[G.R. No. 181126. June 15, 2011.] 10.
10. Umale also challenged ASB Realty's personality to recover the subject premises
LEONARDO S. UMALE, [deceased] represented by CLARISSA VICTORIA, JOHN LEO,
GEORGE LEONARD, KRISTINE, MARGUERITA ISABEL, AND MICHELLE
ANGELIQUE, ALL SURNAMED UMALE, petitioners, vs. ASB REALTY CORPORATION,
respondent.
FACTS:
1. This case involves a parcel of land located in Amethyst Street, Ortigas Center,
Pasig City which was originally owned by Amethyst Pearl Corporation (Amethyst
Pearl), a company that is, in turn, wholly-owned by respondent ASB Realty
Corporation (ASB Realty).
2. Amethyst Pearl executed a Deed of Assignment in Liquidation of the subject
premises in favor of ASB Realty in consideration of the full redemption of
Amethyst Pearl's outstanding capital stock from ASB Realty. making ASB Realty
the owner of the subject premises
3. Sometime in 2003, ASB Realty commenced an action in the MTC for unlawful
detainer against petitioner Leonardo S. Umale.
4. ASB Realty alleged that it entered into a lease contract with Umale for the
period June 1, 1999-May 31, 2000. Their agreement was for Umale to conduct a
pay-parking business on the property and pay a monthly rent of P60,720.00.
5. Upon the contract's expiration on continued occupying the premises and paying
rentals.
6. On June 2003, ASB Realty served on Umale a Notice of Termination of Lease
and Demand to Vacate and Pay. ASB Realty stated that it was terminating the
lease effective midnight of June 30, 2003.
7. Umale failed to comply with ASB Realty's demands and continued in possession
of the subject premises, even constructing commercial establishments thereon.
8. Umale admitted occupying the property since 1999 by virtue of a verbal lease
contract but vehemently denied that ASB Realty was his lessor. He was
adamant that his lessor was the original owner, Amethyst Pearl. Since there
was no contract between himself and ASB Realty.
9. In asserting his right to remain on the property based on the oral lease contract
with Amethyst Pearl, Umale interposed that the lease period agreed upon was
"for a long period of time." Umale further claimed that when his oral lease
Issues: Can a corporate officer of ASB Realty (duly authorized by the Board of
contract with Amethyst Pearl ended, they both agreed on an oral contract to sell.
Directors) file suit to recover an unlawfully detained corporate property despite the fact
They agreed that Umale did not have to pay rentals until the sale over the
that the corporation had already been placed under rehabilitation?
subject property had been perfected between them.
considering that ASB Realty had been placed under receivership by SEC and a
rehabilitation receiver had been duly appointed. Under the Interim Rules of
Procedure on Corporate Rehabilitation (Interim Rules), it is the rehabilitation
receiver that has the power to "take possession, control and custody of the
debtor's assets." Since ASB Realty claims that it owns the subject premises, it is
its duly-appointed receiver that should sue to recover possession of the same.
11. ASB Realty replied that it was impossible for Umale to have entered into a
Contract of Lease with Amethyst Pearl in 1999 because Amethyst Pearl had
been liquidated in 1996.
12. MTC dismissed ASB Realty's complaint against Umale without prejudice. It held
that ASB Realty had no cause to seek Umale's ouster from the subject property
because it was not Umale's lessor. MTC agreed with Umale that only the
rehabilitation receiver could file suit to recover ASB Realty's property. Having
been placed under receivership, ASB Realty had no more personality to file the
complaint for unlawful detainer.
13. RTC reversed decision of the MTC. It found sufficient evidence to support the
conclusion that it was indeed ASB Realty that entered into a lease contract with
Umale. With respect to ASB Realty's personality to file the unlawful detainer
suit, the RTC ruled that ASB Realty retained all its corporate powers, including
the power to sue, despite the appointment of a rehabilitation receiver. Citing the
Interim Rules, the RTC noted that the rehabilitation receiver was not granted
therein the power to file complaints on behalf of the corporation. Moreover, the
retention of its corporate powers by the corporation under rehabilitation will
advance the objective of corporate rehabilitation, which is to conserve and
administer the assets of the corporation in the hope that it may eventually be
able to go from financial distress to solvency.
14. Umale filed MR while ASB Realty moved for the issuance of a writ of execution,
the RTC denied reconsideration of its Decision and granted ASB Realty's
Motion for Issuance of a Writ of Execution.
15. Umale then filed his appeal with the CA insisting that the parties did not enter
into a lease contract.
16. Pending the resolution thereof, Umale died and was substituted by his widow
and legal heirs. CA affirmed RTC decision in toto.
The Court resolves the issue in favor of ASB Realty and its officers.
There is no denying that ASB Realty, as the owner of the leased premises, is the real
party-in-interest in the unlawful detainer suit. Real party-in-interest is defined as "the party
who stands to be benefited or injured by the judgment in the suit, or the party entitled to
the avails of the suit.
What petitioners argue is that the corporate officer of ASB Realty is incapacitated to file
this suit to recover a corporate property because ASB Realty has a duly-appointed
rehabilitation receiver. Allegedly, this rehabilitation receiver is the only one that can file the
instant suit.
Corporations, such as ASB Realty, are juridical entities that exist by operation of law. As a
creature of law, the powers and attributes of a corporation are those set out, expressly or
impliedly, in the law. Among the general powers granted by law to a corporation is the
power to sue in its own name. This power is granted to a duly-organized corporation,
unless specifically revoked by another law. The question becomes: Do the laws on
corporate rehabilitation — particularly PD 902-A, as amended and its corresponding rules
of procedure — forfeit the power to sue from the corporate officers and Board of
Directors?
Corporate rehabilitation is defined as "the restoration of the debtor to a position of
successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan more if the corporation continues as a going concern than
if it is immediately liquidated." This concept of preserving the corporation's business as a
going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-
in-place. This means that the debtor corporation (the corporation undergoing
rehabilitation), through its Board of Directors and corporate officers, remains in control of
its business and properties, subject only to the monitoring of the appointed rehabilitation
receiver. The concept of debtor-in-possession, is carried out more particularly in the SEC
Rules, the rule that is relevant to the instant case. It states therein that the interim
rehabilitation receiver of the debtor corporation "does not take over the control and
management of the debtor corporation." Likewise, the rehabilitation receiver that will
replace the interim receiver is tasked only to monitor the successful implementation of the
rehabilitation plan. There is nothing in the concept of corporate rehabilitation that would
ipso facto deprive the Board of Directors and corporate officers of a debtor corporation,
such as ASB Realty, of control such that it can no longer enforce its right to recover its
property from an errant lessee.
To be sure, corporate rehabilitation imposes several restrictions on the debtor corporation.
The rules enumerate the prohibited corporate actions and transactions 64 (most of which
involve some kind of disposition or encumbrance of the corporation's assets) during the
pendency of the rehabilitation proceedings but none of which touch on the debtor
corporation's right to sue.
While the Court rules that ASB Realty and its corporate officers retain their power to sue
to recover its property and the back rentals from Umale, the necessity of keeping the
receiver apprised of the proceedings and its results is not lost upon this Court. Tasked to
closely monitor the assets of ASB Realty, the rehabilitation receiver has to be notified of
the developments in the case, so that these assets would be managed in accordance with
the approved rehabilitation plan.
Puno vs. Puno Enterprises
September 11, 2009
Facts:
Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno
Enterprises, Inc. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an
heir of Carlos L. Puno, initiated a complaint for specific performance against respondent.
Petitioner averred that he is the son of the deceased with the latter’s common-law wife,
Amelia Puno. As surviving heir, he claimed entitlement to the rights and privileges of his
late father as stockholder of respondent. The complaint thus prayed that respondent allow
petitioner to inspect its corporate book, render an accounting of all the transactions it
entered into from 1962, and give petitioner all the profits, earnings, dividends, or income
pertaining to the shares of Carlos L. Puno.
Issue:
Whether or not Joselito Musni Puno as an heir is automatically entitled for the stocks upon
the death of a shareholder.
Held:
Upon the death of a shareholder, the heirs do not automatically become stockholders of
the corporation and acquire the rights and privileges of the deceased as shareholder of
the corporation. The stocks must be distributed first to the heirs in estate proceedings, and
the transfer of the stocks must be recorded in the books of the corporation. Section 63 of
the Corporation Code provides that no transfer shall be valid, except as between the
parties, until the transfer is recorded in the books of the corporation.During such interim
period, the heirs stand as the equitable owners of the stocks, the executor or administrator
duly appointed by the court being vested with the legal title to the stock.Until a settlement
and division of the estate is effected, the stocks of the decedent are held by the
administrator or executor. Consequently, during such time, it is the administrator or
executor who is entitled to exercise the rights of the deceased as stockholder
Feliciano v. COA
Feliciano vs. Commission on Audit
November 1, 2011 by PinayLaw Leave a Comment
GR 147402, 14 January 2004
Facts: A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII
audited the accounts of the Leyte Metropolitan Water District (LMWD). Subsequently,
LMWD received a letter from COA dated 19 July 1999 requesting payment of auditing
fees. As General Manager of LMWD, Engr. Ranulfo C. Feliciano sent a reply dated 12
October 1999 informing COA’s Regional Director that the water district could not pay the
auditing fees. Feliciano cited as basis for his action Sections 6 and 20 of PD 198, as well
as Section 18 of RA 6758. The Regional Director referred Feliciano’s reply to the COA
Chairman on 18 October 1999. On 19 October 1999, Feliciano wrote COA through the
Regional Director asking for refund of all auditing fees LMWD previously paid to COA. On
16 March 2000, Feliciano received COA Chairman Celso D. Gangan’s Resolution dated 3
January 2000 denying Feliciano’s request for COA to cease all audit services, and to stop
charging auditing fees, to LMWD. The COA also denied Feliciano’s request for COA to
refund all auditing fees previously paid by LMWD. Feliciano filed a motion for
reconsideration on 31 March 2000, which COA denied on 30 January 2001. On 13 March
2001, Felicaino filed the petition for certiorari.
Issue: Whether a Local Water District (“LWD”) is a government-owned or controlled
corporation.
Held: The Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to government-owned or
controlled corporations created by special charters. The Constitution emphatically
prohibits the creation of private corporations except by a general law applicable to all
citizens. The purpose of this constitutional provision is to ban private corporations created
by special charters, which historically gave certain individuals, families or groups special
privileges denied to other citizens. In short, Congress cannot enact a law creating a
private corporation with a special charter. Such legislation would be unconstitutional.
Private corporations may exist only under a general law. If the corporation is private, it
must necessarily exist under a general law. Stated differently, only corporations created
under a general law can qualify as private corporations. Under existing laws, that general
law is the Corporation Code, except that the Cooperative Code governs the incorporation
of cooperatives. The Constitution authorizes Congress to create government-owned or
controlled corporations through special charters. Since private corporations cannot have
special charters, it follows that Congress can create corporations with special charters
only if such corporations are government-owned or controlled. Obviously, LWDs are not
private corporations because they are not created under the Corporation Code. LWDs are
not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that ―[A]ll corporations organized under this code shall file with
the Securities and Exchange Commission articles of incorporation x x x.‖ LWDs have no
articles of incorporation, no incorporators and no stockholders or members. There are no
stockholders or members to elect the board directors of LWDs as in the case of all
corporations registered with the Securities and Exchange Commission. The local mayor
or the provincial governor appoints the directors of LWDs for a fixed term of office. LWDs
exist by virtue of PD 198, which constitutes their special charter. Since under the
Constitution only government-owned or controlled corporations may have special
charters, LWDs can validly exist only if they are government-owned or controlled. To claim
that LWDs are private corporations with a special charter is to admit that their existence is
constitutionally infirm. Unlike private corporations, which derive their legal existence and
power from the Corporation Code, LWDs derive their legal existence and power from PD
198.
Tuna Processing Inc. v. Philippine Kingford, Inc.
Can a foreign corporation not licensed to do business in the Philippines, but which collects
royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"), co-
patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and
Indonesian Patent No. ID0003911 (collectively referred to as the "Yamaoka Patent"), 6 and
five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish
Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent
Kingford (collectively referred to as the "sponsors"/"licensees")7 entered into a
Memorandum of Agreement (MOA),8pertinent provisions of which read:
1. Background and objectives. The Licensor, co-owner of U.S.Patent No.
5,484,619, Philippine Patent No. 31138, and Indonesian Patent No. ID0003911
xxx wishes to form an alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those patents, and collecting
royalties.
The Sponsors wish to be licensed under the aforementioned patents in order to
practice the processes claimed in those patents in the United States, the
 Philippines, and Indonesia, enforce those patents and collect royalties in
conjunction with Licensor.
xxx
4. Establishment of Tuna Processors, Inc. The parties hereto agree to the
establishment of Tuna Processors, Inc. ("TPI"), a corporation established in the
State of California, in order to implement the objectives of this Agreement.
5. Bank account. TPI shall open and maintain bank accounts in the United
States, which will be used exclusively to deposit funds that it will collect and to
disburse cash it will be obligated to spend in connection with the implementation
of this Agreement.
6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor.
Licensor shall be assigned one share of TPI for the purpose of being elected as
member of the board of directors. The remaining shares of TPI shall be held by
the Sponsors according to their respective equity shares. 9
xxx
The parties likewise executed a Supplemental Memorandum of Agreement10 dated 15
January 2003 and an Agreement to Amend Memorandum of Agreement 11 dated 14 July
2003.
Due to a series of events not mentioned in the petition, the licensees, including
respondent Kingford, withdrew from petitioner TPI and correspondingly reneged on their
obligations.12 Petitioner submitted the dispute for arbitration before the International
Centre for Dispute Resolution in the State of California, United States and won the case
against respondent.
To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City.
The petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.
At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the court denied the
motion for lack of merit,17 respondent sought for the inhibition of Judge Alameda and
moved for the reconsideration of the order denying the motion. 18 Judge Alameda inhibited
himself notwithstanding "[t]he unfounded allegations and unsubstantiated assertions in the
motion."19 Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in turn,
granted respondent’s Motion for Reconsideration and dismissed the petition on the ground
that the petitioner lacked legal capacity to sue in the Philippines.20
Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under
Rule 45, the order of the trial court dismissing its Petition for Confirmation, Recognition,
and Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was correct in so dismissing
the petition on the ground of petitioner’s lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
Sec. 133. Doing business without a license. - No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.
It is pursuant to the aforequoted provision that the court a quo dismissed the
petition. Thus:
Herein plaintiff TPI’s "Petition, etc." acknowledges that it "is a foreign corporation
established in the State of California" and "was given the exclusive right to license or
sublicense the Yamaoka Patent" and "was assigned the exclusive right to enforce the said
patent and collect corresponding royalties" in the Philippines. TPI likewise admits that it
does not have a license to do business in the Philippines.
There is no doubt, therefore, in the mind of this Court that TPI has been doing business in
the Philippines, but sans a license to do so issued by the concerned government agency
of the Republic of the Philippines, when it collected royalties from "five (5) Philippine tuna
processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina
Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc."
This being the real situation, TPI cannot be permitted to maintain or intervene in any
action, suit or proceedings in any court or administrative agency of the Philippines." A
priori, the "Petition, etc." extant of the plaintiff TPI should be dismissed for it does not have
the legal personality to sue in the Philippines.21
The petitioner counters, however, that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with Republic Act No.
9285 (Alternative Dispute Resolution Act of 2004),22the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference
on International Commercial Arbitration in 1958 (New York Convention), and the
UNCITRAL Model Law on International Commercial Arbitration (Model Law),23 as none of
these specifically requires that the party seeking for the enforcement should have legal
capacity to sue. It anchors its argument on the following:
In the present case, enforcement has been effectively refused on a ground not found in
the [Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It is
for this reason that TPI has brought this matter before this most Honorable Court, as it [i]s
imperative to clarify whether the Philippines’ international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by misplaced
technical considerations not found in the relevant laws.24
Simply put, how do we reconcile the provisions of the Corporation Code of the
Philippines on one hand, and theAlternative Dispute Resolution Act of 2004, the New York
Convention and the Model Law on the other?
In several cases, this Court had the occasion to discuss the nature and applicability of
the Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus,
in Koruga v. Arcenas, Jr.,25 this Court rejected the application of the Corporation Code
and applied the New Central Bank Act. It ratiocinated:
Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earlier
case with similar antecedents, we ruled that:
"The Corporation Code, however, is a general law applying to all types of corporations,
while the New Central Bank Act regulates specifically banks and other financial
institutions, including the dissolution and liquidation thereof. As between a general and
special law, the latter shall prevail – generalia specialibus non derogant." (Emphasis
supplied)26
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian
Reform Council,27 this Court held:
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general and special law, the latter shall
prevail—generalia specialibus non derogant.28
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in
this case as the Act, as its title - An Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes - would suggest, is a law especially enacted "to
actively promote party autonomy in the resolution of disputes or the freedom of the party
to make their own arrangements to resolve their disputes."29 It specifically provides
exclusive grounds available to the party opposing an application for recognition and
enforcement of the arbitral award.30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in
the instant petition, we do not see the need to discuss compliance with international
obligations under the New York Convention and theModel Law. After all, both already
form part of the law.
In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York
Convention in the Act by specifically providing:
SEC. 42. Application of the New York Convention. - The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by the said
Convention.
xxx
SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration
proceeding may oppose an application for recognition and enforcement of the arbitral
award in accordance with the procedural rules to be promulgated by the Supreme Court
only on those grounds enumerated under Article V of the New York Convention. Any other
ground raised shall be disregarded by the regional trial court.
It also expressly adopted the Model Law, to wit:
Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International
commercial arbitration shall be governed by the Model Law on International Commercial
Arbitration (the "Model Law") adopted by the United Nations Commission on International
Trade Law on June 21, 1985 xxx."
Now, does a foreign corporation not licensed to do business in the Philippines have legal
capacity to sue under the provisions of the Alternative Dispute Resolution Act of 2004?
We answer in the affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party
in an application for recognition and enforcement of the arbitral award may raise only
those grounds that were enumerated under Article V of the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request of
the party against whom it is invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under
the law applicable to them, under some incapacity, or the said
agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law of the
country where the award was made; or
(b) The party against whom the award is invoked was not given proper
notice of the appointment of the arbitrator or of the arbitration
proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not
falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to
arbitration, provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, that part of
the award which contains decisions on matters submitted to arbitration
may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure
was not in accordance with the agreement of the parties, or, failing
such agreement, was not in accordance with the law of the country
where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been
set aside or suspended by a competent authority of the country in
which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the
competent authority in the country where recognition and enforcement is sought
finds that:
(a) The subject matter of the difference is not capable of settlement by
arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to
the public policy of that country.
Clearly, not one of these exclusive grounds touched on the capacity to sue of the party
seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute
Resolution,31 which was promulgated by the Supreme Court, likewise support this
position.
Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may
petition the court to recognize and enforce a foreign arbitral award." The contents of such
petition are enumerated in Rule 13.5.32 Capacity to sue is not included. Oppositely, in the
Rule on local arbitral awards or arbitrations in instances where "the place of arbitration is
in the Philippines,"33 it is specifically required that a petition "to determine any question
concerning the existence, validity and enforceability of such arbitration
agreement"34 available to the parties before the commencement of arbitration and/or a
petition for "judicial relief from the ruling of the arbitral tribunal on a preliminary question
upholding or declining its jurisdiction"35 after arbitration has already commenced should
state "[t]he facts showing that the persons named as petitioner or respondent have legal
capacity to sue or be sued."36
Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral
award, we deny availment by the losing party of the rule that bars foreign corporations not
licensed to do business in the Philippines from maintaining a suit in our courts. When a
party enters into a contract containing a foreign arbitration clause and, as in this case, in
fact submits itself to arbitration, it becomes bound by the contract, by the arbitration and
by the result of arbitration, conceding thereby the capacity of the other party to enter into
the contract, participate in the arbitration and cause the implementation of the result.
Although not on all fours with the instant case, also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion
in Asset Privatization Trust v. Court of Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and
judicial circles here and abroad. If its tested mechanism can simply be ignored by an
aggrieved party, one who, it must be stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will destroy the very essence of
mutuality inherent in consensual contracts.38
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not
because it is favored over domestic laws and procedures, but because Republic Act No.
9285 has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the court a quo correctly
observed that the Model Law, not the New York Convention, governs the subject arbitral
award,39 petitioner may still seek recognition and enforcement of the award in Philippine
court, since the Model Law prescribes substantially identical exclusive grounds for
refusing recognition or enforcement.40
Premises considered, petitioner TPI, although not licensed to do business in the
Philippines, may seek recognition and enforcement of the foreign arbitral award in
accordance with the provisions of the Alternative Dispute Resolution Act of 2004.
Koruga vs. Arcenas
Facts:
Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On
August 20, 2003, she filed a complaint before the Makati RTC against its board of
directors for allegedly engaging in unsafe and fraudulent banking practices.
The complaint filed by Koruga charged the defendants with violation of Section 31 to 34 of
the Corporation Code which prohibit self-dealing and conflict of interest of directors and
officers; invoked her right to inspect the corporation’s records under Section 74 of the
Corporation Code and prayed for receivership and creation of a management committee
pursuant to the Rules of Civil Procedure, the Securities Regulation Code, the Interim
Rules of Procedure Governing Intra-Corporate Controversies, the General Banking Law of
2000, and the New Central Bank Act.
She claimed that Banco Filipino's management had:
 engaged in unsafe, unsound, and even fraudulent banking practices;
 engaged in self-dealing;
 violated banking laws prohibiting or limiting DOSRI transactions;
 put the bank and its depositors in jeopardy.
The respondents, however, questioned the jurisdiction of the trial court, and even went to
as far as getting an injunction from the Court of Appeals.
In a decision dated July 20, 2005, the appellate court directed the trial court to proceed
with the hearings, having found no grave abuse of discretion when it accepted the case.
The case was eventually brought to the Supreme Court.
Issue: WON the RTC has jurisdiction over the case.
Held: RTC has no jurisdiction.
The SC quashed Koruga’s complaint filed at the Makati City Regional Trial Court, saying
the latter has no jurisdiction to hear complaints on a bank’s operations. The court pointed
out that it is the BangkoSentralngPilipinas and not the RTC which has jurisdiction over the
case.
In its decision, the high court said: "It is clear that the acts complained of pertain to the
conduct of Banco Filipino’s banking business... It is the government’s responsibility to see
to it that the financial interests of those who deal with banks and banking institutions... are
protected... That task is delegated to the BSP..."
The General Banking Law of 2000, which provides powers to the Monetary Board,
restricts the bank exposures of directors and its officers. It also allows the Monetary Board
to determine whether a bank is conducting business in an unsafe manner.
The New Central Bank Act, on the other hand, provides the Monetary Board with the
power to impose administrative sanctions on the officers and board members of erring
banks.
"[Under the law], it is the Monetary Board that exercises exclusive jurisdiction over
proceedings for receivership of banks.‖ Thus, the court’s jurisdiction could only have been
invoked after the Monetary Board had taken action on the matter and only on the ground
that the action taken was in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction.
Finally, there is one other reason why Koruga’s complaint before the RTC cannot prosper.
Given her own admission – and the same is likewise supported by evidence – that she is
merely a minority stockholder of Banco Filipino, she would not have the standing to
question the Monetary Board’s action. Section 30 of the New Central Bank Act provides:
The petition for certiorari may only be filed by the stockholders of record representing the
majority of the capital stock within ten (10) days from receipt by the board of directors of
the institution of the order directing receivership, liquidation or conservatorship.
All the foregoing discussion yields the inevitable conclusion that the CA erred in upholding
the jurisdiction of, and remanding the case to, the RTC. Given that the RTC does not have
jurisdiction over the subject matter of the case, its refusal to dismiss the case on that
ground amounted to grave abuse of discretion.
Mangila v. CA
Petitioner Mangila hired the freight service of private respondent Guina for the
importation of seafoods to USA. Petitioner failed to pay the services rendered by
Air Swift International a business operating under the sole proprietorship of Guina.
The latter filed a case for collection of money but summons were unsuccessfully
served thus a writ of Preliminary Attachment was issued. Petitioner filed a motion
to discharge without submitting herself to the jurisdiction of the court. The CA
upheld the validity of the issuance of the writ attachment and sustained the filing of
the case in Pasay as the proper venue, despite stipulation in the contract that in
case of complaints, cases should be filed in Makati City. Pasay City is the office
location of Air Swift.
Issue:
Whether or not the venue of the swift was properly laid when it was filed in Pasay
City where the sole proprietorship business of the respondent was located.
Held:
A mere stipulation on the venue of an action is not enough to preclude the parties
from bringing a case in other venues. The partiers must be able to show that the
stipulation is exclusive. In the present case… there are no qualifying or restrictive
words in the invoice that would evince the intention of the parties that Makati is the
only or exclusive venue where the action would be instituted. Nevertheless, we hold
that Pasay is not the proper venue.
In this case it was established that petitioner resides in Pampanga while
respondent resides in Parañaque. The case was filed in Pasay where the business
is located.
A sole proprietorship does not possess a juridical personality separate and distinct
from the personality of the owner of the enterprise… The law does not vest a
separate legal personality on the sole proprietorship to empower it to file or defend
an action in court. Thus, not being vested with legal personality to file this case, the
sole proprietorship is not the plaintiff but Guina herself.
Liban vs. Gordon (2009)
Ponente: Carpio, J.
Facts:
Petitioners are officers of the Board of Directors of the QC Red Cross Chapter while
Respondent is the Chairman of the Philippine National Red Cross (PNRC) Board of
Governors.
Petitioners allege that by accepting the chairmanship of the PNRC Board of
Governors, respondent has ceased to be a member of the Senate - Sec. 13, Art. VI, 1987
Consti: No Senator or Member of the HoR may hold any other office/employment in the
Gov’t, or any subdivision, agency, or instrumentality thereof, including gov’t-owned or
controlled corporations or their subsidiaries, during his term w/o forfeiting his seat. Neither
shall he be appointed to any office which may have been created or the emoluments
thereof increased during the term for which he was elected).
Petitioners cite Camporedondo v. NLRC which held that PNRC is a gov’t-owned or
controlled corporation. Flores v. Drilon held that incumbent national legislators lose their
elective posts upon their appointment to another government office.
Respondent:
 Petitioners have no standing to file petition w/c appears to be an action for quo
warranto – they do not claim to be entitled to the Senate office of respondent.
 Sec. 11, Rule 66, Rules of Civil Procedure: action should be commenced w/in 1 year
after the cause of public officer’s forfeiture of office – respondent has been working as
a Red Cross volunteer for 40 yrs
 Petitioners cannot raise a constitutional question as taxpayers – no claim that they
suffered some actual damage/threatened injury or illegal disbursement of public funds
 If petition is for declaratory relief, SC has no jurisdiction  original jurisdiction in RTC
 PNRC is not a gov’t owned/controlled corporation
 Sec. 13, Art. VI of Consti does not apply because volunteer service to PNRC is not an
office/employment
Petitioners: present petition is a taxpayer’s suit questioning unlawful disbursement of
funds considering that respondent has been drawing his salaries and other compensation
as a Senator even if he is no longer entitled to his office. Court has jurisdiction because it
involves a legal/constitutional issue of transcendental importance.
Issues, Holding & Ratio:
WON petitioners have standing.
SC: NO. The petition is an action for quo warranto (Sec. 1, Rule 66, Rules of Court – an
action for the usurpation of a public office against a public officer who does or suffers an
act which constitutes a ground for forfeiture of his office). See facts for petitioner’s
allegations. Petitioners do not claim to be entitled to the Senate office of respondent.
WON PNRC is a Private or Government-Owned or Controlled Corporation.
SC: PNRC is a Private Corporation.
May 22, 1947 – Pres. Manuel Roxas signed RA 95 (PNRC Charter) adhering to the
Geneva Convention of July 27, 1929. PNRC is:
- A non-profit, donor-funded, voluntary, humanitarian organization whose mission is to
bring timely, effective, and compassionate humanitarian assistance for the most
vulnerable w/o consideration of nationality, race, religion, gender, social status, or
political affiliation.
- A member of National Society of the International Red Cross and Red Crescent
Movement. 7 Fundamental Principles: Humanity, Impartiality, Neutrality,
Independence, Voluntary Service, Unity, Universality.
- Must be autonomous, neutral and independent; not appear to be instrument/agency
that implements gov’t policy to merit the trust of all and effectively carry out its mission
– therefore, it cannot be owned/controlled by the gov’t
The Philippine gov’t does not own the PNRC – does not have gov’t assets and does
not receive any appropriation from the Congress. It is financed primarily by contributions
from private individuals/entities obtained through solicitation campaigns organized by its
Board of Governors (Sec. 11, PNRC Charter).
The gov’t does not control the PNRC. Only 6 of the 30 members of the PNRC Board
of Governors are appointed by the President of the Philippines (Sec. 6, PNRC Charter). A
majority of 4/5 of the PNRC Board are elected/chosen by the private sector members of
the PNRC.
The PNRC Chairman is not appointed by the President or any subordinate gov’t
official, therefore, he is not an official/employee of the Philippine Government. Sec. 16,
Art. VII of Consti – President appoints all officials & employees in the Executive branch
whose appointments are vested in the President by the Consti or by law. President also
appoints those whose appointments are not otherwise provided by law. The law may also
authorize the ―heads of deparments, agencies, commissions, or boards‖ to appoint
officers lower in rank.
The vast majority of the thousands of PNRC members are private individuals,
including students and foreigners; those contribute to the annual fund campaign of the
PNRC (Sec. 5, PNRC Charter amended by PD 1264).
Sec. 2(13) of he Introductory Provisions of the Administrative Code of 1987: A gov’t-
owned or controlled corporation must be owned by the gov’t, and in case of a stock
corporation, at least a majority of its capital stock must be owned by the gov’t. In case of a
non-stock corporation, at least a majority of the members must be gov’t officials holding
such membership by appointment/designation by the gov’t.
WON the office of the PNRC Chairman is a gov’t office or an office in a government-
owned or controlled corporation for purposes of the prohibition in Sec. 13, Art. VI of
Consti.
SC: The office of the PNRC Chairman is a private office. The President cannot review,
reverse or modify the decisions/actions of the PNRC Board and the PNRC Chairman.
Only the PNRC Board can review, reverse or modify the decisions/actions of the PNRC
Chairman.
*The PNRC Charter is Violative of the Constitutional Proscription against the
Creation of Private Corporations by Special Law
1935 (Sec. 7 was in force when PNRC was created by special character on March 22,
1947), 1973 & 1987 (Sec. 16) Constitutions provide that: The Congress shall not, except
by general law, provide for the formation, organization, or regulation of private
corporations. Gov’t-owned or controlled corporations may be created/established by
special charters in the interest of the common good and subject to the test of economic
viability.
Feliciano v. CoA – Sec. 16 of 1987 Consti bans private corporations to be created by
special charters, which historically gave individuals, families or groups special privileges
denied to other citizens.
PNRC was created through a special charter, however, the elements of gov’t
ownership and control (e.g. capital assets and operating funds from gov’t) are clearly
lacking in the PNRC. It therefore cannot be considered a gov’t-owned or controlled
corporation.
In creating PNRC as a corporate entity, Congress was in fact creating a private
corporation, which is not exempt from constitutional prohibition (Sec. 16 above) even as a
non-profit/charitable corporation.
PNRC Charter insofar as it creates the PNRC as a private corporation and grants it
corporate powers is void for being unconstitutional  Sec. 1-13 are void. Other provisions
remain valid as they can be considered as a recognition by the State that PNRC is the
local National Society of the International Red Cross and Red Crescent Movement and
thus entitled to the benefits, exemptions and privileges set forth in the PNRC Charter.
They also implement the Phil. Gov’t’s treaty obligations based on the Geneva
Conventions.
Judgment: Office of the PNRC Chairman declared not a government office.
Dissent: Nachura, J.
The petition is one for prohibition and petitioners have legal standing as
citizens and taxpayers. The remedy sought is preventive and restrictive, an injunction
against an alleged continuing violation of the fundamental law. They raise a constitutional
issue, w/o claiming any entitlement to either the Senate seat or chairmanship of PNRC.
The Court has full authority and bounden duty to assume jurisdiction to determine WON
other branches of gov’t have kept themselves w/in the limits of the Consti & laws and have
not abused discretion given them.
PNRC is a gov’t-owned or controlled corporation (GOCC). Its charter does not
violate the constitutional proscription against creation of private corporations by
special law. PNRC was incorporated under RA 95, a special law. It cannot be anything
but a GOCC. PNRC was not impliedly converted into a private corporation simply because
its charter was amended to vest in it authority to secure loans, be exempted from payment
of all duties, tax fees, etc.
The use of Sec. 2(13) of Introductory Provisions of Administrative Code of 1987 by the
ponencia to define a GOCC does not pronounce a definition of a GOCC that strays from
Sec. 16, Art. XII of Consti. It merely declares that a GOCC may either be a stock or non-
stock corporation.
Sec. 1 of PNRC Charter – PNRC is officially designated to assist the RP in
discharging the obligations set forth in the Geneva Conventions – therefore, it is engaged
in the performance of the gov’ts public functions.
PNRC is endowed w/ corporate powers. It administers special funds – contributions of
members, aid given by gov’t, supported by PCSO and LGUs. It submits annual reports
receipts and disbursement to the President.
ANRC (precursor of PNRC) is considered a federal instrumentality – immunity from
state taxation, subjected to governmental supervision & regular financial audit, principal
officer appointed by the President – but remains an independent, volunteer-led org. No
basis to assume that it cannot merit the trust of all and cannot effectively carry out mission
as a National Red Cross Society. Separatists & insurgents do not consider them as the
enemy but as the entity to turn to in the event of injury.
Considering that PNRC is a GOCC, its charter does not violate the constitutional
provision (Sec. 16, Art. XII).
 To declare Sec. 1 of PNRC Charter (creation and incorporation of the org) invalid and
the rest valid is to reach an absurd situation in w/c obligations are imposed on and a
framework for its operation is laid down for a legally non-existing entity. Sec. 2-17 of RA
95 are not separable from Sec. 1 – cannot stand independently – no separability clause.
Presumption of constitutionality of law is presumed. There is no clear showing that the
PNRC Charter runs counter to the consti. All reasonable doubts should be resolved in
favor of the constitutionality of the statute.
Deleterious effects will result if PNRC is declared a private corporation – employees
will no longer be covered by the GSIS; it can no longer be extended tax exemptions and
official immunity; and cannot anymore be given support, financial or otherwise, by the
National Gov’t, LGUs, and PCSO. The Court must not arbitrarily declare a law
unconstitutional just to save a single individual from unavoidable consequences of his
transgression of the Consti even if done in good faith.
Sen. Gordon’s continuous occupancy of 2 incompatible positions is a clear
violation of the Consti (Sec. 13, Art. VI). The language in the provision is unambiguous;
requires no in-depth construction. A position held in an ex officio capacity (a second post
held by virtue of the functions of the first office) does not violate such constitutional
proscription. The chairmanship of the PNRC Board is not held in an ex officio capacity by
a member of Congress.
Vote to grant Petition.
Sawadjaan v. Court of Appeals
GR NO. 141735 June 8, 2005
Chico- Nazario, J.:
Facts:
Sappari K. Sawadjaan was among the first employees of the Philippine Amanah Bank
(PAB) when it was created. He rose through the ranks, working his way up from his initial
designation as security guard.
In February 1988, while still designated as appraiser/investigator, Sawadjaan was
assigned to inspect the properties offered as collaterals by Compressed Air Machineries
and Equipment Corporation (CAMEC) for a credit line of Five Million Pesos secure by
REM over the latter’s poperties. On the basis of his Inspection and Appraisal Report, the
PAB granted the loan application.
In the meantime, Sawadjaan was promoted to Loans Analyst I.
In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing
P.D. No. 264 (which created the PAB). By virtue of which all assets, liabilities and capital
accounts of the PAB were transferred to the AIIBP, and the existing personnel of the PAB
were to continue to discharge their functions unless discharged. In the ensuing
reorganization, Sawadjaan was among the personnel retained by the AIIBP.
When CAMEC failed to pay despite the given extension, the bank, now referred to as the
AIIBP, discovered that TCT No. N-130671 was spurious, the property described therein
non-existent, and that the property covered by TCT No. C-52576 had a prior existing
mortgage in favor of one Divina Pablico.
The Board of Directors of the AIIBP created an Investigating Committee to look into the
CAMEC transaction. They found petitioner guilty of conduct prejudicial to the best interest
of the service. The board suspended the petitioner, prompting the latter to appeal the
decision citing AIIBP’s lack of legal standing to sue since it was not able to file its by-laws
within the prescribed period.
Issue:
Whether a corporation which failed to file its by-laws within the prescribed period ipso
facto lose its power as such
Held:
NO. At the very least, by its failure to submit its by-laws on time, the AIIBP may be
considered a de facto corporation whose right to exercise corporate powers may not be
inquired into collaterally in any private suit to which such corporations may be a party.
Moreover, a corporation which has failed to file its by-laws within the prescribed period
does not ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of
the Certificate of Registration of Corporations, details the procedures and remedies that
may be availed of before an order of revocation can be issued. There is no showing that
such a procedure has been initiated in this case.
Gamboa v. Teves, GR No. 176579, June 28, 2011
652 SCRA 690
definition of the term capital to satisfy the nationality requirement under Sec. 11, Art. XII
FACTS:
PLDT was granted a franchise to engage in the telecommunications business in 1928
through Act. No. 3436. During Martial Law 26 percent of the outstanding common shares
were sold by General Telephone and Electronics Corporation (GTE) (an American
company) to Philippine Telecommunications Investment Corporation (PTIC), who in turn
assigned 111,415 shares of stock of PTIC (46 percent of outstanding capital stock) to
Prime Holdings Inc. (PHI). These shares of PTIC were later sequestered by PCGG and
adjudged by the court to belong to the Republic.
54 percent of PTIC shares were sold to Hong Kong-based firm First Pacific, and the
remaining 46 percent was sold through public bidding by the Inter-Agency Privatization
Council, and eventually ended up being bought by First Pacific subsidiary Metro Pacific
Asset Holdings Inc. (MPAH) after the corporation exercised it’s right of first refusal. The
transaction was an indirect sale of 12 million shares or 6.3 percent of the outstanding
common shares of PLDT, making First Pacific’s common shareholdings of PLDT to 37
percent and the total common shareholdings of foreigners in PLDT to 81.47 percent.
Japanese NTT DoCoMo owns 51.56 percent of the other foreign shareholdings/equity.
Petitioner Gamboa, alleged that the sale of 111,415 shares to MPAH violates Sec. 11 of
Art. XII of the Constitution, which limits foreign ownership of the capital of a public utility to
not more than 40 percent.
ISSUE:
(1) Whether petitioner’s choice of remedy was proper?
(2) Whether the term ―capital‖ under Sec. 11, Article XII of the Constitution refers only to
the total common shares or to the total outstanding stock of PLDT (public utility)?
HELD:
(1) NO. However, since the threshold and purely legal issue on the definition of the term
―capital‖ in Section 11, Article XII of the Constitution has far-reaching implications to the
national economy, the Court treats the petition for declaratory relief as one for mandamus.
It is well-settled that this Court may treat a petition for declaratory relief as one for
mandamus if the issue involved has far-reaching implications.
(2) 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, and thus in the present case only to
common shares, and not to the total outstanding capital stock comprising both common
and non-voting preferred shares. The SC directed the SEC to apply this definition in
determining what was the extent of allowable foreign ownership in PLDT, and in
case of violation, impose the appropriate penalty under the law.
Consistent with the constitutional mandate that the ―State shall develop a self-reliant and
independent national economy effectively controlled by Filipinos,‖ the term "capital"
means the outstanding capital stock entitled to vote (voting stock), coupled with beneficial
ownership, both of which results to "effective control."
"Mere legal title is insufficient to meet the 60 percent Filipino owned ―capital‖ required in
the Constitution for certain industries. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is required." In this
case, such twin requirements must apply uniformly and across the board to all classes of
shares comprising the capital. Thus, "the 60-40 ownership requirement in favor of Filipino
citizens must apply separately to each class of shares, whether common, preferred non-
voting, preferred voting or any other class of shares." This guarantees that the ―controlling
interest‖ in public utilities always lies in the hands of Filipino citizens.
A broader definition would unjustifiably disregards who owns the all-important voting
stock, which necessarily equates to control of the public utility would be contrary to Sec.
11, Art. XII, a self-executing provision of the Constitution.
A similar definition is found in Section 10, Article XII of the Constitution, the Foreign
Investments Act of 1991 and it’s IRR, Regulation of Award of Government Contracts or
R.A. No. 5183, Philippine Inventors Incentives Act or R.A. No. 3850, Magna Carta for
Micro, Small and Medium Enterprises or R.A. No. 6977, Philippine Overseas Shipping
Development Act or R.A. No. 7471, Domestic Shipping Development Act of 2004 or R.A.
No. 9295, Philippine Technology Transfer Act of 2009 or R.A. No. 10055, and Ship
Mortgage Decree or P.D. No. 1521.
VELASCO (Separate Dissenting Opinion)
The present petition partakes of a collateral attack on PLDT’s franchise as a public utility
with petitioner pleading as ground PLDT’s alleged breach of the 40% limit on foreign
equity. Such is not allowed. As discussed in PLDT v. National Telecommunications
Commission, a franchise is a property right that can only be questioned in a direct
proceeding.
(1) The intent of the framers of the Constitution was not to limit the application of the word
―capital‖ to voting or common shares alone. Constitutional Commission records show that
by using the word ―capital,‖ the framers of the Constitution adopted the definition or
interpretation that includes all types of shares, whether voting or non-voting.
(2) Cassus Omissus Pro Omisso Habendus Est––a person, object or thing omitted must
have been omitted intentionally. In this case, the intention of the framers of the
Constitution is very clear––to omit the phrases ―voting stock‖ and ―controlling interest.‖
(3) The FIA should also be read in harmony with the Constitution. Since the Constitution
 only provides for a single requirement for the operation of a public utility under Sec. 11,
i.e., 60% capital must be Filipino-owned, a mere statute cannot add another requirement.
Otherwise, such statute may be considered unconstitutional. Accordingly, the phrase
―entitled to vote‖ should not be interpreted to be limited to common shares alone or those
shares entitled to vote in the election of members of the Board of Directors.
(4) Further, the FIA did not say ―entitled to vote in the management affairs of the
corporation‖ or ―entitled to vote in the election of the members of the Board of Directors.‖
Verily, where the law does not distinguish, neither should We. Hence, the proper
interpretation of the phrase ―entitled to vote‖ under the FIA should be that it applies to all
shares, whether classified as voting or non-voting shares.
(5) Additionally, control is another inherent right of ownership. The circumstances
enumerated in Sec. 6 of the Corporation Code clearly evince this. It gives voting rights to
the stocks deemed as non-voting as to fundamental and major corporate changes.
Thus, the issue should not only dwell on the daily management affairs of the corporation
but also on the equally important fundamental changes that may need to be voted on.
(6) The SEC rules, opinions and jurisprudence use the ―control test‖, which requires that
the nationality of a corporation is determined by the total outstanding capital stock
irrespective of the number of shares, and ―capital‖ denotes the total shares subscribed
and paid irrespective of their nomenclature.
(7) Lastly, the last sentence of Sec. 11, Art. XII limits the participation of the foreign
investors in the governing body to their proportionate share in the capital of the
corporation.
ABAD (Dissenting Opinion)
(1) Authority to define and interpret the meaning of ―capital‖ in Sec. 11, Art. XII belongs to
Congress as part of it’s policy making powers, as the power to authorize and control a
public utility is a prerogative of Congress. Sec. 11, Art. XII is no self-executing and
requires Congressional action to clarify it’s meaning. FIA is restricted to certain areas
of investment and should not be construed to clarify the meaning of ―capital‖ under the
constitutional provision as they are rules which apply to future investors.
(2) ―Capital‖ refers to the entirety of the corporation’s outstanding voting stock as, first, the
40 percent limit (if held only to preferred shareholders) would render meaningless the
fourth sentence which limits foreign participation in the governing body of public
utilities, and, second, amicus curiae Dr. Villegas, Chairman of the Committee of
National Economy, said that the term ―capital‖ did not distinguish among the classes
of shares. In both economic and business terms, capital always meant the entire
shares of stock. Further, Philippine policy on foreign ownership already discourages
foreign investments and to impose additional restrictions would aggravate economic
growth.
Sec. 11, Article XII already provides 3 limitations on foreign participation in public utilities
and the Court need not add more by restricting the definition of capital.
Donnina Halley vs. Printwell, Inc.
Facts:
o BMPI (Business Media Philippines Inc.) is a corporation under the control of its
stockholders, including Donnina Halley.
o In the course of its business, BMPI commissioned PRINTWELL to print
Philippines, Inc. (a magazine published and distributed by BMPI)
o PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a
period of 9 mos. BMPI placed several orders amounting to 316,000.
o However, only 25,000 was paid hence a balance of 291,000
o PRINTWELL sued BMPI for collection of the unpaid balance and later on
impleaded BMPI’s original stockholders and incorporators to recover on their
unpaid subscriptions.
o It appears that BMPI has an authorized capital stock of 3M divided into 300,000
shares with P10 par value.
o Only 75,000 shares worth P750,000 were originally subscribed of which
P187,500 were paid up capital.
o Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.
Halley contends that:
1. They all had already paid their subscriptions in full
2. BMPI had a separate and distinct personality
3. BOD and SH had resolved to dissolve BMPI
RTC and CA
o Defendant merely used the corporate fiction as a cloak/cover to create an
injustice (against PRINTWELL)
 o Rejected allegations of full payment in view of irregularity in the issuance of ORs
(Payment made on a later date was covered by an OR with a lower serial
number than payment made on an earlier date.
Issue: WON a stockholder who was in active management of the business of the
corporation and still has unpaid subscriptions should be made liable for the debts
of the corporation by piercing the veil of corporate fiction
Held: YES! Such stockholder should be made liable up to the extent of her unpaid
subscription
Ratio:
 It was found that at the time the obligation was incurred, BMPI was under the
control of its stockholders who know fully well that the corporation was not in a
position to pay its account (thinly capitalized).
 And, that the stockholders personally benefited from the operations of the
corporation even though they never paid their subscriptions in full.
The stockholders cannot now claim the doctrine of corporate fiction otherwise (to deny
creditors to collect from SH) it would create an injustice because creditors would be at a
loss (limbo) against whom it would assert the right to collect.
On piercing the veil:
Although the corporation has a personality separate and distinct from its SH, such
personality is merely a legal fiction (for the convenience and to promote the ends of
justice) which may be disregarded by the courts if it is used as a cloak or cover for fraud,
justification of a wrong, or an alter ego for the sole benefit of the SH.
As to the Trust Fund Doctrine:
 The RTC and CA correctly applied the Trust Fund Doctrine
 Under which corporate debtors might look to the unpaid subscriptions for the
satisfaction of unpaid corporate debts
 Subscriptions to the capital of a corporation constitutes a trust fund for the
payment of the creditors (by mere analogy) In reality, corporation is a simple
debtor.
 Moreover, the 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 valuable consideration, or fraudulently, to the prejudice of the
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.
The trust fund doctrine is not limited to reaching the SH’s 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.
Prince Transport Inc. v. Garcia Herein respondents were employees of Prince
Transport, Inc. (PTI), a company engaged in the business of transporting passengers by
land. They were hired either as drivers, conductors, mechanics or inspectors, except for
respondent Diosdado Garcia (Garcia), who was assigned as Operations Manager.
Respondents decided to form a union for their mutual aid and protection. However, they
were transferred to one of its sub-companies, Lubas Transport (Lubas) before they were
able to continue the formation of the said union.
Despite such transfer, the schedule of the respondents, as well as their company
identification cards, were issued by PTI. Their daily time records, tickets and reports were
also filed at the PTI office. Likewise, all their claims for salaries were transacted at the
same office.
Later, the business of Lubas deteriorated because of the refusal of PTI to maintain and
repair the units being used therein, which resulted in the virtual stoppage of its operations
and respondents' loss of employment.
Respondents consequently filed a complaint charging petitioners with illegal dismissal,
unfair labor practice and illegal deductions and praying for the award of premium pay for
holiday and rest day, holiday pay, service leave pay, 13th month pay, moral and
exemplary damages and attorney's fees.
Petitioners, on the other hand, contended that respondents were no longer their
employees, since they all transferred to Lubas at their own request. Petitioners had
nothing to do with the management and operations of Lubas as well as the control and
supervision of the latter's employees. Petitioners were not aware of the existence of any
union in their company and came to know of the same only in June 1998 when they were
served a copy of the summons in the petition for certification election filed by the union.
That before the union was registered, the complaint was already filed. The real motive in
the filing of the complaints was because PTI asked respondents to vacate the bunkhouse
where the respondents and their respective families were staying because PTI wanted to
renovate the same.
The Labor Arbiter ruled that petitioners were not guilty of unfair labor practice in the
absence of evidence to show that they violated respondents’ right to self-organization.
The Labor Arbiter also held that Lubas is the respondents’ employer and that it (Lubas) is
an entity which is separate, distinct and independent from PTI. Nonetheless, the Labor
Arbiter found that Lubas is guilty of illegally dismissing respondents from their
employment.
Respondents filed an appeal with the National Labor Relations Commission (NLRC)
praying, among others, that PTI should also be held equally liable as Lubas.
Here, the NLRC sustained the Decision of the Labor Arbiter.
Respondents then filed a petition for certiorari with the CA assailing the Decision and
Resolution of the NLRC.
The CA ruled that petitioners were guilty of unfair labor practice; that Lubas is a mere
instrumentality, agent conduit or adjunct of PTI; and that petitioners’ act of transferring
respondents’ employment to Lubas is indicative of their intent to frustrate the efforts of
respondents to organize themselves into a union.
Petitioners went to the Supreme Court (SC) and filed a petition for review on certiorari.
They argued that the CA should have respected the findings of the Labor Arbiter and the
NLRC; that it should not have given due course to the petition for certiorari with respect to
several respondents who failed to file an appeal to the NLRC and considering that only
one of the respondents executed and verified the said petition; that Petitioners Prince
Transport, Inc. and Mr. Renato Claros, and Lubas Transport are separate and distinct
entities; and that reinstatement should not have been awarded as it was not one of the
issues raised in their petition for certiorari.
Did the CA err in applying the doctrine of piercing the corporate veil with respect to
Lubas?
The CA did not err in applying the doctrine of piercing the corporate veil with respect to
Lubas.
Lubas is a mere agent, conduit or adjunct of PTI. A settled formulation of the doctrine of
piercing the corporate veil is that when two business enterprises are owned, conducted
and controlled by the same parties, both law and equity will, when necessary to protect
the rights of third parties, disregard the legal fiction that these two entities are distinct and
treat them as identical or as one and the same. It may be true that Lubas is a single
proprietorship and not a corporation. However, petitioners’ attempt to isolate themselves
from and hide behind the supposed separate and distinct personality of Lubas so as to
evade their liabilities is precisely what the classical doctrine of piercing the veil of
corporate entity seeks to prevent and remedy. In the present case it was Prince Transport
who made the decision to transfer its employees to Lubas. Prince Transport never
regarded Lubas Transport as a separate entity, as it admits to having referred to said
entity as ―Lubas operations.‖ Moreover, it admits that it did not transfer the employees for
it ―assigned‖ the respondents. Lastly, the existing funds and 201 file of the employees
were turned over not to a new company but a ―new management.‖ PTI even exercised the
decision as to which employees shall work in Lubas. What is telling is the fact that PTI
admitted that Lubas is one of its sub-companies. In addition, PTI, in its letters to its
employees who were transferred to Lubas, referred to the latter as its ―New City
Operations Bus.‖ Moreover, petitioners failed to refute the contention of respondents that
despite the latter’s transfer to Lubas of their daily time records, reports, daily income
remittances of conductors, schedule of drivers and conductors were all made, performed,
filed and kept at the office of PTI. In fact, respondents’ identification cards bear the name
of PTI.
Sarona vs NLRC 2012
Facts:
 Petitioner, a security guard in Sceptre since April 1976, was asked by Sceptre’s
operations manager on June 2003, to submit a resignation letter as a
requirement for an application in Royale and to fill up an employment application
form for the said company. He was then assigned at Highlight Metal Craft Inc.
from July 29 to August 8, 2003 and was later transferred to Wide Wide World
Express Inc. On September 2003, he was informed that his assignment at
WWWE Inc. was withdrawn because Royale has been allegedly replaced by
another security agency which he later discovered to be untrue. Nevertheless,
he was once again assigned at Highlight Metal sometime in September 2003
and when he reported at Royale’s office on October 1, 2003, he was informed
 that he would no longer be given any assignment as instructed by Sceptre’s
general manager.
 He thus filed acomplaint for illegal dismissal. The LA ruled in petitioner’s favor
as he found him illegally dismissed and was not convinced by the respondent’s
claim on petitioner’s abandonment.
 Respondents were ordered to pay back wages computed from the day he
was dismissed up to the promulgation of his decision on May 11, 2005.The LA
also ordered for the payment of separation pay but refused to pierce Royale’s
corporate veil.
 Respondents appealed to the NLRC claiming that the LA acted with grave
abuse of discretion upon ruling on the illegal dismissal of petitioner. NLRC
partially affirmed the LA’s decision with regard to petitioner’s illegal dismissal and
separation pay but modified the amount of backwages and limited it to only 3
months of his last month salary reducing P95, 600 to P15, 600 since he worked
for Royale for only 1 month and 3 days.
 Petitioner did not appeal to LA but raised the validity of LA’s findings on piercing
Royale’s corporate personality and computation of his separation pay and such
petition was dismissed by the NLRC. Petitioner elevated NLRC’s decision to the
CA on a petition for certiorari, and the CA disagreed with the NLRC’s decision of
not proceeding to review the evidence for determining if Royale is Sceptre’s
alter ego that would warrant the piercing of its corporate veil.
Issue:
 Whether or not Royale’s corporate fiction should be pierced for the purpose
of compelling it to recognize the petitioner’s length of service with Sceptre and
for holding it liable for the benefits that have accrued to him arising from his
employment with Sceptre.
 Whether or not petitioner’s back wages should be limited to his salary for 3
months
Ruling:
 The doctrine of piercing the corporate veil is applicable on alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
 The respondents’ scheme reeks of bad faith and fraud and compassionate
justice dictates that Royale and Sceptre be merged as a single entity,
compelling Royale to credit and recognize the petitioner’s length of service with
Sceptre. The respondents cannot use the legal fiction of a separate corporate
personality for ends subversive of the policy and purpose behind its creation or
which could not have been intended by law to which it owed its being.
 Also, Sceptre and Royale have the same principal place of business. As early
as October 14, 1994, Aida and Wilfredo became the owners of the property
used by Sceptre as its principal place of business by virtue of a Deed of
Absolute Sale they executed with Roso. Royale, shortly after its incorporation,
started to hold office in the same property. These, the respondents failed to
dispute.
 Royale also claimed a right to the cash bond which the petitioner posted when
he was still with Sceptre. If Sceptre and Royale are indeed separate entities,
Sceptre should have released the petitioner’s cash bond when he resigned and
Royale would have required the petitioner to post a new cash bond in its favor.
 The way on how petitioner was made to resign from Sceptre then later on made
an employee of Royale, reflects the use of the legal fiction of the separate
corporate personality and is an implication of continued employment. Royale is
a continuation or successor or Sceptre since the employees of Sceptre and of
Royale are the same and said companies have the same principal place of
business.
 Because petitioner’s rights were violated and his employer has not changed, he
is entitled to separation pay which must be computed from the time he
was hired until the finality of this decision. Royale is also ordered to pay him
backwages from his dismissal on October 1, 2003 until the finality of this
decision.
However, the amount already received by petitioner from the respondents shall be
deducted. He is also awarded moral and exemplary damages amounting to P 25, 000.00
each for his dismissal which was tainted with bad faith and fraud. Petition is granted. CA’s
decision is reversed and set aside
G.R. No. 159108 June 18, 2012
GOLD LINE TOURS, INC., Petitioner,
vs.
HEIRS OF MARIA CONCEPCION LACSA, Respondents.
FACTS:
Ma. Concepcion Lacsa (Concepcion) boarded a Goldline passenger bus owned and
operated by Travel &Tours Advisers, Inc. Before reaching their destination, the Goldline
bus collided with a passenger jeepneys and as a result, a metal part of the jeepney was
detached and struck Concepcion in the chest, causing her instant death. Then,
Concepcion’s heirs, represented by Teodoro Lacsa, instituted in the RTC a suit against
Travel & Tours Advisers Inc. to recover damages arising from breach of contract of
carriage. The RTC ruled in favor of the heirs of Concepcion and thereafter, Gold Line
appealed the decision to the CA but the CA dismissed the appeal for failure of the
defendants to pay the docket and other lawful fees within the required period as provided
in Rule 41, Section 4 of the Rules of Court. The dismissal became final.
Thereafter, the heirs of concepcion moved for the issuance of a writ of execution to
implement the decision and RTC granted their motion. Petitioner submitted a verified third
party claim, claiming that the tourist bus be returned to petitioner because it was the and
that petitioner was a corporation entirely different from Travel & Tours Advisers, Inc. then
RTC dismissed petitioner’s verified third-party claim, observing that the identity of Travel &
Tours Adivsers, Inc. could not be divorced from that of petitioner considering that Cheng
had claimed to be the operator as well as the President/Manager/incorporator of both
entities; and that Travel & Tours Advisers, Inc. had been known in Sorsogon as Goldline.
They (Goldline) appealed the decision to CA but CA dismissed their petition and affirmed
the decision of RTC. Hence this appeal to the Supreme Court where petitioner seeks to
reverse the decision of CA.
ISSUE:
Whether or not the proposition of the third party claimant by the petitioner where Travel &
Tours Advises, Inc. has an existence separate and/or distinct from Gold Line Tours, Inc.
RULING:
The Supreme Court the DENIED the petition for review on certiorari, and AFFIRMED the
decision promulgated by the Court of Appeals.
The two corporations are liable to the death of Ma. Concepcion Lacsa.
The Court was not persuaded by the proposition of the third party claimant that a
corporation has an existence separate and/or distinct from its members insofar as this
case at bar is concerned, for the reason that whenever necessary for the interest of the
public or for the protection of enforcement of their rights, the notion of legal entity
should not and is not to be used to defeat public convenience, justify wrong,
protect fraud or defend crime.
In the case of Palacio vs. Fely Transportation Co., the Supreme Court held that:
"Where the main purpose in forming the corporation was to evade one’s subsidiary liability
for damages in a criminal case, the corporation may not be heard to say that it has a
personality separate and distinct from its members, because to allow it to do so would be
to sanction the use of fiction of corporate entity as a shield to further an end
subversive of justice (La Campana Coffee Factory, et al. v. Kaisahan ng mga
Manggagawa, etc., et al., L-5677, May 25, 1953).
This is what the third party claimant wants to do including the defendant in this case, to
use the separate and distinct personality of the two corporation as a shield to further an
end subversive of justice by avoiding the execution of a final judgment of the court.
The RTC thus rightly ruled that petitioner might not be shielded from liability under the
final judgment through the use of the doctrine of separate corporate identity. Truly, this
fiction of law could not be employed to defeat the ends of justice.
Palacio v. Fely Transportation
In their complaint filed with this Court on May 15, 1954, plaintiffs allege, among
other things, "that about December, 1952, the defendant company hired Alfredo
Carillo as driver of AC-787 (687) (a registration for 1952) owned and operated
by the said defendant company; that on December 24, 1952, at about 11:30
a.m., while the driver Alfonso (Alfredo) Carillo was driving AC-687 at Halcon
Street, Quezon City, wilfully, unlawfully and feloniously and in a negligent,
reckless and imprudent manner, run over a child Mario Palacio of the herein
plaintiff Gregorio Palacio; that on account of the aforesaid injuries, Mario Palacio
suffered a simple fracture of the right tenor (sic), complete third, thereby
hospitalizing him at the Philippine Orthopedic Hospital from December 24, 1952,
up to January 8, 1953, and continued to be treated for a period of five months
thereafter; that the plaintiff Gregorio Palacio herein is a welder by occupation
and owner of a small welding shop and because of the injuries of his child he
has abandoned his shop where he derives income of P10.00 a day for the
support of his big family; that during the period that the plaintiff's (Gregorio
Palacio's) child was in the hospital and who said child was under treatment for
five months in order to meet the needs of his big family, he was forced to sell
one air compressor (heavy duty) and one heavy duty electric drill, for a sacrifice
sale of P150.00 which could easily sell at P350.00; that as a consequence of
the negligent and reckless act of the driver Alfredo Carillo of the herein
defendant company, the herein plaintiffs were forced to litigate this case in Court
for an agreed amount of P300.00 for attorney's fee; that the herein plaintiffs
have now incurred the amount of P500.00 actual expenses for transportation,
representation and similar expenses for gathering evidence and witnesses; and
that because of the nature of the injuries of plaintiff Mario Palacio and the fear
that the child might become a useless invalid, the herein plaintiff Gregorio
Palacio has suffered moral damages which could be conservatively estimated at
P1,200.00.
On May 23, 1956, defendant Fely Transportation Co., filed a Motion to Dismiss
on the grounds (1) that there is no cause of action against the defendant
company, and (2) that the cause of action is barred by prior judgment..
In its Order, dated June 8, 1956, this Court deferred the determination of the
grounds alleged in the Motion to Dismiss until the trial of this case.
On June 20, 1956, defendant filed its answer. By way of affirmative defenses, it
alleges (1) that complaint states no cause of action against defendant, and (2)
that the sale and transfer of the jeep AC-687 by Isabelo Calingasan to the Fely
Transportation was made on December 24, 1955, long after the driver Alfredo
Carillo of said jeep had been convicted and had served his sentence in Criminal
Case No. Q-1084 of the Court of First Instance of Quezon City, in which both
the civil and criminal cases were simultaneously tried by agreement of the
parties in said case. In the Counterclaim of the Answer, defendant alleges that
in view of the filing of this complaint which is a clearly unfounded civil action
merely to harass the defendant, it was compelled to engage the services of a
lawyer for an agreed amount of P500.00.
During the trial, plaintiffs presented the transcript of the stenographic notes of
the trial of the case of "People of the Philippines vs. Alfredo Carillo, Criminal
Case No. Q-1084," in the Court of First Instance of Rizal, Quezon City (Branch
IV), as Exhibit "A".1äwphï1.ñët
It appears from Exhibit "A" that Gregorio Palacio, one of the herein plaintiffs,
testified that Mario Palacio, the other plaintiff, is his son; that as a result of the
reckless driving of accused Alfredo Carillo, his child Mario was injured and
hospitalized from December 24, 1952, to January 8, 1953; that during all the
time that his child was in the hospital, he watched him during the night and his
wife during the day; that during that period of time he could not work as he slept
during the day; that before his child was injured, he used to earn P10.00 a day
on ordinary days and on Sundays from P20 to P50 a Sunday; that to meet his
expenses he had to sell his compressor and electric drill for P150 only; and that
they could have been sold for P300 at the lowest price.
During the trial of the criminal case against the driver of the jeep in the Court of
First Instance of Quezon City (Criminal Case No. Q-1084) an attempt was
unsuccessfully made by the prosecution to prove moral damages allegedly
suffered by herein plaintiff Gregorio Palacio. Likewise an attempt was made in
vain by the private prosecutor in that case to prove the agreed attorney's fees
between him and plaintiff Gregorio Palacio and the expenses allegedly incurred
by the herein plaintiffs in connection with that case. During the trial of this case,
plaintiff Gregorio Palacio testified substantially to the same facts.
The Court of First Instance of Quezon City in its decision in Criminal Case No.
1084 (Exhibit "2") determined and thoroughly discussed the civil liability of the
accused in that case. The dispositive part thereof reads as follows:
IN VIEW OF THE FOREGOING, the Court finds the accused Alfredo Carillo y
Damaso guilty beyond reasonable doubt of the crime charged in the information
and he is hereby sentenced to suffer imprisonment for a period of Two Months
& One Day of Arresto Mayor; to indemnify the offended party, by way of
consequential damages, in the sum of P500.00 which the Court deems
reasonable; with subsidiary imprisonment in case of insolvency but not to
exceed ¹/3 of the principal penalty imposed; and to pay the costs.
On the basis of these facts, the lower court held action is barred by the judgment in the
criminal case and, that under Article 103 of the Revised Penal Code, the person
subsidiarily liable to pay damages is Isabel Calingasan, the employer, and not the
defendant corporation.
Against that decision the plaintiffs appealed, contending that:
THE LOWER COURT ERRED IN NOT SUSTAINING THAT THE DEFENDANT-
APPELLEE IS SUBSIDIARILY LIABLE FOR DAMAGES AS A RESULT OF
CRIMINAL CASE NO. Q-1084 OF THE COURT OF FIRST INSTANCE OF
QUEZON CITY FOR THE REASON THAT THE INCORPORATORS OF THE
FELY TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE
HEREIN, ARE ISABELO CALINGASAN HIMSELF, HIS SON AND
DAUGHTERS;
THE LOWER COURT ERRED IN NOT CONSIDERING THAT THE INTENTION
OF ISABELO CALINGASAN IN INCORPORATING THE FELY
TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE HEREIN,
WAS TO EVADE HIS CIVIL LIABILITY AS A RESULT OF THE CONVICTION
OF HIS DRIVER OF VEHICLE AC-687 THEN OWNED BY HIM:
THE LOWER COURT ERRED IN HOLDING THAT THE CAUSE OF ACTION
OF THE PLAINTIFFS-APPELLANTS IS BARRED BY PRIOR JUDGMENT.
With respect to the first and second assignments of errors, plaintiffs contend that the
defendant corporate should be made subsidiarily liable for damages in the criminal case
because the sale to it of the jeep in question, after the conviction of Alfred Carillo in
Criminal Case No. Q-1084 of the Court of First Instance of Quezon City was merely an
attempt on the part of Isabelo Calingasan its president and general manager, to evade his
subsidiary civil liability.
The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant
Fely Transportation may be regarded as one and the same person. It is evident that
Isabelo Calingasan's main purpose in forming the corporation was to evade his subsidiary
civil liability1 resulting from the conviction of his driver, Alfredo Carillo. This conclusion is
borne out by the fact that the incorporators of the Fely Transportation are Isabelo
Calingasan, his wife, his son, Dr. Calingasan, and his two daughters. We believe that this
is one case where the defendant corporation should not be heard to say that it has a
personality separate and distinct from its members when to allow it to do so would be to
sanction the use of the fiction of corporate entity as a shield to further an end subversive
of justice. (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et
al., G.R. No. L-5677, May 25, 1953) Furthermore, the failure of the defendant corporation
to prove that it has other property than the jeep (AC-687) strengthens the conviction that
its formation was for the purpose above indicated.
And while it is true that Isabelo Calingasan is not a party in this case, yet, is held in the
case of Alonso v. Villamor, 16 Phil. 315, this Court can substitute him in place of the
defendant corporation as to the real party in interest. This is so in order to avoid
multiplicity of suits and thereby save the parties unnecessary expenses and delay. (Sec.
2, Rule 17, Rules of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud, 12 Phil. 109.)
Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held
subsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminal
case and which amount he could not pay on account of insolvency.
Ramirez v. Marfishing
On 28 June 2001, respondent Mar Fishing Co., Inc. (Mar Fishing), engaged in
the business of fishing and canning of tuna, sold its principal assets to co-respondent
Miramar Fishing Co., Inc. (Miramar) through public bidding. [1] The proceeds of the sale
were paid to the Trade and Investment Corporation of the Philippines (TIDCORP) to cover
Mar Fishing’s outstanding obligation in the amount of ₱897,560,041.26.[2] In view of that
transfer, Mar Fishing issued a Memorandum dated 23 October 2001 informing all its
workers that the company would cease to operate by the end of the month. [3]On 29
October 2001 or merely two days prior to the month’s end, it notified the Department of
Labor and Employment (DOLE) of the closure of its business operations.[4]
Thereafter, Mar Fishing’s labor union, Mar Fishing Workers Union – NFL – and
Miramar entered into a Memorandum of Agreement.[5] The Agreement provided that the
acquiring company, Miramar, shall absorb Mar Fishing’s regular rank and file employees
whose performance was satisfactory, without loss of seniority rights and privileges
previously enjoyed.[6]
Unfortunately, petitioners, who worked as rank and file employees, were not
hired or given separation pay by Miramar.[7] Thus, petitioners filed Complaints for illegal
dismissal with money claims before the Arbitration Branch of the National Labor Relations
Commission (NLRC).
In its 30 July 2002 Decision, the Labor Arbiter (LA) found that Mar Fishing had
necessarily closed its operations, considering that Miramar had already bought the tuna
canning plant.[8] By reason of the closure, petitioners were legally dismissed for authorized
cause.[9] In addition, even if Mar Fishing reneged on notifying the DOLE within 30 days
prior to its closure, that failure did not make the dismissals void. Consequently, the LA
ordered Mar Fishing to give separation pay to its workers.[10]
The LA held thus:[11]
WHEREFORE, in view of the foregoing considerations,
judgment is hereby rendered in these cases:
1. Ordering Mar Fishing Company, Inc.,
through its president, treasurer, manager or other
proper officer or representative, to pay the
complainants their respective separation pay, as
computed in page 12 to 33 hereof, all totaling SIX
MILLION THREE HUNDRED THIRTY SIX
 THOUSAND FIVE HUNDRED EIGHTY SEVEN &
77/100 PESOS (₱6,336,587.77);
2. Dismissing these case [sic] as against
Miramar Fishing Company, Inc., as well as against
Robert Buehs and Jerome Spitz, for lack of cause
of action;
3. Dismissing all other charges and claims
of the complainants, for lack of merit.
SO ORDERED.
Aggrieved, petitioners pursued the action before the NLRC, which modified the
LA’s Decision. Noting that Mar Fishing notified the DOLE only two days before the
business closed, the labor court considered petitioners’ dismissal as ineffectual.[12] Hence,
it awarded, apart from separation pay, full back wages to petitioners from the time they
were terminated on 31 October 2001 until the date when the LA upheld the validity of their
dismissal on 30 July 2002.[13]
Additionally, the NLRC pierced the veil of corporate fiction and ruled that Mar
Fishing and Miramar were one and the same entity, since their officers were the
same.[14] Hence, both companies were ordered to solidarily pay the monetary claims.[15]
On reconsideration, the NLRC modified its ruling by imposing liability only on
Mar Fishing. The labor court held that petitioners had no cause of action against Miramar,
since labor contracts cannot be enforced against the transferee of an enterprise in the
absence of a stipulation in the contract that the transferee assumes the obligation of the
transferor.[16] Hence, the dispositive portion reads:[17]
WHEREFORE, foregoing premises considered, the
assailed resolution is MODIFIED in that only Mar Fishing Company,
Inc. through its responsible officers, is ordered to pay complainants
their separation pay, and full backwages from the date they were
terminated from employment until 30 July 2002, subject to
computation during execution stage of proceedings at the
appropriate Regional Arbitration Branch.
SO ORDERED.
Despite the award of separation pay and back wages, petitioners filed a Rule 65
Petition before the CA. This time, they argued that both Mar Fishing and Miramar should
be made liable for their separation pay, and that their back wages should be up to the time
of their actual reinstatement. However, finding that only 3 of the 228 petitioners [18] signed
the Verification and Certification against forum shopping, the CA instantly dismissed the
action for certiorari against the 225 other petitioners without ruling on the substantive
aspects of the case.[19]
By means of a Manifestation with Omnibus Motion, [20] petitioners submitted a
Verification and Certification against forum shopping executed by 161 signatories. In the
said pleading, petitioners asked the CA to reconsider by invoking the rule that technical
rules do not strictly apply to labor cases.[21] Still, the CA denied petitioners’ contentions
and held thus:[22]
Anent the liberality in application of the rules, as alleged by
petitioners, the same deserves scant consideration. x x x.
xxx. While litigation is not a game of technicalities, and that
the rules of procedure should not be enforced strictly at the cost of
substantial justice, still it does not follow that the Rules of Court may
be ignored at will and at random to the prejudice of the orderly
presentation, assessment and just resolution of the issues. xxx.
Before this Court, 124 petitioners raise the issue of whether the CA gravely
erred in dismissing their Petition for Review on the ground that their pleading lacked a
Verification and Certification against forum shopping.[23]
 The Rules of Court provide that a petition for certiorari must be verified and
accompanied by a sworn certification of non-forum shopping.[24]Failure to comply with
these mandatory requirements shall be sufficient ground for the dismissal of the
petition.[25] Considering that only 3 of the 228 named petitioners signed the requirement,
the CA dismissed the case against them, as they did not execute a Verification and
Certification against forum shopping.
Petitioners invoke substantial compliance with procedural rules when their
Manifestation already contains a Verification and Certification against forum shopping
executed by 161 signatories. They heavily rely on Jaro v. Court of
Appeals,[26] citing Piglas-Kamao v. National Labor Relations Commission and Cusi-
Hernandez v. Diaz, in which we discussed that the subsequent submission of the missing
documentary attachments with the Motion for Reconsideration amounted to substantial
compliance.
However, this very case does not involve a failure to attach the Annexes.
Rather, the procedural infirmity consists of omission – the failure to sign a Verification and
Certification against forum shopping. Addressing this defect squarely, we have already
resolved that because of noncompliance with the requirements governing the certification
of non-forum shopping, no error could be validly attributed to the CA when it ordered the
dismissal of the special civil action for certiorari.[27] The lack of certification against forum
shopping is not curable by mere amendment of a complaint, but shall be a cause for the
dismissal of the case without prejudice.[28] Indeed, the general rule is that subsequent
compliance with the requirements will not excuse a party's failure to comply in the
first instance.[29] Thus, on procedural aspects, the appellate court correctly dismissed the
case.
However, this Court has recognized that the merit of a case is a special
circumstance or compelling reason that justifies the relaxation of the rule requiring
verification and certification of non-forum shopping.[30] In order to fully resolve the issue, it
is thus necessary to determine whether technical rules were brushed aside at the expense
of substantial justice.[31] This Court will then delve into the issue on (1) the solidary liability
of Mar Fishing and Miramar to pay petitioners’ monetary claims and (2) the reckoning
period for the award of back wages.
For a dismissal based on the closure of business to be valid, three (3)
requirements must be established. Firstly, the cessation of or withdrawal from business
operations must be bona fide in character. Secondly, there must be payment to the
employees of termination pay amounting to at least one-half (1/2) month pay for each year
of service, or one (1) month pay, whichever is higher. Thirdly, the company must serve a
written notice on the employees and on the DOLE at least one (1) month before the
intended termination.[32]
In their Petition for Review on Certiorari, petitioners did not dispute the
conclusion of the LA and the NLRC that Mar Fishing had an authorized cause to dismiss
its workers. Neither did petitioners challenge the computation of their separation pay.
Rather, they questioned the holding that only Mar Fishing was liable for their
monetary claims.[33]
Basing their conclusion on the Memorandum of Agreement and Supplemental
Agreement between Miramar and Mar Fishing’s labor union, as well as the General
Information Sheets and Company Profiles of the two companies, petitioners assert that
Miramar simply took over the operations of Mar Fishing. In addition, they assert that these
companies are one and the same entity, given the commonality of their directors and the
similarity of their business venture in tuna canning plant operations.[34]
At the fore, the question of whether one corporation is merely an alter ego of
another is purely one of fact generally beyond the jurisdiction of this Court.[35] In any case,
given only these bare reiterations, this Court sustains the ruling of the LA as affirmed by
the NLRC that Miramar and Mar Fishing are separate and distinct entities, based on the
marked differences in their stock ownership.[36] Also, the fact that Mar Fishing’s officers
remained as such in Miramar does not by itself warrant a conclusion that the two
companies are one and the same. As this Court held in Sesbreño v. Court of Appeals, the
mere showing that the corporations had a common director sitting in all the boards without
more does not authorize disregarding their separate juridical personalities.[37]
Neither can the veil of corporate fiction between the two companies be pierced
by the rest of petitioners’ submissions, namely, the alleged take-over by Miramar of Mar
Fishing’s operations and the evident similarity of their businesses. At this point, it bears
emphasizing that since piercing the veil of corporate fiction is frowned upon, those who
seek to pierce the veil must clearly establish that the separate and distinct personalities of
the corporations are set up to justify a wrong, protect a fraud, or perpetrate a
deception.[38] This, unfortunately, petitioners have failed to do. In Indophil Textile Mill
Workers Union vs. Calica, we ruled thus:[39]
In the case at bar, petitioner seeks to pierce the veil of
corporate entity of Acrylic, alleging that the creation of the
corporation is a devi[c]e to evade the application of the CBA between
petitioner Union and private respondent company. While we do not
discount the possibility of the similarities of the businesses of private
respondent and Acrylic, neither are we inclined to apply the doctrine
invoked by petitioner in granting the relief sought. The fact that the
businesses of private respondent and Acrylic are related, that
some of the employees of the private respondent are the same
persons manning and providing for auxiliary services to the
units of Acrylic, and that the physical plants, offices and
facilities are situated in the same compound, it is our
considered opinion that these facts are not sufficient to justify
the piercing of the corporate veil of Acrylic. (Emphasis supplied.)
Having been found by the trial courts to be a separate entity, Mar Fishing – and
not Miramar – is required to compensate petitioners. Indeed, the back wages and
retirement pay earned from the former employer cannot be filed against the new owners
or operators of an enterprise.[40]
Evidently, the assertions of petitioners fail on both procedural and substantive
aspects. Therefore, no special reasons exist to reverse the CA’s dismissal of the case due
to their failure to abide by the mandatory procedure for filing a petition for review on
certiorari. Given the correctness of the appellate court’s ruling and the lack of appropriate
remedies, this Court will no longer dwell on the exact computation of petitioners’ claims for
back wages, which have been sufficiently threshed out by the LA and the NLRC. Judicial
review of labor cases does not go beyond an evaluation of the sufficiency of the evidence
upon which labor officials' findings rest.[41]
While we sympathize with the situation of the workers in this case, we cannot
disregard, absent compelling reasons, the factual determinations and the legal doctrines
that support the findings of the courts a quo. Generally, the findings of fact and the
conclusion of the labor courts are not only accorded great weight and respect, but are
even clothed with finality and deemed binding on this Court, as long as they are supported
by substantial evidence.
Cuenco v. Talisay Tourists Sports Complex
Petitioner leased from respondent a property to be operated as a cockpit. Upon expiration
of the contract, respondent company conducted a public bidding for the lease of the
property. Petitioner participated in the bidding. The lease was eventually awarded to
another bidder. Thereafter, petitioner formally demanded, through several demand letters,
for the return of his deposit in the sum of P500, 000.00. It, however, all remained
unheeded.
Thus, petitioner filed a Complaint for sum of money maintaining that respondents acted in
bad faith in withholding the amount of the deposit without any justifiable reason. In their
Answer, respondents countered that petitioner caused physical damage to the leased
premises and the cost of repair and replacement of materials amounted to more than
P500,000.00.
The RTC issued a Pre-trial Order in which respondent admitted that there is no inventory
of damages. The respondents later offered an inventory which was admitted by the said
trial court. The RTC ruled favorably for the petitioner. The CA reversed said decision.

Concerning the solidary liability of respondents, we hold that respondent Matias Aznar III
is not solidarily liable with respondent company. His function as the President of the
company does not make him personally liable for the obligations of the latter. A
corporation, being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them while acting as corporate agents, are not their
personal liability but the direct accountability of the corporation they represent.
Prisma Construction v. Menchavez
December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA,
obtained a P1M loan from the respondent, with monthly interest of P40,000.00 payable for
6 months, or a total obligation of P1,240,000.00 payable within 6 mos. To secure the
payment of the loan, Pantaleon issued a promissory. Pantaleon signed the promissory
note in his personal capacity and as duly authorized by the Board of Directors of PRISMA.
The petitioners failed to completely pay the loan within the 6-month period.
As of January 4, 1997, respondent found that the petitioners still had an outstanding
balance of P1,364,151.00, to which respondent applied a 4% monthly interest.
On August 28, 1997, respondent filed a complaint for sum of money to enforce the unpaid
balance, plus 4% monthly interest. In their Answer, the petitioners admitted the loan of
P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the
interest was not provided in the promissory note. Pantaleon also denied that he made
himself personally liable and that he made representations that the loan would be repaid
within six (6) months.
RTC found that the respondent issued a check for P1M in favor of the petitioners for a
loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00
for a 6-month period. RTC ordered the petitioners to jointly and severally pay the
respondent the amount of P3,526,117.00 plus 4% per month interest from February 11,
1999 until fully paid.
Petitioners appealed to CA insisting that there was no express stipulation on the 4%
monthly interest. CA favored respondent but noted that the interest of 4% per month, or
48% per annum, was unreasonable and should be reduced to 12% per annum. MR
denied hence this petition.
Piercing the corporate veil unfounded
We find it unfounded and unwarranted for the lower courts to pierce the corporate
veil of PRISMA.
The doctrine of piercing the corporate veil applies only in three (3) basic instances,
namely: a) when the separate and distinct corporate personality defeats public
convenience, as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; b) in fraud cases, or when the corporate entity is used to justify a
wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a
corporation is essentially a farce, since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.[46] In the absence of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be made personally liable for
corporate liabilities.[47]
In the present case, we see no competent and convincing evidence of any wrongful,
fraudulent or unlawful act on the part of PRISMA to justify piercing its corporate
veil. While Pantaleon denied personal liability in his Answer, he made himself
accountable in the promissory note ―in his personal capacity and as authorized by the
Board Resolution‖ of PRISMA.[48] With this statement of personal liability and in the
absence of any representation on the part of PRISMA that the obligation is all its own
because of its separate corporate identity, we see no occasion to consider piercing the
corporate veil as material to the case.
Lynvil Fishing Enterprises v. Ariola
PETITIONER Lynvil Fishing Enterprises, Inc. (Lynvil) is engaged in deep-sea fishing.
Respondents’ services were engaged in various capacities: Andres G. Ariola, captain;
Jessie D. Alcovendas, chief mate; Jimmy B. Calinao, chief engineer; Ismael G. Nubla,
cook; Elorde Bañez, oiler; and Leopoldo G. Sebullen, bodegero.
On Aug. 1, 1998, Lynvil received a report from Ramonito Clarido, one of its employees,
that on July 31, 1998, he witnessed that while on board the company vessel Analyn VIII,
respondents conspired with one another and stole eight tubs of ―pampano‖ and ―tangigue‖
fish and delivered them to another vessel.
Petitioner filed a criminal complaint against respondents before the office of the City
Prosecutor of Malabon City which found probable cause for indictment of respondents for
the crime of qualified theft. Relying on the finding and Nasipit Lumber Company v. NLRC,
257 Phil. 937 (1989), Lynvil asserted there was sufficient basis for valid termination of
employment of respondents based on serious misconduct and/or loss of trust and
confidence. Is their merit to the assertion?
Ruling: No.
Nasipit is about a security guard who was charged with qualified theft which charge was
dismissed by the Office of the Prosecutor. However, despite the dismissal of the
complaint, he was still terminated from his employment on the ground of loss of
confidence.
We ruled that proof beyond reasonable doubt of an employee’s misconduct is not required
when loss of confidence is the ground for dismissal. It is sufficient if the employer has
―some basis‖ to lose confidence or that the employer has reasonable ground to believe or
to entertain the moral conviction that the employee concerned is responsible for the
misconduct and that the nature of his participation therein rendered him absolutely
unworthy of the trust and confidence demanded by his position.
It added that the dropping of the qualified theft charges against the respondent is not
binding upon a labor tribunal.
In Nicolas v. National Labor Relations Commission, 327 Phil. 883, 886-887 (1996); Reno
Foods, Inc. v. Nagkakaisang Lakas ng Manggagawa (NLM)-Katipunan, G.R. No. 164016,
15 March 2010, 615 SCRA 240, we held that a criminal conviction is not necessary to find
just cause for employment termination. Otherwise stated, an employee’s acquittal in a
criminal case, especially one that is grounded on the existence of reasonable doubt, will
not preclude a determination in a labor case that he is guilty of acts inimical to the
employer’s interests. In the reverse, the finding of probable cause is not followed by
automatic adoption of such finding by the labor tribunals.
In other words, whichever way the public prosecutor disposes of a complaint, the finding
does not bind the labor tribunal.
Thus, Lynvil cannot argue that since the Office of the Prosecutor found probable cause for
theft the Labor Arbiter must follow the finding as a valid reason for the termination of
respondents’ employment. The proof required for purposes that differ from one and the
other are likewise different.
Price v. Innodata
Cherry, Stephanie and Lolita were employed as formatters by INNODATA a domestic
corporation engaged in the data encoding and data conversion business. The parties
executed an employment contract denominated as a ―Contract of Employment for a Fixed
Period,‖ stipulating that the contract shall be for a period of one year.
The days passed by and soon Cherry and her companions found themselves separated
from work due to the end of their contract. Cherry and her companions decided to contest
the validity of said contract by filing a case for illegal dismissal. The case eventually
reached the Supreme Court.
Finally, unless they have exceeded their authority, corporate officers are, as a general
rule, not personally liable for their official acts, because a corporation, by legal fiction, has
a personality separate and distinct from its officers, stockholders and members. Although
as an exception, corporate directors and officers are solidarily held liable with the
corporation, where terminations of employment are done with malice or in bad faith, 33 in
the absence of evidence that they acted with malice or bad faith herein, the Court
exempts the individual respondents, Leo Rabang and Jane Navarette, from any personal
liability for the illegal dismissal of petitioners.
De Lima v. Gois
A case for illegal dismissal was filed by petitioner Virgilio S. Delima against Golden Union
Aquamarine Corporation (Golden), Prospero Gois and herein respondent Susan Mercaida
Gois before the Regional Arbitration Branch No. VIII of the National Labor Relations
Commission on October 29, 2004, docketed as NLRC RAB VIII Case No. 10-0231-04.
On April 29, 2005, Labor Arbiter Philip B. Montaces rendered a decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered–
1. Finding illegality in the dismissal of complainant Virgilio Delima
from his employment;
2. Ordering respondent Golden Union Aquamarine
Corporation to pay
On January 16, 2006, an Order was issued by the Labor Arbiter which states:
 Filed by Third Party Claimant SUSAN M. GOIS is a Motion
to Release Motor Vehicle after substituting same with a cash bond of
P115,561.05 under O.R. No. 8307036 which amount is equivalent to
the judgment award in the instant case, in the meantime that she has
appealed the Order denying her Third Party Claim.
Meanwhile, on May 31, 2006, the NLRC issued a Resolution[7] which dismissed
respondent’s appeal for lack of merit. A Motion for Reconsideration[8] was filed but it was
denied on August 22, 2006.[9] On September 12, 2006, the NLRC Resolution became
final and executory; subsequently, an Entry of Judgment[10] was issued on September 29,
2006.
On October 13, 2006, Gois filed a petition for certiorari[11] before the Court of
Appeals as well as a Supplement to Petition[12] on October 27, 2006. Gois alleged that the
NLRC committed grave abuse of discretion when it dismissed her appeal. She claimed
that by denying her third-party claim, she was in effect condemned to pay a judgment debt
issued against a corporation of which she is neither a president nor a majority owner but
merely a stockholder. She further argued that her personality is separate and distinct
from that of Golden; thus, the judgment ordering the corporation to pay the petitioner
could not be satisfied out of her personal assets.
On December 21, 2006, the appellate court rendered a Decision in favor of
respondent, which reads in part:
In the decision dated April 29, 2005 rendered by Labor Arbiter
Montaces, the dispositive portion confined itself in directing Golden
Union Aquamarine Corporation only, no more and no less, to pay
private respondent the award stated therein, but did not mention that
the liability is joint and solidary with petitioner Susan Gois although the
complaint filed by the private respondent included petitioner as among
the respondents therein.
It bears stress also that corporate officers cannot be held liable
for damages on account of the employee’s dismissal because the
employer corporation has a personality separate and distinct from its
officers who merely acted as its agents. They are only solidarily liable
with the corporation for the termination of employment of employees if
the same was done with malice or in bad faith. In the case at bench, it
was not clearly shown and established that the termination of private
respondent from employment was tainted with evident malice and bad
faith. As elucidated in the case of Reahs Corporation vs. NLRC, the
main doctrine of separate personality of a corporation should remain
as the guiding rule in determining corporate liability to its employees,
and that, at the very least, to justify solidary liability, ―there must be an
allegation or showing that the officers of the corporation deliberately or
maliciously designed to evade the financial obligation of the
corporation to its employees.‖
Further, as wisely put by the petitioner, while it may be true
that the subject vehicle was used by the corporation in transporting
the products bought by the corporation from Eastern Samar to Manila,
it does not necessarily follow that it is owned by the corporation as in
fact petitioner was able to duly establish that the said vehicle is hers
and is registered under her name. Nor does it imply that the
corporation is free to dispose of the same and neither does it imply
that the said vehicle may and can be levied by respondent NLRC to
satisfy a judgment against the corporation.
WHEREFORE, in view of the foregoing premises, judgment
is hereby rendered by us GRANTING the petition filed in this case,
ANNULLING and SETTING ASIDE the Resolutions dated May 31,
2006 and August 22, 2006, respectively, issued by the respondent
National Labor Relations Commission (NLRC), 4th Division in NLRC
Case No. V-000188-2006 and ORDERING private respondent to
return to petitioner the cash bond earlier released to him.
SO ORDERED.[13]
Petitioner filed a Motion for Reconsideration[14] which was denied.
A corporation has a personality distinct and separate from its individual
stockholders or members and from that of its officers who manage and run its affairs. The
rule is that obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. Thus, property belonging to a corporation cannot be
attached to satisfy the debt of a stockholder and vice versa, the latter having only an
indirect interest in the assets and business of the former.[16]
Since the Decision of the Labor Arbiter dated April 29, 2005 directed only
Golden to pay the petitioner the sum of P115,561.05 and the same was not joint and
solidary obligation with Gois, then the latter could not be held personally liable since
Golden has a separate and distinct personality of its own. It remains undisputed that the
subject vehicle was owned by Gois, hence it should not be attached to answer for the
liabilities of the corporation. Unless they have exceeded their authority, corporate officers
are, as a general rule, not personally liable for their official acts, because a corporation, by
legal fiction, has a personality separate and distinct from its officers, stockholders and
members. No evidence was presented to show that the termination of the petitioner was
done with malice or in bad faith for it to hold the corporate officers, such as Gois, solidarily
liable with the corporation.
Woodchild Holdings v. Roxas Electric Construction Company
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the
Roxas Electric and Construction Company, was the owner of two parcels of land. At a
special meeting on May 17, 1991, the respondent’s Board of Directors approved a
resolution authorizing the corporation, through its president, Roberto B. Roxas, to sell Lot
No. 491-A-3-B- at a price and under such terms and conditions which he deemed most
reasonable and advantageous to the corporation; and to execute, sign and deliver the
pertinent sales documents and receive the proceeds of the sale for and on behalf of the
company.
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2
covered by TCT No. 78086 on which it planned to construct its warehouse building, and a
portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van would be
able to readily enter or leave the property. In a Letter to Roxas dated June 21, 1991, WHI
President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and
conditions for P1,000 per square meter or at the price of P7,213,000.[4] One of the terms
incorporated in Dy’s offer was the following provision:
This Offer to Purchase is made on the representation and warranty of
the OWNER/SELLER, that he holds a good and registrable title
to the property, which shall be conveyed CLEAR and FREE of
all liens and encumbrances
Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a
month later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as
President of WHI, as vendee, executed a contract to sell in which RECCI bound and
obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086
for P7,213,000.[6] On September 5, 1991, a Deed of Absolute Sale[7] in favor of WHI was
issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold
for P5,000,000, receipt of which was acknowledged by Roxas under the following terms
and conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to
give Vendee the beneficial use of and a right of way from Sumulong
Highway to the property herein conveyed consists of 25 square
meters wide to be used as the latter’s egress from and ingress to and
an additional 25 square meters in the corner of Lot No. 491-A-3-B-1,
as turning and/or maneuvering area for Vendee’s vehicles.
The Vendor agrees that in the event that the right of way is
insufficient for the Vendee’s use (ex entry of a 45-foot container) the
Vendor agrees to sell additional square meters from its current
adjacent property to allow the Vendee full access and full use of the
property.
…
The Vendor hereby undertakes and agrees, at its account, to
defend the title of the Vendee to the parcel of land and improvements
 herein conveyed, against all claims of any and all persons or entities,
and that the Vendor hereby warrants the right of the Vendee to 21, 1993 a certificate of occupancy by the building official. Earlier, or on March 18, 1993,
possess and own the said parcel of land and improvements thereon WHI, as lessor, and Ponderosa, as lessee, executed a contract of lease over a portion of
and will defend the Vendee against all present and future claims
and/or action in relation thereto, judicial and/or administrative. In the property for a monthly rental of P300,000 for a period of three years from March 1,
particular, the Vendor shall eject all existing squatters and occupants
of the premises within two (2) weeks from the signing hereof. In case 1993 up to February 28, 1996.[14]
of failure on the part of the Vendor to eject all occupants and squatters
within the two-week period or breach of any of the stipulations,
In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI
covenants and terms and conditions herein provided and that of
contract to sell dated 1 July 1991, the Vendee shall have the right to were parked on a portion of the property over which WHI had been granted a right of
cancel the sale and demand reimbursement for all payments made to
the Vendor with interest thereon at 36% per annum.[8] way. Roxas promised to look into the matter. Dy and Roxas discussed the need of the
WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No.

On September 10, 1991, the Wimbeco Builder’s, Inc. (WBI) submitted its quotation 78085 as provided for in the deed of absolute sale. However, Roxas died soon

for P8,649,000 to WHI for the construction of the warehouse building on a portion of the thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to

property with an area of 5,088 square meters.[9] WBI proposed to start the project on purchase a portion of the said lot as provided for in the deed of absolute sale, and

October 1, 1991 and to turn over the building to WHI on February 29, 1992.[10] complained about the latter’s failure to eject the squatters within the three-month period
agreed upon in the said deed.
In a Letter dated September 16, 1991, Ponderosa Leather Goods Company,
Inc. confirmed its lease agreement with WHI of a 5,000-square-meter portion of the The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1

warehouse yet to be constructed at the rental rate of P65 per square meter. Ponderosa covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof,

emphasized the need for the warehouse to be ready for occupancy before April 1, otherwise the appropriate action would be filed against it. RECCI rejected the demand of

1992.[11] WHI accepted the offer. However, WBI failed to commence the construction of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There was no response

the warehouse in October 1, 1991 as planned because of the presence of squatters in the from RECCI.

property and suggested a renegotiation of the contract after the squatters shall have been On June 17, 1992, the WHI filed a complaint against the RECCI with the RTC of Makati,
for specific performance and damages.
evicted.[12] Subsequently, the squatters were evicted from the property.

On March 31, 1992, WHI and WBI executed a Letter-Contract for the The WHI prayed that, after due proceedings, judgment be rendered in its favor. In its
construction of the warehouse building for P11,804,160.[13] The contractor started answer to the complaint, the RECCI alleged that it never authorized its former president,
construction in April 1992 even before the building officials of Antipolo City issued a Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-3-B-1, nor
building permit on May 28, 1992. After the warehouse was finished, WHI issued on March agreed to sell any portion thereof or create a lien or burden thereon. It alleged that, under
 A corporation is a juridical person separate and distinct from
the Resolution approved on May 17, 1991, it merely authorized Roxas to sell Lot No. 491- its stockholders or members. Accordingly, the property of the
A-3-B-2 covered by TCT No. 78086. As such, the grant of a right of way and the corporation is not the property of its stockholders or members and
may not be sold by the stockholders or members without express
agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said authorization from the corporation’s board of directors. Section 23 of
BP 68, otherwise known as the Corporation Code of the Philippines,
deed are ultra vires. provides:
On November 11, 1996, the trial court rendered judgment in favor of the WHI.
―SEC. 23. The Board of Directors or
The trial court ruled that the RECCI was estopped from disowning the apparent authority Trustees. – Unless otherwise provided in this
Code, the corporate powers of all corporations
of Roxas under the May 17, 1991 Resolution of its Board of Directors. The court formed under this Code shall be exercised, all
business conducted and all property of such
reasoned that to do so would prejudice the WHI which transacted with Roxas in good corporations controlled and held by the board of
faith, believing that he had the authority to bind the WHI relating to the easement of right directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from
of way, as well as the right to purchase a portion of Lot No. 491-A-3-B-1 covered by TCT among the members of the corporation, who shall
hold office for one (1) year and until their
No. 78085. successors are elected and qualified.‖

The RECCI appealed the decision to the CA, which rendered a decision on Indubitably, a corporation may act only through its board of
directors or, when authorized either by its by-laws or by its board
November 9, 1999 reversing that of the trial court, and ordering the dismissal of the resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation
complaint. The CA ruled that, under the resolution of the Board of Directors of the RECCI, between the corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions of law. …[22]
Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, but
not to grant right of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or to
Generally, the acts of the corporate officers within the scope of their authority are
grant an option to the petitioner to buy a portion thereof. The appellate court also ruled
binding on the corporation. However, under Article 1910 of the New Civil Code, acts done
that the grant of a right of way and an option to the respondent were so lopsided in favor
by such officers beyond the scope of their authority cannot bind the corporation unless it
of the respondent because the latter was authorized to fix the location as well as the price
has ratified such acts expressly or tacitly, or is estopped from denying them:
of the portion of its property to be sold to the respondent. Hence, such provisions
contained in the deed of absolute sale were not binding on the RECCI. The appellate Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his authority.
court ruled that the delay in the construction of WHI’s warehouse was due to its fault.
As for any obligation wherein the agent has exceeded his
RULING: In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,[21] we power, the principal is not bound except when he ratifies it expressly
held that: or tacitly.
 charter, and to a like proportion of the property remaining, upon the termination or
Thus, contracts entered into by corporate officers beyond the scope of authority
dissolution of the corporation, after payment of its debts."
are unenforceable against the corporation unless ratified by the corporation.
G Holdings v. NAMAWU
In BA Finance Corporation v. Court of Appeals,[24] we also ruled that persons dealing with
an assumed agency, whether the assumed agency be a general or special one, are The petitioner, ―G‖ Holdings, Inc. (GHI), is a domestic corporation primarily engaged in the
bound at their peril, if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is controverted, the business of owning and holding shares of stock of different companies. [2] It was
burden of proof is upon them to establish it. registered with the Securities and Exchange Commission on August 3, 1992. Private
Fisher v. Trinidad respondent, National Mines and Allied Workers Union Local 103 (NAMAWU), was the
exclusive bargaining agent of the rank and file employees of Maricalum Mining
That during the year 1919 the Philippine American Drug Company was a corporation duly
organized and existing under the laws of the Philippine Islands, doing business in the City Corporation (MMC),[3] an entity operating a copper mine and mill complex at Sipalay,
of Manila; that he appellant was a stockholder in said corporation; that said corporation,
Negros Occidental.[4]
as result of the business for that year, declared a "stock dividend"; that the proportionate
share of said stock divided of the appellant was P24,800; that the stock dividend for that
amount was issued to the appellant; that thereafter, in the month of March, 1920, the
appellant, upon demand of the appellee, paid under protest, and voluntarily, unto the MMC was incorporated by the Development Bank of the Philippines (DBP) and the
appellee the sum of P889.91 as income tax on said stock dividend. For the recovery of Philippine National Bank (PNB) on October 19, 1984, on account of their foreclosure of
that sum (P889.91) the present action was instituted. The defendant demurred to the
petition upon the ground that it did not state facts sufficient to constitute cause of action. Marinduque Mining and Industrial Corporation’s assets. MMC started its commercial
The demurrer was sustained and the plaintiff appealed. operations in August 1985. Later, DBP and PNB transferred it to the National

To sustain his appeal the appellant cites and relies on some decisions of the Government for disposition or privatization because it had become a non-performing
Supreme Court of the United States as will as the decisions of the supreme court of some asset.[5]
of the states of the Union, in which the questions before us, based upon similar statutes,
was discussed. Among the most important decisions may be mentioned the following:
Towne vs. Eisner, 245 U.S., 418; Doyle vs. Mitchell Bors. Co., 247 U.S., 179; Eisner vs.
On October 2, 1992, pursuant to a Purchase and Sale Agreement[6] executed
Macomber, 252 U.S., 189; Dekoven vs Alsop, 205 Ill., 309; 63 L.R.A., 587; Kaufman vs.
Charlottesville Woolen Mills, 93 Va., 673. between GHI and Asset Privatization Trust (APT), the former bought ninety percent (90%)
of MMC’s shares and financial claims.[7] These financial claims were converted into three
In each of said cases an effort was made to collect an "income tax" upon "stock
dividends" and in each case it was held that "stock dividends" were capital and not an Promissory Notes[8] issued by MMC in favor of GHI totaling P500M and secured by
"income" and therefore not subject to the "income tax" law.
mortgages over MMC’s properties. The notes, which were similarly worded except for
RULING: "The distinction between the title of a corporation, and the interest of its their amounts, read as follows:
members or stockholders in the property of the corporation, is familiar and well settled.
PROMISSORY NOTE
The ownership of that property is in the corporation, and not in the holders of shares of its
stock. The interest of each stockholder consists in the right to a proportionate part of the AMOUNT - Php114,715,360.00 [Php186,550,560.00 in the
profits whenever dividends are declared by the corporation, during its existence, under its second
 note, and Php248,734,080.00 in
the
third note.]
MAKATI, METRO MANILA, PHILIPPINES, October 2, 1992
For Value Received, MARICALUM MINING CORPORATION
(MMC) with postal address at 4th Floor, Manila Memorial Park Bldg.,
2283 Pasong Tamo Extension, Makati, Metro Manila, Philippines,
hereby promises to pay ―G‖ HOLDINGS, INC., at its office at Phimco
Compound, F. Manalo Street, Punta, Sta. Ana, Manila, the amount of
PESOS ONE HUNDRED FOURTEEN MILLION, SEVEN HUNDRED
FIFTEEN THOUSAND AND THREE HUNDRED SIXTY
(Php114,715,360.00) [―PESOS ONE HUNDRED EIGHTY SIX
MILLION FIVE HUNDRED FIFTY THOUSAND FIFE HUNDRED AND
SIXTY (Php186,550,560.00)‖ in the second note, and ―PESOS TWO
HUNDRED FORTY EIGHT MILLION, SEVEN HUNDRED THIRTY
FOUR THOUSAND AND EIGHTY (Php248,734,080.00)‖ in the third
note], PHILIPPINE CURRENCY, on or before October 2,
2002. Interest shall accrue on the amount of this Note at a rate per
annum equal to the interest of 90-day Treasury Bills prevailing on the
Friday preceding the maturity date of every calendar quarter.
3. Mortgages over assets listed in APT Specific Catalogue
GC-031 for MMC, a copy of which Catalogue is hereby
made an integral part hereof by way of reference, as well as
assets presently in use by MMC but which are not listed or
included in paragraphs 1 and 2 above and shall include all
assets that may hereinafter be acquired by MMC.
MARICALUM MINING
CORPORATION
(Maker)
x x x x[9]
Upon the signing of the Purchase and Sale Agreement and upon the full
satisfaction of the stipulated down payment, GHI immediately took physical possession of
the mine site and its facilities, and took full control of the management and operation of
MMC.[10]

As collateral security, MMC hereby establishes and constitutes in Almost four years thereafter, or on August 23, 1996, a labor dispute (refusal to
favor of ―G‖ HOLDINGS, INC., its successors and/or assigns:
bargain collectively and unfair labor practice) arose between MMC and NAMAWU, with
1. A mortgage over certain parcels of land, more
the latter eventually filing with the National Conciliation and Mediation Board of Bacolod
particularly listed and described in the Sheriff’s Certificate of
Sale dated September 7, 1984 issued by the Ex-Officio City a notice of strike.[11] Then Labor Secretary, now Associate Justice of this Court,
Provincial Sheriff of Negros Occidental, Rolando V.
Ramirez, with office at Bacolod City following the auction Leonardo A. Quisumbing, later assumed jurisdiction over the dispute and ruled in favor of
sale conducted pursuant to the provisions of Act 3135, a NAMAWU. In his July 30, 1997 Order in OS-AJ-10-96-014 (Quisumbing Order),
copy of which certificate of sale is hereto attached as Annex
―A‖ and made an integral part hereof; Secretary Quisumbing declared that the lay-off (of workers) implemented on May 7, 1996
and October 7, 1996 was illegal and that MMC committed unfair labor practice. He then
2. A chattel mortgage over assets and personal properties
more particularly listed and described in the Sheriff’s ordered the reinstatement of the laid-off workers, with payment of full backwages and
Certificate of Sale dated September 7, 1984 issued by the
benefits, and directed the execution of a new collective bargaining agreement (CBA)
Ex-Officio Provincial Sheriff of Negros Occidental, Rolando
V. Ramirez, with office at Bacolod City following the auction incorporating the terms and conditions of the previous CBA providing for an annual
conducted pursuant to the provisions of Act 1508, a copy of
which Certificate of Sale is hereto attached as Annex ―B‖ increase in the workers’ daily wage.[12] In two separate cases─G.R. Nos. 133519 and
and made an integral part hereof.
138996─filed with this Court, we sustained the validity of the Quisumbing Order, which
became final and executory on January 26, 2000.[13]
On May 11, 2001, then Acting Department of Labor and Employment (DOLE)
Secretary, now also an Associate Justice of this Court, Arturo D. Brion, on motion of
NAMAWU, directed the issuance of a partial writ of execution (Brion Writ), and ordered
the DOLE sheriffs to proceed to the MMC premises for the execution of the
same.[14] Much later, in 2006, this Court, in G.R. Nos. 157696-97, entitled Maricalum
Mining Corporation v. Brion and NAMAWU,[15] affirmed the propriety of the issuance of the
Brion Writ.
The Brion Writ was not fully satisfied because MMC’s resident manager resisted
its enforcement.[16] On motion of NAMAWU, then DOLE Secretary Patricia A. Sto. Tomas
ordered the issuance of the July 18, 2002 Alias Writ of Execution and Break-Open Order
(Sto. Tomas Writ).[17] On October 11, 2002, the respondent acting sheriffs, the members
of the union, and several armed men implemented the Sto. Tomas Writ, and levied on the
properties of MMC located at its compound in Sipalay, Negros Occidental.[18]
On October 14, 2002, GHI filed with the Regional Trial Court (RTC)
of Kabankalan City, Negros Occidental, Special Civil Action (SCA) No. 1127 for Contempt
with Prayer for the Issuance of a Temporary Restraining Order (TRO) and Writ of
Preliminary Injunction and to Nullify the Sheriff’s Levy on Properties. [19] GHI contended
that the levied properties were the subject of a Deed of Real Estate and Chattel Mortgage,
dated September 5, 1996[20] executed by MMC in favor of GHI to secure the
aforesaid P550M promissory notes; that this deed was registered on February 24,
2000;[21] and that the mortgaged properties were already extrajudicially foreclosed in July
2001 and sold to GHI as the highest bidder on December 3, 2001, as evidenced by the
Certificate of Sale dated December 4, 2001.[22]
The trial court issued ex parte a TRO effective for 72 hours, and set the hearing
on the application for a writ of injunction.[23] On October 17, 2002, the trial court ordered
the issuance of a Writ of Injunction (issued on October 18, 2002) [24] enjoining the DOLE
sheriffs from further enforcing the Sto. Tomas Writ and from conducting any public sale of
the levied-on properties, subject to GHI’s posting of a P5M bond.[25]
Resolving, among others, NAMAWU’s separate motions for the reconsideration
of the injunction order and for the dismissal of the case, the RTC issued its December 4,
2002 Omnibus Order,[26] the dispositive portion of which reads:
WHEREFORE, premises considered, respondent NAMAWU
Local 103’s Motion for Reconsideration dated October 23, 2002 for
the reconsideration of the Order of this Court directing the issuance of
Writ of Injunction prayed for by petitioner and the Order dated October
18, 2002 approving petitioner’s Injunction Bond in the amount
of P5,000,000.00 is hereby DENIED.
Respondent’s Motion to Dismiss as embodied in its
Opposition to Extension of Temporary Restraining Order and
Issuance of Writ of Preliminary Injunction with Motion to Dismiss and
Suspend Period to File Answer dated October 15, 2002 is likewise
DENIED.
Petitioner’s Urgent Motion for the return of the levied
firearms is GRANTED. Pursuant thereto, respondent sheriffs are
ordered to return the levied firearms and handguns to the petitioner
provided the latter puts [up] a bond in the amount of P332,200.00.
 Respondent’s lawyer, Atty. Jose Lapak, is strictly warned not
to resort again to disrespectful and contemptuous language in his
pleadings, otherwise, the same shall be dealt with accordingly.
SO ORDERED.[27]
Aggrieved, NAMAWU filed with the CA a petition for certiorari under Rule 65,
assailing the October 17, 18 and December 4, 2002 orders of the RTC.[28]
After due proceedings, on October 14, 2003, the appellate court rendered a
Decision setting aside the RTC issuances and directing the immediate execution of the
Sto. Tomas Writ. The CA ruled, among others, that the circumstances surrounding the
execution of the September 5, 1996 Deed of Real Estate and Chattel Mortgage yielded
the conclusion that the deed was sham, fictitious and fraudulent; that it was executed two
weeks after the labor dispute arose in 1996, but surprisingly, it was registered only on
February 24, 2000, immediately after the Court affirmed with finality the Quisumbing
Order. The CA also found that the certificates of title to MMC’s real properties did not
contain any annotation of a mortgage lien, and, suspiciously, GHI did not intervene in the
long drawn-out labor proceedings to protect its right as a mortgagee of virtually all the
properties of MMC.[29]
The CA further ruled that the subsequent foreclosure of the mortgage was
irregular, effected precisely to prevent the satisfaction of the judgment against MMC. It
noted that the foreclosure proceedings were initiated in July 2001, shortly after the
issuance of the Brion Writ; and, more importantly, the basis for the extrajudicial
foreclosure was not the failure of MMC to pay the mortgage debt, but its failure ―to satisfy
any money judgment against it rendered by a court or tribunal of competent jurisdiction, in
favor of any person, firm or entity, without any legal ground or reason.‖[30] Further, the CA
pierced the veil of corporate fiction of the two corporations.
RULING: Time and again, we have reiterated that mere ownership by a single stockholder
or by another corporation of all or nearly all of the capital stock of a corporation is not, by
itself, a sufficient ground for disregarding a separate corporate personality.[74] It is basic
that a corporation has a personality separate and distinct from that composing it as well as
from that of any other legal entity to which it may be related. Clear and convincing
evidence is needed to pierce the veil of corporate fiction.[75]
In this case, the mere interlocking of directors and officers does not warrant
piercing the separate corporate personalities of MMC and GHI. Not only must there be a
showing that there was majority or complete control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked, so that
the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own.
Settled jurisprudence[70] has it that –
―(A) corporation, upon coming into existence, is invested by
law with a personality separate and distinct from those persons
composing it as well as from any other legal entity to which it may be
related. By this attribute, a stockholder may not, generally, be made to
answer for acts or liabilities of the said corporation, and vice versa.
This separate and distinct personality is, however, merely a fiction
created by law for convenience and to promote the ends of justice.
For this reason, it may not be used or invoked for ends subversive to
the policy and purpose behind its creation or which could not have
been intended by law to which it owes its being. This is particularly
truewhen the fiction is used to defeat public convenience, justify
wrong, protect fraud, defend crime, confuse legitimate legal or
judicial issues, perpetrate deception or otherwise circumvent the
law. This is likewise true where the corporate entity is being used as
an alter ego, adjunct, or business conduit for the sole benefit of
the stockholders or of another corporate entity. In all these cases,
the notion of corporate entity will be pierced or disregarded with
reference to the particular transaction involved.
Borromeo v. Court of Appeals
Respondent is a domestic savings bank corporation with principal office and place of
business at EPCIB Tower 2, Makati Avenue, Salcedo Village, Makati City.3 At the time the
dispute began, it was a subsidiary of Equitable PCI Bank (EPCIB), a domestic universal
banking corporation with principal office at Makati Avenue, Salcedo Village, Makati City.
After the merger of EPCIB and Banco De Oro (BDO), they have adopted the corporate
name "Banco De Oro."4
Petitioners were client-depositors of EPCIB for more than 12 years. Petitioners alleged
that sometime in mid-1999, the branch manager of EPCIB, J.P. Rizal Branch, offered a
loan to the petitioners under its "Own-a-Home Loan Program." Petitioners applied for a
loan of P4,000,000.00 and were informed of the approval of their loan application
sometime in October 1999. It was in the early part of 2000 that petitioners signed blank
loan documents consisting of the Loan Agreement, Promissory Notes, a Real Estate
Mortgage (REM) and Disclosure Statements.5
To secure the payment of the loan, petitioners executed an REM over their land,
registered under Transfer Certificate of Title (TCT) No. N-203923, located at Loyola Grand
Villas, Quezon City, consisting of 303 square meters; and the proposed house that was to
be built thereon.6 Petitioners asserted that even if the loan documents were signed in
blank, it was understood that they executed the REM in favor of EPCIB.7
From April 2001 to September 2002, respondent released a total amount
of P3,600,000.00 in four installments, while the balance of P400,000.00 was not drawn by
petitioners.8 On the other hand, petitioners started to pay their monthly amortizations on
21 April 2001.9
Petitioners made repeated verbal requests to EPCIB to furnish them their copies of the
loan documents.
Vice President of EPCIB, Gary Vargas, sent to the petitioners a letter 13 dated 27 August
2003 explaining that as a matter of practice, their clients were given original copies of the
loan documents only upon full release of the amount loaned. EPCIB clarified that since
petitioners’ loan had not been fully released, the original documents were not yet sent to
them. Petitioners were also informed that the applicable interest rate was set at the time
the loan was released, not at the time the loan was approved, and that the prevailing
interest when the first four installments of the loan were released ranged from 9.5% to
16%.
In the meantime, on 13 August 2003, respondent, through counsel, also sent a letter14
to
the petitioners demanding payment for their obligation. When the petitioners failed to pay
for the loan in full by 30 September 2003, respondent sought to extra-judicially foreclose
the REM.
RULING: Respondent, although a wholly-owned subsidiary of EPCIB, has an independent
and separate juridical personality from its parent company. The fact that a corporation
owns all of the stocks of another corporation, taken alone, is not sufficient to justify their
being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate
existence shall be respected, and the liability of the parent corporation, as well as the
subsidiary, shall be confined to those arising from their respective businesses. A
corporation has a separate personality distinct from its stockholders and other
corporations to which it may be conducted.44 Any claim or suit of the parent corporation
cannot be pursued by the subsidiary based solely on the reason that the former owns the
majority or even the entire stock of the latter.
Ching v. Sec of Justice
 PBMI, through Ching, Senior VP of Philippine Blooming Mills, Inc. (PBMI), applied
with theRizal Commercial Banking Corporation (RCBC) for the issuance
of commercial letters of credit to finance its importation of assorted goods
 RCBC approved the application, and irrevocable letters of credit were issued in favor
of Ching.
 The goods were purchased and delivered in trust to PBMI.
 Ching signed 13 trust receipts as surety, acknowledging delivery of the goods
 Under the receipts, Ching agreed to hold the goods in trust for RCBC, with authority
to sell but not by way of conditional sale, pledge or otherwise
 In case such goods were sold, to turn over the proceeds thereof as soon as
received, to apply against the relative acceptances and payment of other
indebtedness to respondent bank.
 In case the goods remained unsold within the specified period, the goods were to be
returned to RCBC without any need of demand.
 goods, manufactured products or proceeds thereof, whether in the form of money or
bills, receivables, or accounts separate and capable of identification - RCBC’s
property
 When the trust receipts matured, Ching failed to return the goods to RCBC, or to
return their value amounting toP6,940,280.66 despite demands.

 RCBC filed a criminal complaint for estafa against petitioner in the Office of the City
Prosecutor of Manila.
 December 8, 1995: no probable cause to charge petitioner with violating P.D. No.
115, as petitioner’s liability was only civil, not criminal, having signed the trust
receipts as surety
 RCBC appealed the resolution to the Department of Justice (DOJ) via petition for
review
 On July 13, 1999: reversed the assailed resolution of the City Prosecutor
 execution of said receipts is enough to indict the Ching as the official responsible for
violation of P.D. No. 115
 April 22, 2004: CA dismissed the petition for lack of merit and on procedural grounds
 Ching filed a petition for certiorari, prohibition and mandamus with the CA
RULING: Though the entrustee is a corporation, nevertheless, the law specifically makes
the officers, employees or other officers or persons responsible for the offense, without
prejudice to the civil liabilities of such corporation and/or board of directors, officers, or
other officials or employees responsible for the offense. The rationale is that such officers
or employees are vested with the authority and responsibility to devise means necessary
to ensure compliance with the law and, if they fail to do so, are held criminally
accountable; thus, they have a responsible share in the violations of the law.48
If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and
penalized for the crime, precisely because of the nature of the crime and the penalty
therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for
a crime punishable by imprisonment.49 However, a corporation may be charged and
prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both
fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty,
may be fined.50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what
it commands. A necessary part of the definition of every crime is the designation of the
author of the crime upon whom the penalty is to be inflicted. When a criminal statute
designates an act of a corporation or a crime and prescribes punishment therefor, it
creates a criminal offense which, otherwise, would not exist and such can be committed
only by the corporation. But when a penal statute does not expressly apply to
corporations, it does not create an offense for which a corporation may be punished. On
the other hand, if the State, by statute, defines a crime that may be committed by a
corporation but prescribes the penalty therefor to be suffered by the officers, directors, or
employees of such corporation or other persons responsible for the offense, only such
individuals will suffer such penalty.51 Corporate officers or employees, through whose act,
default or omission the corporation commits a crime, are themselves individually guilty of
the crime.52
The principle applies whether or not the crime requires the consciousness of wrongdoing.
It applies to those corporate agents who themselves commit the crime and to those, who,
by virtue of their managerial positions or other similar relation to the corporation, could be
deemed responsible for its commission, if by virtue of their relationship to the corporation,
they had the power to prevent the act.53 Moreover, all parties active in promoting a crime,
whether agents or not, are principals.54 Whether such officers or employees are benefited
by their delictual acts is not a touchstone of their criminal liability. Benefit is not an
operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind
the cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl
Warren, a corporate officer cannot protect himself behind a corporation where he is the
actual, present and efficient actor
Nisce v. Equitable PCI Bank
Spouses Ramon and Natividad Nisce contracted loans evidenced by promissory notes
with herein respondent Equitable PCI Bank, Inc. These loans, amounting
to P34,087,725.76, as well as the surety agreement executed by Natividad, are secured
by real estate mortgages over two parcels of land owned by said spouses. Having
defaulted, respondent as creditor-mortgagee filed a petition for extrajudicial foreclosure. It
must be noted that during these transactions, Equitable and PCI Bank, Inc. Paseo de
Roxas merged into what is now Equitable PCI Bank, Inc.
Thereafter, spouses Nisce filed before the RTC of Makati City a complaint for ―nullity of
the Suretyship Agreement, damages and legal compensation‖ with prayer for injunctive
relief against the Bank and the Ex-Officio Sheriff. They alleged, among others, that: 1) the
bank should have compensated their debt with their dollar account which they maintain
with PCI Capital Asia Ltd. (Hong Kong), a subsidiary of Equitable; 2) the surety
agreement is void for want of the consent of Ramon, who happens to be the administrator
of the conjugal partnership; 3) they had made a partial payment of P4.6M on their loan
account which petitioner failed to credit in their favor.
The Bank, for its part, contends that although the spouses’ debt was restructured, they
nevertheless failed to pay. Moreover, it alleged that there cannot be legal compensation
because PCI Capital had a separate and distinct personality from the PCIB, and a claim
against the former cannot be made against the latter.
Equitable posited that Natividad’s deposit of $20,000 with PCIB Paseo de Roxas was
transferred to PCI Capital via cable order and that it informed Natividad that it had acted
merely as a conduit in facilitating the transfer of the funds, and that her deposit was made
with PCI Capital and not with PCIB.
The RTC issued an injunctive writ holding that it would be best to maintain the status quo
while it resolves the issue on legal compensation. The Bank, on the other hand, filed a
petition for certiorari right away, and dispensed with the filing of a motion for
reconsideration (MR) with the CA. The CA sustained the respondent and held that
spouses Nisce failed to prove that they will suffer irreparable injury. In fact, given their
admission that they have not settled their obligations, the Bank had a clear right to the
remedy of foreclosure. The CA likewise held there cannot be legal compensation
because the parties are not mutual creditors and debtors of each other since Equitable
and PCI Capital are separate and distinct entities, although the latter is a subsidiary of the
former. Lastly, the court noted that there is no need for an MR if only questions of law are
involved.
RULING: Admittedly, PCI Capital is a subsidiary of respondent Bank. Even then, PCI
Capital [PCI Express Padala (HK) Ltd.] has an independent and separate juridical
personality from that of the respondent Bank, its parent company; hence, any claim
against the subsidiary is not a claim against the parent company and vice versa.74 The
evidence on record shows that PCIB, which had been merged with Equitable Bank, owns
almost all of the stocks of PCI Capital. However, the fact that a corporation owns all of the
stocks of another corporation, taken alone, is not sufficient to justify their being treated as
one entity. If used to perform legitimate functions, a subsidiary’s separate existence shall
be respected, and the liability of the parent corporation, as well as the subsidiary shall be
confined to those arising in their respective business.75 A corporation has a separate
personality distinct from its stockholders and from other corporations to which it may be
conducted. This separate and distinct personality of a corporation is a fiction created by
law for convenience and to prevent injustice.
Saludaga v. FEU
Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern
University when he was shot by Alejandro Rosete, one of the security guards on duty at
the school premises on August 18, 1996. Rosete was brought to the police station where
he explained that the shooting was accidental. He was eventually released considering
that no formal complaint was filed against him.
Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and
Management Corporation (Galaxy), the agency contracted by respondent FEU to provide
security services within its premises and Mariano D. Imperial (Galaxy’s President), to
indemnify them for whatever would be adjudged in favor of petitioner.
Petitioner is suing respondents for damages based on the alleged breach of student-
school contract for a safe and secure environment and an atmosphere conducive to
learning.
We note that the trial court held respondent De Jesus solidarily liable with respondent
FEU. In Powton Conglomerate, Inc. v. Agcolicol,26 we held that:
[A] corporation is invested by law with a personality separate and distinct from
those of the persons composing it, such that, save for certain exceptions,
corporate officers who entered into contracts in behalf of the corporation cannot
be held personally liable for the liabilities of the latter. Personal liability of a
corporate director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when - (1) he assents to a
patently unlawful act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest resulting
in damages to the corporation, its stockholders or other persons; (2) he
consents to the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection
thereto; (3) he agrees to hold himself personally and solidarily liable with the
corporation; or (4) he is made by a specific provision of law personally
answerable for his corporate action.27
None of the foregoing exceptions was established in the instant case; hence, respondent
De Jesus should not be held solidarily liable with respondent FEU.
FASAP v. PAL
In its Motion for Reconsideration, PAL maintains that it was suffering from
financial distress which justified the retrenchment of more than 1,400 of its flight
attendants. This, it argued, was an established fact. Furthermore, FASAP never assailed
the economic basis for the retrenchment, but only the allegedly discriminatory and
baseless manner by which it was carried out.
PAL asserts that it has presented proof of its claimed losses by attaching its petition for
suspension of payments, as well as the June 23, 1998 Order of the Securities and
Exchange Commission (SEC) approving the said petition for suspension of payments, in
its Motion to Dismiss and/or Consolidation of Case filed with the Labor Arbiter in NLRC-
NCR Case No. 06-05100-98, or the labor case subject of the herein petition. Also
attached to the petition for suspension of payments were its audited financial statements
for its fiscal year ending March 1998, and interim financial statements. PAL asserts further
that the Court should have accorded the SEC’s findings as regards its financial condition
respect and finality, considering that said findings were based on the financial statements
and other documents submitted to it, which PAL now submits, albeit belatedly, via the
instant Motionfor Reconsideration.
RULING: A corporate officer is not personally liable for the money claims of discharged
corporate employees unless he acted with evident malice and bad faith in terminating their
employment.[97] We do not see how respondent Patria Chiong may be held personally
liable together with PAL, it appearing that she was merely acting in accordance with what
her duties required under the circumstances. Being an Assistant Vice President for Cabin
Services of PAL, she takes direct orders from superiors, or those who are charged with
the formulation of the policies to be implemented.
With respect to moral damages, we have time and again held that as a general rule, a
corporation cannot suffer nor be entitled to moral damages. A corporation, being an
artificial person and having existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience physical suffering and mental
anguish. Mental suffering can be experienced only by one having a nervous system and it
flows from real ills, sorrows, and griefs of life – all of which cannot be suffered by an
artificial, juridical person.[98] The Labor Arbiter’s award of moral damages was therefore
improper.
Crystal v. BPI
On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained
a P300,000.00 loan in behalf of the Cebu Contractors Consortium Co. (CCCC) from the
Bank of the Philippine Islands-Butuan branch (BPI-Butuan). The loan was secured by a
chattel mortgage on heavy equipment and machinery of CCCC. On the same date, the
spouses executed in favor of BPI-Butuan a Continuing Suretyship5 where they bound
themselves as surety of CCCC in the aggregate principal sum of not
exceeding P300,000.00. Thereafter, or on 29 March 1979, Raymundo Crystal executed a
promissory note6 for the amount of P300,000.00, also in favor of BPI-Butuan.
Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City
branch (BPI-Cebu City). The renewal was evidenced by a promissory note7 dated 13
August 1979, signed by the spouses in their personal capacities and as managing
partners of CCCC. The promissory note states that the spouses are jointly and severally
liable with CCCC. It appears that before the original loan could be granted, BPI-Cebu City
required CCCC to put up a security.
However, CCCC had no real property to offer as security for the loan; hence, the spouses
executed a real estate mortgage8 over their own real property on 22 September 1977.9 On
3 October 1977, they executed another real estate mortgage over the same lot in favor of
BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.10
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became
due. CCCC, as well as the spouses, failed to pay their obligations despite demands. Thus,
BPI resorted to the foreclosure of the chattel mortgage and the real estate mortgage. The
foreclosure sale on the chattel mortgage was initially stalled with the issuance of a
restraining order against BPI.11 However, following BPI’s compliance with the necessary
requisites of extrajudicial foreclosure, the foreclosure sale on the chattel mortgage was
consummated on 28 February 1988, with the proceeds amounting toP240,000.00 applied
to the loan from BPI-Butuan which had then reached P707,393.90.12 Meanwhile, on 7 July
1981, Insular Bank of Asia and America (IBAA), through its Vice-President for Legal and
Corporate Affairs, offered to buy the lot subject of the two (2) real
estate mortgages and to pay directly the spouses’ indebtedness in exchange for the
release of the mortgages. BPI rejected IBAA’s offer to pay.13
BPI filed a complaint for sum of money against CCCC and the spouses before the
Regional Trial Court of Butuan City (RTC Butuan), seeking to recover the deficiency of the
loan of CCCC and the spouses with BPI-Butuan. The trial court ruled in favor of BPI.
Pursuant to the decision, BPI instituted extrajudicial foreclosure of the spouses’
mortgaged property
RULING: A juridical person is generally not entitled to moral damages because, unlike a
natural person, it cannot experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish or moral shock.32 The Court of Appeals found
BPI as "being famous and having gained its familiarity and respect not only in the
Philippines but also in the whole world because of its good will and good reputation must
protect and defend the same against any unwarranted suit such as the case at
bench."33 In holding that BPI is entitled to moral damages, the Court of Appeals relied on
the case of People v. Manero,34 wherein the Court ruled that "[i]t is only when a juridical
person has a good reputation that is debased, resulting in social humiliation, that moral
damages may be awarded.
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et
al.,[37] and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-
Bicol Christian College of Medicine (AMEC-BCCM),[38] the Court held that the
statements in Manero and Mambulao were mere obiter dicta, implying that the award of
moral damages to corporations is not a hard and fast rule. Indeed, while the Court may
allow the grant of moral damages to corporations, it is not automatically granted; there
must still be proof of the existence of the factual basis of the damage and its causal
relation to the defendant’s acts. This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the
wrongdoer. The spouses’ complaint against BPI proved to be unfounded, but it does not
automatically entitle BPI to moral damages. Although the institution of a clearly
unfounded civil suit can at times be a legal.
Justification for an award of attorney's fees, such filing, however, has almost invariably
been held not to be a ground for an award of moral damages. The rationale for the rule is
that the law could not have meant to impose a penalty on the right to litigate. Otherwise,
moral damages must every time be awarded in favor of the prevailing defendant against
an unsuccessful plaintiff.[40] BPI may have been inconvenienced by the suit, but we do
not see how it could have possibly suffered besmirched reputation on account of the
single suit alone. Hence, the award of moral damages should be deleted.
MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL
BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte,
defendants-appellees. G.R. No. L-22973, January 30, 1968
ANGELES, J.:
FACTS: On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved
for a loan of P100,000 only) with the Naga Branch of defendant PNB. To secure payment,
the plaintiff mortgaged a parcel of land, together with the buildings and improvements
existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao),
province of Camarines Norte. The PNB released from the approved loan the sum of
P27,500, and another release of P15,500.
The plaintiff failed to pay the amortization on the amounts released to and received by it. It
was found that the plaintiff had already stopped operation about the end of 1957 or early
part of 1958.
The unpaid obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59,
excluding attorney's fees. A foreclosure sale of the parcel of land, together with the
buildings and improvements thereon was, held on November 21, 1961, and the said
property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff
to redeem the same within a period of one year.
The plaintiff sent a letter reiterating its request that the foreclosure sale of the mortgaged
chattels be discontinued on the grounds that the mortgaged indebtedness had been fully
paid and that it could not be legally effected at a place other than the City of Manila.
The trial court sentenced the Mambulao Lumber Company to pay to the defendant PNB
the sum of P3,582.52 with interest thereon at the rate of 6% per annum. The plaintiff on
appeal advanced that its total indebtedness to the PNB as of November 21, 1961, was
only P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the
proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on
that date, added to the sum of P738.59 it remitted to the PNB thereafter was more than
sufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of
its chattels unlawful;
That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard
of plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale
thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties,
the PNB is liable to plaintiff for damages and attorney's fees.
ISSUE: Whether or not PNB may be held liable to plaintiff Corporation for damages and
attorney’s fees.
HELD: Herein appellant's claim for moral damages, 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. 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.

MERALCO v. TEAM Electronics

The law in force at the time material to this controversy was PD 401. It penalized
unauthorized installation of water, electrical, telephone connections and such acts as the
use of tampered electrical meters. PD 401 granted the electrical companies the right to
conduct inspections of electric meters and the criminal prosecution or erring customers
who were found to have tampered with their electrical meters. It did not provide for more
expedient remedies as the charging of differential billing and immediate disconnection
against erring customers. Thus, electric companies found a creative way of availing
themselves of such remedies by inserting into the service contracts a provision for
differential billing with the option of disconnection upon non-payment by the erring
customers. The Court has recognized the validity of such stipulations. However, recourse
to differential billing with disconnection was subject to the prior requirement of a 48-hour
written notice of disconnection.

MERALCO, in the instant case, resorted to the remedy of disconnection without prior
notice. While it is true that MERALCO sent a demand letter to TEC for the payment of
differential billing, it did not include any notice that the electric supply would be
disconnected. In fine, it abused the remedies granted to it under PD 401 by outright
depriving TEC of electric services without first notifying it of the impending disconnection.

The only exception to this rule is when the corporation has a reputation that is debased,
resulting in its humiliation in the business realm.[51] But in such a case, it is imperative for
the claimant to present proof to justify the award. It is essential to prove the existence of
the factual basis of the damage and its causal relation to petitioner’s acts.[52] In the
present case, the records are bereft of any evidence that the name or reputation of
TEC/TPC has been debased as a result of petitioner’s acts. Besides, the trial court simply
awarded moral damages in the dispositive portion of its decision without stating the basis
thereof.