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Cases 2
Atty Yen Mendoza

1. Municipality of Malabang vs. Benito (1969)

The municipality of Balabagan was created by EO 386 of President Garcia out of barrios and sitios
of Malabang. The petitioners seek to nullify the EO. They rely on the Pelaez ruling that the
President’s power to create municipalities under Sec. 68 of the Administrative Code is
unconstitutional. Respondents argue that the Pelaez ruling is inapplicable because Balabagan is a
de facto corporation.

HELD: The Municipality of Balabagan was not a de facto corporation. The color of authority
requisite to a de facto municipal corporation may be an unconstitutional law, valid on its face,
which has either: a. Been upheld for a time by the courts; or b. Not yet been declared void;
provided that a warrant for its creation can be found in some other valid law or in the recognition
of its potential existence in the general constitution of the state. The mere fact that Balabagan
was organized before the statute was invalidated cannot make it a de facto corporation because,
independently of the Administrative Code, there is no other valid statute to give color of authority
to its creation. This doesn’t mean that the acts done by Balabagan in the exercise of its corporate
powers are a nullity. The existence of EO 386 is an “operative fact which cannot be justly ignored.”

2. Lozano vs. delos Santos (1997)

This case involved two incorporated drivers’ associations that decided to unite and elect one set
of officers to be given authority to collect the daily dues of the drivers who are members of the
consolidated association.

HELD: Doctrine of estoppel applies when persons assume to form a corporation and exercise
corporate functions and enter into business relations with third persons. Where there are no third
persons involved and the conflict arises only among those assuming to form a corporation, who
therefore know that it has not been registered, there is no corporation by estoppel.

3. International Express Travel v. CA (2000)

The doctrine of corporation by estoppel may apply to:
• a third party - a 3rd party who had dealt with an unincorporated association as a
corporation may be precluded from denying its corporate existence on a suit brought by
the alleged corporation on the contract even if he did not know of the defective
incorporation. 3rd party is considered to have admitted the existence of a corporation by
the fact that he dealt with it as a corporation
• the alleged corporation - when a third person has entered into a contract with an
association which represented itself to be a corporation, the association is estopped from
denying its corporate capacity in a suit against it by such 3rd person. It cannot allege lack
of personality to be sued to evade responsibility on a contract it has entered into and by
virtue of which it has received advantages and benefits

• associates as partners - when business associates fraudulently misrepresents the

existence of a corporation and the 3rd party contacts with the association as a
corporation without knowing the serious defects in its incorporation, such 3rd party may
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sue associates as general partners. Where both the associates and the 3rd party were
ignorant of the defective incorporation, 3rd party cant hold the associates liable since
they were in good faith. If 3rd party knew of defects in incorporation and still dealt with
the corporation, he must be deemed to have chosen to deal with the corporation as such
and should be limited in his recovery to the corporate assets.

4. Loyola Grand Villas Homeowners Assn v. CA (1997)

The Supreme Court held that although the Corporation Code requires the filing of by-laws within
one month after the issuance of the Certificate of Incorporation, it does not expressly provide for
the consequences of non-filing within the said period. Failure to file the by-laws within that period
does not imply the "demise" of the corporation. By-laws may be required by law for an orderly
governance and management of corporations but they are not essential to corporate birth.
Therefore, failure to file them within the period required by law by no means tolls the automatic
dissolution of a corporation.

5. De Leon vs. NLRC (2001)

FISI contracted with FTC for security services. Subsequently, the stockholders of FISI sold all their
participation in the corporation to a new set of stockholders which renamed the corporation MISI.
Afterwards, FTC preterminated its contract of security services with MISI causing petitioner
security guards to lose their employment and file ULP case against FTC, FISI and MISI.

HELD: There was ER-EE relationship between FTC and petitioners. It was shown that FISI was a
mere adjunct of FTC. Records show that FISI and FTC have the same owners and business address,
and FISI provided security services only to FTC. The purported sale of the shares of the former
stockholders to a new set of stockholders who changed the name of the corporation to MISI
appears to be part of a scheme to terminate the services of FISI's security guards posted at the
premises of FTC and bust their newly-organized union which was then beginning to become active
in demanding the company's compliance with Labor Standards laws. Under these circumstances,
the Court cannot allow FTC to use its separate corporate personality to shield itself from liability
for illegal acts committed against its employees

6. Francisco vs. Mejia (2001)

With specific regard to corporate officers, the general rule is that the officer cannot be held
personally liable with the corporation, whether civilly or otherwise, for the consequences of his
acts, if he acted for and in behalf of the corporation, within the scope of his authority and in good
faith. In such cases, the officer's acts are properly attributed to the corporation. However, if it is
proven that the officer has used the corporate fiction to defraud a third party, or that he has acted
negligently, maliciously or in bad faith, then the corporate veil shall be lifted and he shall be held
personally liable for the particular corporate obligation involved.

7. Atrium v. CA (2001)
Atrium Management Corporation filed with RTC an action for collection of the 4 postdated checks
issued by the Hi-cement Corporation, though its signatories de Leon, treasurer, and delas Alas,
chairman of the corporation to a certain ET Henry, and Co, which the latter endorsed to Atrium
for rediscounting.
HELD: The act of issuing was well within the ambit of a valid corporate act, for it was for securing
a loan to finance the activities of the corporation, hence, not an ultra vires act. An ultra vires act
is distinguished from illegal act, the former being voidable which may be enforced by
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performance, ratification, or estoppel, while the latter is void and cannot be validated. SC
however, held de Leon negligent.

8. NAPOCOR v Vera (1989)

NAPOCOR has a pier at its coal plant in Batangas. It did not renew its stevedoring contract at the
plant, but instead, took over the services itself. RTC Judge issued preliminary injunction against
NAPOCOR, saying that it was not empowered by its Charter to engage in stevedoring and arrastre
services.

Held: Under its Charter, NAPOCOR can exercise powers as may be reasonably necessary to carry
out its business of constructing, operating and maintaining power plants, or which, from time to
time, may be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish
said purpose. If act is lawful, and not prohibited, and for the purpose of serving corporate ends,
and reasonably contributes to the promotion of those ends in a substantial sense, it may be
considered within the corporation’s charter powers. Stevedoring services are incidental and
indispensable to unload the coal shipments.

9. Republic of the Philippines vs. Acoje Mining Co. (1963)

Acoje Mining requested the Director of Posts to open a post office in its mining camp for the
benefit of its employee and their families. In a resolution, Acoje agreed to be directly responsible
for the “dishonesty, carelessness, or negligence of the employee it assigns”. Acoje’s employee,
Sanchez, was designated as the postmaster but he later disappeared with 13K of post office funds.
Acoje denied liability on the ground that the resolution was ultra vires-BOD had no authority to
act on the matter.

HELD: The company is estopped from denying liability on the ground that the board resolution is
ultra vires. Assuming arguendo that the resolution is an ultra vires act, the same is not void for it
was approved not in contravention of law, customs, public order and public policy. The term ultra
vires should be distinguished from an illegal act for the former is merely voidable which may be
enforced while the latter is void and cannot be validated.

10. Pirovano v De la Rama Steamship (1954)

Stocks are owned by Don de la Rama, his 2 daughters, and their EEs with nominal shares. One of
the daughters was married to the company president, Enrico Pirovano. While the business grew,
the father distributed his stocks among his 5 daughters and his wife. NDC was also represented in
the BoD because the corp had a debt to it. To secure the debt, all assets were mortgaged to NDC.
Debt was later converted to stock, such that NDC now held 4 of 9 seats in BoD. Such conversion
released the mortgaged assets. Enrico Pirovano died, so the BOD passed a resolution converting
insurance proceeds on his life to stocks for each of his minor children. Approved by SHs. However,
the other SHs realized that they would actually be donating 1.44 M. instead of the 400K they
intended (since the value of the stocks increased), and that Mrs. Pirovano would now have 2x
voting power as her sisters. BOD later changed donation into cash, but would be retained by the
company as a loan, and the interest payable to the children, both amounts to be paid to the
children after debt to NDC paid, and later, when company is in position to meet obligations. Mrs.
Pirovano formally accepted the donation. BOD later approved release of some funds held in trust
for Mrs. Pirovano to buy house in NY. SHs formally ratified the donation. SEC later gave opinion
that donation was void bec it was beyond the scope of the corp’s powers. SHs later voted to
revoke the donation to the Pirovano children.
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Held: 1) Donation was remunerative- for services rendered by Enrico Pirovano

2) Donation was already perfected. Ratified by SHs, and agreed to by NDC, the only creditor.
3) Donation is within scope of the AOI. It is provided that corporation can invest and deal
with moneys not immediately required, in such manner as from time to time may be
determined, and that corporation can aid in any other manner any person of which any
obligation or in which any interest is held by this corporation, or in the affairs of prosperity
of which this corporation has a lawful interest. Corp has given donations to EEs in the past,
and to political campaigns. Assuming donation was ultra vires, donation was ratified,
making the act valid and enforceable. Ultra vires act: outside scope of powers granted to it
by its articles of incorporation. Not necessarily illegal, because ultra vires acts can become
valid by ratification and estoppel.