TITLE I

GENERAL PROVISIONS, DEFINITIONS AND CLASSIFICATIONS

Case title

Vda De Roxas v Our DOCTRINE: Doctrine of Separate Juridical Personality of Corporate Entities: A
Lady's Foundation Inc. corporation is a juridical entity with a legal personality separate and distinct
GR 182378 Mar 6, from those acting for and on its behalf and, in general, of the people
2013 comprising it. The obligations incurred by the corporation, acting through its
officers, are its sole liabilities.

FACTS:
1. Salve Latosa filed in the RTC for the recovery of ownership of a
portion of her residential land located at Our Lady’s Village.
2. According to her, Atty. Roxas, represented by Arlene Roxas-Cruz,
encroached on a quarter of her property by arbitrarily extending his
concrete fence beyond the correct limits.
3. Roxas, on the other hand, blamed Our Lady’s Village and filed a
third-party complaint against it and claimed that he only occupied
the adjoining portion in order to get the equivalent area of what he
had lost when Our Lady’s Village trimmed his property for the
subdivision road.
4. The RTC held that Latosa established her claim of encroachment
by preponderance of evidence and found that Roxas encroached
112 sq meters of Latosa’s land. And so, Our Lady’s Village
trimmed his property by 92 sq m.
5. RTC rendered the ff:
On the Complaint:
1. Ordering the Roxas to return and surrender
the portion of 116 sq. meters which lawfully
belongs to the Latosa being a portion of Lot
19;
2. Ordering Roxas to demolish whatever
structure constructed thereon and to remove
the same at his own expense;
3. Ordering Roxas to reimburse Latosa the
amount of ₱1,500.00 for the expenses in the
relocation survey;
4. Ordering the dismissal of the counter claim.

On the 3rd Party Complaint:

1. Ordering Our Lady’s Village to reimburse
Roxas the value of 92 sq. meters which is a
portion of Lot 23 of Roxas plus legal interest
to be reckoned from the time it was paid to the
Our Lady’s Village;
2. Our Lady’s Village is ordered to pay Roxas
the sum of ₱10,000.00 as attorney's fees and
₱5,000 as litigation expenses;
3. Our Lady’s Village shall pay the cost of suit.

6. Roxas appealed to the CA but denied and so the RTC issued a

 Writ of Execution of the ruling ordering Our Lady’s Village to
reimburse Roxas for the value of the 92-square-meter property
plus legal interest to be reckoned from the time the amount was
paid to Our Lady’s Village. The trial court then approved the
Sheriff’s Bill, which valued the subject property at P2,500 per
square meter which was later amended which reduced the
valuation to P1,800 per square meter.
7. Opposing the valuation of the subject property, Our Lady’s Village
filed a Motion to Quash the Sheriff’s Bill and a Motion for Inhibition
of the RTC judge. It insisted that it should reimburse Roxas only at
the rate of P40 per square meter, the same rate that Roxas paid
when the latter first purchased the property.
8. RTC denied both the Motion for Inhibition and the Motion to Quash
the Sheriff’s Bill.
9. To collect the aforementioned amount, notices of
Garnishment were then issued by the sheriff to the managers
of the Development Bank of the Philippines and the United
Coconut Planters Bank for them to garnish the account of
Bishop Robert Arcilla-Maullon (Arcilla-Maullon), Our Lady’s
Village general manager.
10. Refusing to pay P1,800 per square meter to Roxas, Our Lady’s
Village filed a Rule 65 Petition before the CA. CA ruled in favor of
Our Lady’s Village. It construed reimbursement as an obligation to
pay back what was previously paid and thus required Our Lady’s
Village to merely reimburse him at the rate of P40 per square
meter, which was the consideration Our Lady’s Village had
received when Roxas purchased the subdivision lots.
11. Therefore, both the Amended Sheriff’s Bill and the 2 December
2004 Order of the RTC were considered null and void. Further, the
CA nullified the Notices of Garnishment issued against the
bank accounts of Arcilla-Maullon. It noted that since the
general manager of OLFI was not impleaded in the
proceedings, he could not be held personally liable for the
obligation of the corporation.

ISSUE: WON the general manager could be held personally liable for the
obligation of Our Lady’s Village.

RULING:

No. The SC affirms the decision of the CA. In the main case for the recovery of
ownership before the court of origin, only Our Lady’s Village was named as
respondent corporation, and that its general manager was never impleaded in
the proceedings a quo.

Since Our Lady’s Village’s general manager was not a party to the case, the
CA correctly ruled that the general manager cannot be held personally liable
for the obligation of the corporation.

In a decided case, it was held that a corporation is a juridical entity with a legal
personality separate and distinct from those acting for and on its behalf and, in
general, of the people comprising it. The obligations incurred by the
corporation, acting through its officers such as in this case, are its sole
liabilities.
 To hold the general manager of Our Lady’s Village liable, Roxas claims that it
is a mere business conduit of Arcilla-Maullon, hence, the corporation does not
maintain a bank account separate and distinct from the bank accounts of its
members. In support of this claim, Roxas submits that because Our Lady’s
Village did not rebut the attack on its legal personality, Our Lady’s Village
effectively admitted by its silence that it was a mere dummy corporation.

This argument does not persuade us, for any piercing of the corporate veil
has to be done with caution. Roxas fails to adduce any evidence that would
prove Our Lady’s Village’s status as a dummy corporation. Sarona v. NLRC
ruled that a court should be mindful of the milieu where it is to be applied. It
must be certain that the corporate fiction was misused to such an extent that
injustice, fraud, or crime was committed against another, in disregard of rights.
The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from
an erroneous application.

In order for the court to hold Arcilla-Maullon personally liable for the debts of
the corporation and thus pierce the veil of corporate fiction, bad faith of the
officer must first be established clearly and convincingly. Roxas failed to
include any submission pertaining to any wrongdoing of the general manager.
Hence, it would be unjust to hold the latter personally liable.

IN VIEW THEREOF, the 25 September 2007 Decision and 11 March 2008

Resolution of the Court of Appeals in CA-GR SP No. 88622 are AFFIRMED
with MODIFICATION in that the value of the 92-square-meter property for
which respondent should reimburse petitioner, as determined by the 2
December 2004 Order of the Regional Trial Court in Civil Case No. 5403, is
hereby reinstated at ₱1,800 per square meter.

Mayor v Tiu GR DOCTRINE: The estate of the deceased person is a juridical person separate
203770 Nov 23, 2016 and distinct from the person of the decedent and any other corporation.

FACTS:
● On May 25, 2008, Rosario Guy-Joco Villasin Casilan passed away and
left a holographic Last Will and Testament, wherein she named her
sister Remedios Tiu, and her niece, Manuela Mayor (Petitioner), as
executors
● Damiana Charito Marty (Respondent), claiming to be adopted
daughter of Rosario, file her Verified Urgent Manifestation and Motion,
praying for the probate court to: 1) order an immediate inventory of all
the properties subject of the proceedings; 2) direct the tenants of the
estate, namely, Mercury Drug and Chowking, located at Primrose
Hotel, to deposit their rentals with the court; 3) direct Metrobank, P.
Burgos Branch, to freeze the accounts in the name of Rosario,
Primrose Development Corporation (Primrose) or Remedios; and 4)
lock up the Primrose Hotel in order to preserve the property until final
disposition by the court.
● Remedios and Manuela averred that Marty was not an adopted child of
the Villasins; They also argued that the probate court had no
jurisdiction over the properties mistakenly claimed by Marty as part of
Rosario's estate because these properties were actually owned by,
and titled in the name of, Primrose. Anent the prayer to direct the
 tenants to deposit the rentals to the probate court, Remedios and
Manuela countered that the probate court had no jurisdiction over
properties owned by third persons, particularly by Primrose, the latter
having a separate and distinct personality from the decedent's estate.
● RTC Br 9 granted the motion of Marty and appointed the OIC Clerk of
Court as special administrator of the Estate; denied the motion for
reconsideration
● CA reversed the orders of RTC Br 9, except as to the appointment of
special administrator
○ It held that Primrose had a personality separate and distinct
from the estate of the decedent and that the probate court had
no jurisdiction to apply the doctrine of piercing the corporate
veil.
○ RTC-Br. 6 partially granted the motion as it revoked the power
of the special administrator to oversee the day-to-day
operations of Primrose. It also revoked the order with respect
to Mercury Drug and Chowking, reasoning out that the said
establishments dealt with Primrose, which had a personality
distinct and separate from the estate of the decedent.

ISSUE: W/N Primrose Development Corporation has a separate juridical

personality, distinct from the Estate of Rosario Guy-Joco Villasin Casilan?
(Yes)

RULING:
WHEREFORE, the petition is GRANTED. The Temporary Restraining Order,
dated June 14, 2013, is hereby made PERMANENT, effective immediately.
The Regional Trial Court, Branch 6, Tacloban City, is ENJOINED from
enforcing and implementing its January 20, 2011 and June 10, 2011 Orders,
insofar as the corporate properties of Primrose Development Corporation
are concerned, to avert irreparable damage to a corporate entity, separate
and distinct from the Estate of Rosario Guy- Juco Villasin Casilan.

● Artificial persons include (1) a collection or succession of natural

persons forming a corporation; and (2) a collection of property to which
the law attributes the capacity of having rights and duties. This class of
artificial persons is recognized only to a limited extent in our law. The
estate of the deceased person is a juridical person separate and
distinct from the person of the decedent and any other
corporation.
● The doctrine of piercing the corporate veil has no relevant application
in this case. Under this doctrine, the court looks at the corporation as a
mere collection of individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of
the corporation unifying the group.
● Here, instead of holding the decedent's interest in the corporation
separately as a stockholder, the situation was reversed. Instead, the
probate court ordered the lessees of the corporation to remit rentals to
the estate's administrator without taking note of the fact that the
decedent was not the absolute owner of Primrose but only an owner of
shares thereof. Mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stocks of a
corporation is not of itself a sufficient reason for disregarding the
fiction of separate corporate personalities.
Tee Ling Kiat v Ayala Doctrine: VIP is a juridical entity with personality separate and distinct from
Corp et al GR 192530 Dee, its incorporator. As such, the court cannot levy on properties not owned
Mar 7, 2018 by the Sps. Dee, who are the judgment debtors in the present case.

Facts:
● This present petition arose from a judgment for a sum of money
obtained by Ayala Corporation against Continental Manufacturing
Corporation (CMC) and Spouses Dewey and Lily Dee (Spouses Dee).
● May 21, 1980 Ayala Investment and Development Corp (AIDC)
granted in favor of CMC a money market line in the maximum amount
of P2M.
● Dewey Dy was the president of CMC so Sps. Dee executed a Surety
Agreement as guarantee for the money market line. This was evinced
by a Promissory Note (dated Nov 20, 1980, amount P800k, due on Jan
16, 1981)
● AIDC endorsed the PN to Ayala Corp. Then CMC defaulted on its
obligation on the PN.
● Hence Ayala Corp filed a claim for sum of money against CMC and
Sps. Dee.

● RTC DECISION: for Ayala Corp, decision became final hence a writ of
execution was issued.
● Notice of Levy on Execution was issued to Register of Deeds of
Antipolo City to levy on certain parcels of lands.
● Lands were registered in the name of Vonnel Industrial Park, Inc (VIP).
● Indicated in the sheriff’s return the properties are registered in the
name of VIP, where Dewey Dee was an incorporator.

● 3rd part complaint filed: Tee Ling Kiat filed a 3rd party complaint
claiming that Dewey Dee was one of the incorporators but he is no
longer a stock holder and has not rights, claims, shares, interests, title
and participation in VIP or any of its properties.
○ On Dec 1980 Dewey sold to Tee all his stocks.
● RTC issued a Notice of Third-Party Claim and AMORA (substituted
Ayala Corp.) posted a bond P2,658,700 and was approved.
● Tee filed an omnibus motion stating that Dewey was no longer has any
interest in the levied properties and bond was less than the value of
the properties levied.
● AMORA claims that no general information sheets and audited
financial statements were submitted by VIP to SEC and no record from
SEC that Tee was the stockholder. The case was re-raffled.

● RTC Branch 59 decision: denied omnibus motion and 3rd party claim.
● CA DECISION: affirmed RTC. Tee Ling’s petition for certiorari was
denied he’s not a real party-in-interest. Tee Ling Kiat failed to prove to
the Court the existence or veracity of the claimed Deed of Sale of
Shares of Stock and the attach photocopies of the deed or payments
of checks. Tee Ling needed to prove the transaction took place. Tee
Ling Kiat also raised, for the first time, that he can be properly
considered a trustee of VIP, entitled to hold properties on the latter's
behalf. CA decided that there was no evidence produces to show that
Tee Ling is a trustee of the corporation. MR denied, Tee Ling appealed
to SC.
● CA held that Tee Ling Kiat utterly failed: (i) to prove that he is a
stockholder of VIP; and assuming he is, (ii) to show that he was
 authorized by the corporation for the purpose of prosecuting the claim
on behalf of the corporation.

Issue: WON the VIP properties were Dewey Dee’s properties? NO

Ruling: Being a corporation, VIP is a juridical entity with personality separate

and distinct from Dee, its incorporator. As such, the court cannot levy on
properties not owned by the Sps. Dee, who are the judgment debtors in the
present case. The evidence of the sale which were the cancelled check and
the photocopy of the deed of sale of the stocks has no probative value and
inadmissible in evidence and there was no justification why the original deed of
sale was not produced. Even if the sale did happen the transfer is not binding
to the Corporation because the same was not recorded in the books of the
corporation. In this case the transfer was not recorded in VIP’s corporate books
therefore it is not valid/binding to the corporation or as to 3 rd persons.

Judgment for a sum of money dated November 29, 1990 obtained by Ayala
Corporation was against the Spouses Dewey and Lily Dee in their personal
capacities as sureties in the money market line transaction. Yet, in the
execution of said judgment, the properties levied upon were registered in the
name of VIP, a juridical entity with personality separate and distinct from
Dewey Dee. Money judgments are enforceable against a property belonging to
the judgement debtor who claims ownership over the levied properties and a
person other than the judgement debtor who claims ownership is not precluded
from challenging the levy through any remedy provided by Rules of Court.
However, In this case Tee Ling failed to establish his ownership over the levied
properties.

WHEREFORE, premises considered, the instant petition for review is DENIED.

The Decision dated September 24, 2009 and Resolution dated May 26, 2010
of the Court of Appeals in CA-G.R. SP No. 105081 are hereby AFFIRMED.

Spouses Fernandez v DOCTRINE: The doctrine of piercing the veil of corporate fiction is a legal
Smart Communications precept that allows a corporation's separate personality to be disregarded
Inc GR 212885 Jul 17, under certain circumstances, so that a corporation and its stockholders or
2019 members, or a corporation and another related corporation could be treated as
a single entity. It is meant to apply only in situations where the separate
corporate personality of a corporation is being abused or being used for
wrongful purposes

FACTS:
● Everything Online (EOL) is a corporation that offers internet services
through franchisees. Smart Communications, Inc. (SMART) is a mobile
phone service provider. Petitioners Nolasco and Maricris were the
CEO and Member of the Board of Directors of EOL, respectively.
● As alleged in the amended complaint, EOL sought SMART in 2006 to
provide 2,000 post-paid lines with cell phone units for its expansion to
be distributed to its franchisees.
● EOL’s corporate president Samaco III signed 2 Corporate Service
Applications (SAF) for the 2,000 post-paid lines. And signed letters of
undertaking to cover for the 1,119 phone lines issued by SMART thus
far.
● Par. 8 of the Letters of Undertaking state that the President and each
one of the directors and officers of the corporation shall be held
 solidarily liable in their personal capacity with the subscriber for all
charges for the use of the SMART cellphone units acquired by the said
subscriber.
● EOL demanded the release of the remaining phone lines in Sept.
2006. Before approving further phone line applications SMART said
that the parties should restate and clarify the agreements between
them.
● Par. 9 of the EOL Undertaking signed by Samaco III provides:
○ The President and each one of the directors and officers of
Everything Online, Inc. shall be held solidarily liable in their
personal capacity with the franchisee or assignee for all
charges for the use of the SMART cellphone units acquired by
Everything Online, Inc.
● SMART sent by email, phone bills to EOL that had been previously
returned to SMART. These were for the collection of the monthly
payment due on the lines supposedly given to EOL’s franchisees.
However, EOL allegedly refused to receive the bills stating that it was
not liable.
● SMART notified EOL of its collectibles amounting to 18m. EOL officers
were also reminded that under the EOL Undertaking and Letter of
Agreements, it is bound to pay the bills of franchisees.
● A meeting was held and EOL issued a BDO check for P394,064.62 in
favor of SMART as partial payment. However, the check was
dishonored for insufficiency of funds.
● SMART sent 2 demand letters, one in 2007 and another in 2008 to
EOL but no payment was made. Total due from EOL amounted to
P39,770,810 as of Oct. 2008.
● Thus an application for a writ of preliminary attachment was filed by
SMART before the RTC of Makati for Collection of Sum of Money
against EOL and all its directors and officers including petitioners
Nolasco and Maricris.
● Petitioners averred that they are not the real party in interest in the
case.
● RTC dismissed the complaints against the named individuals and the
petitioners.
● CA found grave abuse on the part of the trial court in dismissing the
complaint against individual defendants.

ISSUE: W/N there was a ground to dismiss complaint for a collection of sum of
money against petitioners as corporate officer and director? Yes to Maricris,
No to Nolasco.

HELD:
● A judicious examination of the Amended Complaint shows that
petitioners were impleaded in the instant action based on the
provisions of the Letter Agreement and EOL Undertaking, which
purportedly bound them to be solidarily liable with the corporation in its
obligation with SMART.
● In effect, the Amended Complaint seeks to pierce the veil of corporate
fiction against Nolasco and Maricris in their capacities as corporate
officer and director of EOL.
● It is basic in corporation law that a corporation is an artificial being
invested by law with a personality separate and distinct from its
stockholders and from other corporations to which it may be
 connected.
● Inferred from a corporation's separate personality is that "consent by a
corporation through its representatives is not consent of the
representative, personally." The corporate obligations, incurred
through official acts of its representatives, are its own.
● Corollarily, a stockholder, director, or representative does not become
a party to a contract just because a corporation executed a contract
through that stockholder, director, or representative.
● As a general rule, a corporation's representatives are not bound by the
terms of the contract executed by the corporation. "They are not
personally liable for obligations and liabilities incurred on or in behalf of
the corporation."
● There are instances, however, when the distinction between
personalities of directors, officers, and representatives, and of
the corporation, are disregarded. This is piercing the veil of
corporate fiction.
● The doctrine of piercing the veil of corporate fiction is a legal
precept that allows a corporation's separate personality to be
disregarded under certain circumstances, so that a corporation
and its stockholders or members, or a corporation and another
related corporation could be treated as a single entity.
● It is meant to apply only in situations where the separate
corporate personality of a corporation is being abused or being
used for wrongful purposes.
● The piercing of the corporate veil must be done with caution. To justify
the piercing of the veil of corporate fiction, "it must be shown by clear
and convincing proof that the separate and distinct personality of the
corporation was purposefully employed to evade a legitimate and
binding commitment and perpetuate a fraud or like wrongdoings."
● A corporate director, trustee, or officer is to be held solidarily liable with
the corporation in the following instances:
1. When directors and trustees or, in appropriate cases, the
officers of a corporation: (a) vote for or assent to patently
unlawful acts of the corporation; (b) act in bad faith or with
gross negligence in directing the corporate affairs; (c) are
guilty of conflict of interest to the prejudice of the corporation,
its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection
thereto;
3. When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with
the Corporation; or
4. When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate action.
● These instances have not been shown in the case of petitioner
Maricris. While the Amended Complaint alleged that EOL fraudulently
refused to pay the amount due, nothing in the said pleading or its
annexes would show the basis of Maricris' alleged fraudulent act that
warrants piercing the corporate veil.
● The trial court correctly dismissed the complaint against Maricris on
the ground of failure to state cause of action.
● This is not the case with petitioner Nolasco. Nolasco, as CEO, signed
 the EOL Undertaking purportedly binding himself to be "held solidarily
liable in his personal capacity with the franchisee or assignee for all
charges for the use of SMART cell phone units acquired by Everything
Online, Inc.”
● Verily, the trial court erred in dismissing the complaint against
petitioner Nolasco. The allegations in the complaint, regarding the
possible personal liability of petitioner Nolasco based on Item 9
(mentioned in the facts above) of EOL Undertaking, sufficiently stated
a cause of action.
● The question of whether petitioner Nolasco is a real party-in-interest
who would be benefited or injured by the judgment, would be better
threshed out in a full- blown trial. Indeed, in cases that call for the
piercing of the corporate veil, "parties who are normally treated as
distinct individuals should be made to participate in the proceedings in
order to determine if such distinction should be disregarded and, if so,
to determine the extent of their liabilities."
● WHEREFORE, premises considered, the petition is PARTLY
GRANTED . The December 2, 2013 Decision of Court of Appeals in
CA-G.R. SP. No. 113832 is hereby MODIFIED to the extent that the
complaint against petitioner Maricris Fernandez is dismissed for failure
to state a cause of action.

ABSCBN v Honorato Doctrine: The doctrine of piercing the veil of corporate fiction is a legal precept
Hilario et al GR 193136 that allows a corporation's separate personality to be disregarded under certain
Jul 10, 2019 circumstances so that a corporation and its stockholders or members, or a
corporation and another related corporation should be treated as a single
entity.

FACTS:
● ABS-CBN is a domestic corporation primarily engaged in the
business of international and local broadcasting of television and
radio content. One of the ABS-CBN’s independent contractors
engaged r was Mr. Edmund Ty (Ty).
● In 1995, CCI was formed and incorporated by Ty together with some
officers of ABS-CBN. It was organized for television programs, theater
presentations, concerts, conventions and/or commercial advertising to
which Ty became the Vice-President and Managing Director of CCI.
● On March 6, 1995, respondent Honorato was hired by CCI as
Designer. Respondent Banting, on the other hand, was engaged by
CCI as Metal Craftsman in April 1999.
● In June 2003, Ty decided to retire as Managing Director of CCI to
organize and create his own company..
● In August 2003, Ty organized and created Dream Weaver Visual
Exponents, Inc. (DWVEI). Like CCI, DWVEI is primarily engaged in the
business of conceptualizing, designing and constructing sets and
props for use in television programs and similar projects. With that,
ABS-CBN engaged the services of DWVEI.
● Respondents Banting and Hilario were served their respective notices
of the closure of CCI effective October 5, 2003 and was terminated but
were given their respective back wages,
● On September 24, 2003, respondents filed a complaint for illegal
dismissal, illegal deduction, non-payment of meal allowances, with
prayer for damages against CCI and petitioner before the National
Labor Relations Commission (NLRC) Arbitration Branch. In their
position paper, respondents claimed that the closure of CCI was not
 due to any of the authorized causes provided by law but was done in
bad faith for the purpose of circumventing the provisions of the Labor
Code, as CCI was still conducting operations under the guise of
DWVEI
● The Labor Arbiter finding respondents to have been illegally dismissed,
and ordering CCI and petitioner to reinstate them to their forrner or
equivalent positions and to jointly and severally pay their full
backwages and other allowances.
● NLRC affirmed the decision of the LA in finding petitioner and CCI
jointly and severally liable to pay respondents their backwages and
other allowances.
● The CA rendered a Decision17 dated March 4, 2010 which affirmed
the finding of illegal dismissal of respondents but modified the decision
of the NLRC and ordered the respondents' reinstatement but deducted
their back wages.
● Petitioner maintains that ABS-CBN and CCI are separate and
distinct corporations and that there was no factual and legal
basis to disregard their separate corporate personalities.
● Petitioner contends that contrary to the ruling of the CA, respondents'
termination was valid and legal and was done in good faith in
accordance with the law and not a scheme to get rid of some
employees. Respondent posits that CCI continued to operate and
accept job orders and render services to petitioner and thereafter
continued to operate under the guise of DWVEI, a front corporation for
CCI. Petitioner counters that the fact that CCI was a subsidiary of
ABS-CBN prior to its closure and that former CCI officers are the
incorporators and officers of DWVEI cannot be used as a justification
to pierce the separate corporate fiction of these companies, much
more consider petitioner and DWVEI as one and the same entity. This
is especially true considering that the said former officers of CCI who
became incorporators and officers of DWVEI are not officers and
employees of ABS-CBN.

ISSUE: Whether ABS-CBN is jointly and severally liable with CCI for the
dismissal of respondents.

Ruling:

● Yes. Having ruled that respondents' termination as illegal, We now

proceed to rule on whether petitioner was correctly held jointly and
severally liable with CCI for payment of monetary award to
respondents.
● The doctrine of piercing the veil of corporate fiction is a legal precept
that allows a corporation's separate personality to be disregarded
under certain circumstances so that a corporation and its stockholders
or members, or a corporation and another related corporation should
be treated as a single entity.
● In PNB v. Hydro Resources Contractors Corp., the Court said that:
● The doctrine of piercing the corporate veil applies only in three (3)
basic areas, namely: (3) 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.
● The present case falls under the third instance where a corporation is
 merely a farce since it is a mere alter ego or business conduit of
person or in this case a corporation. "The corporate mask may be
removed or the corporate veil pierced when the corporation is just an
alter ego of a person or of another corporation."
● By looking at the circumstances surrounding the creation,
incorporation, management and closure and cessation of business
operations of CCI, it cannot be denied that CCJ's existence was
dependent upon Ty and petitioner. First, the internal Scenic
Depmiment which initially handled the props and set designs of
petitioner was abolished and shut down and CCI was incorporated to
cater to the props and set design requirements of petitioner, thereby
transferring most of its personnel to CCI. Notably, CCI was a
subsidiary of petitioner and was incorporated through the collaboration
of Ty and the other major stockholders and officers of petitioner. CCI
provided services mainly to petitioner and its other subsidiaries.
● When Edmund Ty organized his own company, petitioner hired him as
consultant and eventually engaged the services of his company
DWVEI. As a result of which CCI decided to close its business
operations as it no longer carried out services for the design and
construction of sets and props for use in the programs and shows of
petitioner, thereby terminating respondents and other employees of
CCI. Petitioner clearly exercised control and influence in the
management and closure of CCI's operations, which justifies the ruling
of the appellate court and labor tribunals of disregarding their separate
corporate personalities and treating them as a single entity.

Pacific Rehouse Corp DOCTRINE:

et al v CA et al GR Doctrine of piercing the corporate veil.
199687 Mar 24, 2014 There must be a perpetuation of fraud behind the control or at least a
fraudulent or illegal purpose behind the control in order to justify piercing the
veil of corporate fiction.

The alter ego theory cannot be sustained. The ownership of a subsidiary by

the parent company is not enough justification to pierce the veil of corporate
fiction. There must be proof, apart from mere ownership, that the parent
company exploited or misused the corporate fiction of the subsidiary company.

The existence of interlocking incorporators, directors and officers between the

two corporations is not a conclusive indication that they are one and the same.

FACTS:
A complaint was instituted with the Makati City Regional Trial Court (RTC),
Branch 66, against EIB Securities Inc. (E–Securities) for unauthorized sale of
32,180,000 DMCI shares of Pacific Rehouse Corporation, Pacific Concorde
Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East
Asia Oil Company, Inc.

In its October 18, 2005 Resolution, the RTC rendered judgment on the
pleadings, directing the E–Securities to return to the petitioners 32,180,000
DMCI shares, as of judicial demand. On the other hand, petitioners are
directed to reimburse the defendant the amount of [P]10,942,200.00,
representing the buy back price of the 60,790,000 KPP shares of stocks at
[P]0.18 per share. The Resolution was ultimately affirmed by the Supreme
Court and attained finality.

When the Writ of Execution was returned unsatisfied, petitioners moved for the
issuance of an alias writ of execution to hold Export and Industry Bank, Inc.
liable for the judgment obligation as E–Securities is “a wholly–owned controlled
and dominated subsidiary of Export and Industry Bank, Inc., and is, thus, a
mere alter ego and business conduit of the latter. E–Securities opposed the
motion, arguing that it has a corporate personality that is separate and distinct
from the respondent.

The RTC eventually concluded that E–Securities is a mere business conduit or

alter ego of petitioner, the dominant parent corporation, which justifies piercing
of the veil of corporate fiction, and issued an alias writ of summons directing
defendant EIB Securities, Inc., and/or Export and Industry Bank, Inc., to fully
comply therewith. It ratiocinated that being one and the same entity in the eyes
of the law, the service of summons upon EIB Securities, Inc. (E–Securities)
has bestowed jurisdiction over both the parent and wholly–owned subsidiary.

Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals
a petition for certiorari with prayer for the issuance of a temporary restraining
order (TRO) seeking the nullification of the RTC Order. The Court of Appeals
reversed the RTC Order and explained that the alter ego theory cannot be
sustained because ownership of a subsidiary by the parent company is not
enough justification to pierce the veil of corporate fiction. There must be proof,
apart from mere ownership, that Export Bank exploited or misused the
corporate fiction of E–Securities. The existence of interlocking incorporators,
directors and officers between the two corporations is not a conclusive
indication that they are one and the same.

The records also do not show that Export Bank has complete control over the
business policies, affairs and/or transactions of E–Securities. It was solely E–
Securities that contracted the obligation in furtherance of its legitimate
corporate purpose; thus, any fall out must be confined within its limited liability.

ISSUE:
WON E-Securities is an alter ego of Export Bank that “piercing the veil of
corporate fiction” is proper.

RULING:
NO. An alter ego exists where one corporation is so organized and controlled
and its affairs are conducted so that it is, in fact, a mere instrumentality or
adjunct of the other. The control necessary to invoke the alter ego doctrine is
not majority or even complete stock control but such domination of finances,
 policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal.

The Court has laid down a three–pronged control test to establish when the
alter ego doctrine should be operative:

1. Control, not mere majority or complete stock control, but complete

domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of
its own;

2. Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive
legal duty, or dishonest and unjust act in contravention of plaintiff’s
legal right; and

3. The aforesaid control and breach of duty must [have] proximately

caused the injury or unjust loss complained of.

The absence of any one of these elements prevents ‘piercing the corporate
veil’ in applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are
concerned with reality and not form, with how the corporation operated and the
individual defendant’s relationship to that operation. Hence, all three elements
should concur for the alter ego doctrine to be applicable.

WPM Intl Trading Inc

et al v Labayen GR Doctrine: Piercing the corporate veil based on the alter ego theory requires
182770 Sep 17, 2014 the concurrence of three elements, namely:(1) Control, not mere majority or
complete stock control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate mind, will
or existence of its own;(2) Such control must have been used by the
defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or a dishonest and unjust act in
contravention of plaintiff’s legal right; and 3) The aforesaid control and
breach of duty must have proximately caused the injury or unjust loss
complained of.The absence of any of these elements prevents piercing the
corporate veil.

Facts:
- Respondent Fe Corazon Labayen, owner of H.B.O Systems
Consultants, entered into a management agreement with petitioner
WPM International Trading Inc (WPM) while Warlito P. Manlapaz
as its president. In the agreement, the respondent was authorized
to operate and rehabilitate Quickbite, a restaurant owned by WPM.
- The respondent engaged the services of CLN Engineering
Services to renovate Quickbite which caused P432,876.02
however upon completion only P320.000 was paid to CLN.
- CLN filed with the RTC a complaint for Sum of Money against the
respondent and Manlapaz.However later amended wherein
 Manlapaz was excluded as defendant. The RTC ruled against the
respondent and held them liable to pay CLN damages with interest
and attorney’s fees
- Therefor respondent filed a complaint for damages against
petitioners, WPM and Manlapaz. Petitioner claims that her
participation in the management was limited only to introducing
Manlapaz to CLN’s manager Eng. Carmelo Neri and it was Neri
and Manlapaz who agreed on the terms and conditions of the
agreement.
- Manlapaz claims that it was his director Edgar Alcansaje who was
in charge iof the operations of Quickbites and that respondent
entered into the agreement with CLN in their own capacity and that
upon finding the amount to be too high, instructed respondent to
renegotiate which the latter was not able to do. He also claims that
WPM has a separate and distinct personality and that he should
not be held liable for the respondent’s claim.
- RTC: WPM is a mere instrumentality or business conduit of
Manlapaz and as such, WPM and Manlapaz are considered one
and the same. Manlapaz had complete control over WPM
considering that he is its chairman, president and treasurer at the
same time
- CA: affirmed RTC

Issue:
1) Whether or not WPM is merely instrumentality, alter-ego, and
conduit of Manlapaz
2) Whether Manlapaz is jointly and severally liable with WPM to the
respondent for reimbursement, damages and interest.

Ruling:

1. NO. The circumstances do not establish that WPM is a mere alter

ego of Manlapaz.
- A corporation has a personality separate and distinct from the
persons acting for and in its behalf and, in general, from the
people comprising it. The obligations incurred by the corporate
officers, or other persons acting as corporate agents, are the direct
accountabilities of the corporation they represent, and not theirs.
Thus, a director, officer or employee of a corporation is generally
not held personally liable for obligations incurred by the
corporation
- The doctrine of piercing the corporate veil applies only in three (3)
basic instances, namely: a) when the separate and distinct
corporate personality defeats public convenience, as when
the corporate fiction is used as a vehicle for the evasion of an
existing obligation; b) in fraud cases, or when the corporate
entity is used to justify a wrong, protect a fraud, or defend a
crime; or c) is used in alter ego cases, i.e., where a corporation
is essentially 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 so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.
- Piercing the corporate veil based on the alter ego theory requires
the concurrence of three elements, namely: (1) Control, not mere
majority or complete stock control, but complete domination,
 not only of finances but of policy and business practice in respect
to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of
its own; (2) Such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and (3) The aforesaid control
and breach of duty must have proximately caused the injury or
unjust loss complained of. The absence of any of these
elements prevents piercing the corporate veil.

- Aside from the fact that Manlapaz was the principal stockholder of
WPM, records do not show that WPM was organized and
controlled, and its affairs conducted in a manner that made it
merely an instrumentality, agency, conduit or adjunct of Manlapaz.

- The mere ownership by a singles stockholder of even all or nearly

all of the capital stocks of a corporation is not by itself a sufficient
ground to disregard the separate corporate personality. To
disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established.

- That Manlapaz concurrently held the positions of president,

chairman and treasurer, or that the Manlapaz’s residence is the
registered principal office of WPM, are insufficient considerations
to prove that he had exercised absolute control over WPM

- Even granting that he exercised a certain degree of control over

the finances, policies and practices of WPM, in view of his position
as president, chairman and treasurer of the corporation, such
control does not necessarily warrant piercing the veil of corporate
fiction since there was not a single proof that WPM was formed to
defraud CLN or the respondent, or that Manlapaz was guilty of bad
faith or fraud.

1. NO. The evidence establishes that CLN and the respondent knew
and acted on the knowledge that they were dealing with WPM for
the renovation of the latter’s restaurant, and not with Manlapaz.
That WPM later reneged on its monetary obligation to CLN,
resulting to the filing of a civil case for sum of money against the
respondent, does not automatically indicate fraud, in the absence
of any proof to support it.

CA failed to demonstrate how the separate and distinct personality of

WPM was used by Manlapaz to defeat the respondent’s right for
reimbursement. Neither was there any showing that WPM attempted to
avoid liability or had no property against which to proceed.

No harm could be said to have been proximately caused by Manlapaz

for which the latter could be held solidarily liable with WPM, and
considering that there was no proof that WPM had insufficient funds,
there was no sufficient justification for the RTC and the CA to have
ruled that Manlapaz should be held jointly and severally liable to the
 respondent for the amount she paid to CLN. Hence, only WPM is liable
to indemnify the respondent.

NOTE:
The piercing of the veil of corporate fiction is frowned upon and thus, must be
done with caution. It can only be done if it has been clearly established that the
separate and distinct personality of the corporation is used to justify a wrong,
protect fraud, or perpetrate a deception. The court must be certain that the
corporate fiction was misused to such an extent that injustice, fraud, or crime
was committed against another, in disregard of its rights; it cannot be
presumed

Maricalum Mining v Doctrine: Under the alter ego theory, piercing the corporate veil requires the
Florentino et al GR concurrence of three elements: control of the corporation by the stockholder
221813 Jul 23, 2018 or parent corporation, fraud or fundamental unfairness imposed on the plaintiff,
and harm or damage caused to the plaintiff by the fraudulent or unfair act of
the corporation.

The absence of any of these elements prevents piercing the corporate

veil.

Facts:
● In 1992, respondent G Holdings Inc. bought 90% of petitioner
Maricalum Mining Corporation’s shares and thereafter immediately
took possession of its Sipalay Mining Complexand took full control of
its management and operations.
● In 1999, the Sipalay General Hospital, Inc. was duly incorporated.
Afterwards, some of Maricalum Mining's employees retired and formed
several manpower cooperatives each of which executed identical sets
of Memorandum of Agreement with Maricalum Mining wherein they
undertook, among others, to provide the latter with a steady supply of
workers, machinery and equipment for a monthly fee.
● In 2001, Maricalum Mining decided to stop its mining operations to
avert continuing losses. Its properties were foreclosed and sold to G
Holdings as the highest bidder.
● In 2010, some of Maricalum Mining's workers and Sipalay General
Hospital's employees jointly filed a Complaint with the Labor Arbiter
(LA) against G Holdings, and the cooperatives for illegal dismissal,
underpayment and nonpayment of salaries and benefits, and
damages.
● Complainants posited that: the Sipalay Hospital is "among the assets"
of Maricalum Mining acquired by G Holdings; and their pay roll were
prepared by G Holdings' accounting department.Correspondingly, G
Holdings maintained that: it was Maricalum Mining who entered into an
agreement with the manpower cooperatives for the employment of
complainants' services.
● The LA ruled in favor of complainants and held that G Holdings
connived with Maricalum Mining in orchestrating the formation of
manpower cooperatives to circumvent complainants' labor standards
rights.
● On appeal, the NLRC imposed the liability of paying the monetary
awards imposed by the LA against Maricalum Mining, instead of G
 Holdings, on the grounds that it was Maricalum Mining who entered
into service contracts with each of the manpower cooperatives.
● The CA affirmed the decision of the NLRC.

Issue: WON the CA erred in affirming the NLRC's ruling which allowed the
piercing of the corporate veil against Maricalum mining but not against Sipalay
hospital. -No.

Ruling:

The doctrine of piercing the corporate veil applies only in three (3) basic
areas:
(a) defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation;
(b) fraud cases or when the corporate entity is used to justify a wrong, protect
fraud, or defend a crime; or
(c) 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.

This principle is applied only to determine established liability. However,

piercing of the veil of corporate fiction is frowned upon and must be done with
caution. This is because a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as well as
from that of any other legal entity to which it may be related.

While the veil of corporate fiction may be pierced under certain instances,
mere ownership of a subsidiary does not justify the imposition of liability on the
parent company. It must further appear that to recognize a parent and a
subsidiary as separate entities would aid in the consummation of a
wrong. Thus, a holding corporation has a separate corporate existence
and is to be treated as a separate entity; unless the facts show that such
separate corporate existence is a mere sham, or has been used as an
instrument for concealing the truth.

The elements of the alter ego theory were discussed in Philippine National
Bank v. Hydro Resources Contractors Corporation:
● "Instrumentality" or "control" test - Requires that the subsidiary be
completely under the control and domination of the parent. It examines
the parent corporation's relationship with the subsidiary.
● "Fraud" test- Requires that the parent corporation's conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful. It
examines the relationship of the plaintiff to the corporation.
● "Harm" test- Requires the plaintiff to show that the defendant's
control, exerted in a fraudulent, illegal or otherwise unfair manner
toward it, caused the harm suffered. A causal connection between the
fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the
plaintiff should be established.

To summarize, under the alter ego theory, piercing the corporate veil
 requires the concurrence of three elements: control of the corporation by
the stockholder or parent corporation, fraud or fundamental unfairness
imposed on the plaintiff, and harm or damage caused to the plaintiff by the
fraudulent or unfair act of the corporation.

The absence of any of these elements prevents piercing the corporate

veil.

In this case:
● "Instrumentality" or "control" test - G Holdings-being the majority
and controlling stockholder-had been exercising significant control
over Maricalum Mining. Mere presence of control and full ownership
of a parent over a subsidiary is not enough to pierce the veil of
corporate fiction. SC: mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the
separate corporate personality
● "Fraud" test- Complainants did not satisfy the requisite quantum of
evidence to prove fraud on the part of G Holdings. They merely offered
allegations and suppositions that, since Maricalum Mining's assets
appear to be continuously depleting and that the same corporation is a
subsidiary, G Holdings could have been guilty of fraud. Bare
allegations do not prove anything. There must be proof that fraud-not
the inevitable effects of a previously executed and valid contract such
as the PSA-was the cause of the latter's total asset depletion. The
presence of control per se is not enough to justify the piercing of the
corporate veil.
● "Harm" test- Complainants have not yet even suffered any monetary
injury. They have yet to enforce their claims against Maricalum Mining.

Complainants failed to satisfy the second and third tests to justify the
application of the alter ego theory. This inevitably shows that the CA
committed no reversible error in upholding the NLRC's Decision declaring
Maricalum Mining as the proper party liable to pay the monetary awards in
favor of complainants.

SC affirmed the CA decision.

SC Megaworld v Engr Doctrine:A sole proprietorship has no juridical personality separate and distinct
Parada GR 183804 from that of its owner, and need not be impleaded as a party-plaintiff in a civil
Sep 11, 2013 case.

Fact:
● S.C. Megaworld Construction and Development Corporation
(Megaworld) bought electrical lighting materials from Gentile
Industries, a sole proprietorship owned by Engineer Luis U. Parada.
Megaworld was unable to pay for the above purchase on due date, but
blamed it on its failure to collect under its sub-contract with the Enviro
KleenTechnologies, Inc. (Enviro Kleen).
● It was however able to persuade Enviro Kleen to agree to settle its
above purchase, but after paying the respondent P250,000.00 once,
Enviro Kleen stopped making further payments, leaving an outstanding
balance of P816,627.00.
● It also ignored the various demands of the Parada, who then filed a
suit in the RTC, to collect from the petitioner the said balance, plus
 damages, costs and expenses.
● Megaworld denied liability by saying that it was released from its
indebtedness to the Parada due to the novation of their contract,
which. There was allegedly novation when the Parada accepted the
partial payment of Enviro Kleen in its behalf, and thereby acquiesced
to the substitution of Enviro Kleen as the new debtor in Megaworld’s
place.
● The Regional Trial Court ruled in favor of Parada.
● On appeal, Megaworld argued that the trial court should have
dismissed the complaint for failure of the Parada (Respondent) to
implead Genlite Industries as "a proper party in interest."
○ SEC. 2. Parties in interest. — A real party in interest is the
party who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must
be prosecuted or defended in the name of the real party in
interest.
● In Section 1 (g) of Rule 16 of the Rules of Court, it is also provided that
the defendant may move to dismiss the suit on the ground that it was
not brought in the name of or against the real party in interest, with the
effect that the complaint is then deemed to state no cause of action.
● In dismissing the appeal, the CA noted that the petitioner in its answer
below raised only the defense of novation, and that at no stage in the
proceedings did it raise the question of whether the suit was brought in
the name of the real party in interest.
CA:
● The appellate court found from the sales invoices and receipts that the
respondent is the sole proprietor of Genlite Industries, and therefore
the real party-plaintiff. The sales invoices and receipts show that the
respondent is the sole proprietor of Genlite Industries, and therefore
the real party.
● On the issue of novation, the Court of Appeals ruled that by retaining
his option to seek satisfaction from the petitioner, any acquiescence
which the respondent had made was limited to merely accepting
Enviro Kleen as an additional debtor from whom he could demand
payment, but without releasing the petitioner as the principal debtor
from its debt to him.

Issue:W/N Genlite Industries should have been impleaded as a party-plaintiff.

No.

Ruling:
● On the question of whether Genlite Industries should have been
impleaded as a party-plaintiff, Section 1 of Rule 3 of the Rules of Court
provides that only natural or juridical persons or entities authorized by
law may be parties in a civil case. Article 44 of the New Civil Code
enumerates who are juridical persons:
○ Art. 44. The following are juridical persons:
■ (1) The State and its political subdivisions;
■ (2) Other corporations, institutions and entities for
public interest or purpose, created by law; their
personality begins as soon as they have been
constituted according to law;
■ (3) Corporations, partnerships and associations for
private interest or purpose to which the law grants a
 juridical personality, separate and distinct from that of
each shareholder, partner or member.
● Genlite Industries is merely the DTI-registered trade name or style of
the respondent by which he conducted his business. As such, it does
not exist as a separate entity apart from its owner, and therefore it has
no separate juridical personality to sue or be sued.
● As the sole proprietor of Genlite Industries, there is no question that
the respondent is the real party in interest who stood to be directly
benefited or injured by the judgment in the complaint below.
● There is then no necessity for Genlite Industries to be impleaded as a
party-plaintiff, since the complaint was already filed in the name of its
proprietor, Engr. Luis U. Parada. To heed the petitioner's sophistic
reasoning is to permit a dubious technicality to frustrate the ends of
substantial justice.

Saludo v PNB GR Doctrine: Article 1767 of the Civil Code provides that by a contract of
193138 Aug 20, 2018 partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits
among themselves. Two or more persons may also form a partnership for the
exercise of a profession. (This is the doctrine, distinguish it from the definition
of a Corporation)

Facts:
● On June 11, 1998, SAFA Law Office entered into a Contract of Lease
with PNB, to lease of the second floor of the PNB Financial Center
Building in Quezon City for a period of three years and for a monthly
rental fee of P189,600.00. .
● SAFA Law Office then occupied the leased premises and paid
advance rental fees and security deposit in the total amount of
P1,137,600.00.
● On August 1, 2001, the Contract of Lease expired
● According to PNB, SAFA Law Office continued to occupy the leased
premises until February 2005, but discontinued paying its monthly
rental obligations after December 2002.
● Consequently, PNB sent a demand letter dated July 17, 2003 for
SAFA Law Office to pay its outstanding unpaid rents in the amount of
P4,648,086.34.
● PNB sent another letter demanding the payment of unpaid rents in the
amount of P5,856,803.53 which was received by SAFA Law Office on
November 10, 2003.
● SAFA claimed that it was enticed by the former management of PNB
into renting the leased premises by promising to: (1) give it a special
rate due to the large area of the place; (2) endorse PNB's cases to the
firm with rents to be paid out of attorney's fees; and (3) retain the firm
as one of PNB's external counsels.
● When new management took over, it allegedly agreed to uphold this
agreement to facilitate rental payments. However, not a single case of
significance was referred to the firm. SAFA Law Office then asked
PNB to review and discuss its billings,
● The SAFA firm asked PNB to give a 50% discount on its unpaid rents
● In February 2005, SAFA Law Office vacated the leased premises.
● PNB sent a demand letter 14 dated July 7, 2005 requiring the firm to
pay its rental arrears in the total amount of P10,951,948.32
● PNB, however, declined the settlement proposal
 ● On September 1, 2006, Saludo, in his capacity as managing
partner of SAFA Law Office, filed an amended complaint for
accounting and/or recomputation of unpaid rentals and damages
against PNB in relation to the Contract of Lease.

● On October 4, 2006, PNB filed a motion to include an

indispensable party as plaintiff, praying that Saludo be ordered to
amend anew his complaint to include SAFA Law Office as
principal plaintiff. PNB argued that the lessee in the Contract of
Lease is not Saludo but SAFA Law Office, and that Saludo merely
signed the Contract of Lease as the managing partner of the law
firm.
● Thus, SAFA Law Office must be joined as a plaintiff in the complaint
because it is considered an indispensable party under Section 7, Rule
3 of the Rules of Court
● PNB filed its answer. It sought payment from SAFA Law Office in the
sum of P25,587,838.09, representing overdue rentals.
● PNB argued that as a matter of right and equity, it can claim that
amount from SAFA Law Office in solidum with Saludo.
● On October 23, 2006, Saludo filed his motion to dismiss
counterclaims, mainly arguing that SAFA Law Office is neither a
legal entity nor party litigant. As it is only a relationship or
association of lawyers in the practice of law and a single
proprietorship which may only be sued through its owner or
proprietor, no valid counterclaims may be asserted against it
● RTC issued an Omnibus Order denying PNB's motion to include
an indispensable party as plaintiff and granting Saludo's motion
to dismiss counterclaims, RTC also denied the motion for
reconsideration
● CA affirmed the RTC decision

DECISION OF THE CA
● CA held that Saludo is estopped from claiming that SAFA Law Office is
his single proprietorship. Under the doctrine of 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. Here, SAFA Law Office was the one that entered into the
lease contract and not Saludo.
● In fact, the latter signed the contract as the firm's managing partner.
The alleged Memorandum of Understanding (MOU) executed by the
partners of SAFA Law Office, which states, among others, that Saludo
alone would be liable for the firm's losses and liabilities, and the letter
of Saludo to PNB confirming that SAFA Law Office is his single
proprietorship did not convert the firm to a single proprietorship.
● Moreover, SAFA Law Office sent a letter to PNB regarding its unpaid
rentals which Saludo signed as a managing partner. The firm is also
registered as a partnership with the Securities and Exchange
Commission (SEC).
● On the question of whether SAFA Law Office is an indispensable
party, the CA held that it is not. As a partnership, it may sue or be sued
in its name or by its duly authorized representative. Saludo, as
managing partner, may execute all acts of administration, including the
right to sue. Furthermore, the CA found that SAFA Law Office is not a
legal entity. A partnership for the practice of law is not a legal entity but
a mere relationship or association for a particular purpose(SC held
 that the American Jurisprudence that the CA based this from is merely
obiter dictum and not controlling and applicable to the PH). Thus,
SAFA Law Office cannot file an action in court. Based on these
premises, the CA held that the RTC did not gravely abuse its discretion
in denying PNB's motion to include an indispensable party as plaintiff.

● Nonetheless, the CA ruled that PNB's counterclaims against SAFA

Law Office should not be dismissed. While SAFA Law Office is not a
legal entity, it can still be sued under Section 15, 36 Rule 3 of the
Rules of Court considering that it entered into the Contract of Lease
with PNB

Issue
Whether the CA erred in including SAFA Law Office as defendant to PNB's
counterclaim despite its holding that SAFA Law Office is neither an
indispensable party nor a legal entity

Ruling:
● SAFA Law Office is a juridical entity and the real party-in-interest in the
suit filed with the RTC by Saludo against PNB. Hence, it should be
joined as plaintiff in that case.
● SAFA Law Office is a partnership and not a single proprietorship.
● Article 1767 of the Civil Code provides that by a contract of
partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention
of dividing the profits among themselves. Two or more persons
may also form a partnership for the exercise of a profession.
● Under Article 1771, a partnership may be constituted in any form,
except where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary. Article
1784, on the other hand, provides that a partnership begins from the
moment of the execution of the contract, unless it is otherwise
stipulated.
● Here, absent evidence of an earlier agreement, SAFA Law Office was
constituted as a partnership at the time its partners signed the Articles
of Partnership wherein they bound themselves to establish a
partnership for the practice of law, contribute capital and industry for
the purpose, and receive compensation and benefits in the course of
its operation. The opening paragraph of the Articles of Partnership
reveals the unequivocal intention of its signatories to form a
partnership
● The subsequent registration of the Articles of Partnership with the
SEC, on the other hand, was made in compliance with Article 1772 of
the Civil Code, since the initial capital of the partnership was
P500,000.00
● The other provisions of the Articles of Partnership also positively
identify SAFA Law Office as a partnership. It constantly used the
words "partners" and "partnership." It designated petitioner Saludo as
managing partner, and Attys. Ruben E. Agpalo, Filemon L.
Fernandez, and Amado D. Aquino as industrial partners. It also
provided for the term of the partnership, distribution of net profits and
losses, and management of the firm in which "the partners shall have
equal interest in the conduct of [its] affairs."1Moreover, it provided for
the cause and manner of dissolution of the partnership.
● These provisions would not have been necessary if what had been
 established was a sole proprietorship. Indeed, it may only be
concluded from the circumstances that, for all intents and purposes,
SAFA Law Office is a partnership created and organized in
accordance with the Civil Code provisions on partnership.
● Having settled that SAFA Law Office is a partnership, we hold that
it acquired juridical personality by operation of law. The
perfection and validity of a contract of partnership brings about
the creation of a juridical person separate and distinct from the
individuals comprising the partnership. Thus, Article 1768 of the
Civil Code provides:
● Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to
comply with the requirements of Article 1772, first paragraph.

● Article 44 of the Civil Code likewise provides that partnerships are

juridical persons, to wit:
● Art. 44. The following are juridical persons:
● (1) The State and its political subdivisions;
● (2) Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they have
been constituted according to law;
● (3) Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member.
● It is this juridical personality that allows a partnership to enter into
business transactions to fulfill its purposes. Article 46 of the Civil Code
provides that "[j]uridical persons may acquire and possess property of
all kinds, as well as incur obligations and bring civil or criminal actions,
in conformity with the laws and regulations of their organization."

● SAFA Law Office entered into a contract of lease with PNB as a

juridical person to pursue the objectives of the partnership. The terms
of the contract and the manner in which the parties implemented it are
a glaring recognition of SAFA Law Office's juridical personality. Thus,
the contract stated that it is being executed by PNB as the lessor and
"SALUDO AGPALO FERNANDEZ & AQUINO, a partnership
organized and existing under the laws of the Republic of the
Philippines," as the lessee.

● SAFA Law Office is a juridical person, we hold that it is also the real
party-in-interest in the case filed by Saludo against PNB.

● Section 2, Rule 3 of the Rules of Court defines a real party-in-interest

as the one "who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit." In Lee v. Romillo,
Jr., 73 we held that the "real [party-in-interest]-plaintiff is one who has
a legal right[,] while a real [party-in-interest]-defendant is one who has
a correlative legal obligation whose act or omission violates the legal
rights of the former."

● SAFA Law Office is the party that would be benefited or injured by the
judgment in the suit before the RTC
● Particularly, it is the party interested in the accounting and/or
recomputation of unpaid rentals and damages in relation to the
contract of lease. It is also the party that would be liable for payment to
 PNB of overdue rentals, if that claim would be proven.
● This is because it is the one that entered into the contract of lease with
PNB. As an entity possessed of a juridical personality, it has
concomitant rights and obligations with respect to the transactions it
enters into. Equally important, the general rule under Article 1816 of
the Civil Code is that partnership assets are primarily liable for the
contracts entered into in the name of the partnership and by a person
authorized to act on its behalf. All partners, including industrial ones,
are only liable pro rata with all their property after all the partnership
assets have been exhausted.
● Guy v. Gacott, under Article 1816 of the Civil Code, the partners'
obligation with respect to the partnership liabilities is subsidiary in
nature. It is merely secondary and only arises if the one primarily liable
fails to sufficiently satisfy the obligation. Resort to the properties of a
partner may be made only after efforts in exhausting partnership
assets have failed or if such partnership assets are insufficient to cover
the entire obligation. 76 Consequently, considering that SAFA Law
Office is primarily liable under the contract of lease, it is the real party-
in-interest that should be joined as plaintiff in the RTC case.
● Accordingly, the complaint filed by Saludo should be amended to
include SAFA Law Office as plaintiff

ABSCBN v CA 301 DOCTRINE: Under the Corporation Code, unless otherwise provided by said
SCRA 589 (1999) Code, corporate powers, such as the power to enter into contracts, are
exercised by the Board of Directors. However, the Board may delegate such
powers to either the executive committee or officials or contracted managers.
The delegation, except for the executive committee, must be for specific
purposes.

FACTS:
1. 1990: ABS-CBN and VIVA executed an agreement whereby VIVA
gave ABS-CBN an exclusive right to exhibit some VIVA films.
a. Under the agreement, ABS-CBN shall have the right of first
refusal to the next 24 VIVA films for TV telecast under such
terms as may be agreed upon by the parties, however, such
right shall be exercised by ABS-CBN from the actual offer in
writing.
2. 1991: VIVA offered ABS-CBN a list of 3 film packages from which
ABS-CBN may exercise its right of first refusal. ABS-CBN, however,
ticked off 10 titles they can purchase among which is the film “Maging
Sino Ka Man”, which is one of the subjects of the present case.
Therefore, it did not accept the said list.
3. Del Rosario (Executive Producer of VIVA) approached Mrs. Concio
(VP of ABS-CBN) with another list of 52 original movie titles and 104
re-runs, proposing to sell to ABS-CBN airing rights for P60M (P30M in
cash and P30M worth of television spots). Del Rosario and ABS-CBN’s
General Manager, Eugenio Lopez III, met at the Tamarind Grill
Restaurant in QC to discuss the package proposal.
4. Four days later, Del Rosario and Mr. Graciano Gozon, Senior VP of
Finance of Republic Broadcasting Corporation (RBS/Channel 7)
discussed the terms and conditions of VIVA’s offer.
5. A day after that, Mrs. Concio sent a handwritten note, wherein
attached is the draft of the contract between ABS-CBN and VIVA
 which contained a counter-proposal covering 53 films for P35M.
VIVA’s Board of Directors rejected the counter-proposal as it would not
sell anything less than the package of 104 films for P60M. After said
rejection, ABS-CBN closed a deal with RBS including the 14 films
previously ticked off by ABS-CBN.
6. Consequently, ABS-CBN filed a complaint for specific performance
with prayer for a writ of preliminary injunction and/or TRO against RBS,
VIVA and Del Rosario. RTC then enjoined the latter from airing the
subject films. RBS posted a P30M counterbond to dissolve the
injunction, which the RTC approved.
7. Later on, the trial court as well as the CA dismissed the complaint
holding that there was no meeting of minds between ABS-CBN and
VIVA, hence, there was no basis for ABS-CBN’s demand, furthermore,
the right of first refusal had previously been exercised.
8. Hence, the present petition, ABS-CBN argued that there was a
perfected contract and an agreement was made during the meeting of
Mr. Lopez and Del Rosario jotted down on a “napkin” (this was never
produced in court). Moreover, it had yet to fully exercise its right of first
refusal since only 10 titles were chosen from the first list.

RELEVANT ISSUE/S with RULINGS:

1) WON Mr. Del Rosario had the proper authority to represent VIVA in
entering into contracts such as in the case herein? NO.
1. Even if it be conceded arguendo that Del Rosario had accepted the
counter-offer, the acceptance did not bind VIVA, as there was no proof
whatsoever that Del Rosario had the specific authority to do so.
2. Under the Corporation code, unless otherwise provided by said Code,
corporate powers, such as the power to enter into contracts, are
exercised by the Board of Directors.
3. However, the Board may delegate such powers to either the executive
committee or officials or contracted managers. The delegation, except
for the executive committee, must be for specific purposes.
a. Delegation to officers makes the latter agents of the
corporation; accordingly, the general rules of agency as to the
binding effects of their acts would apply
4. For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially authorize them
to do so.
a. In this case, that Del Rosario did not have the authority to
accept ABS-CBN’s counter-offer was best evidenced by his
submission of the draft contract to VIVA’s Board of Directors
for the latter’s approval.
5. In any event, there was between Del Rosario and Lopez no
meeting of the minds, as seen in the following:
a. Numerous provisions were not discussed at the Tamarind Grill
b. Mr. Lopez’ testimony shows beyond doubt that he knows Mr.
Del Rosario had no authority to bind Viva to a contract with
ABS-CBN until and unless the Board of Directors approved it.
6. The complaint, in fact, alleges that Mr. Del Rosario “is the Executive
Producer of defendant Viva” which “is a corporation.”
7. As a mere agent of Viva, Del Rosario could not bind Viva unless what
he did is ratified by its Board of Directors. As a mere agent, recognized
as such by plaintiff, Del Rosario could not be held liable jointly and
severally with Viva and his inclusion as party defendant has no legal
basis.
 2) WON RBS is entitled to damages and attorney's fees? NO.
1. The award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no senses.
It cannot, therefore, experience physical suffering and mental anguish,
which call be experienced only by one having a nervous system.

NPC v Philipp Brothers Doctrine

Oceanic GR 126204 Where a person merely uses a right pertaining to him, without bad faith
Nov 20, 2001 (read or intent to injure, the fact that damages are thereby suffered by another
also the dissent) will not make him liable. (damnum absque injuria)
One who acted pursuant to the sincere belief that another willfully
committed an act prejudicial to the interest of the government cannot be
considered to have acted in bad faith.

Facts
● On May 14, 1987, the National Power Corp (NAPOCOR) issued
invitations to bid for the supply and delivery of 120,000 metric ton of
imported coal for its Batangas Coal-Fired Thermal Power Plant in
Calaca, Batangas
● The Philipp Brothers Oceanic (PHIBRO) prequalified and was allowed
to participate as one of the bidders. After public bidding was
conducted, PHIBRO’s bid was accepted. NAPOCOR’s acceptance
was conveyed via letter.
● The Bidding Terms and Specifications provided the manner of
shipment of the coals: seller shall provide carrier for the shipment of
coal to arrive at discharging port on or before 30 calendar days after
receipt of Letter of Credit by Seller.
● For the whole month of July 1987, PHIBRO informed NAPOCOR that
industrial disputes might soon plague Australia, shipment’s point of
origin, which could seriously hamper PHIBRO’s ability to supply the
needed coal. And that the ship owners are not willing to load cargo
unless a strike-free clause is incorporated in the charter party of the
contract of carriage.
● PHIBRO proposed to NAPOCOR that they equally share the burden of
a strike free clause BUT NAPOCOR refused
● The Letter of Credit was finally received by PHIBRO on Aug 6 and
instead of delivery 30 days after receipt just as agreed, PHIBRO
affected its first shipment only on Nov 17 (more than 30 days)

● In October, NAPOCOR once more advertised a bidding for delivery of

coal to its Calaca plant. PHIBRO participated again but was
disapproved by NAPOCOR for alleged “not meeting the minimum
requirements”. Turns out the real reason for disapproval was
PHIBRO’s purported failure to satisfy NAPOCOR’s demand for
damages due to the delay in the delivery of the first coal shipment
● PHIBRO thus filed an action for damages against NAPOCOR (RTC
rendered in favor of PHIBRO)
○ HIBRO alleged that NAPOCOR’s act of disqualifying it in the
October 1987 bidding and in all subsequent biddings was
tainted with malice and bad faith.
○ NAPOCOR averred that the strikes in Australia could not be
invoked as reason for the delay in the delivery of coal because
PHIBRO itself admitted that as of July 28, 1987 those strikes
had already ceased. And, even assuming that the strikes were
 still ongoing, PHIBRO should have shouldered the burden of a
"strike-free" clause because their contract was "C and F
Calaca, Batangas, Philippines," meaning, the cost and freight
from the point of origin until the point of destination would be
for the account of PHIBRO. Furthermore, NAPOCOR claimed
that due to PHIBRO’s failure to deliver the coal on time, it was
compelled to purchase coal from ASEA at a higher price.
NAPOCOR claimed for actual damages in the amount of
P12,436,185.73, representing the increase in the price of coal,
and a claim of P500,000.00 as litigation expenses.
● CA affirmed RTC

Issue
With the existence of strikes in Australia having been duly established in the
lower courts; WON NAPOCOR acted wrongfully or unjustly or abuse its right in
disqualifying PHIBRO from participating in the subsequent public bidding - NO

Ruling
● Clearly established from evidence that what prevented PHIBRO from
complying with its obligation was the industrial disputes which
besieged Australia during that time.
● Also, it was explicitly agreed in the Bidding Terms and Specifications
that neither seller nor buyer shall be liable for any delay in or failure of
performance of its obligations if any such delay is due to Force
Majeure. Defining Force Majeure as any disabling cause beyond the
control of and without fault or negligence of the party, which causes
may include but are not restricted to Acts of God or of the public
enemy.
● The law is clear and so is the contract between NAPOCOR and
PHIBRO. Therefore, we have no reason to rule otherwise. PHIBRO
NOT IN DELAY
● However, does it necessarily follow that NAPOCOR acted unjustly
from disapproving PHIBRO’s application?
● First, it must be stressed that NAPOCOR was not bound under any
contract to approve PHIBRO’s pre-qualification requirements. In fact,
NAPOCOR had expressly reserved its right to reject bids. “NAPOCOR
reserves the right to reject any or all bids, to waive any minor
informality in the bids received. The right is also reserved to reject the
bids of any bidder who has previously failed to properly perform or
complete on time any and all contracts for delivery of coal or any
supply undertaken by a bidder."
○ This Court has held that where the right to reject is so
reserved, the lowest bid or any bid for that matter may be
rejected on a mere technicality. 27 And where the government
as advertiser, availing itself of that right, makes its choice in
rejecting any or all bids, the losing bidder has no cause to
complain nor right to dispute that choice unless an unfairness
or injustice is shown. Accordingly, a bidder has no ground of
action to compel the Government to award the contract in his
favor, nor to compel it to accept his bid. Even the lowest bid or
any bid may be rejected.
○ The discretion to accept or reject a bid and award contracts is
vested in the Government agencies entrusted with that
function. The discretion given to the authorities on this matter
is of such wide latitude that the Courts will not interfere
 therewith, unless it is apparent that it is used as a shield to a
fraudulent award. (Jalandoni v. NARRA, 108 Phil. 486
[1960]). . . The exercise of this discretion is a policy decision
that necessitates prior inquiry, investigation, comparison,
evaluation, and deliberation. This task can best be discharged
by the Government agencies concerned, not by the Courts.
● APOCOR’s act of disapproving PHIBRO’s application for pre-
qualification to bid was without any intent to injure or a purposive
motive to perpetrate damage. Apparently, NAPOCOR acted on the
strong conviction that PHIBRO had a "seriously-impaired" track
record. NAPOCOR cannot be faulted from believing so. At this
juncture, it is worth mentioning that at the time NAPOCOR issued
its subsequent Invitation to Bid, i.e., October 1987, PHIBRO had
not yet delivered the first shipment of coal under the July 1987
contract, which was due on or before September 5, 1987.
Naturally, NAPOCOR is justified in entertaining doubts on
PHIBRO’s qualification or capability to assume an obligation
under a new contract.
○ Moreover, PHIBRO’s actuation in 1987 raised doubts as to
the real situation of the coal industry in Australia. It
appears from the records that when NAPOCOR was
constrained to consider an offer from another coal
supplier (ASEA) at a price of US$33.44 per metric ton,
PHIBRO unexpectedly offered the immediate delivery of
60,000 metric tons of Ulan steam coal at US$31.00 per
metric ton for arrival at Calaca, Batangas on September
20-21, 1987." 35 Of course, NAPOCOR had reason to
ponder — how come PHIBRO could assure the immediate
delivery of 60,000 metric tons of coal from the same
source to arrive at Calaca not later than September 20/21,
1987 but it could not deliver the coal it had undertaken
under its contract?
● The circumstances under which NAPOCOR disapproved PHIBRO’s
pre-qualification to bid do not show an intention to cause damage to
the latter. The measure it adopted was one of self-protection.
Consequently, we cannot penalize NAPOCOR for the course of action
it took. NAPOCOR cannot be made liable for actual, moral and
exemplary damages.
● At this point, we believe that, in the interest of fairness, NAPOCOR
should give PHIBRO another opportunity to participate in future public
bidding. As earlier mentioned, the delay on its part was due to a
fortuitous event.
○ But before we dispose of this case, we take this occasion to
remind PHIBRO of the indispensability of coal to a coal-fired
thermal plant. With households and businesses being entirely
dependent on the electricity supplied by NAPOCOR, the
delivery of coal cannot be venturesome. Indeed, public interest
demands that one who offers to deliver coal at an appointed
time must give a reasonable assurance that it can carry
through. With the deleterious possible consequences that may
result from failure to deliver the needed coal, we believe there
is greater strain of commitment in this kind of obligation.
● Wherefore, CA decision is modified. Delay in delivery was not due to
PHIBRO’s fault and NAPOCOR did not act arbitrarily in disapproving
PHIBRO’s bid. However, the award of actual, moral and exemplary
 damages and reimbursement for expenses in favor of PHIBRO is
deleted.

Dissent (Melo, J)
● Agrees with majority opinion as it finds that the delay in the delivery of
coal by PHIBRO to NAPOCOR was not PHIBRO’s fault, but disagrees
with the denial of the award of actual, moral, exemplary damages to
PHIBRO for NAPOCOR’s act of excluding PHIBRO from participating
in the second bidding.
● Since NAPOCOR has reserved the right to reject the bid of any bidder,
the exclusion of PHIBRO was, in effect, only the use by NAPOCOR of
a right pertaining to it, without bad faith or intent to injure and that the
fact that PHIBRO may have suffered injuries thereby would not make
NAPOCOR liable.
● But Melo believes the ff were ignored by the majority:
○ Firstly, the instant case does not involve the rejection of
PHIBRO’s bid by NAPOCOR. The fact is that PHIBRO was not
even allowed to bid by NAPOCOR. While it may be true that
any bid may be rejected on a mere technicality if the right to
reject is reserved, there is a whale of a difference between
rejecting a bid and excluding a prospective bidder from
participating in tenders, more so in this case where the
prospective bidder has complied with all the prequalification
requirements.
○ Secondly, the reservation of the right to reject bids contained
in the Instruction to Bidders is of doubtful applicability in this
case since PHIBRO was not even allowed to submit a bid by
NAPOCOR. The right to reject a bid implies that there was a
bid submitted. In this case, PHIBRO was barred from
submitting bids for subsequent tenders of NAPOCOR.
○ Thirdly, this is not a simple case of rejecting a bid but one of
barring participation in any and all subsequent bids for the
supply of coal. This barring of PHIBRO caused the latter to
incur damages, all because of what both the trial court and the
Court of Appeals viewed to be an unfounded imputation of
delay to PHIBRO in the July 8, 1987 contract for delivery of
coal.
● There is likewise uncontested or unrefuted evidence that as a result of
PHIBRO’s disqualification by NAPOCOR, PHIBRO suffered damages
in its international reputation and lost credibility in Government and
business circle, and hence an award is authorized by Art. 2205 of our
Civil Code.
● For the damage done to the business reputation of PHIBRO, I
respectfully submit that the Court of Appeals was likewise correct in
sustaining the award of US$100,000.00 as moral damages to private
respondent — a corporate body — under Article 2217 of the Civil
Code.

Filipinas Broadcasting Doctrine: Article 2219(7) does not qualify whether the plaintiff is a natural or
Network v Ago Medical juridical person. Therefore, a juridical person such as a corporation can validly
GR 141994 Jan 17, complain for libel or any other form of defamation and claim for moral
200 damages.

Facts
● "Exposé" is a radio documentary program hosted by Carmelo ‘Mel’
 Rima ("Rima") and Hermogenes ‘Jun’ Alegre ("Alegre"). It is aired
every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc.
● Rima and Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational Center-
Bicol Christian College of Medicine ("AMEC") and its administrators.
Claiming that the broadcasts were defamatory, AMEC and Angelita
Ago ("Ago"), as Dean of AMEC’s College of Medicine, filed a complaint
for damages against FBNI, Rima and Alegre on 27 February 1990.
● Some of the comments include:
○ “Students are required to take and pay for the subject even if
the subject does not have an instructor - such greed for money
on the part of AMEC’s administration.”;
○ AMEC is a dumping ground, garbage, not merely of moral and
physical misfits.
○ When they become members of society outside of campus will
be liabilities rather than assets.
● RTC acquitted Rima because his way of agreeing with the expose
could not be considered as violative of the freedom of expression
clause. However CA found FBNI, Rima and Alegre solidarily liable.
They are to pay P300,000 moral damages to Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC-
BCCM).
● FBNI contends that AMEC is not entitled to moral damages because it
is a corporation.

Issue:
Can a corporation like AMEC recover moral damages? - YES

Ruling:
● A juridical person is generally not entitled to moral damages because,
unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock. The Court of Appeals cites Mambulao Lumber Co. v.
PNB, et al. to justify the award of moral damages. However, the
Court’s statement in Mambulao that "a corporation may have a good
reputation which, if besmirched, may also be a ground for the award of
moral damages" is an obiter dictum.
● Nevertheless, AMEC’s claim for moral damages falls under item 7 of
Article 2219 of the Civil Code. This provision expressly authorizes the
recovery of moral damages in cases of libel, slander or any other form
of defamation. Article 2219(7) does not qualify whether the plaintiff is a
natural or juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of
defamation and claim for moral damages.
● Moreover, where the broadcast is libelous per se, the law implies
damages. In such a case, evidence of an honest mistake or the want
of character or reputation of the party libeled goes only in mitigation of
damages. Neither in such a case is the plaintiff required to introduce
evidence of actual damages as a condition precedent to the recovery
of some damages. In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
● However, we find the award of ₱300,000 moral damages
unreasonable. The record shows that even though the broadcasts
were libelous per se, AMEC has not suffered any substantial or
 material damage to its reputation. Therefore, we reduce the award of
moral damages from ₱300,000 to ₱150,000.

Caritas Health Shield DOCTRINE:

Inc v MRL Cybertech Corporations are not automatically entitled to moral damages. To be entitled,
Corp GR 221651 Jul the plaintiff-corporation must prove the existence of the factual basis of the
11, 2016 (Notice) damage, and its causal relation to the defendant's acts.

FACTS:
● MRL is a corporation engaged in the business of selling clinical
laboratory equipment.
● On June 2, 2004, MRL and Caritas executed a Memorandum of
Agreement (MOA) for MRL to supply and "to install in Caritas' place of
business various types of clinical laboratory equipment"
● Pursuant to the MOA, Caritas paid MRL a down payment of 30% of the
contract price. Upon receipt, MRL ordered and procured the equipment
● On July 21, 2004, Caritas unilaterally cancelled the MOA and
requested MRL to return the down payment.
● MRL informed Caritas that it could no longer cancel the MOA because
it had already "invested" in equipment's procurement, and had already
imported 80% thereof
● MRL then filed an action for Specific Performance or Rescission, with
Damages in the RTC of QC
● Meanwhile, MRL sold the equipment to other customers.
● RTC ruled that Caritas is estopped from claiming that the MOA is ultra
vires because it had ratified the MOA signatory's authority when it paid
the down payment.
● Acknowledging that MRL had already sold the equipment to other
customers, the RTC ruled that MRL is only entitled to rescind the
MOA, and to claim for damages.
○ Since rescission requires mutual restitution, and since the
MOA contains no stipulation that MRL can forfeit the down
payment in case of breach, the RTC ordered MRL to return the
down payment. In turn, the RTC ordered Caritas to pay MRL
● P100,000.00 in litigation expenses, P500,000.00 as attorney's fees,
and P500,000.00 as moral damages.
● CA affirmed RTC decision on appeal
● MRL and Caritas filed before this Court their respective petitions for
review on certiorari under Rule 45 of the Rules of Court. The Court
denied both petitions.
● Caritas argues that while moral damages may be awarded to a
corporation whose reputation was besmirched, there is no evidence
that "MRL enjoyed a good reputation" or that Caritas debased and
besmirched such reputation.
● In any case, Caritas argues that the moral damages awarded must be
reduced for being unreasonable because MRL "is definitely not that
big, or its name that prestigious, to sustain such a huge award.”

ISSUE:
 1. W/N MRL is entitled to moral damages? --- NO

RULING:
● SC denied MRL's MR, and partly grant Caritas' MR but only insofar as
the award of moral damages is concerned. As an added modification,
the Court holds that Caritas is liable to MRL for temperate damages.
● Moral damages are meant to compensate the claimant for any physical
suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and
similar injuries unjustly caused.They enable an injured party to obtain
means of diversion or amusements to obviate the moral suffering he
has undergone, and are not meant to enrich the injured party at the
erring party's expense.
● Generally, a juridical person is not entitled to moral damages because
it cannot experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish or moral shock.
● In the cases of Mambulao (1968) and Manero (1993), the SC held that
moral damages may be awarded to a juridical person whose good
reputation is debased or besmirched, however, in the 2008 case of
Crystal v. BPI, the Court held that the statements in Manero and
Mambulao were mere obiter dicta
● Crystal clarified that corporations are not automatically entitled to
moral damages. To be entitled, the plaintiff-corporation must
prove the existence of the factual basis of the damage, and its
causal relation to the defendant's acts
● The RTC failed to discuss the extent of MRL's reputation and how it
was affected by Caritas' breach. Neither did the CA resolve these
issues.
● MRL failed to show how Caritas' breach caused, or at least led to,
MRL's social humiliation.
● The lack of causal link between Caritas' breach, on one hand, and
MRL's alleged besmirched reputation, on the other reveals that the
award of moral damages has no factual or legal basis.
● In short, Caritas' backing out from the MOA could not have been the
proximate cause of MRL's besmirched reputation — if its reputation
was besmirched at all.
● On the award of temperate damages amounting to P500,000.00, the
SC found it to be reasonable.

Feliciano e al v Aranez Doctrine: The Constitution authorizes Congress to create government-owned

GR 165641 Aug 25, or controlled corporations through special charters. Since private corporations
2010 cannot have special charters, it follows that Congress can create corporations
with special charters only if such corporations are government-owned or
controlled.

Facts:

● Leyte Metropolitan Water District (LMWD) filed with the Department of

Finance (DOF) a petition requesting that certain water supply
 equipment and a motor vehicle, particularly a Toyota Hi-Lux pick-up
truck, be exempted from tax. These properties were given to LMWD
through a grant by the Japanese Government for the rehabilitation of
its typhoon-damaged water supply system.
● On July 5, 1995, the DOF granted the tax exemption on the water
supply equipment but assessed the corresponding tax and duty on the
Toyota Hi-Lux pick-up truck.
● On June 9, 2000, LMWD moved to reconsider the disallowance of the
tax exemption on the subject vehicle. The DOF, through then
Undersecretary Cornelio C. Gison, denied LMWD's request for
reconsideration because the tax exemption privileges of government
agencies and government owned and controlled corporations
(GOCCs) had already been withdrawn by Executive Order No. 93.This
prompted LMWD, through its General Manager Engr. Ranulfo C.
Feliciano, to appeal to the CTA.
● After considering the evidence presented at the hearing, the CTA
found LMWD to be a GOCC with an original charter. For this reason,
the CTA resolved to dismiss LMWD's appeal for lack of jurisdiction to
take cognizance of the case

Issue: WON water districts are, by law, GOCCs with original charter.

Ruling:

Yes. They are GOCCs with original charter and not private corporations.

The Constitution recognizes two classes of corporations. The first refers to

private corporations created under a general law. The second refers to
government-owned or controlled corporations created by special charters.
Section 16, Article XII of the Constitution provides:

Sec. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic
viability.

The Constitution emphatically prohibits the creation of private corporations

except by a general law applicable to all citizens. The purpose of this
constitutional provision is to ban private corporations created by special
charters, which historically gave certain individuals, families or groups special
privileges denied to other citizens.

In short, Congress cannot enact a law creating a private corporation with a

special charter. Such legislation would be unconstitutional. Private
corporations may exist only under a general law. If the corporation is private, it
must necessarily exist under a general law. Stated differently, only
corporations created under a general law can qualify as private corporations.
Under existing laws, that general law is the Corporation Code, except that the
Cooperative Code governs the incorporation of cooperatives.

The Constitution authorizes Congress to create government-owned or

 controlled corporations through special charters. Since private corporations
cannot have special charters, it follows that Congress can create corporations
with special charters only if such corporations are government-owned or
controlled.

Obviously, LWDs [referring to local water districts] are not private corporations
because they are not created under the Corporation Code. LWDs are not
registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that "[A]ll corporations organized under this code shall
file with the Securities and Exchange Commission articles of incorporation x x
x." LWDs have no articles of incorporation, no incorporators and no
stockholders or members. There are no stockholders or members to elect the
board directors of LWDs as in the case of all corporations registered with the
Securities and Exchange Commission. The local mayor or the provincial
governor appoints the directors of LWDs for a fixed term of office. This Court
has ruled that LWDs are not created under the Corporation Code, thus:

From the foregoing pronouncement, it is clear that what has been excluded
from the coverage of the CSC are those corporations created pursuant to the
Corporation Code. Significantly, petitioners are not created under the said
code, but on the contrary, they were created pursuant to a special law and are
governed primarily by its provision.

Feliciano further categorically held that P.D. No. 198 constitutes the special
charter by virtue of which local water districts exist. Unlike private corporations
that derive their legal existence and power from the Corporation Code, water
districts derive their legal existence and power from P.D. No. 198. Section 6 of
the decree in fact provides that water districts "shall exercise the powers, rights
and privileges given to private corporations under existing laws, in addition to
the powers granted in, and subject to such restrictions imposed under this Act."
Therefore, water districts would not have corporate powers without P.D. No.
198.

Bases Conversion and Doctrine: The Repiblic of the Philippines, its agencies and instrumentalities
Dev Authority v CIR are exempt from paying legal or docket fees.
GR 205925 Jun 20,
2018 Facts:

On Oct. 2010, BCDA filed a petition for review with the CTA to preserve its
right to pursue its claim for refund of the Creditable Withholding Tax (CWT)
( Php122,079,442.53), which was paid under protest from March 19, 2008 to
October 8, 2008. This was in connection with its sale of the BCDA-allocated
units as its share in the Serendra Project pursuant to the Joint Development
Agreement with Ayala Land, Inc.

CTA First Division denied BCDA's Request for Exemption and ordered it to
pay the filing fees within five days from notice. BCDA filed an MR. CTA denied
and once again ordered to pay the filing fees 5 days from notice.

From Oct 2010 - June 2011, several MRs and petitions for review were filed by
BCDA before the CTA. CTA denied all the motions.

Issue:
W/n BCDA is a government instrumentality or a government-owned and –
controlled corporation (GOCC).

(if it is an instrumentality, it is exempt from the payment of docket fees. If it is a

GOCC, it is not exempt and as such non-payment thereof would mean that the
tax court did not acquire jurisdiction over the case and properly dismissed it for
BCDA's failure to settle the fees on time.)

Held:

Petition is granted.

BCDA is a government instrumentality vested with corporate powers. As such,

it is exempt from the payment of docket fees required under Section 21, Rule
141 of the Rules or Court:

Government exempt. – The Republic of the Philippines, its agencies and

instrumentalities, are exempt from paying the legal fees provided in this rule.
Local governments and government-owned or controlled corporations with or
without independent charters are not exempt from paying such fees.

SEC. 2. General Terms Defined.

(10) Instrumentality refers to any agency of the National Government. not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter.
(13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-
one (51) percent of its capital stock

In order to qualify as a GOCC, one must be organized either as a stock or non-

stock corporation.

BCDA has an authorized capital of Php100 Billion, however, it is not divided

into shares of stock. BCDA has no voting shares. There is likewise no
provision which authorizes the distribution of dividends and allotments of
surplus and profits to BCDA's stockholders. Hence, BCDA is not a stock
corporation.
BCDA also does not qualify as a non-stock corporation because it is not
organized for any of the purposes mentioned under Section 88 of the
Corporation Code:

Purposes. – Non-stock corporations may be formed or organized tor

charitable, religious, educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar purposes, like trade industry,
agricultural and like chambers, or any combination thereof: subject to the
special provisions of this Title governing particular classes of non-stock
corporations.
 BCDA is organized for a specific purpose - to own, hold and/or administer the
military reservations in the country and implement its conversion to other
productive uses.

BCDA is neither a stock nor a non-stock corporation. BCDA is a government

instrumentality vested with corporate powers. Under Section 21, Rule 141 of
the Rules of Court, agencies and instrumentalities of the Republic of the
Philippines are exempt from paying legal or docket fees. Hence, BCDA is
exempt from the payment of docket fees.

Liban et al v Gordon Doctrine:

GR 175352 Jul 15, Only corporations created under general law and not by special charters can
2009 qualify as private corporations, the general law being the Corporation Code.
The purpose of this is to prohibit giving certain individuals, families, or groups
special privileges denied to other citizens.

Facts:
● During the incumbency of Richard J. Gordon as Senator, he was
elected Chairman of the Philippine National Red Cross (PNRC) Board
of Governors.
● Petitioners contend that upon sitting as PNRC’s Chairman, he ceased
to be a Senator as provided in Sec. 13, Art. VI, 1987 Constitution:
○ Section 13. No Senator or Member of the House of
Representatives may hold any other office or employment in
the Government, or any subdivision, agency, or instrumentality
thereof, including government-owned or controlled
corporations or their subsidiaries, during his term without
forfeiting his seat. Neither shall he be appointed to any office
which may have been created or the emoluments thereof
increased during the term for which he was elected.
● In addition to this, Petitioners argued that PNRC is a government-
owned or controlled corporations. Thus, upon holding his seat as the
Chairman, Gordon automatically forfeited his seat in the Senate as
ruled in Flores v. Drilon.

Issues:
1. WoN the office of the PNRC Chairman is a government office or an officer in
a government-owned or controlled corporation for purposes of the prohibition
in Sec. 13, Art. VI of the Constitution? NO.

2. [IMPORTANT!] WoN the PNRC Charter is constitutional in so far as it

creates the PNRC as a private corporation and grants corporate powers? NO.

Ruling:

[1]
● In 1947, President Manuel Roxas signed RA 95 or the PNRC Charter.
It is stipulated that PNRC is a non-profit, donor-funded, voluntary,
humanitarian organization, whose mission is to bring humanitarian
assistance for the most vulnerable without qualifications. PNRC is a
member of the National Society of the International Red Cross and
Red Crescent Movement (Movement). This movement is guided by its
Fundamental Principles.
 ● As a member of the National Society and following its Fundamental
Principles, PNRC has to be autonomous. Giving monetary assistance
to warring belligerents entails that PNRC’s volunteers must not be
seen to be belonging to any side of the armed conflict. PNRC cannot
be seen as government-owned or controlled and neither can
PNRC volunteers be identified as government personnel or as
instruments of government policy. It must not only be, but must
also be seen to be autonomous.
● To ensure and maintain its autonomy, the PNRC cannot be owned or
controlled by the government. It does not have government assets and
does not receive any appropriation from the Congress. It is financed
primarily by private individuals and private entities obtained through
solicitation campaigns. This is in accordance with the PNRC Charter.
● In addition, 4/5 of the PNRC Board are elected or chosen by the
private sector members of the PNRC. Gordon was elected, as all
PNRC Chairmen are elected, by the private sector-controlled
PNRC Board of whom are private sector members of the PNRC.
○ The PNRC Chairman is not appointed by the President of the
Philippines and is thus not considered as a government office
or employment.

[2]
● The 1935, 1973, and 1987 Constitutions prohibit the Congress from
creating corporations except by general law.
● In Feliciano v. COA, this Court held that the constitutional prohibition’s
purpose is to ban private corporations created by special charters,
which historically have certain individuals, families, or groups special
privileges denied to other citizens.
○ Note: The Constitution recognizes two classes of corporations
— private corporations created under general law and
government-owned or controlled corporations created by
special charters.
● Congress cannot enact a law creating a private corporation with a
special charter. Such legislation would be unconstitutional. Private
corporations may exist only under a general law. If the corporation is
private, it must necessarily exist under a general law — the
Corporation Code.
● The Constitution authorizes Congress to create government-owned or
controlled corporations through special charters.
● Therefore, the PNRC Charter, insofar as it created the PNRC as a
private corporation and grants it corporate powers, is void for being
unconstitutional. Other provisions of the PNRC Charter remain valid as
they can be considered as a recognition by the State that the
unincorporated PNRC is the local National Society of the International
Red Cross and thus entitled to the benefits, exemptions and privileges
set forth in the PNRC Charter.
● Since the PNRC is void insofar as it creates a private corporation,
PNRC should incorporate under the Corporation Code and register
with the SEC if it wants to be a private organization.

Adelaido Oriondo et al Doctrine: An entity is considered a government owned or controlled

v COA GR 211293 Jun corporation (GOCC) if all 3 attributes are present:
4, 2019 1. The entity is organized as a stock or non-stock corporation
2. Its functions are public in character
3. It is owned or at the very least controlled by the government.
Facts
● The Philippine Tourism Authority (PTA) Board of Directors adopted a
Resolution approving the creation of a foundation for the development
of Corregidor. The Corregidor Foundation Inc. was incorporated under
Securities and Exchange Commission.
● PTA executed a Memorandum of Agreement (MOA) with the said
foundation and agreed to release its operating funds based on its
budget for its approval and said foundation will also submit a quarterly
report on the receipts and disbursement of PTA funds and shall
deposit all the revenues collected in a distinct and separate account in
the name of Corregidor, and the disposition of the funds at the sole
discretion of the PTA.
● Also as additional stipulations, the disbursement of PTA funds by
Corregidor shall be subject of Internal Auditor of PTA and Commission
on Audit.
● Thereafter the audit team noted that the petitioners Adelaido Oriondo,
Teodoro M. Hernandez, Renato L. Basco, Carmen, Merino, and
Reynaldo Salvador, former officers of PTA concurrently rendering
service to the foundation received gifts and honoraria which is contrary
to Department of Budget Management Circular No. 2003-5.
● Thus, the COA issued a notice of disallowance to the said petitioners.
● The petitioners contended that Corregidor foundation is a private
corporation created by the Corporation code, thus cannot be audited
by the COA.
● The Adjudication Settlement Board held that the foundation is a
government-owned or controlled corporation (GOCC) and under the
audit powers of the COA, and the same is a non-stock corporation
which receives funds from the government through the PTA.
● However, the petitioners insist that the Corregidor Foundation is not a
GOCC because the same is neither organized as a stock corporation
nor created by a special law. It is a private corporation which assets
are allegedly exclusive property.

Issue
Is the Corregidor Foundation a GOCC and therefore under the jurisdiction of
COA? - Yes

Ruling
Petition Dismissed.
● The Supreme Court held that under Presidential Decree No. 2029,
GOCC is a stock or non-stock corporation, whether performing
governmental or proprietary functions, which is directly chartered by a
special law or if organized under the general corporation law, is owned
or controlled by the government directly or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a
majority of its outstanding capital stock or of its outstanding voting
capital stock.
● On the basis of the above doctrine:
1. Corregidor Foundation was organized as a non-stock
corporation under the Corporation Code. A GOCC may be
organized not only by original charter but also under the
Corporation Code, and may be stock or nonstock, contrary to
petitioner arguments.
2. Its Articles of Incorporation clearly provide that it was
 organized and to be operated in the public interest, that is, of
the declared state policy of promotion and development of
tourism in the country.
3. When Corregidor Foundation, Inc. was organized, all of its
incorporators were government officials. Corregidor
Foundation, Inc.'s Articles of Incorporation also require that the
members of its Board of Trustees be all government officials
and shall so hold their position as members of the Board by
reason of their office.
● As such, the government controls Corregidor Foundation, Inc. making
it a GOCC. 99.66% of its budget of over Php 423M comes from the
Department of Tourism, Duty Free Philippines, and the PTA. An MOA
even states that Corregidor Foundation is government funded via the
PTA.

Guillen v Arnado AC Doctrines:

No. 10547 Nov 8, 2017 1. One who is not an incorporator may register a corporation.
2. One cannot register a corporation under a different but similar name and
style, in the same line of business, and using the same trade secrets of a
registered business.

Facts:

● Petitioner Guillen, the registered owner of the City Grill Restaurant,

invited respondent Atty. Arnado and Cedric Ebo to join his business
wherein they will each shell out P200,000, making up a total capital of
P600,000.00. A Memorandum of Agreement was executed and the
business was formally launched in May 2003.
● When Arnado's sister-in-law and Ebo's son participated in the
management, it caused complications in the business operations
which forced Guillen and his wife to step down as general manager
and operations manager. Guillen offered that he would waive his
claims for profits, provided that Arnado would return the P200,000.00
that he paid as capital. Arnado allegedly claimed that said refund
would still be subject to the billings of the Arnado and Associate Law
Firm.
● Guillen found out that Arnado already caused the incorporation of the
restaurant with the Securities and Exchange Commission which was
approved on February 16, 2004. Guillen was excluded from the
business without the refund of his capital. He was also charged with
Estafa before the Office of the City Prosecutor of Cebu. Thus, Guillen
initiated an administrative case against Atty. Arnado.
● Atty. Arnado admitted that he caused the incorporation of City Grill-
Sutukil Food Corporation but he insisted that the same was done in
accordance with the requirements under the law. He also contended
that Guillen's refund would still be subject to the legal compensation
claim of his law firm.
● The Commission on Bar Discipline of the Integrated Bar of the
Philippines recommended the censure of Arnado. The IBP Board of
Governors passed Resolution No. XX-2013-47, which adopted and
approved the aforementioned recommendation. Arnado moved for
reconsideration of said Resolution. The IBP Board of Governors
passed another resolution which denied said motion for
reconsideration and modified the penalty from censure to suspension
 from the practice of law for 3 months.

Issue: Whether respondent Arnado may register as a corporation the City Grill-
Sutukil Food Corporation? NO

Ruling:

● Although Arnado and Ebo were not included as incorporators, those

persons reflected in the articles of incorporation as the company's
incorporators were their relatives.
● Arnado was fully aware that City Grill Restaurant was still registered in
Guillen's name. He did the same to take advantage of the goodwill
earned by the name of City Grill Restaurant. Arnado was also the one
who actually notarized some of City Grill-Sutukil Food Corporation's
legal documents such as the Treasurer's Affidavit and a letter
addressed to the SEC.
● IBP Board thus aptly concluded that Arnado is guilty of taking
advantage of his knowledge of the law and of surreptitiously easing out
Guillen from their restaurant business partnership by registering a
corporation under a different but similar name and style, in the same
line of business, and using the same trade secrets.
● Arnado, although not reflected as one of the incorporators of City Grill-
Sutukil Food Corporation, has deceived the public into believing that
City Grill Restaurant and City Grill-Sutukil Food Corporation are one
and the same, clearly violating Rule 1.01 of the CPR, which prohibits a
lawyer from engaging in unlawful, dishonest, immoral, or deceitful
conduct.

WHEREFORE, IN VIEW OF THE FOREGOING, the Court SUSPENDS Atty.

Audie Arnado from the practice of law for a period of one (1) year and WARNS
him that a repetition of the same or similar offense shall be dealt with more
severely.

Halley v Printwell Inc DOCTRINE: Stockholders of a corporation are liable for the debts of the
GR 157549 May 30, corporation up to the extent of their unpaid subscriptions. They cannot invoke
2011 the veil of corporate identity as a shield from liability, because the veil may be
lifted to avoid defrauding corporate creditors.

FACTS:

1. BMPI (Business Media Philippines Inc.) is a corporation under the

control of its stockholders, including petitioner Donnina Halley.
2. In the course of its business, BMPI commissioned PRINTWELL to print
Philippines, Inc. (a magazine published and distributed by BMPI)
3. PRINTWELL extended 30-day credit accommodation in favor of BMPI
and in a period of 9 mos. BMPI placed several orders amounting to
316,000.
4. However, only 25,000 was paid hence a balance of 291,000
5. PRINTWELL sued BMPI for collection of the unpaid balance and later
on impleaded BMPI’s original stockholders and incorporators to
recover on their unpaid subscriptions.
6. It appears that BMPI has an authorized capital stock of 3M divided into
300,000 shares with P10 par value.
 7. Only 75,000 shares worth P750,000 were originally subscribed of
which P187,500 were paid up capital.
8. Halley subscribed to 35,000 shares worth P350,000 but only paid
P87,500.

Halley contends that:

1. They all had already paid their subscriptions in full
2. BMPI had a separate and distinct personality
3. Board of Directors and Stockholders had resolved to dissolve BMPI

RTC and CA
● The defendant stockholders merely used the corporate fiction as a
cloak/cover to create an injustice (against PRINTWELL)
● Rejected allegations of full payment in view of irregularity in the
issuance of ORs (Payment made on a later date was covered by an
OR with a lower serial number than payment made on an earlier date.
ISSUE: WON a stockholder who was in active management of the business of
the corporation and still has unpaid subscriptions should be made liable for the
debts of the corporation by piercing the veil of corporate fiction

RULING:

YES. Such stockholder should be made liable up to the extent of her unpaid
subscription.

It was found that at the time the obligation was incurred, BMPI was under the
control of its stockholders who know fully well that the corporation was not in a
position to pay its account (thinly capitalized). And, that the stockholders
personally benefited from the operations of the corporation even though they
never paid their subscriptions in full.

The stockholders cannot now claim the doctrine of corporate fiction otherwise
(to deny creditors to collect from SH) it would create an injustice because
creditors would be at a loss (limbo) against whom it would assert the right to
collect.

On piercing the veil:

Although the corporation has a personality separate and distinct from its
stockholders, such personality is merely a legal fiction (for the convenience
and to promote the ends of justice) which may be disregarded by the courts if it
is used as a cloak or cover for fraud, justification of a wrong, or an alter ego for
the sole benefit of the stockholders.

As to the Trust Fund Doctrine:

1. The RTC and CA correctly applied the Trust Fund Doctrine
2. Under which corporate debtors might look to the unpaid subscriptions
for the satisfaction of unpaid corporate debts
3. Subscriptions to the capital of a corporation constitutes a trust fund for
the payment of the creditors (by mere analogy) In reality, corporation is
a simple debtor.
4. Moreover, the corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his
shares, in whole or in part, without valuable consideration, or
 fraudulently, to the prejudice of the creditors.
5. The creditor is allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the corporation for
the satisfaction of its debt.
6. The trust fund doctrine is not limited to reaching the
stockholder’s unpaid subscriptions. The scope of the doctrine
when the corporation is insolvent encompasses not only the
capital stock but also other property and assets generally
regarded in equity as a trust fund for the payment of corporate
debts.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with

modification the decision promulgated on August 14, 2002by ordering the
petitionerto pay to Printwell, Inc. the sum of ₱262,500.00, plus interest of 12%
per annum to be computed from February 8, 1990 until full payment.
The petitioner shall paycost of suit in this appeal.

Gamboa et al v Teves DOCTRINE:

et al GR 176579 Oct 9, The term "capital" in Section 11, Article XII of the 1987 Constitution refers only
2012 (Resolution); to shares of stock entitled to vote in the election of directors, and thus in the
present case only to common shares, and not to the total outstanding capital
stock (common and non-voting preferred shares).

FACTS:
● Philippine Telecommunications Investment Corporation (PTIC) owns
26% of the outstanding common shares of PLDT (111,415 shares),
which was subsequently acquired by Prime Holding, Inc. These shares
were sequestered by the Presidential Commission of Good
Governance (PCGG) (16.125% of the outstanding capital stock of
PTIC), and were later declared to be owned by the Republic of the
Philippines.
● First Pacific, a Bermuda-registered, Hong Kong-based investment firm,
acquired the remaining 54% of the outstanding capital stock of PTIC.
● The Philippine Government sold the 111,415 PTIC shares of 46.125%
of the outstanding capital stock of PTIC (was acquired by First Pacific)
● Petitioner raised the issues: (1) whether the consummation of the then
impending sale of 111,415 PTIC shares to First Pacific violates the
constitutional limit on foreign ownership of a public utility; (2) whether
public respondents committed grave abuse of discretion in allowing the
sale of the 111,415 PTIC shares to First Pacific; and (3) whether the
sale of common shares to foreigners in excess of 40 percent of the
entire subscribed common capital stock violates the constitutional limit
on foreign ownership of a public utility.
● The Supreme Court ruled:
○ WHEREFORE, we PARTLY GRANT the petition and rule that
the term "capital" in Section 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to vote in
the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock
(common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission is
DIRECTED to apply this definition of the term "capital" in
determining the extent of allowable foreign ownership in
respondent Philippine Long Distance Telephone Company,
and if there is a violation of Section 11, Article XII of the
 Constitution, to impose the appropriate sanctions under the
law.

Resolution
Respondents moved for the reconsideration of the case.

ISSUE: W/N the SC erred in interpreting the term “capital”? (No)

RULING:
● Under Section 10, Article XII of the 1987 Constitution, Congress may
"reserve to citizens of the Philippines or to corporations or associations
at least sixty per centum of whose capital is owned by such citizens, or
such higher percentage as Congress may prescribe, certain areas of
investments." In other words, under Section 11, Article XII of the 1987
Constitution, to own and operate a public utility a corporation's capital
must at least be 60 percent owned by Philippine nationals.
● Foreign Investments Act of 1991 (FIA) clearly and unequivocally
defines a "Philippine national" as a Philippine citizen, or a domestic
corporation at least "60% of the capital stock outstanding and entitled
to vote " is owned by Philippine citizens. The FIA is the basic law
governing foreign investments in the Philippines, irrespective of the
nature of business and area of investment.
● Mere legal title is insufficient to meet the 60 percent Filipino-owned
"capital" required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent
of the voting rights, is required. The legal and beneficial ownership
of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate.
Otherwise, the corporation is "considered as non-Philippine
national[s]."

Castillo et al v Doctrine:One of the rights of a stockholder is the right to participate in the

Balinghasay et al GR control and management of the corporation that is exercised through his vote.
150976 Oct 18, 2004 The right to vote is a right inherent in and incidental to the ownership of
corporate stock, and as such is a property right. The stockholder cannot be
deprived of the right to vote his stock nor may the right be essentially impaired,
either by the legislature or by the corporation, without his consent, through
amending the charter, or the by-laws. (Refer to ruling in BOLD- the important
part)

Facts:
● Petitioners and the respondents are stockholders of MCPI (Medical
Center Paranaque, Inc).
○ Petitioners hold Class B shares
○ Respondents owns Class A shares
● MCPI was organized on Sept 1977, Act no. 1459 (old corp law) was in
effect. According to Art 7 of MCPI’s Articles of Incorporation, which
was approved by SEC. Only Class A shares holders can have the right
to vote and the right to be elected as directors/corporate officers.
● In 1981, Art 7 was amended and the voting rights and right to be
elected is only exclusive to Class A.
● In 1983, another amendment:Holders of Class "A" shares-granted the
right to vote and to be elected as directors or corporate officers.
Holders of Class "B" stocks- were granted the same rights and
privileges as holders of Class "A" stocks with respect to the payment of
 dividends.
● In Sept 9, 1992, another amendment on Art 7 which was approved by
SEC.
○ Except when otherwise provided by law, only holders of Class
"A" shares have the right to vote and the right to be elected as
directors or as corporate officers.
● Feb 9, 2001 the MCPI shareholders held their annual stockholder’s
meeting and election for directors. Rustico Jimenez (respondent)
claimed and cited Art 7, as amended, and he declared that no Class B
holders was qualified to run or be voted as a director (even though in
the past they were voted for and served as board members). Jimenez
went on to announce that the candidates holding Class "A" shares
were the winners of all seats in the corporate board.
● Petitioners protested and claimed Art 7 is null and void for depriving
them of their right to vote and be voted upon. Also, violated Corp code
(BP blg. 68)
● Complaint for Injunction, accounting and damages: filed by
Petitioners before RTC and prayed:
○ Annulment of declaration made in the Annual Stockholder’s
meeting and conduct of elections. Class B holders should
have the right to vote and be voted for.
○ Stockholders’ derivative suit challenging the validity of a
contract entered into by the Board of Directors of MCPI for the
operation of the ultrasound unit.
● MCPI was impleaded.

Petitioners argue: (1) they were deprived of their right to vote and to be voted
on as directors at the annual stockholders’ meeting; (2) respondents had
erroneously relied on Article VII of the Articles of Incorporation of MCPI,
despite Article VII being contrary to the Corporation Code, thus null and void;
(3) respondents were in estoppel, because in the past, petitioners were
allowed to vote and to be elected as members of the board.

Respondent Argues: (1) Article VII clearly and categorically state that only
holders of Class "A" shares have the exclusive right to vote and be elected as
directors and officers; (2) the exclusive rights granted to Class A holders
cannot be defeated by subsequent legislative enactment- the New Corp Code

RTC Decision: partial decision of first cause of action, for respondents

ISSUE: WON Corporations had to power to classify their shares of stocks

(voting and non-voting shares) according to the Articles of Incorporation and so
MCPI can deprive holders of Class B shares of the right to vote and be voted
for as directors in MCPI? NO. They can’t deprive them.

Ruling:The amendment of Art 7 in 1992 had a phrase "except when otherwise

provided by law" was inserted in the provision governing the grant of voting
powers to Class "A" shareholders. The amendment is relevant which provides
exception to the exclusive grant of voting rights. The law at time was amended
Corp Code (BP Blg. 68) not the Corporation Law (Act no. 1459). The law
repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right of
classification of stock shares to corporations, but with a significant change.
● Section 6 of B.P. Blg. 68, the requirements and restrictions on
voting rights were explicitly provided for, such that "no share
may be deprived of voting rights except those classified and
 issued as "preferred" or "redeemable" shares, unless otherwise
provided in this Code" and that "there shall always be a class or
series of shares which have complete voting rights."
● Section 6 of the Corporation Code being deemed written into Art
7 of Articles of Incorporation of MCPI—necessarily follows that
unless Class "B" shares of MCPI stocks are clearly categorized to
be "preferred" or "redeemable" shares, the holders of said Class
"B" shares may not be deprived of their voting rights.
● No evidence in the Articles of Incorporation that the Class B
shares were “preferred” or “redeemable” shares. The only
possible conclusion is that Class "B" shares fall under neither
category and thus, under the law, are allowed to exercise voting
rights.

Respondent’s argument: Section 6 of the Corporation Code cannot apply to

MCPI without running afoul of the non-impairment clause of the Bill of Rights.
● Section 148 of the Corporation Code expressly provides that it
shall apply to corporations in existence at the time of the
effectivity of the Code. Hence, the non-impairment clause is
inapplicable in this instance.
● Section 6 of the Corporation Code expressly prohibits the
deprivation of voting rights, except as to "preferred" and
"redeemable" shares, then Article VII of the Articles of
Incorporation cannot be construed as granting exclusive voting
rights to Class "A" shareholders, to the prejudice of Class "B"
shareholders, without running afoul of the letter and spirit of the
Corporation Code.
WHEREFORE, the petition is GRANTED. The Partial Judgment dated
November 26, 2001 of the Regional Trial Court of Parañaque City, Branch 258,
in Civil Case No. 01-0140 is REVERSED AND SET ASIDE. No
pronouncement as to costs.

Lirag Textile Mills Inc v DOCTRINE: Preferred shares of stock issued by a corporation may be given
SSS GR L-33205 Aug preference in the distribution of dividends and in the distribution of corporate
31, 1987 assets in case of liquidation, or such other preferences: Provided, That
preferred shares of stock may be issued only with a stated par value. The
board of directors, where authorized in the articles of incorporation, may fix the
terms and conditions of preferred shares of stock or any series thereof:
Provided, further, That such terms and conditions shall be effective upon filing
of a certificate thereof with the Securities and Exchange Commission,
hereinafter referred to as the “Commission”.

FACTS:
● On Sept. 4, 1961, the plaintiff SSS and the defendants Lirag Textile
Mills and Basilio Lirag entered into a Purchase Agreement where
plaintiff agreed to purchase from defendant preferred shares of stock
worth 1M subject to the conditions in the agreement.
● That pursuant to the purchase agreement of Sept. 4, 1961, plaintiff
paid the defendant Lirag Texttile Mills, Inc. P500,000 for which
defendant issued to plaintiff 5,000 shares valued at 100 pesos per
share evidenced by stock certificate no. 128 and another 500k for
another 5,000 shares evidenced by stock certificate no. 139.
● That in accordance with par. 3 of the purchase agreement, Lirag
Textile Mills was to repurchase the shares of stock from stock
certificates 128 and 139 at regular intervals of 1 year beginning the 4 th
 year following the date of issue.
● That to guarantee redemption of the stocks purchased by plaintiff and
other obligations of Lirag Textile Mills, defendants Basilio Lirag signed
the purchase agreement not only as president of the defendant
corporation but also as surety.
● Defendant corporation failed to redeem both stock certificates and
failed to pay the dividends. Despite sending letters of demand to Lirag
Textile Mills and Basilio Lirag, they failed to perform their obligations.
● Par. 5 of the purchase agreement provides that should Lirag Textile
Mills fail to effect any of the redemptions, the entire obligation shall
immediately become due and demandable. And be liable to plaintiff in
an amount equal to 12% of the amount then outstanding as liquidated
damages.
● For failure of the Lirag Textile Mills and Basilio Lirag to comply with the
terms of the purchase agreement, plaintiff SSS filed an action for
specific performance and damages before the CFI of QC praying that
defendants pay the entire obligation of 1M + dividends in the amount
of P220k, liquidated damages amounting to 12%, P100k for exemplary
damages and P20k as attorney’s fees.
● Lirag Textile Mills, Inc. and Basilio L. Lirag moved for the dismissal of
the complaint, but were denied the relief sought. Thus, they filed their
answer with counterclaim, denying the existence of any obligation on
their part to redeem the preferred stocks, on the ground that the SSS
became and still is a preferred stockholder of the corporation so that
redemption of the shares purchased depended upon the financial
ability of said corporation.
● The lower court ruled that the purchase agreement was a debt
instrument. It decided in favor of SSS and sentenced Lirag Textile
Mills, Inc. and Basilio L. Lirag to pay SSS jointly and severally
P1,000,000.00 plus legal interest until the said amount is fully paid;
P220,000.00 representing the 8% per annum dividends on the
preferred shares plus legal interest up to the time of actual payment;
P146,400.00 as liquidated damages; and P10,000.00 as attorney's
fees.

ISSUE: W/N the Purchase Agreement entered into by petitioners and

respondent SSS is a debt instrument? Yes.

HELD:
● Petitioners claim that respondent SSS merely became and still is a
preferred stockholder of the petitioner corporation, the redemption of
the shares purchased by said respondent being dependent upon the
financial ability of petitioner corporation. Petitioner corporation, thus,
has no obligation to redeem the preferred stocks.
● The court upheld the lower court’s finding that the purchase agreement
is indeed a debt instrument. Its terms and conditions unmistakably
show that the parties intended the repurchase of the preferred shares
on the respective scheduled dates to be an absolute obligation which
does not depend upon the financial ability of petitioner corporation.
This is made manifest by the fact that there was a surety.
● If the parties intended SSS to be merely a stockholder of petitioner
corporation, it would have been sufficient that Preferred Certificates
Nos. 128 and 139 were issued in its name as the preferred certificates
contained all the rights of a stockholder as well as certain obligations
on the part of petitioner corporation.
● However, the parties did in fact execute the Purchase Agreement, at
the same time that the petitioner corporation issued its preferred stock
to the respondent SSS.
● The Purchase Agreement serves to define the rights and obligations of
the parties and to establish firmly the liability of petitioners in case of
breach of contract.
● The Certificates of Preferred Stock serve as additional evidence of the
agreement between the parties, though the precise terms and
conditions thereof must be read together with, and regarded as
qualified by the terms and conditions of the Purchase Agreement.
● The rights given by the Purchase Agreement to respondent SSS are
rights not enjoyed by ordinary stockholders. This fact could only lead to
the conclusion made by the trial court that:
○ "The aforementioned rights specially stipulated for the benefit
of the plaintiff SSS suggest eloquently an intention on the part
of the plaintiff SSS to facilitate a loan to the defendant
corporation upon the latter's request. In order to afford
protection to the plaintiff which otherwise is provided by means
of collaterals, as the plaintiff exacts in its grants of loans in its
ordinary transactions of this kind, as it is looked upon more as
a lending institution rather than as in investing agency, the
purchase agreement supplied these protective rights which
would otherwise be furnished by collaterals to the loan. Thus,
the membership in the board is to have a watchdog in the
operation of the business of the corporation, so as to insure
against mismanagement which may result in losses not
entirely unavoidable since payment for purposes of
redemption as well as the dividends is expressly stipulated to
come from profits and or surplus. Such a right is never exacted
by an ordinary stockholder merely investing in the
corporation."
● The Purchase Agreement provided that failure on the part of petitioner
to repurchase the preferred shares on the scheduled due dates
renders the entire obligation due and demandable, with petitioner in
such eventuality liable to pay 12% of the then outstanding obligation as
liquidated damages.
● These features of the Purchase Agreement, taken collectively, clearly
show the intent of the parties to be bound therein as debtor and
creditor, and not as corporation and stockholder.
● Petitioners' contention that it is beyond the power and competence of
petitioner corporation to redeem the preferred shares or pay the
accrued dividends due to financial reverses cannot serve as legal
justification for their failure to perform under the Purchase Agreement.
● The award of the sum of P146,400.00 in liquidated damages
representing 12% of the amount then outstanding is correct,
considering that petitioners in the stipulation of facts admitted having
failed to fulfill their obligations under the Purchase Agreement.
● The grant of liquidated damages in the amount stated is expressly
provided for in the Purchase Agreement in case of contractual breach.
● Petitioner Basilio L. Lirag is precluded from denying his liability under
the Purchase Agreement. After his firm representation to "pay
immediately to the VENDEE the amounts then outstanding" evidencing
his commitment as SURETY, he is estopped from denying the same.
● WHEREFORE, the decision in Civil Case No. Q-12275 entitled "Social
Security System vs. Lirag Textile Mills, Inc. and Basilio L. Lirag" is
 hereby affirmed in toto. Costs against petitioners

Forest Hills Golf and Doctrine: "A derivative action is a suit by a shareholder to enforce a corporate
Country Club Inc v Fil- cause of action x x x on behalf of the corporation in order to protect or vindicate
Estate Properties Inc. [its] rights [when its] officials refuse to sue, or are the ones to be sued, or hold
et al GR 206649 Jul control of [it]."1 Upon the enactment of Republic Act (RA) No. 8799, otherwise
20, 2016 known as "The Securities Regulation Code," jurisdiction over such action now
lies with the special commercial courts designated by this Court pursuant to
A.M. No. 00- 11-03-SC promulgated on November 21, 2000

Facts:
● On March 31, 1993, Kingsville Construction and Development
Corporation (Kingsville) and Kings Properties Corporation (KPC)
entered into a project agreement with respondent Fil-Estate Properties,
Inc. (FEPI), so that FEPI can finance and cause the development of
several parcels of land owned by Kingsville in Antipolo, Rizal, into
Forest Hills Residential Estates and Golf and Country Club, a first-
class residential area/golf-course/commercial center.
● It was agreed that FEPI was tasked to incorporate petitioner Forest
Hills Golf and Country Club, Inc. (FHGCCI) with an authorized stock of
3,600 shares; and to develop it as full payment of its subscription to
the authorized capital stock of the club.
● On July 10, 1995, respondent FEPI assigned its rights and obligations
over the project to a related corporation, respondent Fil-Estate Golf
Development, Inc. (FEGDI).
● On July 19, 1996, Rainier L. Madrid (Madrid) purchased two Class "A"
shares at the secondary price of P380,000.00 each, and applied for a
membership to the club for P25,000.00. Due to the delayed
construction of the second 18-Hole Golf Course,
● Madrid demanded to the Board of Directors of petitioner FHGCCI to
initiate the appropriate legal action against respondents FEPI and
FEGDI. The Board of Directors, however, failed and/or refused to act
on the demand letters.12chanrobleslaw
● Thus, on April 21, 2010, Madrid, in a derivative capacity on behalf of
petitioner FHGCCI, filed with the RTC of Antipolo City a Complaint for
Specific Performance with Damages, against respondents FEPI and
FEGDI.14chanrobleslaw
● Respondents FEPI and FEGDI argued that there is no cause of action
against them as petitioner FHGCCI failed to state the contractual
and/or legal bases of their alleged obligation; that no prior demand was
made to them; that the action is not a proper derivative suit as
petitioner FHGCCI failed to exhaust all remedies available under the
articles of incorporation and by-laws; and that petitioner FHGCCI failed
to implead its Board of Directors as indispensable parties.
● Petitioner FHGCCI, in turn, filed a Reply arguing that the case does
not involve an intra-corporate controversy and that the exhaustion of
intra-corporate remedies was futile and useless as the Board of
Directors of petitioner FHGCCI also own respondent FEGDI.
● RTC: ruled in favor of respondents

Issue: Whether or not the petitioner’s ordinary civil suit for specific
performance with damages was proper.

Ruling: No. Petitioner FHGCCFs main contention is that its Complaint,

although denominated as a derivative suit, does not fall under the jurisdiction
 of special commercial courts, as it does not involve an intra-corporate
controversy.

We do not agree.

It is a fundamental principle that jurisdiction is conferred by law and is

determined by the material allegations of the complaint, containing the concise
statement of ultimate facts of a plaintifFs cause of action.

Petitioner FHGCCI's contention that the instant case does not involve an intra-
corporate controversy as it was filed against respondents FEPI and FEGDI as
developers, and not as shareholders of the corporation holds no water.
Apparent in the Complaint are allegations of the interlocking directorships of
the Board of Directors of petitioner FHGCCI and respondents FEPI and
FEGDI, the conflict of interest of the Board of Directors of petitioner FHGCCI,
and their bad faith in carrying out their duties. Likewise alleged is that
respondent FEPI and, later, respondent FEGDI are shareholders of petitioner
FHGCCI which under the project agreement, respondent FEPI was tasked to
perform the development and construction work and other obligations and
undertakings of the project as full payment of its subscription to the authorized
capital stock of petitioner FHGCCI, which it later assigned to respondent
FEGDI. Considering these allegations, we find that, contrary to the claim of
petitioner FHGCCI, there are unavoidably intra- corporate controversies
intertwined in the specific performance case.

Moreover, a derivative suit is a remedy designed by equity as a principal

defense of the minority shareholders against the abuses of the majority.40
Under the Corporation Code, the corporation's power to sue is lodged with its
board of directors or trustees.However, when its officials refuse to sue, or are
the ones to be sued, or hold control of the corporation, an individual
stockholder may be permitted to institute a derivative suit to enforce a
corporate cause of action on behalf of a corporation in order to protect or
vindicate its rights. In such actions, the corporation is the real party in interest,
while the stockholder suing on behalf of the corporation is only a nominal party.
Considering its purpose, a derivative suit, therefore, would necessarily touch
upon the internal affairs of a corporation

Republic Planters Bank DOCTRINE:

v Agana 269 SCRA 1 Redeemable shares:
(1997) Redeemable shares are shares usually preferred, which by their terms are
redeemable at a fixed date, or at the option of either issuing corporation, or the
stockholder, or both at a certain redemption price.

The present Code allows redemption of shares even if there are no

unrestricted retained earnings on the books of the corporation. However, while
redeemable shares may be redeemed regardless of the existence of
unrestricted retained earnings, this is subject to the condition that the
corporation has, after such redemption, assets in its books to cover debts and
liabilities inclusive of capital stock.

Redemption may not be made where the corporation is insolvent or if such

redemption will cause insolvency or inability of the corporation to meet its
debts as they mature.
 FACTS:
On September 18, 1961, private respondent Corporation secured a loan from
petitioner in the amount of P120,000.00. Instead of giving the legal tender
totaling to the full amount of the loan, which is P120,000.00, petitioner lent
such amount partially in the form of money and partially in the form of stock
certificates, each for 400 shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the
name of private respondent Adalia F. Robes and Carlos F. Robes, who
subsequently endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions:

"The Preferred Stock shall have the following rights, preferences, qualifications
and limitations, to wit:

1. Of the right to receive a quarterly dividend of One Per Centum (1%),

cumulative and participating.
2. That such preferred shares may be redeemed, by the system
of drawing lots, at any time after two (2) years from the date of
issue at the option of the Corporation. x x x."

Private respondents proceeded against petitioner and filed a complaint

anchored on private respondents’ alleged rights to collect dividends under the
preferred shares in question and to have petitioner redeem the same under the
terms and conditions of the stock certificates.
The trial court ordered the petitioner to pay private respondents the face value
of the stock certificates as redemption price, plus 1% quarterly interest. Hence
this petition.

ISSUE:
WON the petitioner may be compelled to redeem the preferred shares.

RULING:
NO. The redemption of said shares cannot be allowed. As pointed out by the
petitioner, the Central Bank made a finding that said petitioner has been
suffering from chronic reserve deficiency, and that such finding resulted in a
directive on the ground that said redemption would reduce the assets of the
Bank to the prejudice of its depositors and creditors. Redemption of preferred
shares was prohibited for a just and valid reason. The directive issued by the
Central Bank Governor was obviously meant to preserve the status quo, and to
prevent the financial ruin of a banking institution that would have resulted in
adverse repercussions, not only to its depositors and creditors, but also to the
banking industry as a whole.

SEC Rules Governing RULES GOVERNING REDEEMABLE AND TREASURY SHARES (1982)
Redeemable and
Treasury Shares SECTION 1. General Provisions. — The outstanding capital stock of a
corporation, including unpaid subscriptions, shall constitute a trust fund held by
the corporation for the benefit of its creditors which shall not be returned to the
stockholders by repurchase of shares or otherwise, except in the manner as
provided for under the Corporation Code and these rules.
SECTION 2. Definitions. — The following terms shall have the respective
meanings when used in these rules:
a. Treasury shares — Treasury shares are shares of stock which have been
issued and fully paid, but subsequently reacquired by the issuing corporation
by purchase, redemption, donation or through some other lawful means.
b. Redeemable shares. — Redeemable shares are shares of stock issued by a
corporation which said corporation can purchase or take up from their holders
as expressly provided for in its articles of incorporation and certificates of stock
representing said shares.
c. Unrestricted retained earnings. — Unrestricted retain earnings refer to the
undistributed earnings of the corporation which have not been allocated for any
managerial, contractual or legal purposes and which are free for distribution to
the stockholders as dividends. d. Sinking Fund. — Refers to a fund set up by
the corporation where cash is gradually set aside in order to accumulate the
amount necessary to meet the redemption price of redeemable shares at
special dates in the future.

SECTION 3. Redeemable Treasury Shares. —

1. No corporation shall redeem, repurchase or reacquire its own shares, of
whatever class, unless it has an adequate amount of unrestricted retained
earnings to support the cost of the said shares, except:
a. When the shares are reacquired in the redemption of redeemable shares of
the corporation or pursuant to the conversion right of convertible shares of the
corporation, in accordance with the provision expressly provided for in its
articles of incorporation and certificates of stock representing said shares of
the corporation, in accordance with the provisions expressly provided for in its
articles of incorporation and certificates of stock representing said shares; b.
When the shares are reacquired to affect a decrease in the capital stock of the
corporation as approved by the Securities and Exchange Commission;
c. When the share are reacquired by a close corporation pursuant to the order
of the Securities and Exchange Commission acting to arbitrate a deadlock as
provided for under Section 104 of the Corporation Code of the Philippines.
2. Treasury shares do not revert to the unissued shares of the corporation but
are regarded as property acquired by the corporation which may be reissued
or sold by the corporation at a price to be fixed by the Board of Directors;
provided, however, that in the case of redeemable shares reacquired, the
same shall be considered retired and no longer issuable, unless otherwise
provided in the Articles of Incorporation.
3. In the case of a close corporation, any stockholder may, for any reason,
compel the corporation to purchase his shares at a value not less than their
par or issued value, provided that the corporation has, after the withdrawal of
the stockholder, sufficient assets in its books to cover its debts and liabilities
exclusive of capital stock.

SECTION 4. Retained Earnings. —

1. The amount of unrestricted retained earnings equivalent to the cost of the
treasury shares being held, other than those acquired in accordance with the
exceptions provided in Section 3(1) of these rules, shall be restricted from
being declared and issued as dividends.

2. The dividend restriction on retained earnings on account of the treasury

shares being held shall be lifted only after the treasury shares causing the
 restriction are reissued or retained. Retirement of treasury shares shall be
affected by decreasing the capital stock of the corporation in accordance with
Section 38 of the Corporation Code of the Philippines for the purpose of
eliminating the treasury shares.

SECTION 5. Other Provisions. —

1. A corporation may reacquire its own shares for a legitimate corporate
purpose or purposes in accordance with these rules, including but not limited
to the following cases:
a. To eliminate fractional shares arising out of stock dividends;
b. To collect or compromise an indebtedness to the corporation, arising out of
unpaid subscription, in a delinquent sale, and to purchase delinquent shares
sold during said sale; and c. To pay dissenting or withdrawing stockholders
entitled to payment of their shares under the provisions of the Corporation
Code of the Philippines.
2. Treasury shares shall have no voting rights as long as such stocks remains
in treasury.
3. Treasury shares may be declared as property dividend to be issued out of
the retained earnings previously used to support their acquisition, provided that
the amount of the said retained earnings has not been subsequently impaired
by losses. Any declaration and issuance of treasury shares as property
dividend shall be disclosed and properly designated as property dividend in the
books of the corporation and in its financial statements.
4. All corporations which have issued redeemable shares with mandatory
redemption features are required to set up and maintain a sinking fund. The
fund shall be deposited with a trustee bank and not be invested in risky or
speculative ventures.
5. Redeemable shares may be redeemed, regardless of the existence of
unrestricted retained earnings, provided that the corporation has, after such
redemption, sufficient assets in its books to cover debts and liabilities inclusive
of capital stock.

SECTION 6. Violation of these Rules. — Any violation of these rules shall be

penalized by a fine of not less than One Thousand (P1,000.00) Pesos or not
more than Ten Thousand (P10,000.00) Pesos and such other sanctions as
provided for under Section 144 of the Corporation Code of the Philippines.

SECTION 7. Effectivity of Rules. — These rules shall take effect fifteen (15)
days after their publication in two (2) newspapers of general circulation in the
Philippines.

Lanuza et al v CA et al Doctrine: Sec. 52 of the Corp Code: “A quorum shall consist of the
GR 131394 Mar 28, stockholders representing a majority of the outstanding capital stock.” As such,
2005 quorum is based on the totality of the shares which have been subscribed and
issued, whether it be founders’ shares or common shares.

Facts:
● In 1952, PMMSI was incorporated, with 700 founders’ shares and 76
common shares as its initial capital stock subscription reflected in the
articles of incorporation.
● Onrubia et. al, who were in control of PMMSI registered the company’s
stock and transfer book for the first time in 1978, recording 33 common
shares as the only issued and outstanding shares of PMMSI.
● In 1979, a special stockholders’ meeting was called and held on the
basis of what was considered as a quorum of 27 common shares,
representing more than two-thirds of the common shares issued and
outstanding.
● In 1982, Juan Acayan, one of the heirs of the incorporators filed a
petition for the registration of their property rights was filed before the
SEC over 120 founders’ shares and 12 common shares owned by their
father.
● SEC Hearing Officer: heirs of Acayan were entitled to the claimed
shares and called for a special stockholders’ meeting to elect a new
set of officers.
● SEC en banc: affirmed the decision.
● As a result, the shares of Acayan were recorded in the stock and
transfer book.
● On May 6, 1992, a special stockholders’ meeting was held to elect a
new set of directors.
● Onrubia et al filed a petition with SEC questioning the validity of said
meeting alleging that the quorum for the said meeting should not be
based on the 165 issued and outstanding shares as per the stock and
transfer book, but on the initial subscribed capital stock of seven
hundred seventy-six (776) shares, as reflected in the 1952 Articles of
Incorporation.
● Petition was dismissed.
● SC en banc: shares of the deceased incorporators should be duly
represented by their respective administrators or heirs concerned.
Called for a stockholders meeting on the basis of the stockholdings
reflected in the articles of incorporation for the purpose of electing a
new set of officers for the corporation.
● Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for
review with the CA, raising the following issues:
○ Whether the basis the outstanding capital stock and
accordingly also for determining the quorum at stockholders’
meetings it should be the 1978 stock and transfer book or if it
should be the 1952 articles of incorporation.

(They contended that the basis is the stock and transfer book,
not articles of incorporation in computing the quorum)

○ Whether the Espejo decision (decision of SEC en banc

ordering the recording of the shares of Jose Acayan in the
stock and transfer book) is applicable to the benefit of Onrubia
et al.

● CA decision:
○ For purposes of transacting business, the quorum should be
based on the outstanding capital stock as found in the articles
of incorporation.
○ To require a separate judicial declaration to recognize the
shares of the original incorporators would entail unnecessary
delay and expense. Besides. the incorporators have already
proved their stockholdings through the provisions of the
articles of incorporation.

● Appeal was made by Lanuza et al before the SC.

● Lanuza et al’ contention:
 ○ 1992 stockholders’ meeting was valid and legal.
○ Reliance on the 1952 articles of incorporation for determining
the quorum negates the existence and validity of the stock and
transfer book Onrubia et al prepared.
○ Onrubia et al must show and prove entitlement to the founders
and common shares in a separate and independent
action/proceeding in order to avail of the benefits secured by
the heirs of Acayan.

● Onrubia et al’s contention, based on the Memorandum: petition should

be dismissed on the ground of res judicata.
● Another appeal was made.
● Lanuza et al’s contention: instant petition is separate and distinct from
G.R. No. 131315, there being no identity of parties, and more
importantly, the parties in the two petitions have their own distinct
rights and interests in relation to the subject matter in litigation
● Onrubia et al’s manifestation and motion: moved for the dismissal of
the case.

Issue: WON the quorum should be based on the outstanding capital stock as
indicated in the Articles of Incorporation.-Yes

Ruling:
● Articles of Incorporation
○ Defines the charter of the corporation and the contractual
relationships between the State and the corporation, the
stockholders and the State, and between the corporation and
its stockholders.
○ Contents are binding, not only on the corporation, but also on
its shareholders.
● Stock and transfer book
○ Records the names and addresses of all stockholders
arranged alphabetically, the installments paid and unpaid on
all stock for which subscription has been made, and the date
of payment thereof; a statement of every alienation, sale or
transfer of stock made, the date thereof and by and to whom
made; and such other entries as may be prescribed by law
○ A measure of precaution, expediency and convenience since it
provides the only certain and accurate method of establishing
the various corporate acts and transactions and of showing the
ownership of stock and like matters
○ Not public record, and thus is not exclusive evidence of the
matters and things which ordinarily are or should be written
therein
● The articles of incorporation has been described as one that defines
the charter of the corporation and the contractual relationships
between the State and the corporation, the stockholders and the State,
and between the corporation and its stockholders. When PMMSI was
incorporated, the prevailing law was Act No. 1459, otherwise known
as “The Corporation Law.”
● Sec. 52 of the Corp Code: “A quorum shall consist of the
stockholders representing a majority of the outstanding capital stock.”
As such, quorum is based on the totality of the shares which have
 been subscribed and issued, whether it be founders’ shares or
common shares.
● To base the computation of quorum solely on the obviously deficient, if
not inaccurate stock and transfer book, and completely disregarding
the issued and outstanding shares as indicated in the articles of
incorporation would work injustice to the owners and/or successors in
interest of the said shares.
● The stock and transfer book of PMMSI cannot be used as the sole
basis for determining the quorum as it does not reflect the totality
of shares which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and
outstanding as compared to that listed in the stock and transfer book.
● One who is actually a stockholder cannot be denied his right to vote by
the corporation merely because the corporate officers failed to keep its
records accurately. A corporation’s records are not the only evidence
of the ownership of stock in a corporation.
● It is no less than the articles of incorporation that declare the
incorporators to have in their name the founders and several common
shares. Thus, to disregard the contents of the articles of incorporation
would be to pretend that the basic document which legally triggered
the creation of the corporation does not exist and accordingly to allow
great injustice to be caused to the incorporators and their heirs .
● Pet denied; decision affirmed