University of Mindanao, Inc. vs.

Bangko Sentral ng Pilipinas

778 SCRA 458, G.R. Nos. 194964-65 January 11, 2016

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

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

Lanuza, Jr. vs. BF Corporation

737 SCRA 275, G.R. No. 174938 October 1, 2014

Corporations; Separate Legal Personality; A corporation, in the legal sense, is an individual with a
personality that is distinct and separate from other persons including its stockholders, officers, directors,
representatives, and other juridical entities.—A corporation is an artificial entity created by fiction of
law. This means that while it is not a person, naturally, the law gives it a distinct personality and treats it
as such. A corporation, in the legal sense, is an individual with a personality that is distinct and separate
from other persons including its stockholders, officers, directors, representatives, and other juridical
entities. The law vests in corporations rights, powers, and attributes as if they were natural persons with
physical existence and capabilities to act on their own. For instance, they have the power to sue and
enter into transactions or contracts.

Same; Same; A “corporation’s representatives” are generally 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.—Because a corporation’s existence is only by fiction of law, it can only
exercise its rights and powers through its directors, officers, or agents, who are all natural persons. A
corporation cannot sue or enter into contracts without them. A consequence of a corporation’s separate
personality is that consent by a corporation through its representatives is not consent of the
representative, personally. Its obligations, incurred through official acts of its representatives, are its
own. 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. Hence, a
corporation’s representatives are generally 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.

Same; Same; Arbitration; As a general rule, therefore, a corporation’s representative who did not
personally bind himself or herself to an arbitration agreement cannot be forced to participate in
arbitration proceedings made pursuant to an agreement entered into by the corporation.—As a general
rule, therefore, a corporation’s representative who did not personally bind himself or herself to an
arbitration agreement cannot be forced to participate in arbitration proceedings made pursuant to an
agreement entered into by the corporation. He or she is generally not considered a party to that
agreement. However, there are instances when the distinction between personalities of directors,
officers, and representatives, and of the corporation, are disregarded. We call this piercing the veil of
corporate fiction.

Same; Same; Piercing the Veil of Corporate Fiction; Piercing the corporate veil is warranted when “[the
separate personality of a corporation] is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate
issues.”—Piercing the corporate veil is warranted when “[the separate personality of a corporation] is
used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate issues.” It is also warranted in alter
ego cases “where a corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.” When corporate
veil is pierced, the corporation and persons who are normally treated as distinct from the corporation
are treated as one person, such that when the corporation is adjudged liable, these persons, too,
become liable as if they were the corporation. Among the persons who may be treated as the
corporation itself under certain circumstances are its directors and officers.
Same; Same; Same; Section 31 of the Corporation Code provides the instances when directors, trustees,
or officers may become liable for corporate acts.—Section 31 of the Corporation Code provides the
instances when directors, trustees, or officers may become liable for corporate acts: Sec. 31. Liability of
directors, trustees or officers.—Directors or trustees who willfully and knowingly vote for or assent to
patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as
such directors or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons. When a director, trustee or
officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in
respect of any matter which has been reposed in him in confidence, as to which equity imposes a
disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must
account for the profits which otherwise would have accrued to the corporation. (n)

Same; Same; Same; Cases When a Director, Trustee, or Officer of a Corporation May Be Made Solidarily
Liable With it for All Damages Suffered by the Corporation, its Stockholders or Members, and Other
Persons.—A director, trustee, or officer of a corporation may be made solidarily liable with it for all
damages suffered by the corporation, its stockholders or members, and other persons in any of the
following cases:

a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful corporate
act;

b) The director or trustee was guilty of gross negligence or bad faith in directing corporate affairs; and

c) The director or trustee acquired personal or pecuniary interest in conflict with his or her duties as
director or trustee.

Solidary liability with the corporation will also attach in the following instances:

a) “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”;

b) “When a director, trustee or officer has contractually agreed or stipulated to hold himself personally
and solidarily liable with the corporation”; and

c) “When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.”

Same; Same; Same; When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons and the
corporation should be treated as one. Without a trial, courts and tribunals have no basis for
determining whether the veil of corporate fiction should be pierced.—When there are allegations of
bad faith or malice against corporate directors or representatives, it becomes the duty of courts or
tribunals to determine if these persons and the corporation should be treated as one. Without a trial,
courts and tribunals have no basis for determining whether the veil of corporate fiction should be
pierced. Courts or tribunals do not have such prior knowledge. Thus, the courts or tribunals must first
determine whether circumstances exist to warrant the courts or tribunals to disregard the distinction
between the corporation and the persons representing it. The determination of these circumstances
must be made by one tribunal or court in a proceeding participated in by all parties involved, including
current representatives of the corporation, and those persons whose personalities are impliedly the
same as the corporation. This is because when the court or tribunal finds that circumstances exist
warranting the piercing of the corporate veil, the corporate representatives are treated as the
corporation itself and should be held liable for corporate acts. The corporation’s distinct personality is
disregarded, and the corporation is seen as a mere aggregation of persons undertaking a business under
the collective name of the corporation.

Republic vs. Mega Pacific eSolutions,

Inc., 794 SCRA 414, G.R. No. 184666 June 27, 2016

Bids and Bidding; Words and Phrases; The word “bidding” in its comprehensive sense means making an
offer or an invitation to prospective contractors, whereby the government manifests its intention to
make proposals for the purpose of securing supplies, materials, and equipment for official business or
public use, or for public works or repair.—The word “bidding” in its comprehensive sense means
making an offer or an invitation to prospective contractors, whereby the government manifests its
intention to make proposals for the purpose of securing supplies, materials, and equipment for official
business or public use, or for public works or repair. Three principles involved in public bidding are as
follows:

(1) the offer to the public;

(2) an opportunity for competition; and

(3) a basis for an exact comparison of bids. ]

A regulation of the matter, which excludes any of these factors, destroys the distinctive character of the
system and thwarts the purpose of its adoption.

Corporations; Piercing the Veil of Corporate Fiction; Veil-piercing in fraud cases requires that the legal
fiction of separate juridical personality is used for fraudulent or wrongful ends.—Veil-piercing in fraud
cases requires that the legal fiction of separate juridical personality is used for fraudulent or wrongful
ends. For reasons discussed below, We see red flags of fraudulent schemes in public procurement, all of
which were established in the 2004 Decision, the totality of which strongly indicate that MPEI was a
sham corporation formed merely for the purpose of perpetrating a fraudulent scheme. The red flags are
as follows:

(1) overly narrow specifications;

(2) unjustified recommendations and unjustified winning bidders;

(3) failure to meet the terms of the contract; and

(4) shell or fictitious company.

Same; Fictitious Companies; Shell companies have no significant assets, staff or operational capacity.
They pose a serious red flag as a bidder on public contracts, because they often hide the interests of
project or government officials, concealing a conflict of interest and opportunities for money laundering.
—The Handbook regards a shell or fictitious company as a “serious red flag,” a concept that it elaborates
upon: Fictitious companies are by definition fraudulent and may also serve as fronts for government
officials. The typical scheme involves corrupt government officials creating a fictitious company that will
serve as a “vehicle” to secure contract awards. Often, the fictitious — or ghost — company will
subcontract work to lower cost and sometimes unqualified firms. The fictitious company may also utilize
designated losers as subcontractors to deliver the work, thus indicating collusion. Shell companies have
no significant assets, staff or operational capacity. They pose a serious red flag as a bidder on public
contracts, because they often hide the interests of project or government official s, concealing a conflict
of interest and opportunities for money laundering. Also, by definition, they have no experience. MPEI
qualifies as a shell or fictitious company. It was nonexistent at the time of the invitation to bid; to be
precise, it was incorporated only 11 days before the bidding. It was a newly formed corporation and, as
such, had no track record to speak of.

Same; The totality of the red flags found in this case leads Us to the inevitable conclusion that Mega
Pacific eSolutions, Inc. (MPEI) was nothing but a sham corporation formed for the purpose of defrauding
petitioner.—The totality of the red flags found in this case leads Us to the inevitable conclusion that
MPEI was nothing but a sham corporation formed for the purpose of defrauding petitioner. Its ultimate
objective was to secure the P1,248,949,088 automation contract. The scheme was to put up a
corporation that would participate in the bid and enter into a contract with the COMELEC, even if the
former was not qualified or authorized to do so.

Same; Piercing the Veil of Corporate Fiction; The main effect of disregarding the corporate fiction is that
stockholders will be held personally liable for the acts and contracts of the corporation, whose
existence, at least for the purpose of the particular situation involved, is ignored.—The main effect of
disregarding the corporate fiction is that stockholders will be held personally liable for the acts and
contracts of the corporation, whose existence, at least for the purpose of the particular situation
involved, is ignored. We have consistently held that when the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as
an association of persons. Thus, considering that We find it justified to pierce the corporate veil in the
case before Us, MPEI must, perforce, be treated as a mere association of persons whose assets are
unshielded by corporate fiction. Such persons’ individual liability shall now be determined with respect
to the matter at hand.

Lyceum of the Philippines, Inc.,

In that case, the Lyceum of the Philippines, Inc., an educational institution registered with the SEC,
commenced proceedings before the SEC to compel therein private respondents who were all
educational institutions, to delete the word "Lyceum" from their corporate names and permanently
enjoin them from using the word as part of their respective names.

The Court there held that the word "Lyceum" today generally refers to a school or institution of
learning. It is as generic in character as the word "university." Since "Lyceum" denotes a school or
institution of learning, it is not unnatural to use this word to designate an entity which is organized
and operating as an educational institution. Also, no evidence presented to prove confusion.

Lyceum of the Philippines, Inc. vs. Court of Appeals,

219 SCRA 610, G.R. No. 101897 March 5, 1993

Corporation Law; Names; Fact that other schools use "Lyceum" as part of their school's name is not a
deceptive use thereof relative to Lyceum of the Philippines.—We do not consider that the corporate
names of private respondent institutions are "identical with, or deceptively or confusingly similar" to
that of the petitioner institution. True enough, the corporate names of private respondent entities all
carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of
geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be
mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan"
would be confused with the Lyceum of the Philippines.

Same; Same; Words and Phrases; "Lyceum" is a generic name.—Etymologically, the word "Lyceum" is
the Latin word for the Greek lykeion which in turn referred to a locality on the river Ilissius in ancient
Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected
by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the philosopher
Aristotle and his followers for teaching."

In time, the word "Lyceum" became associated with schools and other institutions providing public
lectures and concerts and public discussions. Thus today, the word "Lyceum" generally refers to a
school or an institution of learning. While the Latin word "lyceum" has been incorporated into the
English language, the word is also found in Spanish (liceo) and in French (lycee). As the Court of Appeals
noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de
Baleno" (in Baleno Masbate), "Liceo de Masbate," "Liceo de Albay." "Lyceum" is in fact as generic in
character as the word "university." In the name of the petitioner, "Lyceum" appears to be a substitute
for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently denotes a
secondary school or a college. It may be (though this is a question of fact which we need not resolve)
that the use of the word "Lyceum" may not yet be as widespread as the use of "university," but it is clear
that a not inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as part
of their corporate names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not
unnatural to use this word to designate an entity which is organized and operating as an educational
institution.

Same; Same; Same; Trademarks; "Secondary meaning," defined.—In Philippine Nut Industry, Inc. v.
Standard Brands, Inc., the doctrine of secondary meaning was elaborated in the following terms: "x x x a
word or phrase originally incapable of exclusive appropriation with reference to an article on the
market, because geographically or otherwise descriptive, might nevertheless have been used so long
and so exclusively by one producer with reference to his article that, in that trade and to that branch of
the purchasing public, the word or phrase has come to mean that the article was his product."

Same; Same; Same; Same; Lyceum of the Philippines has not gained exclusive use of "Lyceum" by long
passage of time.—We agree with the Court of Appeals. The number alone of the private respondents in
the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with
the exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted also that
at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term
"Lyceum" seventeen (17) years before the petitioner registered its own corporate name with the SEC
and began using the word "Lyceum." It follows that if any institution had acquired an exclusive right to
the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather than
the petitioner institution.