Corporation Law Batch 1 Digests

CASE
Corporation Law Batch 1 Digests

FACTS
ISSUE
RULING
Separate Juridical Personality; General Rule
REYNALDO M.
LOZANO,
petitioner,
vs.HON.
ELIEZER R. DE
LOS SANTOS,
Presiding
Judge, RTC
On December 19, 1995, petitioner Reynaldo M.

Lozano filed Civil Case No. 1214 for damages
against respondent Antonio Anda before the
Municipal Circuit Trial Court (MCTC), Mabalacat
and Magalang, Pampanga. Petitioner alleged that
he was the president of the Kapatirang MabalacatAngeles Jeepney Drivers' Association, Inc.
(KAMAJDA) while respondent Anda was the
president of the Samahang Angeles-Mabalacat
Jeepney Operators' and Drivers' Association, Inc.
(SAMAJODA); in August 1995, upon the request of
the Sangguniang Bayan of Mabalacat, Pampanga,
petitioner and private respondent agreed to
consolidate their respective associations and form
the Unified Mabalacat-Angeles Jeepney Operators'
and Drivers Association, Inc. (UMAJODA);
petitioner and private respondent also agreed to
elect one set of officers who shall be given the
sole authority to collect the daily dues from the
members of the consolidated association;
elections were held on October 29, 1995 and both
petitioner and private respondent ran for
president; petitioner won; private respondent
protested and, alleging fraud, refused to
recognize the results of the election; private
respondent also refused to abide by their
agreement and continued collecting the dues
from the members of his association despite
several demands to desist. Petitioner was thus
constrained to file the complaint to restrain
private respondent from collecting the dues and
1. When does
merger of
two SEC
registered
corporations
take effect;
WON there is
intracorporat
e dispute
2. As to SEC
jurisdiction
3. Corporation
by estoppel
1. There is no intracorporate nor

partnership relation between
petitioner and private
respondent. The controversy
between them arose out of
their plan to consolidate their
respective jeepney drivers' and
operators' associations into a
single common association.
This unified association was,
however, still a proposal. It had
not been approved by the SEC,
neither had its officers and
members submitted their
articles of consolidation is
accordance with Sections 78
and 79 of the Corporation
Code. Consolidation becomes
effective not upon mere
agreement of the members but
only upon issuance of the
certificate of consolidation by
the SEC. 13 When the SEC,
upon processing and examining
the articles of consolidation, is
satisfied that the consolidation
of the corporations is not
inconsistent with the provisions
of the Corporation Code and
existing laws, it issues a
certificate of consolidation
1
If you want to go fast, go alone. If you want to go far, go together. -- CBVM Digest15
to order him to pay damages in the amount of

P25,000.00 and attorney's fees of P500.00.
which makes the reorganization

official. 14 The new
consolidated corporation
comes into existence and the
constituent corporations
dissolve and cease to exist.
The KAMAJDA and SAMAJODA to which
petitioner and private respondent
belong are duly registered with the
SEC, but these associations are two
separate entities. The dispute
between petitioner and private
respondent is not within the KAMAJDA
nor the SAMAJODA. It is between
members of separate and distinct
associations. Petitioner and private
respondent have no intracorporate
relation much less do they have an
intracorporate dispute. The SEC
therefore has no jurisdiction over the
complaint.
2. The grant of jurisdiction to the SEC
must be viewed in the light of its
nature and function under the law. 8
This jurisdiction is determined by a
concurrence of two elements: (1) the
status or relationship of the parties;
and (2) the nature of the question
that is the subject of their
controversy. 9
The first element requires that the
controversy must arise out of
intracorporate or partnership relations
between and among stockholders,
2
members, or associates; between any

or all of them and the corporation,
partnership or association of which
they are stockholders, members or
associates, respectively; and between
such corporation, partnership or
association and the State in so far as
it concerns their individual franchises.
10 The second element requires that
the dispute among the parties be
intrinsically connected with the
regulation of the corporation,
partnership or association or deal
with the internal affairs of the
corporation, partnership or
association. 11 After all, the principal
function of the SEC is the supervision
and control of corporations,
partnership and associations with the
end in view that investments in these
entities may be encouraged and
protected, and their entities may be
encouraged and protected, and their
activities pursued for the promotion
of economic development.
3. The doctrine of corporation by
estoppel 16 advanced by private
respondent cannot override
jurisdictional requirements.
Jurisdiction is fixed by law and is not
subject to the agreement of the
parties. 17 It cannot be acquired
through or waived, enlarged or
diminished by, any act or omission of
the parties, neither can it be
conferred by the acquiescence of the
3
court. 18
INTERNATIO
NAL
EXPRESS
TRAVEL &
TOUR
SERVICES,
INC.,
petitioner,
vs. HON.
COURT OF
APPEALS,
On June 30 1989, petitioner International Express

Travel and Tour Services, Inc., through its
managing director, wrote a letter to the Philippine
Football Federation (Federation), through its
president private respondent Henri Kahn, wherein
the former offered its services as a travel agency
to the latter.[1] The offer was accepted.
Petitioner secured the airline tickets for the trips
of the athletes and officials of the Federation to
the South East Asian Games in Kuala Lumpur as
well as various other trips to the People's Republic
of China and Brisbane. The total cost of the
tickets amounted to P449,654.83. For the tickets
received, the Federation made two partial
payments, both in September of 1989, in the total
amount of P176,467.50.[2]
On 27 December 1989, Henri Kahn issued a
personal check in the amount of P50,000 as
partial payment for the outstanding balance of
the Federation.[5] Thereafter, no further
1. WON Football
Federation
has existence
of its own
2. WON there is
corporation
by estoppel
Corporation by estoppel is founded on

principles of equity and is designed to
prevent injustice and unfairness. 19 It
applies when persons assume to form
a corporation and exercise corporate
functions and enter into business
relations with third person. Where
there is no third person involved and
the conflict arises only among those
assuming the form of a corporation,
who therefore know that it has not
been registered, there is no
corporation by estoppel.
1. Clearly the above cited
provisions require that before
an entity may be considered as
a national sports association,
such entity must be recognized
by the accrediting organization,
the Philippine Amateur Athletic
Federation under R.A. 3135,
and the Department of Youth
and Sports Development under
P.D. 604. This fact of
recognition, however, Henri
Kahn failed to substantiate. In
attempting to prove the
juridical existence of the
Federation, Henri Kahn
attached to his motion for
reconsideration before the trial
court a copy of the constitution
and by-laws of the Philippine
Football Federation.
Unfortunately, the same does
4
payments were made despite repeated demands.

This prompted petitioner to file a civil case before
the Regional Trial Court of Manila. Petitioner sued
Henri Kahn in his personal capacity and as
President of the Federation and impleaded the
Federation as an alternative defendant. Petitioner
sought to hold Henri Kahn liable for the unpaid
balance for the tickets purchased by the
Federation on the ground that Henri Kahn
allegedly guaranteed the said obligation.
CONTENTION: Henri Kahn filed his answer with
counterclaim. While not denying the allegation
that the Federation owed the amount
P207,524.20, representing the unpaid balance for
the plane tickets, he averred that the petitioner
has no cause of action against him either in his
personal capacity or in his official capacity as
president of the Federation. He maintained that
he did not guarantee payment but merely acted
as an agent of the Federation which has a
separate and distinct juridical personality
not prove that said Federation

has indeed been recognized
and accredited by either the
Philippine Amateur Athletic
Federation or the Department
of Youth and Sports
Development. Accordingly,
we rule that the Philippine
Football Federation is not a
national sports association
within the purview of the
aforementioned laws and
does not have corporate
existence of its own.
Thus being said, it follows that
private respondent Henry Kahn
should be held liable for the
unpaid obligations of the
unincorporated Philippine
Football Federation. It is a
settled principal in corporation
law that any person acting or
purporting to act on behalf of a
corporation which has no valid
existence assumes such
privileges and becomes
personally liable for contract
entered into or for other acts
performed as such agent.[14]
As president of the Federation,
Henri Kahn is presumed to
have known about the
corporate existence or nonexistence of the Federation.
2. We cannot subscribe to the
5
ASSOCIATE
D BANK
(now
UNITED
OVERSEAS
BANK
[PHILS.]),
On April 21, 1988, the spouses Eduardo and Ma.

Pilar Vaca (spouses Vaca) executed a Real Estate
Mortgage (REM) in favor of the petitioner[5] over
their parcel of residential land with an area of 953
sq. m. and the house constructed thereon,
located at No. 18, Lovebird Street, Green
Meadows Subdivision 1, Quezon City (herein
referred to as the subject property). For failure of
the spouses Vaca to pay their obligation, the
subject property was sold at public auction with
the petitioner as the highest bidder. Transfer
WON Atty Soluta

was duly authorized
and therefore his
acts bind the
corporation
position taken by the appellate

court that even assuming that
the Federation was defectively
incorporated, the petitioner
cannot deny the corporate
existence of the Federation
because it had contracted and
dealt with the Federation in
such a manner as to recognize
and in effect admit its
existence.[15] The doctrine of
corporation by estoppel is
mistakenly applied by the
respondent court to the
petitioner. The application of
the doctrine applies to a third
party only when he tries to
escape liability on a contract
from which he has benefited on
the irrelevant ground of
defective incorporation.[16] In
the case at bar, the petitioner
is not trying to escape liability
from the contract but rather is
the one claiming from the
contract
The general rule is that, in the
absence of authority from the
board of directors, no person, not
even its officers, can validly bind
a corporation. The power and
responsibility to decide whether
the corporation should enter into
a contract that will bind the
corporation is lodged in the
board of directors. However, just
as a natural person may authorize
6
Petitioner, versus SPOUSES

RAFAEL and
MONALIZA
PRONSTROL
LER
Certificate of Title (TCT) No. 254504, in the name

of spouses Vaca, was cancelled and a new one
--TCT No. 52593-- was issued in the name of the
petitioner.[6]
The spouses Vaca, however, commenced an
action for the nullification of the real estate
mortgage and the foreclosure sale. Petitioner, on
the other hand, filed a petition for the issuance of
a writ of possession which was denied by the RTC.
Petitioner, thereafter, obtained a favorable
judgment when the CA granted its petition but the
spouses Vaca questioned the CA decision before
this Court in the case docketed as G.R. No.
109672.
another to do certain acts for and on

his behalf, the board may validly
delegate some of its functions and
powers to officers, committees and
agents. The authority of such
individuals to bind the corporation is
generally derived from law, corporate
bylaws or authorization from the
board, either expressly or impliedly,
by habit, custom, or acquiescence, in
the general course of business.[34]
The authority of a
corporate officer or agent in
dealing with third persons may
be actual or apparent. The
doctrine of apparent authority,
with special reference to banks,
had long been recognized in this
jurisdiction.[35] Apparent authority
is derived not merely from practice.
Its existence may be ascertained
through 1) the general manner in
which the corporation holds out an
officer or agent as having the power
to act, or in other words, the apparent
authority to act in general, with which
it clothes him; or 2) the acquiescence
in his acts of a particular nature, with
actual or constructive knowledge
thereof, within or beyond the scope of
his ordinary powers.[36]
Accordingly, the authority to act
for and to bind a corporation may
be presumed from acts of
recognition in other instances,
7
wherein the power was exercised

without any objection from its
board or shareholders.
Undoubtedly, petitioner had
previously allowed Atty. Soluta to
enter into the first agreement
without a board resolution
expressly authorizing him; thus,
it had clothed him with apparent
authority to modify the same via
the second letter-agreement. It is
not the quantity of similar acts which
establishes apparent authority, but
the vesting of a corporate officer with
the power to bind the corporation.
[37]
Naturally, the third person has little or
no information as to what occurs in
corporate meetings; and he must
necessarily rely upon the external
manifestations of corporate consent.
The integrity of commercial
transactions can only be maintained
by holding the corporation strictly to
the liability fixed upon it by its agents
in accordance with law.[38] What
transpires in the corporate board
room is entirely an internal matter.
Hence, petitioner may not impute
negligence on the part of the
respondents in failing to find out the
scope of Atty. Solutas authority.
Indeed, the public has the right to rely
on the trustworthiness of bank
officers and their acts.
8
JG SUMMIT
HOLDINGS,
INC.,
petitioner,
vs. COURT
OF
APPEALS
The National Investment and Development

Corporation (NIDC), a government corporation,
entered into a Joint Venture Agreement (JVA) with
Kawasaki Heavy Industries, Ltd. for the
construction, operation and management of the
Subic National Shipyard, Inc., later became the
Philippine Shipyard and Engineering Corporation
(PHILSECO). Under the JVA, NIDC and Kawasaki
would maintain a shareholding proportion of 60%40% and that the parties have the right of first
refusal in case of a sale.
Through a series of transfers, NIDCs rights, title
and interest in PHILSECO eventually went to the
National Government. In the interest of national
economy, it was decided that PHILSECO should be
privatized by selling 87.67% of its total
outstanding capital stock to private entities. After
negotiations, it was agreed that Kawasakis right
of first refusal under the JVA be exchanged for
the right to top by five percent the highest bid for
said shares. Kawasaki that Philyards Holdings, Inc.
(PHI), in which it was a stockholder, would
exercise this right in its stead.
During bidding, Kawasaki/PHI Consortium is the
losing bidder. Even so, because of the right to top
by 5% percent the highest bid, it was able to top
JG Summits bid. JG Summit protested, contending
that PHILSECO, as a shipyard is a public utility
and, hence, must observe the 60%-40% Filipinoforeign capitalization. By buying 87.67% of
PHILSECOs capital stock at bidding, Kawasaki/PHI
in effect now owns more than 40% of the stock.
1. Whether or
not PHILSECO
is a public
utility
2. Whether or
not
Kawasaki/PHI
can purchase
beyond 40%
of
PHILSECOs
stocks
In arguing that PHILSECO, as a

shipyard, was a public utility, JG
Summit relied on sec. 13, CA No. 146.
On the other hand, Kawasaki/PHI
argued that PD No. 666 explicitly
stated that a shipyard was not a
public utility. But the SC stated that
sec. 1 of PD No. 666 was expressly
repealed by sec. 20, BP Blg. 391 and
when BP Blg. 391 was subsequently
repealed by EO 226, the latter law did
not revive sec. 1 of PD No. 666.
Therefore, the law that states that a
shipyard is a public utility still stands.
A shipyard such as PHILSECO being a
public utility as provided by law is
therefore required to comply with the
60%-40% capitalization under the
Constitution. Likewise, the JVA
between NIDC and Kawasaki
manifests an intention of the parties
to abide by this constitutional
mandate. Thus, under the JVA, should
the NIDC opt to sell its shares of stock
to a third party, Kawasaki could only
exercise its right of first refusal to the
extent that its total shares of stock
would not exceed 40% of the entire
shares of stock. The NIDC, on the
other hand, may purchase even
beyond 60% of the total shares. As a
government corporation and
necessarily a 100% Filipino-owned
corporation, there is nothing to
prevent its purchase of stocks even
beyond 60% of the capitalization as
9
the Constitution clearly limits only

foreign capitalization.
NATIONAL
DEVELOPME
NT
COMPANY
AND NEW
AGRIX,
INC.,
Petitioners,
vs.
PHILIPPINE
VETERANS
BANK
This case involves the constitutionality of a

presidential decree which, like all other issuances
of President Marcos during his regime, was at that
time regarded as sacrosanct. It is only now, in a
freer atmosphere, that his acts are being tested
by the touchstone of the fundamental law that
even then was supposed to limit presidential
action.: rd
The particular enactment in question is Pres.
Decree No. 1717, which ordered the rehabilitation
of the Agrix Group of Companies to be
administered mainly by the National Development
Company. The law outlined the procedure for filing
claims against the Agrix companies and created a
Claims Committee to process these claims.
Especially relevant to this case, and noted at the
outset, is Sec. 4(1) thereof providing that "all
mortgages and other liens presently attaching to
any of the assets of the dissolved corporations are
hereby extinguished."
Earlier, the Agrix Marketing, Inc. (AGRIX) had
executed in favor of private respondent Philippine
Veterans Bank a real estate mortgage dated July
Kawasaki was bound by its

contractual obligation under the JVA
that limits its right of first refusal to
40% of the total capitalization of
PHILSECO. Thus, Kawasaki cannot
purchase beyond 40% of the
capitalization of the joint venture on
account of both constitutional and
contractual proscriptions.
Under the equal protection clause, all
persons or things similarly situated
must be treated alike, both in the
privileges conferred and the
obligations imposed. Conversely, all
persons or things differently situated
should be treated differently. In the
case at bar, persons differently
situated are similarly treated, in
disregard of the principle that there
should be equality only among
equals.- nad
One may also well wonder why AGRIX
was singled out for government help,
among other corporations where the
stockholders or investors were also
swindled. It is not clear why other
companies entitled to similar concern
were not similarly treated. And surely,
the stockholders of the private
respondent, whose mortgage lien had
been cancelled and legitimate claims
to accrued interests rejected, were no
less deserving of protection, which
10
7, 1978, over three (3) parcels of land situated in

Los Baos, Laguna. During the existence of the
mortgage, AGRIX went bankrupt. It was for the
expressed purpose of salvaging this and the other
Agrix companies that the aforementioned decree
was issued by President Marcos.
Pursuant thereto, the private respondent filed a
claim with the AGRIX Claims Committee for the
payment of its loan credit. In the meantime, the
New Agrix, Inc. and the National Development
Company, petitioners herein, invoking Sec. 4 (1)
of the decree, filed a petition with the Regional
Trial Court of Calamba, Laguna, for the
cancellation of the mortgage lien in favor of the
private respondent. For its part, the private
respondent took steps to extrajudicially foreclose
the mortgage, prompting the petitioners to file a
second case with the same court to stop the
foreclosure. The two cases were consolidated.
After the submission by the parties of their
respective pleadings, the trial court rendered the
impugned decision. Judge Francisco Ma. Guerrero
annulled not only the challenged provision, viz.,
Sec. 4 (1), but the entire Pres. Decree No. 1717 on
the grounds that: (1) the presidential exercise of
legislative power was a violation of the principle
of separation of powers; (2) the law impaired the
obligation of contracts; and (3) the decree
violated the equal protection clause. The motion
for reconsideration of this decision having been
denied, the present petition was filed
they did not get. The decree

operated, to use the words of a
celebrated case, 3 "with an evil eye
and an uneven hand."
On top of all this, New Agrix, Inc. was
created by special decree
notwithstanding the provision of
Article XIV, Section 4 of the 1973
Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall
not, except by general law, provide
for the formation, organization, or
regulation of private corporations,
unless such corporations are owned
or controlled by the Government or
any subdivision or instrumentality
thereof. 4
The new corporation is neither
owned nor controlled by the
government. The National
Development Corporation was
merely required to extend a loan
of not more than P10,000,000.00
to New Agrix, Inc. Pending
payment thereof, NDC would
undertake the management of
the corporation, but with the
obligation of making periodic
reports to the Agrix board of
directors. After payment of the loan,
the said board can then appoint its
own management. The stocks of the
new corporation are to be issued to
the old investors and stockholders of
11
AGRIX upon proof of their claims

against the abolished corporation.
They shall then be the owners of the
new corporation. New Agrix, Inc. is
entirely private and so should have
been organized under the Corporation
Law in accordance with the abovecited constitutional provision.
The Court also feels that the
decree impairs the obligation of
the contract between AGRIX and
the private respondent without
justification. While it is true that
the police power is superior to
the impairment clause, the
principle will apply only where
the contract is so related to the
public welfare that it will be
considered congenitally
susceptible to change by the
legislature in the interest of the
greater number. 5 Most present-day
contracts are of that nature. But as
already observed, the contracts of
loan and mortgage executed by
AGRIX are purely private transactions
and have not been shown to be
affected with public interest. There
was therefore no warrant to amend
their provisions and deprive the
private respondent of its vested
property rights.
It is worth noting that only recently in
the case of the Development Bank of
the Philippines v. NLRC, 6 we
12
sustained the preference in payment

of a mortgage creditor as against the
argument that the claims of laborers
should take precedence over all other
claims, including those of the
government. In arriving at this ruling,
the Court recognized the mortgage
lien as a property right protected by
the due process and contract clauses
notwithstanding the argument that
the amendment in Section 110 of the
Labor Code was a proper exercise of
the police power.: nad
Our finding, in sum, is that Pres.
Decree No. 1717 is an invalid exercise
of the police power, not being in
conformity with the traditional
requirements of a lawful subject and a
lawful method. The extinction of the
mortgage and other liens and of the
interest and other charges pertaining
to the legitimate creditors of AGRIX
constitutes taking without due
process of law, and this is
compounded by the reduction of the
secured creditors to the category of
unsecured creditors in violation of the
equal protection clause. Moreover,
the new corporation, being
neither owned nor controlled by
the Government, should have
been created only by general and
not special law. And insofar as
the decree also interferes with
purely private agreements
without any demonstrated
13
connection with the public

interest, there is likewise an
impairment of the obligation of
the contract.
Tayag vs
Benguet
Consolidate
d
Idonah Slade Perkins, an American citizen who

died in New York City, left among others, two
stock certificates issued by Benguet Consolidated,
a corporation domiciled in the Philippines. As
ancillary administrator of Perkins estate in the
Philippines, Tayag now wants to take possession
of these stock certificates but County Trust
Company of New York, the domiciliary
administrator, refused to part with them. Thus,
the probate court of the Philippines was forced to
issue an order declaring the stock certificates as
lost and ordering Benguet Consolidated to issue
new stock certificates representing Perkins
shares. Benguet Consolidated appealed the order,
arguing that the stock certificates are not lost as
they are in existence and currently in the
possession of County Trust Company of New York.
We start with the undeniable premise

that, "a corporation is an artificial
being created by operation of
law...."16 It owes its life to the state,
its birth being purely dependent on its
will. As Berle so aptly stated:
"Classically, a corporation was
conceived as an artificial person,
owing its existence through creation
by a sovereign power."17 As a matter
of fact, the statutory language
employed owes much to Chief Justice
Marshall, who in the Dartmouth
College decision defined a corporation
precisely as "an artificial being,
invisible, intangible, and existing only
in contemplation of law."18
The well-known authority Fletcher
could summarize the matter thus: "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 distinct and separate
from its individual stockholders.... It
14
owes its existence to law. It is an

artificial person created by law for
certain specific purposes, the extent
of whose existence, powers and
liberties is fixed by its charter."19
Dean Pound's terse summary, a
juristic person, resulting from an
association of human beings granted
legal personality by the state, puts
the matter neatly.20
There is thus a rejection of Gierke's
genossenchaft theory, the basic
theme of which to quote from
Friedmann, "is the reality of the group
as a social and legal entity,
independent of state recognition and
concession."21 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. More
than that, it cannot legitimately
refuse to yield obedience to acts of its
state organs, certainly not excluding
the judiciary, whenever called upon to
do so.
As a matter of fact, a corporation
once it comes into being, following
American law still of persuasive
authority in our jurisdiction, comes
more often within the ken of the
judiciary than the other two
15
coordinate branches. It institutes the

appropriate court action to enforce its
right. Correlatively, it is not immune
from judicial control in those
instances, where a duty under the law
as ascertained in an appropriate legal
proceeding is cast upon it.
To assert that it can choose which
court order to follow and which to
disregard is to confer upon it not
autonomy which may be conceded
but license which cannot be tolerated.
It is to argue that it may, when so
minded, overrule the state, the
source of its very existence; it is to
contend that what any of its
governmental organs may lawfully
require could be ignored at will. So
extravagant a claim cannot possibly
merit approval.
5.
One last point. In Viloria v.
Administrator of Veterans Affairs,22 it
was shown that in a guardianship
proceedings then pending in a lower
court, the United States Veterans
Administration filed a motion for the
refund of a certain sum of money paid
to the minor under guardianship,
alleging that the lower court had
previously granted its petition to
consider the deceased father as not
entitled to guerilla benefits according
to a determination arrived at by its
main office in the United States. The
motion was denied. In seeking a
16
reconsideration of such order, the

Administrator relied on an American
federal statute making his decisions
"final and conclusive on all questions
of law or fact" precluding any other
American official to examine the
matter anew, "except a judge or
judges of the United States court."23
Reconsideration was denied, and the
Administrator appealed.
In an opinion by Justice J.B.L. Reyes,
we sustained the lower court. Thus:
"We are of the opinion that the appeal
should be rejected. The provisions of
the U.S. Code, invoked by the
appellant, make the decisions of the
U.S. Veterans' Administrator final and
conclusive when made on claims
property submitted to him for
resolution; but they are not applicable
to the present case, where the
Administrator is not acting as a judge
but as a litigant. There is a great
difference between actions against
the Administrator (which must be
filed strictly in accordance with the
conditions that are imposed by the
Veterans' Act, including the exclusive
review by United States courts), and
those actions where the Veterans'
Administrator seeks a remedy from
our courts and submits to their
jurisdiction by filing actions therein.
Our attention has not been called to
any law or treaty that would make the
findings of the Veterans'
17
Engr.
Ranulfo C.
Feliciano
vs. COA
A Special Audit Team from COA Regional Office

No. VIII audited the accounts of Leyte
Metropolitan Water District (LMWD). For its
auditing services, COA requested payment but
was denied by Petitioner Feliciano as General
Manager of LMWD, citing PD198 and Section 18 of
RA 6758. He further requested that COA cease all
audit services, stop charging auditing fees and
refund all auditing fees previously paid by LMWD.
On March 16, 2000, petitioner received the
Resolution of COA Chairman Celso Gangan,
holding that local water districts are not private
corporations, and are therefore under its audit
jurisdiction, as pronounced by the Supreme Court
in the case of Davao City Water District vs. CSC
and COA.
Issues:
1. Whether or not a
local water district
created under
PD198, as
amended, is a
government-owned
or controlled
corporation subject
to the audit
jurisdiction of COA;
2. Whether or not
Section 20 of PD
198, as amended,
prohibits COAs
certified public
accountants from
auditing local water
districts; and
3. Whether or not
Section 18 of RA
6758 prohibits COA
from charging
government-owned
and controlled
corporations
auditing fees.
Administrator, in actions where he is

a party, conclusive on our courts.
That, in effect, would deprive our
tribunals of judicial discretion and
render them mere subordinate
instrumentalities of the Veterans'
Administrator."
The petition lacks merit.
A local water district is considered a
GOCC with an original charter. It
exists as a corporation only by virtue
of PD198, which expressly confers on
LWDs corporate powers. Without
PD198, LWDs would have no
corporate powers. PD 198 constitutes
the special enabling charter of LWDs.
Thus, LWDs are government-owned
and controlled corporations with a
special charter, and not private
corporations created under the
Corporation Code.
LWDs, therefore, are subject to the
audit jurisdiction of COA, as provided
under Section 2(1), Article IX-D of the
Constitution, which mandates the
latter to audit all government
agencies or instrumentalities,
including government-owned and
controlled corporations (GOCCs) with
original charters, as well as other
government-owned or controlled
corporations without original charters.
As regards the second issue, the
petitioner argues that PD 198
18
expressly prohibits COA auditors, or

any government auditor for that
matter, from auditing LWDs, as stated
in Section 18 of the aforementioned
law, which provides in part that
auditing shall be performed by a
certified public accountant not in the
government service.
The Supreme Court however ruled
that PD 198 cannot prevail over the
Constitution, as it provides in Section
3, Article IX-C that no law shall be
passed exempting any entity of the
government or its subsidiary in any
guise whatever, or any investment of
public funds, from the jurisdiction of
the Commission on Audit. And since
there is an irreconcilable conflict
between Section 20 of PD 198,
prohibiting COA auditors from
auditing LWDs, and Sections 2(1) and
3, Article IX-D of the Constitution,
vesting in COA the power to audit all
GOCCs, it is ruled that the second
sentence of Section 20 of PD 198 is
unconstitutional since it violates the
aforementioned section of the
Constitution.
The third issue is likewise bereft of
merit. COA is not prohibited from
charging GOCCs auditing fees. As
opposed to petitioners contention,
COA may charge GOCCs actual audit
cost, but the same must be paid
directly to COA and not to COA
19
auditors. What Section 18 of RA 6758

prohibits is the receiving of COA
personnel of any kind of
compensation from any government
entity except compensation paid
directly by COA out of its
appropriations and contributions.
Petitioner has not alleged that COA
charges LWDs auditing fees in excess
of COAs actual audit cost. Neither
has he alleged that the auditing fees
are paid by LWDs directly to individual
COA auditors.
LIM TONG
LIM,
petitioner,
vs.
PHILIPPINE
FISHING
GEAR
INDUSTRIES
, INC
On behalf of "Ocean Quest Fishing Corporation,"

Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase
of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent).
They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim,
who however was not a signatory to the
agreement. The total price of the nets amounted
to P532,045. Four hundred pieces of floats worth
P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing
nets and the floats; hence, private respondents
filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought
against the three in their capacities as general
partners, on the allegation that "Ocean Quest
Fishing Corporation" was a nonexistent
corporation as shown by a Certification from the
Securities and Exchange Commission. 5 On
September 20, 1990, the lower court issued a Writ
of Preliminary Attachment, which the sheriff
WON Lim can be

held liable
A partnership may be deemed to exist

among parties who agree to borrow
money to pursue a business and to
divide the profits or losses that may
arise therefrom, even if it is shown
that they have not contributed any
capital of their own to a "common
fund." Their contribution may be in
the form of credit or industry, not
necessarily cash or fixed assets.
Being partner, they are all liable for
debts incurred by or on behalf of the
partnership. The liability for a
contract entered into on behalf of an
unincorporated association or
ostensible corporation may lie in a
person who may not have directly
transacted on its behalf, but reaped
benefits from that contract.
Corporation by Estoppel
Petitioner argues that under the
doctrine of corporation by estoppel,
20
enforced by attaching the fishing nets on board

F/B Lourdes which was then docked at the
Fisheries Port, Navotas, Metro Manila.
liability can be imputed only to Chua

and Yao, and not to him. Again, we
disagree.
Sec. 21 of the Corporation Code of
the Philippines provides:
Sec. 21.
Corporation by estoppel.
All persons who assume to act as a
corporation knowing it to be without
authority to do so shall be liable as
general partners for all debts,
liabilities and damages incurred or
arising as a result thereof: Provided
however, That when any such
ostensible corporation is sued on any
transaction entered by it as a
corporation or on any tort committed
by it as such, it shall not be allowed
to use as a defense its lack of
corporate personality.
One who assumes an obligation to an
ostensible corporation as such,
cannot resist performance thereof on
the ground that there was in fact no
corporation.
Thus, even if the ostensible corporate
entity is proven to be legally
nonexistent, a party may be estopped
from denying its corporate existence.
"The reason behind this doctrine is
obvious an unincorporated
association has no personality and
would be incompetent to act and
appropriate for itself the power and
21
attributes of a corporation as
provided by law; it cannot create
agents or confer authority on another
to act in its behalf; thus, those who
act or purport to act as its
representatives or agents do so
without authority and at their own
risk. And as it is an elementary
principle of law that a person who
acts as an agent without authority or
without a principal is himself regarded
as the principal, possessed of all the
right and subject to all the liabilities
of a principal, a person acting or
purporting to act on behalf of a
corporation which has no valid
existence assumes such privileges
and obligations and becomes
personally liable for contracts entered
into or for other acts performed as
such agent. 17
The doctrine of corporation by
estoppel may apply to the alleged
corporation and to a third party. In the
first instance, an unincorporated
association, which represented itself
to be a corporation, will be estopped
from denying its corporate capacity in
a suit against it by a third person who
relied in good faith on such
representation. It cannot allege lack
of personality to be sued to evade its
responsibility for a contract it entered
into and by virtue of which it received
advantages and benefits.
22
On the other hand, a third party who,

knowing an association to be
unincorporated, nonetheless treated
it as a corporation and received
benefits from it, may be barred from
denying its corporate existence in a
suit brought against the alleged
corporation. In such case, all those
who benefited from the transaction
made by the ostensible corporation,
despite knowledge of its legal defects,
may be held liable for contracts they
impliedly assented to or took
advantage of.
There is no dispute that the
respondent, Philippine Fishing Gear
Industries, is entitled to be paid for
the nets it sold. The only question
here is whether petitioner should be
held jointly 18 liable with Chua and
Yao. Petitioner contests such liability,
insisting that only those who dealt in
the name of the ostensible
corporation should be held liable.
Since his name does not appear on
any of the contracts and since he
never directly transacted with the
respondent corporation, ergo, he
cannot be held liable.
Unquestionably, petitioner benefited
from the use of the nets found inside
F/B Lourdes, the boat which has
earlier been proven to be an asset of
the partnership. He in fact questions
the attachment of the nets, because
23
the Writ has effectively stopped his

use of the fishing vessel.
It is difficult to disagree with the RTC
and the CA that Lim, Chua and Yao
decided to form a corporation.
Although it was never legally formed
for unknown reasons, this fact alone
does not preclude the liabilities of the
three as contracting parties in
representation of it. Clearly, under the
law on estoppel, those acting on
behalf of a corporation and those
benefited by it, knowing it to be
without valid existence, are held
liable as general partners.
Technically, it is true that petitioner
did not directly act on behalf of the
corporation. However, having reaped
the benefits of the contract entered
into by persons with whom he
previously had an existing
relationship, he is deemed to be part
of said association and is covered by
the scope of the doctrine of
corporation by estoppel. We reiterate
the ruling of the Court in Alonso v.
Villamor: 19
A litigation is not a game of
technicalities in which one, more
deeply schooled and skilled in the
subtle art of movement and position,
entraps and destroys the other. It is,
rather, a contest in which each
contending party fully and fairly lays
24
SMITH,
BELL &
COMPANY
(LTD.),
petitioner,
vs.
JOAQUIN
NATIVIDAD
Smith, Bell & Co., (Ltd.), is a corporation

organized and existing under the laws of the
Philippine Islands. A majority of its stockholders
are British subjects. 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 Bato was brought to Cebu in the
present year for the purpose of transporting
plaintiff's merchandise between ports in the
Islands. Application was made at Cebu, the home
port of the vessel, to the Collector of Customs 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 instant
action is the result.
WON a corporation
is entitled to due
process
before the court the facts in issue and

then, brushing aside as wholly trivial
and indecisive all imperfections of
form and technicalities of procedure,
asks that justice be done upon the
merits. Lawsuits, unlike duels, are not
to be won by a rapier's thrust.
Technicality, when it deserts its
proper office as an aid to justice and
becomes its great hindrance and chief
enemy, deserves scant consideration
from courts. There should be no
vested rights in technicalities.
We are inclined to the view that while
Smith, Bell & Co. Ltd., a corporation
having alien stockholders, is entitled
to the protection afforded by the dueprocess of law and equal protection of
the laws clause of the Philippine Bill of
Rights, nevertheless, 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,
does not belong to that vicious
species of class legislation which
must always be condemned, but does
fall within authorized exceptions,
notably, within the purview of the
police power, and so does not offend
against the constitutional provision.
The guaranties of the Fourteenth
Amendment and so of the first
paragraph of the Philippine Bill of
Rights, are universal in their
application to all person within the
25
territorial jurisdiction, without regard

to any differences of race, color, or
nationality. The word "person"
includes aliens. (Yick Wo vs. Hopkins
[1886], 118 U. S., 356; Truax vs. Raich
[1915], 239 U. S., 33.) Private
corporations, likewise, are "persons"
within the scope of the guaranties in
so far as their property is concerned.
(Santa Clara County vs. Southern Pac.
R. R. Co. [1886], 118.U. S., 394;
Pembina Mining Co. vs. Pennsylvania
[1888],.125 U. S., 181 Covington & L.
Turnpike Road Co. vs. Sandford
[1896], 164 U. S., 578.) Classification
with the end in view of providing
diversity of treatment may be made
among corporations, but must be
based upon some reasonable ground
and not be a mere arbitrary selection
(Gulf, Colorado & Santa Fe Railway
Co. vs. Ellis [1897],.165 U. S., 150.)
Examples of laws held
unconstitutional because of unlawful
discrimination against aliens could be
cited. Generally, these decisions
relate to statutes which had
attempted arbitrarily to forbid aliens
to engage in ordinary kinds of
business to earn their living. (State
vs. Montgomery [1900], 94 Maine,
192, peddling but see.
Commonwealth vs. Hana [1907], 195
Mass., 262; Templar vs. Board of
Examiners of Barbers [1902], 131
Mich., 254, barbers; Yick Wo vs.
Hopkins [1886], 118 U. S.,.356,
26
Bataan
Shipyard
Engineering
Co., Inc. vs.
PCGG (G.R.
No. 75885
May 27,
1987)
Challenged in this special civil action of certiorari

and prohibition by a privatecorporation known as
the Bataan Shipyard and Engineering Co., Inc.
are: (1) ExecutiveOrders Numbered 1 and 2,
promulgated by President Corazon C. Aquino on
February 28,1986 and March 12, 1986,
respectively, and (2) the sequestration, takeover,
and otherorders issued, and acts done, in
accordance with said executive orders by the
PresidentialCommission on Good Government
and/or its Commissioners and agents, affecting
saidcorporation. The sequestration order issued
on April 14, 1986 was addressed to three of the
agents of the Commission, ordering them to
sequester several companies amongwhich is
Bataan Shipyard and Engineering Co., Inc. On the
strength of the abovesequestration order, several
letters were sent to BASECO among which is that
from Mr.Jose M. Balde, acting for the PCGG,
addressed a letter dated April 18, 1986 to the
Presidentand other officers of petitioner firm,
reiterating an earlier request for the production of
certain documents. The letter closed with the
warning that if the documents were notsubmitted
within five days, the officers would be cited for
"contempt in pursuance withPresidential
Executive Order Nos. 1 and 2." BASECO contends
that its right against self incrimination and
unreasonable searches and seizures had been
Whether or not
BASECOs right
against self
-incrimination and
unreasonable
searchesand
seizures was
violated.
(Wilson v. United
States, 55 Law Ed.,
771, 780
[emphasis, the
SolicitorGeneral's])
The constitutional
safeguard against
unreasonable
searches and
seizures findsno
application to the
case at bar either.
There has been no
search undertaken
by any agentor
representative of
the PCGG, and of
course no seizure
on the occasion
thereof
discrimination against Chinese; Truax

vs. Raich [1915], 239 U. S., 33; In re
Parrott [1880], 1 Fed , 481; Fraser vs.
McConway & Torley Co. [1897], 82
Fed , 257; Juniata Limestone Co. vs.
Fagley [1898], 187 Penn., 193, all
relating to the employment of aliens
by private corporations.)
No. The order to produce documents
was issued upon the authority of
Section 3 (e)of Executive Order No. 1,
treating of the PCGG's power to "issue
subpoenas requiring * *the production
of such books, papers, contracts,
records, statements of accounts and
otherdocuments as may be material
to the investigation conducted by the
Commission. It iselementary that the
right against self-incrimination has no
application to juridical persons.While
an individual may lawfully refuse to
answer incriminating questions unless
protectedby an immunity statute, it
does not follow that a corporation,
vested with special privilegesand
franchises, may refuse to show its
hand when charged with an abuse of
suchprivileges. Corporations are not
entitled to all of the constitutional
protections, whichprivate individuals
have.
They are not at all within the
privilege against selfincrimination;
although this court more than once
has said that the privilege runs very
27
transgressed by the Orderof April 18, 1986 which

required it "to produce corporate records from
1973 to 1986 underpain of contempt of the
Commission if it fails to do so." BASECO prays
that the Court 1)declare unconstitutional and void
Executive Orders Numbered 1 and 2; 2) annul
thesequestration order dated April- 14, 1986, and
all other orders subsequently issued andacts done
on the basis thereof, inclusive of the takeover
order of July 14, 1986 and thetermination of the
services of the BASECO executives.
Issue:
closely with the4th Amendment's

Search and Seizure provisions.
It is also settled that an officer of
thecompany cannot refuse to produce
its records in its possession upon the
plea that they will either incriminate
him or may incriminate it."
The corporation is a creature of the
state. Itis presumed to be
incorporated for the benefit of the
public. It received certain
specialprivileges and franchises, and
holds them subject to the laws of the
state and the
limitations of its charter. Its powers
are limited by law. It can make no
contract not
authorized by its charter. Its rights to
act as a corporation are only
preserved to it so longas it obeys the
laws of its creation. There is a reserve
right in the legislature to
investigateits contracts and find out
whether it has exceeded its powers. It
would be a strangeanomaly to hold
that a state, having chartered a
corporation to make use of
certainfranchises, could not, in the
exercise of sovereignty, inquire how
these franchises had beenemployed,
and whether they had been abused,
and demand the production of
thecorporate books and papers for
that purpose. The defense amounts to
this, that an officerof the corporation
which is charged with a criminal
violation of the statute may plead
28
Acebedo
Optical vs
Court of
Appeals
Acebedo Optical applied for a business permit to

operate in Iligan City. After hearing the sides of
local optometrists, Mayor Cabili of Iligan granted
the permit but he attached various special
conditions which basically made Acebedos
dependent upon prescriptions to be issued by
local optometrists. Acebedo is not allowed to
practice optometry within the city. Acebedo
however acquiesced to the said conditions and
operated under the permit. Later, Acebedo was
charged for violating the said conditions and was
subsequently suspended from operating within
Iligan. Acebedo then assailed the validity of the
attached conditions. The local optometrists
argued that Acebedo is estopped in assailing the
said conditions because it acquiesced to the same
and that the imposition of the special conditions is
a valid exercise of police power; that such
conditions were entered upon by the city in its
proprietary function hence the permit is actually a
contract.
Petitioners argue
that an optometrist,
who is employed by
a corporation, such
as Acebedo, is not
acting on his own
capacity but as an
employee or agent
of the corporation.
They contend that,
as a mere
employee or agent,
such optometrist
cannot be held
personally liable for
his acts done in the
course of his
employment as an
optometrist under
the following
provisions of the
Civil Code.
thecriminality of such corporation as

a refusal to produce its books. To
state this proposition isto answer it.
While an individual may lawfully
refuse to answer incriminating
questionsunless protected by an
immunity statute, it does not follow
that a corporation, vested withspecial
privileges and franchises may refuse
to show its hand when charged with
an abuseof such privileges.
Thus,
Art. 1897. The agent who acts as such
is not personally liable to the party
with whom he contracts, unless he
expressly binds himself or exceeds
the limits of his authority without
giving such party sufficient notice of
his powers.
Art. 1910. The principal must comply
with all the obligations which the
agent may have contracted within the
scope of his authority.
As for any obligation wherein the
agent has exceeded his power, the
principal is not bound except when he
ratifies it expressly or tacitly.
This contention likewise has no merit.
While the optometrists are employees
of respondent, their practice of
optometry is separate and distinct
from the business of respondent of
selling optical products. They are
29
personally liable for acts done in the

course of their practice in the same
way that if respondent is sued in
court in connection with its business
of selling optical products, the
optometrists need not be impleaded
as party defendants. In that regard,
the Board of Optometry and the
Professional Regulation Commission
regulate their practice and have
exclusive original jurisdiction over
them.
In the later case of Acebedo Optical
Company, Inc. v. Court of Appeals,
[14] petitioner Acebedo was granted
by the City Mayor of Iligan a business
permit subject to certain conditions,
to wit:
1.
Since it is a corporation,
Acebedo cannot put up an optical
clinic but only a commercial store;
2.
Acebedo cannot examine
and/or prescribe reading and similar
optical glasses for patients, because
these are functions of optical clinics;
3.
Acebedo cannot sell reading
and similar eyeglasses without a
prescription having first been made
by an independent optometrist (not
its employee) or independent optical
clinic. Acebedo can only sell directly
to the public, without need of a
prescription, Ray-Ban and similar
30
eyeglasses;
4.
Acebedo cannot advertise
optical lenses and eyeglasses, but
can advertise Ray-Ban and similar
glasses and frames;
5.
Acebedo is allowed to grind
lenses but only upon the prescription
of an independent optometrist.
The Samahang Optometrist sa
Pilipinas-Iligan Chapter sought the
cancellation and/or revocation of
Acebedos permit on the ground that
it had violated the conditions for its
business permit. After due
investigation, Acebedo was found
guilty of violating the conditions of its
permit and, as a consequence, its
permit was cancelled. Acebedo was
advised that its permit would not be
renewed. Acebedo filed a petition for
certiorari, prohibition, and mandamus
in the Regional Trial Court, but its
petition was dismissed for nonexhaustion of administrative
remedies. Acebedo then filed a
petition for certiorari, prohibition, and
mandamus with the Court of Appeals.
At first, its petition was dismissed. On
appeal, however, the decision of the
Court of Appeals was reversed. This
Court held that a business permit is
issued primarily to regulate the
conduct of a business and, therefore,
the City Mayor cannot, through the
31
issuance of such permit, regulate the

practice of a profession, like
optometry. This Court held Acebedo
to be entitled to a permit to do
business as an optical shop because,
although it had duly licensed
optometrists in its employ, it did not
apply for a license to engage in the
practice of optometry as a corporate
body or entity.
West Coast
vs Hurd
West Coast Life Insurance, a foreign life insurance

There are many cases cited by
corporation doing business regularly and legally in
counsel for the defendant which show
the Philippine Islands pursuant to its laws
that corporations have been
Plaintiff in CFI criminal action together with:
proceeded against criminally by
John Northcott - general agent and manager for
indictment and otherwise and have
the Philippines
been punished as malefactors by the
Manuel C. Grey - was an agent and employees
courts. Of this, of course, there can be
and acting in the capacity of treasurer of the
no doubt; but it is clear that, in those
branch
cases, the statute, by express words
Charged for printing, publish and distributing a
or by necessary intendment, included
large number of circulars to policy holders and
corporations within the persons who
prospective policy holders of Insular Life
could offend against the criminal
Insurance Co. stating that the rumor about it is
laws; and the legislature, at the same
true regarding it being in a bad shape and it
time established a procedure
capital has diminished
applicable to corporations. No case
ISSUE: W/N West Coast Life Insurance should also
has been cited to us where a
32
be criminally charged.
corporation has been proceeded

against under a criminal statute
where the court did not exercise its
common law powers or where there
was not in force a special procedure
applicable to corporations.
The courts of the Philippine Islands
are creatures of statute and, as we
have said, have only those powers
conferred upon them by statute and
those which are required to exercise
that authority fully and adequately.
The courts here have no common law
jurisdiction or powers. If they have
any powers not conferred by statute,
expressly or impliedly, they would
naturally come from Spanish and not
from common law sources. It is
undoubted that, under the Spanish
criminal law and procedure, a
corporation could not have been
proceeded against criminally, as such,
if such an entity as a corporation in
fact existed under the Spanish law,
and as such it could not have
committed a crime in which a willful
purpose or a malicious intent was
required. Criminal actions would have
been restricted or limited, under that
system, to the officials of such
corporations and never would have
been directed against the corporation
itself. This was the rule with relation
to associations or combinations of
persons approaching, more or less,
the corporation as it is now
33
Sia vs CA
Arnel T. Uy,
et.al vs NBI
Jose Sia, president and GM of Metal Manufacturing

Company of the Phil., on behalf of said company,
obtained delivery of 150 cold rolled steel sheets
valued at P71,023.60 under a trust receipt
agreement. Said sheets were consigned to the
Continental Bank, under the express obligation on
the part of Sia of holding the sheets in trust and
selling them and turning over the proceeds to the
bank. Sia, however, allegedly failed and refused
to return the sheets or account for the proceeds
thereof if sold, converting it to his own personal
use and benefit. Continental Bank filed a
complaint for estafa against Sia. The trial court
and CA ruled against Sia.
Petitioners are stockholders of Omni Gas

Corporation (Omni) as per Omnis General
Information Sheet[6] (GIS) dated March 6, 2004
submitted to the Securities and Exchange
Commission (SEC). Omni is in the business of
trading and refilling of Liquefied Petroleum Gas
(LPG) cylinders and holds Pasig City Mayors
Permit No. RET-04-001256 dated February 3,
2004.
Whether SIA is
criminally liable
understood, and it would undoubtedly

have been the rue with corporations.
From this source, then, the courts
derive no authority to bring
corporations before them in criminal
actions, nor to issue processes for
that purpose.
Sia was acquitted. CA decision is
reversed.
An officer of a corporation can be held
criminally liable for acts or omissions
done in behalf of the corporation only
where the law directly requires the
corporation to do an act in a given
manner. In he absence of a law
making a corporate officer liable for a
criminal offense committed by the
corporation, the existence of the
criminal liability of he former may not
be said to be beyond doubt. Hence in
the absence of an express provision
of law making Sia liable for the
offense done by MMCP of which he is
President, as in fact there is no such
provision under the Revised Penal
Code, Sia cannot be said to be liable
for estafa.
Relying on the third paragraph of the
above statutory proviso, petitioners
argue that they cannot be held liable
for any perceived violations of BP 33,
as amended, since they are mere
directors of Omni who are not in
charge of the management of its
business affairs. Reasoning that
criminal liability is personal, liability
34
The case all started when Joaquin Guevara Adarlo

& Caoile Law Offices (JGAC Law Offices) sent a
letter dated March 22, 2004[7] to the NBI
requesting, on behalf of their clients Shellane
Dealers Association, Inc., Petron Gasul Dealers
Association, Inc., and Totalgaz Dealers
Association, Inc., for the surveillance,
investigation, and apprehension of persons or
establishments in Pasig City that are engaged in
alleged illegal trading of petroleum products and
underfilling of branded LPG cylinders in violation
of Batas Pambansa Blg. (BP) 33,[8] as amended
by Presidential Decree No. (PD) 1865
Sec. 4 of BP 33, as amended, provides for the

penalties and persons who are criminally liable,
thus:
Sec. 4. Penalties. Any person who commits
any act herein prohibited shall, upon conviction,
be punished with a fine of not less than twenty
thousand pesos (P20,000) but not more than fifty
thousand pesos (P50,000), or imprisonment of at
least two (2) years but not more than five (5)
years, or both, in the discretion of the court. In
cases of second and subsequent conviction under
this Act, the penalty shall be both fine and
imprisonment as provided herein. Furthermore,
the petroleum and/or petroleum products, subject
matter of the illegal trading, adulteration,
shortselling, hoarding, overpricing or misuse, shall
be forfeited in favor of the Government: Provided,
That if the petroleum and/or petroleum products
have already been delivered and paid for, the
offended party shall be indemnified twice the
attaches to a person from his

personal act or omission but not from
the criminal act or negligence of
another. Since Sec. 4 of BP 33, as
amended, clearly provides and
enumerates who are criminally liable,
which do not include members of the
board of directors of a corporation,
petitioners, as mere members of the
board of directors who are not in
charge of Omnis business affairs,
maintain that they cannot be held
liable for any perceived violations of
BP 33, as amended. To bolster their
position, they attest to being full-time
employees of various firms as shown
by the Certificates of Employment[71]
they submitted tending to show that
they are neither involved in the dayto-day business of Omni nor
managing it. Consequently, they
posit that even if BP 33, as amended,
had been violated by Omni they
cannot be held criminally liable
thereof not being in any way
connected with the commission of the
alleged violations, and, consequently,
the criminal complaints filed against
them based solely on their being
members of the board of directors as
per the GIS submitted by Omni to SEC
are grossly discriminatory.
On this point, we agree with
petitioners except as to petitioner
Arnel U. Ty who is indisputably the
President of Omni.
35
amount paid, and if the seller who has not yet

delivered has been fully paid, the price received
shall be returned to the buyer with an additional
amount equivalent to such price; and in addition,
if the offender is an oil company, marketer,
distributor, refiller, dealer, sub-dealer and other
retail outlets, or hauler, the cancellation of his
license.
Trials of cases arising from this Act shall be
terminated within thirty (30) days after
arraignment.
When the offender is a corporation, partnership,
or other juridical person, the president, the
general manager, managing partner, or such
other officer charged with the management of the
business affairs thereof, or employee responsible
for the violation shall be criminally liable; in case
the offender is an alien, he shall be subject to
deportation after serving the sentence.
If the offender is a government official or
employee, he shall be perpetually disqualified
from office. (Emphasis supplied.)
It may be noted that Sec. 4 above

enumerates the persons who may be
held liable for violations of the law,
viz: (1) the president, (2) general
manager, (3) managing partner, (4)
such other officer charged with the
management of the business affairs
of the corporation or juridical entity,
or (5) the employee responsible for
such violation. A common thread of
the first four enumerated officers is
the fact that they manage the
business affairs of the corporation or
juridical entity. In short, they are
operating officers of a business
concern, while the last in the list is
self-explanatory.
It is undisputed that petitioners are

members of the board of directors of
Omni at the time pertinent. There
can be no quibble that the
enumeration of persons who may be
held liable for corporate violators of
BP 33, as amended, excludes the
members of the board of directors.
This stands to reason for the board of
directors of a corporation is generally
a policy making body. Even if the
corporate powers of a corporation are
reposed in the board of directors
under the first paragraph of Sec.
23[72] of the Corporation Code, it is
of common knowledge and practice
that the board of directors is not
36
directly engaged or charged with the

running of the recurring business
affairs of the corporation. Depending
on the powers granted to them by the
Articles of Incorporation, the
members of the board generally do
not concern themselves with the dayto-day affairs of the corporation,
except those corporate officers who
are charged with running the business
of the corporation and are
concomitantly members of the board,
like the President. Section 25[73] of
the Corporation Code requires the
president of a corporation to be also a
member of the board of directors.
Thus, the application of the legal
maxim expressio unius est exclusio
alterius, which means the mention of
one thing implies the exclusion of
another thing not mentioned. If a
statute enumerates the thing upon
which it is to operate, everything else
must necessarily and by implication
be excluded from its operation and
effect.[74] The fourth officer in the
enumerated list is the catch-all such
other officer charged with the
management of the business affairs
of the corporation or juridical entity
which is a factual issue which must be
alleged and supported by evidence.
A scrutiny of the GIS reveals that
among the petitioners who are
members of the board of directors are
the following who are likewise elected
37
as corporate officers of Omni: (1)

Petitioner Arnel U. Ty (Arnel) as
President; (2) petitioner Mari
Antonette Ty as Treasurer; and (3)
petitioner Jason Ong as Corporate
Secretary. Sec. 4 of BP 33, as
amended, clearly indicated firstly the
president of a corporation or juridical
entity to be criminally liable for
violations of BP 33, as amended.
Evidently, petitioner Arnel, as
President, who manages the business
affairs of Omni, can be held liable for
probable violations by Omni of BP 33,
as amended. The fact that petitioner
Arnel is ostensibly the operations
manager of Multi-Gas Corporation, a
family owned business, does not
deter him from managing Omni as
well. It is well-settled that where the
language of the law is clear and
unequivocal, it must be taken to
mean exactly what it says.[75] As to
the other petitioners, unless
otherwise shown that they are
situated under the catch-all such
other officer charged with the
management of the business affairs,
they may not be held liable under BP
33, as amended, for probable
violations. Consequently, with the
exception of petitioner Arnel, the
charges against other petitioners
must perforce be dismissed or
dropped.
38
Gamboa vs
Finance
Secretary
This is a petition to nullify the sale of shares of

stock of Philippine Telecommunications
Investment Corporation (PTIC) by the government
of the Republic of the Philippines, acting through
the Inter-Agency Privatization Council (IPC), to
Metro Pacific Assets Holdings, Inc. (MPAH), an
affiliate of First Pacific Company Limited (First
Pacific), a Hong Kong-based investment
management and holding company and a
shareholder of the Philippine Long Distance
Telephone Company (PLDT).
The petitioner questioned the sale on the ground
that it also involved an indirect sale of 12 million
shares (or about 6.3 percent of the outstanding
common shares) of PLDT owned by PTIC to First
Pacific. With the this sale, First Pacifics common
shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the
total common shareholdings of foreigners in PLDT
to about 81.47%. This, according to the petitioner,
violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign
ownership of the capital of a public utility to not
more than 40%.
The crux of the

controversy is the
definition of the
term capital.
Does the term
capital in Section
11, Article XII of the
Constitution refer to
common shares or
to the total
outstanding capital
stock (combined
total of common
and non-voting
preferred shares)?
[The Court partly granted the petition

and held that the term capital in
Section 11, Article XII of the
Constitution refers only to shares of
stock entitled to vote in the election
of directors of a public utility, i.e., to
the total common shares in PLDT.]
Considering that common shares
have voting rights which translate to
control, as opposed to preferred
shares which usually have no voting
rights, the term capital in Section
11, Article XII of the Constitution
refers only to common shares.
However, if the preferred shares also
have the right to vote in the election
of directors, then the term capital
shall include such preferred shares
because the right to participate in the
control or management of the
corporation is exercised through the
right to vote in the election of
directors. In short, the term capital
in Section 11, Article XII of the
Constitution refers only to shares of
stock that can vote in the election of
directors.
39
To construe broadly the term capital

as the total outstanding capital stock,
including both common and nonvoting preferred shares, grossly
contravenes the intent and letter of
the Constitution that the State shall
develop a self-reliant and
independent national economy
effectively controlled by Filipinos. A
broad definition unjustifiably
disregards who owns the all-important
voting stock, which necessarily
equates to control of the public utility.
Holders of PLDT preferred shares are
explicitly denied of the right to vote in
the election of directors. PLDTs
Articles of Incorporation expressly
state that the holders of Serial
Preferred Stock shall not be entitled
to vote at any meeting of the
stockholders for the election of
directors or for any other purpose or
otherwise participate in any action
taken by the corporation or its
stockholders, or to receive notice of
any meeting of stockholders. On the
other hand, holders of common
shares are granted the exclusive right
to vote in the election of directors.
PLDTs Articles of Incorporation state
that each holder of Common Capital
Stock shall have one vote in respect
of each share of such stock held by
him on all matters voted upon by the
stockholders, and the holders of
Common Capital Stock shall have the
40
exclusive right to vote for the election

of directors and for all other
purposes.
It must be stressed, and respondents
do not dispute, that foreigners hold a
majority of the common shares of
PLDT. In fact, based on PLDTs 2010
General Information Sheet (GIS),
which is a document required to be
submitted annually to the Securities
and Exchange Commission, foreigners
hold 120,046,690 common shares of
PLDT whereas Filipinos hold only
66,750,622 common shares. In other
words, foreigners hold 64.27% of the
total number of PLDTs common
shares, while Filipinos hold only
35.73%. Since holding a majority of
the common shares equates to
control, it is clear that foreigners
exercise control over PLDT. Such
amount of control unmistakably
exceeds the allowable 40 percent
limit on foreign ownership of public
utilities expressly mandated in
Section 11, Article XII of the
Constitution.
As shown in PLDTs 2010 GIS, as
submitted to the SEC, the par value of
PLDT common shares is P5.00 per
share, whereas the par value of
preferred shares is P10.00 per share.
In other words, preferred shares have
twice the par value of common shares
but cannot elect directors and have
41
only 1/70 of the dividends of common

shares. Moreover, 99.44% of the
preferred shares are owned by
Filipinos while foreigners own only a
minuscule 0.56% of the preferred
shares. Worse, preferred shares
constitute 77.85% of the authorized
capital stock of PLDT while common
shares constitute only 22.15%. This
undeniably shows that beneficial
interest in PLDT is not with the nonvoting preferred shares but with the
common shares, blatantly violating
the constitutional requirement of 60
percent Filipino control and Filipino
beneficial ownership in a public utility.
In short, Filipinos hold less than 60
percent of the voting stock, and earn
less than 60 percent of the dividends,
of PLDT. This directly contravenes the
express command in Section 11,
Article XII of the Constitution that
[n]o franchise, certificate, or any
other form of authorization for the
operation of a public utility shall be
granted except to x x x corporations x
x x organized under the laws of the
Philippines, at least sixty per centum
of whose capital is owned by such
citizens x x x.
To repeat, (1) foreigners own 64.27%
of the common shares of PLDT, which
class of shares exercises the sole
right to vote in the election of
directors, and thus exercise control
42
over PLDT; (2) Filipinos own only

35.73% of PLDTs common shares,
constituting a minority of the voting
stock, and thus do not exercise
control over PLDT; (3) preferred
shares, 99.44% owned by Filipinos,
have no voting rights; (4) preferred
shares earn only 1/70 of the dividends
that common shares earn; (5)
preferred shares have twice the par
value of common shares; and (6)
preferred shares constitute 77.85% of
the authorized capital stock of PLDT
and common shares only 22.15%.
This kind of ownership and control of
a public utility is a mockery of the
Constitution.
[Thus, the Respondent Chairperson of
the Securities and Exchange
Commission was DIRECTED by the
Court to apply the foregoing definition
of the term capital in determining
the extent of allowable foreign
ownership in respondent Philippine
Long Distance Telephone Company,
and if there is a violation of Section
11, Article XII of the Constitution, to
impose the appropriate sanctions
under the law.
Gamboa vs
Finance
Secretary,
June 28,
The Constitution expressly declares

as State policy the development of an
economy "effectively controlled" by
Filipinos. Consistent with such State
policy, the Constitution explicitly
43
2011
reserves the ownership and operation

of public utilities to Philippine
nationals, who are defined in the
Foreign Investments Act of 1991 as
Filipino citizens, or corporations or
associations at least 60 percent of
whose capital with voting rights
belongs to Filipinos. The FIAs
implementing rules explain that "[f]or
stocks to be deemed owned and held
by Philippine citizens or Philippine
nationals, mere legal title is not
enough to meet the required Filipino
equity. Full beneficial ownership of the
stocks, coupled with appropriate
voting rights is essential." In effect,
the FIA clarifies, reiterates and
confirms the interpretation that the
term "capital" in Section 11, Article XII
of the 1987 Constitution refers to
shares with voting rights, as well as
with full beneficial ownership. This is
precisely because the right to vote in
the election of directors, coupled with
full beneficial ownership of stocks,
translates to effective control of a
corporation.
Any other construction of the term
"capital" in Section 11, Article XII of
the Constitution contravenes the
letter and intent of the Constitution.
Any other meaning of the term
"capital" openly invites alien
domination of economic activities
reserved exclusively to Philippine
nationals. Therefore, respondents
44
interpretation will ultimately result in

handing over effective control of our
national economy to foreigners in
patent violation of the Constitution,
making Filipinos second-class citizens
in their own country.
Filipinos have only to remind
themselves of how this country was
exploited under the Parity
Amendment, which gave Americans
the same rights as Filipinos in the
exploitation of natural resources, and
in the ownership and control of public
utilities, in the Philippines. To do this
the 1935 Constitution, which
contained the same 60 percent
Filipino ownership and control
requirement as the present 1987
Constitution, had to be amended to
give Americans parity rights with
Filipinos. There was bitter opposition
to the Parity Amendment62 and many
Filipinos eagerly awaited its
expiration. In late 1968, PLDT was
one of the American-controlled public
utilities that became Filipinocontrolled when the controlling
American stockholders divested in
anticipation of the expiration of the
Parity Amendment on 3 July 1974.63
No economic suicide happened when
control of public utilities and mining
corporations passed to Filipinos
hands upon expiration of the Parity
Amendment.
45
Movants interpretation of the term

"capital" would bring us back to the
same evils spawned by the Parity
Amendment, effectively giving
foreigners parity rights with Filipinos,
but this time even without any
amendment to the present
Constitution. Worse, movants
interpretation opens up our national
economy to effective control not only
by Americans but also by all
foreigners, be they Indonesians,
Malaysians or Chinese, even in the
absence of reciprocal treaty
arrangements. At least the Parity
Amendment, as implemented by the
Laurel-Langley Agreement, gave the
capital-starved Filipinos theoretical
parity the same rights as Americans
to exploit natural resources, and to
own and control public utilities, in the
United States of America. Here,
movants interpretation would
effectively mean a unilateral opening
up of our national economy to all
foreigners, without any reciprocal
arrangements. That would mean that
Indonesians, Malaysians and Chinese
nationals could effectively control our
mining companies and public utilities
while Filipinos, even if they have the
capital, could not control similar
corporations in these countries.
The 1935, 1973 and 1987
Constitutions have the same 60
percent Filipino ownership and control
46
requirement for public utilities like

PLOT. Any deviation from this
requirement necessitates an
amendment to the Constitution as
exemplified by the Parity Amendment.
This Court has no power to amend the
Constitution for its power and duty is
only to faithfully apply and interpret
the Constitution.
WHEREFORE, we DENY the motions
for reconsideration WITH FINALITY. No
further pleadings shall be
entertained.
Mambulao
Lumber vs
PNB
On May 5, 1956 the plaintiff applied for an

industrial loan of P155,000 with the Naga Branch
of defendant PNB and the former offered real
estate, machinery, logging and transportation
equipments as collaterals. The application,
however, was approved for a loan of P100,000
only. To secure the payment of the loan, the
plaintiff mortgaged to defendant PNB a parcel of
land, together with the buildings and
improvements existing thereon, situated in the
Herein appellant's claim for moral

damages, however, seems to have no
legal or factual basis. Obviously, an
artificial person like herein
appellant corporation cannot
experience physical sufferings,
mental anguish, fright, serious
anxiety, wounded feelings, moral
shock or social humiliation which
are basis of moral damages. 21
47
poblacion of Jose Panganiban (formerly

Mambulao), province of Camarines Norte, and
covered by Transfer Certificate of Title No. 381 of
the land records of said province, as well as
various sawmill equipment, rolling unit and other
fixed assets of the plaintiff, all situated in its
compound in the aforementioned municipality.
On August 2, 1956, the PNB released from the
approved loan the sum of P27,500, for which the
plaintiff signed a promissory note wherein it
promised to pay to the PNB the said sum in five
equal yearly installments at the rate of P6,528.40
beginning July 31, 1957, and every year
thereafter, the last of which would be on July 31,
1961.
On October 19, 1956, the PNB made another
release of P15,500 as part of the approved loan
granted to the plaintiff and so on the said date,
the latter executed another promissory note
wherein it agreed to pay to the former the said
sum in five equal yearly installments at the rate
of P3,679.64 beginning July 31, 1957, and ending
on July 31, 1961.
The plaintiff failed to pay the amortization on the
amounts released to and received by it. Repeated
demands were made upon the plaintiff to pay its
obligation but it failed or otherwise refused to do
so. Upon inspection and verification made by
employees of the PNB, it was found that the
plaintiff had already stopped operation about the
end of 1957 or early part of 195
A corporation may have a good

reputation which, if besmirched, may
also be a ground for the award of
moral damages. The same cannot be
considered under the facts of this
case, however, not only because it is
admitted that herein appellant had
already ceased in its business
operation at the time of the
foreclosure sale of the chattels, but
also for the reason that whatever
adverse effects of the foreclosure sale
of the chattels could have upon its
reputation or business standing would
undoubtedly be the same whether the
sale was conducted at Jose
Panganiban, Camarines Norte, or in
Manila which is the place agreed upon
by the parties in the mortgage
contract.
But for the wrongful acts of herein
appellee bank and the deputy sheriff
of Camarines Norte in proceeding
with the sale in utter disregard of the
agreement to have the chattels sold
in Manila as provided for in the
mortgage contract, to which their
attentions were timely called by
herein appellant, and in disposing of
the chattels in gross for the miserable
amount of P4,200.00, herein
appellant should be awarded
exemplary damages in the sum of
P10,000.00. The circumstances of the
case also warrant the award of
48
P3,000.00 as attorney's fees for

herein appellant.
49
50
51
52

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CASE

Corporation Law Batch 1 Digests

On December 19, 1995, petitioner Reynaldo M.

1. There is no intracorporate nor

to order him to pay damages in the amount of

which makes the reorganization

members, or associates; between any

On June 30 1989, petitioner International Express

Corporation by estoppel is founded on

payments were made despite repeated demands.

not prove that said Federation

On April 21, 1988, the spouses Eduardo and Ma.

WON Atty Soluta

position taken by the appellate

Petitioner, versus SPOUSES

Certificate of Title (TCT) No. 254504, in the name

another to do certain acts for and on

wherein the power was exercised

The National Investment and Development

In arguing that PHILSECO, as a

the Constitution clearly limits only

This case involves the constitutionality of a

Kawasaki was bound by its

7, 1978, over three (3) parcels of land situated in

they did not get. The decree

AGRIX upon proof of their claims

sustained the preference in payment

connection with the public

Idonah Slade Perkins, an American citizen who

We start with the undeniable premise

owes its existence to law. It is an

coordinate branches. It institutes the

reconsideration of such order, the

A Special Audit Team from COA Regional Office

Administrator, in actions where he is

expressly prohibits COA auditors, or

auditors. What Section 18 of RA 6758

On behalf of "Ocean Quest Fishing Corporation,"

WON Lim can be

A partnership may be deemed to exist

enforced by attaching the fishing nets on board

liability can be imputed only to Chua

On the other hand, a third party who,

the Writ has effectively stopped his

Smith, Bell & Co., (Ltd.), is a corporation

before the court the facts in issue and

territorial jurisdiction, without regard

Challenged in this special civil action of certiorari

discrimination against Chinese; Truax

transgressed by the Orderof April 18, 1986 which

closely with the4th Amendment's

Acebedo Optical applied for a business permit to

thecriminality of such corporation as

personally liable for acts done in the

issuance of such permit, regulate the

West Coast Life Insurance, a foreign life insurance

corporation has been proceeded

Jose Sia, president and GM of Metal Manufacturing

Petitioners are stockholders of Omni Gas

understood, and it would undoubtedly

The case all started when Joaquin Guevara Adarlo

Sec. 4 of BP 33, as amended, provides for the