Case Digest: Loyola Grand Villas Homeowners South Association Inc vs CA, GR No.

117188

Facts:

Loyola Grand Villas Homeowners Association, 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?

Decision:

No, ordinarily the word “must” connote 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.

Bylaws are indispensable to corporations, since they are required by law for an orderly management of
corporations. However, failure to file them within the period prescribed does not equate to the
automatic dissolution of a corporation. Due process is accorded to the corporation
PMI COLLEGES vs. THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GA LVA NG.R. No.
121466. August 15, 1997

FACTS: On July 7, 1991, petitioner, an educational institution offering courses on basic seaman’s training
and other marine-related courses, hired private respondent as contractual instructor with an agreement
that the latter shall be paid at an hourly rate of P30.00 to P50.00, depending on the description of load
subjects and on the schedule for teaching the same.

Pursuant to this engagement, private respondent then organized classes in marine engineering. Initially,
private respondent and other instructors were compensated for services rendered during the
first three periods of the abovementioned contract. However, for reasons unknown to private
respondent, he stopped receiving payment for the succeeding rendition of services. This claim of non-
payment was embodied in a letter dated March 3, 1992, written by petitioner’s Acting Director,
Casimiro A. Aguinaldo, addressed to its President, Atty. Santiago Pastor, calling attention to and
appealing for the early approval and release of the salaries of its instructors including that of private
respondent. Private respondent’s claims were resisted by petitioner.

Later in the proceedings, PMI Colleges manifested that Mr. Tomas Cloma Jr., a member of the board of
trustees writes a letter to the Chairman of the Board, clarifying the case of Galvan and stating therein,
inter alia, that under PMI’s by-laws only the Chairman is authorized to sign any contract and that Galvan,
in any event, failed to submit documents on the alleged shipyard and plant visits in Cavite Naval Base.

ISSUE: Whether the contract of employment of Galvan valid even if the signatory there was not the
Chairman of the Board.

RULING: YES. The contract of employment is valid. The contract remained valid even if the signatory
thereon was not the chairman of the board which allegedly violated petitioner’s by-laws. Since by-laws
operate merely as internal rules among the stockholders, they cannot affect or prejudice third persons
who deal with the corporation unless they have knowledge of the same. No proof appears on record
that private respondent ever knew anything about the provisions of the said by-laws.

In fact, petitioner itself merely asserts the same without even bothering to attach a copy or excerpt
thereof to show that there is such provision. That this allegation has never been denied to private
respondent nor necessarily signify admission of its existence because technicalities of law and procedure
and the rules obtaining in the courts of law do not strictly apply to proceeding of this nature.
Peña v. Court of Appeals

FACTS:

PAMBUSCO is the owner of the three lots in dispute. It mortgaged the lots to DBP which were later on
foreclosed. Pena was awarded the lots in a foreclosure sale for being the highest bidder. The certificate
of sale was later issued to her and registered in her name.

The BODs of PAMBUSCO, 3 out of 5 directors, issued a resolution to assign its right of redemption over
the lots in favor of any interested party. The right of redemption was later on assigned to Enriquez, who
redeemed the property.

He then sold the lots to sps. Yap. Meanwhile, a case involving the validity of the sale to the sps Yap was
pending, and despite the protestations of Pena as to the validity of the PAMBUSCO’s assignment of the
right of redemption, the lots were somehow registered in the name of spouses Yap. Despite the
registration to the Yap’s, Pena retained possession of the property.

Sps Yap sought to recover the possession of the lots from Pena. The latter countered that she is now the
legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding
instituted by the DBP against PAMBUSCO and no valid redemption having been affected within the
period provided by law.

The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was
void ab initio for being an ultra vires act of its BODs and for being without any valuable consideration, it
could not have had any legal effect. CFI ruled in favor of Petitioner Pena, but the same was overturned
by the CA.

ISSUE:

Whether there was a proper quorum as to the issuance of the resolution.

RULING:

The Court disagrees.

The by-laws of a corporation are its own private laws which substantially have the same effect as the
laws of the corporation. They are in effect, written, into the charter. In this sense they become part of
the fundamental law of the corporation with which the corporation and its directors and officers must
comply. Apparently, only three (3) out of five (5) members of the board of directors of respondent
PAMBUSCO convened on November 19, 1974, by virtue of a prior notice of a special meeting. There was
no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove
reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of
the board of directors of respondent PAMBUSCO.
Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of
the corporation may fix a greater number than the majority of the number of board members to
constitute the quorum necessary for the valid transaction of business. Any number less than the number
provided in the articles or by-laws therein cannot constitute a quorum and any act therein would not
bind the corporation; all that the attending directors could do is to adjourn.

BENJAMIN A. SANTOS v. NLRC

Private respondent, on 01 October 1985, was hired to be the project accountant for MMDC's mining
operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, private respondent sent to Mr. Gil Abaño, the
MMDC corporate treasurer, a memorandum calling the latter's attention to the... failure of the company
to comply with the withholding tax requirements of, and to make the corresponding monthly
remittances to, the Bureau of Internal Revenue ("BIR") on account of delayed payments of accrued
salaries to the company's laborers and employees

Private respondent expressed "shock" over the termination of his employment. He complained that he
would not have resigned from the Sycip, Gorres & Velayo accounting firm, where he was already a
senior staff auditor, had it not been for the assurance of a "continuous job" by

MMDC's Engr. Rodillano E. Velasquez. Private respondent requested that he be reimbursed the
"advances" he had made for the company and be paid his "accrued salaries/claims."[

Issues:

W/On the petitioner can be made personally liable with company

Ruling:

A corporation is a juridical entity with legal personality separate and distinct from those acting for and,
in its behalf, and, in general, from the people comprising it. The rule is that obligations incurred by the
corporation, acting through its directors, officers and employees, are its sole liabilities. Nevertheless,
being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done
sparingly, the disregard of its independent being and the lifting of the corporate veil. As a rule, this
situation might arise when a corporation is used to evade a just and due obligation or to justify a wrong,
to shield or perpetrate fraud, to carry out similar other unjustifiable aims or intentions, or as a
subterfuge to commit injustice and so circumvent the law.
Corporate Law Case Digest: Stockholders of F. Guanzon and Sons, Inc V. Register of Deeds of Manila
(1962)

FACTS:

Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the
assets of the corporation, dissolution and distribution among themselves in proportion to their
shareholdings, as liquidating dividends, corporate assets, including real properties Register of Deeds of
Manila denied the registration of the certificate of liquidation:

The number of parcels not certified to in the acknowledgment.

P430.50 Reg. fees need be paid.

P940.45 documentary stamps need be attached to the document.

The judgment of the Court approving the dissolution and directing the disposition of the assets of the
corporation need be presented

Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.

Stockholders appealed

contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution of the
assets of the corporation which has ceased to exist for having been dissolved

ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should be
considered a transfer or conveyance)

HELD: NO. affirm the resolution appealed from

Corporation - juridical person distinct from the members composing it.

Properties registered in the name of the corporation are owned by it as an entity separate and distinct
from its members.

While shares of stock constitute personal property, they do not represent property of the corporation.

A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its
proceeds to that extent when distributed according to law and equity but its holder is NOT the owner of
any part of the capital of the corporation nor entitled to possession

The stockholder is not a co-owner or tenant in common of the corporate property

MANILA GAS CORPORATION vs. CIR

G.R. No. L-42780 | Jan. 17, 1936, | J. Malcolm

MANILA GAS operates a gas plant in the Manila and furnishes gas service to the people of the Manila
and its surrounding municipalities by virtue of a franchise granted by the PH Government.

Associated with MANILA GAS is:

ISLAND GAS domiciled in New York, USA, and GENERAL FINANCE COMPANY domiciled in Zurich,
Switzerland.

Neither of these corporations is resident in the Philippines. For 1930, 1931, and 1932, dividends worth
P1.3M were paid by MANILA GAS to ISLAND GAS as their stockholders. The CIR collected withholding
income taxes worth P40K

For the same years, interest on bonds worth P400K was paid by MANILA GAS to ISLAND GAS. The CIR
collected withholding income taxes worth P12K also for the same years, interest on other indebtedness
worth P130K was paid by MANILA GAS to the ISLAND GAS and GENERAL FINANCE. The CIR collected
withholding income taxes worth P4K Overall, the CIR collected P56K from MANILA GAS. Thus, MANILA
GAS filed an action against the CIR for the recovery of P56K

CFI: Dismissed the case

MANILA GAS’ ARGUMENTS

The CFI erred in holding that the dividends paid by MANILA GAS were subject to income tax in the hands
of its stockholders. Because to impose the tax thereon would be to impose a tax on the MANILA GAS, in
violation of the terms of its franchise, and would, moreover, be oppressive and inequitable.

The interest on bonds and other indebtedness of MANILA GAS, paid by it outside of the Philippines to
corporations not residing therein, were not, on the part of the recipients thereof, income from
Philippine sources, and hence not subject to Philippine income tax.

ISSUE: WON MANILA GAS is liable for paying income tax –

Ruling:

NO, but its stockholders are. A corporation has a personality distinct from that of its stockholders This
enables the taxing power to reach the latter when they receive dividends from the corporation.
Dividends of a domestic corporation, which are paid and delivered in cash to foreign corporations as
stockholders, are subject to the payment of income tax despite the exemption clause in the charter of
the corporation.
G.R. No. 58168. December 19, 1989. Fernan, a

Facts:

Private respondent Adelaida Rodriguez Magsaysay filed an action against Subic Land Corporation
(SUBIC), among others, to annul the deed of assignment and deed of mortgage executed in favor of the
latter by her late husband. Private respondent alleged that the subject land of the two deeds was
acquired through conjugal funds. Since her consent to the disposition of the same was not obtained, she
claimed that the acts of assignment and mortgage were done to defraud the conjugal partnership. She
further contended that the same were done without consideration and hence null and void. Petitioner’s
sisters of the deceased husband of the private respondent, filed a motion for intervention on the ground
that their brother conveyed to them one-half of his shareholdings in SUBIC, or about 41%. The trial court
denied the motion for intervention ruling that petitioners have no legal interest because SUBIC has a
personality separate and distinct from its stockholders. The CA confirmed the denial on appeal. Hence,
this petition.

Issue:

Whether petitioners, as stockholders of SUBIC, have a legal interest in the action for annulment of the
deed of assignment and deed of mortgage in favor of the corporation.

Ruling

NO. The Court noted that the interest which entitles person to intervene in a suit between other parties
must be in the matter in litigation and of such direct and immediate character that the intervenor will
either gain or lose by the direct legal operation and effect of the judgment. In the instant petition, it was
said that the interest, if it exists at all, of petitioner’s movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer
expectancy of a right in the management of the corporation and to share in the profits thereof and in
the properties and assets thereof on dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the corporation,
it does not vest the owner thereof with any legal right or title to any of the property, his interest in the
corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the corporation as a distinct legal person.
Good Earth Emporium Inc. vs Court of Appeals

Facts:

A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes Realty Inc. as
lessor, and Good Earth Emporium Inc. (GEE) as lessee for a term of three years beginning November 1,
1981, and ending October 31, 1984, at a monthly rental of Php65,000. The building which was the
subject of the contract of lease is a five-story building located at the corner of Rizal Avenue and Bustos
Street in Sta. Cruz, Manila. From March 1983 up to the complaint was filed, the lessee had defaulted in
the payment of rentals, as a consequence of which, private respondent Roces-Reyes Realty Inc. filed on
October 14, 1984, an ejectment case against herein petitioners, Good Earth Emporium Inc. and Lim Ka
Ring. After the latter had tendered their responsive pleading, the lower court on motion of Roces
rendered judgement on the pleadings dated April 17, 1984, to which petitioners were ordered to vacate
the premises and surrender the same to the plaintiffs. On May 16, 1984, Roces filed a motion for
execution which was opposed by petitioners on May 28, 1984, simultaneous with the latter’s filing of a
notice of appeal. However, on August 15, 1984, GEE thru counsel filed a motion to withdraw said appeal
citing as reason that they are satisfied with the decision of the lower court.

Issue:

Whether or not the payment made by GEE to the Roces brothers constitute payment to private
respondent corporation which would result to the extinguishment of the obligation.

Held:

No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the person in
whose favor the obligation has been constituted, on his successor in interest or any person authorized
to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its successors
in interest nor is there positive evidence that payment was made to a person authorized to receive it.
No such proof was submitted but merely inferred by the RTC from Marcos Roces having signed the lease
contract as President which was witnessed by Jesus Marcos Roces. The later, however, was no longer
President or even an officer of the Roces-Realty Inc at the time he received the money and signed the
sale with pacto de retro. He, in fact denied being in possession of authority to receive payment for the
respondent corporation nor does the receipt show that he signed in the same capacity as he did in the
lease contract at a time when he was President for respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or members. Being
an officer or stockholder of a corporation does not make one’s property also of the corporation, and
vice-versa, for they are separate entities. Share owners are in no legal sense the owner’s corporate
property which is owned by the corporation as a distinct legal person. As a consequence of the separate
juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the
stockholder, nor is the stockholder’s debt or credit that of the corporation…
FELIPE TAYKO, EDUARDO BUENO, BAUTISTA TAYKO, BERNARDO SOLDE and VICENTE ELUM, petitioners,
vs. NICOLAS CAPISTRANO, acting as Judge of First Instance of Oriental Negros. ALFREDO B. CACNIO, as
Provincial Fiscal of Oriental Negros, and JUAN GADIANI, respondents.

FACTS:

This is a petition for a writ of prohibition enjoining the respondent judge from making cognizance of
certain civil and criminal election cases in which the petitioners are parties. The ground upon which the
petition rests may be reduced to three propositions.

(1) That the assignment of the Auxiliary Judge, Sixto de la Costa, to Dumaguete was made with the
understanding that he was to hear and take cognizance of all election contests and criminal causes for
violation of the election law and that the respondent judge was to take cognizance of the ordinary cases
and that there was an understanding between them that this arrangement was to be followed.

(2) That the respondent judge took great interest and an active part in the filing of the criminal charges
against the petitioners herein to the unjustifiable extent of appointing a deputy fiscal who filed the
proper information when the regular provincial fiscal refused to file them for lack of sufficient evidence.

(3) That the respondent judge is already over 65 years of age and has, therefore, automatically ceased as
judge of the Court of First Instance of Oriental Negros and that he is neither a judge de jure nor de facto.

To this petition the respondents demur on the ground that the facts stated in that (1) none of the facts
alleged in the petition divest the respondent judge of his jurisdiction to take cognizance of the cases
referred to in the complaint, and (2) even admitting as true, for the sake of this demurrer, the facts
alleged in paragraph 7 of the petition, the respondent judge is still a de facto judge and his title to the
office and his jurisdiction to hear the cases referred to in the petition cannot be questioned by
prohibition, as this writ, even when directed against persons acting as judges, cannot be treated as a
substitute for quo warranto, or be rightfully called upon to perform any of the functions of that writ.

ISSUE:

W/N the decision of a de facto judge is valid and binding.

HELD:

Briefly defined, a de facto judge is one who exercises the duties of a judicial office under color of an
appointment or election thereto. He differs on the one hand, from a mere usurper who undertakes to
act officially without any color of right, and on the other hand, from a judge de jure who is in all respects
legally appointed and qualified and whose term of office has not expired.

Applying the principles stated to the facts set forth in the petition before us, we cannot escape the
conclusion that, on the assumption that said facts are true, the respondent judge must be considered a
judge de facto. His term of office may have expired, but his successor has not been appointed, and as
good faith is presumed, he must be regarded as holding over in good faith. The contention of counsel for
the petitioners that the auxiliary judge present in the district must be considered the regular judge
seems obviously erroneous.

FERNANDEZ VS. TORRES

ISSUE:

Is the defendant correct that the filing of the case with the Department of labor did not constitute
judicial demand, hence did not stop the prescription period of filing the case?

RULING:

We do not agree with defendant. It is true that the claim filed by plaintiff with the regional office of the
Department of Labor is not a judicial demand in the same sense of the term "judicial demand" because
the same was not instituted in a court of justice. Judicial notice, however, should be taken that on
December 10, 1956, Reorganization Plan No. 20-A was promulgated pursuant to Republic Act 997, and
under Section 25 of said reorganization plan each regional office of the Department of Labor was vested
with original and exclusive jurisdiction over all cases affecting all money claims arising from violations of
labor standards on working conditions such as unpaid wages, underpayment, overtime and separation
pay, etc., to the exclusion of courts.3 Consequently, when plaintiff wanted to enforce his claim after his
dismissal from the service in October, 1959, he had no choice but to file the same with Regional Office
No. 4 of the Department of Labor which was the agency then empowered to take cognizance of the
claim. He could not institute the action to recover his claim in the court of justice because of the
provisions of Reorganization Plan No. 20-A. At least it may be said that on July 26, 1960, when plaintiff
filed his claim with Regional Office. No. 4 of the Department of Labor, he acted in accordance with the
procedure that was then prescribed under authority of law. Under the circumstances, we believe that
the filing by plaintiff of his claim before the regional office of the Department of Labor had the attributes
of a judicial demand.

It can be gathered from a reading of the above-quoted Section 25 of Reorganization Plan No. 20-A that
some sort of judicial powers was conferred upon the regional offices of the Department of Labor over
money claims mentioned in said section. Certainly, it can be considered that filing a money claim before
a regional office of the Department of Labor pursuant to Section 25 of Reorganization Plan No. 20-A is
like filing a complaint in court to enforce said money claim. We believe that the filing of a claim before
an administrative agency which is vested with authority to decide said claim would produce the effect of
a judicial demand for the purpose of interrupting the running of the period of prescription. The purpose
of the law on prescription and the statute of limitations is to protect the person who is diligent and
vigilant in asserting his right, and conversely to punish the person who sleeps on his right.4 Indeed, it
cannot be said that in the case before Us the plaintiff had slept on his right, because shortly after he was
separated from the service by the defendant he filed his claim before the agency of the government that
was at the time clothed with exclusive authority to pass upon his claim.
Hall v. Piccio

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 article
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.

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 Commissioner, for the
issuance of the corresponding certificate of incorporation.

On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental
office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed
before the Court of First Instance of Leyte the civil case numbered 381, entitled “Fred Brown et al. vs.
Arnold C. Hall et al.” 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 sufficiently of the cause of action.

ISSUE:

Whether the Corporation is a de facto Corporation.

RULING:

No. All the parties are informed that the Securities and Exchange Commission has not, so far, issued the
corresponding certificate of incorporation. All of them know, or sought to know, that the personality of
a corporation begins to exist only from the moment such certificate is issued — not before (sec. 11,
Corporation Law). The complaining associates have not represented to the others that they were
incorporated any more than the latter had made similar representations to them. And as nobody was
led to believe anything to his prejudice and damage, the principle of estoppel does not apply. Obviously,
this is not an instance requiring the enforcement of contracts with the corporation through the rule of
estoppel.

The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber
and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore
the court had not jurisdiction to take cognizance of said civil case number 381. Section 19 reads as
follows:

. . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act
and its right to exercise corporate powers shall not be inquired into collaterally in any private suit to
which the corporation may be a party, but such inquiry may be had at the suit of the Insular
Government on information of the Attorney-General.
There are least two reasons why this section does not govern the situation. Not having obtained the
certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders — may
not probably claim “in good faith” to be a corporation.

Benguet Consolidated Mining Co. vs Mariano Pineda

Facts:

Benguet Consolidated Mining Company was organized in 1903 under the Spanish Code of Commerce of
1886as 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, among others, is to eradicate the Spanish Code and make sociedades anonimas obsolete. In 1953,
the board of directors of Benguet Mining submitted to the Securities and Exchange Commission
an application for them to be allowed to extend the life span of Benguet Mining. Then Commissioner
Mariano 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.

ISSUE:

Whether or not Benguet Mining is correct.

HELD: 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 Sociedad’s 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. Evidently, Benguet Mining chose to exist as a sociedad anonima
hence it can no longer elect to become a corporation when its life is near its end.
Asia Banking Corporation v. Standard Products Co.

Petitioner: Asia Banking Corporation Respondents: Standard Products Co., Inc.

Concept: Formation and Organization of Corporations

Doctrine: The general rule is that in the absence of fraud, a person who has contracted or otherwise
dealt with an association in such a way as to recognize and in effect admit its legal existence as
a corporate body is thereby estopped to deny its corporate existence in any action leading out
of or involving such contract or dealing, unless its existence is attacked for causes which have arisen
since making the contract or other dealing relied on as an estoppel.

FACTS:

The Standard Products Co., Inc executed a promissory note through its president George H. Seaver in
favor of Asia Banking Corporation or order. This is an action brought by Asia Banking Corporation to
recover the sum of P24,736.47 which is the balance due on such note.

Lower Court: Rendered judgment in favor of plaintiff for the sum demanded in the complaint, with
interest on the sum of P24,147.34 from November 1, 1923, at the rate of 10% per annum, and the costs.
From this judgment, the defendant appeals to this court. At the trial, plaintiff failed to prove
affirmatively the corporate existence of the parties, and Standard Products Co. argues that the lower
court erred in finding that the parties were corporations with judicial personality.

ISSUES: WON the judgment of the lower court is a reversible error despite Asia Baking’s failure to
present evidence of its corporate existence (NO)

RATIO: -The general rule is that in the absence of fraud, a person who has contracted or otherwise dealt
with an association in such a way as to recognize and in effect admit its legal existence as a
corporate body is thereby estopped to deny its corporate existence in any action leading out of or
involving such contract or dealing, unless its existence is attacked for causes which have arisen
since making the contract or other dealing relied on as an estoppel. -This doctrine applies to domestic
as well as foreign corporations.-Since Standard Products has recognized the corporate existence of
Asia Banking by making a promissory note in its favor and making partial payments on the same,
it is estopped from denying Asia Banking’s corporate existence.-It is also denied from denying its own
corporate existence.-Under these circumstances, it was unnecessary for Asia Banking to present
other evidence of the corporate existence of either of the parties.

DISPOSITIVE: Judgment appealed from is affirmed, with costs against appellant.

Manuela Vda. De Salvatierra vs Lorenzo Garlitos

FACTS:

In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers Producers
Co., Inc. (PFPC). PFPC was represented by its president Segundino Refuerzo. It was agreed that Manuela
shall lease her land to PFPC in exchange of rental payments plus shares from the sales of crops.
However, PFPC failed to comply with its obligations and so in 1955, Manuela sued PFPC, and she won.
An order was issued by Judge Lorenzo Garlitos of CFI Leyte ordering the execution of the judgment
against Refuerzo’s property (there being no property under PFPC). Refuerzo moved for reconsideration
on the ground that he should not be held personally liable because he merely signed the lease contract
in his official capacity as president of PFPC. Garlitos granted Refuerzo’s motion. Manuela assailed the
decision of the judge on the ground that she sued PFPC without impleading Refuerzo because she
initially believed that PFPC was a legitimate corporation. However, during trial, she found out that PFPC
was not actually registered with the Securities and Exchange Commission (SEC) hence Refuerzo should
be personally liable.

ISSUE: Whether or not Manuela is correct.

HELD: Yes. It is true that as a general rule, the corporation has a personality separate and distinct
from its incorporators and as such the incorporators cannot be held personally liable for the
obligations of the corporation. However, this doctrine is not applicable to unincorporated associations.
The reason behind this doctrine is obvious-since an organization which before the law is non-existent
has no personality and would be incompetent to act and appropriate for itself the powers and attribute
of a corporation as provided by law; it cannot create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its representatives or agents do so without authority and
at their own risk. In this case, Refuerzo was the moving spirit behind PFPC. As such, his liability cannot
be limited or restricted that imposed upon [would-be] corporate shareholders. In acting on behalf of a
corporation which he knew to be unregistered, he assumed the risk of reaping the consequential
damages or resultant rights, if any, arising out of such transaction.
Albert VS University Publishing

Facts:

In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to damages
(for breach of contract) but reduced the amount from P23, 000.00 to P15, 000.00. Then in Albert vs.
University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for
P15,000.00 which had become final and executory, should be executed to its full amount, since in fixing
it, payment already made had been considered.15 years ago, Mariano Albert entered into a contract
with University Publishing Co., Inc. through Jose M. Aruego, its President, whereby University would pay
plaintiff for the exclusive right to publish his revised Commentaries on the Revised Penal Code. The
contract stipulated that failure to pay one installment would render the rest of the payments due.
When University failed to pay the second installment, Albert sued for collection and won. However,
upon execution, it was found that the records of this Commission do not show the registration of
UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership. Albert petitioned for a
writ of execution against Jose M. Aruego as the real defendant. University opposed, on the ground
that Aruego was not a party to the case.

Issue:

WON the non-registration of University Publishing Co., Inc. in the SEC is an existing corporation with
an independent juridical personality.

Held:

No. Ratio: On account of the non-registration, it cannot be considered a corporation, not even a
corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose
M. Aruego; it cannot be sued independently. In the case at bar, Aruego represented a non-existent
entity and induced not only Albert but the court to believe in such representation. He signed the
contract as “President” of “University Publishing Co., Inc.,” stating that this was “a corporation duly
organized and existing under the laws of the Philippines”. “A person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts performed as such
agent.”Aruego, acting as representative of such non-existent principal, was the real party to the contract
sued upon, and thus assumed such privileges and obligations and became personally liable for the
contract entered into or for other acts performed as such agent. The Supreme Court likewise held that
the doctrine of corporation by estoppel cannot be set up against Albert since it was Aruego who had
induced him to act upon his (Aruego’s) willful representation that University had been duly organized
and was existing under the law
Lim Tong Lim vs Philippine Fishing Gear Industries, Inc.

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 equipment’s. 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.

HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Limhad
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. Lim Tong Lim cannot argue that the principle of
corporation by estoppels can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim
benefited from the use of the nets found in his boats, the boat which has earlier been proven to be an
asset of the partnership. Lim, Chua and Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid existence, are held liable as general
partners.
Buenaflor Umali vs Court of Appeals189 SCRA 529

FACTS:

Fiction Mauricia Castillo was the administratrix in charge over a parcel of land left be Felipe
Castillo. Said land was mortgaged to the Development Bank of the Philippines and was about to be
foreclosed but then Mauricia’s nephew, Santiago Rivera, proposed that they convert the land into 4
subdivisions so that they can raise the necessary money to avoid foreclosure. Mauricia agreed. Rivera
sought to develop said land through his company, Slobec Realty Corporation (SRC), of which he was
also the president. SRC then contracted with Bormaheco, Inc. for the purchase of one tractor.
Bormaheco agreed to sell the tractor on an installment basis. At the same time, SRC mortgaged said
tractor to Bormaheco as security just in case SRC will default. As additional security, Mauricia and
other family members executed a surety agreement whereby in case of default in paying said tractor,
the Insurance Corporation of the Philippines (ICP) shall pay the balance. The surety bond agreement
between Mauricia and ICP was secured by Mauricia’s parcel of land (same land to be developed).SRC
defaulted in paying said tractor. Bormaheco foreclosed the tractor, but it wasn’t enough hence ICP paid
the deficiency. ICP then foreclosed the property of Mauricia. ICP later sold said property to Philippine
Machinery Parts Manufacturing Corporation (PMPMC). PMPMC then demanded Mauricia et al to
vacate the premises of said property. While all this was going on, Mauricia died. Her successor-
administratrix, Buenaflor Umali, questioned the foreclosure made by ICP. Umali alleged that all the
transactions are void and simulated hence they were defrauded; that through Bormaheco’s
machinations, Mauricia was fooled into entering into a surety agreement with ICP; that Bormaheco even
made the premium payments to ICP for said surety bond; that the president of Bormaheco is a
director of PMPMC; that the counsel who assisted in all the transactions, Atty. Martin De
Guzman, was the legal counsel of ICP, Bormaheco, and PMPMC.

ISSUE: Whether or not the veil of corporate fiction should be pierced.

HELD: No. There is no clear showing of fraud in this case. The mere fact that Bormaheco paid said
premium payments to ICP does not constitute fraud per se. As it turned out, Bormaheco is an
agent of ICP. SRC, through Rivera, agreed that part of the payment of the mortgage shall be paid for
the insurance. Naturally, when Rivera was paying some portions of the mortgage to Bormaheco,
Bormaheco is applying some parts thereof for the payment of the premium–and this was agreed upon
beforehand. Further, piercing the veil of corporate fiction is not the proper remedy in order that the
foreclosure conducted by ICP be declared a nullity. The nullity may be attacked directly without
disregarding the separate identity of the corporations involved. Further still, Umali et al are not
enforcing a claim against the individual members of the corporations. They are not claiming said
members to be liable. Umali et al are merely questioning the validity of the foreclosure. The veil of
corporate fiction can’t be pierced also by the simple reason that the businesses of two or more
corporations are interrelated, absent sufficient showing that the corporate entity was purposely
used as a shield to defraud creditors and third persons of their rights. In this case, there is no
justification for disregarding their separate personalities.

KOPPEL (PHILIPPINES), INC., plaintiff-appellant, vs. ALFREDO L. YATCO, Collector of Internal Revenue,
defendant-appelleeG.R. No. L-47673October 10, 1946

FACTS:

Plaintiff is a corporation duly organized and existing under and by virtue of the laws of the
Philippines, with principal office in Manila, the capital stock of which is divided into 1,000 shares
of P100 each. The Koppel Industrial Car and Equipment company, a corporation organized and
existing under the laws of the State of Pennsylvania, United States of America, and not licensed to
do business in the Philippines, owned nine hundred and 995 shares out of the total capital stock of the
plaintiff. The remaining 5 shares only were and are owned one each by officers of the plaintiff
corporation. That plaintiff, at all times material to this case, was and now is duly licensed to engage in
business as a merchant and commercial broker in the Philippines; and was and is the holder of
the corresponding merchant's and commercial broker's privilege tax receipts. Exhibited H of the
evidence: It is clearly understood that the intent of this contract is that the broker shall perform only the
functions of a broker as set forth above, and shall not take possession of any of the materials or
equipment applying to said orders or perform any acts or duties outside the scope of a broker; and
in no sense shall this contract be construed as granting to the broker the power to represent the
principal as its agent or to make commitments on its behalf. The Court of First Instance held for the
defendant and dismissed plaintiff's complaint with costs to it.

ISSUE: Whether or not Koppel Philippines is a domestic corporation distinct and separate from, and not
a mere branch of Koppel Industrial Car and Equipment Co

RULING: Koppel Philippines is a mere branch, subsidiary or agency of the latter. A corporation will be
looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but,
when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of persons. The corporate entity is
disregarded where it is so organized and controlled, and its affairs are so conducted, as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation. SC reasoned that, in so far
as the sales involved herein are concerned, Koppel Philippines, Inc., and Koppel Industrial Car and
Equipment company are to all intents and purposes one and the same; or, to use another mode
of expression, that, as regards those transactions, the former corporation is a mere branch,
subsidiary or agency of the latter. This is conclusively borne out by the fact, among others, that the
amount of the so-called “share in the profits" of Koppel (Philippines), Inc., was ultimately left to the
sole, unbridled control of Koppel Industrial Car and Equipment Company. No group of businessmen
could be expected to organize a mercantile corporation —the ultimate end of which could only be
profit —if the amount of that profit were to be subjected to such a unilateral control of another
corporation, unless indeed the former has previously been designed by the incorporators to serve
as a mere subsidiary, branch or agency of the latter. Evidently, Koppel Industrial Car and
Equipment Company made us of its ownership of the overwhelming majority —99.5% —of the capital
stock of the local corporation to control the operations of the latter to such an extent that it had the
final say even as to how much should be allotted to said local entity in the so-called sharing in the
profits. SC further ruled that, it cannot overlook the fact that in the practical working of corporate
organizations of the class to which these two entities belong, the holder or holders of the
controlling part of the capital stock of the corporation, particularly where the control is
determined by the virtual ownership of the totality of the shares, dominate not only the selection of
the Board of Directors but, more often than not, also the action of that Board. Philippine
corporation could not possibly contravene with the American corporation in this case under Exhibit H.
This fact necessarily leads to the inference that the corporation had at least a Vice-President, and
presumably also a President, who were not resident in the Philippines but in America, where the
parent corporation is domiciled. If Koppel (Philippines), Inc., had been intended to operate as a regular
domestic corporation in the Philippines, where it was formed, the record and the evidence do not
disclose any reason why all its officers should not reside and perform their functions in the Philippines.

RICARDO TANTONGCO v. KAISAHAN NG MGA MANGGAGAWA SA LACAMPANA (KKM) and THE

HONORABLE COURT OF INDUSTRIAL RELATIONS

FACTS:

The present case is a petition for Certiorari and prohibition with prayer for the issuance of a writ of
preliminary injunction to prohibit the respondent Court of Industrial Relations from proceeding with
the hearing of the contempt proceedings. La Campana Starch Factory and La Campana Coffee Factory
(La Campana for Brevity) are two separate entities run by a single management under the leadership of
Ramon Tantongco. Kaisahan ng mga Manggagawa sa La Campana (Kaisahan for brevity), on the other
hand, isa labor union with members from the two companies. Sometime in June,1951, representatives
of Kaisahan approached the management of La Campana to demand higher wages and more benefits. A
deadlock ensued since none of the parties is willing to give concessions. The dispute was certified to the
Court of Industrial Relations (CIR). La Campana filed a motion to dismiss before the CIR claiming that the
CIR has no jurisdiction because only those from the coffee factory were presenting the demands
there were only14 employees in said factory. This was done in light of the requirement that at
least 31employees should present the demands. The motion was denied by the CIR. According to the
CIR, the Kaisahan was the one that presented the demands and not just the workers in the coffee
factory. The Supreme Court affirmed the order of the CIR citing that although the two entities are
separate, there is only one management. The entire membership of the Kaisahan is therefore to be
counted and not simply those employed in the coffee factory. Additional incidental cases were
filed by Kaisahan before the CIR including a petition for the reinstatement of some employees.
Ramon Tantongco died some time in1956. The administrator of the estate of Ramon Tantongco,
herein petitioner Ricardo Tantongco, was ordered included as respondent in the cases pending before
the CIR. The CIR rendered a decision on the incidental cases and ordered the reinstatement of the
dismissed employees. When the employees reported to work, the management refused them
admittance. Kaisahan then filed a petition to cite the management in contempt before the CIR. Hence
this petition. CONTENTIONS Petitioner: The two companies ceased to exist upon the death of Ramon
Tantongco. The Supreme Court held in GR No. L-5677 that La Campana and Ramon Tantongco are
one based on the doctrine of piercing the veil of corporate existence. Therefore, the death of
Ramon Tantongco meant the death of La Campana. Since La Campana already ceased to exist, the CIR
no longer has jurisdiction over it. The claims should have been filed with the probate court.
Defendant: La Campana continues to exist despite the death of Ramon Tantongco. The CIR
therefore has jurisdiction when it rendered its decision on the incidental cases. The non-
compliance by La Campana therefore amounted to contempt of court.

ISSUE

1. WON La Campana ceased to exist upon the death of Ramon Tantongco.

2. WON the Doctrine of Piercing the Veil of Corporate Existence applies to the present case ; and
WON the contempt of court proceedings in the CIR should proceed.

RULING

The Supreme Court DENIED the Petition for Certiorari and Prohibition. It ruled that La Camapana
continued to exist despite the death of Ramon Tantongco. It further ruled that the Doctrine of Piercing
the Veil of Corporate Existence is not applicable in the present case. Finally, it allowed the CIR to
proceed with the contempt hearing.1 and 2 The death of Ramon Tantongco did not end the existence
of La Campana. The Supreme Court applied the Doctrine of Piercing the Veil of Corporate Existence
in GR no. L-5677 to avoid the use of technicality to defeat the jurisdiction of the CIR. In the said case,
the Court determined that although La Campana are two separate companies, they are being
managed by only one management. Furthermore, the workers of both factories were
interchangeably assigned. In the present case, however, the Court ruled that despite the obvious
fact that La Campana was run by the same people, they still are two different companies with
separate personalities from Ramon Tantongco. La Campana was owned not only by Ramon but
others as well including Ricardo Tantongco. Lastly, the Court ruled that petitioner is under estoppel
and cannot claim that La Campana and Ramon are one and the same since he has represented La
Campana as separate entities in numerous dealings.3. Ricardo Tantongco should still face the contempt
proceedings because under Section 6 of Commonwealth Act No. 143, “In case the employer (or
landlord) committing any such violation or contempt is an association or corporation, the manager or
the person who has the charge of the management of the business of the association or corporation
and the officers of directors thereof who have ordered or authorized the violation of contempt
shall be liable. . . .” Since Tantongco is the General Manager of La Campana, he is still obliged to appear
at the contempt proceedings.
ROBLEDO VS. NLRC (G.R. No. 110358, Nov. 9, 1994)

FACT OF THE CASE

Robledo ET. Al. filed a Petition for Review of the Decision of NLRC, setting aside the decision of
the Labor Arbiter, which held private respondents jointly and severally liable to the petitioners for
overtime and legal holiday pay. Petitioners were former employees of Bacani Security and Protective
Agency (BPSA). They were employed as security guards at different times during the period 1969 to
December 1989 when BPSA ceased to operate. BPSA was a single proprietorship owned, managed, and
operated by the late Felipe Bacani. On December 31, 1989, Felipe Bacani retired the business name
and BSPA ceased to operate effective on that day. On Jan. 15, 1990, Felipe Bacani died. An intestate
proceeding was instituted for the settlement of his estate before Pasig-RTC. Earlier, on Oct. 26, 1989,
respondent Bacani Security and Allied Services Co., Inc. (BASEC) had been organized and registered as a
corporation with SEC. Several of the incorporator (3) surnamed Bacani, and that includes the daughter
of the late Felipe Bacani. On July 5, 1990, the petitioners filed a complaint with the DOLE for
underpayment of wages and nonpayment of overtime pay and other accrued benefits, and for the
return of their cash bond, which they posted, with BPSA. Made respondents were BSPA and BASEC. On
March 1, 1992, the Labor Arbiter rendered a decision upholding the right of petitioners, finding the
complainants entitled to their money claims to be paid by all the respondents’ solidarily. On
appeal, the NLRC reversed the decision declaring that the Labor Arbiter is without jurisdiction and
instead suggested that petitioners file their claims with Pasig-RTC where an intestate proceeding of
Bacani’s estate was pending. Petitioners moved for reconsideration, but their motion was denied for
lack of merit. The case was elevated to the SC and was treated as a special civil action of certiorari to
determine whether the NLRC committed a grave abuse of discretion in reversing the Labor Arbiter’s
decision.

ISSUE

Whether Bacani Security and Allied Services, Inc. (BASEC) can be held liable for claims of petitioners
against Bacani Security and Protective Agency (BSPA).

RULING

No. Petitioners contend that public respondent, NLRC, erred in setting aside the Labor Arbiter’s
judgment on the ground that BASEC is the same entity as BSPA the latter being owned and controlled by
one and the same family, the Bacani family. For this reason they urge that corporate fiction should
be disregarded and BASEC should be held liable for the obligations of the defunct BSPA. As correctly
found by the NLRC, BASEC is an entity separate and distinct from that of BSPA. BSPA is a single
proprietorship owned and operated by Felipe Bacani. Hence, its debts and obligations were the personal
obligations of its owner. Petitioner’s claims, which are based on these debts and personal obligations,
did not survive the death of Felipe Bacani on Jan. 15, 1990 and should have been filed instead in the
intestate proceedings involving his estate.