corporation Code and the Securities Regulation Code — but they are
“impliedly recognized when the said laws make corporate directors or officers liable for
damages suffered by the corporation and its stockholders for violation of their fiduciary
duties.” They are intended to afford reliefs to stockholders in instances where those
responsible for running the affairs of a corporation would not otherwise act.

Same; Same; Same; The fact that stockholders suffer from a wrong done to or involving a
corporation does not vest in them a sweeping license to sue in their own capacity.-

—The distinction between individual and class/representative suits on one hand and
derivative suits on the other is crucial. These are not discretionary alternatives. The fact
that stockholders suffer from a wrong done to or involving a corporation does not vest in
them a sweeping license to sue in their own capacity. The recognition of derivative suits as
a vehicle for redress distinct from individual and representative suits is an
acknowledgment that certain wrongs may be addressed only through acts brought for the
corporation: Although in most every case of wrong to the corporation, each stockholder is
necessarily affected because the value of his interest therein would be impaired, this fact of
itself is not sufficient to give him an individual cause of action since the corporation is a
person distinct and separate from him, and can and should itself sue the wrongdoer.

Same; Same; Same; When the object is a specific stockholder or a definite class of
stockholders, an individual suit or class/representative suit must be resorted to. When the
object of the wrong done is the corporation itself or “the whole body of its stock and
property without any severance or distribution among individual holders,” it is a derivative
suit that a stockholder must resort to.-

—The avenues for relief are, thus, mutually exclusive. The determination of the appropriate
remedy hinges on the object of the wrong done. When the object is a specific stockholder or
a definite class of stockholders, an individual suit or class/representative suit must be
resorted to. When the object of the wrong done is the corporation itself or “the whole body
of its stock and property without any severance or distribution among individual holders,”
it is a derivative suit that a stockholder must resort to.

Same; Same; Same; A violation of Sections 23 and 25 of the Corporation Code-

— on how decision-making is vested in the board of directors and on the board’s quorum
requirement — implies that a decision was wrongly made for the entire corporation, not
just with respect to a handful of stockholders.—The specific provisions adverted to by the
Marcelino, Jr. Group signify alleged wrongdoing committed against the corporation itself
and not uniquely to those stockholders who now comprise the Marcelino, Jr. Group. A
violation of Sections 23 and 25 of the Corporation Code — on how decision-making is
vested in the board of directors and on the board’s quorum requirement — implies that a
decision was wrongly made for the entire corporation, not just with respect to a handful of
stockholders. Section 65 specifically mentions that a director’s or officer’s liability for the
issuance of watered stocks in violation of Section 62 is solidary “to the corporation and its
creditors,” not to any specific stockholder. Transfers of shares made in violation of the
registration requirement in Section 63 are invalid and, thus, enable the corporation to
impugn the transfer. Notably, those in the Marcelino, Jr. Group have not shown any specific
interest in, or unique entitlement or right to, the shares supposedly transferred in violation
of Section 63.

Same; Same; Same; Derivative Suits; In derivative suits, the corporation concerned must
be impleaded as a party.-

—In derivative suits, the corporation concerned must be impleaded as a party. As explained
in Asset Privatization Trust v. Court of Appeals, 300 SCRA 579 (1998): Not only is the
corporation an indispensible party, but it is also the present rule that it must be served with
process. The reason given is that the judgment 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 party because it is its cause of action that is being litigated
and because judgment must be a res ajudicata [sic] against it. We have already discussed Go
v. Distinction Properties Development and Construction, Inc., 671 SCRA 461 (2012), where
this court concluded that an action brought by three individual stockholders was, in truth, a
derivative suit. There, this court further explained that a case cannot prosper when the
proper party is not impleaded.

Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc., 784 SCRA 173, February 17,
2016

Same; Same; Same; The Interim Rules of Procedure on Corporate Rehabilitation allows the
trial court to disapprove a rehabilitation plan and terminate proceedings or, should the
instances warrant, to allow modifications to a rehabilitation plan.-

—Petitioner argues that after Judge Mendoza’s withdrawal as rehabilitation receiver, the
Regional Trial Court should have appointed a new rehabilitation receiver to evaluate the
rehabilitation plan. We rule otherwise. It is not solely the responsibility of the rehabilitation
receiver to determine the validity of the rehabilitation plan. The Interim Rules of Procedure
on Corporate Rehabilitation allows the trial court to disapprove a rehabilitation plan and
terminate proceedings or, should the instances warrant, to allow modifications to a
rehabilitation plan.

2. Mercantile Law; Corporations; Corporate Rehabilitation; Corporate rehabilitation is

a remedy for corporations, partnerships, and associations “who [foresee] the impossibility
of meeting [their] debts when they respectively fall due.”-

—Corporate rehabilitation is a remedy for corporations, partnerships, and associations

“who [foresee] the impossibility of meeting [their] debts when they respectively fall due.” A
corporation under rehabilitation continues with its corporate life and activities to achieve
solvency, or a position where the corporation is able to pay its obligations as they fall due in
the ordinary course of business. Solvency is a state where the businesses’ liabilities are less
than its assets. Corporate rehabilitation is a type of proceeding available to a business that
is insolvent. In general, insolvency proceedings provide for predictability that commercial
obligations will be met despite business downturns. Stability in the economy results when
there is assurance to the investing public that obligations will be reasonably paid. It is
considered state policy to encourage debtors, both juridical and natural persons, and their
creditors to collectively and realistically resolve and adjust competing claims and property
rights[.] . . . [R]ehabilitation or liquidation shall be made with a view to ensure or maintain
certainty and predictability in commercial affairs, preserve and maximize the value of the
assets of these debtors, recognize creditor rights and respect priority of claims, and ensure
equitable treatment of creditors who are similarly situated. When rehabilitation is not
feasible, it is in the interest of the State to facilitate a speedy and orderly liquidation of these
debtors’ assets and the settlement of their obligations.

3. Same; Same; Same; The rationale in corporate rehabilitation is to resuscitate businesses

in financial distress because “assets . . . are often more valuable when so maintained than
they would be when liquidated.”-

—The rationale in corporate rehabilitation is to resuscitate businesses in financial distress

because “assets . . . are often more valuable when so maintained than they would be when
liquidated.” Rehabilitation assumes that assets are still serviceable to meet the purposes of
the business. The corporation receives assistance from the court and a disinterested
rehabilitation receiver to balance the interest to recover and continue ordinary business, all
the while attending to the interest of its creditors to be paid equitably. These interests are
also referred to as the rehabilitative and the equitable purposes of corporate rehabilitation.

4. Same; Same; Same; When rehabilitation will not result in a better present value
recovery for the creditors, the more appropriate remedy is liquidation.-

—The public’s interest lies in the court’s ability to effectively ensure that the obligations of
the debtor, who has experienced severe economic difficulties, are fairly and equitably
served. The alternative might be a chaotic rush by all creditors to file separate cases with
the possibility of different trial courts issuing various writs competing for the same assets.
Rehabilitation is a means to temper the effect of a business downturn experienced for
whatever reason. In the process, it gives entrepreneurs a second chance. Not only is it a
humane and equitable relief, it encourages efficiency and maximizes welfare in the
economy. Clearly then, there are instances when corporate rehabilitation can no longer be
achieved. When rehabilitation will not result in a better present value recovery for the
creditors, the more appropriate remedy is liquidation.

5. Same; Same; Same; Liquidation; Liquidation is diametrically opposed to rehabilitation.

Both cannot be undertaken at the same time. In rehabilitation, corporations have to
maintain their assets to continue business operations. In liquidation, on the other hand,
corporations preserve their assets in order to sell them.-

—It does not make sense to hold, suspend, or continue to devalue outstanding credits of a
business that has no chance of recovery. In such cases, the optimum economic welfare will
be achieved if the corporation is allowed to wind up its affairs in an orderly manner.
Liquidation allows the corporation to wind up its affairs and equitably distribute its assets
among its creditors. Liquidation is diametrically opposed to rehabilitation. Both cannot be
undertaken at the same time. In rehabilitation, corporations have to maintain their assets
to continue business operations. In liquidation, on the other hand, corporations preserve
their assets in order to sell them. Without these assets, business operations are effectively
discontinued. The proceeds of the sale are distributed equitably among creditors, and
surplus is divided or losses are reallocated.

Same; Same; Same; Insolvency Law; Suspension of Payments; Under the Insolvency
Law, a debtor in possession of sufficient properties to cover all its debts but foresees the
impossibility of meeting them when they fall due may file a petition before the court to be
declared in a state of suspension of payments.-

—Corporate rehabilitation traces its roots to Act No. 1956, otherwise known as the
Insolvency Law of 1909. Under the Insolvency Law, a debtor in possession of sufficient
properties to cover all its debts but foresees the impossibility of meeting them when they
fall due may file a petition before the court to be declared in a state of suspension of
payments. This allows time for the debtor to organize its affairs in order to achieve a state
where it can comply with its obligations.

Same; Same; Same; Financial Rehabilitation and Insolvency Act of 2010; Currently, the
prevailing law and procedure for corporate rehabilitation is the Financial Rehabilitation
and Insolvency Act of 2010 (FRIA).-

—Currently, the prevailing law and procedure for corporate rehabilitation is the Financial
Rehabilitation and Insolvency Act of 2010 (FRIA). FRIA provides procedures for the
different types of rehabilitation and liquidation proceedings. The Financial Rehabilitation
Rules of Procedure was issued by this court on August 27, 2013.
Same; Same; Same; Appeals; In Re: Mode of Appeal in Cases Formerly Cognizable by the
Securities and Exchange Commission, the Supreme Court (SC) clarified that all decisions
and final orders falling under the Interim Rules of Procedure on Corporate Rehabilitation
shall be appealable to the Court of Appeals (CA) through a petition for review under Rule
43 of the Rules of Court.-

—Any final order or decision of the Regional Trial Court may be subject of an appeal. In Re:
Mode of Appeal in Cases Formerly Cognizable by the Securities and Exchange Commission,
this court clarified that all decisions and final orders falling under the Interim Rules of
Procedure on Corporate Rehabilitation shall be appealable to the Court of Appeals through
a petition for review under Rule 43 of the Rules of Court.

Same; Same; Same; Same; New Frontier Sugar Corporation v. Regional Trial Court, Branch
39, Iloilo City, 513 SCRA 601 (2007), clarifies that an appeal from a final order or decision
in corporate rehabilitation proceedings may be dismissed for being filed under the wrong
mode of appeal.-

—New Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo City, 513 SCRA
601 (2007), clarifies that an appeal from a final order or decision in corporate
rehabilitation proceedings may be dismissed for being filed under the wrong mode of
appeal. New Frontier Sugar doctrinally requires compliance with the procedural rules for
appealing corporate rehabilitation decisions. It is true that Rule 1, Section 6 of the Rules of
Court provides that the “[r]ules shall be liberally construed in order to promote their
objective of securing a just, speedy and inexpensive disposition of every action and
proceeding.” However, this provision does not negate the entire Rules of Court by providing
a license to disregard all the other provisions. Resort to liberal construction must be
rational and well-grounded, and its factual bases must be so clear such that they outweigh
the intent or purpose of an apparent reading of the rules. Rule 43 prescribes the mode of
appeal for corporate rehabilitation cases.

Mercantile Law; Corporations; Corporate Rehabilitation; Indispensable Parties;

Creditors are indispensable parties to a rehabilitation case, even if a rehabilitation case is
non-adversarial.-

—The Rules of Court requires petitioner to implead respondents as a matter of due process.
Under the Constitution, “[n]o person shall be deprived of life, liberty or property without
due process of the law.” An appeal to a corporate rehabilitation case may deprive creditor-
stakeholders of property. Due process dictates that these creditors be impleaded to give
them an opportunity to protect the property owed to them. Creditors are indispensable
parties to a rehabilitation case, even if a rehabilitation case is non-adversarial.

Same; Same; Same; Same; A corporate rehabilitation case cannot be decided without
the creditors’ participation; The failure of petitioner to implead its creditors as
respondents cannot be cured by serving copies of the Petition on its creditors.-
—A corporate rehabilitation case cannot be decided without the creditors’ participation.
The court’s role is to balance the interests of the corporation, the creditors, and the general
public. Impleading creditors as respondents on appeal will give them the opportunity to
present their legal arguments before the appellate court. The courts will not be able to
balance these interests if the creditors are not parties to a case. Ruling on petitioner’s
appeal in the absence of its creditors will not result in judgment that is effective, complete,
and equitable. This court cannot exercise its equity jurisdiction and allow petitioner to
circumvent the requirement to implead its creditors as respondents. Tolerance of such
failure will not only be unfair to the creditors, it is contrary to the goals of corporate
rehabilitation, and will invalidate the cardinal principle of due process of law. The failure of
petitioner to implead its creditors as respondents cannot be cured by serving copies of the
Petition on its creditors. Since the creditors were not impleaded as respondents, the copy of
the Petition only serves to inform them that a petition has been filed before the appellate
court. Their participation was still significantly truncated. Petitioner’s failure to implead
them deprived them of a fair hearing. The appellate court only serves court orders and
processes on parties formally named and identified by the petitioner. Since the creditors
were not named as respondents, they could not receive court orders prompting them to file
remedies to protect their property rights.

Same; Same; Same; Same; By not declaring its former employees as creditors in the
Amended Petition for Corporate Rehabilitation and by not notifying the same employees
that an appeal had been filed, petitioner consistently denied the due process rights of these
employees.-

—We do not see how it will be in the interest of justice to allow a petition that fails to
inform some of its creditors that the final order of the corporate rehabilitation proceeding
was appealed. By not declaring its former employees as creditors in the Amended Petition
for Corporate Rehabilitation and by not notifying the same employees that an appeal had
been filed, petitioner consistently denied the due process rights of these employees. This
court cannot be a party to the inequitable way that petitioner’s employees were treated.

Philippine Geothermal, Inc. Employees Union vs. Unocal Philippines, Inc. (now known as
Chevron Geothermal Philippines Holdings, Inc.), 804 SCRA 286, September 28, 2016

Mercantile Law; Corporations; Mergers of Corporations; A merger is a consolidation of

two (2) or more corporations, which results in one (1) or more corporations being
absorbed into one (1) surviving corporation.-

—A merger is a consolidation of two or more corporations, which results in one or more

corporations being absorbed into one surviving corporation. The separate existence of the
absorbed corporation ceases, and the surviving corporation “retains its identity and takes
over the rights, privileges, franchises, properties, claims, liabilities and obligations of the
absorbed corporation(s).” If respondent is a subsidiary of Unocal California, which, in turn,
is a subsidiary of Unocal Corporation, then the merger of Unocal Corporation with Blue
Merger and Chevron does not affect respondent or any of its employees. Respondent has a
separate and distinct personality from its parent corporation.

Same; Same; Same; The effects of a merger are provided under Section 80 of the
Corporation Code.-

—The effects of a merger are provided under Section 80 of the Corporation Code: SEC. 80.
Effects of merger or consolidation.—The merger or consolidation, as provided in the
preceding sections shall have the following effects: 1. The constituent corporations shall
become a single corporation which, in case of merger, shall be the surviving corporation
designated in the plan of merger; and in case of consolidation, shall be the consolidated
corporation designated in the plan of consolidation; 2. The separate existence of the
constituent corporations shall cease, except that of the surviving or the consolidated
corporation; 3. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code; 4. The surviving or the consolidated corporation
shall thereupon and thereafter possess all the rights, privileges, immunities and franchises
of each of the constituent corporations; and all property, real or personal, and all
receivables due on whatever account, including subscriptions to shares and other choses in
action, and all and every other interest of, or belonging to, or due to each constituent
corporation, shall be taken and deemed to be transferred to and vested in such surviving or
consolidated corporation without further act or deed; and 5. The surviving or the
consolidated corporation shall be responsible and liable for all the liabilities and
obligations of each of the constituent corporations in the same manner as if such surviving
or consolidated corporation had itself incurred such liabilities or obligations; and any
claim, action or proceeding pending by or against any of such constituent corporations may
be prosecuted by or against the surviving or consolidated corporation, as the case may be.
Neither the rights of creditors nor any lien upon the property of any of such constituent
corporations shall be impaired by such merger or consolidation. (Emphasis supplied)
Although this provision does not explicitly state the merger’s effect on the employees of the
absorbed corporation, Bank of the Philippine Islands v. BPI Employees Union-Davao
Chapter-Federation of Unions in BPI Unibank, 658 SCRA 828 (2011), has ruled that the
surviving corporation automatically assumes the employment contracts of the absorbed
corporation, such that the absorbed corporation’s employees become part of the manpower
complement of the surviving corporation.

Same; Same; Same; The surviving corporation becomes bound by the employment
contracts entered into by the absorbed corporation.-

—Section 80 of the Corporation Code provides that the surviving corporation shall possess
all the rights, privileges, properties, and receivables due of the absorbed corporation.
Moreover, all interests of, belonging to, or due to the absorbed corporation “shall be taken
and deemed to be transferred to and vested in such surviving or consolidated corporation
without further act or deed.” The surviving corporation likewise acquires all the liabilities
and obligations of the absorbed corporation as if it had itself incurred these liabilities or
obligations. This acquisition of all assets, interests, and liabilities of the absorbed
corporation necessarily includes the rights and obligations of the absorbed corporation
under its employment contracts. Consequently, the surviving corporation becomes bound
by the employment contracts entered into by the absorbed corporation. These employment
contracts are not terminated. They subsist unless their termination is allowed by law.

Same; Same; Same; Assuming respondent is a party to the merger, its employment
contracts are deemed to subsist and continue by “the combined operation of the
Corporation Code and the Labor Code under the backdrop of the labor and social justice
provisions of the Constitution.”-

—This Court found it necessary to interpret Section 80 of the Corporation Code and the
constitutional provisions on labor as to strengthen the “judicial protection of the right to
security of tenure of employees affected by a merger and [avoid] confusion regarding the
status of various benefits.” Thus, this Court ruled that the surviving corporation
automatically assumes the employment contracts of the absorbed corporation. The
absorbed corporation’s employees are not impliedly dismissed, but become part of the
manpower complement of the surviving corporation. The merger of Unocal Corporation
with Blue Merger and Chevron does not result in an implied termination of the employment
of petitioner’s members. Assuming respondent is a party to the merger, its employment
contracts are deemed to subsist and continue by “the combined operation of the
Corporation Code and the Labor Code under the backdrop of the labor and social justice
provisions of the Constitution.”

Same; Same; Same; Although the absorbed employees are retained as employees of the
merged corporation, the employer retains the right to terminate their employment for a
just or authorized cause. Likewise, the employees are not precluded from severing their
employment through resignation or retirement.-

—Petitioner insists that this is contrary to its freedom to contract, considering its members
did not enter into employment contracts with the surviving corporation. However,
petitioner is not precluded from leaving the surviving corporation. Although the absorbed
employees are retained as employees of the merged corporation, the employer retains the
right to terminate their employment for a just or authorized cause. Likewise, the employees
are not precluded from severing their employment through resignation or retirement. The
freedom to contract and the prohibition against involuntary servitude is still, thus,
preserved in this sense. This is the manner by which the consent of the employees is
considered by the law.

Mercantile Law; Corporations; Mergers of Corporations; Separation Pay; Merger is not

one of the circumstances where the employees may claim separation pay.-

—Merger is not one of the circumstances where the employees may claim separation pay.
The only instances where separation pay may be awarded to petitioner are: (a) reduction in
workforce as a result of redundancy; (b) retrenchment or installation of labor-saving
devices; or (c) closure and cessation of operations. Redundancy has been defined by this
Court as follows: [W]e believe that redundancy, for purposes of our Labor Code, exists
where the services of an employee are in excess of what is reasonably demanded by the
actual requirements of the enterprise. Succinctly put, a position is redundant where it is
superfluous, and superfluity of a position or positions may be the outcome of a number of
factors, such as overhiring of workers, decreased volume of business, or dropping of a
particular product line or service activity previously manufactured or undertaken by the
enterprise. The employer has no legal obligation to keep in its payroll more employees than
are necessary for the operation of its business. (Citations omitted) Retrenchment, on the
other hand, is the reduction of personnel to save on costs on salaries and wages due to a
considerable decline in the volume of business. Cessation and closure of business
contemplates the stopping of business operations of the employer whether on the
employer’s prerogative or on account of severe business losses.

Philippine Associated Smelting and Refining Corporation vs. Lim, 804 SCRA 600, October
05, 2016

1. Same; Same; Same; Same; The confidentiality of business transactions is not a magical
incantation that will defeat the request of a stockholder to inspect the records.-

—Good faith and a legitimate purpose are presumed. It is the duty of the corporation to
allege and prove with sufficient evidence the facts that give rise to a claim of bad faith as to
the existence of an illegitimate purpose. The confidentiality of business transactions is not a
magical incantation that will defeat the request of a stockholder to inspect the records.
Although it is true that the business is entitled to the protection of its trade secrets and
other intellectual property rights, facts must be pleaded to convince the court that a specific
stockholder’s request for inspection, under certain conditions, would violate the
corporation’s own legal right. Furthermore, the discomfort caused to the management of a
corporation when a request for inspection is claimed is part of the regular matters that a
business wanting to ensure good governance must endure. The range between discomfort
and vexation is a broad one, which may tend to be located in the personalities of those
involved. Certainly, by themselves, these are not sufficient factual basis to conclude bad
faith on the part of the requesting stockholder. Courts must be convinced that the scope or
manner of the request and the conditions under which it was made are so frivolous that the
huge cost to the business will, in equity, be unfair to the other stockholders. There is no iota
of evidence that this happened here.

2. Mercantile Law; Corporations; Stockholders; Rights of Stockholders; The

Corporation Code provides that a stockholder has the right to inspect the records of all
business transactions of the corporation and the minutes of any meeting at reasonable
hours on business days. The stockholder may demand in writing for a copy of excerpts from
these records or minutes, at his or her expense.-

—The Corporation Code provides that a stockholder has the right to inspect the records of
all business transactions of the corporation and the minutes of any meeting at reasonable
hours on business days. The stockholder may demand in writing for a copy of excerpts from
these records or minutes, at his or her expense: Title VIII Corporate Books and Records
SECTION 74. Books to be Kept; Stock Transfer Agent.—Every corporation shall, at its
principal office, keep and carefully preserve a record of all business transactions, and
minutes of all meetings of stockholders or members, or of the board of directors or
trustees, in which shall be set forth in detail the time and place of holding the meeting, how
authorized, the notice given, whether the meeting was regular or special, if special its
object, those present and absent, and every act done or ordered done at the meeting. Upon
the demand of any director, trustee, stockholder or member, the time when any director,
trustee, stockholder or member entered or left the meeting must be noted in the minutes;
and on a similar demand, the yeas and nays must be taken on any motion or proposition,
and a record thereof carefully made. The protest of any director, trustee, stockholder or
member on any action or proposed action must be recorded in full on his demand. The
records of all business transactions of the corporation and the minutes of any meetings
shall be open to the inspection of any director, trustee, stockholder or member of the
corporation at reasonable hours on business days and he may demand, in writing, for a
copy of excerpts from said records or minutes, at his expense. Any officer or agent of the
corporation who shall refuse to allow any director, trustee, stockholder or member of the
corporation to examine and copy excerpts from its records or minutes, in accordance with
the provisions of this Code, shall be liable to such director, trustee, stockholder or member
for damages, and in addition, shall be guilty of an offense which shall be punishable under
Section 144 of this Code: Provided, That if such refusal is pursuant to a resolution or order
of the Board of Directors or Trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such refusal: and Provided, further,
That it shall be a defense to any action under this section that the person demanding to
examine and copy excerpts from the corporation’s records and minutes has improperly
used any information secured through any prior examination of the records or minutes of
such corporation or of any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand.

3. Same; Same; Same; Same; The right to inspect under Section 74 of the Corporation
Code is subject to certain limitations. However, these limitations are expressly provided as
defenses in actions filed under Section 74.-

—The right to inspect under Section 74 of the Corporation Code is subject to certain
limitations. However, these limitations are expressly provided as defenses in actions filed
under Section 74. Thus, this Court has held that a corporation’s objections to the right to
inspect must be raised as a defense: 2) the person demanding to examine and copy excerpts
from the corporation’s records and minutes has not improperly used any information
secured through any previous examination of the records of such corporation; and 3) the
demand is made in good faith or for a legitimate purpose. The latter two limitations,
however, must be set up as a defense by the corporation if it is to merit judicial cognizance.
As such, and in the absence of evidence, the PCGG cannot unilaterally deny a stockholder
from exercising his statutory right of inspection based on an unsupported and naked
assertion that private respondent’s motive is improper or merely for curiosity or on the
ground that the stockholder is not in friendly terms with the corporation’s officers.
4. Same; Same; Same; Same; The clear provision in Section 74 of the Corporation Code is
sufficient authority to conclude that an action for injunction and, consequently, a writ of
preliminary injunction filed by a corporation is generally unavailable to prevent
stockholders from exercising their right to inspection.-

—The clear provision in Section 74 of the Corporation Code is sufficient authority to

conclude that an action for injunction and, consequently, a writ of preliminary injunction
filed by a corporation is generally unavailable to prevent stockholders from exercising their
right to inspection. Specifically, stockholders cannot be prevented from gaining access to
the (a) records of all business transactions of the corporation; and (b) minutes of any
meeting of stockholders or the board of directors, including their various committees and
subcommittees. The grant of legal personality to a corporation is conditioned on its
compliance with certain obligations. Among these are its fiduciary responsibilities to its
stockholders. Providing stockholders with access to information is a fundamental basis for
their intelligent participation in the governance of the corporation as a business
organization that they partially own. The law is agnostic with respect to the amount of
shares required. Generally, each individual stockholder should be given reasonable access
so that he or she can assess or share his or her assessment of the management of the
corporation with other stockholders. The separate legal personality of a corporation is not
so absolutely separate that it divorces itself from its responsibility to its constituent
owners.

Metropolitan Bank and Trust Company vs. Liberty Corrugated Boxes Manufacturing
Corporation, 815 SCRA 458, January 25, 2017

Mercantile Law; Corporations; Corporate Rehabilitation; The Interim Rules does not
specify that courts must make a written declaration that a creditor’s opposition is
manifestly unreasonable.-

—The Interim Rules does not specify that courts must make a written declaration that a
creditor’s opposition is manifestly unreasonable. The Regional Trial Court Orders gave
petitioner every opportunity to make its opposition and stance clear. In issuing the
December 21, 2007 Order and approving the rehabilitation plan, the Regional Trial Court
found the opposition unreasonable.

Same; Same; Same; Respondent, as a debtor corporation, may file for rehabilitation
despite having defaulted on its obligations to petitioner.-

—Based on his assessment, the Rehabilitation Receiver noted that the funds required to
finance the first year of the rehabilitation plan would be much less than that the amount
stated in the Petition. Respondent put forth in detail its financial commitments.
Respondent, as a debtor corporation, may file for rehabilitation despite having defaulted on
its obligations to petitioner. As its Petition for rehabilitation was sufficient and its
rehabilitation plan was feasible, respondent’s rehabilitation should proceed.
2. Mercantile Law; Corporations; Corporate Rehabilitation; A corporation that may
seek corporate rehabilitation is characterized not by its debt but by its capacity to pay this
debt.-

—A corporation that may seek corporate rehabilitation is characterized not by its debt but
by its capacity to pay this debt. Rule 4, Section 1 of the Interim Rules provides: RULE 4
Debtor-Initiated Rehabilitation SECTION 1. Who May Petition.—Any debtor who foresees
the impossibility of meeting its debts when they respectively fall due, or any creditor or
creditors holding at least twenty-five percent (25%) of the debtor’s total liabilities, may
petition the proper Regional Trial Court to have the debtor placed under rehabilitation.

3. Same; Same; Same; The opportunity to rehabilitate the affairs of an economic entity,
regardless of the status of its debts, redounds to the benefit of its creditors, owners, and to
the economy in general.-

—To adopt petitioner’s interpretation would undermine the purpose of the Interim Rules.
There is no reason why corporations with debts that may have already matured should not
be given the opportunity to recover and pay their debtors in an orderly fashion. The
opportunity to rehabilitate the affairs of an economic entity, regardless of the status of its
debts, redounds to the benefit of its creditors, owners, and to the economy in general.
Rehabilitation, rather than collection of debts from a company already near bankruptcy, is a
better use of judicial rewards.

4. Same; Same; Same; Rule 4, Section 1 of the Interim Rules does not specify what kind of
debtor may seek rehabilitation. The provision allows creditors holding twenty-five percent
(25%) of the debtor corporation’s total liabilities to petition for the corporation’s
rehabilitation.-

—Rule 4, Section 1 of the Interim Rules does not specify what kind of debtor may seek
rehabilitation. The provision allows creditors holding 25% of the debtor corporation’s total
liabilities to petition for the corporation’s rehabilitation. Further, Rule 4, Section 6 of the
Interim Rules provides for a stay order “staying enforcement of all claims, whether for
money or otherwise and whether such enforcement is by court action or otherwise.” A stay
order, however, only applies to the suspension of the enforcement of claims. Hence, claims,
if proper, can still be instituted in other proceedings. There may already be pending claims
against a debtor corporation for debts already matured.

Commissioner of Internal Revenue vs. San Miguel Corporation, 815 SCRA 563, January 25,
2017

Mercantile Law; Intellectual Property Rights; Trademark Infringement; Unfair

Competition; The use of an identical or colorable imitation of a registered trademark by a
person for the same goods or services or closely related goods or services of another party
constitutes infringement.-
—In intellectual property law, a registered trademark owner has the right to prevent others
from the use of the same mark (brand) for identical goods or services. The use of an
identical or colorable imitation of a registered trademark by a person for the same goods or
services or closely related goods or services of another party constitutes infringement. It is
a form of unfair competition because there is an attempt to get a free ride on the reputation
and selling power of another manufacturer by passing of one’s goods as identical or
produced by the same manufacturer as those carrying the other mark (brand).

Pilipinas Shell Petroleum Corporation vs. Royal Ferry Services, Inc., 815 SCRA 379,
February 01, 2017

Mercantile Law; Insolvency Law; Venue; Section 14 of the Insolvency Law specifies that
the proper venue for a petition for voluntary insolvency is the Regional Trial Court (RTC) of
the province or city where the insolvent debtor has resided in for six (6) months before the
filing of the petition.-

—Section 14 of the Insolvency Law specifies that the proper venue for a petition for
voluntary insolvency is the Regional Trial Court of the province or city where the insolvent
debtor has resided in for six (6) months before the filing of the petition. In this case, the
issue of which court is the proper venue for respondent’s Petition for Voluntary Insolvency
comes from the confusion on an insolvent corporation’s residence.

Development Bank of the Philippines vs. Sta. Ines Melale Forest Products Corporation, 816
SCRA 425, February 01, 2017

Mercantile Law; Corporations; Section 23 of the Corporation Code provides that “the
corporate powers of all corporations . . . shall be exercised, all business conducted and all
property of such corporations [shall] be controlled and held by the board of directors[.]”-

—The general rule is that, “[i]n the absence of an authority from the board of directors, no
person, not even the officers of the corporation, can validly bind the corporation.” A
corporation is a juridical person, separate and distinct from its stockholders and members,
having “powers, attributes and properties expressly authorized by law or incident to its
existence.” Section 23 of the Corporation Code provides that “the corporate powers of all
corporations . . . shall be exercised, all business conducted and all property of such
corporations [shall] be controlled and held by the board of directors[.]”

Securities and Exchange Commission vs. Price Richardson Corporation, 832 SCRA 560, July
26, 2017

Mercantile Law; Corporations; Liability of Corporate Officers; To be held criminally

liable for the acts of a corporation, there must be a showing that its officers, directors, and
shareholders actively participated in or had the power to prevent the wrongful act.-

—A corporation’s personality is separate and distinct from its officers, directors, and
shareholders. To be held criminally liable for the acts of a corporation, there must be a
showing that its officers, directors, and shareholders actively participated in or had the
power to prevent the wrongful act.

Oca vs. Custodio, 832 SCRA 615, July 26, 2017

Mercantile Law; Corporations; Intra-Corporate Controversies; In intra-corporate

controversies, all orders of the trial court are immediately executory.-

—In intra-corporate controversies, all orders of the trial court are immediately executory:
Section 4. Executory nature of decisions and orders.—All decisions and orders issued under
these Rules shall immediately be executory except the awards for moral damages,
exemplary damages and attorney’s fees, if any. No appeal or petition taken therefrom shall
stay the enforcement or implementation of the decision or order, unless restrained by an
appellate court. Interlocutory orders shall not be subject to appeal. Questioning the trial
court orders does not stay its enforcement or implementation. There is no showing that the
trial court orders were restrained by the appellate court. Hence, petitioners could not
refuse to comply with the trial court orders just because they opined that they were invalid.
It is not for the parties to decide whether they should or should not comply with a court
order. Petitioners did not obtain any injunction to stop the implementation of the trial court
orders nor was there an injunction to prevent the trial court from hearing and ruling on the
contempt case. Petitioners’ stubborn refusal cannot be excused just because they were
convinced of its invalidity. Their resort to the processes of questioning the orders does not
show that they are in good faith.

Lao vs. Yao Bio Lim, 836 SCRA 341, August 09, 2017

Mercantile Law; Corporations; Stockholders’ Meetings; Section 50 of Batas Pambansa

(BP) Blg. 68 or the Corporation Code prescribes that “regular meetings of stockholders or
members shall be held annually on a date fixed in the bylaws.”-

—Section 50 of Batas Pambansa Blg. 68 or the Corporation Code prescribes that “regular
meetings of stockholders or members shall be held annually on a date fixed in the bylaws.”
Respondents do not dispute that Article VIII(3) of the PSI’s bylaws fixed the annual meeting
of stockholders on the third Friday of March of every year. This Court takes judicial notice
that March 15, 2002 was the third Friday of March 2002. Furthermore, the agenda for the
meeting, which includes the elections of the new board of directors and ratification of acts
of the incumbent board of directors and management, was the standard order of business
in a regular annual meeting of stockholders of a corporation. Thus, this Court holds that the
March 15, 2002 annual stockholders’ meeting was a regular meeting. Hence, the require-
ment to state the object and purpose in case of a special meeting as provided for in Article
VIII(5) of the PSI’s bylaws does not apply to the Notice for the March 15, 2002 annual
stockholders’ meeting.

5. Same; Same; Same; By its express terms, the Corporation Code allows “the shortening
(or lengthening) of the period within which to send the notice to call a special (or regular)
meeting.”-
—In this case, the PSI’s bylaws providing only for a five (5)-day prior notice must prevail
over the two (2)-week notice under the Corporation Code. By its express terms, the
Corporation Code allows “the shortening (or lengthening) of the period within which to
send the notice to call a special (or regular) meeting.” Thus, the mailing of the Notice to
respondents on March 5, 2002 calling for the annual stockholders’ meeting to be held on
March 15, 2002 is not irregular, since it complies with what was stated in PSI’s bylaws.

Belo Medical Group, Inc. vs. Santos, 838 SCRA 142, August 30, 2017

Mercantile Law; Corporations; Intra-Corporate Controversies; For as long as any of

these intra-corporate relationships exist between the parties, the controversy would be
characterized as intra-corporate.-

—For as long as any of these intra-corporate relationships exist between the parties, the
controversy would be characterized as intra-corporate. This is known as the “relationship
test.”

5. Same; Same; Same; Relationship Test; Applying the relationship test, the Supreme
Court (SC) notes that both Belo and Santos are named shareholders in Belo Medical Group’s
Articles of Incorporation and General Information Sheet for 2007. The conflict is clearly
intra-corporate as it involves two (2) shareholders, although the ownership of stocks of one
(1) stockholder is questioned.-

—Applying the relationship test, this Court notes that both Belo and Santos are named
shareholders in Belo Medical Group’s Articles of Incorporation and General Information
Sheet for 2007. The conflict is clearly intra-corporate as it involves two (2) shareholders,
although the ownership of stocks of one stockholder is questioned. Unless Santos is
adjudged as a stranger to the corporation because he holds his shares only in trust for Belo,
then both he and Belo, based on official records, are stockholders of the corporation. Belo
Medical Group argues that the case should not have been characterized as intra-corporate
because it is not between two shareholders as only Santos or Belo can be the rightful
stockholder of the 25 shares of stock. This may be true. But this finding can only be made
after trial where ownership of the shares of stock is decided. The trial court cannot classify
the case based on potentialities. The two defendants in that case are both stockholders on
record. They continue to be stockholders until a decision is rendered on the true ownership
of the 25 shares of stock in Santos’ name. If Santos’ subscription is declared fictitious and
he still insists on inspecting corporate books and exercising rights incidental to being a
stockholder, then, and only then, shall the case cease to be intra-corporate.

6. Same; Same; Same; Nature of the Controversy Test; Applying the nature of the
controversy test, this is still an intra-corporate dispute. The Complaint for interpleader
seeks a determination of the true owner of the shares of stock registered in Santos’ name.-

—Applying the nature of the controversy test, this is still an intra-corporate dispute. The
Complaint for interpleader seeks a determination of the true owner of the shares of stock
registered in Santos’ name. Ultimately, however, the goal is to stop Santos from inspecting
corporate books. This goal is so apparent that, even if Santos is declared the true owner of
the shares of stock upon completion of the interpleader case, Belo Medical Group still seeks
his disqualification from inspecting the corporate books based on bad faith. Therefore, the
controversy shifts from a mere question of ownership over movable property to the
exercise of a registered stockholder’s proprietary right to inspect corporate books.

Erma Industries, Inc. vs. Security Bank Corporation, 848 SCRA 34, December 06, 2017

Mercantile Law; “Accommodation Party” and “Compensated Surety,” Distinguished.-

—Respondent Ortiz’s claim that he is a mere accommodation party is immaterial and does
not discharge him as a surety. He remains to be liable according to the character of his
undertaking and the terms and conditions of the Continuing Suretyship, which he signed in
his personal capacity and not in representation of Erma. The Court has elucidated on the
distinction between an accommodation and a compensated surety and the reasons for
treating them differently: The law has authorized the formation of corporations for the
purpose of conducting surety business, and the corporate surety differs significantly from
the individual private surety. First, unlike the private surety, the corporate surety signs for
cash and not for friendship. The private surety is regarded as someone doing a rather
foolish act for praiseworthy motives; the corporate surety, to the contrary, is in business to
make a profit and charges a premium depending upon the amount of guaranty and the risk
involved. Second, the corporate surety, like an insurance company, prepares the instrument,
which is a type of contract of adhesion whereas the private surety usually does not prepare
the note or bond which he signs. Third, the obligation of the private surety often is assumed
simply on the basis of the debtor’s representations and without legal advice, while the
corporate surety does not bind itself until a full investigation has been made. For these
reasons, the courts distinguish between the individual gratuitous surety and the vocational
corporate surety. In the case of the corporate surety, the rule of strictissimi juris is not
applicable, and courts apply the rules of interpretation . . . of appertaining to contracts of
insurance.