corpo cases compiled from the net

8/12/2019 Corpo Cases compiled from the net

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Manila International Airport Authority vs Court of Appeals

Facts:MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for

the taxable years 1992 to 2001. MIAAs real estate tax delinquency was estimated at P624million. The City of Paraaque, through its City Treasurer, issued notices of levy and warrants of

levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell atpublic auction the Airport Lands and Buildings should MIAA fail to pay the real estate taxdelinquency.

MIAA filed with the Court of Appeals an original petition for prohibition and injunction,with prayer for preliminary injunction or temporary restraining order. The petition sought torestrain the City of Paraaque from imposing real estate tax on, levying against, and auctioningfor public sale the Airport Lands and Buildings.Paranaque relied on Section 193 of the Local Government Code which expressly withdrew the taxexemption privileges of government -owned and-cont rolled corporations upon the effectivity ofthe Local Government Code. Respondents also argued that a basic rule of statutory constructionis that the express mention of one person, thing, or act excludes all others. An international

airport is not among the exceptions mentioned in Section 193 of the Local Government Code.Thus, respondents asserted that MIAA cannot claim that the Airport Lands and Buildings areexempt from real estate tax.

MIAA contended that the Airport Lands and Buildings are owned by the Republic. Thegovernment could not tax itself. The reason for tax exemption of public property is that itstaxation would not inure to any public advantage, since in such a case the tax debtor is also thetax creditor.

Issue:Whether or not MIAA is a GOCC, hence, its Airport Lands and Buildings are subject to real estatetax under existing laws

Held:No. MIAA is Not a Government-Owned or Controlled Corporation but an instrumentality of

the National Government and thus exempt from local taxation.MIAA is also not a stock corporation because it has no capital stock divided into shares. MIAA hasno stockholders or voting shares. MIAA is also not a non-stock corporation because it has nomembers. A non-stock corporation must have members.

MIAA is a government instrumentality vested with corporate powers to performefficiently its governmental functions. MIAA is like any other government instrumentality, theonly difference is that MIAA is vested with corporate powers.When the law vests in a government instrumentality corporate powers, the instrumentality doesnot become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental butalso corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, policeauthority and the levying of fees and charges. At the same time, MIAA exercises all the powers ofa corporation under the Corporation Law, insofar as these powers are not inconsistent with theprovisions of this Executive Order.

Therefore, the real estate tax assessments issued by the City of Paraaque, and allproceedings taken pursuant to such assessments, are void.

Magsaysay-Labrador vs Court of Appeals

Facts:On February 9 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of

the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instanceof Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), FilipinasManufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulmentof the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of whichTCT 3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of theDeed of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the


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amount of P 2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for thelatter to issue a new title in her favor.

On March 7, 1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, LuisaMagsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the latesenator, filed a motion for intervention on the ground that on June 20, 1978, their brotherconveyed 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 asubstantial and legal interest in the subject matter of litigation and that they have a legal interestin the success of the suit with respect to SUBIC.

The trial court denied the motion for intervention, and ruled that petitioners had no legalinterest whatsoever in the matter in litigation and their being alleged assignees or transferees ofcertain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personalityseparate and distinct from its stockholders.

The Court of Appeals affirmed the decision of the trial court. The appellate court furtherstated that whatever claims the Magsaysay sisters had against the late Senator or against SUBICfor that matter could be ventilated in a separate proceeding. The motion for reconsideration ofthe Magsaysay sisters was denied. Hence, the petition for review on certiorari.

Issue: Whether the Magsaysay sisters, allegedly stockholders of SUBIC, were interested parties ina case where corporate properties are in dispute.

Held:No. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay

sisters have no legal interest in the subject matter in litigation so as to entitle them to intervenein the proceedings. To be permitted to intervene in a pending action, the party must have a legalinterest in the matter in litigation, or in the success of either of the parties or an interest againstboth, or he must be so situated as to be adversely affected by a distribution or other disposition

of the property in the custody of the court or an officer thereof . Here, the interest, if it exists atall, of the Magsaysay sisters is indirect, contingent, remote, conjectural, consequential andcollateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right inthe management of the corporation and to share in the profits thereof and in the properties andassets thereof on dissolution, after payment of the corporate debts and obligations. While a shareof stock represents a proportionate or aliquot interest in the property of the corporation, it doesnot vest the owner thereof with any legal right or title to any of the property, his interest in thecorporate property being equitable or beneficial in nature. Shareholders are in no legal sense theowners of corporate property, which is owned by the corporation as a distinct legal person.

Sulo ng Bayan vs Araneta

Facts:Sulo ng Bayan, Inc. filed with the Court of First Instance of Bulacan against Gregorio

Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA),Hacienda Caretas Inc., and the Register of Deeds of Bulacan to recover the ownership andpossession of a large tract of land in San Jose del Monte, Bulacan in the name of GAI, et. al.'spredecessors-in-interest (who are members of the corporation). Thereafter, GAI filed a motion todismiss the amended complaint on the grounds that (1) the complaint states no cause of action;and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. andHacienda Caretas, Inc. filed motions to dismiss based on the same grounds. NAWASA did not fileany motion to dismiss. However, it pleaded in its answer as special and affirmative defenses lackof cause of action by Sulo ng Bayan Inc. and the barring of such action by prescription and laches.

The trial court issued an Order dismissing the (amended) complaint. However, Sulo ngBayan filed a motion to reconsider the order of dismissal, arguing among others that thecomplaint stated a sufficient cause of action because the subject matter of the controversy wasone of common interest to the members of the corporation who were so numerous that thepresent complaint should be treated as a class suit. The motion was likewise denied by the trialcourt.


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On appeal, the CA certified the case to the Supreme Court for resolution of the legal issuesinvolved in the controversy.

Issue:Whether the corporation (non-stock) may institute an action in behalf of its individual membersfor the recovery of certain parcels of land allegedly owned by said members, among others.

Held:No. A corporation is a distinct legal entity to be considered as separate and apart from the

individual stockholders or members who compose it, and is not affected by the personal rights,obligations and transactions of its stockholders or members. The property of the corporation isits property and not that of the stockholders, as owners, although they have equities in it.Properties registered in the name of the corporation are owned by it as an entity separate anddistinct from its members. Conversely, a corporation ordinarily has no interest in the individualproperty of its stockholders unless transferred to the corporation, "even in the case of a one-mancorporation."

The juridical personality of the corporation, as separate and distinct from the personscomposing it, is but a legal fiction introduced for the purpose of convenience and to subserve theends of justice. This separate personality of the corporation may be disregarded, or the veil ofcorporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or towork -an injustice, or where necessary to achieve equity. It has not been claimed that themembers have assigned or transferred whatever rights they may have on the land in question tothe corporation. Absent any showing of interest, therefore, a corporation, has no personality tobring an action for and in behalf of its stockholders or members for the purpose of recoveringproperty which belongs to said stockholders or members in their personal capacities.

Bataan Shipyard vs PCGG

Facts:When President Corazon Aquino took power, the Presidential Commission on Good

Government (PCGG) was formed in order to recover ill gotten wealth allegedly acquired byformer President Marcos and his cronies. Aquino then issued two executive orders in 1986 andpursuant thereto, a sequestration and a takeover order were issued against Bataan Shipyard &Engineering Co., Inc. (BASECO). BASECO was alleged to be in actuality owned and controlled bythe Marcoses through the Romualdez family, and in turn, through dummy stockholders.

The sequestration order issued in 1986 required, among others, that BASECO producecorporate records from 1973 to 1986 under pain of contempt of the PCGG if it failed to do so.BASECOassailed this order averring , among others, that it is against BASECOs right against self

incrimination and unreasonable searches and seizures.

Issue:Whether or not BASECO was correct

Held:No. First of all, PCGG had the right to require the production of such documents pursuant

to the power granted to it. Second, and more importantly, right against self-incrimination has noapplication to juridical persons. There is a reserve right in the legislature to investigate thecontracts of a corporation and find out whether it has exceeded its powers. It would be a strangeanomaly to hold that a state, having chartered a corporation like BASECO to make use of certain

franchises, could not, in the exercise of sovereignty, inquire how these franchises had beenemployed, and whether they had been abused, and demand the production of the corporatebooks and papers for that purpose.

Neither is the right against unreasonable searches and seizures applicable in the instantcase. There were no searches made and no seizure pursuant to any search was ever made.BASECO was merely ordered to produce the corporate records.

Luxuria Homes vs Court of Appeals


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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 andarchitectural design for the said property. The contract price was P450,000.00. Posadas gave adown 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 companymanage the development of the property. But Posadas turned down the proposal and thereafterthe business relationship between the two went sour. Bravo then demanded Posadas to pay themthe balance of their agreement as regards the architectural design (P425,000.00). Bravo alsodemanded payment for some other expenses and fees he incurred i.e., negotiating and relocatingthe 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 LuxuriaHomes as a co-defendant as he alleged that Luxuria Homes was a mere conduit of Posadas; thatthe said corporation was created in order to defraud Bravo and avoid the payment of debt.

Issue : Whether or not Luxuria Homes should be impleaded

Held: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 just33% of Luxuria Homes. Further, when Luxuria Homes was created, Bravo was there as a witness.He could not claim that the creation of said corporation was to defraud him. The eventualtransfer of Posadas property to Luxuria was with the full knowledge of Bravo. The agreementbetween Posadas and Bravo was entered into even before Luxuria existed hence Luxuria wasnever a party thereto. Whatever liability Posadas incurred arising from said agreement must beborne 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. Itcannot be presumed.

Concept Builders vs NLRC

Facts:Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road,

Valenzuela, Metro Manila, was engaged in the construction business. Private respondents wereemployed by said company as laborers, carpenters and riggers.

On November, 1981, private respondents were served individual written notices oftermination of employment by petitioner stating that their contracts of employment had expiredand the project in which they were hired had been completed. However, they found that at thetime of the termination of their employment, the project in which they were hired had not yetbeen finished and completed. Concept Builders had to engage the services of sub-contractorswhose workers performed the functions of private respondents.

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.

The Labor Arbiter rendered judgment ordering reinstatement and payment of backwages. The NLRC dismissed the motion for reconsideration filed by Concept Builders on theground that it had become final and executory.

A writ of execution was issued. It was partially satisfied through garnishment of sumsfrom petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority.

An alias writ was issued to satisfy the balance and the reinstatement of privaterespondents. It could not be served because the petitioner no longer occupied the premises.Another alias writ was issued, which again could not be served because the employees claimedthey were employees of Hydro Pipes Philippines, Inc. and that the properties to be levied uponwere owned by the said corporation.

Private respondents filed a "Motion for Issuance of a Break-Open Order," alleging thatHPPI and Concept Builders were owned by the same incorporator/stockholders. They alsoalleged that petitioner temporarily suspended its business operations in order to evade its legal


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obligations to them and that private respondents were willing to post an indemnity bond toanswer for any damages which petitioner and HPPI may suffer because of the issuance of thebreak-open order.

The Labor Arbiter issued an Order which denied private respondents' motion for break-open order. On appeal, the NLRC issued the break- open order. Concept Builders motion forreconsideration was denied.

Issue: Whether or not NLRC commited grave abuse of discretion when it issued a "break-openorder" to the sheriff to be enforced against personal property found in the premises ofpetitioner's sister company

Held:

No. It is a fundamental principle of corporation law that a corporation is an entity separateand 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 forconvenience 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 deviceto defeat the labor laws, this separate personality of the corporation may be disregarded or theveil 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.

The test in determining the applicability of the doctrine of piercing the veil of corporatefiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, notonly of finances but of policy and business practice in respect to the transactionattacked so that the corporate entity as to this transaction had at the time no separatemind, will or existence of its own;

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

3. The aforesaid control and breach of duty must proximately cause the injury or unjustloss complained of.

The absence of any one of these elements prevents "piercing the corporate veil." Inapplying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality andnot form, with how the corporation operated and the individual defendant's relationship to thatoperation.

In this case, the NLRC noted that, while petitioner claimed that it ceased its businessoperations on April 29, 1986, it filed an Information Sheet with the SEC on May 15, 1987, statingthat its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI,the third-party claimant, submitted on the same day, a similar information sheet stating that itsoffice address is at 355 Maysan Road, Valenzuela, Metro Manila.

Both information sheets were filed by the same Virgilio O. Casio as the corporatesecretary of both corporations. It would also not be amiss to note that both corporations had thesame president, the same board of directors, the same corporate officers, and substantially thesame subscribers.

Clearly, petitioner ceased its business operations in order to evade the payment to privaterespondents of back wages and to bar their reinstatement to their former positions. HPPI isobviously a business conduit of petitioner corporation and its emergence was skillfullyorchestrated to avoid the financial liability that already attached to petitioner corporation.

In view of the failure of the sheriff, in the case at bar, to effect a levy upon the propertysubject of the execution, private respondents had no other recourse but to apply for a break-openorder after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is inconsonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter.

Francisco Motors vs Court of Appeals


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Facts:In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover from

a him a sum of money in the amount of more than P23,000.00. Said amount was allegedly owedto them by Manuel for the purchase of a jeep body plus repairs thereto. Manuel filed acounterclaim in the amount of P50,000.00. In his counterclaim, Manuel alleged that he was theAssistant Legal Officer for FMC; that the Francisco Family, owners of FMC, engaged his services

for the intestate estate proceedings of one Benita Trinidad; that he was not paid for his legalservices; that he is filing the counterclaim against FMC because said corporation was merely aconduit of the Francisco Family.

The trial court as well as the Court of Appeals granted Manuels counterclaim on theground that the legal fees were owed by the incorporators of FMC (an application of the doctrineof piercing the veil of corporation fiction in a reversed manner).

Issue: Whether or not the doctrine of piercing the veil of corporate fiction was properly used bythe Court of Appeals.

Held:

No. In the first place, the doctrine is to be used in disregarding corporate fiction andmaking the incorporators liable in appropriate circumstances. In the case at bar, the doctrine isapplied upside down where the corporation is held liable for the personal obligations of theincorporators such was uncalled for and erroneous. It must be noted that that Atty. Manuelslegal services were secured by the Francisco Family to represent them in the intestateproceedings ove r Benita Trinidads estate. The indebtedness was incurred by the FranciscoFamily in their separate and personal capacity. These estate proceedings did not involve anybusiness of FMC. The proper remedy is for Manuel to sue the concerned members of theFrancisco Family in their individual capacity.

Times Transportation Company vs Santos Sotelo

Facts:Times Transportation Company, Inc. (Times) is a corporation engaged in the business of

land transportation. Times Employees Union (TEU) was formed and issued a certificate of unionregistration. Times challenged the legitimacy of TEU by filing a petition for the cancellation of itsunion registration. TEU held a strike in response to Times alleged attempt to form a rival unionand its dismissal of the employees identified to be active union members. The LaborSecretary assumed jurisdiction over the case and referred the matter to the NLRC for compulsoryarbitration. A return-to-work order was likewise issued.

In a certification election, TEU was certified as the sole and exclusive collective bargainingagent in Times. Consequently, TEUs president wrote the management of Times and requestedfor collective bargaining. Times refused. TEU filed a Notice of Strike. Anotherconciliation/mediation proceeding was conducted for the purpose of settling the brewingdispute.

Times management implemented a retrenchment program and notices of retrenchmentwere sent to some of its employees. TEU held a strike vote on grounds of unfair labor practice onthe part of Times. For alleged participation in an illegal strike, Times terminated all the 123striking employees. The DOLE Secretary issued the second return-to-work order certifying thedispute to the NLRC. While the strike was ended, the employees were no longer admitted back towork.

MencorpTransport Systems, Inc. (Mencorp) had acquired ownership over TimesCertificates 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, themajority stockholder of Times. Meanwhile, the NLRC rendered a decision declaring the first strikelegal and the second illegal.

Times and TEU both appealed the decision of the NLRC, which the Court of Appealsaffirmed. Upon denial of its motion for reconsideration, Times filed a petition for review oncertiorari.

After the closure of Times, the retrenched employees filed cases for illegal dismissal,money claims and unfair labor practices against Times before the Regional Arbitration Branch in


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San Fernando City, La Union. The employees withdrew their complaints with leave of court andfiled a new set of cases before the National Capital Region Arbitration Branch, impleadingMencorp and the Spouses Mendoza. Times sought the dismissal of these cases on the ground oflitis pendencia and forum shopping.

The Labor Arbiter ruled that the dismissals of complainants Times, effected, participatedin, authorized or ratified by Santiago Rondaris constituted the prohibited act of unfair labor

practice and hence, illegal and that th esale of said respondent company to respondents MencorpTransport Systems Company (sic),Inc. and/or Virginia Mendoza and Reynaldo Mendoza wassimulated and/or effected in bad faith.

Times, Mencorp and the Spouses Mendoza submitted their respective memorandum ofappeal to the NLRC. NLRC rendered its decision remanding the records of the consolidated casesto the Arbitration Branch of origin for disposition and for the conduct of appropriateproceedings. NLRC denied the Motion for Reconsideration. Thus, the employees appealed to theCA by way of a petition for certiorari, which granted the petition and set aside the decision of theN LRC. Times, Mencorp and the Spouses Mendoza filed Motions for Reconsideration, which weredenied. Hence, this petition for review on certiorari.


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Issue: Whether or not piercing the corporate veil in this case was proper

Held:Yes. We have held that piercing the corporate veil is warranted only in cases when the

separate legal entity is used to defeat public convenience, justify wrong, protect fraud, ordefendcrime, such that in the case of two corporations, the law will regard the corporations as

merged into one. It may be allowed only if the following elements concur: (1) control not merestockcontrol, but complete domination not only of finances, but of policy and business practiceinrespect to the transaction attacked; (2) such control must have been used to commit a fraudor a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonestandan unjust act in contravention of a legal right; and (3) the said control and breach of dutymusthave proximately caused the injury or unjust loss complained of.

In this case, the sale was transferred to a corporation controlled by V. Mendoza, thedaughter of S. Rondaris of Times where she is/was also a director. All of thestockholders/incorporators of Mencorp are all relatives of S. Rondaris. The timing of the saleevidently was to negate the employees/complainants/members right to organization as it waseffected when their union (TEU) was just organized/requesting Times to bargain. Mencorp never

obtained a franchise since its supposed incorporation but at present, all the buses of Times arealready being run/operated by Mencorp, the franchise of Times having been transferred to it. Thesale of Times franchise as well as most of its bus units to a company owned by Rondarisdaughter and family members, right in the middle of a labor dispute, is highly suspicious.Evidently, the transaction was made in order to remove Times remaining assets from the reachof any judgment that may be rendered in the unfair labor practice cases filed against it.

Yao, Sr. vs People

Facts:Petitioners are incorporators and officers of Masagana Gas Corporation (Masagana), an

entity engaged in the refilling, sale and distribution of LPG products. Privaterespondents Petron Corporation (Petron) and Pilipinas Shell Petroleum 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 GASULcylinders used for its LPG products. It is the sole entity in the Philippines authorized toallow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers, productsand its trademarks. Pilipinas Shell, on the other hand, is the authorized user in the Philippines ofthe tradename, trademarks, symbols, or designs of its principal, Shell International PetroleumCompany Limited (Shell International), including the marks SHELLANE and SHELL device inconnection with the production, sale and distribution of SHELLANE LPGs. It is the onlycorporation in the Philippines authorized to allow refillers and distributors to refill, use, sell anddistribute SHELLANE LPG containers and products.

On April 3, 2003, NBI agent Ritche N. Oblanca (Oblanca) filed two applications for searchwarrant with the RTC, Cavite City, against petitioners and other occupants of the Masaganacompound for alleged violation of Section 155, in relation to Section 170 of The IntellectualProperty Code of the Philippines. The two applications for search warrant uniformly alleged thatper information, belief, and personal verification of Oblanca, the petitioners were actuallyproducing, selling, offering for sale and/or distributing LPG products using steel cylinders ownedby, and bearing the tradenames, trademarks, and devices of Petron and Pilipinas Shell, withoutauthority and in violation of the rights of the said entities.

Masagana, as third party claimant, filed with the RTC a Motion for the Return of MotorCompressor and LPG Refilling Machine. It claimed that it is the owner of the said motorcompressor and LPG refilling machine; that these items were used in the operation of itslegitimate business; and that their seizure will jeopardize its business interests.

RTC resolved that Masagana cannot be considered a third party claimant whose rightswere violated as a result of the seizure since the evidence disclosed that petitioners arestockholders of Masagana and that they conducted their business through the same juridicalentity. CA affirmed RTCs decision .


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Issue: Whether or not CA erred in ruling that the complaint is directed against Masagana GasCorporation, acting through its officers and directors, hence, Masagana may not be considered asthird party claimant whose rights were violated as a result of the seizure

Held:No. It is an elementary and fundamental principle of corporation law that a corporation is

an entity separate and distinct from its stockholders, directors or officers. However, when thenotion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defendcrime, the law will regard the corporation as an association of persons, or in the case of twocorporations merge them into one.

Here, the petitioners, as directors/officers of MASAGANA, are utilizing the latter inviolating the intellectual property rights of Petron and Pilipinas Shell. Thus, petitionerscollectively and MASAGANA should be considered as one and the same person for liabilitypurposes. Consequently, MASAGANAs third party claim serves no refuge for petitioners. The lawdoes not require that the property to be seized should be owned by the person against whom thesearch warrants are directed. Ownership, therefore, is of no consequence, and it is sufficient thatthe person against whom the warrant is directed has control or possession of the property

sought to be seized. Hence, even if, as petitioners claimed, the properties seized belong toMASAGANA as a separate entity, their seizure pursuant to the search warrants is still valid.

Further, it is apparent that the motor compressor, LPG refilling machine and the GASULand SHELL LPG cylinders seized were the corpus delicti, the body or substance of the crime, orthe evidence of the commission of trademark infringement. These were the very instrumentsused or intended to be used by the petitioners in trademark infringement. It is possible that, ifreturned to MASAGANA, these items will be used again in violating the intellectual propertyrights of Petron and Pilipinas Shell.

Seventh Day Adventist vs Northeastern Mindanao Mission

Facts:On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union

Mission of Seventh Day Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan).The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh DayAdventist Church, on behalf of the donee. Twenty-one years later, however, on February 28,1980, the same parcel of land was sold by the spouses Cosio to the Seventh Day Adventist Churchof North-Eastern Mindanao Mission (SDA-NEMM).

Claiming to be the alleged donees successors -in-interest, petitioners asserted ownershipover 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, ithad no juridical personality. Petitioners then filed a case for cancellation of title, quieting ofownership and possession, declaratory relief and reconveyance with prayer for preliminaryinjunction and damages, in the RTC of Bayugan, Agusan del Sur.

RTC upheld the sale in favor of respondents. On appeal, the CA affirmed the RTC decision.Petitioners motion for reconsideration was likewise denied . Thus, this petition.

Issue: Whether or not at the time the donation was made, SPUM-SDA had juridical personality orcapacity to accept such gift.

Ruling:No. 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 favorof an entity yet inexistent at the time it was made. Nor could it have been accepted as there wasyet no one to accept it. The deed of donation was not in favor of any informal group of SDAmembers but a supposed SPUM-SDA Bayugan (the local church) which, at the time, had neitherjuridical personality nor capacity to accept such gift.

While there existed the old Corporation Law (Act 1459), a law under which SPUM-SDABayugan could have been organized, there is no proof that there was an attempt to incorporate atthat time. The filing of articles of incorporation and the issuance of the certificate ofincorporation are essential for the existence of a de facto corporation. An organization not


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registered with the SEC cannot be considered a corporation in any concept, not even as acorporation de facto. Petitioners themselves admitted that at the time of the donation, they werenot registered with the SEC, nor did they even attempt to organize to comply with legalrequirements.

Corporate existence begins only from the moment a certificate of incorporation is issued.No such certificate was ever issued to petitioners or their supposed predecessor-in-interest at

the time of the donation. Petitioners obviously could not have claimed succession to an entitythat never came to exist. Neither could the principle of separate juridical personality apply sincethere was never any corporation to speak of. And, as already stated, some of the representativesof petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were noteven members of the local church then, thus, they could not even claim that the donation wasparticularly for them.

Lim Tong Lim vs Court of Appeals

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 donot have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They againborrowed 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 fishingnets amounting to more than P500k.

They were however unable to pay PFGI and so they were sued in their own namesbecause apparently OQFC is a non-existent corporation. Chua admitted liability and asked forsome time to pay. Yao waived his rights. Lim Tong Lim however argued that he was not liablebecause he was not aware that Chua and Yao represented themselves as a corporation; that thetwo acted without his knowledge and consent.

Issue: Whether or not Lim Tong Lim was liable.

Held: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 subsequentlyrevealed their intention to pay the loan with the proceeds of the sale of the boats, and to divideequally among them the excess or loss. These boats, the purchase and the repair of which werefinanced with borrowed money, fell under the term common fund under Article 1767. Thecontribution to such fund need not be cash or fixed assets; it could be an intangible like credit orindustry. That the parties agreed that any loss or profit from the sale and operation of the boatswould be divided equally among them also shows that they had indeed formed a partnership.

Lim Tong Lim could not argue that the principle of corporation by estoppel can only beimputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets foundin his boat s, the boat which has earlier been proven to be an asset of the partnership. Lim, Chuaand Yao decided to form a corporation. Although it was never legally formed for unknownreasons, this fact alone does not preclude the liabilities of the three as contracting parties inrepresentation of it. Clearly, under the law on estoppel, those acting on behalf of a corporationand those benefited by it, knowing it to be without valid existence, are held liable as generalpartners.

International Express Travel and Tour Services vs Court of Appeals

Facts:In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the

Philippine Football Federation (PFF) its travel services for the South East Asian Games. PFF,through Henri Kahn, its president, agreed. IETTI then delivered the plane tickets to PFF. PFF inturn made a down payment. However, PFF was not able to complete the full payment insubsequent installments despite repeated demands from IETTI. IETTI then sued PFF and Kahn


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was impleaded as a co-defendant. Kahn averred that he should not be impleaded because hemerely acted as an agent of PFF which he averred is a corporation with separate and distinctpersonality from him.

The trial court ruled against Kahn and held him personally liable for the said obligation(PFF was declared in default for failing to file an answer). The trial court ruled that Kahn failed toprove that PFF is a corporation.

The Court of Appeals however reversed the decision of the trial court. The Court ofAppeals took judicial notice of the existence of PFF as a national sports association; that as such,PFF is empowered to enter into contracts through its agents; that PFF is therefore liable for thecontract entered into by its agent Kahn. The CA further ruled that IETTI is in estoppel; that itcannot now deny the corporate existence of PFF because it had contracted and dealt with PFF insuch a manner as to recognize and in effect admit its existence.

Issue: Whether or not the Court of Appeals is correct.

Held:No. PFF, upon its creation, is not automatically considered a national sports association. It

must first be recognized and accredited by the Philippine Amateur Athletic Federation and theDepartment of Youth and Sports Development. This fact was never substantiated by Kahn. Assuch, PFF is considered as an unincorporated sports association. And under the law, any personacting or purporting to act on behalf of a corporation which has no valid existence assumes suchprivileges and becomes personally liable for contract entered into or for other acts performed assuch agent.

Kahn is therefore personally liable for the contract entered into by PFF with IETTI. Thereis also no merit on the finding of the CA that IETTI is in estoppel. The application of the doctrineof corporation by estoppel applies to a third party only when he tries to escape liability on acontract from which he has benefited on the irrelevant ground of defective incorporation. In thecase at bar, IETTI is not trying to escape liability from the contract but rather is the one claiming

from the contract.

Filipinas Broadcasting Network, Inc. vs Ago Medical and Educational Center-BicolChristian College of Medicine

Facts:Petitioner Filipinas Broadcasting Network, Inc (FBNI) assails the Resolution of the CA

which modified the December 14, 1992 decision of the RTC of Legazpi City (as to the amount ofmoral damages), and found petitioner and its broadcasters Hermogenes Alegre and CarmeloRima liable for libel. The lower court ordered FBNI, Alegre and Rima to solidarily pay moraldamages, attorneys fees and the costs of the suit to Ago Medical and Educational Center - BicolChristian College of Medicine (AMEC).

The complaint alleged that Alegre and Rima had made malicious imputations and as s uchdestroyed plaintiffs (AMEC and Angelita Ago, Dean of the College of Medicine) reputation byciting the alleged complaints of students, parents and teachers. The complaint cited thatdefendants had made the ff libellous imputations with no factual basis: (1) That AMEC-BCCMrequires its students to repeat subjects which they have passed already the moment they fail onesubject, despite the absence of any such regulation by the DECS; (2) That students were requiredto take and pay for the subject even if there is no instructor, which demonstrates the greed ofAMECs administration and; (3) That AMEC is a dumping ground of moral and physical misfitsbecause it continued to accept rejects in order to minimize salary expenses. FBNI wasimpleaded as a defen dant for failing to exercise due diligence in the selection and supervision ofits employees (Alegre and Rima). A Motion to Dismiss was filed in behalf of FBNI which the RTCdenied.

The lower court held that the broadcasters were liable per se and were not the result ofstraight reporting because it had no factual basis because the broadcasters failed to verify theirreports. FBNI failed to exercise the due diligence as required by law. Hence, the judgmentrequiring FBNI, Alegre and Rima to pay moral damages (Php 300,000), plus reimbursement ofattorneys fees (Php 30,000) and the costs of the suit. CA lowered the amount of moral damagesto Php 150,000.


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Issue: Whether or not AMEC-BCCM, a corporation, is entitled to the award of moral damages.

Ruling:Yes. AMEC-BCCM is entitled to the award of moral damages. Generally, a juridical person

is 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 moralshock. In Mambulao Lumber Co. v. PNB, et al , the award of moral damages may be justified.However, the Courts statement in the said case, that a corporation may have a good reputationwhich, if besmirched, may also be a ground for the award of moral damages, is an obiter dictum.

AMECs claim for moral damages was grounded under item 7 of Article 2219 of the CivilCode which authorizes the same in cases of libel, slander, or any other form of defamation. Theprovision does not qualify whether the plaintiff seeking such award is a natural or juridicalperson. Therefore, a juridical person such as a corporation can validly complain of libel or anyother form of defamation and claim for moral damages as a result thereof. Moreover, evidence ofan honest mistake or the want of character or reputation of the party libelled serves only tomitigate the amount of damages. Since the broadcasts are libelous per se, AMEC is entitled to

moral damages. The amount is reduced to Php 150,000 because AMEC has not suffered anysubstantial or material damage to its reputation.

Coastal Pacific Trading, Inc. vs Southern Rolling Mills Co., Inc.

Facts:Visayan Integrated Steel Corporation or VISCO was formerly known as Sounthern Rolling

Mills, Inc. VISCO entered into a processing agreement with Petitioner Coastal.The parties agreed that Coastal would deliver 3,000 metric tons of hot rolled steel coils to VISCOfor processing in to block iron sheets.

However, VISCO was able to process and deliver to Coastal only 1, 600 metric tons of the

said sheets. Hence , a total of 1,400 metric tons of hot rolled coils remained unclaimed for. Then ayear later, Coastal filed with the RTC a Complaint for Recovery of Property and Damages. Italleged that VISCO had fraudulently misapplied or converted the finished steel entrusted to it.

Issue: Whether or not Coastal is liable for 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, seriousanxiety, mental anguish and moral shock. The only exception to this rule is when the corporationhas a good reputation that is debased, resulting in its humiliation in the business realm.

In the case at bar, the records did not show any evidence that the name or reputation ofCoastal was dishonored as a result of the fraudulent acts complained by Coastal. Hence, Coastal isnot entitled to moral damages.

Lyceum of the Philippines vs Court of Appeals

Facts:Petitioner is an educational institution duly registered with the SEC since Sept 1950.

Before the case at bar, petitioner commenced a proceeding against Lyceum of Baguio with theSEC to require it to change its corporate name and adopt a new one not similar or identical to thePetitioner. SEC granted noting that there was substantial similarity because of the dominantword Lyceum. CA and SC affirmed.

Petitioner filed a similar complaint against other schools and obtained a favorabledecision from the hearing officer. On appeal, SEC En banc reversed the decision and held that theword Lyceum have not become so identified with the petitioner and that the use thereof willcause confusion to the general public.

Issue:


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Whether or not the corporate names of the private respondents are identical with or deceptivelysimilar to that of the petitioner.

Held:No. The corporate names of the parties carry the word Lyceum but confusion and

deception are precluded by the appending of geographic names. Lyceum generally refers to a

school or an institution of learning and it is natural to use this word to designate an entity whichis organized and operating as an educational institution.The doctrine of secondary meaning is a word of phrase originally incapable of exclusive

appropriation, might nevertheless have been used so long and so exclusively by one producerwith reference to his article that, in trade and to that branch of the purchasing public, the word orphrase has come to mean that the article was his product.

Lyceum of the Philippines has not gained exclusive use of Lyceum by long passage oftime. The number alone of the private respondents suggests strongly that the use of Lyceum hasnot been attended with the exclusivity essential for the applicability of the doctrine. It may benoted that one of the respondents Western Pangasinan Lyceum used such term 17 years beforethe petitioner registered with the SEC. Moreover, there may be other schools using the name but

not registered with the SEC because they have not adopted the corporate form of organization.

Ang mga Kaanib sa Iglesia ng Dios vs Iglesia ng Dios Kay Kristo Jesus

Facts:

The Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (IDCJ-HSK; Church ofGod in Christ Jesus, the Pillar and Ground of Truth), is a non-stock religious society orcorporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several othermembers of said corporation disassociated themselves from the latter and succeeded inregistering on March 30, 1977 a new non-stock religious society or corporation, named Iglesia ngDios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan (IDKJ-HSK).

On 16 July 1979, IDCJ-HSK filed with the SEC a petition to compel IDKJ-HSK to change itscorporate name (SEC Case 1774). The SEC rendered judgment in favor of IDCJ-HSK, orderingIDKJ-HSK to change its corporate name to another name that is not similar or identical to anyname already used by a corporation, partnership or association registered with the Commission.No appeal was taken from said decision.

During the pendency of SEC Case 1774, Soriano, et al., caused the registration on April 25,1980 of Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas(AK[IDKH-HSK]BP). The acronym "H.S.K." stands for Haligi at Saligan ng Katotohanan.

On 2 March 1994, IDCJ-HSK filed before the SEC a petition praying that AK[IDKH-HSK]BP

be compelled to change its corporate name and be barred from using the same or similar nameon the ground that the same causes confusion among their members as well as the public.KIDKH-HSK-BP filed a motion to dismiss on the ground of lack of cause of action. The motion todismiss was denied. Thereafter, for failure to file an answer, AK[IDKH-HSK]BP was declared indefault and IDCJ-HSK was allowed to present its evidence ex parte.

Thereafter, SEC rendered a decision ordering AK[IDKH-HSK]BP to change its corporatename. AK[IDKH-HSK]BP appealed to the SEC En Banc. In a decision dated 4 March 1996, the SECEn Banc affirmed the above decision, upon a finding that AK[IDKH-HSK]BP's corporate name wasidentical or confusingly or deceptively similar to that of IDCJ-HSK's corporate name.

CA affirmed the decision of the SEC En Banc. AK[IDKH-HSK]BP's motion forreconsideration was denied, hence, this petition for review.

Issue: Whether or not the corporate names of AK[IDKH-HSK]BP and IDCH-HSK are confusinglysimilar.

Held: Yes. The SEC has the authority to de-register at all times and under all circumstances

corporate names which in its estimation are likely to spawn confusion. It is the duty of the SEC to


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prevent confusion in the use of corporate names not only for the protection of the corporationsinvolved but more so for the protection of the public.

Section 18 of the Corporation Code provides that "No corporate name may be allowed bythe Securities and Exchange Commission if the proposed name is identical or deceptively orconfusingly similar to that of any existing corporation or to any other name already protected bylaw or is patently deceptive, confusing or is contrary to existing laws. When a change in the

corporate name is approved, the Commission shall issue an amended certificate of incorporationunder the amended name." Corollary thereto, the pertinent portion of the SEC Guidelines onCorporate Names states that "(d) If the proposed name contains a word similar to a word alreadyused as part of the firm name or style of a registered company, the proposed name must containtwo other words different from the name of the company already registered; Parties organizing acorporation must choose a name at their peril; and the use of a name similar to one adopted byanother corporation, whether a business or a nonprofit organization, if misleading or likely toinjure in the exercise of its corporate functions, regardless of intent, may be prevented by thecorporation having a prior right, by a suit for injunction against the new corporation to preventthe use of the name.

Herein, the additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." inAK[IDKH-HSK]BP's name are merely descriptive of and also referring to the members, or kaanib,of IDCH-HSK who are likewise residing in the Philippines. These words can hardly serve as aneffective differentiating medium necessary to avoid confusion or difficulty in distinguishingAK[IDKH-HSK]BP from IDCH-HSK. This is especially so, since both AK[IDKH-HSK]BP and IDCH-HSK are using the same acronym H.S.K.; not to mention the fact that both are espousingreligious beliefs and operating in the same place. Parenthetically, it is well to mention that theacronym H.S.K. used by AK[IDKH-HSK]BP stands for "Haligi at Saligan ng Katotohanan."

The records reveal that in holding out their corporate name to the public, AK[IDKH-HSK]BP highlights the dominant words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI ATSALIGAN NG KATOTOHANAN," which is strikingly similar to IDCH-HSK's corporate name, thus

making it even more evident that the additional words "Ang Mga Kaanib" and "Sa BansangPilipinas, Inc.", are merely descriptive of and pertaining to the members of IDCH-HSK.Significantly, the only difference between the corporate names of AK[IDKH-HSK]BP and IDCH-HSK are the words SALIGAN and SUHAY. These words are synonymous both mean ground,foundation or support. Hence, this case is on all fours with Universal Mills Corporation v.Universal Textile Mills, Inc., where the Court ruled that the corporate names Universal MillsCorporation and Universal Textile Mills, Inc., are undisputably so similar that even under the testof "reasonable care and observation" confusion may arise.

Young Auto Supply vs Court of Appeals

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 ConsolidatedMarketing & Development Corporation (CMDC) to George C. Roxas. The purchase price wasP8,000,000.00 payable as follows: a down payment of P4,000,000.00 and the balance ofP4,000,000.00 in four postdated checks of P1,000,000.00 each. Immediately after the executionof the agreement, Roxas took full control of the four markets of CMDC. However, the vendors heldon to the stock certificates of CMDC as security pending full payment of the balance of thepurchase price. The first check of P4,000,000.00, representing the down payment, was honoredby the drawee bank but the four other checks representing the balance of P4,000,000.00 weredishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the proceedsof the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00.

Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to theproceeds of the sale of the CMDC shares to Nemesio Garcia. YASCO and Garcia filed a complaintagainst Roxas in the Regional Trial Court of Cebu City praying that Roxas be ordered to pay themthe sum of P3,400,000.00 or that full control of the three markets be turned over to YASCO andGarcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 andthe payment of attorney's fees and costs.


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Failing to submit his answer, the trial court declared Roxas in default. The order of defaultwas, however, lifted upon motion of Roxas. Roxas then filed a motion to dismiss. After hearing,trial court denied Roxas' motion to dismiss. After receiving said order, Roxas filed anothermotion for extension of time to submit his answer. He also filed a motion for reconsideration,which the trial court denied for being pro-forma. Roxas was again declared in default, on theground that his motion for reconsideration did not toll the running of the period to file his

answer.On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was

not accompanied with the required affidavit of merit. But without waiting for the resolution ofthe motion, he filed a petition for certiorari with the Court of Appeals. The Court of Appealsdismissed the complaint on the ground of improper venue. A subsequent motion forreconsideration was filed by YASCO but to no avail. YASCO and Garcia filed the petition.

Issue: Whether the venue for the case against YASCO and Garcia in Cebu City was improperlylaid.

Held:No. 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 ofthe place where its principal office is located as stated in the articles of incorporation. TheCorporation Code precisely requires each corporation to specify in its articles of incorporationthe "place where the principal office of the corporation is to be located which must be within thePhilippines." The purpose of this requirement is to fix the residence of a corporation in a definiteplace, instead of allowing it to be ambulatory.

Actions cannot be filed against a corporation in any place where the corporationmaintains its branch offices. The Court ruled that to allow an action to be instituted in any placewhere the corporation has branch offices would create confusion and work untold inconvenience

to said entity. By the same token, a corporation cannot be allowed to file personal actions in aplace other than its principal place of business unless such a place is also the residence of a co-plaintiff or a defendant.

With the finding that the residence of YASCO for purposes of venue is in Cebu City, whereits principal place of business is located, it becomes unnecessary to decide whether Garcia is alsoa resident of Cebu City and whether Roxas was in estoppel from questioning the choice of CebuCity as the venue. The decision of the Court of Appeals was set aside.

Republic Planters Bank vs Agana

Facts:

On September 18, 1961, the Robes-Francisco Realty & Development Corporation (RFRDC)secured a loan from the Republic Planters Bank in the amount of P120,000.00. As part of theproceeds of the loan, preferred shares of stocks were issued to RFRDC through its officers then,Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totalingto the full amount of the loan, which is P120,000.00, the Bank lent such amount partially in theform of money and partially in the form of stock certificates numbered 3204 and 3205, each for400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00.Said stock certificates were in the name of Adalia F. Robes and Carlos F. Robes, whosubsequently, however, endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred Stockshall have the following rights, preferences, qualifications and limitations, to wit: 1. Of the right toreceive a quarterly dividend of 1%, cumulative and participating. xxx 2. That such preferredshares may be redeemed, by the system of drawing lots, at any time after 2 years from the date ofissue at the option of the Corporation."

On January 31, 1979, RFRDC and Robes proceeded against the Bank and filed a complaintanchored on their alleged rights to collect dividends under the preferred shares in question andto have the bank redeem the same under the terms and conditions of the stock certificates. Thebank filed a Motion to Dismiss on the following grounds: (1) that the trial court had nojurisdiction over the subject-matter of the action; (2) that the action was unenforceable under


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substantive law; and (3) that the action was barred by the statute of limitations and/or laches.The bank's Motion to Dismiss was denied by the trial court.

The trial court rendered a decision in favor of RFRDC and Robes ordering the bank to payRFRDC and Robes the face value of the stock certificates as redemption price, plus 1% quarterlyinterest thereon until full payment. The bank filed the petition for certiorari with the SupremeCourt, essentially on pure questions of law.

Issue:1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and

Robes.2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the

stocks as a matter of right without necessity of a prior declaration of dividend.

Held:1. No. While the stock certificate does allow redemption, the option to do so was clearly

vested in the bank. The redemption therefore is clearly the type known as "optional". Thus,except as otherwise provided in the stock certificate, the redemption rests entirely with thecorporation and the stockholder is without right to either compel or refuse the redemption of itsstock. Furthermore, the terms and conditions set forth therein use the word "may". It is a settleddoctrine in statutory construction that the word "may" denotes discretion, and cannot beconstrued as having a mandatory effect. The redemption of said shares cannot be allowed.

The Central Bank made a finding that the Bank has been suffering from chronic reservedeficiency, and that such finding resulted in a directive, issued on 31 January 1973 by then Gov.G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the bankprohibiting the latter from redeeming any preferred share, on the ground that said redemptionwould reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemptionof preferred shares was prohibited for a just and valid reason. The directive issued by the Central

Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruinof a banking institution that would have resulted in adverse repercussions, not only to itsdepositors and creditors, but also to the banking industry as a whole. The directive, in limitingthe exercise of a right granted by law to a corporate entity, may thus be considered as an exerciseof police power.

2. No. Both Section 16 of the Corporation Law and Section 43 of the present CorporationCode prohibit the issuance of any stock dividend without the approval of stockholders,representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or specialmeeting duly called for the purpose. These provisions underscore the fact that payment ofdividends to a stockholder is not a matter of right but a matter of consensus. Furthermore,"interest bearing stocks", on which the corporation agrees absolutely to pay interest beforedividends are paid to common stockholders, is legal only when construed as requiring paymentof interest as dividends from net earnings or surplus only.

In compelling the bank to redeem the shares and to pay the corresponding dividends, theTrial committed grave abuse of discretion amounting to lack or excess of jurisdiction in ignoringboth the terms and conditions specified in the stock certificate, as well as the clear mandate ofthe law.

Castillo, et. al. vs Balinghasay, et. al.

Facts:Petitioners and the respondents are stockholders of MCPI, with the former holding Class

B shares and the latter owning Class A shares. MCPI is a domestic corporation with offices atDr. A. Santos Avenue, Sucat, Paraaque City. It was organized sometime in September 1977. Atthe time of its incorporation, Act No. 1459, the old Corporation Law was still in force and effect.

Article VII of MCPIs original Articles of Incorporation, as approved by the Securities andExchange Commission (SEC) on October 26, 1977, provides that: Only holders of Class A sharescan have the right to vote and the right to be elected as directors or as corporate officers.


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In 1999, First Pacific, a foreign corporation, acquired 37% of PLDT common shares.Wilson Gamboa opposed said acquisition because at that time, 44.47% of PLDT common sharesalready belonged to various other foreign corporations. Hence, if First Pacifics share is added,foreign shares will amount to 81.47% or more than the 40% threshold prescribed by theConstitution.

Margarito Teves, as Secretary of Finance, and the other respondents argued that this is

okay because in totality, most of the capital stocks of PLDT is Filipino owned. It was explainedthat all PLDT subscribers, pursuant to a law passed by Marcos, are considered shareholders (theyhold serial preferred shares). Broken down, preferred shares consist of 77.85% while commonshares consist of 22.15%.

Gamboa argued that the term capital sho uld only pertain to the common shares becausethat is the share which is entitled to vote and thus have effective control over the corporation.

Issue: Whether or not the term capital in Section 11, Article XII of the Constitution refer s tocommon shares

Held:

Yes. Capital only pertains to common shares. It will be absurd for capital to pertain asinclusive of non-voting shares. This is because a corporation consisting of 1,000,000 capitalstocks, 100 of which are common shares which are foreign owned and the rest (999,900 shares)are preferred shares which are non-voting shares and are Filipino owned, would seem compliantto the constitutional requirement here 99.999% is Filipino owned. But if scrutinized, thecontrolling stock the voting stock or that miniscule .001% is foreign owned. That is absurd.

In this case, it is true that at least 77.85% of the capital is owned by Filipinos (the PLDTsubscribers). But these subscribers, who hold non-voting preferred shares, have no control overthe corporation. Hence, capital should only pertain to common shares. Thus, to be compliant withthe constitution, 60% of the common shares of PLDT should be Filipino owned. That is not so inthis case as it appears that 81.47% of the common shares are already foreign owned (split

between First Pacific (37%) and a Japanese corporation).Preferred shares may be considered part of the capital share only if the preferred shares

are allowed to vote like common shares.

Grace Christian High School vs Court of Appeals

Facts:Grace Christian High School (GCHS) is an educational institution in Grace Village. Grace

Village Association, Inc. (GVAI) is the homeowners association in Grace Village. GVAI has anexisting by-laws which was already in effect since 1968. But in 1975, the board of directors madea draft amending the by-laws whereby the representative of GCHS shall have a permanent seat inthe 15-seat board. The draft however was never presented to the general membership forapproval. But nevertheless, the representative of GCHS held a seat in the board for 15 years untilin 1990 when a proposal was made to the board to reconsider the practice of allowing the GCHSrepresentative in taking a permanent seat.

An election was scheduled for the 15 seats in the board. GCHS opposed the election as itinsisted that the election should only be for 14 directors because it has a permanent seat. GVAIargued that GCHS claim has no basis because the 1975 proposed amendment was never ratified.GCHS averred that it was ratified when it was allowed to take the seat for 15 years and as such itsright has already vested.

Issue: Whether or not the representative from Grace Christian High School should be allowed tohave a permanent seat in the board of directors.

Held:No. The Corporation Code is clear when it provides that members of the board of a

corporation must be elected by the stockholders (stock corporation) or the members (non-stockcorporation). Admittedly, there are corporations who allow some of their directors to sit in theboard without being elected but such practice cannot prevail over provisions of law. Practice,no matter how long continued, cannot give rise to any vested right if it is contrary to law.


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There is no reason as to why a representative from GCHS should be given an automaticseat. It should therefore go through the process of election. It cannot also be argued that the draftof the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15 years withoutan election. In the first place, the proposal was merely a draft and even if passed and approved bythe general membership, it cannot be given effect because it is void and contrary to the law.GCHS seat in the corporate board is at best merely tolerated by GVAI.

Gokongwei vs SEC

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 ofthe members of the Board of Directors and San Miguel Corporation as an unwilling petitioner.

Gokongwei alleged that the Board amended the bylaws of the corporation, prescribingadditional qualifications for its direc tors, that no person shall qualify or be eligible fornomination if he is engaged in any business which competes with that of the Corporation.

The board based their authority to do so on a resolution of the stockholders. It wascontended that according to section 22 of the Corporation Law and Article VIII of the by-laws ofthe corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated tothe Board of Directors only by the affirmative vote of stockholders representing not less than 2/3of the subscribed and paid up capital stock of the corporation, which 2/3 should have beencomputed on the basis of the capitalization at the time of the amendment. Since the amendmentwas based on the 1961 authorization, Gokongwei contended that the Board acted withoutauthority and in usurpation of the power of the stockholders.

Gokongwei claimed that prior to the questioned amendment, he had all the qualificationsto be a director of the corporation, being a substantial stockholder thereof; that as a stockholder,Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be

voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al.purposely provided for Gokongwei's disqualification and deprived him of his vested right asafore-mentioned, hence the amended by-laws are null and void.

As additional causes of action, it was alleged that corporations have no inherent power todisqualify a stockholder from being elected as a director and, therefore, the questioned act isultra vires and void.

Issue:Whether the corporation has the power to provide for the (additional) qualifications of its

directorsHeld:

YES. It is recognized by all authorities that "every corporation has the inherent power toadopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rightsand duties of its members towards itself and among themselves in reference to the managementof its affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation mayprescribe in its by-laws "the qualifications, duties and compensation of directors, officers andemployees." This must necessarily refer to a qualification in addition to that specified by section30 of the Corporation Law, which provides that "every director must own in his right at least oneshare of the capital stock of the stock corporation of which he is a director." Any person "whobuys stock in a corporation does so with the knowledge that its affairs are dominated by amajority of the stockholders and that he impliedly contracts that the will of the majority shallgovern in all matters within the limits of the act of incorporation and lawfully enacted by-lawsand not forbidden by law." To this extent, therefore, the stockholder may be considered to have"parted with his personal right or privilege to regulate the disposition of his property which hehas invested in the capital stock of the corporation, and surrendered it to the will of the majorityof his fellow incorporators. It cannot therefore be justly said that the contract, express or implied,between the corporation and the stockholders is infringed by any act of the former which isauthorized by a majority."

Pursuant to section 18 of the Corporation Law, any corporation may amend its articles ofincorporation by a vote or written assent of the stockholders representing at least two-thirds of


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the subscribed capital stock of the corporation. If the amendment changes, diminishes or restrictsthe rights of the existing shareholders, then the dissenting minority has only one right, viz.: "toobject thereto in writing and demand payment for his share." Under section 22 of the same law,the owners of the majority of the subscribed capital stock may amend or repeal any by-law oradopt new by-laws. It cannot be said, therefore, that Gokongwei has a vested right to be electeddirector, in the face of the fact that the law at the time such right as stockholder was acquired

contained the prescription that the corporate charter and the by-law shall be subject toamendment, alteration and modification.A corporation is authorized to prescribe qualifications of its directors; such is not invalid,

provided, however that before such nominee is disqualified, he should be given due process toshow that he is not covered by such disqualification. A director stands in fiduciary relation to thecorporation and its stockholders. The disqualification of a competition from being elected to theboard of directors is a reasonable exercise of corporate authority. Sound principles of corporatemanagement counsel against sharing sensitive information with a director whose fiduciary dutyto loyalty may require that he discloses this information to a competitive rival.

Peoples Aircargo vs Court of Appeals

Facts:Petitioner is a domestic corporation organized in 1986 to operate a customs

bonded warehouse at the old Manila International Airport (MIA). To obtain a license from theBureau of Customs, Antonio Punsalan, Jr., the corporation president, solicited a proposal fromprivate respondent Stefani Sano for the preparation of afeasibility study. Sano submitted aletter proposal dated October 17, 1986 (First Contract) to Punsalan regarding his requestforprofessional engineering consultancy services which services are offered in the amount ofP350,000.00. Initially, Cheng Yang, the majority stockholder of petitioner, objected to said offeras another company can provide for the same service at a lower price. However, Punsalanpreferred San os services because of latters membership in the task force, which task force was

supervising the transition of the Bureau from the Marcos to the Aquino government. Petitioner,through Punsalan, thereafter confirmed the contract.

On December 4, 1986, u pon Punsalans request, private respondent sent petitioner anotherletter-proposal (Second Contract) which offers the same service already at P400,000.00 insteadof the previous P350,000.00 offer. On January 10, 1987, Andy Villaceren, vice-president ofpetitioner, received the operations manual prepared by Sano and which manual operations wassubmitted by petitioner to the Bureau in compliance for its application to operate abonded warehouse. Thereafter, in May 1987, the Bureau issued to it a license to operate. Privaterespondent also conducted in the third week of January 1987 in the warehouse of petitioner, athree-daytraining seminar for the petitioners employees.

On February 9, 1988, private respondent filed a collection suit against petitioner. He alleged thathe had prepared an operations manual for petitioner, conducted a seminar-workshop for itsemployees and delivered to it a computer program but that despite demand, petitioner refused topay him for his services. Petitioner, on its part, denied that Sano had prepared such manualoperations and at the same time alleged that the letter-agreement was signed by Punsalanwithout authority and as such unenforceable. It alleges that the disputed contract was notauthorized by its board of directors.

Issue: Whether or not the Second Contract signed by Punsalan is enforceable and binding againstpetitioner.

Held: Yes, the Second Contract is binding and enforceable. The general rule is that, in the absenceof authority from the board of directors, no person, not even its officers, can validly bind acorporation. A corporation is a juridical person, separate and distinct from its stockholders andmembers having xxx powers, attributes and properties expressly authorized by law or incident toits existence. Being a juridical entity, a corporation may act through itsboard of directors, whichexercises almost all corporate powers, lays down all corporate business policies and isresponsible for the efficiency of management, as provided in Section 23 of the Corporation Code.


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However, it is familiar doctrine that if a corporation knowingly permits one of its officers, or anyother agent, to act within the scope of an apparent authority, it holds him out to the public aspossessing the power to do those acts and thus, the corporation witll, as against anyone who hasin good faith dealt with it through such agent, be estopped from denying the agents authority.Thus private respondent shall not be faulted for believing that Punsalans conformity to thecontract in dispute was also binding on petitioner. In the case at bar, petitioner, through its

president Antonio Punsalan Jr., entered into the First Contract without first securing boardapproval. Despite such lack of board approval, petitioner did not object to or repudiate saidcontract, thus "clothing" its president with the power to bind the corporation. The grant ofapparent authority to Punsalan is evident in the testimony of Yong senior vice president,treasurer and major stockholder of petitioner. Furthermore, private respondent prepared anoperations manual and conducted a seminar for the employees of petitioner in accordance withtheir contract. Petitioner accepted the operations manual, submitted it to the Bureau of Customsand allowed the seminar for its employees. As a result of its aforementioned actions, petitionerwas given by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendothen that the Second Contract was outside the usual powers of the president, petitioner'sratification of said contract and acceptance of benefits have made it binding, nonetheless. The

enforceability of contracts under Article 1403(2) is ratified "by the acceptance of benefits underthem" under Article 1405.


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corpo cases compiled from the net

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