COMMERCIAL LAW

(J. Bersamin)

COMMISSIONER OF CUSTOMS VS. OILINK INTERNATIONAL CORP.

G.R. No. 161759, 2 July 2014
Piercing the corporate veil of corporate fiction

Facts: Union Refinery Corporation (URC) was established under the Corporation Code
of the Philippines and imports oil products into the country. Oilink was incorporated
for the primary purpose of manufacturing, importing, exporting, buying, selling or
dealing in oil and gas, and their refinements and by-products at wholesale and retail of
petroleum. URC and Oilink had interlocking directors when Oilink started its business.

On 2 July 1999, the Commissioner of Customs made a final demand for the total
deficiency tax liability of P138,060,200.49 upon URC and Oilink. Oilink formally
protested the assessment on the ground that it was not the party liable for the assessed
deficiency taxes.

Held: Indeed, the doctrine of piercing the corporate veil has no application here because
the Commissioner of Customs did not establish that Oilink had been set up to avoid the
payment of taxes or duties, or for purposes that would defeat public convenience,
justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues,
perpetrate deception or otherwise circumvent the law. It is also noteworthy that from
the outset the Commissioner of Customs sought to collect the deficiency taxes and
duties from URC, and that it was only on 2 July 1999 when the Commissioner of
Customs sent the demand letter to both URC and Oilink. That was revealing, because
the failure of the Commissioner of Customs to pursue the remedies against Oilink from
the outset manifested that its belated pursuit of Oilink was only an afterthought.

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ZUELLIG FREIGHT AND CARGO SYSTEMS VS. NLRC

G.R. No. 157900, 22 July 2013
Corporate Name

Facts: San Miguel brought a complaint for unfair labor practice, illegal dismissal, non-
payment of salaries and moral damages against petitioner, formerly known as Zeta
Brokerage Corporation (Zeta). He alleged that he had been a checker/customs
representative of Zeta since 16 December 1985; that in January 1994, he and other
employees of Zeta were informed that Zeta would cease operations, and that all
affected employees, including him, would be separated; that by letter dated February
28, 1994, Zeta informed him of his termination effective March 31, 1994; that he
reluctantly accepted his separation pay subject to the standing offer to be hired to his
former position by petitioner; and that on April 15, 1994, he was summarily terminated,
without any valid cause and due process. San Miguel contended that the amendments
of the articles of incorporation of Zeta were for the purpose of changing the corporate
name, broadening the primary functions, and increasing the capital stock; and that such
amendments could not mean that Zeta had been thereby dissolved. Labor Arbiter
Francisco A. Robles rendered a decision holding that San Miguel had been illegally
dismissed.

Held: The amendments of the articles of incorporation of Zeta to change the corporate
name to Zuellig Freight and Cargo Systems, Inc. did not produce the dissolution of the
former as a corporation. Zeta and petitioner remained one and the same corporation.
The change of name did not give petitioner the license to terminate employees of Zeta
like San Miguel without just or authorized cause. Petitioner, despite its new name, was
the mere continuation of Zeta's corporate being, and still held the obligation to honor all
of Zeta's obligations, one of which was to respect San Miguel's security of tenure. The
dismissal of San Miguel from employment on the pretext that petitioner, being a
different corporation, had no obligation to accept him as its employee, was illegal and
ineffectual.

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FOREST HILLS GOLF AND COUNTRY CLUB, INC. VS. GARDPRO, INC.
G.R. NO. 164686, 22 October 2014
Articles of Incorporation and By-Laws

Facts: In March 1993, Fil-Estate Properties, Inc., a party to a Project Agreement to

develop the Forest Hills Residential Estates and the Forest Hills Golf and Country Club,
undertook to market the golf club shares of Forest Hills for a fee. In July 1995, Fil-Estate
Properties, Inc. (FEPI) assigned its rights and obligations under the Project Agreement
to Fil- Estate Golf and Development, Inc. (FEGDI). In 1995, FEPI and FEGDI engaged
Fil-Estate Marketing Associates Inc., (FEMAI) to market and offer for sale the shares of
stocks of Forest Hills. Leandro de Mesa, the President of FEMAI, oriented the sales staff
on the information that would usually be inquired about by prospective buyers. He
made it clear that membership in the Club was a privilege, such that purchasers of
shares of stock would not automatically become members of the Club, but must apply
for and comply with all the requirements in order to qualify them for membership,
subject to the approval of the Board of Directors.

In 1996, Gardpro, Inc. (Gardpro) bought class C common shares of stock, which were
special corporate shares that entitled the registered owner to designate two nominees or
representatives for membership in the Club. In October 1997, Ramon Albert, the
General Manager of the Club, notified the shareholders that it was already accepting
applications for membership. In that regard, Gardpro designated Fernando R. Martin
and Rolando N. Reyes to be its corporate nominees; hence, the two applied for
membership in the Club. Forest Hills charged them membership fees of P50,000.00 each,
prompting Martin to immediately call up Albert and complain about being thus
charged despite having been assured that no such fees would be collected from them.
With Albert assuring that the fees were temporary, both nominees of Gardpro paid the
fees. At that time, the P45,000.00 membership fees of corporate members were increased
to P75,000.00 per nominee by virtue of the 26 August 1997 resolution of the Board of
Directors. Any nominee who paid the fees within a specified period was entitled to a
discount of P25,000.00. Both nominees of Gardpro were then admitted as members
upon approval of their applications by the Board of Directors. Later, Gardpro decided
to change its designated nominees, and Forest Hills charged Gardpro new membership
fees of P75,000.00 per nominee. When Gardpro refused to pay, the replacement did not
take place. On 7 July 1999, Gardpro filed a complaint in the SEC.

Held: Replacement nominees of Gardpro were not required to pay membership fees.
Forest Hills was not authorized under its articles of incorporation and by-laws to collect
new membership fees for the replacement nominees of Gardpro. Pursuant to the Clubs
articles of incorporation and by-laws, the membership fees should be paid by the
corporate member. Based on the procedure set forth in Section 2.2.7 of the by-laws, the
applicant was the juridical entity, not its nominee or nominees. Although the nominee
or nominees also accomplished their application forms for membership in the Club, it
was the corporate member that was obliged to pay the membership fees in its own
capacity because the share was registered in its name in the Stock and Transfer Book.

The articles of incorporation and the by-laws of a corporation define and regulate the
relations between the corporation and the stockholders. In interpreting them, the literal
meaning of their provisions shall control, and such provisions should be construed as a
whole and not in isolation.

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TURNER VS. LORENZO SHIPPING CORPORATION

G.R. No. 157479, 24 November 2010
Corporation; Trust Fund Doctrine

Facts: Respondent decided to amend its articles of incorporation to remove the

stockholders pre-emptive rights to newly issued shares of stock. Feeling that the
corporate move would be prejudicial to their interest as stockholders, the petitioners
voted against the amendment and demanded payment of their shares at the rate
of P2.276/share based on the book value of the shares. The appraisal committee reported
its valuation of P2.54/share. Subsequently, the petitioners demanded payment based on
the valuation of the appraisal committee. The respondent refused the petitioners
demand, explaining that pursuant to the Corporation Code, the dissenting stockholders
exercising their appraisal rights could be paid only when the corporation had
unrestricted retained earnings to cover the fair value of the shares, but that it had no
retained earnings at the time of the petitioners demand.

Held: The trust fund doctrine backstops the requirement of unrestricted retained
earnings to fund the payment of the shares of stocks of the withdrawing stockholders.
Under the doctrine, the capital stock, property, and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors, who are preferred in
the distribution of corporate assets. The creditors of a corporation have the right to
assume that the board of directors will not use the assets of the corporation to purchase
its own stock for as long as the corporation has outstanding debts and liabilities. There
can be no distribution of assets among the stockholders without first paying corporate
debts. Thus, any disposition of corporate funds and assets to the prejudice of creditors
is null and void.
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HALLEY VS. PRINTWELL, INC.

G.R. No. 157549, 20 May 2011
Corporation; Trust Fund Doctrine

Facts: BMPI commissioned Printwell for the printing of the magazine Philippines, Inc.
(together with wrappers and subscription cards) that BMPI published and sold. BMPI
placed with Printwell several orders on credit, evidenced by invoices and delivery
receipts totalingP316,342.76. Considering that BMPI paidonlyP25,000.00, Printwell filed
a case for the collection of the unpaid balance of BMPI with the RTC. Printwell
amended the complaint in order to implead as defendants all the original stockholders
and incorporators to recover on their unpaid subscriptions. The defendants filed a
consolidated answer, averring that they all had paid their subscriptions in full; that
BMPI had a separate personality from those of its stockholders; that Rizalino C. Vieza
had assigned his fully-paid up shares to a certain Gerardo R. Jacinto in 1989; and that
the directors and stockholders of BMPI had resolved to dissolve BMPI during the
annual meeting.

Held: The trust fund doctrine enunciates a

xxx rule that the property of a corporation is a trust fund for the payment of creditors,
but such property can be called a trust fund only by way of analogy or metaphor. As
between the corporation itself and its creditors it is a simple debtor, and as between its
creditors and stockholders its assets are in equity a fund for the payment of its debts.

The trust fund doctrine is not limited to reaching the stockholders unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses
not only the capital stock, but also other property and assets generally regarded in
equity as a trust fund for the payment of corporate debts. All assets and property
belonging to the corporation held in trust for the benefit of creditors thatwere
distributed or in the possession of the stockholders, regardless of full paymentof their
subscriptions, may be reached by the creditor in satisfaction of its claim.

Also, under the trust fund doctrine, a corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation of paying for his shares, in
whole or in part, without a valuable consideration, or fraudulently, to the prejudice of
creditors. The creditor is allowed to maintain an action upon any unpaid subscriptions
and thereby steps into the shoes of the corporation for the satisfaction of its debt. To
make out a prima facie case in a suit against stockholders of an insolvent corporation to
compel them to contribute to the payment of its debts by making good unpaid balances
upon their subscriptions, it is only necessary to establish that the stockholders have not
in good faith paid the par value of the stocks of the corporation.

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PHILIPPINE BANK OF COMMUNICATIONS VS. BASIC POLYPRINTERS AND
PACKAGING CORPORATION
G.R. No. 187581, 20 October 2014
Corporate Rehabilitation

Facts: Petitioner contends that the sole issue in corporate rehabilitation is one of
liquidity; hence, the petitioning corporation should have sufficient assets to cover all its
indebtedness because it only foresees the impossibility of paying the indebtedness
falling due. It claims that rehabilitation became inappropriate because Basic
Polyprinters was insolvent due to its assets being inadequate to cover the outstanding
obligations.

Petitioner likewise argues that Basic Polyprinters did not present any material financial
commitment in the rehabilitation plan, thereby violating Section 5, Rule 4 of the Interim
Rules, the rule applicable at the time of the filing of the petition for rehabilitation. In
that regard, Basic Polyprinters made no commitment in relation to the infusion of fresh
capital by its stakeholders, and presented only a lopsided protracted repayment
schedule that included the dacion en pago involving an asset mortgaged to the petitioner
itself in favor of another creditor.

Held: Liquidity was not an issue in a petition for rehabilitation. Rehabilitation

contemplates a continuance of corporate life and activities in an effort to restore and
reinstate the corporation to its former position of successful operation and solvency. It
has two-pronged purpose, namely: (a) to efficiently and equitably distribute the assets
of the insolvent debtor to its creditors; and (b) to provide the debtor with a fresh start.
Consequently, the basic issues in rehabilitation proceedings concern the viability and
desirability of continuing the business operations of the petitioning corporation. The
determination of such issues was to be carried out by the court-appointed rehabilitation
receiver.

Meanwhile, a material financial commitment is significant in a rehabilitation plan. It

becomes significant in gauging the resolve, determination, earnestness and good faith
of the distressed corporation in financing the proposed rehabilitation plan. This
commitment may include the voluntary undertakings of the stockholders or the would-
be investors of the debtor-corporation indicating their readiness, willingness and ability
to contribute funds or property to guarantee the continued successful operation of the
debtor corporation during the period of rehabilitation.

In this case, Basic Polyprinters commitment to add P10,000,000.00 to the working

capital appeared to be doubtful considering that the insurance claim from which said
working capital would be sourced had already been written-off by Basic Polyprinterss
affiliate, Wonder Book Corporation. Basic Polyprinters rehabilitation plan likewise
failed to offer any proposal on how it intended to address the low demands for their
products and the effect of direct competition from stores like SM, Gaisano, Robinsons,
and other malls. On the other hand, Basic Polyprinters proposal to enter into the dacion
en pago to create a source of fresh capital was not feasible because the object thereof
would not be its own property but one belonging to its affiliate, TOL Realty and
Development Corporation, a corporation also undergoing rehabilitation.
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COMSAVINGS BANK VS. SPS. CAPISTRANO

G.R. No. 170942, 28 August 2013
Banking Law

Facts: Sps. Capistrano (respondents) desirous of building their own house on the lot
availed themselves of the UHLP implemented by the National Home Mortgage Finance
Corporation (NHMFC). They executed a construction contract with GCB Builders with
the latter undertaking to complete the construction within 75 days. To finance the
construction, GCB Builders facilitated their loan application with Comsavings Bank, an
NHFMC-accredited originator. Thereafter, Comsavings Bank informed respondents
that they would have to sign various documents as part of the requirements for the
release of the loan. Among the documents was a certificate of house completion and
acceptance. Due to the failure to complete the house, respondents sued GCB Builders
and Comsavings Bank for breach of contract and damages, praying that defendants be
ordered jointly and severally liable: (1) to finish the construction of the house according
to the plans and specifications agreed upon at the price stipulated in the construction
contract; and (2) to pay them P38,450.00 as the equivalent of the mortgage value in
excess of the contract price; P25,000.00 as actual damages for the expenses incurred by
reason of the breach of contract; P200,000.00 as moral damages; P30,000.00 as attorneys
fees; and P50,000.00 as exemplary damages. Comsavings Bank now insists on its non-
liability, contending that it committed no misrepresentation when it made respondents
sign the certificate of house acceptance/completion notwithstanding that the
construction of the house had not yet started.

Held: Comsaving Banks liability was not based on its purchase of loan agreement with
NHMFC but on Article 20 and Article 1170 of the Civil Code. Based on the provisions, a
banking institution like Comsavings Bank is obliged to exercise the highest degree of
diligence as well as high standards of integrity and performance in all its transactions
because its business is imbued with public interest.

There is no question that Comsavings Bank was grossly negligent in its dealings with
respondents because it did not comply with its legal obligation to exercise the required
diligence and integrity. As a banking institution serving as an originator under the
UHLP and being the maker of the certificate of acceptance/completion, it was fully
aware that the purpose of the signed certificate was to affirm that the house had been
completely constructed according to the approved plans and specifications, and that
respondents had thereby accepted the delivery of the complete house. Given the
purpose of the certificate, it should have desisted from presenting the certificate to
respondents for their signature without such conditions having been fulfilled. Yet, it
made respondents sign the certificate (through Estrella Capistrano, both in her personal
capacity and as the attorney-in-fact of her husband Danilo Capistrano) despite the
construction of the house not yet even starting. Its act was irregular per se because it
contravened the purpose of the certificate. Worse, the pre-signing of the certificate was
fraudulent because it was thereby enabled to gain in the process the amount
of P17,306.83 in the form of several deductions from the proceeds of the loan on top of
other benefits as an originator bank. On the other hand, respondents were prejudiced,
considering that the construction of the house was then still incomplete and was
ultimately defective. Compounding their plight was that NHMFC demanded payment
of their monthly amortizations despite the non-completion of the house. Had
Comsavings Bank been fair towards them as its clients, it should not have made them
pre-sign the certificate until it had confirmed that the construction of the house had
been completed.
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CITYTRUST BANKING CORPORATION VS. CRUZ

G.R. No. 157049, 11 August 2010
Banking Law

Facts: The savings account of Cruz was considered closed due to the oversight
committed by one of the Citytrusts tellers. The closure resulted in the extreme
embarrassment of the respondent, for checks that he had issued could not be honored
although his savings account was sufficiently funded and the accounts were maintained
under the petitioners check-o-matic arrangement (whereby the current account was
maintained at zero balance and the funds from the savings account were automatically
transferred to the current account to cover checks issued by the depositor like the
respondent).

Held: Citytrust, being a banking institution, had the direct obligation to supervise very
closely the employees handling its depositors accounts, and should always be mindful
of the fiduciary nature of its relationship with the depositors. Such relationship required
it and its employees to record accurately every single transaction, and as promptly as
possible, considering that the depositors accounts should always reflect the amounts of
money the depositors could dispose of as they saw fit, confident that, as a bank, it
would deliver the amounts to whomever they directed. If it fell short of that obligation,
it should bear the responsibility for the consequences to the depositors, who, suffered
particular embarrassment and disturbed peace of mind from the negligence in the
handling of the accounts. In several decisions of the Court, the banks, defendants
therein, were made liable for negligence, even without sufficient proof of malice or bad
faith on their part, and the Court awarded moral damages of P100,000.00 each time to
the suing depositors in proper consideration of their reputation and their social
standing.

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