CORPORATION LAW

I.
GENERAL
A. DEFINITION
1) TESTATE ESTATE OF IDONAH SLADE PERKINS
deceased. RENATO TAYAG ancillary administratorappellee v BENGUET CONSOLIDATED INC.
FERNANDO, 1968
FACTS

Idonah Slade Perkins died, leaving two stock

certificates covering 33,002 shares in Benguet
Consolidated. The domiciliary administrator of her estate
(Country Trust Company of New York [CTC]) and the
ancillary administrator of her estate (Renato Tayag)
argued over the possession of the shares. CTC would not
surrender the shares, prodding Tayag to file a petition to
declare the stock certificates lost. This was granted by
the CFI, that declared the stock certificates lost, ordered
them cancelled, and directed that Benguet Consolidated
issue new certificates to be delivered to Tayag or the
Probate Court.
Benguet Consolidated, a Philippine corporation,
appealed. They did not appeal on the issue of entitlement
to the stock certificates, but rather on their declaration as
lost because a) they existed and were in the presence of
the CTC and b) there was a failure to observe
requirements of its by-laws before new stock certificates
could be issued.
ISSUES
WON Benguet Consolidated could appeal / ignore
a court decision on the basis of its own by-laws?
RULING/RATIO:
NO. A corporation cannot choose which court
order to follow and disregard. A corporation as known to
Philippine jurisprudence is a creature without any
existence until it has received the imprimatur of the state
according to law. It is logically inconceivable therefore
that it will have rights and privileges of a higher priority
than that of its creator.

Definitions of a Corporation

A corporation is an artificial being created by operation of law. It

owes its life to the state, its birth being purely dependent on its
will.

Berle
Classically a corporation was conceived as an artificial person,
owing its existence through creation by a sovereign power.
Chief Justice Marshall (Dartmouth College Decision)
An artificial being, invisible, intangible, and existing only in
contemplation of law.
Fletcher
A corporation is not in fact and in reality a person, but the law
treats it as though it were a person by process of fiction, or by
regarding it as an artificial person created by law for certain
specific purposes, the extent of whose existence, powers, and
liberties is fixed by its charter.
Dean Pound
A juristic person, resulting from an association of human beings
granted legal personality by the state.
Rejection of Gierke's genossenchaft theory
The reality of the group as a social and legal entity,
independent of state recognition and concession.

2)
MONFORT
HERMANOS
AGRICULTURAL
DEVELOPMENT vs ANTONIO MONFORT III
and
ANTIONIO MONFORT III V COURT OF APPEALS
YNARES-SANTIAGO, 2004
FACTS
Monfort Corporation was a domestic private
corporation. It owned a farm, fishpond an sugar cane
plantation, car and two tractors. Ramon Monfort (EVP)
also bred fighting cocks in his personal capacity. The
group of Antonio Monfort III through force and

intimidation allegedly took possession of the Haciendas,

produce, motor vehicles, and fighting cocks.
Ma. Antonia Salvatierra filed two cases on behalf
of the Corporation, 1) complaint for delivery of motor
vehicle, tractors, and 378 fighting cocks. 2) forcible entry,
preliminary mandatory injunction with TRO, and
restraining order and damages.
ISSUES
WON Antonia Salvatierra had the legal capacity to
sue on behalf of the corporation.
RULING/RATIO:
No. The by-laws of the corporation indicate a
general information sheet shall be published with the
names of elected directors and officers. The names of the
last four signatories to the board resolution authorizing
Antonia Salvatierra and/or Ramon Monfort to represent
the corporation did not appear in the General Information
Sheet. Thus, there is a doubt as to whether they were
indeed duly elected members of the board.
A corporation has no power except those
expressly conferred on it by the Corporation Code and
that are implied or incidental to its existence. In turn, a
corporation exercises said powers through its board of
directors and/or its duly authorized officers and agents.
The power of a corporation to sue and be sued in any
court is lodged with the board of directors that exercises
its corporate powers. In turn, physical acts of the
corporation like the signing of documents, can be
performed only by natural persons duly authorized for the
purpose by corporate by-laws or by a specific act of the
board of directors.

Puerto Azul Land, Inc. (PALI) wanted to offer its

shares to the public in order to raise funds. PALI was able
to secure from the Securities and Exchange Commission
(SEC) a Permit to Sell its shares to the public. As it sought
to course the trading of its shares through the Philippine
Stock Exchange Commission, Inc (PSE), PALI filed with the
PSE an application to list its shares. However, before the
PSE could decide on the said application, the heirs of
Ferdinand Marcos sent a letter to the PSE claiming that
they were the legal and beneficial owners of certain
properties of PALI. The heirs wanted PALIs application to
be deferred. As a result, PSE rejected PALIs application.
PALI then wrote a letter to the SEC (in the exercise
of its supervisory and regulatory powers) requesting the
latter to review PSEs action on the listing application.
The SEC set aside PSEs decision and ordered the listing
of PALIs shares.
PSE filed a petition for review with the CA. The CA
dismissed the said petition stating that the PSE as a
corporation and a stock exchange is under the SECs
jurisdiction, regulation and control.
The PSE argued that the power of the SEC over
stock exchanges is more limited as compared to its
authority over ordinary corporations. Under the business
judgment rule, the SEC and the courts are barred from
intruding into the business judgments of corporations,
when the same are made in good faith (or absent a
showing of bad faith). Thus, the discretion to accept or
reject the application still lies with the PSE.
ISSUE:
1. WON the SEC has the authority to order the PSE to list
the shares of PALI in the stock exchange?

3) PHILIPPINE STOCK EXCHANGE vs. CA

Torres, Jr. (1997)

RATIO:

FACTS:

1. Yes, it has but its authority to do so is limited.

The PSE is not an ordinary corporation as it is the

only operational stock exchange in the country. The SEC,
on the other hand, has absolute jurisdiction, supervision
and control over all corporations who are grantees of
primary franchises, licenses and/or permits issued by the
government to operate in the Philippines (Sec 3, PD 902A). It is the SECs principal function to supervise and
control corporations for the encouragement and
protection of the investments in said entities.
However, PSEs management prerogatives are not
under the absolute control of the SEC. The PSE is, after
all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business. One
of the PSEs main concerns, as such, is still the
generation of profit for its stockholders. Moreover, the
PSE has all the rights pertaining to corporations, including
the right to sue and be sued, to hold property in its own
name, to enter (or not to enter) into contracts with third
persons, and to perform all other legal acts within its
allocated express or implied powers.
A corporation is but an association of individuals,
allowed to transact under an assumed corporate name,
and with a distinct legal personality. In organizing itself
as a collective body, it waives no constitutional
immunities and perquisites appropriate to such body. i[11]
As to its corporate and management decisions, therefore,
the state will generally not interfere with the same.
Questions of policy and of management are left to the
honest decision of the officers and directors of a
corporation, and the courts are without authority to
substitute their judgment for the judgment of the board
of directors. The board is the business manager of the
corporation, and so long as it acts in good faith, its orders
are not reviewable by the courts.ii[12]
Thus, the SEC may exercise its power only if PSEs
judgment is attended by bad faith. In this case, certain
circumstances gave rise to serious doubts as to the
integrity of PALI as a stock issuer. PSE is justified in
denying PALIs application.

4) TAN BOON BEE vs. JARENCIO ( CFI judge)

Paras (1988)
FACTS:
Petitoner, doing business under the name Anchor
Supply Co. (Anchor), sold on credit to Graphic Publishing
Inc. (Graphic) paper products amounting to P 55, 214.00.
Graphic failed to pay the entire amount within the period
agreed upon. Anchor filed a civil case for a sum of
money which was decided favorably for them. A writ of
execution was then issued by Judge Jarencio. However,
the sheriff failed to find any property owned by Graphic.
An alias writ of execution was subsequently issued and
the sheriff levied upon one printing machine. Before the
auction sale could take place, the Philippine American
Drug Company (PADCO) informed the sheriff that the said
machine is its property and not that of Graphics. PADCO
asked that they cease and desist from carrying on the
sale. The sheriff, however, proceeded with the sale and
Anchor won, being the highest bidder. PADCO filed a
Motion to Nullify Sale on Execution. Anchor argued that
the levy should be upheld since the controlling
stockholders of PADCO are the same controlling
stockholders of Graphic. Jarencio ruled in favor of PADCO.
ISSUE:
1. WON Jarencio was right in not piercing PADCOs
corporate identity?
RULING:
1. NO. It is true that a corporation, upon coming into
being, is invested by law with a personality separate and
distinct from that of the persons composing it as well as
from any other legal entity to which it may be related
However, this separate and distinct personality is merely
a fiction created by law for convenience and to promote
justice. This separate personality of the corporation may
be disregarded, or the veil of corporate fiction pierced, in
cases where it is used as a cloak or cover for fraud or

illegality, or to work an injustice, or where necessary to

achieve equity or when necessary for the protection of
creditors. Corporations are composed of natural persons
and the legal fiction of a separate corporate personality is
not a shield for the commission of injustice and inequity.
Likewise, this is true when the corporation is merely an
adjunct, business conduit or alter ego of another
corporation. In such case, the fiction of separate and
distinct corporation entities should be disregarded.
In the case at bar, evidence showed that PADCO was not
engaged in the printing business. Graphic and PADCO
also shared the same board of directors. PADCO also
holds 50% share of stock of Graphic. Further, the said
machine had been in the premises of Graphic way before
PADCO acquired its title. Yet, it was also shown that
PADCO leased the machine to Graphic even before the
former was able to purchase it from Capital Publishing.
This only proves that PADCOs claim of ownership over
the printing machine is not only farce and sham but also
unbelievable.
PADCOs veil of corporate identity should have been
pierced.
B. ADVANTAGES AND DISADVANTAGES
C. DISTINGUISHED FROM OTHER ENTITITES
D. NATURE AND ATTRIBUTES
5) Smith, Bell & Co. (Ltd) v Natividad, Collector of
Customs of the port of Cebu
Malcolm; September 17, 1919
Facts

Smith, Bell & Co is a corporation organized under

Philippine laws. The majority of its stockholders are
British. It is the owner of a motor vessel known as the
Bato built for it in the Philippine Islands in 1916, of more
than fifteen tons gross. The corporation applied to the
Collector of Customs of the port of Cebu for a certificate

of Philippine registry. The Collector refused to issue the

certificate, giving as his reason that all the stockholders
of Smith, Bell & Co., Ltd., were not citizens either of the
United States or of the Philippine Islands.
The particular legislation in issue here is Act No.
2761 which states that Upon registration of a vessel of
domestic ownership, and of more than fifteen tons gross,
a certificate of Philippine register shall be issued for it.
The law defines "Domestic ownership," as ownership
vested in some one or more of the following classes of
persons: (a) Citizens or native inhabitants of the
Philippine Islands; (b) citizens of the United States
residing in the Philippine Islands; (c) any corporation or
company composed wholly of citizens of the Philippine
Islands or of the United States or of both, created under
the laws of the United States, or of any State thereof, or
of thereof, or the managing agent or master of the vessel
resides in the Philippine Islands.
The contention of the counsel for Smith Bell & Co.
is that Act No. 2761 denies to the corporation the equal
protection of the laws because it, in effect, prohibits the
corporation from owning vessels, and because
classification of corporations based on the citizenship of
one or more of their stockholders is capricious, and that
Act No. 2761 deprives the corporation of its properly
without due process of law because by the passage of the
law company was automatically deprived of every
beneficial attribute of ownership in the Bato.
A writ of mandamus is prayed for by Smith Bell to compel
the Collector of Customs to issue a certificate of Registry.
Issue
WON the Government of the Philippine Islands, through
its Legislature, can deny the registry of vessel in its
coastwise trade to corporations having alien stockholders
.
Ratio/Ruling
Yes. The SC said that the guaranties of the
Fourteenth Amendment and of the first paragraph of the
Philippine Bill of Rights, are universal in their application
to all person within the territorial jurisdiction, without
regard to any differences of race, color, or nationality. The

word "person" includes aliens. Private corporations,

likewise, are "persons" within the scope of the guaranties
in so far as their property is concerned. The Court said
that to justify that portion of Act no. 2761 which permits
corporations or companies to obtain a certificate of
Philippine registry only on condition that they be
composed wholly of citizens of the Philippine Islands or of
the United States or both, as not infringing Philippine
Organic Law, it must be done under one of the exceptions
mentioned in the decision (such that it does not fall under
the protection of the Bill of Rights or the Jones Law). The
court also said that our local experience and customs
must be taken into consideration.
The SC held that while Smith, Bell & Co. Ltd., a
corporation having alien stockholders, is entitled to the
protection afforded by the due-process of law and equal
protection of the laws clause of the Philippine Bill of
Rights, Act No. 2761 of the Philippine Legislature, in
denying to corporations such as Smith, Bell &. Co. Ltd.,
the right to register vessels in the Philippines coastwise
trade, falls within authorized exceptions, notably, within
the purview of the police power, and so does not offend
against the constitutional provision.
In essence, the court stated the exception (police power)
is based on the purpose of the legislation which is to
protect Philippine waters from aliens who may abuse
Philippine hospitality since being an archipelago, the
country is engaged in coastwide trade which is important
to our trade and commerce.
The petition for a writ of mandamus is denied.

De leon and his witness, Logronio, went to the CFI.

At that time respondent Judge was hearing a certain
case; so, by means of a note, he instructed his Deputy
Clerk of Court to take the depositions of de Leon and
Logronio. After the session had adjourned, respondent
Judge was informed that the depositions had already
been taken. The stenographer, upon request of
respondent Judge, read to him her stenographic notes;
and thereafter, respondent Judge asked respondent
Logronio to take the oath and warned him that if his
deposition was found to be false and without legal basis,
he could be charged for perjury. Respondent Judge signed
respondent de Leons application for search warrant and
respondent Logronios deposition. The search warrant
was then signed by respondent Judge and accordingly
issued.
The BIR agents served the search warrant to the
petitioners at the offices of petitioner corporation.
Petitioners lawyers protested the search on the ground
that no formal complaint or transcript of testimony was
attached to the warrant. The agents nevertheless
proceeded with their search which yielded six boxes of
documents. Petitioners filed a petition with the CFI of
Rizal praying that the search warrant be quashed,
dissolved or recalled, that preliminary prohibitory and
mandatory writs of injunction be issued, that the search
warrant be declared null and void.
It is contended by respondents that a corporation
is not entitled to protection against unreasonable
searches and seizures

6)Bache Rach v Ruiz

Villamor; February 27, 1971

Issue
WON a corporation is entitled to protection against
unreasonable searches and seizures.

Facts

The Commissioner of Internal revenue wrote a

letter addressed to respondent Judge Ruiz requesting the
issuance of a search warrant against petitioners for
violation of Art 46(a) of NIRC and authorizing Revenue
Examiner de Leon to make and file for an application for
a search warrant.

Ruling/Ratio: YES
The Court cited jurisprudence holding that a
corporation is entitled to immunity against unreasonable
searches and seizures. A corporation is, after all, but an
association of individuals under an assumed name and
with a distinct legal entity. In organizing itself as a
collective body it waives no constitutional immunities
appropriate to such body. Its property cannot be taken

without compensation. It can only be proceeded against

by due process of law, and is protected, under the 14th
Amendment, against unlawful discrimination . . . (Hale v.
Henkel)
In the case of Stonehill v Diokno the court
impliedly recognized the right of a corporation to object
against unreasonable searches and seizures. The court
stated that it is well settled that the legality of a seizure
can be contested only by the party whose rights have
been impaired thereby, and that the objection to an
unlawful search and seizure is purely personal and cannot
be availed of by third parties.
In the Stonehill case only the officers of the
various corporations in whose offices documents, papers
and effects were searched and seized were the
petitioners. In the case at bar, the corporation to whom
the seized documents belong, and whose rights have
thereby been impaired, is itself a petitioner. On that
score, petitioner corporation here stands on a different
footing from the corporations in Stonehill.
Petitioner
corporation
is
protected
against
the
unreasonable search and seizure.

7) HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN

J. BROOKS and KARL BECK, petitioners, vs. HON.
JOSE W. DIOKNO, in his capacity as SECRETARY OF
JUSTICE; JOSE LUKBAN, in his capacity as Acting
Director, National Bureau of Investigation; SPECIAL
PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA
and MANUEL VILLAREAL, JR. and ASST. FISCAL
MANASES G. REYES; JUDGE AMADO ROAN,
Municipal Court of Manila; JUDGE ROMAN CANSINO,
Municipal Court of Manila; JUDGE HERMOGENES
CALUAG, Court of First Instance of Rizal-Quezon

City Branch, and JUDGE DAMIAN JIMENEZ,

Municipal Court of Quezon City, respondents.
(Concepcion, 1967)
FACTS
The Respondent judges issued a total of 42 search
warrants against the petitioners and/or the corporations
in which they were officers, on suspicion of violating
Central Bank Laws, Tariff and Customs Laws, Internal
Revenue Code, and the RPC. The warrants directed peace
officers
to
seize
personal
propertyincluding
documents...showing all business transactions....used or
intended to be used as the means of committing the
offense.
Petitioners, who had deportation cases filed
against them, filed before the Supreme Court a petition
for certiorari, prohibition, mandamus and injunction, and
prayed for a writ of preliminary injunction. They argued
that the search warrants were unconstitutional on several
grounds (warrants did not particularly describe
documents seized, illegal search and seizure, warrants
merely fishing expedition, etc).
The SC issued the writ of prelim injunction prayed
for. However, it was only partially lifted, insofar as the
papers, documents, and things seized from the offices of
the corporations are concerned; but, the injunction was
maintained as regards those seized in the residences of
petitioners herein.
Thus, the documents, papers, and things seized
under the alleged authority of the warrants in question
may be split into two (2) major groups, namely: (a) those
found and seized in the offices of the aforementioned
corporations, and (b) those found and seized in the
residences of petitioners herein.
ISSUES
1) WON the petitioners (corporation officers) can
question the legality of warrants issued in the first group
and the seizures made in pursuance of such warrants:
NO.

2) WON the search warrants and subsequent searches

and seizure were valid: NO. [constitutional issue]
RULING/RATIO:
1.) NO. The petitioners cannot question the legality of
the warrants and seizures made in the offices of the
corporation because they do not have the proper
personality. The legality of a seizure can only be
contested by a party whose rights have been impaired,
AND corporations have their respective personalities,
separate and distinct from the personalities of the
petitioners. So despite amount of shares or interest in
corporations, the petitioners cannot object as to the use
of the documents seized in the corporation offices.
2) NO. The warrants and seizures were unconstitutional,
because the Constitution requires two elements: that
there be probable cause, and that the warrant
particularly describe the thing seized. The warrants in
the case at bar failed to satisfy the constitutional
requirements. First, it failed to specify an offense, which
is contrary to the constitutional purpose to wipe out
general warrants. Second, The warrants authorized the
search for and seizure of records pertaining to all
business transactions of petitioners, regardless of
whether the transactions were legal or illegal.

8) BATAAN SHIPYARD & ENGINEERING CO., INC.

(BASECO), petitioner, vs. PRESIDENTIAL COMMISSION
ON GOOD GOVERNMENT, CHAIRMAN JOVITO

SALONGA, COMMISSIONER MARY CONCEPCION

BAUTISTA,
COMMISSIONER
RAMON
DIAZ,
COMMISSIONER RAUL R. DAZA, COMMISSIONER
QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et
al., respondents.
(Narvasa, 1987)
[sorry. Medyo mahaba to. I apologize if I miss anything
relevant Dana]
FACTS
BASECO describes itself in its petition as "a
shiprepair and shipbuilding company * * incorporated as
a domestic private corporation. Its Articles of
Incorporation disclose that its authorized capital stock is
P60,000,000.00 divided into 60,000 shares, of which
12,000 shares with a value of P12,000,000.00 have been
subscribed, and on said subscription, the aggregate sum
of P3,035,000.00 has been paid by the incorporators. The
same articles identify the incorporators, numbering
fifteen (15). By 1986, however, of these fifteen (15)
incorporators, six (6) had ceased to be stockholders. As
of 1986, there were twenty (20) stockholders listed in
BASECO's Stock and Transfer Book.
A sequestration order was issued directing PCGG
commissioners to sequester several companies, BASECO
included, authorizing its agents to request support from
military/police authorities for any acts necessary to the
sequestration order. The PCGG later ordered BASECO to
produce certain documents (i.e. stock transfer book,
articles of incorporation and other legal documents, list of
stockholders, financial statements, etc.), threatening to
cite the company for contempt in pursuance with EOs 1
and 2 if they failed to submit within 5 days.
BASECO filed a special civil action of certiorari and
prohibition challenging the constitutionality of the
Executive Orders and PCGG's sequestration and other
orders. BASECO claimed that 1) there was no notice and
hearing before the sequestration; 2) PCGG is not a court
and therefore not competent to act as prosecutor and
judge; 3) the issuances do not provide for any remedy by
which petitioner may expeditiously challenge the validity

of the takeover after the same has been effected; and 4)

since they are directed against specified persons, and in
disregard of the constitutional presumption of innocence
and general rules and procedures, they constitute a Bill of
Attainder.
The company also contended that the production
order violated its right against self-incrimination and
unreasonable search and seizure.
ISSUES
1) WON BASECO, a corporation, can avail of the right to
self-incrimination, and if the documents are selfincriminating: NO
2) WON EO 1, 2, and 14 (which empowers PCGG to file
suits) are constitutional: YES
3) WON PCGG interfered with BASECO's business affairs
and its right of dominion: NO
RULING/RATIO:
1.) NO. The right to self-incrimination does not apply to
juridical persons, including corporations. In Wilson v.
United States, the court held:
The corporation is a creature of the state. It is
presumed to be incorporated for the benefit of the
public. It receives certain special privileges and
franchises, and holds them subject to the laws of
the state and the limitations of its charter. Its power
are limited by law. It can make no contract not
authorized by its charter. Its right to act as a
corporation are only preserved to it so long as it
obeys the laws of its creation. There is a reserve
right in the legislature to investigate its contracts
and find out whether it has exceeded its powers. It
would be a strange anomaly to hold that a state,
having chartered a corporation to make use of
certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been
employed, and whether they had been abused, and

demand the production of the corporate books and

papers for that purpose...
Every corporation is a direct creature of the law
and receives an individual franchise from the State. But a
partnership, although is deemed to be a juridical person
by grant of the State, becomes a juridical person through
a private contract of partnership between and among the
partners, without needing to register its existence with
the State or any of its organs. More importantly, the
partnership person is a fiction of law given more for the
convenience of the partners, and thus can be dissolved
by the will of the partners or by the happening of an
event that would constitute the termination of the
contractual relationship, whereas, no corporation can be
dissolved without the consent of the State, and only after
due notice and hearing. Likewise, the other features of
the partnership, mainly mutual agency, delectus
personae and unlimited liability on the part of the
partners, that places a close identity between the
persons of the partners and that of the partnership. This
is unlike in corporate setting, where the stockholders do
not own corporate properties, have no participation in
management of corporate affairs, and enjoy personal
immunity from the debts and liabilities of the corporation,
and where basically the corporation is its own person,
and acts through a professional group of managers and
agents called the Board of Directors.
While therefore it is understandable that a
corporation, that has no heart, feels pain, and has no soul
that can be damned, cannot be expected to be entitled to
the constitutional right against self-incrimination, it is
quite different in the case of the partnership, since its
person is merely an extension of the group of partners,
who having come together in business, and acting still for
such business enterprise, could not be presumed to have
waived their individual rights against self-incrimination.

2) YES. The impugned executive orders are avowedly

meant to carry out the explicit command of the
Provisional Constitution, ordained by Proclamation No. 3,
23 that the President-in the exercise of legislative power
which she was authorized to continue to wield "(until a
legislature is elected and convened under a new
Constitution" "shall give priority to measures to
achieve the mandate of the people," among others to
(r)ecover ill-gotten properties amassed by the leaders
and supporters of the previous regime and protect the
interest of the people through orders of sequestration or
freezing of assets or accounts."
3) NO. The PCGG did not interfere with BASECO's right of
dominion by sequestration and other acts, as the act
does not make PCGG the owner of the company thereof.
PCGG only has powers of administration.
The Court discussed how the acts taken by PCGG
were proper, as they had significant evidence that Marcos
was using BASECO, when he was president, to take over
other companies.

9) PHILIPPINE NATIONAL BANK v. COURT OF

APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and
THE PHILIPPINE AMERICAN GENERAL INSURANCE
COMPANY, INC.
ANTONIO, J., 1978
FACTS
PNB executed its Bond of P2000 (originally P4000)
with Tapnio as principal, in favor of PNB Branch at
Pampanga (Bank), to guarantee the payment of her
account with the said Bank. As a security for the Bond,
Tapnio and Philamgen executed an indemnity agreement,
with the following terms: the rate of the interest shall be
12% per annum of the amount that PNB would pay the

Bank, plus 15% of the whole amount due in case of

litigation, as attorneys fees.
Tapnio owed the bank P2000 plus accumulated
interest unpaid, which she failed to pay the Bank despite
its demands. The Bank then wrote a letter of demand to
PNB; PNB paid the Bank a total of P2379.91, and then
made several demands (both oral and written) to Tapnio,
but to no avail.
Tapnio admitted all the foregoing facts. She
claims, however, that when demands were made by PNB,
she told the latter that she no longer considered herself
to be indebted to the Bank because she, along with Mr.
Jacobo Tuazon, had made an arrangement that he would
lease her 1000 piculs of unused export sugar quota.
Since said quota was mortgaged with PNB, the contract
of lease was sent to the Pampanga Branch Manager, who
set the price at P2.80/picul, with the approval of the PNB
VP Buenaventura. However, the Board of Directors
wanted the price to be raised to P3.00/picul, causing
Tuazon to refuse the deal and negotiations to fail to the
prejudice of Tapnio. She was, as a result, unable to realize
the amount of P2,800, which would have sufficiently
covered her indebtedness.
There is no question that Tapnios failure to utilize
her sugar quota was due to the disapproval of the lease
by the Board of Directors.
ISSUES:
1) WON there can be corporate liability for torts
2) WON PNB is liable for the damage caused
RULING/RATIO:
1) YES. A corporation is civilly liable in the same
manner as natural persons for torts, because
generally speaking, the rules governing the
liability of a principal or master for a tort
committed by an agent or servant is the same
whether the principal or master be a natural
person or a corporation, and whether the
servant or agent be a natural person. A
corporation is liable, therefore, whenever a
tortuous act is committed by an officer or
agent under express direction or authority

from the stockholders or members acting as a

body, or, generally, from the directors as the
governing body.
2) YES. The court found that there was no
reasonable basis for the Board to reject the
price of P2.80. The fact that there were
isolated instances of transactions where piculs
were sold at P3.0 each does not necessarily
mean that there are always ready takers of
said price. It wouldve made a measly P200
difference, which neither Tapnio nor PNB
needed Tapnio had securities in all of her
accounts and she apparently had the means
to pay her obligation to the Bank, as shown by
the fact that she has been granted several
sugar crop loans of the total value of
P80,000.00 for the agricultural years 19521956.
Although PNB had the ultimate
authority to approve or disapprove the lease, it
still had the responsibility of observing, for the
protection of the interest of Tapnio et al., that
degree of care, precaution and vigilance which
the
circumstances
justly
demand
in
approving/disapproving the lease of said sugar
quota. The court cited articles 19 and 21 of the
Civil Code.
10) ALFREDO CHING v. THE SECRETARY OF JUSTICE,
ASST.
CITY
PROSECUTOR
ECILYN
BURGOSVILLAVERT, JUDGE EDGARDO SUDIAM of the
Regional Trial Court, Manila, Branch 52; RIZAL
COMMERCIAL BANKING CORP. and THE PEOPLE OF
THE PHILIPPINES
CALLEJO, SR., J. 2006
FACTS
In Sept-Oct 1980, Philippine Blooming Mills Inc.
(PBMI), applied with Rizal Commercial Banking Corp
(RCBC) for the issuance of commercial letters of credit to
finance its importation of goods. Ching, as its Senior VP,
was the one who applied for such issuance and

subsequently signed the documents as surety,

acknowledging delivery of the goods. However, when the
trust receipts matures, Ching failed to return the goods to
RCBC, or to return their value (P6,940,280.66) despite
demands. RCBC then filed an estafa complaint against
him.
After preliminary investigation, the City Prosecutor
(CP) found probable cause for estafa under the RPC, in
relation to PD 115 (Trust Receipts Law); 13 Informations
were filed, and Ching appealed to the Minister of Justice,
but was denied. His Motion for Reconsideration, however,
was granted, and the Minister ordered the CP to move for
the withdrawal of the Information. The RTC also later
granted motion to Quash the Informations on the ground
that the material allegations did not amount to estafa.
In the meantime, the court rendered judgment in
the case of Allied Banking v. Ordonez: the penal provision
in PD 115 encompasses any act violative of a trust
receipt; the non-payment of the amount covered by a
trust receipt is an act violative of the obligation of an
entrustee to pay. RCBC then re-filed the original
complaint for estafa before the Office of the CP. After
another preliminary investigation, the CP found no
probable cause to charge him with violation of PD 115, as
his liability was only civil, having signed the trust receipts
as surety.
Upon appeal, the Justice Secretary found for
RCBC: because Ching signed the trust receipts, he was
the one responsible for the offense and thus, the
execution of the receipts is enough to indict him as the
official responsible for violation of PD 115. And, because
he bound himself as a surety, aside from being a
corporate official, he could be proceeded against in two
ways: as a surety for civil liability, and as an official for
criminal liability. PD 115 explicitly allows the prosecution
of corporation officers without prejudice to the civil
liabilities arising from criminal offenses.
Ching filed a Motion for Reconsideration, which
was denied. In the CA, he filed for certiorari, prohibition,
and mandamus, but the case was dismissed upon
procedural and substantive grounds. Hence this case.
ISSUES:

10

1) WON there can be criminal liability for

corporations
2) WON Ching is criminally liable
3) WON the Certificate of Non-Forum Shopping in the
petition submitted to the CA was fatally defective
RULING/RATIO:
1) YES. The crime defined in PD 115 1 is malum
prohibitum but classified as estafa; it may be
committed by a corporation or other juridical
entity or by natural persons.
Although the entrustee is a corporation,
the law specifically makes officers, employees, or
others responsible for the offense without
prejudice to civil liability because they are given
authority and responsibility to devise means
necessary to ensure compliance with the law; if
they fail to do so, theyre criminally accountable,
having a responsible share in the violations of the
law.
A corporation cant be arrested and
imprisoned and hence cant be penalized for a
crime punishable by imprisonment. However, it
may be changed and prosecuted or a crime which
imposes a fine as its penalty. Even if the statue
prescribes both fine and imprisonment as penalty,
a corporation may be prosecuted and, if found
guilty, may be fined.

Section 13. Penalty Clause. The failure of an entrustee to turn

over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the
amount owing to the entruster or as appears n the trust receipt
or to return said goods, documents or instruments if they were
not sold or disposed of in accordance with the terms of the trust
receipt shall constitute the crime of estafa, punishable under
the provisions of Article 315 (1 (b)) of the Revised Penal Code. If
the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense.

When a criminal statute designates an act

of a corporation or a crime and prescribes
punishment therefor, it creates a criminal offense
which, otherwise, wouldnt exist and such can be
committed only by the corporation. But when a
penal statute doesnt expressly apply to
corporations, it doesnt create an offense for
which a corporation may be punished. If the State,
by statute, defines a crime that may be
committed by a corporation but prescribes the
penalty to be suffered by the officers, directors, or
employees of such corporation or other persons
responsible for the offense, only such individuals
will suffer such penalty.
2) YES. Corporate officers or employees, through
whose act, default or omission the corporation
commits a crime, are individually guilty of the
crimes whether or not the crime requires
consciousness of wrongdoing. It applies to those
who, by virtue of their relation to the corporation,
had the power to, but did not prevent the act. All
parties active in a promoting a crime, whether or
not agents, are principals, and whether or not
they benefited is immaterial in determining
criminal liability. Benefit is not an operative fact.
Quoting former Chief Justice Earl Warren, a
corporate officer cannot protect himself behind a
corporation where he is the actual, present and
efficient actor.
Since a corporation cant be proceeded
against criminally, because it cant commit crime
requiring personal violence or malicious intent,
criminal action is limited to the corporation agents
guilty of the act amounting to a crime, and never
against the corporation itself. Chings act of
signing the trust receipts is enough to indict him
as the official responsible for violation of PD 115.
Ching cant say that it wasnt a trust
receipt transaction (thus rendering PD 115
inapplicable) because, citing Colinares v. CA, there
are two possible situations in a trust receipt
transaction: entregarla, referring to money

11

received under the obligation to deliver it to the

owner of merchandise sold, and devolvera,
referring to merchandise received under the
obligation to give back to the owner. Thus, the
failure of the entrustee to turn over the proceeds
of the sale of the goods or to return such to the
owner is a crime under PD 115, without need of
proving intent to defraud.
3) YES. The certification failed to state that Ching
had not heretofore commenced any other action
involving the same issue in the Supreme Court,
the Court of Appeals or the different divisions
thereof or any other tribunal or agency as
required by par.4, Sec. 3, Rule 46 of the ROC.
Compliance with the certificate of non-forum
shopping is separate from and independent of the
avoidance of forum shopping itself. The
requirement is mandatory, and failure to comply
shall be sufficient ground for the dismissal of the
petition without prejudice, unless otherwise
provided.
11)PRIME WHITE CEMENT CORPORATION vs IAC
(Campos, Jr., J., 1993)
FACTS
Alejandro Te and Prime White Cement Corporation, thru
its President, Zosimo Falcon and Chairman of the Board,
Justo Trazo, entered into a dealership agreement with the
following terms: (a) Te would act as the exclusive
dealer/distributor of cement products in entire Mindanao
area; (b) Prime White would sell and supply to Te 20,000
bags of cement per month with a cost of P9.70 per bag;
and (c) every time Prime White is ready to deliver the
cement, a letter of credit in favor of the corporation shall
be opened with any bank upon certification on the bill of
lading that the goods have been loaded.
After the agreement has been concluded, Te advertised
and told all his friends that he won the dealership deal.
Relying on the dealership agreement, he then entered

into written agreements with several hardware stores in

Davao and CDO. However, upon request that the
corporation to comply with the agreement, the
corporation decided to impose conditions that were not in
the original terms of agreement. (i.e. only 8,000 bags per
month will be delivered; price = P13.30 per bag; letter of
credit to be opened only with Prudential Bank in Makati,
etc,). Te demanded that Prime White comply with the
dealership agreement, but the corporation refused.
Trial Court found Prime White liable to Te for actual and
moral damages and attorneys fees. CA affirmed and held
that it appears on the face of the contract that both
officers were duly authorized to enter into the agreement
on behalf of the corporation, and such agreement was
thus valid. When they entered into the transaction, they
created the impression that they were duly clothed with
authority to do so, and cannot now dispute said
agreement. (principle of estoppel)
ISSUE: WON dealership agreement referred by the
President and Chairman of the Board is a valid and
enforceable contract NO
RATIO:
The rule that an agreement entered into by the President
and Chairman of the Board would be valid and
enforceable only applies if the transaction is with a
person other than a director or officer of a corporation.
Alejandro Te was a Director and Auditor of Prime White
Corporation, and thus occupies a position of trust and
owes a duty of loyalty to the corporation. In case of
conflicts of interest, he cannot sacrifice the interests of
the corporation to this own advantage. This trust
relationship springs from the fact that directors have
control and guidance of corporate affairs and property
interests of stockholders. He cannot use this power for his
personal advantage and to the detriment of other
stockholders.
However , not all contracts with a director is void or
voidable. If the contract is fair and reasonable, it may be
ratified by stockholders provided there is full disclosure of
his adverse interest. (See Art. 32, Corpo Code).

12

In this case, there is reason to believe the agreement was

not fair nor reasonable. In the contract, the cement was
to be sold at a fixed price for 5 years, without considering
the fact that prices may rise due to inflation. There was
no provision allowing for increase in price mutually
acceptable to parties. On the contrary, in his subsequent
contracts with third parties, he protected himself from
any increase in market price of white cement only for two
years. It is clear that Te was guilty of disloyalty to the
corporation and was attempting to enrich himself at its
expense. There is no showing that the stockholders
ratified the dealership agreement.
SET ASIDE
12) FILIPINAS BROADCAST NETWORK
MEDICAL AND EDUCATIONAL CENTER
(Carpio, J., 2005)

vs.

AGO

FACTS
Rima and Alegre hosted a radio show named Expose,
which was aired every morning by DZRC-AM, and owned
by Filipinas Broadcast Network Inc. (FBNI) On this show,
they exposed various alleged complaints against Ago
Medical and Educational Center (AMEC), which prompted
AMEC and their Dean Angelita Ago to file complaints for
damages against Rima, Alegre, and FBNI.
The following are the alleged libelous statements:
1. If you have children taking medical course at
AMEC-BCCM, advise them to pass all subjects
because if they fail in any subject they will repeat
their year level, taking up all subjects including
those they have passed already
2. Earlier AMEC students in Physical Therapy had
complained that the course is not recognized by
DECS.
3. Students are required to take and pay for the
subject even if the subject does not have an
instructor - such greed for money on the part of
AMECs administration.
4. The administrators of AMEC-BCCM, AMEC Science
High School and the AMEC-Institute of Mass

Communication in their effort to minimize

expenses in terms of salary are absorbing or
continues to accept rejects. AMEC is a dumping
ground, garbage, not merely of moral and physical
misfits.
The RTC found FBNI and Alegre liable for libel but
absolved Rima, finding his statements within the bounds
of free speech. The CA, however, found both
broadcasters guilty of libel for failing to overcome the
presumption of malice. It also held that FBNI failed to
exercise due diligence in its supervision and selection of
their employees, hence, solidarily liable with the
broadcasters.
ISSUES:
1. WON broadcasts are libelous - YES
2. WON AMEC is entitled to moral damages
(topical) - YES
3. WON award of attorneys fees is proper NO
4.
WON FBNI is solidarily liable with Rima
and Alegre - YES
RULING:
1. YES, broadcasts were found to be libelous since
they were not based on established facts and it
was not found that the broadcasters took pains to
verify sources of their information. Every
defamatory imputation is presumed malicious and
Rima and Alegre failed to show their good
intentions for airing the said statements. The
doctrine of fair comment, introduced in the case of
Borjal vs CA, does not find application in this case
because the questioned broadcasts are not based
on established facts. Moreover, the broadcasts
failed to meet the ethical standards set forth by
the Radio Code.
2. YES. The general rule is that juridical persons are
not entitled to moral damages because, unlike a
natural person, it cannot experience physical
suffering or such sentiments as wounded feelings,
anxiety, or mental anguish. However, Art. 2219(7)
expressly provides that moral damages may be

13

recovered in cases of libel, slander or other forms

of defamation. Said provision does not distinguish
between natural or juridical persons. Moreover,
where the broadcast is libelous per se, the law
implies damages. Moral damages may be awarded
but must be reduced because it was not shown
that AMEC suffered any material loss or damage
to its reputation.
3. NO. AMEC did not adduce evidence to warrant the
award of attorneys fees.
4. YES. The contention of FBNI that it is not solidarily
liable with the broadcasters because it exercised
due diligence in the supervision and selection of
employees is untenable. Firstly, the basis of the
action is a tort and joint tortfeasors are soldiarily
liable for the tort they commit. Rima and Alegre
were clearly performing their official duties as
hosts of FBNIs radio program when they aired the
broadcasts. It was not alleged nor proved that
Rima and Alegre went beyond the scope of their
work at that time. There was also no showing that
FBNI did not authorize such statements. Secondly,
contrary to their claim, there was also no evidence
that the broadcasters have undergone a
regimented process (interviews, examinations,
apprenticeship) of application. Rima and Alegre
also had deficiencies in their KBP accredition.
Hence, there was clearly a lack of diligence in
selection and supervision of its employees.

E. KINDS OF CORPORATIONS
1. Vis--vis State: Public,
private

quasi-public,

13) BOY SCOUTS OF THE PHILIPPINES, Petitioner,

VS COMMISSION ON AUDIT, Respondent.
(LEONARDO-DE CASTRO, J.. June 7, 2011)

FACTS
The Respondent, Commission on Audit or
COA, issued a resolution stating that: 1. the BSP
was created as a public corporation; 2. the
Supreme Court ruled that the BSP, as constituted
under its charter, was a GOCC; and, 3. that the
BSP is appropriately regarded as a government
instrumentality under the 1987 Administrative
Code. It stated that pursuant to its constitutional
mandate, it shall conduct an annual financial
audit of the Boy Scouts of the Philippines in
accordance with generally accepted auditing
standards.
The Petitioner, Boy Scouts of the Philippines or
BSP, sought reconsideration of the COA Resolution. BSP
claims that it is not subject to auditing by the COA. The
BSP contends that it is not a government-owned or
controlled corporation; neither is it an instrumentality,
agency, or subdivision of the government. The BSP
maintained that its statutory designation as a public
corporation and the public character of its purpose and
functions are not determinative of the COAs audit
jurisdiction; it also said that the funds and property that it
either owned or held in trust are not public funds and
are not subject to the COAs audit jurisdiction.
The COA contends that the BSP is a public
corporation and the manner of its creation and the
purpose for which the BSP was created indubitably prove
that it is a government agency and as such is subject to
audit by the COA. The COA claims that the only reason
why the BSP employees fell within the scope of the Civil
Service Commission even before the 1987 Constitution
was the fact that it was an attached agency to the Dep
Ed. The COA points out that the government is not
precluded by law from extending financial support to the
BSP and adding to its funds.
COA said that Republic Act No. 7278 did not
supersede the Courts ruling in Boy Scouts of the

14

Philippines v. National Labor Relations Commission. It

informed the BSP that a preliminary survey of its
organizational structure, operations and accounting
system/records shall be conducted. Upon the BSPs
request, the audit was deferred for thirty (30) days.
BSP then filed a Petition for Review with Prayer for
Preliminary Injunction and/or Temporary Restraining
Order before the COA. This was denied and held that
the BSP is under its audit jurisdiction. Motion for
Reconsideration was also denied. This led to the filing
by the BSP of this petition for prohibition with
preliminary injunction and temporary restraining
order against the COA.
ISSUES
1) WON the BSP falls under the COAs audit
jurisdiction? YES.
RULING/RATIO:
YES. The BSP is a public corporation and its
funds are subject to the COAs audit
jurisdiction.
The BSP is considered a Public Corporation
under Paragraph 2, Art 2 of the Civil Code. There are
three classes of juridical persons under Article 44 of the
Civil Code and the BSP, as presently constituted under
Republic Act No. 7278, falls under the second
classification. Article 44 reads:
Art. 44. The following are juridical
persons:
(1) The State and its political
subdivisions;
(2) Other corporations, institutions
and entities for public interest or
purpose created by law; their
personality begins as soon as they
have been constituted according to
law;

(3) Corporations, partnerships and

associations for private interest or
purpose to which the law grants a
juridical personality, separate and
distinct from that of each shareholder,
partner
or
member.
(Emphases
supplied.)
The BSP, which is a corporation created for a public
interest or purpose, is subject to the law creating
it under Article 45 of the Civil Code, which
provides:
Art.
45. Juridical
persons
mentioned in Nos. 1 and 2 of the
preceding article are governed by
the laws creating or recognizing
them.
Private corporations are regulated by laws of
general application on the subject. Partnerships
and associations for private interest or purpose
are governed by the provisions of this Code
concerning partnerships.
The BSP is classified as a public entity. The public,
rather than private, character of the BSP is recognized by
the fact that, along with the Girl Scouts of the Philippines,
it is classified as an attached agency of the DECS under
Executive Order No. 292, or the Administrative Code of
1987. Meaning to say, it may be a recipient of funds from
its mother agency which is the DECS or now Dep Ed.
The BSP is a public corporation or a government
agency or instrumentality with juridical personality, which
does not fall within the constitutional prohibition in Article
XII, Section 16, notwithstanding the amendments to its
charter. Not
all
corporations,
which
are not government owned or controlled, are ipso
facto to be considered private corporations as
there exists another distinct class of corporations
or chartered institutions which are otherwise
known as public corporations. These corporations

15

are treated by law as agencies or instrumentalities of the

government which are not subject to the tests of
ownership or control and economic viability but to
different criteria relating to their public purposes/interests
or constitutional policies and objectives and their
administrative relationship to the government or any of
its Departments or Offices.

Since the BSP, under its amended charter,

continues to be a public corporation or a
government instrumentality, we come to the
inevitable conclusion that it is subject to the
exercise by the COA of its audit jurisdiction in the
manner consistent with the provisions of the BSP
Charter.

Historically, therefore, the BSP had been

subjected to government audit in so far as public
funds had been infused thereto. However, this
practice should not preclude the exercise of the audit
jurisdiction of COA, clearly set forth under the
Constitution, which pertinently provides:

The
instant
is DISMISSED.

Section 2. (1) The Commission on

Audit shall have the power, authority,
and duty to examine, audit, and settle
all accounts pertaining to the revenue
and receipts of, and expenditures or
uses of funds and property, owned or
held in trust by, or pertaining to,
the Government,
or
any
of
its
subdivisions,
agencies,
or
instrumentalities,
including
government-owned
and
controlled
corporations
with
original
charters, ... and on a post-audit basis: (a)
constitutional bodies, commissions and
offices that have been granted fiscal
autonomy under this Constitution; (b)
autonomous
state
colleges
and
universities; (c) other government-owned
or controlled corporations with original
charters and their subsidiaries; and (d)
such non-governmental entities receiving
subsidy or equity, directly or indirectly,
from or through the Government, which are
required by law of the granting institution
to submit to such audit as a condition of
subsidy or equity.

petition

for

prohibition

14) MARILAO WATER CONSUMERS ASSOCIATION,

INC., petitioners,
vs.
INTERMEDIATE APPELLATE COURT, MUNICIPALITY
OF MARILAO, BULACAN, SANGGUNIANG BAYAN,
MARILAO,
BULACAN,
and
MARILAO
WATER
DISTRICT, respondents.
NARVASA, CJ. September 9, 1991
FACTS
Presidential Decree 198 authorized the creation
of water districts all over the country to protect the
water facilities providing such service throughout the
country. The decree specifies that juridical entities thus
created and organized under PD 198 are considered
quasi-public corporations, performing public services
and supplying public wants. They are authorized not only
to "exercise all the powers which are expressly granted"
by said decree, and those "which are necessarily implied
from or incidental to" said powers, but also "the power of
eminent domain subject to review by the Administration"
(LWUA).
The decree also established a government
corporation attached to the Office of the President,
known as the Local Water Utilities Administration (LWUA).
Based on such decree, the Marilao Water District was
formed by Resolution of the Sangguniang Bayan of the
Municipality of Marilao.
The
petitioners,
Marilao
Water
Consumers
Association, Inc., claim that the creation of the Marilao
Water District was defective and illegal and such
petition was filed with the Regional Trial Court at

16

Malolos, Bulacan. Impleaded as respondents were the

Marilao Water District, as well as the Municipality of
Marilao, Bulacan; its Sangguniang Bayan; and Mayor
Nicanor V. GUILLERMO.
The petition claimed that 1) there had been no real,
but only a "farcical" public hearing prior to the creation of
the Water District; 2) not only was the waterworks system
turned over to the Water District without compensation.
but a subsidy was illegally authorized for it; 3) the Water
District was being run with "negligence, apathy,
indifference and mismanagement," 4) the consumers
were consequently "forced to organize themselves into a
corporation lto demand adequate service.
The respondents, Marilao Water District, filed its
Answer denying the material allegations of the petition
and asserting as affirmative defenses (a) the Court's lack
of jurisdiction of the subject matter, and (b) the failure of
the petition to state a cause of action. The answer
alleged that the matter of the water district's dissolution
fell under the original and exclusive jurisdiction of the
Securities & Exchange Commission (SEC); and the matter
of the propriety of water rates, within the primary
administrative jurisdiction of the LWUA and the quasijudicial jurisdiction of the National Water Resources
Council. On the same date, Marilao Water District filed a
motion for admission of its third-party complaint against
the officers and directors of the petitioner corporation, it
being claimed that they had instigated the filing of the
petition simply because one of them was a political
adversary of the respondent Mayor.
The Trial Court ruled in favor of the respondents. It
dismissed the Consumers Association's suit. Its motion
for reconsideration denied.
The Consumers Association filed petition for review
on certiorari, The case was however referred to the
Intermediate Appellate Court. The IAC dismissed the
petition on procedural grounds, saying that it was
the wrong remedy. The motion for reconsideration
was also denied. It claimed that the controversy
falls within the province of the SEC. The petitioners
then went to the Supreme Court and filed the petition for
review.
ISSUE:

1) WON
the
Securities
and
Exchange
Commission or SEC has jurisdiction over the
dissolution of the water district organized
and operating as a quasi public corporation
under PD 198? NO.
RULING/RATIO:
NO. The SEC has no jurisdiction to decide on the
dissolution of the water district as such is a quasi public
corporation and not one organized under the corporation
code. The juridical entities known as water districts
created by PD 198, although considered as quasi-public
corporations and authorized to exercise the powers,
rights and privileges given to private corporations under
existing laws are entirely distinct from corporations
organized under the Corporation Code, PD 902-A, as
amended.
The Corporation Code does not have anything
to do with the formation and organization of water
districts. PD 198 provides for such mode of formation.
The resolutions creating them are not filed or registered
with the SEC but are instead filed with the LWUA. This
entity has its own charter and not articles of
incorporation drawn up under the Corporation Code,
which set forth the name of the water districts, the
number of their directors, the manner of their selection
and replacement, their powers, etc.
The SEC which is charged with enforcement of
the Corporation Code as regards corporations,
partnerships and associations formed or operating
under its provisions, has no power of supervision
or control over the activities of water districts.
More particularly, the SEC has no power of
oversight. That function of supervision or control over
water districts is entrusted to the Local Water Utilities
Administration. SEC has no expertise whatsoever to do
so.
The "Provincial Water Utilities Act of 1973" has a
specific provision governing dissolution of water districts
created thereunder This is Section 45 of PD 198 reading
as follows:
SEC. 45. Dissolution. A district may be dissolved by
resolution of its board of directors filed in the manner of
filing the resolution forming the district: Provided,

17

however, That prior to the adoption of any such

resolution: (1) another public entity has acquired the
assets of the district and has assumed all obligations and
liabilities attached thereto; (2) all bondholders and other
creditors have been notified and they consent to said
transfer and dissolution; and (3) a court of competent
jurisdiction has found that said transfer and dissolution
are in the best interest of the public.
Under this provision, it is the LWUA which is the
administrative body involved in the voluntary dissolution
of a water district; it is with it that the resolution of
dissolution is filed, not the Securities and Exchange
Commission.
The SEC has no jurisdiction over the water
districts. For although described as quasipublic
corporations, and granted the same powers as private
corporations, water districts are not really corporations.
They have no incorporators, stockholders or members,
who have the right to vote for directors, or amend the
articles of incorporation or by-laws, or pass resolutions, or
otherwise perform such other acts as are authorized to
stockholders or members of corporations by the
Corporation Code. There can therefore be no such thing
in a water district as "intra-corporate or partnership
relations, between and among stockholders, members or
associates (or) between any or all of them and the
corporation, partnership or association of which they are
stockholders, members or associates, respectively,"
within the contemplation of Section 5 of the Corporation
Code so as to bring controversies involving them within
the competence and cognizance of the SEC.
1. There can be even less debate about the fact that
the SEC has no jurisdiction over the corespondents of the Marilao Water District the
Municipality of Marilao, its Sangguniang Bayan
and its Mayor who are accused of a
"conspiracy" with the water district in respect of
the anomalies described in the Consumer
Associations' petition.
2. The National Water Resources Council, on the
other hand, is conferred "original jurisdiction over
all disputes relating to appropriation, utilization,
exploitation, development, control, conservation

and protection of waters within the meaning and

context of the provisions of ..." and its decision on
water rights controversies may be appealed to the
Court of First Instance of the province where the
subject matter of the controversy is situated.
The Consumer Association's action therefore is, in
fine, in the nature of a mandamus suit, seeking to compel
the board of directors of the Marilao Water District, and
its alleged co-conspirators, the Sangguniang Bayan and
the Mayor of Marilao to go through the process above
described for the dissolution of the water district.
In summary, taking account of the nature of
the proceedings for dissolution just described, it
seems plain that the case does not fall within the
limited jurisdiction of the SEC., but within the
general jurisdiction of Regional Trial Courts.
RTC had JURISDICTION, not SEC. CA REVERSED.

15) ENGR. RANULFO C. FELICIANO, in his capacity

as General Manager of the Leyte Metropolitan
Water District (LMWD), Tacloban City, petitioner,
vs. COMMISSION ON AUDIT, Chairman CELSO D.
GANGAN, Commissioners RAUL C. FLORES and
EMMANUEL M. DALMAN, and Regional Director of
COA Region VIII, respondents.
Carpio, J. (2004)
Facts
A Special Audit Team from COA audited the accounts of
Leyte Metropolitan Water District (LMWD) and thereafter
requested payment of auditing fees.
Petitioner Feliciano, General Manager of LMWD, refused
to pay citing PD 198, as well as RA 6758. He further
asked for refund of all auditing fees LMWD previously
paid to COA. Petitioner argues: that Local Water Districts
(LWDs) are private corporations and not a GOCC with

18

original charter; and that PD 198 cannot be considered

an original charter that created the LWDs. (specific
contentions of petitioner are enumerated as issues)
COA denied the request as well as the motion for
reconsideration
Issues:
1. Whether LMWS is subject to COAs audit
jurisdiction.
2. Whether LWDs are Private or GOCCs with Original
Charters.
a. WON PD 198 is the special charter creating
LWDs
b. WON the Sanggunian Bayan that created
the LWDs and not PD 198.
c. WON one special law can serve as enabling
law for several GOCCs
d. WON LWDs cannot be classified as public
because PD 198 considers it as quasipublic
e. WON PD 198 classifies LWDs into private
coporations because of the transfer of
ownership from LGUs to water districts.
RULING/RATIO
1. Whether LMWS is subject to COAs audit
jurisdiction. YES
The Constitution and existing laws mandate COA to audit
all government agencies, including government-owned
and controlled corporations (GOCCs) with original
charters. The COAs audit jurisdiction extends not only to
government agencies or instrumentalities, but also to
GOCCs with original charters as well as other GOCCS
without original charters.
2. Whether LWDs are Private or GOCCs with
Original Charters. GOCC with original charter
Only corporations created under a general law can qualify
as private corporations, that general law is the
Corporation Code, except that the Cooperative Code
governs the incorporation of cooperatives. Congress can
create corporations with special charters only if such
corporations are government-owned or controlled.

LWDs are not private corporations because they are not

created under the Corporation Code. Furthermore, the
following indicate that they are not private:
LWDs are not registered with the SEC
no articles of incorporation, no incorporators and
no stockholders or members.
no stockholders or members to elect the board
directors The local mayor or the provincial
governor appoints the directors of LWDs for a fixed
term of office.
a) WON PD 198 is the special charter creating
LWDs
LWDs exist by virtue of PD 198, which constitutes their
special charter. Since under the Constitution only
government-owned or controlled corporations may have
special charters, LWDs can validly exist only if they are
government-owned or controlled. Without PD 198, LWDs
would have no corporate powers. To claim that LWDs are
private corporations with a special charter is to admit
that their existence is constitutionally infirm.
b) WON it is the Sanggunian Bayan that created
the LWDs and not PD 198. NO
The Local Government Code does not vest in the
Sangguniang Bayan the power to create corporations.
What the Local Government Code empowers the
Sangguniang Bayan to do is to provide for the
establishment of a waterworks system subject to
existing laws The Sangguniang Bayan may establish a
waterworks system only in accordance with the
provisions of PD 198.
c) WON one special law can serve as enabling
law for several GOCCs YES
The Constitution (sec 16 Art XII) permits by using the
word may Congress to create a GOCC with a special
charter. There is, however, no prohibition on Congress to
create several GOCCs of the same class under one
special enabling charter.
The rationale behind the prohibition on private
corporations having special charters does not apply to
GOCCs. There is no danger of creating special privileges
to certain individuals, families or groups if there is one
special law creating each GOCC.

19

d) WON LWDs cannot be classified as public

because PD 198 considers it as quasi-public NO
The exercise of COAs audit jurisdiction depends on the
governments ownership or control of a corporation. The
nature of the corporation, whether it is private, quasipublic, or public is immaterial.
The government controls LWDs because under PD 198
the municipal or city mayor, or the provincial governor,
appoints all the board directors of an LWD for a fixed term
of six years. The board directors of LWDs are not coowners of the LWDs. LWDs have no private stockholders
or members. The board directors and other personnel of
LWDs are government employees subject to civil service
laws and anti-graft laws.
e) WON PD 198 classifies LWDs into private
coporations because of the transfer of ownership
from LGUs to water districts
The transfer of assets mandated by PD 198 is a transfer
of the water systems facilities under the control of such
city, municipality or province to the water district. The
transfer is from one government entity to another
government entity. PD 198 is bereft of any indication that
the transfer is to privatize the operation and control of
water systems.
Other issues
WON Section 20 of PD 198 prevents COA from
auditing LWDs
PD 198 cannot prevail over the Constitution. The second
sentence of Section 20 of PD 198 is unconstitutional since
it violates Sections 2(1) and 3, Article IX-D of the
Constitution.
WON the practice of charging auditing fees is
illegal under RA 7658
Section 18 of RA 6758, which prohibits COA personnel
from receiving any kind of compensation from any
government entity except compensation paid directly by
COA out of its appropriations and contributions.
However, it recognizes an exception to the statutory ban
on COA personnel receiving compensation from GOCCs.
COA may charge GOCCs actual audit cost but GOCCs
must pay the same directly to COA and not to COA
auditors. Petitioner has not alleged that COA charges
LWDs auditing fees in excess of COAs actual audit cost.

Neither has petitioner alleged that the auditing fees are

paid by LWDs directly to individual COA auditors.
16) SHIPSIDE INCORPORATED, petitioner, vs. THE
HON. COURT OF APPEALS [Special Former Twelfth
Division], HON. REGIONAL TRIAL COURT, BRANCH
26 (San Fernando City, La Union) & The REPUBLIC
OF THE PHILIPPINES, respondents.
MELO, J.: (2001)
Facts:
Rafael Galvez owned 4 lots, all covered in a ceritifcate of
title issued in his name. 2 of the lots (1 and 4) were sold
to Mamaril et al. who then sold the said lots to Lepanto
Consolidated Mining Company. Lepanto thereafter sold
the same to Petitioner Shipside.
Prior to the sale in favor of Shipside and unknown to
Lepanto, the CFI of La Union in a Land Registration Case
declared the title in the name of Rafael Galvez of the
Registry of Deeds for the Province of La Union null and
void, and ordered the cancellation thereof.
The CFI decision became final and executory but was not
executed. 24 years thereafter, the OSG filed a complaint
for revival of judgment and cancellation of titles before
the RTC
Shipside filed a Motion to Dismiss on the grounds, among
others,
RP is not the real party-in-interest because the
real property covered by the Torrens titles sought
to be cancelled, allegedly part of Camp Wallace
(Wallace Air Station), were under the ownership
and administration of the Bases Conversion
Development Authority (BCDA) under Republic Act
No. 7227;
(3) plaintiffs cause of action is barred by
prescription
The Motion to dismiss was denied by the CFI hence
petitioner instituted a petition for certiorari and
prohibition with the CA which dismissed the petition on
the ground that the verification and certification in the

20

petition, under the signature of Lorenzo Balbin, Jr., was

made without authority of the Board of Directors
ISSUES
(1) WON the Republic of the Philippines is the real
party in interest NO
(2) WON BCDA (the transferee) is a mere agent of
the government NO
(3) WON Lorenzo Balbin had authrority to sign the
verification and certification of non-forum shopping.
YES, defect cured. Technical rules relaxed by court
(the first two issues would determine whether the action
for revival filed by the OSG is imprescriptible)
RULING
1) NO.
With the transfer of Camp Wallace to the BCDA by virtue
of RA 7227, the government no longer has a right or
interest to protect. Being the owner of the areas covered
by Camp Wallace, it is the Bases Conversion and
Development Authority, not the Government, which
stands to be benefited if the land covered issued in the
name of petitioner is cancelled.
2) NO.
BCDA is not a mere agency of the Government but a
corporate body performing proprietary functions. It
isinvested with a personality separate and distinct from
the government. (Section 3 of Republic Act No. 7227)
The promotion of economic and social development of
Central Luzon, in particular, and the countrys goal for
enhancement, in general, do not make the BCDA
equivalent to the Government. Other corporations have
been created by government to act as its agents for the
realization of its programs, the SSS, GSIS, NAWASA and
the NIA, to count a few, and yet, the Court has ruled that
these entities, although performing functions aimed at
promoting public interest and public welfare, are not
government-function
corporations
invested
with
governmental attributes. Conclusion:
The action is barred by extinctive prescription considering
that such an action can be instituted only within ten (10)
years from the time the cause of action accrues. (Article
1144(3) of the Civil Code and Section 6, Rule 39 of the
1997 Rules on Civil Procedure)

Note: In any case, the portion in dispute now forms part

of the property owned and administered by the Bases
Conversion and Development Authority, it is alienable
and registerable real property.
3) YES. Defect cured, technical rules relaxed by court.
The defect was cured when subsequent to such dismissal
of the motion to dismiss, petitioner filed a motion for
reconsideration, attaching to said motion a certificate
issued by its board secretary The requirement regarding
verification of a pleading is formal, not jurisdictional The
court may order the correction of the pleading
Furthermore, The merits of petitioners case should be
considered special circumstances or compelling reasons
that justify tempering the requirement in regard to the
certificate of non-forum shopping. technical rules of
procedure should be used to promote, not frustrate
justice.
17) Camporedondo v. NLRC
Full Case Title: BALTAZAR G. CAMPOREDONDO,
petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION
(NLRC), Fifth Division, Cagayan de Oro City, THE
PHILIPPINE NATIONAL RED CROSS (PNRC), represented by
GOVERNOR ROMEO C. ESPINO and DR. CELSO
SAMSON,respondents.
[[ GR 129049 || Aug 6 1999 || Pardo, J. || Ceriorari ]]
Petitioner-plaintiff:
Baltazar
Camporedondo
(dismissed employee)
Respondent-defendant: Philippine National Red
Cross (PNRC) (employer government corporation)
Original Action:
Complaint for illegal dismissal
Disposition of Courts/Tribunals:
Labor Arbiter dismissed for lack of jurisdiction.
NLRC affirmed Labor Arbiter.
SC affirmed NLRC.
Facts:

21

Petitioner was employed with the respondent PNRC for

several years. As administrator of the Surigao del Norte
Chapter, his books were audited by a PNRC field auditor
and he was found to be short in the sum of P109,000.

Ratio:
1) YES, PNRC is a government owned and
controlled corporation. It was formed by its own
original charter under RA 95.

He was required by the PNRC Secretary to restitute the

said amount.
Instead, petitioner applied for early
retirement from the service and requested the PNRC
Secretary for a re-audit of his accounts by an
independent auditor. The PNRC Secretary denied the
request.

The test to determine whether a corporation is a GOCC:

Was the corporation created by its own charter for the
exercise of a public function OR by incorporation under
the general corporation law?
If YES, then it is a GOCC --> like herein PNRC.
Corporations with special charters are government
corporations subject to its provisions, and its
employees are under the jurisdiction of the Civil
Service Commission.
Said employees GOCCS are
compulsory members of the GSIS.

Petitioner filed a complaint for illegal dismissal, damages

and underpayment of wages against the PNRC and its key
officials.
Respondent PNRC filed motion to dismiss for lack of
jurisdiction on the ground that it is a government
corporation and its employees (who are government
employees and who are members of the GSIS) such as
herein petitioner fall under the jurisdiction of Civil Service
Law and regulations.
Petitioner filed opposition to MTD, alleging that there was
an ER-EE relationship between him (being a duly
appointed paid staff) and the PNRC governed by the
Labor Code.
The Labor Arbiter dismissed the complaint for lack of
jurisdiction, finding that PNRC was a government
corporation with an original charter (created by RA 95).
The Labor Arbiter denied MR.
Petitioner filed a notice of appeal with NLRC.
NLRC dismissed the said appeal and confirmed the
decision of the Labor Arbiter.
Hence this petition.
Issues:
1) WON PNRC is a government corporation [YES]
2) WON the PNRC was impliedly converted to a private
organization [NO]

2) NO, PNRC was not impliedly converted to a

private corporation by the mere fact that its
charter was amended to vest in it new powers such as:
o to secure loans,
o be exempted from payment of all duties, taxes,
fees and other charges of all kinds on all
importations and purchases for its exclusive use,
on donations for its disaster relief work and other
services and in its benefits and fund raising drives,
o and be allotted one lottery draw a year by the
Philippine Charity Sweepstakes Office for the
support of its disaster relief operation in addition
to its existing lottery draws for blood program.
Digesters note: Supreme Court offered no explanation to
this.
Other notes:
Petitioner (having served in the Philippine National Red
Cross for a number of years since his initial employment)
himself knew that PNRC is a government corporation with
its own charter and that he was covered by compulsory
membership in the GSIS, which is why he could apply, as
he did, for "early" retirement from the service under PD
1146 or RA 1616 which amended the PNRCs charter. His
own actions belie his claim.

22

Petition dismissed. NLRC decision affirmed

18) Strategic Alliance Development Corporation v.
Radstock Securities Limited
Full Case Title: STRATEGIC ALLIANCE DEVELOPMENT
CORPORATION, Petitioner, - versus - RADSTOCK
SECURITIES
LIMITED
and
PHILIPPINE
NATIONAL
CONSTRUCTION CORPORATION, Respondents. ASIAVEST
MERCHANT BANKERS BERHAD, Intervenor.
[[ GR 178158 || Dec 4 2009 || Carpio, J. ||
Ceriorari ]]
Facts:
The Philippine National Construction Corp. (PNCC)
(previously Construction Devt Corp. Of the Philippines or
CDCP) was incorporated under the Corporation Code.
In 1978 and 1981, Basay Mining Corp. (later CDCP Mining
Corp.), an affiliate of PNCC, , obtained loans from
Marubeni Corp wherein PNCC, without a board resolution
authorizing the same, obliged to pay solidarily with
Basay. For 20 years, PNCC consistently refused to admit
liability for the Marubeni loans. However, in October
2010, PNCC passed a board resolution recognizing a P
10.7 billion liability to Marubeni Corp. 3 months later,
Marubeni assigned its credit to Radstock for only US$ 2
million (or less than P 100 million, in stark contrast to the
P10.7 billion admitted receivable from PNCC).
Radstock immediately started actions for the collection of
the amount. TC issued a writ of preliminary attachment
against PNCC and garnished the latters bank accounts
and real properties. It denied PNCCs MTD. CA also denied
PNCCs petition for certiorari.
Later, PNCC and Radstock entered into a compromise
agreement whereby PNCC shall pay a reduced amount of
P6.185 billion instead of the total amount of the debt,
which as of 2006 has ballooned to P17 billion. COA found
the terms of the compromise as fair and above board.
The CA also approved it.

This case is the consolidation of petitions for review made

by
Strategic
Alliance
Development
Corporation
(STRADEC) and Luis Sison (a stockholder and former
PNCC President and Board Chairman), as well as the
motion to intervene made by Asiavest, a judgment
creditor of PNCC. These parties stand to be injured by
the PNCCs acknowledgment of debt to Marubeni and the
disputed compromise agreement.
In the SC, the bone of contention was the PNCC Boards
power to compromise the obligation. To resolve that
question, it must first be determined if PNCC is a GOCC or
an autonomous entity that is just like any private
corporation."
Issues:
1) WON PNCC is a GOCC [YES]
2) WON the compromise agreement made by PNCC with
Marubeni is void [YES]
Ratio:
1) Yes, PNCC is a GOCC.
PNCC may not compromise the obligation. Under the
Revised Administrative Code2 (RAC), compromise of
claims from a government agency exceeding P100,000
must be submitted to Congress. The Administrative
Code applies to PNCC because it is a government
agency. It is a government agency because PNCC is
a GOCC. As provided in Sec. 2 on the Introductory
Provisions of the RAC, agency of the government
refers to any of the various unit of the
government, including a...GOCC....
The dissenters position that PNCC has the power to
compromise because it was incorporated under the
Corporation Code and is therefore an autonomous
entity and is just like any other private corporation is
wrong. PNCC is not just like any other private
corporation because it is indisputably a GOCC. Neither is
PNCC an autonomous entity because it is under the
DTI, over which the President exercises control.

23

Furthermore, the dissenters assertion that PNCC is an

autonomous entity is inconsistent with its position that
Sec. 36(2) of the Government Auditing Code is the
governing law determining PNCCs power to compromise.
The same provision states that it applies to governing
bodies of GOCCs. The phrase GOCC refers to both
those created by special charter as well as those
incorporated under the Corporation Code. As held in
Felciano v COA, the COAs jurisdiction extends not only to
government agencies or instrumentalities but also
to GOCCs with original charters and other GOCCs
without original charters (i.e., those created under
the Corporation Code but are owned and controlled
by the government).
Thus, PNCC is a GOCC. As such, it is a government
agency to which the provisions of RAC regarding
compromises apply. Therefore, it has no power to
compromise the Marubeni loan. Only the Congress can do
so. Since the compromise agreement was not approved
by congress, it is void.

Petition granted. CA decision set aside. PNCC

board resolutions admitting liability for the
Marubeni loans VOID AB INITIO.
Compromise
Agreement between PNCC and Radstock declared
INEXISTENT AND VOID AB INITIO.
19) PNOC- Energy
Mercado
Paras, 1991
Facts

Devt Corp v. NLRC and Danilo

Danilo Mercado was first hired as a clerk by PNOCEDC and was a shipping clerk when he was dismissed by
the company due to serious acts of dishonesty and
violation of company rules and regulations. He filed an
illegal dismissal case against the company, and the
company filed for the dismissal of the case since it

alleges that the labor arbiter had no jurisdiction over the

company because it is a corporation wholly owned and
controlled by the government, and that the civil service
code governs in this case.
Issue
case

WON the labor arbiter has jurisdiction over the

WON Mercado was illegally dismissed

Held:
YES. Under the 1987 constitution, the test in
determining whether a government-owned or controlled
corporation is subject to the Civil Service Law is the
manner of its creation, such that government
corporations created by special charter are subject to its
provisions while those incorporated under the General
Corporation Law are not within its coverage.
Specifically,
the
PNOC-EDC
having
been
incorporated under the General Corporation Law was held
to be a government owned or controlled corporation
whose employees are subject to the provisions of the
Labor Code.
The fact that the case arose at the time when the
1973 Constitution was still in effect, when PNOC-EDC
was still considered to be under the civil service law, does
not deprive the NLRC of jurisdiction on the premise that it
is the 1987 Constitution that governs because it is the
Constitution in place at the time of the decision.
YES. The court found no evidence of the
allegations of the company regarding Mercado, and ruled
that he was illegally dismissed.
2.As to place of incorporation
3.As to purpose
4. As to number of members
20)
THE
ROMAN
CATHOLIC
APOSTOLIC
ADMINISTRATOR OF DAVAO, INC. v. LRC and THE
REGISTER OF DEEDS OF DAVAO CITY
Felix, 1957

24

Facts

Mateo Rodis executed a deed of sale of a parcel of

land in favor of the Roman Catholic Apostolic
Administrator of Davao Inc., a corporation sole with Msgr.
Clovis Thibault, a Canadian citizen, as actual incumbent.
The deed of sale was then presented to the RD of Davao
city, the RD then required Roman Catholic to prepare an
affidavit to the effect that 60 per cent of the members of
their corporation were Filipino citizens, having in mind a
previous resolution wherein Carmelite nuns were required
to submit a similar affidavit. Roman Catholic agreed to
submit an affidavit, but not in the same tenor as the nuns
have submitted since it contended that it is a corporation
sole, as opposed to the nuns who had 5 incorporators and
that the piece of land that is the object of the sale will be
for the benefit of the entire catholic population of Davao,
and not a personal property of the corporation as in the
case of the nuns. The case was referred to the Land
Registration Commissioner, and ruled that the vendee
was not qualified to acquire private lands without proof
that at least 60% of the corporation are owned or
controlled by Filipino citizens. The Roman Catholic then
filed a petition for mandamus seeking the reversal of the
decision of the LRC.

that the members of the Roman Catholic Apostolic faith

within the territory of Davao are predominantly Filipino
citizens, the evidence presented is sufficient to establish
that the clergy and lay members of this religion fully
covers the percentage of Filipino citizens required by the
Constitution.
5.As to existence of shares: Stock, Non Stock

Issue
Is the corporation sole entitled to acquire private
lands in the Philippines, given that the incumbent of the
corporation was a Canadian citizen?
Held

YES. The bishops or archbishops, as the case may

be, as corporation's sole are merely administrators of the
church properties that come to their possession, in which
they hold in trust for the church. Church properties
acquired by the incumbent of a corporation sole pass, by
operation of law, upon his death not his personal heirs
but to his successor in office. It could be seen, therefore,
that a corporation sole is created not only to administer
the temporalities of the church or religious society where
he belongs but also to hold and transmit the same to his
successor in said office. Since there is undeniable proof

25

i
ii