9 Landmark Cases

In
Corporation Law

JAMES REBURIANO vs .HONORABLE

COURT OF APPEALS
G.R. No. 102965 January 21, 1999
FACTS: RTC rendered judgment in favor of Pepsi Cola Bottling Co. ordering Reburiano to
pay55,000.00 with interest for the unpaid bottles of soft drinks it received from the company.
RTC issued a writ of execution. However, before the promulgation of the decision of the RTC,
Pepsi amended its articles of incorporation to shorten its term of existence. The RTC was not
notified of this fact. Reburiano then moved to quash the writ of execution on the ground that
Pepsi no longer had juridical personality, hence, it could no longer sue and be sued. RTC
denied Reburianos petition to quash the writ of execution. An appeal was made. CA dismissed
the appeal. Hence, this petition for review on certiorari.
ISSUE: WON PEPSI STILL HAD JURIDICAL PERSONALITY TO PURSUE ITS
CASEAGAINST REBURIANO AFTER A SHORTENING OF ITS CORPORATE EXISTENCE.
HELD: Yes. Sec. 122 of the Corporation Code provides that every corporation whose charter
expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in any other manner, shall nevertheless be continued
as a body corporate for 3years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and enabling it to settle and close its
affairs, to dispose of an convey its property and to distribute its assets, but not for the purpose
of continuing the business for which it was established. However, Reburiano further argues that
when Pepsi undertook a voluntary dissolution, there was no showing that a receiver or trustee
was ever appointed. He contends that Sec. 122 of the Corporation Code above cited does not
authorize a corporation, after the 3 year liquidation period, to continue actions instituted by it
within said period of 3 years. SC held that in the case of Gelano vs. CA, a corporation that has a

pending action and which cannot be terminated within the 3 year period after dissolution is
authorized to convey all its property to trustees to enable it to prosecute and defend suits by or
against the corporation beyond the 3 year period. No reason could be conceived why a suit
already commenced by the corporation itself during its existence, not by a mere trustee who, by
fiction, merely continues the legal personality of the dissolved corporation, should not be
accorded similar treatment allowed to proceed to final judgment and execution thereof. Counsel
of the dissolved corporation can be considered a trustee. Also, the board of directors may
be permitted to complete the corporate liquidation by continuing as trustees by legal
implication. Moreover, the Corporation Code provides: Sec. 145 Amendment or Repeal
No right or remedy in favor or against any corporation, its stockholders, members, directors,
trustees, or officers, shall be removed or impaired either by the shall be removed or impaired
either by the subsequent dissolution of said corporation or by any subsequent amendment or
repeal of this Code or of any part thereof.
Dee V. SEC (1991)
GR L-60502 July 16, 1991
FACTS:

1954: Naga Telephone Company (Natelco), Inc. was organized with P100K authorized
capital

1974: Natelco decided to increase its authorized capital to P3,000,000.00

As required by the Public Service Act, Natelco filed an application for the
approval of the increased authorized capital with the then Board of Communications (BOC)

January 8, 1975: approved with conditions:

That the issuance of the shares of stocks will be for a period of one year from the
date hereof, "after which no further issues will be made without previous authority from this
Board."

Natelco filed its Amended Articles of Incorporation with the SEC

the original authorized capital of P100K was already paid

increased capital of P2.9M the subscribers subscribed to P580K of which P145K

was fully paid

capital stock of Natelco was divided into 213K CS and 87K PS, both at a par value of
P10/shares

April 12, 1977: Without no prior authorization from the BOC (now National
Telecommunications Commission) (NTC), Natelco entered into a contract with
Communication Services, Inc. (CSI) for the "manufacture, supply, delivery and installation"
of telephone equipment

Natelco issued 24K shares of CS to CSI as downpayment

May 5, 1979: issued another 12K shares of CS to CSI

May 19, 1979: annual stockholders' meeting to elect their 7 directors to their BOD for the
year 1979-1980

Pedro Lopez Dee (Dee) was unseated as Chairman of the Board and President
but was elected as one of the directors, together with his wife, Amelia Lopez Dee

CSI was able to gain control when their legal counsel, Atty. Luciano Maggay
(Maggay) won a seat in the Board

Atty. Maggay became president upon reorganization

Among the directors: Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee and Mrs Amelia C.
Lopez Dee never attended the Maggay Board thereby only Maggay representatives and
Atty. Maggay attended

as per contract they issued 113,800 shares of stock in favor of CSI

Dee having been unseated filed a petition in the SEC questioning the validity of the
elections

ground: no valid list of stockholders through which the right to vote could be
determined

As prayed for a restraining order was issued by the SEC placing officers of the 19781979 Natelco Board in hold-over capacity

Upon elevation to the SC: dismissed the petition for being premature; restraining order
was restrained

resulted in the unseating of the Maggay group from the BOD in a "hold-over"
capacity

SEC: ordering the holding of special stockholder' meeting to elect the new members of
the BOD based on its findings of who are entitled to vote

June 23, 1981: Dee filed a petition for certiorari/appeal with the SEC en banc

SEC en banc: dismissed for lack of merit

May 20, 1982: Antonio Villasenor filed w/ the CFI claiming that he was an assignee of an
option to repurchase 36K shares of CS of Natelco under a Deed of Assignment executed in
his favor

May 21, 1982: restraining order dwas issued by the lower court commanding desistance
from the scheduled election until further orders

May 22, 1982: controlling majority of the stockholders proceeded with the
elections under the supervision of the SEC representatives

May 25, 1982: SEC recognized the election and the duly elected directors

Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez Dee kept
insisting no elections were held and refused to vacate their positions

May 28, 1982: SEC issued another order directing the hold-over directors and officers to
turn over their respective posts and directing the Sheriff of Naga City and other enforcement
agencies to enforce its order

May 29, 1982: hold-over officers peacefully vacated

June 2, 1982: Villasenor filed a charge for contempt

September 7, 1982: lower court rendered CSI Nilda Ramos, Luciano Maggay, Desiderio
Saavedra, Augusto Federis and Ernesto Miguel, guilty of contempt of court

September 17, 1982: CSI group filed a petition for certiorari and prohibition with
preliminary injunction or restraining order against the CFI

April 14, 1983: IAC: Annuling contempt charge

ISSUES:
1.
W/N SEC has the power and jurisdiction to declare null and void shares of stock issued
by NATELCO to CSI for violation of Sec. 20 (h) of the Public Service Act - NO
2.
W/N Natelco stockholders have a right of preemption to the 113,800 shares
3.
W/N the May 22, 1982 election was valid
HELD: Dismissed for lack of merit
1.
NO

The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation
of corporations, partnerships and associations and those dealing with internal affairs of such
entities; P.D. 902-A does not confer jurisdiction to SEC over all matters affecting
corporations

The jurisdiction of the SEC is limited to deciding the controversy in the election of
the directors and officers of Natelco

The SEC is empowered by P.D. 902-A to decide intra-corporate controversies

and that is precisely the only issue in this case.
2. NO
There is distinction between:
an order to issue shares on or before May 19, 1979; and
actual issuance of the shares after May 19, 1979 - CSI was in control of voting
shares and the Board
The power to issue shares of stocks in a corporation is lodged in the board of
directors and no stockholders meeting is required to consider it because
additional issuance of shares of stocks does not need approval of the stockholders - no
violation of preemptive right
3. YES.
Clear from records that it was held
within the jurisdiction of the lower court as it does not involve an intra-corporate matter
but merely a claim of a private party of the right to repurchase common shares of stock of
Natelco and that the restraining order was not meant to stop the election duly called for by
the SEC and a matter purely within the exclusive jurisdiction of the SEC
temporary restraining order amounted to an injunctive relief against the SEC
since the trial judge in the lower court did not have jurisdiction in issuing the questioned
restraining order, disobedience thereto did not constitute contempt

Western Institute of Technology vs Salas (1997)

113032 Aug 21, 1997
Facts: Private respondents are the majority and controlling members of the Board of Trustees of
Western Institute of Technology, Inc. a stock corporation engaged in the operation, among
others, of an educational institution. Then, the board of directors amended their by laws giving
the members of board of directors a compensation. The ten per centum of the net profits shall
be distributed equally among the ten members of the Board of Trustees. Few years later, the
private respondents were charged of falsification of public documents and estafa. The charge
for falsification of public document was anchored on the private respondents submission of
WITs income statement for the fiscal year 1985-1986 with the Securities and Exchange
Commission (SEC) reflecting therein the disbursement of corporate funds making it appear that
the same was passed by the board on March 30, 1986, when in truth, the same was actually
passed on June 1, 1986, a date not covered by the corporations fiscal year 1985-1986. After a
full-blown hearing TC handed down a verdict of acquittal on both counts without imposing any
civil liability against the accused therein.
Issue: WON the compensation of the board of directors as stated in their by laws violates the
corporation code?
Held: NO. There is no argument that directors or trustees, as the case may be, are not entitled
to salary or other compensation when they perform nothing more than the usual and ordinary
duties of their office. This rule is founded upon a presumption that directors/trustees render
service gratuitously, and that the return upon their shares adequately furnishes the motives for
service, without compensation.

Under the foregoing section, there are only two (2) ways by which members of the board can be
granted compensation apart from reasonable per diems: (1) when there is a provision in the bylaws fixing their compensation; and (2) when the stockholders representing a majority of the
outstanding capital stock at a regular or special stockholders meeting agree to give it to them.
In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private
respondents not in their capacity as members of the board, but rather as officers of the
corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western
Institute of Technology. Clearly, therefore, the prohibition with respect to granting compensation
to corporate directors/trustees as such under Section 30 is not violated in this particular case.

National Sugar Trading Corp. v. CA

GR # 110910 July, 17, 1995
FACTS: The respondent in the case is a corporation organized and existing under the laws of
Hongkong. The private respondent filed a complaint against petitioner for specific performance.
The complaint allege that they are a corporation not doing business in the Philippines with the
principal office at Hongkong.; that National Sugar Trading (NASUTRA) and the respondent
entered into contract for the purchase and sale of sugar. Payment was made, however
NASUTRA failed to completely delivered the stipulated quantity of sugar. Despite repeated
demands, NASUTRA failed to perform its obligation to private respondent.
ISSUE: WON the private respondent has the capacity in a domestic court being a foreign
corporation not doing business in the Philippines?
RULING: Affirmative. It would be inequitable for NASUTRA, a government-own corporation to
evade payment of a legitimate indebtedness owing to private respondent upon the plea that
they should have acquired a license first before perfecting a contract with the Philippine
government.
Furthermore, the doctrine of lack of capacity to sue based on failure to acquire a local license is
based on considerations of sound public policy. The license requirement was imposed to subject
the foreign corporation doing business in the Philippines to the jurisdiction of its courts. It was
never intended to favor domestic corporation who enters into solitary transaction with unwary
foreign firms and then repudiate their obligation simply because the latter are not licensed to do
business in this country.

Merrill Lynch Futures, Inc. v. CA

211 SCRA 824, GR # 97816 July 24, 1992
FACTS: The petitioner is a foreign corporation not doing business in the Philippines filed a
complaint against the private respondent for the recovery of a debt and interest with damages
and attorneys fees. It describes itself as a futures commission merchant, essentially
functioning as broker, orders to buy and sell futures contracts received from its customers on

US futures exchange. It alleged that the private respondents had been transacting with them
for four years. The private respondent incurred a debt with the petitioner and the same was not
paid alleging that ML Futures has no capacity because it has no license to operate.
The respondent filed a motion to dismiss on the complaint averring that ML Futures is not the
same corporation they are dealing since the one named in the contract is one Merrill Lynch Pier
Femer and Smith, Inc.
The trial court dismiss the case sustaining the motion to dismiss. The appeal in CA also affirmed
the trial courts decision.
ISSUE: WON the plaintiff has capacity to sue in the Philippine Court.
RULING: Affirmative. The rule is that a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into contract with it. And the
doctrine of estoppel to deny corporate existence applies to foreign as well as domestic
corporation, one who has dealt with a corporation of a foreign origin or a corporate entity is
estopped to deny its corporate existence and capacity. The principle will be applied to prevent a
person contracting with a foreign corporation from latter taking advantage of its non-compliance
with the statutes, chiefly in case where such person has received the benefits of the contract,
where such person has acted as agent for the corporation and has violated his fiduciary
obligation as such, and where the statute does not provide that the contract shall be void, but
merely fixes a special penalty for violation of the statute.

G.R. No. 46631 November 16, 1939

IDONAH SLADE PERKINS vs. ARSENIO P. DIZON

FACTS: The respondent, Eugene Arthur Perkins, instituted an action in the Court of First
Instance of Manila against the Benguet Consolidated Mining Company for dividends amounting
to P71,379.90 on 52,874 shares of stock registered in his name, payment of which was being
withheld by the company; and, for the recognition of his right to the control and disposal of said
shares, to the exclusion of all others. The company filed its answer with prayer that the adverse
claimants be made parties to the action and served with notice thereof by publication, and that
thereafter all such parties be required to interplead and settle the rights among themselves.
The trial court ordered respondent Eugene Arthur Perkins to include in his complaint as party.
The complaint was accordingly amended and in addition to the relief prayed for in the original
complaint, respondent Perkins prayed that herein petitioners be adjudged without interest in the
shares of stock in question and excluded from any claim they assert thereon. Thereafter,
summons by publication were served upon the non-resident defendants, Idonah Slade Perkins
and George H. Engelhard, pursuant to the order of the trial court.
ISSUE AND RULING: WON the Court has acquired jurisdiction over the person of the present
petitioner as non-resident defendant.

Affirmative. The rule provides that when a non-resident defendant is sued in the Philippine
courts and it appears, by the complaint or by affidavits, that the action relates to real or personal
property within the Philippines in which said defendant has or claims a lien or interest, actual or
contingent, or in which the relief demanded consists, wholly or in part, in excluding such person
from any interest therein, service of summons maybe made by publication.

In the instant case, there can be no question that the action brought by herein respondent in his
amended complaint against the petitioner, Idonah Slade Perkins, seeks to exclude her from any
interest in a property located in the Philippines. That property consists in certain shares of
stocks of the Benguet Consolidated Mining Company, a sociedad anonima, organized in the
Philippines under the provisions of the Spanish Code of Commerce, with its principal office in
the City of Manila and which conducts its mining activities therein. The situs of the shares is in
the jurisdiction where the corporation is created, whether the certificated evidencing the
ownership of those shares are within or without that jurisdiction. Under these circumstances, we
hold that the action thus brought is quasi in rem, for while the judgement that may be rendered
therein is not strictly a judgment in rem, "it fixes and settles the title to the property in
controversy and to that extent partakes of the nature of the judgment in rem."
The action being in quasi in rem, The Court of First Instance of Manila has jurisdiction over the
person of the non-resident. In order to satisfy the constitutional requirement of due process,
summons has been served upon her by publication.

G.R. No. L-28882 May 31, 1971

TIME, INC. vs. ANDRES REYES

FACTS: The petition alleges that petitioner Time, Inc., is an American corporation with principal
offices at Rocketfeller Center, New York City, N. Y., and is the publisher of "Time", a weekly
news magazine; the petition, however, does not allege the petitioner's legal capacity to sue in
the courts of the Philippine.
In the aforesaid Civil Case, therein plaintiffs (herein respondents) Antonio J. Villegas and Juan
Ponce Enrile seek to recover from the herein petitioner damages upon an alleged libel arising
from a publication of Time (Asia Edition) magazine, in its issue of 18 August 1967, of an essay,
entitled "Corruption in Asia".
Petitioner received the summons and a copy of the complaint at its offices in New York. It filed a
motion to dismiss the complaint for lack of jurisdiction and improper venue, relying upon the
provisions of Republic Act 4363 (Amending the libel provision of the Revised Penal Code).
Private respondents opposed the motion. In an order, the respondent court deferred the
determination of the motion to dismiss until after trial of the case on the merits.
Petitioner moved for reconsideration of the deferment private respondents again opposed. The
respondent judge issued an order re-affirming the previous order of deferment for the reason
that "the rule laid down under Republic Act. No. 4363, amending Article 360 of the Revised

Penal Code, is not applicable to actions against non-resident defendants, and because
questions involving harassment and inconvenience, as well as disruption of public service do
not appear indubitable. ..."
ISSUE AND RULING: WON the libel case is applicable where the action is against non-existent
corporation Times, Inc.
Negative. Herein respondents could not file a criminal case for libel against a non-resident
defendant does not make Republic Act No. 4363 incongruous of absurd, for such inability to file
a criminal case against a non-resident natural person equally exists in crimes other than libel. It
is a fundamental rule of international jurisdiction that no state can by its laws, and no court
which is only a creature of the state, can by its judgments or decrees, directly bind or affect
property or persons beyond the limits of the state. 5 Not only this, but if the accused is a
corporation, no criminal action can lie against it, 6 whether such corporation or resident or nonresident. At any rate, the case filed by respondents-plaintiffs is case for damages.
ISSUE AND RULING: WON the failure to allege the capacity of the foreign corporation is fatal.
Negative. Petitioner's failure to aver its legal capacity to institute the present petition is not fatal,
for a foreign corporation may, by writ of prohibition, seek relief against the wrongful assumption
of jurisdiction. And a foreign corporation seeking a writ of prohibition against further
maintenance of a suit, on the ground of want of jurisdiction in which jurisdiction is not bound by
the ruling of the court in which the suit was brought, on a motion to quash service of summons,
that it has jurisdiction.

[G.R. No. 94980. May 15,1996]

LITTON MILLS; INC. vs. COURT OF APPEALS

FACTS: Petitioner Litton Mills, Inc. (Litton) entered into an agreement with Empire Sales
Philippines Corporation (Empire), as local agent of private respondent Gelhaar Uniform
Company (Gelhaar), a corporation organized under the laws of the United States, whereby
Litton agreed to supply Gelhaar 7,770 dozens of soccer jerseys. The agreement stipulated that
before it could collect from the bank on the letter of credit, Litton must present an inspection
certificate issued by Gelhaars agent in the Philippines, Empire Sales, that the goods were in
satisfactory condition.

Litton sent four shipments totalling 4,770 dozens of the soccer jersey. A fifth shipment,
consisting of 2,110 dozens of the jerseys, was inspected by Empire from, but Empire refused to
issue the required certificate of inspection. Alleging that Empires refusal to issue a certificate

was without valid reason, Litton filed a complaint with the Regional Trial Court of Pasig for
specific performance.
Litton sought the issuance of a writ of preliminary mandatory injunction in performing its duty to
compel Empire to issue the inspection certificate covering the 2,110 dozen jerseys and the
recovery of compensatory and exemplary damages, costs, attorneys fees and other just and
equitable relief. The trial court issued the writ. The next day, Empire issued the inspection
certificate, so that the cargo was shipped on time. The defendants answer objecting to the
jurisdiction of the court over Gelhaar.
The trial court issued an order denying for lack of merit Gelhaars motion to dismiss and to
quash the summons. It held that Gelhaar was doing business in thePhilippines, and that the
service of summons on Gelhaar was therefore valid. Gelhaar filed a motion for reconsideration,
but its motion was denied.
ISSUE: WON jurisdiction over Gelhaar was acquired by the trial court by service of summon
through Gelhaars agent.
RULING: Affirmative. in order that service may be effected, it is required the foreign corporation
be one which is doing business in the Philippines. This is a sine qua non requirement. This fact
must first be established in order that summons can be made and jurisdiction acquired. The fact
of doing business must then, in the first place, be established by appropriate allegations in the
complaint. In the case at bar, the allegation that Empire, for and in behalf of Gelhaar, ordered
7,770 dozens of soccer jerseys from Litton and for this purpose Gelhaar caused the opening of
an irrevocable letter of credit in favor of Litton is a sufficient allegation that Gelhaar was doing
business in the Philippines.
In accordance with the Rule, service upon Gelhaar could be made in three ways: (1) by serving
upon the agent designated in accordance with law to accept service of summons; (2) if there is
no resident agent, by service on the government official designated by law to that effect; and (3)
by serving on any officer or agent of said corporation within the Philippines. Here, service was
made through Gelhaars agent, the Empire Sales Philippines Corp. There was, therefore, a valid
service of summons on Gelhaar, sufficient to confer on the trial court jurisdiction over the person
of Gelhaar.
ISSUE: WON the contract with Litton was a single, isolated and does not constitute doing
business in the Philippines.
RULING: Negative. that where a single act or transaction of a foreign corporation is not merely
incidental or casual but is of such character as distinctly to indicate a purpose on the part of the
foreign corporation to do other business in the state, such act will be considered as constituting
doing business. The Court referred to acts which were in the ordinary course of business of the
foreign corporation.

In the case at bar, the trial court was certainly correct in holding that Gelhaars act in purchasing
soccer jerseys to be within the ordinary course of business of the company considering that it
was engaged in the manufacture of uniforms. The acts noted above are of such a character as
to indicate a purpose to do business.

G.R. No. 117593. July 10, 1998

BRENT HOSPITAL INC. vs.NLRC

FACTS: The respondent Teresita M. Fernandez was employed by petitioner Zamboanga Brent
Hospital (Brent) as a staff nurse and thereafter discharged functions in different capacities until
she was promoted as acting clinic coordinator.
It appears that the principal and a number of faculty members of Brents School of Midwifery
(BSM) resigned and sought lucrative jobs abroad, thus, crippling its operations. Consequently,
respondent was offered the position of principal which proposal, however, she initially
rejected. After continuous prodding and with the assurance that she could return, should she
desire, to her former position as clinic coordinator after a year of serving as principal, she was
finally prevailed upon to accept the offer.
For allegedly violating the policy laid down by petitioner regarding the imposition and collection
of coordinators fee of P350.00, respondent and Mrs. Pada were terminated from their
respective employments. While the latter sought reconsideration from the Boards decision,
respondent filed a case for illegal dismissal and damages against Brent.
ISSUE AND RULING: WON the moral damage is recoverable in dismissal of the employee.
NO. Moral damages are recoverable only where the dismissal of the employee was attended by
bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to
morals, good customs or public policy. Exemplary damages, on the other hand, may be
awarded if the dismissal constituted an act oppressive to labor, or was done in a manner
contrary to morals, good customs or public policy.
None of the circumstances, however, obtains in the instant case. It must be noted that, the
Board of Directors of BSM conducted an inquiry wherein respondent was duly notified of the
charges imputed against her. In the course of the investigation, respondent explained that upon
the request of the reviewees, she agreed to accompany them to Manila as coordinator, with the
latter assuring her of the funds essential for their continued stay thereat until the duration of the
Board exams. She also presented before the Board an itemized account of the expenses
incurred. The minutes of the meeting reveal that the sentiments of the parents in attendance
were divided. Some of the parents suspected that respondent may have pocketed the money
collected while the others were even grateful for what she had done. After hearing the two
sides of the controversy, respondent was ordered relieved of her post as principal. In view of

the factual milieu of this case, we find respondent to have been afforded her statutory rights to
notice and hearing, the dismissal being premised on the honest belief that she violated the
policy of petitioner Brent regarding the collection of coordinators fees. Thus, her dismissal
could not be characterized as having been effected in a wanton, oppressive or malevolent
manner.
ISSUE AND RULING: The petitioner Morlito Apuzen (Hospital Administrator), who exposed the
controversy and filed the case, has no cause of action and should be held individually liable.

He has cause of action. A corporation, being a juridical entity, may act only through its directors,
officers and employees and obligations incurred by them, acting as corporate agents, are not
theirs but the direct accountabilities of the corporation they represent.