Corporation

PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS v. COA

G.R. NO. 169752, September 25, 2007
Austria-Martinez, J:

DOCTRINE:

A quasi-public corporation is a species of private corporations, but the qualifying factor is the type of
service the former renders to the public: if it performs a public service, then it becomes a quasi-public
corporation.

FACTS:

Petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No. 1285,
and was composed of animal aficionados and animal propagandists. The objects of the petitioner shall be
to enforce laws relating to cruelty inflicted upon animals or the protection of animals in the Philippine
Islands, and generally, to do and perform all things which may tend in any way to alleviate the suffering
of animals and promote their welfare. At the time of the enactment of Act No. 1285, the original
Corporation Law, Act No. 1459, was not yet in existence. Act No. 1285 antedated both the Corporation
Law and the constitution of the Securities and Exchange Commission. Important to note is that the nature
of the petitioner as a corporate entity is distinguished from the sociedad anonimas under the Spanish
Code of Commerce. COA issued a memorandum that Petitioner is subject of its audit authority, but the
latter allege that it is a private domestic corporation.

ISSUE:
Whether or Not Petitioner qualifies as a government agency that may be subject to audit by respondent
COA

HELD:

No. Petitioner is a quasi-public corporation, which is a specie of private corporation, but the qualifying
factor is the type of service the former renders to the public. The fact that a certain juridical entity is
impressed with public interest does not, by that circumstance alone, make the entity a public corporation,
inasmuch as a corporation may be private although its charter contains provisions of a public character,
incorporated solely for the public good. This class of corporations may be considered quasi-public
corporations, which are private corporations that render public service, supply public wants, or pursue
other eleemosynary objectives. By virtue of the fiction that all corporations owe their very existence and
powers to the State, the reportorial requirement is applicable to all corporations of whatever nature,
whether they are public, quasi-public, or private corporations—as creatures of the State, there is a
reserved right in the legislature to investigate the activities of a corporation to determine whether it acted
within its powers. Petitioner’s charter shows that it is not subject to control or supervision by any agency
of the State, unlike government-owned and -controlled corporations. No government representative sits
on the board of trustees of the petitioner. Like all private corporations, the successors of its members are
determined voluntarily and solely by the petitioner in accordance with its by-laws, and may exercise those
powers generally accorded to private corporations, such as the powers to hold property, to sue and be
sued, to use a common seal, and so forth. It may adopt by-laws for its internal operations: the petitioner
shall be managed or operated by its officers "in accordance with its by-laws in force." Being a private
corporation, Petitioner is subject to the rules and regulations of the SEC and COA is enjoined from
investigating and auditing Petitioner’s fiscal and financial affairs.

REPUBLIC OF THE PHILIPPINES v. CITY OF PARANAQUE

G.R. NO. 191109, July 18, 2012
Mendoza, J:

DOCTRINE:

When the law vests in a government instrumentality corporate powers, the instrumentality does not
necessarily become a corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers.

FACTS:

The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree
(P.D.) No. 1084 to provide a coordinated, economical and efficient reclamation of lands, and the
administration and operation of lands belonging to, managed and/or operated by, the government with the
object of maximizing their utilization and hastening their development consistent with public interest. On
October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA into
PRA, which shall perform all the powers and functions of the PEA relating to reclamation activities. By
virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila Bay,
including those located in Parañaque City. Parañaque City Treasurer located in Parañaque City based on
the assessment for delinquent real property taxes made by then Parañaque City Assessor.

ISSUE:
Whether or Not PRA is a government-owned and controlled corporation (GOCC), a taxable entity, and,
therefore not exempt from payment of real property taxes.

HLED:

No. PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be considered
as a stock corporation because although it has a capital stock divided into no par value shares as provided
in Section 7 of P.D. No. 1084, it is not authorized to distribute dividends, surplus allotments or profits to
stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the subsequent executive
issuances pertaining to PRA that authorizes PRA to distribute dividends, surplus allotments or profits to
its stockholders. PRA cannot be considered a non-stock corporation either because it does not have
members. A non-stock corporation must have members. Moreover, it was not organized for any of the
purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to manage all
government reclamation projects. Furthermore, the 1987 Constitution provides that GOCCs may be
created or established by special charters in the interest of the common good and subject to the test of
economic viability. PRA may have passed the first condition of common good but failed the second one -
economic viability. Undoubtedly, the purpose behind the creation of PRA was not for economic or
commercial activities. In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every modern State
must provide its citizens. These instrumentalities need not be economically viable since the government
may even subsidize their entire operations. These instrumentalities are not the "government-owned or
controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution. Clearly,
respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA.

FIRST LEPANTO-TAISHO INSURANCE v. CHEVRON PHILIPPINES

G.R. NO. 177839, January 18, 2012
Villararam, Jr., J:

DOCTRINE:

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.

FACTS:

Chevron sued First Lepanto for the payment of unpaid oil and petroleum purchase made by its distributor,
Fumitechniks. Fumitechniks, applied an was issued a surety bond by Petitioner. As stated in the attached
rider, the bond was in compliance with the requirement for the grant of a credit line with the respondent
"to guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated time in
accordance with the terms and conditions of the agreement." Fumitechniks defaulted on its obligation.
Petitioner demanded Fumitechniks to send a copy of the agreement secured by the bond, among others,
but it replied that it cannot submit such for no agreement was executed between Fumetechniks and
Respondent. Petitioner advised respondent of the non-existence of the principal agreement as confirmed
by Fumitechniks.  Petitioner explained that being an accessory contract, the bond cannot exist without a
principal agreement as it is essential that the copy of the basic contract be submitted to the proposed
surety for the appreciation of the extent of the obligation to be covered by the bond applied for. A case
was filed where the Petitioner pleaded its counterclaim for moral damages and attorney’s fees. But said
counterclaims were dismissed.
ISSUE:

Whether or Not a juridical person is entitled to moral damages

HELD:

No. 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. Although in some recent cases, the Supreme Court held that the court may allow
the grant of moral damages to corporations, it is not automatically granted; there must still be proof of the
existence of the factual basis of the damage and its causal relation to the defendant's acts. This is so
because moral damages, though incapable of pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer.

TIMOTEO SARONA v. NLRC

G.R. NO. 185280, January 18, 2012
Reyes, J:

DOCTRINE:

A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises
are owned, conducted and controlled by the same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat
them as identical or as one and the same.

FACTS:

Timoteo who was hired by Sceptre as a security guard, but was asked to submit a resignation letter for
such is required for applying for a position at Royale. Timoteo was also asked to fill up Royale’s
employment application form. After several weeks of being in floating status, Timoteo was assigned at
Highlight Metal, and was later on transferred and assigned to WWWE. During his assignment at
Highlight Metal, the petitioner used the patches and agency cloths of Sceptre and it was only
when he was posted at WWWE, Inc. that he started using those of Royale. He was informed that his
assignment at WWWE, had been withdrawn because Royale had allegedly been replaced by another
security agency. He discovered that Royale was not actually replaced as the security agency, and he was
once again assigned at Highlight Metal. When he reported at Royale’s office, he was informed that he
would no longer be given any assignment; hence, prompting him to file a complaint for illegal dismissal.
The agency argued that Timoteo abandoned his job. Timoteo prayed for the piercing of the veil of
corporate entity of Royale for it was using the same office of Sceptre and that the officers and staff of the
two companies are the same.

ISSUE:

Whether or Not Royale’s corporate fiction should be pierced for the purpose of compelling it to recognize
Timoteo’s length of service with Sceptre, and for holding it liable for the benefits that have accrued to
him arising from his employment with Sceptre

HELD:

Yes. The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend
a crime; or 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.
Evidence abound showing that Royale is a mere continuation or successor of Sceptre and fraudulent
objectives are behind Royale’s incorporation and the petitioner’s subsequent employment therein. The
presence of actual common control coupled with the misuse of the corporate form to perpetrate
oppressive or manipulative conduct or evade performance of legal obligations is patent; Royale cannot
hide behind its corporate fiction. The manner by which the petitioner was made to resign from Sceptre
and how he became an employee of Royale suggest the perverted use of the legal fiction of the separate
corporate personality.

WPM INTERNATION TRADING v. FE CORAZON LABAYEN

G.R. NO. 182770, September 17, 2014
Brion, J:

DOCTRINE:

A director, officer or employee of a corporation is generally not held personally liable for obligations
incurred by the corporation; it is only in exceptional circumstances that solidary liability will attach to
them.

FACTS:

Fe is the owner of HBO Systems, a management and consultant firm. WPM is a domestic corporation
engaged in the restaurant business, and Warlito is its president. WPM entered into a management
agreement with Fe,  by virtue of which the respondent was authorized to operate, manage and rehabilitate
Quickbite, a restaurant owned and operated by WPM. Pursuant to the agreement, Fe engaged the services
of CLN to renovate Quickbite; however, the renovation cost was not fully paid to CLN. CLN filed a
complaint for sum of money and damages before the RTC against Fe and Warlito, where Fe was held
liable. Fe instituted a complaint for damages against WPM and Warlito.

ISSUES:

1. Whether or Not WPM is a mere instrumentality, alter-ego and business conduit of Warlito
2. Whether or Not Warlito is jointly and severally liable to WPM to Fe for reimbursement, damages, and
interest

HELD:

1. No. Aside from Warlito being 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 Warlito. 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 beenused 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. To disregard the separate juridical personality
of a corporation, the wrongdoing must be clearly and convincingly established. Control is necessary to
invoke the instrumentality or alter ego rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has, so tospeak, no separate
mind, will or existence of its own, and is but a conduit for its principal. The control must be shown to
have been exercised at the time the acts complained of took place. Moreover, the control and breach of
duty must proximately cause the injury or unjust loss for which the complaint is made.

2. No. 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. Following this principle, the obligations incurred by the
corporate officers, orother persons acting as corporate agents, are the direct accountabilities ofthe
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;  it is only in exceptional
circumstances that solidary liability will attach to them.

PNB v. HYDRO RESOURCES CONTRACTORS CORPORATION

G.R. NO. 167530, March 13, 2003
Leonardo-De Castro, J:

DOCTRINE:

Piercing the corporate veil based on the alter ego theory 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.

FACTS:

DBP and PNB foreclosed on certain mortgages made on the properties of Marinduque Mining and
Industrial Corporation, resulting to the acquisition of substantially all the assets of MMIC. Subsequently,
NMIC engaged the services of Hercon, and later on the latter was acquired by HRCC in a merger. Hercon
instituted a complaint for sum of money before the RTC, seeking to hold NMIC, DBP, and PNB
solidarily liable for the amount owing to HErcon. Later on, the complaint was amended to substitute
HRCC for Hercon. Due to the creation of APT by virtue of Proclamation No. 50, DBP and PNB executed
their respective deeds of transfer in favor of the National Government assigning, transferring and
conveying certain assets and liabilities, including their respective stakes in NMIC. In turn and on even
date, the National Government transferred the said assets and liabilities to the APT as trustee under a
Trust Agreement. Thus, the complaint was amended for the second time to implead and include the APT
as a defendant.

ISSUE:

Whether or Not DBP and PNB may be held solidarily liable with NMIC to pay NMIC’s exclusive and
separate corporate debt to HRCC

HELD:

No. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be
impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons. In
this connection, case law lays down a three-pronged test to determine the application of the alter ego
theory, which is also known as the instrumentality theory. The first prong is the "instrumentality" or
"control" test. This 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.  It seeks to establish whether
the subsidiary corporation has no autonomy and the parent corporation, though acting through the
subsidiary in form and appearance, "is operating the business directly for itself." The second prong is the
"fraud" test. This test requires that the parent corporation’s conduct in using the subsidiary corporation be
unjust, fraudulent or wrongful. It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor. The third prong is the "harm" test. This 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. The plaintiff must prove that, unless the corporate veil
is pierced, it will have been treated unjustly by the defendant’s exercise of control and improper use of the
corporate form and, thereby, suffer damages. In this case, nothing in the records shows that the corporate
finances, policies and practices of NMIC were dominated by DBP and PNB in such a way that NMIC
could be considered to have no separate mind, will or existence of its own but a mere conduit for DBP
and PNB. The elements required for piercing of the corporate veil are not present.

KUKAN INTERNATIONAL v. HON. AMOR REYES

G.R. NO. 182729, September 29, 2010
Velasco, Jr., J:

DOCTRINE:

Whether the separate personality of the corporation should be pierced hinges on obtaining facts
appropriately pleaded or proved.

FACTS:

Kukan conducted a bidding for the supply and installation of signages in a building. Morales tendered the
winning bid and was awarded the contract. Morales was not fully paid for the project which Kukan
refused to pay despite demands. Morales filed a Complaint with the RTC against Kukan for sum of
money, which was decided in favor of Morales. After the above decision became final and executory,
Morales moved for and secured a writ of execution against Kukan. The sheriff then levied upon various
personal properties found at what was supposed to be Kukan’s office, but Kukan International (KIC) filed
an affidavit of third-party claim, alleging that it owned the levied property and that it is a different
corporation from Kukan.

ISSUES:
1. Whether or Not the judgment can be executed against the property of KIC
2. Whether or Not the principle of piercing the veil of corporate fiction can be applied in this case

HELD:

1. No. A decision that has acquired finality becomes immutable and unalterable. As such, it may no
longer be modified in any respect even if the modification is meant to correct erroneous conclusions of
fact or law and whether it will be made by the court that rendered it or by the highest court of the land.
Thus, making KIC, thru the medium of a writ of execution, answerable for the above judgment liability is
a clear case of altering a decision, an instance of granting relief not contemplated in the decision sought to
be executed. And the change does not fall under any of the recognized exceptions to the doctrine of
finality and immutability of judgment. It is a settled rule that a writ of execution must conform to
the fallo of the judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a nullity.

2. No. The principle of piercing the veil of corporate fiction, and the resulting treatment of two related
corporations as one and the same juridical person with respect to a given transaction, is basically applied
only to determine established liability;  it is not available to confer on the court a jurisdiction it has not
acquired, in the first place, over a party not impleaded in a case. A corporation not impleaded in a suit
cannot be subject to the court’s process of piercing the veil of its corporate fiction. In that situation, the
court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that
corporation and its property would infringe on its right to due process. The doctrine of piercing the veil of
corporate fiction comes to play only during the trial of the case after the court has already acquired
jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence
presented, it is imperative that the court must first have jurisdiction over the corporation. The implication
of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or
corporations involved before its or their separate personalities are disregarded; and (2) the doctrine of
piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly
commenced involving parties duly brought under the authority of the court by way of service of summons
or what passes as such service.

INTERNATIONAL ACADEMY OF MANAGEMENT AND ECONOMICS v. LITTON AND CO.

G.R. NO. 191525, December 13, 2017
Sereno, C.J.:

DOCTRINE:

Piercing the Corporate Veil may Apply to Non-stock Corporations.

FACTS:

SAntoss, a lessee to 2 buildings owned by Litton, owed the latter rental arrears as well as his share of the
payment of realty taxes. Litton filed a complaint for unlawful detainer against Santos before the MeTC of
Manila. The MeTC ruled in Litton's favor and ordered Santos to vacate A.I.D. Building and Litton
Apartments and to pay various sums of money representing unpaid arrears, realty taxes, penalty, and
attorney's fees. It appears however that the judgment was not executed. Litton subsequently filed an
action for revival of judgment, which was granted. The sheriff of the MeTC of Manila levied on a piece
of real property and registered in the name of the Petitioner, in order to execute the judgment against
Santos. Petitioner filed a motion to lift or remove annotations inscribed in TCT, claiming that it has a
separate and distinct personality from Santos.
ISSUE:

Whether or Not there was a denial of due process when the court pierced the corporate veil of Petitioner
and its property was made to answer Santos’s liability

HELD:

No. Santos used Petitioner as a means to defeat judicial processes and evade his obligation to Litton.
Thus, even while Petitioner was not impleaded in the main case and yet so was named in a writ of
execution to satisfy a court judgment against Santos, it is vulnerable to piercing of its corporate veil.
Since the law does not make a distinction between a stock and non-stock corporation, neither should there
be a distinction in case the doctrine of piercing the veil of corporate fiction has to be applied. While
Petitioner is an education institution, it is still a registered corporation conducting its affairs as such. In
determining the propriety of applicability of piercing the veil of corporate fiction, this Court, in a number
of cases, did not put in issue whether a corporation is a stock or non-stock corporation. The concept of
equitable ownership, for stock or non-stock corporations, in piercing of the corporate veil scenarios, may
also be considered. An equitable owner is an individual who is a non-shareholder defendant, who
exercises sufficient control or considerable authority over the corporation to the point of completely
disregarding the corporate form and acting as though its assets are his or her alone to manage and
distribute. The Supreme Court also held that piercing the corporate veil may apply to natural persons.
When the corporation is the alter ego of a natural person - This Court has held that the "corporate mask
may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of  a
person or of another corporation.” The Reverse Piercing of the Corporate Veil was also discussed, to wit:
"in a traditional veil-piercing action, a court disregards the existence of the corporate entity so a claimant
can reach the assets of a corporate insider. In a reverse piercing action, however, the plaintiff seeks to
reach the assets of a corporation to satisfy claims against a corporate insider." It has two (2) types:
outsider reverse piercing and insider reverse piercing. Outsider reverse piercing occurs when a party with
a claim against an individual or corporation attempts to be repaid with assets of a corporation owned or
substantially controlled by the defendant. In contrast, in insider reverse piercing, the controlling members
will attempt to ignore the corporate fiction in order to take advantage of a benefit available to the
corporation, such as an interest in a lawsuit or protection of personal assets.
WILSON GAMBOA v. FINANCE SEC. MARGARITO TEVES
G.R. NO. 176579, June 28, 2011
Carpio, J:

DOCTRINE:

The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can
vote in the election of directors.

FACTS:

PLDT was granted a franchise and the right to engage in telecommunications business. GTE, an
American company and a major PLDT stockholder, sold 26% of the outstanding common shares of
PLDT to PTIC. PHI became the owner of a number of stocks of PTIC, and the same stocks were later on
sequestered by PCGG and were later declared to be owned by the Republic of the Philippines. The inter-
agency council (IPC) announced that it would sale the said shares, but First Pacific announced that it
would exercise its right of first refusal as a PTIC stockholder and buy the shares, but failed to do so. First
Pacific entered into a conditional sale and purchase agreement with the Philippine Government. It is
argued that since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125
percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the
outstanding common shares of PLDT. With the sale, First Pacific’s common shareholdings in PLDT
increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in
PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution
which limits foreign ownership of the capital of a public utility to not more than 40 percent.

ISSUE:

Whether or Not the term “capital” in Section 11, Article XII of the Constitution refers to the total
common shares only

HELD:

Yes. The term "capital" in Section 11, Article XII of the 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 comprising both common and non-voting preferred shares. Considering
that common shares have voting rights which translate to control, as opposed to preferred shares which
usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only
to common shares. However, if the preferred shares also have the right to vote in the election of directors,
then the term "capital" shall include such preferred shares because the right to participate in the control or
management of the corporation is exercised through the right to vote in the election of directors. In short,
the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote
in the election of directors. This interpretation is consistent with the intent of the framers of the
Constitution to place in the hands of Filipino citizens the control and management of public utilities. As
revealed in the deliberations of the Constitutional Commission, "capital" refers to the voting stock
or controlling interest of a corporation. In PLDT’s AOI, it is stated that  "the holders of Serial Preferred
Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for
any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or to
receive notice of any meeting of stockholders." On the other hand, "each holder of Common Capital
Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by
the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote for the
election of directors and for all other purposes."
PHILIPPINE COCONUT PRODUCERS (COCOFED) v. REPUBLIC OF THE PHILIPPINES
G.R. NO. 177857-58, September 17, 2009
Velasco, Jr., J:

DOCTRINE:

Voting is an act of dominion that should be exercised by the share owner. One of the recognized rights of
an owner is the right to vote at meetings of the corporation. The right to vote is classified as the right to
control.

FACTS:

COCOFED proposes to constitute a trust fund to be known as the "Coconut Industry Trust Fund (CITF)
for the Benefit of the Coconut Farmers," with respondent Republic, acting through the Philippine Coconut
Authority (PCA), as trustee. As proposed, the constitution of the CITF shall be subject to terms and
conditions which, for the most part, reiterate the features of SMC’s conversion offer, albeit specific
reference is made to the shares of the 14 CIIF companies. COCOFED seeks for the approval of
conversion of Class A and Class B common shares of SMC registered in the names of Coconut Industry
Investment Fund and the 14 holding companies (CIIF companies) into SMC Series 1 preferred shares.
The Series 1 Preferred Shares shall have preference over the common shares in the event of liquidation of
SMC. Republic questions COCOFED’s personality to seek the conversion, maintaining that the CIIF
SMC common shares are sequestered assets and are in custodia legis under PCGG; hence, PCGG has the
authority to approve the proposed conversion and seek the necessary court approval.

ISSUE:

Whether or Not COCOFED has the personality to seek the imprimatur on the conversion

HELD:

No. PCGG, not COCOFED, that is authorized to seek the approval of the Court of the Series 1 preferred
shares conversion. From the time of sequestration, the sequestered shares became subject to the
management, supervision, and control of PCGG. Having shown that the coconut levy funds are not only
affected with public interest, but are in fact prima facie public funds, this Court believes that the
government should be allowed to vote the questioned shares, because they belong to it as the prima facie
beneficial and true owner. As stated at the beginning, voting is an act of dominion that should be
exercised by the share owner. One of the recognized rights of an owner is the right to vote at meetings of
the corporation. The right to vote is classified as the right to control. Voting rights may be for the purpose
of, among others, electing or removing directors, amending a charter, or making or amending by laws.
Because the subject UCPB shares were acquired with government funds, the government becomes their
prima facie beneficial and true owner. PCGG’s power to sequester alleged ill-gotten properties is likened
to the provisional remedies of preliminary attachment or receivership which are always subject to the
control of the court.

DE LA SALLE MONTESSORI v. DE LA SALLE BROTHERS

G.R. NO. 205548, February 7, 2018
Jardeleza, J:

DOCTRINE:

A corporation's right to use its corporate and trade name is a property right, a right in rem, which it may
assert and protect against the world in the same manner as it may protect its tangible property, real or
personal, against trespass or conversion.

FACTS:

Petitioner reserved with the SEC its corporate name De La Salle Montessori International Malolos,
Inc. from June 4 to August 3, 2007, after which the SEC indorsed petitioner's articles of incorporation and
by-laws to the Department of Education (DepEd) for comments and recommendation. The DepEd
returned the indorsement without objections. Consequently, the SEC issued a certificate of incorporation
to petitioner. Respondents filed a petition with the SEC seeking to compel petitioner to change its
corporate name. Respondents claim that petitioner's corporate name is misleading or confusingly similar
to that which respondents have acquired a prior right to use, and that respondents' consent to use such
name was not obtained. According to respondents, petitioner's use of the dominant phrases "La Salle" and
"De La Salle" gives an erroneous impression that De La Salle Montessori International of Malolos, Inc. is
part of the "La Salle" group, which violates Section 18 of the Corporation Code of the Philippines.
Moreover, being the prior registrant, respondents have acquired the use of said phrases as part of their
corporate names and have freedom from infringement of the same.

ISSUE:

Whether or Not the CA acted with grave abuse of discretion amounting to lack or in excess of jurisdiction
when it erred in not applying the doctrine laid down in the case of Lyceum that Lyceum is not attended
with exclusivity

HELD:

No. A corporation's right to use its corporate and trade name is a property right, a right  in rem, which it
may assert and protect against the world in the same manner as it may protect its tangible property, real or
personal, against trespass or conversion. Section 18 of the Corporation Code prohibits the registration of
a corporate name which is "identical or deceptively or confusingly similar" to that of any existing
corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the
avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the
evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision
over corporations. Two requisites must be proven:  (1) that the complainant corporation acquired a prior
right over the use of such corporate name; and (2) the proposed name is either: (a) identical, or (b)
deceptively or confusingly similar to that of any existing corporation or to any other name already
protected by law; or (c) patently deceptive, confusing or contrary to existing law. "De La Salle" is not
merely a generic term. Respondents' use of the phrase being suggestive and may properly be regarded as
fanciful, arbitrary and whimsical, it is entitled to legal protection. Petitioner's use of the phrase "De La
Salle" in its corporate name is patently similar to that of respondents that even with reasonable care and
observation, confusion might arise. 

INDIAN CHAMBER OF COMMERCE v. FILIPINO INDIAN CHAMBER OF COMMERCE

G.R. NO. 184008, August 3, 2016
Jardeleza, J:

DOCTRINE:

The name of a dissolved firm shall not be allowed to be used by other firms within three (3) years after
the approval of the dissolution of the corporation by the Commission, unless allowed by the last
stockholders representing at least majority of the outstanding capital stock of the dissolved firm.

FACTS:

Respondent was originally registered with SEC as Indian Chamber of Commerce of Manila, Inc. on
November 24, 1951, and its term of existence expired on November 24, 2001. On January 20, 2005, Mr.
Naresh reserved the   corporate   name   "Filipino   Indian   Chamber   of Commerce   in  the Philippines,
Inc." (FICCPI), for the period from January 20, 2005 to April 20, 2005. Respondent opposed it since the
corporate name has been used by the defunct FICCPI since 1951. Mr. Naresh’s reservation was granted,
holding that he possesses the better right over the corporate for the non-revival of the defunct corporation
divested it of its preferential right over the name and that it has no legal personality to file the opposition.
Meanwhile, on December 8, 2005, Mr. Pracash, who allegedly represented the defunct FICCPI, filed an
application for the reservation of the corporate name "Indian Chamber of Commerce Phils., Inc." (ICCPI).
Mr. Naresh opposed it arguing that the name was confusingly similar to the one he reserved, but his
opposition was denied. The SEC En Banc reversed this decision and granted Mr. Naresh’s opposition.

ISUE:

Whether or Not there is similarity between the parties’ corporate name that would inevitably lead to
confusion

HELD:

Yes. Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is
identical or deceptively or confusingly similar to that of any existing corporation. To fall within the
prohibition, two requisites must be proven, to wit: 1.  that the complainant corporation acquired a prior
right over the use of such corporate name; and 2. the proposed name is either: (a) identical; or (b)
deceptively or confusingly similar to that of any existing corporation or to any other name already
protected by law; or (c) patently deceptive,  confusing or contrary to existing law. These were all present
in this case. FICCPI, which was incorporated earlier, acquired a prior right over the use of the corporate
name. ICCPFs and FICCPFs corporate names both contain the same words "Indian Chamber of
Commerce." The differences invoked are the use of the word “Filipino” by the Respondent and “in the
Philippines” versus “Phils., Inc.” cannot be appreciated. Taken together, the words in the phrase "in the
Philippines" and in the phrase "Phils. Inc." are synonymous—they both mean the location of the
corporation.

BDO LEASING & FINANCE v. GREAT DOMESTIC INSURANCE

G.R. NO. 205286, June 19, 2019
Caguioa, J:

DOCTRINE:

The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the
original corporation. 

FACTS:

Spouses Chao obtained from BDO loans evidenced by 2 promissory notes. As security, Spouses Chao
executed in favor of BDO a chattel mortgage covering 40 vehicles and personal properties. Spouses Chao
failed to pay the loans despite demands; hence, a complaint for recovery of possession of personal
property with an application for the issuance of a writ of replevin was filed. The replevin was granted by
the court. Spouses Chao were also declared in default in the case and the RTC ordered them to deliver to
BDO the properties subject of chattel mortgage. The case was appealed to the CA and BDO, still as PCI
Leasing, filed a petition for certiorari under Rule 65. This was denied where one of the reasons for denial
is the absence of BDO’s legal capacity to file the petition considering that when PCI Leasing and
Finance, Inc. changed its name to BDO Leasing and Finance.

ISSUE:

Whether or Not the change of name from PCI to BDO affected Petitioner’s capacity to sue and be sued

HELD:

No. The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of
the original corporation. It is the same corporation with a different name, and its character is in no respect
changed. A change in the corporate name does not make a new corporation, and whether effected by
special act or under a general law, has no effect on the identity of the corporation, or on its property,
rights, or liabilities. The corporation continues, as before, responsible in its new name for all debts or
other liabilities which it had previously contracted or incurred. BDO's change of name from "PCI Leasing
and Finance, Inc." to "BDO Leasing and Finance, Inc." having no effect on the identity of the corporation,
on its property, rights, or liabilities, with its character remaining very much intact, the Board Resolution
and Special Power of Attorney authorizing Rallos to institute the Certiorari Petition did not lose any
binding effect whatsoever.

THE MISSIONARY SISTERS OF OUR LADY OF FATIMA v. AMANDO ALZONA, ET AL

G.R. NO. 224307, August 6, 2018
Reyes, Jr., J:

DOCTRINE:

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for
the existence of a de facto corporation. In fine, it is the act of registration with SEC through the issuance
of a certificate of incorporation that marks the beginning of an entity's corporate existence.

FACTS:

Petitioner, otherwise known as the Peach Sisters of Laguna, is a religious and charitable group established
under the patronage of the Roman Catholic Bishop of San Pablo. Its primary mission is to take care of the
abandoned and neglected elderly persons. The petitioner came into being as a corporation by virtue of a
Certificate issued by SEC on August 31, 2001. The respondents, on the other hand, are the legal heirs of
the late Purificacion Y. Alzona, who due to her health condition, requested Mother Concepcion,
Petiitoner’s Superior General, entrusted the taking care of the former’s house to the latter. Later on, the
said house was donated it to the Petitioner which was accepted by Mother Concepcion for and in behalf
of the Petitioner. Purificacion died without any issue, and survived only by her brother of full blood,
Amando, who filed a complaint for annulment of the Deed on the ground that at the time the donation
was made, Petitioner was not yet registered with the SEC.

ISSUE:

Whether or Not the Donation executed in favor of Petitioner is valid

HELD:

Yes. The Court finds that for the purpose of accepting the donation, the petitioner is deemed vested with
personality to accept, and Mother Concepcion is clothed with authority to act on the latter's behalf. The
filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the
existence of a de facto corporation. In fine, it is the act of registration with SEC through the issuance of a
certificate of incorporation that marks the beginning of an entity's corporate existence. Petitioner filed its
Articles of Incorporation and by-laws on August 28, 2001. However, the SEC issued the corresponding
Certificate of Incorporation only on August 31, 2001, two (2) days after Purificacion executed a Deed of
Donation on August 29, 2001. Clearly, at the time the donation was made, the Petitioner cannot be
considered a corporation de facto. Rather, a review of the attendant circumstances reveals that it calls for
the application of the doctrine of corporation by estoppel as provided for under Section 21 of the
Corporation Code. The doctrine of corporation by estoppel is founded on principles of equity and is
designed to prevent injustice and unfairness. It applies when a non-existent corporation enters into
contracts or dealings with third persons. The person who has contracted or otherwise dealt with the non-
existent corporation is estopped to deny the latter's legal existence in any action leading out of or
involving such contract or dealing. Jurisprudence dictates that the doctrine of corporation by estoppel
applies for as long as there is no fraud and when the existence of the association is attacked for causes
attendant at the time the contract or dealing sought to be enforced was entered into, and not thereafter. In
this controversy, Purificacion dealt with the petitioner as if it were a corporation.

MARY E. LIM v. MOLDEX LAND, INC

G.R. NO. 206038, January 25, 2017
Mendoza, J:

DOCTRINE:

Individuals who are non-members cannot be elected as directors and officers of the condominium
corporation.

FACTS:

Lim is registered unit owner of Golden Empire Tower, a condominium project of Moldex. Condocor, a
non-stock, non-profit corporation, is the registered condominium corporation for the Golden Empire
Tower. Lim, as a unit owner of Golden Empire Tower, is a member of Condocor. Lim claimed that the
individual respondents are non-unit buyers, but all are members of the Board of Directors of Condocor.
Condocor held its annual general membership meeting. Its corporate secretary certified, and Jaminola, as
Chairman, declared the existence of a quorum even though only 29 of the 108 unit buyers were presents.
Lim, through her attorney-in-fact, objected to the validity of the meeting. The objection was denied. Thus,
Lim and all the other unit owners present, except for one, walked out and left the meeting. Despite the
walk-out, the meeting proceeded and new members of the BOD were elected.

ISSUES:

1. Whether or Not there was a valid meeting

2. Whether or Not Moldex can be deemed a member of Condocor
3. Whether or Not a non-unit buyer can be elected as a board member of the BOD

HELD:

1. No. Under Philippine corporate laws, meetings may either be regular or special. A stockholders' or
members' meeting must comply with the following requisites to be valid: 1. The meeting must be held on
the date fixed in the By-Laws or in accordance with law; 2. Prior written notice of such meeting must be
sent to all stockholders/members of record; 3. It must be called by the proper party; 4. It must be held at
the proper place; and 5. Quorum and voting requirements must be met. There was no quorum for the were
only 29 out of 108 unit buyers present.

2. Yes. Law and jurisprudence dictate that ownership of a unit entitles one to become a member of a
condominium corporation. The Condominium Act does not provide a specific mode of acquiring an
ownership. Thus, whether one becomes an owner of a condominium unit by virtue of sale of donation is
of no moment.

3. No. The law requires that trustees must be members of the non-stock non-profit corporation.
Further, the power of the proxy is merely to vote. If said proxy is not a member in his own right, he
cannot be elected as a director or proxy. While Moldex may rightfully designate proxies or
representatives, the latter, however, cannot be elected as directors or trustees of Condocor. The power of
the proxy is merely to vote and the law is explicit in its requirement that one must be a member of the non
stock non profit corporation.

AGDAO RESIDENTS v. ROLANDO MARAMION

G.R. NO. 188642, October 17, 2016
Jardelez, J:

DOCTRINE:

FACTS:

Dakudao executed 6 Deeds of Donation, one of which prohibits Petitioner, as done, from partitioning or
distributing individual certificates of title of the donated lots to its members, within 5 years from
execution, unless a written authority is secured from Dakudao. In the board of directors and stockholders
meetings, members of Petitioner resolved to directly transfer the donated lots to individual members and
non-members. Respondents filed a complaint alleging that they were expelled as members and that illegal
acts were committed by the Petitioner. They prayed among others for the restoration of their membership
and to stop the selling of the donated lands and to annul the titles transferred. Petitioner alleged that
respondents who are non-members of the corporation have no personality to sue.
ISSUES:

1. Whether or Not the Respondents should be reinstated as members of the Petitioner

2. Whether or Not the Respondents have locus standi to sue for the annulment of titles

HELD:

1. Yes. Section 91 of the Corporation Code of the Philippines provides that membership in a non-stock,
non-profit corporation, as in Petitioner in this case, shall be terminated in the manner and for the cases
provided in its articles of incorporation or the by-laws. Section 5, Article II of Petitioner’s constitution
provides that a member may be terminated due to delinquency in payment of monthly dues, and failure to
attend any annual or special meeting of the association for 3 consecutive times without justifiable cause,
among others. These were the grounds used for termination of the Respondents, but Petitioner failed to
prove such allegations. Furthermore, should it be held that the Respondents committed the violations
imputed upon them, Petitioner still haven’t complied with the guidelines in terminating them and
deprived them of due process. Petitioner failed to adduce evidence showing that the expelled members
were indeed notified of any meeting or investigation proceeding where they are given the opportunity to
be heard prior to the termination of their membership.

2. Yes. The Supreme Court held that what the Respondents have instituted is actually a derivative suit,
where a shareholder or a member of a corporation, for and in behalf of the corporation, sues for its
protection from acts committed by directors, trustees, corporate officers, and even third persons. The
requirements of a derivative suit that must be complied with are as follows: 1) The party bringing suit
should be a shareholder as of the time of the act or transaction complained of, the number of his shares
not being material; 2) He has tried to exhaust intra-corporate remedies, i.e., has made a demand on the
board of directors for the appropriate relief but the latter has failed or refused to heed his plea; and  3) The
cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being
caused to the corporation and not to the particular stockholder bringing the suit. Said requisites were met
by the Respondents.

MARC II MARKETING v. ALFREDO JOSON

G.R. NO. 171993, December 12, 2011
Perez, J:

DOCTRINE:

A position must be expressly mentioned in the by-laws in order to be considered as a corporate office.

FACTS:

Lucila is the president and majority stockholder of Marc II, and was the former president and majority
stockholder as well of the defunct Marc Marketing, Inc. Alfredo was the general manager, incorporator,
director and stockholder of Marc II. Before Marc II was incorporated, Alfredo was engaged by Lucila to
work as the general manager of Marc II. It was formalized through the execution of a Management
Contract. Pending incorporation of petitioner corporation, Alfredo was designated as the general manager
of Marc Marketing which was then in the process of winding up. When Marc Marketing was made non-
operational, Alfredo continued to discharge his duties but under Mark II, which later on decided to stop
and cease its operations due to poor sales, and it formally informed Alfredo od these. Feeling aggrieved,
he filed a complaint for reinstatement and money claim before the Labor Arbiter. Alfredo was declared to
be illegally dismissed and that Petitioners failed to prove that the case involved an intra-corporate
controversy.

ISSUE:

Whether or Not Alfredo as a general manager is a corporate officer

HELD:

No. The law and jurisprudence provides that a position must be expressly mentioned in the by-laws in
order to be considered as a corporate office. Thus, a creation of an office pursuant to or under a by-law
enabling provision is not enough to make a position a corporate office. Only officers of a corporation
were those given that character either by the Corporation Code or by the by-laws; the rest of the corporate
officers could be considered only as employees or subordinate officials. Whoever are the corporate
officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no
power to create other Offices without amending first the corporate by-laws. Petitioner’s by-laws does not
include the position of general manager in its enumeration of corporate officers. It is by virtue of this
enabling provision that petitioner corporation's Board of Directors allegedly approved a resolution to
make the position of General Manager a corporate office, and, thereafter, appointed Alfredo thereto
making him one of its corporate officers. Hence, the jurisdiction properly belongs to the Labor Arbiter
since there is no intra-corporate controversy.

SYMEX SECURITY SERVICES v. MAGDALINO RIVERA

G.R. NO. 202613, November 8, 2017
Caguioa, J:

DOCTRINE:

As a general rule, an officer may not be held liable for the corporation's labor obligations unless he acted
with evident malice and/or bad faith in dismissing an employee.

FACTS:

Respondents alleged that they were employed by Symex as security guards, who were assigned at the
premises of Guevant. As security guards, they were tasked to guard the entrance and the exit of the
building, and check the ingress and egress of the visitors' vehicles going through the building. Their tour
of duty was from Monday to Saturday, from 6:00AM to 6:00PM, a twelve-hour duty, but they were not
paid their overtime pay. Respondents were likewise not given a rest day, and not paid their five-day
service incentive leave pay, and 13 th month pay. They were required to report for work during legal
holidays, but they were not paid holiday premium pay. They filed a complaint for nonpayment of holiday
pay, premium for rest day, 13th month pay, illegal deductions and damages. They were told by Capt. Cura,
the Operations Manager, that they would be relieved from post because Guevant reduced the number of
guards on duty, and were told that they would not be given a duty unless they withdraw their complaint.
They later on amended their complaint to include illegal dismissal. Arcega, as president of Symex was
held solidarily liable.

ISSUE:

Whether or Not Arcega was properly held solidarily liable with Symex

HELD:

No. There was no showing that Arcega, as President of Symex, willingly and knowingly voted or
assented to the unlawful acts of the company. As a general rule, an officer may not be held liable for the
corporation's labor obligations unless he acted with evident malice and/or bad faith in dismissing an
employee. Section 31 of the Corporation Code is the governing law on personal liability of officers for
the debts of the corporation. To hold a director or officer personally liable for corporate obligations, two
requisites must concur: (1) it must be alleged in the complaint that the director or officer assented to
patently unlawful acts of the corporation or that the officer was guilty of gross negligence or bad faith;
and (2) there must be proof that the officer acted in bad faith. Based on the records, respondents failed to
specifically allege either in their complaint or position paper that Arcega, as an officer of Symex,
willfully and knowingly assented to the acts of Capt. Cura, or that Arcega had been guilty of gross
negligence or bad faith in directing the affairs of the corporation. In fact, there was no evidence at all to
show Arcega's participation in the illegal dismissal of respondents. Clearly, the twin requisites of
allegation and proof of bad faith, necessary to hold Arcega personally liable for the monetary awards to
the respondents, are lacking.

MACTAN ROCK INDUSTRIES v. BENFREI GERMO

G.R. NO. 228799, January 10, 2018
Perlas-Bernabe, J:

DOCTRINE:

As a rule, a party who deliberately adopts a certain theory upon which the  case is tried and decided by
the lower court, will not be permitted to change theory on appeal.

FACTS:

Germo filed a complaint for sum of money and damages against MRII and its president/CEO Tompar,
alleging that Tompar entered into a Technical Consultancy Agreement (TCA) with Germo. During the
effectivity of the TCA, Germo successfully negotiated and closed with International Container Terminal
Services, Inc. (ICTSI) a supply contract. However, MRII allegedly never paid Germo his rightful
commissions. Initially, Germo filed a complaint before the NLRC, but the same was dismissed due to
lack of jurisdiction for the absence of an employer-employee relationship between MRII and Germo. The
case was elevated until the Court of Appeals which held that MRII and Tompar are solidarily liable to
Germo.

ISSUE:

Whether or Not MRII and Tompar are solidarily liable to Germo

HELD:

No. Before the RTC, MRII and Tompar admitted the (a) lack of employer-employee relationship between
MRII and Germo as the latter was hired as a mere consultant; and (b) genuineness, authenticity, and due
execution of the TCA, among other documents proving Germo's claims. As a rule, a party who
deliberately adopts a certain theory upon which the  case is tried and decided by the lower court, will not
be permitted to change theory on appeal. Points of law, theories, issues and arguments not brought to the
attention of the lower court need not be, and ordinarily will not be, considered by a reviewing court, as
these cannot be raised for the first time at such late stage. MRII and Tompar's statements in their Answer
constitute judicial admissions, which are legally binding on them. It is a basic rule that a corporation is a
juridical entity which is vested with legal and personality separate and distinct from those acting for and
in behalf of, and from the people comprising it. As a general rule, directors, officers, or employees of a
corporation cannot be held personally liable for the obligations incurred by the corporation, unless it can
be shown that such director/officer/employee is guilty of negligence or bad faith, and that the same was
clearly and convincingly proven. Tompar's assent to patently unlawful acts of the MRII or that his acts
were tainted by gross negligence or bad faith was not alleged in Germo's complaint, much less proven in
the course of trial.

GERARDO LANUZA, JR. v. BF CORPORATION

G.R. NO. 174938, October 1, 2014
Leonen, J:

DOCTRINE:

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.

FACTS:
BF alleged that it entered into agreements with Shangri-La wherein it undertook to construct for Shangri-
La a mall and a multilevel parking structure along EDSA. Shangri-La had been consistent in paying BF
Corporation in accordance with its progress billing statements, but later on defaulted in payment. BF also
alleged that  Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs. Therefore, they
should be held jointly and severally liable with Shangri-La for its obligations. The directors moved for the
suspension of the proceedings due to failure to submit dispute to arbitration proceedings provided in the
arbitration clause.

ISSUE:

Whether or Not the directors should be made parties to the arbitration proceedings

HELD:

Yes. Petitioners may be compelled to submit to the arbitration proceedings in accordance with Shangri-
Laand BF Corporation’s agreement, in order to determine if the distinction between Shangri-La’s
personality and their personalities should be disregarded. 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. 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. Section 31 provides for the liability of
directors, trustees, or officers which is solidary when: 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." 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. The
corporation’s obligations are treated as the representative’s obligations when the corporate veil is pierced.

JOSELITO HERNAND M. BUSTOS v. MILLIANS SHOE, INC

G.R. NO. 185024, April 24, 2017
Sereno, C.J.:

DOCTRINE:

To be considered a close corporation, an entity must abide by the requirements laid out in Section 96 of
the Corporation Code which provides that (1) the number of stockholders shall not exceed 20; or (2) a
preemption of shares is restricted in favor of any stockholder or of the corporation; or (3) the listing of the
corporate stocks in any stock exchange or making a public offering of those stocks is prohibited.

FACTS:
Spouses Cruz owned a certain parcel of land which the City of Marikina levied for nonpayment of real
estate taxes. Marikina auctioned of the property, with Joselito as the winning bidder. Joselito applied for
the cancellation of Sps. Cruz’s title, which was granted and the issuance of a new title under his name was
ordered. Notice of lis pendens were annotated on the old title which involves the rehabilitation
proceedings for MSI, covered the subject property and included it in the Stay Order. Joselito moved for
the exclusion of the subject property from the stay order, alleging that it belonged to Sps. Cruz who were
mere stockholders of MSI.

ISSUE:

Whether or Not the properties of Sps/ Cruz are answerable for the obligations of the MSI

HELD:

No. The Court of Appeals considered MSI as a close corporation; hence, liability of MSI attaches to the
properties of Sps. Cruz. However, the Supreme Court did not agree. To be considered a close corporation,
an entity must abide by the requirements laid out in Section 96 of the Corporation Code which provides
that (1) the number of stockholders shall not exceed 20; or (2) a preemption of shares is restricted in favor
of any stockholder or of the corporation; or (3) the listing of the corporate stocks in any stock exchange or
making a public offering of those stocks is prohibited. Furthermore, even assuming that MSI is a close
corporation, Section 97 of the Corporation Code only specifies that "the stockholders of the corporation
shall be subject to all liabilities of directors." Nowhere in that provision do we find any inference that
stockholders of a close corporation are automatically liable for corporate debts and obligations. Hence,
the general doctrine of separate juridical personality shall be applied. By virtue of that doctrine,
stockholders of a corporation enjoy the principle of limited liability: the corporate debt is not the debt of
the stockholder. Thus, being an officer or a stockholder of a corporation does not make one's property the
property also of the corporation. In rehabilitation proceedings, claims of creditors are limited to demands
of whatever nature or character against a debtor or its property, whether for money or otherwise. Stay
orders should only cover those claims directed against corporations or their properties, against their
guarantors, or their sureties who are not solidarily liable with them, to the exclusion of accommodation
mortgagors. To repeat, properties merely owned by stockholders cannot be included in the inventory of
assets of a corporation under rehabilitation.

COLEGIO MEDICO-FARMECEUTICO v. LILY LIM

G.R. NO. 212034, July 2, 2018
Del Castillo, J:

DOCTRINE:

In the absence of a charter or by-law provision to the contrary, the president is presumed to have the
authority to act within the domain of the general objectives of its business and within the scope of his or
her usual duties

FACTS:
Petitioner entered a contract of lese with Lim. After the expiration, Petitioner sent Lim another contract of
lease, but Lim failed to return such. During the board meeting, Petitioner informed Lim that the board
decided not the renew the contract and the former demanded the latter payment of her back rentals and
utility bills, with a request to vacate the property. Lim argued that she was an assignee of St. John, which
originally entered into a contract with Petitioner. The case was elevated until the Court of Appeals which
dismissed such for Petitioner’s failure to attach of a copy of the Board Resolution. Petitioner argued that
considering that, under prevailing jurisprudence, the president of a corporation is duly authorized to sign
the verification and certification without need of a board resolution. As to the demand letter signed by Del
Castillo, Petitioner argues that it was validly issued as it was an authorized act done in the usual course of
business, and does not need a board resolution as well.

ISSUE:

1. Whether or Not the president of a corporation may sign the verification and certification of non-forum
shopping
2. Whether or Not the demand letter written by Del Castillo has a legal effect despite being issued without
an express authority from the board

HELD:

1. Yes. The president of a corporation may sign the verification and certification of non-forum shopping.
A corporation exercises its powers and transacts its business through its board of directors or trustees.
Accordingly, unless authorized by the board of directors or trustees, corporate officers and agents cannot
exercise any corporate power pertaining to the corporation. A board resolution expressly authorizing the
officers and agents is therefore required. However, in filing a suit, jurisprudence has allowed the president
of a corporation to sign the verification and the certification of non-forum shopping even without a board
resolution as said officer is presumed to have sufficient knowledge to swear to the truth of the allegations
stated in the complaint or petition. With or without the said Board Resolution, Del Castillo, as the
President of petitioner, was authorized to sign the verification and the certification of non-forum
shopping.

2. Yes. The Supreme Court laid down an exception to the general rule that no person, not even its
officers, can validly bind a corporation without an express authority from the board of directors. In that
case, the Court sustained the authority of the president to bind the corporation for the reason that the
president has the power to perform acts within the scope of his or her usual duties. The authority to act for
and to bind a corporation may be presumed from acts of recognition in other instances, wherein the power
was in fact exercised without any objection from its board or shareholders.  The demand the latter to
vacate the subject property was done in the ordinary course of business, and thus, within the scope of the
powers of Del Castillo.

LUIS JUAN VIRATA v. ALEJANDRO WEE

G.R. NO. 220926, July 5, 2017
Velasco, Jr., J:

DOCTRINE:

The three-pronged test to determine the application of the alter-ego theory: (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 plaintiffs legal right; and (3) The aforesaid control and
breach of duty must have proximately caused the injury or unjust loss complained of.

FACTS:

Wee was enticed by Westmont’s bank manager to make money placements with Wincorp where he was
offered “sans recourse” transactions. Lured by representations that the "sans recourse" transactions are
safe, stable, high-yielding, and involve little to no risk, Wee, placed investments. t in his own name, or in
those of his trustees. In exchange, Wincorp issued Wee and his trustees Confirmation Advices informing
them of the identity of the borrower with whom they were matched, and the terms under which the said
borrower would repay them. Wee’s initial investment were matched with Hottick Holdings Corporation
and then to Power Merge where Wee even increased his stakes in the new borrower’s account. Power
Merge defaulted in the payments of its obligations.

ISSUE:

Whether or Not Wincorp and Power Merge are liable to Wee

HELD:

Yes. However, Wincorp is liable to Wee because of fraud, while Power Merge is liable to Wee based on
contract. Wincorp's actuations establishes the presence of actionable fraud, for which the company can be
held liable. It is abundantly clear in the present case that the profits which Wincorp promised to the
investors would not be realized by virtue of the Side Agreements. The investors were kept in the dark as
regards the existence of these documents, and were instead presented with Confirmation Advices from
Wincorp to give the transactions a semblance of legitimacy, and to convince, if not deceive, the investors
to roll over their investments or to part with their money some more. The intent to defraud and deceive
Wee of his investments/money placements was manifest from the very start. Wee would not have placed
funds or invested in the sans recourse transactions under the Power Merge borrower account had he not
been deceived into believing that Power Merge is financially capable of paying the returns of the
investments/money placements. Power Merge and Virata were not active parties in defrauding Wee.
Instead, the company was used as a mere conduit in order for Wincorp to be able to conceal its act of
directly borrowing funds for its own account. The circumstances of Power Merge clearly present an alter
ego case that warrants the piercing of the corporate veil. In the present case, Virata not only owned
majority of the Power Merge shares; he exercised complete control thereof. The reported address of
petitioner Virata and the principal office of Power Merge are even one and the same. The clearest
indication of all: Power Merge never operated to perform its business functions, but for the benefit of
Virata. Specifically, it was merely created to fulfill his obligations under the Waiver and Quitclaim, the
same obligations for his release from liability arising from Hottick's default and non-payment.

PHILIP TURNER v. LORENZO SHIPPING

G.R. NO. 157479, November 24, 2010
Bersamin, J:

DOCTRINE:

The right of appraisal may be exercised when there is a fundamental change in the charter or articles of
incorporation substantially prejudicing the rights of the stockholders. It does not vest unless objectionable
corporate action is taken.

FACTS:
Petitioners held 1,010,000 shares of stock of the respondent, a domestic corporation engaged primarily in
cargo shipping activities. Respondent decided to amend its articles of incorporation to remove the
stockholders’ pre-emptive rights to newly issued shares of stock. Feeling that the corporate move would
be prejudicial to their interest as stockholders, the Petitioners voted against the amendment and demanded
payment of their shares at the rate based on the book value of the shares. Respondent found the fair value
of the shares demanded by the petitioners unacceptable. It insisted that the market value on the date
before the action to remove the pre-emptive right was taken should be the value, considering that its
shares were listed in the Philippine Stock Exchange, and that the payment could be made only if the
Respondent had unrestricted retained earnings in its books to cover the value of the shares, which was not
the case. The appraisal committee was formed a valuation was reported. Petitioner demanded payment
based on the valuation of the committee,  plus 2%/month penalty from the date of their original demand
for payment, as well as the reimbursement of the amounts advanced as professional fees to the appraisers.

ISSUE:

Whether or Not Petitioners can already demand payment

HELD:

No. Respondent had indisputably no unrestricted retained earnings in its books at the time the petitioners
commenced the action; hence, Respondent’s legal obligation to pay the value of the petitioners’ shares
did not yet arise. The right of appraisal may be exercised when there is a fundamental change in the
charter or articles of incorporation substantially prejudicing the rights of the stockholders. It does not vest
unless objectionable corporate action is taken. It serves the purpose of enabling the dissenting stockholder
to have his interests purchased and to retire from the corporation. However, a corporation can purchase its
own shares, provided payment is made out of surplus profits and the acquisition is for a legitimate
corporate purpose. Notwithstanding the foregoing, no payment shall be made to any dissenting
stockholder unless the corporation has unrestricted retained earnings in its books to cover the payment. In
case the corporation has no available unrestricted retained earnings in its books, Section 83 of the
Corporation Code provides that if the dissenting stockholder is not paid the value of his shares within 30
days after the award, his voting and dividend rights shall immediately be restored. The trust fund doctrine
backstops the requirement of unrestricted retained earnings to fund the payment of the shares of stocks of
the withdrawing stockholders. Under the doctrine, the capital stock, property, and other assets of a
corporation are regarded as equity in trust for the payment of corporate creditors, who are preferred in the
distribution of corporate assets.  The creditors of a corporation have the right to assume that the board of
directors will not use the assets of the corporation to purchase its own stock for as long as the corporation
has outstanding debts and liabilities.

UNIVERSITY OF MINDANAO v. BSP

G.R. NO. 194964-65, January 11, 2016
Leonen, J:

DOCTRINE:

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.

FACTS:
Petitioner is an education institution in which its Board of Trustees was chaired by Guillermo, and his
wife, Dolores, was the Assistant Treasurer. The spouses incorporated and operated 2 thrift banks, FISLAI
and DSLAI. Guillermo acted as FISLAI’s president while Dolores acted as DSLAI’s president. BSP
issued a standby emergency credit to FISLAI as requested by Guillermo. Petitioner’s VP for Finance,
Saturnino, executed a deed of real estate mortgage over Petitioner’s property in CDO in favor of BSP as
security for FISLAI’s loan, alleging it was executed on Petitioner’s behalf. Another loan was obtained by
FISLAI secured by Petitioner’s property in Iligan City. BSP’s mortgage lien was annotated. BSP also
advances loan to DSLAI. Later on, FISLAI and DSLAI were placed under rehabilitation which resulted to
the merger, with DSLAI as the surviving corporation and later became known as MSLAI, but it failed to
recover from its losses. BSP sent a letter to Petitioner informing it of the foreclosure of its properties. VP
for Accounting denied the mortgage and as well as denied receiving any loan proceeds from BSP.

ISSUE:

Whether or Not Petitioner is bound by the REM contracts executed by SAturnino

HELD:

No. The execution of the mortgage contract was ultra vires. As an educational institution, it may not
secure the loans of third persons. Securing loans of third persons is not among the purposes for which
petitioner was established. 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, as provided under Section 36 of the Corporation Code.
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. 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. Furthermore, it cannot be invoked that mortgaging its properties to
guarantee FISLAI's loans was consistent with Petitioner's business interests, since Petitioner was
presumably a FISLAI shareholder whose officers and shareholders interlock with FISLAI. Acquiring
shares in another corporation is not a means to create new powers for the acquiring corporation. Being a
shareholder of another corporation does not automatically change the nature and purpose of a
corporation's business. Appropriate amendments must be made either to the law or the articles of
incorporation before a corporation can validly exercise powers outside those provided in law or the
articles of incorporation. In other words, without an amendment, what is ultra vires before a corporation
acquires shares in other corporations is still ultra vires after such acquisition. Thus, regardless of the
number of shares that petitioner had with FISLAI, DSLAI, or MSLAI, securing loans of third persons is
still beyond petitioner's power to do. Lastly, Saturnino’s alleged authority was found to be fictitious or
non-existent.
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL v. MIGUEL LIM
G.R. NO. 165887, June 6, 2011
Villarama, Jr., J:

DOCTRINE:

A derivative action is a suit by a shareholder to enforce a corporate cause of action.

FACTS:
Reeling from severe liquidity problems, Ruby filed a petition for suspension of payments with SEC. This
was granted and enjoined disposition of its properties pending hearing of the petition, except insofar as
necessary in its ordinary operations, and making payments outside of the necessary or legitimate expenses
of its business. A MANCOM was created, and later on 2 rehabilitation plans were submitted to SEC, the
BENHAR/RUBY Plan and the alternative plan, the latter was made by the minority stockholders
represented by Lim. The BENHAR plan was approved, but the minority stockholders thru Lim appealed
to SEC and a TRO and injunction was issued. Actions were taken in accordance with the BENHAR Plan
despite the TRO and the injunction, hence, Lim moved to nullify the deeds of assignment executed in
favor of BENHAR and cite the parties thereto in contempt for willful violation of the SEC order enjoying
Ruby from disposing its properties and making payments pending the hearing of its petition.

ISSUE:

Whether or Not Lim has the right to institute a stockholder’s action in which the real party in interest is
the corporation itself

HELD:

Yes. A derivative action is a suit by a shareholder to enforce a corporate cause of action. It is a remedy
designed by equity and has been the principal defense of the minority shareholders against abuses by the
majority. For this purpose, it is enough that a member or a minority of stockholders file a derivative suit
for and in behalf of a corporation. An individual stockholder is permitted to institute a derivative suit on
behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as the nominal party, with the corporation
as the party in interest.

GRACE BORGONA INSIGNE, ET AL v. ABRA VALLEY COLLEGES

G.R. NO. 204089, July 29, 2015
Bersamin, J:

DOCTRINE:

A stock certificate is prima facie evidence that the holder is a shareholder of the corporation, but the
possession of the certificate is not the sole determining factor of one’s stock ownership. The certificate is
not stock in the corporation but is merely evidence of the holder's interest and status in the corporation,
his ownership of the share represented thereby, but is not in law the equivalent of such ownership. It is
only the paper representative or tangible evidence of the stock itself and of the various interests therein.

FACTS:

Petitioners and Respondent Francis are children of late Pedro. In his lifetime, Pedro was the founder,
president, and majority stockholder of Abra, a stock corporation. After Pedro’s death, Francis succeeded
him as the president of Abra. Petitioners filed a complaint with application for preliminary injunction and
damages against Abra, praying among others, that RTC direct Abra to allow them to inspect its corporate
books and records, and the minutes of the meetings, and to provide them with its financial statements.
Abra was in default; hence, RTC rendered a decision granting the prayers of the Petitioners. When the
case was appealed to the CA, the CA ordered the RTC to admit Abra’s answer and remanded the case to
the RTC for further proceedings. Since Petitioners alleged that they are bona fide stockholders, RTC
ordered them to present stock certificates issued by Abra under their names.

ISSUE:

Whether or Not the production of the stock certificates is necessary

HELD:

No. First of all, the Respondents bore the burden of proof to establish that the petitioners were not
stockholders of Abra. The Respondents’ assertion therein, albeit negative, partook of a good defense that,
if established, would result to their “avoidance” of the claim. Second, Petitioners, assuming that they bore
the burden of proving their status as stockholders of Abra, nonetheless discharged their burden despite
their non-production of the stock certificates. A stock certificate is prima facie evidence that the holder is
a shareholder of the corporation, but the possession of the certificate is not the sole determining factor of
one’s stock ownership. The certificate is not stock in the corporation but is merely evidence of the
holder's interest and status in the corporation, his ownership of the share represented thereby, but is not in
law the equivalent of such ownership. It is only the paper representative or tangible evidence of the stock
itself and of the various interests therein. To establish their stock ownership, the petitioners actually
turned over to the trial court through their Compliance and Manifestation the various documents showing
their ownership of Abra, such as their ORs of their payments for subscriptions, the copies duly certified
by SEC stating that Abra issued shares in favor of them, the Secretary’s Certificate and the GIS. Third,
Petitioners adduced competent proof showing that the respondents had allowed the petitioners to become
members of the Board of Directors. 

ANNA TENG v. SEC

G.R. NO. 184332, February 17, 2016
Reyes, J:

DOCTRINE:

It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized
representative that is the operative act of transfer of shares from the original owner to the transferee.
FACTS:

Ting Ping purchased shares of TCL from Peter, and from Teng Ching who was also the president and
operations manager of TCL, as well as from Ismaelita. Upon Teng Ching's death, his son Henry Teng
(Henry) took over the management of TCL. To protect his shareholdings with TCL, Ting Ping requested
TCL's Corporate Secretary, Anna, to enter the transfer in the Stock and Transfer Book of TCL for the
proper recording of his acquisition. He also demanded issuance of new certificates of stock in his favor.
TCL and Anna, however, refused despite repeated demands. Because of their refusal, Ting Ping filed a
petition for mandamus with the SEC against TCL and Anna, which was granted by SEC. TCL and Anna
appealed this to the En Banc, which affirmed SEC’s decision with modification. TCL and Anna filed a
petition for review the the CA, but was dismissed; hence, this Petition under Rule 45. A writ of execution
addressed to the sheriff of the RTC was issued, but Anna filed a complaint for interpleader seeking to
compel Henry and Ting Ping to interplead the issued of ownership over some shares. RTC found Henry
to have a better right to the shares.

ISSUE:

Whether or Not the surrender of the certificates of a stock to TCL is a requisite before registration of the
transfer may be made in the corporate books and for the issuance of new certificates in its stead

HELD:

No. Section 63 of the RCC provides for certain minimum requisites for the valid transfer of stocks: (a)
there must be delivery of the stock certificate; (b) the certificate must be endorsed by the owner or his
attorney-in-fact or other persons legally authorized to make the transfer; and (c) to be valid against third
parties, the transfer must be recorded in the books of the corporation. It is the delivery of the certificate,
coupled with the endorsement by the owner or his duly authorized representative that is the operative act
of transfer of shares from the original owner to the transferee. The delivery contemplated in Section 63,
however, pertains to the delivery of the certificate of shares by the transferor to the transferee, that is,
from the original stockholder named in the certificate to the person or entity the stockholder was
transferring the shares to, whether by sale or some other valid form of absolute conveyance of ownership.
Shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title
may be vested in the transferee by the delivery of the duly indorsed certificate of stock. Anna’s position -
that Ting Ping must first surrender Chiu's and Maluto's respective certificates of stock before the transfer
to Ting Ping may be registered in the books of the corporation -does not have legal basis. The delivery or
surrender adverted to by Anna, from Ting Ping to TCL, is not a requisite before the conveyance may be
recorded in its books. To compel Ting Ping to deliver to the corporation the certificates as a condition for
the registration of the transfer would amount to a restriction on the right of Ting Ping to have the stocks
transferred to his name, which is not sanctioned by law. The only limitation imposed by Section 63 is
when the corporation holds any unpaid claim against the shares intended to be transferred. Registration of
transfer is necessary to enable transferee to exercise all rights of a stockholder; to inform the corporation
of any change in share of ownership; and to avoid fictitious or fraudulent transfers.