Matling Industrial and Commercial Corporation et al. v. Ricardo R.

Coros

G.R. No. 157802, 13 Octoer 2010, (Bersamin, L., J)

FACTS: Ricardo Coros, the Vice President for Finance and Administration of Matling Industrial was dismissed. On August
10, 2000, he filed a complaint for illegal suspension and illegal dismissal against Matling in the NLRC. Matling moved to
dismiss the complaint on the ground of lack of jurisdiction. They allege that since Coros is a member of Matling’s Board of
Directors and a corporate office, the issue is an intra-corporate controversy. As such, jurisdiction lies with the Securities
and Exchange Commission (SEC).

Coros, in opposing the motion filed by Matling, alleged that his status as a member of the Board was doubtful since he was
not formally elected and he did not own a single share of stock. Even assuming that he had been a Director of Matling, he
had been removed as the Vice President for Finance and Administration, not as a Director, a fact that the notice of his
termination dated April 10, 2000 showed.

Labor Arbiter (LA) ruled in favor of Matling. On appeal, the NLRC reversed the decision of the LA and ruled that the case
is cognizable by the LA. Matling appealed to the CA through a petition for certiorari which the CA dismissed as well.

ISSUE: Whether or not Coros was a corporate officer of Matling

RULING: Petition DENIED.

As a rule, the illegal dismissal of an officer or other employee of a private employer is properly cognizable by the LA Where
the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls under the jurisdiction of the
Securities and Exchange Commission (SEC), because the controversy arises out of intra-corporate or partnership relations.

The petitioners argue that the power to create corporate offices and to appoint the individuals to assume the offices was
delegated by Matling’s Board of Directors to its President through By-Law No. V, as amended; and that any office the
President created, like the position of the respondent, was as valid and effective a creation as that made by the Board of
Directors.

The respondent counters that Matling’s By-Laws did not list his position as Vice President for Finance and Administration
as one of the corporate offices; that Matling’s By-Law No. III listed only four corporate officers, namely: President, Executive
Vice President, Secretary, and Treasurer; 18 that the corporate offices contemplated in the phrase "and such other officers
as may be provided for in the by-laws" found in Section 25 of the Corporation Code should be clearly and expressly stated
in the By-Laws.

We agree with respondent. Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order
to be considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is
not enough to make a position a corporate office.

An "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the
other hand, an employee occupies no office and generally is employed not by the action of the directors or stockholders
but by the managing officer of the corporation who also determines the compensation to be paid to such employee. In this
case, respondent was appointed vice president for nationwide expansion by Malonzo, petitioner’s general manager, not by
the board of directors of petitioner. It was also Malonzo who determined the compensation package of respondent. Thus,
respondent was an employee, not a "corporate officer."

Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office to the President,
in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate officers. Verily,
the power to elect the corporate officers was a discretionary power that the law exclusively vested in the Board of Directors,
and could not be delegated to subordinate officers or agents.22 The office of Vice President for Finance and Administration
created by Matling’s President pursuant to By Law No. V was an ordinary, not a corporate, office.

To emphasize, the power to create new offices and the power to appoint the officers to occupy them vested by By-Law No.
V merely allowed Matling’s President to create non-corporate offices to be occupied by ordinary employees of Matling.
Such powers were incidental to the President’s duties as the executive head of Matling to assist him in the daily operations
of the business.

PRINCE TRANSPORT, INC. v. GARCIA

G.R. 167291
January 12, 2011

Prince Transport, Inc. (PTI), is a company engaged in the business of transporting passengers by land; respondents were
hired either as drivers, conductors, mechanics or inspectors, except for respondent Diosdado Garcia (Garcia), who was
assigned as Operations Manager. Sometime in October 2007 the commissions received by the respondents were reduced
to 7 to 9% from 8 to 10%. This led respondents and other employees of PTI to hold a series of meetings to discuss the
protection of their interests as employees. Ranato Claros, president of PTI, made known to Garcia his objections to the
formation of a union and in order to block the continued formation of the union, PTI caused the transfer of all union members
and sympathizers to one of its sub-companies, Lubas Transport (Lubas). 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. Hence, the respondent-employees filed complaints against PTI for illegal dismissal
and unfair labor practice. PTI contended that it has nothing to do with the management and operations of Lubas as well as
the control and supervision of the latter's employees.

ISSUE:

Whether the CA err in applying the doctrine of piercing the corporate veil with respect to Lubas?

HELD:

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.

MARC II MARKETING, INC. VS. JOSON

GR 171993

FACTS

Before petitioner corporation was officially incorporated, respondent has already been engaged by petitioner Lucila,
in her capacity as President of Marc Marketing, Inc., to work as the General Manager of petitioner corporation. It was
formalized through the execution of a Management Contract under the letterhead of Marc Marketing, Inc. as petitioner
corporation is yet to be incorporated at the time of its execution. It was explicitly provided therein that respondent shall be
entitled to 30% of its net income for his work as General Manager. Respondent will also be granted 30% of its net profit to
compensate for the possible loss of opportunity to work overseas.

On 15 August 1994, petitioner corporation was officially incorporated and registered with the SEC. Accordingly,
Marc Marketing, Inc. was made non-operational. Respondent continued to discharge his duties as General Manager under
petitioner corporation.

Pursuant to Section 1, Article IV of petitioner corporation’s by-laws, its corporate officers are as follows: Chairman,
President, one or more Vice-President(s), Treasurer and Secretary. Its Board of Directors, however, may, from time to
time, appoint such other officers as it may determine to be necessary or proper.

Per an undated Secretary’s Certificate, petitioner corporation’s Board of Directors conducted a meeting on 29
August 1994 where respondent was appointed as one of its corporate officers with the designation or title of General
Manager to function as a managing director with other duties and responsibilities that the Board of Directors may provide
and authorized.

Nevertheless, on 30 June 1997, petitioner corporation decided to stop and cease its operations due to poor sales
collection aggravated by the inefficient management of its affairs. On the same date, it formally informed respondent of the
cessation of its business operation. Concomitantly, respondent was apprised of the termination of his services as General
Manager since his services as such would no longer be necessary for the winding up of its affairs.
 Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners before the
Labor Arbiter.

On 1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent. Aggrieved, petitioners
appealed the aforesaid Labor Arbiters Decision to the NLRC. In its Resolution dated 15 October 2002, the NLRC ruled in
favor of petitioners by giving credence to the Secretary’s Certificate, which evidenced petitioner corporations Board of
Directors meeting in which a resolution was approved appointing respondent as its corporate officer with designation as
General Manager. Therefrom, the NLRC reversed and set aside the Labor Arbiters Decision dated 1 October 2001 and
dismissed respondents Complaint for want of jurisdiction.

When respondents Motion for Reconsideration was denied in another Resolution dated 23 January 2003, he filed
a Petition for Certiorari with the Court of Appeals ascribing grave abuse of discretion on the part of the NLRC.

On 20 June 2005, the Court of Appeals rendered its Decision declaring that the Labor Arbiter has jurisdiction over
the present controversy. It upheld the finding of the Labor Arbiter that respondent was a mere employee of petitioner
corporation, who has been illegally dismissed from employment without valid cause and without due process. Nevertheless,
it ordered the records of the case remanded to the NLRC for the determination of the appropriate amount of monetary
awards to be given to respondent. Hence, this Petition.

Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that respondent was not a
corporate officer under petitioner corporations by-laws. They insist that there is no need to amend the corporate by-laws to
specify who its corporate officers are. The resolution issued by petitioner corporations Board of Directors appointing
respondent as General Manager, coupled with his assumption of the said position, positively made him its corporate officer.
More so, respondents position, being a creation of petitioner corporations Board of Directors pursuant to its by-laws, is a
corporate office sanctioned by the Corporation Code and the doctrines previously laid down by this Court. Thus,
respondents removal as petitioner corporations General Manager involved a purely intra-corporate controversy over which
the RTC has jurisdiction.

ISSUE

Whether the respondent, as the General Manager of petitioner corporation, is a corporate officer or a mere
employee.

RULING

The respondent is a mere employee of the respondent corporation.

In Easycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential Decree No. 902-
A, corporate officers are those officers of a corporation who are given that character either by the Corporation Code
or by the corporations by-laws. Section 25 of the Corporation Code specifically enumerated who are these corporate
officers, to wit: (1) president; (2) secretary; (3) treasurer; and (4) such other officers as may be provided for in the by-
laws.

The aforesaid Section 25 of the Corporation Code, particularly the phrase such other officers as may be provided
for in the by-laws, has been clarified and elaborated in this Courts recent pronouncement in Matling Industrial and
Commercial Corporation v. Coros, where it held that a position must be expressly mentioned in the [b]y-[l]aws in order
to be considered as a corporate office. Thus, the creation of an office pursuant to or under a [b]y-[l]aw enabling
provision is not enough to make a position a corporate office. Thus, pursuant to the above provision (Section 25 of
the Corporation Code), whoever are the corporate officers enumerated in the by-laws are the exclusive Officers of
the corporation and the Board has no power to create other Offices without amending first the corporate [b]y-
laws. However, the Board may create appointive positions other than the positions of corporate Officers, but the
persons occupying such positions are not considered as corporate officers within the meaning of Section 25 of
the Corporation Code and are not empowered to exercise the functions of the corporate Officers, except those functions
lawfully delegated to them. Their functions and duties are to be determined by the Board of Directors/Trustees.

A careful perusal of petitioner corporations by-laws would explicitly reveal that its corporate officers are composed
only of: (1) Chairman; (2) President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary. The position of
General Manager was not among those enumerated.
 Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of Directors to appoint
such other officers as it may determine necessary or proper. It is by virtue of this enabling provision that petitioner
corporations Board of Directors allegedly approved a resolution to make the position of General Manager a corporate office,
and, thereafter, appointed respondent thereto making him one of its corporate officers. All of these acts were done without
first amending its by-laws so as to include the General Manager in its roster of corporate officers.

With the given circumstances and in conformity with Matling Industrial and Commercial Corporation v. Coros, this Court
rules that respondent was not a corporate officer of petitioner corporation because his position as General Manager was
not specifically mentioned in the roster of corporate officers in its corporate by-laws. The enabling clause in petitioner
corporations by-laws empowering its Board of Directors to create additional officers, i.e., General Manager, and the alleged
subsequent passage of a board resolution to that effect cannot make such position a corporate office. Matling clearly
enunciated that the board of directors has no power to create other corporate offices without first amending the corporate
by-laws so as to include therein the newly created corporate office. Though the board of directors may create appointive
positions other than the positions of corporate officers, the persons occupying such positions cannot be viewed as corporate
officers under Section 25 of the Corporation Code. In view thereof, this Court holds that unless and until petitioner
corporations by-laws is amended for the inclusion of General Manager in the list of its corporate officers, such position
cannot be considered as a corporate office within the realm of Section 25 of the Corporation Code.

G.R. No. 157549 May 30, 2011

DONNINA C. HALLEY, Petitioner, 
vs.
PRINTWELL, INC., Respondent.

FACTS:

BMPI (Business Media Philippines Inc.) is a corporation under the control of its stockholders, including Donnina Halley. In
the course of its business, BMPI commissioned PRINTWELL to print Philippines, Inc. (a magazine published and
distributed by BMPI). 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.

However, only 25,000 was paid hence a balance of 291,000. 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.

It appears that BMPI has an authorized capital stock of 3M divided into 300,000 shares with P10 par value. Only 75,000
shares worth P750,000 were originally subscribed of which P187,500 were paid up capital. 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:

Defendant merely used the corporate fiction as a cloak/cover to create an injustice (against PRINTWELL). 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:

Whether or not petitioner Donnina Halley is personally liable though she submits she had no participation in the transaction
between BMPI and Printwell and that BMPI acted on its own.

HELD:
Yes. Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers,
such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the
ends of justice. The corporate personality may be disregarded, and the individuals composing the corporation will be treated
as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong;
as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders. As a general rule, a corporation
is looked upon as a legal entity, unless and until sufficient reason to the contrary appears. Thus, the courts always presume
good faith, and for that reason accord prime importance to the separate personality of the corporation, disregarding the
corporate personality only after the wrongdoing is first clearly and convincingly established. It thus behooves the courts to
be careful in assessing the milieu where the piercing of the corporate veil shall be done.

ISSUE: Whether or not the CA erred in affirming the decision of the RTC which essentially allowed the piercing of the Veil
of Corporate Fiction.

HELD:

No. Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act or as
a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievements or perfection of monopoly
or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals
(First Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate
existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and
due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613).

Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers, such
separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of
justice. The corporate personality may be disregarded, and the individuals composing the corporation will be treated as
individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; as
an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders. As a general rule, a corporation is
looked upon as a legal entity, unless and until sufficient reason to the contrary appears. Thus, the courts always presume
good faith, and for that reason accord prime importance to the separate personality of the corporation, disregarding the
corporate personality only after the wrongdoing is first clearly and convincingly established. It thus behooves the courts to
be careful in assessing the milieu where the piercing of the corporate veil shall be done.

ALERT SECURITY AND INVESTIGATION AGENCY, INC. VS. PASAWILAN

GR 182397

FACTS

Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor Bulusan were all employed by petitioner Alert Security and
Investigation Agency, Inc. (Alert Security) as security guards.

Respondents aver that because they were underpaid, they filed a complaint for money claims against Alert Security and
its president and general manager, petitioner Manuel D. Dasig, before Labor Arbiter Ariel C. Santos. As a result thereof,
the respondents were not given new assignments and were terminated from employment. Hence, they filed a complaint
for illegal dismissal.

The Labor arbiter rendered a Decision finding respondents to have been illegally dismissed.

Aggrieved, petitioners appealed the decision to the NLRC and the latter rendered a Decision dismissing the complaint for
illegal dismissal after ruling that the fact of dismissal or termination of employment was not sufficiently established.

Unfazed, respondents filed a petition for certiorari with the CA questioning the NLRC decision and alleging grave abuse of
discretion.

On February 1, 2008, the CA rendered the assailed Decision reversing and setting aside the NLRC decision. The
dispositive portion of said decision ruled that respondents should be paid their monetary awards in solidum by Alert Security
and Manuel D. Dasig, its President and General Manager.
Hence, this Petition arguing that Alert Security is a duly organized domestic corporation which has a legal personality
separate and distinct from its members or owners. Hence, liability for whatever compensation or money claims owed to
employees must be borne solely by Alert Security and not by any of its individual stockholders or officers.

ISSUE
Whether or not the President/General Manager is liable in solidum with the petitioner corporation.

RULING
No. Basic is the rule that a corporation has a separate and distinct personality apart from its directors, officers, or owners.
In exceptional cases, courts find it proper to breach this corporate personality in order to make directors, officers, or owners
solidarily liable for the companies acts. Section 31, Paragraph 1 of the Corporation Code provides:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with
their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members and other persons.
xxxx

Jurisprudence has been consistent in defining the instances when the separate and distinct personality of a corporation
may be disregarded in order to hold the directors, officers, or owners of the corporation liable for corporate debts. In McLeod
v. National Labor Relations Commission, the Court ruled:

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud, or defend crime. 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. x x x

Further, in Carag v. National Labor Relations Commission, the Court clarified the McLeod doctrine as regards labor
laws, to wit:

We have already ruled in McLeod v. NLRC and Spouses Santos v. NLRC that Article 212(e) of
the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the
corporation. The governing law on personal liability of directors for debts of the corporation is still Section
31 of the Corporation Code. x x x

In the present case, there is no evidence to indicate that Manuel D. Dasig, as president and general manager of
Alert Security, is using the veil of corporate fiction to defeat public convenience, justify wrong, protect fraud, or defend
crime. Further, there is no showing that Alert Security has folded up its business or is reneging in its obligations. In the final
analysis, it is Alert Security that respondents are after and it is also Alert Security who should take responsibility for their
illegal dismissal.

Filipinas Broadcasting vs. Ago Medical Center

GRN 141994 January 17, 2005

Carpio, J.:

FACTS:

Rima & Alegre were host of FBNI radio program “Expose”. Respondent Ago was the owner of the Medical & Educational
center, subject of the radio program “Expose”. AMEC claimed that the broadcasts were defamatory and owner Ago and
school AMEC claimed for damages. The complaint further alleged that AMEC is a reputable learning institution. With the
supposed expose, FBNI, Rima and Alegre “transmitted malicious imputations and as such, destroyed plaintiff’s
reputation. FBNI was included as defendant for allegedly failing to exercise due diligence in the selection and supervision
of its employees. The trial court found Rima’s statements to be within the bounds of freedom of speech and ruled that the
broadcast was libelous. It ordered the defendants Alegre and FBNI to pay AMEC 300k for moral damages.”

ISSUE:
Whether or not AMEC is entitled to moral damages.

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.
Nevertheless, AMEC’s claim, or moral damages fall under item 7 of Art – 2219 of the NCC.

This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Art 2219 (7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person
such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.
Moreover, where the broadcast is libelous per se, the law implied damages. In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. In this case, the
broadcasts are libelous per se. thus, AMEC is entitled to moral damages. However, we find the award P500,000 moral
damages unreasonable. The record shows that even though the broadcasts were libelous, per se, AMEC has not
suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages to
P150k.

Gamboa vs Teves
G.R. No. 176579 June 28, 2011

Facts: On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the
right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an
American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC.
In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr.
Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed
by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI
were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which
represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this Court to be owned by
the Republic of the Philippines. Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125
percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common
shares of PLDT. With the sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than
40 percent.

Issue: Whether or not the term capital in Section 11, Article XII of the Constitution refers to the common shares of PLDT,
a public utility.

Held: Yes. Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization
of public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so
requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign
investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and
all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis
supplied)

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement
prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public
utility, at least 60 percent of its capital must be owned by Filipino citizens.

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the
controlling interest.

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to
ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares will not
suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino citizens. Consequently, in
the case of petitioner PLDT, since it is already admitted that the voting interests of foreigners which would gain entry to
petitioner PLDT by the acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and
the nominee arrangements between the foreign principals and the Filipino owners is likewise admitted, there is, therefore,
a violation of Section 11, Article XII of the Constitution.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation.
This is exercised through his vote in the election of directors because it is the board of directors that controls or manages
the corporation. In the absence of provisions in the articles of incorporation denying voting rights to preferred shares,
preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded
from any control, that is, deprived of the right to vote in the election of directors and on other matters, on the theory that
the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders. In fact,
under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote. Common shares
cannot be deprived of the right to vote in any corporate meeting, and any provision in the articles of incorporation restricting
the right of common shareholders to vote is invalid.

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually
have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares. However,
if the preferred shares also have the right to vote in the election of directors, then the term capital shall include such
preferred shares because the right to participate in the control or management of the corporation is exercised through the
right to vote in the election of directors. In short, the term capital in Section 11, Article XII of the Constitution refers only to
shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens
the control and management of public utilities.

As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas
the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common
shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred
shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred
shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%.62 This
undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares,
blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public
utility.

Lyceum Vs. CA
GR 101897

Facts:
 Lyceum of the Philippines, Inc. is an educational institution duly registered with Securities and Exchange
Commission since 1950. (Sept)
 In 1984, it instituted proceedings before SEC to compel several education institutions to delete the word “Lyceum”
from their corporate names and to permanently enjoin them from using the said word.
 Their action is based on a SEC Resolution wherein SEC ordered the Lyceum of Baguio to change its corporate
name as it is identical to the Lyceum of the Philippines which was able to register first.
 SEC En Banc ruled that the attaching of the geographical names after the word “Lyceum” sufficiently distinguishes
one from the other.
 However, the CA ruled otherwise.

Issue No.1: WON the corporate names of the parties are identical with or deceptively similar to that of the petitioner. NO

Held: The corporate names of the parties carry the word “Lyceum” but confusion and deception are precluded by the
appending of geographic names. Lyceum generally refers to a school or an institution of learning and it is natural to use
this word to designate an entity which is organized and operating as an educational institution.

Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines,
or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines.

Issue No. 2: WON the use by the Lyceum of the Philippines of the word Lyceum in its corporate name has been for such
length of time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind
of the general public. (Doctrine of Secondary meaning). NO
Held: Doctrine of Secondary meaning is a word of phrase originally incapable of exclusive appropriation, might
nevertheless have been used so long and so exclusively by one producer with reference to his article that, in trade and to
that branch of the purchasing public, the word or phrase has come to mean that the article was his product.

Lyceum of the Philippines has not gained exclusive use of “Lyceum” by long passage of time. The number alone of the
private respondents suggests strongly that the use of Lyceum has not been attended with the exclusivity essential for the
applicability of the doctrine. It may be noted that one of the respondents – Western Pangasinan Lyceum used such term
17 years before the petitioner registered with the SEC. Moreover, there may be other schools using the name but not
registered with the SEC because they have not adopted the corporate form of organization.

First Philippine International Bank vs Court of Appeals

252 SCRA 259 [GR No. 115849 January 24, 1996]

Facts: In the course of its banking operations, the defendant Producer Bank of the Philippines acquired 6 parcels of land
with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna and covered by TCT No. T-106932 to T-106937.
The property used to be owned by BYME Investment and Development Corporation which hd them mortgaged with the
bank as collateral for a loan. The plaintiff originals, Demetrio Demetria and Jose Janolo wanted to purchase the property
and thus initiated negotiations for that purpose. In the early part of August 1987 said plaintiffs, upon the suggestion of
BYME investment’s legal counsel, Fajardo met with defendant Mercurio Rivera, manager of the property management
department of the defendant bank. The meeting was held in pursuant to plaintiffs’ plan to buy the property. After the
meeting, plaintiff Janolo, following the advice of defendant Rivera made a formal purchase offer to the Bank through a letter
dated August 30,1987. Negotiations took place and an offer price was fixed at P5.5million. During the course of the
negotiations, the defendant bank was placed under conservatorship and a new conservator was appointed to which the
name has been refused to recognize. A derivative suit has been filed against Rivera for the damages suffered from the
alleged perfect contract of sale involving the 6 parcels of land.

Issue: Whether or not a derivative suit may lie involving the bank and its stockholders.

Held: No. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he hold
stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the
ones, to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal
party with the corporation as the real party in interest.

In the face of the damaging admissions taken from the complaint in the second case, petitioners, quite strangely, sought
to deny that the second case was a derivative suit, reasoning that it was brought not by the minority shareholders, but by
Henry Co. etal. who not only hold or control over 80% of the outstanding capital stock, but also constitute the majority in
the board of directors of petitioners bank. That being so, then they really represent the bank, so whether they sued
derivatively or directly, there is undeniably an identity of interest/entity represented.

In addition to the many cases, where the corporate fiction has been regarded, we now add the instant case, and declare
herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum
shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot be
allowed to trifle with court processes particularly where, as in this case, the corporation itself has not been remiss in
vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise
would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum
shopping.

From the facts, the official bank price, at any rte, the bank placed its official, Rivera is a position of authority to accept offers
to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and say,
as it now does, that what Rivera states as the bank’s action on the matter is not in fact so. It is a familiar doctrine, the
doctrine of ostensible authority, that if a corporation on knowingly permits one of its officers, or any other agent, to do acts
within the scope of apparent authority, and thus holds him out to the public as possessing power to do those acts, the
corporation will, as against any one who has in good faith dealt with the corporation through such agent, he estopped from
denying his authority.

A bank is liable for wrongful acts of its officers done in the interest of the bank or in he course of dealings of the officers in
their representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agents
as worthy of confidence will not be permitted to profit by the frauds they my thus be enabled to perpetrate in the apparent
scope of their employment; nor will it be permitted to shrink its responsibility for such fraud even through no benefit may
accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the general scope of its authority even though,
in the particular case, the agent is secretly abusing his authority and attempting to perpetrate fraud upon his principal or
some other person, for his own ultimate benefit.
SEVENTH DAY ADVENTIST CONFERENCE CHURCH VS NORTHEASTERN MINDANAO MISSION OF SEVENTH
DAY ADVENTIST, INC

G.R. No. 150416 July 21, 2006

FACTS: This case involves two supposed transfers of the lot previously owned by the spouses Cosio. The first transfer
was a donation to petitioners’ alleged predecessors-in-interest in 1959 while the second transfer was through a contract of
sale to respondents in 1980. A TCT was later issued in the name of respondents. Claiming to be the alleged donee’s
successors-in-interest, petitioners filed a case for cancellation of title, quieting of ownership and possession, declaratory
relief and reconveyance with prayer for preliminary injunction and damages against respondents. Respondents, on the
other hand, argued that at the time of the donation, petitioners’ predecessors-in-interest has no juridical personality to
accept the donation because it was not yet incorporated. Moreover, petitioners were not members of the local church then.

The RTC upheld the sale in favor of respondents, which was affirmed by the Court of Appeals, on the ground that all the
essential requisites of a contract were present and it also applied the indefeasibility of title.

ISSUE: Whether or not the donation was void.

HELD: Yes, the donation was void because the local church had neither juridical personality nor capacity to accept such
gift since it was inexistent at the time it was made.

The Court denied petitioners’ contention that there exists a de facto corporation. While there existed the old Corporation
Law (Act 1459), a law under which the local church could have been organized, petitioners admitted that they did not even
attempt to incorporate at that time nor the organization was registered at the Securities and Exchange Commission. Hence,
petitioners obviously could not have claimed succession to an entity that never came to exist. And since some of the
representatives of petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not even
members of the local church then, it necessarily follows that they could not even claim that the donation was particularly
for them.

Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, HSK sa Bansang Pilipinas Inc. vs. Iglesia ng Dios kay Cristo
Jesus, Haligi at Suhay ng Katotohanan
[GR 137592, 12 December 2001]

FACTS:
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus, the Pillar
and Ground of Truth), is a non-stock religious society or corporation registered in 1936. Sometime in 1976, one Eliseo
Soriano and several other members of respondent corporation disassociated themselves from the latter and succeeded
in registering on March 30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios Kay Kristo
Hesus, Haligi at Saligan ng Katotohanan. Respondent corporation filed with the SEC a petition to compel the Iglesia ng
Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to another name that is not similar
or identical to any name already used by a corporation, partnership or association registered with the Commission.
Petitioner is compelled to change its corporate name and be barred from using the same or similar name on the ground
that the same causes confusion among their members as well as the public. SEC rendered a decision ordering petitioner
to change its corporate name. The Court of Appeals rendered the assailed decision affirming the decision of the SEC En
Banc.

Issue:
1. Whether the corporate names of AK[IDKH-HSK]BP and IDCH-HSK are confusingly similar.

Held:

1. The SEC has the authority to de-register at all times and under all circumstances corporate names which in its estimation
are likely to spawn confusion. It is the duty of the SEC to prevent confusion in the use of corporate names not only for the
protection of the corporations involved but more so for the protection of the public. Section 18 of the Corporation Code
provides that "No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by
law or is patently deceptive, confusing or is contrary to existing laws. When a change in the corporate name is approved,
the Commission shall issue an amended certificate of incorporation under the amended name." Corollary thereto, the
pertinent portion of the SEC Guidelines on Corporate Names states that "(d) If the proposed name contains a word similar
to a word already used as part of the firm name or style of a registered company, the proposed name must contain two
other words different from the name of the company already registered; Parties organizing a corporation must choose a
name at their peril; and the use of a name similar to one adopted by another corporation, whether a business or a nonprofit
organization, if misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be prevented
by the corporation having a prior right, by a suit for injunction against the new corporation to prevent the use of the name.
Herein, the additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in AK[IDKH-HSK]BP's name are merely
descriptive of and also referring to the members, or kaanib, of IDCH-HSK who are likewise residing in the Philippines.
These words can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in
distinguishing AK[IDKH-HSK]BP from IDCH-HSK. This is especially so, since both AK[IDKH-HSK]BP and IDCH-HSK are
using the same acronym — H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in the
same place. Parenthetically, it is well to mention that the acronym H.S.K. used by AK[IDKH-HSK]BP stands for "Haligi at
Saligan ng Katotohanan." Then, too, the records reveal that in holding out their corporate name to the public, AK[IDKH-
HSK]BP highlights the dominant words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG
KATOTOHANAN," which is strikingly similar to IDCH-HSK's corporate name, thus making it even more evident that the
additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are merely descriptive of and pertaining to the
members of IDCH-HSK. Significantly, the only difference between the corporate names of AK[IDKH-HSK]BP and IDCH-
HSK are the words SALIGAN and SUHAY. These words are synonymous — both mean ground, foundation or support.
Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., 22 where the Court ruled
that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even
under the test of "reasonable care and observation" confusion may arise.

ARNOLD HALL vs. EDMUNDO PICCIO

G.R. No. L-2598 / June 29, 1950
FACTS:

On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma Brown,
Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the articles of incorporation of the Far
Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general
contractors, operators and managers, etc. Attached to the articles was an affidavit of the treasurer stating that 23,428
shares of stock had been subscribed and fully paid with certain properties transferred to the corporation described in a
list appended thereto.
Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the
adoption of by-laws and the election of its officers. On December 2, 1947, the said articles of incorporation were filed in
the office of the Securities and Exchange Commission for the issuance of the corresponding certificate of incorporation.
On March 22, 1948, pending action on the articles of incorporation by the SEC, respondents Fred Brown, Emma Brown,
Hipolita D. Chapman and Ceferino S. Abella filed a suit against petitioners before the Court of First Instance of Leyte
alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they
wished to have it dissolved because of bitter dissension among the members, mismanagement and fraud by the
managers and heavy financial losses.
The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court’s
jurisdiction and the sufficiency of the cause of action.
After hearing the parties, the Hon. Edmundo S. Piccio ordered the dissolution of the company; and at the request of
plaintiffs, appointed the respondent Pedro A. Capuciong as receiver of the properties thereof, upon the filing of a P20,000
bond.
The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the
respondent judge refused to accept the offer and to discharge the receiver.
Hence, this petition.
ISSUE:

Whether or not the trial court has jurisdiction over the case?
HELD:

No. The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a de
facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with
section 19 of the Corporation Law.
Under our statute it is to be noted that it is the issuance of a certificate of incorporation by the Director of the Bureau of
Commerce and Industry which calls a corporation into being. The immunity of collateral attack is granted to corporations
‘claiming in good faith to be a corporation under this act.’
Further, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged
corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in
a private suit for its dissolution between stockholders, without the intervention of the state.
WHEREFORE, the petition is dismissed.

ANDAYA VS. RURAL BANK OF CABADBARAN, INC

 G.R. No. 188769. August 3, 2016

Chico, Nazario, J.

FACTS:

 Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran for P220,000
 Chute duly endorsed and delivered the certificates of stock to Andaya and, subsequently, requested the bank to
register the transfer and issue new stock certificates in favor of the latter
 A few days later, the bank’s corporate secretary wrote Chute to inform her that he could not register the transfer
due to a previous’ stockholder’s Resolution where existing stockholders were given priority to buy the shares of
others in the event that the latter offered those shares for sale
 He then asked Chute if she, instead, wished to have her shares offered to existing stockholders
 Meanwhile, the bank’s legal counsel, respondent Gonzalez, informed Andaya that the latter’s request had been
referred to the bank’s board of directors for evaluation.
 Citing Section 98 of the Corporation Code, Andaya claimed that the purported restriction on the transfer of shares
of stock agreed upon during the 2001 stockholders’ meeting could not deprive him of his right as a transferee.
 The bank still refused the transfer arguing that it may refuse to accept a competitor as one of its stockholders
 Andaya instituted an action for mandamus and damages against Rural Bank of Cabadbaran which was
dismissed by the RTC, hence this petition for review
ISSUE: Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus compelling the Rural
Bank of Cabadbaran to record the transfer of shares in its stock and transfer book, as well as issue new stock certificates
in his name.

RULING: Yes. According to Price vs Martin, A person who has purchased stock, and who desires to be recognized as a
stockholder, for the purpose of voting, must secure a standing by having the transfer recorded upon the books. If the
transfer is not duly made upon request, he has, as his remedy, to compel it to be made. The registration of a transfer of
shares of stock is a ministerial duty on the part of the corporation. It is already settled jurisprudence that the registration of
a transfer of shares of stock is a ministerial duty on the part of the corporation. Aggrieved parties may then resort to the
remedy of mandamus to compel corporations that wrongfully or unjustifiably refuse to record the transfer or to issue new
certificates of stock.

AGDAO LANDLESS RESIDENTS ASSOCIATION INC., ET. AL v. ROLANDO MARAMION, ET. AL

G.R. No. 188642 & 189425, OCTOBER 17, 2016
Facts:

Petitioners are Agdao Landless Residents Association, Inc. (ALRAI), a non-stock, non-profit corporation duly
organized and existing under and by virtue of the laws of the Republic of the Philippines; through its board it transferred 46
titled lots to different members and non-members of the corporation. The respondent members of the corporation were
removed as members of the corporation by the board for absences in the meetings regarding the transfer of said lots.
Respondents question the validity of their removal as members and the transfer of said lots through individual suits filed
with the court.

Issues:

1. Whether or not the members were removed validly

2. Whether or not the individual suits are proper
3. Whether or not the transfer of the lots are valid

Held:

1. Section 91 58 of the Corporation Code of the Philippines (Corporation Code) provides that membership in a non-stock,
non-profit corporation (as in petitioner ALRAI in this case) shall be terminated in the manner and for the cases provided
in its articles of incorporation or the by-laws. Agdao’s constitution provides that in the removal of members “The
Secretary shall give or cause to be given written notice of all meetings, regular or special to all members of the
association at least three (3) days before the date of each meetings either by mail or personally.” For failing to meet
said notice requirements the removal of the respondents as members is invalid.

2. Individual suits are filed when the cause of action belongs to the stockholder personally, and not to the stockholders
as a group, or to the corporation, e.g. denial of right to inspection and denial of dividends to a stockholder. If the cause
of action belongs to a group of stockholders, such as when the rights violated belong to preferred stockholders, a class
 or representative suit may be filed to protect the stockholders in the group. A derivative suit, on the other hand, is one
which is instituted by a shareholder or a member of a corporation, for and in behalf of the corporation for its protection
from acts committed by directors, trustees, corporate officers, and even third persons. Even though the action should
have been brought up through a derivative suit, the individual suits are treated as individual suits based on the following:

a. The RTC, where the case was originally filed, has jurisdiction over the controversy;
b. Petitioners did not object to the institution of the case (on the ground that a derivative suit should have been
lodged instead of an individual suit) in any of the proceedings before the court a quo or before the CA.
c. a reading of the complaint shows that respondents do not pray for reliefs for their personal benefit; but in fact,
for the benefit of the corporation.

3. Javonillo, as a director, signed the Board Resolutions133 confirming the transfer of the corporate properties to himself,
and to Armentano. Petitioners cannot argue that the transfer of the corporate properties to them is valid by virtue of the
Resolution 134 by the general membership of Agdao confirming the transfer for tJ-iree reasons.

“Sec. 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or
more of its directors or trustees or officers is voidable, at the option of such corporation, unless all of the following
conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved
was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.”
Section 32 requires that the contract should be ratified by a vote representing at least two-thirds of the members in a
meeting called for the purpose. Records of this case do not show whether the Resolution was indeed voted by the
required percentage of membership. There is also no showing that there was full disclosure of the adverse interest of
the directors involved when the Resolution was approved. Full disclosure is required under the aforecited Section 32
of the Corporation Code. Section 32 requires that the contract be fair and reasonable under the circumstances. As
previously discussed, the transfer of the corporate properties to the individual petitioners is not fair and reasonable for
( 1) want of legitimate corporate purpose, and for (2) the breach of the fiduciary nature of the positions held by Javonillo
and Armentano. Lacking any of these (full disclosure and a showing that the contract is fair and reasonable), ratification
by the two-thirds vote would be of no avail.

GR No. 194964, January 11, 2016

University of Mindanao (Petitioner) v Bangko Sentral ng Pilipinas et al. (Respondents)
Second Division
Ponente: Leonen, J.

Nature of Action: An action for the nullification and cancellation of mortgage on the ground that the person who entered
into contract has no authority to execute such contract.

FACTS:

Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2) thrift banks: (1) First Iligan Savings
& Loan Association, Inc. (FISLAI); and (2) Davao Savings and Loan Association, Inc. (DSLAI). Guillermo B. Torres chaired
both thrift banks. He acted as FISLAI's President, while his wife, Dolores P. Torres, acted as DSLAI's President and
FISLAI's Treasurer. Upon Guillermo B. Torres' request, Bangko Sentral ng Pilipinas issued a P1.9 million standby
emergency credit to FISLAI. On May 25, 1982, University of Mindanao's Vice President for Finance, Saturnino Petalcorin,
executed a deed of real estate mortgage over University of Mindanao's property in Cagayan de Oro City in favor of Bangko
Sentral ng Pilipinas. "The mortgage served as security for FISLAI's PI.9 Million loan" It was allegedly executed on University
of Mindanao's behalf. As proof of his authority to execute a real estate mortgage for University of Mindanao, Saturnino
Petalcorin showed a Secretary's Certificate signed by University of Mindanao's Corporate Secretary, Aurora de Leon. The
Secretary’s certificate states among others the authorizing of the chairman to appoint Satunino Pactolerin to represent the
University of Mindanao to transact, transfer, convey, lease, mortgage, or otherwise hypothecate the subject properties.
Saturnino Petalcorin executed another deed of real estate mortgage, allegedly on behalf of University of Mindanao, over
its two properties in Iligan City. This mortgage served as additional security for FISLAI's loans. FISLAI and DSLAI eventually
merged with DSLAI as the surviving corporation in an effort to rehabilitate the thrift banks due to the heavy withdrawals of
depositors. DSLAI later became known as Mindanao Savings and Loan Association, Inc. (MSLAI). MSLAI failed to recover
from its losses. Bangko Sentral ng Pilipinas later on foreclosed the mortgaged properties. University of Mindanao filed two
Complaints for nullification and cancellation of mortgage. One Complaint was filed before the Regional Trial Court of
Cagayan de Oro City, and the other Complaint was filed before the Regional Trial Court of Iligan City. University of
Mindanao alleged that it did not obtain any loan from Bangko Sentral ng Pilipinas and that Aurora De Leon’s certification
was anomalous. That it never authorized Saturnino Petalcorin to execute real estate mortgage contracts involving its
properties to secure FISLAI's debts and it never ratified the execution of the mortgage contracts. The Regional Trial Courts
ruled in favor of University of Mindanao. The Court of Appeals however ruled that "although BSP failed to prove that the
UM Board of Trustees actually passed a Board Resolution authorizing Petalcorin to mortgage the subject real
properties, Aurora de Leon's Secretary's Certificate" clothed Petalcorin with apparent and ostensible authority to execute
the mortgage deed on its behalf. Bangko Sentral ng Pilipinas merely relied in good faith on the Secretary's
Certificate. University of Mindanao is estopped from denying Saturnino Petalcorin's authority.

ISSUE:

Whether petitioner University of Mindanao is bound by the real estate mortgage contracts executed by Saturnino
Petalcorin.

RULING:

No. Acts of an officer that are not authorized by the board of directors/trustees do not bind the corporation unless
the corporation ratifies the acts or holds the officer out as a person with authority to transact on its behalf.

Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its properties on its behalf. There was
no board resolution to that effect. Thus, the mortgages executed by Saturnino Petalcorin were unenforceable. The
mortgage contracts executed in favor of respondent do not bind petitioner. They were executed without authority from
petitioner. Being a juridical person, petitioner cannot conduct its business, make decisions, or act in any manner without
action from its Board of Trustees. The Board of Trustees must act as a body in order to exercise corporate powers.
Individual trustees are not clothed with corporate powers just by being a trustee. Hence, the individual trustee cannot bind
the corporation by himself or herself. The corporation may, however, delegate through a board resolution its corporate
powers or functions to a representative, subject to limitations under the law and the corporation's articles of incorporation.
The relationship between a corporation and its representatives is governed by the general principles of agency. Article
1317 of the Civil Code provides that there must be authority from the principal before anyone can act in his or her name:

ART. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has
by law a right to represent him.

Hence, without delegation by the board of directors or trustees, acts of a person - including those of the
corporation's directors, trustees, shareholders, or officers—executed on behalf of the corporation are generally not binding
on the corporation. The unenforceable status of contracts entered into by an unauthorized person on behalf of another is
based on the basic principle that contracts must be consented to by both parties. There is no contract without meeting of
the minds as to the subject matter and cause of the obligations created under the contract. Consent of a person cannot be
presumed from representations of another, especially if obligations will be incurred as a result. Thus, authority is required
to make actions made on his or her behalf binding on a person. Contracts entered into by persons without authority from
the corporation shall generally be considered ultra vires and unenforceable against the corporation.