Corpo Digests CH 1 Atty. Chavez

8/13/2019 Corpo Digests CH 1 Atty. Chavez

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[G.R. No. 181126. June 15, 2011.]

LEONARDO S. UMALE, [deceased] represented by CLARISSA VICTORIA, JOHN LEO,

GEORGE LEONARD, KRISTINE, MARGUERITA ISABEL, AND MICHELLE

ANGELIQUE, ALL SURNAMED UMALE, petitioners, vs. ASB REALTY CORPORATION,

respondent.

FACTS:

1. This case involves a parcel of land located in Amethyst Street, Ortigas Center,

Pasig City which was originally owned by Amethyst Pearl Corporation (Amethyst

Pearl), a company that is, in turn, wholly-owned by respondent ASB Realty

Corporation (ASB Realty).

2. Amethyst Pearl executed a Deed of Assignment in Liquidation of the subject

premises in favor of ASB Realty in consideration of the full redemption of

Amethyst Pearl's outstanding capital stock from ASB Realty. making ASB Realty

the owner of the subject premises

3. Sometime in 2003, ASB Realty commenced an action in the MTC for unlawful

detainer against petitioner Leonardo S. Umale.

4. ASB Realty alleged that it entered into a lease contract with Umale for the

period June 1, 1999-May 31, 2000. Their agreement was for Umale to conduct a

pay-parking business on the property and pay a monthly rent of P60,720.00.

5. Upon the contract's expiration on continued occupying the premises and paying

rentals.

6. On June 2003, ASB Realty served on Umale a Notice of Termination of Lease

and Demand to Vacate and Pay. ASB Realty stated that it was terminating the

lease effective midnight of June 30, 2003.

7. Umale failed to comply with ASB Realty's demands and continued in possession

of the subject premises, even constructing commercial establishments thereon.8. Umale admitted occupying the property since 1999 by virtue of a verbal lease

contract but vehemently denied that ASB Realty was his lessor. He was

adamant that his lessor was the original owner, Amethyst Pearl. Since there

was no contract between himself and ASB Realty.

9. In asserting his right to remain on the property based on the oral lease contract

with Amethyst Pearl, Umale interposed that the lease period agreed upon was

"for a long period of time." Umale further claimed that when his oral lease

contract with Amethyst Pearl ended, they both agreed on an oral contract to sell.

They agreed that Umale did not have to pay rentals until the sale over the

subject property had been perfected between them.

10. Umale also challenged ASB Realty's personality to recover the subject premises

considering that ASB Realty had been placed under receivership by SEC and a

rehabilitation receiver had been duly appointed. Under the Interim Rules of

Procedure on Corporate Rehabilitation (Interim Rules), it is the rehabilitation

receiver that has the power to "take possession, control and custody of the

debtor's assets." Since ASB Realty claims that it owns the subject premises, it is

its duly-appointed receiver that should sue to recover possession of the same.11. ASB Realty replied that it was impossible for Umale to have entered into a

Contract of Lease with Amethyst Pearl in 1999 because Amethyst Pearl had

been liquidated in 1996.

12. MTC dismissed ASB Realty's complaint against Umale without prejudice. It held

that ASB Realty had no cause to seek Umale's ouster from the subject property

because it was not Umale's lessor. MTC agreed with Umale that only the

rehabilitation receiver could file suit to recover ASB Realty's property. Having

been placed under receivership, ASB Realty had no more personality to file the

complaint for unlawful detainer.

13. RTC reversed decision of the MTC. It found sufficient evidence to support the

conclusion that it was indeed ASB Realty that entered into a lease contract with

Umale. With respect to ASB Realty's personality to file the unlawful detainer

suit, the RTC ruled that ASB Realty retained all its corporate powers, including

the power to sue, despite the appointment of a rehabilitation receiver. Citing the

Interim Rules, the RTC noted that the rehabilitation receiver was not granted

therein the power to file complaints on behalf of the corporation. Moreover, the

retention of its corporate powers by the corporation under rehabilitation will

advance the objective of corporate rehabilitation, which is to conserve and

administer the assets of the corporation in the hope that it may eventually be

able to go from financial distress to solvency.

14.

Umale filed MR while ASB Realty moved for the issuance of a writ of execution,the RTC denied reconsideration of its Decision and granted ASB Realty's

Motion for Issuance of a Writ of Execution.

15. Umale then filed his appeal with the CA insisting that the parties did not enter

into a lease contract.

16. Pending the resolution thereof, Umale died and was substituted by his widow

and legal heirs. CA affirmed RTC decision in toto.

Issues: Can a corporate officer of ASB Realty (duly authorized by the Board of

Directors) file suit to recover an unlawfully detained corporate property despite the fact

that the corporation had already been placed under rehabilitation?



The Court resolves the issue in favor of ASB Realty and its officers.

There is no denying that ASB Realty, as the owner of the leased premises, is the real

party-in-interest in the unlawful detainer suit. Real party-in-interest is defined as "the party

who stands to be benefited or injured by the judgment in the suit, or the party entitled to

the avails of the suit.

What petitioners argue is that the corporate officer of ASB Realty is incapacitated to file

this suit to recover a corporate property because ASB Realty has a duly-appointed

rehabilitation receiver. Allegedly, this rehabilitation receiver is the only one that can file the

instant suit.

Corporations, such as ASB Realty, are juridical entities that exist by operation of law. As a

creature of law, the powers and attributes of a corporation are those set out, expressly or

impliedly, in the law. Among the general powers granted by law to a corporation is the

power to sue in its own name. This power is granted to a duly-organized corporation,

unless specifically revoked by another law. The question becomes: Do the laws on

corporate rehabilitation — particularly PD 902-A, as amended and its corresponding rules

of procedure — forfeit the power to sue from the corporate officers and Board of

Directors?

Corporate rehabilitation is defined as "the restoration of the debtor to a position of

successful operation and solvency, if it is shown that its continuance of operation is

economically feasible and its creditors can recover by way of the present value of

payments projected in the plan more if the corporation continues as a going concern than

if it is immediately liquidated." This concept of preserving the corporation's business as a

going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-

in-place. This means that the debtor corporation (the corporation undergoing

rehabilitation), through its Board of Directors and corporate officers, remains in control ofits business and properties, subject only to the monitoring of the appointed rehabilitation

receiver. The concept of debtor-in-possession, is carried out more particularly in the SEC

Rules, the rule that is relevant to the instant case. It states therein that the interim

rehabilitation receiver of the debtor corporation "does not take over the control and

management of the debtor corporation." Likewise, the rehabilitation receiver that will

replace the interim receiver is tasked only to monitor the successful implementation of the

rehabilitation plan. There is nothing in the concept of corporate rehabilitation that would

ipso facto deprive the Board of Directors and corporate officers of a debtor corporation,

such as ASB Realty, of control such that it can no longer enforce its right to recover its

property from an errant lessee.

To be sure, corporate rehabilitation imposes several restrictions on the debtor corporation.

The rules enumerate the prohibited corporate actions and transactions 64 (most of which

involve some kind of disposition or encumbrance of the corporation's assets) during the

pendency of the rehabilitation proceedings but none of which touch on the debtor

corporation's right to sue.

While the Court rules that ASB Realty and its corporate officers retain their power to sue

to recover its property and the back rentals from Umale, the necessity of keeping the

receiver apprised of the proceedings and its results is not lost upon this Court. Tasked to

closely monitor the assets of ASB Realty, the rehabilitation receiver has to be notified of

the developments in the case, so that these assets would be managed in accordance with

the approved rehabilitation plan.

Puno vs. Puno EnterprisesSeptember 11, 2009

Facts:Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent PunoEnterprises, Inc. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be anheir of Carlos L. Puno, initiated a complaint for specific performance against respondent.Petitioner averr ed that he is the son of the deceased with the latter’s common -law wife, Amelia Puno. As surviving heir, he claimed entitlement to the rights and privileges of hislate father as stockholder of respondent. The complaint thus prayed that respondent allowpetitioner to inspect its corporate book, render an accounting of all the transactions itentered into from 1962, and give petitioner all the profits, earnings, dividends, or incomepertaining to the shares of Carlos L. Puno.

Issue:

Whether or not Joselito Musni Puno as an he ir is automatically entitled for the stocks uponthe death of a shareholder.

Held:Upon the death of a shareholder, the heirs do not automatically become stockholders of

the corporation and acquire the rights and privileges of the deceased as shareholder of

the corporation. The stocks must be distributed first to the heirs in estate proceedings, and

the transfer of the stocks must be recorded in the books of the corporation. Section 63 of

the Corporation Code provides that no transfer shall be valid, except as between the

parties, until the transfer is recorded in the books of the corporation.During such interim

period, the heirs stand as the equitable owners of the stocks, the executor or administrator



duly appointed by the court being vested with the legal title to the stock.Until a settlement

and division of the estate is effected, the stocks of the decedent are held by the

administrator or executor. Consequently, during such time, it is the administrator or

executor who is entitled to exercise the rights of the deceased as stockholder

Feliciano v. COA

Feliciano vs. Commission on Audit

November 1, 2011 by PinayLaw Leave a Comment GR 147402, 14 January 2004

Facts: A Special Audit Team from Commission on Audit (COA) Regional Office No. VIIIaudited the accounts of the Leyte Metropolitan Water District (LMWD). Subsequently,LMWD received a letter from COA dated 19 July 1999 requesting payment of auditingfees. As General Manager of LMWD, Engr. Ranulfo C. Feliciano sent a reply dated 12October 1999 informing COA’s Regional Director that the water district could not pay theauditing 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 COAChairman on 18 October 1999. On 19 October 1999, Feliciano wrote COA through theRegional Director asking for refund of all auditing fees LMWD previously paid to COA. On16 March 2000, Feliciano received COA Chairman Celso D. Gangan’s Resolution dated 3January 2000 denying Feliciano’s request for COA to cease all audit services, and to stopcharging auditing fees, to LMWD. The COA also denied Feliciano’s request for COA torefund all auditing fees previously paid by LMWD. Feliciano filed a motion forreconsideration on 31 March 2000, which COA denied on 30 January 2001. On 13 March2001, Felicaino filed the petition for certiorari.

Issue: Whether a Local Water District (“LWD”) is a government-owned or controlledcorporation.

Held: The Constitution recognizes two classes of corporations. The first refers to privatecorporations created under a general law. The second refers to government-owned orcontrolled corporations created by special charters. The Constitution emphaticallyprohibits the creation of private corporations except by a general law applicable to allcitizens. The purpose of this constitutional provision is to ban private corporations createdby special charters, which historically gave certain individuals, families or groups specialprivileges denied to other citizens. In short, Congress cannot enact a law creating aprivate corporation with a special charter. Such legislation would be unconstitutional.Private corporations may exist only under a general law. If the corporation is private, itmust necessarily exist under a general law. Stated differently, only corporations createdunder 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 incorporationof cooperatives. The Constitution authorizes Congress to create government-owned orcontrolled corporations through special charters. Since private corporations cannot havespecial charters, it follows that Congress can create corporations with special chartersonly if such corporations are government-owned or controlled. Obviously, LWDs are notprivate corporations because they are not created under the Corporation Code. LWDs arenot registered with the Securities and Exchange Commission. Section 14 of the

Corporation Code states that ―[A]ll corporations organized under this code shall fi le withthe Securities and Exchange Commission articles of incorporation x x x.‖ LWDs have noarticles of incorporation, no incorporators and no stockholders or members. There are nostockholders or members to elect the board directors of LWDs as in the case of allcorporations registered with the Securities and Exchange Commission. The local mayoror the provincial governor appoints the directors of LWDs for a fixed term of office. LWDsexist by virtue of PD 198, which constitutes their special charter. Since under theConstitution only government-owned or controlled corporations may have specialcharters, LWDs can validly exist only if they are government-owned or controlled. To claimthat LWDs are private corporations with a special charter is to admit that their existence isconstitutionally infirm. Unlike private corporations, which derive their legal existence andpower from the Corporation Code, LWDs derive their legal existence and power from PD

198.

Tuna Processing Inc. v. Philippine Kingford, Inc.

Can a foreign corporation not licensed to do business in the Philippines, but which collectsroyalties from entities in the Philippines, sue here to enforce a foreign arbitral award?

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"), co-patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, andIndonesian Patent No. ID0003911 (collectively referred to as the "Yamaoka Patent"),6 andfive (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia FishCo., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent

Kingford (collectively referred to as the "sponsors"/"licensees")7 entered into aMemorandum of Agreement (MOA),8pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No.5,484,619, Philippine Patent No. 31138, and Indonesian Patent No. ID0003911xxx wishes to form an alliance with Sponsors for purposes of enforcing his threeaforementioned patents, granting licenses under those patents, and collectingroyalties.

The Sponsors wish to be licensed under the aforementioned patents in order topractice the processes claimed in those patents in the United States, the

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Philippines, and Indonesia, enforce those patents and collect royalties inconjunction with Licensor.

xxx

4. Establishment of Tuna Processors, Inc. The parties hereto agree to theestablishment of Tuna Processors, Inc. ("TPI"), a corporation established in the

State of California, in order to implement the objectives of this Agreement.

5. Bank account. TPI shall open and maintain bank accounts in the UnitedStates, which will be used exclusively to deposit funds that it will collect and todisburse cash it will be obligated to spend in connection with the implementationof this Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor.Licensor shall be assigned one share of TPI for the purpose of being elected asmember of the board of directors. The remaining shares of TPI shall be held bythe Sponsors according to their respective equity shares. 9

xxx

The parties likewise executed a Supplemental Memorandum of Agreement10 dated 15January 2003 and an Agreement to Amend Memorandum of Agreement11 dated 14 July2003.

Due to a series of events not mentioned in the petition, the licensees, includingrespondent Kingford, withdrew from petitioner TPI and correspondingly reneged on theirobligations.12 Petitioner submitted the dispute for arbitration before the InternationalCentre for Dispute Resolution in the State of California, United States and won the caseagainst respondent.

To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation,Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City.The petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.

At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the court denied themotion for lack of merit,17 respondent sought for the inhibition of Judge Alameda andmoved for the reconsideration of the order denying the motion .18 Judge Alameda inhibitedhimself notwithstanding "[t]he unfounded allegations and unsubstantiated assertions in themotion."19 Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in turn,granted respondent’s Motion for Reconsideration and dismissed the petition on the groundthat the petitioner lacked legal capacity to sue in the Philippines .20

Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari underRule 45 , the order of the trial court dismissing its Petition for Confirmation, Recognition,and Enforcement of Foreign Arbitral Award .

Issue

The core issue in this case is whether or not the court a quo was correct in so dismissing

the petition on the ground of petitioner’s lack of legal capacity to sue.

Our Ruling

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - No foreign corporation transactingbusiness in the Philippines without a license, or its successors or assigns, shall bepermitted to maintain or intervene in any action, suit or proceeding in any court or

administrative agency of the Philippines; but such corporation may be sued or proceededagainst before Philippine courts or administrative tribunals on any valid cause of actionrecognized under Philippine laws.

It is pursuant to the aforequoted provision that the court a quo dismissed thepetition. Thus:

Herein plaintiff TPI’s "Petition, etc." acknowledges that it "is a foreign corporationestablished in the State of California" and "was given the exclusive right to license orsublicense the Yamaoka Patent" and "was assigned the exclusive right to enforce the saidpatent and collect corresponding royalties" in the Philippines. TPI likewise admits that itdoes not have a license to do business in the Philippines.

There is no doubt, therefore, in the mind of this Court that TPI has been doing business inthe Philippines, but sans a license to do so issued by the concerned government agencyof the Republic of the Philippines, when it collected royalties from "five (5) Philippine tunaprocessors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy GinaTuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc."This being the real situation, TPI cannot be permitted to maintain or intervene in anyaction, suit or proceedings in any court or administrative agency of the Philippines." Apriori, the "Petition, etc." extant of the plaintiff TPI should be dismissed for it does not havethe legal personality to sue in the Philippines.21











































The petitioner counters, however, that it is entitled to seek for the recognition andenforcement of the subject foreign arbitral award in accordance with Republic Act No.9285 ( Alternative Dispute Resolution Act of 2004),22the Convention on the Recognitionand Enforcement of Foreign Arbitral Awards drafted during the United Nations Conferenceon International Commercial Arbitration in 1958 (New York Convention), and theUNCITRAL Model Law on International Commercial Arbitration (Model Law ),23 as none ofthese specifically requires that the party seeking for the enforcement should have legal

capacity to sue. It anchors its argument on the following:

In the present case, enforcement has been effectively refused on a ground not found inthe [ Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It isfor this reason that TPI has brought this matter before this most Honorable Court, as it [i]simperative to clarify whether the Philippines’ internat ional obligations and State policy tostrengthen arbitration as a means of dispute resolution may be defeated by misplacedtechnical considerations not found in the relevant laws.24

Simply put, how do we reconcile the provisions of the Corporation Code of thePhilippines on one hand, and the Alternative Dispute Resolution Act of 2004, the New YorkConvention and the Model Law on the other?

In several cases, this Court had the occasion to discuss the nature and applicability ofthe Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus,in Koruga v. Arcenas, Jr.,25 this Court rejected the application of the Corporation Codeand applied the New Central Bank Act. It ratiocinated:

Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earliercase with similar antecedents, we ruled that:

"The Corporation Code, however, is a general law applying to all types of corporations,while the New Central Bank Act regulates specifically banks and other financial

institutions, including the dissolution and liquidation thereof. As between a general andspecial law, the latter shall prevail – generalia specialibus non derogant ." (Emphasissupplied)26

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential AgrarianReform Council ,27 this Court held:

Without doubt, the Corporation Code is the general law providing for the formation,organization and regulation of private corporations. On the other hand, RA 6657 is thespecial law on agrarian reform. As between a general and special law, the latter shallprevail—generalia specialibus non derogant .28

Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply inthis case as the Act, as its title - An Act to Institutionalize the Use of an Alternative DisputeResolution System in the Philippines and to Establish the Office for Alternative DisputeResolution, and for Other Purposes - would suggest, is a law especially enacted "toactively promote party autonomy in the resolution of disputes or the freedom of the partyto make their own arrangements to resolve their disputes. "29 It specifically providesexclusive grounds available to the party opposing an application for recognition and

enforcement of the arbitral award.30

Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies inthe instant petition, we do not see the need to discuss compliance with internationalobligations under the New York Convention and theModel Law. After all, both alreadyform part of the law.

In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New YorkConvention in the Act by specifically providing:

SEC. 42. Application of the New York Convention. - The New York Convention shallgovern the recognition and enforcement of arbitral awards covered by the said

Convention.

xxx

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitrationproceeding may oppose an application for recognition and enforcement of the arbitralaward in accordance with the procedural rules to be promulgated by the Supreme Courtonly on those grounds enumerated under Article V of the New York Convention. Any otherground raised shall be disregarded by the regional trial court.

It also expressly adopted the Model Law , to wit:

Sec. 19. Adoption of the Model Law on International Commercial Arbitration. Internationalcommercial arbitration shall be governed by the Model Law on International Commercial Arbitration (the "Model Law") adopted by the United Nations Commission on InternationalTrade Law on June 21, 1985 xxx."

Now, does a foreign corporation not licensed to do business in the Philippines have legalcapacity to sue under the provisions of the Alternative Dispute Resolution Act of 2004?We answer in the affirmative.







































Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing partyin an application for recognition and enforcement of the arbitral award may raise onlythose grounds that were enumerated under Article V of the New York Convention, to wit:

Article V

1. Recognition and enforcement of the award may be refused, at the request of

the party against whom it is invoked, only if that party furnishes to the competentauthority where the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, underthe law applicable to them, under some incapacity, or the saidagreement is not valid under the law to which the parties havesubjected it or, failing any indication thereon, under the law of thecountry where the award was made; or

(b) The party against whom the award is invoked was not given propernotice of the appointment of the arbitrator or of the arbitrationproceedings or was otherwise unable to present his case; or

(c) The award deals with a difference not contemplated by or notfalling within the terms of the submission to arbitration, or it containsdecisions on matters beyond the scope of the submission toarbitration, provided that, if the decisions on matters submitted toarbitration can be separated from those not so submitted, that part ofthe award which contains decisions on matters submitted to arbitrationmay be recognized and enforced; or

(d) The composition of the arbitral authority or the arbitral procedurewas not in accordance with the agreement of the parties, or, failing

such agreement, was not in accordance with the law of the countrywhere the arbitration took place; or

(e) The award has not yet become binding on the parties, or has beenset aside or suspended by a competent authority of the country inwhich, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if thecompetent authority in the country where recognition and enforcement is soughtfinds that:

(a) The subject matter of the difference is not capable of settlement byarbitration under the law of that country; or

(b) The recognition or enforcement of the award would be contrary tothe public policy of that country.

Clearly, not one of these exclusive grounds touched on the capacity to sue of the party

seeking the recognition and enforcement of the award.

Pertinent provisions of the Special Rules of Court on Alternative DisputeResolution,31 which was promulgated by the Supreme Court, likewise support thisposition.

Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration maypetition the court to recognize and enforce a foreign arbitral award." The contents of suchpetition are enumerated in Rule 13.5.32 Capacity to sue is not included. Oppositely, in theRule on local arbitral awards or arbitrations in instances where "the place of arbitration isin the Philippines,"33 it is specifically required that a petition "to determine any questionconcerning the existence, validity and enforceability of such arbitrationagreement"34 available to the parties before the commencement of arbitration and/or apetition for "judicial relief from the ruling of the arbitral tribunal on a preliminary questionupholding or declining its jurisdiction"35 after arbitration has already commenced shouldstate "[t]he facts showing that the persons named as petitioner or respondent have legalcapacity to sue or be sued."36

Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitralaward, we deny availment by the losing party of the rule that bars foreign corporations notlicensed to do business in the Philippines from maintaining a suit in our courts. When aparty enters into a contract containing a foreign arbitration clause and, as in this case, infact submits itself to arbitration, it becomes bound by the contract, by the arbitration and

by the result of arbitration, conceding thereby the capacity of the other party to enter intothe contract, participate in the arbitration and cause the implementation of the result. Although not on all fours with the instant case, also worthy to consider is the

wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinionin Asset Privatization Trust v. Court of Appeals,37 to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here and abroad. If its tested mechanism can simply be ignored by anaggrieved party, one who, it must be stressed, voluntarily and actively participated in thearbitration proceedings from the very beginning, it will destroy the very essence ofmutuality inherent in consensual contracts.38



































Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected notbecause it is favored over domestic laws and procedures, but because Republic Act No.9285 has certainly erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the court a quo correctlyobserved that the Model Law , not the New York Convention, governs the subject arbitralaward,39 petitioner may still seek recognition and enforcement of the award in Philippine

court, since the Model Law prescribes substantially identical exclusive grounds forrefusing recognition or enforcement.40

Premises considered, petitioner TPI, although not licensed to do business in thePhilippines, may seek recognition and enforcement of the foreign arbitral award inaccordance with the provisions of the Alternative Dispute Resolution Act of 2004.

Koruga vs. Arcenas

Facts:

Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On

August 20, 2003, she filed a complaint before the Makati RTC against its board of

directors for allegedly engaging in unsafe and fraudulent banking practices.

The complaint filed by Koruga charged the defendants with violation of Section 31 to 34 ofthe Corporation Code which prohibit self-dealing and conflict of interest of directors andofficers; invoked her right to inspect the corporation’s records under Section 74 of theCorporation Code and prayed for receivership and creation of a management committeepursuant to the Rules of Civil Procedure, the Securities Regulation Code, the InterimRules of Procedure Governing Intra-Corporate Controversies, the General Banking Law of2000, and the New Central Bank Act.

She claimed that Banco Filipino's management had:

engaged in unsafe, unsound, and even fraudulent banking practices;

engaged in self-dealing;

violated banking laws prohibiting or limiting DOSRI transactions;

put the bank and its depositors in jeopardy.

The respondents, however, questioned the jurisdiction of the trial court, and even went toas far as getting an injunction from the Court of Appeals.

In a decision dated July 20, 2005, the appellate court directed the trial court to proceedwith the hearings, having found no grave abuse of discretion when it accepted the case.

The case was eventually brought to the Supreme Court.

Issue: WON the RTC has jurisdiction over the case.

Held: RTC has no jurisdiction.

The SC quashed Koruga’s complaint filed at the Makati City Regional Trial Court, sayingthe latter has no jurisdiction to hear complaints on a bank’s operations. The court pointedout that it is the BangkoSentralngPilipinas and not the RTC which has jurisdiction over thecase.

In its decision, the high court said: "It is clear that the acts complained of pertain to theconduct of Banco Filipino’s banking business... It is the government’s responsibility to see

to it that the financial interests of those who deal with banks and banking institutions... areprotected... That task is delegated to the BSP..."

The General Banking Law of 2000, which provides powers to the Monetary Board,restricts the bank exposures of directors and its officers. It also allows the Monetary Boardto determine whether a bank is conducting business in an unsafe manner.

The New Central Bank Act, on the other hand, provides the Monetary Board with thepower to impose administrative sanctions on the officers and board members of erringbanks.

"[Under the law], it is the Monetary Board that exercises exclusive jurisdiction over

proceedings for receivership of banks.‖ Thus, the court’s jurisdiction could only have beeninvoked after the Monetary Board had taken action on the matter and only on the groundthat the action taken was in excess of jurisdiction or with such grave abuse of discretionas to amount to lack or excess of jurisdiction.

Finally, there is one other reason why Koruga’s complaint before the RTC cannot prosper.Given her own admission – and the same is likewise supported by evidence – that she ismerely a minority stockholder of Banco Filipino, she would not have the standing toquestion the Monetary Board’s action. Section 30 of the New Central Bank Act provides:











The petition for certiorari may only be filed by the stockholders of record representing themajority of the capital stock within ten (10) days from receipt by the board of directors ofthe institution of the order directing receivership, liquidation or conservatorship.

All the foregoing discussion yields the inevitable conclusion that the CA erred in upholding

the jurisdiction of, and remanding the case to, the RTC. Given that the RTC does not have

jurisdiction over the subject matter of the case, its refusal to dismiss the case on that

ground amounted to grave abuse of discretion.

Mangila v. CA

Petitioner Mangila hired the freight service of private respondent Guina for theimportation of seafoods to USA. Petitioner failed to pay the services rendered byAir Swift International a business operating under the sole proprietorship of Guina.The latter filed a case for collection of money but summons were unsuccessfullyserved thus a writ of Preliminary Attachment was issued. Petitioner filed a motionto discharge without submitting herself to the jurisdiction of the court. The CAupheld the validity of the issuance of the writ attachment and sustained the filing ofthe case in Pasay as the proper venue, despite stipulation in the contract that incase of complaints, cases should be filed in Makati City. Pasay City is the officelocation of Air Swift.

Issue:

Whether or not the venue of the swift was properly laid when it was filed in PasayCity where the sole proprietorship business of the respondent was located.

Held:

A mere stipulation on the venue of an action is not enough to preclude the partiesfrom bringing a case in other venues. The partiers must be able to show that thestipulation is exclusive. In the present case… there are no qualifying or restrictivewords in the invoice that would evince the intention of the parties that Makati is theonly or exclusive venue where the action would be instituted. Nevertheless, we holdthat Pasay is not the proper venue.

In this case it was established that petitioner resides in Pampanga whilerespondent resides in Parañaque. The case was filed in Pasay where the businessis located.

A sole proprietorship does not possess a juridical personality separate and distinctfrom the personality of the owner of the enterprise… The law does not vest aseparate legal personality on the sole proprietorship to empower it to file or defend

an action in court. Thus, not being vested with legal personality to file this case, thesole proprietorship is not the plaintiff but Guina herself.

Liban vs. Gordon (2009)

Ponente: Carpio, J.

Facts:

Petitioners are officers of the Board of Directors of the QC Red Cross Chapter while

Respondent is the Chairman of the Philippine National Red Cross (PNRC) Board of

Governors.

Petitioners allege that by accepting the chairmanship of the PNRC Board of

Governors, respondent has ceased to be a member of the Senate - Sec. 13, Art. VI, 1987

Consti: No Senator or Member of the HoR may hold any other office/employment in the

Gov’t, or any subdivision, agency, or instrumentality thereof, including gov’t-owned or

controlled corporations or their subsidiaries, during his term w/o forfeiting his seat. Neither

shall he be appointed to any office which may have been created or the emoluments

thereof increased during the term for which he was elected).

Petitioners cite Camporedondo v. NLRC which held that PNRC is a gov’t-owned or

controlled corporation. Flores v. Drilon held that incumbent national legislators lose their

elective posts upon their appointment to another government office.

Respondent:

Petitioners have no standing to file petition w/c appears to be an action for quowarranto – they do not claim to be entitled to the Senate office of respondent.

Sec. 11, Rule 66, Rules of Civil Procedure: action should be commenced w/in 1 yearafter the cause of public officer’s forfeiture of office – respondent has been working asa Red Cross volunteer for 40 yrs

Petitioners cannot raise a constitutional question as taxpayers – no claim that theysuffered some actual damage/threatened injury or illegal disbursement of public funds

If petition is for declaratory relief, SC has no jurisdiction original jurisdiction in RTC

PNRC is not a gov’t owned/controlled corporation



Sec. 13, Art. VI of Consti does not apply because volunteer service to PNRC is not anoffice/employment

Petitioners: present petition is a taxpayer’s suit questioning unlawful disbursement of

funds considering that respondent has been drawing his salaries and other compensation

as a Senator even if he is no longer entitled to his office. Court has jurisdiction because it

involves a legal/constitutional issue of transcendental importance.

Issues, Holding & Ratio:

WON petitioners have standing.

SC: NO. The petition is an action for quo warranto (Sec. 1, Rule 66, Rules of Court – an

action for the usurpation of a public office against a public officer who does or suffers an

act which constitutes a ground for forfeiture of his office). See facts for petitioner’s

allegations. Petitioners do not claim to be entitled to the Senate office of respondent.

WON PNRC is a Private or Government-Owned or Controlled Corporation.

SC: PNRC is a Private Corporation.

May 22, 1947 – Pres. Manuel Roxas signed RA 95 (PNRC Charter) adhering to the

Geneva Convention of July 27, 1929. PNRC is:

- A non-profit, donor-funded, voluntary, humanitarian organization whose mission is tobring timely, effective, and compassionate humanitarian assistance for the mostvulnerable w/o consideration of nationality, race, religion, gender, social status, orpolitical affiliation.

- A member of National Society of the International Red Cross and Red CrescentMovement. 7 Fundamental Principles: Humanity, Impartiality, Neutrality,Independence, Voluntary Service, Unity, Universality.

- Must be autonomous, neutral and independent; not appear to be instrument/agencythat implements gov’t policy to merit the trust of all and effectively carry out its mission – therefore, it cannot be owned/controlled by the gov’t

The Philippine gov’t does not own the PNRC – does not have gov’t assets and does

not receive any appropriation from the Congress. It is financed primarily by contributions

from private individuals/entities obtained through solicitation campaigns organized by its

Board of Governors (Sec. 11, PNRC Charter).

The gov’ t does not control the PNRC . Only 6 of the 30 members of the PNRC Board

of Governors are appointed by the President of the Philippines (Sec. 6, PNRC Charter). A

majority of 4/5 of the PNRC Board are elected/chosen by the private sector members of

the PNRC.

The PNRC Chairman is not appointed by the President or any subordinate gov’t

official, therefore, he is not an official/employee of the Philippine Government. Sec. 16,

Art. VII of Consti – President appoints all officials & employees in the Executive branch

whose appointments are vested in the President by the Consti or by law. President also

appoints those whose appointments are not otherwise provided by law. The law may also

authorize the ―heads of deparments, agencies, commissions, or boards‖ to appoint

officers lower in rank.

The vast majority of the thousands of PNRC members are private individuals,

including students and foreigners; those contribute to the annual fund campaign of the

PNRC (Sec. 5, PNRC Charter amended by PD 1264).

Sec. 2(13) of he Introductory Provisions of the Administrative Code of 1987: A gov’t-

owned or controlled corporation must be owned by the gov’t, and in case of a stock

corporation, at least a majority of its capital stock must be owned by the gov’t. In case of a

non-stock corporation, at least a majority of the members must be gov’t officials holding

such membership by appointment/designation by the gov’t.

WON the office of the PNRC Chairman is a gov’t office or an office in a government-

owned or controlled corporation for purposes of the prohibition in Sec. 13, Art. VI of

Consti.

SC: The office of the PNRC Chairman is a private office. The President cannot review,

reverse or modify the decisions/actions of the PNRC Board and the PNRC Chairman.

Only the PNRC Board can review, reverse or modify the decisions/actions of the PNRC

Chairman.



*The PNRC Charter is Violative of the Constitutional Proscription against the

Creation of Private Corporations by Special Law

1935 (Sec. 7 was in force when PNRC was created by special character on March 22,

1947), 1973 & 1987 (Sec. 16) Constitutions provide that: The Congress shall not, except

by general law, provide for the formation, organization, or regulation of private

corporations. Gov’t-owned or controlled corporations may be created/established by

special charters in the interest of the common good and subject to the test of economic

viability.

Feliciano v. CoA – Sec. 16 of 1987 Consti bans private corporations to be created by

special charters, which historically gave individuals, families or groups special privileges

denied to other citizens.

PNRC was created through a special charter, however, the elements of gov’t

ownership and control (e.g. capital assets and operati ng funds from gov’t) are clearly

lacking in the PNRC. It therefore cannot be considered a gov’t -owned or controlled

corporation.

In creating PNRC as a corporate entity, Congress was in fact creating a private

corporation, which is not exempt from constitutional prohibition (Sec. 16 above) even as a

non-profit/charitable corporation.

PNRC Charter insofar as it creates the PNRC as a private corporation and grants it

corporate powers is void for being unconstitutional Sec. 1-13 are void. Other provisions

remain valid as they can be considered as a recognition by the State that PNRC is the

local National Society of the International Red Cross and Red Crescent Movement and

thus entitled to the benefits, exemptions and privileges set forth in the PNRC Charter.

They also implement the Phil. Gov’t’s treaty obligations based on the Geneva

Conventions.

Judgment: Office of the PNRC Chairman declared not a government office.

Dissent: Nachura, J.

The petition is one for prohibition and petitioners have legal standing as

citizens and taxpayers. The remedy sought is preventive and restrictive, an injunction

against an alleged continuing violation of the fundamental law. They raise a constitutional

issue, w/o claiming any entitlement to either the Senate seat or chairmanship of PNRC.

The Court has full authority and bounden duty to assume jurisdiction to determine WON

other branches of gov’t have kept themselves w/in the limits of the Consti & laws and have

not abused discretion given them.

PNRC is a gov’t-owned or controlled corporation (GOCC). Its charter does not

violate the constitutional proscription against creation of private corporations by

special law. PNRC was incorporated under RA 95, a special law. It cannot be anything

but a GOCC. PNRC was not impliedly converted into a private corporation simply because

its charter was amended to vest in it authority to secure loans, be exempted from payment

of all duties, tax fees, etc.

The use of Sec. 2(13) of Introductory Provisions of Administrative Code of 1987 by the

ponencia to define a GOCC does not pronounce a definition of a GOCC that strays from

Sec. 16, Art. XII of Consti. It merely declares that a GOCC may either be a stock or non-

stock corporation.

Sec. 1 of PNRC Charter – PNRC is officially designated to assist the RP in

discharging the obligations set forth in the Geneva Conventions – therefore, it is engaged

in the performance of the gov’ts public functions.

PNRC is endowed w/ corporate powers. It administers special funds – contributions of

members, aid given by gov’t, supported by PCSO and LGUs. It submits annual reports

receipts and disbursement to the President.

ANRC (precursor of PNRC) is considered a federal instrumentality – immunity from

state taxation, subjected to governmental supervision & regular financial audit, principal

officer appointed by the President – but remains an independent, volunteer-led org. No

basis to assume that it cannot merit the trust of all and cannot effectively carry out mission

as a National Red Cross Society. Separatists & insurgents do not consider them as the

enemy but as the entity to turn to in the event of injury.

Considering that PNRC is a GOCC, its charter does not violate the constitutional

provision (Sec. 16, Art. XII).



To declare Sec. 1 of PNRC Charter (creation and incorporation of the org) invalid and

the rest valid is to reach an absurd situation in w/c obligations are imposed on and a

framework for its operation is laid down for a legally non-existing entity. Sec. 2-17 of RA

95 are not separable from Sec. 1 – cannot stand independently – no separability clause.

Presumption of constitutionality of law is presumed. There is no clear showing that the

PNRC Charter runs counter to the consti. All reasonable doubts should be resolved in

favor of the constitutionality of the statute.

Deleterious effects will result if PNRC is declared a private corporation – employees

will no longer be covered by the GSIS; it can no longer be extended tax exemptions and

official immunity; and cannot anymore be given support, financial or otherwise, by the

National Gov’t, LGUs, and PCSO. The Court must not arbitrarily declare a law

unconstitutional just to save a single individual from unavoidable consequences of his

transgression of the Consti even if done in good faith.

Sen. Gordon’s continuous occupancy of 2 incompatible positions is a clearviolation of the Consti (Sec. 13, Art. VI). The language in the provision is unambiguous;

requires no in-depth construction. A position held in an ex officio capacity (a second post

held by virtue of the functions of the first office) does not violate such constitutional

proscription. The chairmanship of the PNRC Board is not held in an ex officio capacity by

a member of Congress.

Vote to grant Petition.

Sawadjaan v. Court of AppealsGR NO. 141735 June 8, 2005Chico- Nazario, J.:

Facts:Sappari K. Sawadjaan was among the first employees of the Philippine Amanah Bank(PAB) when it was created. He rose through the ranks, working his way up from his initialdesignation as security guard.In February 1988, while still designated as appraiser/investigator, Sawadjaan wasassigned to inspect the properties offered as collaterals by Compressed Air Machineriesand Equipment Corporation (CAMEC) for a credit line of Five Million Pesos secure by

REM over the latter’s poperties. On the basis of his Inspection and Appraisal Report, thePAB granted the loan application.In the meantime, Sawadjaan was promoted to Loans Analyst I.In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealingP.D. No. 264 (which created the PAB). By virtue of which all assets, liabilities and capitalaccounts of the PAB were transferred to the AIIBP, and the existing personnel of the PABwere to continue to discharge their functions unless discharged. In the ensuing

reorganization, Sawadjaan was among the personnel retained by the AIIBP.When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP, discovered that TCT No. N-130671 was spurious, the property described thereinnon-existent, and that the property covered by TCT No. C-52576 had a prior existingmortgage in favor of one Divina Pablico.The Board of Directors of the AIIBP created an Investigating Committee to look into theCAMEC transaction. They found petitioner guilty of conduct prejudicial to the best interestof the service. The board suspended the petitioner, prompting the latter to appeal thedecision citing AIIBP’s lack of legal standing to sue since it was not able to file its by -lawswithin the prescribed period.

Issue:

Whether a corporation which failed to file its by-laws within the prescribed period ipsofacto lose its power as suchHeld:NO. At the very least, by its failure to submit its by-laws on time, the AIIBP may be

considered a de facto corporation whose right to exercise corporate powers may not be

inquired into collaterally in any private suit to which such corporations may be a party.

Moreover, a corporation which has failed to file its by-laws within the prescribed period

does not ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of

the Certificate of Registration of Corporations, details the procedures and remedies that

may be availed of before an order of revocation can be issued. There is no showing that

such a procedure has been initiated in this case.

Gamboa v. Teves, GR No. 176579, June 28, 2011652 SCRA 690definition of the term capital to satisfy the nationality requirement under Sec. 11, Art. XII

FACTS:

PLDT was granted a franchise to engage in the telecommunications business in 1928through Act. No. 3436. During Martial Law 26 percent of the outstanding common shareswere sold by General Telephone and Electronics Corporation (GTE) (an Americancompany) to Philippine Telecommunications Investment Corporation (PTIC), who in turnassigned 111,415 shares of stock of PTIC (46 percent of outstanding capital stock) to



Prime Holdings Inc. (PHI). These shares of PTIC were later sequestered by PCGG andadjudged by the court to belong to the Republic.

54 percent of PTIC shares were sold to Hong Kong-based firm First Pacific, and theremaining 46 percent was sold through public bidding by the Inter-Agency PrivatizationCouncil, and eventually ended up being bought by First Pacific subsidiary Metro Pacific Asset Holdings Inc. (MPAH) after the corporation exercised it’s right of fi rst refusal. The

transaction was an indirect sale of 12 million shares or 6.3 percent of the outstandingcommon shares of PLDT, making First Pacific’s common shareholdings of PLDT to 37percent and the total common shareholdings of foreigners in PLDT to 81.47 percent.Japanese NTT DoCoMo owns 51.56 percent of the other foreign shareholdings/equity.

Petitioner Gamboa, alleged that the sale of 111,415 shares to MPAH violates Sec. 11 of Art. XII of the Constitution, which limits foreign ownership of the capital of a public utility tonot more than 40 percent.

ISSUE:

(1) Whether petitioner’s choice of remedy was proper?

(2) Whether the term ―capital‖ under Sec. 11, Article XII of the Constitution refers only tothe total common shares or to the total outstanding stock of PLDT (public utility)?

HELD:

(1) NO. However, since the threshold and purely legal issue on the definition of the term―capital‖ in Section 11, Article XII of the Constitution has far -reaching implications to thenational economy, the Court treats the petition for declaratory relief as one for mandamus.It is well-settled that this Court may treat a petition for declaratory relief as one formandamus if the issue involved has far-reaching implications.

(2) The term ―capital‖ in Section 11, Article XII of the Constitution refers only to shares ofstock entitled to vote in the election of directors , and thus in the present case only tocommon shares, and not to the total outstanding capital stock comprising both commonand non-voting preferred shares. The SC directed the SEC to apply this definition indetermining what was the extent of allowable foreign ownership in PLDT, and incase of violation, impose the appropriate penalty under the law.

Consistent with the constitutional mandate that the ―State shall develop a self -reliant and

independent national economy effectively controlled by Filipinos,‖ the term "capital"

means the outstanding capital stock entitled to vote (voting stock), coupled with beneficial

ownership, both of which results to "effective control."

"Mere legal title is insufficient to meet the 60 percent Filipino owned ―capital‖ required inthe Constitution for certain industries. Full beneficial ownership of 60 percent of theoutstanding capital stock, coupled with 60 percent of the voting rights, is required." In thiscase, such twin requirements must apply uniformly and across the board to all classes ofshares comprising the capital. Thus, "the 60-40 ownership requirement in favor of Filipinocitizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares." This guarantees that the ―controlling

interest‖ in public utilities always lies in the hands of Filipino citizens.

A broader definition would unjustifiably disregards who owns the all-important voting

stock, which necessarily equates to control of the public utility would be contrary to Sec.

11, Art. XII, a self-executing provision of the Constitution.

A similar definition is found in Section 10, Article XII of the Constitution, the Foreign

Investments Act of 1991 and it’s IRR, Regulation of Award of Government Contracts or

R.A. No. 5183, Philippine Inventors Incentives Act or R.A. No. 3850, Magna Carta for

Micro, Small and Medium Enterprises or R.A. No. 6977, Philippine Overseas Shipping

Development Act or R.A. No. 7471, Domestic Shipping Development Act of 2004 or R.A.

No. 9295, Philippine Technology Transfer Act of 2009 or R.A. No. 10055, and ShipMortgage Decree or P.D. No. 1521.

VELASCO (Separate Dissenting Opinion)

The present petition partakes of a collateral attack on PLDT’s franchise as a public utility

with petitioner pleading as ground PLDT’s alleged breach of the 40% limit on foreign

equity. Such is not allowed. As discussed in PLDT v. National Telecommunications

Commission, a franchise is a property right that can only be questioned in a direct

proceeding.

(1) The intent of the framers of the Constitution was not to limit the application of the word

―capital‖ to voting or common shares alone. Constitutional Commission records show that

by using the word ―capital,‖ the framers of the Constitution adopted the definition or

interpretation that includes all types of shares, whether voting or non-voting.

(2) Cassus Omissus Pro Omisso Habendus Est ––a person, object or thing omitted must

have been omitted intentionally. In this case, the intention of the framers of the

Constitution is very clear ––to omit the phrases ―voting stock‖ and ―controlling interest.‖

(3) The FIA should also be read in harmony with the Constitution. Since the Constitution



only provides for a single requirement for the operation of a public utility under Sec. 11,

i.e., 60% capital must be Filipino-owned, a mere statute cannot add another requirement.

Otherwise, such statute may be considered unconstitutional. Accordingly, the phrase

―entitled to vote‖ should not be interpreted to be limited to common shares alone or those

shares entitled to vote in the election of members of the Board of Directors.

(4) Further, the FIA did not say ―entitled to vote in the manag ement affairs of the

corporation‖ or ―entitled to vote in the election of the members of the Board of Directors.‖

Verily, where the law does not distinguish, neither should We. Hence, the proper

interpretation of the phrase ―entitled to vote‖ under the FIA should be that it applies to all

shares, whether classified as voting or non-voting shares.

(5) Additionally, control is another inherent right of ownership. The circumstances

enumerated in Sec. 6 of the Corporation Code clearly evince this. It gives voting rights to

the stocks deemed as non-voting as to fundamental and major corporate changes.

Thus, the issue should not only dwell on the daily management affairs of the corporation

but also on the equally important fundamental changes that may need to be voted on.

(6) The SEC rules, opinions and jurisprudence use the ―control test‖, which requires that

the nationality of a corporation is determined by the total outstanding capital stock

irrespective of the number of shares, and ―capital‖ denotes the total shares subscribed

and paid irrespective of their nomenclature.

(7) Lastly, the last sentence of Sec. 11, Art. XII limits the participation of the foreign

investors in the governing body to their proportionate share in the capital of the

corporation.

ABAD (Dissenting Opinion)

(1) Authority to define and interpret the meaning of ―capital‖ in Sec. 11, Art. XII belongs toCongress as part of it’s policy making powers, as the power to authorize and control apublic utility is a prerogative of Congress. Sec. 11, Art. XII is no self-executing andrequires Congressional action to clarify it’s meaning. FIA is restricted to certain areasof investment and should not be construed to clarify the meaning of ―capital‖ under theconstitutional provision as they are rules which apply to future investors.

(2) ―Capital‖ refers to the entirety of the corporation’s outstanding voting stock as, first , the40 percent limit (if held only to preferred shareholders) would render meaningless thefourth sentence which limits foreign participation in the governing body of public

utilities, and, second , amicus curiae Dr. Villegas, Chairman of the Committee of

National Economy, said that the term ―capital‖ did not distinguish among the classesof shares. In both economic and business terms, capital always meant the entireshares of stock. Further, Philippine policy on foreign ownership already discouragesforeign investments and to impose additional restrictions would aggravate economicgrowth.

Sec. 11, Article XII already provides 3 limitations on foreign participation in public utilities

and the Court need not add more by restricting the definition of capital.

Donnina Halley vs. Printwell, Inc.

Facts:

o BMPI (Business Media Philippines Inc.) is a corporation under the control of itsstockholders, including Donnina Halley.

o In the course of its business, BMPI commissioned PRINTWELL to printPhilippines, Inc. (a magazine published and distributed by BMPI)

o PRINTWELL extended 30-day credit accommodation in favor of BMPI and in aperiod of 9 mos. BMPI placed several orders amounting to 316,000.

o However, only 25,000 was paid hence a balance of 291,000 o PRINTWELL sued BMPI for collection of the unpaid balance and later on

impleaded BMPI’s original stockholders and incorporators to recover on theirunpaid subscriptions.

o It appears that BMPI has an authorized capital stock of 3M divided into 300,000shares with P10 par value.

o Only 75,000 shares worth P750,000 were originally subscribed of whichP187,500 were paid up capital.

o Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.

Halley contends that:

1. They all had already paid their subscriptions in full2. BMPI had a separate and distinct personality3. BOD and SH had resolved to dissolve BMPI

RTC and CA

o Defendant merely used the corporate fiction as a cloak/cover to create aninjustice (against PRINTWELL)



o Rejected allegations of full payment in view of irregularity in the issuance of ORs(Payment made on a later date was covered by an OR with a lower serialnumber than payment made on an earlier date.

Issue: WON a stockholder who was in active management of the business of the

corporation and still has unpaid subscriptions should be made liable for the debts

of the corporation by piercing the veil of corporate fiction

Held: YES! Such stockholder should be made liable up to the extent of her unpaid

subscription

Ratio:

It was found that at the time the obligation was incurred, BMPI was under the

control of its stockholders who know fully well that the corporation was not in aposition to pay its account (thinly capitalized).

And, that the stockholders personally benefited from the operations of thecorporation even though they never paid their subscriptions in full.

The stockholders cannot now claim the doctrine of corporate fiction otherwise (to deny

creditors to collect from SH) it would create an injustice because creditors would be at a

loss (limbo) against whom it would assert the right to collect.

On piercing the veil:

Although the corporation has a personality separate and distinct from its SH, such

personality is merely a legal fiction (for the convenience and to promote the ends of

justice) which may be disregarded by the courts if i t is used as a cloak or cover for fraud,

justification of a wrong, or an alter ego for the sole benefit of the SH.

As to the Trust Fund Doctrine:

The RTC and CA correctly applied the Trust Fund Doctrine

Under which corporate debtors might look to the unpaid subscriptions for thesatisfaction of unpaid corporate debts

Subscriptions to the capital of a corporation constitutes a trust fund for thepayment of the creditors (by mere analogy) In reality, corporation is a simpledebtor.

Moreover, the corporation has no legal capacity to release an original subscriberto its capital stock from the obligation of paying for his shares, in whole or in

part, without valuable consideration, or fraudulently, to the prejudice of thecreditors. The creditor is allowed to maintain an action upon any unpaid subscriptions and

thereby steps into the shoes of the corporation for the satisfaction of its debt. The trust fund doctrine is not limited to reaching the SH’s unpaid subscriptions.

The scope of the doctrine when the corporation is insolvent encompasses not only

the capital stock but also other property and assets generally regarded in equity as

a trust fund for the payment of corporate debts.

Prince Transport Inc. v. Garcia Herein respondents were employees of Prince

Transport, Inc. (PTI), a company engaged in the business of transporting passengers by

land. They were hired either as drivers, conductors, mechanics or inspectors, except for

respondent Diosdado Garcia (Garcia), who was assigned as Operations Manager.

Respondents decided to form a union for their mutual aid and protection. However, they

were transferred to one of its sub-companies, Lubas Transport (Lubas) before they were

able to continue the formation of the said union.

Despite such transfer, the schedule of the respondents, as well as their company

identification cards, were issued by PTI. Their daily time records, tickets and reports were

also filed at the PTI office. Likewise, all their claims for salaries were transacted at the

same office.

Later, the business of Lubas deteriorated because of the refusal of PTI to maintain and

repair the units being used therein, which resulted in the virtual stoppage of its operations

and respondents' loss of employment.

Respondents consequently filed a complaint charging petitioners with illegal dismissal,

unfair labor practice and illegal deductions and praying for the award of premium pay for

holiday and rest day, holiday pay, service leave pay, 13th month pay, moral and

exemplary damages and attorney's fees.

Petitioners, on the other hand, contended that respondents were no longer their



employees, since they all transferred to Lubas at their own request. Petitioners had

nothing to do with the management and operations of Lubas as well as the control and

supervision of the latter's employees. Petitioners were not aware of the existence of any

union in their company and came to know of the same only in June 1998 when they were

served a copy of the summons in the petition for certification election filed by the union.

That before the union was registered, the complaint was already filed. The real motive in

the filing of the complaints was because PTI asked respondents to vacate the bunkhouse

where the respondents and their respective families were staying because PTI wanted to

renovate the same.

The Labor Arbiter ruled that petitioners were not guilty of unfair labor practice in the

absence of evidence to show that they violated respondents’ right to self-organization.

The Labor Arbiter also held that Lubas is the respondents’ employer and that it (Lubas) is

an entity which is separate, distinct and independent from PTI. Nonetheless, the Labor

Arbiter found that Lubas is guilty of illegally dismissing respondents from their

employment.

Respondents filed an appeal with the National Labor Relations Commission (NLRC)praying, among others, that PTI should also be held equally liable as Lubas.

Here, the NLRC sustained the Decision of the Labor Arbiter.

Respondents then filed a petition for certiorari with the CA assailing the Decision and

Resolution of the NLRC.

The CA ruled that petitioners were guilty of unfair labor practice; that Lubas is a mere

instrumentality, agent conduit or adjunct of PTI; and that petitioners’ act of transferring

respondents’ employment to Lubas is indicative of their intent to frustrate the efforts of

respondents to organize themselves into a union.

Petitioners went to the Supreme Court (SC) and filed a petition for review on certiorari.

They argued that the CA should have respected the findings of the Labor Arbiter and the

NLRC; that it should not have given due course to the petition for certiorari with respect to

several respondents who failed to file an appeal to the NLRC and considering that only

one of the respondents executed and verified the said petition; that Petitioners Prince

Transport, Inc. and Mr. Renato Claros, and Lubas Transport are separate and distinct

entities; and that reinstatement should not have been awarded as it was not one of the

issues raised in their petition for certiorari.

Did the CA err in applying the doctrine of piercing the corporate veil with respect toLubas?

The CA did not err in applying the doctrine of piercing the corporate veil with respect toLubas.

Lubas is a mere agent, conduit or adjunct of PTI. A settled formulation of the doctrine of

piercing the corporate veil is that when two business enterprises are owned, conductedand controlled by the same parties, both law and equity will, when necessary to protectthe rights of third parties, disregard the legal fiction that these two entities are distinct andtreat them as identical or as one and the same. It may be true that Lubas is a singleproprietorship and not a corporation. However, petitioners’ attempt to isolate themselvesfrom and hide behind the supposed separate and distinct personality of Lubas so as toevade their liabilities is precisely what the classical doctrine of piercing the veil ofcorporate entity seeks to prevent and remedy. In the present case it was Prince Transportwho made the decision to transfer its employees to Lubas. Prince Transport neverregarded Lubas Transport as a separate entity, as it admits to having referred to saidentity as ―Lubas operations.‖ Moreover, it admits that it did not transfer the employees forit ―assigned‖ the respondents. Lastly, the existing funds and 201 file of the employeeswere turned over not to a new company but a ―new management.‖ PTI even exercised thedecision as to which employees shall work in Lubas. What is telling is the fact that PTIadmitted that Lubas is one of its sub-companies. In addition, PTI, in its letters to itsemployees who were transferred to Lubas, referred to the latter as its ―New CityOperations Bus.‖ Moreover, petitioners failed to refute the contention of respondents thatdespite the latter’s transfer to Lubas of their daily time records, reports, daily incomeremittances of conductors, schedule of drivers and conductors were all made, performed,filed and kept at the office of PTI. In fact, respondents’ identification cards bear the nameof PTI.

Sarona vs NLRC 2012

Facts:

Petitioner, a security guard in Sceptre since April 1976, was asked by Sceptre’s

operations manager on June 2003, to submit a resignation letter as a

requirement for an application in Royale and to fill up an employment application

form for the said company. He was then assigned at Highlight Metal Craft Inc.

from July 29 to August 8, 2003 and was later transferred to Wide Wide World

Express Inc. On September 2003, he was informed that his assignment at

WWWE Inc. was withdrawn because Royale has been allegedly replaced by

another security agency which he later discovered to be untrue. Nevertheless,

he was once again assigned at Highlight Metal sometime in September 2003

and when he reported at Royale’s office on October 1, 2003, he was informed



that he would no longer be given any assignment as instructed by Sceptre’s

general manager.

He thus filed acomplaint for illegal dismissal. The LA ruled in petitioner’s favor

as he found him illegally dismissed and was not convinced by the respondent’s

claim on petitioner’s abandonment.

Respondents were ordered to pay back wages computed from the day he

was dismissed up to the promulgation of his decision on May 11, 2005.The LAalso ordered for the payment of separation pay but refused to pierce Royale’s

corporate veil.

Respondents appealed to the NLRC claiming that the LA acted with grave

abuse of discretion upon ruling on the illegal dismissal of petitioner. NLRC

partially affirmed the LA’s decision with regard to petitioner’s illegal dismissal and

separation pay but modified the amount of backwages and limited it to only 3

months of his last month salary reducing P95, 600 to P15, 600 since he worked

for Royale for only 1 month and 3 days.

Petitioner did not appeal to LA but raised the validity of LA’s findings on piercing

Royale’s corporate personality and computation of his separation pay and such

petition was dismissed by the NLRC. Petitioner elevated NLRC’s decision to the

CA on a petition for certiorari, and the CA disagreed with the NLRC’s decision of

not proceeding to review the evidence for determining if Royale is Sceptre’s

alter ego that would warrant the piercing of its corporate veil.

Issue:

Whether or not Royale’s corporate fiction should be pierced for the purpose

of compelling it to recognize the petitioner’s length of service with Sceptre and

for holding it liable for the benefits that have accrued to him arising from his

employment with Sceptre.

Whether or not petitioner’s back wages should be limited to his salary for 3

months

Ruling:

The doctrine of piercing the corporate veil is applicable on alter ego cases,

where a corporation is merely a farce since it is a mere alter ego or business

conduit of a person, or where the corporation is so organized and controlled

and its affairs are so conducted as to make it merely an instrumentality,

agency, conduit or adjunct of another corporation.

The respondents’ scheme reeks of bad faith and fraud and compassionate

justice dictates that Royale and Sceptre be merged as a single entity,

compelling Royale to credit and recognize the petitioner’s length of service with

Sceptre. The respondents cannot use the legal fiction of a separate corporate

personality for ends subversive of the policy and purpose behind its creation or

which could not have been intended by law to which it owed its being.

Also, Sceptre and Royale have the same principal place of business. As early

as October 14, 1994, Aida and Wilfredo became the owners of the property

used by Sceptre as its principal place of business by virtue of a Deed of

Absolute Sale they executed with Roso. Royale, shortly after its incorporation,started to hold office in the same property. These, the respondents failed to

dispute.

Royale also claimed a right to the cash bond which the petitioner posted when

he was still with Sceptre. If Sceptre and Royale are indeed separate entities,

Sceptre should have released the petitioner’s cash bond when he resigned and

Royale would have required the petitioner to post a new cash bond in its favor.

The way on how petitioner was made to resign from Sceptre then later on made

an employee of Royale, reflects the use of the legal fiction of the separate

corporate personality and is an implication of continued employment. Royale is

a continuation or successor or Sceptre since the employees of Sceptre and of

Royale are the same and said companies have the same principal place ofbusiness.

Because petitioner’s rights were violated and his employer has not changed, he

is entitled to separation pay which must be computed from the time he

was hired until the finality of this decision. Royale is also ordered to pay him

backwages from his dismissal on October 1, 2003 until the finality of this

decision.

However, the amount already received by petitioner from the respondents shall be

deducted. He is also awarded moral and exemplary damages amounting to P 25, 000.00

each for his dismissal which was tainted with bad faith and fraud. Petition is granted. CA’s

decision is reversed and set aside

G.R. No. 159108 June 18, 2012

GOLD LINE TOURS, INC., Petitioner,vs.HEIRS OF MARIA CONCEPCION LACSA, Respondents.

FACTS:

Ma. Concepcion Lacsa (Concepcion) boarded a Goldline passenger bus owned and

operated by Travel &Tours Advisers, Inc. Before reaching their destination, the Goldline



bus collided with a passenger jeepneys and as a result, a metal part of the jeepney was

detached and struck Concepcion in the chest, causing her instant death. Then,

Concepcion’s heirs, represented by Teodoro Lacsa, instituted in the RTC a suit against

Travel & Tours Advisers Inc. to recover damages arising from breach of contract of

carriage. The RTC ruled in favor of the heirs of Concepcion and thereafter, Gold Line

appealed the decision to the CA but the CA dismissed the appeal for failure of the

defendants to pay the docket and other lawful fees within the required period as provided

in Rule 41, Section 4 of the Rules of Court. The dismissal became final.

Thereafter, the heirs of concepcion moved for the issuance of a writ of execution to

implement the decision and RTC granted their motion. Petitioner submitted a verified third

party claim, claiming that the tourist bus be returned to petitioner because it was the and

that petitioner was a corporation entirely different from Travel & Tours Advisers, Inc. then

RTC dismissed petitioner’s verified third-party claim, observing that the identity of Travel &

Tours Adivsers, Inc. could not be divorced from that of petitioner considering that Cheng

had claimed to be the operator as well as the President/Manager/incorporator of both

entities; and that Travel & Tours Advisers, Inc. had been known in Sorsogon as Goldline.

They (Goldline) appealed the decision to CA but CA dismissed their petition and affirmedthe decision of RTC. Hence this appeal to the Supreme Court where petitioner seeks to

reverse the decision of CA.

ISSUE:

Whether or not the proposition of the third party claimant by the petitioner where Travel &

Tours Advises, Inc. has an existence separate and/or distinct from Gold Line Tours, Inc.

RULING:

The Supreme Court the DENIED the petition for review on certiorari, and AFFIRMED the

decision promulgated by the Court of Appeals.

The two corporations are liable to the death of Ma. Concepcion Lacsa.

The Court was not persuaded by the proposition of the third party claimant that acorporation has an existence separate and/or distinct from its members insofar as thiscase at bar is concerned, for the reason that whenever necessary for the interest of thepublic or for the protection of enforcement of their rights, the notion of legal entityshould not and is not to be used to defeat public convenience, justify wrong,protect fraud or defend crime.

In the case of Palacio vs. Fely Transportation Co., the Supreme Court held that:

"Where the main purpose in forming the corporation was to evade one’s subsidiary liabilityfor damages in a criminal case, the corporation may not be heard to say that it has apersonality separate and distinct from its members, because to allow it to do so would beto sanction the use of fiction of corporate entity as a shield to further an endsubversive of justice (La Campana Coffee Factory, et al. v. Kaisahan ng mga

Manggagawa, etc., et al., L-5677, May 25, 1953).

This is what the third party claimant wants to do including the defendant in this case, touse the separate and distinct personality of the two corporation as a shield to further anend subversive of justice by avoiding the execution of a final judgment of the court.

The RTC thus rightly ruled that petitioner might not be shielded from liability under the

final judgment through the use of the doctrine of separate corporate identity. Truly, this

fiction of law could not be employed to defeat the ends of justice.

Palacio v. Fely Transportation

In their complaint filed with this Court on May 15, 1954, plaintiffs allege, amongother things, "that about December, 1952, the defendant company hired AlfredoCarillo as driver of AC-787 (687) (a registration for 1952) owned and operatedby the said defendant company; that on December 24, 1952, at about 11:30a.m., while the driver Alfonso (Alfredo) Carillo was driving AC-687 at HalconStreet, Quezon City, wilfully, unlawfully and feloniously and in a negligent,reckless and imprudent manner, run over a child Mario Palacio of the hereinplaintiff Gregorio Palacio; that on account of the aforesaid injuries, Mario Palaciosuffered a simple fracture of the right tenor (sic), complete third, therebyhospitalizing him at the Philippine Orthopedic Hospital from December 24, 1952,up to January 8, 1953, and continued to be treated for a period of five months

thereafter; that the plaintiff Gregorio Palacio herein is a welder by occupationand owner of a small welding shop and because of the injuries of his child hehas abandoned his shop where he derives income of P10.00 a day for thesupport of his big family; that during the period that the plaintiff's (GregorioPalacio's) child was in the hospital and who said child was under treatment forfive months in order to meet the needs of his big family, he was forced to sellone air compressor (heavy duty) and one heavy duty electric drill, for a sacrificesale of P150.00 which could easily sell at P350.00; that as a consequence ofthe negligent and reckless act of the driver Alfredo Carillo of the hereindefendant company, the herein plaintiffs were forced to li tigate this case in Courtfor an agreed amount of P300.00 for attorney's fee; that the herein plaintiffshave now incurred the amount of P500.00 actual expenses for transportation,

representation and similar expenses for gathering evidence and witnesses; and



that because of the nature of the injuries of plaintiff Mario Palacio and the fearthat the child might become a useless invalid, the herein plaintiff GregorioPalacio has suffered moral damages which could be conservatively estimated atP1,200.00.

On May 23, 1956, defendant Fely Transportation Co., filed a Motion to Dismisson the grounds (1) that there is no cause of action against the defendant

company, and (2) that the cause of action is barred by prior judgment..

In its Order, dated June 8, 1956, this Court deferred the determination of thegrounds alleged in the Motion to Dismiss until the trial of this case.

On June 20, 1956, defendant filed its answer. By way of affirmative defenses, italleges (1) that complaint states no cause of action against defendant, and (2)that the sale and transfer of the jeep AC-687 by Isabelo Calingasan to the FelyTransportation was made on December 24, 1955, long after the driver AlfredoCarillo of said jeep had been convicted and had served his sentence in CriminalCase No. Q-1084 of the Court of First Instance of Quezon City, in which boththe civil and criminal cases were simultaneously tried by agreement of the

parties in said case. In the Counterclaim of the Answer, defendant alleges thatin view of the filing of this complaint which is a clearly unfounded civil actionmerely to harass the defendant, it was compelled to engage the services of alawyer for an agreed amount of P500.00.

During the trial, plaintiffs presented the transcript of the stenographic notes ofthe trial of the case of "People of the Philippines vs. Alfredo Carillo, CriminalCase No. Q-1084," in the Court of First Instance of Rizal, Quezon City (BranchIV), as Exhibit "A".1äwphï1.ñët

It appears from Exhibit "A" that Gregorio Palacio, one of the herein plaintiffs,testified that Mario Palacio, the other plaintiff, is his son; that as a result of thereckless driving of accused Alfredo Carillo, his child Mario was injured andhospitalized from December 24, 1952, to January 8, 1953; that during all thetime that his child was in the hospital, he watched him during the night and hiswife during the day; that during that period of time he could not work as he sleptduring the day; that before his child was injured, he used to earn P10.00 a dayon ordinary days and on Sundays from P20 to P50 a Sunday; that to meet hisexpenses he had to sell his compressor and electric drill for P150 only; and thatthey could have been sold for P300 at the lowest price.

During the trial of the criminal case against the driver of the jeep in the Court ofFirst Instance of Quezon City (Criminal Case No. Q-1084) an attempt wasunsuccessfully made by the prosecution to prove moral damages allegedly

suffered by herein plaintiff Gregorio Palacio. Likewise an attempt was made invain by the private prosecutor in that case to prove the agreed attorney's feesbetween him and plaintiff Gregorio Palacio and the expenses allegedly incurredby the herein plaintiffs in connection with that case. During the trial of this case,plaintiff Gregorio Palacio testified substantially to the same facts.

The Court of First Instance of Quezon City in its decision in Criminal Case No.

1084 (Exhibit "2") determined and thoroughly discussed the civil liability of theaccused in that case. The dispositive part thereof reads as follows:

IN VIEW OF THE FOREGOING, the Court finds the accused Alfredo Carillo yDamaso guilty beyond reasonable doubt of the crime charged in the informationand he is hereby sentenced to suffer imprisonment for a period of Two Months& One Day of Arresto Mayor; to indemnify the offended party, by way ofconsequential damages, in the sum of P500.00 which the Court deemsreasonable; with subsidiary imprisonment in case of insolvency but not toexceed ¹/3 of the principal penalty imposed; and to pay the costs.

On the basis of these facts, the lower court held action is barred by the judgment in the

criminal case and, that under Article 103 of the Revised Penal Code, the personsubsidiarily liable to pay damages is Isabel Calingasan, the employer, and not thedefendant corporation.

Against that decision the plaintiffs appealed, contending that:

THE LOWER COURT ERRED IN NOT SUSTAINING THAT THE DEFENDANT- APPELLEE IS SUBSIDIARILY LIABLE FOR DAMAGES AS A RESULT OFCRIMINAL CASE NO. Q-1084 OF THE COURT OF FIRST INSTANCE OFQUEZON CITY FOR THE REASON THAT THE INCORPORATORS OF THEFELY TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEEHEREIN, ARE ISABELO CALINGASAN HIMSELF, HIS SON ANDDAUGHTERS;

THE LOWER COURT ERRED IN NOT CONSIDERING THAT THE INTENTIONOF ISABELO CALINGASAN IN INCORPORATING THE FELYTRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE HEREIN,WAS TO EVADE HIS CIVIL LIABILITY AS A RESULT OF THE CONVICTIONOF HIS DRIVER OF VEHICLE AC-687 THEN OWNED BY HIM:

THE LOWER COURT ERRED IN HOLDING THAT THE CAUSE OF ACTIONOF THE PLAINTIFFS-APPELLANTS IS BARRED BY PRIOR JUDGMENT.



With respect to the first and second assignments of errors, plaintiffs contend that thedefendant corporate should be made subsidiarily liable for damages in the criminal casebecause the sale to it of the jeep in question, after the conviction of Alfred Carillo inCriminal Case No. Q-1084 of the Court of First Instance of Quezon City was merely anattempt on the part of Isabelo Calingasan its president and general manager, to evade hissubsidiary civil liability.

The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendantFely Transportation may be regarded as one and the same person. It is evident thatIsabelo Calingasan's main purpose in forming the corporation was to evade his subsidiarycivil liability1 resulting from the conviction of his driver, Alfredo Carillo. This conclusion isborne out by the fact that the incorporators of the Fely Transportation are IsabeloCalingasan, his wife, his son, Dr. Calingasan, and his two daughters. We believe that thisis one case where the defendant corporation should not be heard to say that it has apersonality separate and distinct from its members when to allow it to do so would be tosanction the use of the fiction of corporate entity as a shield to further an end subversiveof justice. (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., etal., G.R. No. L-5677, May 25, 1953) Furthermore, the failure of the defendant corporationto prove that it has other property than the jeep (AC-687) strengthens the conviction that

its formation was for the purpose above indicated.

And while it is true that Isabelo Calingasan is not a party in this case, yet, is held in thecase of Alonso v. Villamor, 16 Phil. 315, this Court can substitute him in place of thedefendant corporation as to the real party in interest. This is so in order to avoidmultiplicity of suits and thereby save the parties unnecessary expenses and delay. (Sec.2, Rule 17, Rules of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud, 12 Phil. 109.)

Accordingly, defendants Fely Transportation and Isabelo Calingasan should be heldsubsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminalcase and which amount he could not pay on account of insolvency.

Ramirez v. Marfishing

On 28 June 2001, respondent Mar Fishing Co., Inc. (Mar Fishing), engaged in

the business of fishing and canning of tuna, sold its principal assets to co-respondent

Miramar Fishing Co., Inc. (Miramar) through public bidding.[1] The proceeds of the sale

were paid to the Trade and Investment Corporation of the Philippines (TIDCORP) to cover

Mar Fishing’s outstanding obligation in the amount of ₱897,560,041.26.[2] In view of that

transfer, Mar Fishing issued a Memorandum dated 23 October 2001 informing all its

workers that the company would cease to operate by the end of the month . [3]On 29

October 2001 or merely two days prior to the month’s end, it notified the Department of

Labor and Employment (DOLE) of the closure of its business operations.[4]

Thereafter, Mar Fishing’s labor union, Mar Fishing Workers Union – NFL – and

Miramar entered into a Memorandum of Agreement.[5] The Agreement provided that the

acquiring company, Miramar, shall absorb Mar Fishing’s regular rank and file employees

whose performance was satisfactory, without loss of seniority rights and privileges

previously enjoyed.[6]

Unfortunately, petitioners, who worked as rank and file employees, were not

hired or given separation pay by Miramar .[7] Thus, petitioners filed Complaints for illegal

dismissal with money claims before the Arbitration Branch of the National Labor Relations

Commission (NLRC).

In its 30 July 2002 Decision, the Labor Arbiter (LA) found that Mar Fishing had

necessarily closed its operations, considering that Miramar had already bought the tuna

canning plant.[8] By reason of the closure, petitioners were legally dismissed for authorized

cause.[9] In addition, even if Mar Fishing reneged on notifying the DOLE within 30 days

prior to its closure, that failure did not make the dismissals void. Consequently, the LA

ordered Mar Fishing to give separation pay to its workers.[10]

The LA held thus:[11]

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered in these cases:

1. Ordering Mar Fishing Company, Inc.,through its president, treasurer, manager or otherproper officer or representative, to pay thecomplainants their respective separation pay, ascomputed in page 12 to 33 hereof, all totaling SIXMILLION THREE HUNDRED THIRTY SIX

http://sc.judiciary.gov.ph/jurisprudence/2012/june2012/168208.htm#_ftn1













































THOUSAND FIVE HUNDRED EIGHTY SEVEN &77/100 PESOS (₱6,336,587.77);

2. Dismissing these case [sic] as againstMiramar Fishing Company, Inc., as well as againstRobert Buehs and Jerome Spitz, for lack of causeof action;

3. Dismissing all other charges and claimsof the complainants, for lack of merit.

SO ORDERED.

Aggrieved, petitioners pursued the action before the NLRC, which modified the

LA’s Decision. Noting that Mar Fishing notified the DOLE only two days before the

business closed, the labor court considered petitioners’ dismissal as ineffectual.[12] Hence,

it awarded, apart from separation pay, full back wages to petitioners from the time they

were terminated on 31 October 2001 until the date when the LA upheld the validity of their

dismissal on 30 July 2002.[13]

Additionally, the NLRC pierced the veil of corporate fiction and ruled that Mar

Fishing and Miramar were one and the same entity, since their officers were the

same.[14] Hence, both companies were ordered to solidarily pay the monetary claims.[15]

On reconsideration, the NLRC modified its ruling by imposing liability only on

Mar Fishing. The labor court held that petitioners had no cause of action against Miramar,

since labor contracts cannot be enforced against the transferee of an enterprise in the

absence of a stipulation in the contract that the transferee assumes the obligation of the

transferor .[16] Hence, the dispositive portion reads:[17]

WHEREFORE, foregoing premises considered, theassailed resolution is MODIFIED in that only Mar Fishing Company,Inc. through its responsible officers, is ordered to pay complainants

their separation pay, and full backwages from the date they were

terminated from employment until 30 July 2002, subject tocomputation during execution stage of proceedings at theappropriate Regional Arbitration Branch.

SO ORDERED.

Despite the award of separation pay and back wages, petitioners filed a Rule 65

Petition before the CA. This time, they argued that both Mar Fishing and Miramar should

be made liable for their separation pay, and that their back wages should be up to the t ime

of their actual reinstatement. However, finding that only 3 of the 228 petitioners [18] signed

the Verification and Certification against forum shopping, the CA instantly dismissed the

action for certiorari against the 225 other petitioners without ruling on the substantive

aspects of the case.[19]

By means of a Manifestation with Omnibus Motion ,[20]

petitioners submitted aVerification and Certification against forum shopping executed by 161 signatories. In the

said pleading, petitioners asked the CA to reconsider by invoking the rule that technical

rules do not strictly apply to labor cases.[21] Still, the CA denied petitioners’ contentions

and held thus:[22]

Anent the liberality in application of the rules, as alleged bypetitioners, the same deserves scant consideration. x x x.

xxx. While litigation is not a game of technicalities, and that

the rules of procedure should not be enforced strictly at the cost ofsubstantial justice, still it does not follow that the Rules of Court maybe ignored at will and at random to the prejudice of the orderlypresentation, assessment and just resolution of the issues. xxx.

Before this Court, 124 petitioners raise the issue of whether the CA gravely

erred in dismissing their Petition for Review on the ground that their pleading lacked a

Verification and Certification against forum shopping.[23]


















































The Rules of Court provide that a petition for certiorari must be verified and

accompanied by a sworn certification of non-forum shopping.[24]Failure to comply with

these mandatory requirements shall be sufficient ground for the dismissal of the

petition.[25] Considering that only 3 of the 228 named petitioners signed the requirement,

the CA dismissed the case against them, as they did not execute a Verification and

Certification against forum shopping.

Petitioners invoke substantial compliance with procedural rules when their

Manifestation already contains a Verification and Certification against forum shopping

executed by 161 signatories. They heavily rely on Jaro v. Court of

Appeals,[26] citing Piglas-Kamao v. National Labor Relations Commission and Cusi-

Hernandez v. Diaz, in which we discussed that the subsequent submission of the missing

documentary attachments with the Motion for Reconsideration amounted to substantial

compliance.

However, this very case does not involve a failure to attach the Annexes.

Rather, the procedural infirmity consists of omission – the failure to sign a Verification and

Certification against forum shopping. Addressing this defect squarely, we have already

resolved that because of noncompliance with the requirements governing the certification

of non-forum shopping, no error could be validly attributed to the CA when it ordered the

dismissal of the special civil action for certiorari .[27] The lack of certification against forum

shopping is not curable by mere amendment of a complaint, but shall be a cause for the

dismissal of the case without prejudice.[28] Indeed, the general rule is that subsequent

compliance with the requirements will not excuse a party's failure to comply in the

first instance.[29] Thus, on procedural aspects, the appellate court correctly dismissed the

case.

However, this Court has recognized that the merit of a case is a special

circumstance or compelling reason that justifies the relaxation of the rule requiring

verification and certification of non-forum shopping.[30] In order to fully resolve the issue, it

is thus necessary to determine whether technical rules were brushed aside at the expense

of substantial justice.[31] This Court will then delve into the issue on (1) the solidary liability

of Mar Fishing and Miramar to pay petitioners’ monetary claims and (2) the reckoning

period for the award of back wages.

For a dismissal based on the closure of business to be valid, three (3)

requirements must be established. Firstly, the cessation of or withdrawal from business

operations must be bona fide in character. Secondly, there must be payment to the

employees of termination pay amounting to at least one-half (1/2) month pay for each year

of service, or one (1) month pay, whichever is higher. Thirdly, the company must serve a

written notice on the employees and on the DOLE at least one (1) month before the

intended termination.[32]

In their Petition for Review on Certiorari, petitioners did not dispute theconclusion of the LA and the NLRC that Mar Fishing had an authorized cause to dismiss

its workers. Neither did petitioners challenge the computation of their separation pay.

Rather, they questioned the holding that only Mar Fishing was liable for their

monetary claims.[33]

Basing their conclusion on the Memorandum of Agreement and Supplemental

Agreement between Miramar and Mar Fishing’s labor union, as well as the General

Information Sheets and Company Profiles of the two companies, petitioners assert that

Miramar simply took over the operations of Mar Fishing. In addition, they assert that these

companies are one and the same entity, given the commonality of their directors and the

similarity of their business venture in tuna canning plant operations.[34]

At the fore, the question of whether one corporation is merely an alter ego of

another is purely one of fact generally beyond the jurisdiction of this Court .[35] In any case,

given only these bare reiterations, this Court sustains the ruling of the LA as affirmed by



















































the NLRC that Miramar and Mar Fishing are separate and distinct entities, based on the

marked differences in their stock ownership.[36] Also, the fact that Mar Fishing’s officers

remained as such in Miramar does not by itself warrant a conclusion that the two

companies are one and the same. As this Court held in Sesbreño v. Court of Appeals, the

mere showing that the corporations had a common director sitting in all the boards without

more does not authorize disregarding their separate juridical personalities.[37]

Neither can the veil of corporate fiction between the two companies be pierced

by the rest of petitioners’ submissions, namely, the alleged take -over by Miramar of Mar

Fishing’s operations and the evident similarity of their businesses. At this point, it bears

emphasizing that since piercing the veil of corporate fiction is frowned upon, those who

seek to pierce the veil must clearly establish that the separate and distinct personalities of

the corporations are set up to justify a wrong, protect a fraud, or perpetrate a

deception.[38]

This, unfortunately, petitioners have failed to do. In Indophil Textile MillWorkers Union vs. Calica, we ruled thus:[39]

In the case at bar, petitioner seeks to pierce the veil ofcorporate entity of Acrylic, alleging that the creation of thecorporation is a devi[c]e to evade the application of the CBA betweenpetitioner Union and private respondent company. While we do notdiscount the possibility of the similarities of the businesses of privaterespondent and Acrylic, neither are we inclined to apply the doctrineinvoked by petitioner in granting the relief sought. The fact that thebusinesses of private respondent and Acrylic are related, thatsome of the employees of the private respondent are the samepersons manning and providing for auxiliary services to theunits of Acrylic, and that the physical plants, offices andfacilities are situated in the same compound, it is ourconsidered opinion that these facts are not sufficient to justifythe piercing of the corporate veil of Acrylic. (Emphasis supplied.)

Having been found by the trial courts to be a separate entity, Mar Fishing – and

not Miramar – is required to compensate petitioners. Indeed, the back wages and

retirement pay earned from the former employer cannot be filed against the new owners

or operators of an enterprise.[40]

Evidently, the assertions of petitioners fail on both procedural and substantive

aspects. Therefore, no special reasons exist to reverse the CA’s dismissal of the case due

to their failure to abide by the mandatory procedure for filing a petition for review on

certiorari. Given the correctness of the appellate court’s ruling and the lack of appropriate

remedies, this Court will no longer dwell on the exact computation of petitioners’ claims for

back wages, which have been sufficiently threshed out by the LA and the NLRC. Judicial

review of labor cases does not go beyond an evaluation of the sufficiency of the evidence

upon which labor officials' findings rest.[41]

While we sympathize with the situation of the workers in this case, we cannot

disregard, absent compelling reasons, the factual determinations and the legal doctrinesthat support the findings of the courts a quo. Generally, the findings of fact and the

conclusion of the labor courts are not only accorded great weight and respect, but are

even clothed with finality and deemed binding on this Court, as long as they are supported

by substantial evidence.

Cuenco v. Talisay Tourists Sports Complex

Petitioner leased from respondent a property to be operated as a cockpit. Upon expirationof the contract, respondent company conducted a public bidding for the lease of theproperty. Petitioner participated in the bidding. The lease was eventually awarded to

another bidder. Thereafter, petitioner formally demanded, through several demand letters,for the return of his deposit in the sum of P500, 000.00. It, however, all remainedunheeded.

Thus, petitioner filed a Complaint for sum of money maintaining that respondents acted inbad faith in withholding the amount of the deposit without any justifiable reason. In their Answer, respondents countered that petitioner caused physical damage to the leasedpremises and the cost of repair and replacement of materials amounted to more thanP500,000.00.

The RTC issued a Pre-trial Order in which respondent admitted that there is no inventoryof damages. The respondents later offered an inventory which was admitted by the said

trial court. The RTC ruled favorably for the petitioner. The CA reversed said decision.



























Concerning the solidary liability of respondents, we hold that respondent Matias Aznar IIIis not solidarily liable with respondent company. His function as the President of thecompany does not make him personally liable for the obligations of the latter. Acorporation, being a juridical entity, may act only through its directors, officers andemployees. Obligations incurred by them while acting as corporate agents, are not theirpersonal liability but the direct accountability of the corporation they represent.

Prisma Construction v. Menchavez

December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA,

obtained a P1M loan from the respondent, with monthly interest of P40,000.00 payable for

6 months, or a total obligation of P1,240,000.00 payable within 6 mos. To secure the

payment of the loan, Pantaleon issued a promissory. Pantaleon signed the promissory

note in his personal capacity and as duly authorized by the Board of Directors of PRISMA.

The petitioners failed to completely pay the loan within the 6-month period.

As of January 4, 1997, respondent found that the petitioners still had an outstanding

balance of P1,364,151.00, to which respondent applied a 4% monthly interest.

On August 28, 1997, respondent filed a complaint for sum of money to enforce the unpaid

balance, plus 4% monthly interest. In their Answer, the petitioners admitted the loan of

P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the

interest was not provided in the promissory note. Pantaleon also denied that he made

himself personally liable and that he made representations that the loan would be repaid

within six (6) months.

RTC found that the respondent issued a check for P1M in favor of the petitioners for a

loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00

for a 6-month period. RTC ordered the petitioners to jointly and severally pay the

respondent the amount of P3,526,117.00 plus 4% per month interest from February 11,

1999 until fully paid.

Petitioners appealed to CA insisting that there was no express stipulation on the 4%

monthly interest. CA favored respondent but noted that the interest of 4% per month, or

48% per annum, was unreasonable and should be reduced to 12% per annum. MR

denied hence this petition.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the corporateveil of PRISMA.

The doctrine of piercing the corporate veil applies only in three (3) basic instances,namely: a) when the separate and distinct corporate personality defeats publicconvenience, as when the corporate fiction is used as a vehicle for the evasion of anexisting obligation; b) in fraud cases, or when the corporate entity is used to justify awrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where acorporation is essentially a farce, since it is a mere alter ego or business conduit of aperson, or where the corporation is so organized and controlled and its affairs soconducted as to make it merely an instrumentality, agency, conduit or adjunct of anothercorporation.[46] In the absence of malice, bad faith, or a specific provision of law making acorporate officer liable, such corporate officer cannot be made personally liable forcorporate liabilities.[47]

In the present case, we see no competent and convincing evidence of any wrongful,fraudulent or unlawful act on the part of PRISMA to justify piercing its corporateveil. While Pantaleon denied personal liability in his Answer, he made himselfaccountable in the promissory note ―in his personal capacity and as authorized by theBoard Resolution‖ of PRISMA.[48] With this statement of personal liability and in theabsence of any representation on the part of PRISMA that the obligation is all its ownbecause of its separate corporate identity, we see no occasion to consider piercing thecorporate veil as material to the case.

Lynvil Fishing Enterprises v. Ariola

PETITIONER Lynvil Fishing Enterprises, Inc. (Lynvil) is engaged in deep-sea fishing.

Respondents’ services were engaged in various capacities: Andres G. Ariola, captain;

Jessie D. Alcovendas, chief mate; Jimmy B. Calinao, chief engineer; Ismael G. Nubla,

cook; Elorde Bañez, oiler; and Leopoldo G. Sebullen, bodegero.

On Aug. 1, 1998, Lynvil received a report from Ramonito Clarido, one of its employees,

that on July 31, 1998, he witnessed that while on board the company vessel Analyn VIII,

respondents conspired with one another and stole eight tubs of ―pampano‖ and ―tangigue‖

fish and delivered them to another vessel.

Petitioner filed a criminal complaint against respondents before the office of the City

Prosecutor of Malabon City which found probable cause for indictment of respondents for

the crime of qualified theft. Relying on the finding and Nasipit Lumber Company v. NLRC,

257 Phil. 937 (1989), Lynvil asserted there was sufficient basis for valid termination of

employment of respondents based on serious misconduct and/or loss of trust and

confidence. Is their merit to the assertion?

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Ruling: No.

Nasipit is about a security guard who was charged with qualified theft which charge was

dismissed by the Office of the Prosecutor. However, despite the dismissal of the

complaint, he was still terminated from his employment on the ground of loss of

confidence.

We ruled that proof beyond reasonable doubt of an employee’s misconduct is not required

when loss of confidence is the ground for dismissal. It is sufficient if the employer has

―some basis‖ to lose confidence or that the emplo yer has reasonable ground to believe or

to entertain the moral conviction that the employee concerned is responsible for the

misconduct and that the nature of his participation therein rendered him absolutely

unworthy of the trust and confidence demanded by his position.

It added that the dropping of the qualified theft charges against the respondent is not

binding upon a labor tribunal.

In Nicolas v. National Labor Relations Commission, 327 Phil. 883, 886-887 (1996); RenoFoods, Inc. v. Nagkakaisang Lakas ng Manggagawa (NLM)-Katipunan, G.R. No. 164016,

15 March 2010, 615 SCRA 240, we held that a criminal conviction is not necessary to find

just cause for employment termination. Otherwise stated, an employee’s acquittal in a

criminal case, especially one that is grounded on the existence of reasonable doubt, will

not preclude a determination in a labor case that he is guilty of acts inimical to the

employer’s interests. In the reverse, the finding of probable cause is not followed by

automatic adoption of such finding by the labor tribunals.

In other words, whichever way the public prosecutor disposes of a complaint, the finding

does not bind the labor tribunal.

Thus, Lynvil cannot argue that since the Office of the Prosecutor found probable cause for

theft the Labor Arbiter must follow the finding as a valid reason for the termination of

respondents’ employment. The proof required for purposes that differ from one and the

other are likewise different.

Price v. Innodata

Cherry, Stephanie and Lolita were employed as formatters by INNODATA a domestic

corporation engaged in the data encoding and data conversion business. The parties

executed an employment contract denominated as a ―Contract of Employment for a Fixed

Period,‖ stipulating that the contract shall be for a period of one year.

The days passed by and soon Cherry and her companions found themselves separated

from work due to the end of their contract. Cherry and her companions decided to contest

the validity of said contract by filing a case for illegal dismissal. The case eventually

reached the Supreme Court.

Finally, unless they have exceeded their authority, corporate officers are, as a generalrule, not personally liable for their official acts, because a corporation, by legal fiction, hasa personality separate and distinct from its officers, stockholders and members. Althoughas an exception, corporate directors and officers are solidarily held liable with thecorporation, where terminations of employment are done with malice or in bad faith,33 inthe absence of evidence that they acted with malice or bad faith herein, the Courtexempts the individual respondents, Leo Rabang and Jane Navarette, from any personalliability for the illegal dismissal of petitioners.

De Lima v. Gois

A case for illegal dismissal was filed by petitioner Virgilio S. Delima against Golden Union Aquamarine Corporation (Golden), Prospero Gois and herein respondent Susan Mercaida

Gois before the Regional Arbitration Branch No. VIII of the National Labor Relations

Commission on October 29, 2004, docketed as NLRC RAB VIII Case No. 10-0231-04.

On April 29, 2005, Labor Arbiter Philip B. Montaces rendered a decision, the

dispositive portion of which reads:

WHEREFORE, premises considered, judgment is herebyrendered –

1. Finding illegality in the dismissal of complainant Virgilio Delimafrom his employment;

2. Ordering respondent Golden Union AquamarineCorporation to pay

On January 16, 2006, an Order was issued by the Labor Arbiter which states:

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Filed by Third Party Claimant SUSAN M. GOIS is a Motionto Release Motor Vehicle after substituting same with a cash bond ofP115,561.05 under O.R. No. 8307036 which amount is equivalent tothe judgment award in the instant case, in the meantime that she hasappealed the Order denying her Third Party Claim.

Meanwhile, on May 31, 2006, the NLRC issued a Resolution[7] which dismissed

respondent’s appeal for lack of merit. A Motion for Reconsideration[8] was filed but it was

denied on August 22, 2006.[9] On September 12, 2006, the NLRC Resolution became

final and executory; subsequently, an Entry of Judgment[10] was issued on September 29,

2006.

On October 13, 2006, Gois filed a petition for certiorar i[11] before the Court of

Appeals as well as a Supplement to Petition[12] on October 27, 2006. Gois alleged that the

NLRC committed grave abuse of discretion when it dismissed her appeal. She claimed

that by denying her third-party claim, she was in effect condemned to pay a judgment debt

issued against a corporation of which she is neither a president nor a majority owner but

merely a stockholder. She further argued that her personality is separate and distinct

from that of Golden; thus, the judgment ordering the corporation to pay the petitioner

could not be satisfied out of her personal assets.

On December 21, 2006, the appellate court rendered a Decision in favor of

respondent, which reads in part:

In the decision dated April 29, 2005 rendered by Labor ArbiterMontaces, the dispositive portion confined itself in directing GoldenUnion Aquamarine Corporation only, no more and no less, to payprivate respondent the award stated therein, but did not mention thatthe liability is joint and solidary with petitioner Susan Gois although thecomplaint filed by the private respondent included petitioner as amongthe respondents therein.

It bears stress also that corporate officers cannot be held liablefor damages on account of the employee’s dismissal because the

employer corporation has a personality separate and distinct from itsofficers who merely acted as its agents. They are only solidarily liablewith the corporation for the termination of employment of employees ifthe same was done with malice or in bad faith. In the case at bench, itwas not clearly shown and established that the termination of privaterespondent from employment was tainted with evident malice and badfaith. As elucidated in the case of Reahs Corporation vs. NLRC, themain doctrine of separate personality of a corporation should remainas the guiding rule in determining corporate liability to its employees,and that, at the very least, to justify solidary liability, ―there must be anallegation or showing that the officers of the corporation deliberately ormaliciously designed to evade the financial obligation of thecorporation to its employees.‖

Further, as wisely put by the petitioner, while it may be truethat the subject vehicle was used by the corporation in transportingthe products bought by the corporation from Eastern Samar to Manila,it does not necessarily follow that it is owned by the corporation as infact petitioner was able to duly establish that the said vehicle is hersand is registered under her name. Nor does it imply that thecorporation is free to dispose of the same and neither does it implythat the said vehicle may and can be levied by respondent NLRC tosatisfy a judgment against the corporation.

WHEREFORE, in view of the foregoing premises, judgmentis hereby rendered by us GRANTING the petition filed in this case, ANNULLING and SETTING ASIDE the Resolutions dated May 31,2006 and August 22, 2006, respectively, issued by the respondentNational Labor Relations Commission (NLRC), 4 th Division in NLRCCase No. V-000188-2006 and ORDERING private respondent toreturn to petitioner the cash bond earlier released to him.

SO ORDERED.[13]

Petitioner filed a Motion for Reconsideration[14] which was denied.

A corporation has a personality distinct and separate from its individual

stockholders or members and from that of its officers who manage and run its affairs. The

rule is that obligations incurred by the corporation, acting through its directors, officers and

employees, are its sole liabilities. Thus, property belonging to a corporation cannot be



































attached to satisfy the debt of a stockholder and vice versa, the latter having only an

indirect interest in the assets and business of the former .[16]

Since the Decision of the Labor Arbiter dated April 29, 2005 directed only

Golden to pay the petitioner the sum of P115,561.05 and the same was not joint and

solidary obligation with Gois, then the latter could not be held personally liable since

Golden has a separate and distinct personality of its own. It remains undisputed that the

subject vehicle was owned by Gois, hence it should not be attached to answer for the

liabilities of the corporation. Unless they have exceeded their authority, corporate officers

are, as a general rule, not personally liable for their official acts, because a corporation, by

legal fiction, has a personality separate and distinct from its officers, stockholders and

members. No evidence was presented to show that the termination of the petitioner was

done with malice or in bad faith for it to hold the corporate officers, such as Gois, solidarilyliable with the corporation.

Woodchild Holdings v. Roxas Electric Construction Company

The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the

Roxas Electric and Construction Company, was the owner of two parcels of land. At a

special meeting on May 17, 1991, the respondent’s Board of Directors approved a

resolution authorizing the corporation, through its president, Roberto B. Roxas, to sell Lot

No. 491-A-3-B- at a price and under such terms and conditions which he deemed most

reasonable and advantageous to the corporation; and to execute, sign and deliver the

pertinent sales documents and receive the proceeds of the sale for and on behalf of the

company.

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2

covered by TCT No. 78086 on which it planned to construct its warehouse building, and a

portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van would be

able to readily enter or leave the property. In a Letter to Roxas dated June 21, 1991, WHI

President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and

conditions for P1,000 per square meter or at the price of P7,213,000.[4] One of the terms

incorporated in Dy’s offer was the following provision:

This Offer to Purchase is made on the representation and warranty ofthe OWNER/SELLER, that he holds a good and registrable titleto the property, which shall be conveyed CLEAR and FREE ofall liens and encumbrances

Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a

month later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as

President of WHI, as vendee, executed a contract to sell in which RECCI bound and

obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086

for P7,213,000.[6] On September 5, 1991, a Deed of Absolute Sale [7] in favor of WHI was

issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold

for P5,000,000, receipt of which was acknowledged by Roxas under the following terms

and conditions:

The Vendor agree (sic ), as it hereby agrees and binds itself togive Vendee the beneficial use of and a right of way from SumulongHighway to the property herein conveyed consists of 25 squaremeters wide to be used as the latter’s egress from and ingress to and

an additional 25 square meters in the corner of Lot No. 491-A-3-B-1,as turning and/or maneuvering area for Vendee’s vehicles.

The Vendor agrees that in the event that the right of way isinsufficient for the Vendee’s use (ex entry of a 45-foot container) theVendor agrees to sell additional square meters from its currentadjacent property to allow the Vendee full access and full use of theproperty.

…

The Vendor hereby undertakes and agrees, at its account, todefend the title of the Vendee to the parcel of land and improvements




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herein conveyed, against all claims of any and all persons or entities,and that the Vendor hereby warrants the right of the Vendee topossess and own the said parcel of land and improvements thereonand will defend the Vendee against all present and future claimsand/or action in relation thereto, judicial and/or administrative. Inparticular, the Vendor shall eject all existing squatters and occupantsof the premises within two (2) weeks from the signing hereof. In caseof failure on the part of the Vendor to eject all occupants and squatterswithin the two-week period or breach of any of the stipulations,covenants and terms and conditions herein provided and that ofcontract to sell dated 1 July 1991, the Vendee shall have the right tocancel the sale and demand reimbursement for all payments made tothe Vendor with interest thereon at 36% per annum.[8]

On September 10, 1991, the Wimbeco Builder’s, Inc. (WBI) submitted its quotation

for P8,649,000 to WHI for the construction of the warehouse building on a portion of the

property with an area of 5,088 square meters.[9] WBI proposed to start the project on

October 1, 1991 and to turn over the building to WHI on February 29, 1992.[10]

In a Letter dated September 16, 1991, Ponderosa Leather Goods Company,

Inc. confirmed its lease agreement with WHI of a 5,000-square-meter portion of the

warehouse yet to be constructed at the rental rate of P65 per square meter. Ponderosa

emphasized the need for the warehouse to be ready for occupancy before April 1,

1992.[11] WHI accepted the offer. However, WBI failed to commence the construction of

the warehouse in October 1, 1991 as planned because of the presence of squatters in the

property and suggested a renegotiation of the contract after the squatters shall have been

evicted.[12] Subsequently, the squatters were evicted from the property.

On March 31, 1992, WHI and WBI executed a Letter-Contract for the

construction of the warehouse building for P11,804,160.[13] The contractor started

construction in April 1992 even before the building officials of Antipolo City issued a

building permit on May 28, 1992. After the warehouse was finished, WHI issued on March

21, 1993 a certificate of occupancy by the building official. Earlier, or on March 18, 1993,

WHI, as lessor, and Ponderosa, as lessee, executed a contract of lease over a portion of

the property for a monthly rental of P300,000 for a period of three years from March 1,

1993 up to February 28, 1996.[14]

In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI

were parked on a portion of the property over which WHI had been granted a right of

way. Roxas promised to look into the matter. Dy and Roxas discussed the need of the

WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No.

78085 as provided for in the deed of absolute sale. However, Roxas died soon

thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to

purchase a portion of the said lot as provided for in the deed of absolute sale, and

complained about the latter’s failure to eject the squatters within the three -month period

agreed upon in the said deed.

The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1

covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof,

otherwise the appropriate action would be filed against it. RECCI rejected the demand of

WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There was no response

from RECCI.

On June 17, 1992, the WHI filed a complaint against the RECCI with the RTC of Makati,for specific performance and damages.

The WHI prayed that, after due proceedings, judgment be rendered in its favor. In its

answer to the complaint, the RECCI alleged that it never authorized its former president,

Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-3-B-1, nor

agreed to sell any portion thereof or create a lien or burden thereon. It alleged that, under































the Resolution approved on May 17, 1991, it merely authorized Roxas to sell Lot No. 491-

A-3-B-2 covered by TCT No. 78086. As such, the grant of a right of way and the

agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said

deed are ultra vires.

On November 11, 1996, the trial court rendered judgment in favor of the WHI.

The trial court ruled that the RECCI was estopped from disowning the apparent authority

of Roxas under the May 17, 1991 Resolution of its Board of Directors. The court

reasoned that to do so would prejudice the WHI which transacted with Roxas in good

faith, believing that he had the authority to bind the WHI relating to the easement of right

of way, as well as the right to purchase a portion of Lot No. 491-A-3-B-1 covered by TCT

No. 78085.

The RECCI appealed the decision to the CA, which rendered a decision on

November 9, 1999 reversing that of the trial court, and ordering the dismissal of the

complaint. The CA ruled that, under the resolution of the Board of Directors of the RECCI,

Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, but

not to grant right of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or to

grant an option to the petitioner to buy a portion thereof. The appellate court also ruled

that the grant of a right of way and an option to the respondent were so lopsided in favor

of the respondent because the latter was authorized to fix the location as well as the price

of the portion of its property to be sold to the respondent. Hence, such provisions

contained in the deed of absolute sale were not binding on the RECCI. The appellate

court ruled that the delay in the construction of WHI’s warehouse was due to its fault.

RULING: In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,[21] we

held that:

A corporation is a juridical person separate and distinct fromits stockholders or members. Accordingly, the property of thecorporation is not the property of its stockholders or members andmay not be sold by the stockholders or members without expressauthorization from the corporation’s board of directors. Section 23 ofBP 68, otherwise known as the Corporation Code of the Philippines,provides:

―SEC. 23. The Board of Directors orTrustees. – Unless otherwise provided in thisCode, the corporate powers of all corporationsformed under this Code shall be exercised, allbusiness conducted and all property of suchcorporations controlled and held by the board ofdirectors or trustees to be elected from among theholders of stocks, or where there is no stock, fromamong the members of the corporation, who shallhold office for one (1) year and until theirsuccessors are elected and qualified.‖

Indubitably, a corporation may act only through its board ofdirectors or, when authorized either by its by-laws or by its boardresolution, through its officers or agents in the normal course ofbusiness. The general principles of agency govern the relationbetween the corporation and its officers or agents, subject to thearticles of incorporation, by-laws, or relevant provisions of law. …[22]

Generally, the acts of the corporate officers within the scope of their authority are

binding on the corporation. However, under Article 1910 of the New Civil Code, acts done

by such officers beyond the scope of their authority cannot bind the corporation unless it

has ratified such acts expressly or tacitly, or is estopped from denying them:

Art. 1910. The principal must comply with all the obligationswhich the agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded hispower, the principal is not bound except when he ratifies it expresslyor tacitly.










Thus, contracts entered into by corporate officers beyond the scope of authority

are unenforceable against the corporation unless ratified by the corporation.

In BA Finance Corporation v. Court of Appeals,[24] we also ruled that persons dealing withan assumed agency, whether the assumed agency be a general or special one, arebound at their peril, if they would hold the principal liable, to ascertain not only the fact of

agency but also the nature and extent of authority, and in case either is controverted, theburden of proof is upon them to establish it.

Fisher v. Trinidad

That during the year 1919 the Philippine American Drug Company was a corporation dulyorganized and existing under the laws of the Philippine Islands, doing business in the Cityof Manila; that he appellant was a stockholder in said corporation; that said corporation,as result of the business for that year, declared a "stock dividend"; that the proportionateshare of said stock divided of the appellant was P24,800; that the stock dividend for thatamount was issued to the appellant; that thereafter, in the month of March, 1920, theappellant, upon demand of the appellee, paid under protest, and voluntarily, unto the

appellee the sum of P889.91 as income tax on said stock dividend. For the recovery ofthat sum (P889.91) the present action was instituted. The defendant demurred to thepetition upon the ground that it did not state facts sufficient to constitute cause of action.The demurrer was sustained and the plaintiff appealed.

To sustain his appeal the appellant cites and relies on some decisions of theSupreme Court of the United States as will as the decisions of the supreme court of someof the states of the Union, in which the questions before us, based upon similar statutes,was discussed. Among the most important decisions may be mentioned the following:Towne vs. Eisner, 245 U.S., 418; Doyle vs. Mitchell Bors. Co., 247 U.S., 179; Eisner vs.Macomber, 252 U.S., 189; Dekoven vs Alsop, 205 Ill., 309; 63 L.R.A., 587; Kaufman vs.Charlottesville Woolen Mills, 93 Va., 673.

In each of said cases an effort was made to collect an "income tax" upon "stockdividends" and in each case it was held that "stock dividends" were capital and not an"income" and therefore not subject to the "income tax" law.

RULING: "The distinction between the title of a corporation, and the interest of its

members or stockholders in the property of the corporation, is familiar and well settled.

The ownership of that property is in the corporation, and not in the holders of shares of its

stock. The interest of each stockholder consists in the right to a proportionate part of the

profits whenever dividends are declared by the corporation, during its existence, under its

charter, and to a like proportion of the property remaining, upon the termination or

dissolution of the corporation, after payment of its debts."

G Holdings v. NAMAWU

The petitioner, ―G‖ Holdings, Inc. (GHI), is a domestic corporation primarily engaged in the

business of owning and holding shares of stock of different companies.[2] It was

registered with the Securities and Exchange Commission on August 3, 1992. Private

respondent, National Mines and Allied Workers Union Local 103 (NAMAWU), was the

exclusive bargaining agent of the rank and file employees of Maricalum Mining

Corporation (MMC),[3] an entity operating a copper mine and mill complex at Sipalay,

Negros Occidental.[4]

MMC was incorporated by the Development Bank of the Philippines (DBP) and the

Philippine National Bank (PNB) on October 19, 1984, on account of their foreclosure of

Marinduque Mining and Industrial Corporation’s assets. MMC started its commercial

operations in August 1985. Later, DBP and PNB transferred it to the National

Government for disposition or privatization because it had become a non-performing

asset.[5]

On October 2, 1992, pursuant to a Purchase and Sale Agreement[6] executed

between GHI and Asset Privatization Trust (APT), the former bought ninety percent (90%)

of MMC’s shares and financial claims.[7] These financial claims were converted into three

Promissory Notes[8] issued by MMC in favor of GHI totaling P500M and secured by

mortgages over MMC’s properties. The notes, which were similarly worded except for

their amounts, read as follows:

PROMISSORY NOTE

AMOUNT - Php114,715,360.00 [Php186,550,560.00 in thesecond




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note, and Php248,734,080.00 inthe

third note.]

MAKATI, METRO MANILA, PHILIPPINES, October 2, 1992

For Value Received, MARICALUM MINING CORPORATION(MMC) with postal address at 4th Floor, Manila Memorial Park Bldg.,2283 Pasong Tamo Extension, Makati, Metro Manila, Philippines,hereby promises to pay ―G‖ HOLDINGS, INC., at its office at PhimcoCompound, F. Manalo Street, Punta, Sta. Ana, Manila, the amount ofPESOS ONE HUNDRED FOURTEEN MILLION, SEVEN HUNDREDFIFTEEN THOUSAND AND THREE HUNDRED SIXTY(Php114,715,360.00) [―PESOS ONE HUNDRED EIGHTY SIXMILLION FIVE HUNDRED FIFTY THOUSAND FIFE HUNDRED ANDSIXTY (Php186,550,560.00)‖ in the second note, and ―PESOS TWOHUNDRED FORTY EIGHT MILLION, SEVEN HUNDRED THIRTYFOUR THOUSAND AND EIGHTY (Php248,734,080.00)‖ in the thirdnote], PHILIPPINE CURRENCY, on or before October 2,2002. Interest shall accrue on the amount of this Note at a rate per

annum equal to the interest of 90-day Treasury Bills prevailing on theFriday preceding the maturity date of every calendar quarter.

As collateral security, MMC hereby establishes and constitutes infavor of ―G‖ HOLDINGS, INC., its successors and/or assigns:

1. A mortgage over certain parcels of land, moreparticularly listed and described in the Sheriff’s Certificate ofSale dated September 7, 1984 issued by the Ex-OfficioProvincial Sheriff of Negros Occidental, Rolando V.Ramirez, with office at Bacolod City following the auctionsale conducted pursuant to the provisions of Act 3135, a

copy of which certificate of sale is hereto attached as Annex―A‖ and made an integral part hereof;

2. A chattel mortgage over assets and personal propertiesmore particularly listed and described in the Sheriff’sCertificate of Sale dated September 7, 1984 issued by theEx-Officio Provincial Sheriff of Negros Occidental, RolandoV. Ramirez, with office at Bacolod City following the auctionconducted pursuant to the provisions of Act 1508, a copy ofwhich Certificate of Sale is hereto attached as Annex ―B‖and made an integral part hereof.

3. Mortgages over assets listed in APT Specific CatalogueGC-031 for MMC, a copy of which Catalogue is herebymade an integral part hereof by way of reference, as well asassets presently in use by MMC but which are not listed orincluded in paragraphs 1 and 2 above and shall include allassets that may hereinafter be acquired by MMC.

MARICALUM MININGCORPORATION

(Maker)

x x x x[9]

Upon the signing of the Purchase and Sale Agreement and upon the full

satisfaction of the stipulated down payment, GHI immediately took physical possession of

the mine site and its facilities, and took full control of the management and operation of

MMC.[10]

Almost four years thereafter, or on August 23, 1996, a labor dispute (refusal to

bargain collectively and unfair labor practice) arose between MMC and NAMAWU, with

the latter eventually filing with the National Conciliation and Mediation Board of Bacolod

City a notice of strike.[11] Then Labor Secretary, now Associate Justice of this Court,

Leonardo A. Quisumbing, later assumed jurisdiction over the dispute and ruled in favor of

NAMAWU. In his July 30, 1997 Order in OS-AJ-10-96-014 (Quisumbing Order),

Secretary Quisumbing declared that the lay-off (of workers) implemented on May 7, 1996

and October 7, 1996 was illegal and that MMC committed unfair labor practice. He then

ordered the reinstatement of the laid-off workers, with payment of full backwages and

benefits, and directed the execution of a new collective bargaining agreement (CBA)

incorporating the terms and conditions of the previous CBA providing for an annual

increase in the workers’ daily wage.[12] In two separate cases ─ G.R. Nos. 133519 and



















138996 ─ filed with this Court, we sustained the validity of the Quisumbing Order, which

became final and executory on January 26, 2000.[13]

On May 11, 2001, then Acting Department of Labor and Employment (DOLE)

Secretary, now also an Associate Justice of this Court, Arturo D. Brion, on motion of

NAMAWU, directed the issuance of a partial writ of execution (Brion Writ), and ordered

the DOLE sheriffs to proceed to the MMC premises for the execution of the

same.[14] Much later, in 2006, this Court, in G.R. Nos. 157696-97, entitled Maricalum

Mining Corporation v. Brion and NAMAWU ,[15] affirmed the propriety of the issuance of the

Brion Writ.

The Brion Writ was not full y satisfied because MMC’s resident manager resisted

its enforcement.[16]

On motion of NAMAWU, then DOLE Secretary Patricia A. Sto. Tomasordered the issuance of the July 18, 2002 Alias Writ of Execution and Break-Open Order

(Sto. Tomas Writ).[17] On October 11, 2002, the respondent acting sheriffs, the members

of the union, and several armed men implemented the Sto. Tomas Writ, and levied on the

properties of MMC located at its compound in Sipalay, Negros Occidental.[18]

On October 14, 2002, GHI filed with the Regional Trial Court (RTC)

of Kabankalan City, Negros Occidental, Special Civil Action (SCA) No. 1127 for Contempt

with Prayer for the Issuance of a Temporary Restraining Order (TRO) and Writ of

Preliminary Injunction and to Nullify the Sheriff’s Levy on Properties.[19] GHI contended

that the levied properties were the subject of a Deed of Real Estate and Chattel Mortgage,

dated September 5, 1996[20] executed by MMC in favor of GHI to secure the

aforesaid P550M promissory notes; that this deed was registered on February 24,

2000;[21] and that the mortgaged properties were already extrajudicially foreclosed in July

2001 and sold to GHI as the highest bidder on December 3, 2001, as evidenced by the

Certificate of Sale dated December 4, 2001.[22]

The trial court issued ex parte a TRO effective for 72 hours, and set the hearing

on the application for a writ of injunction.[23] On October 17, 2002, the trial court ordered

the issuance of a Writ of Injunction (issued on October 18, 2002)[24] enjoining the DOLE

sheriffs from further enforcing the Sto. Tomas Writ and from conducting any public sale of

the levied-on properties, subject to GHI’s posting of a P5M bond.[25]

Resolving, among others, NAMAWU’s separate motions for the reconsideration

of the injunction order and for the dismissal of the case, the RTC issued its December 4,

2002 Omnibus Order ,[26] the dispositive portion of which reads:

WHEREFORE, premises considered, respondent NAMAWULocal 103’s Motion for Reconsideration dated October 23, 2002 forthe reconsideration of the Order of this Court directing the issuance ofWrit of Injunction prayed for by petitioner and the Order dated October18, 2002 approving petitioner’s Injunction Bond in the amountof P5,000,000.00 is hereby DENIED.

Respondent’s Motion to Dismiss as embodied in itsOpposition to Extension of Temporary Restraining Order andIssuance of Writ of Preliminary Injunction with Motion to Dismiss andSuspend Period to File Answer dated October 15, 2002 is likewiseDENIED.

Petitioner’s Urgent Motion for the return of the leviedfirearms is GRANTED. Pursuant thereto, respondent sheriffs areordered to return the levied firearms and handguns to the petitionerprovided the latter puts [up] a bond in the amount of P332,200.00.



























































Respondent’s lawyer, Atty. Jose Lapak, is strictly warned notto resort again to disrespectful and contemptuous language in hispleadings, otherwise, the same shall be dealt with accordingly.

SO ORDERED.[27]

Aggrieved, NAMAWU filed with the CA a petition for certiorari under Rule 65,

assailing the October 17, 18 and December 4, 2002 orders of the RTC.[28]

After due proceedings, on October 14, 2003, the appellate court rendered a

Decision setting aside the RTC issuances and directing the immediate execution of the

Sto. Tomas Writ. The CA ruled, among others, that the circumstances surrounding the

execution of the September 5, 1996 Deed of Real Estate and Chattel Mortgage yielded

the conclusion that the deed was sham, fictitious and fraudulent; that it was executed two

weeks after the labor dispute arose in 1996, but surprisingly, it was registered only on

February 24, 2000, immediately after the Court affirmed with finality the Quisumbing

Order. The CA also found that the certificates of title to MMC’s real properties did not

contain any annotation of a mortgage lien, and, suspiciously, GHI did not intervene in the

long drawn-out labor proceedings to protect its right as a mortgagee of virtually all the

properties of MMC.[29]

The CA further ruled that the subsequent foreclosure of the mortgage wasirregular, effected precisely to prevent the satisfaction of the judgment against MMC. It

noted that the foreclosure proceedings were initiated in July 2001, shortly after the

issuance of the Brion Writ; and, more importantly, the basis for the extrajudicial

foreclosure was not the failure of MMC to pay the mortgage debt, but its failure ―to satisfy

any money judgment against it rendered by a court or tribunal of competent jurisdiction, in

favor of any person, firm or entity, without any legal ground or reason.‖[30] Further, the CA

pierced the veil of corporate fiction of the two corporations.

RULING: Time and again, we have reiterated that mere ownership by a single stockholder

or by another corporation of all or nearly all of the capital stock of a corporation is not, by

itself, a sufficient ground for disregarding a separate corporate personality .[74] It is basic

that a corporation has a personality separate and distinct from that composing it as well as

from that of any other legal entity to which it may be related. Clear and convincing

evidence is needed to pierce the veil of corporate fiction.[75]

In this case, the mere interlocking of directors and officers does not warrant

piercing the separate corporate personalities of MMC and GHI. Not only must there be a

showing that there was majority or complete control, but complete domination, not only of

finances but of policy and business practice in respect to the transaction attacked, so that

the corporate entity as to this transaction had at the time no separate mind, will orexistence of its own.

Settled jurisprudence[70] has it that –

―(A) corporation, upon coming into existence, is invested bylaw with a personality separate and distinct from those personscomposing it as well as from any other legal entity to which it may berelated. By this attribute, a stockholder may not, generally, be made toanswer for acts or liabilities of the said corporation, 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 tothe policy and purpose behind its creation or which could not havebeen intended by law to which it owes its being. This is particularlytruewhen the fiction is used to defeat public convenience, justifywrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumvent thelaw. This is likewise true where the corporate entity is being used asan alter ego, adjunct, or business conduit for the sole benefit ofthe stockholders or of another corporate entity. In all these cases,the notion of corporate entity will be pierced or disregarded withreference to the particular transaction involved.































Borromeo v. Court of Appeals

Respondent is a domestic savings bank corporation with principal office and place ofbusiness at EPCIB Tower 2, Makati Avenue, Salcedo Village, Makati City.3 At the time thedispute began, it was a subsidiary of Equitable PCI Bank (EPCIB), a domestic universalbanking corporation with principal office at Makati Avenue, Salcedo Village, Makati City. After the merger of EPCIB and Banco De Oro (BDO), they have adopted the corporate

name "Banco De Oro."4

Petitioners were client-depositors of EPCIB for more than 12 years. Petitioners allegedthat sometime in mid-1999, the branch manager of EPCIB, J.P. Rizal Branch, offered aloan to the petitioners under its "Own-a-Home Loan Program." Petitioners applied for aloan of P4,000,000.00 and were informed of the approval of their loan applicationsometime in October 1999. It was in the early part of 2000 that petitioners signed blankloan documents consisting of the Loan Agreement, Promissory Notes, a Real EstateMortgage (REM) and Disclosure Statements.5

To secure the payment of the loan, petitioners executed an REM over their land,registered under Transfer Certificate of Title (TCT) No. N-203923, located at Loyola Grand

Villas, Quezon City, consisting of 303 square meters; and the proposed house that was tobe built thereon.6 Petitioners asserted that even if the loan documents were signed inblank, it was understood that they executed the REM in favor of EPCIB.7

From April 2001 to September 2002, respondent released a total amountof P3,600,000.00 in four installments, while the balance of P400,000.00 was not drawn bypetitioners.8 On the other hand, petitioners started to pay their monthly amortizations on21 April 2001.9

Petitioners made repeated verbal requests to EPCIB to furnish them their copies of theloan documents.

Vice President of EPCIB, Gary Vargas, sent to the petitioners a lette r 13 dated 27 August2003 explaining that as a matter of practice, their clients were given original copies of theloan documents only upon full release of the amount loaned. EPCIB clarified that sincepetitioners’ loan had not been fully released, the original documents were not yet sent tothem. Petitioners were also informed that the applicable interest rate was set at the timethe loan was released, not at the time the loan was approved, and that the prevailinginterest when the first four installments of the loan were released ranged from 9.5% to16%.

In the meantime, on 13 August 2003, respondent, through counsel, also sent a lette r 14 to

the petitioners demanding payment for their obligation. When the petitioners failed to pay

for the loan in full by 30 September 2003, respondent sought to extra-judicially foreclose

the REM.

RULING: Respondent, although a wholly-owned subsidiary of EPCIB, has an independentand separate juridical personality from its parent company. The fact that a corporationowns all of the stocks of another corporation, taken alone, is not sufficient to justify theirbeing treated as one entity. If used to perform legitimate functions, a subsidiary’s separateexistence shall be respected, and the liability of the parent corporation, as well as thesubsidiary, shall be confined to those arising from their respective businesses. Acorporation has a separate personality distinct from its stockholders and othercorporations to which it may be conducted.44 Any claim or suit of the parent corporationcannot be pursued by the subsidiary based solely on the reason that the former owns themajority or even the entire stock of the latter.

Ching v. Sec of Justice

PBMI, through Ching, Senior VP of Philippine Blooming Mills, Inc. (PBMI), applied

with theRizal Commercial Banking Corporation (RCBC) for the issuance

of commercial letters of credit to finance its importation of assorted goods

RCBC approved the application, and irrevocable letters of credit were issued in favor

of Ching.

The goods were purchased and delivered in trust to PBMI.

Ching signed 13 trust receipts as surety, acknowledging delivery of the goods

Under the receipts, Ching agreed to hold the goods in trust for RCBC, with authority

to sell but not by way of conditional sale, pledge or otherwise

In case such goods were sold, to turn over the proceeds thereof as soon as

received, to apply against the relative acceptances and payment of otherindebtedness to respondent bank.

In case the goods remained unsold within the specified period, the goods were to be

returned to RCBC without any need of demand.

goods, manufactured products or proceeds thereof, whether in the form of money or

bills, receivables, or accounts separate and capable of identification - RCBC’s

property

When the trust receipts matured, Ching failed to return the goods to RCBC, or to

return their value amounting toP6,940,280.66 despite demands.

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RCBC filed a criminal complaint for estafa against petitioner in the Office of the City

Prosecutor of Manila.

December 8, 1995: no probable cause to charge petitioner with violating P.D. No.

115, as petitioner’s liability was only civil, not criminal, having signed the trust

receipts as surety

RCBC appealed the resolution to the Department of Justice (DOJ) via petition forreview

On July 13, 1999: reversed the assailed resolution of the City Prosecutor

execution of said receipts is enough to indict the Ching as the official responsible for

violation of P.D. No. 115

April 22, 2004: CA dismissed the petition for lack of merit and on procedural grounds

Ching filed a petition for certiorari, prohibition and mandamus with the CA

RULING: Though the entrustee is a corporation, nevertheless, the law specifically makes

the officers, employees or other officers or persons responsible for the offense, withoutprejudice to the civil liabilities of such corporation and/or board of directors, officers, orother officials or employees responsible for the offense. The rationale is that such officersor employees are vested with the authority and responsibility to devise means necessaryto ensure compliance with the law and, if they fail to do so, are held criminallyaccountable; thus, they have a responsible share in the violations of the law.48

If the crime is committed by a corporation or other juridical entity, the directors, officers,employees or other officers thereof responsible for the offense shall be charged andpenalized for the crime, precisely because of the nature of the crime and the penaltytherefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized fora crime punishable by imprisonment.49 However, a corporation may be charged and

prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes bothfine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty,may be fined.50

A crime is the doing of that which the penal code forbids to be done, or omitting to do whatit commands. A necessary part of the definition of every crime is the designation of theauthor of the crime upon whom the penalty is to be inflicted. When a criminal statutedesignates an act of a corporation or a crime and prescribes punishment therefor, itcreates a criminal offense which, otherwise, would not exist and such can be committedonly by the corporation. But when a penal statute does not expressly apply tocorporations, it does not create an offense for which a corporation may be punished. Onthe other hand, if the State, by statute, defines a crime that may be committed by a

corporation but prescribes the penalty therefor to be suffered by the officers, directors, oremployees of such corporation or other persons responsible for the offense, only suchindividuals will suffer such penalty.51 Corporate officers or employees, through whose act,default or omission the corporation commits a crime, are themselves individually guilty ofthe crime.52

The principle applies whether or not the crime requires the consciousness of wrongdoing.It applies to those corporate agents who themselves commit the crime and to those, who,by virtue of their managerial positions or other similar relation to the corporation, could bedeemed responsible for its commission, if by virtue of their relationship to the corporation,they had the power to prevent the act.53 Moreover, all parties active in promoting a crime,whether agents or not, are principals.54 Whether such officers or employees are benefitedby their delictual acts is not a touchstone of their criminal liability. Benefit is not anoperative fact.

In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behindthe cloak of the separate corporate personality of PBMI. In the words of Chief Justice EarlWarren, a corporate officer cannot protect himself behind a corporation where he is theactual, present and efficient actor

Nisce v. Equitable PCI Bank

Spouses Ramon and Natividad Nisce contracted loans evidenced by promissory notes

with herein respondent Equitable PCI Bank, Inc. These loans, amounting

to P34,087,725.76, as well as the surety agreement executed by Natividad, are secured

by real estate mortgages over two parcels of land owned by said spouses. Having

defaulted, respondent as creditor-mortgagee filed a petition for extrajudicial foreclosure. It

must be noted that during these transactions, Equitable and PCI Bank, Inc. Paseo de

Roxas merged into what is now Equitable PCI Bank, Inc.

Thereafter, spouses Nisce filed before the RTC of Makati City a complaint for ―nullity of

the Suretyship Agreement, damages and legal compensation‖ with prayer for injunctive

relief against the Bank and the Ex-Officio Sheriff. They alleged, among others, that: 1) the

bank should have compensated their debt with their dollar account which they maintain

with PCI Capital Asia Ltd. (Hong Kong), a subsidiary of Equitable; 2) the surety

agreement is void for want of the consent of Ramon, who happens to be the administrator

of the conjugal partnership; 3) they had made a partial payment of P4.6M on their loan

account which petitioner failed to credit in their favor.

The Bank, for its part, contends that although the spouses’ debt was restructured, they

nevertheless failed to pay. Moreover, it alleged that there cannot be legal compensation































because PCI Capital had a separate and distinct personality from the PCIB, and a claim

against the former cannot be made against the latter.

Equitable posited that Natividad’s deposit of $20,000 with PCIB Paseo de Roxas was

transferred to PCI Capital via cable order and that it informed Natividad that it had acted

merely as a conduit in facilitating the transfer of the funds, and that her deposit was made

with PCI Capital and not with PCIB.

The RTC issued an injunctive writ holding that it would be best to maintain the status quo

while it resolves the issue on legal compensation. The Bank, on the other hand, filed a

petition for certiorari right away, and dispensed with the filing of a motion for

reconsideration (MR) with the CA. The CA sustained the respondent and held that

spouses Nisce failed to prove that they will suffer irreparable injury. In fact, given their

admission that they have not settled their obligations, the Bank had a clear right to the

remedy of foreclosure. The CA likewise held there cannot be legal compensation

because the parties are not mutual creditors and debtors of each other since Equitable

and PCI Capital are separate and distinct entities, although the latter is a subsidiary of the

former. Lastly, the court noted that there is no need for an MR if only questions of law are

involved.

RULING: Admittedly, PCI Capital is a subsidiary of respondent Bank. Even then, PCI

Capital [PCI Express Padala (HK) Ltd.] has an independent and separate juridical

personality from that of the respondent Bank, its parent company; hence, any claim

against the subsidiary is not a claim against the parent company and vice versa .74 The

evidence on record shows that PCIB, which had been merged with Equitable Bank, owns

almost all of the stocks of PCI Capital. However, the fact that a corporation owns all of the

stocks of another corporation, taken alone, is not sufficient to justify their being treated as

one entity. If used to perform legitimate functions, a subsidiary’s separate existence shall

be respected, and the liability of the parent corporation, as well as the subsidiary shall be

confined to those arising in their respective business.75 A corporation has a separate

personality distinct from its stockholders and from other corporations to which it may be

conducted. This separate and distinct personality of a corporation is a fiction created by

law for convenience and to prevent injustice.

Saludaga v. FEU

Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern

University when he was shot by Alejandro Rosete, one of the security guards on duty at

the school premises on August 18, 1996. Rosete was brought to the police station where

he explained that the shooting was accidental. He was eventually released considering

that no formal complaint was filed against him.

Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and

Management Corporation (Galaxy), the agency contracted by respondent FEU to provide

security services within its premises and Mariano D. Imperial (Galaxy’s President), to

indemnify them for whatever would be adjudged in favor of petitioner.

Petitioner is suing respondents for damages based on the alleged breach of student-

school contract for a safe and secure environment and an atmosphere conducive to

learning.

We note that the trial court held respondent De Jesus solidarily liable with respondentFEU. In Powton Conglomerate, Inc. v. Agcolicol ,26 we held that:

[A] corporation is invested by law with a personality separate and distinct fromthose of the persons composing it, such that, save for certain exceptions,corporate officers who entered into contracts in behalf of the corporation cannotbe held personally liable for the liabilities of the latter. Personal liability of acorporate director, trustee or officer along (although not necessarily) with thecorporation may so validly attach, as a rule, only when - (1) he assents to a

patently unlawful act of the corporation, or when he is guilty of bad faith or grossnegligence in directing its affairs, or when there is a conflict of interest resultingin damages to the corporation, its stockholders or other persons; (2) heconsents to the issuance of watered down stocks or who, having knowledgethereof, does not forthwith file with the corporate secretary his written objectionthereto; (3) he agrees to hold himself personally and solidarily liable with thecorporation; or (4) he is made by a specific provision of law personallyanswerable for his corporate action.27

None of the foregoing exceptions was established in the instant case; hence, respondentDe Jesus should not be held solidarily liable with respondent FEU.







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feelings, serious anxiety, mental anguish or moral shock.32 The Court of Appeals found

BPI as "being famous and having gained its familiarity and respect not only in the

Philippines but also in the whole world because of its good will and good reputation must

protect and defend the same against any unwarranted suit such as the case at

bench."33 In holding that BPI is entitled to moral damages, the Court of Appeals relied on

the case of People v. Manero,34 wherein the Court ruled that "[i]t is only when a juridical

person has a good reputation that is debased, resulting in social humiliation, that moral

damages may be awarded.

Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et

al .,[37] and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-

Bicol Christian College of Medicine (AMEC-BCCM ),[38] the Court held that the

statements in Manero and Mambulao were mere obiter dicta, implying that the award of

moral damages to corporations is not a hard and fast rule. Indeed, while the Court may

allow the grant of moral damages to corporations, it is not automatically granted; there

must still be proof of the existence of the factual basis of the damage and its causal

relation to the defendant’s acts. This is so because moral damages, though incapable of

pecuniary estimation, are in the category of an award designed to compensate the

claimant for actual injury suffered and not to impose a penalty on the

wrongdoer. The spouses’ complaint against BPI proved to be unfounded, but it does not

automatically entitle BPI to moral damages. Although the institution of a clearly

unfounded civil suit can at times be a legal.

Justification for an award of attorney's fees, such filing, however, has almost invariably

been held not to be a ground for an award of moral damages. The rationale for the rule is

that the law could not have meant to impose a penalty on the right to litigate. Otherwise,

moral damages must every time be awarded in favor of the prevailing defendant against

an unsuccessful plaintiff .[40] BPI may have been inconvenienced by the suit, but we do

not see how it could have possibly suffered besmirched reputation on account of thesingle suit alone. Hence, the award of moral damages should be deleted.

MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL

BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte,

defendants-appellees. G.R. No. L-22973, January 30, 1968

ANGELES, J.:

FACTS: On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved

for a loan of P100,000 only) with the Naga Branch of defendant PNB. To secure payment,

the plaintiff mortgaged a parcel of land, together with the buildings and improvements

existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao),

province of Camarines Norte. The PNB released from the approved loan the sum of

P27,500, and another release of P15,500.

The plaintiff failed to pay the amortization on the amounts released to and received by it. It

was found that the plaintiff had already stopped operation about the end of 1957 or early

part of 1958.

The unpaid obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59,

excluding attorney's fees. A foreclosure sale of the parcel of land, together with the

buildings and improvements thereon was, held on November 21, 1961, and the said

property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff

to redeem the same within a period of one year.

The plaintiff sent a letter reiterating its request that the foreclosure sale of the mortgaged

chattels be discontinued on the grounds that the mortgaged indebtedness had been fully

paid and that it could not be legally effected at a place other than the City of Manila.

The trial court sentenced the Mambulao Lumber Company to pay to the defendant PNB

the sum of P3,582.52 with interest thereon at the rate of 6% per annum. The plaintiff onappeal advanced that its total indebtedness to the PNB as of November 21, 1961, was

only P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the

proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on

that date, added to the sum of P738.59 it remitted to the PNB thereafter was more than

sufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of

its chattels unlawful;

That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard

of plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale

thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties,

the PNB is liable to plaintiff for damages and attorney's fees.

ISSUE: Whether or not PNB may be held liable to plaintiff Corporation for damages and

attorney’s fees.

HELD: Herein appellant's claim for moral damages, seems to have no legal or factual

basis. Obviously, an artificial person like herein appellant corporation cannot

experience physical sufferings, mental anguish, fright, serious anxiety, wounded

feelings, moral shock or social humiliation which are basis of moral damages. A

corporation may have a good reputation which, if besmirched, may also be a ground for

the award of moral damages. The same cannot be considered under the facts of this

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case, however, not only because it is admitted that herein appellant had a lready ceased in

its business operation at the time of the foreclosure sale of the chattels, but also for the

reason that whatever adverse effects of the foreclosure sale of the chattels could have

upon its reputation or business standing would undoubtedly be the same whether the sale

was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place

agreed upon by the parties in the mortgage contract.

MERALCO v. TEAM Electronics

The law in force at the time material to this controversy was PD 401. It penalized

unauthorized installation of water, electrical, telephone connections and such acts as the

use of tampered electrical meters. PD 401 granted the electrical companies the right to

conduct inspections of electric meters and the criminal prosecution or erring customers

who were found to have tampered with their electrical meters. It did not provide for more

expedient remedies as the charging of differential billing and immediate disconnection

against erring customers. Thus, electric companies found a creative way of availing

themselves of such remedies by inserting into the service contracts a provision for

differential billing with the option of disconnection upon non-payment by the erring

customers. The Court has recognized the validity of such stipulations. However, recourse

to differential billing with disconnection was subject to the prior requirement of a 48-hour

written notice of disconnection.

MERALCO, in the instant case, resorted to the remedy of disconnection without prior

notice. While it is true that MERALCO sent a demand letter to TEC for the payment of

differential billing, it did not include any notice that the electric supply would be

disconnected. In fine, it abused the remedies granted to it under PD 401 by outright

depriving TEC of electric services without first notifying it of the impending disconnection.

The only exception to this rule is when the corporation has a reputation that is debased,resulting in its humiliation in the business realm.[51] But in such a case, it is imperative forthe claimant to present proof to justify the award. It is essential to prove the existence ofthe factual basis of the damage and its causal relation to petitioner’s acts.[52] In thepresent case, the records are bereft of any evidence that the name or reputation ofTEC/TPC has been debased as a result of petitioner’s acts. Besides, the trial court simplyawarded moral damages in the dispositive portion of its decision without stating the basisthereof.

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Corpo Digests CH 1 Atty. Chavez

Documents

Transcript of Corpo Digests CH 1 Atty. Chavez