Case Digests

in Corporation Law

Submitted to:
Atty. Doris Barrozo

Submitted by:
Dianne Medel S. Gumawid

Creese vs Ca 93 SCRA 483

FACTS:

Forrest Cease and five (5) other American citizens formed Tiaong
Milling and Plantation Company. Eventually, the shares of the other
original incorporators were bought out by Cease with his children. The
company’s charter lapsed in June 1958. Forrest Cease died in August
1959. There was no mention whether there were steps to liquidate the
company. Some of his children wanted an actual division while
others wanted a reincorporation. Two of his children, Benjamin and
Florence, initiated Special Proceeding No. 3893 with CFI Tayabas
asking that the Tiaong Milling and Plantation Corporation be declared
identical to Forrest Cease and that its properties be divided among his
children as intestate heirs. Defendants opposed the same but the CFI
ruled in favor of the plaintiffs. Defendants filed a notice of appeal from
the CFI’s decision but the same was dismissed for being premature.
The case was elevated to the SC which remanded it to the Court of
Appeals. The CA dismissed the petition.

ISSUE:
Whether or not the Court of Appeals erred in affirming the lower
court’s decision that the subject properties owned by the corporation
are also properties of the estate of Forrest Cease

RULING:
NO. The trial court indeed found strong support, one that is based on
a well-entrenched principle of law which is the theory of "merger of
Forrest L. Cease and The Tiaong Milling as one personality", or that
"the company is only the business conduit and alter ego of the
deceased Forrest L. Cease and the registered properties of Tiaong
Milling are actually properties of Forrest L. Cease and should be
divided
equally, share and share alike among his six children, ... ", the trial
court aptly applied the familiar exception to the general rule by
disregarding the legal fiction of distinct and separate corporate
personality and regarding the corporation and the individual member
one and the same. Thus the judgment appealed from is affirmed.

PNB vs. CA 83 SCRA 237

FACTS:

PNB executed its bond w/ Rita Gueco Tapnio as principal, in favor of

the PNB to guarantee the payment of Tapnio's account with PNB.
There is Indemnity Agreement with 12% interest. and 15% Attorney
fees. On September 18 1957 PNB sent a letter of demand for Tapnio to
pay the reduced amount of 2,379.91. PNB demanded both oral and
written but to no avail. Tapnio mortgaged to the bank her lease
agreement with Jacobo Tuazon for her unused export sugar quota at
P2.80 per picular or a total of P2,800 which was more than the value
of the bond. PNB insisted on raising it to P3.00 per picular so Tuazon
rejected the offer.

ISSUE:
Whether or not PNB should be liable for Tort?

RULING:
YES. affirmed.
While Tapnio had the ultimate authority of approving or disapproving
the proposed lease since the quota was mortgaged to the bank, it
certainly CANNOT escape its responsibility of observing, for the
protection of the interest of Tapnio and Tuazon, that the degree of
care, precaution and vigilance which the circumstances justly demand
in approving or disapproving the lease of said sugar quota. According
to Art. 21 of the Civil Code: any person who wilfully causes loss or
injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

People vs. Tan Boon Kong 54 Phil 607

FACTS:

On and during the four quarters of the year 1924, in Municipality of

Iloilo, Province of Iloilo, the defendant, as manager of the Visayan
General Supply Co., Inc., a corporation organized under the laws of
the Philippine Islands and engaged in the purchase and sale of sugar,
`bayon,’ coprax, and other native products and as such subject to the
payment of internal-revenue taxes upon its sales, declared in 1924 for
purpose of taxation only the sum of P2,352,761.94, when in truth and
in fact, and the accused knew that the total gross sales of said
corporation during that year amounted to P2,543,303.44, thereby
failing to declare P190,541.50, and voluntarily not paying the
percentage taxes the sum of P2,960.12, corresponding to 1½ per cent
of said undeclared sales.
ISSUE:
Whether or not the defendant, as manager of the corporation, is
criminally liable for violation of the tax law for the benefit of said
corporation.

RULING:
A corporation can act only through its officers and agents, and where
the business itself involves a violation of the law, all who participate in
it are liable.
As stated in the case of State vs. Burnam (71 Wash., 199), the court
hold that the manager of a dairy corporation was criminally liable for
the violation of a statute by the corporation though he was not present
when the offense was committed.
In the present case the information alleges that the defendant was the
manager of a corporation which was engaged in business as a
merchant, and as such manager, he made a false return, for purposes
of taxation, of the total amount of sales made by said corporation
during the year 1924. As the filing of such false return constitutes a
violation of law, the defendant, as the author of the illegal act, must
necessarily answer for its consequences, provided that the allegations
are proven.
The ruling of the court sustains the demurrer to the complaint is
therefore reversed, and the case will be returned to said court for
further proceedings not inconsistent with the view of the courtr as
stated.

West Coast Life Insurance Co. vs. Geo N. Hurd

G.R. No. L-30896
30 March 1914

FACTS:
West Coast Life Insurance, a foreign life insurance corporation doing
business regularly and legally in the Philippine Islands pursuant to its
laws.
Plaintiff filed in Court of First Instance a criminal action together with
John Northcott - general agent and manager for the Philippines
Manuel C. Grey - was an agent and employees and acting in the
capacity of treasurer of the branch
They are charged for printing, publish and distributing a large
number of circulars to policy holders and prospective policy holders of
Insular Life Insurance Co. stating that the rumor about it is true
regarding it being in a bad shape and it capital has diminished.
ISSUE:
Whether or not West Coast Life Insurance should also be criminally
charged?

HELD:
No. Provisions clearly indicate that the maker of the code of Criminal
Procedure had no intention that corporations would be included. The
Court only authorized to issue order of arrest; Court derives no
authority to bring corporations before them in criminal actions nor to
issue processes for that purpose. It is adjudged that the Court of First
Instance of the city of Manila be and it is enjoined and prohibited from
proceeding further in the criminal case so far as said proceedings
relate to the said West Coast Life Insurance Company, a corporation,
the plaintiff in the case.

Sia vs. People 121 SCRA 655

FACTS:
Sia was the President and General Manager of the Metal
Manufacturing of the Philippines Inc. (MEMAP) . He obtained 150 M/T
Cold Rolled Sheets consigned to Continental Bank and converted it
into personal used instead of selling it and turning over the proceeds.
It resulted to a damage of 46,819 php, interest of 28,736.47 php and
forfeited deposit of 71,023.60 php.

ISSUE:
Whether or not Sia can be criminally charged?

HELD:
No. He is Acquitted. For Sia did not act for and on behalf of MEMAP.
For crimes committed by Corporation Oficers criminally charged,
existence of criminal liability for which the petition is being prosecuted
must be clear and certain, here it may not be said to be beyond
reasonable doubt.
The merchandise was manufactured before sold but although the
bank was aware of this, it was not in the trust agreement made by
Sia.

Mambulao Lumber Co. vs PNB GR L-22973 30 January 1968

FACTS:
Petitioner applied for industrial loan and granted by Respondent bank
(R). To secure payment of loan, P mortgaged a parcel of land together
with various sawmill equipment, rolling units and other fixed assets
situated therein.

P failed to pay the amortization and the amounts released to and

received by it. Repeated demands were made but upon inspection it
was found that P stopped operation. R sent a letter to R sheriff of
Camarines Norte requesting him to take possession of the parcel of
land and the chattels and to sell them at public auction. R sheriff
issued corresponding notice of extrajudicial sale and sent copy to P.

P sent a bank draft for to PNB allegedly full settlement of the

obligation after the application of the sum representing the proceeds
of the foreclosure sale of the parcel of land. P averred that the
foreclosure of chattel mortgage is no longer needed for being fully paid
and that it could not be legally effected at a place other than City of
Manila, the place agreed and stipulated in their contract.

R’s counsel wrote to P that the remitted amount was not enough for
its liability to which should be added the expenses for guarding the
mortgaged of chattels, attorney’s fees and expenses of the sale.
Notwithstanding, the foreclosure of both land and the chattels were
held.

ISSUE: Whether P is entitled to moral damages.

HELD:
No. Even if the R bank and R sheriff committed several
infractions/errors. However, Petitioner’s claim for moral damages
seems to have no legal or factual basis. Obviously, an artificial person
like herein P corporation cannot experience physical sufferings,
mental anguish, fright, serious anxiety, wounded feelings, moral
shock or social humiliation which are basis of moral damages. A
corporation may have a good reputation which, if besmirched, may
also be a ground for the award of moral damages. The same cannot be
considered under the facts of this case, however, not only because it is
admitted that herein appellant had already ceased in its business
operation at the time of the foreclosure sale of the chattels, but also
for the reason that whatever adverse effects of the foreclosure sale of
the chattels could have upon its reputation or business standing
would undoubtedly be the same whether the sale was conducted at
Jose Panganiban, Camarines Norte, or in Manila which is the place
agreed upon by the parties in the mortgage contract.

Simex International (Manila) Inc. vs. Court of Appeals

G. R. No. 88013, March 19, 1990

Facts:
Simex International is a private corporation engaged in the
exportation of food products. It buys these products from various local
suppliers and then sells them abroad to the Middle East and the
United States. Most of its exports are purchased by the petitioner on
credit. Simex was a depositor of the Far East Savings Bank and
maintained a checking account in its branch in Cubao, Quezon City
which issued several checks against its deposit but was surprised to
learn later that they had been dishonored for insufficient funds. As a
consequence, several suppliers sent a letter of demand to the
petitioner, threatening prosecution if the dishonored check issued to it
was not made good and also withheld delivery of the order made by
the petitioner. One supplier also cancelled the petitioner’s credit line
and demanded that future payments be made by it in cash or certified
check. The petitioner complained to the respondent bank.
Investigation disclosed that the sum of P100,000.00 deposited by the
petitioner on May 25, 1981, had not been credited to it. The error was
rectified only a month after, and the dishonored checks were paid
after they were re-deposited. The petitioner then filed a complaint in
the then Court of First Instance of Rizal against the bank for its gross
and wanton negligence.

Issue:
Whether or not the bank can be held liable for negligence by reason of
its unjustified dishonor of a check

Held:
The depositor expects the bank to treat his account with the utmost
fidelity whether such account consists only of a few hundred pesos or
of millions. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to be
done if the account is to reflect at any given time the amount of money
the depositor can dispose of as he sees fit, confident that the bank will
deliver it as and to whomever he directs. A blunder on the part of the
bank, such as the dishonour of a check without good reason, can
cause the depositor not a little embarrassment if not also financial
loss and perhaps even civil and criminal litigation.

Acme Shoe Rubber and Plastic Corp. vs. CA, 22 August 1996

FACTS:
Petitioner Chua Pac, the president and general manager of co-
petitioner Acme executed a chattel mortgage in favor of private
respondent Producers Bank as a security for a loan of P3,000,000. A
provision in the chattel mortgage agreement was to this effect:
"In case the MORTGAGOR executes subsequent promissory note or
notes either as a renewal of the former note, as an extension thereof,
or as a new loan, or is given any other kind of accommodations such
as overdrafts, letters of credit, acceptances and bills of exchange,
releases of import shipments on Trust Receipts, etc., this mortgage
shall also stand as security for the payment of the said promissory
note or notes and/or accommodations without the necessity of
executing a new contract and this mortgage shall have the same force
and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof. This mortgage
shall also stand as security for said obligations and any and all other
obligations of the MORTGAGOR to the MORTGAGEE of whatever kind
and nature, whether such obligations have been contracted before,
during or after the constitution of this mortgage."
In due time, the loan of P3,000,000.00 was paid. Subsequently it
obtained additional loan totalling P2,700,000.00 which was also duly
paid. Another loan was again extended (P1,000,000.00) covered by
four promissory notes for P250,000.00 each, but went unsettled
prompting the bank to apply for an extrajudicial foreclosure with the
Sheriff.

ISSUE:
Would it be valid and effective to have a clause in a chattel mortgage
that purports to likewise extend its coverage to obligations yet to be
contracted or incurred?

HELD:
No. While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these future
debts are accurately described, a chattel mortgage, however, can only
cover obligations existing at the time the mortgage is constituted.
Although a promise expressed in a chattel mortgage to include debts
that are yet to be contracted can be a binding commitment that can
be compelled upon, the security itself, however, does not come into
existence or arise until after a chattel mortgage agreement covering
the newly contracted debt is executed either by concluding a fresh
chattel mortgage or by amending the old contract conformably with
the form prescribed by the Chattel Mortgage Law.

ABS-CBN vs. CA, 1999

Facts:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement
whereby VIVA gave ABS-CBN an exclusive right to exhibit some VIVA
films. According to the agreement, ABS-CBN shall have the right of
first refusal to the next 24 VIVA films for TV telecast under such terms
as may be agreed upon by the parties, however, such right shall be
exercised by ABS-CBN from the actual offer in writing.Sometime in
December 1991, VIVA, through Vicente Del Rosario offered ABS-CBN
through VP Charo Santos-Concio, a list of 3 film packages from which
ABS-CBN may exercise its right of first refusal. ABS-CBN, however
through Mrs. Concio, tick off only 10 titles they can purchase among
which is the film “Maging Sino Ka Man” which is one of the subjects of
the present case, therefore, it did not accept the said list as per the
rejection letter authored by Mrs. Concio sent to Del Rosario.
Subsequently, Del Rosario approached Mrs. Concio with another list
consisting of 52 original movie titles and 104 re-runs, proposing to
sell to ABS-CBN airing rights for P60M (P30M in cash and P30M
worth of television spots). Del Rosario and ABS-CBN’s General
Manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in
QC to discuss the package proposal but to no avail. Four days later,
Del Rosario and Mr. Graciano Gozon, Senior VP of Finance of Republic
Broadcasting Corporation (RBS/Channel 7) discussed the terms and
conditions of VIVA’s offer. After said rejection, ABS-CBN closed a deal
with RBS including the 14 films previously ticked off by ABS-CBN.
Consequently, ABS-CBN filed a complaint for specific performance
with prayer for a writ of preliminary injunction and/or TRO against
RBS, VIVA and Del Rosario. Hence, the present petition, ABS-CBN
argued that an agreement was made during the meeting of Mr. Lopez
and Del Rosario jotted down on a “napkin” (this was never produced
in court). Moreover, it had yet to fully exercise its right of first refusal
since only 10 titles were chosen from the first list. As to actual, moral
and exemplary damages, there was no clear basis in awarding the
same.

Issue:
Whether or not moral damages may be awarded to a corporation?

Held:
No. The Court finds for ABS-CBN on the issue of damages. Moral
damages 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. The award of moral damages cannot be granted in favor of
a corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no senses.
It cannot, therefore, experience physical suffering and mental
anguish, which can be experienced only by one having a nervous
system.
Filipinas Broadcasting Network vs. Ago Medical and Educational
Center January 17, 2005

Fact:
Petitioner’s broadcasters Rima ang Alegre broadcast in two separated
dates malicious and libelous remarks against the respondent and its
owner. Respondent filed an action against the petitioner for damages
for the libelous remarks. The RTC ruled in favor of the Respondent
and award Moral damages to the Respondent only and not its owners.
Petitioner and Respondent went to the CA to appeal the case. CA
rendered in favor of the Respondent awarding moral damages to it but
not its owners. Petitioner went to SC raising the issue that the
respondent is Corporation and not entitled to Moral Damages.

Issue:
Whether or not the Respondent, a Corporation is entitled to Moral
damages?
Held:
Yes, 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. However, the Court’s statement in
Mambulao that “a corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages” is
an obiter dictum. Nevertheless, AMEC’s claim for moral damages falls
under item 7 of Article 2219 of the Civil Code. This provision expressly
authorizes the recovery of moral damages in cases of libel, slander or
any other form of defamation. Article 2219(7) does not qualify whether
the plaintiff is a natural or juridical person. Therefore, a juridical
person such as a corporation can validly complain for libel or any
other form of defamation and claim for moral damages. Moreover,
where the broadcast is libelous per se, the law implies damages. In
such a case, evidence of an honest mistake or the want of character or
reputation of the party libeled goes only in mitigation of damages.
Neither in such a case is the plaintiff required to introduce evidence of
actual damages as a condition precedent to the recovery of some
damages. In this case, the broadcasts are libelous per se. Thus, AMEC
is entitled to moral damages.

Coastal Pacific Trading Inc. vs. Southern Rolling Mills Co. Inc. July
28, 2006

FACTS: Southern Rolling Mills was renamed into Visayan Integrated

Steel Corp (VISCO). On Dec. 11, 1961-VISCO obtained a loan from
DBP amounting to P836,000. It was secured by a Real Estate
Mortgage covering VISCO's 3 parcels of land including the machinery
and equipments therein. Second Loan: VISCO entered a Loan
Agreement with respondent banks ( referred as "Consortium") to
finance its importation for various raw materials. VISCO executed a
second mortgage over the previous properties mentioned, however
they were unrecorded VISCO was unable to pay its second mortgage
with the consortium, which resulted in the latter acquiring 90% of the
equity of VISCO giving the Consortium the control and management of
VISCO. Despite the acquisition, VISCO still remained indebted to the
Consortium. Transaction to Coastal: Between 1964 to 1965, VISCO
entered a processing agreement with Coastal wherein Coastal
delivered 3,000 metric tons of hot rolled steel coils which VISCO
would process into block iron sheets. However, VISCO was only able
to return 1,600 metric tons of those sheets. On the loan to DBP: To
pay its first mortgage with DBP, VISCO sold 2 of its generators to
FILMAG Phils, Inc. DBP executed a Deed of Assignment of the
mortgage in favor of the consortium. The Consortium foreclosed the
mortgage and was the highest bidder in an auction sale of VISCO's
properties. The Consortium later sold the properties in favor of
National Steel Corporation. Coastal files a civil action for Annulment
or Rescission of Sale, Damages with Preliminary Injunction. Coastal
imputes bad faith on the action of the Consortium, the latter being
able to sell the properties of VISCO despite the attachment of the
properties, placing them beyond the reach of VISCO's other
creditors. The lower court ruled in favor of VISCO, declaring the sale
valid and legal. The CA affirmed this.

ISSUE:
Whether petitioner is entitled to moral damages?

HELD:
No. As a rule, a corporation is not entitled to moral damages because,
not being a natural person, it cannot experience physical suffering or
sentiments like wounded feelings, serious anxiety, mental anguish
and moral shock. The only exception to this rule is when the
corporation has a good reputation that is debased, resulting in its
humiliation in the business realm. In the present case, the records do
not show any evidence that the name or reputation of petitioner has
been sullied as a result of the Consortium's fraudulent acts.
Accordingly, moral damages are not warranted. Petitioner was able to
recover exemplary damages.

CIR v. CA, 301 SCRA 152

FACTS:
Commonwealth Management and Services Corporation
(COMASERCO, for brevity), is a corporation duly organized and
existing under the laws of the Philippines. It is an affiliate of
Philippine American Life Insurance Co. (Philamlife), organized by the
latter to perform collection, consultative and other technical services,
including functioning as an internal auditor, of Philamlife and its
other affiliates. Petitioner, Commissioner of the Bureau of Internal
Revenue (BIR) issued an assessment to private respondent
COMASERCO for deficiency value-added tax (VAT) amounting to
P351,851.01, for taxable year 1988. With this, COMASERCO filed with
the BIR, a letter-protest objecting to the latter’s finding of deficiency
VAT. In lieu however, the Commissioner of Internal Revenue sent a
collection letter to COMASERCO demanding payment of the deficiency
VAT. As a result, COMASERCO filed with the Court of Tax Appeals a
petition for review contesting the Commissioner’s assessment
asserting that the services it rendered to Philamlife and its affiliates,
relating to collections, consultative and other technical assistance,
including functioning as an internal auditor, were on a “no-profit,
reimbursement-of-cost-only” basis. It averred that it was not engaged
in the business of providing services to Philamlife and its affiliates.
COMASERCO stressed that it was not profit-motivated, thus not
engaged in business. In fact, it did not generate profit but suffered a
net loss in taxable year 1988, hence not liable to pay VAT. On its
appeal with the Court of Appeals, the appellate court rendered
decision reversing that of the Court of Tax Appeals. The former
anchored its decision on the ratiocination in another tax case
involving the same parties, where it was held that COMASERCO was
not liable to pay fixed and contractor’s tax for services rendered to
Philamlife and its affiliates.

ISSUE:
Whether or not COMASERCO was engaged in the sale of services, and
thus liable to pay VAT thereon?

RULING:
Yes. The Court agreed with the Petitioner that to “engage in business”
and to “engage in the sale of services” are two different things.
Petitioner maintains that the services rendered by COMASERCO to
Philamlife and its affiliates, for a fee or consideration, are subject to
VAT. VAT is a tax on the value added by the performance of the
service. It is immaterial whether profit is derived from rendering the
service. Hence, it is immaterial whether the primary purpose of a
corporation indicates that it receives payments for services rendered
to its affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on
services rendered.

Republic Planters Bank v. Argana, 269 SCRA 1

FACTS:
Defendants Shozo Yamaguchi and Fermin Canlas were President/
Chief Operating Officer and Treasurer, respectively, of Worldwide
Garment Manufacturing, Inc. By virtue of a board resolution, the
defendants were authorized to apply for credit facilities with the
petitioner Republic Planters Bank in the forms of export advances and
letters of credit/ trust receipts accommodations. Petitioner bank
issued nine promissory notes, each of which were uniformly worded
and stated: “… I/we jointly and severally promise to pay to the order
of the Republic Planters Bank…” On the right bottom margin of the
promissory notes appeared the signature of the defendants above their
printed names with the phrase “and (in) his personal capacity”
typewritten below.
ISSUE:
Is defendant Fermin Canlas solidarily liable with Shozo Yamaguchi on
each of the nine promissory notes?

RULING:
Yes, he is solidarily liable on each of the promissory notes bearing his
signature for the following reasons:
(a) Under the negotiable instruments law, persons who write their
names on the face of promissory notes are makers and are liable as
such. By signing the notes, the maker promise to pay to the order of
the payee or any holder according to the tenor thereof.
(b) Where an instrument containing the words “I promise to pay” is
signed by two or more persons they are deemed to be jointly and
severally liable thereon. An instrument which begins with “I”, “We” or
“Either of us” promise to pay, when signed by two or more persons,
makes them solidarily liable.

CIR v. Manning, 66 SCRA 14

FACTS:
Under a trust agreement, Julius Reese who owned 24,700 shares of
the 25,000 commonshares of MANTRASCO, and the three private
respondents who owned the rest, at 100shares each, deposited all
their shares with the Trustees. The trust agreement provided that
upon Reese’s death MANTRASCO shall purchase Reese’s shares. The
trust agreementwas executed in view of Reese’s desire that upon his
death the Company would continue under the management of
respondents. Upon Reese’s death and partial payment by thecompany
of Reeses’s share, a new certificate was issued in the name of
MANTRASCO, and the certificate indorsed to the Trustees.
Subsequently, the stockholders reverted the 24,700shares in the
Treasury to the capital account of the company as stock dividends to
be distributed to the stockholders. When the entire purchase price of
Reese’s interest in the company was paid in full by the latter, the trust
agreement was terminated, and the sharesheld in trust were delivered
to the company.The Bureau of Internal Revenue concluded that the
distribution of the 24,700 shares ofReese as stock dividends was in
effect a distribution of the "assets or property of thecorporation." It
therefore assessed respondents for deficiency income taxes as well as
forfraud penalty and interest charges. The Court of Tax Appeals
absolved respondent fromany liability for receiving the questioned
stock dividends on the ground that theirrespective one-third interest
in the Company remained the same before and after thedeclaration of
the stock dividends and only the number of shares held by each of
them hadchanged.

ISSUE:
Whether the distributed stock dividends were Treasury shares and the
Taxability of the"treasury" stock dividends received by the
respondents

RULING:
No. Where the surviving stockholders, by resolution, partitioned
among themselves, as treasury stock dividends, the deceased
stockholder’s interest, and earnings of the corporation over a period
of years were used to gradually wipe out the holdings therein of said
deceased stockholder, the earnings (which in effect have been
distributed to the surviving 4 stockholders when they
appropriated among themselves the deceased stockholder’s
interest), should be taxed for each of the corresponding years when
payments were made to the deceased’s estate on account of his
shares.

CIR v. Manning, 66 SCRA 14

FACTS:
Reese, the majority stockholder (with 24,700 out of the 25,000
common shares) of MANTRASCO, executed a trust agreement between
him and three minority stockholders, namely Manning, McDonald,
and Simmons, each of whom owned 100 common shares. Reese
wanted MANTRASCO to remain under the management of the three
minority stockholders even after his death, hence the trust agreement.
Upon Reese's death, MANTRASCO paid his estate the value of his
shares. Subsequently, Reese's shares were declared as dividends and
were proportionately distributed to Manning, McDonald, and
Simmons. No income tax was paid by any of them. The BIR later
assessed the three with deficiency income tax, as well as fraud
penalties and interest charges, saying that the distribution of Reese's
shares as stock dividends was in effect a distribution of the assets or
property of the corporation, which should have been taxable. The CTA
reversed the BIR assessment, saying that the respective 1/3 interest
in MANTRASCO of Manning, McDonald, and Simmons remained the
same before and after the declaration of the stock dividends and only
the number of shares held by each of them had changed.

Issue:
Whether or not Reese’s share is validly to be distributed among his
heirs.

RULING:
The Supreme Court ruled otherwise and held that the declaration of
Reese's shares as dividends was null and void, and that the subject
transaction was in fact subject to the payment of income tax. As such,
the Court remanded the case to the CTA for the recomputation of
income tax liabilities of Manning, McDonald, and Simmons.

San Miguel Corporation v. Sandiganbayan, Nos. 1043637-38 &

109797
September 14, 2000

FACTS:
On 10 August 1988, the Supreme Court upheld the petitioners and
ordered thedismissal of the rescission case filed in the Makati RTC
without prejudice to theventilation of the parties' claims before the
Sandiganbayan.
On March 23, 1990, the petitioners and the UCPB Group filed with
the Sandiganbayan a Joint Petition for Approval of the Compromise
Agreement andAmicable Settlement. On Apri 25, the Office of the
Solicitor General (OSG) opposed the Compromise Agreement and
Amicable Settlement. It contended that the involved coco-levyfunds
are public funds. As public funds, the coco-levy funds, in any form
or transformation, are beyond or "outside the commerce," and per
force not within the private disposition of private individuals.

ISSUE:
Whether the coco-levy funds are considered public funds.

RULING:
Yes, in the Iinstant "Settlement," thE "crony" and "ill-gotten character
of the property" involved is a matter of public record if not public
notoriety.
The OSG need not prove the public character of the coco-levy funds.
This is amatter of settled law and jurisprudence, a "given fact." The
form into which part of the coco-levy fund has been converted is not
crucialor decisive; otherwise, it would be so easy to defeat the recovery
of ill-gottenwealth by simply converting those funds, assets and
properties from one form to another and using legal technicalities to
thwart all attempts to reach them.

Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711

FACTS:
Benguet Consolidated Mining Company was organized in 1903 under
the Spanish Code of Commerce of 1886 as a sociedad anonima. It was
agreed by the incorporators that Benguet Mining was to exist for 50
years. In 1906, Act 1459 (Corporation Law) was enacted which
superseded the Code of Commerce of 1886. Act 1459 essentially
introduced the American concept of a corporation. The purpose of the
law, is to eradicate the Spanish Code and make sociedades anonimas
obsolete. While in 1953, the board of directors of Benguet Mining
submitted to the Securities and Exchange Commission (SEC) an
application for them to be allowed to extend the lifespan of Benguet
Mining. Then Commissioner Mario Pineda denied the application as it
ruled that the extension requested is contrary to Section 18 of the
Corporation Law of 1906 which provides that the life of a corporation
shall not be extended by amendment beyond the time fixed in their
original articles. Benguet Mining contends that they have a vested
right under the Code of Commerce of 1886 because they were
organized under said law; that under said law, Benguet Mining is
allowed to extend its life by simply amending its articles of
incorporation; that the prohibition in Section 18 of the Corporation
Code of 1906 does not apply to sociedades anonimas already existing
prior to the Law’s enactment; that even assuming that the prohibition
applies to Benguet Mining, it should be allowed to be reorganized as a
corporation under the said Corporation Law.

ISSUES:
Whether or not Benguet Mining is correct.

RULING:
No. Benguet Mining has no vested right to extend its life. It is a well-
settled rule that no person has a vested interest in any rule of law
entitling him to insist that it shall remain unchanged for his benefit.
Had Benguet Mining agreed to extend its life prior to the passage of
the Corporation Code of 1906 such right would have vested. But when
the law was passed in 1906, Benguet Mining was already deprived of
such right. To allow Benguet Mining to extend its life will be inimical
to the purpose of the law which sought to render obsolete sociedades
anonimas. If this is allowed, Benguet Mining will unfairly do
something which new corporations organized under the new
Corporation Law can’t do – that is, exist beyond 50 years. Plus, it
would have reaped the benefits of being a sociedad anonima and later
on of being a corporation. Further, under the Corporation Code of
1906, existing sociedades anonimas during the enactment of the law
must choose whether to continue as such or be organized as a
corporation under the new law. Once a sociedad anonima chooses one
of these, it is already proscribed from choosing the other.

Lanuza v. CA, No. 131394, March 28, 2005

FACTS:
The Philippine Merchant Marine School (PMMI) was incorporated in
1952 with 700 founders’ shares and 76 common shares as its initial
stock subscription reflected in the articles of incorporation. it was only
in 1978 when the company’s stock and transfer book was registered,
recording 33 common shares as the only issued and outstanding
shares of PMMI. In a dispute over the basis of a quorum in a
stockholders’ meeting, private respondents contend that the same
should be based on the initial subscribed capital stock as reflected in
the 1052 articles of incorporation, and not on the number of issued
and outstanding shares as recorded in 1978 in the compnany’s stock
and transfer book. Petitioners contend otherwise. Both the SEC en
banc and the Court of Appeals ruled in favor of private respondents.
Hence, this petition seeking to nullify the assailed decision.

ISSUE:
What should be the basis in determining the quorum in the
stockholders’ meeting?

RULING:
The initial subscribed capital stock as reflected in the articles of
incorporation should be made the basis in the determination of a
quorum. The articles of incorporation defines the charter of the
corporation and its contractual relations with the state and the
stockholders. The contents thereof are binding not only on the
corporation but also on its shareholders. In the instant case, the
articles of incorporation indicate that the company had 776 issued
and outstanding shares. On the other hand, the stock and transfer
book is not in any sense a public record and only constitutes prima
facie evidence. Hence, it may be impeached by other competent
evidence. Therefore, the same cannot be used as the sole basis for
determining the quorum as it does not reflect the totality of shares
which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and
outstanding.

Industrial Refractories Corporation v. CA, No. 122174, October 3,

2002

FACTS:
Respondent Refractories Corporation of the Philippines (RCP) is a
corporation duly organized on October 13, 1976. On June 22, 1977, it
registered its corporate and business name with the Bureau of
Domestic Trade.

Petitioner IRCP was incorporated on August 23, 1979 originally under

the name "Synclaire Manufacturing Corporation". It amended its
Articles of Incorporation on August 23, 1985 to change its corporate
name to "Industrial Refractories Corp. of the Philippines". Both
companies are the only local suppliers of monolithic gunning mix.
Respondent RCP then filed a petition with the Securities and
Exchange Commission to compel petitioner IRCP to change its
corporate name. The SEC rendered judgment in favor of respondent
RCP. Petitioner appealed to the SEC En Banc. The SEC En Banc
modified the appealed decision and the petitioner was ordered to
delete or drop from its corporate name only the word "Refractories".
Petitioner IRCP filed a petition for review on certiorari to the Court of
Appeals and the appellate court upheld the jurisdiction of the SEC
over the case and ruled that the corporate names of petitioner IRCP
and respondent RCP are confusingly or deceptively similar, and that
respondent RCP has established its prior right to use the word
"Refractories" as its corporate name. Petitioner then filed a petition for
review on certiorari

ISSUE:
Are corporate names Refractories Corporation of the Philippines (RCP)
and "Industrial Refractories Corp. of the Philippines" confusingly and
deceptively similar?

RULING:
Yes, the petitioner and respondent RCP’s corporate names are
confusingly and deceptively similar.
Further, 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 or to any other
name already protected by law or is patently deceptive, confusing or
contrary to existing laws". The policy behind said prohibition is to
avoid fraud upon the public that will 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
corporation.

Phillips Export B.V. v. CA, G.R. No. 96161, February 21, 1992

FACTS:
Philips Export BV is a foreign corporation organized in Netherlands
and not engaged inbusiness in the Philippines. It is the registered
owner of the trademark “Phillips” and “Phillips Shield Emblem”.
Philips Electrical Lamp, Inc. and Philips Industrial Development Inc.
Besides PEBV, are corporations belonging to the Philips Group of
Companies. In 1984, PEVB filed aletter-complaint with the SEC for
the cancellation of the word “Phillips” from Standard Philip’scorporate
name. The SEC en banc affirmed the dismissal of PEBU’s complaint
by one of itshearing officers. The Court of Appeals dismissed
PEVB’s petition for review certiorari, as referred by the Supreme
Court.
ISSUE:
Whether there is confusing similarity between the corporate
names to warrant theremoval of “Philips” in Standard Philip’s
corporate name.

RULING;
Yes. The right to exclusive use of a corporate name with freedom from
infringement bysimilarity is determined by priority of adoption.
PEBV,eT al. have priority in adoption, as Standard Philips was
issued a Certificate of Registration 26 years after Philips Electrical
andPhilips Industrial acquired theirs. A reading from said
corporate names, it is obvious that“Philips” is the dominant word in
all companies affiliated with the principal corporation, PEVB. Given
that standard Philip’s primary purpose does not prevent it from
dealing in the same line of business of electrical devices, products or
supplies, as that of Philips Electrical, it can only besaid that the
subsequent appropriator of the name or one confusingly similar
thereto usuallyseeks an unfair advantage, a free ride on another’s
goodwill. Inasmuch as Standard Philips hassubmitted an undertaking
to the SEC “manifesting its willingness to change its corporate namein
the event another person, firm or entity has acquired a prior right to
the use of the said firmname or one deceptively or confusingly similar
to it. Standard Philips must now be held in its undertaking.

Lyceum of the Phils. v. CA, 219 SCRA 610

FACTS:
Petitioner Lyceum of the Philippines had commenced before the SEC a
proceeding against the Lyceum of Baguio to change its corporate
name alleging that the 2 names are substantially identical because of
the word ‘Lyceum’. SEC found for petitioner and the SC denied the
consequent appeal of Lyceum of Baguio in a resolution. Petitioner
then basing its ground on the resolution, wrote to all educational
institutions which made use of the word ‘Lyceum’ as part of their
corporate name to discontinue their use. When this recourse failed,
petitioner moved before the SEC to enforce its exclusive use of the
word ‘Lyceum.’ Petitioner further claimed that the word ‘Lyceum’ has
acquired a secondary meaning in its favor. The SEC Hearing Officer
found for petitioner. Both SEC En Banc and CA ruled otherwise.

ISSUE:
Whether or not the word ‘Lyceum’ has acquired a secondary meaning
in favor of petitioner.

RULING:
NO. Under the doctrine of secondary meaning, a word or phrase
originally incapable of exclusive appropriation with reference to an
article in the market, because geographical or otherwise descriptive
might nevertheless have been used so long and so exclusively by one
producer with reference to this article that, in that trade and to that
group of the purchasing public, the word or phrase has come to mean
that the article was his produce. With the foregoing as a yardstick,
[we] believe the appellant failed to satisfy the aforementioned
requisites. While the appellant may have proved that it had been
using the word ‘Lyceum’ for a long period of time, this fact alone did
not amount to mean that the said word had acquired secondary
meaning in its favor because the appellant failed to prove that it had
been using the same word all by itself to the exclusion of others. More
so, there was no evidence presented to prove that confusion will surely
arise if the same word were to be used by other educational
institutions.

Asuncion v. Yriarte, 28 Phil. 67

FACTS:
An action to obtain a writ of mandamus to compel the chief of the
division of archives of the Executive Bureau to file certain articles of
incorporation.
The Chief of the division of archives, the responden, refused to file the
articles of incorporation, hereinafter referred to, upon the ground that
the object of the corporation, as stated in the articles, was not lawful
and that , in pursuance of Section 6 of Act No. 1459 , they were not
registrable. It is strongly urged on the part of the appellants that the
duties of the defendant are purely ministerial and that he has no
authority to pass upon the lawfulness of the object for which the
incorporators propose to organize.

ISSUE:
Whether or not the purposes of the corporation as stated in the
articles of incorporation are lawful within the meaning of the
Corporation Law.

RULING:
YES.
When on the face of the articles of incorporation presented for
registration it is shown that it is organized for a purpose contrary to
law or public policy, the same may be denied outright registration.
The object of the proposed corporation, as appears from the articles
offered for registration, is to make of the barrio of Pulo or San Miguel
a corporation which will become the owner of and have the right to
control and administer any property belonging to the municipality of
Pasig found within the limits of that barrio. This clearly cannot be
permitted. Otherwise municipalities as now established by law could
be deprived of the property which they now own and administer. Each
barrio of the municipality would become under the scheme proposed,
a separate corporation, would take over the ownership,
administration, and control of that portion of the municipal territory
within its limits. This would disrupt, in a sense, the municipalities of
the Islands by dividing them into a series of smaller municipalities
entirely independent of the original municipality. The object of the
proposed corporation is clearly repugnant to the provisions of the
Municipal Code and the governments of municipalities as they have
been organized thereunder.

Gala v. Ellice Agro-Industrial Corp., 418 SCRA 431

FACTS:
On March 28, 1979, the Ellice Agro-Industrial Corporation was
formed and organized. The total subscribed capital stock of the
corporation was P3.5 Million with 35,000 shares. Additional shares
were acquired and subscribed from said corporation. Subsequently,
on September 16, 1982, the Margo Management and Development
Corporation (Margo) was incorporated. The total subscribed capital
stock of Margo was 20,000 shares at P200, 000.00. Several transfers
of shares of Ellice to Margo were made by the stockholders and some
payments of subscription were made by transferring parcels of land by
the Gala Spouses. In essence, petitioners want this Court to
disregard the separate juridical personalities of Ellice and Margo for
the purpose of treating all property purportedly owned by said
corporations as property solely owned by the Gala spouses. The
petitioners’ contention in support of this theory is that the purposes
for which Ellice and Margo were organized should be declared as
illegal and contrary to public policy. They claim that the respondents
never pursued exemption from land reform coverage in good faith and
instead merely used the corporations as tools to circumvent land
reform laws and to avoid estate taxes. Specifically, they point out that
respondents have not shown that the transfers of the land in favor of
Ellice were executed in compliance with the requirements of Section
13 of R.A. 3844. Furthermore, they alleged that respondent
corporations were run without any of the conventional corporate
formalities.

ISSUE:
Whether or not the purpose of the creation of the two corporations is
illegal and against public policy.

RULING:
NO. Impugning the legality of the purposes for which Ellice and Margo
were organized, amount to collateral attacks which are prohibited in
this jurisdiction. The best proof of the purpose of a corporation is its
articles of incorporation and by-laws. The articles of incorporation
must state the primary and secondary purposes of the corporation,
while the by-laws outline the administrative organization of the
corporation, which, in turn, is supposed to insure or facilitate the
accomplishment of said purpose. A perusal of the Articles of
Incorporation of Ellice and Margo shows no sign of the allegedly illegal
purposes that petitioners are complaining of. If a corporation’s
purpose, as stated in the Articles of Incorporation, is lawful, then the
SEC has no authority to inquire whether the corporation has
purposes other than those stated, and mandamus will lie to compel it
to issue the certificate of incorporation.

Young Auto Supply vs. CA, 223 SCRA 670

FACTS:
On October 28, 1987, Young Auto Supply Co. Inc. (YASCO)
represented by Nemesio Garcia, its president, Nelson Garcia and
Vicente Sy, sold all of their shares of stock in Consolidated Marketing
& Development Corporation (CMDC) to Roxas. The purchase price
was P8,000,000.00 payable as follows: a down payment of
P4,000,000.00 and the balance of P4,000,000.00 in four postdated
checks of P1,000,000.00 each. The first check of P4, 000,000.00,
representing the down payment, was honored by the drawee bank but
the four other checks representing the balance of P4, 000,000.00 were
dishonored. On June 10, 1988, petitioners filed a complaint against
Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that
Roxas be ordered to pay petitioners the sum of P3, 400,000.00 or that
full control of the three markets be turned over to YASCO and Garcia.
The complaint also prayed for the forfeiture of the partial payment of
P4, 600,000.00 and the payment of attorney's fees and costs.

ISSUE:
Whether the proper venue is in Pasay City.

RULING:
NO. The Court of Appeals erred in holding that the venue was
improperly laid in Cebu City. Young Auto Supply Co., Inc. ("YASCO")
is a domestic corporation duly organized and existing under Philippine
laws with principal place of business at M.J. Cuenco Avenue, Cebu
City. It also has a branch office at 1708 Dominga Street, Pasay City,
Metro Manila. The Article of Incorporation of YASCO states that the
place where the principal office of the corporation is to be established
or located is at Cebu City, Philippines. A corporation has no residence
in the same sense in which this term is applied to a natural person.
But for practical purposes, a corporation is in a metaphysical sense a
resident of the place where its principal office is located as stated in
the articles of incorporation. The Corporation Code precisely requires
each corporation to specify in its articles of incorporation the "place
where the principal office of the corporation is to be located which
must be within the Philippines" The purpose of this requirement is to
fix the residence of a corporation in a definite place, instead of
allowing it to be ambulatory. With the finding that the residence of
YASCO for purposes of venue is in Cebu City, where its principal place
of business is located, it becomes unnecessary to decide whether
Garcia is also a resident of Cebu City and whether Roxas was in
estoppel from questioning the choice of Cebu City as the venue.
Hence, it should be in Cebu City.

People Aircargo & Warehousing Co., Inc. v. CA, 297 SCRA 170

FACTS:
People's Aircargo and Warehousing Co. Inc. (PAWCI) is a domestic
corporation, which was organized in the middle of 1986 to operate a
customs bonded warehouse at the old Manila International Airport in
Pasay City. To obtain a license for the corporation from the Bureau of
Customs, Antonio Punsalan Jr., the corporation president, solicited a
proposal from Stefani Saño forthe preparation of a feasibility study.
Saño submitted a letter-proposal dated 17 October 1986 ("First
Contract") to Punsalan, for the project feasibility study (market,
technical, and financial feasibility)
and preparation of pertinent documentation requirements for the
application, worth P350,000. Initially, Cheng Yong, the majority
stockholder of PAWCI, objected to Saño's offer, as another company
priced a similar proposal at only P15,000. However, Punsalan
preferred Saño's services because of the latter's membership in the
task force, which was supervising the transition of the Bureau of
Customs from the Marcos government to the Aquino Administration.
On 17 October 1986, PAWCI, through Punsalan, sent Saño a letter
confirming their agreement.

ISSUE:
Whether a single instance where the corporation had previously
allowed its president to enter into a contract with another without a
board resolution expressly authorizing him, has clothed its president
with apparent authority to execute the subject contract?

RULING:
Apparent authority is derived not merely from practice. Its existence
may be ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act or,
in other words, the apparent authority to act in general, with which it
clothes him; or (2) the acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, whether within or
beyond the scope of his ordinary powers. It requires presentation of
evidence of similar act(s) executed either in its favor or in favor of
other parties. It is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate officer with the
power to bind the corporation. Herein, PAWCI, through its president
Antonio Punsalan Jr., entered into the First Contract without first
securing board approval.

LapuLapu Foundation Inc., vs. Court of Appeals, et al., G.R. No.

126006, January 29,2004

FACTS:
Sometime in 1977, Elias Q. Tan, then President of Lapulapu
Foundation, Inc., obtained four loans from Allied Banking Corporation
covered by four promissory notes in the amounts of P100,000 each.
The Bank was constrained to file with the Regional Trial Court of Cebu
City, Branch 15, a complaint seeking payment by Tan and the
foundation, jointly and solidarily, of the sum of P493,566.61
representing their loan obligation, exclusive of interests, penalty
charges, attorney’s fees and costs. In its answer to the complaint, the
Foundation denied incurring indebtedness from the Bank alleging that
the loans were obtained by Tan in his personal capacity, for his own
use and benefit and on the strength of the personal information he
furnished the Bank. The Foundation maintained that it never
authorized Tan to co-sign in his capacity as its President any
promissory note and that the Bank fully knew that the loans
contracted were made in Tan’s personal capacity and for his own use
and that the Foundation never benefited, directly or indirectly,
therefrom. For his part, Tan admitted that he contracted the loans
from the Bank in his personal capacity. The parties, however, agreed
that the loans were to be paid from the proceeds of Tan’s shares of
common stocks in the Lapulapu Industries Corporation, a real estate
firm. According to Tan, the Bank’s employee required him to affix two
signatures on every promissory note, assuring him that the loan
documents would be filled out in accordance with their agreement.
However, after he signed and delivered the loan documents to the
Bank, these were filled out in a manner not in accord with their
agreement, such that the Foundation was included as party thereto.
Further, prior to its filing of the complaint, the Bank made no demand
on him.

ISSUE:
Whether or not the Court erred in applying the Parol Evidence Rule
and the Doctrine of Piercing the Veil of Corporate entity as basis for
adjudging joint and solidary liabilty on the part of petitioners?

RULING:
No. There is no dispute that the promissory notes had already
matured. However, the petitioners insist that the loans had not
become due and demandable as they deny receipt of the respondent
Banks demand letters. When presented the registry return cards
during the trial, petitioner Tan claimed that he did not recognize the
signatures thereon.They cannot prevail over the registry return cards
which constitute documentary evidence and which enjoy the
presumption that, absent clear and convincing evidence to the
contrary, these were regularly issued by the postal officials in the
performance of their official duty and that they acted in good faith.
Santos v. NLRC, 254 SCRA 673

FACTS:
Petitioner is a married man and is employed as a teacher by private
respondent Hagonoy Institute Inc. from June 1980 until his dismissal
on June 1, 1991. Petitioner and Mrs. Arlene T. Martin, also a teacher
employed at Hagonoy Institute, fell in love and had an affair. Private
respondent, upon hearing of circulating rumors among faculty and
school officials, of the illicit relationship of petitioner and Mrs. Martin,
advised the latter to take a leave of absence, Mrs. Martin ignored such
notice and was henceforth prevented from entering the campus of
private respondent, effectively dismissing her from work. Private
respondent set-up a committee to investigate the veracity of the
rumors, after two weeks of investigation, the illicit relationship of
petitioner and Mrs. Martin was confirmed. Petitioner was charged
administratively for immorality and asked to present his side, on May
1991, petitioner was dismissed effective June 1, 1991. Petitioner filed
a complaint for illegal dismissal with the NLRC Regional Arbitration
Branch No. III, San Fernando, Pampanga and petitioner’s complaint
was dismissed but awarded financial assistance of PHP 13,750. On
appeal, the NLRC affirmed the decision of the labor arbiter.

ISSUE:
Can the illicit relationship between the petitioner and Mrs. Martin be
considered immoral as to constitute a cause for termination under
Art. 282 of the Labor Code?

RULING:
The court reiterates that to constitute a valid dismissal, two requisites
must concur: (a) it must be for any offense expressed in Art. 282 of
the Labor Code, (b) employee must be accorded due process, that is,
the opportunity to be heard and to defend oneself. Art. 282 of the
Labor Code lists the following just causes to terminate an employee:
(1) serious misconduct or willful disobedience by employee of lawful
orders of the employer or his representative in connection with his
work, (2) gross and habitual neglect by employee of his duties; (3)
fraud or willful breach, (4) commission of crime or offense of the
person of his employer or his family or his authorized representative,
(5) other courses analogous to the foregoing. In addition, Section 94,
Manual of Regulations for Private Schools, paragraph E, lists
“disgraceful or immoral conduct” as ground for termination. As a
teacher, one stands in loco parentis to his students and must
therefore act with a high standard of integrity and honesty. It is
settled therefore that a teacher who engages in extra marital affairs,
when both are married, amounts to gross immorality justifying
termination from employment.
Therefore petition is dismissed, NLRC decision is affirmed with
modification, deleting financial assistance.

Atrium Management Corp. v. CA, G.R. No. 109491, Feb. 28, 2001

FACTS;
Hi-Cement Corporation through its corporate signatories, petitioner
Lourdes M. de Leon, treasurer, and the late Antonio de las Alas,
Chairman, issued checks in favor of E.T. Henry and Co. Inc., as
payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to
Atrium for valuable consideration. Enrique Tan of E.T. Henry
approached Atrium for financial assistance, offering to discount four
RCBC checks in the total amount of P2 million, issued by Hi-Cement
in favor of E.T. Henry. Atrium agreed to discount the checks, provided
it be allowed to confirm with Hi-Cement the fact that the checks
represented payment for petroleum products which E.T. Henry
delivered to Hi-Cement. Upon presentment for payment, the drawee
bank dishonored all four checks for the common reason “payment
stopped”. As a result thereof, Atrium filed an action for collection of
the proceeds of 4 PDC in the total amount of 2M with RTC Manila.
Judgment was rendered in favor of Atrium ordering Lourdes and
Rafael de Leon, E.T. Henry and Co., and Hi-Cement to pay Atrium the
said amount plus interest and attorneys fees. CA absolved Hi-cement
Corporation from liability. It also ruled that since Lourdes was not
authorized to issue the subjects checks in favor of E.T. Henry Inc., the
said act was ultra vires.

ISSUE:
Whether the issuance of the questioned checks was an ultra vires
act?

RULING:
Yes. An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law. The term “ultra
vires” is “distinguished from an illegal act for the former is merely
voidable which may be enforced by performance, ratification, or
estoppel, while the latter is void and cannot be validated.
In the given facts, Lourdes M. de Leon and Antonio de las Alas as
treasurer and Chairman of Hi-Cement were authorized to issue the
checks. However, Ms. de Leon was negligent when she signed the
confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of
E.T. Henry for the rediscounting of the crossed checks issued in favor
of E.T. Henry. She was aware that the checks were strictly endorsed
for deposit only to the payee’s account and not to be further
negotiated. What is more, the confirmation letter contained a clause
that was not true, that is, “that the checks issued to E.T. Henry were
in payment of Hydro oil bought by Hi-Cement from E.T. Henry”. Her
negligence resulted in damage to the corporation.

Hence, Ms. de Leon may be held personally liable therefore.

Loyola Grand Villas Homeowners (South) Association, Inc. v. CA, 276

SCRA 681

FACTS:
Loyola Grand Villas Homeowners Associatio, Inc. was organized on
February 8, 1983 as the registered sole homeowner’s association for
Loyola Grand Villas with the Home Financing Corporation, which later
became Home Insurance Guarantee Corporation (HIGC). However, the
association was not able to file its corporate by-laws in the prescribed
date as stated in the Corporation Code Sec. 46, Adoption of by-laws,
“Ever corporation formed under this code MUST within 1 month after
receipt of official notice of the issuance of its certificate of
incorporation by SEC, adopt a code of by-laws for its government not
inconsistent with this Code.” They then discovered that there were
other homeowners’ organization within the subdivision – the North
and South Association, and upon inquiry by the LGVHAI to HIGC, it
was discovered that LGVHAI was dissolved for its failure to submit its
by-laws within the period required by the Corporation Code. These
paved the way for the formation of the two other associations. LGVHAI
then lodged a complaint and questioned the revocation with the HIGC
Hearing Officer Javier. Hearing Officer Javier ruled in favor of LGVHAI
and revoked the registration of the North and South Associations.
Petitioner South Association appealed the ruling contending that
LGVHAI failure to file automatically dissolved the corporation.

ISSUE:
Is the failure to file LGVHAI’s by-laws within the period prescribed by
Sec. 46 of the Corporation Code had the effect of automatically
dissolving the said corporation?

RULING:
No, ordinarily the word “must” connotes imposition of duty which
must be enforced however, the word “must” in a statute, (like “shall”)
is not always imperative. It may be consistent with an exercise of
discretion. If the language of a statute, considered as a whole with due
regard to its nature and object, reveals that the legislature intended to
use the words “shall” and “must” to be directory, they should be given
that meaning.

Chung Ka Bio v. IAC G.R. No. 71837 July 26, 1988

FACTS:
Philippine Blooming Mills Company, Inc. was incorporated for a term
of 25 years. The members of its board of directors executed a deed of
assignment of all of the accounts receivables, properties, obligations
and liabilities of the old PBM in favor of Chung Siong Pek in his
capacity as treasurer of the new PBM, then in the process of
reincorporation. The new PMB was issued a certificate of
incorporation by the Securities and Exchange Commission. Chung Ka
Bio and the other petitioners herein, all stockholders of the old PBM,
filed with the SEC a petition for liquidation of both the old PBM and
the new PBM. The allegation was that the former had become
legally non-existent for failure to extend its corporate life and that the
latter had likewise been ipso facto dissolved for non-use of the charter
and continuous failure to operate within 2 years from incorporation.

ISSUE:
Whether or not the new corporation has not substantially complied
with the two-year
requirement of Section 22 of the new Corporation Code on non-user
because its stockholders never adopted a set of by-laws?

RULING:
No. Non-filing of the by-laws will not result in automatic dissolution of
the corporation. Under Section 6(i) of PD 902-A, the SEC is
empowered to “suspend or revoked, after proper notice and hearing,
the franchise or certificate of registration of a corporation” on the
ground inter alia of “failure to file by-laws within the required
period.” It is clear from this provision that there must first of all be a
hearing to determine the existence of the ground, and secondly,
assuming such finding, the penalty is not necessarily revocation but
may be only suspension of the charter. In fact, under the rules and
regulations of the SEC, failure to file the by-laws on time may be
penalized merely with the imposition of an administrative fine without
affecting the corporate existence of the erring firm.

Gokongwei v. SEC, 89 SCRA 336

FACTS:
Petitioner, stockholder of San Miguel Corp. filed a petition with the
SEC for the declaration of nullity of the by-laws etc. against the
majority members of the BOD and San Miguel. It is stated in the by-
laws that the amendment or modification of the by-laws may only be
delegated to the BODs upon an affirmative vote of stockholders
representing not less than 2/3 of the subscribed and paid uo capital
stock of the
corporation, which 2/3 could have been computed on the basis of the
capitalization at the time of the amendment. Petitioner contends that
the amendment was based on the 1961 authorization, the Board acted
without authority and in usurpation of the power of the stockholders
n amending the by-laws in 1976. He also contends that the 1961
authorization was already used in 1962 and 1963. He also contends
that the amendment deprived him of his right to vote and be voted
upon as a stockholder (because it disqualified competitors from
nomination and election in the BOD of SMC), thus the amended
bylaws were null and void. While this was pending, the corporation
called for a stockholder’s meeting for the ratification of the
amendment to the bylaws. This prompted petitioner to seek for
summary judgment. This was denied by the SEC. In another case filed
by petitioner, he alleged that the corporation had been using corporate
funds in other corps and businesses outside the primary
purpose clause of the corporation in violation of the Corporation Code.

ISSUE:
Are amendments valid?

RULING:
The validity and reasonableness of a by-law is purely a question of
law. Whether the by-law is in conflict with the law of the land, or with
the charter of the corporation or is in legal sense unreasonable and
therefore unlawful is a question of law. However, this is limited where
the reasonableness of a by-law is a mere matter of judgment, and one
upon which reasonable minds must necessarily differ, a court would
not be warranted in substituting its judgment instead of the judgment
of those who are authorized to make by-laws and who have exercised
authority. The amendment in this case serves to advance the benefit
of the corporation and is good. Corporate officers are also not
permitted to use their position of trust and confidence to further their
private needs, and the act done in furtherance of private needs is
deemed to be for the benefit of the corporation. This is called the
doctrine of corporate opportunity.

Fletcher v. Botica Nolasco Co., Inc., 47 Phil. 583

FACTS:
On November 15, 1923, the plaintiff filed an amended complaint
against the Botica Nolasco, Inc., alleging that he became the owner of
five shares of stock of said corporation, by purchase from their
original owner, one Manuel Gonzalez; that the said shares were fully
paid; and that the defendant refused to register said shares in his
name in the books of the corporation in spite of repeated demands to
that effect made by him upon said corporation, which refusal caused
him damages amounting to P500. Plaintiff prayed for a judgment
ordering the Botica Nolasco, Inc. to register in his name in the books
of the corporation the five shares of stock recorded in said books in
the name of Manuel Gonzales, and to indemnity him in the sum of
P500 as damages, and to pay the costs.

ISSUE:
Whether or not the by-laws of respondent corporation regarding the
preferential right to buy shares is valid?

RULING:
No. As general rule, the ly-laws of a corporation are valid if they are
reasonable and calculated to carry into effect the objects of the
corporation, and are not contradictory to the general policy of the laws
of the land.

China Banking Corp. v. CA, 270 SCRA 503

FACTS:
ose Gotianuy accused his daughter Mary Margaret Dee of stealing,
among his other properties, US dollar deposits with Citibank N.A.
amounting to not less than P35,000,000.00 and US$864,000.00.
Mary Margaret Dee received these amounts from Citibank N.A.
through checks which she allegedly deposited at China Banking
Corporation (China Bank). He likewise accused his son-in-law, George
Dee, husband of his daughter, Mary Margaret, of transferring his real
properties and shares of stock in George Dees name without any
consideration. Jose Gotianuy, died during the pendency of the case
before the trial court. He was substituted by his daughter, Elizabeth
Gotianuy Lo. The latter presented the US Dollar checks withdrawn by
Mary Margaret Dee from his US dollar placement with Citibank.

RTC rules that ‘ ‘As the foreign currency fund is deposited with the
movant China Banking Corporation, the disclosure only as to the
name or in whose name the said fund is deposited is not violative of
the law.’’ China Bank then filed a Petition for Certiorari with the Court
of Appeals.

ISSUE:
Whether or not petitioner China Bank is correct in its submission that
the Citibank dollar checks with both Jose Gotianuy and/or Mary
Margaret Dee as payees, deposited with China Bank, may not be
looked into under the law on secrecy of foreign currency deposits?

RULING:
NO. The law provides that all foreign currency deposits authorized
under Republic Act No. 6426, as amended by Sec. 8, Presidential
Decree No. 1246, Presidential Decree No. 1035, as well as foreign
currency deposits authorized under Presidential Decree No. 1034 are
considered absolutely confidential in nature and may not be inquired
into. There is only one exception to the secrecy of foreign currency
deposits, that is, disclosure is allowed upon the written permission of
the depositor.

In the given facts, there is no issue as to the source of the funds. Mary
Margaret Dee declared the source to be Jose Gotianuy. There is
likewise no dispute that these funds in the form of Citibank US dollar
Checks are now deposited with China Bank. As the owner of the funds
unlawfully taken and which are undisputably now deposited with
China Bank, Jose Gotianuy has the right to inquire into the said
deposits.

Phil. Trust Co. v. Rivera, 44 Phil. 469

FACTS:
Cooperativa Naval Filipina was an entity duly incorporated under the
laws of the Philippine Islands in 1918. It had a capital of P100,000
divided into 1,000 shares with a par value of P100 each. Mariano
Rivera was one of the incorporators. He subscribed for 450 shares
representing a value of P45,000, the remainder of the stock being
taken by other persons.
The company became insolvent and went into the hands of Philippine
Trust Company (PTC) as assignee in bankruptcy. PTC then filed an
action against Rivera to recover ½ of the subscription which he
admitted to be still unpaid. Rivera relies on a Resolution during a
stockholder’s meeting the capital should be reduced by 50% and the
subscribers released from the obligation to pay any unpaid balance of
their subscription in excess of 50% of the same.

The RTC held that the Resolution was ineffectual for failure to comply
with the law. Further, the RTC held that the said Resolution was
without effect and that Rivera was still liable for the unpaid balance of
his subscription.

ISSUE:
Whether the Resolution was indeed ineffectual?

RULING:
Yes. It is an established doctrine that subscription to the capital of a
corporation constitutes a find to which creditors have a right to look
for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to
realize assets for the payment of its debts. A corporation has no power
to release an original subscriber to its capital stock from the obligation
of paying for his shares, without a valuable consideration for such
release; and as against creditors a reduction of the capital stock can
take place only in the manner an under the conditions prescribed by
the statute or the charter or the articles of incorporation. Moreover,
strict compliance with the statutory regulations is necessary. As such,
the resolution releasing the shareholders from their obligation to pay
50% of their respective subscriptions was an attempted withdrawal of
so much capital from the fund upon which the company's creditors
were entitled ultimately to rely and, having been effected without
compliance with the statutory requirements, was wholly ineffectual.

Keller & Co., Ltd. V. COB Group Marketing, Inc

FACTS:
Edward A. Keller & Co. Ltd appointed COB Group Marketing Inc. as
exclusive distributor of its household products, Brite and Nuvan in
Panay and Negros, as shown in the sales agreement dated March 14,
1970. Under that agreement sold by Keller on credit its products to
COB Group Marketing. As security for COB Group Marketing’s credit,
purchases up to amount of Php35,000, one Asuncion Manahan
mortgaged her land to Keller. Manahan assumed solidarity with COB
Group the faithful performance of all terms and conditions of the sales
agreement. In July 1970 the parties executed a second sales
agreement whereby COB Group Marketing’s territory was extended to
Northern and Southern Luzon. As security for the credit purchases up
to Php25,000 of COB Group Marketing for that area, Tomas C.
Lorenzo Jr. and his father executed a mortgage on their land in Nueva
Ecija. Like Manahan, the Lorenzos were solidarily liable with COB
Group Marketing for its obligations under the sales agreement. The
credit purchases of COB Group Marketing, which started on October
15, 1969, limited up to January 22, 1971. On May 8, the board of
directors of COB Group Marketing where apprised by Jose E. Bax, the
firm’s president and general manager, that the firm owed Keller about
Php179,000. Bax was authorized to negotiate with Keller for the
settlement of his firm’s liability.

ISSUE:
Whether or not the stockholders of COB Group Marketing can be held
personally liable for the credit?

RULING:
No. As to the liability of the stockholders, it is settled that a
stockholder is personally liable for the financial obligations of a
corporation to the extent of his unpaid subscription.

Velasco v. Poizat, G.R. No. L-11528

FACTS:
The plaintiff is seeking to recover of the defendant, Jean M. Poizat, the
sum of P1,500, upon a subscription made by him to the corporate
stock of said company. The defendant subscribed for 20 shares of the
stock of the company, an paid in upon his subscription the sum of
P500, the par value of 5 shares . The action was brought to recover
the amount subscribed upon the remaining shares. It appears that
the defendant was a stock holder in the company from the inception of
the enterprise, and for sometime acted as its treasurer and manager.
While serving in this capacity he called in and collected all
subscriptions to the capital stock of the company, except the aforesaid
15 shares subscribed by himself and another 15 shares owned by
Jose R. Infante It seems that this shareholder had already paid 25 per
cent of his subscription upon 20 shares, leaving 15 shares unpaid for,
and an understanding had been reached by him and the management
by which he was to be released from the obligation of his subscription,
it being understood that what he had already paid should not be
refunded. Accordingly the directors present at this meeting subscribed
P1,200 toward taking up his shares, leaving a deficiency of P300 to be
recovered by voluntary subscriptions from stockholders not present at
the meeting. When notification of this resolution reached Poizat
through the mail it evoked from him a manifestation of surprise and
pain, which found expression in a letter written by him in reply, dated
July 27, 1914, and addressed to Velasco, as treasurer and
administrator. In this letter Poizat states that he had been given to
understand by some member of the board of directors that he was to
be relieved from his subscription upon the terms conceded to Infante.
The company soon went into voluntary insolvency, Velasco being
named as the assignee. At the hearing of the Court of First Instance,
judgment was rendered in favor of the defendant, and the complaint
was dismissed. From this action the plaintiff has appealed.

ISSUE:
Whether or not Poizat is liable upon this subscription?

RULING:
Poizat is liable upon his subscription. Section 36 of the Corporation
Law clearly recognizes that a stock subscription is subsisting liability
from the time the subscription is made, since it requires the
subscriber to pay interest quarterly from that date unless he is
relieved from such liability by the by-laws of the corporation. The
subscriber is as much bound to pay the amount of the share
subscribed by him as he would be to pay any other debt, and the right
of the company to demand payment is no less incontestable.

Rural Bank of Lipa City, Inc. v. CA, 366 SCRA 188

FACTS:
Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City,
executed a Deed of Assignment, wherein he assigned his shares, as
well as those of 8 other shareholders under his control with a total of
10,467 shares, in favor of the stockholders of the Bank represented by
its directors Bernardo Bautista, Jaime Custodio and Octavio Katigbak.
Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina,
executed an Agreement wherein they acknowledged their indebtedness
to the Bank in the amount of P4,000,000.00, and stipulated that said
debt will be paid out of the proceeds of the sale of their real property
described in the Agreement. In such an event, should the proceeds of
the sale of said shares fail to satisfy in full the obligation, the unpaid
balance shall be secured by other collateral sufficient therefor. When
the Villanueva spouses failed to settle their obligation to the Bank on
the due date, the Board sent them a letter demanding: (1) the
surrender of all the stock certificates issued to them; and (2) the
delivery of sufficient collateral to secure the balance of their debt
amounting to P3,346,898.54. However, a motion for reconsideration
was granted on 16 December 1994, upon finding that since the
Villanuevas' have not disposed of their shares, whether voluntarily or
involuntarily, they were still stockholders entitled to notice of the
annual stockholders' meeting was sustained by the SEC. Accordingly,
a writ of preliminary injunction was issued enjoining Bautista, et. al.
from acting as directors and officers of the bank.

ISSUE:
Whether there was valid transfer of the shares to the Bank?

RULING:
For a valid transfer of stocks, there must be strict compliance with the
mode of transfer prescribed by law. The requirements are: (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.
As it is, compliance with any of these requisites has not been clearly
and sufficiently shown. Still, while the assignment may be valid and
binding on the bank, et al. and the Villanuevas, it does not necessarily
make the transfer effective. Consequently, the bank et al., as mere
assignees, cannot enjoy the status of a stockholder, cannot vote nor
be voted for, and will not be entitled to dividends, insofar as the
assigned shares are concerned.
WHEREFORE, in view of all the foregoing, the instant petition for
review on certiorari is DENIED.

Ponce v. Alsons Cement Corp

FACTS:
February 8, 1968: Vicente C. Ponce and Fausto Gaid, incorporator of
Victory Cement Corporation (VCC), executed a “Deed of Undertaking”
and “Indorsement” whereby Gaid acknowledges that Ponce is the
owner of the shares and he was therefore assigning/endorsing it to
Ponce. VCC was renamed Floro Cement Corporation (FCC) and then to
Alsons Cement Corporation (ACC). Up to the present, no certificates of
stock corresponding to the 239,500 subscribed and fully paid shares
of Gaid were issued in the name of Fausto G. Gaid and/or the
plaintiff. Despite repeated demands, the ACC refused to issue the
certificates of stocks. SEC Hearing Officer Enrique L. Flores, Jr.
granted the motion to dismiss. Upon the appeal, the Commission En
Banc reversed the decision of the Hearing Officer. Ponce, filed a
complaint with the SEC for mandamus CA: mandamus should be
dismissed for failure to state a cause of action in the absence of any
allegation that the transfer of the shares was registered in the stock
and transfer book.

ISSUE:
Whether or not the cert. of stocks of Gaid can be transferred to Ponce?

RULING:
No. Petition is denied. No shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books
of the corporation. The stock and transfer book is the basis for
ascertaining the persons entitled to the rights and subject to the
liabilities of a stockholder. Where a transferee is not yet recognized as
a stockholder, the corporation is under no specific legal duty to issue
stock certificates in the transferee’s name. In the case at bar,
a mandamus should not issue to compel the secretary of a
corporation to make a transfer of the stock on the books of the
company. Unless it affirmatively appears that he has failed or refused
so to do, upon the demand either of the person in whose name the
stock is registered, or of some person holding a power of attorney for
that purpose from the registered owner of the stock. Mere indorsee of
a stock certificate, claiming to be the owner, will not necessarily be
recognized as such by the corporation and its officers, in the absence
of express instructions of the registered owner to make such transfer
to the indorsee, or a power of attorney authorizing such transfer.

Tan v. SEC, 206 SCRA 740

FACTS:
Respondent corporation was registered on October 1, 1979. As
incorporator, petitioner had four hundred (400) shares of the capital
stock standing in his name at the par value of P100.00 per share,
evidenced by Certificate of Stock No. 2. He was elected as President
and subsequently reelected, holding the position as such until 1982
but remained in the Board of Directors until April 19, 1983 as
director.
On January 31, 1981, while petitioner was still the president of the
respondent corporation, two other incorporators, namely, Antonia Y.
Young and Teresita Y. Ong, assigned to the corporation their shares,
represented by certificate of stock No. 4 and 5 after which, they were
paid the corresponding 40% corporate stock-in-trade.
Petitioner's certificate of stock No. 2 was cancelled by the corporate
secretary and respondent Patricia Aguilar by virtue of Resolution No.
1981 (b), which was passed and approved while petitioner was still a
member of the Board of Directors of the respondent corporation. Due
to the withdrawal of the aforesaid incorporators and in order to
complete the membership of the five (5) directors of the board,
petitioner sold fifty (50) shares out of his 400 shares of capital stock to
his brother Angel S. Tan. Another incorporator, Alfredo B. Uy, also
sold fifty (50) of his 400 shares of capital stock to Teodora S. Tan and
both new stockholders attended the special meeting, Angel Tan was
elected director and on March 27, 1981, the minutes of said meeting
was filed with the SEC. These facts stand unchallenged.

ISSUE:
Whether or not the cancellation and transfer of petitioner's shares and
Certificate of Stock No. 2 as well as the issuance and cancellation of
Certificate of Stock No. 8 was patently and palpably unlawful, null
and void, invalid and fraudulent?

RULING:
Yes. Angel S. Tan has already exercised his rights and prerogatives as
stockholder and was even elected as member of the board of directors
in the respondent corporation with the full knowledge and
acquiescence of petitioner. Due to the transfer of fifty (50) shares,
Angel S. Tan was clothed with rights and responsibilities in the board
of the respondent corporation when he was elected as officer thereof.

Besides, in Philippine jurisprudence, a certificate of stock is not a

negotiable instrument. "Although it is sometime regarded as quasi-
negotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well-settled that it is non-negotiable,
because the holder thereof takes it without prejudice to such rights or
defenses as the registered owner/s or transferror's creditor may have
under the law, except insofar as such rights or defenses are subject to
the limitations imposed by the principles governing estoppel."
Nava v. Peers Marketing Corp., 74 SCRA 65

FACTS:
Teofilo Po as an incorporator subscribed to eighty shares of Peers
Marketing Corporation. Po paid two thousand pesos or twenty-five
percent of the amount of his subscription. No certificate of stock was
issued to him or, for that matter, to any incorporator, subscriber or
stockholder. Po sold to Ricardo A. Nava for two thousand pesos twenty
of his eighty shares. In the deed of sale Po represented that he was
“the absolute and registered owner of twenty shares” of Peers
Marketing Corporation. Nava requested the officers of the corporation
to register the sale in the books of the corporation. The request was
denied because Po has not paid fully the amount of his subscription.
Nava was informed that Po was delinquent in the payment of the
balance due on his subscription and that the corporation had a claim
on his entire subscription of eighty shares which included the twenty
shares that had been sold to Nava. Nava filed this mandamus action
in the CFI to compel the corporation and Renato R. Cusi and Amparo
Cusi, its executive vice-president and secretary, respectively, to
register the said twenty shares in Nava’s name in the corporation’s
transfer book. The respondents in their answer pleaded the defense
that no shares of stock against which the corporation holds an unpaid
claim are transferable in the books of the corporation.

ISSUE:
Whether or not the officers of Peers Marketing Corporation can be
compelled by mandamus to enter in its stock and transfer book the
sale made by Po to Nava subscription and that the twenty shares are
not covered by any stock certificate?

RULING:
No. The corporation can include in its by-laws rules, not inconsistent
with law, governing the transfer of its shares of stock. As prescribed in
section 35, shares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. “Title may be vested in
the transferee by delivery of the certificate with a written assignment
or indorsement thereof” .There should be compliance with the mode of
transfer prescribed by law.A stock subscription is a subsisting liability
from the time the subscription is made. The subscriber is as much
bound to pay his subscription as he would be to pay any other debt.
The right of the corporation to demand payment is no less
incontestable. As already stressed, in this case no stock certificate
was issued to Po. Without stock certificate, which is the evidence of
ownership of corporate stock, the assignment of corporate shares is
effective only between the parties to the transaction. The delivery of
the stock certificate, which represents the shares to be alienated , is
essential for the protection of both the corporation and its
stockholders.

Lincoln Philippine Life v. CA, 293 SCRA 92

FACTS:
The Commission on Internal Revenue issued to Lincoln Philippine Life
Insurance, Co., a deficiency documentary stamp taxes (DST)
assessment amounting to P464,898.75 for the year 1984. This came
about as a result of a special kind of life insurance policy issued by
Lincoln known as the Junior Estate Builder Policy, which had a
clause providing for an automatic increase in the amount of life
insurance coverage which was to take effect in 1984. The DST due on
the policy were paid by Lincoln only on the initial sum assured. The
CTA, upon Lincoln's appeal, cancelled the deficiency assessment. But
the CIR argued that the automatic increase clause in the insurance
policy in question is separate and distinct from the main agreement
and involves another transaction; and that, while no new policy was
issued, the original policy was essentially reissued when the
additional obligation was assumed upon the effectivity of this
automatic increase clause in 1984.
Therefore, a DST assessment based on the additional insurance not
covered in the main policy was warranted.

ISSUE:
Whether or not private respondent should pay issued deficiency
documentary stamps tax assessment on the insurance policy (not on
stock dividends <- incidental issue only)

RULING:
Yes. The deficiency of DST imposed on Lincoln is definitely not on the
amount of the original insurance coverage, but on the increase of the
amount insured upon the effectivity of the Junior Estate Builder
Policy. Although the automatic increase in the amount of life
insurance coverage was to take effect later on, the date of its
effectivity, as well as the amount of the increase, was already definite
at the time of the issuance of the policy. Thus, the amount insured by
the policy at the time of its issuance necessarily included the
additional sum covered by the automatic increase clause.
To claim that the increase in the amount insured should not be
included in the computation of the documentary stamp taxes due on
the policy would be a clear evasion of the law. While tax avoidance
schemes and arrangements are not prohibited, tax laws cannot be
circumvented in order to evade the payment of just taxes.

The Supreme Court ruled in favor of the CIR.

Tan v. SEC, 206 SCRA 740

FACTS:
Petitioner filed a petition for certiorari against the public respondent
Securities and Exchange Commission and its co-respondents, after
the former in an en banc Order, overturned with modification, the
decision of its Cebu SEC Extension hearing officer,... Felix Chan, in
SEC Case No. C-0096, dated May 23, 1989, on October 10, 1990,
under SEC-AC No. 263. Revoking the Order of Hearing Officer Felix
Chan to reinstate complainant's original 400 shares of stock in the
books of the corporation in view of the validity of the sale of 50 shares
represented under stock certificate No. 6; and the nullity of the sale of
350 shares represented under stock certificate No. 8, pursuant to the
'in pari delicto' doctrine aforecited. Respondent corporation was
registered on October 1, 1979. As incorporator, petitioner had four
hundred (400) shares of the capital stock standing in his name at the
par value of P100.00 per share. He was elected as President and
subsequently reelected, holding the position as such until 1982 but
remained in the Board of Directors until April 19, 1983 as director.
On January 31, 1981, while petitioner was still the president of the
respondent corporation, two other incorporators, namely, Antonia Y.
Young and Teresita Y. Ong, assigned to the corporation their shares,
represented by certificates of stock No. 4 and 5 after which, they were
paid the corresponding 40% corporate stock-in-trade. It is also
doubtless that Stock Certificate No. 8 was exchanged by petitioner for
stocks-in-trade since he was operating his own enterprise engaged in
the same business... he even padlocked the warehouse of the
respondent corporation, after withdrawing the thirty-three and one-
third (33 1/3%) percent stocks... the Memorandum of Agreement
prepared by the respondents' counsel. Ramirez evidencing the
transaction, was also presented to petitioner for his signature,
however, this document was never returned by him to the corporate
officer for the signature of the other officers concerned.

ISSUE:
Whether or not transfer is valid without delivery?

RULING:
Yes. Alfonso S. Tan devised the scheme of not returning the cancelled
Stock Certificate No. 2 which was returned to him for his
endorsement, to skim off the largesse of the corporation as shown by
the trading of his Stock Certificate No. 8 for goods of the corporation
valued at P2M when the par value of the same was only worth P35K.
He also used this scheme to renege on his indebtedness to respondent
Tan Su Ching in the amount of P1 million. Transfer is valid even if no
delivery. The certificate of stock is not a negotiable instrument.

De los Santos v. McGrath, 96 Phil. 577

FACTS:
De los Santos (DLS) filed an action to recover 1,600,000 shares of
stock of Lepanto
Consolidated Mining. He alleges: The shares in question are covered
by several stock certificates issued in favor of Madrigal, who is
registered in the books of Lepanto as owner of said stocks and whose
indorsement appears on the back of the said certificates. He bought
the shares from Campos and Hess. By virtue of vesting order P-12,
title to the shares of stock in dispute was vested in the Alien Property
Custodian of the US as Japanese Property. Hence, DLS filed his claim
with the property \ custodian. Vested Property Claims Committee
allowed the claims but the PH Alien Property Administrator reversed,
ruling: Madrigal bought the shares for the benefit of Mitsui Corp, the
true owner thereof. That Madrigal delivered the stock certificates with
his blank indorsement thereon to the Mitsuis which kept said
certificates. That the Mitsuis never sold or otherwise disposed of said
shares and that the same
must have been stolen or looted during the emergency from the
liberation.

ISSUE:
Whether or not De los Santos have title over the shares of stock in
question?

RULING:
No. No valid transfer of the shares of stock to De los Santos. Under
Section 351 (now 63) of the Corporation Code, a share of stock may be
transferred by endorsement of the corresponding stock certificate,
coupled with its delivery. However, the transfer shall not be valid,
except as between the parties, until it is entered and noted upon the
books of the corporation. Although a stock certificate is sometimes
regarded as quasi-negotiable, in the sense that it may be transferred
by endorsement, coupled with delivery, it is well settled that. The
instrument is non-negotiable, because the holder thereof takes it
without prejudice to such rights or defense as the registered owner of
credit may have under the law, except insofar as such rights or
defenses are subject to the limitations imposed by the principles
governing estoppel. The doctrine that a bona fide purchaser of shares
under a forged or unauthorized transfer acquires no title against the
true owner does not apply where the circumstances are such as to
estop the latter from asserting his title.

Therefore, petition is denied.

Gochan v. Young, 354 SCRA 207

FACTS:
Felix Gochan and Sons Realty Corporation (Gochan Realty) was
registered with the SEC with Felix Gochan, Sr., Maria Pan Nuy Go
Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo
Gochan as its incorporators. Felix Gochan Sr.'s daughter, Alice,
mother of the respondents, inherited 50 shares of stock in Gochan
Realty from the former. Alice died in 1955, leaving the 50 shares to
her husband, John Young, Sr. The Regional Trial Court of Cebu
adjudicated 6/14 of these shares to her children, herein respondents
Richard Young, David Young, Jane Young Llaban, John Young Jr.,
Mary Young Hsu and Alexander Thomas Young. Having earned
dividends, these stocks numbered 179. Their father John Sr.,
requested Gochan Realty to partition the shares of his late wife by
cancelling the stock certificates in his name and issuing in lieu
thereof, new stock certificates in the names of the respondents.
However, Gochan Realty refused citing as reason, the right of first
refusal granted to the remaining stockholders by the Articles of
Incorporation. Cecilia Gochan Uy and Miguel Uy filed a complaint with
the SEC for issuance of shares of stock to the rightful owners,
nullification of shares of stock, reconveyance of property impressed
with trust, accounting, removal of officers and directors and damages
against respondents. Petitioners argue that Spouses Cecilia and
Miguel Uy had no capacity or legal standing to bring the suit before
the SEC on February 8, 1994, because the latter were no longer
stockholders at the time. Allegedly, the stocks had already been
purchased by the corporation.

ISSUE:

Whether or not respondents have the legal personality to file a

derivative suit on behalf of the corporation.

RULING:

Yes. The respondents have personality to file a derivative suit. Where

corporate directors have committed a breach of trust either by their
frauds, ultra vires acts, or negligence, and the corporation is unable
or unwilling to institute suit to remedy the wrong, a single stockholder
may institute that suit, suing on behalf of himself and other
stockholders and for the benefit of the corporation, to bring about a
redress of the wrong done directly to the corporation and indirectly to
the stockholders.

Bitong vs. CA, 292 SCRA 304

FACTS:
Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed
a derivative suit before the SEC against respondent spouses Apostol,
who were officers in said corporation, to hold them liable for fraud and
mismanagement in directing its affairs. Respondent spouses moved to
dismiss on the ground that petitioner had no legal standing to bring
the suit as she was merely a holder-in-trust of shares of JAKA
Investments which continued to be the true stockholder of Mr. & Ms.
Petitioner contends that she was a holder of proper stock certificates
and that the transfer was recorded. She further contends that even in
the absence of the actual certificate, mere recording will suffice for her
to exercise all stockholder rights, including the right to file a derivative
suit in the name of the corporation. The SEC Hearing Panel dismissed
the suit. On appeal, the SEC En Banc found for petitioner. CA
reversed the SEC En Banc decision.

ISSUE:

Whether or not petitioner is the true holder of stock certificates to be

able institute a derivative suit.

RULING:

No. Sec 63 of the Corporation Code says a formal certificate of stock

which can be issued only upon compliance with certain requisites.
First, the certificates must be signed by the president or vice-
president, countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation. A mere typewritten statement
advising a stockholder of the extent of his ownership in a corporation
without qualification and/or authentication cannot be considered as a
formal certificate of stock. Second, delivery of the certificate is an
essential element of its issuance. Hence, there is no issuance of a
stock certificate where it is never detached from the stock books
although blanks therein are properly filled up if the person whose
name is inserted therein has no control over the books of the
company. Third, the par value, as to par value shares, or the full
subscription as to no par value shares, must first be fully paid.
Fourth, the original certificate must be surrendered where the person
requesting the issuance of a certificate is a transferee from a
stockholder.Thus, for a valid transfer of stocks, the requirements are
as follows: (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. Petitioner has satisfied only the third requirement.
Compliance with the first two requisites has not been clearly and
sufficiently shown.

Evangelista v. Santos, 86 Phil. 388

FACTS:

On October 9, 1954 a co-partnership was formed under the name of

"Evangelista & Co." On June 7, 1955 the Articles of Co-partnership
was amended as to include herein respondent, Estrella Abad Santos,
as industrial partner, with herein petitioners Domingo C. Evangelista,
Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the
original capitalist partners, remaining in that capacity, with a
contribution of P17,500 each. The amended Articles provided, inter
alia, that "the contribution of Estrella Abad Santos consists of her
industry being an industrial partner", and that the profits and losses
"shall be divided and distributed among the partners in the proportion
of 70% for the first three partners, Domingo C. Evangelista, Jr.,
Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided
among them equally; and 30% for the fourth partner Estrella Abad
Santos." On December 17, 1963 herein respondent filed suit against
the three other partners in the Court of First Instance of Manila,
alleging that the partnership, which was also made a party-defendant,
had been paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and
continued to refuse and let her examine the partnership books or to
give her information regarding the partnership affairs to pay her any
share in the dividends declared by the partnership. She therefore
prayed that the defendants be ordered to render accounting to her of
the partnership business and to pay her corresponding share in the
partnership profits after such accounting, plus attorney's fees and
costs.

ISSUE:

Whether or not Abad Santos is an industrial partner and is entitled to

the shares of the partnership?

RULING:

No. It is clear that even as she was and still is a Judge of the City
Court of Manila, she has rendered services for appellants without
which they would not have had the wherewithal to operate the
business for which appellant company was organized. Article 1767 of
the New Civil Code which provides that "By contract of partnership
two or more persons bind themselves, to contribute money, property,
or industry to a common fund, with the intention of dividing the
profits among themselves, 'does not specify the kind of industry that a
partner may thus contribute, hence the said services may legitimately
be considered as appellee's contribution to the common fund.

Gokongwei vs. SEC 889 SCRA 326

FACTS:

John Gokongwei Jr., as stockholder of San Miguel Corporation, filed

with the SEC a petition for "declaration of nullity of amended by-laws,
cancellation of certificate of filing of amended by-laws, injunction and
damages with prayer for a preliminary injunction" against the majority
of the members of the BOD and San Miguel Corporation as an
unwilling petitioner. In connection with the same case, Gokongwei
filed with the SEC an "Urgent Motion for Production and Inspection of
Documents", alleging that the Secretary of the corporation refused to
allow him to inspect its records despite request made by Gokongwei
for production of certain documents enumerated in the request, and
that the corporation had been attempting to suppress information
from its stockholders despite a negative reply by the SEC to its query
regarding their authority to do so.

ISSUE:

W/N the SEC gravely abused its discretion in allowing the

stockholders of San Miguel Corporation to ratify the investment of
corporate funds in a foreign corporation?

RULING:

No. Section 17-1/2 of the Corporation Law allows a corporation to

"invest its funds in any other corporation or business or for any
purpose other than the main purpose for which it was organized"
provided that its Board of Directors has been so authorized by the
affirmative vote of stockholders holding shares entitling them to
exercise at least two-thirds of the voting power.

Clemente vs. CA, 242 SCRA 717

FACTS:

The plaintiffs (herein petitioners) sought to be declared the owners of a

piece of land so situated in the Barrio of Lecheria, Municipality o
Calamba, Province of Laguna. The complaint prayed that judgment be
rendered declaring the plaintiffs to be owners of the property in the
proportion of their respective stockholdings and ordering the
distribution of the rentals and other fruits of the property to the
plaintiffs also in the proportion of their ownership. The defendants
(herein private respondents), in their answer; likewise claimed
ownership of the property by virtue of acquisitive prescription. During
the hearing, only the plaintiffs came forward to prove their allegations,
the defendants did not present any evidence despite the several
opportunities accorded to them by the trial court. Predicating itself on
the averments of the complaint and assessing solely the evidence that
had been submitted to it by the plaintiffs, the trial court stated its
findings. The trial court dismissed the complaint not merely on what it
apparently perceived to be an insufficiency of the evidence that firmly
could establish plaintiffs' claim of ownership over the property in
dispute but also on its thesis that, absent a corporate liquidation, it is
the corporation, not the stockholders, which can assert, if at all, any
title to the corporate assets. The court, even then, expressed some
reservations on the corporation's being able to still validly pursue
such a claim.

ISSUE:

Whether or not petitioners can be held, given their submissions, to

have succeeded in establishing for themselves a firm title to the
property in question?

RULING:

Yes. The Court found the petitioners' evidence to be direly wanting; all
that appear to be certain are that the "Sociedad Popular Calambeña,"
believed to be a "sociedad anonima" and for a while engaged in the
operation and management of a cockpit, has existed sometime in the
past; that it has acquired the parcel of land here involved; and that
the plaintiffs' predecessors, Mariano Elepaño and Pablo Clemente, had
been original stockholders of the sociedad. Except in showing that
they are the successors-in-interest of Elepaño and Clemente,
petitioners have been unable to come up with any evidence to
substantiate their claim of ownership of the corporate asset.

Avon Insurance PLC, et al. v. CA, 278 SCRA 312

FACTS:

Respondent Yupangco Cotton Mills filed a complaint against several

foreign reinsurance companies (among which are petitioners) to collect
their alleged percentage liability under contract treaties between the
foreign insurance companies and the international insurance broker
C.J. Boatright, acting as agent for respondent Worldwide Surety and
Insurance Company. Inasmuch as petitioners are not engaged in
business in the Philippines with no offices, places of business or
agents in the Philippines, the reinsurance treaties having been
rendered abroad, service of summons upon motion of respondent
Yupangco, was made upon petitioners through the office of the
Insurance Commissioner. Petitioners, by counsel on special
appearance, seasonably filed motions to dismiss disputing the
jurisdiction of respondent Court and the extra-territorial service of
summons. Respondent Yupangco filed its opposition to the motion to
dismiss, petitioners filed their reply, and respondent Yupangco filed
its rejoinder. The respondent Court denied the motions to dismiss and
directed petitioners to file their answer. Petitioners filed their notice of
appeal. Subsequently, respondent court denied due course to the
appeal.

ISSUE:

Whether the petitioner had been doing business in the Philippines,

and can the trial court assume jurisdiction over it?

RULING:

NO, the petitioner is not doing business in the Philippines and beyond
the ambit of court’s jurisdiction. To qualify the petitioners business of
reinsurance within the Philippine forum, resort must be made to
established principles in determining what is meant by doing business
in the Philippines. In Communication Materials and Design, Inc. et. al
v. Court of Appeals, it was observed that. There is no exact rule of
governing principle as to what constitutes doing or engaging in or
transacting business. Indeed, such case must be judged in the light of
its peculiar circumstances, upon its peculiar facts and upon the
language of the statute applicable. The true test, however, seems to be
whether the foreign corporation is continuing the body or substance of
the business or enterprise for which it was organized.
European Resources & Technologies, Inc. v. CA, G.R. No. 152329,
May 26, 2004

FACTS:

European Resources and Technologies Inc. (hereinafter “ERTI”), a

corporation organized and existing under the laws of the Republic of
the Philippines, is joined by Delfin J. Wenceslao as petitioner in this
case. Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers
& Brockstedt Gmbh & Co. are German corporations who are
respondents in this case and shall be collectively referred to as the
“German Consortium.” CDC accepted the German Consortium’s bid
and awarded the contract to it. The Contract for Services provides that
the German Consortium shall be empowered to enter into a contract
or agreement for the use of the integrated waste management center
by corporations, local government units, entities, and persons not
only within the CSEZ but also outside. Article VIII, Section 7 of the
Contract for Services provides that the German Consortium shall
undertake to organize a local corporation as its representative for this
project. On April 18, 2000, the German Consortium entered into a
Joint Venture with D.M. Wenceslao and Associates, Inc. (“DMWAI”)
and Ma. Elena B. Villarama (doing business as LBV and Associates),
embodied in a Memorandum of Understanding7 (“MOU”) signed by the
parties. Under the MOU, the parties agreed to jointly form a local
corporation to which the German Consortium shall assign its rights
under the Contract for Services. On February 20, 2001, petitioner
ERTI, through counsel, sent a letter to CDC requesting for the
reconsideration of its disapproval of the agreement between ERTI and
the German Consortium. Before CDC could act upon petitioner ERTI’s
letter, the German Consortium filed a complaint for injunction against
herein petitioners before the Regional Trial Court of Angeles City,
Branch 61.

ISSUE:

Whether or not the German Consortium has the capacity to institute

the petition for injunction?

RULING:

No. A corporation has legal status only within the state or territory in
which it was organized. For this reason, a corporation organized in
another country has no personality to file suits in the Philippines. In
order to subject a foreign corporation doing business in the country to
the jurisdiction of our courts, it must acquire a license from the
Securities and Exchange Commission (SEC) and appoint an agent for
service of process. Without such license, it cannot institute a suit in
the Philippines.
J. R.S. BUSINESS CORPORATION vs. IMPERIAL INSURANCE, INC.,
G.R. No. L-19891 July 31, 1964

FACTS:

Imperial Insurance Inc., filed against JRS Business Corp, an

establishment duly franchised by the Congress of the Philippines to
conduct a messenger and delivery express service, a complaint for
sum of money. The parties entered into a Compromise Agreement
where defendants promised to pay their obligation in the amount of P
61,172.32 within 60 days and should they fail to pay, Imperial
Insurance shall be entitled to move for the execution of the decision.
JRS failed to pay its judgment debt. Imperial Insurance Inc. then filed
a motion for the issuance of a Writ of Execution. A Writ of Execution
was issued and Notices of Sale were sent out for the auction of the
personal properties of J.R.S. Business Corporation. Notice of Sale of
the "whole capital stocks of the defendants JRS Business Corporation,
the business name, right of operation, the whole assets, furnitures
and equipments, the total liabilities, and Net Worth, books of
accounts, etc., of the petitioner corporation was, handed down. JRS
filed an "Urgent Petition for Postponement of Auction Sale and for
Release of Levy on the Business Name and Right to Operate of
Defendant JRS Business Corporation" stating that the judgment was
for money only. Thus, Imperial Insurance may not use the business
name of JRS Business Corp and its right to operate under the
franchise is not transferable and could not be subject to levy and sale.
CFI of Manila denied the petition for postponement. Auction sale was
conducted and all the properties of JRS Business Corporation, the
business name, right of operation, the whole assets, furnitures and
equipments, the total liabilities and net worth, books of accounts and
etc. were bought by respondent Imperial Insurance, Inc., for
P10,000.00, which was the highest bid offered. After the sale,
respondent Insurance Company took possession of the proper ties and
started running the affairs and operating the business of the JRS
Business Corporation.

ISSUE:

Whether or not the business name or trade name, franchise (right to

operate) and capital stocks of the petitioner could be the subject of
levy, execution and sale?

RULING: No. The right to operate a messenger and express delivery

service, by virtue of a legislative enactment, is admittedly a secondary
franchise (R.A. No. 3260, entitled "An Act granting the JRS Business
Corporation a franchise to conduct a messenger and express service)"
and, as such, under our corporation law, is subject to levy and sale on
execution together and including all the property necessary for the
enjoyment thereof.
Lim vs CA, 323 SCRA 102

FACTS:

Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim
whose estate is the subject of probate proceedings in special
proceedings Q-95-23334 entitled, “In re: Intestate Estate Of Pastor Y.
Lim Rufina Luy Lim, represented by George Luy, petitioner.” Private
respondents auto truck corporation, alliance marketing corporation,
speed distributing inc, active distributing inc, and action company are
corporations formed, organized and existing under Philippine laws
and which owned real properties covered under the Torrens system.
On June 11, 1994, Pastor Y. Lim died intestate. Herein petitioner, as
surviving spouse and duly represented by her nephew, George Luy
filed on March 17, 1995, a joint petition for the administration of the
estate of Pastor Y. Lim before the Regional Trial Court of Quezon City.
Private respondents corporations whose properties were included in
the inventory of the estate of Pastor Y. Lim, then filed a motion for the
lifting of his pendens an motion for exclusion of certain properties
fromthe estate of the decedent.

ISSUE:

Whether or not the doctrine of piercing the veil of corporate entity is

applicable to be able to include in the probate proceedings the
company formed by deceased Pastor Y. Lim?

RULING:

No. It is settled that a corporation is clothed with personality separate

and distinct from that of the persons composing it. It may not
generally be held liable for that of the persons composing it. It may
not be held liable for the personal indebtedness of its stockholders or
those of the entities connected with it. Rudimentary is the rule that a
corporation is invested by law with a personality distinct and separate
from its stockholders or members. In the same vein, a corporation by
legal fiction and convenience is an entity shielded by protective mantle
and imbued with by law with a character alien to the persons
comprising it. Piercing the veil of corporate entity requires the court to
see through the protective shroud which exempts its stockholders
from liabilities that ordinarily, they could subject to, or distinguishes
one corporation from a seemingly separate one, were it not for the
existing corporate fiction. Mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital stock of a
corporation is not of itself a sufficient reason for disregarding the
fiction of separate personalities. Moreover, to disregard the separate
juridical personality of a corporation, the wrong doing must be clearly
and convincingly established, it cannot be presumed.
Yamamoto v. Nishino Leather Industries, Inc., G.R. No.150283, April
16, 2008

FACTS:

Ryuichi Yamamoto and Ikuo Nishino agreed to enter into a joint

venture wherein Nishino would acquire such number of shares of
stock equivalent to 70% of the authorized capital stock of the
corporation. However, Nishino and his brother Yoshinobu Nishino
acquired more than 70% of the authorized capital stock. Negotiations
subsequently ensued in light of a planned takeover by Nishino who
would buy-out the shares of stock of Yamamoto who was advised
through a letter that he may take all the equipment/machinery he
had contributed to the company (for his own use and sale) provided
that the value of such machines is deducted from the capital
contributions which will be paid to him. However, the letter requested
that he give his “comments on all the above, soonest”. On the basis of
the said letter, Yamamoto attempted to recover the machineries but
Nishino hindered him to do so, drawing him to file a Writ of Replevin.
The Trial Court issued the writ. However, on appeal, Nishino claimed
that the properties being recovered were owned by the corporation and
the above-said letter was a mere proposal which was not yet
authorized by the Board of Directors. Thus, the Court of Appeals
reversed the trial court’s decision despite Yamamoto’s contention that
the company is merely an instrumentality of the Nishinos.

ISSUE:

Whether or not Yamamoto can recover the properties he contributed

to the company in view of the Doctrine of Piercing the Veil of
Corporate Fiction and Doctrine of Promissory Estoppel?

RULING:

One of the elements determinative of the applicability of the doctrine

of piercing the veil of corporate fiction is that 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 the plaintiff’s legal rights. To disregard
the separate juridical personality of a corporation, the wrongdoing or
unjust act in contravention of a plaintiff’s legal rights must be clearly
and convincingly established; it cannot be presumed. Without a
demonstration that any of the evils sought to be prevented by the
doctrine is present, it does not apply. Estoppel may arise from the
making of a promise. What was thus proffered to Yamamoto was not a
promise, but a mere offer, subject to his acceptance. Without
acceptance, a mere offer produces no obligation. Thus, the
machineries and equipment, which comprised Yamamoto’s
investment, remained part of the capital property of the corporation.
PNB v. Ritratto Group, Inc. 362 SCRA 216

FACTS:

On May 29, 1996, PNB International Finance Ltd. (PNB-IFL), a

subsidiary company of PNB, organized and doing business in Hong
Kong, extended a letter of credit in favor of the respondents in the
amount of US$300,000.00 secured by real estate mortgages
constituted over four (4) parcels of land in Makati City. This credit
facility was later increased successively to US$1,140,000.00 in
September 1996; to S$1,290,000.00 in November 1996; to
US$1,425,000.00 in February 1997; and decreased to
S$1,421,316.18 in April 1998. Respondents made repayments of the
loan incurred by remitting those amounts to their loan account with
PNB-IFL in Hong Kong. However, as of April 30, 1998, their
outstanding obligations stood at US$1,497,274.70. Pursuant to the
terms of the real estate mortgages, PNB-IFL, through its attorney-in-
fact PNB, notified the respondents of the foreclosure of all the real
estate mortgages and that the properties subject thereof were to be
sold at a public auction on May 27, 1999 at the Makati City Hall. On
May 25, 1999, respondents filed a complaint for injunction with
prayer for the issuance of a writ of preliminary injunction and/or
temporary restraining order before the Regional Trial Court of Makati.
The Executive Judge of the Regional Trial Court of Makati issued a
72-hour temporary restraining order. PNB-IFL is a wholly owned
subsidiary of defendant Philippine National Bank, the suit against the
defendant PNB is a suit against PNB-IFL.

ISSUE:

Whether or not respondents justified the act of the court a quo in

applying the doctrine of "Piercing the Veil of Corporate Identity" by
stating that petitioner is merely an alter ego or a business conduit of
PNB-IFL?

RULING:

No. Herein petitioner is an agent with limited authority and specific

duties under a special power of attorney incorporated in the real
estate mortgage. It is not privy to the loan contracts entered into by
respondents and PNB-IFL. The mere fact that a corporation owns all of
the stocks of another corporation, taken alone is not sufficient to
justify their being treated as one entity. If used to perform legitimate
functions, a subsidiary's separate existence may be respected, and the
liability of the parent corporation as well as the subsidiary will be
confined to those arising in their respective business.
Lanuza v. CA, No. 131394, March 28, 2005

FACTS:

In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was

incorporated, with seven hundred (700) founders’ shares and seventy-
six (76) common shares as its initial capital stock subscription
reflected in the articles of incorporation. However, private respondents
and their predecessors who were in control of PMMSI registered the
company’s stock and transfer book for the first time in 1978,
recording thirty-three (33) common shares as the only issued and
outstanding shares of PMMSI. Sometime in 1979, a special
stockholders’ meeting was called and held on the basis of what was
considered as a quorum of twenty-seven (27) common shares,
representing more than two-thirds (2/3) of the common shares issued
and outstanding. On 06 May 1992, a special stockholders’ meeting
was held to elect a new set of directors. Private respondents thereafter
filed a petition with the SEC questioning the validity of the 06 May
1992 stockholders’ meeting, alleging that the quorum for the said
meeting should not be based on the 165 issued and outstanding
shares as per the stock and transfer book, but on the initial
subscribed capital stock of seven hundred seventy-six (776) shares, as
reflected in the 1952 Articles of Incorporation.

ISSUE:

Whether or not the quorum should be based on the outstanding

capital stock as indicated in the Articles of Incorporation?

RULING:

Yes. The articles of incorporation has been described as one that

defines the charter of the corporation and the contractual
relationships between the State and the corporation, the stockholders
and the State, and between the corporation and its stockholders.
When PMMSI was incorporated, the prevailing law was Act No. 1459,
otherwise known as “The Corporation Law.” Thus, quorum is based on
the totality of the shares which have been subscribed and issued,
whether it be founders’ shares or common shares. In the instant case,
two figures are being pitted against each other — those contained in
the articles of incorporation, and those listed in the stock and transfer
book.
Industrial Refractories Corporation v. CA, No. 122174, October 3,
2002

FACTS:

Respondent Refractories Corporation of the Philippines (RCP) is a

corporation duly organized on October 13, 1976. On June 22, 1977, it
registered its corporate and business name with the Bureau of
Domestic Trade.Petitioner IRCP was incorporated on August 23, 1979
originally under the name "Synclaire Manufacturing Corporation". It
amended its Articles of Incorporation on August 23, 1985 to change
its corporate name to "Industrial Refractories Corp. of the Philippines".
Both companies are the only local suppliers of monolithic gunning
mix. Respondent RCP then filed a petition with the Securities and
Exchange Commission to compel petitioner IRCP to change its
corporate name. The SEC rendered judgment in favor of respondent
RCP. Petitioner appealed to the SEC En Banc. The SEC En Banc
modified the appealed decision and the petitioner was ordered to
delete or drop from its corporate name only the word "Refractories".

ISSUE:

Are corporate names Refractories Corporation of the Philippines (RCP)

and "Industrial Refractories Corp. of the Philippines" confusingly and
deceptively similar?

RULING:

Yes, the petitioner and respondent RCP’s corporate names are

confusingly and deceptively similar. Further, 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 or to any other name already protected by law or
is patently deceptive, confusing or contrary to existing laws". The
policy behind said prohibition is to avoid fraud upon the public that
will 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 corporation. Thus, the Supreme
Court denied the petition for review on certiorari due for lack of merit.
Phillips Export B.V. v. CA, G.R. No. 96161, February 21, 1992

FACTS:

Petitioner Philips Export B.V. (PEBV), aforeign corporation organized

under the laws of the Netherlands, although not engaged in business
here, is the registered owner of the trademarks PHILIPS and PHILIPS
SHIELD EMBLEM. Respondent Standard Philips Corporation
(Standard Philips), on the other hand, was issued a Certificate of
Registration by respondent Commission on 19 May 1982. Petitioners
filed a letter complaint with the Securities & Exchange Commission
(SEC) asking for the cancellation of the word “PHILIPS” from Private
Respondent’s corporate name. As a result of Private Respondent’s
refusal to amend its Articles of Incorporation, Petitioners filed with the
SEC. Alleging, among others, that Private Respondent’s use of the
word PHILIPS amounts to an infringement and clear violation of
Petitioners’ exclusive right to use the same considering that both
parties engage in the same business. Private Respondent countered
that Petitioner PEBV has no legal capacity to sue; that its use of its
corporate name is not at all similar to Petitioners’ trademark PHILIPS
when considered in its entirety; and that its products consisting of
chain rollers, belts, bearings and cutting saw are grossly different
from Petitioners’ electrical products.

ISSUE:

Whether or not petitioner may sue private respondent?

RULING:

The Court declared that a corporation’s right to use its corporate and
trade name is a property right, a rightin 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. It
is regarded, to a certain extent, as a property right and one which
cannot be impaired or defeated by subsequent appropriation by
another corporation in the same field.

A name is peculiarly important as necessary to the very existence of a

corporation. Its name is one of its attributes, an element of its
existence, and essential to its identity.

A corporation acquires its name by choice and need not select a name
identical with or similar to one already appropriated by a senior
corporation while an individual’s name is thrust upon him. A
corporation can no more use a corporate name in violation of the
rights of others than an individual can use his name legally acquired
so as to mislead the public and injure another.
First Philippine Insurance Co. vs. Hartigan

FACTS:

Plaintiff was originally organized as an insurance corporation under

the name of ‘The Yek Tong Lin Fire and Marine Insurance Co., Ltd.,’ in
1953. But on 26 May 1961, its Articles of Incorporation were amended
changing the name of the corporation to ‘Philippine First Insurance,
Co., Inc.’. The case arose when plaintiff, acting in the name of Yek
Tong, signed as co-maker together with defendants, a promissory note
in favor of China Banking Corporation. Subsequently, as form of
security, defendants signed an indemnity agreement in favor of
plaintiff in case damages or loses arises thereof. Defendant Hartigan
failed to pay, hence, the complaint for collection of sum of money with
interest and other fees. Defendants deny the allegations, claiming,
among others that there is no privity of contract between them and
plaintiff since the plaintiff did not conduct its business under the
name of Yek Tong Insurance, hence not entitled to the indemnification
agreement which is named in favor of Yek Tong.

ISSUE:

Whether or not a Philippine Corporation may change its name and

still retain its original personality and individuality?

RULING:

Under section 18 of the Corporation Code, the law authorizes

corporations to amend their charter, its procedure and restrictions for
such amendments. There is restriction on the term of their existence
and the increase or decrease of the capital stock but there is no
prohibition against the change of name. The general rule as to
corporations is that each corporation shall have a name by which it is
to sue and be sued and do all legal acts. The name of a corporation in
this respect designates the corporation in the same manner as the
name of an individual designates the person.” Since an individual has
the right to change his name under certain conditions, there is no
compelling reason why a corporation may not enjoy the same right.

Therefore, judgment of the lower court is reversed, and this case is

remanded to the trial court for further proceedings consistent
herewith with costs against appellees.
Zambrano et al. vs. Philippine Carpet Manufacturing Corporation,
G.R. No. 224099, 21 June 2017

FACTS:

On January 3, 2011,petitioners, who were employees of private

respondent Philippine Carpet Manufacturing Corporation, were
notified of the termination of their employment effective February 3,
2011 on the ground of cessation of operation due to serious business
losses. They were of the belief that their dismissal was without just
cause and in violation of due process because the closure of Phil
Carpet was a mere pretense to transfer its operations to its wholly
owned and controlled corporation, Pacific Carpet Manufacturing
Corporation (PacificCarpet). They asserted that their dismissal
constituted unfair labor practice as it involved the mass dismissal of
all union officers and members of the Philippine Carpet
Manufacturing Employees Association (PHILCEA). In its defense, Phil
Carpet countered that it permanently closed and totally ceased its
operations because there had been a steady decline in the demand for
its products due to global recession, stiffer competition, and the
effects of a changing market. Thus, in order to stem the bleeding, the
company implemented several cost-cutting measures, including
voluntary redundancy and early retirement programs. Phil Carpet
likewise faithfully complied with the requisites for closure or cessation
of business under the Labor Code. The petitioners and the
Department of Labor and Employment were served written notices one
(1) month before the intended closure of the company. The petitioners’
•were also paid their separation pay and they voluntarily executed
their respective Release and Quitclaim before the DOLE officials. In
the September 29, 2014 Decision, the Labor Arbiter dismissed the
complaints for illegal dismissal and unfair labor practice. The NLRC
affirmed the findings of the LA, which was subsequently affirmed by
the CA.

ISSUE:

Whether or not the petitioners were dismissed from employment for a

lawful cause?

RULING:

Yes. The petitioners were terminated from employment for an

authorized cause. In this case, the LA's findings that Phil Carpet
suffered from serious business losses which resulted in its closure
were affirmed in toto by the NLRC, and subsequently by the CA. It is a
rule that absent any showing that the findings of fact of the labor
tribunals and the appellate court are not supported by evidence on
record or the judgment is based on a misapprehension of facts, the
Court shall not examine anew the evidence submitted by the parties.
Philippine Stock Exchange, Inc. v. CA, G.R. No. 125469, October 27,
1997

FACTS:
Petitioner assails the validity of the order of the SEC (affirmed by the
CA) which orders the PSE to allow the listing of the shared of Puerto
Azul Land Inc. (PALI) in the PSE. The Puerto Azul Land, Inc. (PALI), a
domestic real estate corporation, had sought to offer its shares to the
public in order to raise funds allegedly to develop its properties and
pay its loans with several banking institutions. In January, 1995,
PALI was issued a Permit to Sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the trading
of its shares among investors, PALI sought to course the trading of its
shares through the Philippine Stock Exchange, Inc. (PSE), for which
purpose it filed with the said stock exchange an application to list its
shares, with supporting documents attached. Before acting upon the
application, it came to PSE’s attention, through a letter, that the a
number of PALI’s properties are part of the Marcos ill-gotten wealth.
PALI has previously secured a TRO against the Marcoses, to enjoin the
latter from interfering with the public offering in the PSE.

ISSUE:
Whether or not the SEC has authority to order the PSE to list PALI’s
shares?

RULING:
YES, but only if the exercise of the PSE’s powers was attended with
bad faith. The denial of the application of PALI is proper due to the
controversies surrounding its ownership. Sec. 3 of P.D. 902-A, give
the SEC the special mandate to be vigilant in the supervision of the
affairs of stock exchanges so that the interests of the investing public
may be fully safeguard.
Therefore, premises considered, the Commission finds no compelling
reason to reconsider its order dated April 24, 1996, and in the light of
recent developments on the adverse claim against the PALI properties,
PSE should require PALI to submit full disclosure of material facts
and information to protect the investing public. In this regard, PALI is
hereby ordered to amend its registration statements filed with the
Commission to incorporate the full disclosure of these material facts
and information.
Feliciano vs. COA, January 14, 2004

FACTS:
A special audit team from COA Regional office no. VIII audited the
accounts of LMWD. Subsequently, LMWD received a letter from COA
dated July 19, 1999 requesting payment of auditing fees. As general
manager of LMWD, petitioner sent a reply dated October 12, 1999
informing COA’s regional director that the water district could not pay
the auditing fees. Petitioner cited as basis for his action section 6 and
20 of Presidential Decree no. 198 as well as section 18 of RA 6758.
The regional director referred petitioner to reply o the COA Chairman
on October 18, 1999. On October 19, 1999, petitioner wrote COA
through the Regional Director asking for refund of all auditing fees
LMWD previously paid to COA. On March 16, 2000, petitioner
received COA Chairman Celso D. Gangans resolution dated January
3, 2o00 denying his requests. Petitioner filed a motion for
reconsideration on March 31, 2000, which COA denied on January
30, 2001.

ISSUE:
Whether or not petitioner LMWD is a private corporation exempt from
the auditing jurisdiction of COA?

RULING:
No. Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law.
Stated differently, only corporations created under a general law can
qualify as private corporations under existing laws, that general law is
the corporation code, except that the cooperative code governs the
incorporation of cooperatives.
Manila International Airport Authority vs. CA, 20 July 2006

FACTS:

MIAA received Final Notices of Real Estate Tax Delinquency from the
City of Parañaque for the taxable years 1992 to 2001. MIAA’s real
estate tax delinquency has ballooned to Php 624, 506, 725.42. The
Court of Appeals ruled in favor of the City of Parañaque saying that
MIAA is a government-owned and controlled corporation and therefore
not exempted from real estate tax.

ISSUE:

Whether or not MIAA is a GOCC?

RULING:

No. MIAA is an instrumentality of the National Government and thus

exempt from local taxation. Second, the real properties of MIAA are
owned by the Republic of the Philippines and thus exempt from real
estate tax.

Wherefore, It is declared that the Airport Lands and Buildings of the

MIAA EXEMPT from the real estate tax.
Gala v. Ellice Agro-Industrial Corp., 418 SCRA 431

FACTS:
Ellice Agro-Industrial Corporation was formed by spouses Manuel and
Alicia Gala, their children Guia Domingo, Ofelia Gala, Raul Gala, and
Rita Benson, and their encargados Virgilio Galeon and Julian Jader.
The spouses transferred several parcels of land as payment of their
subscriptions. Subsequently, Guia Domingo, Ofelia Gala, Raul Gala,
Virgilio Galeon and Julian Jader incorporated the Margo Management
and Development Corporation. Manuel Galathen transferred his
shares in Ellice to Margo and Raul Gala. Alicia transferred her shares
to de Villa, Ofelia, Raul and Margo. de Villa later on transferred his
shares to Margo. A special stockholders meeting of Margo was held
where Raul Gala was elected as chairman. During the meeting, the
board approved several actions, including the commencement
of proceedings to annul certain dispositions of Margos’ property made
by Alicia Gala. The board also resolved to change the name of the
corporation to MRG Management and Development Corporation.
Similarly, a special stockholders meeting of Ellice was held to elect a
new board of directors where Raul Gala, likewise, was elected as
chairman. Respondents filed against petitioners with the SEC a
petition for the appointment of a management committee or receiver,
accounting and restitution by the directors and officers, and
the dissolution of Ellice Agro-Industrial Corporation for alleged
mismanagement, diversion of funds, financial losses and the
dissipation of assets. Whereas, petitioners initiated a complaint
against the respondents praying for, among others, the nullification of
the elections of directors and officers of both Margo Management and
Development Corporation and Ellice Industrial Corporation and the
return of all titles to real property in the name of Margo and Ellice, as
well as all corporate papers and records of both Margo and Ellice
which are in the possession and control of the respondents.

ISSUE:
Whether or not SEC has authority to inquire on the matters?

RULING:
No. If a corporation’s purpose, as stated in the Articles of
Incorporation, is lawful, then the SEC has no authority to inquire
whether the corporation has purposes other than those stated.
The best proof of the purpose of a corporation is its articles of
incorporation and by-laws. The articles of incorporation must state
the primary and secondary purposes of the corporation,
while the by-laws outline the administrative organization of the
corporation, which, in turn, is supposed to insure or facilitate the
accomplishment of said purpose.
FACTS:
On October 28, 1987, Young Auto Supply Co. Inc. (YASCO)
represented by Nemesio Garcia, its president, Nelson Garcia and
Vicente Sy, sold all of their shares of stock in Consolidated Marketing
& Development Corporation (CMDC) to Roxas. The purchase price
was P8,000,000.00 payable as follows: a down payment of
P4,000,000.00 and the balance of P4,000,000.00 in four postdated
checks of P1,000,000.00 each. The first check of P4, 000,000.00,
representing the down payment, was honored by the drawee bank but
the four other checks representing the balance of P4, 000,000.00 were
dishonored. On June 10, 1988, petitioners filed a complaint against
Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that
Roxas be ordered to pay petitioners the sum of P3, 400,000.00 or that
full control of the three markets be turned over to YASCO and Garcia.
The complaint also prayed for the forfeiture of the partial payment of
P4, 600,000.00 and the payment of attorney's fees and costs.

ISSUE:
Whether the proper venue is in Pasay City.

RULING:
NO. The Court of Appeals erred in holding that the venue was
improperly laid in Cebu City. Young Auto Supply Co., Inc. ("YASCO")
is a domestic corporation duly organized and existing under Philippine
laws with principal place of business at M.J. Cuenco Avenue, Cebu
City. It also has a branch office at 1708 Dominga Street, Pasay City,
Metro Manila. The Article of Incorporation of YASCO states that the
place where the principal office of the corporation is to be established
or located is at Cebu City, Philippines. A corporation has no residence
in the same sense in which this term is applied to a natural person.
But for practical purposes, a corporation is in a metaphysical sense a
resident of the place where its principal office is located as stated in
the articles of incorporation. The Corporation Code precisely requires
each corporation to specify in its articles of incorporation the "place
where the principal office of the corporation is to be located which
must be within the Philippines" The purpose of this requirement is to
fix the residence of a corporation in a definite place, instead of
allowing it to be ambulatory. With the finding that the residence of
YASCO for purposes of venue is in Cebu City, where its principal place
of business is located, it becomes unnecessary to decide whether
Garcia is also a resident of Cebu City and whether Roxas was in
estoppel from questioning the choice of Cebu City as the venue.
Hence, it should be in Cebu City.
Magsaysay-Labrador vs. CA, 180 SCRA 266

FACTS:
On February 9, 1979, Adelaida Rodriguez Magsaysay widow and
special administratrix of the estate of the late senator Magsaysay,
brought before the then Court of First Instance of Olongapo an action
against Artemio Panganiban, Subic Land Corporation, Filipinas
Manufacturer’s Bank and the Register of Deeds of Zambales. In her
complaint, she alleged that in 1958, she and her husband acquired
thru conjugal funds, a parcel of land with improvements known as
“Pequena Island” covered by TCT No. 3258; that after the death of her
husband, she discovered a.) an annotation at the back of TCT No.
3258 that the land was acquired by her husband from his separate
capital; b.) the registration of a deed of assignment dated June 25,
1976 purportedly executed by the late senator in favor of SUBIC, as a
result of which TCT No. 3258 was cancelled and TCT No. 22431
issued in the name of SUBIC; and c.) the registration of deed of
mortgage dated April 28, 1977 in the amount of Php2,700,000
executed by SUBIC in favor of FILMABANK that the foregoing acts
were void and done in an attempt to defraud the conjugal partnership
considering that the land is conjugal, her marital consent to the
annotation on TCT No. 3258 was not obtained, the change made by
the Register of Deeds of the titleholders was effected without the
approval of the commissioner of land registration and that the late
senator did not execute the purported deed of assignment or his
consent thereto, if obtained, was secured by mistake, violence, and
intimidation. She prayed that the deed of assignment and the deed of
mortgage be annulled and that the register of deeds be ordered to
cancel TCT no. 22431 and to issue a new title in her favor. on March
7, 1979, herein petitioners, sisters of the late senator, filed a motion
for intervention on the ground that on June 20, 1978, their brother
conveyed to them 1/2 of his shareholdings in SUBIC or a total of
416,566.6 shares and as assignees of around 41% of the total
outstanding shares of such stocks of SUBIC, they have substantial
and legal interest in the subject matter of litigation and that they have
a legal interest in the success of the suit with respect to SUBIC.

ISSUE:
Whether or not the intervention of the petitioners is proper?

RULING:
No. To allow intervention, a.) it must be shown that the m ovant has
legal interest in the matter in litigation, or otherwise qualified; and b.)
consideration must be given as to whether the adjudication of the
rights of the original parties may be delayed or prejudicial, or whether
the intervenor’s rights may be protected in a separate proceeding or
not. Both requirements must concur as the first is not more important
than the second.
Lee v. CA, 205 SCRA 752

FACTS:
A complaint for a sum of money was filed by the International
Corporate Bank, Inc. against the private respondents who, in turn,
filed a third party complaint against ALFA and the petitioners. The
trial court issued an order requiring the issuance of an alias
summons upon ALFA through the DBP as a consequence of the
petitioner's letter informing the court that the summons for ALFA was
erroneously served upon them considering that the management of
ALFA had been transferred to the DBP. Subsequently, the trial court
issued an order advising the private respondents to take the
appropriate steps to serve the summons to ALFA. The petitioners filed
a motion for reconsideration submitting that Rule 14, section 13 of
the Revised Rules of Court is not applicable since they were no longer
officers of ALFA and that the private respondents should have availed
of another mode of service under Rule 14, Section 16 of the said
Rules, i.e., through publication to effect proper service upon ALFA.
The private respondents argued that the voting trust agreement dated
March 11, 1981 did not divest the petitioners of their positions as
president and executive vice-president of ALFA so that service of
summons upon ALFA through the petitioners as corporate officers was
proper. The trial court upheld the validity of the service of summons
on ALFA through the petitioners. A second motion for reconsideration
was filed by the petitioners reiterating their stand that by virtue of the
voting trust agreement they ceased to be officers and directors of
ALFA, hence, they could no longer receive summons or any court
processes for or on behalf of ALFA and in support thereof, they
attached a copy of the voting trust agreement between all the
stockholders of ALFA and the DBP whereby the management and
control of ALFA became vested upon the DBP. The trial court then
reversed itself and declared that service upon the petitioners cannot
be considered as proper service of summons on ALFA. The case was
elevated to the CA which reversed the above-mentioned Orders
holding that there was proper service of summons on ALFA through
the petitioners.

ISSUE:
Whether or not the execution of the voting trust agreement by a
stockholder whereby all his shares to the corporation have been
transferred to the trustee deprives the stockholder of his position as
director of the corporation?

RULING:
Yes. By its very nature, a voting trust agreement results in the
separation of the voting rights of a stockholder from his other rights.
The execution of a voting trust agreement, therefore, may create a
dichotomy between the equitable or beneficial ownership of the
corporate shares of stockholders, on the one hand, and the legal title
thereto on the other hand.
Sulo ng Bayan vs. Araneta, 72 SCRA 247

FACTS:
On April 26, 1966, plaintiff-appellant Sulo ng Bayan Inc., filed an
action de revindicacion with the Court of First Instance of Bulacan,
fifth judicial district, Valenzuela, Bulacan, against defendant-
appellees to recover the ownership and possession of large tract of
land in San Jose del Monte, Bulacan, containing an area of
27,982,250 square meters, more or less, registered under the Torrens
system in the name of defendants-appellees’ predecessors-in-interest.
The complaint as amended on June 13, 1966, specifically alleged that
plaintiff is a corporation organized and existing under the laws of the
Philippines, with its principal office and place of business at San Jose
del Monter, Bulacan; that its membership is composed of natural
persons resident at San Jose del Monte, Bulacan; that the members of
the plaintiff corporation through themselves and their predecessor-in-
interest, had pioneered in the clearing of the forementioned tract of
land, activated the same since the spanish regime and continuously
possessed the said property openly and public under concept of
ownership adverse against the whole world; that the defendant-
appellee Gregorio Araneta Inc. sometime in the year 1958, through
force and intimidation ejected the members of the plaintiff corporation
from their possession of the aforementioned vast tract of land; that
upon investigation conducted by the members and officers of plaintiff
corporation, they found out for the first time in the year 1961 that the
land in question had been either fraudulently or erroneously included
by direct or constructive fraud in original certificate of title no. 466 of
the land of records of the province of Bulacan issued on May 11, 1916
which title is fictitious non-existent and devoid of legal efficacy due to
the fact that no original survey nor plan whatsoever appears to have
been submitted as basis thereof and that the Court of First Instance of
Bulacan which issued the decree of registration did not acquire
jurisdiction over the land registration case because no such notice
proceeding was given to the members of the plaintiff corporation who
were then in actual possession of said properties; that as consequence
of the nullity of the original title, all subsequent titles derived
therefrom and another transfer certificate of title in the name of
Paradise Farms Inc. are therefore void.

ISSUE:
Whether or not the plaintiff corporation can represent the
stockholders in the proceeding for the properties involved?

RULING:
No. It is a doctrine well established and obtains both at law and equity
that a corporation is a distinct legal entity to be considered as
separate and apart from the individual stockholders a members who
compose it, and is not affected by the personal rights, obligations and
transactions of its stockholders or members.
Bataan Shipyard vs. PCGG, 150 SCRA 181

FACTS:
Challenged in this special civil action of certiorari and prohibition by a
private corporation known as the Bataan Shipyard and Engineering
Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by
President Corazon C. Aquino on February 28, 1986 and March 12,
1986, respectively, and (2) the sequestration, takeover, and other
orders issued, and acts done, in accordance with said executive orders
by the Presidential Commission on Good Government and/or its
Commissioners and agents, affecting said corporation. It argues that
the order to produce corporate records from 1973 to 1986, which it
has apparently already complied with, was issued without court
authority and infringed its constitutional right against self-
incrimination, and unreasonable search and seizure BASECO further
contends that the PCGG had unduly interfered with its right of
dominion and management of its business affairs.

ISSUE:
Whether or not the sequestration order dated April 14, 1986, and all
other orders subsequently issued and acts done on the basis thereof,
inclusive of the takeover order of July 14, 1986 and the termination of
the services of the BASECO executives are valid?

RULING:
Yes. The petition cannot succeed. The writs of certiorari and
prohibition prayed for will not be issued. Other evidence submitted to
the Court by the Solicitor General proves that President Marcos not
only exercised control over BASECO, but also that he actually owns
well nigh one hundred percent of its outstanding stock.

No Sufficient Showing of Other Irregularities -As to the other

irregularities complained of by BASECO, i.e., the cancellation or
revision, and the execution of certain contracts, inclusive of the
termination of the employment of some of its executives, this Court
cannot, in the present state of the evidence on record, pass upon
them. It is not necessary to do so. The issues arising therefrom may
and will be left for initial determination in the appropriate action.

Therefore, the petition is dismissed. The temporary restraining order

issued on October 14, 1986 is lifted.
Grace Christian High School v. CA, 281 SCRA 133

FACTS:
Petitioner Grace Christian High School is an educational institution
offering preparatory, kindergarten and secondary courses at the Grace
Village in Quezon City. Private respondent Grace Village Association,
Inc., is an organization of lot and/or building owners, lessees and
residents at Grace Village, while private respondents Alejandro G.
Beltran and Ernesto L. Go were its president and chairman of the
committee on election. It appears that a committee of the board of
directors prepared a draft of an amendment to the by-laws which says
that Grace Christian High school will have a permanent director of the
association. This draft was never presented to the general membership
for approval. Nevertheless, the petitioner was given a permanent seat
in the board of directors of the association. The association committee
on election informed that the petitoner’s permanent seat in board is
invalid because it was never approved by the majority of its members.
Hence they will have an election. The petitioner school requested the
cancellation of the election, the association denied. So the petitioner
school instituted an action to the Home Insurance Guaranty
Corporation but their action was denied. The board adopted a
resolution declaring the 1975 provision null and void for lack of
approval by members of the association and the 1968 by-laws to be
effective. The petitioner school appealed to the CA but CA ruled that
the amended by laws in 1975 is null and void.

ISSUE:
Whether or not Grace Christian High school can have permanent seat
in board as director?

RULING:
No. The former and present corporation law leave no room for doubt
as to their meaning: the board of directors of corporations must be
elected from among the stockholders or members. There may be
corporations in which there are unelected members in the board but it
is clear that in the examples cited by petitioner the unelected
members sit as ex officio members, i.e., by virtue of and for as long as
they hold a particular office. Nor can petitioner claim a vested right to
sit in the board on the basis of “practice.” Practice, no matter how
long continued, cannot give rise to any vested right if it is contrary to
law. Even less tenable is petitioner’s claim that its right is “coterminus
with the existence of the association.”
FACTS:
Aida Posadas was the owner of a 1.6 hectare land in Sucat,
Muntinlupa. In 1989, she entered into an agreement with Jaime Bravo
for the latter to draft a development and architectural
design for the said property. The contract price was P450,000.00.
Posadas gave a down payment of P25,000.00. Later, Posadas assigned
her property to Luxuria Homes, Inc. One of the witnesses to the deed
of assignment and articles of incorporation was Jaime Bravo.
In 1992, Bravo finished the architectural design so he proposed that
he and his company manage the development of the property. But
Posadas turned down the proposal and thereafter the business
relationship between the two went sour. Bravo then demanded
Posadas to pay them the balance of their agreement as regards the
architectural design (P425k). Bravo also demanded payment for some
other expenses and fees he incurred i.e., negotiating and relocating
the informal settlers then occupying the land of Posadas. Posadas
refused to make payment. Bravo then filed a complaint for specific
performance against Posadas but he included Luxuria Homes as a co-
defendant as he alleged that Luxuria Homes was a mere conduit of
Posadas; that the said corporation was created in order to defraud
Bravo and avoid the payment of debt.

ISSUE:
Whether or not Luxuria Homes should be impleaded?

RULING:
No. It was Posadas who entered into a contract with Bravo in her
personal capacity. Bravo was not able to prove that Luxuria Homes
was a mere conduit of Posadas. Posadas owns just 33% of Luxuria
Homes. Further, when Luxuria Homes was created, Bravo was
there as a witness. So how can he claim that the creation of said
corporation was to defraud him. The eventual transfer of Posadas’
property to Luxuria was with the full knowledge of Bravo. The
agreement between Posadas and Bravo was entered into even before
Luxuria existed hence Luxuria was never a party thereto. Whatever
liability Posadas incurred arising from said agreement must be borne
by her solely and not in solidum with Luxuria. To disregard the
separate juridical personality of a corporation, the wrongdoing must
be clearly and convincingly established. It cannot be presumed.
Concept Builders vs. NLRC, 257 SCRA 149

FACTS:
Petitioner Concept Builders, Inc., a domestic corporation, while
private respondents were employed by said company as laborers,
carpenters and riggers. On November, 1981, private respondents were
served individual written notices of termination of employment by
petitioner, stating that their contracts of employment had expired and
the project in which they were hired had been completed. Public
respondent found however, that at the time of said termination, the
project in which they were hired had not yet been finished and
completed. In fact, petitioner had to engage the services of sub-
contractors whose workers performed the functions of private
respondents. Aggrieved, private respondents filed a complaint for
illegal dismissal, unfair labor practice and non-payment of their legal
holiday pay, overtime pay and thirteenth-month pay against petitioner
with the Labor Arbiter (LA).

ISSUE:
Whether or not the doctrine of piercing the corporate veil should apply
in this case?

RULING:
Yes. t is a fundamental principle of corporation law that a corporation
is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice. So, when the notion of
separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to
defeat the labor laws, this separate personality of the corporation may
be disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation.Clearly, petitioner
ceased its business operations in order to evade the payment to
private respondents of backwages and to bar their reinstatement to
their former positions. HPPI is obviously a business conduit of
petitioner corporation and its emergence was skillfully orchestrated to
avoid the financial liability that already attached to petitioner
corporation.

Also, in view of the failure of the sheriff, in the case at bar, to effect a
levy upon the property subject of the execution, private respondents
had no other recourse but to apply for a break-open order after the
third-party claim of HPPI was dismissed for lack of merit by the NLRC.
Hence, the NLRC did not commit any grave abuse of discretion when
it affirmed the break-open order issued by the Labor Arbiter.

Detective and Protetcive Bureau, Inc. v. Cloribel

FACTS:
Detective and Protective Bureau, Inc., therein plaintiff (petitioner
herein) against Fausto S. Alberto, therein defendant (respondent
herein), for accounting with preliminary injunction and receivership.
plaintiff was a corporation duly organized and existing under the laws
of the Philippines; that defendant was managing director of plaintiff
corporation from 1952 until January 14, 1964; that in June, 1963,
defendant illegally seized and took control of all the assets as well as
the books, records, vouchers and receipts of the corporation from the
accountant-cashier, concealed them illegally and refused to allow
any member of the corporation to see and examine the same; that on
January 14, 1964, the stockholders, in a meeting, removed defendant
as managing director and elected Jose de la Rosa in his stead; that
defendant not only had refused to vacate his office and to deliver the
assets and books to Jose de la Rosa, but also continued to perform
unauthorized acts for and in behalf of plaintiff corporation; that
defendant had been required to submit a financial statement and to
render an accounting of his administration from 1952 but defendant
has failed to do so; that defendant, contrary to a resolution adopted by
the Board of Directors on November 24, 1963, had been illegally
disposing of corporate funds; that defendant, unless immediately
restrained ex-parte, would continue discharging the functions of
managing director; and that it was necessary to appoint a receiver to
take charge of the assets and receive the income of the corporation.
Plaintiff prayed that a preliminary injunction ex-parte be issued
restraining defendant from exercising the functions of managing
director and from disbursing and disposing of its funds; that Jose M.
Barredo be appointed receiver; that, after judgment, the injunction be
made permanent and defendant be ordered to render an accounting.

ISSUE:
Whether or not a person maybe elected as a managing director even if
he has no does not own any stock in the corporation?

RULING:
There is in the record no showing that Jose de la Rosa owned a share
of stock in the corporation. If he did not own any share of stock,
certainly he could not be a director pursuant to the mandatory
provision of Section 30 of the Corporation Law. Respondent Fausto
Alberto could not be compelled to vacate his office and cede the same
to the managing director-elect because the bylaws of the corporation
provides in Article IV, Section 1 that "Directors shall serve until
the election and qualification of their duly qualified successor."
Villarey Transit vs. Ferrer, 25 SCRA 845

FACTS:
Jose Villarama was a bus operator, under the business name of Villa
Rey Transit. He operated 32 bus units on various route lines from
Pangasinan to Manila, vice-versa, by virtue of 2 certificates of public
convenience granted him by the Public Service Commission (PSC).
But barely 3 months thereafter, a corporation called VILLA REY
TRANSIT INC. was organized with a capital stock of P500,000.00
where Natividad Villarama (wife of JoseVillarama) was one of the
incorporators other than the brother and sister-in-law of Jose
Villarama. And in less than a month after its registration with the SEC
the Corporation, bought 5 certificates of public convenience, 49 buses,
tools and equipment from one Valentin Fernando, for the sum of P249
grand.

ISSUE:
Whether the stipulation, "SHALL NOT FOR A PERIOD OF 10 YEARS
FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE
IDENTICAL OR COMPETING WITH THE BUYER" in the contract
between Villarama and Pantranco, binds the Corporation (the Villa
Rey Transit, Inc.).

RULING:
The court answered YES. And therefore PIERCED THE VEIL OF
CORPORATE FICTION. Villarama supplied the organization expenses
and the assets of the Corporation, where he himself made use of the
money of the Corporation and deposited them to his private accounts.
The Corporation furthermore paid his personal accounts. y show
beyond doubt that the Corporation is his alter ego. The interference of
Villarama in the complex affairs of the corporation, and particularly
its finances, are much too inconsistent with the ends and purposes of
the Corporation law, which, precisely, seeks to separate personal
responsibilities from corporate undertakings.It is the very essence of
incorporation that the acts and conduct of the corporation be carried
out in its own corporate name because it has its own personality. The
doctrine that a corporation is a legal entity distinct and separate from
the members and stockholders who compose it is recognized and
respected in all cases which are within reason and the law. When the
fiction is urged as a means of perpetrating a fraud or an illegal act or
as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.
Hence, the Villa Rey Transit, Inc. is an alter ego of Jose Villarama, and
that the restrictive clause in the contract entered into by the latter.

Francisco Motors vs. CA, 309 SCRA 72

FACTS:
Petitioner Francisco Motors Corp filed a complaint to recover from
respondent spouses Manuel the unpaid balance of the jeepney bought
by the latter from them. As their answer, respondent spouses
interposed a counterclaim for unpaid legal services by Gregorio
Manuel which was not paid by petitioner corporation’s directors and
officers. Respondent Manuel alleges that he represented members of
the Francisco family who were directors and officers of herein
petitioner corporation in an intestate estate proceeding but even after
its termination, his services were not paid. The trial court ruled in
favor of petitioner but also allowed respondent spouses’ counterclaim.
CA affirmed.

ISSUE:
Whether or not petitioner corporation may be held liable for the
liability incurred by its directors and officers in their personal
capacity?

RULING:
No. In the given the facts and circumstances of this case, the doctrine
of piercing the corporate veil has no relevant application here.
Respondent court erred in permitting the trial court’s resort to this
doctrine. Thus in the case at bar, instead of holding certain
individuals or persons responsible for an alleged corporate act, the
situation has been reversed. It is the petitioner as a corporation which
is being ordered to answer for the personal liability of certain
individual directors, officers and incorporators concerned. Hence, it
appears to us that the doctrine has been turned upside down because
of its erroneous invocation. Note that according to private respondent
Gregorio Manuel his services were solicited as counsel for members of
the Francisco family to represent them in the intestate proceedings
over Benita Trinidad’s estate. These estate proceedings did not involve
any business of petitioner.

Furthermore, considering the nature of the legal services involved,

whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity.
When directors and officers of a corporation are unable to compensate
a party for a personal obligation, it is far-fetched to allege that the
corporation is perpetuating fraud or promoting injustice, and be
thereby held liable therefore by piercing its corporate veil.
Lipat, et al. vs. Pacific Banking Corp., GR No. 142435, April 30, 2003

FACTS:
Petitioner spouses Lipat owned Bela’s Export Trading (BET) a single
proprietorship engaged in the manufacture of garments for domestic
and foreign consumption. The spouses by virtue of an SPA appointed
and authorized their daughter to obtain loan from respondent Pacific
Bank. A loan was secured and as security therefore a REM was
executed over the property of the spouses. Sometime after, BET was
incorporated into a family corporation named Bela’s Export
Corporation (BEC) and the loan was restructured in its name.
Subsequent loans were obtained in behalf of BEC all secured by the
previous REM. BEC defaulted in its payments which led to the
foreclosure and sale of the mortgaged property. The spouses moved to
annul the sale alleging that BEC is a distinct and separate personality
from them and that the REM was executed only to secure BET’s loan.
Both trial court and CA ruled to pierce the corporate veil to hold
petitioner spouses liable for BEC’s obligations.

ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction is
applicable in this case?

RULING:
YES. The evidence on record demolishes, rather than buttresses,
petitioners’ contention that BET and BEC are separate business
entities. Note that Estelita Lipat admitted that she and her husband,
Alfredo, were the owners of BET and were two of the incorporators and
majority stockholders of BEC. It is also undisputed that Estelita Lipat
executed a special power of attorney in favor of her daughter, Teresita,
to obtain loans and credit lines from Pacific Bank on her behalf.
Incidentally, Teresita was designated as executive-vice president and
general manager of both BET and BEC, respectively.

It could not have been coincidental that BET and BEC are so
intertwined with each other in terms of ownership, business purpose,
and management. Apparently, BET and BEC are one and the same
and the latter is a conduit of and merely succeeded the former.
Petitioners’ attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific
Bank is precisely what the classical doctrine of piercing the veil of
corporate entity seeks to prevent and remedy.

In view, BEC is a mere continuation and successor of BET and

petitioners cannot evade their obligations in the mortgage contract
secured under the name of BEC on the pretext that it was signed for
the benefit and under the name of BET. We are thus constrained to
rule that the Court of Appeals did not err when it applied the
instrumentality doctrine in piercing the corporate veil of BEC.
Times Transportation Company vs. Santos Sotelo, et. al., GR No.
163786. February 16, 2005

FACTS:
On March 3, 1997, TEU held a strike in response to Times alleged
attempt to form a rival union and its dismissal of the employees
identified to be active union members. Upon petition by Times, then
Labor Secretary, and now Associate Justice Leonardo A. Quisumbing,
assumed jurisdiction over the case and referred the matter to the
NLRC for compulsory arbitration. In a certification election, TEU was
certified as the sole and exclusive collective bargaining agent in Times.
Consequently, TEUs president wrote the management of Times and
requested for collective bargaining. Times refused on the ground that
the decision of the Med-Arbiter upholding the validity of the
certification election was not yet final and executory.TEU filed a Notice
of Strike. Times management implemented a retrenchment program
and notices of retrenchment dated September 16, 1997 were sent to
some of its employees, including the respondents herein, informing
them of their retrenchment effective 30 days thereafter.TEU held a
strike vote on grounds of unfair labor practice on the part of Times.
For alleged participation in what it deemed was an illegal strike, Times
terminated all the 123 striking employees by virtue of two notices
dated October 26, 1997 and November 24, 1997. Mencorp Transport
Systems, Inc. (Mencorp) had acquired ownership over Times
Certificates of Public Convenience and a number of its bus units by
virtue of several deeds of sale. Mencorp is controlled and operated by
Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority
stockholder of Times. NLRC rendered a decision wherein respondents
motion was denied for lack of merit. Times and TEU both appealed the
decision of the NLRC, which the Court of Appeals affirmed on
November 17, 2000.Upon denial of its motion for reconsideration,
Times filed a petition for review on certiorari.

ISSUE:
Whether or not Times and Mencorp are one and the same entity?

RULING:
The sale of Times franchise as well as most of its bus units to a
company owned by Rondaris daughter and family members, right in
the middle of a labor dispute, is highly suspicious. It is evident that
the transaction was made in order to remove Times remaining assets
from the reach of any judgment that may be rendered in the unfair
labor practice cases filed against it. The following findings of the Labor
Arbiter, which were cited and affirmed by the Court of Appeals, have
not been refuted by Times.
Wherefore, premises considered, petition is denied.

LapuLapu Foundation Inc., vs. Court of Appeals, et al., G.R.

No. 126006, January 29, 2004

Sometime in 1977, Elias Q. Tan, then President of Lapulapu

Foundation, Inc., obtained four loans from Allied Banking Corporation
covered by four promissory notes in the amounts of P100,000 each.
The Bank was constrained to file with the Regional Trial Court of Cebu
City, Branch 15, a complaint seeking payment by Tan and the
foundation, jointly and solidarily, of the sum of P493,566.61
representing their loan obligation, exclusive of interests, penalty
charges, attorney’s fees and costs. In its answer to the complaint, the
Foundation denied incurring indebtedness from the Bank alleging that
the loans were obtained by Tan in his personal capacity, for his own
use and benefit and on the strength of the personal information he
furnished the Bank. The Foundation maintained that it never
authorized Tan to co-sign in his capacity as its President any
promissory note and that the Bank fully knew that the loans
contracted were made in Tan’s personal capacity and for his own use
and that the Foundation never benefited, directly or indirectly,
therefrom. For his part, Tan admitted that he contracted the loans
from the Bank in his personal capacity. The parties, however, agreed
that the loans were to be paid from the proceeds of Tan’s shares of
common stocks in the Lapulapu Industries Corporation, a real estate
firm. According to Tan, the Bank’s employee required him to affix two
signatures on every promissory note, assuring him that the loan
documents would be filled out in accordance with their agreement.
However, after he signed and delivered the loan documents to the
Bank, these were filled out in a manner not in accord with their
agreement, such that the Foundation was included as party thereto.
Further, prior to its filing of the complaint, the Bank made no demand
on him.

ISSUE:
Whether or not the Court erred in applying the Parol Evidence Rule
and the Doctrine of Piercing the Veil of Corporate entity as basis for
adjudging joint and solidary liabilty on the part of petitioners?

RULING:
No. There is no dispute that the promissory notes had already
matured. However, the petitioners insist that the loans had not
become due and demandable as they deny receipt of the respondent
Banks demand letters. When presented the registry return cards
during the trial, petitioner Tan claimed that he did not recognize the
signatures thereon.They cannot prevail over the registry return cards
which constitute documentary evidence and which enjoy the
presumption that, absent clear and convincing evidence to the
contrary, these were regularly issued by the postal officials in the
performance of their official duty and that they acted in good faith.

Yao, Sr. vs. People, et al., 19 June 2007

FACTS:
Petitioners are incorporators and officers of MASAGANA GAS
CORPORATION (MASAGANA), an entity engaged in therefilling, sale
and distribution of LPG products. Private respondents Petron
Corporation (Petron) and Pilipinas ShellPetroleum Corporation
(Pilipinas Shell) are two of the largest bulk suppliers and producers of
LPG in the Philippines.Petron is the registered owner in the
Philippines of the trademarks GASUL and GASUL cylinders used for
its LPGproducts. It is the sole entity in the Philippines authorized to
allow refillers and distributors to refill, use, sell, anddistribute GASUL
LPG containers, products and its trademarks. Pilipinas Shell, on the
other hand, is the authorized userin the Philippines of the tradename,
trademarks, symbols, or designs of its principal, Shell International
PetroleumCompany Limited (Shell International), including the marks
SHELLANE and SHELL device in connection with theproduction, sale
and distribution of SHELLANE LPGs. It is the only corporation in the
Philippinesauthorized toallow refillers and distributors to refill, use,
sell and distribute SHELLANE LPG containers and products. The two
applications for search warrant uniformly allegedthat per information,
belief, and personal verification of Oblanca, the petitioners are
actually producing, selling,offering for sale and/or distributing LPG
products using steel cylinders owned by, and bearing the
tradenames,trademarks, and devices of Petron and Pilipinas Shell,
without authority and in violation of the rights of the saidentities.
MASAGANA, as third party claimant, filed with the RTC a Motion for
the Return of Motor Compressor and LPGRefilling Machine. RTC
resolved that MASAGANA cannot be considered a third party claimant
whose rights were violated as a result of theseizure since the evidence
disclosed that petitioners are stockholders of MASAGANA and that
they conduct theirbusiness through the same juridical entity. CA
affirmed RTC’s decision.

ISSUE:
Whether or not CA ERRED IN RULING THAT THE COMPLAINT IS
DIRECTED AGAINST MASAGANA GAS CORPORATION,ACTING
THROUGH ITS OFFICERS AND DIRECTORS, HENCE MASAGANA
GAS CORPORATION MAY NOT BE CONSIDEREDAS THIRD PARTY
CLAIMANT WHOSE RIGHTS WERE VIOLATED AS A RESULT OF THE
SEIZURE?

RULING:
No. It is an elementary and fundamental principle of corporation law
that a corporation is an entity separate anddistinct from its
stockholders, directors or officers. However, when the notion of legal
entity is used to defeat publicconvenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation as an
association of persons, or in the case of two corporations merge them
into one.
Hall vs. Piccio, 86 Phil 603

FACTS:
On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall,
and the respondents Fred Brown, Emma Brown, Hipolita D. Chapman
and Ceferino S. Abella, signed and acknowledged in Leyte, the articles
of incorporation of the Far Eastern Lumber and Commercial Co., Inc.,
organized to engage in a general lumber business to carry on as
general contractors, operators and managers, etc. Attached to the
articles was an affidavit of the treasurer stating that 23,428 shares of
stock had been subscribed and fully paid with certain properties
transferred to the corporation described in a list appended thereto.
Immediately after the execution of said articles of incorporation, the
corporation proceeded to do business with the adoption of by-laws
and the election of its officers. On December 2, 1947, the said articles
of incorporation were filed in the office of the Securities and Exchange
Commission for the issuance of the corresponding certificate of
incorporation. On March 22, 1948, pending action on the articles of
incorporation by the SEC, respondents Fred Brown, Emma Brown,
Hipolita D. Chapman and Ceferino S. Abella filed a suit against
petitioners before the Court of First Instance of Leyte alleging among
other things that the Far Eastern Lumber and Commercial Co. was an
unregistered partnership; that they wished to have it dissolved
because of bitter dissension among the members, mismanagement
and fraud by the managers and heavy financial losses. The defendants
in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion
to dismiss, contesting the court’s jurisdiction and the sufficiency of
the cause of action.

ISSUE:
Whether or not the trial court has jurisdiction over the case?

RULING:
No. The court had no jurisdiction in civil case No. 381 to decree the
dissolution of the company, because it being a de facto corporation,
dissolution thereof may only be ordered in a quo warranto proceeding
instituted in accordance with section 19 of the Corporation Law.
Under our statute it is to be noted that it is the issuance of a
certificate of incorporation by the Director of the Bureau of Commerce
and Industry which calls a corporation into being. The immunity of
collateral attack is granted to corporations ‘claiming in good faith to
be a corporation under this act.’
Further, this is not a suit in which the corporation is a party. This is a
litigation between stockholders of the alleged corporation, for the
purpose of obtaining its dissolution. Even the existence of a de jure
corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the state.

WHEREFORE, the petition is dismissed.

Santos v. NLRC, 254 SCRA 673

FACTS:
Petitioner is a married man and is employed as a teacher by private
respondent Hagonoy Institute Inc. from June 1980 until his dismissal
on June 1, 1991. Petitioner and Mrs. Arlene T. Martin, also a teacher
employed at Hagonoy Institute, fell in love and had an affair. Private
respondent, upon hearing of circulating rumors among faculty and
school officials, of the illicit relationship of petitioner and Mrs. Martin,
advised the latter to take a leave of absence, Mrs. Martin ignored such
notice and was henceforth prevented from entering the campus of
private respondent, effectively dismissing her from work. Private
respondent set-up a committee to investigate the veracity of the
rumors, after two weeks of investigation, the illicit relationship of
petitioner and Mrs. Martin was confirmed. Petitioner was charged
administratively for immorality and asked to present his side, on May
1991, petitioner was dismissed effective June 1, 1991. Petitioner filed
a complaint for illegal dismissal with the NLRC Regional Arbitration
Branch No. III, San Fernando, Pampanga and petitioner’s complaint
was dismissed but awarded financial assistance of PHP 13,750. On
appeal, the NLRC affirmed the decision of the labor arbiter.

ISSUE:
Can the illicit relationship between the petitioner and Mrs. Martin be
considered immoral as to constitute a cause for termination under
Art. 282 of the Labor Code?

RULING:
The court reiterates that to constitute a valid dismissal, two requisites
must concur: (a) it must be for any offense expressed in Art. 282 of
the Labor Code, (b) employee must be accorded due process, that is,
the opportunity to be heard and to defend oneself. Art. 282 of the
Labor Code lists the following just causes to terminate an employee:
(1) serious misconduct or willful disobedience by employee of lawful
orders of the employer or his representative in connection with his
work, (2) gross and habitual neglect by employee of his duties; (3)
fraud or willful breach, (4) commission of crime or offense of the
person of his employer or his family or his authorized representative,
(5) other courses analogous to the foregoing. In addition, Section 94,
Manual of Regulations for Private Schools, paragraph E, lists
“disgraceful or immoral conduct” as ground for termination. As a
teacher, one stands in loco parentis to his students and must
therefore act with a high standard of integrity and honesty. It is
settled therefore that a teacher who engages in extra marital affairs,
when both are married, amounts to gross immorality justifying
termination from employment.
Therefore petition is dismissed, NLRC decision is affirmed with
modification, deleting financial assistance.

Clemente v. CA, 242 SCRA 717

FACTS:
Adela owned three (3) adjoining parcels of land in Quezon City,
subdivided as Lots 32, 34 and 35-B. Sometime in 1985 and 1987,
Adela simulated the transfer of Lots 32 and Lot 34 to her two
grandsons (Carlos Jr and Dennis Shotwell). On April 18, 1989, prior
to Adela and petitioner’s departure for the United States, Adela
requested Carlos Jr. and Dennis to execute a deed of reconveyance
over Lots 32 and 34 which were in fact executed and registered with
the Register of Deeds. On April 25, 1989, Adela executed a deed of
absolute sale11 over Lots 32 and 34, and their improvements, in favor
of petitioner, bearing on its face the price of ¬250,000.00. On the
same day, Adela also executed a special power of attorney (SPA) in
favor of petitioner. Petitioner’s authority under the SPA included the
power to administer, take charge and manage, for Adela’s benefit, the
Properties and all her other real and personal properties in the
Philippines. When petitioner returned to the Philippines, she
registered the sale over Lots 32 and 34. Soon thereafter, petitioner
sought to eject Annie and Carlos Sr who thereafter filed a complaint
for reconveyance of the property. They alleged that Adela only wanted
to help petitioner travel to the United States, by making it appear that
petitioner has ownership of the Properties. They further alleged that
similar to the previous simulated transfers to Carlos Jr. and Dennis,
petitioner also undertook and warranted to execute a deed of
reconveyance in favor of the deceased over the Properties, if and when
Adela should demand the same.

Issue:
Whether or not the contracts of sale to petitioner were simulated

Held:
YES. The Deeds of Absolute Sale between petitioner and the late Adela
Shotwell are null and void for lack of consent and consideration. While
the Deeds of Absolute Sale appear to be valid on their face, the courts
are not completely precluded to consider evidence aliunde in
determining the real intent of the parties. In determining the true
nature of a contract, the primary test is the intention of the parties. If
the words of a contract appear to contravene the evident intention of
the parties, the latter shall prevail. Such intention is determined not
only from the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties. This is
especially true in a claim of absolute simulation where a colorable
contract is executed. In ruling that the Deeds of Absolute Sale were
absolutely simulated, the lower courts considered the totality of the
prior, contemporaneous and subsequent acts of the parties such as 1)
the execution of the SPA the same day the Dee the Deeds of Absolute
Sale appointing petitioner as administratrix of Adela’s properties, and)
the history of simulations in favor of Carlos Jr and Dennis.
Seventh Day Adventist vs. Northeastern Mindanao Mission, 21 July
2006

FACTS:
Spouses Felix Cosio and Felisa Cuysona donate a parcel of land to
South Philippine [Union] Mission of Seventh Day Adventist Church,
and was received by Liberato Rayos, an elder of the Seventh Day
Adventist Church, on behalf of the donee.

However, twenty years later, the spouses sold the same land to the
Seventh Day Adventist Church of Northeastern Mindanao Mission.

Claiming to be the alleged donee’s successors-in-interest, petitioners

asserted ownership over the property. This was opposed by
respondents who argued that at the time of the donation, SPUM-SDA
Bayugan could not legally be a donee because, not having been
incorporated yet, it had no juridical personality. Neither were
petitioners members of the local church then, hence, the donation
could not have been made particularly to them.

ISSUE:
Should the Seventh Day Adventist Church of Northeastern Mindanao
Mission's ownership of the lot be upheld?

RULING:
Yes. Donation is one of the modes of acquiring ownership of real
property. Likewise, ownership of a property may be transferred by
tradition as a consequence of a sale.

Donation is an act of liberality whereby a person disposes gratuitously

of a thing or right in favor of another person who accepts it. The
donation could not have been made in favor of an entity yet inexistent
at the time it was made. Nor could it have been accepted as there was
yet no one to accept it.
Avon Insurance PLC, et al. v. CA, 278 SCRA 312

FACTS:

Respondent Yupangco Cotton Mills filed a complaint against several

foreign reinsurance companies (among which are petitioners) to collect
their alleged percentage liability under contract treaties between the
foreign insurance companies and the international insurance broker
C.J. Boatright, acting as agent for respondent Worldwide Surety and
Insurance Company. Inasmuch as petitioners are not engaged in
business in the Philippines with no offices, places of business or
agents in the Philippines, the reinsurance treaties having been
rendered abroad, service of summons upon motion of respondent
Yupangco, was made upon petitioners through the office of the
Insurance Commissioner. Petitioners, by counsel on special
appearance, seasonably filed motions to dismiss disputing the
jurisdiction of respondent Court and the extra-territorial service of
summons. Respondent Yupangco filed its opposition to the motion to
dismiss, petitioners filed their reply, and respondent Yupangco filed
its rejoinder. The respondent Court denied the motions to dismiss and
directed petitioners to file their answer. Petitioners filed their notice of
appeal. Subsequently, respondent court denied due course to the
appeal.

ISSUE:

Whether the petitioner had been doing business in the Philippines,

and can the trial court assume jurisdiction over it?

RULING:

NO, the petitioner is not doing business in the Philippines and beyond
the ambit of court’s jurisdiction. To qualify the petitioners business of
reinsurance within the Philippine forum, resort must be made to
established principles in determining what is meant by doing business
in the Philippines. In Communication Materials and Design, Inc. et. al
v. Court of Appeals, it was observed that. There is no exact rule of
governing principle as to what constitutes doing or engaging in or
transacting business. Indeed, such case must be judged in the light of
its peculiar circumstances, upon its peculiar facts and upon the
language of the statute applicable. The true test, however, seems to be
whether the foreign corporation is continuing the body or substance of
the business or enterprise for which it was organized.
Lim Tong Lim vs. CA, 317 SCRA 728

FACTS:It was established that Lim Tong Lim requested Peter Yao to
engage in commercial fishing with him and one Antonio Chua. The
three agreed to purchase two fishing boats but since
they do not have the money they borrowed from one Jesus Lim
(brother of Lim Tong Lim). They again borrowed money and they
agreed to purchase fishing nets and other fishing equipments. Now,
Yao and Chua represented themselves as acting in behalf of “Ocean
Quest Fishing Corporation” (OQFC) they contracted with Philippine
Fishing Gear Industries (PFGI) for the purchase of fishing nets
amounting to more than P500k. They were however unable to pay
PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted
liability and asked for some time to pay. Yao waived his rights. Lim
Tong Lim however argued that he’s not liable because he was not
aware that Chua and Yao represented themselves as a corporation;
that the two acted without his knowledge and consent.

ISSUE:
Whether or not Lim Tong Lim is liable?

RULING:
Yes. From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing business, which
they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them
the excess or loss. These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term “common
fund” under Article 1767. The contribution to such fund need not be
cash or fixed assets; it could be an intangible like credit or industry.
That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.
International Express Travel and Tour Services vs. CA, October 19,
2000

FACTS:
On June 30 1989, petitioner, through its managing director, wrote a
letter to the Philippine Football Federation (Federation), through its
president private respondent Henri Kahn, wherein the former offered
its services as a travel agency to the latter. The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and
officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to China and Brisbane. The
total cost of the tickets amounted to P449,654.83. The Federation
made two partial payments, both in September of 1989, in the total
amount of P176,467.50. On 4 October 1989, petitioner wrote the
Federation, through the private respondent a demand letter
requesting for the amount of P265,894.33. On 30 October 1989, the
Federation, through the Project Gintong Alay, paid the amount of
P31,603.00. On 27 December 1989, Henri Kahn issued a personal
check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation. No further payments were
made despite repeated demands.

ISSUE:
Whether or not the doctrine of corporation by estoppel applies in this
case?

RULING:
The petitioner cannot deny the corporate existence of the Federation
because it had contracted and dealt with the Federation in such a
manner as to recognize and in effect admit its existence. The doctrine
of corporation by estoppel is mistakenly applied by the respondent
court to the petitioner. The application of the doctrine applies to a
third party only when he tries to escape liability on a contract from
which he has benefited on the irrelevant ground of defective
incorporation. In the case at bar, the petitioner is not trying to escape
liability from the contract but rather is the one claiming from the
contract.

WHEREFORE, the decision appealed from is REVERSED and SET

ASIDE.
European Resources & Technologies, Inc. v. CA, G.R. No. 152329,
May 26, 2004

FACTS:

European Resources and Technologies Inc. (hereinafter “ERTI”), a

corporation organized and existing under the laws of the Republic of
the Philippines, is joined by Delfin J. Wenceslao as petitioner in this
case. Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers
& Brockstedt Gmbh & Co. are German corporations who are
respondents in this case and shall be collectively referred to as the
“German Consortium.” CDC accepted the German Consortium’s bid
and awarded the contract to it. The Contract for Services provides that
the German Consortium shall be empowered to enter into a contract
or agreement for the use of the integrated waste management center
by corporations, local government units, entities, and persons not
only within the CSEZ but also outside. Article VIII, Section 7 of the
Contract for Services provides that the German Consortium shall
undertake to organize a local corporation as its representative for this
project. On April 18, 2000, the German Consortium entered into a
Joint Venture with D.M. Wenceslao and Associates, Inc. (“DMWAI”)
and Ma. Elena B. Villarama (doing business as LBV and Associates),
embodied in a Memorandum of Understanding7 (“MOU”) signed by the
parties. Under the MOU, the parties agreed to jointly form a local
corporation to which the German Consortium shall assign its rights
under the Contract for Services. On February 20, 2001, petitioner
ERTI, through counsel, sent a letter to CDC requesting for the
reconsideration of its disapproval of the agreement between ERTI and
the German Consortium. Before CDC could act upon petitioner ERTI’s
letter, the German Consortium filed a complaint for injunction against
herein petitioners before the Regional Trial Court of Angeles City,
Branch 61.

ISSUE:

Whether or not the German Consortium has the capacity to institute

the petition for injunction?

RULING:

No. A corporation has legal status only within the state or territory in
which it was organized. For this reason, a corporation organized in
another country has no personality to file suits in the Philippines. In
order to subject a foreign corporation doing business in the country to
the jurisdiction of our courts, it must acquire a license from the
Securities and Exchange Commission (SEC) and appoint an agent for
service of process. Without such license, it cannot institute a suit in
the Philippines.

Home Insurance Co. v. Eastern Shipping Lines, 123 SCRA 424

FACTS:
On or about January 13, 1967, S. Kajikita & Co. on board the SS
Eastern Jupiter,‟ which is owned by the respondent, from Osaka,
Japan coils of “Black Hot Rolled Copper Wires Rods.” The shipment
was covered by Bill of Lading with arrival notice to the Phelps Dodge
Copper Products Corporation, the consignee. It was also insured with
the plaintiff against all risks in the amount of P1,580,105.06. The
coils discharged from the vessel were in bad order, consisting of loose
and partly cut coils which had to be considered scrap. The plaintiff
paid the consignee under insurance the amount of P3,260.44 for the
loss/damage suffered by the cargo. Plaintiff, a foreign insurance
company duly authorized to do business in the Philippines, made
demands for payment of the aforesaid amount against the carrier and
transportation company for reimbursement of the aforesaid amount,
but each refused to pay the same. The Eastern Shipping Lines filed its
answer and denied the allegations of Paragraph I which refer to the
plaintiff‟s capacity to sue for lack of knowledge or information
sufficient to form a belief as to the truth thereof. Angel Jose
Transportation, on the other hand, admitted the jurisdictional
averments in paragraphs 1, 2 and 3 of the heading parties.
The Court of First Instance dismissed the complaint on the ground
that the appellant had failed to prove its capacity to sue. The
petitioner then filed a petition for review on certiorari.

ISSUE:
Whether or not that the trial court erred in dismissing the finding that
plaintiff-appellant has no capacity to sue?

RULING:
The court held that the objective of the law is to subject the foreign
corporation to the jurisdiction of our court. The Corporation Law must
be given reasonable, not an unduly harsh interpretation which
does not hamper the development of trade relations and which fosters
friendly commercial intercourse among countries. Counsel for
appellant contends that at the time of the service of summons, the
appellant had not yet been authorized to do business. But, the lack of
capacity at the time of the execution of the contracts was cured by the
subsequent registration is also strengthened by the procedural
aspects of the case. The court find the general denials inadequate to
attack the foreign corporations lack of capacity to sue in the light of
its positive averment that it is authorized to do so. Section 4, Rule 8
requires that "a party desiring to raise an issue as to the legal
existence of any party or the capacity of any party to sue or be sued in
a representative capacity shall do so by specific denial, which shall
include such supporting particulars as are particularly within the
pleader's knowledge.

Filipinas Broadcasting Network, Inc. vs. Ago Medical and Educational

Center-Bicol Christian College of Medicine, G.R. No. 141994, January
17, 2005

FACTS:
Expos is a radio documentary program hosted by Carmelo Mel Rima
(Rima) and Hermogenes Jun Alegre (Alegre). Expos is aired every
morning over DZRC-AM which is owned by Filipinas Broadcasting
Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay
municipalities and other Bicol areas. In the morning of 14 and 15
December 1989, Rima and Alegre exposed various alleged complaints
from students, teachers and parents against Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC) and its
administrators. Claiming that the broadcasts were defamatory, AMEC
and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a
complaint for damages against FBNI, Rima and Alegre on 27 February
1990. The complaint further alleged that AMEC is a reputable learning
institution. With the supposed expose, FBNI, Rima and Alegre
transmitted malicious imputations, and as such, destroyed plaintiffs
(AMEC and Ago) reputation. AMEC and Ago included FBNI as
defendant for allegedly failing to exercise due diligence in the selection
and supervision of its employees, particularly Rima and Alegre.
On 14 December 1992, the trial court rendered a Decision]
finding FBNI and Alegre liable for libel except Rima. In holding FBNI
liable for libel, the trial court found that FBNI failed to exercise
diligence in the selection and supervision of its employees.
The Court of Appeals affirmed the trial courts judgment with
modification. The appellate court made Rima solidarily liable with
FBNI and Alegre.

ISSUE:
Whether or not AMEC is entitled to moral damages?

RULING:
FBNI contends that AMEC is not entitled to moral damages because it
is a corporation. A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious
anxiety, mental anguish or moral shock. The Court of Appeals cites
Mambulao Lumber Co. v. PNB, et al. to justify the award of moral
damages. However, the Courts statement in Mambulao that a
corporation may have a good reputation which, if besmirched, may
also be a ground for the award of moral damages is an obiter dictum.
Moreover, where the broadcast is libelous per se, the law implies
damages. In such a case, evidence of an honest mistake or the want of
character or reputation of the party libeled goes only in mitigation of
damages. In this case, the broadcasts are libelousper se.
Thus, AMEC is entitled to moral damages.

Eriks Pte. Ltd. v. CA, 267 SCRA 567

FACTS:
Petitioner Eriks Pte., Ltd., a non-resident foreign corporation, duly
organized and existing under the laws of Singapore, is engaged in
manufacturing and sale of elements used in sealing pumps, valves
and pipes for industrial purposes, valves and control equipment used
for industrial fluid control and PVC pipes and fittings for
industrial uses. The petitioner corporation is not licensed to do
business in the Philippines and not engaged and is suing on an
isolated transaction for which it has capacity to sue. On various dates,
Private respondent Delfin Enriquez, Jr., doing business under Delrene
EB Controls Center and/or EB Karmine Commercial, ordered and
received from petitioner various materials and such was delivered via
airfreight. The transfers of goods were perfected in Singapore, for
private respondent’s account, F.O.B. Singapore, with a 90day credit
term. Upon demands made by petitioner, private respondents failed
and refused to settle its account. Petitioner then filed a complaint with
RTC for the collection of sum of money plus interest and damages.
Private respondent move to dismiss the complaint on the grounds that
petitioner corporation had no legal capacity to sue.

ISSUE:
Whether petitioner’s business with private respondent may be treated
as isolated transactions?

RULING:
NO, the Supreme Court agrees to the ruling of the lower courts that
the business made by petitioner was not an isolated transaction. The
court explained that base on the factual evidence presented, more
than the sheer number of transactions entered into, a clear and
unmistakable intention on the part of petitioner to continue the body
of its business in the Philippines is more than apparent. Further,
its grant and extension of 90-day credit terms to private respondent
for every purchase made, unarguably shows an intention to continue
transacting with private respondent, since in the usual course of
commercial transactions, credit is extended only to customers in good
standing or to those on whom there is an intention to maintain long-
term relationship The court further ruled that petitioner corporation
was indeed doing business in the country. The court cited the case of
The Mentholatum Co., Inc. vs. Mangalima, The true test, however,
seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it over to
another. The Court holds that the series of transactions in question
could not have been isolated or casual transactions.

Coastal Pacific Trading, Inc. vs. Southern Rolling Mills Co., Inc. 497
SCRA 11, 28 July 2006

FACTS:
Southern Rolling Mills was renamed into Visayan Integrated Steel
Corp (VISCO). On Dec. 11, 1961-VISCO obtained a loan from DBP
amounting to P836,000. It was secured by a Real Estate Mortgage
covering VISCO's 3 parcels of land including the machinery and
equipments therein. Second Loan: VISCO entered a Loan Agreement
with respondent banks ( referred as "Consortium") to finance its
importation for various raw materials. VISCO executed a second
mortgage over the previous properties mentioned, however they were
unrecorded VISCO was unable to pay its second mortgage with the
consortium, which resulted in the latter acquiring 90% of the equity of
VISCO giving the Consortium the control and management of VISCO.
Despite the acquisition, VISCO still remained indebted to the
Consortium. Transaction to Coastal: Between 1964 to 1965, VISCO
entered a processing agreement with Coastal wherein Coastal
delivered 3,000 metric tons of hot rolled steel coils which VISCO
would process into block iron sheets. However, VISCO was only able
to return 1,600 metric tons of those sheets. On the loan to DBP: To
pay its first mortgage with DBP, VISCO sold 2 of its generators to
FILMAG Phils, Inc. DBP executed a Deed of Assignment of the
mortgage in favor of the consortium. The Consortium foreclosed the
mortgage and was the highest bidder in an auction sale of VISCO's
properties. The Consortium later sold the properties in favor of
National Steel Corporation. Coastal files a civil action for Annulment
or Rescission of Sale, Damages with Preliminary Injunction. Coastal
imputes bad faith on the action of the Consortium, the latter being
able to sell the properties of VISCO despite the attachment of the
properties, placing them beyond the reach of VISCO's other creditors.
The lower court ruled in favor of VISCO, declaring the sale valid and
legal. The CA affirmed this.

ISSUE:
Whether petitioner is entitled to moral damages?

RULING:
No. As a rule, a corporation is not entitled to moral damages because,
not being a natural person, it cannot experience physical suffering or
sentiments like wounded feelings, serious anxiety, mental anguish
and moral shock. The only exception to this rule is when the
corporation has a good reputation that is debased, resulting in its
humiliation in the business realm. In the present case, the records do
not show any evidence that the name or reputation of petitioner has
been sullied as a result of the Consortium's fraudulent acts.
Accordingly, moral damages are not warranted.
Petitioner was able to recover exemplary damages.