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Corporate Law Case Digest:

A. Corporation defined (Sec. 2)

1. Cases: Tayag v. Benguet Consolidated, 26 SCRA 242;

Lessons Applicable: Theory of Concession (Corporate Law)

Facts: County Trust Company of New York, United States of America is the domiciliary administration of the
decedent, Idonah Slade Perkins who owned 33,002 shares of stocks in the appellant, domestic corporation,
Benguet Consolidated Inc. located in the Philippines. A dispute arose between the appellee, Tayag who is the
appointed ancillary of Perkins in the Philippines and the domiciliary administration as to who is entitled to the
possession of the certificate of shares, however, County Trust Company refuses to transfer the said certificate to
Tayag despite the order of the court. Hence, the appellee was compelled to petition the court for the appellant to
declare the subject certificates as lost to which appellant allegeed that no new certificate can be issued and the
same cannot be rendered as lost in accordance with their by-laws.

Issue: Whether or not the certificate of shares of stock can be declared lost.

Held: Yes. Administration whether principal or ancillary certainly extends to the assets of a decedent found within
the state or country where it was granted.

It is often necessary to have more than one administration of an estate. When a person dies intestate owning
property located in the country of his domicile as well as in a foreign country, administration is had in both
countries. That which is granted in the jurisdiction of decedent’s last domicile is termed the principal
administration, while any other administration is termed the ancillary administration. The reason for the latter is
because a grant of administration does not ex proprio vigore have any effect beyond the limits of the country in
which it is granted.Hence, an administration appointed in a foreign state has no authority in the Philippines. The
ancillary administration is proper, whenever a person dies, leaving in a country other than that of his last domicile,
property to be administered in the nature of the deceased’s liable for his individual debts or to be distributed
among his heirs.

Since there is refusal, persistently adhered to by the domiciliary administration in New York, to deliver the shares
of stocks of appellant corporation owned by the decedent to the ancillary administration in the Philippines, there
was nothing unreasonable or arbitrary in considering them lost and requiring the appellant to issue new certificates
in lieu thereof. Thereby the task incumbent under the law on the ancillary administration could be discharged and
his responsibility fulfilled.

Assuming that a contrariety exist between the provision of the laws and the command of a court decree, the latter
is to be followed.

A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the
imprimatur of state according to law. It is logically inconceivable therefore it will have rights and privileges of a
higher priority than that of its creator, more than that, it cannot legitimately refuse to yield obedience to acts of its
state organs, certainly not excluding the judiciary, whenever called upon to do so.

2. Torres vs. CA - GR 120138, Sept. 5, 1997;

Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development
Corporation (TRDC). TRDC is a small family owned corporation and other stockholders thereof include
Judge Torres’ nieces and nephews. However, even though Judge Torres owns the majority of TRDC
and was also the president thereof, he is only entitled to one vote among the 9-seat Board of
Directors, hence, his vote can be easily overridden by minority stockholders. So in 1987, before the
regular election of TRDC officers, Judge Torres assigned one share (qualifying share) each to 5
“outsiders” for the purpose of qualifying them to be elected as directors in the board and thereby

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strengthen Judge Torres’ power over other family members.
However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina
Carlos (niece) in the stock and transfer book of TRDC. When the validity of said assignments were
questioned, Judge Torres ratiocinated that it is impractical for him to order Carlos to make the entries
because Carlos is one of his opposition. So what Judge Torres did was to make the entries himself
because he was keeping the stock and transfer book. He further ratiocinated that he can do what a
mere secretary can do because in the first place, he is the president.
Since the other family members were against the inclusion of the five outsiders, they refused to take
part in the election. Judge Torres and his five assignees then decided to conduct the election among
themselves considering that the 6 of them constitute a quorum.

ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent
election is valid.

HELD: No. The assignment of the shares of stocks did not comply with procedural requirements. It did
not comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation Code. Section
74 provides that the stock and transfer book should be kept at the principal office of the corporation.
Here, it was Judge Torres who was keeping it and was bringing it with him. Further, his excuse of not
ordering the secretary to make the entries is flimsy. The proper procedure is to order the secretary to
make the entry of said assignment in the book, and if she refuses, Judge Torres can come to court and
compel her to make the entry. There are judicial remedies for this. Needless to say, the subsequent
election is invalid because the assignment of shares is invalid by reason of procedural infirmity. The
Supreme Court also emphasized: all corporations, big or small, must abide by the provisions of the
Corporation Code. Being a simple family corporation is not an exemption. Such corporations cannot
have rules and practices other than those established by law.

3. Phil. Stock Exchange vs. CA 287 SCRA 232 – Business Organization – Corporation Law – Extent
of Power of the Securities and Exchange Commission
Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was granted
permission by the Securities and Exchange Commission (SEC) to sell its shares to the public in order for
PALI to develop its properties.
PALI then asked the Philippine Stock Exchange (PSE) to list PALI’s stocks/shares to facilitate exchange.
The PSE Board of Governors denied PALI’s application on the ground that there were multiple claims on
the assets of PALI. Apparently, the Marcoses, Rebecco Panlilio (trustee of the Marcoses), and some
other corporations were claiming assets if not ownership over PALI.
PALI then wrote a letter to the SEC asking the latter to review PSE’s decision. The SEC reversed PSE’s
decisions and ordered the latter to cause the listing of PALI shares in the Exchange.

ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the PSE.

HELD: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to the
Revised Securities Act and for the purpose of ensuring fair administration of the exchange. PSE, as a
corporation itself and as a stock exchange is subject to SEC’s jurisdiction, regulation, and control. In
order to insure fair dealing of securities and a fair administration of exchanges in the PSE, the SEC has
the authority to look into the rulings issued by the PSE. The SEC is the entity with the primary say as to
whether or not securities, including shares of stock of a corporation, may be traded or not in the stock
exchange.
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HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse decisions
issued by the PSE if such are tainted with bad faith. In this case, there was no showing that PSE acted
with bad faith when it denied the application of PALI. Based on the multiple adverse claims against the
assets of PALI, PSE deemed that granting PALI’s application will only be contrary to the best interest of
the general public. It was reasonable for the PSE to exercise its judgment in the manner it deems
appropriate for its business identity, as long as no rights are trampled upon, and public welfare is
safeguarded.

1. Art. XII, Section 16, 1987 Philippine Constitution

4. Feliciano vs. Commission on Audit


[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
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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.

1. Four attributes of a Corporation


2. Similarities and Distinction between Partnership and Corporation
4.Corporations Created by Special Laws or Charter

5. National Coal Co. v. CIR


Facts: The plaintiff corporation was created on the 10th day of March 1917, by Act No. 2705, for the purpose of
developing the coal industry in the Philippine Islands , in harmony with the general plan of the government to
encourage the development of natural resources of the country, and to provide facilities therefore. By the said act,
the company was granted the general powers of a corporation and such other powers as may be necessary to
enable it to prosecute the business of developing coal deposits in the Philippine Islands of mining, extracting,
transporting, and selling the coal contained in said deposits. By the same law, the government of the Philippine
Islands is made the majority stockholder, evidently in order to ensure proper government supervision and control
and thus to place the government in a position to render all possible encouragement, assistance, and help in the
prosecution and furtherance of the company’s business. On May 14, 1917, two months after the passage of Act no.
2705, creating the national coal company, the Philippine legislature passed Act 2719, “to provide for the leasing
and development of coal lands in the Philippine islands.” On October 18, 1917, upon petition of the national coal
company, the governor-general, by proclamation no. 39, withdrew from settlement, entry, sale or other deposition,
all coal-bearing public lands within the province of Zamboanga, Department of Mindanao and Sulu, and the island
of Polillo, Province of Tayabas. Almost immediately after the issuance of said proclamation the national coal
company took possession of the coal lands within the said reservation with an area of about 400 hectares, without
any further formality, contract of lease. Of the 30,000 shares of stock issued by the company, the government of
the Philippine islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.

Issue: Whether or not plaintiff is a private corporation.

Held: Yes. The plaintiff is a private corporation. The mere fact that the government happens to the majority
stockholder does not make it a public corporation. Act 2705, as amended by Act 2822, makes it subject to all the
provisions of the corporation law, in so far as they are not inconsistent with said act. No provisions of Act 2705 are
found to be inconsistent with the provisions of the corporation law. As a private corporation, it has no greater
rights, powers or privileges than any other corporation which might be organized for the same purpose under the
corporation law, and certainly it was not the intention of the legislature to give it a preference or right or privilege
over other legitimate private corporations in the mining of coal. While it is true that said proclamation no. 39
withdrew from settlement entry, sale or other disposition of coal-bearing public lands within the province of
Zamboanga, and the islands of Polillo, it made no provision for the occupation and operation by the plaintiff, to
the exclusion of other persons or corporations who might under proper permission, enter upon to operate the coal
mines.

6.MaRILAO WATER vs, IAC


FACTS:
Pursuant to the provisions of P.D. 168 (Provincial Water Utilities Act of 1973), Marilao Water District (MWD) was formed by Resolution of the
Sangguniang Bayan of the Municipality of Marilao dated September 18, 1982, which resolution was thereafter forwarded to the LWUA and "duly filed" by it
on October 4, 1982 after ascertaining that it conformed to the requirements of the law.

Marilao Waters Consumers Association, Inc. (MWCA), a non-stock, non-profit corporation, filed a petition before the RTC of Malolos, Bulacan
claiming that the creation of the water district is defective and illegal. Impleaded as respondents were the Marilao Water District, as well as the Municipality
of Marilao, Bulacan; its Sangguniang Bayan; and Mayor Nicanor V. GUILLERMO. The petition prayed for the dissolution of the water district.

MWD filed its Answer with an affirmative defences that the RTC lacked jurisdiction over the subject matter since the water district’s dissolution fell under
the original and exclusive jurisdiction of the SEC.

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MWCA countered thatsince the Marilao Water District had not been organized under the Corporation Code, the SEC had no jurisdiction over a proceeding
for its dissolution and that under Section 45 of PD 198, the proceeding to determine if the dissolution of the water district is for the best interest of the
people, is within the competence of a regular court of justice.

RTC dismissed the MWCA’s suit ruling that it is the SEC which has exclusive and original jurisdiction over the case.

ISSUE:
Which triburial has jurisdiction over the dissolution of a water district organized and operating as a quasi-public corporation under the provisions of
Presidential Decree No. 198, as amended: the Regional Trial Court, or the Securities & Exchange Commission.

RULING:
The present case does not fall within the limited jurisdiction of the SEC, but within the general jurisdiction of RTCs.

PD 198 authorizes the formation, lays down the powers and functions, and governs the operation of water districts throughout the country; it is "the source
of authorization and power to form and maintain a (water) district." Once formed, it says, a district is subject to its provisions and is not under the
jurisdiction of any political subdivision.

The juridical entities thus created and organized under PD 198 are considered quasi-public corporations, performing public services and supplying public
wants.

The juridical entities known as water districts created by PD 198, although considered as quasi-public corporations and authorized to exercise the powers,
rights and privileges given to private corporations under existing laws are entirely distinct from corporations organized under the Corporation Code, PD 902-
A, as amended.

The Corporation Code has nothing whatever to do with their formation and organization, all the terms and conditions for their organization and operation
being particularly spelled out in PD 198.

The resolutions creating them, their charters, in other words, are filed not with the Securities and Exchange Commission but with the LWUA. It is these
resolutions qua charters, and not articles of incorporation drawn up under the Corporation Code, which set forth the name of the water districts, the
number of their directors, the manner of their selection and replacement, their powers, etc.

The SEC which is charged with enforcement of the Corporation Code as regards corporations, partnerships and associations formed or operating under its
provisions, has no power of supervision or control over the activities of water districts.

The "Provincial Water Utilities Act of 1973" has a specific provision governing dissolution of water districts created thereunder This is Section 45 of PD 198.
Under this provision, it is the LWUA which is the administrative body involved in the voluntary dissolution of a water district; it is with it that the resolution
of dissolution is filed, not the Securities and Exchange Commission. And this provision is evidently quite distinct and different from those on dissolution of
corporations "formed or organized under the provisions of the Corporation Code under which dissolution may be voluntary (by vote of the stockholders or
members), generally effected by the filing of the corresponding resolution with the Securities and Exchange Commission, or involuntary, commenced by the
filing of a verified complaint also with the SEC.

Although described as quasi-public corporations, and granted the same powers as private corporations, water districts are not really corporations.
They have no incorporators, stockholders or members, who have the right to vote for directors, or amend the articles of incorporation or by-laws, or
pass resolutions, or otherwise perform such other acts as are authorized to stockholders or members of corporations by the Corporation Code. In a word,
there can be no such thing as a relation of corporation and stockholders or members in a water district for the simple reason that in the latter there are no
stockholders or members. Between the water district and those who are recipients of its water services there exists not the relationship of corporation-and-
stockholder, but that of a service agency and users or customers.

There can therefore be no such thing in a water district as "intra-corporate or partnership relations, between and among stockholders, members or
associates (or) between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates,
respectively," within the contemplation of Section 5 of the Corporation Code so as to bring controversies involving them within the competence and
cognizance of the SEC.

B. Classification of corporation

1. Under the Corporation Code (Sec. 3)


2. Sole and Aggregate
3. Ecclesiastic and Lay
4. Eleemosynary and Civil
5. Domestic and Foreign
6. De jure and de facto corporation

6.1 Requisite of De Facto Corporation


6.2 Quo Warranto

6. Sappari K. Sawadjaan was among the first employees of the Philippine Amanah Bank (PAB) when it
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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.

Facts:

Petitioner Sawadjaan was an appraiser/investigator in the Philippine Amanah Bank (PAB) when on the basis of his
report, a credit line was granted to Compressed Air Machineries and Equipment Corporation (CAMEC) by virtue
of the two parcels of land it offered as collaterals. Meanwhile, Congress passed a law which created Al-Amanah
Investment Bank of the Philippines (AIIBP) and repealed the law creating PAB, transferring all its assets,
liabilities and capital accounts to AIIBP. Later, AIIBP discovered that the collaterals were spurious, thus conducted
an investigation and found petitioner Sawadjaan at fault. Petitioner appealed before the SC which ruled against
him. Petitioner moved for a new trial claiming he recently discovered that AIIBP had not yet adopted its corporate
by-laws and since it failed to file within 60 days from the passage of its law, it had forfeited its franchise or charter
and thus has no legal standing to initiate an administrative case. The motion was denied.

Issue:

Whether or not the failure of AIIBP to file its by-laws within the period prescribed results to a nullity of all actions
and proceedings it has initiated.

Ruling: NO.

The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has shareholders,
corporate officers, a board of directors, assets, and personnel. It is, in fact, here represented by the Office of the
Government Corporate Counsel, “the principal law office of government-owned corporations, one of which is
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respondent bank.” 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.

7. Close and Open Corporation


8. Parent, Subsidiary, and Affiliated
9. Private and Public
10. Corporation by Prescription and Corporation by Estoppel

C. Nationality of Corporation

1. Control test
2. Grandfather rule

8.
Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., 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.

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54
percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council
(IPC) of the Philippine Government announced that it would sell... the 111,415 PTIC shares, or 46.125 percent of
the outstanding capital stock of PTIC, through a public bidding to be conducted on 4 December 2006.
Subsequently, the public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund
XXVII (Parallax) and

Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.

Issues:

whether the consummation of the then impending sale of 111,415 PTIC shares to First Pacific violates the
constitutional limit on foreign ownership of a public utility... whether public respondents committed grave abuse
of discretion... in allowing the sale of the 111,415 PTIC shares to First Pacific... whether the sale of common
shares to foreigners in excess of 40 percent of the entire subscribed common capital stock violates the
constitutional limit on foreign ownership of a public utility.
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whether the term "capital" in Section 11, Article XII of the Constitution refers to the total common shares only or
to the total outstanding... capital stock (combined total of common and non-voting preferred shares) of PLDT, a
public utility.

Ruling:

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,[41]... and not to the total outstanding
capital stock comprising both common and non-voting preferred shares.

WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the
1987 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 (common and non-voting preferred
shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this
definition of the term "capital" in determining the extent of allowable foreign ownership in respondent

Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law.

Principles:

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully
nationalized and partially nationalized activities is for Filipino nationals to be always in control of the corporation
undertaking said activities.

that the meaning of the word "capital" as used in Section 11, Article XII of the Constitution allegedly refers to the
sum total of the shares subscribed... and paid-in by the shareholder and it allegedly is immaterial how the stock is
classified

D. Corporations created by special laws

E. Corporators and incorporators, stockholders and members (Sec. 5)

F. Corporate juridical personality

1. Doctrine of separate juridical personality (or Doctrine of Corporate Entity

9. CEASE VS CA

Facts: sometime in June 1908, one Forrest L. Cease common predecessor in interest of the parties together with
five (5) other American citizens organized the Tiaong Milling and Plantation Company and in the course of its
corporate existence the company acquired various properties but at the same time all the other original
incorporators were bought out by Forrest L. Cease together with his children namely Ernest, Cecilia, Teresita,
Benjamin, Florence and one Bonifacia Tirante also considered a member of the family; the charter of the company
lapsed in June 1958; but whether there were steps to liquidate it, the record is silent; on 13 August 1959, Forrest L.
Cease died and by extrajudicial partition of his shares, among the children, this was disposed of on 19 October
1959; it was here where the trouble among them came to arise because it would appear that Benjamin and
Florence wanted an actual division while the other children wanted reincorporation; and proceeding on that, these
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other children Ernesto, Teresita and Cecilia and aforementioned other stockholder Bonifacia Tirante proceeded to
incorporate themselves into the F.L. Cease Plantation Company and registered it with the Securities and Exchange
Commission on 9 December, 1959; apparently in view of that, Benjamin and Florence for their part initiated a
Special Proceeding No. 3893 of the Court of First Instance of Tayabas for the settlement of the estate of Forest L.
Cease on 21 April, 1960 and one month afterwards on 19 May 1960 they filed Civil Case No. 6326 against
Ernesto, Teresita and Cecilia Cease together with Bonifacia Tirante asking that the Tiaong Milling and Plantation
Corporation be declared Identical to F.L. Cease and that its properties be divided among his children as his
intestate heirs; this Civil Case was resisted by aforestated defendants and notwithstanding efforts of the plaintiffs
to have the properties placed under receivership, they were not able to succeed because defendants filed a bond to
remain as they have remained in possession; after that and already, during the pendency of Civil Case No. 6326
specifically on 21 May, 1961 apparently on the eve of the expiry of the three (3) year period provided by the law
for the liquidation of corporations, the board of liquidators of Tiaong Milling executed an assignment and
conveyance of properties and trust agreement in favor of F.L. Cease Plantation Co. Inc. as trustee of the Tiaong
Milling and Plantation Co. so that upon motion of the plaintiffs trial Judge ordered that this alleged trustee be also
included as party defendant; now this being the situation, it will be remembered that there were thus two (2)
proceedings pending in the Court of First Instance of Quezon namely Civil Case No. 6326 and Special Proceeding
No. 3893 but both of these were assigned to the Honorable Respondent Judge Manolo L. Maddela p. 43 and the
case was finally heard and submitted upon stipulation of facts pp, 34-110, rollo; and trial Judge by decision dated
27 December 1969 held for the plaintiffs Benjamin and Florence.

Issue: Whether or not the properties of the Tiaong Milling and Plantation Company forms part of the estate of the
deceased Forrest L. Cease.

Held: Yes. The theory of “merger of Forrest L. Cease and The Tiaong Milling as one personality”, or that “the
company is only the business conduit and alter ego of the deceased Forrest L. Cease and the registered properties
of Tiaong Milling are actually properties of Forrest L. Cease and should be divided equally, share and share alike
among his six children, … “, the trial court did aptly apply the familiar exception to the general rule by
disregarding the legal fiction of distinct and separate corporate personality and regarding the corporation and the
individual member one and the same.

It must be remembered that when Tiaong Milling adduced its defense and raised the issue of ownership, its
corporate existence already terminated through the expiration of its charter. It is clear in Section 77 of Act No.
1459 (Corporation Law) that upon the expiration of the charter period, the corporation ceases to exist and is
dissolved ipso facto except for purposes connected with the winding up and liquidation. The provision allows a
three year, period from expiration of the charter within which the entity gradually settles and closes its affairs,
disposes and convey its property and to divide its capital stock, but not for the purpose of continuing the business
for which it was established. At this terminal stage of its existence, Tiaong Milling may no longer persist to
maintain adverse title and ownership of the corporate assets as against the prospective distributees when at this
time it merely holds the property in trust, its assertion of ownership is not only a legal contradiction, but more so,
to allow it to maintain adverse interest would certainly thwart the very purpose of liquidation and the final
distribute loll of the assets to the proper, parties.

While the records showed that originally its incorporators were aliens, friends or third-parties in relation of one to
another, in the course of its existence, it developed into a close family corporation. The Board of Directors and
stockholders belong to one family the head of which Forrest L. Cease always retained the majority stocks and
hence the control and management of its affairs. In fact, during the reconstruction of its records in 1947 before the
Security and Exchange Commission only 9 nominal shares out of 300 appears in the name of his 3 eldest children
then and another person close to them. It is likewise noteworthy to observe that as his children increase or perhaps
become of age, he continued distributing his shares among them adding Florence, Teresa and Marion until at the
time of his death only 190 were left to his name. Definitely, only the members of his family benefited from the
Corporation.

The accounts of the corporation and therefore its operation, as well as that of the family appears to be
indistinguishable and apparently joined together. As admitted by the defendants corporation ‘never’ had any
account with any banking institution or if any account was carried in a bank on its behalf, it was in the name of
Mr. Forrest L. Cease. In brief, the operation of the Corporation is merged with those of the majority stockholders,
the latter using the former as his instrumentality and for the exclusive benefits of all his family. From the

9
foregoing indication, therefore, there is truth in plaintiff’s allegation that the corporation is only a business conduit
of his father and an extension of his personality, they are one and the same thing. Thus, the assets of the
corporation are also the estate of Forrest L. Cease, the father of the parties herein who are all legitimate children of
full blood.

A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of
corporate fiction. Generally, a corporation is invested by law with a personality separate and distinct from that of
the persons composing it as well as from that of any other legal entity to which it may be related. By virtue of this
attribute, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of
the legal entities to which it may be connected, 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 of the policy and purpose behind its creation. This is particularly true where
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

2. Doctrine of piercing the veil


a) Grounds for application of doctrine
b) Test in Determining applicability

11. CIR v. Norton & Harrison Company, G.R. No. L-17618, Aug. 31, 1964)

Facts: Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale and retail, all kinds
of goods, wares, and merchandise; (2) to act as agents of manufacturers in the United States and foreign countries;
and (3) to carry on and conduct a general wholesale and retail mercantile establishment in the Philippines. Jackbilt
is, likewise, a corporation organized on February 16, 1948 primarily for the purpose of making, producing and
manufacturing concrete blocks. Under date of July 27, 1948. Norton and Jackbilt entered into an agreement
whereby Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt.
Pursuant to this agreement, whenever an order for concrete blocks was received by the Norton & Harrison Co.
from a customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the customer.
Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the amount charged the customer
less a certain amount, as its compensation or profit. To exemplify the sales procedures adopted by the Norton and
Jackbilt, the following may be cited. In the case of the sale of 420 pieces of concrete blocks to the American
Builders on April 1, 1952, the purchaser paid to Norton the sum of P189.00 the purchase price. Out of this amount
Norton paid Jackbilt P168.00, the difference obviously being its compensation. As per records of Jackbilt, the
transaction was considered a sale to Norton. It was under this procedure that the sale of concrete blocks
manufactured by Jackbilt was conducted until May 1, 1953, when the agency agreement was terminated and a
management agreement between the parties was entered into. The management agreement provided that Norton
would sell concrete blocks for Jackbilt, for a fixed monthly fee of P2,000.00, which was later increased to
P5,000.00. During the existence of the distribution or agency agreement, or on June 10, 1949, Norton & Harrison
acquired by purchase all the outstanding shares of stock of Jackbilt. Apparently, due to this transaction, the
Commissioner of Internal Revenue, after conducting an investigation, assessed the respondent Norton & Harrison
for deficiency sales tax and surcharges in the amount of P32,662.90, making as basis thereof the sales of Norton to
the Public. In other words, the Commissioner considered the sale of Norton to the public as the original sale and
not the transaction from Jackbilt.

Issue: Whether or not the doctrine of piercing the corporate veil should be applied in order to make respondent
corporation liable for the sales deficiency tax.

Held: Yes. Jackbilt is merely an adjunct, business conduit or alter ego, of Norton and Harrison and that the fiction
of corporate entities, separate and distinct from each, should be disregarded. This is a case where the doctrine of
piercing the veil of corporate fiction, should be made to apply.

Where a corporation is a dummy, is unreal or a sham and serves no business purpose and is intended only as a
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blind, the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous
fictions.

A taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in
proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat
the person who actually may take benefits of the transactions as the person accordingly taxable

It has been settled that the ownership of all the stocks of a corporation by another corporation does not necessarily
breed an identity of corporate interest between the two companies and be considered as a sufficient ground for
disregarding the distinct personalities (Liddell & Co., Inc. v. Coll. of Int. Rev. L-9687, June 30, 1961). However,
in the case at bar, we find sufficient grounds to support the theory that the separate identities of the two companies
should be disregarded. Among these circumstances, which we find not successfully refuted by appellee Norton
are: (a) Norton and Harrison owned all the outstanding stocks of Jackbilt; of the 15,000 authorized shares of
Jackbilt on March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each to seven others; (b)
Norton constituted Jackbilt’s board of directors in such a way as to enable it to actually direct and manage the
other’s affairs by making the same officers of the board for both companies. For instance, James E. Norton is the
President, Treasurer, Director and Stockholder of Norton. He also occupies the same positions in Jackbilt
corporation, the only change being, in the Jackbilt, he is merely a nominal stockholder. The same is true with Mr.
Jordan, F. M. Domingo, Mr. Mantaring, Gilbert Golden and Gerardo Garcia, while they are merely employees of
the North they are Directors and nominal stockholders of the Jackbilt (c) Norton financed the operations of the
Jackbilt, and this is shown by the fact that the loans obtained from the RFC and Bank of America were used in the
expansion program of Jackbilt, to pay advances for the purchase of equipment, materials rations and salaries of
employees of Jackbilt and other sundry expenses. There was no limit to the advances given to Jackbilt so much so
that as of May 31, 1956, the unpaid advances amounted to P757,652.45, which were not paid in cash by Jackbilt,
but was offset by shares of stock issued to Norton, the absolute and sole owner of Jackbilt; (d) Norton treats
Jackbilt employees as its own. Evidence shows that Norton paid the salaries of Jackbilt employees and gave the
same privileges as Norton employees, an indication that Jackbilt employees were also Norton’s employees.
Furthermore service rendered in any one of the two companies were taken into account for purposes of promotion;
(e) Compensation given to board members of Jackbilt, indicate that Jackbilt is merely a department of Norton. The
income tax return of Norton for 1954 shows that as President and Treasurer of Norton and Jackbilt, he received
from Norton P56,929.95, but received from Jackbilt the measly amount of P150.00, a circumstance which points
out that remuneration of purported officials of Jackbilt are deemed included in the salaries they received from
Norton. The same is true in the case of Eduardo Garcia, an employee of Norton but a member of the Board of
Jackbilt. His Income tax return for 1956 reveals that he received from Norton in salaries and bonuses P4,220.00,
but received from Jackbilt, by way of entertainment, representation, travelling and transportation allowances
P3,000.00. However, in the withholding statement (Exh. 28-A), it was shown that the total of P4,200.00 and
P3,000.00 (P7,220.00) was received by Garcia from Norton, thus portraying the oneness of the two companies.
The Income Tax Returns of Albert Golden and Dioscoro Ramos both employees of Norton but board members of
Jackbilt, also disclose the game method of payment of compensation and allowances. The offices of Norton and
Jackbilt are located in the same compound. Payments were effected by Norton of accounts for Jackbilt and vice
versa. Payments were also made to Norton of accounts due or payable to Jackbilt and vice versa.

It may not be amiss to state in this connection, the advantages to Norton in maintaining a semblance of separate
entities. If the income of Norton should be considered separate from the income of Jackbilt, then each would
declare such earning separately for income tax purposes and thus pay lesser income tax. The combined taxable
Norton-Jackbilt income would subject Norton to a higher tax. Based upon the 1954-1955 income tax return of
Norton and Jackbilt, and assuming that both of them are operating on the same fiscal basis and their returns are
accurate, we would have the following result: Jackbilt declared a taxable net income of P161,202.31 in which the
income tax due was computed at P37,137.00; whereas Norton declared as taxable, a net income of P120,101.59,
on which the income tax due was computed at P25,628.00. The total of these liabilities is P50,764.84. On the other
hand, if the net taxable earnings of both corporations are combined, during the same taxable year, the tax due on
their total which is P281,303.90 would be P70,764.00. So that, even on the question of income tax alone, it would
be to the advantages of Norton that the corporations should be regarded as separate entities.

12.
McLeod vs National Labor Relations Commission
11
Facts: On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave
benefits, nonpayment of unused airline tickets, holiday pay, underpayment of salary and 13th month pay, moral
and exemplary damages, attorney’s fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern
Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu. In his Position Paper, complainant alleged
that he is an expert in textile manufacturing process; that as early as 1956 he was hired as the Assistant Spinning
Manager of Universal Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till
1980 under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed Peggy Mills, Inc. with
respondent Filsyn having controlling interest; that complainant was absorbed by Peggy Mills as its Vice President
and Plant Manager of the plant at Sta. Rosa, Laguna; that at the time of his retirement complainant was receiving P
60,000.00 monthly with vacation and sick leave benefits; 13th month pay, holiday pay and two round trip business
class tickets on a Manila-London-Manila itinerary every three years which is convertible to cas[h] if unused; that
in January 1986, respondents failed to pay vacation and leave credits and requested complainant to wait as it was
short of funds but the same remain unpaid at present; that complainant is entitled to such benefit as per CBA
provision (Annex “A”); that respondents likewise failed to pay complainant’s holiday pay up to the present; that
complainant is entitled to such benefits as per CBA provision (Annex “B”); that in 1989 the plant union staged a
strike and in 1993 was found guilty of staging an illegal strike; that from 1989 to 1992 complainant was entitled to
4 round trip business class plane tickets on a Manila-London-Manila itinerary but this benefit not (sic) its
monetary equivalent was not given; that on August 1990 the respondents reduced complainant’s monthly salary of
P 60,000.00 by P9,900.00 till November 1993 or a period of 39 months; that in 1991 Filsyn sold Peggy Mills, Inc.
to Far Eastern Textile Mills, Inc. as per agreement (Annex “D”) and this was renamed as Sta. Rosa Textile with
Patricio Lim as Chairman and President; that complainant worked for Sta. Rosa until November 30 that from time
to time the owners of Far Eastern consulted with complainant on technical aspects of reoperation of the plant as
per correspondence (Annexes “D-1” and “D-2”); that when complainant reached and applied retirement age at the
end of 1993, he was only given a reduced 13th month pay of P 44,183.63, leaving a balance of P 15,816.87; that
thereafter the owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles; that on two
occasions, complainant wrote letters (Annexes “E-1” to “E-2”) to Patricio Lim requesting for his retirement and
other benefits; that in the last quarter of 1994 respondents offered complainant compromise settlement of only P
300,000.00 which complainant rejected; that again complainant wrote a letter (Annex “F”) reiterating his demand
for full payment of all benefits and to no avail, hence this complaint; and that he is entitled to all his money claims
pursuant to law. On the other hand, respondents in their Position Paper alleged that complainant was the former
Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980 and Peggy Mills closed
operations due to irreversible losses at the end of July 1992 but the corporation still exists at present; that its assets
were acquired by Sta. Rosa Textile Corporation which was established in April 1992 but still remains non-
operational at present; that complainant was hired as consultant by Sta. Rosa Textile in November 1992 but he
resigned on November 30, 1993; that Filsyn and Far Eastern Textiles are separate legal entities and have no
employer relationship with complainant; that respondent Patricio Lim is the President and Board Chairman of Sta.
Rosa Textile Corporation; that respondent Eric Hu is a Taiwanese and is Director of Sta. Rosa Textiles, Inc.; that
complainant has no cause of action against Filsyn, Far Eastern Textile Ltd., Sta. Rosa Textile Corporation and Eric
Hu; that Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills, Inc.; that Patricio Lim was only
impleaded as Board Chairman of Sta. Rosa Textile and not as private individual; that while complainant was Vice
President and Plant Manager of Peggy Mills, the union staged a strike up to July 1992 resulting in closure of
operations due to irreversible losses as per Notice (Annex “1”); that complainant was relied upon to settle the
labor problem but due to his lack of attention and absence the strike continued resulting in closure of the company;
and losses to Sta. Rosa which acquired its assets as per their financial statements (Annexes “2” and “3”); that the
attendance records of complainant from April 1992 to November 1993 (Annexes “4” and “5”) show that he was
either absent or worked at most two hours a day; that Sta. Rosa and Peggy Mills are interposing counterclaims for
damages in the total amount of P 36,757.00 against complainant; that complainant’s monthly salary at Peggy Mills
was P P 50,495.00 and not 60,000.00; that Peggy Mills, does not have a retirement program; that whatever amount
complainant is entitled should be offset with the counterclaims; that complainant worked only for 12 years from
1980 to 1992; that complainant was only hired as a consultant and not an employee by Sta. Rosa Textile; that
complainant’s attendance record of absence and two hours daily work during the period of the strike wipes out any
vacation/sick leave he may have accumulated; that there is no basis for complainant’s claim of two (2) business
class airline tickets; that complainant’s pay already included the holiday pay; that he is entitled to holiday pay as
consultant by Sta. Rosa; that he has waived this benefit in his 12 years of work with Peggy Mills; that he is not
entitled to 13th month pay as consultant; and that he is not entitled to moral and exemplary damages and
12
attorney’s fees.

Issues: Whether or not the doctrine of piercing the corporate veil should be applied to further entitle petitioner for
the claim sought in all the corporations allegedly his employer.

Whether or not the corporate directors can be held liable personally with petitioner.

Whether or not there is merger between PMI and SRTI.

Held: No. A corporation is an artificial being invested by law with a personality separate and distinct from that of
its stockholders and from that of other corporations to which it may be connected.

While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case
of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality.
This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction
is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield
to confuse the legitimate issues, or where a corporation is the 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.

To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and
convincingly. It cannot be presumed.

Here, we do not find any of the evils sought to be prevented by the doctrine of piercing the corporate veil.
Respondent corporations may be engaged in the same business as that of PMI, but this fact alone is not enough
reason to pierce the veil of corporate fiction.

At any rate, the existence of interlocking incorporators, directors, and officers is not enough justification to pierce
the veil of corporate fiction, in the absence of fraud or other public policy considerations.

No. Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently
unlawful act of the corporation, or when they are 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)
they consent to the issuance of watered down stocks or when, having knowledge of such issuance, do not
forthwith file with the corporate secretary their written objection; (3) they agree to hold themselves personally and
solidarily liable with the corporation; or (4) they are made by specific provision of law personally answerable for
their corporate action.

No. As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when
any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the
debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing
corporation is merely a continuation of the selling corporation, and (4) where the selling corporation fraudulently
enters into the transaction to escape liability for those debts.26 None of the foregoing exceptions is present in this
case.

Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum of P 210,000,000. We are not
convinced that PMI fraudulently transferred these assets to escape its liability for any of its debts. PMI had already
paid its employees, except McLeod, their money claims. There was also no merger or consolidation of PMI and
SRTI.

Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated
corporation. It is a combination by agreement between two or more corporations by which their rights, franchises,
and property are united and become those of a single, new corporation, composed generally, although not
necessarily, of the stockholders of the original corporations. Merger, on the other hand, is a union whereby one
corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the
combined business. The parties to a merger or consolidation are called constituent corporations. In consolidation,
13
all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents,
except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the
dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights and
franchises and their stockholders usually become its stockholders.

BAR 2001: Based on this case


3. Entitlement to constitutional rights
a) Due process

Cases: Albert v. University Publishing, Inc. G.R. No. 10118, June 16, 1965

Facts: In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to damages
(for breach of contract) but reduced the amount from P23, 000.00 to P15, 000.00.

Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for
P15,000.00 which had become final and executory, should be executed to its full amount, since in fixing it,
payment already made had been considered.

15 years ago, Mariano Albert entered into a contract with University Publishing Co., Inc. through Jose M. Aruego,
its President, whereby University would pay plaintiff for the exclusive right to publish his revised Commentaries
on the Revised Penal Code. The contract stipulated that failure to pay one installment would render the rest of the
payments due. When University failed to pay the second installment, Albert sued for collection and won.

However, upon execution, it was found that the records of this Commission do not show the registration of
UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership. Albert petitioned for a writ of
execution against Jose M. Aruego as the real defendant. University opposed, on the ground that Aruego was not a
party to the case.

Issue: WON the non-registration of University Publishing Co., Inc. in the SEC is an existing corporation with an
independent juridical personality.

Held: No.

Ratio: On account of the non-registration it cannot be considered a corporation, not even a corporation de facto
(Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be sued
independently.

In the case at bar, Aruego represented a non-existent entity and induced not only Albert but the court to believe in
such representation. He signed the contract as “President” of “University Publishing Co., Inc.,” stating that this
was “a corporation duly organized and existing under the laws of the Philippines”.

14
“A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as
such agent.”

Aruego, acting as representative of such non-existent principal, was the real party to the contract sued upon, and
thus assumed such privileges and obligations and became personally liable for the contract entered into or for
other acts performed as such agent.

The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set up against Albert since
it was Aruego who had induced him to act upon his (Aruego’s) willful representation that University had been
duly organized and was existing under the law.

b) Equal protection of the law


c) Protection against unreasonable searches and seizure

4. Entitlement to moral damages

Cases: ABS-CBN v. CA, GR No. 128690, Jan. 21, 1999

Facts:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby VIVA gave ABS-CBN an exclusive right to
exhibit some VIVA films. According to the agreement, ABS-CBN shall have the right of first refusal to the next 24 VIVA
films for TV telecast under such terms as may be agreed upon by the parties, however, such right shall be exercised by
ABS-CBN from the actual offer in writing.

Sometime in December 1991, VIVA, through Vicente Del Rosario (Executive Producer), offered ABS-CBN through VP
Charo Santos-Concio, a list of 3 film packages from which ABS-CBN may exercise its right of first refusal. ABS-CBN,
however through Mrs. Concio, tick off only 10 titles they can purchase among which is the film “Maging Sino Ka Man”
which is one of the subjects of the present case, therefore, it did not accept the said list as per the rejection letter
authored by Mrs. Concio sent to Del Rosario.

Subsequently, Del Rosario approached Mrs. Concio with another list consisting of 52 original movie titles and 104 re-
runs, proposing to sell to ABS-CBN airing rights for P60M (P30M in cash and P30M worth of television spots). Del Rosario
and ABS-CBN’s General Manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in QC to discuss the package
proposal but to no avail.

Four days later, Del Rosario and Mr. Graciano Gozon, Senior VP of Finance of Republic Broadcasting Corporation
(RBS/Channel 7) discussed the terms and conditions of VIVA’s offer. A day after that, Mrs. Concio sent the draft of the
contract between ABS-CBN and VIVA which contained a counter-proposal covering 53 films for P35M. VIVA’s Board of
Directors rejected the counter-proposal as it would not sell anything less than the package of 104 films for P60M. After
said rejection, ABS-CBN closed a deal with RBS including the 14 films previously ticked off by ABS-CBN.

Consequently, ABS-CBN filed a complaint for specific performance with prayer for a writ of preliminary injunction
and/or TRO against RBS, VIVA and Del Rosario. RTC then enjoined the latter from airing the subject films. RBS posted a
P30M counterbond to dissolve the injunction. Later on, the trial court as well as the CA dismissed the complaint holding
that there was no meeting of minds between ABS-CBN and VIVA, hence, there was no basis for ABS-CBN’s demand,
furthermore, the right of first refusal had previously been exercised.

Hence, the present petition, ABS-CBN argued that an agreement was made during the meeting of Mr. Lopez and Del
Rosario jotted down on a “napkin” (this was never produced in court). Moreover, it had yet to fully exercise its right of
first refusal since only 10 titles were chosen from the first list. As to actual, moral and exemplary damages, there was no
clear basis in awarding the same.
15
Issue: WON a contract was perfected between ABS-CBN and VIVA and WON moral damages may be awarded to a
corporation

Held: Both NO.

Ratio:
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment a
contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute
and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any
sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a
rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the
offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the
offer annuls the offer.

After Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN to discuss the package of films, ABS-CBN, sent through
Ms. Concio, counter-proposal in the form a draft contract. This counter-proposal could be nothing less than the counter-
offer of Mr. Lopez during his conference with Del Rosario. Clearly, there was no acceptance of VIVA’s offer, for it was met
by a counter-offer which substantially varied the terms of the offer.
In the case at bar, VIVA through its Board of Directors, rejected such counter-offer. Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as
there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the
power to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate
such powers to either an executive committee or officials or contracted managers. The delegation, except
for the executive committee, must be for specific purposes . Delegation to officers makes the latter agents of the
corporation; accordingly, the general rules of agency as to the binding effects of their acts would apply. For such
officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially
authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN’s counter-offer was
best evidenced by his submission of the draft contract to VIVA’s Board of Directors for the latter’s
approval. In any event, there was between Del Rosario and Lopez III no meeting of minds.

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding
agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of
Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever
agreement Lopez and Del Rosario arrived at could not ripen into a valid contact binding upon Viva.

However, the Court find for ABS-CBN on the issue of damages. Moral damages 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 award of moral damages cannot be granted in favor of a corporation because, being
an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced
only by one having a nervous system. The statement that a corporation may recover moral damages if it “has a
good reputation that is debased, resulting in social humiliation” is an obiter dictum. On this score alone the award
for damages must be set aside, since RBS is a corporation.

Coastal Pacific Trading, Inc. v. Sothern Rolling Mills Co., July 28, 2006
FACTS: Southern Rolling Mills was renamed into Visayan Integrated Steel Corp (VISCO). On Dec. 11, 1961-VISCO
obtained a loan from DBP amounting to P836,000. It was secured by a Real Estate Mortgage covering VISCO's 3
parcels of land including the machinery and equipments therein. Second Loan: VISCO entered a Loan Agreement
with respondent banks ( referred as "Consortium") to finance its importation for various raw materials. VISCO
executed a second mortgage over the previous properties mentioned, however they were unrecorded VISCO was
unable to pay its second mortgage with the consortium, which resulted in the latter acquiring 90% of the equity of

16
VISCO giving the Consortium the control and management of VISCO. Despite the acquisition, VISCO still remained
indebted to the Consortium.

Transaction to Coastal: Between 1964 to 1965, VISCO entered a processing agreement with Coastal wherein Coastal
delivered 3,000 metric tons of hot rolled steel coils which VISCO would process into block iron sheets. However,
VISCO was only able to return 1,600 metric tons of those sheets.

On the loan to DBP: To pay its first mortgage with DBP, VISCO sold 2 of its generators to FILMAG Phils, Inc. DBP
executed a Deed of Assignment of the mortgage in favor of the consortium. The Consortium foreclosed the mortgage
and was the highest bidder in an auction sale of VISCO's properties. The Consortium later sold the properties in
favor of National Steel Corporation.

Coastal files a civil action for Annulment or Rescission of Sale, Damages with Preliminary Injunction. Coastal
imputes bad faith on the action of the Consortium, the latter being able to sell the properties of VISCO despite the
attachment of the properties, placing them beyond the reach of VISCO's other creditors.

The lower court ruled in favor of VISCO, declaring the sale valid and legal. The CA affirmed this.

ISSUE 1: Whether the consortium disposed VISCO's assets in fraud of creditors?

HELD: Yes. What the consortium did was to pay to them the proceeds from the sale of the generator sets which in
turn they used to pay DBP. Due to the Deed of Assignment issued by DBP, the respondent banks recovered what they
remitted to DBP & it allowed the Consortium to acquire DBP's primary lien on the mortgaged properties. Allowing
them as unsecured creditors ( as the mortgage was unrecorded) to foreclose on the assets of the corporation without
regard to inferior claims

ISSUE 2: Whether petitioner is entitled to moral damages?

No. As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience
physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only
exception to this rule is when the corporation has a good reputation that is debased, resulting in its humiliation in the
business realm. In the present case, the records do not show any evidence that the name or reputation of petitioner
has been sullied as a result of the Consortium's fraudulent acts. Accordingly, moral damages are not warranted.

Petitioner was able to recover exemplary damages.

5. Libel

Cases: Filipina Broadcasting v. Ago Medical Center, GR. No. 141994, Jan. 17,
2005

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:

17
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.

 JOIN TORT FEASORS are all the persons who command, instigate, promote, encourage, advice
countenance, cooperate in, aid or abet the commission of a tort, as who approve of it after it is done, for its
benefit.

6. Liability for torts

Cases: PNB v. CA, G.R. No. GR No. 27155, May 18, 1978
Lessons Applicable: Liability for Torts (Corporate Law)

FACTS:

 PNB executed its bond w/ Rita Gueco Tapnio as principal, in favor of the PNB to guarantee the payment of
Tapnio's account with PNB.
o Indemnity Agreement w/ 12% int. and 15% atty. fees
 Sept 18 1957: PNB sent a letter of demand for Tapnio to pay the reduced amount of 2,379.91
 PNB demanded both oral and written but to no avail
 Tapnio mortgaged to the bank her lease agreement w/ Jacobo Tuazon for her unused export sugar quota at
P2.80 per picular or a total of P2,800 which was more than the value of the bond
 PNB insisted on raising it to P3.00 per picular so Tuazon rejected the offer

ISSUE: W/N PNB should be liable for tort

HELD: YES. affirmed.


 While Tapnio had the ultimate authority of approving or disapproving the proposed lease since the quota
was mortgaged to the bank, it certainly CANNOT escape its responsibility of observing, for the protection
of the interest of Tapnio and Tuazon, that the degree of care, precaution and vigilance which the
circumstances justly demand in approving or disapproving the lease of said sugar quota
 Art. 21 of the Civil Code: any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the damage.

7. Doctrine of corporate negligence

Cases: Professional Services Inc. v. CA, G.R. No. 126297, Feb. 2, 2010

Facts:

Natividad Agana was admitted at the Medical City General Hospital (Medical City) because of difficulty of bowel
movement and bloody anal discharge

Dr. Ampil diagnosed her to be suffering from "cancer of the sigmoid."


18
Dr. Ampil,... assisted by the medical staff[1] of Medical City, performed an anterior resection surgery upon her.

he found that the malignancy in her sigmoid area had spread to her left ovary, necessitating the removal of certain
portions of it.

obtained the consent of Atty. Enrique Agana, Natividad's husband, to permit Dr. Juan Fuentes, respondent in G.R.
No. 126467, to perform hysterectomy upon Natividad

Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation
and closed the incision. However, the operation appeared to be flawed.

sponge count lacking 2

After a couple of days, Natividad complained of excruciating pain in her anal region. She consulted both Dr.
Ampil and Dr. Fuentes about it. They told her that the pain was the natural consequence of the surgical operation
performed upon her. Dr. Ampil recommended that Natividad... consult an oncologist

Natividad, accompanied by her husband, went to the United States to seek further treatment. After four (4) months
of consultations and laboratory examinations, Natividad was told that she was free of cancer.

Natividad flew back to the Philippines, still suffering from pains. Two (2) weeks thereafter, her daughter found a
piece of gauze protruding from her vagina.

Dr. Ampil was immediately informed. He proceeded to Natividad's house where he managed to extract by... hand a
piece of gauze measuring 1.5 inches in width.

the pains intensified, prompting Natividad to seek treatment at the Polymedic General Hospital. While confined
thereat, Dr. Ramon Gutierrez detected the presence of a foreign object in her vagina -- a foul-smelling gauze
measuring 1.5 inches in... width. The gauze had badly infected her vaginal vault... forced stool to excrete through
the vagina.

Natividad underwent another... surgery.

Natividad and her husband filed with the Regional Trial Court, Branch 96, Quezon City a complaint for damages
against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes.

On February 16, 1986, pending the outcome of the above case, Natividad died.

the trial court rendered judgment in favor of spouses Agana... the Court of Appeals, in its Decision dated
September 6, 1996, affirmed the assailed judgment... the complaint against Dr. Fuentes was dismissed.

petitions for review on certiorari.

the Court, through its First Division, rendered a Decision holding that PSI is jointly and severally liable with Dr.
Ampil... employer-employee relationship between Medical City and Dr. Ampil.

PSI's act of publicly displaying in the lobby of the Medical City the names and specializations of its accredited...
physicians, including Dr. Ampil, estopped it from denying the existence of an employer-employee relationship
between them under the doctrine of ostensible agency or agency by estoppel

PSI's failure to supervise Dr. Ampil and its resident... physicians and nurses and to take an active step in order to
remedy their negligence rendered it directly liable under the doctrine of corporate negligence.

motion for reconsideration, PSI contends that the Court erred in finding it liable under Article 2180 of the Civil
Code, there being no employer-employee relationship

Issues:
19
"an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians
for the purpose of apportioning responsibility"... the doctrine of ostensible agency or agency by estoppel cannot
apply because spouses Agana failed to establish one requisite of the doctrine, i.e., that Natividad relied on the
representation of the hospital in engaging the services of Dr. Ampil.

that the doctrine of corporate negligence is misplaced because the proximate cause of Natividad's injury was Dr.
Ampil's negligence... whether or not respondent hospital is solidarily liable with respondent doctors for petitioner's
condition.

Ruling:

an employer-employee relationship "in effect" exists between the Medical City and Dr. Ampil. Consequently, both
are jointly and severally liable to the Aganas.

The unique practice (among private hospitals) of filling up specialist staff with attending and visiting
"consultants," who are allegedly not hospital employees, presents problems in... apportioning responsibility for
negligence in medical malpractice cases. However, the difficulty is only more apparent than real.

hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their work within
the hospital premises

Doctors who apply for "consultant" slots, visiting or attending, are required to submit proof of... completion of
residency, their educational qualifications

These requirements are carefully scrutinized by members of the hospital administration or... by a review
committee set up by the hospital who either accept or reject the application. This is particularly true with
respondent hospital.

In other words, private hospitals hire, fire and exercise real control over their attending and visiting "consultant"
staff.

he is normally required to attend clinico-pathological conferences, conduct bedside rounds for clerks, interns and
residents, moderate grand rounds and patient audits and perform other tasks and... responsibilities, for the privilege
of being able to maintain a clinic in the hospital, and/or for the privilege of admitting patients into the hospital...
the physician's performance as a specialist is generally evaluated by a peer review... committee on the basis of
mortality and morbidity statistics, and feedback from patients, nurses, interns and residents... remiss in his duties,
or a consultant who regularly falls short of the minimum standards acceptable to the hospital or its peer review
committee,... is normally politely terminated.

The basis for holding an employer solidarily responsible for the negligence of its employee is found in Article
2180 of the Civil Code which considers a person accountable not only for his own acts but also for those of others
based on the former's responsibility under a... relationship of partia ptetas.

"consultants" are not, technically employees, a point which respondent hospital asserts in denying all
responsibility for the patient's... condition, the control exercised, the hiring, and the right to terminate consultants
all fulfill the important hallmarks of an employer-employee relationship, with the exception of the payment of
wages... the control test is... determining. Accordingly, on the basis of the foregoing, we rule that for the purpose
of allocating responsibility in medical negligence cases, an employer-employee relationship in effect exists
between hospitals and their attending and visiting physicians.

the Court did not reverse its ruling in Ramos. What it clarified was that the De Los Santos Medical Clinic did not
exercise control over its consultant, hence, there is no employer-employee relationship between them.

the doctrine in Ramos stays, i.e., for the purpose of allocating responsibility in medical negligence cases, an
employer-employee relationship exists between hospitals and their... consultants.

20
Even assuming that Dr. Ampil is not an employee of Medical City, but an... independent contractor, still the said
hospital is liable to the Aganas.

Atty. Agana categorically testified that one of the reasons why he chose Dr. Ampil was that he knew him to be a
staff member of Medical City, a prominent and known hospital.

Clearly, PSI is estopped from passing the blame solely to Dr. Ampil. Its act of displaying his name and those of the
other physicians in the public directory at the lobby of the hospital amounts to holding out to the public that it
offers quality medical service through the... listed physicians. This justifies Atty. Agana's belief that Dr. Ampil was
a member of the hospital's staff.

Unfortunately, PSI had been remiss in its duty. It did not conduct an immediate investigation on the reported
missing gauzes to the great prejudice and agony of its patient.

Dr. Jocson's lack of concern for the patients. Such conduct is reflective of the hospital's manner of supervision.
Not only did PSI breach its duty to oversee or supervise all persons who practice medicine within its walls,... it
also failed to take an active step in fixing the negligence committed.

there is merit in the trial court's finding that the failure of PSI to conduct an investigation "established PSI's part in
the dark conspiracy of silence and concealment about the gauzes."

Principles:

under the doctrine of apparent authority, the question in every case is whether the principal has by his voluntary
act placed the agent in... such a situation that a person of ordinary prudence, conversant with business usages and
the nature of the particular business, is justified in presuming that such agent has authority to perform the
particular act in question... the doctrine of corporate responsibility.[7] The duty of providing quality medical
service is no longer the sole prerogative and responsibility of the physician. This is because the modern... hospital
now tends to organize a highly-professional medical staff whose competence and performance need also to be
monitored by the hospital commensurate with its inherent responsibility to provide quality medical care.[8] Such...
responsibility includes the proper supervision of the members of its medical staff. Accordingly, the hospital has the
duty to make a reasonable effort to monitor and oversee the treatment prescribed and administered by the
physicians practicing in its premises.

8. Liability for crime

G. CLASSIFICATION FOR SHARES (Sec. 6)

1. Par value or no par value


2. Voting or non-voting
3. Common or preferred
4. Promotion share
5. Share in escrow
6. Convertible stock
7. Founder share (Sec. 7)
8. Redeemable share (Sec. 8)
9. Treasury share (Sec. 9)

BAR 2001: What determines whether a corporation with authorized capital stock is a stock corporation?

PART II – INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATION


21
BAR 2002: List the documents that you must submit to Securities and Exchange Commission to obtain a
Certificate of Incorporation of a corporation.

A. Number and qualification of corporation (Sec. 10)

1. Capital stock (distinguish from capital)


2. Authorized capital stock
3. Subscribed capital stock
4. Outstanding capital stock
5. Paid-up capital stock
6. Un-issued capital stock
7. Legal capital (distinguish from capital stock)
8. Par value
9. Certificate of stock

Cases: Kukan International Corp v. Reyes, G.R. No. 182729, Sept. 29, 2010

FACTS

Sometime in March 1998, Kukan, Inc. conducted a bidding worth Php 5M (reduced to PhP 3,388,502) for the
supply and installation of signages in a building being constructed in Makati City which was won by Morales.

Despite his compliance, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP
1,412,130.93, which Kukan, Inc. refused to pay despite demands.

Morales filed a Complaint with the RTC against Kukan, Inc. for a sum of money. However, starting November
2000, Kukan, Inc. no longer appeared and participated in the proceedings before the trial court, prompting the
RTC to declare Kukan, Inc. in default and paving the way for Morales to present his evidence ex parte.

On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc.

After the above decision became final and executory, Morales moved for and secured a writ of execution against
Kukan, Inc. The sheriff then levied upon various personal properties found at what was supposed to be Kukan,
Inc.’s office at Unit 2205, 88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned the
properties thus levied and that it was a different corporation from Kukan, Inc., Kukan International Corporation
(KIC) filed an Affidavit of Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after
Kukan, Inc. had stopped participating in Civil Case No. 99-93173.

In reaction to KIC’s claim, Morales interposed an Omnibus Motion dated April 30, 2003, praying, and applying
the principle of piercing the veil of corporate fiction, that an order be issued for the satisfaction of the judgment
debt of Kukan, Inc. with the properties under the name or in the possession of KIC, it being alleged that both
corporations are but one and the same entity. KIC opposed Morales’ motion. The court denied the omibus
motion.

In a bid to establish the link between KIC and Kukan, Inc., Morales filed a Motion for Examination of Judgment
Debtors dated May 4, 2005 which sought that subponae be issued against the primary stockholders of Kukan, Inc.,
among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the court.

Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted the
motion. The case was re-raffled to Branch 21, presided by public respondent Judge Amor Reyes.

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC
as having no existence separate from Kukan, Inc. This time around, the RTC, by Order dated March 12, 2007,
granted the motion. From the above order, KIC moved but was denied reconsideration in another Order dated June
7, 2007.

22
KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC Orders but
on January 23, 2008, the CA denied the petition and affirmed the assailed Orders. The CA later denied KIC’s MR
in the assailed resolution.

Hence, the instant petition for review.

ISSUES

A. whether the trial court can, after the judgment against Kukan, Inc. has attained finality, execute it against the
property of KIC;

B. whether the trial court acquired jurisdiction over KIC;

C. whether the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of
corporate fiction.

DECISION

A. No.

In Carpio v. Doroja,[13] the Court ruled that the deciding court has supervisory control over the execution of
its judgment:

A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution
are proceedings in the suit. There is no question that the court which rendered the judgment has a general
supervisory control over its process of execution, and this power carries with it the right to determine every
question of fact and law which may be involved in the execution.

The court’s supervisory control does not, however, extend as to authorize the alteration or amendment of a final
and executory decision, save for certain recognized exceptions, among which is the correction of clerical errors.
Else, the court violates the principle of finality of judgment and immutability.

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned
awards to Morales. Thus, making KIC, thru the medium of a writ of execution, answerable for the above
judgment liability is a clear case of altering a decision, an instance of granting relief not contemplated in the
decision sought to be executed. And the change does not fall under any of the recognized exceptions to the
doctrine of finality and immutability of judgment. It is a settled rule that a writ of execution must conform to the
fallo of the judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a nullity.

Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other
issues raised by KIC would be proper.

B. No.

In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded
that it raised affirmative defenses through its aforementioned pleadings, KIC never abandoned its challenge,
however implicit, to the RTC’s jurisdiction over its person. The challenge was subsumed in KIC’s primary
assertion that it was not the same entity as Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiff’s
Omnibus Motion dated May 20, 2003, KIC entered its “special but not voluntary appearance” alleging therein that
it was a different entity and has a separate legal personality from Kukan, Inc. And KIC would consistently
reiterate this assertion in all its pleadings, thus effectively resisting all along the RTC’s jurisdiction of its person. It
cannot be overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in Civil
Case No. 99-93173, precisely because KIC was neither impleaded nor served with summons. Consequently, KIC
could only assert and claim through its affidavits, comments, and motions filed by special appearance before the
RTC that it is separate and distinct from Kukan, Inc.

23
Following La Naval Drug Corporation, KIC cannot be deemed to have waived its objection to the court’s
lack of jurisdiction over its person. It would defy logic to say that KIC unequivocally submitted itself to the
jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different entities. In the scheme of
things obtaining, KIC had no other option but to insist on its separate identity and plead for relief consistent with
that position.

C. No.

The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as
one and the same juridical person with respect to a given transaction, is basically applied only to determine
established liability;[34] it is not available to confer on the court a jurisdiction it has not acquired, in the first
place, over a party not impleaded in a case. Elsewise put, a corporation not impleaded in a suit cannot be subject
to the court’s process of piercing the veil of its corporate fiction. In that situation, the court has not acquired
jurisdiction over the corporation and, hence, any proceedings taken against that corporation and its property would
infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as
much:

23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x

This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the
case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be
applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the
corporation.[35] x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation
or corporations involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing
the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly commenced
involving parties duly brought under the authority of the court by way of service of summons or what passes as
such service.

–––

In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that
the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and
binding commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court has, on numerous
occasions, applied the principle where a corporation is dissolved and its assets are transferred to another to avoid a
financial liability of the first corporation with the result that the second corporation should be considered a
continuation and successor of the first entity.

In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a confluence
of the following factors:

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the
first corporation; and

3. Both corporations are owned and controlled by the same persons such that the second corporation should
be considered as a continuation and successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously absent. There is, therefore, no
compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. In
applying the principle, both the RTC and the CA miserably failed to identify the presence of the abovementioned
factors.

–––

24
It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, 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 fraud, or perpetrate a deception. In the concrete and on the assumption that the RTC has
validly acquired jurisdiction over the party concerned, Morales ought to have proved by convincing evidence that
Kukan, Inc. was collapsed and thereafter KIC purposely formed and operated to defraud him. Morales has not to
us discharged his burden.

WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008 Decision and April 16, 2008
Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon the
personal properties of Kukan International Corporation is hereby ordered lifted and the personal properties ordered
returned to Kukan International Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the
RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable dispatch.

B. Theory on Multiple Corporate Personalities

C. Minimum Capital Stock and Subcription Requirements

1. Incorporation and organization


a. Promoter
a.1 Liability of promoter
a.2 Liability of corporation for promoter’s contracts

2. Subscription contract

Cases: Jaka Investment Corp v. CIR, G.R. No. 147629, July 28, 2010

Facts:

Sometime in 1994, petitioner sought to invest in JAKA Equities Corporation (JEC), which was then planning to
undertake an initial public offering (IPO) and listing of its shares of stock with the Philippine Stock Exchange.
JEC increased its authorized capital stock... from One Hundred Eighty-Five Million Pesos (P185,000,000.00) to
Two Billion Pesos (P2,000,000,000.00). Petitioner proposed to subscribe to Five Hundred Eight Million Eight
Hundred Six Thousand Two Hundred Pesos (P508,806,200.00) out of the increase in the authorized... capital stock
of JEC through a tax-free exchange under Section 34(c)(2) of the National Internal Revenue Code (NIRC) of
1977, as amended, which was effected by the execution of a Subscription Agreement and Deed of Assignment of
Property in Payment of Subscription.

The intended IPO and listing of shares of JEC did not materialize. However, JEC still decided to proceed with the
increase in its authorized capital stock and petitioner agreed to subscribe thereto, but under different terms of
payment. Thus, petitioner and JEC executed... the Amended Subscription Agreement

On October 14, 1994, petitioner paid One Million Three Thousand Eight Hundred Ninety-Five Pesos and Sixty-
Five Centavos (P1,003,895.65) for basic documentary stamp tax inclusive of the 25% surcharge for late payment
on the Amended Subscription Agreement

Petitioner, after seeing the RDO's certifications, the total amount of which was less than the actual amount it had
paid as documentary stamp tax, concluded that it had overpaid. Petitioner subsequently sought a refund for the
alleged excess documentary stamp tax and... surcharges it had paid on the Amended Subscription Agreement in the
amount of Four Hundred Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00)

On October 11, 1996, petitioner filed a petition for refund before the Court of Tax Appeals

The Court of Tax Appeals likewise denied... petitioner's Motion for Reconsideration

25
Petitioner appealed to the Court of Appeals by way of petition for review. The Court of Appeals sustained the
Court of Tax Appeals in its Decision

Petitioner's main contention in this claim for refund is that the tax base for the documentary stamp tax on the
Amended Subscription Agreement should have been only the shares of stock in RGHC, PGCI, and UCPB that
petitioner had transferred to JEC as payment for its subscription... to the JEC shares, and should not have included
the cash portion of its payment, based on Section 176 of the National Internal Revenue Code

Petitioner argues that the cash component of its payment for its subscription to the JEC shares, totaling Three
Hundred Seventy Million Seven Hundred Sixty-Six Thousand Pesos (P370,766,000.00) should not have been
charged any documentary stamp... tax. Petitioner claims that there was overpayment because the tax due on the
transferred shares was only Five Hundred Ninety-Three Thousand Five Hundred Twenty-Eight and 15/100 Pesos
(P593,528.15), as indicated in the certifications issued by RDO Esquivias.

Respondent maintains that the documentary stamp tax imposed in this case is on the original issue of certificates
of stock of JEC on the subscription by the petitioner of the P508,806,200.00 shares out of the increase in the
authorized capital stock of the former pursuant to

Section 175 of the NIRC. The documentary stamp tax was not imposed on the shares of stock owned by petitioner
in RGHC, PGCI, and UCPB, which merely form part of the partial payment of the subscribed shares in JEC.

Respondent stresses that the documentary stamp tax can be levied or collected from the person making, signing,
issuing, accepting, or transferring the obligation or property, as provided in Section 173 of the Tax Code.

Issues:

whether petitioner is entitled to a partial refund of the documentary stamp tax and surcharges it paid on the
execution of the Amended Subscription Agreement.

Ruling:

In claims for refund, the burden of proof is on the taxpayer to prove entitlement to such refund.

It was thus incumbent upon petitioner to show clearly its basis for claiming that it is entitled to a tax refund. This,
to our mind, the petitioner failed to do.

We find nothing ambiguous nor obscure in the language of Section 173, taken in relation to Section 175 of the
1994 Tax Code x x x insofar as the same is brought to bear upon the circumstances in the instant case. These
provisions furnish the best means of their own... exposition that a documentary stamp tax (DST) is due and
payable on documents, instruments, loan agreements and papers, acceptances, assignments, sales and transfers
which evidenced the transaction agreed upon by the parties and should be paid by the person making, signing,...
issuing, accepting or transferring the property, right or obligation.

Understood to mean what it plainly expressed, the DST imposition is essentially addressed and directly brought to
bear upon the DOCUMENT evidencing the transaction of the parties which establishes its rights and obligations.

In the case at bar, the rights and obligations between petitioner JAKA Investments Corporation and JAKA Equities
Corporation are established and enforceable at the time the "Amended Subscription Agreement and Deed of
Assignment of Property in Payment of Subscription" were signed... by the parties and their witness, so is the right
of the state to tax the aforestated document evidencing the transaction. DST is a tax on the document itself and
therefore the rate of tax must be determined on the basis of what is written or indicated on the instrument... itself
independent of any adjustment which the parties may agree on in the future

Petitioner alleges, though, that considering that the assessment of payment of documentary stamp tax was made
payable only to the aforesaid issuances of certificates of [stock] exclusive of that of FEBTC shares of stock which
were paid in cash, and that it has paid a... total of Php1,003,895.65 inclusive of surcharges for late payment, the
petitioner is entitled to a refund of Php410,367.00. This argument does not hold water. As discussed earlier, a
26
documentary stamp is levied upon the privilege, the opportunity and the facility... offered at exchanges for the
transaction of the business. This being the case, and as correctly found by the tax court, the documentary stamp
tax imposition is essentially addressed and directly brought to bear upon the document evidencing the transaction
of the parties... which establishes its rights and obligations, which in the case at bar, was established and
enforceable upon the execution of the Amended Subscription Agreement and Deed of Assignment of Property in
Payment of Subscription.

A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business transacted but is an
excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business. It is an
excise upon the facilities used in the... transaction of the business separate and apart from the business itself.
Documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of... specific instruments.

Thus, we have held that documentary stamp taxes are levied independently of the legal status of the transactions
giving rise thereto. The documentary stamp taxes must be paid upon the issuance of the said instruments, without
regard to whether the contracts... which gave rise to them are rescissible, void, voidable, or unenforceable.

Petitioner claims overpayment of the documentary stamp tax but its basis for such is not clear at all. While
insisting that the documentary stamp tax it had paid for was not based on the original issuance of JEC shares as
provided in Section 175 of the 1994 Tax Code,... petitioner failed in showing, even through a mere basic
computation of the tax base and the tax rate, that the documentary stamp tax was based on the transfer of shares
under Section 176 either. It would have been helpful for petitioner's cause had it submitted proof of... the par
value of the shares of stock involved, to show the actual basis for the documentary stamp tax computation. For
comparison, the original Subscription Agreement ought to have been submitted as well.

The fact that it was petitioner and not JEC that paid for the documentary stamp tax on the original issuance of
shares is of no moment, as Section 173 of the 1994 Tax Code states that the documentary stamp tax shall be paid
by the person making, signing, issuing, accepting or... transferring the property, right or obligation.

Principles:

Ong Yong v. Tiu, G.R. No. 144476, April 8, 2003


Lessons Applicable: Pre-incorporation Subscription (Corporate Law)

FACTS:
 1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when its owner,
the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became heavily indebted
to the Philippine National Bank (PNB) for P190M
 To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong, Juanita Tan
Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC.
 Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in FLADC
o Ongs: subscribe to 1,000,000 shares
o Tius: subscribe to an additional 549,800 shares in addition to their already existing subscription of
450,200 shares
 Tius: nominate the Vice-President and the Treasurer plus 5 directors
 Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the board of
directors of FLADC and right to manage and operate the mall.
 Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M (for
300K shares) and P49.8M (for 49,800 shares)
 Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their
subscription to 1M shares)
 February 23, 1996: Tius rescinded the Pre-Subscription Agreement
 February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking confirmation of
their rescission of the Pre-Subscription Agreement
 SEC: confirmed recission of Tius
 Ongs filed reconsideration that their P70M was not a premium on capital stock but an advance loan

27
 SEC en banc: affirmed it was a premium on capital stock
 CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission) but,
"for practical considerations," that is, their inability to work together, it was best to separate the two groups
by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding
practically everything else to the Tius.

ISSUE: W/N Specific performance and NOT recission is the remedy

HELD: YES. Ongs granted.


 did not justify the rescission of the contract
 providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,
respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the
obligation pertained to FLADC itself
 failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also
pertained to the corporation and not to the Ongs
 the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was to raise
the P190 million
 law requires that the breach of contract should be so "substantial or fundamental" as to defeat the primary
objective of the parties in making the agreement
 since the cash and other contributions now sought to be returned already belong to FLADC, an innocent
third party, said remedy may no longer be availed of under the law.
 Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract
 allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of
Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted retained earnings,25 and (3) dissolution and eventual
liquidation of the corporation.
 They want this Court to make a corporate decision for FLADC.
 The Ongs' shortcomings were far from serious and certainly less than substantial; they were in fact
remediable and correctable under the law. It would be totally against all rules of justice, fairness and equity
to deprive the Ongs of their interests on petty and tenuous grounds.

3. Pre-incorporation subscription agreements


4. Consideration for stocks
5. Filipino ownership requirement based on specific constitutional and legal grounds

BAR 2001: What is meant by a stockholder’s pre-emptive right to a new issuance of shares?

D. Corporate Term (Sec. 11)

1. Doctrine of Relation (Relating back doctrine)

Cases: Alhambra Cigar v. SEC, G.R.No.L-23606, July 29, 1968

FACTS: Alhambra Cigar and Cigarette Manufacturing Company, Inc. was duly incorporated under Philippine laws
on January 15, 1912. By its corporate articles it was to exist for fifty (50) years from incorporation. Its term of
existence expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of
liquidation. Thereafter, a new corporation, Alhambra Industries, Inc., was formed to carry on the business of
Alhambra. On June 20, 1963, within Alhambra's three-year statutory period for liquidation, RA 3531 was enacted
into law. It amended Section 18 of the Corporation Law empowering domestic private corporations to extend their
corporate life beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any
one instance. Previous to RA 3531, the maximum non-extendible term of such corporations was fifty years. On
July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph "Fourth" of its
28
articles of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from its
incorporation. Alhambra's articles of incorporation as so amended certified correct by its president and secretary
and a majority of its board of directors, were then filed with SEC. SEC, however, returned said amended articles
of incorporation to Alhambra's counsel with the ruling that RA 3531 "which took effect only on June 20, 1963,
cannot be availed of by the said corporation, for the reason that its term of existence had already expired when the
said law took effect in short, said law has no retroactive effect."

ISSUE: Whether or not a corporation can extend its life by amendment of its articles of incorporation effected
during the three-year statutory period for liquidation when its original term of existence had already expired.

RULING: Plain from the language of the provision of Section 77 of Corporation Law is its meaning: continuance
of a "dissolved" corporation as a body corporate for three years has for its purpose the final closure of its
affairs,and no other;the corporation is specifically enjoined from "continuing the business for which it was
established". The liquidation of the corporation's affairs set forth in Section 77 became necessary precisely
because its life had ended. For this reason alone, the corporate existence and juridical personality of that
corporation to do business may no longer be extended. And it should be clearly evident that no corporation in a
state of liquidation can act in any way, much lessamend its articles, "for the purpose of continuing the business for
which it was established". (

PNB v. CA, G.R. No. 63201, May 27, 1992

Facts: Private respondents are the registered owners of three parcels of land in Pasig, Metro Manila covered by
OCT No. 853, TCT Nos. 32843 and 32897 of the Registry of Deeds of Rizal. On March 1, 1954, private
respondents entered into a contract of lease with Philippine Blooming Mills, Co., Inc., (PBM) whereby the latter
shall lease the aforementioned parcels of land as factory site. PBM was duly organized and incorporated on
January 19, 1952 with a corporate term of twenty-five (25) years. This leasehold right of PBM covering the
parcels of land was duly annotated at the back of the above stated certificates of title as Entry No. 9367/T-No.
32843. The contract of lease provides that the term of the lease is for twenty years beginning from the date of the
contract and “is extendable for another term of twenty years at the option of the LESSEE should its term of
existence be extended in accordance with law.”. The contract also states that the lessee agrees to “use the property
as factory site and for that purpose to construct whatever buildings or improvements may be necessary or
convenient and/or . . . for any purpose it may deem fit; and before the termination of the lease to remove all such
buildings and improvements. In accordance with the contract, PBM introduced on the land, buildings, machineries
and other useful improvements. These constructions and improvements were registered with the Registry of Deeds
of Rizal and annotated at the back of the respondents’ certificates of title as Entry No. 85213/T-No. 43338. On
October 11, 1963, PBM executed in favor of Philippine National Bank (PNB), petitioner herein, a deed of
assignment, conveying and transferring all its rights and interests under the contract of lease which it executed
with private respondents. The assignment was for and in consideration of the loans granted by PNB to PBM. The
deed of assignment was registered and annotated at the back of the private respondents’ certificates of title as
Entry No. 85215/TNo. 32843. On November 6, 1963 and December 23, 1963 respectively, PBM executed in favor
of PNB a real estate mortgage for a loan of P100,000.00 and an addendum to real estate mortgage for another loan
of P1,590,000.00, covering all the improvements constructed by PBM on the leased premises. These mortgages
were registered and annotated at the back of respondents’ certificates as Entry No. 85214/T-No. 43338 and Entry
No. 870971/T-No. 32843, respectively. On October 7, 1981, private respondents filed a motion in the same
proceedings which was given a different case number to wit, LRC Case No. R-2744, because of the payment of
filing fees for the motion. The motion sought to cancel the annotations on respondents’ certificates of title
pertaining to the assignment by PBM to PNB of the former’s leasehold rights, inclusion of improvements and the
real estate mortgages made by PBM in favor of PNB, on the ground that the contract of lease entered into between
PBM and respondents-movants had already expired by the failure of PBM and/or its assignee to exercise the
option to renew the second 20-year lease commencing on March 1, 1974 and also by the failure of PBM to extend
its corporate existence in accordance with law. The motion also states that since PBM failed to remove its
improvements on the leased premises before the expiration of the contract of lease, such improvements shall
accrue to respondents as owners of the land.

Issue: Whether or not the corporate life of PBM was extended by the continuance of the lease and subsequent
registration of the title to the improvements under its name.
29
Held: No. The contract of lease expressly provides that the term of the lease shall be twenty years from the
execution of the contract but can be extended for another period of twenty years at the option of the lessee should
the corporate term be extended in accordance with law. Clearly, the option of the lessee to extend the lease for
another period of twenty years can be exercised only if the lessee as corporation renews or extends its corporate
term of existence in accordance with the Corporation Code which is the applicable law. Contracts are to be
interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. Thus,
in the instant case, the initial term of the contract of lease which commenced on March 1, 1954 ended on March 1,
1974. PBM as lessee continued to occupy the leased premises beyond that date with the acquiescence and consent
of the respondents as lessor. Records show however, that PBM as a corporation had a corporate life of only
twenty-five (25) years which ended an January 19, 1977. It should be noted however that PBM allowed its
corporate term to expire without complying with the requirements provided by law for the extension of its
corporate term of existence.

Section 11 of Corporation Code provides that a corporation shall exist for a period not exceeding fifty (50) years
from the date of incorporation unless sooner dissolved or unless said period is extended. Upon the expiration of
the period fixed in the articles of incorporation in the absence of compliance with the legal requisites for the
extension of the period, the corporation ceases to exist and is dissolved ipso facto. When the period of corporate
life expires, the corporation ceases to be a body corporate for the purpose of continuing the business for which it
was organized. But it shall nevertheless be continued as a body corporate for three years after the time when it
would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it
gradually to settle and close its affairs, to dispose of and convey its property and to divide its assets. There is no
need for the institution of a proceeding for quo warranto to determine the time or date of the dissolution of a
corporation because the period of corporate existence is provided in the articles of incorporation. When such
period expires and without any extension having been made pursuant to law, the corporation is dissolved
automatically insofar as the continuation of its business is concerned. The quo warranto proceeding under Rule 66
of the Rules of Court, as amended, may be instituted by the Solicitor General only for the involuntary dissolution
of a corporation on the following grounds: a) when the corporation has offended against a provision of an Act for
its creation or renewal; b) when it has forfeited its privileges and franchises by non-user; c) when it has committed
or omitted an act which amounts to a surrender of its corporate rights, privileges or franchises; d) when it has mis-
used a right, privilege or franchise conferred upon it by law, or when it has exercised a right, privilege or franchise
in contravention of law. Hence, there is no need for the SEC to make an involuntary dissolution of a corporation
whose corporate term had ended because its articles of incorporation had in effect expired by its own limitation.

Considering the foregoing in relation to the contract of lease between the parties herein, when PBM’s corporate
life ended on January 19, 1977 and its 3-year period for winding up and liquidation expired on January 19, 1980,
the option of extending the lease was likewise terminated on January 19, 1977 because PBM failed to renew or
extend its corporate life in accordance with law. From then on, the respondents can exercise their right to terminate
the lease pursuant to the stipulations in the contract.

E. Articles of Incorporation (Sec. 14)

1. Contents
2. Non-amenable items
3. Doctrine of substantial compliance

F. Ground for rejection

G. Corporate name

H. Commencement of corporate existence

1. Genossenschaft Theory
2. Theory of Concession
30
3. Theory of corporate enterprise or Economic unit

I. De facto corporation

1. Differences between de jure, de facto and corporation by estoppel

Cases: Seventh Day Adventists v. Seventh Day Adventists, GR No.150416,


July 21, 2006

Facts:

That we Felix Cosio

Felisa Cuysona... do hereby grant, convey and forever quit claim by way of Donation or gift unto the South
Philippine [Union] Mission of Seventh Day Adventist Church of Bayugan, Esperanza, Agusan, all the rights, title,
interest, claim and demand both at law and as well in... possession as in expectancy of in and to all the place of
land and portion situated in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist Church, on
behalf of the donee.

Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses Cosio to
the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-NEMM).

petitioners asserted ownership over the property. This was opposed by respondents who argued that at the time of
the donation, SPUM-SDA Bayugan could not legally be a donee because, not having been incorporated yet, it...
had no juridical personality.

Neither were petitioners members of the local church then, hence, the donation could not have been made
particularly to them.

tr

After trial, the trial court rendered a decision[7] on November 20, 1992 upholding the sale in favor of respondents.

On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and attorney's fees.

Issues:

should SDA-NEMM's ownership of the lot covered by TCT No. 4468 be upheld?[9] We answer in the affirmative.

Ruling:

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another
person who accepts it. The donation could not have been made in favor of an entity yet inexistent at the time it was
made. Nor could it have been accepted... as there was yet no one to accept it.

The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-SDA
Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift.

Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation.

But there are stringent requirements before one can qualify as a de facto corporation:

(a) the existence of a valid law under which it may be incorporated;

31
(b) an attempt in good faith to incorporate; and

(c) assumption of corporate powers.

there is no proof that there was an attempt to incorporate at that time.

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the
existence of a de facto corporation.

Petitioners themselves admitted that at the time of the donation, they were not registered with the SEC, nor did
they even attempt to... organize[14] to comply with legal requirements.

Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was
ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation. Petitioners
obviously could not have claimed succession to an... entity that never came to exist.

were not even members of the local church then, thus, they could not even claim that the donation was particularly
for them.

Principles:

"The de facto doctrine thus effects a compromise between two conflicting public interest[s]-the one opposed to an
unauthorized assumption of corporate privileges; the other in favor of doing justice to the parties and of
establishing a general assurance... of security in business dealing with corporations."[17]

Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to favor the
defective or non-existent corporation.

J. Corporation by estoppel (Sec. 21)

K. Non-use of corporate charter (Sec. 22)

PART III – BOARD OF DIRECTORS / TRUSTEES/ OFFICERS

A. The Board of Directors/Trustees (Sec. 23)

1. Fiduciary duties

B. Election of Directors/Trustees (Sec 24)

1. Methods of voting
a. Straight voting
b. Cumulative voting

2. In a non-stock corporation

C. Corporate Officers, quorum (Sec. 25)

Cases: Matling Industrial and Commercial Group v Coros, G.R.No. 157802,


Oct. 13, 2010

Facts: After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed on
August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate
officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City. The petitioners moved to
32
dismiss the complaint, raising the ground, among others, that the complaint pertained to the jurisdiction of the
Securities and Exchange Commission (SEC) due to the controversy being intracorporate inasmuch as the
respondent was a member of Matlings Board of Directors aside from being its Vice-President for Finance and
Administration prior to his termination. The respondent opposed the petitioners motion to dismiss, insisting that
his status as a member of Matlings Board of Directors was doubtful, considering that he had not been formally
elected as such; that he did not own a single share of stock in Matling, considering that he had been made to sign
in blank an undated indorsement of the certificate of stock he had been given in 1992; that Matling had taken back
and retained the certificate of stock in its custody; and that 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. On October 16, 2000, the LA granted the petitioners motion to
dismiss, ruling that the respondent was a corporate officer because he was occupying the position of Vice
President for Finance and Administration and at the same time was a Member of the Board of Directors of
Matling; and that, consequently, his removal was a corporate act of Matling and the controversy resulting from
such removal was under the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of Presidential Decree
No. 902.

Issue: Whether or not the respondent is a corporate officer within the jurisdiction of the regular courts.

Held: No. As a rule, the illegal dismissal of an officer or other employee of a private employer is properly
cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides as
follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. – (a) Except as otherwise provided under
this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30)
calendar days after the submission of the case by the parties for decision without extension, even in the absence of
stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;


2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay,
hours of work and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes
and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims
arising from employer-employee relations, including those of persons in domestic or household service, involving
an amount exceeding five thousand pesos (P 5,000.00) regardless of whether accompanied with a claim for
reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters. (c)
Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from
the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by
referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements.

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 between and among stockholders, members, or associates, or between any or all
of them and the corporation, partnership, or association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership, or association and the State insofar as the controversy
concerns their individual franchise or right to exist as such entity; or because the controversy involves the election
or appointment of a director, trustee, officer, or manager of such corporation, partnership, or association. Such
controversy, among others, is known as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. 8799, otherwise known as The Securities
Regulation Code, the SECs jurisdiction over all intra-corporate disputes was transferred to the RTC, pursuant to
Section 5.2 of RA No. 8799.
33
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 By-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.

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. The
office of Vice President for Finance and Administration created by Matlings President pursuant to By Law No. V
was an ordinary, not a corporate, office.

The criteria for distinguishing between corporate officers who may be ousted from office at will, on one hand, and
ordinary corporate employees who may only be terminated for just cause, on the other hand, do not depend on the
nature of the services performed, but on the manner of creation of the office. In the respondents case, he was
supposedly at once an employee, a stockholder, and a Director of Matling. The circumstances surrounding his
appointment to office must be fully considered to determine whether the dismissal constituted an intra-corporate
controversy or a labor termination dispute. We must also consider whether his status as Director and stockholder
had any relation at all to his appointment and subsequent dismissal as Vice President for Finance and
Administration.

D. Report of Election (Sec. 26)

E. Disqualification of Directors/Trustees/Officers (Sec. 27)

F. Removal of Directors/Trustees (Sec. 28)

BAR 2001: May an officer of a corporation be removed by a mere board resolution?

G. Vacancies in the Office of Directors/Trustees (Sec. 29)

Cases: Valle Verde Country Club, Inc. v. Africa, G.R.No. 151969, September
4, 2009

FACTS:
 February 27, 1996: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal
(Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee,
Augusto Sunico, and Ray Gamboa were elected as BOD during the Annual Stockholders’
Meeting of petitioner Valle Verde Country Club, Inc. (VVCC)
 1997 - 2001: Requisite quorum could not be obtained so they continued in a hold-over capacity
 September 1, 1998: Dinglasan resigned, BOD still constituting a quorom elected Eric Roxas (Roxas)
 November 10, 1998: Makalintal resigned
 on March 6, 2001: Jose Ramirez (Ramirez) was elected by the remaining BOD
 Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as
members of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial
Court (RTC) as contrary to:
o Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected
from among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for 1 year until their successors are elected and qualified.
34
o Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by the stockholders or members or by expiration of
term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or
special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be
elected only for the unexpired term of his predecessor in office. xxx.
o Makalintal's term should have expired after 1996 there being no unexpired term. The vacancy
should have been filled by the stockholders in a regular or special meeting called for that purpose
 RTC: Favored Africa - Ramirez as Makalintal's replacement = null and void
 SEC: Roxas as Vice hold-pver director of Dinglasan = null and void
 VVCC appealed in SC for certiorari being partially contrary to law and jurisprudence

ISSUES:
1. W/N there is an unexpired term - NO
2. W/N the remaining directors of a corporation’s Board, still constituting a quorum, can elect another director to fill
in a vacancy caused by the resignation of a hold-over director. - NO

HELD: Petition Denied. RTC Affirmed.

1. NO
 “term” time during which the officer may claim to hold the office as of right
o not affected by the holdover
o fixed by statute and it does not change simply because the office may have become vacant, nor
because the incumbent holds over in office beyond the end of the term due to the fact that a
successor has not been elected and has failed to qualify.
 “tenure”
o term during which the incumbent actually holds office.
 Section 23 of the Corporation Code: term of BOD only 1 year - fixed and has expired (1 yr after 1996)

2. NO
 underlying policy of the Corporation Code is that the business and affairs of a corporation must be
governed by a board of directors whose members have stood for election, and who have actually been
elected by the stockholders, on an annual basis. Only in that way can the directors' continued
accountability to shareholders, and the legitimacy of their decisions that bind the corporation's
stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over properties that they do not own.
 theory of delegated power of the board of directors
 Section 29 contemplates a vacancy occurring within the director’s term of office (unexpired)
 vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members of
its board of directors
 Facts:
 On February 27, 1996, during the Annual Stockholders' Meeting of petitioner Valle Verde Country Club,
Inc.
 , the following were elected as members of the VVCC Board of Directors:
 Dinglasan
 Makalintal
 ,... Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray
Gamboa.
 In the years 1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the
stockholders' meeting... could not be obtained. Consequently, the above-named directors continued to serve
in the VVCC Board in a hold-over capacity.
 On September 1, 1998, Dinglasan resigned
 In a meeting held on October 6, 1998, the remaining directors, still constituting a quorum of VVCC's nine-
member board, elected
 Roxas... to fill in the vacancy created by the... resignation of Dinglasan.
 A year later,... Makalintal also resigned
35
 He was replaced by
 Ramirez
 , who was elected by the remaining members of the VVCC Board on March 6, 2001.
 Respondent Africa... a member of VVCC, questioned the election of Roxas and Ramirez as members of the
VVCC Board with the
 SEC... and the Regional Trial Court
 In his nullification complaint... before the RTC, Africa alleged that the election of Roxas was contrary to
Section 29, in relation to Section 23, of the Corporation Code of the Philippines
 Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be exercised, all business conducted and all property of
such corporations controlled and held... by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold
office for one (1) year until their successors are elected and qualified.
 Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of directors or
trustees other than by removal by the stockholders or members or by expiration of term, may be filled by
the vote of at least a majority of the... remaining directors or trustees, if still constituting a quorum;
otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that
purpose. A director or trustee so elected to fill a vacancy shall be elected only for the... unexpired term of
his predecessor in office. xxx.
 Africa claimed that a year after Makalintal's election as member of the VVCC Board in 1996, his
[Makalintal's] term - as well as those of the other members of the VVCC Board - should be considered to
have already expired.
 Thus, according to Africa, the resulting vacancy should... have been filled by the stockholders in a regular
or special meeting called for that purpose, and not by the remaining members of the VVCC Board, as was
done in this case.
 Africa additionally contends that for the members to exercise the authority to fill in vacancies in the board
of directors, Section 29 requires, among others, that there should be an unexpired term during which the
successor-member shall serve. Since Makalintal's term had... already expired with the lapse of the one-year
term provided in Section 23, there is no more "unexpired term" during which Ramirez could serve.
 Through a partial decision... promulgated on January 23, 2002, the RTC ruled in favor of Africa
 Incidentally, the SEC issued a similar ruling... nullifying the election of Roxas as member of the VVCC
Board, vice hold-over director Dinglasan.
 Issues:
 whether the remaining directors of the corporation's Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director.
 Ruling:
 We are not persuaded by VVCC's arguments and, thus, find its petition unmeritorious.
 The word "term" has acquired a definite meaning in jurisprudence. In several cases, we have defined
"term" as the time during which the officer may claim to hold the office as of right, and fixes the interval
after which the several incumbents shall... succeed one another.
 The term of office is not affected by the holdover.
 The term is fixed by statute and it does not change simply because the office may have become vacant, nor
because the incumbent holds over in office... beyond the end of the term due to the fact that a successor has
not been elected and has failed to qualify.
 Term is distinguished from tenure in that an officer's "tenure" represents the term during which the
incumbent actually holds office.
 The underlying policy of the Corporation Code is that the business and affairs of a corporation must be
governed by a board of directors whose members have stood for election, and who have actually been
elected by the stockholders, on an annual basis. Only in that way can the... directors' continued
accountability to shareholders, and the legitimacy of their decisions that bind the corporation's
stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over properties... that they do not own.
 This theory of delegated power of the board of directors similarly explains why, under Section 29 of the
Corporation Code, in cases where the vacancy in the corporation's board of directors is caused not by the
expiration of a member's term, the successor "so elected to fill in... a vacancy shall be elected only for the
unexpired term of the his predecessor in office."

36
 It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within the
director's term of office. When a vacancy is created by the expiration of a term, logically, there is no more
unexpired term to speak of. Hence, Section 29... declares that it shall be the corporation's stockholders who
shall possess the authority to fill in a vacancy caused by the expiration of a member's term.
 As correctly pointed out by the RTC, when remaining members of the VVCC Board elected Ramirez to
replace Makalintal, there was no more unexpired term to speak of, as Makalintal's one-year term had
already expired. Pursuant to law, the authority to fill in the vacancy caused by
 Makalintal's leaving lies with the VVCC's stockholders, not the remaining members of its board of
directors.
 Principles:

Tan v. Sycip, G.R. No. 153468, August 17, 2006

For stock corporations, the quorum referred to in Section 52 of the Corporation Code is based on the number of
outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting
rights shall be counted in determining the existence of a quorum during members meetings. Dead members shall
not be counted.

Facts:

Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen (15)
regular members, who also constitute the board of trustees. During the annual members meeting held on April 6,
1998, there were only eleven (11) living member-trustees, as four (4) had already died. Out of the eleven, seven
(7) attended the meeting through their respective proxies. The meeting was convened and chaired by Atty. Sabino
Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. In the meeting,
Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four deceased
member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained that the
deceased member-trustees should not be counted in the computation of the quorum because, upon their death,
members automatically lost all their rights (including the right to vote) and interests in the corporation.

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum. She
held that the basis for determining the quorum in a meeting of members should be their number as specified in the
articles of incorporation, not simply the number of living members.

Issue:

Whether or not in NON-STOCK corporations, dead members should still be counted in determination of quorum
for purpose of conducting the Annual Members Meeting.

Ruling:

The Right to Vote in Nonstock Corporations

In nonstock corporations, the voting rights attach to membership. Members vote as persons, in accordance with
the law and the bylaws of the corporation. Each member shall be entitled to one vote unless so limited, broadened,
or denied in the articles of incorporation or bylaws. We hold that when the principle for determining the quorum
for stock corporations is applied by analogy to nonstock corporations, only those who are actual members with
voting rights should be counted.

Under Section 52 of the Corporation Code, the majority of the members representing the actual number of voting
rights, not the number or numerical constant that may originally be specified in the articles of incorporation,
constitutes the quorum.

37
Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles of
incorporation, shall constitute a quorum for the transaction of corporate business (unless the articles of
incorporation or the bylaws provide for a greater majority). If the intention of the lawmakers was to base the
quorum in the meetings of stockholders or members on their absolute number as fixed in the articles of
incorporation, it would have expressly specified so. Otherwise, the only logical conclusion is that the legislature
did not have that intention.

Effect of the Death of a Member or Shareholder

In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the
executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote
it. Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator
or executor.

On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-
transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. In other
words, the determination of whether or not dead members are entitled to exercise their voting rights (through their
executor or administrator), depends on those articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of
the member. Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a
member of the corporation, unless otherwise provided in the articles of incorporation or the bylaws.

Applying Section 91 to the present case, we hold that dead members who are dropped from the membership roster
in the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the
requisite vote in corporate matters or the requisite quorum for the annual members meeting. With 11 remaining
members, the quorum in the present case should be 6. Therefore, there being a quorum, the annual members
meeting, conducted with six members present, was valid.

H. Compensation of Directors (Sec. 30)

I. Liability of Directors/Trusteess/ Officers (Sec. 31)


1. Corporate opportunity doctrine

J. Dealings of Directors, Trustees, or Officers with the Corporation (Sec. 32)

BAR 2001: May a corporation provide in its By-Laws that “the directors be relieved from all liability
for any contract entered into by the corporation”?

K. Contracts between corporations with interlocking directors (Sec. 33)

L. Disloyalty of Directors (Sec. 34)

M. Executive Committee (Sec. 35)

QUESTION: May directors or trustees delegate entire supervision and control of the corporation to an
executive committee?

N. Business Judgment Rule


38
Cases: Saber v. CA G.R. No. 132981, August 31, 2004

Facts: On April 8, 1974 then President Ferdinand E. Marcos appointed Dr. Mamitua Saber, then Dean of Research
at the Mindanao State University and Acting Director, National Science Museum, as Executive Vice-President of
the Philippine Amanah Bank (PAB). He was also designated as the Officer-in-Charge of the bank pending the
election of its president by the Board of Directors. Saber was surprised because he did not apply for appointment
to the position. He inquired from Executive Secretary Alejandro Melchor why he was appointed thereto,
considering that he had no experience whatsoever in the field of business and banking. He was told that he was
chosen by the President from among forty applicants because of his proven personal integrity. Saber took a year-
long leave of absence from the university and assumed office at the PAB. From the serenity of the academe, he
plunged head-on into the turbulent and intricate world of business. One of the members of the Board of Directors
of the bank was Asgari Aradji who was also the Acting Chairman of the Screening Committee for Personnel.
Martin Saludo, then Senior Vice-President of the Philippine National Bank (PNB), was a management consultant
of the PAB. Saber was sent to Malaysia to study how its Malaysian government prepared and managed the annual
Muslim pilgrimage (Hajj) to Mecca, and thus, avoid the fiascos that plagued previous such pilgrimages of Filipino
Muslims in the past. After his stint in Malaysia, Saber resumed his duties at the PAB. Saber decided to charter the
M/V Sweet Homes, owned by the Sweet Lines, Inc., for the trip. In behalf of the PAB, as charter, Saber executed a
Uniform Time-Charter on October 15, 1974 under which the PAB chartered the M/V Sweet Homes to transport the
pilgrims to Mecca and back to the Philippines for P 5,300,000 cash, the amount budgeted by the PAB. The parties
executed a Rider to Charter Party in which the PAB was allowed to load cargoes in the cargo hold of the vessel up
to 500 metric tons free of freight. The vessel was scheduled to leave on November 28, 1974. There was no time to
lose; the PAB conducted a massive information drive to inform the Muslims of the arrangements, including the
accommodations on board the vessel and urged them to join the Hajj through the bank. Prospective pilgrims,
including PAB depositors, made reservations for the voyage and made partial payments for their tickets thereon. In
a parallel development, Atty. Mangawan Toro, the Legal Counsel of the PAB, prepared a Freight Contract which
the PAB, through Saber, and the AGEAC, through Basman, its General Manager, executed without the approval of
the PAB Board of Directors. Under the contract, AGEAC was allowed to load on the M/V Sweet Homes chartered
by the PAB, exportable/importable goods and other cargoes on its trip to Saudi Arabia and return, in consideration
of P paid by AGEAC via a postdated check. During the meeting of the PAB Board of Directors, Saber was present.
The Board, after exhaustive deliberations, approved Resolution No. 67, Series of 1975, without any objection,
declaring Saber liable for the receivables on the ground that the Board did not authorize him to sell tickets on
credit payable via postdated checks, and to execute the Freight Contract with AGEAC. The Board directed Saber
to collect the receivables himself, because of its perception that if the PAB endeavored to collect the receivables, it
would, thereby, be ratifying the unauthorized acts of Saber.

Issue: Whether or not a separate committee should be formed to investigate on the allegations against petitioner,
Saber.

Held: Yes. We agree with the petitioners that a person other than respondent Aradji should have been designated
as Chairperson of the Investigating Committee to investigate the pilgrimage fiasco. This is so because in his
Memorandum to the Board of Directors of the PAB on February 21, 1975, respondent Aradji had declared that the
1974 Mecca pilgrimage under the supervision of Saber was mishandled and there were indications then that there
was an apparent lack of exercise of effective leadership which was so vital and essential to make the bank truly
responsive to the needs of the Filipino Muslims. Respondent Aradji then proposed that Saludo exercise the powers
of the president of the respondent bank in place of Saber. In fine, respondent Aradji attributed the problems
attendant to the pilgrimage fiasco to Saber. But then Saber did not oppose the designation by the Board of
Directors for respondent Aradji to be the Chairman of the Investigating Committee, or even asked for the latters
inhibition. Saber must have believed that he could still prove that he acted in good faith, and was not guilty of any
wrongdoing regardless of any misconception of respondent Aradji. Besides, respondent Aradji was only the
chairman of the committee, and there were four (4) other members who could rule in Sabers favor. As it was,
Saber even appeared before the committee and adduced testimonial and documentary evidence in his behalf.

The respondent PAB cannot be faulted, nor can it be ordered to pay damages and attorneys fees for issuing a
conditional clearance to Saber after his resignation from respondent PAB. Saber had not yet liquidated his
accountability of P 1,012,000 when his leave of absence from the university had expired. The Investigating
Committee had yet to commence and terminate its investigation of Sabers accountability, administrative or civil,
39
for the pilgrimage fiasco. The respondent PAB had no discretion to issue a clearance to Saber. It bears stressing
that a public officer, in the discharge of his duties has to use prudence, caution and attention in the management of
his affairs. In fact, the respondent PAB was duty bound to withhold such clearance to Saber pending final
determination of his monetary accountabilities. Even assuming that Saber and/or the petitioners sustained
economic difficulties on account of the conditional clearance issued by the respondent PAB, the petitioners are not
entitled to moral and exemplary damages. The act of the respondent PAB was not wrongful. It is a case of
damnum absque injuria and not of damnum et injuria.

To constitute malicious prosecution, there must be proof that the prosecutor was prompted by a sinister or devious
design to vex and humiliate a person, and that it was initiated deliberately, knowing that the charges are false and
groundless. Malice with probable cause must both be clearly established to justify an award of damages based on
malicious prosecution. Lack of probable cause is an element separate and distinct from that of malice. One cannot
be held liable for damages for malicious prosecution where he acted with probable cause. We also held that a
determination that there is no probable cause cannot be made to rest solely on the fact that the trial court after trial
decided to acquit the accused. Neither can lack of probable cause be made to rest on the fact that the finding of
probable cause of the Special Counsel was reversed by the Secretary of Justice or the Ombudsman as the case may
be. The mere act of submitting the case to the authorities for prosecution does not make one liable for malicious
prosecution. Moreover, the adverse result of an action does not per se make the action wrongful and subject the
action to damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result
from a persons exercise of a right, it is damnum absque injuria.

PART IV – POWERS OF CORPORATION

A. Classification of Shares

1. Express powers
2. Implied powers
3. Incidental or inherent powers

Cases: Cebu Bionic Builders Supply v. DBP, G.R. 154366, Nov. 17, 2010
Shipside Inc. v. CA, G.R. No. 143377, Feb. 20, 2001
Facts: The petitioner filed a certiorari with the CA containing the requisite certification on non-forum shopping but failed to attach proof
that the person signing the certification was authorized to do so. The CA dismissed the petition. The petitioner submits a motion for
reconsideration which attached a secretary’s certificate attesting to the signatory’s authority to sign certificates against forum shopping on
behalf of the petitioner. When the court of CA denied the motion, the petitioner sought relief with the SC.

Issue: Whether the CA erred in dismissing the petition of Shipside Inc.

Ruling: Yes, the CA erred in the dismissal of the petition. The SC revised the decision of CA recognizing the belated filing of the
certifications against forum shopping as permitted in exceptional circumstances. It further held that with more reason should a petition be
given due course when this incorporates a certification on non-forum shopping without evidence that the person signing the certifications
was an authorized signatory and the petitioner subsequently submits a secretary’s certificate attesting to the signatory’s authority in its
motion for consideration.
The court allows belated submission of certifications showing proof of the signatory’s authority in signing the certification of forum
shopping.

Shipside v. CA
G.R. No. 143377 February 20, 2001
40
Melo, J.

Facts:

On October 29, 1958, Original Certificate of Title No. 0-381 was issued in favor of Rafael Galvez, over four parcels of land -
Lot 1 with 6,571 square meters; Lot 2, with 16,777 square meters; Lot 3 with 1,583 square meters; and Lot 4, with 508 square meters. On
April 11, 1960, Lots No. 1 and 4 were conveyed by Rafael Galvez in favor of Filipina Mamaril, Cleopatra Llana, Regina Bustos, and
Erlinda Balatbat in a deed of sale which was inscribed as Entry No. 9115 OCT No.0-381 on August 10, 1960. August 16, 1960, Mamaril,
et al. sold Lots No. 1 and 4 to Lepanto Consolidated Mining Company.

On February 1, 1963, unknown to Lepanto Consolidated Mining Company, the Court of First Instance of La Union, Second
Judicial District, issued an order declaring OCT No. 0-381 of the Registry of Deeds for the Province of La Union issued in the name of
Rafael Galvez, null and void, and ordered the cancellation thereof.

On October 28, 1963, Lepanto Consolidated Mining Company sold to herein petitioner Lots No. 1 and 4. In the meantime,
Rafael Galvez filed his motion for reconsideration against the order issued by the trial court declaring OCT No. 0-381 null and void. The
motion was denied. The Court of Appeals ruled in favor of the Republic of the Philippines.

Thereafter, the Court of Appeals issued an Entry of Judgment, certifying that its decision dated August 14, 1973 became final
and executory on October 23, 1973. Twenty four long years, thereafter, on January 14, 1999, the Office of the Solicitor General received
a letter dated January 11, 1999 from Mr. Victor G. Floresca, Vice-President, John Hay Poro Point Development Corporation, stating that
the aforementioned orders and decision of the trial court in L.R.C. No. N-361 have not been executed by the Register of Deeds, San
Fernando, La Union despite receipt of the writ of execution. On April 21, 1999, the Office of the Solicitor General filed a complaint for
revival of judgment and cancellation of titles before the Regional Trial Court of the First Judicial Region (Branch 26, San Fernando, La
Union)

Issue:

whether or not the Republic of the Philippines can maintain the action for revival of judgment herein

Held:

No. While it is true that prescription does not run against the State, the same may not be invoked by the government in this case
since it is no longer interested in the subject matter. While Camp Wallace may have belonged to the government at the time Rafael
Galvez’s title was ordered cancelled, the same no longer holds true today.

With the transfer of Camp Wallace to the BCDA, the government no longer has a right or interest to protect. Consequently, the
Republic is not a real party in interest and it may not institute the instant action. Nor may it raise the defense of imprescriptibility, the
same being applicable only in cases where the government is a party in interest. Under Section 2 of Rule 3 of the 1997 Rules of Civil
Procedure, “every action must be prosecuted or defended in the name of the real party in interest.” To qualify a person to be a real party
in interest in whose name an action must be prosecuted, he must appear to be the present real owner of the right sought to enforced. A real
party in interest is 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.
And by real interest is meant a present substantial interest, as distinguished from a mere expectancy, or a future, contingent, subordinate
or consequential interest. Being the owner of the areas covered by Camp Wallace, it is the Bases Conversion and Development Authority,
not the Government, which stands to be benefited if the land issued in the name of petitioner is cancelled.

41
Shipside Incorporated vs. The Court of Appeals
352 SCRA 334, February 20, 2011

Doctrine:

Prescription of action does not run against the State: it is not applicable to artificial bodies created by the State for special
purpose.

Facts:

OCTs were issued in favor of Rafael Galvez over four parcels of land. Lots 1 and 4 were conveyed by Galvez to Mamaril, who later
sold the same Order declaring his OCT null and void. Lepanto sold Lots 1 and 4 to herein petitioner.

Galvez filed a Motion for Reconsideration against the Order declaring his OCT null and void. The motion was denied. On appeal,
the CA ruled in favor of the Republic and issued a writ of execution. The order was not executed. After twenty-five long years, the Sol
Gen filed a complaint for revival of judgment and cancellation of titles.

Issue:

Whether or not the Republic may still for revival of judgment.

Held:

NO. While it is true that prescription does not run against the State, the same may not be invoked by the government in this case
since it is no longer interested in the subject matter. While Camp Wallance may have belonged to the government at the time Galvez’
title was ordered cancelled, the same no longer holds true today.

RA 7277 created Bases Conversion and Development Authority (BSDA). With the transfer of Camp Wallance to the BCDA, the
government has no longer a right or protect.

The rule that prescription does not run against the State does not apply to corporations or artificial bodies created by the State for
special purposes, it being said that when the title of the Republic has been divested, its grantees, although artificial bodies of its own
creation, are in the same category as ordinary persons.

B. Corporate Powers and Capacity(Sec. 36)

1. General powers, theory of general capacity

2. Specific powers, theory of specific capacity

a. Power to extend or shorten corporate term(Sec. 37)

a.1. Appraisal rights of dissenting stockholders

42
b. Power to increase or decrease capital stock, or incur, create, increate bonded indebtedness (Sec.
38)

b.1. Limitation
b.2. Necessity

BAR 2001: What are two ways by which the authorized capital stock of a
Corporation be increased?

c. Power to deny pre-emptive rights(Sec. 39)

c.1 As to treasury shares

d. Power to sell or dispose corporate assets (Sec. 40)

d.1 Appraisal rights of dissenting stockholders

e. Power to acquire own shares (Sec. 41)

e.1 Conditions for the exercise of the power


e.2 Trust fund doctrine

f. Power to invest corporate funds in another corporation or business (Sec. 42)

g. Power to declare dividends (Sec. 43)

g.1 Concept of dividends (distinguish from profits)


g.2 Classes of dividends
g.3 Unrestricted retained earnings

BAR 2001: What does the law require regarding earnings of the corporation in excess of 100% of
the corporation’s paid-in capital?

h. Power to inter into management contracts (Sec. 44)

i. Ultra-vires acts (Sec. 45)

i.1 Applicability of ultra-vires act doctrine


i.2 Consequencies of ultra-vires acts

Cases: Zomer Dev’t Co. v. International Exchange Bank, G.R. No. 150694, March 13, 2009

Republic v. Acoje Mining Inc. G.R. No. L-18062, Feb 28, 1963

i.3 Ratification

j. Doctrine of apparent authority

Cases: Westmont Bank v. Inland Construction, G.R. No. 123650, March


23, 2009
43
BPI Family Savings Bank v. First Metro Investment Corp, G.R.
No. 132390, May 21, 2004

k. Doctrine of individuality of subscription

l. Doctrine of equality of shares

m. Trust fund doctrine

PART V - BY LAWS

A. Adoption of By-Laws (Sec. 46)

a) Requisite of valid by-laws

b) Binding effects

b) Contents (Sec. 47)

d) Amendments (Sec. 48)

Cases: PMI Colleges v. NLRC, G.R. No. 121466, Aug. 15, 1997

PART VI –MEETINGS

A. Kinds (Sec. 49-51)

B. Place and time of meetings

Cases: Expert Travel & Tours v. CA, G.R. No. 152392, May 26, 2005

C. Quorum (Sec. 52)

D. Regular and Special Meetings of Directors or Trustees (Sec. 53)

D.1 Business judgment rule

D.2 Solidary liabilities for damages

E. Who shall preside (Sec. 54)

F. Pledgors, mortgagors, and administrators (Sec. 55)

G. Voting in case of joint ownership (Sec. 56)

H. Voting right for treasury shares (Sec. 57)

I. Proxies (Sec. 58)

J. Voting trust (Sec. 59)


44
Cases: Lee v. CA, G.R. No.14441, Dec. 17, 1996

PART VII - STOCKS, CERTIFICATES, AND STOCKHOLDERS

A. Rights of Stockholders in General

B. Derivative Suit

C. Liabilities of Stockholders

D. Subscription Contract (Sec. 60)

E. Pre-incorporation Subscription (Sec. 61)

F. Certificate of Stock
1. Nature of the certificate
2. Uncertified Shares
3. Negotiability
4. Requirement for valid transfer of stocks
BAR 2001
5. Issuance
6. Full Payment
7. Payment pro-rata

8. Stock and Transfer Book


9. Lost or destroyed cerficates
10. Situs of the shares of stock

G. Consideration for Stocks (Sec. 62)

H. Certificate of Stock and Transfer of Shares (Sec. 63)

I. Issuance of Stock Certificate (Sec. 64)

J. Liability of Directors for Watered Stocks (Sec. 65)

K. Interest on unpaid subscription (Sec. 66)

L. Payment of Balance (Sec. 67)

M. Delinquency Sale (Sec. 68)

N. When sale may be questioned (69)

O. Court Action to Recover Unpaid Subscription (Sec. 70)

P. Effect of Delinquency (Sec. 71)

Q. Rights of Unpaid Shares (Sec. 72)

R. Lost or Destroyed Certificates (Sec. 73)

45
PART VIII- CORPORATE BOOKS AND RECORDS (Sec. 73-74)

A. Contents

B. Who may make valid entries.

46

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