Corpo Digest Nov 29 2018.docx

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA A. History of Corporation Law in the Philippines HARDEN v BENGUET CONSOLIDATED MINING COMPANY Benguet Consolidated Mining Co. was organized as a sociedad anonima under the Spanish Law while the Balatoc Mining Co. was organized in December, as a corporation, in conformity with the provisions of the Corporation Law (Act No. 1459). Both entities were organized for the purpose of engaging in the mining of gold in the Philippines. Balatoc Mining Co 's stockholders appointed a committee for the purpose of interesting outside capital in the mine. Under the authority of this resolution the committee approached A. W. Beam, then president and general manager of the Benguet Company, to secure the capital necessary to the development of the Balatoc property. A contract authorized by both companies was executed under which the Benguet Company was to proceed with the development and construct a milling plant for the Balatoc mine, and to erect an appropriate power plant. In return for this it was agreed that the Benguet Company should receive from the treasurer of the Balatoc Company shares of a par value of P600,000, in payment for the first P600,000 to be thus advanced to it by the Benguet Company. However, Benguet Consolidated Mining Co. transferred to H. E. Renz, as trustee, the certificate for 600,000 shares of the Balatoc Mining Co.which constitute the principal subject matter of the action. This was done apparently to facilitate the splitting up of the shares in the course of sale or distribution. To prevent this, the plaintiffs, upon filing their original complaint, procured a preliminary injunction. It was alleged that is unlawful for the Benguet Company to hold any interest in a mining corporation Due to the prohibition under section 75 of the Act of Congress of July 1,1902 (Philippine Bill), generally prohibiting corporations engaged in mining and members of such from being interested in any other corporation engaged in mining. ISSUE: WON Benguet Company is considered as a corporation under the Philippine Law and is thus prohibited from having any interest in any other mining corporation. RULING: The court did not rule on the issue. The defendant Benguet Company has committed no civil wrong against the plaintiffs, and if a public wrong has been committed, the directors of the Balatoc Company, and the plaintiff Harden himself, where the active inducers of the commission of that wrong. The contract, supposing it to have been unlawful in fact, has been performed on both sides, by the building of the Balatoc plant by the Benguet Company and the delivery to the latter of the certificate of 600,000 shares of the Balatoc Company. The plaintiffs in this case have no right of action against the Benguet Company for the infraction of law supposed to have been committed, thus the court ruled that any discussion of the further question whether a sociedad anonima created under Spanish law, such as the Benguet Company, is a corporation within the meaning of the prohibitory provision is not necessary. That important question should, be left until it is raised in an action brought by the Government. DISCUSSION ON THE HISTORY OF CORPORATIONS IN THE PHILIPPINES: When the Philippine Islands passed to the sovereignty of the United States, There is no entity in Spanish law exactly corresponding to the notion of the corporation in English and American law; and in the Philippine Bill, approved July 1, 1902, the Congress of the United States inserted certain provisions, under the head of Franchises, which were intended to control the lawmaking power in the Philippine Islands in the matter of granting of franchises, privileges and concessions. But in section 75 there is a provision referring to mining corporations, which still remains the law, as amended. This provision, in its original form, reads as follows: "* * * it shall

be unlawful for any member of a corporation engaged in agriculture or mining and for any corporation organized for any purpose except irrigation to be in any wise interested in any other corporation engaged in agriculture or in mining." The Philippine Commission entered upon the enactment of a general law authorizing the creation of corporations in the Philippine Islands. This rather elaborate piece of legislation is embodied in what is called our Corporation Law. The evident purpose of the commission was to introduce the American corporation into the Philippine Islands as the standard commercial entity and to hasten the day when the sociedad anonima of the Spanish law would be obsolete. That statute is a sort of codification of American corporate law. For purposes of general description only, it may be stated that the sociedad anonima is something very much like the English joint stock company, with features resembling those of both the partnership and the corporation. As it was the intention of our lawmakers to stimulate the introduction of the American corporation into Philippine law in the place of the sociedad anonima, it was necessary to make certain adjustments resulting from the continued cobexistence, for a time, of the two forms of commercial entities. Accordingly, in section 75 of the Corporation Law, a provision is found making the sociedad anonima subject to the provisions of the Corporation Law "so far as such provisions may be applicable", and giving to the sociedades anonimas previously created in the Islands the option to continue business as such or to reform and organize under the provisions of the Corporation Law. Again, in section 191 of the Corporation Law, the Code of Commerce is repealed in so far as it relates to sociedades anonimas. The purpose of the commission in repealing this part of the Code of Commerce was to compel commercial entities thereafter organized to incorporate under the Corporation Law, unless they should prefer to adopt some form or other of the partnership. To this provision was added another to the effect that existing sociedades anonimas, which elected to continue their business as such, instead of reforming and reorganizing under the Corporation Law, should continue to be governed by the laws that were in force prior to the passage of this Act Section 75 of the Act of Congress of July 1,1902 (Philippine Bill), generally prohibiting corporations engaged in mining and members of such from being interested in any other corporation engaged in mining, was amended by section 7 of Act No. 3518 of the Philippine Legislature, approved by Congress March 1, 1929. The change in the law effected by this amendment was in the direction of liberalization. Thus, the inhibition contained in the original provision against members of a corporation engaged in agriculture or mining from being interested in other corporations engaged in agriculture or in mining was so merely to prohibit any such member from holding more than fifteen per centum of the outstanding capital stock of another such corporation. The Corporation Law (Act No. 1459) did not contain any appropriate clause directly penalizing the act of a corporation, or member of a corporation, in acquiring an interest contrary to paragraph (5) of section 13 of the Act. The Legislature reenacted substantially the same penal provision in section 21 of Act No. 3518, under a title sufficiently broad to comprehend the subject matter. This part of Act No. 3518 became effective upon approval by the Governorb General, on December 3, 1928, and it was therefore in full force when the contract now in question was made. This provision was inserted as a new section in the Corporation Law, Forming section 190 (A) of said Act as it now stands. Omitting the proviso, which seems not to be pertinent to the present controversy, said provision reads as follows: "Sec. 190 (A). Penalties. The violation of any of the provisions of this Act and its amendments not otherwise penalized therein, shall be punished by a fine of not more than five thousand pesos and by imprisonment for not more than five years, in the discretion of the court. If the violation is 1

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA committed by a corporation, the same shall, upon such violation being proved be dissolved by quo warranto proceedings instituted by the AttorneybGeneral or by any provincial fiscal by order of said AttorneybGeneral: * * *." Upon a survey of the facts sketched above it is obvious that there are two fundamental questions involved in this controversy. The first is whether the plaintiffs can maintain an action based upon the violation of law supposedly committed by the Benguet Company in this case. The second is whether, assuming the first question to be answered in the affirmative, the Benguet Company, which was organized as a sociedad anonima, is a corporation within the meaning of the language used by the Congress of the United States, and later by the Philippine Legislature, prohibiting a mining corporation from becoming interested in another mining corporation. It is obvious that, if the first question be answered in the negative, it will be unnecessary to consider the second question in this lawsuit. Upon the first point it is at once obvious that the provision referred to was adopted by the lawmakers with a sole view to the public policy that should control in the granting of mining rights. In the case of Compañia Azucarera de Carolina vs. Registrar It was ruled that : "Thus it may be seen that a corporation limited by the law or by its charter has until the State acts every power and capacity that any other individual capable of acquiring lands, possesses. The corporation may exercise every act of ownership over such lands; it may sue in ejectment or unlawful detainer and it may demand specific performance. It has an absolute title against all the world except the State after a proper proceeding is begun in a court of law. * * * J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN, vs. 
 IMPERIAL INSURANCE, INC
 J.R.S. Business Corporation, is an establishment duly franchised by the Congress of the Philippines, to conduct a messenger and delivery express service. On July 12, 1961, the respondent Imperial Insurance, Inc., fileda complaint (Civ. Case No. 47520), for sum of money against the petitioner corporation. A compromise was entered into between the parties fixing the liability of the defendants to P61,172.32. The amount was not paid prompting Imperial to file a motion for the issuance of a Writ of Execution. Notices of Sale were sent out for the auction of the personal properties of the petitioner J.R.S. Business Corporation. On June 2, 1962, a Notice of Sale of the "whole capital stocks of the defendants JRS Business Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the total liabilities, and Net Worth, books of accounts, etc., etc." of the petitioner corporation was, handed down. In the sale which was conducted in the premises of the JRS Business Corporation at 1341 Perez St., Paco, Manila, all the properties of said corporation contained in the Notices of Sale were bought by Imperial Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediately after the sale, respondent Insurance Company took possession of the proper ties and started running the affairs and operating the business of the JRS Business Corporation. ISSUE: Whether the business name or trade name, franchise (right to operate) and capital stocks of the petitioner are properties or property rights which could be the subject of levy, execution and sale. RULING: The corporation law, on forced sale of franchises, provides — Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use public property or any portion of the public domain or any right of way over public property or the public domain, and any rights and privileges acquired under such franchise may be levied upon and sold under execution, together with the property necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of

such franchise or right of way, in the same manner and with like effect as any other property to satisfy any judgment against the corporation: Provided, That the sale of the franchise or right of way and the property necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of said franchise or right of way is especially decreed and ordered in the judgment: And provided, further, That the sale shall not become effective until confirmed by the court after due notice. (Sec. 56, Corporation Law.) "A franchise is a special privilege conferred by governmental authority, and which does not belong to citizens of the country generally as a matter of common right. ... Its meaning depends more or less upon the connection in which the word is employed and the property and corporation to which it is applied. It may have different significations. For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate or general franchises; and (2) special or secondary franchises. The former is the franchise to exist as a corporation, while the latter are certain rights and privileges conferred upon existing corporations The primary franchise of a corporation that is, the right to exist as such, is vested "in the individuals who compose the corporation and not in the corporation itself" and cannot be conveyed in the absence of a legislative authority so to do , but the specify or secondary franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its Property except such special or secondary franchises as are charged with a public use. The right to operate a messenger and express delivery service, by virtue of a legislative enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled "An Act granting the JRS Business Corporation a franchise to conduct a messenger and express service)" and, as such, under our corporation law, is subject to levy and sale on execution together and including all the property necessary for the enjoyment thereof. The law, however, indicates the procedure under which the same (secondary franchise and the properties necessary for its enjoyment) may be sold under execution. Said franchise can be sold under execution, when such sale is especially decreed and ordered in the judgment and it becomes effective only when the sale is confirmed by the Court after due notice (Sec 56, Corp Law). The compromise agreement and the judgment based thereon, do not contain any special decree or order making the franchise answerable for the judgment debt. The same thing may be stated with respect to petitioner's trade name or business name and its capital stock. Moreover, a trade name or business name cannot be sold separately from the franchise, and the capital stock of the petitioner corporation or any other corporation, for the matter, represents the interest and is the property of stockholders in the corporation, who can only be deprived thereof in the manner provided by law It, therefore, results that the inclusion of the franchise, the trade name and/or business name and the capital stock of the petitioner corporation, in the sale of the properties of the JRS Business Corporation, has no justification. The sale of the properties of petitioner corporation is set aside, in so far as it authorizes the levy and sale of its franchise, trade name and capital stocks.

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CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA 1. Corporation Defined (Sec 2, CCP) a. Artificial being ANTONIO VAZQUEZ, petitioner, vs. FRANCISCO DE BORJA, respondent. This action was commenced in the Court of First Instance of Manila by Francisco de Borja against Antonio Vazquez and Fernando Busuego to recover from them jointly and severally the total sum of P4,702.70 for the sale of 4,000 cavans of palay. The defendants delivered to the plaintiff during the months of February, March, and April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and refused to deliver The balance of 1,512 cavans of the value of P3,175.20 notwithstanding repeated demands. The defendant Antonio Vazquez answered the complaint, denying having entered into the contract mentioned in the first cause of action in his own individual and personal capacity, either solely or together with his codefendant Fernando Busuego, and alleging that the agreement for the purchase of 4,000 cavans of palay and the payment of the price of P8,400 were made by the plaintiff with and to the NatividadbVasquez Sabani Development Co., Inc., a corporation organized and existing under the laws of the Philippines, of which the defendant Antonio Vazquez was the acting manager at the time the transaction took place. The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest on both sums, and absolving the defendant Fernando Busuego (treasurer of the corporation) from the complaint The Court of Appeals found that according to the preponderance of the evidence "the sale made by Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay was in his capacity as acting president and manager of the corporation NatividadbVazquez Sabani Development Co., Inc." That finding of fact is final and, it resolving the only issue involved, should be determinative of the result. ISSUE: Whether the plaintiff entered into the contract with the defendant Antonio Vazquez in his personal capacity or as manager of the Natividad- Vazquez Sabani Development Co., Inc. RULING: The action being on a contract, and it appearing from the preponderance of the evidence that the party liable on the contract is the NatividadbVazquez Sabani Development Co., Inc. which is not a party herein, the complaint should have been dismissed. It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them for an in its behalf. The legal fiction by which the personality of a corporation is created is a practical reality and necessity. Without it no corporate entities may exists and no corporate business may be transacted. Such legal fiction may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful Or fraudulent purpose. No such thing has been alleged or proven in this case. It has not been alleged nor even intimated that Vazquez personally benefited by the contract of sale in question and that he is

merely invoking the legal fiction to avoid personal liability. Neither is it contended that he entered into said contract for the corporation in bad faith and with intent to defraud the plaintiff. We find no legal and factual basis upon which to hold him liable on the contract either principally or subsidiarily. The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract, did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was the corporation's contract, its nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent liable. On the other hand if independently of the contract Vazquez by his fault or negligence cause damaged to the plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause of action should be based on culpa aquiliana and not on the contract Vazquez' liability would be principal and not merely subsidiary, as the Court of Appeals has erroneously held. No such cause of action was alleged in the complaint or tried by express or implied consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could not adjudicate upon it INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION

International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the Philipine Football Federation through its president private respondent Henri Kahn, wherein the former offered its services as a travel agency to the latter.[1] The offer was accepted. Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. The P449,654.83. For the tickets received, the Federation made two partial payments, both in September of 1989, in the total amount of P176,467.50. Petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of P265,894.33.[3] On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00. Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of the Federation.[5] Thereafter, no further payments were made despite repeated demands. Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation. In his answer, Henri Khan maintained that he did not guarantee payment but merely acted as an agent of the Federation which has a separate and distinct juridical personality. Trial court declared Henri Kahn personally liable for the unpaid obligation of the Federation. Ruling that: 3

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports association xxx." This has not been denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not. A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable. CA: Reversed. The Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a separate and distinct personality from its officers. the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which said Federation derives its existence.

Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. The constitution and by-laws of the Philippine Football Federation. does not prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own. Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts Performed as such agent. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation.[16] In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. d. Powers, attributes and Properties MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as represented by MA. ANTONIA M. SALVATIERRA, petitioner, vs. ANTONIO B. MONFORT III

ISSUE: WON the Philippine Football Federation Is a juridical person. RULING: NO. As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations. This may be gleamed from the powers and functions granted to these associations. The powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of these laws. It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision Creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the manner by which these entities may acquire juridical personality. It is required that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and

Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the registered owner of a farm, fishpond and sugar cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag and Tinampaban, all situated in Cadiz City. The same allowed Ramon H. Monfort, its Executive Vice President, to breed and maintain fighting cocks in his personal capacity at Hacienda San Antonio. In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took possession of the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort. The Corporation, represented by its President, Ma. Antonia M. Salvatierra, and Ramon H. Monfort, in his personal capacity, filed against the group of Antonio Monfort III, a complaint[6] for delivery of motor vehicle, tractors and 378 fighting cocks, with prayer for injunction and Damages. The group of Antonio Monfort III filed a motion to dismiss contending, inter alia, that Ma. Antonia M. Salvatierra has no capacity to sue on behalf of the Corporation because the March 31, 1997 Board Resolution[7] authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation is void as the purported Members of the Board who passed the same were not validly elected officers of the Corporation. Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for forcible entry, preliminary mandatory injunction with temporary restraining order and damages against the group of Antonio Monfort III. the group of Antonio Monfort III raised the affirmative defense of lack of legal capacity of Ma. Antonia M. Salvatierra to sue on behalf of the Corporation and the March 31, 1997 Board Resolution authorizing Ma. Antonia M. 4

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA Salvatierra and/or Ramon H. Monfort to represent the Corporation is void because the purported Members of the Board who passed the same were not validly elected officers of the Corporation. The Court of Appeals dismissed the complaint for forcible entry for lack of capacity of Ma. Antonia M. Salvatierra to represent the Corporation. ISSUE: WON Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf of the Corporation. RULING: NO A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors. Corporations are required under Section 26 of the Corporation Code to submit to the SEC within thirty (30) days after the election the names, nationalities and residences of the elected directors, trustees and officers of the Corporation. In order to keep stockholders and the public transacting business with domestic corporations properly informed of their organizational operational status, the SEC issued the following rules: xxxxxxxxx 2. A General Information Sheet shall be filed with this Commission within thirty (30) days following the date of the annual stockholders meeting. xxxxxxxxxxxx The General Information Sheet shall state, among others, the names of the elected directors and officers, together with their corresponding position title. In the instant case, of the six signatories to the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation, the names of the last four (4) signatories to the said Board Resolution do not appear in the General Information Sheet submitted by the Corporation with the SEC. There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort, were indeed duly elected Members of the Board legally constituted to bring suit in behalf of the Corporation. Premium power of be sued that exercises

Marble Resources, Inc. v. Court of Appeals: The the corporation to sue and in any court is lodged with the board of directors its corporate powers.

By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the names, nationalities and residences of the directors, trustees and officers elected. Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of responsible officers, of the nature of business, financial condition and operational status of the company together with information on its key officers or managers so that those dealing

with it and those who intend to do business with it may know or have the means of knowing facts concerning the corporations financial resources and business responsibility. In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General Information Sheet[23] are already dead[24] at the time the March 31, 1997 Board Resolution was issued, does not automatically make the four signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution (whose name do not appear in the 1996 General Information Sheet) as among the incumbent Members of the Board. This is because it was not established that they were duly elected to replace the said deceased Board Members. The issue of legal capacity of Ma. Antonia M. Salvatierra was raised before the lower court by the group of Antonio Monfort III as early as 1997, but the Minutes of said October 16, 1996 meeting was presented by the Corporation only in its September 29, 1999 Comment before the Court of Appeals.[27] Moreover, the Corporation failed to prove that the same October 16, 1996 Minutes was submitted to the SEC. In fact, the 1997 General Information Sheet[28] submitted by the Corporation does not reflect the names of the 4 Directors claimed to be elected on October 16, 1996. Ma. Antonia M. Salvatierra failed to prove that four of those who authorized her to represent the Corporation were the lawfully elected Members of the Board of the Corporation. As such, they cannot confer valid authority for her to sue on behalf of the corporation. On the issue of Ramon’s cocks LOL: The unlawful detention of the of 387 fighting cocks of Ramon H. Monfort. Since Ramon sought redress of the latter cause of action in his personal capacity, the dismissal of the complaint for lack of capacity to sue on behalf of the corporation should be limited only to the corporations cause of action for delivery of motor vehicle and tractors. In view, however, of the demise of Ramon on June 25, 1999,[29] substitution by his heirs is proper. 2. Advantages and Disadvantages of the Corporate Medium SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents. San Juan Structural and Steel Fabricators entered into an agreement with defendantbappellee Motorich Sales Corporation for the transfer to it of a parcel of land that plaintiff appellant and Defendant appellee Motorich Sales Corporation were supposed to meet in the office of plaintiffbappellant but Defendant appellees treasurer, Nenita Lee Gruenberg, did not appear. Despite repeated demands, Motorich refused to execute the Transfer of Rights/ Deed of Assignment Motorich Sales Corporation and Nenita Lee Gruenberg interposed as affirmative defense that the President and Chairman of Motorich did not sign the agreement, and that Nenita’s signature on the agreement is inadequate to bind Motorich. There is no evidence to show that Nenita Lee Gruenberg was indeed authorized by defendant corporation, Motorich Sales, to dispose of that property Since the property is clearly owned by the corporation, Motorich Sales, then its disposition should be governed 5

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA by the requirement laid down in Sec. 40, of the Corporation Code of the Philippines, to wit: Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combination and monopolies, a corporation may by a majority vote of its board of directors xxx sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill xxx when authorized by the vote of the stockholders representing at least two third (2/3) of the outstanding capital stock x x x. No such vote was obtained by Nenita for that proposed sale[;] neither was there evidence to show that the Supposed transaction was ratified by the corporation  Petitioner insists that [w]hen Gruenberg and Co affixed their signatures on the contract they both consented to be bound by the terms thereof. Ergo, petitioner contends that the contract is binding on the two corporations. ISSUE: WON the corporation is bound under the contracts?

parcel of land.[15] Consequently, petitioner had the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner failed to discharge this burden. That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume that she, by virtue of her position, was authorized to sell the property of the corporation. Selling is obviously foreign to a corporate treasurers function, which generally has been described as to receive and keep the funds of the corporation, and to disburse them Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose of Motorich is marketing, distribution, export and import in relation to a general merchandising business.[18] Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of her general authority. As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation. But when these officers exceed their authority, their actions cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them.

RULING: NO. True, Gruenberg and Co signed on February 14, 1989, the Agreement according to which a lot owned by Motorich Sales Corporation was purportedly sold. Such contract, however, cannot bind Motorich, because it never authorized or ratified such sale. A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporations board of directors.[10] Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides: SEC. 23. The Board of Directors or Trustees. bb 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 and until their successors are elected and qualified. Indubitably, a corporation may act only through its board of directors, or, when authorized either by its bylaws or by its board resolution, through its officers or agents in the normal course of business. A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred. Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell the subject

There was no proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on the receipt, which, however, does not prove the fact of ratification. The document is a handbwritten one, not a corporate receipt, and it bears only Nenita Gruenbergs signature. Certainly, this document alone does not prove that her acts were authorized or ratified by Motorich. Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code for lach of consent of the sellerBeing inexistent and void from the beginning, said contract cannot be ratified. ISSUE 2: WON piercing the corporate veil is justified RULING: NO. Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the latter is a close corporation. Since Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital Stock. And that, being solely owned by the Spouses Gruenberg, the company can be treated as a close corporation which can be bound by the acts of its principal stockholder who needs no specific authority. True, one of the advantages of a corporate form of business organization is the limitation of an investors liability to the amount of the investment.[30] This feature flows from the legal theory that a corporate entity is separate and distinct from its stockholders. However, the statutorily granted privilege of a corporate veil may be used only for legitimate purposes.[31] On equitable considerations, the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another corporation.
 The corporate fiction should be set aside when it becomes a shield against liability for fraud, illegality or inequity committed on third persons. The question of piercing the veil of 6

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA corporate fiction is essentially, then, a matter of proof. In the present case, however, the Court finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons, like petitioner. Granting arguendo that the corporate veil of Motorich is to be disregarded, the subject parcel of land would then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during their marriage. There being no indication that said spouses, who appear to have been married before the effectivity of the Family Code, have agreed to a different property regime, their property relations would be governed by conjugal partnership of gains.[42] As a consequence, Nenita Gruenberg could not have effected a sale of the subject lot because [t]here is no cobownership between the spouses in the properties of the conjugal partnership of gains. Assuming further, for the sake of argument, that the spouses property regime is the absolute community of property, the sale would still be invalid. Under this regime, alienation of community property must have the written consent of the other spouse or the authority of the court without which the disposition or encumbrance is void.[44] Both requirements are manifestly absent in the instant case. 3. Corporation as an Artificial being Dane Viola a. SMITH, BELL & COMPANY (LTD.), petitioner, vs. JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent. Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it in the Philippine The Bato was brought to Cebu for the purpose of transporting plaintiff's merchandise between ports in the Islands. Application The Collector of Customs refused to issue a certificate of Philippine registry for the reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the Philippine Islands. The Administrative Code as amended by Act 2761 SEC. 1176. Investigation into character of vessel. — No application for a certificate of Philippine register shall be approved until the collector of customs is satisfied from an inspection of the vessel that it is engaged or destined to be engaged in legitimate trade and that it is of domestic Ownership. "Domestic ownership," means ownership vested in some one or more of the following classes of persons: (a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the United States residing in the Philippine Islands; (c) any corporation or company composed wholly of citizens of the Philippine Islands or of the United States or of both, created under the laws of the United States, or of any State thereof, or of thereof, or the managing agent or master of the vessel resides in the Philippine Islands It was alleged that Act No. 2761 deprives the corporation of its properly without due process of law because by the passage of the law company was automatically deprived of every beneficial attribute of ownership in the Bato and left with the

naked title to a boat it could not use . Petitioner further avers that that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the corporation from owning vessels, and because classification of corporations based on the citizenship of its stock holders. ISSUE: WON Act 2761 violated the "due process of law and equal protectionof the laws" clause of the Philippine Bill of Rights RULING: NO. The guaranties of the Fourteenth Amendment Of the US Constitution and so of the first paragraph of the Philippine Bill of Rights, are universal in their application to all person within the territorial jurisdiction, without regard to any differences of race, color, or nationality. The word "person" includes aliens. Private corporations, likewise, are "persons" within the scope of the guaranties in so far as their property is concerned. A literal application of general principles to the facts before us would, of course, cause the inevitable deduction that Act No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of the equal protection of the laws. One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the Fourteenth Amendment to the United States Constitution, broad and comprehensive as it is, nor any other amendment, "was designed to interfere with the power of the State, sometimes termed its `police power,' to prescribe regulations. To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of Philippine registry only on condition that they be composed wholly of citizens of the Philippine Islands or of the United States or both, as not infringing Philippine Organic Law, it must be done under such exceptions here Mentioned. Common carriers which in the Philippines as in the United States and other countries are, as Lord Hale said, "affected with a public interest," can only be permitted to use these public waters as a privilege and under such conditions as to the representatives of the people may seem wise. While Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the protection afforded by the duebprocess of law and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not belong to that vicious species of class legislation which must always be condemned, but does fall within authorized exceptions, notably, within the purview of the police power, and so does not offend against the constitutional provision. b. HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners, vs. HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE A total of 42 search warrants against petitioners herein4 and/or the corporations of which they were officers,5 directed to the any peace officer, to search the persons abovebnamed and/or the premises of their offices, warehouses and/or residences, and to seize and take possession of certain personal property and other documents and/or papers showing all business 7

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA transactions including disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette wrappers). As "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be used as the means of committing the offense," which is described in the applications adverted to above as "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code." Petitioners filed with the Supreme Court this original action for certiorari, prohibition, mandamus and injunction, the Court issued the writ of preliminary injunction prayed for in the petition. However, by resolution dated June 29, 1962, the writ was partially lifted or dissolved, insofar as the papers, documents and things seized from the offices of the corporations above mentioned are concerned; but, the injunction was maintained as regards the papers, documents and things found and seized in the residences of petitioners The documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and seized in the residences of petitioners herein. ISSUE: WON petitioners can validly assail the legality of the contested warrants in so far as the properties found and seized in the office of the corporation is concerned. RULING: NO. Said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold therein may be.8 Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby,9 and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. 10 Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity. c. BACHE v. JUDGE VIVENCIO M. RUIZ + 147 Phil. 794 Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of the Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant Issued by respondent judge. On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section 46(a) of the National Internal Revenue Code, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for search warrant. At that time respondent Judge was hearing a cerbtain case; so, by means of a note, he instructed his Debputy Clerk of Court to take the depositions of respondbents de Leon and Logronio. The stenographer, upon rebquest of respondent Judge, read to him her stenographic notes; and thereafter, respondent Judge asked respondent Logronio to take the oath and warned him that if his debposition was found to be false and without legal basis, he could be charged for perjury. Respondent Judge signed respondent de Leon's application for search warrant and respondent Logronio's deposition, Search

Warrant No. 2bMb70 was then signed by respondent Judge and accorbdingly issued. Petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search warrant be declared null and Void but such was dismissed. ISSUE: WON the search warrants were validly issued RULING: NO. Personal examination by the judge of the complainant and his witnesses is necessary to enable him to debtermine the existence or nonbexistence of a probable cause, for the issuance of the search warrant. The determination of whether or not a probable cause exists calls for the exercise of judgment after a judicial appraisal of facts and should not be allowed to be delegated in the absence of any rule to the contrary. In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant (respondent de Leon) and his witness (respondent Logronio). While it is true that the complainant's application for search warrant and the witness' printedbform deposition were subscribed and sworn to before respondent Judge, the latter did not ask either of the two any question the anbswer to which could possibly be the basis for determining whether or not there was probable cause against herein petitioners. ISSUE 2: WON a corporation is entitled to protection against unreasonable searches and seizures. RULING: YES. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected, under the 14th Amendment, against unlawful discrimination. In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a differbent rule applied to a corporation, on the ground that it was not privileged from producing its books and papers. But the rights of a corporation against unlawful search and seizure are to be protected even if the same result might have been achieved in a lawful way." In Stonehill, et al. vs. Diokno, et al., supra, this Court impliedly recognized the right of a corporation to object against unreasonable searches and seizures: Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate ofbficers in proceedings against them in their individual capacity. In the Stonehill Case, only the officers of the various corporations in whose offices documents, papers and effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different footing from the corporations in Stonehill.

8

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA d. BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents. Petitioner here challenges EO 1 & 2 promulgated by Pre Cory Aquino which provided for the the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said corporation. The takeover order provided for the provisional takeover in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by Proclamation No. 3, 23 that the Presidentbin the exercise of legislative power which she was authorized to continue to wield "(until a legislature is elected and convened under a new Constitution" — "shall give priority to measures to achieve the mandate of the people," among others to (r)ecover illbgotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts. ISSUE: WON petitioner has aforementioned Executive Orders

standing

to

question

The private corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers, authority, Influence ISSUE 2: WON a corporation can claim the right against selfincrimination RULING: NO. It is elementary that the right against selfbincrimination has no application to juridical persons. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges Relevant jurisprudence is also cited by the Solicitor General. 114 * * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the privilege against selfbincrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's). * * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges.

the

RULING: NO. In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; And that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president.

At any rate, Executive Order No. 14bA, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against selfbincrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. Gillian Grancho d. Bataan Shipyard & Engineering Co. Inc (BASECO) v Presidential Commission on Good Government (PCGG) Facts:

9

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA When former President Corazon Aquino took power on 1986, PCGG was formed to recover ill gotten wealth allegedly acquired by President Marcos and his cronies. By virtue of the powers vested in the PCGG and by authority of the President, a sequestration and take over order was issued against 9 companies, one of them is BASECO. BASECO was alleged to be owned and controlled by the Marcoses through the Romuladez family, and in turn, through dummy stockholders. The power of the PCGG to sequester property claimed to be "illgotten" means to place or cause to be placed under its possession or control said property, or any building or office wherein any such property and any records pertaining thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings, whether the property was in truth will- gotten BASECO contends, among others, that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order to Produce Documents which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." Issue: Whether a corporation like BASECO can invoke right against selfincrimination Ruling: No violation of right against self-incrimination and unreasonable searches and seizures The order to produce records was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same. More importantly, it is elementary that the right against selfincrimination has no application to juridical persons. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse of such privileges. Corporations are not entitled to all of the constitutional protections which private individuals have. They are not at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's). The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to

answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's]) At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that — The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order. The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.

e. Mambulao Lumber Company v PNB Facts: On May 5, 1956 Mambulao applied for an industrial loan of P155,000 (only 100k approved) with the Naga Branch of defendant PNB and the former offered real estate, machinery, logging and transportation equipments as collaterals.. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and improvements existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao). The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon inspection and verification made by employees of the PNB, it was found that the plaintiff had already stopped operation about the end of 1957 or early part of 1958. PNB sent several letters to the Provincial Sheriff of Camarines Norte requesting him to take possession of the parcel of land and other mortgaged properties to sell it at public auction for the satisfaction of the unpaid obligation of the plaintiff. Mambulao filed a civil case against PNB stating among others that for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff for damages. Issue: Whether Mambulao Lumber Company, a corporation, is entitled to damages Ruling: No. Mambulao’s claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant 10

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA had already ceased in its business operation at the time of theforeclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract. But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein appellant. f. ABS-CBN Broadcasting Corporation v CA, RBS, Viva, Del Rosario 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. Viva, through defendant Del Rosario, offered ABS-CBN the first list of film packages (36 films), through its vice-president Charo SantosConcio. This was not accepted by ABS-CBN and instead made a counter offer. On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA. What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a napkin and signed it and gave it to Mr. Del. On the other hand, Del Rosario denied having made any agreement with Lopez. Several bargaining happen but eventually, the Board of Directors rejected ABS-CBN’s offer. Viva now signed a letter of agreement dated April 24, 1992, granting RBS (GMA 7) the exclusive right to air 104 Viva-produced and/or acquired films. This prompted ABS-CBN to file a complaint for specific performance with a prayer for a writ of preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation (RBS), Viva Production (hereafter VIVA), and Vicente del Rosario claiming that there was already a perfected contract between them and Viva. RBS, on the other hand, filed a cross-claim with a prayer for moral damages as it claimed its reputation was debased when they failed to air the shows they promised to its viewers. Issues: 1. Whether there was a perfected contract between VIVA and ABS-CBN pursuant to the meeting of 2 representatives of bith corporations, and 2. Whether RBS, a corporation, is entitled to moral damages upon grounds of debased corporation Ruling: 1.

NO, there is no perfected contract.

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 In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract. VIVA through its Board of Directors, rejected such counteroffer. 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-CBNs counter-offer was best evidenced by his submission of the draft contract to VIVAs Board of Directors for the latters approval. 2.

No. 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 in People v. Manero and Mambulao Lumber Co. v. PNB 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.

April Sillada g. MERALCO v. T.E.A.M. ELECTRONICS CORPORATION

Facts Petitioner and TEC were parties to contracts, under which petitioner undertook to supply TEC’s building with electric power. After an inspection, the meters installed in the building were found to be allegedly tampered with and did not register the actual power consumption in the building. For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply to the building. TEC filed a complaint for damages against petitioner for the disconnection of the electrical service. The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter installations. It ordered petitioner to, among others, pay moral damages in the amount of Php500,000. Issue Whether or not the award of moral damages is proper Ruling: No TEC’s claim was premised allegedly on the damage to its goodwill and reputation. 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 reputation that is debased, resulting in its humiliation in the business 11

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA realm. But in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis of the damage and its causal relation to petitioner’s acts.

are, as a rule, also not recoverable in culpa contractual except when bad faith had been proved. Sam Andit

In the present case, the records are bereft of any evidence that the name or reputation of TEC has been debased as a result of petitioner’s acts. h. EMPLOYEES UNION OF BAYER PHILS. v. BAYER PHILS. INC.

Facts Employees Union of Bayer Philippines (EUBP) is the exclusive bargaining agent of all rank-and-file employees of Bayer Philippines. EUBP filed a complaint charging the respondents with unfair labor practice committed by organizing a company union, gross violation of the CBA and violation of their duty to bargain. The Labor Arbiter dismissed the complaint for lack of jurisdiction. This was sustained both by the NLRC and the Court of Appeals. The Supreme Court, however, found that respondents Bayer, Lonishen and Amistoso are liable for unfair labor practice. Issue Whether or not the petitioners are entitled to moral damages Ruling: No As a general rule, a corporation cannot suffer nor be entitled to moral damages. A corporation, and by analogy a labor organization, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life – all of which cannot be suffered by an artificial, juridical person.

i. SAN FERNANDO REGALA TRADING INC. v. CARGILL PHILIPPINES INC.

Facts Cargill and San Fernando were cane molasses traders that did business with each other for sometime. The present controversy arose when San Fernando claimed that Cargill reneged on its contractual obligations to deliver certain quantities of molasses. Cargill denied this, insisting that San Fernando actually refused to accept delivery of the goods. This enmity resulted in Cargill’s filing a complaint for sum of money and damages against San Fernando. RTC dismissed Cargill’s complaint for lack of merit and granted San Fernando’s counterclaims. It awarded San Fernando its claims, including Php500,000 in moral damages. The CA, however, deleted the award of moral damages in favor of San Fernando for its failure to sufficiently establish Cargill’s bad faith in complying with its obligations. Issue Whether or not the CA erred in deleting the award of moral damages Ruling: No As a rule, moral damages are not awarded to a corporation unless it enjoyed good reputation that the offender debased and besmirched by his actuations. San Fernando failed to prove by sufficient evidence that it fell within this exception. Besides, moral damages

j. STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants, vs. REGISTER OF DEEDS OF MANILA G.R. No. L-18216 October 30, 1962

FACTS: Stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the corporation by virtue of a resolution of the stockholders adopted on September 17, 1960, dissolving the corporation. They have distributed among themselves in proportion to their shareholdings, as liquidating dividends, the assets of said corporation, including real properties located in Manila. The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration due to: 3. The number of parcels not certified to in the acknowledgment; 5. P430.50 Reg. fees need be paid; 6. P940.45 documentary stamps need be attached to the document; The stockholders contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation which has ceased to exist for having been dissolved. Commissioner of Land Registration expressed that by the register of deed to the effect that the certificate of liquidation in question, though it involves a distribution of the corporation's assets, in the last analysis represents a transfer of said assets from the corporation to the stockholders. Hence, in substance it is a transfer or conveyance. ISSUE: Whether or not that certificate merely involves a distribution of the corporation's assets or should be considered a transfer or conveyance. RULING: A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. The corporation has property of its own which consists chiefly of real estate. A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity but its holder is not the owner of any part of the capital of the corporation nor is he entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property. Here, it is clear that the act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered a partition of community property, but rather a transfer or conveyance of the title of its assets to the individual stockholders. The purpose of the liquidation, as well as the distribution of the assets of the corporation, is to transfer their title from the corporation to the stockholders in proportion to their shareholdings, -- that transfer cannot be effected without the corresponding deed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to consider the certificate of liquidation as one in the nature of a transfer or conveyance. k. TRADERS ROYAL BANK, petitioner, vs. 12

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents. G.R. No. 93397 March 3, 1997

FACTS: On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment" in favor of (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness (CBCI) of (P500,000) and having an aggregate value (P3,500,000.00). Petitioner (TRB) entered into a Repurchase Agreement with PhilFinance for the CBCI for and in consideration of the sum of (P500,000.00). PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds. PhilFinance executed a Detached Assignment in favor of the Petitioner to enable the latter to have its title completed and registered in the books of the respondent. Respondent failed and refused to register the transfer as requested and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing by the petitioner. Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent Filriters and Philfinance, though separate corporate entities on paper, have used their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now is refused registration by the Central Bank. Since, Philfinance own about 90% of Filriters and the two companies have the same corporate officers, if the principle of piercing the veil of corporate entity were to be applied in this case, then TRB's payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it has, that it never received any payment for that CBCI sold and that said CBCI was sold without its authority. ISSUE: Was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank? RULING: Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine. In the absence of such grounds for piercing corporate veil, the general rule of distinct personality must be upheld. The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall be maintained as to the other. In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance.

CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that: Sec. 3. Assignment of Registered Certificates. — Assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in writing. For this purpose, the transferee may be designated as the representative of the registered owner. After scrutinizing the terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus: “no transfer thereof shall be valid unless made at said office (where the Certificates has been registered) by the registered owner hereof, in person, or by his attorney, duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered owner thereof. “ This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an authorization from Filriters. Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI. Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. l. GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners, vs. HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., G.R. No. 82797 February 27, 1991

FACTS: A Lease Contract was entered into by and between ROCESREYES REALTY, INC., (ROCES) as lessor, and GOOD EARTH EMPORIUM, INC., (GEE) as lessee, GEE had defaulted in the payment of rentals, as a consequence of which ROCES filed an ejectment case (Unlawful Detainer) against GEE. MTC ruled in favor of ROCES and ordered GEE to vacate the premises. RTC reversed MTC for the following reasons: 1. finding that the amount of P1 million evidenced by Exhibit "1" has been paid to the corporate officers of ROCES (Jesus Marcos Roces and Marcos V. Roces). 2. another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2"), also drawn or paid in favor of the names mentioned above, were in full satisfaction of the judgment obligation. CA reversed RTC and reinstated MTC decision. Thus, GEE filed a petition for review on certiorari of the CA decision. ISSUE: Whether or not there was full satisfaction of the judgment debt in favor of respondent corporation which would justify the quashing of the Writ of Execution. RULING: A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said exhibits was there any writing 13

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA alluding to or referring to any settlement between the parties of petitioners' judgment obligation. Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the judgment obligation. Likewise, there is no indication in the pacto de retro sale which was drawn in favor of Jesus Marcos Roces and Marcos V. Roces and not the respondent corporation. Article 1240 of the Civil Code of the Philippines provides that: Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in interest nor is there positive evidence that the payment was made to a person authorized to receive it. Jesus Roces, however, was no longer President or even an officer of Roces-Reyes Realty, Inc. at the time he received the money (Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). Jesus Roces further testified that the amount of P1 million evidenced by the receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces in favor of GEE. A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or stockholder of a corporation does not make one's property also of the corporation, and vice-versa, for they are separate entities. Shareowners are in no legal sense the owners of corporate property (or credits) which is owned by the corporation as a distinct legal person. As a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation. Kaye Chanyee q. Fortune v Quinsayas G.R. No. 194578 : February 13, 2013 PHILIP SIGFRID A. FORTUN, Petitioner, v. PRIMA JESUSA B. QUINSAYAS, MA. GEMMA OQUENDO, DENNIS AYON, NENITA OQUENDO, ESMAEL MANGUDADATU, JOSE PAVIA, MELINDA QUINTOS DE JESUS, REYNALDO HULOG, REDMOND BATARIO, MALOU MANGAHAS, DANILO GOZO, GMA NETWORK INC., through its new editors Raffy Jimenez and Victor Sollorano, SOPHIA DEDACE, ABS-CBN CORPORATION, through the Head of its News Group, Maria Ressa, CECILIA VICTORIA OREÑA-DRILON, PHILIPPINE DAILY INQUIRER, INC. represented by its Editor-in-Chief Letty Jimenez Magsanoc, TETCH TORRES, PHILIPPINE STAR represented by its Editor-in-Chief Isaac Belmonte, and EDU PUNAY, Respondent. FACTS This is a case that sprang from the Maguindanao massacre in 2009. A total of 57 victims were killed, 30 of them journalists. Subsequently, criminal cases for Murder were filed and raffled to the Regional Trial Court of Quezon City, Branch 221, and docketed as Criminal Cases No. Q-09-162148-172, Q-09-162216-31, Q-10162652, and Q-10- 163766. Petitioner is the counsel for Datu Andal Ampatuan, Jr. (Ampatuan, Jr.), the principal accused in the murder cases. In November 2010, Atty. Quinsayas, et al. filed a disbarment complaint against petitioner before this Court, docketed as Bar Matter No. A.C. 8827. The disbarment case is still pending. Petitioner alleged that the public circulation of the disbarment complaint against him exposed this Court and its investigators to outside influence and public interference. Petitioner alleged that opinion writers wrote about and commented on the disbarment complaint which opened his professional and personal reputation to attack. He alleged that the purpose of respondents in publishing the

disbarment complaint was to malign his personal and professional reputation. WITH RESPECT TO ABS CBN In her Comment, Ressa alleged that she was the former head of ABS-CBNs News and Current Affairs Group and the former Managing Director of ANC. However, she was on terminal leave beginning 30 October 2010 in advance to the expiration of her contract on 3 January 2011. Ressa alleged that she had no participation in the production and showing of the broadcast on 23 November 2010. Ressa adopts the answer of her co-respondents ABS-CBN and Drilon insofar as it was applicable to her case. ABS-CBN and Drilon filed a joint Comment. ABS-CBN alleged that ABS-CBN News Channel, commonly known as ANC, is maintained and operated by Sarimanok Network News (SNN) and not by ABS-CBN. SNN, which produced the program "ANC Presents: Crying for Justice: the Maguindanao Massacre," is a subsidiary of ABS-CBN but it has its own juridical personality although SNN and ABS-CBN have interlocking directors. ABS-CBN and Drilon alleged that the presentation and hosting of the program were not malicious as there was no criminal intent to violate the confidentiality rule in disbarment proceedings. ISSUE WON the a subsidiary has a separate and distinct personality to that of his parent company; therefore ABS CBN may not be held directly liable YES RULING ABS-CBN Corporation ABS-CBN alleged that SNN is its subsidiary and although they have interlocking directors, SNN has its own juridical personality separate from its parent company. ABS-CBN alleged that SNN controls the line-up of shows of ANC. We agree with ABS-CBN on this issue. We have ruled that a subsidiary has an independent and separate juridical personality distinct from that of its parent company and that any suit against the the latter does not bind the former and vice-versa.16 A corporation is an artificial being invested by law with a personality separate and distinct from that of other corporations to which it may be connected.17 Hence, SNN, not ABS-CBN, should have been made respondent in this case. r. HEIRS OF FE TAN UY (REPRESENTED BY HER HEIR, MANLING UY LIM), Petitioners, v. INTERNATIONAL EXCHANGE BANK, RESPONDENT. [G.R. No. 166282, February 13, 2013] GOLDKEY DEVELOPMENT CORPORATION, PETITIONER. VS. INTERNATIONAL EXCHANGE BANK, Respondents. FACTS On several occasions, from June 23, 1997 to September 3, 1997, respondent International Exchange Bank (iBank), granted loans to Hammer Garments Corporation (Hammer), covered by promissory notes and deeds of assignment. These were made pursuant to the Letter-Agreement,4 dated March 23,1996, between iBank and Hammer, represented by its President and General Manager, Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso Omnibus Line.5 The loans were secured by a P 9 Million-Peso Real Estate Mortgage6 executed on July 1, 1997 by Goldkey Development Corporation (Goldkey) over several of its properties and a P 25 Million-Peso Surety Agreement7 signed by Chua and his wife, Fe Tan Uy (Uy), on April 15, 1996. As of October 28, 1997, Hammer had an outstanding obligation of P25,420,177.62 to iBank.8 Hammer defaulted in the payment of its loans, prompting iBank to foreclose on Goldkey’s third-party Real 14

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA Estate Mortgage. The mortgaged properties were sold for P 12 million during the foreclosure sale, leaving an unpaid balance of P 13,420,177.62.9 For failure of Hammer to pay the deficiency, iBank filed a Complaint10 for sum of money on December 16, 1997 against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court, Makati City (RTC). The RTC, in its Decision,15 dated December 27, 2000, ruled in favor of iBank. While it made the pronouncement that the signature of Uy on the Surety Agreement was a forgery, it nevertheless held her liable for the outstanding obligation of Hammer because she was an officer and stockholder of the said corporation. The RTC agreed with Goldkey that as a third-party mortgagor, its liability was limited to the properties mortgaged. It came to the conclusion, however, that Goldkey and Hammer were one and the same entity for the following reasons: (1) both were family corporations of Chua and Uy, with Chua as the President and Chief Operating Officer; (2) both corporations shared the same office and transacted business from the same place,

(3) the assets of Hammer and Goldkey were co-mingled; and (4) when Chua absconded, both Hammer and Goldkey ceased to operate. As such, the piercing of the veil of corporate fiction was warranted. Uy, as an officer and stockholder of Hammer and Goldkey, was found liable to iBank together with Chua, Hammer and Goldkey for the deficiency of P13,420,177.62. Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA. On August 16, 2004, it promulgated its decision affirming the findings of the RTC. The CA found that iBank was not negligent in evaluating the financial stability of Hammer. According to the appellate court, iBank was induced to grant the loan because petitioners, with intent to defraud the bank, submitted a falsified Financial Report for 1996 which incorrectly declared the assets and cashflow of Hammer.16 Because petitioners acted maliciously and in bad faith and used the corporate fiction to defraud iBank, they should be treated as one and the same as Hammer ISSUES 1.

2.

Whether or not there is guilt by association in those cases where the veil of corporate fiction may be pierced;20 and Whether or not the “alter ego” theory in disregarding the corporate personality of a corporation is applicable to Goldkey.21

RULING FIRST ISSUE: Uy is not liable; The piercing of the Veil of corporate fiction is not justified The heirs of Uy argue that the latter could not be held liable for being merely an officer of Hammer and Goldkey because it was not shown that she had committed any actionable wrong22 or that she had participated in the transaction between Hammer and iBank. They further claim that she had cut all ties with Hammer and her husband long before the execution of the loan.23 The Court finds in favor of Uy. Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Following this principle, obligations incurred by

the corporation, acting through its directors, officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation.24 Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.25 This is consistent with the provisions of the Corporation Code of the Philippines, which states: Sec. 31. Liability of directors, trustees or officers. – Directors or trustees who wilfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. Solidary liability will then attach to the directors, officers or employees of the corporation in certain circumstances, such as: 1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; and (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons; 2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto; 3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; or 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.26 Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.27 While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45, this Court can take cognizance of factual issues if the findings of the lower court are not supported by the evidence on record or are based on a misapprehension of facts.28 CASE AT BAR In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed an act as an officer of Hammer that would permit the piercing of the corporate veil. A reading of the complaint reveals that with regard to Uy, iBank did not demand that she be held liable for the obligations of Hammer because she was a corporate officer who committed bad faith or gross negligence in the performance of her duties such that the lifting of the corporate mask would be merited. What the complaint simply stated is that she, together with her errant husband Chua, acted as surety of Hammer, as evidenced by her signature on the Surety Agreement which was later found by the RTC to have been forged.29

15

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a falsified document, there was no sufficient justification for the RTC to have ruled that Uy should be held jointly and severally liable to iBank for the unpaid loan of Hammer. Neither did the CA explain its affirmation of the RTC’s ruling against Uy. The Court cannot give credence to the simplistic declaration of the RTC that liability would attach directly to Uy for the sole reason that she was an officer and stockholder of Hammer. At most, Uy could have been charged with negligence in the performance of her duties as treasurer of Hammer by allowing the company to contract a loan despite its precarious financial position. Furthermore, if it was true, as petitioners claim, that she no longer performed the functions of a treasurer, then she should have formally resigned as treasurer to isolate herself from any liability that could result from her being an officer of the corporation. Nonetheless, these shortcomings of Uy are not sufficient to justify the piercing of the corporate veil which requires that the negligence of the officer must be so gross that it could amount to bad faith and must be established by clear and convincing evidence. Gross negligence is one that is characterized by the lack of the slightest care, acting or failing to act in a situation where there is a duty to act, wilfully and intentionally with a conscious indifference to the consequences insofar as other persons may be affected.30 It behooves this Court to emphasize that the piercing of the veil of corporate fiction is frowned upon and can only be done if it has been clearly established that the separate and distinct personality of the corporation is used to justify a wrong, protect fraud, or perpetrate a deception.31 As aptly explained in Philippine National Bank v. Andrada Electric & Engineering Company:32 Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.33 Indeed, there is no showing that Uy committed gross negligence. And in the absence of any of the aforementioned requisites for making a corporate officer, director or stockholder personally liable for the obligations of a corporation, Uy, as a treasurer and stockholder of Hammer, cannot be made to answer for the unpaid debts of the corporation. SECOND ISSUE: Goldkey is a mere alter ego of Hammer Goldkey contends that it cannot be held responsible for the obligations of its stockholder, Chua.34 Moreover, it theorizes that iBank is estopped from expanding Goldkey’s liability beyond the real estate mortgage.35 It adds that it did not authorize the execution of the said mortgage.36 Finally, it passes the blame on to iBank for failing to exercise the requisite due diligence in properly evaluating Hammer’s creditworthiness before it was extended an omnibus line.37 The Court disagrees with Goldkey. There is no reason to discount the findings of the CA that iBank duly inspected the viability of Hammer and satisfied itself that the latter was a good credit risk based on the Financial Statement submitted. In addition, iBank required that the loan be secured by Goldkey’s Real Estate Mortgage and the Surety Agreement with Chua and Uy. The records support the factual conclusions made by the RTC and the CA. To the Court’s mind, Goldkey’s argument, that iBank is barred from pursuing Goldkey for the satisfaction of the unpaid obligation of Hammer because it had already limited its liability to the real estate

mortgage, is completely absurd. Goldkey needs to be reminded that it is being sued not as a consequence of the real estate mortgage, but rather, because it acted as an alter ego of Hammer. Accordingly, they must be treated as one and the same entity, making Goldkey accountable for the debts of Hammer. In fact, it is Goldkey who is now precluded from denying the validity of the Real Estate Mortgage. In its Answer with Affirmative Defenses and Compulsory Counterclaim, dated January 5, 1998, it already admitted that it acted as a third-party mortgagor to secure the obligation of Hammer to iBank.38 Thus, it cannot, at this late stage, question the due execution of the third-party mortgage. Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is seeking to enforce an obligation of Chua. The records clearly show that it was Hammer, of which Chua was the president and a stockholder, which contracted a loan from iBank. What iBank sought was redress from Goldkey by demanding that the veil of corporate fiction be lifted so that it could not raise the defense of having a separate juridical personality to evade liability for the obligations of Hammer. Under a variation of the doctrine of piercing the veil of corporate fiction, when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the same.39 While the conditions for the disregard of the juridical entity may vary, the following are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, as laid down in Concept Builders, Inc. v NLRC:40 (1) Stock ownership by one or common ownership of both corporations; (2) Identity of directors and officers; (3) The manner of keeping corporate books and records, and (4) Methods of conducting the business.41 These factors are unquestionably present in the case of Goldkey and Hammer, as observed by the RTC, as follows: 1. Both corporations are family corporations of defendants Manuel Chua and his wife Fe Tan Uy. The other incorporators and shareholders of the two corporations are the brother and sister of Manuel Chua (Benito Ng Po Hing and Nenita Chua Tan) and the sister of Fe Tan Uy, Milagros Revilla. The other incorporator/share holder is Manling Uy, the daughter of Manuel Chua Uy Po Tiong and Fe Tan Uy. The stockholders of Hammer Garments as of March 23, 1987, aside from spouses Manuel and Fe Tan Uy are: Benito Chua, brother Manuel Chua, Nenita Chua Tan, sister of Manuel Chua and Tessie See Chua Tan. On March 8, 1988, the shares of Tessie See Chua Uy were assigned to Milagros T. Revilla, thereby consolidating the shares in the family of Manuel Chua and Fe Tan Uy. 2. Hammer Garments and Goldkey share the same office and practically transact their business from the same place. 3. Defendant Manuel Chua is the President and Chief Operating Officer of both corporations. All business transactions of Goldkey and Hammer are done at the instance of defendant Manuel Chua who is authorized to do so by the corporations. The promissory notes subject of this complaint are signed by him as Hammer’s President and General Manager. The third-party real estate mortgage of defendant Goldkey is signed by him for Goldkey to secure the loan obligation of Hammer Garments withplaintiff "iBank''. The other third-party real estate mortgages which Goldkey 16

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA executed in favor of the other creditor banks of Hammer are also signed by Manuel Chua. 4. The assets of Goldkey and Hammer are co-mingled. The real properties of Goldkey are mortgaged to secure Hammer's obligation with creditor hanks. The proceeds of at least two loans which Hammer obtained from plaintiff "iBank", purportedly to finance its export to Wal¬Mart are instead used to finance the purchase of a manager's check payable to Goldkey. The defendants' claim that Goldkey is a creditor of Hammer to justify its receipt of the Manager's cheek is not substantiated by evidence. Despite subpoenas issued by this Court, Goldkey thru its treasurer, defendant Fe Tan Uy and or its corporate secretary Manling Uy failed to produce the Financial Statement of Goldke. 5. When defendant Manuel Chua "disappeared", the defendant Goldkey ceased to operate despite the claim that the other "officers" and stockholders like Benito Chua, Nenita Chua Tan, Fe Tan Uy, Manling Uy and Milagros T. Revilla are still around and may be able to continue the business of Goldkey, if it were different or distinct from Hammer which suffered financial set back.42

A corporation has a personality distinct and separate from its individual stockholders or members and from that of its officers who manage and run its affairs. The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. Thus, property belonging to a corporation cannot be attached to satisfy the debt of a stockholder and vice versa, the latter having only an indirect interest in the assets and business of the former. Since the Decision of the Labor Arbiter was directed only Golden to pay the petitioner and the same was not joint and solidary obligation with Gois, then the latter could not be held personally liable since Golden has a separate and distinct personality of its own. It remains undisputed that the subject vehicle was owned by Gois, hence it should not be attached to answer for the liabilities of the corporation. Unless they have exceeded their authority, corporate officers are, as a general rule, not personally liable for their official acts, because a corporation, by legal fiction, has a personality separate and distinct from its officers, stockholders and members. No evidence was presented to show that the termination of the petitioner was done with malice or in bad faith for it to hold the corporate officers, such as Gois, solidarily liable with the corporation.

Based on the foregoing findings of the RTC, it was apparent that Goldkey was merely an adjunct of Hammer and, as such, the legal fiction that it has a separate personality from that of Hammer should be brushed aside as they are, undeniably, one and the same. Alex Abonado s. VIRGILIO S. DELIMA v. SUSAN MERCAIDA GOIS GR NO. 178352 | June 17, 2008 FACTS: A case for illegal dismissal was filed by petitioner Virgilio S. Delima against Golden Union Aquamarine Corporation (Golden), Prospero Gois and herein respondent Susan Mercaida Gois before the NLRC. The Labor Arbiter ruled in favor of Gois and finding Golden guilty of Illegal dismissal. The decision became final and executory. A writ of execution was issued and an Isuzu Jeep with plate number PGE-531 was attached. Thereafter, respondent Gois filed an Affidavit of Third Party Claim claiming that the attachment of the vehicle was irregular because said vehicle was registered in her name and not Goldens; and that she was not a party to the illegal dismissal case filed by Delima against Golden. This was denied. Gois filed a petition for certiorari before the Court of Appeals. She claimed that by denying her third-party claim, she was in effect condemned to pay a judgment debt issued against a corporation of which she is neither a president nor a majority owner but merely a stockholder. She further argued that her personality is separate and distinct from that of Golden; thus, the judgment ordering the corporation to pay the petitioner could not be satisfied out of her personal assets. ISSUE: Whether Gois’ personality is separate and distinct from that of Golden; thus, the judgment ordering the corporation to pay the petitioner could not be satisfied out of her personal assets. RULING: YES.

t. Padilla v. CA GR NO. 123893 |November 22, 2001

FACTS: Susana Realty, Inc. (SRI), by a deed of absolute sale, sold to the Light Rail Transit Authority (LRTA) several parcels of land. A contract was between Phoenix Omega and SRI with LRTA whereby Phoenix Omega undertook to construct commercial stalls on the 90sq. m. property, however only upon SRIs approval of such plans and specifications. Also, Phoenix Omega assigned its right and interests over the remaining property unto its sister company, PKA Development and Management Corporation (PKA). The development of the remaining property having been assigned to PKA, it entered into a contract of lease with SRI. PKAs building permit was later revoked due to certain violations of the National Building Code (BP 344). Subsequently, PKA was allowed by the (Department) of Public Works and Highway(s) to resume construction on the leased premises subject to PKAs correction of the defects in the construction to conform to BP 344. As SRIs approval of PKAs amended plans in the construction was required, PKA transmitted the same to SRI which withheld approval thereof pending PKAs correction of the defects in the construction. Repeated requests for approval of its amended plans not having been heeded by SRI, PKA filed at the court a quo the action at bar for rescission of contract of lease against SRI. Possession of the subject properties was subsequently restored to SRI, but the monetary award was left unsatisfied. Thus, SRI filed a motion for issuance of an alias writ against herein petitioners, based on the trial courts observation that PKA and Phoenix-Omega are one and the same entity. This was granted by the RTC. Alleging that the writ of execution cannot be enforced against them, herein petitioners filed with the RTC an omnibus motion for the reconsideration. Petitioners assailed these orders as confiscatory, since they were never parties to the case filed by PKA against SRI, and they were unable to present evidence on their behalf. CA agreed with the RTC that PKA and Phoenix-Omega are one and the same, or that the former is a mere conduit of the latter. It pointed out that petitioner Padilla is both president and general manager of PKA and at the same time chairman of the board of directors and controlling stockholder of Phoenix-Omega.PKA and PhoenixOmega also shared officers, laborers, and offices. 17

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA Issue: Whether the doctrine of piercing the veil of corporate fiction applies to the case at bar to justify the issuance of an alias writ of execution against their properties.

In affirming the RTC, CA held that it was offensive to the basic tenets of justice and equity for a corporation to take over and operate the business of another corporation, while disavowing or repudiating any responsibility, obligation or liability arising therefrom.

Ruling: The general rule is that a corporation is clothed with a personality separate and distinct from the persons composing it. It may not be held liable for the obligations of the persons composing it, and neither can its stockholders be held liable for its obligations. This veil of corporate fiction may only be disregarded in cases where the corporate vehicle is being used to defeat public convenience, justify wrong, protect fraud, or defend crime. PKA and Phoenix-Omega are admittedly sister companies, and may be sharing personnel and resources, but we find in the present case no allegation, much less positive proof, that their separate corporate personalities are being used to defeat public convenience, justify wrong, protect fraud, or defend crime. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed. We find no reason to justify piercing the corporate veil in this instance. We understand private respondents’ frustration at not being able to have the monetary award in their favor satisfied. But given the circumstances of this case, public respondent cannot order the seizure of petitioners’ properties without violating their constitutionally enshrined right to due process, merely to compensate private respondent. 4. Doctrine of Piercing the Veil of Corporate Fiction a. PNB v. Andrada Electric & Engineering Co. GR NO. 142936 |April 17, 2002 FACTS: On August 26, 1975 he defendant PNB acquired the assets of the defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI No. 311; that the defendant PNB organized the defendant National Sugar Development Corporation (NASUDECO) in September, 1975, to take ownership and possession of the assets and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills; That prior to October 29, 1971, the defendant Pampanga Sugar Mills (PASUMIL) engaged the services of plaintiff for electrical rewinding and repair, most of which were partially paid by the defendant PASUMIL, leaving several unpaid accounts with the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant PASUMIL entered into a contract for the plaintiff to perform the construction of several infrastructure and extra work and electrical equipment; that out of the total obligation of P777,263.80, the defendant PASUMIL had paid onlyP250,000.00, leaving an unpaid balance. Thus this complaint was filed to recover such unpaid balances The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint on the ground that the complaint failed to state sufficient allegations to establish a cause of action against the defendant NASUDECO and PNB because: (a) they are not x x x privy to the contract being sued upon under the complaint; (b) the taking over of the assets of defendant PASUMIL was solely for the purpose of reconditioning the sugar central of defendant PASUMIL pursuant to martial law powers of the President under the Constitution and so that PASUMIL may resume its operations; (c) nothing in the LOI No. 189-A (as well as in LOI No. 311) authorized or commanded the PNB or its subsidiary corporation, the NASUDECO, to assume the corporate obligations of PASUMIL;

Issue: whether PNB is liable for the unpaid debts of PASUMIL to respondent. Ruling: 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 transaction is fraudulently entered into in order to escape liability for those debts. A corporation is an artificial being created by operation of law. It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against forum-shopping. Only in these and similar instances may the veil be pierced and disregarded. The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control -- not mere stock control, but complete domination -- not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of. We believe that the absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First, other than the fact that petitioners acquired the assets of PASUMIL, there is no showing that their control over it warrants the disregard of corporate personalities. Second, there is no evidence that their juridical personality was used to commit a fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of another entity or person. Third, respondent was not defrauded or injured when petitioners acquired the assets of PASUMIL. Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting clear and convincing evidence. However, it failed to establish by competent evidence that petitioners separate corporate veil had been used to conceal fraud, illegality or inequity. 18

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA

While we agree with respondents claim that the assets of the National Sugar Development Corporation (NASUDECO) can be easily traced to PASUMIL, we are not convinced that the transfer of the latter’s assets to petitioners was fraudulently entered into in order to escape liability for its debt to respondent. A review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and acquired the assets as the highest bidder at the public auction conducted. PASUMIL account had incurred arrearages of more than 20 percent of the total outstanding obligation. Thus, DBP had not only a right, but also a duty under the law to foreclose the subject properties. Pursuant to LOI No. 189-A as amended by LOI No. 311, PNB acquired PASUMILs assets that DBP had foreclosed and purchased in the normal course. Petitioner bank was likewise tasked to manage temporarily the operation of such assets either by itself or through a subsidiary corporation. PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets. These assets were later conveyed to PNB for a consideration. PNB, as successor-in-interest, stepped into the shoes of DBP as PASUMILs creditor. By way of a Deed of Assignment, PNB then transferred to NASUDECO all its rights under the Redemption Agreement. April Sillada e. LANUZA JR. v. BF CORPORATION G.R. No. 174938 | October 1, 2014

Facts BF Corporation filed a collection complaint against Shangri-La and the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos. BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance owed to it. It also alleged that the Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs. Therefore, they should be held jointly and severally liable with Shangri-La for its obligations as well as for the damages that BF Corporation incurred as a result of Shangri-La’s default. Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF Corporation’s failure to submit its dispute to arbitration, in accordance with the arbitration clause provided in its contract. After BF Corporation had initiated arbitration proceedings as ordered by the Supreme Court, Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both seeking to clarify the term, "parties," and whether Shangri-La’s directors should be included in the arbitration proceedings. Petitioners (Shangri-La’s directors) argue that they cannot be held personally liable for corporate acts or obligations. The corporation is a separate being, and nothing justifies BF Corporation’s allegation that they are solidarily liable with Shangri-La. Neither did they bind themselves personally nor did they undertake to shoulder ShangriLa’s obligations should it fail in its obligations. BF Corporation also failed to establish fraud or bad faith on their part. Petitioners also argue that they are third parties to the contract between BF Corporation and Shangri-La. Provisions including arbitration stipulations should bind only the parties. Based on our

arbitration laws, parties who are strangers to an agreement cannot be compelled to arbitrate. Issue Whether petitioners should be made parties to the arbitration proceedings Ruling: Yes Petitioners may be compelled to submit to the arbitration proceedings in accordance with Shangri-La and BF Corporation’s agreement, in order to determine if the distinction between ShangriLa’s personality and their personalities should be disregarded. As a general rule, a corporation’s representative who did not personally bind himself or herself to an arbitration agreement cannot be forced to participate in arbitration proceedings made pursuant to an agreement entered into by the corporation. He or she is generally not considered a party to that agreement. However, there are instances when the distinction between personalities of directors, officers, and representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate fiction. Piercing the corporate veil is warranted when the separate personality of a corporation is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. It is also warranted in alter ego cases where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. When corporate veil is pierced, the corporation and persons who are normally treated as distinct from the corporation are treated as one person, such that when the corporation is adjudged liable, these persons, too, become liable as if they were the corporation. When there are allegations of bad faith or malice against corporate directors or representatives, it becomes the duty of courts or tribunals to determine if these persons and the corporation should be treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the courts or tribunals must first determine whether circumstances exist to warrant the courts or tribunals to disregard the distinction between the corporation and the persons representing it. The determination of these circumstances must be made by one tribunal or court in a proceeding participated in by all parties involved, including current representatives of the corporation, and those persons whose personalities are impliedly the same as the corporation. This is because when the court or tribunal finds that circumstances exist warranting the piercing of the corporate veil, the corporate representatives are treated as the corporation itself and should be held liable for corporate acts. The corporation’s distinct personality is disregarded, and the corporation is seen as a mere aggregation of persons undertaking a business under the collective name of the corporation. Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the corporate veil, parties who are normally treated as distinct individuals should be made to participate in the arbitration proceedings in order to determine if such distinction should indeed be disregarded and, if so, to determine the extent of their liabilities. In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the existence of circumstances that render petitioners and the other directors solidarily liable. It ruled that petitioners and Shangri-La’s other directors were not liable for 19

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA the contractual obligations of Shangri-La to BF Corporation. The Arbitral Tribunal’s decision was made with the participation of petitioners, albeit with their continuing objection. We rule that petitioners are bound by such decision.

under letter of authority nos. 0392897, 0392898, and 0392690 dated May 16, 1994, investigating my income, business, and withholding taxes for the years 1991, 1992, and 1993." Jeanne Menguito signed the letter as proprietor of Copper Kettle Cafeteria Specialist.

f. CIR v. MENGUITO G.R. No. 167560 | September 17, 2008

Related to Exhibit "1" is petitioner's Exhibit "14," which is another letter dated September 28, 1997, in which Jeanne Menguito protested the September 2, 1997 assessment notices directed at Copper Kettle Cafeteria Specialist and referred to the latter as "our business at 19th Tee Club John Hay and at Texas Instruments." Taken along with the Joint Stipulation, Exhibits "A" through "C" and the August 3, 1993 Certification of Camp John Hay, Exhibits "1" and "14," confirm that respondent, together with his spouse Jeanne Menguito, own, operate and manage a branch of Copper Kettle Cafeteria Specialist, also called Copper Kettle Catering Services at Camp John Hay.

Facts Respondent Menguito is engaged in the restaurant and/or cafeteria business carrying the business name Copper Kettle Cafeteria Specialist (CKCS). Subsequently, BIR received information that respondent has undeclared income from Texas Instruments and Club John Hay, prompting the BIR to conduct an investigation, where it found out that there is still due from respondent the total sum of P34,193,041.55 as deficiency income and percentage tax. Respondent, however, alleged that there was a confusion regarding CKCS being a sole proprietorship owned by the Spouses Menguito, and Copper Kettle Catering Services, Inc. (CKCS, Inc.) being a corporation with whom Texas Instruments and Club John Hay entered into a contract. According to respondent, CKCS Inc. was a separate and distinct entity from CKCS. Thus, the sales and revenues of CKCS Inc. could not be ascribed to CKCS. Neither may the taxes due from one, charged to the other. On the other hand, petitioner insists that CKCS, Inc. and CKCS are merely employing the fiction of their separate corporate existence to evade payment of proper taxes. Thus, their corporate individuality should be disregarded, and they should be treated as one taxable entity with the same tax base and liability. Issue Whether or not there is substantial evidence that CKCS, Inc. and CKCS are one and the same taxable entity Ruling: Yes In a number of cases, the Court has shredded the veil of corporate identity and ruled that where a corporation is merely an adjunct, business conduit or alter ego of another corporation or when they practice fraud on our internal revenue laws, the fiction of their separate and distinct corporate identities shall be disregarded, and both entities treated as one taxable person, subject to assessment for the same taxable transaction. The Court considers the presence of the following circumstances, to wit: when the owner of one directs and controls the operations of the other, and the payments effected or received by one are for the accounts due from or payable to the other; or when the properties or products of one are all sold to the other, which in turn immediately sells them to the public, as substantial evidence in support of the finding that the two are actually one juridical taxable personality. In the present case, overwhelming evidence supports the CTA in disregarding the separate identity of CKCS, Inc. from CKCS and in treating them as one taxable entity. First, in respondent’s Petition for Review before the CTA, he expressly admitted that he "is engaged in restaurant and/or cafeteria business" and that "[i]n 1991, 1992 and 1993, he also operated a branch at Club John Hay, Baguio City with a business name of Copper Kettle Cafeteria Specialist." Respondent repeated such admission in the Joint Stipulation. And then in Exhibit "1" for petitioner, a July 18, 1994 letter sent by Jeanne Menguito to BIR, Baguio City, she stated thus: "in connection with the investigation of Copper Kettle Cafeteria Specialist which is located at 19th Tee Club John Hay, Baguio City

Moreover, in Exhibits "A" to "A-1,"38 Exhibits "B" to "B-1"39 and Exhibits "C" to "C-1" which are lists of concessionaires that operated in Club John Hay in 1992, 1993 and 1991, respectively, it appears that there is no outlet with the name "Copper Kettle Cafeteria Specialist" as claimed by respondent. The name that appears in the lists is "19th TEE CAFETERIA (Copper Kettle, Inc.)." However, in the light of the express admission of respondent that in 1991, 1992 and 1993, he operated a branch called Copper Kettle Cafeteria Specialist in Club John Hay, the entries in Exhibits "A" through "C" could only mean that said branch refers to "19th Tee Cafeteria (Copper Kettle, Inc.)." There is no evidence presented by respondent that contradicts this conclusion. In addition, the August 9, 1993 Certification issued by Club John Hay that "COPPER KETTLE CATERING SERVICES owned and managed by MS. JEANNE G. MENGUITO is a concessionaire in John Hay since July 1991 up to the present and is operating the outlet 19TH TEE CAFETERIA AND THE TEE BAR" convincingly establishes that respondent's branch which he refers to as Copper Kettle Cafeteria Specialist at Club John Hay also appears in the latter's records as "Copper Kettle Catering Services" with an outlet called "19th Tee Cafeteria and The Tee Bar." Second, in Exhibit "8" and Exhibit "E," Texas Instruments identified the concessionaire operating its canteen as "Copper Kettle Catering Services, Inc." and/or "COPPER KETTLE CAFETERIA SPECIALIST SVCS." It being settled that respondent's "Copper Kettle Cafeteria Specialist" is also known as "Copper Kettle Catering Services," and that respondent and Jeanne Menguito both own, manage and act as proprietors of the business, Exhibit "8" and Exhibit "E" further establish that, through said business, respondent also had taxable transactions with Texas Instruments. In view of the foregoing facts and circumstances, the Articles of Incorporation of CKCS, Inc. -- a certified true copy of which respondent attached only to his Reply filed with the CA47 -- cannot insulate it from scrutiny of its real identity in relation to CKCS. It is noted that said Articles of Incorporation of CKCS, Inc. was issued in 1989, but documentary evidence indicate that after said date, CKCS, Inc. has also assumed the name CKCS, and vice-versa. The most concrete indication of this practice is the 1991 Quarterly Percentage Tax Returns covering the business name/trade "19th Tee Camp John Hay." In said returns, the taxpayer is identified as "Copper Kettle Cafeteria Specialist"48 or CKCS, not CKCS, Inc. Yet, in several documents already cited, the purported owner of 19th Tee Bar at Club John Hay is CKCS, Inc. All these pieces of evidence buttress the finding of the CTA that in 1991, 1992 and 1993, respondent, together with his spouse Jeanne Menguito, owned and operated outlets in Club John Hay and Texas Instruments under the names Copper Kettle Cafeteria Specialist or CKCS and Copper Kettle Catering Services or Copper Kettle Catering Services, Inc. 20

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA defraud respondent bank. Thus, petitioners, not TVI, are the ones personally liable to respondent bank for the payment of the loan. g. MENDOZA and YOTOKO v. BANCO REAL DEVELOPMENT BANK G.R. No. 140923 | September 16, 2005

h. LIVESEY v. BINSWANGER PHILIPPINES G.R. No. 177493 | March 19, 2014

Facts In 1985, the Board of Directors of Technical Video, Inc. (TVI) passed a Resolution authorizing its President, Eduardo A. Yotoko, petitioner, or its General Manager-Secretary-Treasurer, Manuel M. Mendoza, also a petitioner, to apply for and secure a loan from the Pasay City Banco Real Development Bank (now LBC Development Bank), herein respondent.

Facts Petitioner Eric Godfrey Stanley Livesey filed a complaint for illegal dismissal with money claims against CBB Philippines Strategic Property Services, Inc. (CBB) and Paul Dwyer. CBB was a domestic corporation engaged in real estate brokerage and Dwyer was its President.

Respondent bank extended a loan of ₱500,000.00 to TVI. In his capacity as General Manager, petitioner Mendoza executed a promissory note and chattel mortgage over 195 units of Beta video machines and their equipment and accessories belonging to TVI in favor of respondent bank.

The Labor Arbiter found that Livesey had been illegally dismissed, and ordered CBB to reinstate Livesey to his former position and to pay him accrued salaries and back salaries. Thereafter, the parties entered into a compromise agreement which the Labor Arbiter approved.

In 1986, TVI and two other video firms, Fox Video and Galactica Video, organized a new corporation named FGT Video Network Inc. (FGT). It was registered with the Securities and Exchange Commission. Petitioner Mendoza was the concurrent President of FGT and Operating General Manager of TVI. Thus, the office of TVI had to be transferred to the building of FGT for easier monitoring of the distribution and marketing aspects of the business.

CBB failed to pay Livesey as the company ceased operations. Livesey alleged that respondents, in a clear and willful attempt to avoid their liabilities him, have organized another corporation, Binswanger Philippines, Inc. He claimed that there was evidence showing that CBB and Binswanger Philippines, Inc. (Binswanger) are one and the same corporation, pointing out that CBB stands for Chesterton Blumenauer Binswanger. Invoking the doctrine of piercing the veil of corporate fiction, Livesey prayed that an alias writ of execution be issued against respondents Binswanger and Keith Elliot, CBB’s former President, and now Binswanger’s President and Chief Executive Officer (CEO).

For TVI’s failure to pay its loan upon maturity, respondent bank, on Januar filed with a petition for Extra Judicial Foreclosure and Sale of Chattel Mortgage. However, the Sheriff’s Report/Return shows that TVI is no longer doing business at its given address; that its General Manager, Mr. Manuel M. Mendoza, is presently employed at FGT Video Network with offices at the Philcemcor Bldg., No. 4 Edsa cor. Connecticut St., Greenhills, San Juan, Metro Manila; that when asked about the whereabouts of the video machines, in the presence of the representative of respondent bank and its counsel, Mr. Mendoza denied any knowledge of their whereabouts. In 1990, respondent bank filed a complaint for collection of a sum of money against TVI, FGT and petitioners. Petitioners specifically denied the allegations in the complaint, raising the defense that the loan is purely a corporate indebtedness of TVI. Issue Whether petitioners are personally liable for TVI’s indebtedness with respondent bank Ruling: Yes The courts below found that TVI is petitioners’ mere alter ego or business conduit. They control the affairs of TVI. Among its stockholders or directors, they were the only ones who became incorporators of FGT. They transferred the assets of TVI to FGT. The general rule is that obligations incurred by a corporation, acting through its directors, officers or employees, are its sole liabilities. However, the veil with which the law covers and isolates the corporation from its directors, officers or employees will be lifted when the corporation is used by any of them as a cloak or cover for fraud or illegality or injustice. Here, the fraud was committed by petitioners to the prejudice of respondent bank. It bears emphasis that as reported by the sheriff, TVI is no longer doing business at its given address and its whereabouts cannot be established as yet. Both the trial court and the Court of Appeals thus concluded that petitioners succeeded to hide the chattels, preventing the sheriff to foreclose the mortgage. Obviously, they acted in bad faith to

Issue Whether the doctrine of piercing the veil of corporate fiction should be applied to the case Ruling: Yes Shortly after Elliot forged the compromise agreement with Livesey, CBB ceased operations, a corporate event that was not disputed by the respondents. Then Binswanger suddenly appeared. It was established almost simultaneously with CBB’s closure, with no less than Elliot as its President and CEO. Through the confluence of events surrounding CBB’s closure and Binswanger’s sudden emergence, a reasonable mind would arrive at the conclusion that Binswanger is CBB’s alter ego or that CBB and Binswanger are one and the same corporation. There are also indications of badges of fraud in Binswanger’s incorporation. It was a business strategy to evade CBB’s financial liabilities, including its outstanding obligation to Livesey. It has long been settled that the law vests a corporation with a personality distinct and separate from its stockholders or members. In the same vein, a corporation, by legal fiction and convenience, is an entity shielded by a protective mantle and imbued by law with a character alien to the persons comprising it. Nonetheless, the shield is not at all times impenetrable and cannot be extended to a point beyond its reason and policy. Circumstances might deny a claim for corporate personality, under the "doctrine of piercing the veil of corporate fiction." Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. Under the doctrine, the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable aims or intentions, in which case, the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical. 21

CORPORATION LAW LAKAS ATENISTA | EXCLUSIVE CASE DIGEST Based on the 2018-2019 course syllabus of Atty. Raymund Ong-Abrantes, CPA

In the present case, we see an indubitable link between CBB’s closure and Binswanger’s incorporation. CBB ceased to exist only in name; it re-emerged in the person of Binswanger for an urgent purpose — to avoid payment by CBB of the last two installments of its monetary obligation to Livesey, as well as its other financial liabilities.

Reyes, G.R. No. L-20451, December 28, 1964, "should not be allowed to confuse the facts relating to employer-employee relationship," for "when the veil of corporate fiction is made as a shield to perpetrate a fraud and/or confuse legit-imate issues (here, the relation of employer-employee), the same should be pierced."

Dane Viola n. A. D. SANTOS v. VENTURA VASQUEZ GR No. L-23586, Mar 20, 1968 Ventura Vasquez was petitioner's taxi driver. While driving petitioner's taxicab, he vomitted blood he ALSO suffered back pains, fever and headache. He re-ported to petitioner the fact of his having vomitted blood. Thereafter, he was diagnosed with pulmonary tuberculosis, moderately advanced in both lungs. Upon his discharge, he has not resumed work. Ventura filed a claim with the Workmen's Commission. The Commission ordered petitioner:

Compensation

"1. To pay the claimant, thru this Commission, the sum of P3,732.30 PESOS as compensation as of August 11, 1964, and P27.30 thereafter up to, a period of 208 weeks, but in no case said amount of compensation exceeds P4,000.00; 2. To reimburse the claimant, the amount which he had actually spent for his treatment; 3. To provide claimant continuous medical, surgical and hospital services and supplies as his illness may warrant; 4. To pay the claimant, as Attorney's fees; and 5. To pay the Commission the sum of P43.00 as costs based on the amount of compensation already due the claimant as of August 11, 1964, and P1.00 for every hundred pesos which may accrue in his favor as weekly compensation pursuant to Section 55 of the Act." AD Santos alleged that respondent's claim should have been dismissed for the claim for compensation is directed against Amador Santos, not against petitioner corporation. Petitioner cites the fact that respondent driver, in the course of his testimony, mentioned that he worked for the City Cab operated by Amador Santos. ISSUE: WON Amador Santos is the proper party to the case RULING: YES. Respondent's claim for compensation herein is directed against petitioner A.D. Santos, Inc. Petitioner, in answer to the claim, categorically admitted that claimant was its taxi driver. Add to this the fact that the claimant contracted pulmonary tuberculosis by reason of his said employment. And respondent's cause of action against petitioner is complete. The fact that respondent driver, in the course of his testimony, mentioned that he worked for the City Cab operated by Amador Santos will not detract from the validity of respondent's right to compensation. For, the truth is that really at one time Amador Santos was the sole owner and operator of the City Cab. It was subsequently transferred to petitioner A.D. Santos, Inc. in which Amador Santos was an officer. The mention by re-spondent of Amador Santos as his employer in the course of his testimony, in the words of this Court in Sugay vs. 22