Corporation Law Case Digests

Corporation
Law Case Digests

Bance | Benitez | Cheng | Damasing | Ratilla

1. Guy v Guy, G.R. No. 184068, 19 April 2016 under the bylaws were met when Gilbert Guy caused for the mailing
Facts: Goodland Company Inc. (GCI) is a family-owned corporation of the notice on September 2, 2004 calling for the assailed special
of the Guy family duly created and existing under Philippine laws. stockholders meeting. Since the bylaws were clear that only mailing
Petitioner Simny G. Guy (Simny) is a stockholder of record and a was required, the courts must apply the law and must not add an
member of the BOD of the corporation. Respondents are also GCI additional requirement of actual receipt of the notice prior to the
stockholders of record who were allegedly elected as new directors date of meeting. It was proven that notice to Simny was sent on
by virtue of the assailed special stockholders meeting held on 7 Sept. 2, 2004 (5 days prior to the meeting).
September 2004. On September 22, 2004, or 15 days after the said The claim that the notice suffered fatal defects as it was not called
meeting, the Simny received the notice about the said hearing. On by the proper person was also without merit. Under the bylaws,
September 30, 2004, Simny, for himself and on behalf of GCI and special meetings may be called by order of the President and must
Grace Cheu (Cheu), filed a Complaint against respondents before be called upon the request of stockholders representing (1/3) of the
the RTC of Manila for the Nullification of the said Meeting and outstanding stock provided that the VP, if qualified shall exercise all
Election of Directors with a prayer for TRO and/or WPI. Simny the functions of the president in absence or disability of the latter. It
avered that there was no previous notice to him and Cheu, that the was not disputed that the President suffered Alzheimers; that
meeting was not called by the proper person and that the notices Gilbert was the VP; and that he represented 79.99% (more than
were not issued by the person who had legal authority to do so. 1/3) of the outstanding stock of GCI. Thus, the requirements under
Respondent Gilbert Guy (Gilbert) argued that the meeting was the bylaws were met. The requirement that the VP be qualified
legally called and held, that the notice of meeting was signed by an must be construed to mean that he must not be disqualified under
authorized officer (him, as Vice President) and sent in accordance the Corpo Code. The records do show that 1, he is a stockholder,
with the bylaws, and that Cheu was not a stockholder of record. The and 2, he is neither also Secretary nor Treasurer. Hence, he is
RTC dismissed the complaint. The CA affirmed in toto the RTC ruling. qualified to act as President.
Hence the petition before the SC. Cheu was not a stockholder of record and therefore not entitled to
Issue: Whether the assailed special stockholders meeting was void. any notice of meeting. Cheu alleged that she was considered a
Ruling: No. Notice of the stockholders meeting was properly sent in stockholder of record for being in possession of stock certificate of
compliance with law and the by-laws of the corporation. For a Paulino and Benjamin. As a rule, however, a person who desires to
stockholders' special meeting to be valid, certain requirements must be recognized as a stockholder for the prupose of exercising
be met with respect to notice, quorum and place. In relation to stockholders right must secure standing by having his ownership of
Section 50 of B.P. 68, one of the requirements is a previous written share recorded on the stock and transfer book. Thus, only those
notice sent to all stockholders at least one (1) week prior to the whose ownership of shares are duly registered in the stock and
scheduled meeting, unless otherwise provided in the by-laws. Under transfer book are considered stockholders of record and are
the by-laws, the notice shall be mailed not less than five (5) days entitled to all rights of a stockholder. The requirements for transfer,
prior to the date set for the special meeting. The requirements

Corporation Law Case Digests

not having been met, Cheu is not a stockholder of record, and thus
not entitled to notice.


2. Ricafort v. Hon. Dicdican, G.R. No. 202647-50, 9 March 2016 to nullify the election of the Board of Directors at the ASM, the
Facts: Nationwide Development Corporation (NADECOR) is a complaint involves an election contest. The Interim Rules defines
domestic corporation which is a holder of a Mining Production and election contest to refer to any controversy or dispute involving
Sharing Agreement with the DENR. Its regular annual stockholders' title or claim to any elective office in a stock or non-stock
meeting (ASM) was held on August 15, 2011 to elect its Board of corporation, the validation of proxies, the manner and validity of
Directors. However, on October 20, 2011, (2 months after the ASM), elections, and the qualifications of candidates, including the
Corazon Ricafort (Corazon) (wife of JG Ricafort) along with her proclamation of winners, to the office of director, trustee or other
children (Petitioners), filed a complaint before the RTC to declare officer directly elected by the stockholders in a close corporation or
the August 15, 2011 ASM and all acts carried out pursuant thereto, by members of a non-stock corporation where the articles of
null and void alleging that they received notice about the ASM only incorporation or by-laws so provide.
on August 16, 2011, a violation, according to them, of the 3-day Also, the petitioners have no cause of action because they were
notice rule enshrined in the by-laws. Respondents however alleged duly represented at the August 15, 2011 ASM by their proxy, JG
that their complaint was an election contest and thus barred under Ricafort by virtue of an irrevocable proxy executed by the
the 15-day rule under the Interim Rules; that they were sufficiently Petitioners in favor of JG Ricafort who was proven to be present in
notified as the notice was mailed on August 11, 2011; and that they the August 11, 2011 ASM and who said during the said meeting to
were properly represented by JG Ricafort by virtue of an Irrevocable also act as proxy for Petitioners. Hence, lack of notice to them is
Proxy executed by the Petitioners in favor of JG Ricafort. The RTC inconsequential.
ruled in favor of Corazon and held null and void the August 15, 2011 The records also show that they were given due notice. It must be
ASM. The RTC noted that neither of the Petitioners were seeking noted that under the By-Laws, what is required is the mailing out of
any elective position. Neither are they questioning the manner and notices by registered mail at least three days before the ASM, and
validity of the elections, and qualifications of the candidates for this was proven to have been properly complied with.
directorship. Respondents assailed the decision before the CA and
asked for a WPI of the trial courts order. The CA granted the same,
hence this Petition.
Issue: Was the action of the Petitioners time-barred? Were they
properly notified? Were they properly represented? Lets find out.
Ruling: First of all, the action taken by the Petitioners was really an
election contest and under the Interim Rules said action was time-
barred. Indeed, to nullify the August 15, 2011 ASM would have had
no practical effect except to void the election of the Board of
Directors. This case is in all fours with Yujuico v. Quiambao wherein
the SC ruled that where one of the reliefs sought in the complaint is


RTC approved the rehabilitation plan and denied Chinabanks
3. Mervic Realty Inc v. China Banking Corporation, G.R. No. opposition, ruling that there is no misjoinder of causes of action as
193748, 3 Feb 2016 (corporate rehab) there is a single cause of action which is corporate rehabilitation.

Facts: On October 16, 2006, Mervic Realty and Viccy Realty jointly CA ruled in favor of Chinabank and dismissed the petition on the
applied for rehabilitation before the RTC of Malabon. The ground of improper venue, as the corporation, in a metaphysical
petitioners alleged that they have a common president, Mario sense, is considered a resident of the place where its principal office
Siochi, and that a majority of their stockholders and officers are is located.
members of the Siochi family. They further alleged that the two
companies suffered during the asian financial cris and as a result, Before the SC, Mervic and Viccy argued that its articles have been
are not unable to meet their obligations when they fall due. amended in 1985 and that its principal place of business is now in
Malabon. They also reiterate that they are close family corporations
Rehabilitation court then issued a stay order to suspend the and that it would be impractical to file separate rehabilitation plans.
enforcement of claims against them and appointed a rehabilitation
receiver. Issue: Whether the two corporations, which are close family
corporations, can jointly file a petition for rehabilitation.
Chinabank, a creditor of the two companies, opposed the
rehabilitation petition, alleging that it acquired title to and initiated Ruling: No, the 2000 interim rules on corporate rehabilitation does
extrajudicial foreclosure proceedings over some of Mervics real not allow for the filing of a joint or consolidated rehabilitation
properties. It argued that the two companies should have filed petition.
separate petitions as they are separate entities, notwithstanding
the fact that majority of the stockholders, members and officers The consolidation of petitions involving two separate entities is not
belong to the Siochi family. proper. Although the corporations had interlocking directors,
owners, officers, the two corporations are separate, each one with
Chinabank also questioned the venue of the rehabilitation petition, its own distinct personality. In determining the feasibility of
alleging that it should be the RTC where the principal office of the rehabilitaiton, the court evaluates the assets and liabilities of each
corporation is located. As the articles of incorporation of the of these corporations separately and not jointly with other
companies provide that the principal place of business is Quezon corporations.
City, it should have been filed therein and not in Malabon.
While the 2008 Rules on Corporate Rehabilitation allow a group of
companies to file a joint rehabilitation petition, this was not the rule
in effect when Mervic applied for rehabilitation. Neither did the


Court find a basis for the retroactive application of the 2008 rules
for the 2008 rules only allow retroactive application to pending
cases which have not undergone initial hearing.

As the rehabilitation court in this case had already conducted the
initial hearing before the effectivity of the 2008 rules, the same
cannot be retroactively applied to the present case.

The SC no longer delved on whether the rehabilitation petition was
properly filed in the RTC of Malabon.


4. POTC, PHILCOMSAT v Sandiganbayan, G.R. No. 174462, 10 Feb Corporation, as a legal entity distinct and separate from its
2016 (separate corp personality) stockholders, must be impleaded as defendants, giving it the
opportunity to be heard. The failure to properly implead POTC and
Facts: PHILCOMSAT not only violates the latters' legal personality, but is
President Corazon Cojuangco Aquino, exercising revolutionary repugnant on POTC's and PHILCOMSAT's right to due process.
government powers issued Executive Order Nos. 1 and 2, creating "[F]ailure to implead these corporations as defendants and merely
the PCGG to recover properties amassed by the unseated President annexing a list of such corporations to the complaints is a violation
Ferdinand Edralin Marcos, Sr. and his cronies. of their right to due process for it would in effect be disregarding
their distinct and separate personality without a hearing." As
PCGG Commissioner ordered the sequestration and takeover POTC already settled, a suit against individual stockholders is not a suit
and PHILCOMSAT among others. POTC is a private corporation, against the corporation.
which is a main stockholder of PHILCOMSAT, a government-owned (note: There are other issues but are not related to Corpo)
and controlled corporation.

The Office of the Solicitor General (OSG), on behalf of the Republic
of the Philippines, filed a Complaint for Reconveyance, Reversion,
Accounting and Restitution, and Damages, docketed as Civil Case
No. 0009, against Jose L. Africa, Manuel H. Nieto, Jr., Ferdinand E.
Marcos, Imelda R. Marcos, Ferdinand R. Marcos, Jr., Roberto S.
Benedicto, Juan Ponce Enrile, and Potenciano Ilusorio.

Issue: whether or not the failure to properly implead POTC and
PHILCOMSAT as defendants in Civil Case No. 0009 is a fatal
jurisdictional error.

Ruling: Yes. Failure to implead POTC and PHILCOMSAT is a violation
of the fundamental principle that a corporation has a legal
personality distinct and separate from its stockholders; that, the
filing of a complaint against a stockholder is not ipso facto a
complaint against the corporation.


interplead and settle the issue of ownership over the 1,400 shares,
5. Teng v SEC, GR No. 184332, 17 Feb 2016 which were previously owned by Teng Ching.

Facts: RTC of Manila, rendered its Decision finding Henry to have a better
Ting Ping purchased shares of TCL Sales Corporation from the right to the shares of stock formerly owned by Teng Ching, except as
following: to those covered by Stock Certificate No. 011 covering 262.5 shares,
a. 480 shares of from Peter Chiu (Chiu) on February 2, 1979; among others. An Ex Parte Motion for the Issuance of Alias Writ of
b. 1,400 shares on September 22, 1985 from his brother Teng Execution was filed by Ting Ping where he sought the partial
Ching Lay (Teng Ching), who was also the president and operations satisfaction of SEC en banc.
manager of TCL; and Teng and TCL filed their respective motions to quash. Teng pointed
c. 1,440 shares from Ismaelita Maluto (Maluto) on September 2, out, however, that the annexes in Ting Ping's opposition did not
1989. include the subject certificates of stock.

Upon Teng Ching's death in 1989, his son Henry Teng (Henry) took Issue: Whether the surrender of the certificates of stock is a
over the management of TCL. To protect his shareholdings with TCL, requisite before registration of the transfer may be made in the
Ting Ping on August 31, 1989 requested TCL's Corporate Secretary, corporate books and for the issuance of new certificates in its stead.
herein petitioner Teng, to enter the transfer in the Stock and
Transfer Book of TCL for the proper recording of his acquisition. He Ruling:
also demanded the issuance of new certificates of stock in his favor. A certificate of stock is a written instrument signed by the proper
TCL and Teng, however, refused despite repeated demands. officer of a corporation stating or acknowledging that the person
Because of their refusal, Ting Ping filed a petition for mandamus named in the document is the owner of a designated number of
with the SEC against TCL and Teng. shares of its stock. It is prima facie evidence that the holder is a
shareholder of a corporation. A certificate, however, is merely a
The mandamus case reached the Supreme Court and affirmed the tangible evidence of ownership of shares of stock. It is not a stock in
order of the SEC to record in the books of the corporation the the corporation and merely expresses the contract between the
acquisition of share by Ting Ping and to issue new certificates of corporation and the stockholder. The shares of stock evidenced by
stock in the name of Ting Ping. said certificates, meanwhile, are regarded as property and the
owner of such shares may, as a general rule, dispose of them as he
After the finality of the Court's decision, the SEC issued a writ of sees fit, unless the corporation has been dissolved, or unless the
execution addressed to the Sheriff of the Regional Trial Court (RTC) right to do so is properly restricted, or the owner's privilege of
of Manila. Teng, however, filed on February 4, 2004 a complaint for disposing of his shares has been hampered by his own action.
interpleader where Teng sought to compel Henry and Ting Ping to


Under Sec 63 of the corporation code, certain minimum requisites assignment and delivery of the certificate and to obtain the transfer
must be complied with for there to be a valid transfer of stocks, to of the legal title to him on the books of the corporation by the
wit: (a) there must be delivery of the stock certificate; (b) the cancellation of the certificate and the issuance of a new one to him.
certificate must be endorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and (c) to be Upon registration of the transfer in the books of the corporation,
valid against third parties, the transfer must be recorded in the the transferee may now then exercise all the rights of a stockholder,
books of the corporation. which include the right to have stocks transferred to his name.

It is the delivery of the certificate, coupled with the endorsement by In Bitong v. CA, the Court outlined the procedure for the issuance of
the owner or his duly authorized representative that is the new certificates of stock in the name of a transferee: First, the
operative act of transfer of shares from the original owner to the certificates must be signed by the president or vice-president,
transferee. countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation. x x x Second, delivery of the
The Court in a case has ruled that the right of a transferee/assignee certificate is an essential element of its issuance. x x x Third, the
to have stocks transferred to his name is an inherent right flowing par value, as to par value shares, or the full subscription as to no par
from his ownership of the stocks. In transferring stock, the secretary value shares, must first be fully paid. Fourth, the original certificate
of a corporation acts in purely ministerial capacity, and does not try must be surrendered where the person requesting~ the issuance of
to decide the question of ownership. If a corporation refuses to a certificate is a transferee from a stockholder.
make such transfer without good cause, it may, in fact, even be
compelled to do so by mandamus. The surrender of the original certificate of stock is necessary before
the issuance of a new one so that the old certificate may be
Nevertheless, to be valid against third parties~ and the corporation, cancelled. A corporation is not bound and cannot be required to
the transfer must be recorded or registered in the books of issue a new certificate unless the original certificate is produced and
corporation. There are several reasons why registration of the surrendered. Surrender and cancellation of the old certificates serve
transfer is necessary: one, to enable the transferee to exercise all to protect not only the corporation but the legitimate shareholder
the rights of a stockholder; two, to inform the corporation of any and the public as well, as it ensures that there is only one document
change in share ownership so that it can ascertain the persons covering a particular share of stock.
entitled to the rights and subject to the liabilities of a stockholder;
and three, to avoid fictitious or fraudulent transfers, among others. In the case at bench, Ting Ping manifested from the start his
Thus, in Chua Guan v. Samahang Mags as aka, Inc., the Court stated intention to surrender the subject certificates of stock to facilitate
that the only safe way to accomplish the hypothecation of share of the registration of the transfer and for the issuance of new
stock is for the transferee [a creditor, in this case] to insist on the certificates in his name. It would be sacrificing substantial justice if


the Court were to grant the petition simply because Ting Ping is yet
to surrender the subject certificates for cancellation instead of
ordering in this case such surrender and cancellation, and the
issuance of new ones in his name. The Court will not allow Teng and
TCL to frustrate Ting Ping's rights any longer.


operations, and the "re-operation"16 of an oil mill in Buenavista,
6. Viva Shipping Lines Inc v. Keppel Philippines Mining Inc, GR No. Quezon.17

177382, 17 Feb 2016
(Procedural only. Skip paragraph if you want) On October 19, 2005, the Regional Trial Court found that Viva
Rule 43 of the Rules of Court prescribes the procedure to assail the Shipping Lines' Amended Petition to be "sufficient in form and
final orders and decisions in corporate rehabilitation cases filed substance," and issued a stay order.20
under the Interim Rules of Procedure on Corporate Rehabilitation.1
Liberality in the application of the rules is not an end in itself. It
must be pleaded with factual basis and must be allowed for
equitable ends. There must be no indication that the violation of the In the Order dated October 30, 2006,36 the Regional Trial Court
rule is due to negligence or design. Liberality is an extreme lifted the stay order and dismissed Viva Shipping Lines' Amended
exception, justifiable only when equity exists. Petition for failure to show the company's viability and the
feasibility of rehabilitation.

Petitioner appealed the case to the CA however, it failed give notice
Facts: to its creditors (former employees who have money claims against
On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping Lines) the petitioner) of its appeal.
filed a Petition for Corporate Rehabilitation before the Regional
Trial Court of Lucena City. The Court of Appeals dismissed Viva Shipping Lines' Petition for
According to Viva Shipping Lines, the devaluation of the Philippine Review in the Resolution dated January 5, 2007.44 It found that Viva
peso, increased competition, and mismanagement of its businesses Shipping Lines failed to comply with procedural requirements under
made it difficult to pay its debts as they became due.13 It also stated Rule 43,45 The Court of Appeals ruled that due to the failure of Viva
that "almost all [its] vessels were rendered unserviceable either Shipping Lines to implead its creditors as respondents, "there are no
because of age and deterioration that [it] can no longer compete respondents who may be required to file a comment on the
with modern made vessels owned by other operators."14 petition, pursuant to Section 8 of Rule 43,"46

In its Company Rehabilitation Plan, Viva Shipping Lines enumerated Viva Shipping Lines moved for reconsideration.47 It argued that its
possible sources of funding such as the sale of old vessels and procedural misstep was cured when it served copies of the Petition
commercial lots of its sister company, Sto. Domingo Shipping on the Regional Trial Court and on its former employees.
Lines.15It also proposed the conversion of the Ocean Palace Mall
into a hotel, the acquisition of two (2) new vessels for shipping Issue:


First, whether the Court of Appeals erred in dismissing petitioner rehabilitation is not feasible, it is in the interest of the State to
Viva Shipping Lines' Petition for Review on procedural grounds; and facilitate a speedy and orderly liquidation of these debtors' assets
and the settlement of their obligations.97
Second, whether petitioner was denied substantial justice when the
Court of Appeals did not give due course to its petition.
The rationale in corporate rehabilitation is to resuscitate businesses
Held: in financial distress because "assets . . . are often more valuable
Corporate rehabilitation is a remedy for corporations, partnerships, when so maintained than they would be when
and associations "who [foresee] the impossibility of meeting [their] liquidated."98Rehabilitation assumes that assets are still serviceable
debts when they respectively fall due."94 to meet the purposes of the business. The corporation receives
assistance from the court and a disinterested rehabilitation receiver
A corporation under rehabilitation continues with its corporate life to balance the interest to recover and continue ordinary business,
and activities to achieve solvency,95 or a position where the all the while attending to the interest of its creditors to be paid
corporation is able to pay its obligations as they fall due in the equitably. These interests are also referred to as the rehabilitative
ordinary course of business. Solvency is a state where the and the equitable purposes of corporate rehabilitation.
businesses' liabilities are less than its assets.96
there are instances when corporate rehabilitation can no longer be
achieved. When rehabilitation will not result in a better present
Corporate rehabilitation is a type of proceeding available to a value recovery for the creditors,105 the more appropriate remedy is
business that is insolvent. liquidation.

In general, insolvency proceedings provide for predictability that It does not make sense to hold, suspend, or continue to devalue
commercial obligations will be met despite business downturns. outstanding credits of a business that has no chance of recovery. In
Stability in the economy results when there is assurance to the such cases, the optimum economic welfare will be achieved if the
investing public that obligations will be reasonably paid. It is corporation is allowed to wind up its affairs in an orderly manner.
considered state policy Liquidation allows the corporation to wind up its affairs and
equitably distribute its assets among its creditors.107
[Rehabilitation or liquidation shall be made with a view to ensure
or maintain certainty and predictability in commercial affairs, Liquidation is diametrically opposed to rehabilitation. Both cannot
preserve and maximize the value of the assets of these debtors, be undertaken at the same time.108In rehabilitation, corporations
recognize creditor rights and respect priority of claims, and ensure have to maintain their assets to continue business operations. In
equitable treatment of creditors who are similarly situated. When liquidation, on the other hand, corporations preserve their assets in


order to sell them. Without these assets, business operations are meeting them when they respectively fall due or in cases where the
effectively discontinued. The proceeds of the sale are distributed corporation, partnership or association has no sufficient assets to
equitably among creditors, and surplus is divided or losses are recover its liabilities, but is under the management of a Rehabilitation
allocated.109 Receiver or Management Committee created pursuant to this

Decree.112 (Emphasis supplied).
Proceedings in case of insolvency are not limited to rehabilitation.
Our laws have evolved to provide for different procedures where a In 2000, the jurisdiction of the Securities and Exchange Commission
debtor can undergo judicially supervised reorganization or over thesis cases was transferred to the Regional Trial Court,113 by
liquidation of its assets. operation of Section 5.2 of the Securities Regulation Code.114 In the
same year, this court approved the Interim Rules of Procedure on
Corporate Rehabilitation. The Interim Rules of Procedure on
- History of the laws on Corporate rehabilitation in the Philippines: Corporate Rehabilitation provides a summary and non-adversarial
proceeding to expedite the resolution of cases for the benefit of the
Corporate rehabilitation traces its roots to Act No. 1956, otherwise corporation in need of rehabilitation, its creditors, and the public in
known as the Insolvency Law of 1909. Under the Insolvency Law, a general.115

debtor in possession of sufficient properties to cover all its debts
but foresees the impossibility of meeting them when they fall due Currently, the prevailing law and procedure for corporate
may file a petition before the court to be declared in a state of rehabilitation is the Financial Rehabilitation and Insolvency Act of
suspension of payments.111 This allows time for the debtor to 2010 (FRIA).116 FRIA provides procedures for the different types of
organize its affairs in order to achieve a state where it can comply rehabilitation and liquidation proceedings. The Financial
with its obligations. Rehabilitation Rules of Procedure was issued by this court on
August 27, 2013.

The relief was also provided in the amendatory provisions of
However, since the Regional Trial Court acted on petitioner's
Presidential Decree No. 902-A. Section 5 of Presidential Decree No.
Amended Petition before FRIA was enacted, Presidential Decree No.
902-A states that the Securities and Exchange Commission has
902-A and the Interim Rules of Procedure on Corporate
jurisdiction to decide:
Rehabilitation were applied to this case.
d) Petitions of corporations, partnerships or associations to be
declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses sufficient - Petitioner is not entitled to liberal construction of the procedural
property to cover all its debts but foresees the impossibility of rules


privilege, and may be exercised only in the manner and in
accordance with the provisions of the law."138

A corporate rehabilitation case cannot be decided without the
creditors' participation. The court's role is to balance the interests In line with this, liberality in corporate rehabilitation procedure only
of the corporation, the creditors, and the general public. Impleading generally refers to the trial court, not to the proceedings before the
creditors as respondents on appeal will give them the opportunity appellate court. The Interim Rules of Procedure on Corporate
to present their legal arguments before the appellate court. The Rehabilitation covers petitions for rehabilitation filed before the
courts will not be able to balance these interests if the creditors are Regional Trial Court. Thus, Rule 2, Section 2 of the Interim Rules of
not parties to a case. Ruling on petitioner's appeal in the absence of Procedure on Corporate Rehabilitation, which refers to liberal
its creditors will not result in judgment that is effective, complete, construction, is limited to the Regional Trial Court. The liberality was
and equitable. given "to assist the parties in obtaining a just, expeditious, and
inexpensive disposition of the case."
This court cannot exercise its equity jurisdiction and allow petitioner
to circumvent the requirement to implead its creditors as The party who seeks to avail [itself] of [an appeal] must comply with
respondents. Tolerance of such failure will not only be unfair to the the requirements of the rules. Failing to do so, the right to appeal is
creditors, it is contrary to the goals of corporate rehabilitation, and lost. Rules of procedure are required to be followed, except only
will invalidate the cardinal principle of due process of law. when for the most persuasive of reasons, they may be relaxed to
relieve a litigant of an injustice not commensurate with the degree
The failure of petitioner to implead its creditors as respondents of his thoughtlessness in not complying with the procedure
cannot be cured by serving copies of the Petition on its creditors. prescribed.
Since the creditors were not impleaded as respondents, the copy of
the Petition only serves to inform them that a petition has been
filed before the appellate court. Their participation was still - Rehabilitation
significantly truncated. Petitioner's failure to implead them
deprived them of a fair hearing. The appellate court only serves
court orders and processes on parties formally named and Professor Stephanie V. Gomez of the University of the Philippines
identified by the petitioner. Since the creditors were not named as College of Law suggests specific characteristics of an economically
respondents, they could not receive court orders prompting them feasible rehabilitation plan:
to file remedies to protect their property rights.
As this court has consistently ruled, "[t]he right to appeal is not a 1. The debtor has assets that can generate more cash if used
natural right[,] nor a part of due process; it is merely a statutory in its daily operations than if sold.


2. Liquidity issues can be addressed by a practicable business merely receives the face value of the debt. Present value of the
plan that will generate enough cash to sustain daily operations. credit takes into account the interest that the amount of money
would have earned if the creditor were paid on time.
3. The debtor has a definite source of financing for the proper
and full implementation of a Rehabilitation Plan that is anchored on
realistic assumptions and goals.147 (Emhasis supplied)
this court enumerated the characteristics of a rehabilitation plan - Why the rehabilitation plan of petitioner is not feasible
that is infeasible:
The Regional Trial Court correctly dismissed petitioner's
(a) the absence of a sound and workable business plan;
rehabilitation plan. It found that petitioner's assets are non-

performing.152 Petitioner admitted this in its Amended Petition
(b) baseless and unexplained assumptions, targets and goals;
when it stated that its vessels were no longer serviceable.153 In

Wonder Book Corporation v. Philippine Bank of Communications,154
(c) speculative capital infusion or complete lack thereof for the
a rehabilitation plan is infeasible if the assets are nearly fully or fully
execution of the business plan;
depreciated. This reduces the probability that rehabilitation may

restore and reinstate petitioner to its former position of successful
(d) cash flow cannot sustain daily operations; and
operation and solvency.

(e) negative net worth and the assets are near full depreciation or
Petitioner's rehabilitation plan should have shown that petitioner
fully depreciated.148ChanRoblesVirtualawlibrary
has enough serviceable assets to be able to continue its business.

Yet, the plan showed that the source of funding would be to sell
In addition to the tests of economic feasibility, Professor Stephanie
petitioner's old vessels. Disposing of the assets constituting
V. Gomez also suggests that the Financial and Rehabilitation and
petitioner's main business cannot result in rehabilitation. A business
Insolvency Act of 2010 emphasizes on rehabilitation that provides
primarily engaged as a shipping line cannot operate without its
for better present value recovery for its creditors.149

ships. On the other hand, the plan to purchase new vessels
sacrifices the corporation's cash flow. This is contrary to the goal of
Present value recovery acknowledges that, in order to pave way for
corporate rehabilitation, which is to allow present value recovery
rehabilitation, the creditor will not be paid by the debtor when the
for creditors. The plan to buy new vessels after selling the two
credit falls due. The court may order a suspension of payments to
vessels it currently owns is neither sound nor workable as a
set a rehabilitation plan in motion; in the meantime, the creditor
business plan.
remains unpaid. By the time the creditor is paid, the financial and

economic conditions will have been changed. Money paid in the
past has a different value in the future.150 It is unfair if the creditor


The other part of the rehabilitation plan entails selling properties of
petitioner's sister company. As pointed out by the Regional Trial
Court, this plan requires conformity from the sister company. Even
if the two companies have the same directorship and ownership,
they are still two separate juridical entities.


Held:
7. Narra Nickel Mining and Development Corp. v. Redmont
Consolidated Mines Corp., G.R. No. 195580, 28 January 2015 - The application of the Grandfather Rule is justified by the
(grandfather rule) circumstances of the case to determine the nationality of
petitioners.
Facts:
The present case is the motion for reconsideration of its April 21,
2014 Decision of the SC, which denied the Petition for Review on A. The application of the Grandfather Rule in the
Certiorari under Rule 45 and affirmed the October 1, 2010 Decision
present case does not eschew the Control Test.
and February 15, 2011 Resolution of the Court of Appeals (CA) .

The case arose from petitioners MPSA (Mineral Production Sharing
Agreements ) applications, in which they asserted their respective Nowhere in that disposition did the Court foreclose the application
rights to the mining areas each applied for. Respondent Redmont, is of the Control Test in determining which corporations may be
itself an applicant for exploration permits over the same mining considered as Philippine nationals. Instead, to borrow Justice
areas. Leonens term, the Court used the Grandfather Rule as a
supplement to the Control Test so that the intent underlying the
Respondent filed petitions for the denial of petitioners applications averted Sec.2, Art. XII of the Constitution be given effect. The
on the ground that petitioners were in actuality foreign following excerpts of the April 21, 2014 Decision cannot be
corporations and are not entitled to the MPSA to the Panel of clearer:chanRoblesvirtualLawlibrary
Arbitrators (POA) of the Department of Environment and Natural
Resources (DENR) , which decided in favor of respondent Redmont. In ending, the control test is still the prevailing mode of
determining whether or not a corporation is a Filipino corporation,
Upon appeal to the CA, it found that there was doubt as to within the ambit of Sec. 2, Art. XII of the 1987 Constitution, entitled
petitioners nationality since a 100% Canadian-owned firm, MBMI to undertake the exploration, development and utilization of the
Resources, Inc. (MBMI), effectively owns60% of the common stocks natural resources of the Philippines. When in the mind of the Court,
of the petitioners by owning equity interest of petitioners other there is doubt, based on the attendant facts and circumstances of
majority corporate shareholders. the case, in the 60-40 Filipino equity ownership in the corporation,
then it may apply the grandfather rule.(emphasis supplied)
Issue:
Whether or not The Grand Father Rule should be applied
B. The Grandfather Rule implements the intent of


the Filipinization provisions of the Constitution.

To reiterate, Sec. 2, Art. XII of the Constitution reserves the
exploration, development, and utilization of natural resources to
- How to determine citizenship of multi-tiered corporations.
Filipino citizens and corporations or associations at least sixty per
centum of whose capital is owned by such citizens. Similarly, In the case of a multi-tiered corporation, the stock attribution rule
Section 3(aq) of the Philippine Mining Act of 1995considers a must be allowed to run continuously along the chain of ownership
corporation xxx registered in accordance with law at least sixty per until it finally reaches the individual stockholders. This is in
cent of the capital of which is owned by citizens of the Philippines consonance with the grandfather rule adopted in the Philippines
as a person qualified to undertake a mining operation. under Section 96 of the Corporation Code (Batas Pambansa Blg. 68)
which provides that notwithstanding the fact that all the issued
Consistent with this objective, the Grandfather Rule was originally stock of a corporation are held by not more than twenty persons,
conceived to look into the citizenship of the individuals who among others, a corporation is nonetheless not to be deemed a
ultimately own and control the shares of stock of a corporation for close corporation when at least two thirds of its voting stock or
purposes of determining compliance with the constitutional voting rights is owned or controlled by another corporation which is
requirement of Filipino ownership.It cannot, therefore, be denied not a close corporation.7
that the framers of the Constitution have not foreclosed the
Grandfather Rule as a tool in verifying the nationality of there can be no other Philippine citizens other than those falling
corporations for purposes of ascertaining their right to participate in within the enumeration provided by the Constitution. Obviously,
nationalized or partly nationalized activities. only natural persons are susceptible of citizenship. Thus, for
purposes of the Constitutional and statutory restrictions on foreign
participation in the exploitation of mineral resources, a corporation
As further defined by Dean Cesar Villanueva, the Grandfather Rule is
investing in a mining joint venture can never be considered as a
the method by which the percentage of Filipino equity in a
Philippine citizen.
corporation engaged in nationalized and/or partly nationalized

areas of activities, provided for under the Constitution and other
The Supreme Court En Banc confirms this [in] Pedro R. Palting, vs.
nationalization laws, is computed, in cases where corporate
San Jose Petroleum [Inc.]. The Court held that a corporation
shareholders are present, by attributing the nationality of the
investing in another corporation engaged in a nationalized activity
second or even subsequent tier of ownership to determine the
cannot beconsidered as a citizen for purposes of the Constitutional
nationality of the corporate shareholder.4 Thus, to arrive at the
provision restricting foreign exploitation of natural
actual Filipino ownership and control in a corporation, both the
resources:chanRoblesvirtualLawlibrary
direct and indirect shareholdings in the corporation are determined.


x x x x benefit-sharing ration is derived from the 60-40 equity requirement
in the Constitution.
Accordingly, we opine that we must look into the citizenship of the
individual stockholders, i.e. natural persons, of that investor- x x x x
corporation in order to determine if the Constitutional and
statutory restrictions are complied with. If the shares of stock of the It is obvious that while payments to a service contractor may be
immediate investor corporation is in turn held and controlled by justified as a service fee, and therefore, properly deductible from
another corporation, then we must look into the citizenship of the gross proceeds, the service contract could be employed as a means
individual stockholders of the latter corporation. In other words, if of going about or circumventing the constitutional limit on foreign
there are layers of intervening corporations investing in a mining equity participation and the obvious constitutional policy to insure
joint venture, we must delve into the citizenship of the individual that Filipinos retain beneficial ownership of our mineral resources.
stockholders of each corporation. Thus, every service contract scheme has to be evaluated in its
entirety, on a case to case basis, to determine reasonableness of the
total service fee x x x like the options available to the contractor
- The beneficial ownership is the key factor to determine ownership. to become equity participant in the Philippine entity holding the
concession, or to acquire rights in the processing and marketing
By law, a mining lease may be granted only to a Filipino citizen, or to stages. x x x (emphasis supplied)
a corporation or partnership registered with the [SEC] at least 60%
of the capital of which is owned by Filipino citizens and possessing x
x x. The sixty percent Philippine equity requirement in mineral The beneficial ownership requirement was subsequently used in
resource exploitation x x x is intended to insure, among other tandem with the situs of control to determine the nationality of a
purposes, the conservation of indigenous natural resources, for corporation in DOJ Opinion No. 84, S. of 1988, through the
Filipino posterity x x x. I think it is implicit in this provision, even if it Grandfather Rule, despite the fact that both the investee and
refers merely to ownership of stock in the corporation holding the investor corporations purportedly satisfy the 60-40 Filipino equity
mining concession, that beneficial ownership of the right to dispose, requirement:9chanroblesvirtuallawlibrary
exploit, utilize, and develop natural resources shall pertain to
the nationality requirement is not satisfied unless it meets the
Filipino citizens, and that the nationality requirement is not satisfied
criterion of beneficial ownership, i.e. Filipinos are the principal
unless Filipinos are the principal beneficiaries in the exploitation of
beneficiaries in the exploration of natural resources (Op. No. 144, s.
the countrys natural resources. This criterion of beneficial
1977; Op. No. 130, s. 1985), and that in applying the same the
ownership is tacitly adopted in Section 44 of P.D. No. 463, above-
primordial consideration is situs of control, whether in a stock or
quoted, which limits the service fee in service contracts to 40% of
non-stock corporationGrandfather Rule is applied specifically in
the proceeds of the operation, thereby implying that the 60-40
cases where the corporation has corporate stockholders with alien


stockholdings, otherwise, if the rule is not applied, the presence of subject corporations Filipino equity falls below the threshold 60%,
such corporate stockholders could diminish the effective control of the corporation is immediately considered foreign-owned, in which
Filipinos. case, the need to resort to the Grandfather Rule disappears.

where 100% of the capital stock is held by a trustee of funds for
pension or other employee retirement or separation benefits, the
a corporation that complies with the 60-40 Filipino to foreign equity
trustee is a Philippine national if at least sixty percent (60%) of the
requirement can be considered a Filipino corporation if there is no
fund will accrue to the benefit of Philippine nationals. Likewise,
doubt as to who has the beneficial ownership and control of the
Section 1(b) of the Implementing Rules of the FIA provides that for
corporation. In that instance, there is no need for a dissection or
stocks to be deemed owned and held by Philippine citizens or
further inquiry on the ownership of the corporate shareholders in
Philippine nationals, mere legal title is not enough to meet the
both the investing and investee corporation or the application of
required Filipino equity. Full beneficial ownership of the stocks,
the Grandfather Rule.12As a corollary rule, even if the 60-40 Filipino
coupled with appropriate voting rights, is essential. (emphasis
to foreign equity ratio is apparently met by the subject or investee
supplied)
corporation, a resort to the Grandfather Rule is necessary if doubt

exists as to the locus of the beneficial ownership and control. In

this case, a further investigation as to the nationality of the
- Application of the Grandfather
personalities with the beneficial ownership and control of the
Rule with the Control Test. corporate shareholders in both the investing and investee
corporations is necessary.

the Control Test can be, as it has been, applied jointly with the
Grandfather Rule to determine the observance of foreign ownership the doubt that demands the application of the Grandfather Rule
restriction in nationalized economic activities. The Control Test and in addition to or in tandem with the Control Test is not confined to,
the Grandfather Rule are not, as it were, incompatible ownership- or more bluntly, does not refer to the fact that the apparent Filipino
determinant methods that can only be applied alternative to each ownership of the corporations equity falls below the 60%
other. Rather, these methods can, if appropriate, be used threshold. Rather, doubt refers to various indicia that the
cumulatively in the determination of the ownership and control of beneficial ownership and control of the corporation do not in
corporations engaged in fully or partly nationalized activities, fact reside in Filipino shareholders but in foreign stakeholders.
it is only when the Control Test is first complied with that the
Grandfather Rule may be applied. Put in another manner, if the
- In relation to the Anti-dummy Law


the pertinent provisions of the Anti-Dummy Law in relation to the control and ownership over both there companies since, as
minimum Filipino equity requirement in the Constitution, observed by the SEC, a reasonable investor would expect to have
significant indicators of the dummy status have been recognized greater control and economic rights than other investors who
in view of reports that some Filipino investors or businessmen are invested less capital than him. The application of the Grandfather
being utilized or [are] allowing themselves to be used as dummies Rule is clearly called for.
by foreign investors specifically in joint ventures for national
resource exploitation. These indicators
are:chanRoblesvirtualLawlibrary
1. That the foreign investors provide practically all the funds for the
joint investment undertaken by these Filipino businessmen and
their foreign partner;chanrobleslaw

2. That the foreign investors undertake to provide practically all the
technological support for the joint venture;chanrobleslaw

3. That the foreign investors, while being minority stockholders,
manage the company and prepare all economic viability studies.

when foreigners contribute more capital to an enterprise, doubt
exists as to the actual control and ownership of the subject
corporation even if the 60% Filipino equity threshold is met.

- A doubt exists as to the extent of control and
beneficial ownership of MBMI over the petitioners
and their investing corporate stockholders.

The fact that MBMI had practically provided all the funds in the
corporations: Sara Marie, Tesoro, Maridejos, Mcarthur, PLMDC and
Narra creates serious doubt as to the true extent of its (MBMI)


CA reversed the RTC ruling and stated that the monetary
8. PNB v Aznar, GR No. 171805, 30 May 2011 (corporate juridical contributions made by Aznar et al. to RISCO can only be
personality) characterized as a loan secured by a lien on the subject lots, rather
than an express trust. Thus, it merely directed PNB to pay Aznar et
Facts: In 1958, Rural Insurance and Surety Company (RISCO) ceased al the amount of their contributions plus legal interest.
operation due to business reverses. In order to rehabilitate RISCO,
the Aznars contributed a P212k which was used to purchase three Issue: Whether Aznar et al. has title to quiet over the subject
parcels of land. These lands were registered in the name of RISCO properties.
while the amount contributed by the Aznars constituted as liens and
encumbrances annotated in the titles of the 3 lots. The annotation Ruling: No, Aznar et al. has no title over the properties.
of such encumbrances were made pursuant to a special meeting of
the Board of Directors of RISCO. The SC agreed with the CA that Minutes of the Special Meeting of
the RISCO Board merely show that a loan was contracted by RISCO
Thereafter, the properties were mortgaged and various from the named stockholders. The SC did not agree with Aznar et al.
annotations were made on the titles, including a Notice of that the language of the Minutes created an express trust.
Attachment and writ of execution. As a result of the execution, a
Certificate of Sale was issued to PNB as the highest bidder of the Trust is the right to the beneficial enjoyment of property, the legal
three parcels of land. title to which is vested in another. It is fiduciary relationship that
obliges the trustee to deal with the proeprty for the benefit of the
This then prompted the Aznars to file a petition to quiet their title beneficiary. Trust relations may be express or implied. An express
on the subject properties and prayed for the issuance of a TRO. The trust is created by intention of the trustor or parties. An implied
Aznars alleged that the subsequent annotations (the mortgages) on trust comes into being by operation of law. However, in order to
the titles were subject to the prior annotation of their liens and create an express trust, the intention must be manifested with
encumbrances. They also argued that the subsequent writs and reasonable certainty and cannot be inferred from loose and vague
processes (during execution) were null and void for lack of valid declarations.
service upon RISCO and upon them, as stockholders.
In the case at bar, there is no such reasonable certitude in the
RTC ruled that RISCO was a mere trustee of the properties and creation of an express trust. In fact, perusal of the Minutes does not
hence, all subsequent annotations to the titles were null and void. It offer any indication that the parties intended for Aznar et al. to
also ordered PNB to reconvey the property to the Aznars. become beneficiaries under an express trust.


Hence, Aznar et al. had no right to ask for quieting of title of the
proper for they have no legal and/or equitable rights over the
properties. At most, Aznar et al., only had a right to be repaid the
amount loaned to RISCO.

Unfortunately, the right to seek repayment or reimbursement is
already barred by prescription. The Minutes of the special meeting
approved on March 14, 1961 may be considered as a written
contract between Aznar et al., and RISCO. As such, Aznar et al., only
had a period of 10 years to enforce their claim. However, they did
not file any action for reimbursement or refund of their
contributions against RISCO or even against PNB. Hence, their right
to refund or reimbursement of their contributions had long
prescribed.

Corporation has separate juridical existence
A corporation has a personality separate and distinct from those of
its stockholders and other corporations to which it may be
connected. Hence, the stockholder only has an inchoate right or
interest over the properties of the the corporation.


business conduit for the sole benefit of the stockholders or of
9. Commissioner of Customs v. Oilink International Corporation, another corporate entity. In such instances, the veil of corporate
G.R. No. 161759, 2 July 2014 (corporate juridical personality) entity will be pierced or disregarded with reference to the particular
Facts: On September 15, 1966, Union Refinery Corporation (URC) transaction involved.
was established under the Corporation Code of the Philippines. In In Philippine National Bank v. Ritratto Group, Inc., the SC outlined
the course of its business undertakings, particularly in the period the following circumstances that are useful in determining whether
from 1991 to 1994, URC imported oil products into the country. On a subsidiary is a mere instrumentality of the parent-corporation: 1.
January 11, 1996, Oilink was incorporated for the primary purpose Control, not mere majority or complete control, but complete
of manufacturing, importing, exporting, buying, selling or dealing in domination, not only of finances but of policy and business practice
oil and gas, and their refinements and by-products at wholesale and in respect to the transaction attacked so that the corporate entity as
retail of petroleum. URC and Oilink had interlocking directors when to this transaction had at the time no separate mind, will or
Oilink started its business. The Customs Commissioner wanted to existence of its own; 2. Such control must have been used by the
collect special duties, VAT and excise taxes from URC and later on defendant to commit fraud or wrong, to perpetrate the violation of
also wanted to collect from Oilink URCs tax liability. Oilink appealed a statutory or other positive legal duty, or dishonest and, unjust act
to the CTA which declared null and void the Commissioner of in contravention of plaintiff's legal rights; and 3. The aforesaid
Customs assessment. The CA affirmed the Decision, thus the control and breach of duty must proximately cause the injury or
present petition by the Commisioner. unjust loss complained of. In applying the "instrumentality" or "alter
Issue: Whether Oilink may also be held liable for URCs tax liability. ego" doctrine, the courts are concerned with reality, not form, and
Ruling: No. There lied no ground to pierce the veil of corporate with how the corporation operated and the individual defendant's
existence. A corporation, upon coming into existence, is invested by relationship to the operation. Consequently, the absence of any one
law with a personality separate and distinct from those of the of the foregoing elements does not authorize the piercing of the
persons composing it as well as from any other legal entity to which corporate veil. Indeed, the doctrine of piercing the corporate veil
it may be related. The separate and distinct personality of the has no application in this case because the Commissioner of
corporation is, however, a mere fiction established by law for Customs did not establish that Oilink had been set up to avoid the
convenience and to promote the ends of justice. It may not be used payment of taxes or duties, or for purposes that would defeat public
or invoked for ends that subvert the policy and purpose behind its convenience, justify wrong, protect fraud, defend crime, confuse
establishment, or intended by law to which the corporation owes its legitimate legal or judicial issues, perpetrate deception or otherwise
being. This is true particularly when the fiction is used to defeat circumvent the law. Besides, it was clear that coming after Oilink
public convenience, to justify wrong, to protectcfraud, to defend was a mere afterthought as the Commissioner first sought payment
crime, to confuse legitimate legal or judicial issues, to perpetrate only from URC and only later on included Oilink.
deception or otherwise to circumvent the law. This is likewise true
where the corporate entity is being used as an alter ego, adjunct, or


and STI-Makati was placed under STIs Education Management
10. Ico v. Systems Technology Institute Inc v. Fernandez, G.R. No. Division (EMD).
185100, 9 July 2014 (corporate juridical personality) In a Memorandum, STI updated petitioners appointment as COO,
"Job Grade Manager B" with a gross monthly salary of P37,483.58.
FACTS She was re-appointed as COO of STI-Makati, under the supervision
Respondent STI is an educational institution duly incorporated, of the Academic Services Group of the EMD and reporting directly
organized, and existing under Philippine laws. Respondents Monico to the Head thereof, herein respondent Fernandez. However,
V. Jacob and Peter K. Fernandez are STI officers, the former being petitioner was not given the salary commensurate to her position as
the President and CEO and the latter Senior VP. COO, which by this time appeared to be pegged at P120,000.00. It
Petitioner Girly Ico, a masteral degree holder with doctorate units likewise appears that she was not given benefits and privileges
earned, was hired as Faculty Member by STI College Makati. STI which holders of equivalent positions were entitled to, such as a car
College Makati is a wholly-owned subsidiary of STI. plan.
At STI, petitioner served under contract from June1997 to March Two months after confirming petitioners appointment as STI-
1998. From the years 1998-2002, she had been promoted to the Makati COO, another Memorandum was issued which was noted by
position of Dean of STI College-Paraaque, then appointed her as respondent Jacob cancelling petitioners COO assignment at STI-
Full-Time Assistant Professor I reporting directly to STIs Academic Makati, citing managements decision to undertake an
Services Division (ASD), then promoted to the position of Dean "organizational restructuring" in line with the merger and
under ASD, and assigned to STI College-Guadalupe. appointing petitioner as STIs Compliance Manager with the same
Meanwhile, petitioners position as Dean was reclassified from "Job "Job Grade Manager B" rank and salary level, reporting directly to
Grade 4" to "Job Grade Manager B" with a monthly salary of School Compliance Group Head Armand Paraiso.
P37,483.58 up from the P27,000.00 salary petitioner was then According to STI, the "organizational re-structuring" was undertaken
receiving. "in order to streamline operations. In the process, the positions of
After petitioners stint as Dean of STI-Guadalupe, she was promoted Chief Executive Officer and Chief Operating Officer of STI Makati
to the position of Chief Operating Officer (COO) of STI-Makati, were abolished."
under the same position classification and salary level of "Job Grade On May 18, 2004, Fernandez summoned petitioner to his office,
Manager B". She concurrently served as STI-Makati School where the following conversation which appears to have been
Administrator. recorded by petitioner with the knowledge and consent of
During petitioners stint as COO and School Administrator of STI- Fernandez took place:
Makati, a Plan of Merger was executed between STI and STI College
Makati, whereby the latter would be absorbed by STI. The merger F: (Fernandez) Im sure you know already why you are here.
was approved by the SEC. STI College Makati thus ceased to exist, P: (Petitioner) No, sir. Nanalo ba tayo sa Winners Circle


F: Girly, lets stop this. You will be pulled out [from] STI P: Sir, can I have one minute to go outside. I can no longer bear
CollegeMakati[.] x x x [T]urn over to Vicky Luz everything tomorrow. this? (begging with both hands [together] as a sign of surrender)
P: Sir? What have I done? May I know what is the reason of (sic) an F: No! (still shouting) I dont have time. Heres the letter from HR[.] I
immediate transfer and a short period of turn-over? want you to sign this.
F: I dont trust you anymore. Ive been hearing too many things P: Sir, Im sorry but I will not sign. I think it should be HR who will
from [sic] you and as your CEO, you dont submit to me FSP give this to me.
monthly. Me high school student ka na inenroll para lang makasali F: You want me to call HR? You want me to call Atty. Pascua? You
sa basketball. want me to call people outside [to] witness that you refused to
P: Sir, thats not true. sign? (still shouting) I dont care if you have a tape recorder there
F: Would you like me to call Liezel? ([H]e stood up and called Ms. with you. After all, that will not be a [sic] valid evidence in court.
Liezel Diego) x x x x
P: Yes, sir. F: Ok. Dont make me loose [sic] my temper again (with a soft voice
F: Liezel, how many times did STI College-Makati submitted [sic] to already). You just sign this (giving to me the [May 18, 2004
you the FSP? Memorandum]). Dont go to Bohol anymore. If ever you will win in
L: (Liezel Diego) Sir, sa akin po 2 beses peromeron pa po ke Ervie. the Winners Circle, you can get the trip just like what happened to
Tanong ko lang po ke Ervie kung ilan sa kanya. Redger (Agudo, the former COO of STI College-Makati).
P: Sir, can I have one minute to call STI College-Makati to fax the P: Sir, what will be the consequence if I will not sign this?
data of the receiving copies of the FSP? F: I will file a case against you. What do you call this? (pausing for a
F: Irrelevant! I dont have time. little while then uttered the word) Disobedience!
P: Sir, you will please put that in writing[. It] is a very strong P: Ok, sir, but please I want to know what exactly my violation is
accusation you are making and I think I should defend myself. (while signing the paper). Now that we will be parting ways, I am
F: No way! You cannot get anything from me. Why? So that when I still hoping that you can tell [sic] the violations that I made, if there
will provide such then you will go to Labor? (in a shouting manner) is any.
P: Sir, what is this all about? Please tell me the real score. I am F: You can have it after 2-3 weeks time. Besides, we are not parting
honest to you and I believe I am performing well. Is this what I ways (with a sarcastic smile). I am still your boss in Audit. Audit and
deserve? Compliance is still under my supervision.
F: Dont talk to me about honesty (again said in a shouting manner P: Thank you, sir. (I went out in [sic] his room still trembling)
and fuming mad). Girly, dont push me to the limit! Dont let me do
things that you will regret later. Dont be like Chito (Salazar, the Petitioner reported to her new office at STIs School Compliance
former STI President) who have [sic] left STI without proving to Group, only to find out that all members of the department had
everybody whether [sic] he have [sic] done wrong or not. I dont gone to Baguio City for a planning session. Petitioner, who was not
want that to happen to you! apprised of the official trip, was thus left behind. That same day, an


official communication was disseminated throughout STI, 4. There was a lack of internal controls in regard to cost of
announcing Jacobs appointment as the new STI President and CEO, planning sessions, liquidation reports, journal entries, use of petty
Fernandez as the new COO of STI-Makati, and Luz as the new STI- cash fund, and inventory; and
Makati School Administrator; however, petitioners appointment as 5. Petitioner and other employees falsified school records in
Compliance Manager was left out. order to enable high school players to play for STI-Makatis
In a letter to Jacob, petitioner claimed that she became the victim of volleyball team.
a series of discriminatory acts and asserting that she was illegally Fernandez cited the above Audit Report and recommended that an
demoted and that her name was tarnished as a result of the investigation committee be formed to investigate petitioner for
demotion and transfer. Jacob replied advising petitioner that her grave abuse of authority, falsification, gross dishonesty, maligning
letter was forwarded to Fernandez for comment. and causing intrigues, commission of acts tending to cast negativity
Prior to that, during the 17th STI Leaders Convention, petitioners upon his person (Fernandez), and other charges. Fernandez
achievement as a Silver Awardee for the 2004 STI Winners Circle recommended that petitioner be placed under preventive
Awards was announced, but she did not attend, claiming that she suspension pending investigation.
was too embarrassed to attend owing to the events leading to her Jacob approved Fernandezs recommendations, and a
transfer, which to her was a demotion. STI withheld petitioners Memorandum was issued placing petitioner under preventive
prize a South Korea trip "pending the final result of the suspension and banning her entry to any of STIs premises effective
investigations being conducted" by STI relative to irregularities and June 22, 2004 up to July 16, 2004, citing "(an) Audit investigation
violations of company policies allegedly committed by petitioner. being conducted relative to the offenses" for which petitioner was
It appears that from May 28, 2004 up to June 10, 2004, STIs charged.
Corporate Auditor/Audit Advisory Group conducted an audit of STI- Petitioner received another Memorandum this time stating that
Makati covering the whole period of petitioners stint as charges have already been filed against her allegedly "based on the
COO/School Administrator therein. In a report (Audit Report) later Audit Findings", yet making reference to the Memorandum placing
submitted to Fernandez, the auditors claim to have discovered her under preventive suspension and without informing her of the
irregularities, specifically particulars of the charges or the results of the audit. Nor was a copy
1. Appointment papers of STI-Makati employees did not have the of the said audit findings attached to the memorandum.
written approval of Fernandez in his capacity as CEO; In a demand letter addressed to Jacob, petitioner protested anew
2. There were instances where employees became regular after her alleged maltreatment, claiming illegal constructive dismissal and
only an abbreviated probationary period, and in some cases, the demanding immediate reinstatement to her COO position and the
employees did not undergo probation; payment of actual and other damages, under pain of suit.
3. Petitioner failed to fully liquidate cash advances amounting to In a letter, petitioner was notified of a hearing scheduled for July 2,
P60,000.00, relative to the purchase of books; 2004 and required to submit her written explanation to the charges.
It appears, however, that petitioner did not receive the said letter.


Petitioner filed with the NLRC a labor case against herein honorarium of P8,500.00 monthly. She likewise contended that her
respondents, Fabul and Briones. The Complaint alleged illegal removal as STI-Makati COO and transfer to the School Compliance
constructive dismissal and illegal suspension, with claims for Group as Compliance Manager was illegal and constituted a
regularization as well as for underpayment of salaries, holiday pay, demotion amounting to constructive dismissal, as she was not given
service incentive leave, 13th -month pay, moral and exemplary prior notice of the transfer; forced to give her written conformity
damages, and attorneys fees. thereto; placed in an embarrassing situation thereafter; and never
In a July 12, 2004 Memorandum to petitioner, STI lifted petitioners given any task or work while she held such position. She added that
suspension and ordered her to return to work on July 13, 2004, with the alleged reorganization which caused her removal as STI-Makati
full salary from the time of her suspension. COO was a sham, calculated to ease her out in the guise of a
In a July 13, 2004 electronic mail message sent to petitioner, the restructuring; that she was illegally placed under suspension for
latter was invited to a July 19, 2004 "meeting with the committee alleged offenses which respondents could not substantiate and
formed to act on the complaint filed against petitioner by which she was not informed about; that she was not accorded due
Fernandez.". process during the conduct of the purported investigation; and that
During the supposed scheduled meeting, petitioner was furnished as a consequence of the discrimination and unfair treatment she
with several documents; however, no copy of the formal complaint received from respondents, she suffered untold injury.
or written charge was given to her. The meeting was adjourned Petitioner thus prays for the following:
without the committee setting another meeting for the submission
of petitioners answer; nor was a hearing set for the presentation of 1. To reinstate complainant to her former position as COO
the parties evidence. without loss to [sic] her seniority rights with backwages and other
Thereafter, petitioner went on sanctioned leave of absence. After benefits, such the [sic] monthly P8,500.00 honorarium, among
the lapse of her approved leave, she reported for work several others, to be paid until fully reinstated with the necessary
times. After August 9, 2004, however, she no longer reported for adjustments to equal the salary and benefits now being received by
work. her replacement, respondent Peter K. Fernandez.
In a January 13, 2005 letter cum notice of termination signed by 2. To pay complainant the unpaid salary and benefits differential
Jacob, petitioner was dismissed from STI effective January 11, 2005. due her as COO computed from November 5, 2002 to equal the
The Labor Arbiter Decision. salary and benefits of respondent Peter K. Fernandez, plus the legal
Petitioner claimed that during her stint as COO of STI-Makati and up rate of interest thereon from the same date until fully paid.
to her transfer and appointment as Compliance Manager, she was 3. To pay the money equivalent, plus the legal rate [sic] interest
discriminated against and unfairly treated by respondents; that she thereon until fully paid, of complainants awards as a Silver Awardee
was denied a) the salary corresponding to the COO position in the in its STI 17th Winners Circle, consisting of the trip to Panglao,
amount of P100,000.00 P120,000.00, b) her prizes as Winners Bohol from May 25 to 27, 2004 and Korea from September 21 to 24,
Circle awardee, as well as c) her benefits such as a car plan and 2004.


4. To pay complainant the unpaid Holiday Pay duly adjusted as Respondents added that petitioners suspension was vital for the
above [sic] and with legal interest thereon until fully paid. protection of sensitive data and to ensure the smooth conduct of
5. To pay complainant the proportionate 13th [-]month pay for the investigation, and in order that she may not gain access to
the current year with legal interest thereon until fully paid. sensitive information which, if divulged to government agencies
6. To pay complainant moral damages in [sic] sum of P3 Million such as the CHED, would result in the denial/withholding of permits
and exemplary damages in the amount of P2 Million, including to STI. On petitioners claim for regularization, respondents claimed
attorneys fees, and expenses of litigation. that this was unnecessary since petitioner was already a regular
employee of STI. Regarding petitioners money claims, respondents
argued that petitioner could not be entitled to them, as she
The respondents in claimed that petitioner was removed as STI- received all her salaries, benefits and entitlements during her stint
Makati COO pursuant to a reorganization aimed at streamlining with STI. Finally, respondents contended that petitioner was not
STIs operations after the merger; as a result, the positions of STI- entitled to damages and attorneys fees, since she was not illegally
Makati CEO and COO were abolished. They argued that petitioner dismissed and, in carrying out her transfer, they did not act with
was merely "laterally transferred" to the School Compliance Group malice, bad faith, or in a wanton and oppressive manner.
as Compliance Manager, and was not demoted in rank; nor did she In her Reply, petitioner noted that while STI and STI College Makati
suffer a diminution in her salary and benefits, as the positions of (Inc.) merged, there was in fact no restructuring that took place
STI-Makati COO and Compliance Manager are equivalent in rank as which required her transfer and demotion; on the contrary, the
they both fall under "Job Grade Manager B". They added that merger created 29 additional vacant positions in STI. Petitioner
petitioner committed anomalies and irregularities which became added that no prior announcement of the restructuring of STI-
the subject of an Audit Report. They asserted that the abolition of a Makati was made, which thus renders such reorganization of
position in STI is a recognized prerogative of management which questionable integrity; instead, the merger was utilized as a tool to
may not be interfered with absent malice or bad faith, and more so ease her out, through the bogus reorganization. She contended that
when done pursuant to a valid corporate restructuring; the Fernandez had prejudged her case even before an investigation into
abolition of the CEO, COO, Treasurer, Corporate Secretary, and the alleged anomalies could be conducted. Petitioner likewise noted
Director positions in STI-Makati was pursued as a matter of course that even her appointment as Compliance Manager was a sham,
because with the merger, STI-Makati ceased to exist as it was because no such vacant position existed within the School
absorbed by STI, and consequently these positions became Compliance Group, as the only two Compliance Manager positions
unnecessary. Petitioners transfer was justified as an exercise of were then occupied by Eddie Musico and Reynaldo Gozum; the only
STIs prerogative and right to transfer its employees when called for, other vacant positions in that department were those for lower
and was done reasonably, without malice or bad faith, and without level Compliance Officers which meant that she was effectively
unnecessarily inconveniencing petitioner. demoted. Petitioner claimed as well that her demotion was
highlighted by the fact that while she had a masteral degree and


doctorate units, all the others within the School Compliance Group copy of the charges against her, including all other documents,
including her superior, Paraiso were mere bachelors degree particularly the Audit Findings.
holders. The Labor Arbiter Renaldo O. Hernandez issued a Decision in favor
Finally, petitioner maintained that the multiple charges lodged of petitioner.
against her were without basis, and respondents failed to prove The Labor Arbiter found that petitioner was illegally dismissed, and
them by adequate evidence. respondents were guilty of malice and bad faith in the handling of
On the other hand, respondents maintained in their Reply that as to her case. He held that petitioners transfer which STI claimed was
salary and benefits, petitioner was not discriminated against, and the result of STIs restructuring was irregular, because at the time
was merely given a compensation package commensurate to her of such transfer, the reorganization and restructuring of STI-Makati
rank as "Job Grade Manager B", taking into consideration her length had already been effected; STIs Memorandum confirming and
of service at STI. Her salary was thus at par with those of other STI renewing her appointment as STI-Makati COO was precisely issued
employees of equivalent rank and similar durations of employment. as a consequence of the merger and reorganization. STIs claim that
Respondents asserted further that the reorganization was not a petitioners lateral transfer was necessary is thus contrived.
ruse to ease petitioner out; it was necessary as a means toward The LA the position of Compliance Manager did not actually exist in
streamlining STIs operations. Fernandez characterized petitioners STIs new corporate structure; there were only two Compliance
account of their conversation as inaccurate. Respondents likewise Manager positions which were at the time occupied by Musico and
debunked petitioners claims that she was discriminated against Gozum, and the only other vacant positions in the Compliance
while she held the position of Compliance Manager, saying that this Group were for Compliance Officers. In effect, petitioner was
claim was specious and exaggerated. They added that even though appointed to the position of a mere Compliance Officer, which was
Fernandez was later appointed COO of STI-Makati after petitioner lower in rank.
was appointed Compliance Manager, his work as such STI-Makati The Labor Arbiter held further that during the process of her illegal
COO was limited to performance of oversight functions, which transfer, petitioner was harassed, humiliated, and oppressed, thus:
functions he already performs as Senior VP of the Education 1. On May 18, 2004, she was subjected to threats and
Management Division of STI. With regard to the July 19, 2004 intimidation by Fernandez, the latter bullying and forcing her to
meeting, respondents argued that nothing was achieved during said receive the May 18, 2004 Memorandum while petitioner was inside
meeting owing to petitioners and her counsels "quarrelsome his office;
attitude" and insistence that she be furnished the written charges 2. On the day she reported to her new position as Compliance
against her as well as the supporting evidence or documents, which Manager, the whole ComplianceGroup team left for a three-day
would have been unnecessary if she only cooperated during said out-of-town planning session, without respondents informing her or
meeting and answered the charges against her. They underscored including her in the official event as she should be;
the fact that during said meeting, petitioner was furnished with a 3. On May 20, 2004, an official written announcement was made
regarding Jacobs appointment as new STI President and CEO,


Fernandez as new STI-Makati COO, and Luz as new STI-Makati 1. Petitioners position as STI-Makati COO was abolished as a
School Administrator. Adding insult to injury, petitioners necessary result of the merger of STI and STI-Makati,and the
appointment as Compliance Manager was intentionally left out; restructuring of STI aimed at streamlining its operations;
4. Petitioner, given her illustrious career in STI having risen 2. Petitioner was merely "laterally transferred" to the
from the ranks as a faculty member, to full-time professor, to Dean, Compliance Group as Compliance Manager, with no diminution in
and finally to the position of STI-Makati COO, and having achieved rank, salary and benefits; and
multiple awards and distinctions was thereafter treated "as a non- 3. The reorganization of STI was done in good faith and in the
entity" by respondents. exercise of the management prerogative. In the same manner,
The Labor Arbiter added that the purported audit and investigation petitioners transfer was a) made in the exercise of the
of petitioners alleged irregularities was a sham, as the same was management prerogative to transfer employees when necessary; b)
conducted without official sanction from STI and without done in good faith; and c)not unreasonable, inconvenient or
petitioners knowledge; it was founded on hearsay evidence and prejudicial to her interests.
based on charges known only to Fernandez; it was conducted
merely to conceal respondents shabby treatment of petitioner, and
without apprising petitioner of the written formal charges against ISSUES
her. a) WON there was constructive dismissal;
Finally, respondents were adjudged guilty of malice, bad faith, acts b) WON all respondents are liable.
oppressive to labor and contrary to morals, good customs and
public policy, which caused upon petitioner suffering and RULING
humiliation entitling her to an award of moral and exemplary The Petition is granted.
damages, and attys fees. It appears that the position of STI-Makati COO was actually never
Ruling of the NLRC. abolished. As a matter of fact, soon after petitioner was removed
Respondents interposed an appeal with the NLRC. The NLRC from the position, Fernandez was appointed to take her place as
reversed the Labor Arbiters Decision, finding that there was no STI-Makati COO; his appointment was even publicly announced via
illegal constructive dismissal. an official communication disseminated company-wide. This thus
Petitioner moved for reconsideration, but the NLRC denied the belies respondents claim that the position of STI-Makati COO
same. became unnecessary and was thus abolished. Respondents may
Ruling of the Court of Appeals. argue, as they did in their Reply to petitioners Position Paper, that
Petitioner went up to the CA via certiorari. The CA denied the Fernandezs appointment as STI-Makati COO replacing petitioner
petition. was merely for oversight purposes. Whatever the reason could be
In sum, both the NLRC and CA found that petitioner was not for Fernandezs appointment as STI-Makati COO, the fact still
constructively dismissed, for the following reasons: remains that such position continued to exist.


Next, petitioners appointment as Compliance Manager appears to Fernandezs declarations during the May 18 conversation
be contrived as well. At the time of petitioners appointment, the undoubtedly provide the true motive behind petitioners removal as
only two Compliance Manager positions within STIs compliance STI-Makati COO:
department the School Compliance Group were already filled up a. After "hearing too many things" about petitioner, Fernandez
as they were then occupied by Musico and Gozum. None of them simply lost confidence in her meaning that Fernandez had made
has been dismissed or resigned. Nor could petitioner have been up his mind about petitioner after hearing rumors about her;
appointed head of the department, as Paraiso was very much in b. Fernandez accused petitioner of specific violations, without the
charge thereof, as its Compliance Group Head. The only positions benefit of accurate information and without giving her the
within the department that were at the time vacant were those of opportunity to refute the accusations;
Compliance Officers, which are of lower rank. In other words, c. Fernandez has no time to listen to petitioners explanations,
petitioner could not have been validly appointed as Compliance despite her pleas to be heard;
Manager, a position within STI that was then very much occupied; if d. Fernandez refused to provide petitioner with the evidence or
ever, petitioner took the position of a mere Compliance Officer, the other basis for his accusations, in spite of petitioners request for
only vacant position within the department. him to put the same in writing;
Thirdly, even though it is claimed that from May 28, 2004 up to June e. Fernandez has prejudged petitioner, and intimated to her that
10, 2004, STIs Corporate Auditor/Audit Advisory Group conducted she was dishonest, even before she could be heard; and
an audit of STI Makati covering the whole period of petitioners stint f. Fernandez threatened petitioner, that if she pushed him further,
as COO/School Administrator, it appears that even prior to such she would suffer the fate of a former employee who was separated
audit, petitioners superior Fernandez had already prejudged her from STI without the benefit of clearing his name. In other words,
case. The May 18, 2004 conversation between petitioner and she could find herself without a job at STI even before her
Fernandez inside the latters office is quite revealing. innocence or guilt could be established.
The May 18 conversation between petitioner and Fernandez, taken From the May 18 conversation alone, it can be seen that
in conjunction with the Courts findings that the position of STI- petitioners fate in STI was a foregone conclusion. She was
Makati COO was never abolished and that petitioners appointment threatened to accept her fate or else she would find herself without
as Compliance Manager was contrived, confirms the view that work, either through dismissal or forced resignation. Evidently, she
petitioner was not transferred to the School Compliance Group as a became the subject of an illegal constructive dismissal in the guise
matter of necessity, but as punishment for her perceived of a transfer.
irregularities. In effect, petitioner was demoted and relegated to a The supposed audit conducted by STIs Corporate Auditor/Audit
position of insignificance within STI, there to suffer for what her Advisory Group was a mere afterthought, as it was apparent that as
employer alleged were transgressions committed by her. To all early as May 18, 2004, petitioner has been found guilty of whatever
intents and purposes, petitioner was punished even before she transgressions she was being charged with. The same is true with
could be tried. her preventive suspension; it was imposed with malice and bad


faith, and calculated to harass her further, if not trick her into an official companywide announcement of Jacobs appointment as
believing that respondents were properly addressing her case. All new STI President and CEO, Fernandez as new STI-Makati COO, and
proceedings and actions taken in regard to petitioners employment Luz as new STI-Makati School Administrator, but petitioners
and case, beginning on May 18, 2004, were all but a farce, done or appointment as new Compliance Manager was inconsiderately
carried out in bad faith, with the objective of harassing and excluded. Respondents made her go through the rigors of a
humiliating her, all in the fervent hope that she would fold up and contrived investigation, causing her to incur unnecessary legal
quit. expenses as a result of her hiring the services of counsel. Her well-
Constructive dismissal exists where there is cessation of work deserved awards and distinctions were unduly withheld in the guise
because continued employment is rendered impossible, of continuing investigation which obviously was taking too long to
unreasonable or unlikely, as an offer involving a demotion in rank or conclude; investigation began formally on May 28, 2004 (start of
a diminution in pay and other benefits. Constructive dismissal may, audit), yet by August 17 (date of memorandum informing petitioner
likewise, exist if an act of clear discrimination, insensibility, or of the withholding of Korea travel award), the investigation was still
disdain by an employer becomes so unbearable on the part of the allegedly ongoing. She was deprived of the privilege to attend
employee that it could foreclose any choice by him except to forego company events where she would have received her well-deserved
his continued employment. In cases of a transfer of an employee, awards with pride and honor, and her colleagues would have been
the rule is settled that the employer is charged with the burden of inspired by her in return. Certainly, respondents made sure that
proving that its conduct and action are for valid and legitimate petitioner suffered a humiliating fate and consigned to oblivion.
grounds such as genuine business necessity and that the transfer is Indeed, petitioner could not be faulted for taking an indefinite leave
not unreasonable, inconvenient or prejudicial to the employee. If of absence, and for altogether failing to report for work after August
the employer cannot overcome this burden of proof, the 9, 2004. Human nature dictates that petitioner should refuse to
employees transfer shall be tantamount to unlawful constructive subject herself to further embarrassment and indignities from the
dismissal. respondents and her colleagues. All told, petitioner was deemed
There is no doubt that petitioner was subjected to indignities and constructively dismissed as of May 18, 2004. Finally, since the
humiliated by the respondents. She was bullied, threatened, position of STI-Makati COO was never abolished, it follows that
shouted at, and treated insolently by Fernandez on May 18, 2004 petitioner should be reinstated to the very same position, and there
inside the latters own office. She was shamed when, on her very to receive exactly what Fernandez gets by way of salaries, benefits,
first day at the School Compliance Group, all of the employees of privileges and emoluments, without diminution in amount and
the department have gone on an official out-of-town event without extent.
her and, as a result, she was left alone at the office for several days. Nonetheless, the Court fails to discern any bad faith or negligence
Respondents did not even have the courtesy to offer her the on the part of respondent Jacob. The principal character that
opportunity to catch up with the group so that she could make it to figures prominently in this case is Fernandez; he alone relentlessly
the event, even if belatedly. Then again, on May 20, 2004, STI made caused petitioners hardships and suffering. He alone is guilty of


persecuting petitioner. Indeed, some of his actions were without
sanction of STI itself, and were committed outside of the authority
given to him by the school; they bordered on the personal, rather
than official. His superior, Jacob, may have been, for the most
part, clueless of what Fernandez was doing to petitioner. After all,
Fernandez was the Head of the Academic Services Group of the
EMD, and petitioner directly reported to him at the time; his
position enabled him to pursue a course of action with petitioner
that Jacob was largely unaware of.
A corporation, as a juridical entity, may act only through its
directors, officers and employees. Obligations incurred as a result
of the directors and officers acts as corporate agents, are not
their personal liability but the direct responsibility of the
corporation they represent. As a rule, they are only solidarily liable
with the corporation for the illegal termination of services of
employees if they acted with malice or bad faith.
To hold a director or officer personally liable for corporate
obligations, two requisites must concur: (1) it must be alleged in
the complaint that the director or officer assented to patently
unlawful acts of the corporation or that the officer was guilty of
gross negligence or bad faith; and (2) there must be proof that the
officer acted in bad faith.


On August 5, 2008, the Palm Companies filed a Motion to Order
11. Palm Avenue Holding Co. Inc v. Sandiganbayan, G.R. No. Payment of Interest on Balance of the Sequestered Funds. Later, on
173082, 6 August 2014 (corporate juridical personality) September 29, 2008, the Sandiganbayan granted the Palm
Companies motion to dismiss and dismissed the Republics
(Consolidated cases) complaint as to them. This was affirmed by the Court in a
Resolution7 dated January 20, 2010 in G.R. No. 189771. The
Facts: Sandiganbayan also granted the Palm Companies Motion to Order
Through a writ of sequestration dated October 27, 1986, the Payment of Interest on Balance of the Sequestered Funds on
Presidential Commission on Good Government (PCGG) sequestered October 28, 2009.
all the assets, properties, records, and documents of the Palm
Companies. Said sequestered assets included 16,237,339 Benguet Thereafter, the Palm Companies filed another motion dated May
Corporation shares of stock, registered in the name of the Palm 14, 2010, this time, to order the PCGG to release all the companies
Companies. The PCGG had relied on a letter from the Palm shares of stock and funds in its custody. The Sandiganbayan then
Companies Attorney-in-Fact, Jose S. Sandejas, specifically issued its October 21, 2010 Resolution, granting the companies
identifying Benjamin Kokoy Romualdez, a known crony of former foregoing motion.
President Ferdinand E. Marcos, as the beneficial owner of the
Benguet Corporation shares in the Palm Companies name. The Palm companies filed a motion for bill of particulars, which was
granted. However, the answer of the Republic did not contain
The Republic, represented by the PCGG, filed a complaint with the sufficient detail on the properties alleged to be ill-gotten.
Sandiganbayan. However, the complaint did not implead the palm
companies as respondents. It was only after several years that the
companies were impleaded in the case. Issue:
Whether or not the order of sequestration be lifted in view of the
Urgent motion to lift the order of sequestrations were filed but such failure of the PCGG to implead the Companies. And Wheteher or
was denied by the court. not the release of the sequestrated properties was proper.

On September 22, 2006, the Palm Companies filed a Motion to
Release Sequestered Funds with the Sandiganbayan. In a Held:
Resolution dated January 18, 2007, the Sandiganbayan granted said
motion and ordered the release of the sequestered funds for the The Constitution mandates the Republic to file the corresponding
purchase of additional shares in Benguet Corporation. judicial action or proceedings within a six-month period (from its
ratification on February 2, 1987) in order to maintain sequestration,


non-compliance with which would result in the automatic lifting of Whether or not the impleaded defendant in Civil Case No. 0035 is
the sequestration order. The Courts ruling in Presidential indeed the beneficial owner of the Palm Companies is a matter
Commission on Good Government v. Sandiganbayan,12 which which the PCGG merely assumes and still has to prove in said
remains good law, reiterates the necessity of the Republic to case.15cralawred
actually implead corporations as defendants in the complaint, out of
recognition for their distinct and separate personalities, failure to The sequestration order issued against the Palm Companies is
do so would necessarily be denying such entities their right to due therefore deemed automatically lifted due to the failure of the
process.13 Here, the writ of sequestration issued against the assets Republic to commence the proper judicial action or to implead
of the Palm Companies is not valid because the suit in Civil Case No. them therein within the period under the Constitution. However,
0035 against Benjamin Romualdez as shareholder in the Palm the lifting of the writ of sequestration will not necessarily be fatal to
Companies is not a suit against the latter. The Court has held, the main case since the same does not ipso facto mean that the
contrary to the assailed Sandiganbayan Resolution in G.R. No. sequestered properties are, in fact, not ill-gotten.
173082, that failure to implead these corporations as defendants
and merely annexing a list of such corporations to the complaints is
a violation of their right to due process for it would be, in effect, - There was failure to state a cause of action due to failure to give
disregarding their distinct and separate personality without a sufficient details in its answer to the bill of particulars.
hearing.14 Here, the Palm Companies were merely mentioned as Finally, we sustain defendant-movants argument that the failure of
Item Nos. 47 and 48, Annex A of the Complaint, as among the the plaintiff to sufficiently provide the ultimate and material facts
corporations where defendant Romualdez owns shares of stocks. they required in their motion for bill of particulars, makes the third
Furthermore, while the writ of sequestration was issued on October amended complaint dismissible for failure to state a cause of
27, 1986, the Palm Companies were impleaded in the case only in action.18

1997, or already a decade from the ratification of the Constitution
in 1987, way beyond the prescribed period. Simple justice demands that the Palm Companies must know what
the complaint against them is all about. The law requires no less.

- The fact that the beneficial owner of the corporations was answers set forth by the plaintiff in its Bill of Particulars are
impleaded did not cure the defect. indefinite and deficient inasmuch as the question of what are the
alleged illegally acquired funds or properties of the Palm Avenue
The argument that the beneficial owner of these corporations was, Companies which they are liable to return, remains unanswered, a
anyway, impleaded as party-defendant can only be interpreted as a product of uncertainty.
tacit admission of the failure to file the corresponding judicial action
against said corporations pursuant to the constitutional mandate.


In sum, the allegations contained in plaintiff Republics Bill of
Particulars are incomplete and indefinite as they merely express
conclusions of law and presumptions unsupported by factual
premises.


and OCWD entered into a compromise agreement where petitioner
12. Olongapo City v. Subic Water and Sewerage Co., Inc., G.R. No. and OCWD offset their respective claims and counterclaims. OCWD
171626, 6 August 2014 (corporate juridical personality) also undertook to pay to petitioner its net obligation amounting to
P135,909,467.09, to be amortized for a period of not exceeding 25
FACTS years at 24% per annum.
Pursuant to PD 198, a law which authorized the creation of local The compromise agreement also contained a provision regarding
water districts, petitioner Olongapo City (petitioner) passed the parties request that Subic Water, Philippines, which took over
Resolution No. 161, which transferred all its existing water facilities the operations of the defendant Olongapo City Water District be
and assets under the Olongapo City Public Utilities Department made the co-maker for OCWDs obligations. Mr. Noli Aldip, then
Waterworks Division, to the jurisdiction and ownership of the chairman of Subic Water, acted as its representative and signed the
Olongapo City Water District (OCWD). agreement on behalf of Subic Water.
PD 198 allows local water districts (LWDs)which have acquired an Subsequently, the parties submitted the compromise agreement to
existing water system of an LGU to enter into a contract to pay the RTC Olongapo which the trial court approved and adopted it as its
concerned LGU. In lieu of the LGUs share in the acquired water judgment in Civil Case 580-0-90.
utility plant, it shall be paid by the LWD an amount not exceeding Pursuant to the compromise agreement and in payment of OCWDs
three percent (3%) of the LWDs gross receipts from water sales in obligations to petitioner, petitioner and OCWD executed a Deed of
any year. Assignment where OCWD assigned all of its rights in the JVA in favor
Petitioner filed a complaint for sum of money and damages against of the petitioner, including but not limited to the assignment of its
OCWD. Among others, petitioner alleged that OCWD failed to pay shares, lease payments, regulatory assistance fees and other
its electricity bills to petitioner and remit its payment under the receivables arising out of or related to the Joint Venture Agreement
contract to pay P26,798,223.70, pursuant to OCWDs acquisition of and the Lease Agreement. On December 15,1998, OCWD was
petitioners water system. judicially dissolved.
In its answer, OCWD posed a counterclaim against petitioner for To enforce the compromise agreement, the petitioner filed a
unpaid water bills amounting to P3,080,357.00.15 motion for the issuance of a writ of execution with the trial court.
In the interim, OCWD entered into a Joint Venture Agreement (JVA) The trial court granted the motion, but did not issue the
with Subic Bay Metropolitan Authority (SBMA), Biwater corresponding writ of execution.
International Limited (Biwater), and D.M. Consunji, Inc. (DMCI) on Almost four years later, the petitioner, through its new counsel,
November 24, 1996. Pursuant to this agreement, Subic Water a filed a notice of appearance with urgent motion/manifestation and
new corporate entity was incorporated. prayed again for the issuance of a writ of execution against OCWD.
On the same day, Subic Water was granted the franchise to take A certain Atty. Segundo Mangohig, claiming to be OCWDs former
over OCWDs water operations in Olongapo City. counsel, filed a manifestation alleging that OCWD had already been
To finally settle their money claims against each other, petitioner dissolved and that Subic Water is now the former OCWD.


Because of this assertion, Subic Water also filed a manifestation and adopted by the trial court on June 13, 1997, this should be the
informing the trial court that as borne out by the articles of reckoning date for the counting of the period for the filing of a valid
incorporation and general information sheet of Subic Water, motion for issuance of a writ of execution. Petitioner thus had until
defendant OCWD is not Subic Water. The manifestation also June 13, 2002, to file its motion.
indicated that OCWD was only a 10% shareholder of Subic Water; The CA further remarked that while it was true that a motion for
and that its 10% share was already in the process of being execution was filed by petitioner on May 7, 1999, and the same was
transferred to petitioner pursuant to the Deed of Assignment. granted by the trial court in its July 23, 1999 order, no writ of
The trial court granted the motion for execution and directed its execution was actually issued.
issuance against OCWD and/or Subic Water. Because of this As the CA looked at the case, petitioner, instead of following up
unfavorable order, Subic Water filed a special appearance with with the trial court the issuance of the writ of execution, did not do
motion to: (1) reconsider order; and (2) quash writ of execution. anything to secure its prompt issuance. It waited another four years
The trial court denied Subic Waters special appearance, motion for to file a second motion for execution on May 30, 2003. By this time,
reconsideration, and its motion to quash. Subic Water then filed a the allowed period for the filing of a motion for the issuance of the
petition for certiorari with the CA, imputing grave abuse of writ had already lapsed. Hence, the trial courts July 29, 2003 order
discretion amounting to lack or excess of jurisdiction to RTC granting the issuance of the writ was null and void for having been
Olongapo. issued by a court without jurisdiction.
The CAs Ruling
The CA granted Subic Waters petition for and reversed the trial ISSUES
courts rulings. A. Procedural Aspect:
The CA found that the writ of execution did not comply with Section 1. WON a petition for certiotari under Sec. 65 was proper;
6, Rule 39 of the Rules of Court, to wit: 2. WON the writ of the execution of a judgment could no
Section 6. Execution by motion or by independent action. A final longer be made by mere motion after the prescribed five-year
and executory judgment or order may be executed on motion period had already lapsed; and
within 5 years from the date of its entry. After the lapse of such 3. WON Subic Water could still be subjected to a writ of
time, and before it is barred by the statute of limitations, a execution, since it was identified as OCWDs co-maker and
judgment may be enforced by action. The revived judgment may successor-in-interest in the compromise agreement.
also be enforced by motion within 5 years from the date of its entry B. Substantive Aspect (MAO NING IMPORTANTE):
and thereafter by action before it is barred by the statute of 1. WON Subic is solidarily liable with OCWD;
limitations. 2. WON the action of Mr. Noli Aldip bound Subic;
A judgment on a compromise agreement is immediately executory 3. WON Subic and OCWD are two separate and distinct
and is considered to have been entered on the date it was approved entities.
by the trial court. Since the compromise agreement was approved


RULING A writ of execution cannot affect a non- party to a case.
The petition was DISMISSED for being the wrong remedy and for Strangers to a case are not bound by the judgment rendered in it.
lack of merit; Thus, a writ of execution can only be issued against a party.
A. Procedural Law Aspect Subic Water never participated in the proceedings in Civil Case No.
Certiorari is not a substitute for a lost appeal. 580-0-90, where OCWD and petitioner were the contending parties.
The instant petition should have been brought under Rule 45 in a Subic Water only came into the picture when one Atty. Segundo
petition for review on certiorari. Mangohig, claiming to be OCWDs former counsel, manifested
But even without the procedural infirmity, the present recourse to before the trial court that OCWD had already been judicially
us has no basis on the merits and must be denied. dissolved and that Subic Water assumed OCWDs personality.
Execution by motion is only available within the five-year period In the present case, the compromise agreement, although signed by
from entry of judgment. Mr. Noli Aldip, did not carry the express conformity of Subic Water.
Under Rule 39, Section 6, a judgment creditor has two modes in Mr. Aldip was never given any authorization to conform to or bind
enforcing the courts judgment. Execution may be either through Subic Water in the compromise agreement. Also, the agreement
motion or an independent action. merely labeled Subic Water as a co-maker. It did not contain any
Execution by motion is only available if the enforcement of the provision where Subic Water acknowledged its solidary liability with
judgment was sought within 5 years from the date of its entry. On OCWD.
the other hand, execution by independent action is mandatory if Lastly, Subic Water did not voluntarily submit to the courts
the 5-year prescriptive period for execution by motion had already jurisdiction. In fact, the motion it filed was only made as a special
elapsed. However, for execution by independent action to prosper appearance, precisely to avoid the courts acquisition of jurisdiction
the Rules impose another limitation the action must be filed over its person. Without any participation in the proceedings below,
before it is barred by the statute of limitations which, under the it cannot be made liable on the writ of execution issued by the court
Civil Code, is 10 years from the finality of the judgment. a quo.
Since the second motion was filed beyond the five-year prescriptive B. Substantive Law Aspect
period set by the Rules, then the writ of execution issued by the trial Solidary liability must be expressly stated.
court on July 31, 2003 was null and void for having been issued by a The petitioner also argued that Subic Water could be held solidarily
court already ousted of its jurisdiction. liable under the writ of execution since it was identified as OCWDs
The issuance of the writ should have been a ministerial duty on the co-maker in the compromise agreement.
part of the trial court. The petitioner could have easily compelled Solidary liability is not presumed. Art. 1207 of the Civil Code
the court to actually issue the writ by filing a manifestation. provides:
However, petitioner idly sat and waited for the five-year period to Art. 1207. x x x There is a solidary liability only when the obligation
lapse before it filed its second motion. Having slept on its rights, expressly so states, or when the law or the nature of the obligation
petitioner had no one to blame but itself. requires solidarity.


In Palmares v. CA, the Court did not hesitate to rule that although a Corpo Code provides:
party to a promissory note was only labeled as a co maker, his Section 23. The board of directors or trustees. Unless otherwise
liability was that of a surety, since the instrument expressly provided in this Code, the corporate powers of all corporations
provided for his joint and several liability with the principal. formed under this Code shall be exercised, all business conducted
In the present case, the joint and several liability of Subic Water and and all property of such corporations controlled and held by the
OCWD was nowhere clear in the agreement. The agreement simply board of directors or trustees to be elected from among the holders
and plainly stated that petitioner and OCWD were only requesting of stocks, or where there is no stock, from among the members of
Subic Water to be a co-maker, in view of its assumption of OCWDs the corporation, who shall hold office for one (1) year until their
water operations. No evidence was presented to show that such successors are elected and qualified.
request was ever approved by Subic Waters board of directors. In Peoples Aircargo and Warehousing Co., Inc. v. CA, we held that
Under these circumstances, petitioner cannot proceed after Subic under Section 23 of the Corporation Code, the power and
Water for OCWDs unpaid obligations. The law explicitly states that responsibility to decide whether a corporation can enter into a
solidary liability is not presumed and must be expressly provided binding contract is lodged with the board of directors, subject to the
for. Not being a surety, Subic Water is not an insurer of OCWDs articles of incorporation, by-laws, or relevant provisions of law. As
obligations under the compromise agreement. At best, Subic Water we have clearly explained in another case:
was merely a guarantor against whom petitioner can claim, A corporate officer or agent may represent and bind the
provided it was first shown that: a) petitioner had already corporation in transactions with third persons to the extent that
proceeded after the properties of OCWD, the principal debtor; b) [the] authority to do so has been conferred upon him, and this
and despite this, the obligation under the compromise agreement, includes powers which have been intentionally conferred, and also
remains to be not fully satisfied.61 But as will be discussed next, such powers as, in the usual course of the particular business, are
Subic Water could not also be recognized as a guarantor of OCWDs incidental to, or may be implied from, the powers intentionally
obligations. conferred, powers added by custom and usage, as usually
An officers actions can only bind the corporation if he had been pertaining to the particular officer or agent, and such apparent
authorized to do so. powers as the corporation has caused persons dealing with the
An examination of the compromise agreement reveals that it was officer or agent to believe that it has conferred.
not accompanied by any document showing a grant of authority to Mr. Noli Aldip signed the compromise agreement purely in his own
Mr. Noli Aldip to sign on behalf of Subic Water. capacity. Moreover, the compromise agreement did not expressly
Subic Water is a corporation. A corporation, as a juridical entity, provide that Subic Water consented to become OCWDs co-maker.
primarily acts through its board of directors, which exercises its As worded, the compromise agreement merely provided that both
corporate powers. In this capacity, the general rule is that, in the parties request Subic Water which took over the operations of
absence of authority from the board of directors, no person, not OCWD be made as co-maker. This request was never forwarded to
even its officers, can validly bind a corporation. Section 23 of the Subic Waters board of directors. Even if due notification had been


made, Subic Waters board does not appear to have given any In Concept Builders, Inc. v. NLRC, the Court enumerated the
approval to such request. No document such as the minutes of possible probative factors of identity which could justify the
Subic Waters board of directors meeting or a secretarys application of the doctrine of piercing the corporate veil. These are:
certificate, purporting to be an authorization to Mr. Aldip to (1) Stock ownership by one or common ownership of both
conform to the compromise agreement, was ever presented. In corporations;
effect, Mr. Aldips act of signing the compromise agreement was (2) Identity of directors and officers;
outside of his authority to undertake. (3) The manner of keeping corporate books and records; and
Since Mr. Aldip was never authorized and there was no showing (4) Methods of conducting the business.
that Subic Waters articles of incorporation or by-laws granted him The burden of proving the presence of any of these probative
such authority, then the compromise agreement he signed cannot factors lies with the one alleging it. Unfortunately, petitioner simply
bind Subic Water. Subic Water cannot likewise be made a surety or claimed that Subic Water took over OCWD's water operations in
even a guarantor for OCWDs obligations. OCWDs debts under the Olongapo City. Apart from this allegation, petitioner failed to
compromise agreement are its own corporate obligations to demonstrate any link to justify the construction that Subic Water
petitioner. and OCWD are one and the same.
OCWD and Subic Water are two separate and different entities.
Petitioner suggests that since Subic Water took over OCWDs water
operations in Olongapo City, it also acquired OCWDs juridical
personality, making the two entities one and the same.
This is untenable. Subic Water clearly demonstrated that it was a
separate corporate entity from OCWD. OCWD is just a ten percent
10% shareholder of Subic Water. As a mere shareholder, OCWDs
juridical personality cannot be equated nor confused with that of
Subic Water. It is basic in corporation law that a corporation is a
juridical entity vested with a legal personality separate and distinct
from those acting for and in its behalf and, in general, from the
people comprising it. Under this corporate reality, Subic Water
cannot be held liable for OCWDs corporate obligations in the same
manner that OCWD cannot be held liable for the obligations
incurred by Subic Water as a separate entity. The corporate veil
should not and cannot be pierced unless it is clearly established that
the separate and distinct personality of the corporation was used to
justify a wrong, protect fraud, or perpetrate a deception.


the submission of the dispute to arbitration by virtue of an
13. Lanuza Jr. v. BF Corporation, G.R. No. 174938, 1 October 2014 arbitration clause in their contract.
(corporate juridical personality)
Shangri-La filed an omnibus motion and BF Corporation an urgent
Facts: motion for clarification, both seeking to clarify the term, parties,
BF Corporation entered into agreements with Shangri-La wherein it and whether Shangri-Las directors should be included in the
undertook to construct for Shangri-La a mall and a multilevel arbitration proceedings and served with separate demands for
parking structure along EDSA. arbitration.

Shangri-La had been consistentin paying BF Corporation in Petitioners argue that they cannot be held personally liable for
accordance with its progress billing statements. However, by corporate acts or obligations. The corporation is a separate being,
October 1991, Shangri-La started defaulting in payment. and neither did they bind themselves personally nor did they
undertake to shoulder Shangri-Las obligations should it fail in its
BF Corporation alleged that Shangri-La induced BF Corporation to obligations.
continue with the construction of the buildings using its own funds
and credit despite Shangri-Las default. According to BF Corporation, Issue: whether petitioners should be made parties to the arbitration
ShangriLa misrepresented that it had funds to pay for its obligations proceedings, pursuant to the arbitration clause.
with BF Corporation, and the delay in payment was simply a matter
of delayed processing of BF Corporations progress billing Ruling: Yes.
statements. The Arbitral Tribunals decision, absolving petitioners from liability,
and its binding effect on BF Corporation, have rendered this case
BF Corporation eventually completed the construction of the moot and academic. The mootness of the case, however, had not
buildings. Shangri-La allegedly took possession of the buildings precluded us from resolving issues so that principles may be
while still owing BF Corporation an outstanding balance. BF established for the guidance of the bench, bar, and the public.
Corporation alleged that despite repeated demands, Shangri-La
refused to pay the balance owed to it. It also alleged that the We rule that petitioners may be compelled to submit to the
Shangri-Las directors were in bad faith in directing Shangri-Las arbitration proceedings in accordance with Shangri-Land BF
affairs. Therefore, they should be held jointly and severally liable Corporations agreement, in order to determine if the distinction
with Shangri-La for its obligations as well as for the damages that BF between Shangri-Las personality and their personalities should be
Corporation incurred as a result of Shangri-Las default. disregarded.

This case was first filed in the RTC but the Court of Appeals ordered A corporation is an artificial entity created by fiction of law. This


means that while it is not a person, naturally, the law gives it a
distinct personality and treats it as such. A corporation, in the legal Piercing the corporate veil is warranted when [the separate
sense, is an individual with a personality that is distinct and separate personality of a corporation] is used as a means to perpetrate fraud
from other persons including its stockholders, officers, directors, or an illegal act, or as a vehicle for the evasion of an existing
representatives, and other juridical entities. The law vests in obligation, the circumvention of statutes, or to confuse legitimate
corporations rights, powers, and attributes as if they were natural issues. It is also warranted in alter ego cases where a corporation
persons with physical existence and capabilities to act on their own. is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and
A consequence of a corporations separate personality is that its affairs are so conducted as to make it merely an instrumentality,
consent by a corporation through its representatives is not consent agency, conduit or adjunct of another corporation.
of the representative, personally. Its obligations, incurred through
official acts of its representatives, are its own. A stockholder, When corporate veil is pierced, the corporation and persons who
director, or representative does not become a party to a contract are normally treated as distinct from the corporation are treated as
just because a corporation executed a contract through that one person, such that when the corporation is adjudged liable,
stockholder, director or representative. these persons, too, become liable as if they were the corporation.

Hence, a corporations representatives are generally not bound by Based on the Sec 31 of the Corporation Code, a director, trustee, or
the terms of the contract executed by the corporation. They are not officer of a corporation may be made solidarily liable with it for all
personally liable for obligations and liabilities incurred on or in damages suffered by the corporation, its stockholders or members,
behalf of the corporation. and other persons in any of the following cases:
a) The director or trustee willfully and knowingly voted for or
As a general rule, therefore, a corporations representative who did assented to a patently unlawful corporate act;
not personally bind himself or herself to an arbitration agreement b) The director or trustee was guilty of gross negligence or bad
cannot be forced to participate in arbitration proceedings made faith in directing corporate affairs; and
pursuant to an agreement entered into by the corporation. He or c) The director or trustee acquired personal or pecuniary
she is generally not considered a party to that agreement. interest in conflict with his or her duties as director or trustee.

However, there are instances when the distinction between Solidary liability with the corporation will also attach in the
personalities of directors, officers, and representatives, and of the following instances:
corporation, are disregarded. We call this piercing the veil of a) When a director or officer has consented to the issuance of
corporate fiction. watered stocks or who, having knowledge thereof, did not forthwith
file with the corporate secretary his written objection thereto;


b) When a director, trustee or officer has contractually may later be found to be indistinct that we rule that petitioners may
agreed or stipulated to hold himself personally and solidarily liable be compelled to submit to arbitration.
with the corporation; and
c) c) When a director, trustee or officer is made, by specific However, in ruling that petitioners may be compelled to submit to
provision of law, personally liable for his corporate action. the arbitration proceedings, we are not overturning Heirs of
Augusto Salas wherein this court affirmed the basic arbitration
When there are allegations of bad faith or malice against corporate principle that only parties to an arbitration agreement may be
directors or representatives, it becomes the duty of courts or compelled to submit to arbitration.
tribunals to determine if these persons and the corporation should Thus, in cases alleging solidary liability with the corporation or
be treated as one. Without a trial, courts and tribunals have no praying for the piercing of the corporate veil, parties who are
basis for determining whether the veil of corporate fiction should be normally treated as distinct individuals should be made to
pierced. The determination of these circumstances must be made participate in the arbitration proceedings in order to determine if
by one tribunal or court in a proceeding participated in by all parties such distinction should indeed be disregarded and, if so, to
involved, including current representatives of the corporation, and determine the extent of their liabilities.
those persons whose personalities are impliedly the same as the
corporation. This is because when the court or tribunal finds that
circumstances exist warranting the piercing of the corporate veil,
the corporate representatives are treated as the corporation itself
and should be held liable for corporate acts.

Hence, when the directors, as in this case, are impleaded in a case
against a corporation, alleging malice orbad faith on their part in
directing the affairs of the corporation, complainants are effectively
alleging that the directors and the corporation are not acting as
separate entities. They are alleging that the acts or omissions by the
corporation that violated their rights are also the directors acts or
omissions. Complainants effectively pray that the corporate veil be
pierced because the cause of action between the corporation and
the directors is the same. In that case, complainants have no choice
but to institute only one proceeding against the parties.

It is because the personalities of petitioners and the corporation


unpaid wage differential, 13th month pay differential, service
14. FVR Skills and Services Exponents Inc v. Josuel et al., G.R. No. incentive leave pay, holiday pay and separation pay.
200857, 22 October 2014 (corporate juridical personality) The labor arbiter ruled in the petitioner's favor. He held that
the respondents were not regular employees. They were project
Heads up: Fourth issue lang ang related sa ato topic, I think. Hihi employees whose employment was dependent on the petitioner's
service contract with Robinsons. Since this contract was not
FACTS renewed, the respondents' employment contracts must also be
terminated.
The 28 respondents in this case were employees of The NLRC reversed the LA's ruling, and held that they were
petitioner FVR Skills and Services Exponents, Inc., an independent regular employees. The NLRC considered that the respondents had
contractor engaged in the business of providing janitorial and other been under the petitioner's employ for more than a year already,
manpower services to its clients. As early as 1998, some of the some of them as early as 1998. Thus, as regular employees, the
respondents had already been under the petitioner's employ. respondents may only be dismissed for just or authorized causes,
The petitioner entered into a Contract of Janitorial Service which the petitioner failed to show.
with Robinsons Land Corporation. Both agreed that the petitioner The CA dismissed the petitioner's certiorari petition and
shall supply janitorial, manpower and sanitation services to affirmed the NLRC's decision noting that the petitioner individually
Robinsons Place Ermita Mall for a period of one year, from January hired the respondents on various dates from 1998 to 2007, to work
1, 2008 to December 31, 2008. Pursuant to this, the respondents as janitors, service crews and sanitation aides. These jobs were
were deployed to Robinsons. necessary or desirable to the petitioner's business of providing
Halfway through the service contract, the petitioner asked janitorial, manpower and sanitation services to its clients.
the respondents to execute individual contracts which stipulated The continuing need for the respondents' services, which
that their respective employments shall end on December 31, 2008, lasted for more than a year, validated that the respondents were
unless earlier terminated. regular and not project employees.
The petitioner and Robinsons no longer extended their The CA also ruled that the fixed term employment contracts
contract of janitorial services. Consequently, the petitioner signed by the respondents had no binding effect. The petitioner
dismissed the respondents as they were project employees whose only used these contracts to justify the respondents' illegal
duration of employment was dependent on the petitioner's service dismissal; the petitioner never asked the respondents to execute
contract with Robinsons. any contract since their initial hiring. Only after it became apparent
The respondents filed a complaint for illegal dismissal with that the petitioner's service contract with Robinsons would not be
the NLRC. They argued that they were not project employees; they renewed, did the petitioner ask the respondents to sign their
were regular employees who may only be dismissed for just or employment contracts. This circumstance, coupled with the threat
authorized causes. The respondents also asked for payment of their that the respondents would not be given their salaries if they would


not sign the contracts, showed the petitioner's intent to use the was fixed for a specific project or undertaking, whose completion or
contracts to prevent the respondents from attaining regular status. termination had been determined at the time of engagement.
Lastly, the CA held that petitioners Fulgencio V. Rana and The primary standard in determining regular employment is
Monina R. Burgos, the president and general manager of FVR Skills the reasonable connection between the particular activity
and Services Exponents, Inc., respectively, are solidarily liable with performed by the employee and the employer's business or trade.
the corporation for the payment of the respondents' monetary Guided by this test, the Court concluded that the
awards. As corporate officers, they acted in bad faith when they respondents' work as janitors, service crews and sanitation aides,
intimidated the respondents in the course of asking them to sign are necessary or desirable to the petitioner's business of providing
their individual employment contracts. janitorial and manpower services to its clients as an independent
contractor.
ISSUE Also, the respondents had already been working for the
1. WON respondents were regular employees; petitioner as early as 1998. Even before the service contract with
2. WON the employment contracts belatedly signed by the Robinsons, the respondents were already under the petitioner's
respondents were valid; employ. They had been doing the same type of work and occupying
3. Were the respondents illegally dismissed; and the same positions from the time they were hired and until they
4. WON Rana and Burgos should not be held solidarily liable were dismissed in January 2009. The petitioner did not present any
with the corporation for respondents' monetary claims; evidence to refute the respondents' claim that from the time of
they have personalities separate and distinct from the their hiring until the time of their dismissal, there was no gap in
corporation. between the projects where they were assigned to. The petitioner
continuously availed of their services by constantly deploying them
RULING to its clients.
Petition is denied.
The respondents are regular employees, not project The respondents' employment contracts, which were
employees. belatedly signed, are voidable.
Under Art. 294 of the NLRC, there are two kinds of regular At the time of the respondents' dismissal, they had already
employees: (1) those who were engaged to perform activities which been continuously working for the petitioner for more than a year.
are usually necessary or desirable in the usual business or trade of Despite this, they never signed any employment contracts with the
the employer; and (2) those casual employees who became regular petitioner, except the contracts they belatedly signed when the
after one year of service, whether continuous or broken, but only petitioner's own contract of janitorial services with Robinsons
with respect to the activity for which they have been hired. neared expiration.
The Court distinguished these two types of regular For an employee to be validly categorized as a project
employees from a project employee, or one whose employment employee, it is necessary that the specific project or undertaking


had been identified and its period and completion date determined To be valid, an employee's dismissal must comply with the
and made known to the employee at the time of his engagement. substantive and procedural requirements of due process.
This ensures that the employee is completely apprised of the terms Substantively, a dismissal should be supported by a just or
of his hiring and the corresponding rights and obligations arising authorized cause. Procedurally, the employer must observe the twin
from his undertaking. Notably, the petitioner's service contract with notice and hearing requirements in carrying out an employee's
Robinsons was from January 1 to December 31, 2008. The dismissal.
respondents were only asked to sign their employment contracts Having already determined that the respondents are regular
for their deployment with Robinsons halfway through 2008, when employees and not project employees, and that the respondents'
the petitioner's service contract was about to expire. belated employment contracts could not be given any binding effect
The Court finds the timing of the execution of the for being signed under duress, we hold that illegal dismissal took
respondents' respective employment contracts to be indicative of place when the petitioner failed to comply with the substantive and
the petitioner's calculated plan to evade the respondents' right to procedural due process requirements of the law.
security of tenure, to ensure their easy dismissal as soon as the The petitioner also asserts that the respondents'
Robinsons' contract expired. The attendant circumstances cannot subsequent absorption by Robinsons' new contractors - Fieldmen
but raise doubts as to the petitioner's good faith. If the petitioner Janitorial Service Corporation and Altaserv - negates their illegal
really intended the respondents to be project employees, then the dismissal. This reasoning is patently erroneous. The charge of illegal
contracts should have been executed right from the time of hiring, dismissal was made only against the petitioner which is a separate
or when the respondents were first assigned to Robinsons, not juridical entity from Robinsons' new contractors; it cannot escape
when the petitioner's service contract was winding up. The liability by riding on the goodwill of others.
petitioner's failure to do so supports the conclusion that it had been
in bad faith in evading the respondents' right to security of tenure. Solidary liability of the petitioner's officers.
Moreover, under Art. 1390 of the NCC, contracts where the The Court modified the CA's ruling that Rana and Burgos, as
consent of a party was vitiated by mistake, violence, intimidation, the petitioner's president and general manager, should be held
undue influence or fraud, are voidable or annullable. The solidarity liable with the corporation for its monetary liabilities with
petitioner's threat of non-payment of the respondents' salaries the respondents.
clearly amounted to intimidation. Under this situation, and the A corporation is a juridical entity with legal personality
suspect timing when these contracts were executed, we rule that separate and distinct from those acting for and in its behalf and, in
these employment contracts were voidable and were effectively general, from the people comprising it. The general rule is that,
questioned when the respondents filed their illegal dismissal obligations incurred by the corporation, acting through its directors,
complaint. officers and employees, are its sole liabilities.
A director or officer shall only be personally liable for the
The respondents were illegally dismissed. obligations of the corporation, if the following conditions concur:


(1) the complainant alleged in the complaint that the
director or officer assented to patently unlawful
acts of the corporation, or that the officer was guilty
of gross negligence or bad faith; and
(2) the complainant clearly and convincingly proved
such unlawful acts, negligence or bad faith.
In the present case, the respondents failed to show the
existence of the first requisite. They did not specifically allege in
their complaint that Rana and Burgos willfully and knowingly
assented to the petitioner's patently unlawful act of forcing the
respondents to sign the dubious employment contracts in exchange
for their salaries. The respondents also failed to prove that Rana
and Burgos had been guilty of gross negligence or bad faith in
directing the affairs of the corporation.
To hold an officer personally liable for the debts of the
corporation, and thus pierce the veil of corporate fiction, it is
necessary to clearly and convincingly establish the bad faith or
wrongdoing of such officer, since bad faith is never presumed.
Because the respondents were not able to clearly show the definite
participation of Burgos and Rana in their illegal dismissal, we uphold
the general rule that corporate officers are not personally liable for
the money claims of the discharged employees, unless they acted
with evident malice and bad faith in terminating their employment.


a. No, there was no novation. The obligation between the
15. Arco Pulp and Paper Co. Inc v. Lim, G.R. No. 206806, 25 June parties was an alternative obligation.
2014 (piercing the corporate veil)
The facts reveal that the original contract provides that Lim shall
Facts: Dan Lim supplies scrap papers, cartons and other raw deliver scrap papers worth P7.2M to Arco. In return, Arco as the
materials under the name Quality Paper and Plastic Products debtor had the option to either (1) pay the price, or (2) deliver the
Enterprises to factories engaged in the paper mill business. In 2007, finished products of equivalent value to Lim. When Arco tendered a
he deliver scrap papers to Arco Pulp through its CEO and President, check to Lim in partial payment for the scrap papers, it exercised its
Candida Santos. Allegedly, the parties agreed that Arco would pay option to pay the price.
Lim the value of the raw materials or deliver to him their finished
products of equivalent value. It must also be emphasized that novation must be clear and
unequivocal. It is never presumed. Furthermore, the consent of the
When Lim delivered the raw materials, Arco issued a post-dated creditor must also be secured for the novation to be valid.
check as partial payment, with the assurance that the check will not
bounce. The check was dishonored on April 18,2007. On the same Perusal of the records show that Lim was not privy to the
day however, Arco executed a memorandum of agreement with a memorandum of agreement. If the memorandum was intended to
certain Eric Sy whereby Arco bound to deliver its finished products novate the original agreement between the parties, Lim must have
to Megapack Corporation, owned by Sy, with materials supplied by first agreed to the substitution of Sy as his new debtor. The
Dan. memorandum must also state in clear and unequivocal terms that it
has replaced the original obligation of Arco. Neither of these
On May 5, 2007, Lim filed a complaint for sum of money with the circumstances is present.
RTC. RTC dismissed the complaint, holding that there was novation
by virtue of the memorandum of areement. b. Yes, Santos is solidarily liable with Arco.

CA reversed the RTC ruling and found that there was an alternative Basic is the rule in corporation law that a corporation is a juridical
obligation on the part of Arco. entity which is vested with a legal personality separate and distinct
from those acting for and in its behalf and, in general, from the
Issues: people comprising it. Following this principle, obligations incurred
a. Was the obligation of Arco extinguished by novation. by the corporation, acting through its directors, officers and
b. Is Santos solidarily liable with Arco? employees, are its sole liabilities. A director, officer or employee of
a corporation is generally not held personally liable for obligations
Ruling: incurred by the corporation. Nevertheless, this legal fiction may be


disregarded if it is used as a means to perpetrate fraud or an illegal
act, or as a vehicle for the evasion of an existing obligation, the 16. WPM International Trading Inc v. Labayen, G.R. No. 182770, 17
circumvention of statutes, or to confuse legitimate issues. September 2014 (piercing the corporate veil)

As a general rule, directors, officers, or employees of a corporation Facts: Fe Corazon Labayen is the owner of HBO Systems Consultants
cannot be held personally liable for obligations incurred by the while WPM is a domestic corporation engaged in the restaurant
corporation. However, this veil of corporate fiction may be pierced business, Warlito Manlapaz being its president.
if complainant is able to prove, as in this case, that
(1) the officer is guilty of negligence or bad faith, and Sometime in 1990, WPM entered into a management contract with
(2) such negligence or bad faith was clearly and convincingly Labayen which would allow the latter to operate, manage and
proven. rehabilitate Quickbite, a restaurant owned and operated by WPM.
Labayen then looked for a contractor who would renovate two
Santos cannot be allowed to hide behind the corporate veil. When existing Quickbite outlets and thus engaged the services of CLN
petitioner Arco Pulp and Papers obligation to Lim became due and Engineering services at the cost of P432k.
demandable, she not only issued an unfunded check but also
contracted with a third party in an effort to shift petitioner Arco When the construction was finally completed, only P320,000 was
Pulp and Papers liability. She unjustifiably refused to honor paid to CLN. It then filed a complaint for sum of money against
petitioner corporations obligations to respondent. These acts Labayen and Manlapaz. Labayen was later declared in default. RTC
clearly amount to bad faith. In this instance, the corporate veil may found Labayen liable to pay CLN the balance with 12 interest.
be pierced, and petitioner Santos may be held solidarily liable with
petitioner Arco Pulp and Paper. Meanwhile, Labayen instituted a complaint for damages against
WPM and Manlapaz alleging that she was adjuged liable for a
contract she entered for and in behalf of WPM. Hence, she should
be entitled to reimbursement. She further alleged that her
participation in the management agreement was only to introducing
Manlapaz to CLNs general manager and that it was actually
Manlapaz and CLN who agreed on the construction agreement.

RTC ruled that Labayen is entitled to indemnity from Manlapaz and
found that WPM is a mere instrumentality or busienss conduit of
Manlapaz and as such, they should be considered as one. RTC also


found that Manlapaz had complete control over WPM as he was right or other positive legal duty, or dishonest and unjust act in
chairman, president and treasurer at the same time. contravention of plaintiffs legal right; and
3. Control and breach of duty must have proximately caused
CA affirmed the decision and held that WPM is barred from raising the injury or unjust loss complained of.
the lack of Labayens authority in view of their tacit ratification. CA
likewise agreed with the lower court that WPM and Manlapaz are The absence of any of these elements prevents piercing the
one and the same. corporate veil.

Issue: Whether WPM is a mere instrumentality or alter ego of Aside from the fact that Manlapaz was the principal stockholder of
Manlapaz. WPM, records do not show that WPM was organized and
controlled, and its affairs conducted in a manner that made it
Rule: No. merely an instrumentality, agency, conduit or adjunct of Manlapaz.
As held in Martinez v. Court of Appeals, the mere ownership by a
The doctrine of piercing the corporate veil applies only in three single stockholder of even all or nearly all of the capital stocks of a
basic instances: corporation is not by itself a sufficient ground to disregard the
a. when the separate and distinct corporate personality separate corporate personality. To disregard the separate juridical
defeats public covenience, as when the corporate fiction is used as a personality of a corporation, the wrongdoing must be clearly and
vehicle for the evasion of an existing obligation; convincingly established.
b. in fraud cases, or when the corporate entity is used to
justify a wrong, protect a fraud, or defend a crime; or Here, the respondent failed to prove that Manlapaz, acting as
c. is used in alter ego cases, where a corporation is essentially president, had absolute control over WPM. Even granting that he
a farce since it is a mere alter ego or business conduit of a person. exercised a certain degree of control over the finances, policies and
practices of WPM, in view of his position as president, chairman and
For piercing the corporate veil on the ground of alter ego theory, treasurer of the corporation, such control does not necessarily
three requisites must concur: warrant piercing the veil of corporate fiction since there was not a
1. Control, not mere majority or complete stock control, but single proof that WPM was formed to defraud CLN or the
complete domination, not only of finances but of policy and respondent, or that Manlapaz was guilty of bad faith or fraud.
business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate On the contrary, the evidence establishes that CLN and the
mind, will or existence. respondent knew and acted on the knowledge that they were
2. Such control must have been used by the defendant to dealing with WPM for the renovation of the latters restaurant, and
commit fraud or wrong, to perpetuate the violation of a statutory not with Manlapaz. That WPM later reneged on its monetary


obligation to CLN, resulting to the filing of a civil case for sum of Villanueva was permanently residing in Manila and Joemarie
money against the respondent, does not automatically indicate Villanueva denied having managed the farm. She was also advised
fraud, in the absence of any proof to support it.
of her options: continue paying contributions as voluntary member;

Finally, the Court also emphasized that piercing the veil of corporate request for refund; leave her contributions in-trust with the System,
fiction is frowned upon and thus, must be done with caution. It can or file a petition before the Social Security Commission (SSC) so that
only be doen if it has been clearly established that the separate and
liabilities, if any, of her employer may be determined.
distinct personality of the corporation is used ot justify a wrong,
protect fraud or perpetrate a deception. Aggrieved, respondent then filed her Amended Petition
before the SSC. She alleged that: she was employed as laborer in

Hda. Cataywa managed by Jose Marie Villanueva in 1970 but was

reported to the SSS only in 1978; and that SSS contributions were
deducted from her wages from 1970 to 1995, but not all were
remitted to the SSS which, subsequently, caused the rejection of her

claim. She also impleaded Talisay Farms, Inc. by virtue of its

Investment Agreement with Mancy and Sons Enterprises. She also
prayed that the veil of corporate fiction be pierced since she alleged
17. Hacienda Cataywa/Manuel Villanueva v. Lorezo, G.R. No.
that Mancy and Sons Enterprises and Manuel and Jose Marie
179640, 18 March 2015 (piercing the corporate veil)
Villanueva are one and the same.
FACTS Petitioners Manuel and Jose Villanueva alleged that all farm
On October 22, 2002, respondent Rosario Lorezo received a workers of Hda. Cataywa were reported and their contributions
letter from the SSS Western Visayas Group informing her that she were duly paid and remitted to SSS. It was the late Domingo Lizares,
cannot avail of their retirement benefits since she has only paid 16 Jr. who managed and administered the hacienda. While, Talisay
months. Such is 104 months short of the minimum requirement of Farms, Inc. filed a motion to dismiss on the ground of lack of cause
120 months payment to be entitle to the benefit. She was also of action in the absence of an allegation that there was an
informed that their investigation of her alleged employment under employer-employee relationship between Talisay Farms and
employer Hda. Cataywa could not be confirmed because Manuel respondent.


The SSC held that Rosario M. Lorezo was a regular employee Wilfredo Ibalobor. Petitioners insist that after thirty long years, all
subject to compulsory coverage of Hda. Cataywa/Manuel the records of the farm were already destroyed by termites and
Villanueva/ Mancy and Sons Enterprises, Inc. within the period of elements, thus, they relied on the SSS Form R-1A as the only
1970 to February 25, 1990. The SSS is ordered to pay petitioner remaining source of information available. Petitioners also alleged
Rosario M. Lorezo her retirement benefit, upon the filing of the that respondent was a very casual worker.
claim therefor, and to inform this Commission of its compliance This Court disagrees.
herewith. It was settled that there is no particular form of evidence
The SSC denied petitioners' Motion for Reconsideration. required to Drove the existence of the employer-employee
The petitioner, then, elevated the case before the CA where the relationship. Any competent and relevant evidence to prove such
case was dismissed outrightly due to technicalities. relationship may be admitted. Petitioners erred in insisting that, due
Following the denial of petitioners' Motion for to passage of time, SSS Form R-1A is the only remaining source of
Reconsideration of the CA, petitioner filed with this Court the information available to prove when respondent started working for
present petition. them. However, such form merely reflected the time in which the
petitioners reported the respondent for coverage of the SSS benefit.
ISSUE They failed to substantiate their claim that it was only in 1978 that
(1) WON the Rosario Lorezo is a regular employee. respondent reported for work.
(2) WON Mancy and Sons Enterprises and Manuel and Jose The records are bereft of any showing that Demetria
Marie Villanueva are one and the same thus allowing Denaga and Susano Jugue harbored any ill will against the
the veil of corporate fiction to be pierced. petitioners prompting them to execute false affidavit. There lies no
reason for this Court not to afford full faith and credit to their
RULING testimonies. Denaga, in her Joint Affidavit with Jugue, stated that
First Issue. she and respondent started working in Hda. Cataywa in 1970 and
The petition is partially meritorious. like her, she was reported to the SSS on December 19, 1978. It was
Petitioners argue that the SSC did not give credence nor also revealed in the records that the SSC found that Denaga was
weight at all to the existing SSS Form R-1A and farm bookkeeper


employed by Manuel Villanueva at Hda. Cataywa from 1970 to the respondent was a very casual worker simply because the SSS
December 1987. form revealed that she had 16 months of contributions. It does not,
Jurisprudence has identified the three types of employees in any way, prove that the respondent performed a job which is not
mentioned in the provision of the Labor Code: (1) regular in connection with the business or occupation of the employer to be
employees or those who have been engaged to perform activities considered as casual employee.
that are usually necessary or desirable in the usual business or trade The test (regular employee) is whether the particular
of the employer; (2) project employees or those whose employment activity performed by the employee is usually necessary or desirable
has been fixed for a specific project or undertaking, the completion in the usual business or trade of the employer. The connection can
or termination of which has been determined at the time of their be determined by considering the nature of the work performed
engagement, or those whose work or service is seasonal in nature and its relation to the scheme of the particular business or trade in
and is performed for the duration of the season; and (3) casual its entirety. Also, if the employee has been performing the job for at
employees or those who are neither regular nor project employees. least one year, even if the performance is not continuous or merely
Farm workers generally fall under the definition of seasonal intermittent, the law deems the repeated and continuing need for
employees. It was also consistently held that seasonal employees its performance as sufficient evidence of the necessity if not
may be considered as regular employees when they are called to indispensability of that activity to the business. Hence, the
work from time to time. They are in regular employment because of employment is also considered regular, but only with respect to
the nature of the job, and not because of the length of time they such activity, while such activity exists.
have worked. However, seasonal workers who have worked for one A reading of the records would reveal that petitioners failed
season only may not be considered regular employees. to dispute the allegation that the respondent performed hacienda
The nature of the services performed and not the duration work. They merely alleged that respondent was a very casual
thereof, is determinative of coverage under the law. To be worker because she only rendered work for 16 months. Thus,
exempted on the basis of casual employment, the services must not respondent is considered a regular seasonal worker and not a casual
merely be irregular, temporary or intermittent, but the same must worker as the petitioners alleged.
not also be in connection with the business or occupation of the This Court has classified farm workers as regular seasonal
employer. Thus, it is erroneous for the petitioners to conclude that employees who are called to work from time to time and the nature


of their relationship with the employer is such that during the off This Court has cautioned against the inordinate application
season, they are temporarily laid off; but reemployed during the of this doctrine, reiterating the basic rule that "the corporate veil
summer season or when their services may be needed. Respondent, may be pierced only if it becomes a shield for fraud, illegality or
therefore, as a farm worker is only a seasonal employee. Since inequity committed against a third person.
petitioners provided that the cultivation of sugarcane is only for 6 The Court has expressed the language of piercing doctrine
months, respondent cannot be considered as regular employee when applied to alter ego cases, as follows: Where the stock of a
during the months when there is no cultivation. corporation is owned by one person whereby the corporation
Second Issue. functions only for the benefit of such individual owner, the
Lastly, petitioners aver that there is no legal basis to pierce corporation and the individual should be deemed the same.
the veil of corporation entity. This Court agrees with the petitioners that there is no need
It was held in Rivera v. United Laboratories, Inc. that to pierce the corporate veil. Respondent failed to substantiate her
While a corporation may exist for any lawful purpose, the claim that Mancy and Sons Enterprises, Inc. and Manuel and Jose
law will regard it as an association of persons or, in case of two Marie Villanueva are one and the same. She based her claim on the
corporations, merge them into one, when its corporate legal entity SSS form wherein Manuel Villanueva appeared as employer.
is used as a cloak for fraud or illegality. This is the doctrine of However, this does not prove, in any way, that the corporation is
piercing the veil of corporate fiction. The doctrine applies only when used to defeat public convenience, justify wrong, protect fraud, or
such corporate fiction is used to defeat public convenience, justify defend crime, or when it is made as a shield to confuse the
wrong, protect fraud, or defend crime, or when it is made as a legitimate issues, warranting that its separate and distinct
shield to confuse the legitimate issues, or where a corporation is the personality be set aside. Also, it was not alleged nor proven that
mere alter ego or business conduit of a person, or where the Mancy and Sons Enterprises, Inc. functions only for the benefit of
corporation is so organized and controlled and its affairs are so Manuel Villanueva, thus, one cannot be an alter ego of the other.
conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation. To disregard the separate

juridical personality of a corporation, the wrongdoing must be

established clearly and convincingly. It cannot be presumed.



from them. With Albert assuring that the fees were temporary, both
18. Forest Hills Golf and Country Club Inc v. Gardpro Inc., G.R. No. nominees of Gardpro paid the fees. At that time, the P45,000.00
164686, 22 October 2014 (articles of incorporation; by-laws) membership fees of corporate members were increased to
P75,000.00 per nominee by virtue of the August 26, 1997 resolution
FACTS of the BOD. Any nominee who paid the fees within a specified
In March 1993, Fil-Estate Properties, Inc., (FEPI), a party to a Project period was entitled to a discount of P25,000.00. Both nominees of
Agreement to develop the Forest Hills Residential Estates and the Gardpro were then admitted as members upon approval of their
Forest Hills Golf and Country Club, undertook to market the golf applications by the BOD. Later, Gardpro decided to change its
club shares of Forest Hills for a fee. In July 1995, FEPI assigned its designated nominees, and Forest Hills charged Gardpro new
rights and obligations under the Project Agreement to Fil- Estate membership fees of P75,000.00 per nominee. When Gardpro
Golf and Development, Inc. (FEGDI). refused to pay, the replacement did not take place.
FEPI and FEGDI engaged Fil-Estate Marketing Associates Inc., On July 7, 1999, Gardpro filed a complaint in the SEC, which Forest
(FEMAI) to market and offer for sale the shares of stocks of Forest Hills duly answered. Martin and Reyes testified that when the
Hills. Its President, Leandro de Mesa, oriented the sales staff on the shares of stock were being marketed, nothing about payment of
info that would usually be inquired about by prospective buyers. He membership fees was explained to them; that upon his inquiry, a
made it clear that membership in the Club was a privilege, such that certain Ms. Cacho, an agent of FEMAI, had told Martin that if a
purchasers of shares of stock would not automatically become corporation bought class C common shares, its nominees would
members, but must apply for and comply with all the requirements be automatically entitled to become members of the Club; that all
in order to qualify them for membership, subject to the approval of that the corporation would have to do thereafter was to pay the
the Board of Directos (BOD). monthly dues; that Albert had assured Martin that the membership
In 1996, Gardpro, Inc. bought class C common shares of stock, fees he had paid would be refunded; and that Martin was not
which were special corporate shares that entitled the registered furnished copies of the by-laws of Forest Hills.
owner to designate two nominees or representatives for SEC Hearing Officer Natividad T. Querijero rendered her decision
membership in the Club. ordering defendant to restrain from collecting membership fees for
In October 1997, Ramon Albert, the General Manager of the Club, the 2 replacement members; the membership fees already paid
notified the shareholders that it was already accepting applications shall be applied as membership fees for the 2 replacement
for membership. In that regard, Gardpro designated Fernando R. members; and to pay complainant attorneys fees.
Martin and Rolando N. Reyes to be its corporate nominees; hence, The SEC En Banc affirmed the findings of Hearing Officer Querijero.
the two applied for membership in the Club. Forest Hills charged The CA denied Forest Hills the petition for review, and affirmed the
them membership fees of P50,000.00 each, prompting Martin to ruling of the SEC: What is at issue is the interpretation of a By-law
immediately call up Albert and complain about being thus charged provision regarding membership in the Club.
despite having been assured that no such fees would be collected The procedure for acquiring membership is outlined in the


provisions of the By-laws, where the end result is the approval of accomplished their respective application forms, duly proposed and
the BOD of the application for membership submitted both by the seconded, and the nominees were evaluated as to their
juridical entity holding shares in the Club, and the designated qualifications. The nominees automatically became ineligible for
nominee or representative. membership once they ceased to be officers of the corporate
The CA denied the motion for reconsideration of Forest Hills. member under its by-laws upon certification of such loss of tenure
by a responsible officer of the corporate member.
ISSUE Under Section 2.2.6 of the Clubs by-laws, membership fees of
WON under the by-laws of the club, it is authorized to collect new P45,000.00 must be paid by the applicant within 30 days from the
membership fees for replacement nominees of Class C members. approval of the application before the share could be registered in
the Stock and Transfer Books of the Club. Non-payment of the
RULING membership fees within the 30-day period would be deemed a
The petition is unmeritorious. withdrawal of the application. The amount of the fees could be
Replacement nominees of Gardpro were not required to pay waived, increased or decreased by the BOD. Pursuant to the Clubs
membership fees. articles of incorporation and by-laws, the membership fees should
Forest Hills was not authorized under its articles of incorporation be paid by the corporate member. Based on the procedure set forth
and by-laws to collect new membership fees for the replacement in Section 2.2.7 of the by-laws, the applicant was the juridical entity,
nominees of Gardpro. not its nominee or nominees. Although the nominee or nominees
There is no question that Gardpro held class C common stocks also accomplished their application forms for membership in the
that entitled it to two memberships in the Club. Its nominees could Club, it was the corporate member that was obliged to pay the
be admitted as regular members upon approval of the BOD but only membership fees in its own capacity because the share was
one nominee for each class C share as designated in the registered in its name in the Stock and Transfer Book.
resolution could vote as such. A regular member was then entitled Corporations buy shares in clubs in order to invest for earnings.
to use all the facilities and privileges of the Club. In that regard, Their purchases may also be to reward their corporate executives
Gardpro could only designate as its nominees/representatives its by having them enjoy the facilities and perks concomitant to the
officers whose functions and office were defined by its own by-laws. club memberships. When Gardpro purchased and registered its
The membership in the Club was a privilege, it being clear that the ownership of the class C common shares, it did not only invest for
mere purchase of a share in the Club did not immediately qualify a earnings because it also became entitled to nominate two of its
juridical entity for membership. Admission for membership was still officers in the Club as set forth in its seventh purpose of the articles
upon the favorable action of the BOD of the Club. Under Section of incorporation and Section 2.2.2 of the by-laws, to wit:
2.2.7 of its by-laws, the application form was accomplished by the Articles of Incorporation
chairman of the board, president or chief executive officer of the x x x x
applicant juridical entity. The designated nominees also SEVENTH


x x x x corporate members. On one hand, Section 13.7 (Membership Fees)
That this Corporation is an exclusive club and is organized on a non- of the by-laws stated that the membership fee of P45,000.00 x x x
profit basis for the sole benefit of its member/members. Ownership for corporate members must be paid by the applicant; on the
of a share shall entitle the registered owner to the use of all the other, Alberts affidavit alleged that each nominee shall pay the
sports and other facilities of the club, but subject to the terms and P75,000.00 membership fee. To resolve the inconsistency, the by-
conditions herein prescribed, to the By-laws of the corporation, and laws should prevail because they constituted the private statutes of
to the policies, rules and regulations as may from time to time be the corporation and its members and must be strictly complied with
promulgated by the Board of Directors. and applied to the letter.
By-Laws Martin attested that he and Reyes, as the nominees of Gardpro,
x x x x paid P50,000.00 each as membership fees. With the payment of the
2.2.2 Subject to compliance with rules and regulations, a Regular fees being the personal obligation of Gardpro, the Court leaves the
Member is entitled to use all the facilities and privileges of the Club. matter to the internal determination of Gardpro and its nominees.
x x x The relevant provisions of the articles of incorporation and the by-
The use of the recreational facilities of the Club is commonly known laws of Forest Hills governed the relations of the parties as far as
as playing rights of the corporate member or its nominees. the issues between them were concerned. Indeed, the articles of
The articles of incorporation of Forest Hills and Section 2.2.2 of its incorporation of Forest Hills defined its charter as a corporation and
by-laws recognized the right of the corporate member to replace the contractual relationships between Forest Hills and the State,
the nominees, subject to the payment of the transfer fee in such between its stockholders and the State, and between Forest Hills
amount as the Board of Directors determined for every change. The and its stockholder; hence, there could be no gainsaying that the
replacement could take place for any of the following reasons, contents of the articles of incorporation were binding not only on
namely: (a) if the nominee should cease to be an officer of the Forest Hills but also on its shareholders. On the other hand, the by-
corporate member; or (b) if the corporate member should request laws were the self-imposed rules resulting from the agreement
the replacement. In case of a replacement, the playing rights would between Forest Hills and its members to conduct the corporate
also be transferred to the new nominees. business in a particular way. In that sense, the by-laws were the
According to the second paragraph of Section 13.6 of the by-laws, private statutes by which Forest Hills was regulated, and would
the transfer of playing rights entailed the payment of P10,000.00. function. The charter and the by-laws were thus the fundamental
Yet, Section 2.2.2 of the by-laws stipulated a transfer fee for every documents governing the conduct of Forest Hills corporate affairs;
replacement. This warranted the conclusion that Gardpro should they established norms of procedure for exercising rights, and
pay to Forest Hills the transfer fee of P10,000.00 because it desired reflected the purposes and intentions of the incorporators. Until
to change its nominees. repealed, the by-laws were a continuing rule for the government of
There was an inconsistency between the by-laws of Forest Hills and Forest Hills and its officers, the proper function being to regulate
the affidavit of Albert as to the amounts of the membership fees of the transaction of the incidental business of Forest Hills. The by-


laws constituted a binding contract as between Forest Hills and its
members, and as between the members themselves. Every
stockholder governed by the by-laws was entitled to access them.
The by-laws were self-imposed private laws binding on all members,
directors and officers of Forest Hills. The prevailing rule is that the
provisions of the articles of incorporation and the by-laws must be
strictly complied with and applied to the letter.
In construing and applying the provisions of the articles of
incorporation and the by-laws of Forest Hills, the CA has leaned on
the plain meaning rule embodied in Article 1370 of the Civil Code, to
the effect that if the terms of the contract are clear and leave no
doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.
The CA was also guided by Article 1374 of the Civil Code, which 19. Lopez Realty Inc v. Spouses Tanjangco, G.R. No. 154291, 12
declares that [t]he various stipulations of a contract shall be November 2014 (by-laws; meetings)
interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. Verily, all Facts: Lopez Realty, Inc. (LRI) and Dr. Jose Tanjangco (Jose) were the
stipulations of the contract are considered and the whole registered co-owners of three parcels of land and the building
agreement is rendered valid and enforceable, instead of treating erected thereon known as the "Trade Center Building", Joses one-
some provisions as superfluous, void, or inoperable. half share in the subject properties were later transferred and
registered in the name of his son Reynaldo Tanjangco and daughter-
in-law, Maria Luisa Arguelles (spouses Tanjangco). At the time
material to this case,the stockholders of record of LRI were the
following: a. Asuncion Lopez-Gonzalez (Asuncion) 7,831 shares; b.
Arturo F. Lopez (Arturo) 7,830 shares; c. Teresita Lopez-Marquez
(Teresita) 7,830 shares; d. Rosendo de Leon (Rosendo) 5 shares;
e. Benjamin Bernardino (Benjamin) 1 share; f. Augusto de Leon
(Augusto) 1 share; and g. Leo Rivera (Leo) 1 share. Except for
Arturo and Teresita, the rest of the stockholders were members of
the Board of Directors. Asuncion was LRIs Corporate Secretary.
Teresita died. On August 17, 1981, while Asuncion was abroad, the
remaining directors: Rosendo, Benjamin and Leo convened in a


special meeting and passed a resolution to authorize Arturo to Issue: Whether the sale was valid as it was duly ratified.
negotiate with the Tanjangcos the sale of the remaining interest Ruling: Yes. It is true that the August 17, 1981 resolution did not
of LRI over the Trade Center Bldg. On strength of said resolution, give Arturo the authority to act as LRIs representative in the subject
Arturo executed a Deed of sale over LRIs remaining interest over sale. Under Sec. 53 of the Corporation Code, meetings of directors
the Trade Center Bldg, with a price fixed at P 3.6M (a price not or trustees of corporations may be held anywhere in or outside of
amenable to Asuncion as she wanted higher). Upon Asuncions the Philippines, unless the by-laws provide otherwise. Notice of
arrival, the Board had a meeting on September 16, 1981, where she regular or special meetings stating the date, time and place of the
moved for the repeal and/or amendment of the previously passed meeting must be sent to every director or trustee at least one (1)
Board Resolutions authorizing the said sale. While Benjamin day prior to the scheduled meeting, unless otherwise provided by
opposed Asuncions motion, the members of the Board agreed to the by-laws. A director or trustee may waive this requirement,
defer action on the matter until such time when Arturo and either expressly or impliedly. However, in another case decided by
Asuncion have conferred or settled the matter. The spouses the SC, which involved virtually the same parties (entitled LRI vs.
Tanjangco paid LRI the amount of P1.8M (downpayment), which the Fontecha), it was held that a meeting of the board of directors is
latter accepted by issuing Official Receipt No. 723. At this point, legally infirm if there is failure to comply with the requirements or
Asuncion filed a case to annul the subject sale. On November 13, formalities of the law or the corporations by laws and any action
1981, the Tanjangcos paid the remaining balance of the sale. On July taken on such meeting may be challenged as a consequence.
30, 1982, the stockholders of LRI had a meeting where they voted However, the actions taken in such a meeting by the directors or
on whether to ratify and confirm the sale of the subject properties trustees may be ratified expressly or impliedly. "Ratification means
to the spouses Tanjangco. The matter was voted as follows: Leo that the principal voluntarily adopts, confirms and gives sanction to
Rivera yes; Rosendo de Leon yes; Juanito Santos (heir of some unauthorized act of its agent on its behalf. It is this voluntary
Teresita) yes; Benjamin Bernardino yes. Asuncion said she would choice, knowingly made, which amounts to a ratification of what
not be preparing the minutes of the meeting but she was reminded was theretofore unauthorized and becomes the authorized act of
that if she refuses to do what is incumbent upon her as Secretary, the party so making the ratification. The substance of the doctrine is
the same would be prepared and if she refuses to sign, thats up to confirmation after conduct, amounting to a substitute for a prior
her, for the corporation is governed by the Board of Directors authority. Ratification can be made either expressly or impliedly.
coupled by the majority of the stockholders who ratify the acts of Implied ratification may take various forms like silence or
the Board. The subject sale was ratified in view of the foregoing acquiescence, acts showing approval or adoption of the act, or
meeting. These events happened during the pendency of the case. acceptance and retention of benefits flowing therefrom." In the
However, despite manifestations that there was ratification, the present case, the ratification was expressed through the July 30,
RTC ruled to annul the subject sale. The CA reversed the decision 1982 Board Resolution.
noting that the said sale was ratified. Hence, this petition by In Tan vs Sycip, the SC ruled that in stock corporations, shareholders
Asuncion. may generally transfer their shares. Thus, on the death of a


shareholder, the executor or administrator duly appointed by the the stockholders themselves, even if those acts were, at the outset,
Court is vested with the legal title to the stock and entitled to vote unauthorized.
it. Until a settlement and division of the estate is effected, the
stocks of the decedent are held by the administrator or executor.
This pronouncement by the SC, then dispels any uncertainty on the
validity of Juanitos vote during the meeting to ratify the subject
sale.
There was however the issue raised by Asuncion that Leo did not
vote in favor of ratification. The records show that only Juanito,
Benjamin and Rosendo signed the minutes of the meeting. It was
also not stated who prepared the minutes, given that Asuncion as
the corporate secretary refused to record the same. Also, it was not
explained why Leo was not able to affix his signature on the said
minutes if he really voted in favor of the ratification of the sale.
Whats more, Leo was not presented to testify on the witness stand.
Only those whose signatures appear on the minutes of the meeting
can be said to have voted in favor of the ratification. Yet,
notwithstanding the lack of Leos signature to prove that he indeed
voted in favor of the ratification, the results are just the same for he
owns one share of stock only. Pitted against the shares of the other
stockholders who voted in favor of ratification, Asuncion and Leo
were clearly outvoted. In sum, whatever defect there was on the
sale to the spouses Tanjangco pursuant to the August 17, 1981
Board Resolution, the same was cured through its ratification in the
July 30, 1982 Board Resolution. It is of no moment whether Arturo
was authorized to merely negotiate or to enter into a contract of
sale on behalf of LRI as all his actions in connection to the sale were
expressly ratified by the stockholders holding 67% of the
outstanding capital stock.
In Cua, Jr. et al. v. Tan, et al., the SC held that by virtue of
ratification, the acts of the board of directors become the acts of


discovered the amendment when they filed a case for injunction
to restrain the corporation from suspending their rights to use all
the facilities of the club. Furthermore, petitioners alleged that the
Board of Directors and officers of the corporation did not call any
stockholders meeting from the time of the incorporation, in
21. Ching v. Subic Bay Golf and Country Club Inc, G.R. No. 174353, violation of Section 50 of the Corporation Code and the By-Laws of
10 September 2014 (derivative suit) the corporation. Neither did the defendant directors and officers
furnish the stockholders with the financial statements of the
Facts: corporation nor the financial report of the operation of the
Petitioners are stockholders with 1 stock each worth $22,000 per corporation in violation of Section 75 of the Corporation Code.
stock of respondent (SBGSI). Petitioners also claim that on August 15, 1997, SBGCCI presented
to the SEC an amendment to the By-Laws of the corporation
The Articles of Incorporation provide: ...Shareholders shall be suspending the voting rights of the shareholders except for the
entitled only to a pro-rata share of the assets of the Club at the five founders shares. Said amendment was allegedly passed
time of its dissolution or liquidation. without any stockholders meeting or notices to the stockholders
in violation of Section 48 of the Corporation Code.
However, on June 27, 1996, an amendment to the Articles of The Complaint furthermore enumerated several instances of fraud
Incorporation was approved by the Securities and Exchange in the management of the corporation allegedly committed by the
Commission (SEC), wherein the above provision was changed as Board of Directors and officers of the corporation
follows:
...In accordance with the Lease and Development Agreement by On July 8, 2003, the RTC issued an Order dismissing the Complaint.
and between Subic Bay Metropolitan Authority and The Universal The RTC held that the action is a derivative suit, but The RTC held
International Group of Taiwan, where the golf courseand that petitioners failed to exhaust their remedies within the
clubhouse component thereof was assigned to the Club, the respondent corporation itself. The RTC further observed that
shareholders shall not have proprietary rights or interests over the petitioners Ching and Wellington were not authorized by their co-
properties of the Club. petitioner Subic Bay Golfers and Shareholders Inc. to file the
Petitioners claimed in the Complaint that defendant corporation Complaint, and therefore had no personality to file the same on
did not disclose to them the above amendment which allegedly behalf ofthe said shareholders corporation. According to the RTC,
makes the shares non-proprietary, as it takes away the right of the the shareholdings of petitioners comprised of two shares out of
shareholders to participate in the pro-rata distribution of the the 409 alleged outstanding shares or 0.24% is an indication that
assets of the corporation after its dissolution. According to the action is a nuisance or harassment suit which may be
petitioners, this is in fraud of the stockholders who only dismissed either motu proprio or upon motion in accordance with


Section 1(b) of the Interim Rules of Procedure for Intra-Corporate "Suits by stockholders or members of a corporation based on
Controversies.18 wrongful or fraudulent acts of directors or other persons may be
Petitioners Ching and Wellington elevated the case to the Court of classified intoindividual suits, class suits, and derivative suits.
Appeals, which rendered the assailed Decision affirming that of Where a stockholder or member is denied the right of inspection,
the RTC. his suit would be individual because the wrong is done to him
Issue: personally and not to the other stockholders or the corporation.
Whether or not there was derivative suit and whether or not Where the wrong is done to a group of stockholders, as where
Petitioners can file the instant case preferred stockholders rights are violated, a class or
Held: representative suitwill be proper for the protection of all
We find the petition unmeritorious. stockholders belonging to the same group. But where the acts
At the outset, it should be noted that the Complaint in question complained of constitute a wrong to the corporation itself, the
appears to have been filed only by the two petitioners, namely cause of action belongs to the corporation and not to the
Nestor Ching and Andrew Wellington, who each own one stock in individual stockholder or member. Although in most every case of
the respondent corporation SBGCCI. While the caption of the wrong to the corporation, each stockholder is necessarily affected
Complaint also names the "Subic Bay Golfers and Shareholders because the value of his interest therein would be impaired, this
Inc. for and in behalf of all its members," petitioners did not attach fact of itself is not sufficient to give him an individual cause of
any authorization from said alleged corporation or its members to action since the corporation is a person distinct and separate from
file the Complaint. Thus, the Complaint is deemed filed only by him, and can and should itself sue the wrongdoer. Otherwise, not
petitioners and not by SBGSI. only would the theory of separate entity be violated, but there
On the issue of whether the Complaint is indeed a derivative suit, would be multiplicity of suits as well as a violation of the priority
we are mindful of the doctrine that the nature of an action, as well rights of creditors. Furthermore,there is the difficulty of
as which court or body has jurisdiction over it, isdetermined based determining the amount of damages that should be paid to each
on the allegations contained in the complaint of the plaintiff, individual stockholder.
irrespective of whether or not the plaintiff is entitled to recover However, in cases of mismanagement where the wrongful acts are
upon all or some of the claims asserted therein.20 committed by the directors or trustees themselves, a stockholder
We have also held that the body rather than the title of the or member may find that he has no redress because the former
complaint determines the nature of an action. are vested by law with the right to decide whether or notthe
In Cua, Jr. v. Tan,22 the Court previously elaborated on the corporation should sue, and they will never be willing to sue
distinctions among a derivative suit, anindividual suit, and a themselves. The corporation would thus be helpless to seek
representative or class suit: remedy. Because of the frequent occurrence of such a situation,
A derivative suit must be differentiated from individual and the common law gradually recognized the right of a stockholder to
representative or class suits, thus: sue on behalf of a corporation in what eventually became known


as a "derivative suit." It has been proven to be an effective remedy said laws make corporate directors or officers liable for damages
of the minority against the abuses of management. Thus, an suffered by the corporation and its stockholders for violation of
individual stockholder is permitted to institute a derivative suit on their fiduciary duties.
behalf of the corporation wherein he holds stock in order to The legal standing of minority stockholders to bring derivative
protect or vindicate corporate rights, whenever officials of the suits is not a statutory right, there being no provision in the
corporation refuse to sue orare the ones to be sued or hold the Corporation Code or related statutes authorizing the same, but is
control of the corporation. In such actions, the suing stockholder is instead a product of jurisprudence based on equity. However, a
regarded as the nominal party, with the corporation as the party derivative suit cannot prosper without first complying with the
in interest." legal requisites for its institution.24
The reliefs sought in the Complaint, namely that of enjoining Section 1, Rule 8 of the Interim Rules of Procedure Governing
defendants from acting as officers and Board of Directors of the IntraCorporate Controversies imposes the following requirements
corporation, the appointment of a receiver, and the prayer for for derivative suits:
damages in the amount of the decrease in the value of the (1) He was a stockholder or member at the time the acts or
sharesof stock, clearly show that the Complaint was filed to curb transactions subject of the action occurred and at the time the
the alleged mismanagement of SBGCCI. The causes of action action was filed;
pleaded by petitioners do not accrue to a single shareholder or a (2) He exerted all reasonable efforts, and alleges the same with
class of shareholders but to the corporation itself. particularity in the complaint, to exhaust all remedies available
However, as minority stockholders, petitioners do not have any under the articles of incorporation, by-laws, laws or rules
statutory right to override the business judgments of SBGCCIs governing the corporation or partnership to obtain the relief he
officers and Board of Directors on the ground of the latters desires;
alleged lackof qualification to manage a golf course. Contraryto (3) No appraisal rights are available for the act or acts complained
the arguments of petitioners, Presidential Decree No. 902-A, which of; and
is entitled REORGANIZATION OF THE SECURITIES AND EXCHANGE (4) The suit is not a nuisance or harassment suit.
COMMISSION WITH ADDITIONAL POWERS AND PLACING THE SAID The RTC dismissed the Complaint for failure to comply with the
AGENCY UNDER THE ADMINISTRATIVE SUPERVISION OF THE second and fourth requisites above.
OFFICE OF THE PRESIDENT, does not grant minority stockholders a With regard, however, to the second requisite, we find that
cause of action against waste and diversion by the Board of petitioners failed to state with particularity in the Complaint that
Directors, but merely identifies the jurisdiction of the SEC over they had exerted all reasonable efforts to exhaust all remedies
actionsalready authorized by law or jurisprudence. It is settled available under the articles of incorporation, by-laws, and laws or
that a stockholders right to institute a derivative suit is not based rules governing the corporation to obtain the relief they desire.
on any express provisionof the Corporation Code, or even the The Complaint contained no allegation whatsoever of any effort to
Securities Regulation Code, but is impliedly recognized when the avail of intra-corporate remedies. Indeed, even if petitioners


thought it was futile to exhaust intra-corporate remedies, they
should have stated the same in the Complaint and specified the
reasons for such opinion. Failure to do so allows the RTC to dismiss
the Complaint, even motu proprio, in accordance with the Interim
Rules. The requirement of this allegation in the Complaint is not a
useless formality which may be disregarded at will.1wphi1 We
ruled in Yu v. Yukayguan
The obvious intent behind the rule is to make the derivative suit
the final recourse of the stockholder, after all other remedies to
obtain the relief sought had failed.

22. Villamor v. Umale, G.R. No. 172843, 24 September 2014
(derivative suit)
Facts:
On March 1, 2004, PPC obtained an option to lease portions of
Mid-Pasig's property, including the Rockland area occupied by MC
Home Depot.6cralawlawlibrary

On November 11, 2004, PPC's board of directors issued a
resolution7 waiving all its rights, interests, and participation in the
option to lease contract in favor o the law firm of Atty. Alfredo
Villamor, Jr. (Villamor), petitioner in G.R. No. 172843. PPC received
no consideration for this waiver in favor of Villamor's law firm.
On November 22, 2004, PPC, represented by Villamor, entered
into a memorandum of agreement (MOA) with MC Home Depot.9
Under the MO A, MC Home Depot would continue to occupy the
area as PPC's sublessee for four (4) years, renewable for another
four (4) years, at a monthly rental of P4,500,000.00 plus goodwill
of P18,000,000.00.10cralawlawlibrary

In compliance with the terms of the MOA, MC Home Depot issued
20 post-dated checks representing rental payments for one year


and the goodwill money. The checks were given to Villamor who The trial court added that the failure to implead PPC was. fatal.
did not turn these or the equivalent amount over to PPC, upon PPC should have been impleaded as an indispensable party,
encashment.11cralawlawlibrary without which, there would be no final determination of the
action.
Hernando Balmores, a stockholder and director of PPC,12 wrote a
letter addressed to PPJC's directors, 13 He informed them that Upon appeal, CA reversed the trial court's decision, and issued a
Villamor should be made to deliver to PPC and account for MC new order placing PPC under receivership and creating an interim
Home Depot's checks or their equivalent value.14cralawlawlibrary management committee.
In reversing tie trial court order/resolution, the Court of Appeals
Due to the alleged inaction of the directors, respondent Balmores considered the danger of dissipation, wastage, and loss of PPC's
filed with the Regional Trial Court an intra-corporate controversy assets if the review of the trial court's judgment would be
complaint against petitioners for their alleged devices or schemes delayed.35cralawlawlibrary
amounting to fraud or misrepresentation "detrimental to the
interest of the Corporation and its stockholders." The Court of Appeals ruled that the case filed by respondent
Balmores with the trial court "[was] a derivative suit because
According to the trial court, PPC's entitlement to the checks was there were allegations of fraud or ultra vires acts
doubtful. The resolution issued by PPC's board of directors;
waiving its rights to the option to lease contract in favor of Issue: Whether or not There was a derivative suit
Villamor's law firm, must be accorded prima facie validity.

The trial court also found that there was "no clear and positive Held:
showing of dissipation, loss, wastage, or destruction of [PPC's] -Respondent Balmores' action in
assets . . . [that was] prejudicial to the interest of the minority
stockholders, parties-litigants or the general public."26 The board's the trial court is not a derivative suit
failure to recover the disputed amounts was not an indication of

mismanagement resulting in the dissipation of
27
assets. cralawlawlibrary A derivative suit is an action filed by stockholders to enforce a
corporate action.56 It is an exception to the general rule that the
The trial court noted that PPC was earning substantial rental corporation's power to sue57 is exercised only by the board of
income from its other sub-lessees.28cralawlawlibrary directors or trustees.58cralawlawlibrary


Individual stockholders may be allowed to sue on behalf of the ( He exerted all reasonable efforts, and alleges the same with particularit
corporation whenever the directors or officers of the corporation 2 to exhaust all remedies available under the articles of incorporation, by
refuse to sue to vindicate the rights of the corporation or are the ) governing the corporation or partnership to obtain the relief he desires;
ones to be sued and are in control of the corporation.59 It is ( No appraisal rights are available for the act or acts complained of; and
allowed when the "directors [or officers] are guilty of breach of . . . 3
trust, [and] not of mere error of judgment."60 In derivative suits, )
the real party in interest is the corporation, and the suing ( The suit is not a nuisance or harassment suit.
stockholder is a mere nominal party.61 Thus, this court 4
noted:chanRoblesvirtualLawlibrary )

The Court has recognized that a stockholder's right to institute a In case of nuisance or harassment suit, the court shall forthwith
derivative suit is not based on any express provision of the dismiss the case.
Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate directors The fifth requisite for filing derivative suits, while not included in
or officers liable for damages suffered by the corporation and its the enumeration, is implied in the first paragraph of Rule 8,
stockholders for violation of their fiduciary duties. In effect, the Section 1 of the Interim Rules: The action brought by the
suit is an action for specific performance of an obligation, owed by stockholder or member must be "in the name of [the] corporation
the corporation to the stockholders, to assist its rights of action or association. ..." This requirement has already been settled in
when the corporation has been put in default by the wrongful jurisprudence.
refusal of the directors or management to adopt suitable Thus, in Western Institute of Technology, Inc., et al v. Solas, et al,64
measures for its protection.6 this court said that "[a]mong the basic requirements for a

derivative suit to prosper is that the minority shareholder who is
Rule 8, Section 1 of the Interim Rules of Procedure for Intra- suing for and on behalf of the corporation must allege in his
Corporate Controversies (Interim Rules) provides the five (5) complaint before the proper forum that he is suing on a derivative
requisites63 for filing derivative suits:chanRoblesvirtualLawlibrary cause of action on behalf of the corporation and all other
shareholders similarly situated who wish to join.
SECTION 1. Derivative action. - A stockholder or member may

bring an action in the name of a corporation or association, as the

case may be, provided, that:chanRoblesvirtualLawlibrary
Moreover, it is important that the corporation be made a party to
( He was a stockholder or member at the time the acts or transactions subject of the action
the case.69cralawlawlibrary
1 occurred and at the time the action was filed;
)


This court explained in Asset Privatization Trust v. Court of
Appeals70 why it is a condition sine qua non that the corporation Respondent Balmores' action in the trial court failed to satisfy all
be impleaded as party in derivative suits. the requisites of a derivative suit.
Thus:chanRoblesvirtualLawlibrary

Not only is the corporation an indispensible party, but it is also the
present rule that it must be served with process. Section 81 of the Corporation Code provides the instances of
The reasons given for not allowing direct individual suit appraisal right:chanRoblesvirtualLawlibrary
are:chanRoblesvirtualLawlibrary
SEC. 81. Instances of appraisal right. Any stockholder of a
(. . . "the universally recognized doctrine that a stockholder in a corporation has no title legal
corporation shah1 have the right to dissent and demand payment
1or equitable to the corporate property; that both of. these are in the corporation itself for
of the fair value of his shares in the following instances:
) the benefit of the stockholders." In other words, to allow shareholders to sue separately
1. In case any amendment to the articles of incorporation has
would conflict with the separate corporate entity principle; the effect of changing or restricting the rights of any
(. . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in stockholders or class of shares, or of authorizing
2the case of Evangelista v. Santos, that 'the stockholders may not directly claim those preferences in any respect superior to those of
) damages for themselves for that would result in the appropriation by, and the distribution outstanding shares of any class, or of extending or
among them of part of the corporate assets before the dissolution of the corporation shortening the term of corporate existence;
and
the liquidation of its debts and liabilities, something which cannot be legally done in view of
2. In case of sale, lease, exchange, transfer, mortgage, pledge
Section 16 of the Corporation Law. . .";
(the filing of such suits would conflict with the duty of the management to sue for or the other disposition of all or substantially all of the
corporate property and assets as provided in this Code;
3protection of all concerned;
and
)
(4) it would produce wasteful multiplicity of suits; and 3. In case of merger or consolidation.
(it would involve confusion in ascertaining the effect of partial recovery by an individual on

5the damages recoverable by the corporation for the same act.72 Section 82 of the Corporation Code provides that the stockholder
) may exercise the right if he or she voted against the proposed
corporate action and if he made a written demand for payment on
the corporation within thirty (30) days after the date of voting.
While it is true that the basis for allowing stockholders to file Granting that (a) respondent Balmores' attempt to communicate
derivative suits on behalf of corporations is based on equity, the with the other PPC directors already comprised all the available
above legal requisites for its filing must necessarily be complied remedies that he could have exhausted and (b) the corporation
with for its institution.73cralawlawlibrary


was under full- control of petitioners that exhaustion of remedies -Respondent Balmores has no
became impossible or futile,74 respondent Balmores failed to
allege that appraisal rights were not available for the acts cause of action that would entitle
complained of here.
him to the reliefs sought

Neither did respondent Balmores implead PPC as party in the case
nor did he allege that he was filing on behalf of the corporation.
In this case, respondent Balmores filed an individual suit. His Corporations have a personality that is separate and distinct from
intent was very clear from his manner of describing the nature of their stockholders and directors. A wrong to the corporation does
his action; His intent was also explicit from his prayer. not necessarily create an individual cause of action. "A cause of
action is the act or omission by which a party violates the right of
Respondent Balmores did not bring the action for the benefit of another."80 A cause of action must pertain to complainant if he or
the corporation. Instead, he was alleging that the acts of PPC's she is to be entitled to the reliefs sought.
directors, specifically the waiver of rights in favor of Villamor's law
firm and their failure to take back the MC Home Depot checks PPC will not be bound by a decision granting the application for
from Villamor, were detrimental to his individual interest as a the appointment of a receiver or management committee. Since it
stockholder. In filing an action, therefore, his intention was to was not impleaded in the complaint, the courts did not acquire
vindicate his individual interest and not PPC's or a group of jurisdiction over it. On this matter, it is an indispensable party,
stockholders'. without which, no final determination can be had.

- Appointment of a management
committee was not proper
The essence of a derivative suit is that it must be filed on behalf of
the corporation. This is because the cause of action belongs, Assuming that respondent Balmores has an individual cause of
primarily, to the corporation. The stockholder who sues on behalf action, the Court of Appeals still erred in placing PPC under
of a corporation is merely a nominal party. receivership and in creating and appointing a management
committee.

Respondent Balmores' intent to file an individual suit removes it A corporation may be placed under receivership, or management
from the coverage of derivative suits. committees may be created to preserve properties involved in a
suit and to protect the rights of the parties under the control and
supervision of the court.83 Management committees and receivers


are appointed when the corporation is in imminent danger of "(1)
[dissipation, loss, wastage or destruction of assets or other
properties; and (2) [p]aralysation of its business operations that
may be prejudicial to' the interest of the minority stockholders,
parties-litigants, or the general public."84cralawlawlibrary

Applicants for the appointment of a receiver or management
committee need to establish the confluence of these two
requisites. This is because appointed receivers and management
committees will immediately take over the management of the
corporation and will have the management powers specified in
law.

PPC waived its rights, without any consideration in favor of
Villamor. The checks were already in Villamor's possession. Some
of the checks may have already been encashed. This court takes
judicial notice that the goodwill money of PI 8,000,000.00 and the
rental payments of P4,500,000.00 every month are not meager
amounts only to be waived without any consideration. It is,
therefore, enough to constitute loss or dissipation of assets under
the Interim Rules.

Respondent Balmores, however, failed to show that there was an
imminent danger of paralysis of PPC's business operations.
Apparently, PPC was- earning substantial amounts from its other
sub-lessees. Respondent Balmores did not prove otherwise. He,
therefore, failed to show at least one of the requisites for
appointment of a receiver or management committee


several pending cases involving the Africa and Nieto-PCGG groups.
In reply, Africa reiterated his request for inspection. However, the
23. Abad v. PCSC, G.R. No. 200620, 18 March 2015 (intra-corporate conduct of inspection was disallowed.
dispute; jurisdiction) PHILCOMSAT (Africa-Bildner) filed in the RTC a Complaint
for Inspection of Books against the incumbent PHC directors
Roberto L. Abad et al v. Philippine Communication Satellite and/or officers (Nieto-PCGG).
Corporation
GR. 200620 March 18, 2015 Issue: Whether the RTC has jurisdiction

Facts: Ruling:
Philippine Communications Satellite Corporation It is the RTC and not the Sandiganbayan which has
(PHILCOMSAT), along with Philippine Overseas jurisdiction over cases which do not involve a sequestration-
Telecommunications Corporation (POTC) were among those related incident but an intra-corporate controversy. Upon the
private companies sequestered by the Philippine Commission on enactment of Republic Act No. 8799 (The Securities Regulation
Good Government. PHILCOMSAT owns 81% of the outstanding Code), effective on August 8, 2000, the jurisdiction of the SEC over
capital stock of Philcomsat Holdings Corporation (PHC). intra-corporate controversies and the other cases enumerated in
There were two factions in the ensuing battle for control Section 5 of P.D. No. 902-A was transferred to the Regional Trial
over the respective boards of POTC, PHILCOMSAT and PHC. The Court.
Nieto-PCGG Group and the Africa-Bildner Group. Separate To buttress its position, however, the Nieto Group relied
elections were conducted by the two factions in POTC and on Section 2 of Executive Order No. 14, which expressly mandated
PHILCOMSAT. Thereafter, the two factions took various legal steps that the PCGG shall file all such cases, whether civil or criminal,
including the filing of suits and countersuits to gain legitimacy for with the Sandiganbayan, which shall have exclusive and original
their respective election as directors and officers of POTC and jurisdiction thereof.
PHILCOMSAT. The reliance was unwarranted. Section 2 of Executive
Africa in his capacity as President and CEO of Order No. 14 had no application herein simply because the subject
PHILCOMSAT, and as stockholder in his own right, wrote the board matter involved was an intra-corporate controversy, not any
and management of PHC that PHILCOMSAT will exercise its right of incidents arising from, incidental to, or related to any case
inspection over the books, records, papers, etc. pertinent to the involving assets whose nature as ill-gotten wealth was yet to be
business transactions of PHC for the 3rd quarter of 2005, determined.
specifically the companys financial documents. Moreover, the jurisdiction of the Sandiganbayan has been
Nieto told Africa that his request will be referred to the held not to extend even to a case involving a sequestered
PHC Board of Directors or Executive Committee in view of the


company notwithstanding that the majority of the members of the
board of directors were PCGG nominees.
In the case at bar, the complaint concerns PHILCOMSATs demand
to exercise its right of inspection as stockholder of PHC but which
petitioners refused on the ground of the ongoing power struggle.
Clearly, the controversy is intra-corporate in nature as they arose
out of intra-corporate relations between and among stockholders,
and between stockholders and the corporation.

24. Alabang Development Corporation v. Alabang Hills Village
Association, G.R. No. 187456, 2 June 2014 (dissolution and
liquidation)

Alabang Development Corp v. Alabang Hills Village Association
GR. 187456 June 2, 2014

Facts:
On October 19, 2006 , Alaban Dev Corp alleged in a complaint that
it is the developer of Alabang Hills Village and still owns certain
parcels of land therein that are yet to be sold, as well as those
considered open spaces that have not yet been donated to [the]
local government of Muntinlupa City or the Homeowner's
Association. ADC learned that AHVAI started the construction of a
multi-purpose hall and a swimming pool on one of the parcels of


land still owned by ADC without the latter's consent and approval, defending suits by or against it and enabling it to settle and close
and that despite demand, AHVAI failed to desist from constructing its affairs, to dispose of and convey its property and to distribute
the said improvements. ADC thus prayed that an injunction be its assets, but not for the purpose of continuing the business for
issued enjoining defendants from constructing. which it was established.
AHVAI denied ADC's asseverations and claimed that the At any time during said three (3) years, said corporation is
latter has no legal capacity to sue since its existence as a authorized and empowered to convey all of its property to
registered corporate entity was revoked by the Securities and trustees for the benefit of stockholders, members, creditors, and
Exchange Commission (SEC) on May 26, 2003. other persons in interest. From and after any such conveyance by
the corporation of its property in trust for the benefit of its
Issue: stockholders, members, creditors and others in interest, all
Whether Alabang Dev Corp has legal capacity interest which the corporation had in the property terminates, the
legal interest vests in the trustees, and the beneficial interest in
Ruling: the stockholders, members, creditors or other persons in interest.
No. Alaban Dev Corp has no legal capacity. Upon winding up of the corporate affairs, any asset
Lack of legal capacity to sue means that the plaintiff is not distributable to any creditor or stockholder or member who is
in the exercise of his civil rights, or does not have the necessary unknown or cannot be found shall be escheated to the city or
qualification to appear in the case, or does not have the character municipality where such assets are located.
or representation he claims [;] 'lack of capacity to sue' refers to a Except by decrease of capital stock and as otherwise
plaintiff's general disability to sue, such as on account of minority, allowed by this Code, no corporation shall distribute any of its
insanity, incompetence, lack of juridical personality or any other assets or property except upon lawful dissolution and after
general disqualifications of a party. ...In the instant case, payment of all its debts and liabilities.
petitioner lacks capacity to sue because it no longer possesses In the instant case, there is no dispute that petitioner's corporate
juridical personality by reason of its dissolution and lapse of the registration was revoked on May 26, 2003. Based on the above-
three-year grace period provided under Section 122 of the quoted provision of law, it had three years, or until May 26, 2006,
Corporation Code. to prosecute or defend any suit by or against it. The subject
complaint, however, was filed only on October 19, 2006, more
SEC. 122. Corporate liquidation. Every corporation whose than three years after such revocation.
charter expires by its own limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other purposes is It is likewise not disputed that the subject complaint was
terminated in any other manner, shall nevertheless be continued filed by Petitioner Corporation and not by its directors or trustees.
as a body corporate or three (3) years after the time when it would Petitioner, nonetheless, insists that a corporation may still sue,
have been so dissolved, for the purpose of prosecuting and even after it has been dissolved and the three-year liquidation


period provided under Section 122 of the Corporation Code has
passed. Petitioner cites cases as authority to support its position.
The Court, however, agrees with the CA that in the above cited
cases, the corporations involved filed their respective complaints
while they were still in existence. In other words, they already had
pending actions at the time that their corporate existence was
terminated.
The import of this Court's ruling in the cases cited by
petitioner is that the trustee of a corporation may continue to
prosecute a case commenced by the corporation within three
years from its dissolution until rendition of the final judgment,
even if such judgment is rendered beyond the three-year period
allowed by Section 122 of the Corporation Code. However, there is
nothing in the said cases which allows an already defunct
corporation to initiate a suit after the lapse of the said three-year
period.

25. Banc of Commerce v. Radio Philippines Network Inc., G.R. No.
195615, 21 April 2014 (merger and consolidation)

Facts: In late 2001, Traders Royal Bank (TRB) proposed to sell to
Bank of Commerce (Bancommerce) for P10.4B its banking business.
Bancommerce agreed, subject to prior approval of BSP. BSP agreed


provided that TRB and Bancommerce would set up an escrow fund
of P50M with another bank to cover TRB liabilities for contingent Ruling: No.
claims that may subsequently be adjudged against it, which
liabilities were excluded from the purchase. There was no merger between TRB and Bancommerce
Merger is a re-organization of two or more corporations that results
Hence, a Purchase and Assumption Agreement was entered into by in their consolidating into a single corporation, which is one of the
Bancommerce and TRB wherein the latter acquired specified assets constituent corporations, one disappearing or dissolving and the
and liabilities but excluding liabilities arising from judicial actions other surviving. To put it another way, merger is the absorption of
which were tobe covered by the P50M in escrow. one or more corporations by another existing corporation, which
retains its identity and takes over the rights, privileges, franchises,
Sometime in 2002, TRB was ordered by the Court in the case of properties, claims, liabilities and obligations of the absorbed
Traders Royal Bank v. RPN, to pay P9.7M in actual damages and 12% corporation(s). The absorbing corporation continues its existence
interest. RPN later filed a motion for execution in the RTC against while the life or lives of the other corporation(s) is or are
TRB but rather than proceed with the P50M escrow fund, it filed a terminated.
Supplemental Motion for Execution where it described TRB as now
Bancommerce based on the assumption that TRB had been merged In the case at bar, no merger took place between TRB and
into Bancommerce. Bancommerce as the requirements and procedures for a merger
were absent. A merger does not become effective upon the mere
Bancommerce questioned the jurisdiction of the RTC and denied the agreement of the constituent corporations. All the requirements
merger between TRB and Bancommerce. However, the RTC granted specified in law must be complied with in order for merget to take
the motion for execution. It held that the P&A was a mere tool to effect. Sec. 79 of the Corpo Code provides that merger shall be
effectuate a merger and/or consolidation between TRB nd Bancom. effective only upon the issuance by the SEC of a certificate of
Bancommerce then filed a petition for certiorari with the CA. merger.

CA denied the petition, alleging that the RTC order was clear that Here, Bancommerce and TRB remained separate corporations with
Bancommerce was not being made to answer for the liabilities of distinct corporate personalities. What happened is that TRB sold
TRB, but rather the assets or properties of TRB under and Bancommerce purchased identified recorded assets of TRB in
Bancommerces possession and custody. consideration of Bancommerces assumption of identified recorded
liabilities including booked contingent accounts. There is no law that
prohibits this kind of transaction especially when it is done openly
Issue: Whether there has been a merger/consolidation between and with appropriate government approval.
TRB and Bancommerce.


No De Facto Merger either given that there is a difference in tax treatment between a sale and
The dissenting opinion of Justice Mendoza finds, however, that a a merger or consolidation.
"de facto" merger existed between TRB and Bancommerce
considering that (1) the P & A Agreement between them involved When is an acquiring/transferee corporation liable for debts and
substantially all the assets and liabilities of TRB; (2) in an Ex Parte liabilities of the transferor
Petition for Issuance of Writ of Possession filed in a case, It is pointed out that under common law, if one corporation sells or
Bancommerce qualified TRB, the petitioner, with the words "now otherwise transfers all its assets to another corporation, the latter is
known as Bancommerce;" and (3) the BSP issued a Circular Letter not liable for the debts and liabilities of the transferor if it has acted
(series of 2002) advising all banks and non-bank financial in good faith and has paid adequate consideration for the assets,
intermediaries that the banking activities and transaction of TRB except:
and Bancommerce were consolidated and that the latter continued (1) where the purchaser expressly or impliedly agrees to
the operations of the former. assume such debts;
(2) where the transaction amounts to a consolidation or
However, the ponente, J. Abad, held that the idea of a de facto merger of the corporations;
merger came about because prior to the Corporation Code, no law (3) where the purchasing corporation is merely a continuation
authorized the merger or consolidation of Philippine corporations. of the selling corporation; and
Now, under the Corporation Code, a de facto merger can be (4) where the transaction is entered into fraudulently in order
pursued by one corporation acquiring all or substantially all of the to escape liability for such debts.
properties of another corporation in exchange of shares of stock of
the acquiring corporation. The acquiring corporation would end up Since there had been no merger, Bancommerce cannot be
with the business enterprise of the target corporation; whereas, the considered as TRBs successor-in-interest and against which the
target corporation would end up with basically its only remaining courts decision may be enforced. Bancommerce did not hold the
assets being the shares of stock of the acquiring corporation. former TRBs assets in trust for it as to subject them to garnishment
for the satisfaction of the latters liabilities to RPN. Bancommerce
No de facto merger took place in this case because TRB did not get bought and acquired those assets and thus, became their absolute
in exchange for the banks assets and liabilities an equivalent value owner.
in Bancommerce shares of stock.

Furthermore, the BIR treated the transaction between the two
banks as purely a sale of specified assets and liabilities when it
rendered its opinion on the tax consequences of the transaction

Corporation Law Case Digests

Diunggah oleh

Informasi Dokumen

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Corporation Law Case Digests

Diunggah oleh

Hak Cipta:

Format Tersedia

Corporation

Law Case Digests

employer Hda. Cataywa could not be confirmed because Manuel respondent.

Anda mungkin juga menyukai