1 Manila International Airport Authority vs Court of Appeals Facts: MIAA received Final Notices of Real Estate Tax Delinquency

from the City of Paraaque for the taxable years 1992 to 2001. MIAAs real estate tax delinquency was estimated at P624 million. The City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. Paranaque relied on Section 193 of the Local Government Code which expressly withdrew the tax exemption privileges of government-owned and-controlled corporations upon the effectivity of the Local Government Code. Respondents also argued that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents asserted that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax. MIAA contended that the Airport Lands and Buildings are owned by the Republic. The government could not tax itself. The reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor. Issue: Whether or not MIAA is a GOCC, hence, its Airport Lands and Buildings are subject to real estate tax under existing laws Held: No. MIAA is Not a Government-Owned or Controlled Corporation but an instrumentality of the National Government and thus exempt from local taxation. MIAA is also not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. MIAA is also not a non-stock corporation because it has no members. A non-stock corporation must have members. MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or nonstock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order. Therefore, the real estate tax assessments issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. Magsaysay-Labrador vs Court of Appeals Facts: On February 9 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the

2 amount of P 2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue a new title in her favor. On March 7, 1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC. The trial court denied the motion for intervention, and ruled that petitioners had no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders. The Court of Appeals affirmed the decision of the trial court. The appellate court further stated that whatever claims the Magsaysay sisters had against the late Senator or against SUBIC for that matter could be ventilated in a separate proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the petition for review on certiorari. Issue: Whether the Magsaysay sisters, allegedly stockholders of SUBIC, were interested parties in a case where corporate properties are in dispute. Held: No. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings. To be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay sisters is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. Sulo ng Bayan vs Araneta Facts: Sulo ng Bayan, Inc. filed with the Court of First Instance of Bulacan against Gregorio Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., and the Register of Deeds of Bulacan to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan in the name of GAI, et. al.'s predecessors-in-interest (who are members of the corporation). Thereafter, GAI filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. NAWASA did not file any motion to dismiss. However, it pleaded in its answer as special and affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the barring of such action by prescription and laches. The trial court issued an Order dismissing the (amended) complaint. However, Sulo ng Bayan filed a motion to reconsider the order of dismissal, arguing among others that the complaint stated a sufficient cause of action because the subject matter of the controversy was one of common interest to the members of the corporation who were so numerous that the present complaint should be treated as a class suit. The motion was likewise denied by the trial court.

3 On appeal, the CA certified the case to the Supreme Court for resolution of the legal issues involved in the controversy. Issue: Whether the corporation (non-stock) may institute an action in behalf of its individual members for the recovery of certain parcels of land allegedly owned by said members, among others. Held: No. A corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. The property of the corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the case of a one-man corporation." The juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in question to the corporation. Absent any showing of interest, therefore, a corporation, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal capacities. Bataan Shipyard vs PCGG Facts: When President Corazon Aquino took power, the Presidential Commission on Good Government (PCGG) was formed in order to recover ill gotten wealth allegedly acquired by former President Marcos and his cronies. Aquino then issued two executive orders in 1986 and pursuant thereto, a sequestration and a takeover order were issued against Bataan Shipyard & Engineering Co., Inc. (BASECO). BASECO was alleged to be in actuality owned and controlled by the Marcoses through the Romualdez family, and in turn, through dummy stockholders. The sequestration order issued in 1986 required, among others, that BASECO produce corporate records from 1973 to 1986 under pain of contempt of the PCGG if it failed to do so. BASECO assailed this order averring , among others, that it is against BASECOs right against self incrimination and unreasonable searches and seizures. Issue: Whether or not BASECO was correct Held: No. First of all, PCGG had the right to require the production of such documents pursuant to the power granted to it. Second, and more importantly, right against self-incrimination has no application to juridical persons. There is a reserve right in the legislature to investigate the contracts of a corporation and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation like BASECO to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. Neither is the right against unreasonable searches and seizures applicable in the instant case. There were no searches made and no seizure pursuant to any search was ever made. BASECO was merely ordered to produce the corporate records. Luxuria Homes vs Court of Appeals

4 Facts:

Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she entered into an agreement with Jaime Bravo for the latter to draft a development and architectural design for the said property. The contract price was P450,000.00. Posadas gave a down payment of P25,000.00. Later, Posadas assigned her property to Luxuria Homes, Inc. One of the witnesses to the deed of assignment and articles of incorporation was Jaime Bravo. In 1992, Bravo finished the architectural design so he proposed that he and his company manage the development of the property. But Posadas turned down the proposal and thereafter the business relationship between the two went sour. Bravo then demanded Posadas to pay them the balance of their agreement as regards the architectural design (P425,000.00). Bravo also demanded payment for some other expenses and fees he incurred i.e., negotiating and relocating the informal settlers then occupying the land of Posadas. Posadas refused to make payment. Bravo then filed a complaint for specific performance against Posadas but he included Luxuria Homes as a co-defendant as he alleged that Luxuria Homes was a mere conduit of Posadas; that the said corporation was created in order to defraud Bravo and avoid the payment of debt. Issue: Whether or not Luxuria Homes should be impleaded Held: No. It was Posadas who entered into a contract with Bravo in her personal capacity. Bravo was not able to prove that Luxuria Homes was a mere conduit of Posadas. Posadas owns just 33% of Luxuria Homes. Further, when Luxuria Homes was created, Bravo was there as a witness. He could not claim that the creation of said corporation was to defraud him. The eventual transfer of Posadas property to Luxuria was with the full knowledge of Bravo. The agreement between Posadas and Bravo was entered into even before Luxuria existed hence Luxuria was never a party thereto. Whatever liability Posadas incurred arising from said agreement must be borne by her solely and not in solidum with Luxuria. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. Concept Builders vs NLRC Facts: Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, was engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. On November, 1981, private respondents were served individual written notices of termination of employment by petitioner stating that their contracts of employment had expired and the project in which they were hired had been completed. However, they found that at the time of the termination of their employment, the project in which they were hired had not yet been finished and completed. Concept Builders had to engage the services of sub-contractors whose workers performed the functions of private respondents. Private respondents filed a complaint for illegal dismissal, unfair labor practice and nonpayment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. The Labor Arbiter rendered judgment ordering reinstatement and payment of back wages. The NLRC dismissed the motion for reconsideration filed by Concept Builders on the ground that it had become final and executory. A writ of execution was issued. It was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority. An alias writ was issued to satisfy the balance and the reinstatement of private respondents. It could not be served because the petitioner no longer occupied the premises. Another alias writ was issued, which again could not be served because the employees claimed they were employees of Hydro Pipes Philippines, Inc. and that the properties to be levied upon were owned by the said corporation. Private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and Concept Builders were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal

5 obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order. The Labor Arbiter issued an Order which denied private respondents' motion for breakopen order. On appeal, the NLRC issued the break-open order. Concept Builders motion for reconsideration was denied. Issue: Whether or not NLRC commited grave abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against personal property found in the premises of petitioner's sister company Held: No. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. Control, not mere majority or complete stock 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 or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to that operation. In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the SEC on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers. Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation. In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment. Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the breakopen order issued by the Labor Arbiter. Francisco Motors vs Court of Appeals

6 Facts: In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover from a him a sum of money in the amount of more than P23,000.00. Said amount was allegedly owed to them by Manuel for the purchase of a jeep body plus repairs thereto. Manuel filed a counterclaim in the amount of P50,000.00. In his counterclaim, Manuel alleged that he was the Assistant Legal Officer for FMC; that the Francisco Family, owners of FMC, engaged his services for the intestate estate proceedings of one Benita Trinidad; that he was not paid for his legal services; that he is filing the counterclaim against FMC because said corporation was merely a conduit of the Francisco Family. The trial court as well as the Court of Appeals granted Manuels counterclaim on the ground that the legal fees were owed by the incorporators of FMC (an application of the doctrine of piercing the veil of corporation fiction in a reversed manner). Issue: Whether or not the doctrine of piercing the veil of corporate fiction was properly used by the Court of Appeals. Held: No. In the first place, the doctrine is to be used in disregarding corporate fiction and making the incorporators liable in appropriate circumstances. In the case at bar, the doctrine is applied upside down where the corporation is held liable for the personal obligations of the incorporators such was uncalled for and erroneous. It must be noted that that Atty. Manuels legal services were secured by the Francisco Family to represent them in the intestate proceedings over Benita Trinidads estate. The indebtedness was incurred by the Francisco Family in their separate and personal capacity. These estate proceedings did not involve any business of FMC. The proper remedy is for Manuel to sue the concerned members of the Francisco Family in their individual capacity. Times Transportation Company vs Santos Sotelo Facts: Times Transportation Company, Inc. (Times) is a corporation engaged in the business of land transportation. Times Employees Union (TEU) was formed and issued a certificate of union registration. Times challenged the legitimacy of TEU by filing a petition for the cancellation of its union registration. TEU held a strike in response to Times alleged attempt to form a rival union and its dismissal of the employees identified to be active union members. The Labor Secretary assumed jurisdiction over the case and referred the matter to the NLRC for compulsory arbitration. A return-to-work order was likewise issued. In a certification election, TEU was certified as the sole and exclusive collective bargaining agent in Times. Consequently, TEUs president wrote the management of Times and requested for collective bargaining. Times refused. TEU filed a Notice of Strike. Another conciliation/mediation proceeding was conducted for the purpose of settling the brewing dispute. Times management implemented a retrenchment program and notices of retrenchment were sent to some of its employees. TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged participation in an illegal strike, Times terminated all the 123 striking employees. The DOLE Secretary issued the second return-to-work order certifying the dispute to the NLRC. While the strike was ended, the employees were no longer admitted back to work. MencorpTransport Systems, Inc. (Mencorp) had acquired ownership over Times Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale. Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority stockholder of Times. Meanwhile, the NLRC rendered a decision declaring the first strike legal and the second illegal. Times and TEU both appealed the decision of the NLRC, which the Court of Appeals affirmed. Upon denial of its motion for reconsideration, Times filed a petition for review on certiorari. After the closure of Times, the retrenched employees filed cases for illegal dismissal, money claims and unfair labor practices against Times before the Regional Arbitration Branch in

7 San Fernando City, La Union. The employees withdrew their complaints with leave of court and filed a new set of cases before the National Capital Region Arbitration Branch, impleading Mencorp and the Spouses Mendoza. Times sought the dismissal of these cases on the ground of litis pendencia and forum shopping. The Labor Arbiter ruled that the dismissals of complainants Times, effected, participated in, authorized or ratified by Santiago Rondaris constituted the prohibited act of unfair labor practice and hence, illegal and that th esale of said respondent company to respondents Mencorp Transport Systems Company (sic),Inc. and/or Virginia Mendoza and Reynaldo Mendoza was simulated and/or effected in bad faith. Times, Mencorp and the Spouses Mendoza submitted their respective memorandum of appeal to the NLRC. NLRC rendered its decision remanding the records of the consolidated cases to the Arbitration Branch of origin for disposition and for the conduct of appropriate proceedings. NLRC denied the Motion for Reconsideration. Thus, the employees appealed to the CA by way of a petition for certiorari, which granted the petition and set aside the decision of the N LRC. Times, Mencorp and the Spouses Mendoza filed Motions for Reconsideration, which were denied. Hence, this petition for review on certiorari.

8 Issue: Whether or not piercing the corporate veil in this case was proper Held: Yes. We have held that piercing the corporate veil is warranted only in cases when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defendcrime, such that in the case of two corporations, the law will regard the corporations as merged into one. It may be allowed only if the following elements concur: (1) controlnot mere stockcontrol, but complete dominationnot only of finances, but of policy and business practice inrespect to the transaction attacked; (2) such control must have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest andan unjust act in contravention of a legal right; and (3) the said control and breach of duty musthave proximately caused the injury or unjust loss complained of. In this case, the sale was transferred to a corporation controlled by V. Mendoza, the daughter of S. Rondaris of Times where she is/was also a director. All of the stockholders/incorporators of Mencorp are all relatives of S. Rondaris. The timing of the sale evidently was to negate the employees/complainants/members right to organization as it was effected when their union (TEU) was just organized/requesting Times to bargain. Mencorp never obtained a franchise since its supposed incorporation but at present, all the buses of Times are already being run/operated by Mencorp, the franchise of Times having been transferred to it. The sale of Times franchise as well as most of its bus units to a company owned by Rondaris daughter and family members, right in the middle of a labor dispute, is highly suspicious. Evidently, the transaction was made in order to remove Times remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed against it. Yao, Sr. vs People Facts: Petitioners are incorporators and officers of Masagana Gas Corporation (Masagana), an entity engaged in the refilling, sale and distribution of LPG products. Private respondents Petron Corporation (Petron) and Pilipinas Shell Petroleum Corporation (Pilipinas Shell) are two of the largest bulk suppliers and producers of LPG in the Philippines. Petron is the registered owner in the Philippines of the trademarks GASUL and GASUL cylinders used for its LPG products. It is the sole entity in the Philippines authorized to allow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers, products and its trademarks. Pilipinas Shell, on the other hand, is the authorized user in the Philippines of the tradename, trademarks, symbols, or designs of its principal, Shell International Petroleum Company Limited (Shell International), including the marks SHELLANE and SHELL device in connection with the production, sale and distribution of SHELLANE LPGs. It is the only corporation in the Philippines authorized to allow refillers and distributors to refill, use, sell and distribute SHELLANE LPG containers and products. On April 3, 2003, NBI agent Ritche N. Oblanca (Oblanca) filed two applications for search warrant with the RTC, Cavite City, against petitioners and other occupants of the Masagana compound for alleged violation of Section 155, in relation to Section 170 of The Intellectual Property Code of the Philippines. The two applications for search warrant uniformly alleged that per information, belief, and personal verification of Oblanca, the petitioners were actually producing, selling, offering for sale and/or distributing LPG products using steel cylinders owned by, and bearing the tradenames, trademarks, and devices of Petron and Pilipinas Shell, without authority and in violation of the rights of the said entities. Masagana, as third party claimant, filed with the RTC a Motion for the Return of Motor Compressor and LPG Refilling Machine. It claimed that it is the owner of the said motor compressor and LPG refilling machine; that these items were used in the operation of its legitimate business; and that their seizure will jeopardize its business interests. RTC resolved that Masagana cannot be considered a third party claimant whose rights were violated as a result of the seizure since the evidence disclosed that petitioners are stockholders of Masagana and that they conducted their business through the same juridical entity. CA affirmed RTCs decision.

9 Issue: Whether or not CA erred in ruling that the complaint is directed against Masagana Gas Corporation, acting through its officers and directors, hence, Masagana may not be considered as third party claimant whose rights were violated as a result of the seizure Held: No. It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders, directors or officers. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or in the case of two corporations merge them into one. Here, the petitioners, as directors/officers of MASAGANA, are utilizing the latter in violating the intellectual property rights of Petron and Pilipinas Shell. Thus, petitioners collectively and MASAGANA should be considered as one and the same person for liability purposes. Consequently, MASAGANAs third party claim serves no refuge for petitioners. The law does not require that the property to be seized should be owned by the person against whom the search warrants are directed. Ownership, therefore, is of no consequence, and it is sufficient that the person against whom the warrant is directed has control or possession of the property sought to be seized. Hence, even if, as petitioners claimed, the properties seized belong to MASAGANA as a separate entity, their seizure pursuant to the search warrants is still valid. Further, it is apparent that the motor compressor, LPG refilling machine and the GASUL and SHELL LPG cylinders seized were the corpus delicti, the body or substance of the crime, or the evidence of the commission of trademark infringement. These were the very instruments used or intended to be used by the petitioners in trademark infringement. It is possible that, if returned to MASAGANA, these items will be used again in violating the intellectual property rights of Petron and Pilipinas Shell. Seventh Day Adventist vs Northeastern Mindanao Mission Facts: On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union Mission of Seventh Day Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan). The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf of the donee. Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses Cosio to the Seventh Day Adventist Church of North-Eastern Mindanao Mission (SDA-NEMM). Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA Bayugan could not legally be a donee because, not having been incorporated yet, it had no juridical personality. Petitioners then filed a case for cancellation of title, quieting of ownership and possession, declaratory relief and reconveyance with prayer for preliminary injunction and damages, in the RTC of Bayugan, Agusan del Sur. RTC upheld the sale in favor of respondents. On appeal, the CA affirmed the RTC decision. Petitioners motion for reconsideration was likewise denied. Thus, this petition. Issue: Whether or not at the time the donation was made, SPUM-SDA had juridical personality or capacity to accept such gift. Ruling: No. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who accepts it. The donation could not have been made in favor of an entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet no one to accept it. The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift. While there existed the old Corporation Law (Act 1459), a law under which SPUM-SDA Bayugan could have been organized, there is no proof that there was an attempt to incorporate at that time. The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation. An organization not

10 registered with the SEC cannot be considered a corporation in any concept, not even as a corporation de facto. Petitioners themselves admitted that at the time of the donation, they were not registered with the SEC, nor did they even attempt to organize to comply with legal requirements. Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation. Petitioners obviously could not have claimed succession to an entity that never came to exist. Neither could the principle of separate juridical personality apply since there was never any corporation to speak of. And, as already stated, some of the representatives of petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not even members of the local church then, thus, they could not even claim that the donation was particularly for them. Lim Tong Lim vs Court of Appeals Facts: It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again borrowed money and they agreed to purchase fishing nets and other fishing equipments. Now, Yao and Chua represented themselves as acting in behalf of Ocean Quest Fishing Corporation (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to more than P500k. They were however unable to pay PFGI and so they were sued in their own names because apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong Lim however argued that he was not liable because he was not aware that Chua and Yao represented themselves as a corporation; that the two acted without his knowledge and consent. Issue: Whether or not Lim Tong Lim was liable. Held: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term common fund under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. Lim Tong Lim could not argue that the principle of corporation by estoppel can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. International Express Travel and Tour Services vs Court of Appeals Facts: In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the Philippine Football Federation (PFF) its travel services for the South East Asian Games. PFF, through Henri Kahn, its president, agreed. IETTI then delivered the plane tickets to PFF. PFF in turn made a down payment. However, PFF was not able to complete the full payment in subsequent installments despite repeated demands from IETTI. IETTI then sued PFF and Kahn

11 was impleaded as a co-defendant. Kahn averred that he should not be impleaded because he merely acted as an agent of PFF which he averred is a corporation with separate and distinct personality from him. The trial court ruled against Kahn and held him personally liable for the said obligation (PFF was declared in default for failing to file an answer). The trial court ruled that Kahn failed to prove that PFF is a corporation. The Court of Appeals however reversed the decision of the trial court. The Court of Appeals took judicial notice of the existence of PFF as a national sports association; that as such, PFF is empowered to enter into contracts through its agents; that PFF is therefore liable for the contract entered into by its agent Kahn. The CA further ruled that IETTI is in estoppel; that it cannot now deny the corporate existence of PFF because it had contracted and dealt with PFF in such a manner as to recognize and in effect admit its existence. Issue: Whether or not the Court of Appeals is correct. Held: No. PFF, upon its creation, is not automatically considered a national sports association. It must first be recognized and accredited by the Philippine Amateur Athletic Federation and the Department of Youth and Sports Development. This fact was never substantiated by Kahn. As such, PFF is considered as an unincorporated sports association. And under the law, any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. Kahn is therefore personally liable for the contract entered into by PFF with IETTI. There is also no merit on the finding of the CA that IETTI is in estoppel. The application of the doctrine of corporation by estoppel applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation. In the case at bar, IETTI is not trying to escape liability from the contract but rather is the one claiming from the contract. Filipinas Broadcasting Network, Inc. vs Ago Medical and Educational Center-Bicol Christian College of Medicine Facts: Petitioner Filipinas Broadcasting Network, Inc (FBNI) assails the Resolution of the CA which modified the December 14, 1992 decision of the RTC of Legazpi City (as to the amount of moral damages), and found petitioner and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel. The lower court ordered FBNI, Alegre and Rima to solidarily pay moral damages, attorneys fees and the costs of the suit to Ago Medical and Educational Center- Bicol Christian College of Medicine (AMEC). The complaint alleged that Alegre and Rima had made malicious imputations and as such destroyed plaintiffs (AMEC and Angelita Ago, Dean of the College of Medicine) reputation by citing the alleged complaints of students, parents and teachers. The complaint cited that defendants had made the ff libellous imputations with no factual basis: (1) That AMEC-BCCM requires its students to repeat subjects which they have passed already the moment they fail one subject, despite the absence of any such regulation by the DECS; (2) That students were required to take and pay for the subject even if there is no instructor, which demonstrates the greed of AMECs administration and; (3) That AMEC is a dumping ground of moral and physical misfits because it continued to accept rejects in order to minimize salary expenses. FBNI was impleaded as a defendant for failing to exercise due diligence in the selection and supervision of its employees (Alegre and Rima). A Motion to Dismiss was filed in behalf of FBNI which the RTC denied. The lower court held that the broadcasters were liable per se and were not the result of straight reporting because it had no factual basis because the broadcasters failed to verify their reports. FBNI failed to exercise the due diligence as required by law. Hence, the judgment requiring FBNI, Alegre and Rima to pay moral damages (Php 300,000), plus reimbursement of attorneys fees (Php 30,000) and the costs of the suit. CA lowered the amount of moral damages to Php 150,000.

12 Issue: Whether or not AMEC-BCCM, a corporation, is entitled to the award of moral damages. Ruling: Yes. AMEC-BCCM is entitled to the award of moral damages. Generally, a juridical person is not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. In Mambulao Lumber Co. v. PNB, et al, the award of moral damages may be justified. However, the Courts statement in the said case, that a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages, is an obiter dictum. AMECs claim for moral damages was grounded under item 7 of Article 2219 of the Civil Code which authorizes the same in cases of libel, slander, or any other form of defamation. The provision does not qualify whether the plaintiff seeking such award is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain of libel or any other form of defamation and claim for moral damages as a result thereof. Moreover, evidence of an honest mistake or the want of character or reputation of the party libelled serves only to mitigate the amount of damages. Since the broadcasts are libelous per se, AMEC is entitled to moral damages. The amount is reduced to Php 150,000 because AMEC has not suffered any substantial or material damage to its reputation. Coastal Pacific Trading, Inc. vs Southern Rolling Mills Co., Inc. Facts: Visayan Integrated Steel Corporation or VISCO was formerly known as Sounthern Rolling Mills, Inc. VISCO entered into a processing agreement with Petitioner Coastal. The parties agreed that Coastal would deliver 3,000 metric tons of hot rolled steel coils to VISCO for processing in to block iron sheets. However, VISCO was able to process and deliver to Coastal only 1, 600 metric tons of the said sheets. Hence , a total of 1,400 metric tons of hot rolled coils remained unclaimed for. Then a year later, Coastal filed with the RTC a Complaint for Recovery of Property and Damages. It alleged that VISCO had fraudulently misapplied or converted the finished steel entrusted to it. Issue: Whether or not Coastal is liable for moral damages. Held: No. As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a good reputation that is debased, resulting in its humiliation in the business realm. In the case at bar, the records did not show any evidence that the name or reputation of Coastal was dishonored as a result of the fraudulent acts complained by Coastal. Hence, Coastal is not entitled to moral damages. Lyceum of the Philippines vs Court of Appeals Facts: Petitioner is an educational institution duly registered with the SEC since Sept 1950. Before the case at bar, petitioner commenced a proceeding against Lyceum of Baguio with the SEC to require it to change its corporate name and adopt a new one not similar or identical to the Petitioner. SEC granted noting that there was substantial similarity because of the dominant word Lyceum. CA and SC affirmed. Petitioner filed a similar complaint against other schools and obtained a favorable decision from the hearing officer. On appeal, SEC En banc reversed the decision and held that the word Lyceum have not become so identified with the petitioner and that the use thereof will cause confusion to the general public. Issue:

13 Whether or not the corporate names of the private respondents are identical with or deceptively similar to that of the petitioner. Held: No. The corporate names of the parties carry the word Lyceum but confusion and deception are precluded by the appending of geographic names. Lyceum generally refers to a school or an institution of learning and it is natural to use this word to designate an entity which is organized and operating as an educational institution. The doctrine of secondary meaning is a word of phrase originally incapable of exclusive appropriation, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product. Lyceum of the Philippines has not gained exclusive use of Lyceum by long passage of time. The number alone of the private respondents suggests strongly that the use of Lyceum has not been attended with the exclusivity essential for the applicability of the doctrine. It may be noted that one of the respondents Western Pangasinan Lyceum used such term 17 years before the petitioner registered with the SEC. Moreover, there may be other schools using the name but not registered with the SEC because they have not adopted the corporate form of organization. Ang mga Kaanib sa Iglesia ng Dios vs Iglesia ng Dios Kay Kristo Jesus Facts: The Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (IDCJ-HSK; Church of God in Christ Jesus, the Pillar and Ground of Truth), is a non-stock religious society or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several other members of said corporation disassociated themselves from the latter and succeeded in registering on March 30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan (IDKJ-HSK). On 16 July 1979, IDCJ-HSK filed with the SEC a petition to compel IDKJ-HSK to change its corporate name (SEC Case 1774). The SEC rendered judgment in favor of IDCJ-HSK, ordering IDKJ-HSK to change its corporate name to another name that is not similar or identical to any name already used by a corporation, partnership or association registered with the Commission. No appeal was taken from said decision. During the pendency of SEC Case 1774, Soriano, et al., caused the registration on April 25, 1980 of Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas (AK[IDKH-HSK]BP). The acronym "H.S.K." stands for Haligi at Saligan ng Katotohanan. On 2 March 1994, IDCJ-HSK filed before the SEC a petition praying that AK[IDKH-HSK]BP be compelled to change its corporate name and be barred from using the same or similar name on the ground that the same causes confusion among their members as well as the public. KIDKH-HSK-BP filed a motion to dismiss on the ground of lack of cause of action. The motion to dismiss was denied. Thereafter, for failure to file an answer, AK[IDKH-HSK]BP was declared in default and IDCJ-HSK was allowed to present its evidence ex parte. Thereafter, SEC rendered a decision ordering AK[IDKH-HSK]BP to change its corporate name. AK[IDKH-HSK]BP appealed to the SEC En Banc. In a decision dated 4 March 1996, the SEC En Banc affirmed the above decision, upon a finding that AK[IDKH-HSK]BP's corporate name was identical or confusingly or deceptively similar to that of IDCJ-HSK's corporate name. CA affirmed the decision of the SEC En Banc. AK[IDKH-HSK]BP's motion for reconsideration was denied, hence, this petition for review. Issue: Whether or not the corporate names of AK[IDKH-HSK]BP and IDCH-HSK are confusingly similar. Held: Yes. The SEC has the authority to de-register at all times and under all circumstances corporate names which in its estimation are likely to spawn confusion. It is the duty of the SEC to

14 prevent confusion in the use of corporate names not only for the protection of the corporations involved but more so for the protection of the public. Section 18 of the Corporation Code provides that "No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or is contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states that "(d) If the proposed name contains a word similar to a word already used as part of the firm name or style of a registered company, the proposed name must contain two other words different from the name of the company already registered; Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be prevented by the corporation having a prior right, by a suit for injunction against the new corporation to prevent the use of the name. Herein, the additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in AK[IDKH-HSK]BP's name are merely descriptive of and also referring to the members, or kaanib, of IDCH-HSK who are likewise residing in the Philippines. These words can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing AK[IDKH-HSK]BP from IDCH-HSK. This is especially so, since both AK[IDKH-HSK]BP and IDCHHSK are using the same acronym H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in the same place. Parenthetically, it is well to mention that the acronym H.S.K. used by AK[IDKH-HSK]BP stands for "Haligi at Saligan ng Katotohanan." The records reveal that in holding out their corporate name to the public, AK[IDKHHSK]BP highlights the dominant words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN," which is strikingly similar to IDCH-HSK's corporate name, thus making it even more evident that the additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are merely descriptive of and pertaining to the members of IDCH-HSK. Significantly, the only difference between the corporate names of AK[IDKH-HSK]BP and IDCHHSK are the words SALIGAN and SUHAY. These words are synonymous both mean ground, foundation or support. Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., where the Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even under the test of "reasonable care and observation" confusion may arise. Young Auto Supply vs Court of Appeals Facts: On October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development Corporation (CMDC) to George C. Roxas. The purchase price was P8,000,000.00 payable as follows: a down payment of P4,000,000.00 and the balance of P4,000,000.00 in four postdated checks of P1,000,000.00 each. Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full payment of the balance of the purchase price. The first check of P4,000,000.00, representing the down payment, was honored by the drawee bank but the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00. Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the CMDC shares to Nemesio Garcia. YASCO and Garcia filed a complaint against Roxas in the Regional Trial Court of Cebu City praying that Roxas be ordered to pay them the sum of P3,400,000.00 or that full control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs.

15 Failing to submit his answer, the trial court declared Roxas in default. The order of default was, however, lifted upon motion of Roxas. Roxas then filed a motion to dismiss. After hearing, trial court denied Roxas' motion to dismiss. After receiving said order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion for reconsideration, which the trial court denied for being pro-forma. Roxas was again declared in default, on the ground that his motion for reconsideration did not toll the running of the period to file his answer. On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with the required affidavit of merit. But without waiting for the resolution of the motion, he filed a petition for certiorari with the Court of Appeals. The Court of Appeals dismissed the complaint on the ground of improper venue. A subsequent motion for reconsideration was filed by YASCO but to no avail. YASCO and Garcia filed the petition. Issue: Whether the venue for the case against YASCO and Garcia in Cebu City was improperly laid. Held: No. A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation. The Corporation Code precisely requires each corporation to specify in its articles of incorporation the "place where the principal office of the corporation is to be located which must be within the Philippines." The purpose of this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory. Actions cannot be filed against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an action to be instituted in any place where the corporation has branch offices would create confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal actions in a place other than its principal place of business unless such a place is also the residence of a coplaintiff or a defendant. With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City as the venue. The decision of the Court of Appeals was set aside. Republic Planters Bank vs Agana Facts: On September 18, 1961, the Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan from the Republic Planters Bank in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to RFRDC through its officers then, Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to the full amount of the loan, which is P120,000.00, the Bank lent such amount partially in the form of money and partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes. Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the following rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly dividend of 1%, cumulative and participating. xxx 2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after 2 years from the date of issue at the option of the Corporation." On January 31, 1979, RFRDC and Robes proceeded against the Bank and filed a complaint anchored on their alleged rights to collect dividends under the preferred shares in question and to have the bank redeem the same under the terms and conditions of the stock certificates. The bank filed a Motion to Dismiss on the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under

16 substantive law; and (3) that the action was barred by the statute of limitations and/or laches. The bank's Motion to Dismiss was denied by the trial court. The trial court rendered a decision in favor of RFRDC and Robes ordering the bank to pay RFRDC and Robes the face value of the stock certificates as redemption price, plus 1% quarterly interest thereon until full payment. The bank filed the petition for certiorari with the Supreme Court, essentially on pure questions of law. Issue: 1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes. 2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a matter of right without necessity of a prior declaration of dividend. Held: 1. No. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank. The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel or refuse the redemption of its stock. Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be construed as having a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank made a finding that the Bank has been suffering from chronic reserve deficiency, and that such finding resulted in a directive, issued on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and valid reason. The directive issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity, may thus be considered as an exercise of police power. 2. No. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. In compelling the bank to redeem the shares and to pay the corresponding dividends, the Trial committed grave abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as the clear mandate of the law. Castillo, et. al. vs Balinghasay, et. al. Facts: Petitioners and the respondents are stockholders of MCPI, with the former holding Class B shares and the latter owning Class A shares. MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat, Paraaque City. It was organized sometime in September 1977. At the time of its incorporation, Act No. 1459, the old Corporation Law was still in force and effect. Article VII of MCPIs original Articles of Incorporation, as approved by the Securities and Exchange Commission (SEC) on October 26, 1977, provides that: Only holders of Class A shares can have the right to vote and the right to be elected as directors or as corporate officers.

17 On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended, to read thus: Only holders of Class A shares have the right to vote and the right to be elected as directors or as corporate officers. On September 9, 1992, Article VII was again amended to provide as follows: Except when otherwise provided by law, only holders of Class A shares have the right to vote and the right to be elected as directors or as corporate officers. Before the trial court, the herein petitioners alleged that they were deprived of their right to vote and to be voted on as directors at the annual stockholders meeting held on February 9, 2001, because respondents had erroneously relied on Article VII of the Articles of Incorporation of MCPI, despite Article VII being contrary to the Corporation Code, thus null and void. Issue: Whether or not holders of Class B shares of the MCPI may be deprived of the right to vote and be voted for as directors in MCPI Held: No. When Article VII of the Articles of Incorporation of MCPI was amended in 1992, the phrase except when otherwise provided by law was inserted in the provision governing the grant of voting powers to Class A shareholders. This particular amendment is relevant for it speaks of a law providing for exceptions to the exclusive grant of voting rights to Class A stockholders. The law referred to in the amendment to Article VII refers to the Corporation Code and no other law. At the time of the incorporation of MCPI in 1977, the right of a corporation to classify its shares of stock was sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right of classification of stock shares to corporations, but with a significant change. Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights were explicitly provided for, such that no share may be deprived of voting rights except those classified and issued as preferred or redeemable shares, unless otherwise provided in this Code and that there shall always be a class or series of shares which have complete voting rights. Section 6 of the Corporation Code being deemed written into Article VII of the Articles of Incorporation of MCPI, it necessarily follows that unless Class B shares of MCPI stocks are clearly categorized to be preferred or redeemable shares, the holders of said Class B shares may not be deprived of their voting rights. Note that there is nothing in the Articles of Incorporation nor an iota of evidence on record to show that Class B shares were categorized as either preferred or redeemable shares. The only possible conclusion is that Class B shares fall under neither category and thus, under the law, are allowed to exercise voting rights. The stockholder cannot be deprived of the right to vote his stock nor may the right be essentially impaired, either by the legislature or by the corporation, without his consent, through amending the charter, or the by-laws. Section 148 of the Corporation Code expressly provides that it shall apply to corporations in existence at the time of the effectivity of the Code. Hence, the non-impairment clause is inapplicable in this instance. When Article VII of the Articles of Incorporation of MCPI were amended in 1992, the board of directors and stockholders must have been aware of Section 6 of the Corporation Code and intended that Article VII be construed in harmony with the Code, which was then already in force and effect. Wilson P. Gamboa vs Finance Secretary Margarito B. Teves, et. al and Pablito V. Sanidad, et. al. (2012) Facts: In 1928, the Philippine Long Distance Telephone Company (PLDT) was granted a franchise to engage in the business of telecommunications. Telecommunications is a nationalized area of activity where a corporation engaged therein must have 60% of its capital be owned by Filipinos as provided for by Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution, to wit: Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; xxx

18 In 1999, First Pacific, a foreign corporation, acquired 37% of PLDT common shares. Wilson Gamboa opposed said acquisition because at that time, 44.47% of PLDT common shares already belonged to various other foreign corporations. Hence, if First Pacifics share is added, foreign shares will amount to 81.47% or more than the 40% threshold prescribed by the Constitution. Margarito Teves, as Secretary of Finance, and the other respondents argued that this is okay because in totality, most of the capital stocks of PLDT is Filipino owned. It was explained that all PLDT subscribers, pursuant to a law passed by Marcos, are considered shareholders (they hold serial preferred shares). Broken down, preferred shares consist of 77.85% while common shares consist of 22.15%. Gamboa argued that the term capital should only pertain to the common shares because that is the share which is entitled to vote and thus have effective control over the corporation. Issue: Whether or not the term capital in Section 11, Article XII of the Constitution refers to common shares Held: Yes. Capital only pertains to common shares. It will be absurd for capital to pertain as inclusive of non-voting shares. This is because a corporation consisting of 1,000,000 capital stocks, 100 of which are common shares which are foreign owned and the rest (999,900 shares) are preferred shares which are non-voting shares and are Filipino owned, would seem compliant to the constitutional requirement here 99.999% is Filipino owned. But if scrutinized, the controlling stock the voting stock or that miniscule .001% is foreign owned. That is absurd. In this case, it is true that at least 77.85% of the capital is owned by Filipinos (the PLDT subscribers). But these subscribers, who hold non-voting preferred shares, have no control over the corporation. Hence, capital should only pertain to common shares. Thus, to be compliant with the constitution, 60% of the common shares of PLDT should be Filipino owned. That is not so in this case as it appears that 81.47% of the common shares are already foreign owned (split between First Pacific (37%) and a Japanese corporation). Preferred shares may be considered part of the capital share only if the preferred shares are allowed to vote like common shares. Grace Christian High School vs Court of Appeals Facts: Grace Christian High School (GCHS) is an educational institution in Grace Village. Grace Village Association, Inc. (GVAI) is the homeowners association in Grace Village. GVAI has an existing by-laws which was already in effect since 1968. But in 1975, the board of directors made a draft amending the by-laws whereby the representative of GCHS shall have a permanent seat in the 15-seat board. The draft however was never presented to the general membership for approval. But nevertheless, the representative of GCHS held a seat in the board for 15 years until in 1990 when a proposal was made to the board to reconsider the practice of allowing the GCHS representative in taking a permanent seat. An election was scheduled for the 15 seats in the board. GCHS opposed the election as it insisted that the election should only be for 14 directors because it has a permanent seat. GVAI argued that GCHS claim has no basis because the 1975 proposed amendment was never ratified. GCHS averred that it was ratified when it was allowed to take the seat for 15 years and as such its right has already vested. Issue: Whether or not the representative from Grace Christian High School should be allowed to have a permanent seat in the board of directors. Held: No. The Corporation Code is clear when it provides that members of the board of a corporation must be elected by the stockholders (stock corporation) or the members (non-stock corporation). Admittedly, there are corporations who allow some of their directors to sit in the board without being elected but such practice cannot prevail over provisions of law. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law.

19 There is no reason as to why a representative from GCHS should be given an automatic seat. It should therefore go through the process of election. It cannot also be argued that the draft of the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15 years without an election. In the first place, the proposal was merely a draft and even if passed and approved by the general membership, it cannot be given effect because it is void and contrary to the law. GCHS seat in the corporate board is at best merely tolerated by GVAI. Gokongwei vs SEC Facts: John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with the SEC a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended bylaws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. Gokongwei alleged that the Board amended the bylaws of the corporation, prescribing additional qualifications for its directors, that no person shall qualify or be eligible for nomination if he is engaged in any business which competes with that of the Corporation. The board based their authority to do so on a resolution of the stockholders. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, Gokongwei contended that the Board acted without authority and in usurpation of the power of the stockholders. Gokongwei claimed that prior to the questioned amendment, he had all the qualifications to be a director of the corporation, being a substantial stockholder thereof; that as a stockholder, Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's disqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws are null and void. As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void. Issue: Whether the corporation has the power to provide for the (additional) qualifications of its directors Held: YES. It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees." This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director." Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." To this extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of his fellow incorporators. It cannot therefore be justly said that the contract, express or implied, between the corporation and the stockholders is infringed by any act of the former which is authorized by a majority." Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of

20 the subscribed capital stock of the corporation. If the amendment changes, diminishes or restricts the rights of the existing shareholders, then the dissenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that Gokongwei has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification. A corporation is authorized to prescribe qualifications of its directors; such is not invalid, provided, however that before such nominee is disqualified, he should be given due process to show that he is not covered by such disqualification. A director stands in fiduciary relation to the corporation and its stockholders. The disqualification of a competition from being elected to the board of directors is a reasonable exercise of corporate authority. Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty to loyalty may require that he discloses this information to a competitive rival. Peoples Aircargo vs Court of Appeals Facts: Petitioner is a domestic corporation organized in 1986 to operate a customs bonded warehouse at the old Manila International Airport (MIA). To obtain a license from the Bureau of Customs, Antonio Punsalan, Jr., the corporation president, solicited a proposal from private respondent Stefani Sano for the preparation of a feasibility study. Sano submitted a letter proposal dated October 17, 1986 (First Contract) to Punsalan regarding his request for professional engineering consultancy services which services are offered in the amount of P350,000.00. Initially, Cheng Yang, the majority stockholder of petitioner, objected to said offer as another company can provide for the same service at a lower price. However, Punsalan preferred Sanos services because of latters membership in the task force, which task force was supervising the transition of the Bureau from the Marcos to the Aquino government. Petitioner, through Punsalan, thereafter confirmed the contract. On December 4, 1986, upon Punsalans request, private respondent sent petitioner another letter-proposal (Second Contract) which offered the same service already at P400,000.00 instead of the previous P350,000.00 offer. On January 10, 1987, Andy Villaceren, vice-president of petitioner, received the operations manual prepared by Sano and which manual operations was submitted by petitioner to the Bureau in compliance for its application to operate a bonded warehouse. Thereafter, the Bureau issued to it a license to operate. Private respondent also conducted in the third week of January 1987 in the warehouse of petitioner, a threedaytraining seminar for the petitioners employees. On February 9, 1988, private respondent filed a collection suit against petitioner. He alleged that he had prepared an operations manual for petitioner, conducted a seminarworkshop for its employees and delivered to it a computer program but despite demand, petitioner refused to pay him for his services. Petitioner, on its part, denied that Sano had prepared such manual operations and at the same time alleged that the letter-agreement was signed by Punsalan without authority and as such unenforceable. It alleges that the disputed contract was not authorized by its board of directors. Issue: Whether or not the Second Contract signed by Punsalan was enforceable and binding against petitioner. Held: Yes, the Second Contract was binding and enforceable. The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code. However, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts and thus, the corporation will, as against anyone who

21 has in good faith dealt with it through such agent, be estopped from denying the agents authority. Thus private respondent shall not be faulted for believing that Punsalans conformity to the contract in dispute was also binding on petitioner. In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First Contract without first securing board approval. Despite such lack of board approval, petitioner did not object to or repudiate said contract, thus "clothing" its president with the power to bind the corporation. The grant of apparent authority to Punsalan is evident in the testimony of Yong senior vice president, treasurer and major stockholder of petitioner. Furthermore, private respondent prepared an operations manual and conducted a seminar for the employees of petitioner in accordance with their contract. Petitioner accepted the operations manual, submitted it to the Bureau of Customs and allowed the seminar for its employees. As a result of its aforementioned actions, petitioner was given by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the president, petitioner's ratification of said contract and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratified "by the acceptance of benefits under them" under Article 1405. Marc II Marketing, Inc. and Lucila V. Joson vs Alfredo M. Joson Facts: Marc II Marketing, Inc. is a corporation duly organized and existing under and by virtue of the laws of the Philippines. It is primarily engaged in buying, marketing, selling and distributing in retail or wholesale for export or import household appliances and products and other items. Petitioner Lucila V. Joson is the President and majority stockholder of the said corporation. Before Marc II Marketing, Inc. was officially incorporated, Alfredo M. Joson has already been engaged by Lucila, in her capacity as President, to work as General Manager of the corporation and it was formalized through the execution of a Management Contract dated in 1994 under Marc Marketing, Inc., as Marc II Marketing, Inc. was yet to be incorporated. For occupying the said position, respondent was among the corporations corporate officers by the express provision of Section 1, Article IV of its by-laws. In 1997, Marc II Marketing Inc. decided to stop and cease its operation as evidenced by an Affidavit of Non-Operation due to poor sales collection aggravated by the inefficient management of its affairs. Alfredo was informed of the cessation of its business operations and the termination of his services as General Manager. He filed action for reinstatement and money claim against petitioners. Issue: Whether or not Marc II Marketing Inc.s Board of Directors could create a position for corporate officers through an enabling clause found in its corporate by-laws Held: No. The Court held that in the context of PD 902-A, corporate officers are those officers of a corporation who are given that character either by the Corporation Code or by the corporations by-laws. Section 25 of the Corporation Code specifically enumerated who are these corporate officers, namely: president, secretary, treasurer and such other officers as may be provided for in the by-laws. A careful examination of Marc II Marketing Inc.s by-laws, particularly paragraph 1, Section 1 of Article IV explicitly revealed that its corporate officers are composed only of chairman, president, vice president, treasurer and secretary. The position of general manager was not among those enumerated. Meanwhile, paragraph 2, Section 1 of Article IV of the corporations by-laws empowered its Board of Directors to appoint such officers as it may determine necessary or proper, making this an enabling provision for approving a resolution to make the position of general manager a corporate officer. All of the acts were done without first amending its by-laws so as to include the General Manager in its roster of corporate officers. Though the Board of Directors may create appointive positions other than the positions of corporate officers, the persons occupying such positions cannot be viewed as corporate officers under Section 25 of the Corporation Code. The said provision of the Corporation Code safeguards the constitutionally enshrined right of every

22 employee to security of tenure and prevents the creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause empowering the Board of Directors. David et al vs Construction Industry and Arbitration Commission Facts: Petitioner Coordinated Group, Inc. (CGI) is a corporation engaged in the construction business, with petitioner-spouses Roberto and Evelyn David as its President and Treasurer, respectively. On the other hand, respondent spouses Narciso and Aida Quiambao engaged the services of petitioner CGI to design and construct a five-storey concrete office/residential building on their land in Tondo, Manila. The Design/Build Contract of the parties provided that: (a) petitioner CGI shall prepare the working drawings for the construction project; (b) respondents shall pay petitioner CGI the sum of P7,309,821.51 for the construction of the building, including the costs of labor, materials and equipment, and Two Hundred Thousand Pesos (P200,000.00) for the cost of the design; and (c) the construction of the building shall be completed within nine (9) months after securing the building permit. Petitioners failed to follow the specifications and plans as previously agreed upon. Respondents demanded the correction of the errors but petitioners failed to act on their complaint. Consequently, respondents rescinded the contract after paying 74.84% of the cost of construction. Respondents then engaged the services of another contractor, RRA and Associates, to inspect the project and assess the actual accomplishment of petitioners in the construction of the building. It was found that petitioners revised and deviated from the structural plan of the building without notice to or approval by the respondents. Respondents filed a case for breach of contract against petitioners before the Regional Trial Court (RTC) of Manila. At the pre-trial conference, the parties agreed to submit the case for arbitration to the Construction Industry Arbitration Commission (CIAC). Atty. Custodio O. Parlade was appointed by the CIAC as sole arbitrator to resolve the dispute. With the agreement of the parties, Atty. Parlade designated Engr. Loreto C. Aquino to assist him in assessing the technical aspect of the case. The RTC of Manila then dismissed the case and transmitted its records to the CIAC. After conducting hearings and two (2) ocular inspections of the construction site, the arbitrator rendered judgment against petitioners. Petitioners appealed to the Court of Appeals which affirmed the arbitrators decision but deleted the award for lost rentals. Issue: Whether or not petitioners can be held jointly and severally liable with co-petitioner Coordinated Group, Inc. Held: As a general rule, the officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, the personal liability of a corporate director, trustee or officer, along with corporation, may so validly attach when he assents to a patently unlawful act of the corporation or for bad faith or gross negligence in directing its affairs. The following findings of public respondent (CIAC) would support its ruling in holding petitioners severally and jointly liable with the Corporation: "xxx When asked whether the Building was underdesigned considering the poor quality of the soil, Engr. Villasenor defended his structural design as adequate. He admitted that the revision of the plans which resulted in the construction of additional columns was in pursuance of the request of Engr. David to revise the structural plans to provide for a significant reduction of the cost of construction. When Engr. David was asked for the justification for the revision of the plans, he confirmed that he wanted to reduce the cost of construction. x x x" Thus, the petitioner spouses can be held jointly and severally liable with co-petitioner Coordinated Group, Inc.

23 Inter-Asia Investments Industries vs Court of Appeals Facts: On September 1, 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock Purchase Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries) for and in consideration of the sum of P19, 500,000.00 all its right, title and interest in and to all the outstanding shares of stock of FARMACOR, INC. (FARMACOR). The Agreement was signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of Inter-Asia and Asia Industries, respectively. Under paragraph 7 of the Agreement, Inter-Asia as seller made warranties and representations. The Agreement was later amended with respect to the "Closing Date," originally set up at 10:00 a.m. of September 30, 1978, which was moved to 31 October 1978, and to the mode of payment of the purchase price. The Agreement, as amended, provided that pending submission by SGV of FARMACOR's audited financial statements as of 31 October 1978, Asia Industries may retain the sum of P7,500,000.00 out of the stipulated purchase price of P19,500,000.00; that from this retained amount of P7,500,000.00, Asia Industries may deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; and that if the amount retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net Worth, Inter-Asia shall pay the difference within 5 days from date of receipt of the audited financial statements. Asia Industries paid Inter-Asia a total amount of P12,000,000.00: P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on 2 November 1978. From the STATEMENT OF INCOME AND DEFICIT attached to the financial report dated 28 November 1978 submitted by SGV, it appears that FARMACOR had, for the 10 months ended 31 October 1978, a deficit of P11,244,225.00. Since the stockholder's equity amounted to P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed net worth shortfall thus amounted to P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of P12,000,000.00. The adjusted contract price, therefore, amounted to P6,225,775.00 which is the difference between the contract price of P19,500,000.00 and the shortfall in the guaranteed net worth of P13,224,225.00. Asia Industries having already paid Inter-Asia P12,000,000.00, it was entitled to a refund of P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24 January 1980, signed by its president, that Asia Industries's claim for refund be reduced to P4,093,993.00, it promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the proposal respondent agreed. Inter-Asia, however, welched on its promise. Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00) exclusive of interest. On 5 April 1983, Asia Industries filed a complaint against Inter-Asia with the Regional Trial Court of Makati, one of two causes of action of which was for the recovery of above-said amount of P4,853,503.00 17 plus interest. Denying Asia Industries's claim, Inter-Asia countered that Asia Industries failed to pay the balance of the purchase price and accordingly set up a counterclaim. Finding for Asia Industries, the trial court rendered on 27 November 1991 a Decision, ordering Inter-Asia to pay Asia Industries the sum of P4,853,503.00 plus interest thereon at the legal rate from the filing of the complaint until fully paid, the sum of P30,000.00 as attorney's fees and the costs of suit; and (b) dismissing the counterclaim. On appeal to the Court of Appeals, and by Decision of 25 January 1996, the Court of Appeals affirmed the trial court's decision. Inter-Asia's motion for reconsideration of the decision having been denied by the Court of Appeals by Resolution of 11 July 1996, Inter-Asia filed the petition for review on certiorari. Issue: Whether the 24 January 1980 letter signed by Inter-Asias president is valid and binding. Held: Yes. The 24 January 1980 letter signed by Inter-Asia's president is valid and binding. As held in the case of People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, the general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, "having . . . powers, attributes and properties expressly authorized by law or incident to its existence." Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all

24 corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code of the Philippines. Under this provision, the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz: "A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that the authority to do so has been conferred upon him, and this includes powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused person dealing with the officer or agent to believe that it has conferred. Apparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar acts executed either in its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation." Therefore, an officer of a corporation who is authorized to purchase the stock of another corporation has the implied power to perform all other obligations arising therefrom, such as payment of the shares of stock. By allowing its president to sign the Agreement on its behalf, Inter-Asia clothed him with apparent capacity to perform all acts which are expressly, impliedly and inherently stated therein. Carag vs NLRC Facts: National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU), on behalf of all of MACs rank and file employees, filed a complaint against MAC for illegal dismissal brought about by its illegal closure of business. They included in their complaint Mariveles Apparel Corporations Chairman of the Board Antonio Carag in order to be solidarily liable for the illegal dismissal and illegal closure of business. According to the Labor Union of MAC, the Corporation suddenly closed its business without following the notice as laid down in the Labor Law of the Philippines. The Labor Arbiter decided in favor of the Labor Union and held that Antonio Carag being the owner of the corporation be solidarily liable for the payment of separation pay and backwages of the rank and file employees. Antonio Carag questioned the decision of the Labor Arbiter and alleged that the Corporation and its officers have separate and distinct personality and the latter cannot be held liable solidarily in cases of payment of damages. Issue: Whether or not Antonio Carag be held solidarily liable for the payment of the illegally dismissed employees. Held: The rule is that a director is not personally liable for the debts of the corporation, which has a separate legal personality of its own. By way of exception, Section 31 makes a director personally liable for corporate debts if he wilfully and knowingly votes for or assents to patently unlawful acts of the corporation. Section 31 also makes a director personally liable if he is guilty of gross negligence or bad faith in directing the affairs of the corporation.

25 Complainants did not allege in their complaint that Carag wilfully and knowingly voted for or assented to any patently unlawful act of MAC. Complainants did not present any evidence showing that Carag wilfully and knowingly voted for or assented to any patently unlawful act of MAC. Neither did Arbiter Ortiguerra make any finding to this effect in her Decision. For a wrongdoing to make a director personally liable for debts of the corporation, the wrongdoing approved or assented to by the director must be a patently unlawful act. Mere failure to comply with the notice requirement of labor laws on company closure or dismissal of employees does not amount to a patently unlawful act. Patently unlawful acts are those declared unlawful by law which imposes penalties for commission of such unlawful acts. There must be a law declaring the act unlawful and penalizing the act. Thus, Antonio Carag is not liable to the debt of the Corporation as to the illegally dismissed employees of MAC. Loyola Grandvillas Homeowners Association vs Court of Appeals Facts: In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was incorporated by the homeowners of the Loyola Grand Villas (LGV), a subdivision. The Securities and Exchange Commission (SEC) issued a certificate of incorporation under its official seal to LGVAI in the same year. LGVAI was likewise recognized by the Home Insurance and Guaranty Corporation (HIGC), a government-owned-and-controlled corporation whose mandate is to oversee associations like LGVAI. Later, LGVAI later found out that there are two homeowners associations within LGV, namely: Loyola Grand Villas Homeowners (South) Association, Inc. (LGVAI-South) and Loyola Grand Villas Homeowners (North) Association, Inc. (LGVAI-North). The two associations asserted that they have to be formed because LGVAI is inactive. When LGVAI inquired about its status with HIGC, HIGC advised that LGVAI was already terminated; that it was automatically dissolved when it failed to submit it By-Laws after it was issued a certificate of incorporation by the SEC. Issue: Whether or not a corporations failure to submit its by-laws results to its automatic dissolution Held: No. A private corporation like LGVAI commences to have corporate existence and juridical personality from the date the Securities and Exchange Commission (SEC) issues a certificate of incorporation under its official seal. The submission of its by-laws is a condition subsequent but although it is merely such, it is a must that it be submitted by the corporation. Failure to submit however does not warrant automatic dissolution because such a consequence was never the intention of the law. The failure is merely a ground for dissolution which may be raised in a quo warranto proceeding. It is also worthwhile to note that failure to submit cannot result to automatic dissolution because there are some instances when a corporation does not require by-laws. China Banking Corporation vs Court of Appeals Facts: On August 21, 1974, Galicano Calapatia, Jr., a stockholder of Valley Golf & Country Club, Inc. (VGCCI), pledged his Stock Certificate 1219 to China Banking Corporation (CBC). On 16 September 1974, CBC wrote VGCCI requesting that the pledge agreement be recorded in its books. In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in CBC's favor was duly noted in its corporate books. On 3 August 1983, Calapatia obtained a loan of P20,000.00 from CBC, payment of which was secured by the pledge agreement still existing between Calapatia and CBC. Due to Calapatia's failure to pay his obligation, CBC, on 12 April 1985, filed a petition for extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale of the pledged stock. On 14 May 1985, CBC informed VGCCI of the foreclosure proceedings and requested that the pledged stock be transferred to its name and the same be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote CBC expressing its inability to accede to CBC's request in view of Calapatia's unsettled accounts with the club. Despite the foregoing, Notary Public de Vera held a

26 public auction on 17 September 1985 and CBC emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, CBC was issued the corresponding certificate of sale. On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in the amount of P18,783.24. Said notice was followed by a demand letter dated 12 December 1985 for the same amount and another notice dated 22 November 1986 for P23,483.24. On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock (Stock Certificate 1219). Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership due to the sale of his share of stock in the 10 December 1986 auction. On 5 May 1989, CBC advised VGCCI that it is the new owner of Calapatia's Stock Certificate 1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of stock be issued in its name. On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00. On 9 March 1990, CBC protested the sale by VGCCI of the subject share of stock and thereafter filed a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the issuance of a new stock certificate in its name. On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied CBC's motion for reconsideration. On 20 September 1990, CBC filed a complaint with the Securities and Exchange Commission (SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of litigation. On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the main that considering that the said share is delinquent, VGCCI had valid reason not to transfer the share in the name of CBC in the books of VGCCI until liquidation of delinquency. Consequently, the case was dismissed. On 14 April 1992, Hearing Officer Perea denied CBC's motion for reconsideration. CBC appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the decision of its hearing officer; holding that CBC has a prior right over the pledged share and because of pledgor's failure to pay the principal debt upon maturity, CBC can proceed with the foreclosure of the pledged share; declaring that the auction sale conducted by VGCCI on 10 December 1986 is declared NULL and VOID; and ordering VGCCI to issue another membership certificate in the name of CBC. VGCCI sought reconsideration of the order. However, the SEC denied the same in its resolution dated 7 December 1993. The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and, consequently, dismissed CBC's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate; nullifying the SEC orders and dismissing CBCs complaint. CBC moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5 October 1994. CBC filed the petition for review on certiorari. Issue: Whether CBC is bound by VGCCI's by-laws. Held: In order to be bound, the third party must have acquired knowledge of the pertinent bylaws at the time the transaction or agreement between said third party and the shareholder was entered into. Herein, at the time the pledge agreement was executed, VGCCI could have easily informed CBC of its by-laws when it sent notice formally recognizing CBC as pledgee of one of its shares registered in Calapatia's name. CBC's belated notice of said by-laws at the time of foreclosure will not suffice. By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. In other words, by-laws are the relatively permanent and continuing rules of action adopted by the corporation for its own government and that of the individuals composing it and having the direction, management and control of its affairs, in whole or in part,

27 in the management and control of its affairs and activities. The purpose of a by-law is to regulate the conduct and define the duties of the members towards the corporation and among themselves. They are self-imposed and, although adopted pursuant to statutory authority, have no status as public law. It is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. For the exception to the general accepted rule that third persons are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the VGCCI By-laws must be acquired at the time the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive, at the time of foreclosure will not affect pledgee's right over the pledged share. Article 2087 of the Civil Code provides that it is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists maybe alienated for the payment to the creditor. Further, VGCCI's contention that CBC is duty-bound to know its by-laws because of Article 2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. CBC was never informed of Calapatia's unpaid accounts and the restrictive provisions in VGCCI's bylaws. Mindanao Savings vs Willkom Facts: The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association, Inc. (DSLAI) are entities duly registered with the Securities and Exchange Commission, primarily engaged in the business of granting loans and receiving deposits from the general public, and treated as banks. In 1985, FISLAI and DSLAI entered into a merger, DSLAI being the surviving corporation. The articles of merger were not registered with the SEC due to incomplete documentation. DSLAI changed its corporate name to MSLAI. A year after, the Board of Directors of FSLAI approved the assignment of assets in favor of DSLAI, which assumed FISLAI's liabilities. MSLAI's business failed and the Monetary Board of the Central Bank of the Philippines ordered its closure. The Monetary Board found that MSLAI was insolvent and to continue business would involve probable loss to its depositors and creditors. The Monetary Board ordered the liquidation of MSLAI with PDIC as its liquidator. Prior to MSLAI's closure, Uy filed an action for collection of sum of money against FISLAI. RTC rendered a decision in favor of Uy and ordered defendants (including FISLAI) to pay the sum of P136,801.70. CA modified the decision by ordering the third party defendant to reimburse the payments that would be made by defendants. On April 28, 1993, Sheriff Bantuas levied on six parcels of land of FSLAI in Cagayan de Oro, and during the public auction, Willkom was the highest bidder. A certificate of sale was issued, and was registered with the Register of Deeds. Willkom sold one of the parcels of land to Go. On June 14, 1995, MSLAI, represented by PDIC, filed a complaint for the Annulment of the Sale, Cancellation of Title and Reconveyance of the properties, stating that the sale was conducted without notice given to them and PDIC. On the other hand, respondents stated that MSLAI had no cause of action; MSLAI is a separate entity from FSLAI, further stating that the merger was unofficial and did not comply with formalities and procedure. Issue: Whether or not the merger between FISLAI and DSLAI was valid and effective Held: No. A merger does not become effective upon the mere agreement of the corporations. There must be an express provision of law authorizing them. There is a procedure to be followed as stated in the Corporation Code. The board of each corporation draws up a plan of merger and is submitted to stockholders or members for approval. The formal agreement is executed (the articles of merger) and is submitted to the SEC for approval. If approved, the SEC issues a certificate of merger. The merger shall only be effective upon the issuance of the certificate. In this case, no certificate was issued and such merger is incomplete without it. The certificate is important because it bears the approval of the SEC and it marks the moment when the consequences of a merger take place. Since there is no valid merger, FISLAI and MSLAI are

28 still considered as two separate corporations. As far as third parties are concerned, FISLAI's assets still belongs to them, not MSLAI. Ong Yong vs Tiu Facts: In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which was owned by David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius), encountered dire financial difficulties. It was heavily indebted to the Philippine National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the two lots where the mall was being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing subscription of 450,200 shares. Furthermore, they agreed that the Tius were entitled to nominate the Vice-President and the Treasurer plus 5 directors while the Ongs were entitled to nominate the President, the Secretary and 6 directors (including the chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right to manage and operate the mall. Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while the Tius committed to contribute to FLADC a four-storey building and two parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs paid in another P70 million 3 to FLADC and P20 million to the Tius over and above their P100 million investment, the total sum of which (P190 million) was used to settle the P190 million mortgage indebtedness of FLADC to PNB. The business harmony between the Ongs and the Tius in FLADC, however, was shortlived because the Tius, on 23 February 1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares covering their real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President and Treasurer, respectively, and (3) refusing to give them the office spaces agreed upon. The controversy finally came to a head when the case was commenced by the Tius on 27 February 1996 at the Securities and Exchange Commission (SEC), seeking confirmation of their rescission of the Pre-Subscription Agreement. After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr., issued a decision on 19 May 1997 confirming the rescission sought by the Tius. On motion of both parties, the above decision was partially reconsidered but only insofar as the Ongs' P70 million was declared not as a premium on capital stock but an advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct. Both parties appealed to the SEC en banc which rendered a decision on 11 September 1998, affirming the 19 May 1997 decision of the Hearing Officer. The SEC en banc confirmed the rescission of the Pre-Subscription Agreement but reverted to classifying the P70 million paid by the Ongs as premium on capital and not as a loan or advance to FLADC, hence, not entitled to earn interest. On appeal, the Court of Appeals (CA) rendered a decision on 5 October 1999, modifying the SEC order of 11 September 1998. Their motions for reconsideration having been denied, both parties filed separate petitions for review before the Supreme Court. On 1 February 2002, the Supreme Court promulgated its Decision, affirming the assailed decision of the Court of Appeals but with the modifications that the P20 million loan extended by the Ongs to the Tius shall earn interest at 12% per annum to be computed from the time of judicial demand which is from 23 April 1996; that the P70 million advanced by the Ongs to the FLADC shall earn interest at 10% per annum to be computed from the date of the FLADC Board Resolution which is 19 June 1996; and that the Tius shall be credited with 49,800 shares in FLADC for their property contribution, specifically, the 151 sq. m. parcel of land. The Court affirmed the fact that both the Ongs and the Tius violated their respective obligations under the Pre-Subscription Agreement. On 15 March 2002, the Tius filed before the Court a Motion for Issuance of a Writ of Execution. Aside from their opposition to the Tius' Motion for Issuance of Writ of Execution, the

29 Ongs filed their own "Motion for Reconsideration; Alternatively, Motion for Modification (of the February 1, 2002 Decision)" on 15 March 2002. Willie Ong filed a separate "Motion for Partial Reconsideration" dated 8 March 2002, pointing out that there was no violation of the PreSubscription Agreement on the part of the Ongs, among others. On 29 January 2003, the Special Second Division of this Court held oral arguments on the respective positions of the parties. On 27 February 2003, Dr. Willie Ong and the rest of the movants Ong filed their respective memoranda. On 28 February 2003, the Tius submitted their memorandum. Issue: Whether the pre-Subscription Agreement executed by the Ongs is actually a subscription contract. Whether the rescission of Pre-Subscription Agreement would result in unauthorized liquidation. Held: 1. FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius owning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in FLADC as stockholders, an increase of the authorized capital stock became necessary to give each group equal (50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized capital stock was thus increased from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition to their 450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract was the 1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the parties' Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation Code. A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. It was FLADC that did. Considering therefore that the real contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their personal capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that "contracts take effect only between the parties, their assigns and heirs. . ." Therefore, a party who has not taken part in the transaction cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected thereby. 2. The rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed. Rescission will, in the final analysis, result in the premature liquidation of the corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation Code. Sta. Clara Homeowners Association vs Spouses Gaston Facts: Spouses Victor Ma. Gaston and Lydia Gaston, the private respondents, filed a complaint for damages with preliminary injunction/preliminary mandatory injunction and temporary restraining order before the Regional Trial Court against petitioners Sta Clara Homeowners Association (SCHA).

30 The complaint alleged that the private respondents purchased their lots in Sta. Clara Subdivision and at the time of the purchase, there was no mention or requirement of membership in any homeowners association. From that time on, they have remained nonmembers of the SCHA. They also stated that an arrangement was made wherein homeowners who were non-members of the association were issued non-member gate pass stickers for their vehicles for identification by the security guards manning the subdivisions entrances and exits. This arrangement remained undisturbed until sometime in the middle of March 1998, when SCHA disseminated a board resolution which decreed that only its members in good standing were to be issued stickers for use in their vehicles. Petitioners filed a motion to dismiss arguing that the trial court had no jurisdiction over the case as it involved an intra-corporate dispute between SCHA and its members. The proper forum must be the Home Insurance and Guarantee Corporation (HIGC). They stated that that the Articles of Incorporation of SCHA, which was duly approved by the Securities and Exchange Commission , provides that the association shall be a non-tock corporation with all the homeowners of Sta. Clara constituting its membership. Its by-laws also contains a provision that all real estate owners automatically become members of the association. Moreover, the private respondents allegedly enjoyed the privileges of membership and abided by the rules of the association, and even attended the general special meeting of the association members. Issue: Whether or not the private respondents are members of SCHA Held: The constitutionally guaranteed freedom of association includes the freedom not to associate. The right to choose with whom one will associate oneself is the very foundation and essence of the partnership. It should be noted that the provision guarantees the right to form an association. It does not compel others to form or join one. Private respondents cannot be compelled to become members of SCHA by the simple expedient of including them in its Articles of Incorporation and By-Laws without their express or implied consent. True, it may be to the mutual advantage of lot owners in a subdivision to band themselves together to promote their common welfare. But that is possible only if the owners voluntarily agree, directly or indirectly, to become members of the association. True also, membership in homeowners association may be acquired in various ways often through deeds of sale, Torrens certificates or other forms of evidence of property ownership. However, when private respondents purchased their property and obtained Transfer Certificates of Title, there was no annotation showing automatic membership in the SCHA. Thus, no privity of contract arising from the title certificate exists between petitioners and private respondents.

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