Jonas Print.docx

Corporate Law Case Digest: 1. Cases: Tayag v. Benguet Consolidated, 26 SCRA 242;

Facts: County Trust Company of New York, United States of America is the domiciliary administration of the decedent, Idonah Slade Perkins who owned 33,002 shares of stocks in the appellant, domestic corporation, Benguet Consolidated Inc. located in the Philippines. A dispute arose between the appellee, Tayag who is the appointed ancillary of Perkins in the Philippines and the domiciliary administration as to who is entitled to the possession of the certificate of shares, however, County Trust Company refuses to transfer the said certificate to Tayag despite the order of the court. Hence, the appellee was compelled to petition the court for the appellant to declare the subject certificates as lost to which appellant allegeed that no new certificate can be issued and the same cannot be rendered as lost in accordance with their by-laws. Issue: Whether or not the certificate of shares of stock can be declared lost. Held: Yes. Administration whether principal or ancillary certainly extends to the assets of a decedent found within the state or country where it was granted. It is often necessary to have more than one administration of an estate. When a person dies intestate owning property located in the country of his domicile as well as in a foreign country, administration is had in both countries. That which is granted in the jurisdiction of decedent’s last domicile is termed the principal administration, while any other administration is termed the ancillary administration. The reason for the latter is because a grant of administration does not ex proprio vigore have any effect beyond the limits of the country in which it is granted.Hence, an administration appointed in a foreign state has no authority in the Philippines. The ancillary administration is proper, whenever a person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of the deceased’s liable for his individual debts or to be distributed among his heirs. Since there is refusal, persistently adhered to by the domiciliary administration in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administration in the Philippines, there was nothing unreasonable or arbitrary in considering them lost and requiring the appellant to issue new certificates in lieu thereof. Thereby the task incumbent under the law on the ancillary administration could be discharged and his responsibility fulfilled. Assuming that a contrariety exist between the provision of the laws and the command of a court decree, the latter is to be followed. A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of state according to law. It is logically inconceivable therefore it will have rights and privileges of a higher priority than that of its creator, more than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so. 2. Torres v. CA, 278 SCRA 793 Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development Corporation (TRDC). TRDC is a small family owned corporation and other stockholders thereof include Judge Torres’ nieces and nephews. However, even though Judge Torres owns the majority of TRDC and was also the president thereof, he is only entitled to one vote among the 9-seat Board of Directors, hence, his vote can be easily overridden by minority stockholders. So in 1987, before the regular election of TRDC officers, Judge Torres assigned one share (qualifying share) each to 5 “outsiders” for the purpose of qualifying them to be elected as directors in the board and thereby strengthen Judge Torres’ power over other family members. 1

However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina Carlos (niece) in the stock and transfer book of TRDC. When the validity of said assignments were questioned, Judge Torres ratiocinated that it is impractical for him to order Carlos to make the entries because Carlos is one of his opposition. So what Judge Torres did was to make the entries himself because he was keeping the stock and transfer book. He further ratiocinated that he can do what a mere secretary can do because in the first place, he is the president. Since the other family members were against the inclusion of the five outsiders, they refused to take part in the election. Judge Torres and his five assignees then decided to conduct the election among themselves considering that the 6 of them constitute a quorum. ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent election is valid. HELD: No. The assignment of the shares of stocks did not comply with procedural requirements. It did not comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation Code. Section 74 provides that the stock and transfer book should be kept at the principal office of the corporation. Here, it was Judge Torres who was keeping it and was bringing it with him. Further, his excuse of not ordering the secretary to make the entries is flimsy. The proper procedure is to order the secretary to make the entry of said assignment in the book, and if she refuses, Judge Torres can come to court and compel her to make the entry. There are judicial remedies for this. Needless to say, the subsequent election is invalid because the assignment of shares is invalid by reason of procedural infirmity. The Supreme Court also emphasized: all corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family corporation is not an exemption. Such corporations cannot have rules and practices other than those established by law.

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

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

HELD: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to the Revised Securities Act and for the purpose of ensuring fair administration of the exchange. PSE, as a corporation itself and as a stock exchange is subject to SEC’s jurisdiction, regulation, and control. In order to insure fair dealing of securities and a fair administration of exchanges in the PSE, the SEC has the authority to look into the rulings issued by the PSE. The SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the stock exchange. HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse decisions 2

issued by the PSE if such are tainted with bad faith. In this case, there was no showing that PSE acted with bad faith when it denied the application of PALI. Based on the multiple adverse claims against the assets of PALI, PSE deemed that granting PALI’s application will only be contrary to the best interest of the general public. It was reasonable for the PSE to exercise its judgment in the manner it deems appropriate for its business identity, as long as no rights are trampled upon, and public welfare is safeguarded.

4. Feliciano v. COA, GR No. 147402, Jan. 14, 2004 Facts: A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII audited the accounts of the Leyte Metropolitan Water District (LMWD). Subsequently, LMWD received a letter from COA dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD, Engr. Ranulfo C. Feliciano sent a reply dated 12 October 1999 informing COA’s Regional Director that the water district could not pay the auditing fees. Feliciano cited as basis for his action Sections 6 and 20 of PD 198, as well as Section 18 of RA 6758. The Regional Director referred Feliciano’s reply to the COA Chairman on 18 October 1999. On 19 October 1999, Feliciano wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to COA. On 16 March 2000, Feliciano received COA Chairman Celso D. Gangan’s Resolution dated 3 January 2000 denying Feliciano’s request for COA to cease all audit services, and to stop charging auditing fees, to LMWD. The COA also denied Feliciano’s request for COA to refund all auditing fees previously paid by LMWD. Feliciano filed a motion for reconsideration on 31 March 2000, which COA denied on 30 January 2001. On 13 March 2001, Felicaino filed the petition for certiorari. Issue: Whether a Local Water District (“LWD”) is a government-owned or controlled corporation. Held: The Constitution recognizes two classes of corporations. The first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations created by special charters. The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens. In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws, that general law is the Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives. The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such corporations are government-owned or controlled. Obviously, LWDs are not private corporations because they are not created under the Corporation Code. LWDs are not registered with the Securities and Exchange Commission. Section 14 of the Corporation Code states that “[A]ll corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation x x x.” LWDs have no articles of incorporation, no incorporators and no stockholders or members. There are no stockholders or members to elect the board directors of LWDs as in the case of all corporations registered with the Securities and Exchange Commission. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term of office. LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only government-owned or controlled corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled. To claim that LWDs are private corporations with a special charter is to admit that their existence is constitutionally infirm. Unlike private corporations, which derive their legal existence and power from 3

the Corporation Code, LWDs derive their legal existence and power from PD 198.

5

National Coal Co. v. Collector of Internal Revenue, 46 Phil. 583

Facts: The plaintiff corporation was created on the 10th day of March 1917, by Act No. 2705, for the purpose of developing the coal industry in the Philippine Islands , in harmony with the general plan of the government to encourage the development of natural resources of the country, and to provide facilities therefore. By the said act, the company was granted the general powers of a corporation and such other powers as may be necessary to enable it to prosecute the business of developing coal deposits in the Philippine Islands of mining, extracting, transporting, and selling the coal contained in said deposits. By the same law, the government of the Philippine Islands is made the majority stockholder, evidently in order to ensure proper government supervision and control and thus to place the government in a position to render all possible encouragement, assistance, and help in the prosecution and furtherance of the company’s business. On May 14, 1917, two months after the passage of Act no. 2705, creating the national coal company, the Philippine legislature passed Act 2719, “to provide for the leasing and development of coal lands in the Philippine islands.” On October 18, 1917, upon petition of the national coal company, the governor-general, by proclamation no. 39, withdrew from settlement, entry, sale or other deposition, all coal-bearing public lands within the province of Zamboanga, Department of Mindanao and Sulu, and the island of Polillo, Province of Tayabas. Almost immediately after the issuance of said proclamation the national coal company took possession of the coal lands within the said reservation with an area of about 400 hectares, without any further formality, contract of lease. Of the 30,000 shares of stock issued by the company, the government of the Philippine islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock. Issue: Whether or not plaintiff is a private corporation. Held: Yes. The plaintiff is a private corporation. The mere fact that the government happens to the majority stockholder does not make it a public corporation. Act 2705, as amended by Act 2822, makes it subject to all the provisions of the corporation law, in so far as they are not inconsistent with said act. No provisions of Act 2705 are found to be inconsistent with the provisions of the corporation law. As a private corporation, it has no greater rights, powers or privileges than any other corporation which might be organized for the same purpose under the corporation law, and certainly it was not the intention of the legislature to give it a preference or right or privilege over other legitimate private corporations in the mining of coal. While it is true that said proclamation no. 39 withdrew from settlement entry, sale or other disposition of coal-bearing public lands within the province of Zamboanga, and the islands of Polillo, it made no provision for the occupation and operation by the plaintiff, to the exclusion of other persons or corporations who might under proper permission, enter upon to operate the coal mines. 6. Marilao Water Consumers Asso.,Inc. v IAC, 201 SCRA 437 FACTS: Pursuant to the provisions of P.D. 168 (Provincial Water Utilities Act of 1973), Marilao Water District (MWD) was formed by Resolution of the Sangguniang Bayan of the Municipality of Marilao dated September 18, 1982, which resolution was thereafter forwarded to the LWUA and "duly filed" by it on October 4, 1982 after ascertaining that it conformed to the requirements of the law. Marilao Waters Consumers Association, Inc. (MWCA), a non-stock, non-profit corporation, filed a petition before the RTC of Malolos, Bulacan claiming that the creation of the water district is defective and illegal. Impleaded as respondents were the Marilao Water District, as well as the Municipality of Marilao, Bulacan; its Sangguniang Bayan; and Mayor Nicanor V. GUILLERMO. The petition prayed for the dissolution of the water district. MWD filed its Answer with an affirmative defences that the RTC lacked jurisdiction over the subject matter since the water district’s dissolution fell under the original and exclusive jurisdiction of the SEC. MWCA countered thatsince the Marilao Water District had not been organized under the Corporation Code, the SEC had no jurisdiction over a proceeding for its dissolution and that under Section 45 of PD 198, the proceeding to determine if the dissolution of the water district is for the best interest of the people, is within the competence of a regular court of justice. RTC dismissed the MWCA’s suit ruling that it is the SEC which has exclusive and original jurisdiction over the case. ISSUE: Which triburial has jurisdiction over the dissolution of a water district organized and operating as a quasi-public corporation under the provisions of Presidential Decree No. 198, as amended: the Regional Trial Court, or the Securities & Exchange Commission. RULING: The present case does not fall within the limited jurisdiction of the SEC, but within the general jurisdiction of RTCs.

4

PD 198 authorizes the formation, lays down the powers and functions, and governs the operation of water districts throughout the country; it is "the source of authorization and power to form and maintain a (water) district." Once formed, it says, a district is subject to its provisions and is not under the jurisdiction of any political subdivision. The juridical entities thus created and organized under PD 198 are considered quasi-public corporations, performing public services and supplying public wants.

The juridical entities known as water districts created by PD 198, although considered as quasi-public corporations and authorized to exercise the powers, rights and privileges given to private corporations under existing laws are entirely distinct from corporations organized under the Corporation Code, PD 902A, as amended. The Corporation Code has nothing whatever to do with their formation and organization, all the terms and conditions for their organization and operation being particularly spelled out in PD 198. The resolutions creating them, their charters, in other words, are filed not with the Securities and Exchange Commission but with the LWUA. It is these resolutions qua charters, and not articles of incorporation drawn up under the Corporation Code, which set forth the name of the water districts, the number of their directors, the manner of their selection and replacement, their powers, etc. The SEC which is charged with enforcement of the Corporation Code as regards corporations, partnerships and associations formed or operating under its provisions, has no power of supervision or control over the activities of water districts. The "Provincial Water Utilities Act of 1973" has a specific provision governing dissolution of water districts created thereunder This is Section 45 of PD 198. Under this provision, it is the LWUA which is the administrative body involved in the voluntary dissolution of a water district; it is with it that the resolution of dissolution is filed, not the Securities and Exchange Commission. And this provision is evidently quite distinct and different from those on dissolution of corporations "formed or organized under the provisions of the Corporation Code under which dissolution may be voluntary (by vote of the stockholders or

members), generally effected by the filing of the corresponding resolution with the Securities and Exchange Commission, or involuntary, commenced by the filing of a verified complaint also with the SEC.

Although described as quasi-public corporations, and granted the same powers as private corporations, water districts are not really corporations. They have no incorporators, stockholders or members, who have the right to vote for directors, or amend the articles of incorporation or by-laws, or pass resolutions, or otherwise perform such other acts as are authorized to stockholders or members of corporations by the Corporation Code. In a word, there can be no such thing as a relation of corporation and stockholders or members in a water district for the simple reason that in the latter there are no stockholders or members. Between the water district and those who are recipients of its water services there exists not the relationship of corporation-andstockholder, but that of a service agency and users or customers. There can therefore be no such thing in a water district as "intra-corporate or partnership relations, between and among stockholders, members or associates (or) between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively," within the contemplation of Section 5 of the Corporation Code so as to bring controversies involving them within the competence and cognizance of the SEC.

6. Sawdjaan v. CA, G.R. No. 141735, June 8, 2005 Facts: Petitioner Sawadjaan was an appraiser/investigator in the Philippine Amanah Bank (PAB) when on the basis of his report, a credit line was granted to Compressed Air Machineries and Equipment Corporation (CAMEC) by virtue of the two parcels of land it offered as collaterals. Meanwhile, Congress passed a law which created Al-Amanah Investment Bank of the Philippines (AIIBP) and repealed the law creating PAB, transferring all its assets, liabilities and capital accounts to AIIBP. Later, AIIBP discovered that the collaterals were spurious, thus conducted an investigation and found petitioner Sawadjaan at fault. Petitioner appealed before the SC which ruled against him. Petitioner moved for a new trial claiming he recently discovered that AIIBP had not yet adopted its corporate by-laws and since it failed to file within 60 days from the passage of its law, it had forfeited its franchise or charter and thus has no legal standing to initiate an administrative case. The motion was denied. Issue: Whether or not the failure of AIIBP to file its by-laws within the period prescribed results to a nullity of all actions and proceedings it has initiated. Ruling: NO. The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here represented by the Office of the 5

Government Corporate Counsel, “the principal law office of government-owned corporations, one of which is respondent bank.” At the very least, by its failure to submit its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise corporate powers may not be inquired into collaterally in any private suit to which such corporations may be a party. Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration of Corporations, details the procedures and remedies that may be availed of before an order of revocation can be issued. There is no showing that such a procedure has been initiated in this case.

8. : Wilson Gamboa v. Sec. Margarito Teves, G.R. No. 176579, June 28, 2011

Facts: On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26... percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of... the outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of the Philippines. In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it would sell... the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million. ISSUE: Whether or not the term “capital” in Section 11, Article XII of the Constitution refer to the total common shares only, or to the total outstanding capital stock (combined total of common and nonvoting preferred shares) of PLDT, a public utility.

Ruling: YES. Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term “capital” shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. To construe broadly the term “capital” as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the “State shall develop a self-reliant and independent national economy effectively controlled by 6

Filipinos.” A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility.

WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to... the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.

Cease v. CA G.R. No. 33172, Oct. 18, 1979 9. Facts: sometime in June 1908, one Forrest L. Cease common predecessor in interest of the parties together with five (5) other American citizens organized the Tiaong Milling and Plantation Company and in the course of its corporate existence the company acquired various properties but at the same time all the other original incorporators were bought out by Forrest L. Cease together with his children namely Ernest, Cecilia, Teresita, Benjamin, Florence and one Bonifacia Tirante also considered a member of the family; the charter of the company lapsed in June 1958; but whether there were steps to liquidate it, the record is silent; on 13 August 1959, Forrest L. Cease died and by extrajudicial partition of his shares, among the children, this was disposed of on 19 October 1959; it was here where the trouble among them came to arise because it would appear that Benjamin and Florence wanted an actual division while the other children wanted reincorporation; and proceeding on that, these other children Ernesto, Teresita and Cecilia and aforementioned other stockholder Bonifacia Tirante proceeded to incorporate themselves into the F.L. Cease Plantation Company and registered it with the Securities and Exchange Commission on 9 December, 1959; apparently in view of that, Benjamin and Florence for their part initiated a Special Proceeding No. 3893 of the Court of First Instance of Tayabas for the settlement of the estate of Forest L. Cease on 21 April, 1960 and one month afterwards on 19 May 1960 they filed Civil Case No. 6326 against Ernesto, Teresita and Cecilia Cease together with Bonifacia Tirante asking that the Tiaong Milling and Plantation Corporation be declared Identical to F.L. Cease and that its properties be divided among his children as his intestate heirs; this Civil Case was resisted by aforestated defendants and notwithstanding efforts of the plaintiffs to have the properties placed under receivership, they were not able to succeed because defendants filed a bond to remain as they have remained in possession; after that and already, during the pendency of Civil Case No. 6326 specifically on 21 May, 1961 apparently on the eve of the expiry of the three (3) year period provided by the law for the liquidation of corporations, the board of liquidators of Tiaong Milling executed an assignment and conveyance of properties and trust agreement in favor of F.L. Cease Plantation Co. Inc. as trustee of the Tiaong Milling and Plantation Co. so that upon motion of the plaintiffs trial Judge ordered that this alleged trustee be also included as party defendant; now this being the situation, it will be remembered that there were thus two (2) proceedings pending in the Court of First Instance of Quezon namely Civil Case No. 6326 and Special Proceeding No. 3893 but both of these were assigned to the Honorable Respondent Judge Manolo L. Maddela p. 43 and the case was finally heard and submitted upon stipulation of facts pp, 34-110, rollo; and trial Judge by decision dated 27 December 1969 held for the plaintiffs Benjamin and Florence. Issue: Whether or not the properties of the Tiaong Milling and Plantation Company forms part of the estate of the deceased Forrest L. Cease. Held: Yes. The theory of “merger of Forrest L. Cease and The Tiaong Milling as one personality”, or that “the company is only the business conduit and alter ego of the deceased Forrest L. Cease and the registered properties of Tiaong Milling are actually properties of Forrest L. Cease and should be divided equally, share and share alike among his six children, … “, the trial court did aptly apply the familiar exception to the general rule by disregarding the legal fiction of distinct and separate corporate personality and regarding the corporation and the individual member one and the same. 7

It must be remembered that when Tiaong Milling adduced its defense and raised the issue of ownership, its corporate existence already terminated through the expiration of its charter. It is clear in Section 77 of Act No. 1459 (Corporation Law) that upon the expiration of the charter period, the corporation ceases to exist and is dissolved ipso facto except for purposes connected with the winding up and liquidation. The provision allows a three year, period from expiration of the charter within which the entity gradually settles and closes its affairs, disposes and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established. At this terminal stage of its existence, Tiaong Milling may no longer persist to maintain adverse title and ownership of the corporate assets as against the prospective distributees when at this time it merely holds the property in trust, its assertion of ownership is not only a legal contradiction, but more so, to allow it to maintain adverse interest would certainly thwart the very purpose of liquidation and the final distribute loll of the assets to the proper, parties. While the records showed that originally its incorporators were aliens, friends or third-parties in relation of one to another, in the course of its existence, it developed into a close family corporation. The Board of Directors and stockholders belong to one family the head of which Forrest L. Cease always retained the majority stocks and hence the control and management of its affairs. In fact, during the reconstruction of its records in 1947 before the Security and Exchange Commission only 9 nominal shares out of 300 appears in the name of his 3 eldest children then and another person close to them. It is likewise noteworthy to observe that as his children increase or perhaps become of age, he continued distributing his shares among them adding Florence, Teresa and Marion until at the time of his death only 190 were left to his name. Definitely, only the members of his family benefited from the Corporation. The accounts of the corporation and therefore its operation, as well as that of the family appears to be indistinguishable and apparently joined together. As admitted by the defendants corporation ‘never’ had any account with any banking institution or if any account was carried in a bank on its behalf, it was in the name of Mr. Forrest L. Cease. In brief, the operation of the Corporation is merged with those of the majority stockholders, the latter using the former as his instrumentality and for the exclusive benefits of all his family. From the foregoing indication, therefore, there is truth in plaintiff’s allegation that the corporation is only a business conduit of his father and an extension of his personality, they are one and the same thing. Thus, the assets of the corporation are also the estate of Forrest L. Cease, the father of the parties herein who are all legitimate children of full blood. A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of corporate fiction. Generally, a corporation is invested by law with a personality separate and distinct from that of the persons composing it as well as from that of any other legal entity to which it may be related. By virtue of this attribute, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected, and vice versa. This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice. For this reason, it may not be used or invoked for ends subversive of the policy and purpose behind its creation. This is particularly true where the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues , perpetrate deception or otherwise circumvent the law. This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity

11. CIR v. Norton and Harrison Co., G.R. No. 17618, Aug. 31, 1964 FACTS: Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale and retail, all kinds of goods, wares, and merchandise; (2) to act as agents of manufacturers in the United States and foreign countries; and (3) to carry on and conduct a general wholesale and retail mercantile establishment in the Philippines. Jackbilt is, likewise, a corporation organized on February 16, 1948 primarily for the purpose of making, producing and manufacturing concrete blocks. Under date of July 27, 1948. Norton and Jackbilt entered into an agreement whereby Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt. Pursuant to this agreement, whenever an order for concrete blocks was received by the Norton & Harrison Co. from a customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the 8

customer. Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the amount charged the customer less a certain amount, as its compensation or profit. To exemplify the sales procedures adopted by the Norton and Jackbilt, the following may be cited. In the case of the sale of 420 pieces of concrete blocks to the American Builders on April 1, 1952, the purchaser paid to Norton the sum of P189.00 the purchase price. Out of this amount Norton paid Jackbilt P168.00, the difference obviously being its compensation. As per records of Jackbilt, the transaction was considered a sale to Norton. It was under this procedure that the sale of concrete blocks manufactured by Jackbilt was conducted until May 1, 1953, when the agency agreement was terminated and a management agreement between the parties was entered into. ISSUE: Whether or not the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co., merged the two corporations into a single corporation. RULING: YES. It has been settled that the ownership of all the stocks of a corporation by another corporation does not necessarily breed an identity of corporate interest between the two companies and be considered as a sufficient ground for disregarding the distinct personalities. However, in the case at bar, we find sufficient grounds to support the theory that the separate identities of the two companies should be disregarded. There was no limit to the advances given to Jackbilt. The income tax return of Norton for 1954 shows that as President and Treasurer of Norton and Jackbilt, he received from Norton P56,929.95, but received from Jackbilt the measly amount of P150.00, a circumstance which points out that remuneration of purported officials of Jackbilt are deemed included in the salaries they received from Norton. The same is true in the case of Eduardo Garcia, an employee of Norton but a member of the Board of Jackbilt. His Income tax return for 1956 reveals that he received from Norton in salaries and bonuses P4,220.00, but received from Jackbilt, by way of entertainment, representation, travelling and transportation allowances P3,000.00. However, in the withholding statement, it was shown that the total of P4,200.00 and P3,000.00 was received by Garcia from Norton, thus portraying the oneness of the two companies. The Income Tax Returns of Albert Golden and Dioscoro Ramos both employees of Norton but board members of Jackbilt, also disclose the game method of payment of compensation and allowances. The offices of Norton and Jackbilt are located in the same compound. Payments were effected by Norton of accounts for Jackbilt and vice versa. Payments were also made to Norton of accounts due or payable to Jackbilt and vice versa.

12. Mcleod v. NLRC, G.R. No. 146667, Jan. 23, 2007 FACTS: On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits and other benefits against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Complainant was the former VP and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980 and Peggy Mills closed operations due to irreversible losses but its assets were acquired by Sta. Rosa Textile Corporation complainant was hired by Sta. Rosa Textile but he resigned and that while complainant was Vice President and Plant Manager of Peggy Mills, the union staged a strike up to July 1992 resulting in closure of operations due to irreversible losses as per Notice .The complainant was relied upon to settle the labor problem but due to his lack of attention and absence the strike continued resulting in closure of the company. Mcleod contends that the corporations are solidarily liable. On 3 April 1998, the Labor Arbiter rendered his decision in favor of Mcleod The NLRC – Reversed decision CA- Modified the NLRC’s decision. Lim was solidarily liable Issue: whether there is merger/ consolidation w/n Patricio Lim must be solidarily liable with PMI Held: There was also no merger or consolidation of PMI and SRTI. Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations. Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined business. The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are 9

dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.27 In the present case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors that SRTI is a mere instrumentality of PMI. Moreover, SRTI did not expressly or impliedly agree to assume any of PMI’s debts. 2. In the present case, there is nothing substantial on record to show that Patricio acted in bad faith in terminating McLeod’s services to warrant Patricio’s personal liability. PMI had no other choice but to stop plant operations. The work stoppage therefore was by necessity. The company could no longer continue with its plant operations because of the serious business losses that it had suffered. The mere fact that Patricio was president and director of PMI is not a ground to conclude that he should be held solidarily liable with PMI for McLeod’s money claims. The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59 which the Court of Appeals cited, does not apply to this case. We quote pertinent portions of the ruling, thus: (a) Article 265 of the Labor Code, in part, expressly provides: "Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages." Article 273 of the Code provides that: "Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months." (b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides: "(c) ‘Employer’ includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer.". The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law.

Cases: Albert v. University Publishing, Inc. G.R. No. 10118, June 16, 1965 FACTS: In the original case, the court had awarded P P15,000.00 in favor of the petitioner for damages arising out of a breach of contract. Such breach of contract arose when the publishing company failed to pay the petitioner the agreed amount for latter to have the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his share in previous sales of the book's first edition. The order became final and executory. A writ of execution was issued against the company, however the petitioner petitioned for a writ of execution against Jose M. Aruego, as the real defendantstating, plaintiff's counsel and the Sheriff of Manila discovered that there is no such entity as University Publishing Co., Inc. and no such entity is registered with the SEC. This case asks the court whether or not the judgment may be executed against Jose M. Aruego, supposed President of University Publishing Co., Inc., as the real defendant. ISSUE: Whether or not the judgment may be executed against Jose M. Aruego, supposed President of University Publishing Co., Inc., as the real defendant. RULING: NO. The Court ruled that the doctrine of corporation by estoppel was not applicable. Although the rule is that a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent, in this case, Aruego was not named as a defendant. Since he was not named, he could not be served and be made liable for the claim because to do so would violate his right to due process. He was not given the chance to defend himself and be heard during trial.

10

Wherefore, the order was reversed and set aside and was remanded lower court to hold supplementary proceedings for the purpose of carrying the judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego.

Cases: ABS-CBN v. CA, GR No. 128690, Jan. 21, 1999 FACTS: In 1990, ABS CBN and Viva executed a Film Exhibition Agreement whereby Viva gave ABS CBN an exclusive right to exhibit some Viva films. Said agreement contained a stipulation that ABS shall have the right of first refusal to the next 24 Viva films for TV telecast, provided that such right shall be exercised by ABS from the actual offer in writing. Hence, through this agreement, Viva offered ABS a list of 36 films from which ABS may exercise its right of first refusal. ABS however, through VP Concio, did not accept the list since she could only tick off 10 films. This rejection was embodied in a letter. In 1992, Viva again approached ABS with a list consisting of 52 original films where Viva proposed to sell these airing rights for P60M. Viva’s Vic del Rosario and ABS’ general manager Eugenio Lopez III met at the Tamarind Grill to discuss this package proposal. What transcribed at that meeting was subject to conflicting versions. According to Lopez, he and del Rosario agreed that ABS was granted exclusive film rights to 14 films for P36M, and that this was put in writing in a napkin, signed by Lopez and given to del Rosario. On the other hand, del Rosario denied the existence of the napkin in which Lopez wrote something, and insisted that what he and Lopez discussed was Viva’s film package of the 52 original films for P60M stated above, and that Lopez refused said offer, allegedly signifying his intent to send a counter proposal. When the counter proposal arrived, Viva’s BoD rejected it; hence, he sold the rights to the 52 original films to RBS. Thus, ABS filed before RTC a complaint for specific performance with prayer for TRO against RBS and Viva. RTC issued the TRO enjoining the airing of the films subject of controversy. After hearing, RTC rendered its decision in favor of RBS and Viva contending that there was no meeting of minds on the price and terms of the offer. The agreement between Lopez and del Rosario was subject to Viva BoD approval, and since this was rejected by the board, then, there was no basis for ABS’ demand that a contract was entered into between them. That the 1990 Agreement with the right of first refusal was already exercised by Ms. Concio when it rejected the offer, and such 1990 Agreement was an entirely new contract other than the 1992 alleged agreement at the Tamarind Grill. ISSUE: Whether or not there was a perfected contract between Lopez and del Rosario. RULING: NO. Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment, a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. In the case at bar, when Del Rosario met with Lopez at the Tamarind Grill, the package of 52 films was Viva’s offer to enter into a new Exhibition Agreement. But ABS, through its counter proposal sent to Viva, actually made a counter offer. Clearly, there was no acceptance. The acceptance should be unqualified.

Coastal Pacific Trading, Inc. v. Sothern Rolling Mills Co., July 28, 2006 FACTS: Southern Rolling Mills was renamed into Visayan Integrated Steel Corp (VISCO). On Dec. 11, 1961-VISCO obtained a loan from DBP amounting to P836,000. It was secured by a Real Estate Mortgage covering VISCO's 3 11

parcels of land including the machinery and equipments therein. Second Loan: VISCO entered a Loan Agreement with respondent banks ( referred as "Consortium") to finance its importation for various raw materials. VISCO executed a second mortgage over the previous properties mentioned, however they were unrecorded VISCO was unable to pay its second mortgage with the consortium, which resulted in the latter acquiring 90% of the equity of VISCO giving the Consortium the control and management of VISCO. Despite the acquisition, VISCO still remained indebted to the Consortium. Transaction to Coastal: Between 1964 to 1965, VISCO entered a processing agreement with Coastal wherein Coastal delivered 3,000 metric tons of hot rolled steel coils which VISCO would process into block iron sheets. However, VISCO was only able to return 1,600 metric tons of those sheets. On the loan to DBP: To pay its first mortgage with DBP, VISCO sold 2 of its generators to FILMAG Phils, Inc. DBP executed a Deed of Assignment of the mortgage in favor of the consortium. The Consortium foreclosed the mortgage and was the highest bidder in an auction sale of VISCO's properties. The Consortium later sold the properties in favor of National Steel Corporation. Coastal files a civil action for Annulment or Rescission of Sale, Damages with Preliminary Injunction. Coastal imputes bad faith on the action of the Consortium, the latter being able to sell the properties of VISCO despite the attachment of the properties, placing them beyond the reach of VISCO's other creditors. The lower court ruled in favor of VISCO, declaring the sale valid and legal. The CA affirmed this. ISSUE 1: Whether the consortium disposed VISCO's assets in fraud of creditors? HELD: Yes. What the consortium did was to pay to them the proceeds from the sale of the generator sets which in turn they used to pay DBP. Due to the Deed of Assignment issued by DBP, the respondent banks recovered what they remitted to DBP & it allowed the Consortium to acquire DBP's primary lien on the mortgaged properties. Allowing them as unsecured creditors ( as the mortgage was unrecorded) to foreclose on the assets of the corporation without regard to inferior claims ISSUE 2: Whether petitioner is entitled to moral damages? No. As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a good reputation that is debased, resulting in its humiliation in the business realm. In the present case, the records do not show any evidence that the name or reputation of petitioner has been sullied as a result of the Consortium's fraudulent acts. Accordingly, moral damages are not warranted. Petitioner was able to recover exemplary damages.

Cases:

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

FACTS: Rima & Alegre were host of FBNI radio program “Expose”. Respondent Ago was the owner of the Medical & Educational center, subject of the radio program “Expose”. AMEC claimed that the broadcasts were defamatory and owner Ago and school AMEC claimed for damages. The complaint further alleged that AMEC is a reputable learning institution. With the supposed expose, FBNI, Rima and Alegre “transmitted malicious imputations and as such, destroyed plaintiff’s reputation. FBNI was included as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees. The trial court found Rima’s statements to be within the bounds of freedom of speech and ruled that the broadcast was libelous. It ordered the defendants Alegre and FBNI to pay AMEC 300k for moral damages.” ISSUE: Whether or not AMEC is entitled to moral damages. RULING: 12

A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. Nevertheless, AMEC’s claim, or moral damages fall under item 7 of Art – 2219 of the NCC. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Art 2219 (7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. Moreover, where the broadcast is libelous per se, the law implied damages. In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. In this case, the broadcasts are libelous per se. thus, AMEC is entitled to moral damages. However, we find the award P500,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous, per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages to P150k. Cases: PNB v. CA, GR No. 27155, May 18, 1978 Lessons Applicable: Liability for Torts (Corporate Law) FACTS: 

   

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

ISSUE: W/N PNB should be liable for tort HELD: YES. affirmed. 



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

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



Enrique Agana told his wife Natividad Agana to go look for their neighbor, Dr. Ampil, a surgeon staff member of Medical City, a prominent and known hospital  Natividad suffered from injury due to 2 gauges left inside her body so they sued Professional Inc. (PSI)  Despite, the report of 2 missing gauzes after the operation PSI did NOT initiate an investigation ISSUE: W/N PSI should be liable for tort.

HELD: YES. 15M + 12% int. until full satisfaction.  While PSI had no power to control the means/method by which Dr. Ampil conducted the surgery on Natividad, they had the power to review or cause the review  PSI had the duty to tread on as captain of the ship for the purpose of ensuing the safety of the patients availing themselves of its services and facilities  PSI defined its standards of corporate conduct: 13

1. Even after her operation to ensure her safety as a patient 2. NOT limited to record the 2 missing gauzes 3. Extended to determining Dr. Ampils role in it, bringing the matter to his attention and correcting his negligence      

Admission bars itself from arguing that its corp. resp. is NOT yet in existence at the time Natividad underwent treatment Dr. Ampil - medial negligence PSI - Corporate Negligence NOTE: Liability unique to this case because of implied agency and admitted corporate duty 26 years already and Dr. Ampil's status could no longer be ascertained

Cases: Kukan International Corp v. Reyes, G.R. No. 182729, Sept. 29, 2010 FACTS Sometime in March 1998, Kukan, Inc. conducted a bidding worth Php 5M (reduced to PhP 3,388,502) for the supply and installation of signages in a building being constructed in Makati City which was won by Morales. Despite his compliance, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Morales filed a Complaint with the RTC against Kukan, Inc. for a sum of money. However, starting November 2000, Kukan, Inc. no longer appeared and participated in the proceedings before the trial court, prompting the RTC to declare Kukan, Inc. in default and paving the way for Morales to present his evidence ex parte. On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc. After the above decision became final and executory, Morales moved for and secured a writ of execution against Kukan, Inc. The sheriff then levied upon various personal properties found at what was supposed to be Kukan, Inc.’s office at Unit 2205, 88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was a different corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case No. 99-93173. In reaction to KIC’s claim, Morales interposed an Omnibus Motion dated April 30, 2003, praying, and applying the principle of piercing the veil of corporate fiction, that an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the possession of KIC, it being alleged that both corporations are but one and the same entity. KIC opposed Morales’ motion. The court denied the omibus motion. In a bid to establish the link between KIC and Kukan, Inc., Morales filed a Motion for Examination of Judgment Debtors dated May 4, 2005 which sought that subponae be issued against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the court. Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge Amor Reyes. Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, by Order dated March 12, 2007, granted the motion. From the above order, KIC moved but was denied reconsideration in another Order dated June 7, 2007. KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC Orders but on January 23, 2008, the CA denied the petition and affirmed the assailed Orders. The CA later denied KIC’s MR in the assailed resolution. Hence, the instant petition for review. 14

ISSUES A. whether the trial court can, after the judgment against Kukan, Inc. has attained finality, execute it against the property of KIC; B. whether the trial court acquired jurisdiction over KIC; C. whether the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of corporate fiction.

DECISION A. No. In Carpio v. Doroja,[13] the Court ruled that the deciding court has supervisory control over the execution of its judgment: A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in the suit. There is no question that the court which rendered the judgment has a general supervisory control over its process of execution, and this power carries with it the right to determine every question of fact and law which may be involved in the execution. The court’s supervisory control does not, however, extend as to authorize the alteration or amendment of a final and executory decision, save for certain recognized exceptions, among which is the correction of clerical errors. Else, the court violates the principle of finality of judgment and immutability. As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution, answerable for the above judgment liability is a clear case of altering a decision, an instance of granting relief not contemplated in the decision sought to be executed. And the change does not fall under any of the recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule that a writ of execution must conform to the fallo of the judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a nullity. Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other issues raised by KIC would be proper. B. No. In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded that it raised affirmative defenses through its aforementioned pleadings, KIC never abandoned its challenge, however implicit, to the RTC’s jurisdiction over its person. The challenge was subsumed in KIC’s primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiff’s Omnibus Motion dated May 20, 2003, KIC entered its “special but not voluntary appearance” alleging therein that it was a different entity and has a separate legal personality from Kukan, Inc. And KIC would consistently reiterate this assertion in all its pleadings, thus effectively resisting all along the RTC’s jurisdiction of its person. It cannot be overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely because KIC was neither impleaded nor served with summons. Consequently, KIC could only assert and claim through its affidavits, comments, and motions filed by special appearance before the RTC that it is separate and distinct from Kukan, Inc. Following La Naval Drug Corporation, KIC cannot be deemed to have waived its objection to the court’s lack of jurisdiction over its person. It would defy logic to say that KIC unequivocally submitted itself to the jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other option but to insist on its separate identity and plead for relief consistent with that position. 15

C. No. The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same juridical person with respect to a given transaction, is basically applied only to determine established liability;[34] it is not available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation not impleaded in a suit cannot be subject to the court’s process of piercing the veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that corporation and its property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much: 23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the corporation.[35] x x x (Emphasis supplied.) The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or corporations involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of the court by way of service of summons or what passes as such service. Cases: Jaka Investment Corp v. CIR, G.R. No. 147629, July 28, 2010 Facts: Sometime in 1994, petitioner sought to invest in JAKA Equities Corporation (JEC), which was then planning to undertake an initial public offering (IPO) and listing of its shares of stock with the Philippine Stock Exchange. JEC increased its authorized capital stock... from One Hundred Eighty-Five Million Pesos (P185,000,000.00) to Two Billion Pesos (P2,000,000,000.00). Petitioner proposed to subscribe to Five Hundred Eight Million Eight Hundred Six Thousand Two Hundred Pesos (P508,806,200.00) out of the increase in the authorized... capital stock of JEC through a tax-free exchange under Section 34(c)(2) of the National Internal Revenue Code (NIRC) of 1977, as amended, which was effected by the execution of a Subscription Agreement and Deed of Assignment of Property in Payment of Subscription. The intended IPO and listing of shares of JEC did not materialize. However, JEC still decided to proceed with the increase in its authorized capital stock and petitioner agreed to subscribe thereto, but under different terms of payment. Thus, petitioner and JEC executed... the Amended Subscription Agreement On October 14, 1994, petitioner paid One Million Three Thousand Eight Hundred Ninety-Five Pesos and SixtyFive Centavos (P1,003,895.65) for basic documentary stamp tax inclusive of the 25% surcharge for late payment on the Amended Subscription Agreement Petitioner, after seeing the RDO's certifications, the total amount of which was less than the actual amount it had paid as documentary stamp tax, concluded that it had overpaid. Petitioner subsequently sought a refund for the alleged excess documentary stamp tax and... surcharges it had paid on the Amended Subscription Agreement in the amount of Four Hundred Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00) On October 11, 1996, petitioner filed a petition for refund before the Court of Tax Appeals The Court of Tax Appeals likewise denied... petitioner's Motion for Reconsideration Petitioner appealed to the Court of Appeals by way of petition for review. The Court of Appeals sustained the Court of Tax Appeals in its Decision 16

Petitioner's main contention in this claim for refund is that the tax base for the documentary stamp tax on the Amended Subscription Agreement should have been only the shares of stock in RGHC, PGCI, and UCPB that petitioner had transferred to JEC as payment for its subscription... to the JEC shares, and should not have included the cash portion of its payment, based on Section 176 of the National Internal Revenue Code Petitioner argues that the cash component of its payment for its subscription to the JEC shares, totaling Three Hundred Seventy Million Seven Hundred Sixty-Six Thousand Pesos (P370,766,000.00) should not have been charged any documentary stamp... tax. Petitioner claims that there was overpayment because the tax due on the transferred shares was only Five Hundred Ninety-Three Thousand Five Hundred Twenty-Eight and 15/100 Pesos (P593,528.15), as indicated in the certifications issued by RDO Esquivias. Respondent maintains that the documentary stamp tax imposed in this case is on the original issue of certificates of stock of JEC on the subscription by the petitioner of the P508,806,200.00 shares out of the increase in the authorized capital stock of the former pursuant to Section 175 of the NIRC. The documentary stamp tax was not imposed on the shares of stock owned by petitioner in RGHC, PGCI, and UCPB, which merely form part of the partial payment of the subscribed shares in JEC. Respondent stresses that the documentary stamp tax can be levied or collected from the person making, signing, issuing, accepting, or transferring the obligation or property, as provided in Section 173 of the Tax Code. Issues: whether petitioner is entitled to a partial refund of the documentary stamp tax and surcharges it paid on the execution of the Amended Subscription Agreement. Ruling: In claims for refund, the burden of proof is on the taxpayer to prove entitlement to such refund. It was thus incumbent upon petitioner to show clearly its basis for claiming that it is entitled to a tax refund. This, to our mind, the petitioner failed to do. We find nothing ambiguous nor obscure in the language of Section 173, taken in relation to Section 175 of the 1994 Tax Code x x x insofar as the same is brought to bear upon the circumstances in the instant case. These provisions furnish the best means of their own... exposition that a documentary stamp tax (DST) is due and payable on documents, instruments, loan agreements and papers, acceptances, assignments, sales and transfers which evidenced the transaction agreed upon by the parties and should be paid by the person making, signing,... issuing, accepting or transferring the property, right or obligation. Understood to mean what it plainly expressed, the DST imposition is essentially addressed and directly brought to bear upon the DOCUMENT evidencing the transaction of the parties which establishes its rights and obligations. In the case at bar, the rights and obligations between petitioner JAKA Investments Corporation and JAKA Equities Corporation are established and enforceable at the time the "Amended Subscription Agreement and Deed of Assignment of Property in Payment of Subscription" were signed... by the parties and their witness, so is the right of the state to tax the aforestated document evidencing the transaction. DST is a tax on the document itself and therefore the rate of tax must be determined on the basis of what is written or indicated on the instrument... itself independent of any adjustment which the parties may agree on in the future Petitioner alleges, though, that considering that the assessment of payment of documentary stamp tax was made payable only to the aforesaid issuances of certificates of [stock] exclusive of that of FEBTC shares of stock which were paid in cash, and that it has paid a... total of Php1,003,895.65 inclusive of surcharges for late payment, the petitioner is entitled to a refund of Php410,367.00. This argument does not hold water. As discussed earlier, a documentary stamp is levied upon the privilege, the opportunity and the facility... offered at exchanges for the transaction of the business. This being the case, and as correctly found by the tax court, the documentary stamp tax imposition is essentially addressed and directly brought to bear upon the document evidencing the transaction 17

of the parties... which establishes its rights and obligations, which in the case at bar, was established and enforceable upon the execution of the Amended Subscription Agreement and Deed of Assignment of Property in Payment of Subscription. A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business transacted but is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business. It is an excise upon the facilities used in the... transaction of the business separate and apart from the business itself. Documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of... specific instruments. Thus, we have held that documentary stamp taxes are levied independently of the legal status of the transactions giving rise thereto. The documentary stamp taxes must be paid upon the issuance of the said instruments, without regard to whether the contracts... which gave rise to them are rescissible, void, voidable, or unenforceable. Petitioner claims overpayment of the documentary stamp tax but its basis for such is not clear at all. While insisting that the documentary stamp tax it had paid for was not based on the original issuance of JEC shares as provided in Section 175 of the 1994 Tax Code,... petitioner failed in showing, even through a mere basic computation of the tax base and the tax rate, that the documentary stamp tax was based on the transfer of shares under Section 176 either. It would have been helpful for petitioner's cause had it submitted proof of... the par value of the shares of stock involved, to show the actual basis for the documentary stamp tax computation. For comparison, the original Subscription Agreement ought to have been submitted as well. The fact that it was petitioner and not JEC that paid for the documentary stamp tax on the original issuance of shares is of no moment, as Section 173 of the 1994 Tax Code states that the documentary stamp tax shall be paid by the person making, signing, issuing, accepting or... transferring the property, right or obligation. Ong Yong v. Tiu, G.R. No. 144476, April 8, 2003 FACTS: 





         

1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when its owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became heavily indebted to the Philippine National Bank (PNB) for P190M To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in FLADC o Ongs: subscribe to 1,000,000 shares o Tius: subscribe to an additional 549,800 shares in addition to their already existing subscription of 450,200 shares Tius: nominate the Vice-President and the Treasurer plus 5 directors Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the board of directors of FLADC and right to manage and operate the mall. Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M (for 300K shares) and P49.8M (for 49,800 shares) Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their subscription to 1M shares) February 23, 1996: Tius rescinded the Pre-Subscription Agreement February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking confirmation of their rescission of the Pre-Subscription Agreement SEC: confirmed recission of Tius Ongs filed reconsideration that their P70M was not a premium on capital stock but an advance loan SEC en banc: affirmed it was a premium on capital stock CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission) but, "for practical considerations," that is, their inability to work together, it was best to separate the two groups 18

by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding practically everything else to the Tius. ISSUE: W/N Specific performance and NOT recission is the remedy HELD: YES. Ongs granted.  

    



 

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

Cases: Alhambra Cigar v. SEC, G.R.No.L-23606, July 29, 1968 FACTS: Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. was duly incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty (50) years from incorporation. Its term of existence expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of liquidation. Thereafter, a new corporation. Alhambra Industries, Inc. was formed to carry on the business of Alhambra. On June 20, 1963 within Alhambra's three-year statutory period for liquidation - Republic Act 3531 was enacted into law. It amended Section 18 of the Corporation Law; it empowered domestic private corporations to extend their corporate life beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any one instance. Previous to Republic Act 3531, the maximum non-extendible term of such corporations was fifty years. On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph "Fourth" of its articles of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from its incorporation. FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after the date of incorporation, and for an additional period of fifty (50) years thereafter.On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its president and secretary and a majority of its board of directors, were filed with respondent Securities and Exchange Commission (SEC). ISSUE: Whether or not the corporation can still extend its corporate term within the three-year statutory period for liquidation. 19

RULING: NO. A corporation cannot extend its life by amendment of its articles of incorporation effected during the three-year period for liquidation when its original term of existence had already expired. Since the privilege of extension is purely statutory, all of the statutory conditions precedent must be complied with in order that the extension may be effectuated. And, generally these conditions must be complied with, and the steps necessary to effect the extension must be taken, during the life of the corporation, and before the expiration of the term of existence as original fixed by its charter or the general law, since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. So where the extension is by amendment of the articles of incorporation, the amendment must be adopted before that time. And, similarly, the filing and recording of a certificate of extension after that time cannot relate back to the date of the passage of a resolution by the stockholders in favor of the extension so as to save the life of the corporation. The contrary is true, however, and the doctrine of relation will apply, where the delay is due to the neglect of the officer with whom the certificate is required to be filed, or to a wrongful refusal on his part to receive it. And statutes in some states specifically provide that a renewal may be had within a specified time before or after the time fixed for the termination of the corporate existence.

PNB v. CA, G.R. No. 63201, May 27, 1992 Facts: Private respondents are the registered owners of three parcels of land in Pasig, Metro Manila covered by OCT No. 853, TCT Nos. 32843 and 32897 of the Registry of Deeds of Rizal. On March 1, 1954, private respondents entered into a contract of lease with Philippine Blooming Mills, Co., Inc., (PBM) whereby the latter shall lease the aforementioned parcels of land as factory site. PBM was duly organized and incorporated on January 19, 1952 with a corporate term of twenty-five (25) years. This leasehold right of PBM covering the parcels of land was duly annotated at the back of the above stated certificates of title as Entry No. 9367/T-No. 32843. The contract of lease provides that the term of the lease is for twenty years beginning from the date of the contract and “is extendable for another term of twenty years at the option of the LESSEE should its term of existence be extended in accordance with law.”. The contract also states that the lessee agrees to “use the property as factory site and for that purpose to construct whatever buildings or improvements may be necessary or convenient and/or . . . for any purpose it may deem fit; and before the termination of the lease to remove all such buildings and improvements. In accordance with the contract, PBM introduced on the land, buildings, machineries and other useful improvements. These constructions and improvements were registered with the Registry of Deeds of Rizal and annotated at the back of the respondents’ certificates of title as Entry No. 85213/T-No. 43338. On October 11, 1963, PBM executed in favor of Philippine National Bank (PNB), petitioner herein, a deed of assignment, conveying and transferring all its rights and interests under the contract of lease which it executed with private respondents. The assignment was for and in consideration of the loans granted by PNB to PBM. The deed of assignment was registered and annotated at the back of the private respondents’ certificates of title as Entry No. 85215/TNo. 32843. On November 6, 1963 and December 23, 1963 respectively, PBM executed in favor of PNB a real estate mortgage for a loan of P100,000.00 and an addendum to real estate mortgage for another loan of P1,590,000.00, covering all the improvements constructed by PBM on the leased premises. These mortgages were registered and annotated at the back of respondents’ certificates as Entry No. 85214/T-No. 43338 and Entry No. 870971/T-No. 32843, respectively. On October 7, 1981, private respondents filed a motion in the same proceedings which was given a different case number to wit, LRC Case No. R-2744, because of the payment of filing fees for the motion. The motion sought to cancel the annotations on respondents’ certificates of title pertaining to the assignment by PBM to PNB of the former’s leasehold rights, inclusion of improvements and the real estate mortgages made by PBM in favor of PNB, on the ground that the contract of lease entered into between PBM and respondents-movants had already expired by the failure of PBM and/or its assignee to exercise the option to renew the second 20-year lease commencing on March 1, 1974 and also by the failure of PBM to extend its corporate existence in accordance with law. The motion also states that since PBM failed to remove its improvements on the leased premises before the expiration of the contract of lease, such improvements shall accrue to respondents as owners of the land. Issue: Whether or not the corporate life of PBM was extended by the continuance of the lease and subsequent registration of the title to the improvements under its name. 20

Held: No. The contract of lease expressly provides that the term of the lease shall be twenty years from the execution of the contract but can be extended for another period of twenty years at the option of the lessee should the corporate term be extended in accordance with law. Clearly, the option of the lessee to extend the lease for another period of twenty years can be exercised only if the lessee as corporation renews or extends its corporate term of existence in accordance with the Corporation Code which is the applicable law. Contracts are to be interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. Thus, in the instant case, the initial term of the contract of lease which commenced on March 1, 1954 ended on March 1, 1974. PBM as lessee continued to occupy the leased premises beyond that date with the acquiescence and consent of the respondents as lessor. Records show however, that PBM as a corporation had a corporate life of only twenty-five (25) years which ended an January 19, 1977. It should be noted however that PBM allowed its corporate term to expire without complying with the requirements provided by law for the extension of its corporate term of existence. Section 11 of Corporation Code provides that a corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. Upon the expiration of the period fixed in the articles of incorporation in the absence of compliance with the legal requisites for the extension of the period, the corporation ceases to exist and is dissolved ipso facto. When the period of corporate life expires, the corporation ceases to be a body corporate for the purpose of continuing the business for which it was organized. But it shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its assets. There is no need for the institution of a proceeding for quo warranto to determine the time or date of the dissolution of a corporation because the period of corporate existence is provided in the articles of incorporation. When such period expires and without any extension having been made pursuant to law, the corporation is dissolved automatically insofar as the continuation of its business is concerned. The quo warranto proceeding under Rule 66 of the Rules of Court, as amended, may be instituted by the Solicitor General only for the involuntary dissolution of a corporation on the following grounds: a) when the corporation has offended against a provision of an Act for its creation or renewal; b) when it has forfeited its privileges and franchises by non-user; c) when it has committed or omitted an act which amounts to a surrender of its corporate rights, privileges or franchises; d) when it has misused a right, privilege or franchise conferred upon it by law, or when it has exercised a right, privilege or franchise in contravention of law. Hence, there is no need for the SEC to make an involuntary dissolution of a corporation whose corporate term had ended because its articles of incorporation had in effect expired by its own limitation. Considering the foregoing in relation to the contract of lease between the parties herein, when PBM’s corporate life ended on January 19, 1977 and its 3-year period for winding up and liquidation expired on January 19, 1980, the option of extending the lease was likewise terminated on January 19, 1977 because PBM failed to renew or extend its corporate life in accordance with law. From then on, the respondents can exercise their right to terminate the lease pursuant to the stipulations in the contract.

Cases: Seventh Day Adventists v. Seventh Day Adventists, GR No.150416, July 21, 2006

Facts: That we Felix Cosio Felisa Cuysona... do hereby grant, convey and forever quit claim by way of Donation or gift unto the South Philippine [Union] Mission of Seventh Day Adventist Church of Bayugan, Esperanza, Agusan, all the rights, title, interest, claim and demand both at law and as well in... possession as in expectancy of in and to all the place of land and portion situated in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf of the donee. 21

Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses Cosio to the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-NEMM). petitioners asserted ownership over the property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA Bayugan could not legally be a donee because, not having been incorporated yet, it... had no juridical personality. Neither were petitioners members of the local church then, hence, the donation could not have been made particularly to them. tr After trial, the trial court rendered a decision[7] on November 20, 1992 upholding the sale in favor of respondents. On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and attorney's fees. Issues: should SDA-NEMM's ownership of the lot covered by TCT No. 4468 be upheld?[9] We answer in the affirmative. Ruling: Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who accepts it. The donation could not have been made in favor of an entity yet inexistent at the time it was made. Nor could it have been accepted... as there was yet no one to accept it. The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift. Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation. But there are stringent requirements before one can qualify as a de facto corporation: (a) the existence of a valid law under which it may be incorporated; (b) an attempt in good faith to incorporate; and (c) assumption of corporate powers. there is no proof that there was an attempt to incorporate at that time. The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation. Petitioners themselves admitted that at the time of the donation, they were not registered with the SEC, nor did they even attempt to... organize[14] to comply with legal requirements. Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation. Petitioners obviously could not have claimed succession to an... entity that never came to exist. were not even members of the local church then, thus, they could not even claim that the donation was particularly for them. Cases: Matling Industrial and Commercial Group v Coros, G.R.No. 157802, Oct. 13, 2010 22

FACTS: After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed on August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City. The petitioners moved to dismiss the complaint, raising the ground, among others, that the complaint pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy being intra-corporate inasmuch as the respondent was a member of Matling’s Board of Directors aside from being its Vice-President for Finance and Administration prior to his termination. The respondent opposed the petitioners’ motion to dismiss, insisting that his status as a member of Matling’s Board of Directors was doubtful, considering that he had not been formally elected as such; that he did not own a single share of stock in Matling, considering that he had been made to sign in blank an undated indorsement of the certificate of stock he had been given in 1992; that Matling had taken back and retained the certificate of stock in its custody; and that even assuming that he had been a Director of Matling, he had been removed as the Vice President for Finance and Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000 showed. ISSUE: Whether or not the case is considered as an intra corporate controversy. RULING: NO. It appears that private respondent was appointed Accounting Clerk by the Bank on July 14, 1963. From that position she rose to become supervisor. Then in 1982, she was appointed Assistant Vice-President which she occupied until her illegal dismissal on July 19, 1991. The bank’s contention that she merely holds an elective position and that in effect she is not a regular employee is belied by the nature of her work and her length of service with the Bank. As earlier stated, she rose from the ranks and has been employed with the Bank since 1963 until the termination of her employment in 1991. As Assistant Vice President of the Foreign Department of the Bank, she is tasked, among others, to collect checks drawn against overseas banks payable in foreign currency and to ensure the collection of foreign bills or checks purchased, including the signing of transmittal letters covering the same. It has been stated that "the primary standard of determining regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer. Additionally, "an employee is regular because of the nature of work and the length of service, not because of the mode or even the reason for hiring them." As Assistant Vice-President of the Foreign Department of the Bank she performs tasks integral to the operations of the bank and her length of service with the bank totaling 28 years speaks volumes of her status as a regular employee of the bank. In fine, as a regular employee, she is entitled to security of tenure; that is, her services may be terminated only for a just or authorized cause. This being in truth a case of illegal dismissal, it is no wonder then that the Bank endeavored to the very end to establish loss of trust and confidence and serious misconduct on the part of private respondent but, as will be discussed later, to no avail. Cases: Valle Verde Country Club, Inc. v. Africa, G.R.No. 151969, September 4, 2009 FACTS: 23

During the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc. (VVCC), the following were elected as members of the VVCC Board of Directors: Ernesto Villaluna, Jaime C. Dinglasan, Eduardo Makalintal, Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa. In the years 1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the stockholders’ meeting could not be obtained. Consequently, the above-named directors continued to serve in the VVCC Board in a hold-over capacity. Two of the said members resigned (Makalintal and Dinglasan). After the resignation of Dinglasan, Eric Roxas was elected. Makalintal was replaced by Jose Ramirez. Respondent Africa, a member of VVCC, questioned the election of Roxas and Ramirez as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court. Africa alleged that the election of Roxas was contrary to Section 29, in relation to Section 23, of the Corporation Code of the Philippines. The respective trial courts ruled in favor of Africa. ISSUE: Whether or not the elections were valid. RULING: YES. Section 23of the Corporation Code declares that "the board of directors shall hold office for one (1) year until their successors are elected and qualified," we construe the provision to mean that the term of the members of the board of directors shall be only for one year; their term expires one year after election to the office. The holdover period – that time from the lapse of one year from a member’s election to the Board and until his successor’s election and qualification – is not part of the director’s original term of office, nor is it a new term; the holdover period, however, constitutes part of his tenure. Corollary, when an incumbent member of the board of directors continues to serve in a holdover capacity, it implies that the office has a fixed term, which has expired, and the incumbent is holding the succeeding term. After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintal’s term of office is deemed to have already expired. That he continued to serve in the VVCC Board in a holdover capacity cannot be considered as extending his term. This holdover period, however, is not to be considered as part of his term, which, as declared, had already expired. With the expiration of Makalintal’s term of office, a vacancy resulted which, by the terms of Section 29of the Corporation Code, must be filled by the stockholders of VVCC in a regular or special meeting called for the purpose. As correctly pointed out by the RTC, when remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no more unexpired term to speak of, as Makalintal’s one-year term had already expired. Pursuant to law, the authority to fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members of its board of directors. Tan v. Sycip, G.R. No. 153468, August 17, 2006 For stock corporations, the quorum referred to in Section 52 of the Corporation Code is based on the number of outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting rights shall be counted in determining the existence of a quorum during members meetings. Dead members shall not be counted. Facts: Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen (15) regular members, who also constitute the board of trustees. During the annual members meeting held on April 6, 24

1998, there were only eleven (11) living member-trustees, as four (4) had already died. Out of the eleven, seven (7) attended the meeting through their respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four deceased member-trustees. When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained that the deceased member-trustees should not be counted in the computation of the quorum because, upon their death, members automatically lost all their rights (including the right to vote) and interests in the corporation. SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum. She held that the basis for determining the quorum in a meeting of members should be their number as specified in the articles of incorporation, not simply the number of living members. Issue: Whether or not in NON-STOCK corporations, dead members should still be counted in determination of quorum for purpose of conducting the Annual Members Meeting. Ruling: The Right to Vote in Nonstock Corporations In nonstock corporations, the voting rights attach to membership. Members vote as persons, in accordance with the law and the bylaws of the corporation. Each member shall be entitled to one vote unless so limited, broadened, or denied in the articles of incorporation or bylaws. We hold that when the principle for determining the quorum for stock corporations is applied by analogy to nonstock corporations, only those who are actual members with voting rights should be counted. Under Section 52 of the Corporation Code, the majority of the members representing the actual number of voting rights, not the number or numerical constant that may originally be specified in the articles of incorporation, constitutes the quorum. Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles of incorporation, shall constitute a quorum for the transaction of corporate business (unless the articles of incorporation or the bylaws provide for a greater majority). If the intention of the lawmakers was to base the quorum in the meetings of stockholders or members on their absolute number as fixed in the articles of incorporation, it would have expressly specified so. Otherwise, the only logical conclusion is that the legislature did not have that intention. Effect of the Death of a Member or Shareholder In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor. On the other hand, membership in and all rights arising from a nonstock corporation are personal and nontransferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. In other words, the determination of whether or not dead members are entitled to exercise their voting rights (through their executor or administrator), depends on those articles of incorporation or bylaws. Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the member. Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a member of the corporation, unless otherwise provided in the articles of incorporation or the bylaws.

25

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

Cases: Saber v. CA G.R. No. 132981, August 31, 2004 Facts: On April 8, 1974 then President Ferdinand E. Marcos appointed Dr. Mamitua Saber, then Dean of Research at the Mindanao State University and Acting Director, National Science Museum, as Executive VicePresident of the Philippine Amanah Bank (PAB). He was also designated as the Officer-in-Charge of the bank pending the election of its president by the Board of Directors. Saber was surprised because he did not apply for appointment to the position. He inquired from Executive Secretary Alejandro Melchor why he was appointed thereto, considering that he had no experience whatsoever in the field of business and banking. He was told that he was chosen by the President from among forty applicants because of his proven personal integrity. Saber took a year-long leave of absence from the university and assumed office at the PAB. From the serenity of the academe, he plunged head-on into the turbulent and intricate world of business. One of the members of the Board of Directors of the bank was Asgari Aradji who was also the Acting Chairman of the Screening Committee for Personnel. Martin Saludo, then Senior Vice-President of the Philippine National Bank (PNB), was a management consultant of the PAB. Saber was sent to Malaysia to study how its Malaysian government prepared and managed the annual Muslim pilgrimage (Hajj) to Mecca, and thus, avoid the fiascos that plagued previous such pilgrimages of Filipino Muslims in the past. After his stint in Malaysia, Saber resumed his duties at the PAB. Saber decided to charter the M/V Sweet Homes, owned by the Sweet Lines, Inc., for the trip. In behalf of the PAB, as charter, Saber executed a Uniform Time-Charter on October 15, 1974 under which the PAB chartered the M/V Sweet Homes to transport the pilgrims to Mecca and back to the Philippines for P 5,300,000 cash, the amount budgeted by the PAB. The parties executed a Rider to Charter Party in which the PAB was allowed to load cargoes in the cargo hold of the vessel up to 500 metric tons free of freight. The vessel was scheduled to leave on November 28, 1974. There was no time to lose; the PAB conducted a massive information drive to inform the Muslims of the arrangements, including the accommodations on board the vessel and urged them to join the Hajj through the bank. Prospective pilgrims, including PAB depositors, made reservations for the voyage and made partial payments for their tickets thereon. In a parallel development, Atty. Mangawan Toro, the Legal Counsel of the PAB, prepared a Freight Contract which the PAB, through Saber, and the AGEAC, through Basman, its General Manager, executed without the approval of the PAB Board of Directors. Under the contract, AGEAC was allowed to load on the M/V Sweet Homes chartered by the PAB, exportable/importable goods and other cargoes on its trip to Saudi Arabia and return, in consideration of P paid by AGEAC via a postdated check. During the meeting of the PAB Board of Directors, Saber was present. The Board, after exhaustive deliberations, approved Resolution No. 67, Series of 1975, without any objection, declaring Saber liable for the receivables on the ground that the Board did not authorize him to sell tickets on credit payable via postdated checks, and to execute the Freight Contract with AGEAC. The Board directed Saber to collect the receivables himself, because of its perception that if the PAB endeavored to collect the receivables, it would, thereby, be ratifying the unauthorized acts of Saber. Issue: Whether or not a separate committee should be formed to investigate on the allegations against petitioner, Saber. Held: Yes. We agree with the petitioners that a person other than respondent Aradji should have been designated as Chairperson of the Investigating Committee to investigate the pilgrimage fiasco. This is so because in his Memorandum to the Board of Directors of the PAB on February 21, 1975, respondent Aradji had declared that the 1974 Mecca pilgrimage under the supervision of Saber was mishandled and there were indications then that there was an apparent lack of exercise of effective leadership which was so vital and essential to make the bank truly responsive to the needs of the Filipino Muslims. Respondent Aradji then proposed that Saludo exercise the powers of the president of the respondent bank in place of Saber. In fine, respondent Aradji attributed the problems attendant to the pilgrimage fiasco to Saber. But then Saber did not oppose the designation by the Board of Directors for respondent Aradji to be the Chairman of the Investigating Committee, or even asked for the latters inhibition. Saber must have believed that he could still prove that he acted in good faith, and was not guilty of any wrongdoing regardless of any misconception of respondent Aradji. Besides, respondent Aradji was only the 26

chairman of the committee, and there were four (4) other members who could rule in Sabers favor. As it was, Saber even appeared before the committee and adduced testimonial and documentary evidence in his behalf. The respondent PAB cannot be faulted, nor can it be ordered to pay damages and attorneys fees for issuing a conditional clearance to Saber after his resignation from respondent PAB. Saber had not yet liquidated his accountability of P 1,012,000 when his leave of absence from the university had expired. The Investigating Committee had yet to commence and terminate its investigation of Sabers accountability, administrative or civil, for the pilgrimage fiasco. The respondent PAB had no discretion to issue a clearance to Saber. It bears stressing that a public officer, in the discharge of his duties has to use prudence, caution and attention in the management of his affairs. In fact, the respondent PAB was duty bound to withhold such clearance to Saber pending final determination of his monetary accountabilities. Even assuming that Saber and/or the petitioners sustained economic difficulties on account of the conditional clearance issued by the respondent PAB, the petitioners are not entitled to moral and exemplary damages. The act of the respondent PAB was not wrongful. It is a case of damnum absque injuria and not of damnum et injuria. To constitute malicious prosecution, there must be proof that the prosecutor was prompted by a sinister or devious design to vex and humiliate a person, and that it was initiated deliberately, knowing that the charges are false and groundless. Malice with probable cause must both be clearly established to justify an award of damages based on malicious prosecution. Lack of probable cause is an element separate and distinct from that of malice. One cannot be held liable for damages for malicious prosecution where he acted with probable cause. We also held that a determination that there is no probable cause cannot be made to rest solely on the fact that the trial court after trial decided to acquit the accused. Neither can lack of probable cause be made to rest on the fact that the finding of probable cause of the Special Counsel was reversed by the Secretary of Justice or the Ombudsman as the case may be. The mere act of submitting the case to the authorities for prosecution does not make one liable for malicious prosecution. Moreover, the adverse result of an action does not per se make the action wrongful and subject the action to damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result from a persons exercise of a right, it is damnum absque injuria.

Cases: Cebu Bionic Builders Supply v. DBP, G.R. 154366, Nov. 17, 2010

FACTS: Spouses Robles entered into a mortgage contract with the DBP to create the State Theatre Building in Talisay, Cebu. Upon completion, Rudy Robles executed a contract of lease in favour of Cebu Bionic Builders Supply. However, the spouses defaulted on their obligation to pay and DBP extrajudicially foreclosed the mortgage. DBP sent a letter to Cebu Bionic that if they were interested in leasing the facilities, they would have to pay DBP. However, nothing came from these correspondences. DBP then invited parties to bid on the property. Initially, Cebu Bionic submitted their interest in bidding, but the price that they gave was insufficient. DBP then awarded the auction to Respondents To Chip, Yap and Balila. In response to several demand letters by the Respondents, Cebu Bionic filed a petition for preliminary injunction, cancellation of deed of sale and specific performance against DBP. Petitioners then related that, without their knowledge, DBP sold the subject properties to respondents To Chip, Yap andBalila.The sale was claimed to be simulated and fictitious, as DBP still received rentals from petitioners until March 1991.By acquiring the subject properties, petitioners contended that DBP was deemed to have assumed the contract of lease executed between them and Rudy Robles. They alleged that the original leases clause of the Right of First Option to Buy should be upheld. The trial court granted their complaint. The Court of Appeals similarly upheld the decision of the trial court. Cebu Bionic filed a motion for entry of judgment, but Respondents filed a motion for reconsideration on the ground that they relied on the friend of their lawyer to personally file the MR, but apparently did not. The court 27

granted their MR, and reversed their judgment before. Thus, the petitioners file the case before the Supreme Court. ISSUES: Was a contract of lease between petitioners and DBP? If in the affirmative, did this contract contain a right of first refusal in favor of petitioners? Are respondents To Chip, Yap and Balila likewise bound by such right of first refusal? Tuesday, July 18, 2017

CEBU BIONIC V. DBP (G.R. NO. 153366; NOVEMBER 17, 2010)

CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA, Petitioners, v. DEVELOPMENT BANK OF THE PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA, Respondents. FACTS: Spouses Robles entered into a mortgage contract with the DBP to create the State Theatre Building in Talisay, Cebu. Upon completion, Rudy Robles executed a contract of lease in favour of Cebu Bionic Builders Supply. However, the spouses defaulted on their obligation to pay and DBP extrajudicially foreclosed the mortgage. DBP sent a letter to Cebu Bionic that if they were interested in leasing the facilities, they would have to pay DBP. However, nothing came from these correspondences. DBP then invited parties to bid on the property. Initially, Cebu Bionic submitted their interest in bidding, but the price that they gave was insufficient. DBP then awarded the auction to Respondents To Chip, Yap and Balila. In response to several demand letters by the Respondents, Cebu Bionic filed a petition for preliminary injunction, cancellation of deed of sale and specific performance against DBP. Petitioners then related that, without their knowledge, DBP sold the subject properties to respondents To Chip, Yap andBalila.The sale was claimed to be simulated and fictitious, as DBP still received rentals from petitioners until March 1991.By acquiring the subject properties, petitioners contended that DBP was deemed to have assumed the contract of lease executed between them and Rudy Robles. They alleged that the original leases clause of the Right of First Option to Buy should be upheld. The trial court granted their complaint. The Court of Appeals similarly upheld the decision of the trial court. Cebu Bionic filed a motion for entry of judgment, but Respondents filed a motion for reconsideration on the ground that they relied on the friend of their lawyer to personally file the MR, but apparently did not. The court granted their MR, and reversed 28

their judgment before. Thus, the petitioners file the case before the Supreme Court. ISSUES: Was a contract of lease between petitioners and DBP? If in the affirmative, did this contract contain a right of first refusal in favor of petitioners? Are respondents To Chip, Yap and Balila likewise bound by such right of first refusal? HELD: Under Article 1305 of the Civil Code, "[a] contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service."A contract undergoes three distinct stages preparation or negotiation, its perfection, and finally, its consummation.Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties.The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract.The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof In the case at bar, there was no concurrence of offer and acceptancevis-visthe terms of the proposed lease agreement.In fact, after the reply of petitioners counsel dated July 7, 1987, there was no indication that the parties undertook any other action to pursue the execution of the intended lease contract.Petitioners even admitted that they merely waited for DBP to present the contract to them, despite being instructed to come to the bank for the execution of the same. DBP cannot, therefore, be accused of violating the rights of petitioners when it offered the subject properties for sale, and eventually sold the same to respondents To Chip, Yap and Balila, without first notifying petitioners.Neither were the said respondents bound by any right of first refusal in favor of petitioners.Consequently, the sale of the subject properties to respondents was valid.Petitioners claim for rescission was properly dismissed. DENIED Shipside Inc. v. CA, G.R. No. 143377, Feb. 20, 2001 FACTS: Originally four lots were owned Rafael Galvez. He subsequently sold lot 1 and 4 in favor of Filipina Mamaril, Cleopatra Llana, Regina Bustos, and Erlinda Balatbat in a deed of sale. Mamaril later sold lot 1 to Lepanto Consolidated Mining Company. Later, unknown to Lepanto, the RTC declared the OCT registered in the name of Galvez as null and void and ordered the cancellation thereof. On October 28, 1963, Lepanto Consolidated Mining Company sold to herein petitioner Lots No. 1 and 4. Meanwhile the decision of the CA became final and executory and a writ was issued, however said writ remained unsatisfied for 24 years. Office of the Solicitor General filed a complaint for revival of judgment and cancellation of titles before the Regional Trial Court of the First Judicial Region against the successors of Galvez and herein petitioner and its motion for reconsideration was likewise turned down. The CA affirmed the same, hence this petition. ISSUE: Whether or not the filing of the petition was authorized by the BOD of petitioner. 29

RULING: YES. The Court of Appeals dismissed the petition for certiorari on the ground that Lorenzo Balbin, the resident manager for petitioner, who was the signatory in the verification and certification on nonforum shopping, failed to show proof that he was authorized by petitioner's board of directors to file such a petition. It was clear from the record that when the general manager filed the petition, there was no proof attached as to the authorization by the Board. However, when the petitioner filed its motion for reconsideration a resolution or secretary’s certification stating that that on October 11, 1999, or ten days prior to the filing of the petition, Balbin had been authorized by petitioner's board of directors to file said petition. The Court accepted this certification, although belatedly presented, as a valid authorization. The Court was reiterated that belated submission of a verification is allowed the same being not a mandatory and jurisdictional requirement, and as to the non-forum shopping the same was considered to be valid because the case of the petitioner must be litigated based on its merit and must not be dismissed based on technical and procedural infirmities, which were actually cured.

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

150694, March 13, 2009

Republic v. Acoje Mining Inc. G.R. No. L-18062, Feb 28, 1963 FACTS: On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of Posts requesting the opening of a post, telegraph and money order offices at its mining camp at Sta. Cruz, Zambales, to service its employees and their families that were living in said camp. Acting on the request, the Director of Posts wrote in reply stating that if aside from free quarters the company would provide for all essential equipment and assign a responsible employee to perform the duties of a postmaster without compensation from his office until such time as funds therefor may be available he would agree to put up the offices requested. The company in turn replied signifying its willingness to comply with all the requirements. On April 11, 1949, the Director of Posts again wrote a letter to the company stating among other things that "In cases where a post office will be opened under circumstances similar to the present, it is the policy of this office to have the company assume direct responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on the part of the employee of the company who is assigned to take charge of the post office," thereby suggesting that a resolution be adopted by the board of directors of the company expressing conformity to the above condition relative to the responsibility to be assumed buy it in the event a post office branch is opened as requested. On September 2, 1949, the company informed the Director of Posts of the passage by its board of directors of a resolution The letter further states that the company feels that that resolution fulfills the last condition imposed by the Director of Posts and that, therefore, it would request that an inspector be sent to the camp for the purpose of acquainting the postmaster with the details of the operation of the branch office. ISSUE: Whether or not the act of the Board in issuing the said resolution of conformity was ultra vires. RULING: NO. The corporate act was a necessary corollary to promote the interest and welfare of the corporation. This is further bolstered by the fact that the opening of the post was upon the request of the company for the convenience and benefit of its employees, and not an idea of the Director of Posts. Thus, having benefited from the agreement, the corporation is estopped from raising the defense that 30

the said corporate act by its board in conforming to the condition imposed by the Director of Posts is ultra vires. Neither can the corporation interpose the defense that its liability is only that of a guarantor. A mere reading of the resolution of the Board of Directors dated August 31, 1949, upon which the plaintiff based its claim, would show that the responsibility of the defendant company is not just that of a guarantor. The phraseology and the terms employed are so clear and sweeping and that the defendant assumed 'full responsibility for all cash received by the Postmaster.' Here the responsibility of the defendant is not just that of a guarantor. It is clearly that of a principal."

Cases: Westmont Bank v. Inland Construction, G.R. No. 123650, March 23, 2009 FACTS Inland Construction and Development Corp. (Inland) obtained various loans from Westmont Bank (Westmont). To secure the payment of its obligations, Inland executed Real Estate Mortgages over three real properties and issued promissory notes in favor of the bank. By a Deed of Assignment, Conveyance and Release, one Felix Aranda, assigned and conveyed all his rights and interests at Hanil-Gonzales Construction & Development Phils. Corporation (HGCDP) in favor of Horacio Abrante. Under the same Deed, it appears that HGCDP assumed the obligations of Inland. Westmont’s Account Officer, Lionel Calo Jr. (Calo), signed for its conformity to the deed. Inland was subsequently served with a Notice of Sheriff’s Sale foreclosing the real estate mortgages over its real properties prompting it to file a complaint for injunction against the Westmont. In its answer, Westmont underscored that it had no knowledge, much less did it give its conformity to the alleged assignment of the obligation. The trial court found that Westmont ratified the act of Calo. It accordingly rendered judgment in favor of Inland. On appeal, the appellate court affirmed the trial court’s decision insofar as it finds Westmont to have ratified the Deed of Assignment. ISSUE Whether or not Westmont Bank ratified the Deed of Assignment. HELD Affirmative. The general rule remains that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. If a corporation, however, consciously lets one of its officers, or any other agent, to act within the scope of an apparent authority, it will be estopped from denying such officer’s authority. The records show that Calo was the one assigned to transact on petitioner’s behalf respecting the loan transactions and arrangements of Inland as well as those of Hanil-Gonzales and Abrantes. Since it conducted business through Calo, who is an Account Officer, it is presumed that he had authority to sign for the bank in the Deed of Assignment. Unmistakably, the Court’s directive is that a corporation should first prove by clear evidence that its corporate officer is not in fact authorized to act on its behalf before the burden of evidence shifts to the other party to prove, by previous specific acts, that an officer was clothed by the corporation with apparent authority. In the present petitions, Westmont Bank failed to discharge its primary burden of proving that Calo was not authorized to bind it, as it did not present proof that Calo was unauthorized. It did not present, much less cite, any Resolution from its Board of Directors or its Charter or By-laws from which the Court could reasonably infer that he indeed had no authority to sign in its behalf or bind it in the Deed of Assignment. BPI Family Savings Bank v. First Metro Investment Corp, G.R. No. 132390, May 21, 2004 Facts: Respondent FMIC an investment house, through its EVP Ong, opened a current account amounting P100M with petitioner’s San Francisco Del Monte branch upon the request of his friend which is a close acquaintance of said bank’s branch manager with the latter’s aim of increasing the deposit level in his branch. Petitioner through its SFDM branch manager guaranteed the payment of deposit by the FMIC with interest on the condition that the interest is to be paid in advance. An agreement was reached between the parties and subsequently petitioner paid FMIC upon clearance of the latter’s check deposit. However, on the basis of an Authority to Debit signed by the EVP and Senior Manager of FMIC, petitioner transferred P80M from FMCI’s current account to the savings 31

account of one Tevesteco, a stevedoring company. FMIC denied having authorized the transfer of its funds claiming that the signatures were falsified. In order to recover immediately its deposit, FMCI issued a check payable to itself and drawn on its deposit but was dishonored upon upon presentation for payment. Thus, FMIC filed a complaint with the RTC which then ruled in their favor. CA affirmed. Issue: Whether petitioner was remiss in its fiduciary duty. Ruling: YES. Petitioner maintains that respondent should have first inquired whether the deposit of P100 Million and the fixing of the interest rate were pursuant to its (petitioner’s) internal procedures. Petitioner’s stance is a futile attempt to evade an obligation clearly established by the intent of the parties. What transpires in the corporate board room is entirely an internal matter. Hence, petitioner may not impute negligence on the part of respondent’s representative in failing to find out the scope of authority of petitioner’s Branch Manager. Indeed, the public has the right to rely on the trustworthiness of bank managers and their acts. Obviously, confidence in the banking system, which necessarily includes reliance on bank managers, is vital in the economic life of our society. Thus, we uphold the finding of both lower courts that petitioner failed to exercise that degree of diligence required by the nature of its obligations to its depositors. A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only of a few hundred pesos or of million of pesos. Here, petitioner cannot claim it exercised such a degree of care required of it and must, therefore, bear the consequence. Cases: PMI Colleges v. NLRC, G.R. No. 121466, Aug. 15, 1997 FACTS: On July 7, 1991, petitioner, an educational institution offering courses on basic seaman's training and other marine-related courses, hired private respondent as contractual instructor with an agreement that the latter shall be paid at an hourly rate of P30.00 to P50.00, depending on the description of load subjects and on the schedule for teaching the same. Pursuant to this engagement, private respondent then organized classes in marine engineering. Initially, private respondent and other instructors were compensated for services rendered during the first three periods of the abovementioned contract. However, for reasons unknown to private respondent, he stopped receiving payment for the succeeding rendition of services. This claim of non-payment was embodied in a letter dated March 3, 1992, written by petitioner's Acting Director, Casimiro A. Aguinaldo, addressed to its President, Atty. Santiago Pastor, calling attention to and appealing for the early approval and release of the salaries of its instructors including that of private respondent. Private respondent's claims, were resisted by petitioner. Later in the proceedings, PMI Colleges manifested that Mr. Tomas Cloma Jr., a member of the board of trustees write a letter to the Chairman of the Board, clarifying the case of Galvan and stating therein, inter alia, that under PMI’s by-laws only the Chairman is authorized to sign any contract and that Galvan, in any event, failed to submit documents on the alleged shipyard and plant visits in Cavite Naval Base. ISSUE: Whether or not the contract of employment of Galvan valid even if the signatory therein was not the Chairman of the Board. RULING: YES. The contract of employment is valid. The contract remained valid even if the signatory thereon was not the chairman of the board which allegedly violated petitioner’s by-laws. Since by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same. No proof appears on record that private respondent ever knew anything about the provisions of the said by-laws. In fact, petitioner itself merely asserts the same without even bothering to attach a copy or excerpt thereof to show that there is such provision. That this allegation has never been denied to private respondent nor 32

necessarily signify admission of its existence because technicalities of law and procedure and the rules obtaining in the courts of law do not strictly apply to proceeding of this nature.

Cases: Expert Travel & Tours v. CA, G.R. No. 152392, May 26, 2005 Korean Air Lines (KAL) filed a complaint against Expert Travel & Tours Inc (ETI) with the RTC of Manila for collection of sum of money plus attorney’s fees and damages. The verification and certification against non-forum shopping was signed by Atty. Mario Aguinaldo, who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint. ETI moved to dismiss the complaint on the ground that said lawyer was not authorized to execute the verification and certification against non-forum shopping as required by Section 5 Rule 7 of the Rules of Court. KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent and was reported as such with the SEC as required by the Corporation Code of the Philippines. Also, it further alleged that Atty. Aguinaldo was the Corporate Secretary of KAL. At the hearing, Atty. Aguinaldo claimed that thru a resolution of KAL Board of Directors approved during a special meeting, he was authorized to file the complaint. Thru an affidavit submitted by its general manager, it was alleged that a special teleconference was held and in that same teleconference the Board approved a resolution authorizing him to execute the certification against nonforum shopping and to file the complaint. However, the general manager provided no written copy of the said resolution. The trial court gave due credence to the claim of Atty. Aguinaldo and the general manager. ETI filed a motion for reconsideration, contending that the court cannot take judicial notice of the said teleconference without any hearing, which was denied by the RTC. CA also denied the appeal. ISSUE Whether or not the court can take judicial notice of the said teleconference. RULING Things of “common knowledge” of which courts take judicial matters coming to the knowledge of men generally in the course of the ordinary experiences of life, or they may be matters which are generally accepted by mankind as true and are capable of ready and unquestionable determination. As the common knowledge of man ranges far and wide, a wide variety of particular facts have been judicially noticed as being matters of common knowledge. But a court cannot take judicial notice of any fact which, in part, is dependent on the existence or non-existence of a fact of which the court has no constructive knowledge. In this age of modern technology, the courts may take judicial notice that business transactions may be made by individuals through teleconferencing. Teleconferencing is interactive group communication through an electronic medium, bringing people together under one roof even though they are separated by hundreds of miles. In the Philippines, teleconferencing and videoconferencing of members of the board of directors of Private Corporation is a reality, in light of RA 8792. The 267 SEC issued SEC memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be complied with related to such conferences. The Court is not convinced that one was conducted; even if there had been one, the Court is not inclined to believe that a board resolution was duly passed specifically authorizing Atty. Aguinaldo to file the complaint and execute the required certification against non-forum shopping. Petition granted.

33

Cases: Lee v. CA, G.R. No.14441, Dec. 17, 1996 RAMON C. LEE and ANTONIO DM. LACDAO vs. THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES G.R. No. 93695 February 4, 1992 FACTS: In 1985, a complaint for sum of money was filed by the International Corporate Bank, Inc. against the private respondents who, in turn, filed a third party complaint against Alfa Integrated Textile Mills (ALFA) and the petitionersRamon C. Lee and Antonio Dm. Lacdao who were officers of ALFA. Meanwhile, in 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of the petitioners' letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the Development Bank of the Philippines (DBP). In a manifestation, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence. ISSUE: Whether or not despite the execution of the Voting Trust Agreement, the summons be served upon the petitioners who were officers and directors of ALFA (the trustor). RULING: NO. There is no dispute as to the most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution from legal titleholder or owner of the shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. Note that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stocks covered by the agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There appears to be no dispute from the records that DBP has taken over full control and management of the firm.

34