Corporation Law Case Digests

1. Sappari K. Sawadjaan, petitioner, vs. The Honorable Court Of Appeals, et al.,

respondents. [G.R. No. 141735. June 8, 2005]

Statement of the Facts: In February 1988, Sawadjaan, the appraiser/investigator for Al-
Amanah Bank at the time, 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 (P5,000,000.00). When CAMEC failed to pay despite the given
extension, the bank discovered irregularities in the transaction which led to an investigation.
The Investigating Committee found Sawadjaan guilty of Dishonesty in the Performance of
Official Duties and/or Conduct Prejudicial to the Best Interest of the Service and dismissed
him from the service. In the course of the proceedings, Sawadjaan claimed that he had
recently discovered that at the time his employment was terminated, the Al-Amanah had not
yet adopted its corporate by-laws. Thus, he argued that since Al-Amanah failed to file its by-
laws within 60 days from the passage of law creating it, as required by Sec. 51 of the said law,
the bank and its stockholders had already forfeited its franchise or charter, including its
license to exist and operate as a corporation, and thus no longer have the legal standing and
personality to initiate an administrative case.

Statement of the Case: Upon denial of his motion for reconsideration, Sawadjaan went to
the Civil Service Committee (CSC) for recourse which in turn adopted the Investigating
Committee’s findings. On appeal, the CA affirmed the resolutions of the CSC, hence this
petition for certiorari under Rule 65 to the Supreme Court.

Issue: Whether or not all proceedings initiated by Al-Amanah and all actions resulting
therefrom, including Sawadjaan’s dismissal, are a patent nullity, in view of Al-Amanah’s
failure to file its by-laws within the designated 60 days from the effectivity of the law creating
it?

Ruling: No, Al-Amanah’s failure to file its by-laws within the designated period did not have
the effect of nullifying any proceeding it initiated nor any actions resulting therefrom.

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.

At the very least, by its failure to submit its by-laws on time, Al-Amanah 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. From the foregoing,
the Court did not find that the CSC and the court a quo committed no grave abuse of
discretion when they sustained Sawadjaans dismissal from service.

Dispositive Portion: WHEREFORE, the petition is DISMISSED. The Decision of the

Court of Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No. 95-2754 of
the Civil Service Commission, and its Resolution of 15 December 1999 are hereby
AFFIRMED.

2. Reynaldo M. Lozano, petitioner, vs. Hon. Eliezer R. De Los Santos, Presiding Judge,
RTC, Br. 58, Angeles City, and Antonio Anda, respondents. [G.R. No. 125221. June 19,
1997]

Statement of the Facts: Lozano was the president of the Kapatirang Mabalacat-Angeles
Jeepney Drivers' Association, Inc. while Anda was the president of the Samahang Angeles-
Mabalacat Jeepney Operators' and Drivers' Association, Inc. In 1995, Lozano and Anda
agreed to consolidate their respective associations and form the Unified Mabalacat-Angeles
Jeepney Operators' and Drivers' Association, Inc. They also agreed to elect one set of officers
who shall be given the sole authority to collect the daily dues from the members of the
consolidated association. When elections were held on October 29, 1995, both Lozano and
Anda ran for president, and Lozano won the same. Meanwhile, Anda protested and, alleging
fraud, refused to recognize the results of the election. He also refused to abide by their
agreement and continued collecting the dues from the members of his association despite
several demands to desist. Lozano was thus constrained to file a complaint to restrain Anda
from collecting the dues and to order him to pay damages. Anda for his part, moved to
dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was lodged with the
Securities and Exchange Commission (SEC). He argued that the case involved an
intracorporate dispute, which is under the jurisdiction of the SEC, since the plan to
consolidate their respective jeepney drivers' and operators' associations into a single common
association has resulted in a Corporation by Estoppel.

Statement of the Case: The MCTC denied Anda’s motion. On petition for certiorari, the
RTC reversed the lower court and ordered the dismissal of the case. Lozano’s motion for
reconsideration having been denied, he sought this present recourse with the Supreme
Court.

Issue: Whether or not the controversy involves an intracorporate dispute over which
jurisdiction properly lies with the SEC.
Ruling: No, there is no intracorporate nor partnership relation between KAMAJDA and
SAMAJODA to which Lozano and Anda belong. The dispute between them is not within
the KAMAJDA or the SAMAJODA; it is between members of separate and distinct
associations. Lozano and Anda have no intracorporate relation much less do they have an
intracorporate dispute. The SEC therefore has no jurisdiction over the complaint.

The doctrine of corporation by estoppels advanced by Anda cannot override jurisdictional

requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties.
It cannot be acquired through or waived, enlarged or diminished by, any act or omission of
the parties, neither can it be conferred by the acquiescence of the court. Morevoer, the
doctine is founded on principles of equity and is designed to prevent injustice and unfairness.
It applies when persons assume to form a corporation and exercise corporate functions and
enter into business relations with third persons. Where there is no third person involved and
the conflict arises only among those assuming the form of a corporation, who therefore know
that it has not been registered, there is no corporation by estoppel.

Dispositive Portion: IN VIEW WHEREOF, the petition is granted and the decision dated
April 18, 1996 and the order dated May 31, 1996 of the Regional Trial Court, Branch 58,
Angeles City are set aside. The Municipal Circuit Trial Court of Mabalacat and Magalang,
Pampanga is ordered to proceed with dispatch in resolving Civil Case No. 1214.

3. Lim Tong Lim, petitioner, vs. Philippine Fishing Gear Industries, Inc., respondent. [G.R.
No. 136448. November 3, 1999]

Statement of the Facts: On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and
Peter Yao entered into a Contract for the purchase of fishing nets from the Philippine Fishing
Gear Industries, Inc. They claimed that they were engaged in a business venture with Lim
Tong Lim, who was not a signatory to the agreement. The buyers, however, failed to pay for
the fishing nets and the floats; hence, Philippine Fishing Gear filed a collection suit against
Chua, Yao and Lim. The suit was brought against the three in their capacities as general
partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent
corporation as shown by a Certification from the Securities and Exchange Commission.

Statement of the Case: The trial court ruled that Philippine Fishing Gear was entitled to the
Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to
pay the former. On appeal by Lim, the CA affirmed the ruling of the trial court. Hence, Lim
brought this petition for review on certiorari with the Supreme Court, on the ground that
under the doctrine of corporation by estoppel, liability can be imputed only to Chua and
Yao, and not to him, since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation.
Issue: Whether or not the liability of a corporation by estoppel may extend to Lim who did
not directly act for the corporation.

Ruling: Yes, a third party who, knowing an association to be unincorporated, nonetheless

treated it as a corporation and received benefits from it, may be barred from denying its
corporate existence in a suit brought against the alleged corporation. In such case, all those
who benefited from the transaction made by the ostensible corporation, despite knowledge
of its legal defects, may be held liable for contracts they impliedly assented to or took
advantage of.

Technically, it is true that Lim did not directly act on behalf of the corporation. However,
having reaped the benefits of the contract entered into by persons with whom he previously
had an existing relationship, he is deemed to be part of said association and is covered by
the scope of the doctrine of corporation by estoppel.

Dispositive Portion: WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED.

4. Benny Y. Hung, petitioner, vs. Bpi Card Finance Corp., respondent. [July 20, 2010]

Statement of the Facts: Guess? Footwear and BPI Express Card Corporation entered into
two merchant agreements. In the first agreement, Hung signed as owner and manager of
Guess? Footwear. He signed the second agreement as president of Guess? Footwear which
he also referred to as B & R Sportswear Enterprises. Thereafter, BPI mistakenly credited,
through 352 checks, P3,480,427.23 to the account of Guess? Footwear. When he was
informed of the overpayments, Hung, transferred P963,604.03 from the bank account of B
& R Sportswear Enterprises to BPIs account as partial payment. When BPI demanded the
balance payment amounting to P2,516,826.68, Guess? Footwear failed to pay. Thus, it filed
a collection suit before the RTC of Makati City naming as defendant B & R Sportswear
Distributor, Inc. Although the case was against B & R Sportswear Distributor, Inc., it was B
& R Footwear Distributors, Inc., that filed an answer, appeared and participated in the trial.
The RTC ruled in favor of Hung, however, because it was discovered that B & R Sportswear
Distributor, Inc. is a non-existing entity, the trial court failed to execute the judgment.

Statement of the Case: Ultimately, the RTC ordered Hung to pay BPI since he signed the
merchant agreements in his personal capacity. On appeal, the CA affirmed the order of the
lower court on the ground that, since B & R Sportswear Distributor, Inc. is not a corporation,
it therefore has no personality separate from petitioner Benny Hung who induced the
respondent BPI and the RTC to believe that it is a corporation. After his motion for
reconsideration was denied, Hung filed this instant petition for review by certiorari to the
Supreme Court.

Issue: Whether or not petitioner can be held liable for the satisfaction of the RTC’s Decision
against B & R Sportswear Distributor, Inc.?

Ruling:
Additional 10 Cases

ERNESTO M. APODACA, v. NATIONAL LABOR RELATIONS COMMISSION, et.

al., G.R. No. 80039 April 18, 1989, Gancayco, J.
STATEMENT OF THE FACTS: Respondent Jose M. Mirasol persuaded Apodaca to
subscribe to 1,500 shares of respondent corporation, Intrans Phils., Inc., the employer of
the latter, at P100.00 per share or a total of P150,000.00. He made an initial payment of
P37,500.00. In 1986, Apodaca instituted with the NLRC a complaint against the respondents
for the payment of his unpaid wages, his cost of living allowance, the balance of his gasoline
and representation expenses and his bonus compensation for 1986. The respondents
admitted that there is due to Apodaca the amount of P17,060.07 but this was applied to the
unpaid balance of his subscription in the amount of P95,439.93. Apodaca questioned the
set-off alleging that there was no call or notice for the payment of the unpaid subscription
and that, accordingly, the alleged obligation is not enforceable.

STATEMENT OF THE CASE: The labor arbiter sustained Apodaca’s claim for
P17,060.07. On appeal, the labor arbiter was reversed by the NLRC which held that a
stockholder who fails to pay his unpaid subscription on call becomes a debtor of the
corporation and that the set-off of said obligation against the wages and others due to
petitioner is not contrary to law, morals and public policy. Hence, Apodaca sought this
present recourse with the Supreme Court.

ISSUE: Whether or not an obligation arising from a claim for non-payment of stock
subscription can be offset against a money claim of an employee against the employer?

RULING: No, unpaid subscriptions are not due and payable until a call is made by the
corporation for payment.

The respondents have not presented a resolution of the board of directors of respondent
corporation calling for the payment of the unpaid subscriptions. It does not even appear that
a notice of such call has been sent to petitioner by the respondent corporation. What the
records show is that the respondent corporation deducted the amount due to Apodaca from
the amount receivable from him for the unpaid subscriptions. No doubt such set-off was
without lawful basis, if not premature. As there was no notice or call for the payment of
unpaid subscriptions, the same is not yet due and payable.

DISPOSITIVE PORTION: WHEREFORE, the petition is GRANTED and the

questioned decision of the NLRC dated September 18, 1987 is hereby set aside, with costs
against private respondents.