LBC Express, Inc. vs.
Court of Appeals, 236 SCRA ground for the award of moral damages is an obiter
602, G.R. No. 108670 September 21, 1994
Damages; Moral damages cannot be awarded to a
corporation, an artificial person which has no feelings,
emotions or senses, and which cannot experience physical
suffering and mental anguish.The respondent court erred
in awarding moral damages to the Rural Bank of Labason,
Inc., an artificial person. Moral damages are granted in
recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation,
and similar injury. A corporation, being an artificial
person and having existence only in legal contemplation,
has no feelings, no emotions, no senses; therefore, it
cannot experience physical suffering and mental anguish.
Mental suffering can be experienced only by one having a
nervous system and it flows from real ills, sorrows, and
griefs of lifeall of which cannot be suffered by respondent
bank as an artificial person.
Same; Equity; The right to recover moral damages is based
on equity and he who comes to court to demand equity
must come with clean hands.We can neither sustain the
award of moral damages in favor of the private
respondents. The right to recover moral damages is based
on equity. Moral damages are recoverable only if the
case falls under Article 2219 of the Civil Code in
relation to Article 21. Part of conventional wisdom is that
he who comes to court to demand equity, must come with
clean hands. In the case at bench, respondent Carloto is
not without fault. He was fully aware that his rural banks
obligation would mature on November 21, 1984 and his
bank has set aside cash for these bills payable. He was all
set to go to Manila to settle this obligation. He has received
the documents necessary for the approval of their
rediscounting application with the Central Bank. He has also
received the plane ticket to go to Manila. Nevertheless, he
did not immediately proceed to Manila but instead tarried
for days allegedly claiming his ONE THOUSAND PESOS
(P1,000.00) pocket money. Due to his delayed trip, he
failed to submit the rediscounting papers to the Central
Bank on time and his bank was penalized THIRTY-TWO
THOUSAND PESOS (P32,000.00) for failure to pay its
obligation on its due date. The undue importance given by
respondent Carloto to his ONE THOUSAND PESOS
(P1,000.00) pocket money is inexplicable for it was not
indispensable for him to follow up his banks rediscounting
application with Central Bank.
Filipinas Broadcasting Network, Inc. vs. Ago Medical
and Eduacational Central-Bicol Christian college of
Medicine (AMEC-BCCM), 448 SCRA 413, G.R. No. 141994
January 17, 2005
Libel; Damages; Corporations; Obiter Dictum; The Courts
statement in Mambulao Lumber Co. v. PNB, 22 SCRA 359
(1968), that a corporation may have a good reputation
which, if besmirched, may also be a ground for the award
of moral damages is an obiter dictum.A juridical person
is generally not entitled to moral damages because, unlike
a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. The Court of Appeals cites
Mambulao Lumber Co. v. PNB, et al. to justify the award of
moral damages. However, the Courts statement in
Mambulao that a corporation may have a good
reputation which, if besmirched, may also be a
dictum.
Same; Same; Same; Since Article 2219(7) of the Civil Code
does not qualify whether the plaintiff is a natural or juridical
person, a juridical person such as a corporation may validly
complain for libel or any other form of defamation and
claim for moral damages. AMECs claim for moral
damages falls under item 7 of Article 2219 of the
Civil Code. This provision expressly authorizes the
recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does not qualify
whether the plaintiff is a natural or juridical person.
Therefore, a juridical person such as a corporation
can validly complain for libel or any other form of
defamation and claim for moral damages.
Same; Same; Where the broadcast is libelous per se, the
law implies damages, in which case, evidence of an honest
mistake or the want of character or reputation of the party
libeled goes only in mitigation of damages.Where the
broadcast is libelous per se, the law implies damages. In
such a case, evidence of an honest mistake or the want of
character or reputation of the party libeled goes only in
mitigation of damages. Neither in such a case is the plaintiff
required to introduce evidence of actual damages as a
condition precedent to the recovery of some damages. In
this case, the broadcasts are libelous per se. Thus, AMEC is
entitled to moral damages. However, we find the award of
P300,000 moral damages unreasonable. The record shows
that even though the broadcasts were libelous per se,
AMEC has not suffered any substantial or material damage
to its reputation. Therefore, we reduce the award of moral
damages from P300,000 to P150,000.
Collector of Internal Revenue vs. Club Filipino, Inc.
de Cebu, 5 SCRA 321, No. L-12719 May 31, 1962
Taxation; Percentage Tax; Bar and Restaurant; When
operator not engaged in business.The liability for fixed
and percentage taxes as provided by Sections 182, 183 and
191 of the Tax Code does not ipso facto attach by mere
reason of the operation of a bar and restaurant. For the
liability to attach, the operator thereof must be engaged in
the business as a barkeeper and restaurateur.
Same; Words and Phrases; "Business", meaning of.The
plain and ordinary meaning of business is restricted to
activities or affairs where profit is the purpose or livelihood
is the motive, and the term business when used without
qualification, should be construed in its plain and ordinary
meaning, restricted to activities for profit or livelihood.
Same; Club Filipino, Inc. de Cebu; Not engaged in bar and
restaurant.The Club Filipino, Inc. de Cebu was organized
to develop and cultivate sports of all class and
denomination, for the healthful recreation and
entertainment of its stockholders and members; that upon
its dissolution, its remaining assets, after paying debts shall
be donated to a charitable Philippine Institution in Cebu;
that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and
restaurant catered only to its members and their guests;
that there was in fact no cash dividend distribution
to its stockholders and that whatever was derived
on retail from its bar and restaurant was used to
defray its overall overhead expenses and to improve
its golf course (cost-plus-expenses-basis), it stands to
reason that the Club is not engaged in the business of an
operator of bar and restaurant.
PNOC-Energy Development Corp. vs. NLRC, 201
SCRA 487, G.R. No. 79182 September 11, 1991
Corporation Law; Civil Service Law; Jurisdiction; Doctrine
that employees of government-owned and/or controlled
corporations whether created by special law or formed as
subsidiaries under the General Corporation Law are
governed by the Civil Service Law and not by the Labor
Code has been supplanted by the present Constitution.
This issue has already been laid to rest in the case of
PNOC-EDC vs. Leogardo, 175 SCRA 26 (July 5, 1989),
involving the same petitioner and the same issue, where
this Court ruled that the doctrine that employees of
government government-owned and/or controlled
corporations, whether created by special law or formed as
subsidiaries under the General Corporation law are
governed by the Civil Service Law and not by the Labor
Code, has been supplanted by the present Constitution,
Same; Same; Same; Same; Presently, the test in
determining whether a government-owned or controlled
corporation is subject to the Civil Service Law is the manner
of its creation.Thus, under the present state of the law,
the test in determining whether a government-owned or
controlled corporation is subject to the Civil Service Law is
the manner of its creation, such that government
corporations created by special charter are subject to its
provisions while those incorporated under the General
Corporation Law are not within its coverage.
Same; Same; Same; Same; The PNOC-EDC having been
incorporated under the General Corporation Law was
held to be a government-owned or controlled corporation
whose employees are subject to the provisions of the Labor
Code.Specifically, the PNOC-EDC having been
incorporated under the General Corporation Law was held
to be a government-owned or controlled corporation whose
employees are subject to the provisions of the Labor Code.
National Coal Co. vs. Collector of Internal Revenue,
46 Phil. 583, No. 22619 December 2, 1924
THE NATIONAL COAL COMPANY, A PRIVATE
CORPORATION; SUBJECT TO THE PAYMENT OF INTERNAL
REVENUE UNDER THE PROVISIONS OF SECTION 1496 OF
THE ADMINISTRATIVE CODE.The National Coal Company
is a private corporation. The fact that the Government
happens to be a stockholder therein does not make it a
public corporation. It is subject to all the provisions of the
Corporation Law in so far as they are not inconsistent with
Act No. 2705. As a private corporation, it has no
greater rights, powers, or privileges than any other
corporation which might be organized for the same
purpose under the Corporation Law. It was not the
intention of the legislature to give it a preference, or right,
or privilege over other legitimate private corporations in the
mining of coal. The law made no provision for its
occupation and operation of coal-bearing lands, to the
exclusion of other persons or corporations, under proper
permission. The National Coal Company being a private
corporation, neither the lessee nor the owner of the lands
upon which it mined coal for the year in question, is subject
to the payment of the internal revenue duty provided for in
section 1496 of the Administrative Code. National Coal Co. vs.
Collector of Internal Revenue, 46 Phil. 583, No. 22619 December 2, 1924
Red Line Transportation Co. vs. Rural Transit Co., 60
Phil. 549, No. 41570 September 6, 1934
1.PUBLIC SERVICE ; AUTHORITY OP PUBLIC SERVICE
COMMISSION TO AUTHORIZE A CORPORATION TO
ASSUME THE NAME OF ANOTHER.There is no law that
empowers the Public Service Commission or any court in
this jurisdiction to authorize one corporation to
assume the name of another corporation as a trade
name. Both the Rural Transit Company, Ltd., and the
Bachrach Motor Co., Inc., are Philippine corporations and
the very law of their creation and continued existence
requires each to adopt and certify a distinctive name.
2.ID.; ID.; CHANGE OP CORPORATION'S NAME.The
incorporators "constitute a body politic and corporate under
the name stated in the certificate." (Section 11, Act No.
1459, as amended.) A corporation has the power "of
succession by its corporate name." (Section 13, ttrid.) The
name of a corporation is therefore essential to its existence.
It cannot change its name except in the manner provided
by the statute. By that name alone is it authorized to
transact business.
3.ID. ; ID. ; ID.The law gives a corporation no express or
implied authority to assume another name that is
unappropriated; still less that of another corporation, which
is expressly set apart for it and protected by the law. If any
corporation could assume at pleasure as an unregistered
trade name the name of another corporation, this practice
would result in confusion and open the door to frauds and
evasions and difficulties of administration and supervision.
4.ID.; ID.; ID.; POLICY OF THE LAW.The policy of the
law as expressed in our corporation statute and the Code of
Commerce is clearly against such a practice. (Cf. Scarsdale
Pub. Co.Colonial Press vs. Carter, 116 New York Supplement, 731;
Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate
Courts], 428, 434.) Red Line Transportation Co. vs. Rural Transit Co.,
60 Phil. 549, No. 41570 September 6, 1934
Universal Mill Corporation vs. Universal Textile Mills,
Inc., 78 SCRA 62, No. L-28351 July 28, 1977
Securities and Exchange Commission; Business Names; The
business names Universal Mills Corporation and Universal
Textile Mills, Inc. though not identical are so similar as
to cause confusion to the general public, particularly
where the former included the manufacture, dyeing and
selling of fabrics of all kinds in which the latter had been
engaged for more than a decade ahead of the petitioner.
The corporate names in question are not identical, but they
are indisputably so similar that even under the test of
reasonable care and observation as the public generally
are capable of using and may be expected to exercise
invoked by appellant We are apprehensive confusion will
usually arise, considering that under the second
amendment of its articles of incorporation of August 14,
1964, appellant included among its primary purposes the
manufacturing, dyeing, finishing and selling of fabrics of all
kinds in which respondent had been engaged for more
than a decade ahead of petitioner. Factually, the
Commission found existence of such confusion, and there is
evidence to support its conclusion. Since respondent is not
claiming damages in this proceeding, it is, of course
immaterial whether or not appellant has acted in good
faith, but We cannot perceive why of all names, it had to
choose a name already being used by another firm
engaged in practically the same business for more than a
decade enjoying well earned patronage and goodwill, when
there are so many other appropriate names it could
possibly adopt without arousing any suspicion as to its
motive and, more importantly, any degree of confusion in
the mind of the public which could mislead even its own
customers, existing or prospective.
Lyceum of the Philippines, Inc. vs. Court of Appeals,
219 SCRA 610, G.R. No. 101897 March 5, 1993
Corporation Law; Names; Fact that other schools use
"Lyceum" as part of their school's name is not a deceptive
use thereof relative to Lyceum of the Philippines.We do
not consider that the corporate names of private
respondent institutions are "identical with, or deceptively or
confusingly similar" to that of the petitioner institution. True
enough, the corporate names of private respondent entities
all carry the word "Lyceum" but confusion and deception
are effectively precluded by the appending of
geographic names to the word "Lyceum." Thus, we do
not believe that the "Lyceum of Aparri" can be mistaken by
the general public for the Lyceum of the Philippines, or that
the "Lyceum of Camalaniugan" would be confused with the
Lyceum of the Philippines.
Same; Same; Words and Phrases; "Lyceum" is a generic
name.Etymologically, the word "Lyceum" is the Latin
word for the Greek lykeion which in turn referred to a
locality on the river Ilissius in ancient Athens "comprising
an enclosure dedicated to Apollo and adorned with
fountains and buildings erected by Pisistratus, Pericles and
Lycurgus frequented by the youth for exercise and by the
philosopher Aristotle and his followers for teaching." In
time, the word "Lyceum" became associated with schools
and other institutions providing public lectures and concerts
and public discussions. Thus today, the word "Lyceum"
generally refers to a school or an institution of learning.
While the Latin word "lyceum" has been incorporated into
the English language, the word is also found in Spanish
(liceo) and in French (lycee). As the Court of Appeals noted
in its Decision, Roman Catholic schools frequently use the
term; e.g., "Liceo de Manila," "Liceo de Baleno" (in Baleno
Masbate), "Liceo de Masbate," "Liceo de Albay." "Lyceum"
is in fact as generic in character as the word "university." In
the name of the petitioner, "Lyceum" appears to be a
substitute for "university;" in other places, however,
"Lyceum," or "Liceo" or "Lycee" frequently denotes a
secondary school or a college. It may be (though this is a
question of fact which we need not resolve) that the use of
the word "Lyceum" may not yet be as widespread as the
use of "university," but it is clear that a not
inconsiderable number of educational institutions
have adopted "Lyceum" or "Liceo" as part of their
corporate names. Since "Lyceum" or "Liceo" denotes a
school or institution of learning, it is not unnatural to use
this word to designate an entity which is organized and
operating as an educational institution.
Same; Same; Same; Trademarks; "Secondary meaning,"
defined.In Philippine Nut Industry, Inc. v. Standard
Brands, Inc., the doctrine of secondary meaning was
elaborated in the following terms: "x x x a word or phrase
originally incapable of exclusive appropriation with
reference to an article on the market, because
geographically or otherwise descriptive, might nevertheless
have been used so long and so exclusively by one producer
with reference to his article that, in that trade and to that
branch of the purchasing public, the word or phrase has
come to mean that the article was his product."
Same; Same; Same; Same; Lyceum of the Philippines has
not gained exclusive use of "Lyceum" by long passage of
time.We agree with the Court of Appeals. The number
alone of the private respondents in the case at bar
suggests strongly that petitioner's use of the word
"Lyceum" has not been attended with the exclusivity
essential for applicability of the doctrine of secondary
meaning. It may be noted also that at least one of the
private respondents, i.e., the Western Pangasinan Lyceum,
Inc., used the term "Lyceum" seventeen (17) years before
the petitioner registered its own corporate name with the
SEC and began using the word "Lyceum." It follows that if
any institution had acquired an exclusive right to the word
"Lyceum," that institution would have been the Western
Pangasinan Lyceum, Inc. rather than the petitioner
institution.
Philips Export B.V. vs. Court of Appeals, 206 SCRA 457,
G.R. No. 96161 February 21, 1992
Corporation Law; Trademarks; A corporations right to use
its corporate and trade name is a property right, a right in
rem which it may assert and protect against the world in
the same manner as it may protect its tangible property,
real or personal against trespass or conversion.As early
as Western Equipment and Supply Co. v. Reyes, 51 Phil.
115 (1927), the Court declared that a corporations right to
use its corporate and trade name is a property right, a right
in rem, which it may assert and protect against the world in
the same manner as it may protect its tangible property,
real or personal, against trespass or conversion. It is
regarded, to a certain extent, as a property right and one
which cannot be impaired or defeated by subsequent
appropriation by another corporation in the same field.
Same; Same; Same; The general rule as to corporations is
that each corporation must have a name by which it is to
sue and be sued and do all legal acts.A name is peculiarly
important as necessary to the very existence of a
corporation (American Steel Foundries vs. Robertson, 269 US 372,
70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa
42; First National Bank vs. Huntington Distilling Co. 40 W Va 530, 23
SE 792). Its name is one of its attributes, an element
of its existence, and essential to its identity (6
Fletcher [Perm Ed], pp. 3-4). The general rule as to
corporations is that each corporation must have a name by
which it is to sue and be sued and do all legal acts. The
name of a corporation in this respect designates the
corporation in the same manner as the name of an
individual designates the person (Cincinnati Cooperage Co. vs. Bate,
96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird, 10 NH 123);
and the right to use its corporate name is as much a part of
the corporate franchise as any other privilege granted.
Same; Same; Same; A corporation can no more use a
corporate name in violation of the rights of others than an
individual can use his name legally acquired so as to
mislead the public and injure another.A corporation
acquires its name by choice and need not select a name
identical with or similar to one already appropriated by a
senior corporation while an individuals name is thrust upon
him (See Standard Oil Co. of New Mexico, Inc. v. Standard Oil Co. of
California, 56 F 2d 973, 977). A corporation can no more use a
corporate name in violation of the rights of others than an
individual can use his name legally acquired so as to
mislead the public and injure another.
Same; Same; Same; The right to the exclusive use of a
corporate name with freedom from infringement by
similarity is determined by priority of adoption.The
right to the exclusive use of a corporate name with freedom
from infringement by similarity is determined by priority of
adoption (1 Thompson, p. 80 citing Munn v. Americana Co., 82 N., Eq.
63, 88 Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274;
134 Pac. 921). In this regard, there is no doubt with respect
to Petitioners prior adoption of the name PHILIPS as part
of its corporate name. Petitioners Philips Electrical and
Philips Industrial were incorporated on 29 August 1956 and
25 May 1956, respectively, while Respondent Standard
Philips was issued a Certificate of Registration on 19 April
1982, twenty-six (26) years later (Rollo, p. 16). Petitioner
PEBV has also used the trademark PHILIPS on electrical
lamps of all types and their accessories since 30 September
1922, as evidenced by Certificate of Registration No. 1651.
Same; Same; Same; In determining the existence of
confusing similarity in corporate name, the test is whether
the similarity is such as to mislead a person using ordinary
care and discrimination.The second requisite no less
exists in this case. In determining the existence of
confusing similarity in corporate names, the test is whether
the similarity is such as to mislead a person using ordinary
care and discrimination. In so doing, the Court must look to
the record as well as the names themselves (Ohio Nat. Life
Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298). While the
corporate names of Petitioners and Private Respondent are
not identical, a reading of Petitioners corporate names, to
wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS,
INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC.,
inevitably leads one to conclude that PHILIPS is, indeed,
the dominant word in that all the companies affiliated or
associated with the principal corporation, PEBV, are known
in the Philippines and abroad as the PHILIPS Group of
Companies.
Same; Same; Same; Same; It is settled that proof of actual
confusion need not be shown; It suffices that confusion is
probably or likely to occur.Respondents maintain,
however, that Petitioners did not present an iota of proof of
actual confusion or deception of the public much less a
single purchaser of their product who has been deceived or
confused or showed any likelihood of confusion. It is
settled, however, that proof of actual confusion need not
be shown. It suffices that confusion is probably or likely to
occur.
Same; Same; Same; A corporation has an exclusive right to
the use of its name which may be protected by injunction
upon a principle similar to that upon which persons are
protected in the use of trademarks and tradenames.What
is lost sight of, however, is that PHILIPS is a trademark or
trade name which was registered as far back as 1922.
Petitioners, therefore, have the exclusive right to its use
which must be free from any infringement by similarity. A
corporation has an exclusive right to the use of its name,
which may be protected by injunction upon a principle
similar to that upon which persons are protected in the use
of trademarks and tradenames (18 C.J.S 574). Such
principle proceeds upon the theory that it is a fraud on the
corporation which has acquired a right to that name and
perhaps carried on its business thereunder, that another
should attempt to use the same name, or the same name
with a slight variation in such a way as to induce persons to
deal with it in the belief that they are dealing with the
corporation which has given a reputation to the name.
Philips Export B.V. vs. Court of Appeals, 206 SCRA 457,
G.R. No. 96161 February 21, 1992
Clavecilla Radio System vs. Antillon, et al., 19 SCRA
379, No. L-22238 February 18, 1967
Corporation Law; Domicile of a corporation.The residence
of a corporation is the place where its principal office is
established. It can be sued in that place, not in the place
where its branch office is located.
Actions; Venue; Venue of a tort action against a,
corporation in inferior court.Where the action filed
against a corporation in the inferior court is based on tort,
it should be filed in the place where the corporation has its
principal office, not in the place where it has its branch
office. To allow an action against a corporation to be
instituted in any place where a corporate entity has its
branch offices would create confusion and work untold
inconvenience to the corporation.
Same; When provision, may be served with summons,
applies.The phrase may be served with summons in
section 1, Rule 4 of the Revised Rules of Court does not
apply when the defendant resides in the Philippines, for, in
such a case, he may be sued only in the municipality of his
residence, regardless of the place where he may be found
and served with summons.
Same; Plaintiff may not choose venue of action.The
laying of the venue of an action is not left to plaintiffs
caprice because the matter is regulated by the Rules of
Court. Clavecilla Radio System vs. Antillon, et al., 19 SCRA
379, No. L-22238 February 18, 1967
Commissioner of Internal Revenue vs. Manning, 66
SCRA 14, No. L-28398 August 6, 1975
Corporation law; Taxations; Meaning and scope of treasury
shares.Although authorities may differ on the exact legal
and accounting status of so-called treasury shares, they
are more or less in agreement that treasury shares are
stocks issued and fully paid for and re-acquired by the
corporation either by purchase, donation, forfeiture or other
means. Treasury shares are therefore issued shares, but
being in the treasury they do not have the status of
outstanding shares. Consequently, although a treasury
share, not having been retired by the corporation re-
acquiring it, may be reissued or sold again, such share, as
long as it is held by the corporation as a treasury share,
participates neither in dividends, because dividends cannot
be declared by the corporation to itself, nor in the meetings
of the corporation as voting stock, for otherwise equal
distribution of voting powers among stockholders will be
effectively lost and the directors will be able to perpetuate
their control of the corporation, though it still represents a
paid-for interest in the property of the corporation. The
foregoing essential features of a treasury stock are lacking
in the questioned shares. Thus, (a) under paragraph 4(c) of
the trust agreement, the trustees were authorized to vote
all stock standing in their names x x x; (b) under paragraph
4(d), Any and all dividends paid on said shares after the
death of the OWNER shall be subject to the provisions of
this Agreement; (c) under paragraph 5(b) the amount of
retained earnings to be declared as dividends was made
subject to the approval of the trustees of the 24,700
shares; x x x. The manifest intention of the parties to the
trust agreement was, in sum and substance, to treat the
24,700 shares of Reese as absolutely outstanding shares of
Reeses estate until they were fully paid.
Same; Same; A stock dividend cannot be declared out of
outstanding stock in the guise of treasury stock dividend,
but only from retained earnings.Such being the true
nature of the 24,700 shares, their declaration as treasury
stock dividend in 1958 was a complete nullity and plainly
violative of public policy. A stock dividend, being one
payable in capital stock, cannot be declared out of
outstanding corporate stock, but only from retained
earnings.
Gamboa vs. Teves, 652 SCRA 690, G.R. No. 176579
June 28, 2011
Corporation Law; Words and Phrases; Capital; The term
capital in Section 11, Article XII of the Constitution refers
only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock
comprising both common and non-voting preferred
shares.We agree with petitioner and petitioners-in-
intervention. The term capital in Section 11, Article XII of
the Constitution refers only to shares of stock entitled to
vote in the election of directors, and thus in the present
case only to common shares, and not to the total
outstanding capital stock comprising both common and
non-voting preferred shares.
Same; Capital; Common shares cannot be deprived of the
right to vote in any corporate meeting, and any provision in
the articles of incorporation restricting the right of common
shareholders to vote is invalid.Indisputably, one of the
rights of a stockholder is the right to participate in the
control or management of the corporation. This is exercised
through his vote in the election of directors because it is
the board of directors that controls or manages the
corporation. In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares,
preferred shares have the same voting rights as common
shares. However, preferred shareholders are often excluded
from any control, that is, deprived of the right to vote in
the election of directors and on other matters, on the
theory that the preferred shareholders are merely investors
in the corporation for income in the same manner as
bondholders. In fact, under the Corporation Code only
preferred or redeemable shares can be deprived of the
right to vote. Common shares cannot be deprived of the
right to vote in any corporate meeting, and any provision in
the articles of incorporation restricting the right of common
shareholders to vote is invalid.
Same; Same; The term capital in Section 11, Article XII of
the Constitution refers only to shares of stock that can vote
in the election of directors.Considering that common
shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting
rights, the term capital in Section 11, Article XII of the
Constitution refers only to common shares. However, if the
preferred shares also have the right to vote in the election
of directors, then the term capital shall include such
preferred shares because the right to participate in the
control or management of the corporation is exercised
through the right to vote in the election of directors. In
short, the term capital in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in
the election of directors.
Same; Same; The term capital in Section 11, Article XII of
the Constitution to include both voting and non-voting
shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a
clear abdication of the States constitutional duty to limit
control of public utilities to Filipino citizens; The Court
should never open to foreign control what the Constitution
has expressly reserved to Filipinos for that would be a
betrayal of the Constitution and of the national interest.
Indisputably, construing the term capital in Section 11,
Article XII of the Constitution to include both voting and
non-voting shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a
clear abdication of the States constitutional duty to limit
control of public utilities to Filipino citizens. Such an
interpretation certainly runs counter to the constitutional
provision reserving certain areas of investment to Filipino
citizens, such as the exploitation of natural resources as
well as the ownership of land, educational institutions and
advertising businesses. The Court should never open to
foreign control what the Constitution has expressly
reserved to Filipinos for that would be a betrayal of the
Constitution and of the national interest. The Court must
perform its solemn duty to defend and uphold the intent
and letter of the Constitution to ensure, in the words of the
Constitution, a self-reliant and independent national
economy effectively controlled by Filipinos.
Cagayan Fishing Development vs. Sandiko, 65 Phil.
223, No. 43350 December 23, 1937
1.CORPORATIONS; TRANSFER MADE TO A NON-EXISTENT
CORPORATION; JURIDICAL CAPACITY TO ENTER INTO A
CONTRACT.The transfer made by T to the C, F. D. Co,,
Inc., was effected on May 31, 1930 and the actual
incorporation of said company was effected later on
October 22, 1930. In other words, the transfer was made
almost five months before the incorporation of the
company. Unquestionably, a duly organized corporation has
the power to purchase and hold such real property as the
purposes for which such corporation was formed may
permit and for this purpose may enter into such contracts
as may be necessary. But before a corporation may be said
to be lawfully organized, many things have to be done.
Among other things, the law requires the filing of articles of
incorporation. Although there is a presumption that all the
requirements of law have been complied with in the case
before us it can not be denied that the plaintiff was not yet
incorporated when it entered into the contract of sale. The
contract itself referred to the plaintiff as "una sociedad en
vas de incorporacin." It was not even a de facto
corporation at the time. Not being in legal existence then, it
did not possess juridical capacity to enter into the contract.
2.ID. ; ID. ; ID.Corporations are creatures of the law, and
can only come into existence in the manner prescribed by
law. General laws authorizing the formation of corporations
are general offers to any persons who may bring
themselves within their provisions; and if conditions
precedent are prescribed in the statute, or certain acts are
required to be done, they are terms of the offer, and must
be complied with substantially before legal corporate
existence can be acquired. That a corporation should have
a full and complete organization and existence as an entity
before it can enter into any kind' of a contract or transact
any business, would seem to be self-evident.
3.ID. ; ID.; ID.A corporation, until organized, has no life
and, therefore, no faculties. It is, as it were, a child in
ventre sa mere. This is not saying that under no
circumstances may the acts of promoters of a corporation
be ratified by the corporation if and when subsequently
organized. There are, of course, exceptions, but under the
peculiar facts and circumstances of the present case the
doctrine of ratification should not be extended because to
do so would result in injustice or fraud to the candid and
unwary. Cagayan Fishing Development vs. Sandiko, 65 Phil.
223, No. 43350 December 23, 1937
Municipality of Malabang vs. Benito, 27 SCRA 533,
No. L-28113 March 28, 1969
Constitutional law; Municipal corporation; Inquiry into the
legal existence of a municipality reserved to the State; Rule
not applicable where municipal corporation a nullity.An
inquiry into the legal existence of a municipality is reserved
to the State in a proceeding f or quo warranto or other
direct proceeding, and that only in a f ew exceptions may a
private person exercise this function of government. But
the rule disallowing collateral attacks applies only where
the municipal corporation is at least a de facto corporation.
For where it is neither a corporation de jure nor de facto,
but a nullity, the rule is that its existence may be
questioned collaterally or directly in any action or
proceeding by any one whose rights or interests are
affected thereby, including the citizens of the territory
incorporated unless they are estopped by their conduct
from doing so.
Same; Same; Where municipal corporation cannot be
considered a de facto corporation.In the cases where a
de facto municipal corporation was recognized as such
despite the fact that the statute creating it was later
invalidated, the decisions could fairly be made to rest on
the consideration that there was some other valid law
giving corporate vitality to the organization. Hence, in the
case ac bar, the mere fact that Balabagan was organized at
a time when the statute had not been invalidated cannot
conceivably make it a de facto corporation, as,
independently of the Administrative Code provision in
question, there is no other valid statute to give color of
authority to its creation.
Same; Unconstitutional act not a law.An unconstitutional
act is not a law; it confers no right; it imposes no duties; it
affords no protection; it creates no off ice; it is, in legal
contemplation, as inoperative as though it had never been
passed.
Hall vs. Piccio, 86 Phil. 603, No. L-2598 June 29,
1950
1.CORPORATION "DE FACTO"; DISSOLUTION BY SUIT OF
STOCKHOLDERS; JURISDICTION OF COURT.An entity
whose certificate of incorporation had not been obtained
may be terminated in a private suit for its dissolution
between stockholders, without 'the intervention of the
state. The question as to the right of minority stockholders
to sue for dissolution does not affect the court's jurisdiction,
and is a matter for decision by the judge, subject to review
on appeal by the aggrieved party at the proper time.
2.ID.; RIGHTS OF.Persons acting as corporation may not
claim rights of "de facto" corporation if they have not
obtained certificate of incorporation. Hall vs. Piccio, 86 Phil.
603, No. L-2598 June 29, 1950
Lozano vs. De los Santos, 274 SCRA 452, G.R. No.
125221 June 19, 1997
Securities and Exchange Commission; Jurisdiction; The
jurisdiction of the Securities and Exchange Commission is
determined by a concurrence of two elements: (1) the
status or relationship of the parties; and (2) the nature of
the question that is the subject of their controversy.The
grant of jurisdiction to the SEC must be viewed in the light
of its nature and function under the law. This jurisdiction is
determined by a concurrence of two elements: (1) the
status or relationship of the parties; and (2) the nature of
the question that is the subject of their controversy.
Same; Same; The principal function of the Securities and
Exchange Commission is the supervision and control of
corporations, partnerships and associations with the end in
view that investments in these entities may be encouraged
and protected, and their activities pursued for the
promotion of economic development.The first element
requires that the controversy must arise out of
intracorporate or partnership relations between and among
stockholders, members, or associates; between any or all
of them and the corporation, partnership or association of
which they are stockholders, members or associates,
respectively; and between such corporation, partnership or
association and the State in so far as it concerns their
individual franchises. The second element requires that the
dispute among the parties be intrinsically connected with
the regulation of the corporation, partnership or association
or deal with the internal affairs of the corporation,
partnership or association. After all, the principal function of
the SEC is the supervision and control of corporations,
partnerships and associations with the end in view that
investments in these entities may be encouraged and
protected, and their activities pursued for the promotion of
economic development.
Same; Same; There is no intracorporate nor partnership
relation between two jeepney drivers and operators
associations whose plan to consolidate into a single
common association is still a proposalconsolidation
becomes effective not upon mere agreement of the
members but only upon issuance of the certificate of
consolidation by the SEC.There is no intracorporate nor
partnership relation between petitioner and private
respondent. The controversy between them arose out of
their plan to consolidate their respective jeepney drivers
and operators associations into a single common
association. This unified association was, however, still a
proposal. It had not been approved by the SEC, neither had
its officers and members submitted their articles of
consolidation in accordance with Sections 78 and 79 of the
Corporation Code. Consolidation becomes effective not
upon mere agreement of the members but only upon
issuance of the certificate of consolidation by the SEC.
When the SEC, upon processing and examining the articles
of consolidation, is satisfied that the consolidation of the
corporations is not inconsistent with the provisions of the
Corporation Code and existing laws, it issues a certificate of
consolidation which makes the reorganization official. The
new consolidated corporation comes into existence and the
constituent corporations dissolve and cease to exist.
Same; Same; The SEC has no jurisdiction over a dispute
between members of separate and distinct associations.
The KAMAJ-DA and SAMAJODA to which petitioner and
private respondent belong are duly registered with the SEC,
but these associations are two separate entities. The
dispute between petitioner and private respondent is not
within the KAMAJDA nor the SAMAJODA. It is between
members of separate and distinct associations. Petitioner
and private respondent have no intracorporate relation
much less do they have an intracorporate dispute. The SEC
therefore has no jurisdiction over the complaint.
Same; Same; Corporation Law; Doctrine of Corporation by
Estoppel; The doctrine of corporation by estoppel cannot
override jurisdictional requirementsjurisdiction is fixed by
law and cannot be acquired through or waived, enlarged or
diminished by, any act or omission of the parties, and
neither can it be conferred by the acquiescence of the
court.The doctrine of corporation by estoppel advanced
by private respondent cannot override jurisdictional
requirements. Jurisdiction is fixed by law and is not subject
to the agreement of the parties. It cannot be acquired
through or waived, enlarged or diminished by, any act or
omission of the parties, neither can it be conferred by the
acquiescence of the court.
Same; Same; Same; Same; Equity; Corporation by estoppel
is founded on principles of equity and is designed to
prevent injustice and unfairness, and where there is no
third person involved and the conflict arises only among
those assuming the form of a corporation, who know that it
has not been registered, there is no corporation by
estoppel.Corporation by estoppel is founded on principles
of equity and is designed to prevent injustice and
unfairness. It applies when persons assume to form a
corporation and exercise corporate functions and enter into
business relations with third persons. Where there is no
third person involved and the conflict arises only among
those assuming the form of a corporation, who therefore
know that it has not been registered, there is no
corporation by estoppel. Lozano vs. De los Santos, 274
SCRA 452, G.R. No. 125221 June 19, 1997
Albert vs. University Publishing Co., Inc., 13 SCRA
84, No. L-19118 January 30, 1965
Corporations; Principle of corporation by estoppel; Not
invokable by one who misrepresented corporation as duly
organized against his victim.One who has induced
another to act upon his wilful misrepresentation that a
corporation was duly organized and existing under the law,
cannot thereafter set up against his victim the principle of
corporation by estoppel.
Same; Person acting for corporation with no valid existence
is personally liable for contracts entered into as such
agent.A person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such
agent.
Parties to Action; Suit against corporation with no valid
existence; Real defendant is person who has control of its
proceedings.In a suit against a corporation with no valid
existence the person who had and exercised the rights to
control the proceedings, to make defense, to adduce and
cross-examine witnesses, and to appeal from a decision, is
the real defendant, and .the enforcement of a judgment
against the corporation upon him is substantial observance
of due process of law.
Vda. de Salvatierra vs. Hon. Garlitos etc, and
Refuerzo, 103 Phil. 757, No. L-11442 May 23, 1958
2.CORPORATION LAW; LlABILITY OF PERSON DEALING
WITH ASSOCIATION AS A CORPORATE BODY; WHEN
ESTOPPEL MAY NOT BE INVOKED.While as a general
rule, a person who deals with an association in such a way
to recognize its existence as a corporate body is estopped
from denying the same in an action arising out of such
transaction, yet this doctrine may not be held to be
applicable where fraud takes a part in the said transaction.
In the instant case, on plaintiff's charge that she was
unaware of the fact that the defendant corporation had no
juridical personality, its president gave no confirmation or
denial of the same and the circumstance surrounding the
execution of the contract lead to the inescapable conclusion
that plaintiff was really made to believe that such
corporation was duly organized in accordance with law.
3.ID.; LIABILITY OF MEMBERS WHO ACT AS AGENTS OF
AN UNINCORPORATED ASSOCIATION.A corporation
when registered has a juridical personality separate and
distinct from its component members or stockholders and
officers, such that a corporation cannot be held liable for
the personal indebtedness of a stockholder even if he
should be its president (Walter A. Smith Co. vs. Ford, SC-G.
R. No. 42420) and conversely, a stockholder cannot be held
personally liable for any financial obligation by the
corporation in excess of his unpaid subscription. But this
rule is understood to refer merely to registered corporations
and cannot be made applicable to the liability of members
of an unincorporated association. The reason behind this
doctrine is obviousan unincorporated association has no
personality and would be incompetent to act and
appropriate for itself the power and attributes of a
corporation as provided by law, it cannot create agents or
confer authority on another to act in its behalf; thus, those
who act or purport to act as its representatives or agents
do so without authority and at their own risk. And as it is
an elementary principle of law that a person who acts as an
agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and
subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for
other acts performed as such agent (Fay vs. Noble, 7
Cushing [Mass.] 188. Cited in II Tolentino's Commercial
Laws of the Philippines, Fifth Ed., p. 689-690). Vda. de
Salvatierra vs. Hon. Garlitos etc, and Refuerzo, 103 Phil.
757, No. L-11442 May 23, 1958
Chiang Kai Shek School vs. Court of Appeals, 172
SCRA 389, G.R. No. 58028 April 18, 1989
Same; Same; Estoppel; Having contracted with respondent
every year for 32 years and respondent itself is possessed
of juridical personality, it is now estopped from denying
such personality to defeat respondents claim.There
should also be no question that having contracted with the
private respondent every year for thirty two years and thus
represented itself as possessed of juridical personality to do
so, the petitioner is now estopped from denying such
personality to defeat her claim against it. According to
Article 1431 of the Civil Code, through estoppel an
admission or representation is rendered conclusive upon
the person making it and cannot be denied or disproved as
against the person relying on it.
Same; Same; Same; As the school may be sued in its own
name, there is no need to apply Sec. 15 of Rule 3 under
which persons joined in an association without any juridical
personality may be sued with such association.As the
school itself may be sued in its own name, there is no need
to apply Rule 3, Section 15, under which the persons joined
in an association without any juridical personality may be
sued with such association. Besides, it has been shown that
the individual members of the board of trustees are not
liable, having been appointed only after the private
respondents dismissal.
Asia Banking Corporation vs. Standard Products Co.,
46 Phil. 144, No. 22106 September 11, 1924
1.CORPORATION; CORPORATE EXISTENCE, ESTOPPEL
FROM DENYING.In the absence of fraud, a person who
has contracted or dealt with an association in such a way
as to recognize and in effect admit its legal existence as a
corporate body is thereby estopped to deny its corporate
existence in an action leading out of or involving such
contract or dealing, unless the existence is attacked for
causes which have arisen since making the contract or
other dealing relied on as an estoppel.
International Express Travel & Tour Services, Inc.
vs. Court of Appeals, 343 SCRA 674, G.R. No.
119020 October 19, 2000
Corporation Law; National Sports Associations; Statutes;
R.A. 3135 and P.D. No. 604 recognized the juridical
existence of national sports associations.As correctly
observed by the appellate court, both R.A. 3135 and P.D.
No. 604 recognized the juridical existence of national sports
associations. This may be gleaned from the powers and
functions granted to these associations.
Same; Same; The powers and functions granted to national
sports associations clearly indicate that these entities may
acquire a juridical personality.The above powers and
functions granted to national sports associations clearly
indicate that these entities may acquire a juridical
personality. The power to purchase, sell, lease and
encumber property are acts which may only be done by
persons, whether natural or artificial, with juridical capacity.
However, while we agree with the appellate court that
national sports associations may be accorded corporate
status, such does not automatically take place by the mere
passage of these laws.
Same; Same; Philippine Football Association; It is a basic
postulate that before a corporation may acquire juridical
personality, the State must give its consent either in the
form of a special law or a general enabling act; The Court
cannot agree with the view of the Court of Appeals that the
Philippine Football Association came into existence upon
the passage of RA. 3135 or P.D. 604.It is a basic
postulate that before a corporation may acquire juridical
personality, the State must give its consent either in the
form of a special law or a general enabling act. We cannot
agree with the view of the appellate court and the private
respondent that the Philippine Football Federation came
into existence upon the passage of these laws. Nowhere
can it be found in R.A. 3135 or P.D. 604 any provision
creating the Philippine Football Federation. These laws
merely recognized the existence of national sports
associations and provided the manner by which these
entities may acquire juridical personality.
Same; Same; Same; The statutory provisions require that
before an entity may be considered as a national sports
association, such entity must be recognized by the
accrediting organization, the Philippine Amateur Athletic
Federation under R.A. 3135, and the Department of Youth
and Sports Development under P.D. 604.Clearly the
above cited provisions require that before an entity may be
considered as a national sports association, such entity
must be recognized by the accrediting organization, the
Philippine Amateur Athletic Federation under R.A. 3135,
and the Department of Youth and Sports Development
under P.D. 604. This fact of recognition, however, Henri
Kahn failed to substantiate. In attempting to prove the
juridical existence of the Federation, Henri Kahn attached
to his motion for reconsideration before the trial court a
copy of the constitution and by-laws of the Philippine
Football Federation. Unfortunately, the same does not
prove that said Federation has indeed been recognized and
accredited by either the Philippine Amateur Athletic
Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine
Football Federation is not a national sports association
within the purview of the aforementioned laws and does
not have a corporate existence of its own.
Same; It is a settled principle in corporation law that any
person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for
contracts entered into or for such other acts performed as
such agent.This being said, it follows that private
respondent Henry Kahn should be held liable for the unpaid
obligations of the unincorporated Philippine Football
Federation. It is a settled principle in corporation law that
any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such
agent. As president of the Federation, Henri Kahn is
presumed to have known about the corporate existence or
non-existence of the Federation. We cannot subscribe to
the position taken by the appellate court that even
assuming that the Federation was defectively incorporated,
the petitioner cannot deny the corporate existence of the
Federation because it had contracted and dealt with the
Federation in such a manner as to recognize and in effect
admit its existence.
Same; Doctrine of Corporation by Estoppel; The doctrine of
corporation by estoppel applies to a third party only when
he tries to escape liability on a contract from which he has
benefited on the irrelevant ground of defective
incorporation.The doctrine of corporation by estoppel is
mistakenly applied by the respondent court to the
petitioner. The application of the doctrine applies to a third
party only when he tries to escape liability on a contract
from which he has benefited on the irrelevant ground of
defective incorporation. In the case at bar, the petitioner is
not trying to escape liability from the contract but rather is
the one claiming from the contract. International Express
Travel & Tour Services, Inc. vs. Court of Appeals, 343 SCRA
674, G.R. No. 119020 October 19, 2000
Georg Grotjahn GMBH & Co. vs. Isnani, 235 SCRA
216, G.R. No. 109272 August 10, 1994
Same; Foreign Corporations; Parties; Doing business in
the Philippines; A foreign corporation performing acts
pursuant to its primary purpose and functions as
regional/area headquarters for its home office is clearly
doing business in the country.The trial court erred in
holding that petitioner does not have capacity to sue in the
Philippines. It is clear that petitioner is a foreign corporation
doing business in the Philippines. Petitioner is covered by
the Omnibus Investment Code of 1987. There is no general
rule or governing principle as to what constitutes doing or
engaging in or transacting business in the Philip-pines.
Each case must be judged in the light of its peculiar
circumstances. In the case at bench, petitioner does not
engage in commercial dealings or activities in the country
because it is precluded from doing so by P.D. No. 218,
under which it was established. Nonetheless, it has been
continuously, since 1983, acting as a supervision,
communications and coordination center for its home
offices affiliates in Singapore, and in the process has
named its local agent and has employed Philippine
nationals like private respondent Romana Lanchinebre.
From this uninterrupted performance by petitioner of acts
pursuant to its primary purposes and functions as a
regional/area headquarters for its home office, it is clear
that petitioner is doing business in the country.
Same; Same; Same; Estoppel; A party is estopped to
challenge the personality of a corporation after having
acknowledged the same by entering into a contract with
it.Moreover, private respondents are estopped from
assailing the personality of petitioner. So we held in Merrill
Lynch Futures, Inc. vs. Court of Appeals, 211 SCRA 824,
837, (1992): The rule is that a party is estopped to
challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it.
And the doctrine of estoppel to deny corporate existence
applies to foreign as well as to domestic corporations; one
who has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its corporate existence
and capacity. The principle will be applied to prevent a
person contracting with a foreign corporation from later
taking advantage of its noncompliance with the statutes
chiefly in cases where such person has received the
benefits of the contract, x x x. (Citations omitted.)
The Corporate Entity Theory
Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347,
No. L-31061 August 17, 1976
Corporation law; Actions; Absent any showing of interest a
corporation has no personality to bring an action to recover
property belonging to its members or stockholders in their
personal capacities.It has not been claimed that the
members have assigned or transferred whatever rights they
may have on the land in question to the plaintiff-
corporation. Absent any showing of interest, therefore, a
corporation, like plaintiff-appellant herein, has no
personality to bring an action for and in behalf of its
stockholders or members for the purpose of recovering
property which belongs to said stockholders or members in
their personal capacities.
Caram, Jr. vs. Court of Appeals, 151 SCRA 372, No.
L-48627 June 30, 1987
Corporation Law; A bona fide corporation should alone be
liable for its corporate acts duly authorized by its officers
and directors.Significantly, there was no showing that the
Filipinas Orient Airways was a fictitious corporation and did
not have a separate juridical personality, to justify making
the petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide corporation,
the Filipinas Orient Airways should alone be liable for its
corporate acts as duly authorized by its officers and
directors.
Same; Contracts; Liability of stockholders; Petitioners
cannot be held personally liable for the compensation
claimed by private respondent for services performed by
him in the organization of the corporation since petitioners
did not contract such services.In the light of these
circumstances, we hold that the petitioners cannot be held
personally liable for the compensation claimed by the
private respondent for the services performed by him in the
organization of the corporation. To repeat, the petitioners
did not contract such services, It was only the results of
such services that Barretto and Garcia presented to them
and which persuaded them to invest in the proposed
airline. The most that can be said is that they benefited
from such services, but that surely is no justification to hold
them personally liable therefor. Otherwise, all the other
stockholders of the corporation, including those who came
in later, and regardless of the amount of their
shareholdings, would be equally and personally liable also
with the petitioners for the claims of the private
respondent. Caram, Jr. vs. Court of Appeals, 151 SCRA 372,
No. L-48627 June 30, 1987
Rustan Pulp & Paper Mills, Inc. vs. IAC, 214 SCRA
665, G.R. No. 70789 October 19, 1992
Civil Law; Obligations and Contracts; It is a truism in legal
jurisprudence that a condition which is both potestative (or
facultative) and resolutory may be valid even though the
saving clause is left to the will of the obligor.A purely
potestative imposition of this character must be obliterated
from the face of the contract without affecting the rest of
the stipulations considering that the condition relates to the
fulfillment of an already existing obligation and not to its
inception (Civil Code Annotated, by Padilla, 1987 Edition,
Volume 4, Page 160). It is, of course, a truism in legal
jurisprudence that a condition which is both potestative (or
facultative) and resolutory may be valid, even though the
saving clause is left to the will of the obligor.
Corporation Law; The President and Manager of a
corporation who entered into and signed a contract in his
official capacity cannot be made liable thereunder in his
individual capacity in the absence of stipulation to that
effect due to the personality of the corporation being
separate and distinct from the persons composing it.We
have to agree with petitioners citation of authority to the
effect that the President and Manager of a corporation who
entered into and signed a contract in his official capacity,
cannot be made liable thereunder in his individual capacity
in the absence of stipulation to that effect due to the
personality of the corporation being separate and distinct
from the persons composing it (Banque Generale Belge vs.
Walter Bull and Co., Inc., 84 Phil. 164). And because of this
precept, Vergaras supposed non-participation in the
contract of sale although he signed the letter dated
September 30, 1968 is completely immaterial. The two
exceptions contemplated by Article 1897 of the New Civil
Code where agents are directly responsible are absent and
wanting. Rustan Pulp & Paper Mills, Inc. vs. IAC, 214 SCRA
665, G.R. No. 70789 October 19, 1992
Cruz vs. Dalisay, 152 SCRA 482, Adm. Matter No. R-
181-P July 31, 1987
Same; Same; Same; Same; Same; Commercial Law;
Corporation Piercing the veil of corporate entity; A
corporation has a personality distinct and separate from its
individual stockholders or members; Sheriff usurped a
power that belonged to the court when he chose to "pierce
the veil of corporate entity.The tenor of the NLRC
judgment and the implementing writ is clear enough. It
directed Qualitrans Limousine Service, Inc. to reinstate the
discharged employees and pay them full backwages.
Respondent, however, chose to "pierce the veil of corporate
entity" usurping a power belonging to the court and
assumed improvidently that since the complainant is the
owner/president of Qualitrans Limousine Service, Inc., they
are one and the same. It is a well-settled doctrine both
in law and in equity that as a legal entity, a
corporation has a personality distinct and separate
from its individual stockholders or members. The
mere fact that one is president of a corporation does
not render the property he owns or possesses the
property of the corporation, since the president, as
individual, and the corporation are separate entities.
Palay, Inc. vs. Clave, 124 SCRA 638, September 21,
1983
Same; Corporation Law; General rule that a corporation
may not be made to answer for acts or liabilities of its
stockholders or those of legal entities to which it may be
connected and vice versa; Exceptions to rule that veil of
corporate fiction may not be pierced.It is basic that a
Corporation is invested by law with a personality separate
and distinct from those of the persons composing it as well
as from that of any other legal entity to which it may be
related. As a general rule, a corporation may not be made
to answer for acts or liabilities of its stockholders or those
of the legal entities to which it may be connected and vice
versa. However, the veil of corporate fiction may be pierced
when it is used as a shield to further an end subversive of
justice; or for purposes that could not have been intended
by the law that created it; or to defeat public convenience,
justify wrong, protect fraud, or defend crime; or to
perpetuate fraud or confuse legitimate issues; or to
circumvent the law or perpetuate deception; or as an alter
ego, adjunct or business conduit for the sole benefit of the
stockholders.
Same; Same; Absence of badges of fraud of subdivision
owner when it rescinded a contract to sell extrajudicially
and sold the property to a third person.We find no
badges of fraud on petitioners part. They had literally
relied, albeit mistakenly, on paragraph 6 (supra) of its
contract with private respondent when it rescinded the
contract to sell extrajudicially and had sold it to a third
person.
Same; Same; President of real estate corporation cannot be
held personally liable where he appears to be controlling
stockholder absent sufficient proof that he used the
corporation to defraud defaulting lot buyer; Mere ownership
by a single stockholder or by another corporation of all or
nearly all capital stock of corporation not sufficient ground
for disregarding corporate personality; Case at bar.In this
case, petitioner Onstott was made liable because he was
then the President of the corporation and he appeared to
be the controlling stockholder. No sufficient proof exists on
record that said petitioner used the corporation to defraud
private respondent. He cannot, therefore, be made
personally liable just because he appears to be the
controlling stockholder. Mere ownership by a single
stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality.
Palay, Inc. vs. Clave, 124 SCRA 638, September 21, 1983
Soriano vs. Court of Appeals, 174 SCRA 195, G.R.
No. 49834 June 22, 1989
Corporation Law; Liability of Officers for Corporate Debts;
Piercing the Veil of Corporate Fiction; The protective mantle
of a corporations separate and distinct personality can only
be pierced and liability attached directly to its officers when
the same is used for fraudulent, unfair and illegal
purpose.In the light of the foregoing, it is clear that the
liability of the petitioners under the document subject of
the instant case, is not personal but corporate, and
therefore attached to the Bacarra (I.N.) FaCoMa, Inc.
which, being a corporation, has a personality distinct and
separate from that of the petitioners who are only its
officers. It is the general rule that the protective mantle of
a corporations separate and distinct personality could only
be pierced and liability attached directly to its officers
and/or members-stock-holders, when the same is used for
fraudulent, unfair, or illegal purpose. In the case at bar,
there is no showing that the Association entered into the
transaction with the private respondent for the purpose of
defrauding the latter of his goods or the payment thereof.
More importantly, there is no proof whatsoever that the
majority of the directors used the distinct and separate
personality of Bacarra (I.N.) FaCoMa, Inc. as a protective
shield for any wrongdoing. Therefore, the general rule on
corporate liability, not the exception, should be applied in
resolving this case. Consequently, the private respondents
cause of action lies against the Bacarra (I.N.) FaCoMa, Inc.,
and not against the petitioners.
Civil Law; Obligations and Contracts; Joint and Solidary
Obligations; An obligation is presumed joint and not
solidary.In view of this ruling, there is no need to discuss
the other issues raised by the petitioners. Suffice it to state
that under the law and well-established jurisprudence, an
obligation is presumed joint and not solidary. There is
nothing in the receipt, constituting the agreement of the
parties, which would sufficiently indicate that the
petitioners bound themselves solidarity, if they bound
themselves personally at all. Soriano vs. Court of Appeals,
174 SCRA 195, G.R. No. 49834 June 22, 1989
Soriano vs. Court of Appeals, 174 SCRA 195, G.R.
No. 49834 June 22, 1989
Corporation Law; Liability of Officers for Corporate Debts;
Piercing the Veil of Corporate Fiction; The protective mantle
of a corporations separate and distinct personality can only
be pierced and liability attached directly to its officers when
the same is used for fraudulent, unfair and illegal
purpose.In the light of the foregoing, it is clear that the
liability of the petitioners under the document subject of
the instant case, is not personal but corporate, and
therefore attached to the Bacarra (I.N.) FaCoMa, Inc.
which, being a corporation, has a personality distinct and
separate from that of the petitioners who are only its
officers. It is the general rule that the protective mantle of
a corporations separate and distinct personality could only
be pierced and liability attached directly to its officers
and/or members-stock-holders, when the same is used for
fraudulent, unfair, or illegal purpose. In the case at bar,
there is no showing that the Association entered into the
transaction with the private respondent for the purpose of
defrauding the latter of his goods or the payment thereof.
More importantly, there is no proof whatsoever that the
majority of the directors used the distinct and separate
personality of Bacarra (I.N.) FaCoMa, Inc. as a protective
shield for any wrongdoing. Therefore, the general rule on
corporate liability, not the exception, should be applied in
resolving this case. Consequently, the private respondents
cause of action lies against the Bacarra (I.N.) FaCoMa, Inc.,
and not against the petitioners.
Civil Law; Obligations and Contracts; Joint and Solidary
Obligations; An obligation is presumed joint and not
solidary.In view of this ruling, there is no need to discuss
the other issues raised by the petitioners. Suffice it to state
that under the law and well-established jurisprudence, an
obligation is presumed joint and not solidary. There is
nothing in the receipt, constituting the agreement of the
parties, which would sufficiently indicate that the
petitioners bound themselves solidarity, if they bound
themselves personally at all. Soriano vs. Court of Appeals,
174 SCRA 195, G.R. No. 49834 June 22, 1989
Piercing the Veil of Corporate Fiction When
Justified
Palacio vs. Fely Transportation Company, 5 SCRA
1011, No. L-15121 August 31, 1962
Corporations; Subsidiary Civil Liability for Damages; Fiction
of corporate entity not to be used to evade liability.Where
the main purpose in forming the corporation was to evade
one's subsidiary liability for damages, in a criminal case, the
corporation may not be heard to say that it has a
personality separate and distinct from its members,
because to allow it to do so would be to sanction the use of
the fiction of corporate entity as a shield to further an end
subversive of justice. (La Campana Coffee Factory, et al.
vs.Kaisahan ng mga Manggagawa, etc., et al., L-5677, May
25, 1953). The Supreme Court can even substitute the real
party in interest in place of the defendant corporation in
order to avoid multiplicity of suits and thereby save the
parties unnecessary expenses and delay (Alonso
vs.Villamor, 16 Phil. 315). Palacio vs. Fely Transportation
Company, 5 SCRA 1011, No. L-15121 August 31, 1962
Marvel Building Corporation, et al. vs. David, 94 Phil.
376, No. L-5081 February 24, 1954
CORPORATIONS; CIRCUMSTANTIAL EVIDENCE SHOWING
ONE-MAN CORPORATION.The existence of endorsed
certificates discovered by internal revenue agents between
1948 and 1949 in the possession of the Secretary-Treasurer
of a supposed corporation; the fact that twenty-five
certificates were signed by its president for no justifiable
reason; the fact that two sets of certificates were issued;
the undisputed fact that its principal stockholder had made
enormous profits and, therefore, had a motive to hide them
to evade the payment of taxes; the fact that the other
subscribers had no incomes of sufficient magnitude to
justify their big subscriptions; the fact that the subscriptions
were not receipted for and deposited by the treasurer in
the name of the alleged corporation but were kept by the
principal stockholder herself; the fact that the stockholders
or the directors never appeared to have ever met to discuss
the business of the corporation; the fact that she advanced
big sums of money to the corporation without any previous
arrangement or accounting; and the fact that the books of
accounts were kept as if they belonged to her aloneare
circumstantial evidence which are not only convincing but
conclusive that she is the sole and exclusive owner of all
the shares of stock of the corporation and that the other
partners are her dummies. Marvel Building Corporation, et
al. vs. David, 94 Phil. 376, No. L-5081 February 24, 1954
Yutivo Sons Hardware Co. vs. Court of Tax Appeals,
1 SCRA 160, No. L-13203 January 28, 1961
Corporations; Piercing the veil of corporate fiction.A
corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may
be connected. However, when the notion of legal entity is
used to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation
as an association of persons, or, in the case of two
corporations, merge them into one. When the corporation
is the mere alter ego or business conduit of a person, it
may be disregarded.
Commissioner of Internal Revenue vs. Norton &
Harrison Company, 11 SCRA 714, No. L-17618
August 31, 1964
Corporations; Doctrine of piercing veil of corporate fiction;
Circumstances of case at bar.The circumstances of the
case at bar where: (a) N. corporation owned all the
outstanding stocks of J. corporation: (b) the board of
directors of N corporation is constituted in such a way to
enable it to actual-ly direct and manage the other
corporation's affairs by making the same officers of the
board for both companies: (c) N corporation financed the
operations of the other: (d) N corporation treats the other
employees as its own; (e) Compensation given to board
members of corporation, who are also board members and
or employees of N indicate that J is only a department of N;
and (f) the offices of both corporations are located in the
same compound; all lead to the conclusion that J
corporation is merely an adjunct, business conduit or alter
ego of N corporation and that the fiction of separate and
distinct corporate entities should be disregarded.
Taxation; Corporate fiction may not be used to evade
taxes.The revenue officers, in proper cases, may
disregard the separate corporate entity where it serves but
as a shield for tax evasion.
Same; When sales taxes to be based on sale to the public
and not on intermediate sale to another corpration.
Where it is proven that two corporations are in reality but
one entity and that the veil of corporate fiction is being
used as a shield for tax evasion by making it appear that
the original sale was that from one corporation to the other
in order to gain a tax advantage, it is held that the basis of
the sales tax should be the sale by the latter corporation to
the public. Commissioner of Internal Revenue vs. Norton &
Harrison Company, 11 SCRA 714, No. L-17618 August 31,
1964
la Campana Coffee Factory, Inc., vs. Kaisahan ng
mga Manggagawa sa La Campana (KKM), 93 Phil.,
160, No. L-5677 May 25, 1953
1.Industrial Disputes; Two Factors Operating under One
Management; Effect of One of Them Bieng a Registered
Corporation.C Coffee Factory, Inc., and C Gaugau Packing
are operating as one business though with two trade
names. The owner of the latter is T ; and the former,
though an incorporated business, is in reality owned
exclusively by and his family. The two factories had but one
office, one management and one payroll until July 17, the
day the case was certified to the Court of Industrial
Relations, when the person who was discharging the office
of cashier for both branches of the business began
preparing separate payrolls for the two. And the laborers of
the gaugau factory and the coffee factory were
interchangeable, that is, the laborers from the gaugau
factory were sometimes transferred to the coffee factory
and vice-versa. Held: The attempt to make the two
factories appear as two separate businesses, when in
reality they are but one, is but a device to defeat the ends
of the law (the Act governing capital and labor relations)
and should not be permitted to prevail. Although the coffee
factory is a corporation and, by legal fiction, an entity
existing separate and apart from the persons composing it,
that is, T and his family, it is settled that this fiction of law,
which has been introduced as a matter of convenience and
to subserve the ends of justice cannot be invoked to further
an end subversive of that purpose. (13 Am. Jur., 160-162;
Annotation 1 A. L. R. 612, s. 34 A. L. R. 599.):\
Emilio Cano Enterprises, Inc. vs. Court of Industrial
Relations, 13 SCRA 290, No. L-20502 February 26,
1965
Corporations; Separate legal personality from members
disregarded when used as shield to subvert justice.The
legal fiction that a corporation has a personality separate
and distinct from its members or stockholders cannot be
invoked if its purpose is to use it as a shield to further an
end subversive of justice, especially where the corporation
is a closed family corporation.
Same; Suit against corporate officers in their official
capacity considered as suit against corporation.Where the
defendants are sued not in their private capacity but as
president and manager, respectively, of the corporation of
which they were officers, their connection with the case
must be deemed to be impressed with the representation
of the corporation, and verily, the order against them is in
effect against the corporation. Emilio Cano Enterprises, Inc.
vs. Court of Industrial Relations, 13 SCRA 290, No. L-20502
February 26, 1965
Telephone Engineering & Service Co., Inc. vs. WCC,
104 SCRA 354, No. L-28694 May 13, 1981
Same; Same; Same; Corporation Law; Piercing the veil in
compensation cases.Petitioner even admitted that TESCO
and UMACOR are sister companies operating under one
single management and housed in the same building.
Although respect for the corporate personality as such, is
the general rule, there are exceptions. In appropriate
cases, the veil of corporate fiction may be pierced as when
the same is made as a shield to confuse the legitimate
issues.
Claparols vs. CIR, 65 SCRA 613, No.L-30822 July 31,
1975
Corporation law; Piercing the veil of corporate entity;
Dissolution of corporation and transfer of its assets to
another to avoid financial liability attached to the first
corporation; Case at bar.The second corporation seeks
the protective shield of a corporate fiction whose veil could,
and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its
employees. When the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an
association or persons, or, in the case of two corporations,
will merge them into one. Claparols vs. CIR, 65 SCRA 613,
No.L-30822 July 31, 1975
National Federation of Labor Union (NAFLU) vs.
Ople, 143 SCRA 124, No. L-68661 July 22, 1986
Same; Same; Corporation Law; Piercing the veil of
corporate fiction; When a second corporation seeks the
protective shield of a corporate fiction to achieve an illegal
purpose, the veil of corporate fiction should be pierced.It
is very obvious from the above findings that the second
corporation seeks the protective shield of a corporate
fiction to achieve an illegal purpose. As enunciated in the
case of Claparols v. Court of Industrial Relations (65 SCRA
613) its veil in the present case should, therefore, be
pierced as it was deliberately and maliciously designed to
evade its financial obligations to its employees. It is an
established principle that when the veil of corporate fiction
is made as a shield to perpetrate a fraud or to confuse
legitimate issues (here, the relation of employer-employee),
the same should be pierced (A.D. Santos, Inc. v. Vasquez
22 SCRA 1158).
A.C. Ransom Labor UnionCCLU vs. NLRC, 150 SCRA
498, No. L-69494 May 29, 1987
Labor Law; Insolvency; Corporations; In case of corporate
bankruptcy, wages of laborers must first be paid before
other creditors.The alleged bankruptcy of RANSOM
furnishes no justification for non-payment of backwages to
the employees concerned taking into consideration Article
110 of the Labor Code, which provides: "ART. 110. Worker
preference in case of bankruptcy.In the event of
bankruptcy or liquidation of an employer's business, his
workers shall enjoy first preference as regards wages due
them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shall be paid in full
before other creditors may establish any claim to a share in
the assets of the employer." The term "wages" refers to all
remunerations, earnings and other benefits in terms of
money accruing to the employees or workers for services
rendered. They are to be paid in full before other creditors
may establish any claim to a share in the assets of the
employer.
Same; Same; Clearance to cease operations issued by the
Secretary of Labor to RANSOM was without prejudice to
rights of employees to seek redress, particularly to
backwages ordered paid due to ULP.The Decision of the
CIR was rendered on August 19, 1972. Clearance to
RANSOM to cease operations and terminate employment
granted by the Secretary of Labor was made effective on
May 1, 1973. The right of the employees concerned to
backwages awarded them, therefore, had already vested at
the time and even before clearance was granted. Note
should also be taken of the fact that the clearance was
without prejudice to the right of subject employees to seek
redress of grievances under existing laws and decrees.
Same; Sale of corporate assets cannot prejudice rights of
employees to backwages.The worker preference applies
even if the employer's properties are encumbered by
means of a mortgage contract, as in this case. So that,
when machinery and equipment of RANSOM were sold to
Revelations Manufacturing Corporation for P2M in 1975, the
right of the 22 laborers to be paid from the proceeds
should have been recognized, even though it is claimed
that those proceeds were turned over to the Commercial
Bank and Trust Company (Comtrust) in payment of
RANSOM obligations, since the workers' preference is over
and above the claim of other creditors.
Same; Corporations; Sale of corporate assets to another
corporation organized previously by the same officers as
the vendor and engaged in the same line of business, using
the machineries of the vendor in the same factory, is an
instance where corporate veil should be pierced, vis-a-vis,
claim of laborers for backwages.Aggravating RANSOM's
clear evasion of payment of its financial obligations is the
organization of a "run-away corporation," ROSARIO, in
1969 at the time the unfair labor practice case was pending
before the CIR by the same persons who were the officers
and stockholders of RANSOM, engaged in the same line of
business as RANSOM, producing the same line of -products,
occupying the same compound, using the same
machineries, buildings, laboratory, bodega and sales and
accounts departments used by RANSOM, and which is still
in existence. Both corporations were closed corporations
owned and managed by members of the same family. Its
organization proved to be a convenience instrument to
avoid payment of backwages and the reinstatement of the
22 workers. This is another instance where the fiction of
separate and distinct corporate entities should be
disregarded.
Same; Same; Where sale of assets in fraud of workers, the
buyer corporation shall be required to absorb illegally
dismissed workers, pay their backwages solidarily with its
officers, and pay them separation pay as to those who will
not be absorbed,WHEREFORE, the questioned Decision of
the National Labor Relations Commission is SET ASIDE, and
the Order of Labor Arbiter Tito F. Genilo of March 11, 1980
is reinstated with the modification that Rosario Industrial
Corporation and its officers and agents are hereby held
jointly and severally liable with the surviving private
respondents for the payment of the backwages due the 22
union members. Rosario Industrial Corporation is hereby
ordered to reinstate the 22 union members or, if this is not
possible, to award them separation pay equivalent at least
to one (1) month pay or to one (1) month salary for every
year of service actually rendered by them with A.C. Ransom
(Phils). Corporation, whichever is higher. A.C. Ransom
Labor UnionCCLU vs. NLRC, 150 SCRA 498, No. L-69494
May 29, 1987
Concept Builders, Inc. vs. NLRC, 257 SCRA 149, May
29, 1996
Corporation Law; Doctrine of Piercing the Veil of Corporate
Fiction; The separate and distinct personality of a
corporation is merely a fiction created by law for
convenience and to promote justice; When the notion of
separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime,
or is used as a device to defeat the labor laws, this
separate personality of the corporation may be disregarded
or the veil of corporate fiction pierced.It is a fundamental
principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this
separate and distinct personality of a corporation is merely
a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality
is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat the
labor laws, this separate personality of the corporation may
be disregarded or the veil of corporate fiction pierced. This
is true likewise when the corporation is merely an adjunct,
a business conduit or an alter ego of another corporation.
Same; Same; Some probative factors of identity that will
justify the application of the doctrine of piercing the
corporate veil.The conditions under which the juridical
entity may be disregarded vary according to the peculiar
facts and circumstances of each case. No hard and fast rule
can be accurately laid down, but certainly, there are some
probative factors of identity that will justify the application
of the doctrine of piercing the corporate veil, to wit: 1.
Stock ownership by one or common ownership of both
corporations. 2. Identity of directors and officers. 3. The
manner of keeping corporate books and records. 4.
Methods of conducting the business.
Same; Same; Instrumentality Rule, Explained.The SEC
en banc explained the instrumentality rule which the
courts have applied in disregarding the separate juridical
personality of corporations as follows: Where one
corporation is so organized and controlled and its affairs are
conducted so that it is, in fact, a mere instrumentality or
adjunct of the other, the fiction of the corporate entity of
the instrumentality may be disregarded. The control
necessary to invoke the rule is not majority or even
complete stock control but such domination of finances,
policies and practices that the controlled corporation has,
so to speak, no separate mind, will or existence of its own,
and is but a conduit for its principal. It must be kept in
mind that the control must be shown to have been
exercised at the time the acts complained of took place.
Moreover, the control and breach of duty must proximately
cause the injury or unjust loss for which the complaint is
made.
Same; Same; Test in determining the applicability of the
doctrine of piercing the veil of corporate fiction.The test
in determining the applicability of the doctrine of piercing
the veil of corporate fiction is as follows: 1. Control, not
mere majority or complete stock control, but complete
domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no
separate mind, will or existence of its own; 2. Such control
must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in
contravention of plaintiffs legal rights; and 3. The aforesaid
control and breach of duty must proximately cause the
injury or unjust loss complained of. The absence of any one
of these elements prevents piercing the corporate veil. In
applying the instrumentality or alter ego doctrine, the Collector of Internal Revenue, 2 SCRA 632.)
courts are concerned with reality and not form, with how
the corporation operated and the individual defendants
relationship to that operation.
Same; Same; The question of whether a corporation is a
mere alter ego, a mere sheet or paper corporation, a sham
or a subterfuge is purely one of fact.Thus, the question of
whether a corporation is a mere alter ego, a mere sheet or
paper corporation, a sham or a subterfuge is purely one of
fact.
McConnel vs. Court of Appeals, 1 SCRA 722, No. L-
10510 March 17, 1961
Obligations; Contracts; Corporations; When stockholders
are liable for obligations contracted by the corporation.
Whenever the corporate entity is being used as an alter ego
or business conduit for the sole benefit of the stockholders,
or to defeat public convenience, justify wrong, protect
fraud. or defend crime, the individual stockholders may be
held liable for the obligations contracted by the corporation.
Tan Boon Bee & Co., Inc. vs. Jarencio, 163 SCRA
205, No L-41337 June 30, 1988
Corporations;Doctrine ofpiercing the veil ofcorporate
entity.It is true that a corporation, upon coming into
being, is invested by law with a personality separate and
distinct from that of the persons composing it as well as
from any other legal entity to which it may be related
(Yutivo & Sons Hardware Company vs. Court of Tax
Appeals, 1 SCRA 160 [1961]; and Emilio Cano Enterprises,
Inc. vs. CIR, 13 SCRA 290 [1965]). As a matter of fact, the
doctrine that a corporation is a legal entity distinct and
separate from the members and stockholders who compose
it is recognized and respected in all cases which are within
reason ajid the law (Villa Rey Transit, Inc. vs. Ferrer, 25
SCRA 845 [1968]). However, this separate and distinct
personality is merely a fiction created by law for
convenience and to promote justice (Laguna Transportation
Company vs. SSS, 107 Phil. 833 [1960]). Accordingly, this
separate personality of the corporation may be disregarded,
or the veil of corporate flction pierced, in cases where it is
used as a cloak or cover for fraud or illegality, or to work an
injustice, or where necessary to achieve equity or when
necessary for the protection of creditors (Sulo ng Bayan,
Inc. vs. Araneta, Inc., 72 SCRA 347 |1976]j. Corporations
are composed of natural persons and the legal fiction of a
separate corporate personality is not a shield for the
commission of injustice and inequity (Chenplex, Philippines,
Inc., et al. vs. Hon. Pamatian, et al., 57 SCRA 408 [1974]).
Likewise, this is true when the corporation is merely an
adjunct, business conduit or alter ego of another
corporation.
Cease vs. Court of Appeals, 93 SCRA 483, No. L-
33172 October 18, 1979
Notes.A corporation is an artifical being created by
operation of law; that, it can not refuse to yield obedience
to acts of its state organs, including the judiciary, when
called upon to do so. (Tayag vs. Benguet Consolidated,
Inc., 26 SCRA 242.)
Where a corporation is a dummy and serves no business
purpose and is intended only as a blind, the corporate
fiction may be ignored. (Liddel & Company, Inc. vs.
Where a corporation is merely an adjunct, business conduit
or alter ego of another corporation, the fiction of separate
and distinct corporation entities should be disregarded.
(Commissioner of Internal Revenue vs. Norton & Harrison
Company, 11 SCRA 714.)
The separate legal personality of a corporation from its
members may be disregarded when it is used as a shield to
subvert justice. (Emilio Cano Enterprises, Inc. vs. Court of
Industrial Relations, 13 SCRA 290.)
When the veil of corporate fiction is made as a shield to
perpetuate fraud and/or confuse legitimate issues, the
same should be pierced. (Republic vs. Razon, 20 SCRA 234;
A.D. Santos, Inc. vs. Vasquez, 22 SCRA 1156.)
The petitioners being the controlling stockholders of the
Bank and qualified to represent their interest, a judgment
may be enforced for or against it, although not impleaded
by name in the suit. (Ramos vs. Central Bank of the
Philippines, 41 SCRA 565).
A class suit will not prosper where brought by stockholders
who have determinable, though undivided interest, in the
property in question. (Mathay vs. Consolidated Bank and
Trust Co., 58 SCRA 559).
There is nothing in Section 77 of the Corporation Law which
bars an action for the recovery of debts incurred by the
corporation against the liquidator thereof after the lapse of
the 3 year period for corporate liquidation of assets and
liabilities. (Republic vs. Marsman Development Co., 44
SCRA 418).
If the accuse is a corporation, no criminal action can lie
against it, whether such corporation be a resident or non-
resident corporation, (Time, Inc. vs. Reyes, 39 SCRA 303).
Cease vs. Court of Appeals, 93 SCRA 483, No. L-33172
October 18, 1979
When not Justified
Remo, Jr. vs. Intermediate Appellate Court, 172
SCRA 405, G.R. No. 67626 April 18, 1989
Commercial Law; Corporation; A corporation is an entity
separate and distinct from its stockholders; Corporate
fiction.A corporation is an entity separate and distinct
from its stockholders. While not in fact and in reality a
person, the law treats a corporation as though it were a
person by process of fiction or by regarding it as an
artificial person distinct and separate from its individual
stockholders.
Same; Same; Same; Same; Instances when a corporate
fiction may be disregarded.However, the corporate
fiction or the notion of legal entity may be disregarded
when it is used to defeat public convenience, justify
wrong, protect fraud, or defend crime in which instances
the law will regard the corporation as an association of
persons, or in case of two corporations, will merge them
into one. The corporate fiction may also be disregarded
when it is the mere alter ego or business conduit of a
person. There are many occasions when this Court pierced
the corporate veil because of its use to protect fraud and to
justify wrong. The herein petition for review of a resolution
of the Intermediate Appellate Court dated February 8, 1984
seeking the reversal thereof and the reinstatement of its
earlier decision dated June 30, 1983 in AC-G.R. No. 68496-
R calls for the application of the foregoing principles.
Same; Same; Same; Same; No cogent basis in case at bar
to pierce the corporate veil of the corporation, as there was
no intent to defraud.The environmental facts of this
case show that there is no cogent basis to pierce the
corporate veil of Akron and hold petitioner personally liable
for its obligation to private respondent. While it is true that
in December, 1977 petitioner was still a member of the
board of directors of Akron and that he participated in the
adoption of a resolution authorizing the purchase of 13
trucks for the use in the brokerage business of Akron to be
paid out of a loan to be secured from a lending institution,
it does not appear that said resolution was intended to
defraud anyone and more particularly private respondent.
It was Coprada, President and Chairman of Akron, who
negotiated with said respondent for the purchase of 13
cargo trucks on January 25, 1978. It was Coprada who
signed a promissory note to guarantee the payment of the
unpaid balance of the purchase price out of the proceeds of
a loan he supposedly sought from the DBP. The word WE
in the said promissory note must refer to the corporation
which Coprada represented in the execution of the note
and not its stockholders or directors. Petitioner did not sign
the said promissory note so he cannot be personally bound
thereby.
Same; Same; Same; Same; Same; Alleged sale not
inherently fraudulent, as the cargo trucks were sold
through a deed of absolute sale to the corporation so that
the corporation is free to dispose of the same.As to the
sale through pacto de retro of two units to a third person
by the corporation by virtue of a board resolution,
petitioner asserts that he never signed said resolution. Be
that as it may, the sale is not inherently fraudulent as the
13 units were sold through a deed of absolute sale to Akron
so that the corporation is free to dispose of the same. Of
course, it was stipulated that in case of default in payment
to private respondent of the balance of the consideration, a
chattel mortgage lien shall be constituted on the 13 units.
Nevertheless, said mortgage is a prior lien as against the
pacto de retro sale of the 2 units.
Same; Same; Same; Same; Same; Amendment of articles
of incorporation thereby changing the name of the
corporation is not an indication to evade payment by the
corporation of its obligations to another.As to the
amendment of the articles of incorporation of Akron
thereby changing its name to Akron Transport
International, Inc., petitioner alleges that the change of
corporate name was in order to include trucking and
container yard operations in its customs brokerage of which
private respondent was duly informed in a letter. Indeed,
the new corporation confirmed and assumed the obligation
of the old corporation. There is no indication of an attempt
on the part of Akron to evade payment of its obligation to
private respondent.
Same; Same; Same; Same; Same; A stockholder has an
inherent right to dispose of his shares of stock anytime he
so desires.There is the fact that petitioner sold his
shares in Akron to Coprada during the pendency of the
case. Since petitioner has no personal obligation to private
respondent, it is his inherent right as a stockholder to
dispose of his shares of stock anytime he so desires.
Same; Same; Same; Same; Same; If private respondent is
the victim of fraud, there was no showing that the
corporation had any participation in the perpetration of the
fraud; Fraud must be established by clear and convincing
evidence.Mention is also made of the alleged dumping
of 10 units in the premises of private respondent at
Bagbag, Novaliches which to the mind of the Court does
not prove fraud and instead appears to be an attempt on
the part of Akron to attend to its obligations as regards the
said trucks. Again petitioner has no part in this. If the
private respondent is the victim of fraud in this transaction,
it has not been clearly shown that petitioner had any part
or participation in the perpetration of the same. Fraud must
be established by clear and convincing evidence. If at all,
the principal character on whom fault should be attributed
is Feliciano Coprada, the President of Akron, whom private
respondent dealt with personally all through out.
Fortunately, private respondent obtained a judgment
against him from the trial court and the said judgment has
long been final and executory. Remo, Jr. vs. Intermediate
Appellate Court, 172 SCRA 405, G.R. No. 67626 April 18,
1989
Del Rosario vs. National Labor Relations
Commission, 187 SCRA 777, G.R. No. 85416 July 24,
1990
Corporation Law; A corporation is bestowed judicial
personality separate and distinct from its stockholders;
When the judicial personality of the corporation is used to
defeat public convenience, justify wrong, protect fraud or
defend crime, the corporation shall be considered as mere
association of persons and its responsible officers and/or
stockholders shall be held individually liable.Under the
law a corporation is bestowed juridical personality, separate
and distinct from its stockholders [Civil Code, Art. 44;
Corporation Code, sec. 2]. But when the juridical
personality of the corporation is used to defeat public
convenience, justify wrong, protect fraud or defend crime,
the corporation shall be considered as a mere association of
persons, and its responsible officers and/or stockholders
shall be held individually liable. For the same reasons, a
corporation shall be liable for the obligations of a
stockholder, or a corporation and its successor-in-interest
shall be considered as one and the liability of the former
shall attach to the latter.
Same; Same; Same; To disregard the separate judicial
personality of a corporation, the wrong doing must be
clearly and convincingly established.But for the separate
juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. It
cannot be presumed.
Same; Same; Same; Substantial identity of the
incorporators of the two corporations does not necessarily
imply fraud.Likewise, substantial identity of the
incorporators of the two corporations does not necessarily
imply fraud.
Indophil Textile Mill Workers Union vs. Calica, 205
SCRA 697, G.R. No. 96490 February 3, 1992
Corporation Law; Doctrine of piercing the veil of corporate
entity applies when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud or defend
crime or where a corporation is the mere alter ego or
business conduit of a person.Under the doctrine of
piercing the veil of corporate entity, when valid grounds
therefore exist, the legal fiction that a corporation is an
entity with a juridical personality separate and distinct from
its members or stockholders may be disregarded. In such
cases, the corporation will be considered as a mere
association of persons. The members or stockholders of the
corporation will be considered as the corporation, that is
liability will attach directly to the officers and stockholders.
The doctrine applies when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or
defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere alter
ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
Same; Same; Fact that the businesses of private
respondent and Acrylic are related, that some of the
employees of the private respondent are the same persons
manning and providing for auxilliary services to the units of
Acrylic and that the physical plants, offices and facilities are
situated in the same compound are not sufficient to justify
the piercing of the corporate veil of Acrylic.In the case at
bar, petitioner seeks to pierce the veil of corporate entity of
Acrylic, alleging that the creation of the corporation is a
devise to evade the application of the CBA between
petitioner Union and private respondent Company. While
we do not discount the possibility of the similarities of the
businesses of private respondent and Acrylic, neither are
we inclined to apply the doctrine invoked by petitioner in
granting the relief sought. The fact that the businesses of
private respondent and Acrylic are related, that some of the
employees of the private respondent are the same persons
manning and providing for auxilliary services to the units of
Acrylic, and that the physical plants, offices and facilities
are situated in the same compound, it is our considered
opinion that these facts are not sufficient to justify the
piercing of the corporate veil of Acrylic.
Same; Same; The legal corporate entity is disregarded only
if it is sought to hold the officers and stockholders directly
liable for a corporate debt or obligation.In the same case
of Umali, et al. v. Court of Appeals (supra), We already
emphasized that "the legal corporate entity is disregarded
only if it is sought to hold the officers and stockholders
directly liable for a corporate debt or obligation." In the
instant case petitioner does not seek to impose a claim
against the members of the Acrylic.
Same; Same; Same; It is grave abuse of discretion to treat
two companies as a single bargaining unit when these
companies are indubitably distinct entities with separate
juridical personalities.Furthermore, We already ruled in
the case of Diatagon Labor Federation Local 110 of the
ULGWP v. Ople (supra) that it is grave abuse of discretion
to treat two companies as a single bargaining unit when
these companies are indubitably distinct entities with
separate juridical personalities. Indophil Textile Mill Workers
Union vs. Calica, 205 SCRA 697, G.R. No. 96490 February
3, 1992
Philippine National Bank vs. Ritratto Group, Inc.,
362 SCRA 216, G.R. No. 142616 July 31, 2001
Same; Same; Corporation Law; Doctrine of Piercing the Veil
of Corporate Fiction; The mere fact that a corporation owns
all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity.The
general rule is that as a legal entity, a corporation has a
personality distinct and separate from its individual
stockholders or members, and is not affected by the
personal rights, obligations and transactions of the latter.
The mere fact that a corporation owns all of the stocks of
another corporation, taken alone is not sufficient to justify
their being treated as one entity. If used to perform
legitimate functions, a subsidiarys separate existence may
be respected, and the liability of the parent corporation as
well as the subsidiary will be confined to those arising in
their respective business. The courts may in the exercise of
judicial discretion step in to prevent the abuses of separate
entity privilege and pierce the veil of corporate entity.
Same; Same; Same; Same; The doctrine of piercing the
corporate veil of corporate fiction is an equitable doctrine
developed to address situations where the separate
corporate personality of a corporation is abused or used for
wrongful purposes.In this jurisdiction, we have held that
the doctrine of piercing the corporate veil is an equitable
doctrine developed to address situations where the
separate corporate personality of a corporation is abused or
used for wrongful purposes. The doctrine applies when the
corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or when it is
made as a shield to confuse the legitimate issues, or where
a corporation is the mere alter ego or business conduit of a
person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of
another corporation.
Same; Same; Same; Same; Test in Determining
Applicability of the Doctrine of Piercing the Veil of
Corporate Fiction.In Concept Builders, Inc. v. NLRC, we
have laid the test in determining the applicability of the
doctrine of piercing the veil of corporate fiction, to wit: 1.
Control, not mere majority or complete control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own. 2. Such
control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or
other positive legal duty, or dishonest and, unjust act in
contravention of plaintiffs legal rights; and, 3. The
aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of. The absence
of any one of these elements prevents piercing the
corporate veil. In applying the instrumentality or alter
ego doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the individual
defendants relationship to the operation.
Pacific Rehouse Corporation vs. Court of Appeals,
719 SCRA 665, G.R. No. 201537 March 24, 2014
Same; Same; Jurisdiction; Piercing the Veil of Corporate
Fiction; The Supreme Court already ruled in Kukan
International Corporation v. Reyes, 631 SCRA 596 (2010),
that compliance with the recognized modes of acquisition of
jurisdiction cannot be dispensed with even in piercing the
veil of corporate fiction.The Court already ruled in Kukan
International Corporation v. Reyes, 631 SCRA 596 (2010),
that compliance with the recognized modes of acquisition of
jurisdiction cannot be dispensed with even in piercing the
veil of corporate fiction, to wit: The principle of piercing the
veil of corporate fiction, and the resulting treatment of two
related corporations as one and the same juridical person
with respect to a given transaction, is basically applied only
to determine established liability; it is not available to
confer on the court a jurisdiction it has not acquired, in the
first place, over a party not impleaded in a case. Elsewise
put, a corporation not impleaded in a suit cannot be subject
to the courts process of piercing the veil of its corporate
fiction. In that situation, the court has not acquired
jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property
would infringe on its right to due process. Aguedo
Agbayani, a recognized authority on Commercial Law,
stated as much: 23. Piercing the veil of corporate entity
applies to determination of liability not of jurisdiction. x x x
This is so because the doctrine of piercing the veil of
corporate fiction comes to play only during the trial of the
case after the court has already acquired jurisdiction over
the corporation. Hence, before this doctrine can be applied,
based on the evidence presented, it is imperative that the
court must first have jurisdiction over the corporation.
Same; Same; Same; Same; If the court has no jurisdiction
over the corporation, it follows that the court has no
business in piercing its veil of corporate fiction because
such action offends the corporations right to due
process.From the preceding, it is therefore correct to say
that the court must first and foremost acquire jurisdiction
over the parties; and only then would the parties be
allowed to present evidence for and/or against piercing the
veil of corporate fiction. If the court has no jurisdiction over
the corporation, it follows that the court has no business in
piercing its veil of corporate fiction because such action
offends the corporations right to due process.
Mercantile Law; Corporations; Alter Ego Doctrine; The
question of whether one corporation is merely an alter ego
of another is purely one of fact.The question of whether
one corporation is merely an alter ego of another is purely
one of fact. So is the question of whether a corporation is a
paper company, a sham or subterfuge or whether
petitioner adduced the requisite quantum of evidence
warranting the piercing of the veil of respondents
corporate entity.
Mercantile Law; Corporations; Piercing the Veil of Corporate
Fiction; When the notion of separate juridical personality is
used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat the
labor laws, this separate personality of the corporation may
be disregarded or the veil of corporate fiction pierced.It is
a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may
be connected. But, this separate and distinct personality of
a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of
separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime,
or is used as a device to defeat the labor laws, this
separate personality of the corporation may be disregarded
or the veil of corporate fiction pierced. This is true likewise
when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation.
Same; Same; Same; Where one corporation is so organized
and controlled and its affairs are conducted so that it is, in
fact, a mere instrumentality or adjunct of the other, the
fiction of the corporate entity of the instrumentality may
be disregarded.Where one corporation is so organized
and controlled and its affairs are conducted so that it is, in
fact, a mere instrumentality or adjunct of the other, the
fiction of the corporate entity of the instrumentality may
be disregarded. The control necessary to invoke the rule is
not majority or even complete stock control but such
domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its
principal. It must be kept in mind that the control must be
shown to have been exercised at the time the acts
complained of took place. Moreover, the control and breach
of duty must proximately cause the injury or unjust loss for
which the complaint is made.
Same; Same; Alter Ego Doctrine; The Court has laid down a
three-pronged control test to establish when the alter ego
doctrine should be operative.The Court has laid down a
three-pronged control test to establish when the alter ego
doctrine should be operative: (1) Control, not mere
majority or complete stock control, but complete
domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no
separate mind, will or existence of its own; (2) Such control
must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in
contravention of plaintiffs legal right; and (3) The aforesaid
control and breach of duty must [have] proximately caused
the injury or unjust loss complained of. The absence of any
one of these elements prevents piercing the corporate veil
in applying the instrumentality or alter ego doctrine, the
courts are concerned with reality and not form, with how
the corporation operated and the individual defendants
relationship to that operation. Hence, all three elements
should concur for the alter ego doctrine to be applicable.
Same; Same; Same; Piercing the Veil of Corporate Fiction;
There must be a perpetuation of fraud behind the control
or at least a fraudulent or illegal purpose behind the control
in order to justify piercing the veil of corporate fiction.
Albeit the RTC bore emphasis on the alleged control
exercised by Export Bank upon its subsidiary E-Securities,
[c]ontrol, by itself, does not mean that the controlled
corporation is a mere instrumentality or a business conduit
of the mother company. Even control over the financial and
operational concerns of a subsidiary company does not by
itself call for disregarding its corporate fiction. There must
be a perpetuation of fraud behind the control or at least a
fraudulent or illegal purpose behind the control in order to
justify piercing the veil of corporate fiction. Such fraudulent
intent is lacking in this case.
Same; Same; Same; Same; If used to perform legitimate
functions, a subsidiarys separate existence shall be
respected, and the liability of the parent corporation as well
as the subsidiary will be confined to those arising in their
respective business.There was nothing on record
demonstrative of Export Banks wrongful intent in setting
up a subsidiary, E-Securities. If used to perform legitimate
functions, a subsidiarys separate existence shall be
respected, and the liability of the parent corporation as well
as the subsidiary will be confined to those arising in their
respective business. To justify treating the sole stockholder
or holding company as responsible, it is not enough that
the subsidiary is so organized and controlled as to make it
merely an instrumentality, conduit or adjunct of its
stockholders. It must further appear that to recognize their
separate entities would aid in the consummation of a
wrong.
Same; Same; Same; Same; The Supreme Court has
declared that mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. The Court
has likewise ruled that the existence of interlocking
directors, corporate officers and shareholders is not enough
justification to pierce the veil of corporate fiction in the
absence of fraud or other public policy considerations.
Ownership by Export Bank of a great majority or all of
stocks of E-Securities and the existence of interlocking
directorates may serve as badges of control, but ownership
of another corporation, per se, without proof of actuality of
the other conditions are insufficient to establish an alter
ego relationship or connection between the two
corporations, which will justify the setting aside of the
cover of corporate fiction. The Court has declared that
mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding
the separate corporate personality. The Court has likewise
ruled that the existence of interlocking directors, corporate
officers and shareholders is not enough justification to
pierce the veil of corporate fiction in the absence of fraud
or other public policy considerations.
Same; Same; Same; Same; Any application of the doctrine
of piercing the corporate veil should be done with
caution.Any application of the doctrine of piercing the
corporate veil should be done with caution. A court should
be mindful of the milieu where it is to be applied. It must
be certain that the corporate fiction was misused to such
an extent that injustice, fraud, or crime was committed
against another, in disregard of its rights. The wrongdoing
must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never
unintended may result from an erroneous application.
Pacific Rehouse Corporation vs. Court of Appeals, 719 SCRA
665, G.R. No. 201537 March 24, 2014
Yu vs. National Labor Relations Commission, 245
SCRA 134, G.R. Nos. 111810-11 June 16, 1995
Corporation Law; Corporate Name; Use of similar sounding
or almost identical name is an obvious device to capitalize
on the goodwill which Tanduay Rum has built over the
years.Such a stance is not supported by the facts. The
name of the company for whom the petitioners are working
is Twin Ace Holdings Corporation. As stated by the Solicitor
General, Twin Ace is part of the Allied Bank Group although
it conducts the rum business under the name of Tanduay
Distillers. The use of a similar sounding or almost identical
name is an obvious device to capitalize on the goodwill
which Tanduay Rum has built over the years. Twin Ace or
Tanduay Distillers, on one hand, and Tanduay Distillery,
Inc. (TDI), on the other, are distinct and separate
corporations. There is nothing to suggest that the owners
of TDI, have any common relationship as to identify it with
Allied Bank Group which runs Tanduay Distillers. The
dissertation of the Court in Diatagon Labor Federation Local
110 of the ULGWP vs. Ople, et al. (101 SCRA 534 [1980]) is
worthy of restatement, thusly: We hold that the director of
Labor Relations acted with grave abuse of discretion in
treating the two companies as a single bargaining unit.
That ruling is arbitrary and untenable because the two
companies are indubitably distinct entities with separate
juridical personalities.
Same; Same; Corporation has a personality separate and
distinct from those of the persons composing it.It is basic
that a corporation is invested by law with a personality
separate and distinct from those of the persons composing
it as well as from that of any other legal entity to which it
may be related (Palay, Inc. et al. vs. Clave, et al., 124
SCRA 641 [1983])
Same; Piercing the Veil of Corporate Entity; The doctrine of
piercing the veil of corporate entity applies when the
corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime or where a
corporation is the mere alter ego or business conduit of a
person.The genuine nature of the sale to Twin Ace is
evidenced by the fact that Twin Ace was only a subsequent
interested buyer. At the time when termination notices
were sent to its employees, TDI was negotiating with the
First Pacific Metro Corporation for the sale of its assets.
Only after First Pacific gave up its efforts to acquire the
assets did Twin Ace or Tanduay Distillers come into the
picture. Respondents-employees have not presented any
proof as to communality of ownership and management to
support their contention that the two companies are one
firm or closely related. The doctrine of piercing the veil of
corporate entity applies when the corporate fiction is used
to defeat public convenience, justify wrong, protect fraud,
or defend crime or where a corporation is the mere alter
ego or business conduit of a person (Indophil Textile Mill
Workers Union vs. Calica, 205 SCRA 697, 703 [1992]). To
disregard the separate juridical personality of a corporation,
the wrong-doing must be clearly and convincingly
established. It cannot be presumed (Del Rosario vs. NLRC,
187 SCRA 777, 780 [1990]).
Same; Same; Fiction of separate and distinct entities
cannot be disregarded there being no indication that the
second corporation is a dummy or serves as a client of the
first corporate entity.In fine, the fiction of separate and
distinct corporate entities cannot, in the instant case, be
disregarded and brushed aside, there being not the least
indication that the second corporation is a dummy or serves
as a client of the first corporate entity.
Change in Corporate Name
Philippine First Insurance Co., Inc. vs. Hartigan, 34
SCRA 252, No. L-26370 July 31, 1970
Corporation law; Corporations; Change of name;
Corporation may change its name.There is nothing in
Section 18 of the Corporation Law which prohibits a
corporation from changing its name. The inference is clear
that such a change is allowed, for if the legislature had
intended to enjoin corporations from changing names, it
would have expressly stated so in this section or in any
other provision of the law.
Same; Same; Same; How change of name may be
effected.A corporation may change its name by merely
amending its charter in the manner prescribed by law.
Same; Same; Same; Change of name does not dissolve
corporation.The change of name of a corporation does
not result in its dissolution. The changing of the name of a
corporation is no more the creation of a corporation than
the changing of the name of a natural person is the
begetting of a natural person. The act, in both cases, would
seem to be what the language which we use to designate it
importsa change of name and not a change of being.
Same; Same; Same; When change of corporate name is
effective.The approval by the stockholders of the
amendment of the articles of incorporation changing the
corporate name does not automatically change the name of
the corporation as of that date. To be effective, Section 18
of the Corporation Law requires that a copy of the articles
of incorporation as amended, duly certified to be correct by
the president and the secretary of the corporation and a
majority of the board of directors or trustees, shall be filed
with the Securities & Exchange Commissioner and it is only
from the time of such filing, that the corporation shall have
the same powers and it and the members and stockholders
thereof shall thereafter be subject to the same liabilities as
if such amendment had been embraced in the original
articles of incorporation. Philippine First Insurance Co., Inc.
vs. Hartigan, 34 SCRA 252, No. L-26370 July 31, 1970
Amendment of Corporate Term
Alhambra Cigar & Cigarette Manufacturing Co., Inc.
vs. Securities and Exchange Commission, 24 SCRA
269, No. L-23606 July 29, 1968
Corporation law; Term of existence; Amendment of articles
of incorporation after expiration of its corporate life.A
corporation cannot extend its life by amendment of its
articles of incorporation effected during the three-year
statutory period for liquidation when its original term of
existence had already expired.
Since the privilege of extension is purely statutory, all of
the statutory conditions precedent must be complied with
in order that the extension may be effectuated. And,
generally, these conditions must be complied with, and the
steps necessary to effect the extension must be taken,
during the life of the corporation, and before the expiration
of its term of existence as originally fixed by its charter or
the general law, since, as a rule, the corporation is ipso
facto dissolved as soon as that time expires (8 Fletcher,
Cyclopedia of Corporations, Perm. ed., 1931, pp. 559-560).
Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs.
Securities and Exchange Commission, 24 SCRA 269, No. L-
23606 July 29, 1968
Classification of Powers
Ramirez vs. Orientalist Co. and Fernandez., 38 Phil.
634, [No. 11897 September 24, 1918
5.CORPORATIONS; CONTRACTS; POWER OF BOARD;
RATIFICATION.The power to make corporate contracts
resides primarily in the company's board of directors; but
the board may ratify an unauthorized contract made by an
officer of the corporation. Ratification in this case is held to
have occurred when the board, with knowledge that the
contract had been made, adopted a resolution recognizing
the existence of the contract and directing that steps be
taken to enable the corporation to utilize its benefits.
6.ID.; ID.; ACTION OF STOCKHOLDERS.Where a
corporate contract has been effected with the approval of
the board of directors, a resolution adopted at a meeting of
stockholders refusing to recognize the contract or
repudiating it is without effect.
Barretto vs. La Previsora Filipina, 57 Phil., 649, No.
34719 December 8, 1932
1. Building and Loan Associations; "Ultra Vires" and Void
Con-tract or By-Law.Building and loan associations are
peculiar and special corporations. They are founded upon
principles of strict mutuality and equality of benefits and
obligations, and the trend of the more recent decisions is
that any contract made or by-law provision adopted by
such association in con-travention of the statute is ultra
vires and void.
2.Id.; Id.Article 68-A of the amended by-laws of the
defendant corporation upon which the action is based, does
not under the law as applied to the express provisions
thereof create any legal obligation on its part to pay to the
persons named therein, in-cluding the plaintiffs, a life
gratuity or pension out of its net profits.
3.Id.; Id.While building and loan associations are
expressly authorized by the Corporation Law to adopt by-
laws for their govern-ment, section 20 of that Act, as
construed by this court in the case of Fleischer vs. Botica
Nolasco Co. (47 Phil., 583), ex-pressly limits such authority
to the adoption of by-laws which are not- inconsistent with
the provisions of the law.
4.Id.; Id.; Contracts between a Corporation and Third
Persons.The law is settled that contracts between a
corporation and third persons must be made by or under
the authority of its board of directors and not by its
stockholders. Hence, the action of the stockholders in such
matters is only advisory and not in any wise binding on the
corporation. Barretto vs. La Previsora Filipina, 57 Phil., 649,
No. 34719 December 8, 1932
Qualifications and Disqualifications
Lee vs. Court of Appeals, 205 SCRA 752, G.R. No.
93695 February 4, 1992
Mercantile Law; Corporation Code; Every director must own
at least one (1) share of the capital stock of the corporation
of which he is a director which share shall stand in his
name on the books of the corporation. Any director who
ceases to be the owner of at least one (1) share of the
capital stock of the corporation of which he is a director
shall thereby cease to be a director.Under the old
Corporation Code, the eligibility of a director, strictly
speaking, cannot be adversely affected by the simple act of
such director being a party to a voting trust agreement
inasmuch as he remains owner (although beneficial or
equitable only) of the shares subject of the voting trust
agreement pursuant to which a transfer of the stockholder's
shares in favor of the trustee is required (section 36 of the
old Corporation Code). No disqualification arises by virtue
of the phrase "in his own right" provided under the old
Corporation Code. With the omission of the phrase "in his
own right" the election of trustees and other persons who
in fact are not the beneficial owners of the shares
registered in their names on the books of the corporation
becomes formally legalized (see Campos and Lopez-
Campos, supra, p. 296) Hence, this is a clear indication that
in order to be eligible as a director, what is material is the
legal title to, not beneficial ownership of, the stock as
appearing on the books of the corporation (2 Fletcher,
Cyclopedia of the Law of Private Corporations, section 300,
p. 92 [1969] citing People v. Lihme, 269111. 351, 109 N.E.
1051).
Same; Same; Voting Trusts; A voting trust agreement
results in the separation of the voting rights of a
stockholder from his other rights such as the right to
receive dividends and other rights to which a stockholder
may be entitled until the liquidation of the corporation.
There can be no reliance on the inference that the five-year
period of the voting trust agreement in question had lapsed
in 1986 so that the legal title to the stocks covered by the
said voting trust agreement ipso facto reverted to the
petitioners as beneficial owners pursuant to the 6th
paragraph of section 59 of the new Corporation Code which
reads:
"Unless expressly renewed, all rights granted in a voting
trust agreement shall automatically expire at the end of the
agreed period, and the voting trust certificates as well as
the certificates of stock in the name of the trustee or
trustees shall thereby be deemed cancelled and new
certificates of stock shall be reissued in the name of the
transferors." On the contrary, it is manifestly clear from the
terms of the voting trust agreement between ALFA and the
DBP that the duration of the agreement is contingent upon
the fulfillment of certain obligations of ALFA with the DBP.
Detective & Protective Bureau, Inc. vs. Cloribel, 26
SCRA 255, No. L-23428 November 29, 1968
Corporation law; Director; Stock; To qualify as a director of
a corporation, one must own at least one share of stock
therein.Every director must own in his own right at least
one share of the capital stock of the stock corporation of
which he is a director, which stock shall stand in his name
on the books of the corporation (Sec. 30, Corporation Law).
So that, if the By-Laws of the Corporation provides that
"The manager shall be elected by the Board of Directors
from among its members," one could not be a managing
director of said corporation unless he owns at least one
share of stock thereof.
Same; Dispute as to who owns the controlling interest in
the corporation; Party in control or in possession of the
controlling interest is presumed to have the better right to
the position of managing corporate director.Where
ownership of the controlling interest in the corporation is in
dispute, the party in control or in possession of the
disputed interest is presumed to have the better right (to
the position of managing' corporate director) until the
contrary is adjudged, and hence, that party should not be
deprived of the control or possession until the court is
prepared to adjudicate the controverted right in favor of
the other party (Gordillo, et al. v. Del Rosario, et al., 39
Phil. 829). Relevant here is: "The rule that a court should
not, by means of a preliminary injunction, transfer property
in litigation from the possession of one party to another is
more particularly applicable where the legal title is in
dispute and the party having possession asserts ownership
in himself" (Gordillo, et al. v. Del Rosario, supra; Rodulfa v.
Alfonso, et al., 79 Phil. 225).
Validity and Binding effect of actions of Corporate
Officers
Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA
763, G.R, No. 53820 June 15, 1992
Corporations; Contracts; A contract signed by the President
and Board Chairman without authority from the Board of
Directors is void; Exceptions.While there can be no
question that Mr, Maglana was an officerthe President
and Chairmanof private respondent corporation at the
time he signed Exhibit "A", the above provisions of said
private respondent's By-Laws do not in any way confer
upon the President the authority to enter into contracts for
the corporation independently of the Board of Directors.
That power is exclusively lodged in the latter. Nevertheless,
to expedite or facilitate the execution of the contract, only
the Presidentand not all the members of the Board, or so
much thereof as are required for the actshall sign it for
the corporation. This is the import of the words through the
president in Exhibit "8-A" and the clear intent of the power
of the chairman "to execute and sign for and in behalf of
the corporation all contracts and agreements which the
corporation may enter into" in Exhibit "1-1". Both powers
presuppose a prior act of the corporation exercised through
the Board of Directors. No greater power can be implied
from such express, but limited, delegated authority. Neither
can it be logically claimed that any power greater than that
expressly conferred is inherent in Mr. Maglana's position as
president and chairman of the corporation.
Same; Same; Same.Petitioner's last refuge then is his
alternative proposition, namely, that private respondent
had clothed Mr. Maglana with the apparent power to act for
it and had caused persons dealing with it to believe that he
was conferred with such power. The rule is of course
settled that "[a]lthough an officer or agent acts without, or
in excess of, his actual authority if he acts within the scope
of an apparent authority with which the corporation has
clothed him by holding him out or permitting him to appear
as having such authority, the corporation is bound thereby
in favor of a person who deals with him in good faith in
reliance on such apparent authority, as where an officer is
allowed to exercise a particular authority with respect to
the business, or a particular branch of it, continuously and
publicly, for a considerable time." Also, "if a private
corporation intentionally or negligently clothes its officers or
agents with apparent power to perform acts for it, the
corporation will be estopped to deny that such apparant
authority is real, as to innocent third persons dealing in
good faith with such officers or agents." This "apparent
authority may result from (1) the general manner by which
the corporation holds out an officer or agent as having
power to act or, in other words, the apparent authority with
which it clothes him to act in general, or (2) the
acquiescence in his acts of a particular nature, with actual
or constructive knowledge thereof, whether within or
without the scope of his ordinary powers."
Same; Same; Petitioner failed to prove President of herein
corporation clothe with apparent authority to constract with
it.lt was incumbent upon the petitioner to prove that
indeed the private respondent had clothed Mr. Maglana
with the apparent power to execute Exhibit "A" or any
similar contract. This could have been easily done by
evidence of similar acts executed either in its favor or in
favor of other parties. Petitioner miserably failed to do that.
Upon the other hand, private respondent's evidence
overwhelmingly shows that no contract can be signed by
the president without first being approved by the Board of
Directors; such approval may only be given after the
contract passes through, at least, the comptroller, who is
the NIDC representative, and the legal counsel.
Lopez Realty, Inc. vs. Fontecha, 247 SCRA 183, G.R.
No. 76801 August 11, 1995
Corporation Law; A corporation, through its board of
directors, should act in the manner and within the
formalities, if any, prescribed by its charter or by the
general law.The general rule is that a corporation,
through its board of directors, should act in the manner and
within the formalities, if any, prescribed by its charter or by
the general law. Thus, directors must act as a body in a
meeting called pursuant to the law or the corporations by-
laws, otherwise, any action taken therein may be
questioned by any objecting director or shareholder.
Same; An action of the board of directors during a meeting,
which was illegal for lack of notice, may be ratified either
expressly, by the action of the directors in subsequent legal
meeting, or impliedly, by the corporations subsequent
course of conduct.Be that as it may, jurisprudence tells
us that an action of the board of directors during a
meeting, which was illegal for lack of notice, may be
ratified either expressly, by the action of the directors in
subsequent legal meeting, or impliedly, by the corporations
subsequent course of conduct.
Same; Ultra Vires Acts; Words and Phrases; In legal
parlance, ultra vires act refers to one which is not within
the corporate powers conferred by the Corporation Code or
articles of incorporation or not necessary or incidental in
the exercise of the powers so conferred.
Assuming,arguendo, that there was no notice given to
Asuncion Lopez Gonzales during the special meetings held
on August 17, 1981 and September 1, 1981, it is erroneous
to state that the resolutions passed by the board during the
said meetings were ultra vires. In legal parlance, ultra
vires act refers to one which is not within the corporate
powers conferred by the Corporation Code or articles of
incorporation or not necessary or incidental in the exercise
of the powers so conferred.
Same; Same; Providing gratuity pay for its employees is
one of the express powers of the corporation under the
Corporation Code.The assailed resolutions before us
cover a subject which concerns the benefit and welfare of
the companys employees. To stress, providing gratuity pay
for its employees is one of the express powers of the
corporation under the Corporation Code, hence, petitioners
cannot invoke the doctrine of ultra vires to avoid any
liability arising from the issuance of the subject resolutions.
Same; Section 28 1/2 of the Corporation Law (now Section
40 of the Corporation Code) requiring authorization of the
stockholders of record for action taken by the board of
directors applies to the sale, lease, exchange or disposition
of all or substantially all of the corporations assets.
Petitioners try to convince us that the subject resolutions
had no force and effect in view of the non-approval thereof
during the Annual Stockholders Meeting held on March 1,
1982. To strengthen their position, petitioners cite section
28 1/2 of the Corporation Law (Section 40 of the
Corporation Code). We are not persuaded. The cited
provision is not applicable to the case at bench as it refers
to the sale, lease, exchange or disposition of all or
substantially all of the corporations assets, including its
goodwill. In such a case, the action taken by the board of
directors requires the authorization of the stockholders on
record.
Same; Where the stockholders of petitioner, except for one,
also sit as members of the board of directors, it will be
illogical and superfluous to require the stockholders
approval of certain resolutions adopted by the board of
directors.It will be observed that, except for Arturo
Lopez, the stockholders of petitioner corporation also sit as
members of the board of directors. Under the
circumstances in field, it will be illogical and superfluous to
require the stockholders approval of the subject
resolutions. Thus, even without the stockholders approval
of the subject resolutions, petitioners are still liable to pay
private respondents gratuity pay. Lopez Realty, Inc. vs.
Fontecha, 247 SCRA 183, G.R. No. 76801 August 11, 1995
Pua Casim & Co. vs. W. Neumark & Co., 46 Phil. 342,
No. 21644 October 2, 1924
1.CORPORATION; AUTHORITY OF MANAGER TO BORROW
MONEY; GENERAL RULE IN THE ABSENCE OF EXPRESS
AUTHORITY CONFERRED BY THE BOARD OF DlRECTORS
OF A CORPORATION.The general rule is that an officer of
a corporation has no implied power to borrow money in its
behalf; but where a general business manager of a
corporation is clothed with apparent authority to borrow
and the amount borrowed does not exceed the ordinary
requirements of the business, it has often been held that
the authority is implied and that the corporation is bound.
2.ID.; ID.; EXCEPTION TO THE GENERAL RULE.Where it
appears that the corporation was in need of funds to carry
on its business and it does not appear that the amount
borrowed was disproportionate to the volume of the
business, the corporation will be held responsible for any
loan obtained in its behalf by an officer who, at the same
time, was president, general manager, and principal
stockholder in said corporation and was clothed with
apparent authority to do everything necessary for the
conduct of its business. Pua Casim & Co. vs. W. Neumark &
Co., 46 Phil. 342, No. 21644 October 2, 1924
Francisco vs. Government Service Insurance
System, 7 SCRA 577, No. L-18287 March 30, 1963
Corporations; Binding effect of acts of corporate officers.
A corporation cannot evade the binding effect produced by
a telegram sent by its board secretary, and the addressee
of such telegram cannot be blamed for relying upon it,
because if every person dealing with a corporation were
held duty-bound to dis-believe every act of its responsible
officers no matter how reg-ular it should appear on its face,
corporate transactions would speedily come to a standstill.
Same; Same; When corporation estopped to deny apparent
authority of its officers.If a private corporation
intentional-ly or negligently clothes its officers or agents
with apparent power to perform acts for it, the corporation
will be estopped to deny that such apparent authority is
real, as to innocent third persons dealing in good faith with
such officers or agents. (2 Fletchers Encyclopedia, Priv.
Corp. 255, Perm. Ed.)
Same; Same; Same; When notice of lands by a corporate
officer is notice to corporation.Knowledge of facts
acquired or possessed by an officer or agent of a
corporation in the course of his employment, and in relation
to matters within the scope of his authority, is notice to the
corporation, whether he communicates such knowledge or
not. (Ballentine, Law on Cor-porations, section 112.)
Same; Same; Same; Silence of corporation as ratification of
agreement.The silence of the corporation, taken together
with the unconditional acceptance of three subsequent
remit-tances from plaintiff, constitutes a binding ratification
of the original agreement between them (Civil Code, Article
1393).
Same; Same; Same; Maxim that the one who made it
pos-sible for a wrong to be done should suffer.The
equitable maxim that between two innocent parties the one
who made it possi-ble for the wrong to be done should be
the one to bear the re-sulting loss, applies when as in
the instant case a cor-poration allows one of its officers,
now alleged to be without the proper authority, to send a
telegram binding the corporation.
Board of Liquidators vs, Kalaw, 20 SCRA 987, No. L-
18805 August 14, 1967
Corporations; Three methods of winding up corporate
affairs.Accepted in this jurisdiction are three methods by
which a corporation may wind up its affairs: (1) under
Section 3, Rule 104, of the Rules of Court (which
superseded Section 66 of the Corporation Law), whereby,
upon voluntary dissolution of a corporation, the court may
direct "such disposi-
_______________
1 Original plaintiff, National Coconut Corporation, was
dissolved on November 24, 1950 by the President's
Executive Order 372, which created the Board of
Liquidators. Hence, the substitution of party plaintiff.
2 Defendant Maximo M. Kalaw died in March of 1965 before
trial.
3 Substituted for defendant Casimiro Garcia, deceased.
tion of its assets as justice requires, and may appoint a
receiver to collect such assets and pay the debts of the
corporation"; (2) under Section 77 of the Corporation Law,
whereby a corporation whose corporate existence is
terminated, "shall nevertheless be continued as a body
corporate for three years after the time when it would have
been so dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling it gradually
to settle and close its affairs, to dispose of and convey its
property and to divide its capital stock, but not for the
purpose of continuing the business for which it was
established"; and (3) under Section 78 of the Corporation
Law, by virtue of which the corporation, within the three-
year period just mentioned, "is authorized and empowered
to convey all of its property to trustees for the benefit of
members, stockholders, creditors, and others interested,"
Board of Liquidators; Trustee for government.By
Executive Order No. 372, the government, the sole
stockholder, abolished the National Coconut Corporation
(NACOCO) and placed its assets in the hands of the Board
of Liquidators. The Board thus became the trustee on
behalf of the government. It was an express trust. The
legal interest became vested in the trustee, the Board of
Liquidators. The beneficial interest remained with the sole
stockholder, the government. The Board took the place of
the dissolved government corporations after the expiration
of the statutory three-year period for the liquidation of their
affairs.
Same; No term for life of Board.No time limit has been
tacked to the existence of the Board of Liquidators and its
function of closing the affairs of various government
corporations. Its term of life is not fixed.
Same; Right of Board of Liquidators to proceed as
partyplaintiff; Case at bar.At no time had the government
withdrawn the property. or the authority to continue the
present suit, from the Board of Liquidators. Hence, the
Board can prosecute this case to its final conclusion. The
provisions of Section 78 of the Corporation Law, the third
method of winding up corporate affairs, find application.
The Board has personality to proceed as party-plaintiff in
this case.
Corporations; Implied authority of corporate officer to enter
into contracts.A corporate officer, entrusted with the
general management and control of its business, has
implied authority to make any contract or do any other act
which is necessary or appropriate to the conduct of the
ordinary business of the corporation. As such officer, he
may, without any special authority from the Board of
Directors, perform all acts of an ordinary nature, which by
usage or necessity are incident to his office, and may bind
the corporation by contracts in matters arising in the usual
course of business.
Same; Where similar acts of manager were approved by
directors.Where similar acts have been approved by the
directors as a matter of general practice, custom, and
policy, the general manager may bind the company without
formal authorization of the board of directors. In varying
language, existence of such authority is established by
proof of the course of business, the usages and practices of
the company and by the knowledge which the board of
directors has, or must be presumed to have, of acts and
doings of its subordinates in and about the affairs of the
corporation. Where the practice of the corporation has
been to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in Nacoco's
behalf without prior board approval, and the board itself, by
its acts and through acquiescence, practically laid aside the
by-law requirement of prior approval, the contracts of the
general manager, under the given circumstances, are valid
corporate acts.
Same; Ratification by corporation of unauthorized contract
of its officers.Ratification by a corporation of an
unauthorized act or contract by its officers or others relates
back to the time of the act or contract ratified and is
equivalent to original authority. The corporation and the
other party to the transaction are in precisely the same
position as if the act or contract had been authorized at the
time. The adoption or ratif ication of a contract by a
corporation is nothing more nor less than the making of an
original contract. The theory of corporate ratification is
predicated on the right of a corporation to contract, and
any ratification or adoption is equivalent to a grant of prior
authority.
Buenaseda vs. Bowen & Co., Inc., 110 Phil. 464, No.
L-14985 December 29, 1960
1.CORPORATIONS; CONTRACTS ENTERED INTO BY THE
PRESIDENT; IMPLIED RATIFICATION BY BOARD OF
DIRECTORS.The action of the Board of Directors of the
corporation in taking advantage of the benefits afforded by
the agreement entered into by the president in behalf of
the corporation, amounted to an implied ratification of the
agreement and thereby bound the corporation even without
a formal resolution. (Zamboanga Transportation. Co. vs.
Bachrach Motors, 52 Phil., 244.)
2.ID.; ID.; PAYMENT TO STOCKHOLDER OF PERCENTAGE
OF PROFITS FOR SERVICES RENDERED TO
CORPORATION.Where a stockholder claims, or services
rendered, a certain percentage of the profits of the
corporation under an agreement entered into by and
between him -and the corporation, payment cannot be
refused by the corporation on the ground that since the
profits form part of its assets, payment thereof requires a
declaration. of dividends and/or resolution of the Board of
Directors. Buenaseda vs. Bowen & Co., Inc., 110 Phil. 464,
No. L-14985 December 29, 1960
Removal and Filling up of Vacancies
Valle Verde Country Club, Inc. vs. Africa, 598 SCRA
195, G.R. No. 151969 September 4, 2009
Corporation Law; Board of Directors; Holdover; Words and
Phrases; Term and Tenure, Distinguished; Term is
distinguished from tenure in that an officers tenure
represents the term during which the incumbent actually
holds officethe tenure may be shorter (or, in case of
holdover, longer) than the term for reasons within or
beyond the power of the incumbent.The word term has
acquired a definite meaning in jurisprudence. In several
cases, we have defined term as the time during which the
officer may claim to hold the office as of right, and fixes the
interval after which the several incumbents shall succeed
one another. The term of office is not affected by the
holdover. The term is fixed by statute and it does not
change simply because the office may have become vacant,
nor because the incumbent holds over in office beyond the
end of the term due to the fact that a successor has not
been elected and has failed to qualify. Term is distinguished
from tenure in that an officers tenure represents the
term during which the incumbent actually holds office. The
tenure may be shorter (or, in case of holdover, longer) than
the term for reasons within or beyond the power of the
incumbent.
Same; Same; Same; Same; When Section 23 of the
Corporation Code declares that the board of
directorsshall hold office for one (1) year until their
successors are elected and qualified, it means that the
term of the members of the board of directors shall be only
for one yeartheir term expires one year after election to
the office; The holdover periodthat time from the lapse of
one year from a members election to the Board and until
his successors election and qualificationis not part of the
directors original term of office, nor is it a new term.
Based on the above discussion, when Section 23 of the
Corporation Code declares that the board of
directorsshall hold office for one (1) year until their
successors are elected and qualified, we construe the
provision to mean that the term of the members of the
board of directors shall be only for one year; their term
expires one year after election to the office. The holdover
periodthat time from the lapse of one year from a
members election to the Board and until his successors
election and qualificationis not part of the directors
original term of office, nor is it a new term; the holdover
period, however, constitutes part of his tenure. Corollary,
when an incumbent member of the board of directors
continues to serve in a holdover capacity, it implies that the
office has a fixed term, which has expired, and the
incumbent is holding the succeeding term.
Same; Same; Theory of Delegated Power; The board of
directors, in drawing to themselves the powers of the
corporation, occupies a position of trusteeship in relation to
the stockholders, in the sense that the board should
exercise not only care and diligence, but utmost good faith
in the management of corporate affairs.VVCCs
construction of Section 29 of the Corporation Code on the
authority to fill up vacancies in the board of directors, in
relation to Section 23 thereof, effectively weakens the
stockholders power to participate in the corporate
governance by electing their representatives to the board of
directors. The board of directors is the directing and
controlling body of the corporation. It is a creation of the
stockholders and derives its power to control and direct the
affairs of the corporation from them. The board of
directors, in drawing to themselves the powers of the
corporation, occupies a position of trusteeship in relation to
the stockholders, in the sense that the board should
exercise not only care and diligence, but utmost good faith
in the management of corporate affairs.
Same; Same; Same; The theory of delegated power of the
board of directors similarly explains why, under Section 29
of the Corporation Code, in cases where the vacancy in the
corporations board of directors is caused not by the
expiration of a members term, the successor so elected to
fill in a vacancy shall be elected only for the unexpired term
of his predecessor in office.The underlying policy of the
Corporation Code is that the business and affairs of a
corporation must be governed by a board of directors
whose members have stood for election, and who have
actually been elected by the stockholders, on an annual
basis. Only in that way can the directors continued
accountability to shareholders, and the legitimacy of their
decisions that bind the corporations stockholders, be
assured. The shareholder vote is critical to the theory that
legitimizes the exercise of power by the directors or officers
over properties that they do not own. This theory of
delegated power of the board of directors similarly explains
why, under Section 29 of the Corporation Code, in cases
where the vacancy in the corporations board of directors is
caused not by the expiration of a members term, the
successor so elected to fill in a vacancy shall be elected
only for the unexpired term of his predecessor in office.
The law has authorized the remaining members of the
board to fill in a vacancy only in specified instances, so as
not to retard or impair the corporations operations; yet, in
recognition of the stockholders right to elect the members
of the board, it limited the period during which the
successor shall serve only to the unexpired term of his
predecessor in office. Valle Verde Country Club, Inc. vs.
Africa, 598 SCRA 195, G.R. No. 151969 September 4, 2009
Compensation of Directors
Central Cooperative Exchange, Inc. vs. Tibe, Sr., 33
SCRA 593, No. L-27972 June 30, 1970
Corporation law; Board of Directors; Compensation;
Directors not entitled to compensation; Case at bar.
Where the by-laws of the corporation explicitly reserved
unto the stockholders the power to determine the
compensation of members of the board of directors and the
stockholders did restrict such compensation to "actual
transportation expenses plus the per diems of P30.00 and
actual expenses while waiting," it is not within the power of
the board of directors to enact a resolution providing for
themselves compensation for additional duties. Even
without the express reservation of said power, the directors
are not entitled to compensation, for the law is well-settled
that directors of corporations presumptively served without
compensation and in the absence of an express agreement
or a resolution in relation thereto, no claim can be asserted
therefor.
Same; Same; Same; Same; Power of board to control
corporation's property and business does not empower
board to provide themselves compensation.Section 28 of
the Corporation Law giving the exercise of corporate
powers and the control of the corporation's business and
property to the board of directors, or a provision of the by-
laws empowering the board with "general supervision and
control of the affairs and property of the (corporation)" is
no justification for the adoption by the board of a resolution
providing themselves with compensation. These provisions
of the law and the by-law pertain to the general powers of
the board merely and do not extend to giving the members
of the board the compensation where the matter of
providing for the compensation is specifically withheld from
the board of directors and reserved to the stockholders.
Same; Suit against directors; Laches; When laches begin to
attach against corporation.Where the corporation is
virtually immobilized from commencing suit against its
directors such as when the board of directors, under the
by-laws of the corporation, had the control of the affairs of
the corporation, laches does not begin to attach against the
corporation until the directors cease to be such.
Same; Same; Same; Six months period of time does not
amount to laches.The lapse of the period of six months
when the action was filed is too short a time for the claim
to be considered stale.
Same; Same; Same; When defense of laches deemed
waived.Where the respondent member of the board of
directors admitted liability to the corporation for cash
advances, he waived all defenses thereto, including laches
such that there is nothing left for the court to do but to
order payment. This admission dispenses with the need of
disbursement receipts covering the cash advances to prove
the debt. Central Cooperative Exchange, Inc. vs. Tibe, Sr.,
33 SCRA 593, No. L-27972 June 30, 1970
Western Institute of Technology, Inc. vs. Salas, 278
SCRA 216, G.R. No. 113032 August 21, 1997
Corporation Law; Two ways by which members of the
board can be granted compensation apart from reasonable
per diems.There is no argument that directors or
trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than
the usual and ordinary duties of their office. This rule is
founded upon a presumption that directors/trustees render
service gratuitously, and that the return upon their shares
adequately furnishes the motives for service, without
compensation. Under the foregoing section, there are only
two (2) ways by which members of the board can be
granted compensation apart from reasonable per diems:
(1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders representing
a majority of the outstanding capital stock at a regular or
special stockholders meeting agree to give it to them.
Same; Members of the board may receive compensation, in
addition to reasonable per diems, when they render
services to the corporation in a capacity other than as
directors/trustees.This proscription, however, against
granting compensation to directors/trustees of a
corporation is not a sweeping rule. Worthy of note is the
clear phraseology of Section 30 which states: x x x [T]he
directors shall not receive any compensation, as such
directors, x x x. The phrase as such directors is not
without significance for it delimits the scope of the
prohibition to compensation given to them for services
performed purely in their capacity as directors or trustees.
The unambiguous implication is that members of the board
may receive compensation, in addition to reasonable per
diems, when they render services to the corporation in a
capacity other than as directors/trustees. In the case at
bench, Resolution No. 48, s. 1986 granted monthly
compensation to private respondents not in their capacity
as members of the board, but rather as officers of the
corporation, more particularly as Chairman, Vice-Chairman,
Treasurer and Secretary of Western Institute of
Technology.
Same; Remedial Law; Action; Meaning of Derivative Suit;
For a derivative suit to prosper, it is required that the
minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper
forum that he is suing on a derivative cause of action on
behalf of the corporation and all other shareholders
similarly situated who wish to join.A derivative suit is an
action brought by minority shareholders in the name of the
corporation to redress wrongs committed against it, for
which the directors refuse to sue. It is a remedy designed
by equity and has been the principal defense of the
minority shareholders against abuses by the majority. Here,
however, the case is not a derivative suit but is merely an
appeal on the civil aspect of Criminal Cases Nos. 37097 and
37098 filed with the RTC of Iloilo for estafa and falsification
of public document. Among the basic requirements for a
derivative suit to prosper is that the minority shareholder
who is suing for and on behalf of the corporation must
allege in his complaint before the proper forum that he is
suing on a derivative cause of action on behalf of the
corporation and all other shareholders similarly situated
who wish to join. This is necessary to vest jurisdiction upon
the tribunal in line with the rule that it is the allegations in
the complaint that vests jurisdiction upon the court or
quasi-judicial body concerned over the subject matter and
nature of the action. This was not complied with by the
petitioners either in their complaint before the court a quo
nor in the instant petition which, in part, merely states that
this is a petition for review on certiorari on pure questions
of law to set aside a portion of the RTC decision in Criminal
Cases Nos. 37097 and 37098 since the trial courts
judgment of acquittal failed to impose any civil liability
against the private respondents. By no amount of equity
considerations, if at all deserved, can a mere appeal on the
civil aspect of a criminal case be treated as a derivative
suit.
Government of the Philippine Islands vs. El Hogar
Filipino, 50 Phil. 399, No. 26649 July 13, 1927
1.CORPORATIONS; HOLDING OF REAL PROPERTY FOR
PERIOD IN EXCESS OF THAT ALLOWED BY LAW;
FORFEITURE OF FRANCHISE.The extreme penalty of the
forfeiture of its franchise will not be visited upon a
corporation for holding a piece of real property for a period
slightly in excess of the time allowed by law, where the
conduct of the corporation does not appear to have been
characterized by obduracy or pertinacity in contempt of
law.
2.ID. ; ID. ; DEDUCTION OF PERIOD DURING WHICH
CORPORATION is UNDER CONTRACT TO SELL.In
estimating the period during which a corporation may be
allowed to hold property purchased at its own foreclosure
sale, deduction should be made of any period during which
the corporation was under obligation to sell the land to a
particular person by reason of the acceptance by the
corporation of his offer to buy, the sale having been made
nugatory by virtue of the failure of the purchaser to carry
out the contract.
3.ID.; ID.; FORFEITURE OF FRANCHISE; DISCRETION OF
COURT.In an action of quo warranto the courts have a
discretion with respect to the infliction of. capital
punishment upon corporations, and there are certain
misdemeanors and misusers of franchises which are
insufficient to justify dissolution.
4.ID.; ID.; ID.; ID.; EFFECT OF SECTION 3 OF ACT No.
2792.Section 3 of Act No. 2792 has not abrogated the
discretion of the courts with respect to the application of
the remedy of quo warranto to corporations which are
alleged to have violated the provisions of the Corporation
Law (Act No. 1459).
5.CONSTITUTIONAL LAW; TlTLE OF ACT NOT EXPRESSING
SUBJECT OF BILL.The title to Act No. 2792 is defective
for failure to express the subject-matter of section 3 of said
Act, with the result that said section 3 is invalid for
repugnance to constitutional requirement.
6.CORPORATIONS; BUILDING AND LOAN ASSOCIATION;
POWER TO AcQUIRE AND HOLD REAL PROPERTY; OFFICE
BUILDING.A building and loan association may acquire
and hold a lot in the financial district of the city where it
has its principal place of business and may erect thereon a
suitable building as the site of its offices.
7.ID.; ID.; ID.; ID.; LEASING OF EXCESS OFFICE SPACE TO
PUBLIC. The circumstance that the building so erected by
the association has office accommodations in excess of its
own needs and that such offices are rented to the public by
the association for its benefit and profit does not make the
ownership and holding of such office buiding an ultra vires
act. Having acquired the property under lawful authority,
the corporation is entitled to the full beneficial use thereof.
8.ID.; ID.; POWER OF ASSOCIATION TO ADMINISTER
MORTGAGED PROPERTY FOR PURPOSE OF SATISFYING
OBLIGATIONS OF DELINQUENT SHAREHOLDERS.When
the shareholders of a building and loan association become
delinquent in the performance of their obligations, the
association may take over the management of the
mortgaged property and administer it for the purpose of
applying the income to the obligations of the debtor party,
provided authority so to do is conferred in the contract of
mortgage.
9.ID.; ID. ; ASSOCIATION WITHOUT POWER TO
UNDERTAKE MANAGEMENT OF PROPERTY IN GENERAL.
A building and loan association has no authority to conduct
the business of a real estate agent, as by managing and
administering property not mortgaged to it; and the fact
that the owner of such property may have become a
shareholder of the association for the purpose of
supposedly qualifying himself to receive such service from
the association does not change the case.
10.ID.; ID.; INVALID BY-LAW; FORFEITURE OF
FRANCHISE.The circumstance that one of the provisions
contained in the by-laws of a building and loan association
is invalid as conflicting with the express provision of statute
is not a misdemeanor on. the part of the corporation for
which the association can be penalized by the forfeiture of
its charter.
11.ID.; ID.; FAILURE OF SHAREHOLDERS TO ATTEND
ANNUAL MEETING.The circumstance that the
shareholders of a building and loan association do not
attend the annual meetings in sufficient number to
constitute a quorum does not render the corporation
subject to dissolution.
12.ID.; ID.; FILLING OF VACANCIES IN DIRECTORATE;
TERM OF OFFICE OF DIRECTORS.The directors of a
building and loan association may lawfully fill vacancies
occurring in the board of directors in conformity with a by-
law to this effect. Such officials,' as well as the original
directors, hold until qualification of their successors.
13.ID.; ID.; COMPENSATION OF DIRECTORS.The power
to fix the compensation of the directors of a building and
loan association pertains to the corporation, to be
determined in its by-laws; and where the amount of the
compensation to be paid is thus fixed, the court will not
concern itself with the question of the propriety and
wisdom of the measure of compensation adopted.
14.ID.; ID.; CONTRACT FOR COMPENSATION OF
MANAGER.Where a building and loan association makes a
contract with its promoter and managerwhich contract is
expressly ratified in the by-laws of the association,by
which' the association concedes to him, in consideration of
valuable services rendered and to be rendered, a right to
receive 5 per centum of the net earnings of the association,
this court will not, in a quo warranto proceeding where
there is no allegation that the contract was ultra vires or
vitiated 'by fraud, order the dissolution of the corporation
for entering into such contract, on the mere ground that
the compensation granted is excessive; nor will the court
enjoin the association from performing the same.
15.ID.; ID.; BY-LAW DEFINING QUALIFICATIONS OF
DIRECTORS; BYLAW DISABLING DIRECTORS FROM
RECEIVING LOANS.The shareholders of a corporation
may in the by-laws define the qualifications of directors and
require that shares of a specified value shall be put up as
security for their action. A provision in the by-laws disabling
the directors from receiving loans from the association is
also valid.
16.ID.; ID.; VALIDITY OF SPECIAL SHARES.Severino vs.
El Hogar Filipino, G. R. No. 24926,1 and related cases
followed with respect to validity of special shares issued by
respondent association.
17.ID. ; ID. ; ID. ; STATUTORY AUTHORITY FOR
PREPAYMENT OF DUES. Under a statutory provision
authorizing a building and loan association to receive
payment of dues in advance, the association is authorized
to issue the two kinds of special shares described in the
opinion.
18.ID. ; ID. ; AUTHORITY OF DIRECTORATE TO ALLOW
FOR DEPRECIATION.The directorate of a building and
loan association has a discretion, in determining the results
of the operations of the association for any year, to write
off from the assets a reasonable amount for depreciation,
with a view to the determination of the real profits.
19.ID.; ID.; AUTHORITY OF DIRECTORATE TO MAINTAIN
RESERVES. Under the by-laws of the respondent building
and loan association, the directorate has the power to
maintain a general reserve and a special reserve, whenever
in their judgment it is advisable to do so, conformably with
the by-laws.
20.ID. ; ID. ; PURPOSE OF LOAN ; HOMEBUILDING.While
the creation of building and loan associations was intended
to serve the beneficent purpose of enabling people to
procure homes of their own, and such associations have
been fostered with this end in view, nevertheless the
lawmaker in this jurisdiction has not limited the activities of
building and loan associations to the exclusive function of
making loans for the building of homes. Home building is
only one of several purposes proposed in the creation of
such associations; and a building and loan association
cannot be dissolved in a quo warranto proceeding. on the
ground that it has made loans without reference to the
purpose for which the money was intended to be used.
21.ID.; ID.; DISCRETION OF BOARD AS TO SIZE OF
LOAN.The law sets no limit upon the amount of the loans
which may be made to particular persons or entities; and a
building and loan association cannot be dissolved on the
ground that some of its loans have been made in large
amounts. The matter of the size of the loan is confided to
the discretion of the board of directors.
22.ID. ; ID. ; FINAL DISTRIBUTION OF ASSETS.A by-law
of a building and loan association declaring that, upon the
final liquidation of the association, the funds shall be
applied to the repayment of shares and the balance, if any,
distributed in the manner established for the distribution of
annual profits, is valid.
23.ID.; ID.; LOANS TO ARTIFICIAL ENTITIES VALID.
Where the statute says that "any person" may become a
stockholder in a building and loan association, a loan made
to an artificial entity, such as a corporation or partnership,
cannot be declared invalid'; nor is the admission of such
entity to the status of stockholder an ultra vires act,
especially in the absence of any allegation that the
particular entity so admitted is prohibited by the law of its
own organization from entering into such contracts.
24.ID. ; ID. ;. SALE OF REAL PROPERTY BY
ASSOCIATION.In making sales of land which has been
bought in by the association at its own foreclosure sales,
the association may lawfully sell to a purchaser who
obligates himself to pay in installments. The law does not
require such sales to be made for cash; nor does the
purchaser have to be a shareholder of the association.
Government of the Philippine Islands vs. El Hogar Filipino,
50 Phil. 399, No. 26649 July 13, 1927
Liability of Corporate Officers
Tramat Mercantile, Inc. vs. Court of Appeals, 238
SCRA 14, G.R. No. 111008 November 7, 1994
Corporation Law; Civil Law; Sale; There is no reason to
reverse the factual findings of both the trial court and the
appellate court, particularly in holding that the contract
between de la Cuesta and TRAMAT was one of absolute,
not conditional sale.We could find no reason to reverse
the factual findings of both the trial court and the appellate
court, particularly in holding that the contract between de
la Cuesta and TRAMAT was one of absolute, not
conditional, sale of the tractor and that de la Cuesta did not
violate any warranty on the sale of the tractor to TRAMAT.
Same; Same; Same; It should only be the corporation, not
the person acting for and on its behalf, that properly could
be made liable under the questioned transaction.It was,
nevertheless, an error to hold David Ong jointly and
severally liable with TRAMAT to de la Cuesta under the
questioned transaction. Ong had there so acted, not in his
personal capacity, but as an officer of a corporation,
TRAMAT, with a distinct and separate personality. As such,
it should only be the corporation, not the person acting for
and on its behalf, that properly could be made liable
thereon.
Same; Same; Same; Instances when personal liability of a
corporate director, trustee or officer along with the
corporation may so validly attach.Personal liability of a
corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a
rule, only when1. He assents (a) to a patently unlawful
act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its
stockholders or other persons; 2. He consents to the
issuance of watered stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary
his written objection thereto; 3. He agrees to hold himself
personally and solidarily liable with the corporation; or 4.
He is made, by a specific provision of law, to personally
answer for his corporate action. Tramat Mercantile, Inc. vs.
Court of Appeals, 238 SCRA 14, G.R. No. 111008 November
7, 1994
Llamado vs. Court of Appeals, 270 SCRA 423, G.R.
No. 99032 March 26, 1997
Same; Same; Corporation Law; Lack of involvement in the
negotiation for the transaction is not a defense to a
treasurer of the corporation who signed the check in his
capacity as an officer of the corporation.Petitioner failed
to rebut the presumption by paying the amount of the
check within five (5) banking days from notice of the
dishonor. His claim that he signed the check in blank which
allegedly is common business practice, is hardly a defense.
If as he claims, he signed the check in blank, he made
himself prone to being charged with violation of BP 22. It
became incumbent upon him to prove his defenses. As
Treasurer of the corporation who signed the check in his
capacity as an officer of the corporation, lack of
involvement in the negotiation for the transaction is not a
defense.
Same; Same; The person or persons who actually sign the
check in behalf of a corporation, company or entity is liable
under BP 22.Petitioners argument that he should not be
held personally liable for the amount of the check because
it was a check of the Pan Asia Finance Corporation and he
signed the same in his capacity as Treasurer of the
corporation, is also untenable. The third paragraph of
Section 1 of BP Blg. 22 states: Where the check is drawn
by a corporation, company or entity, the person or persons
who actually signed the check in behalf of such drawer
shall be liable under this Act. Llamado vs. Court of
Appeals, 270 SCRA 423, G.R. No. 99032 March 26, 1997
Uichico vs. National Labor Relations Commission,
273 SCRA 35, G.R. No. 121434 June 2, 1997
Same; Corporation Law; The general rule is that
obligations, incurred by the corporation, acting through its
directors, officers and employees are its sole liabilities;
Exceptional circumstances warranting solidary liabilities.A
corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. The general
rule is that obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole
liabilities. There are times, however, when solidary liabilities
may be incurred but only when exceptional circumstances
warrant such as in the following cases: 1. When directors
and trustees or, in appropriate cases, the officers of a
corporation: (a) vote for or assent to patently unlawful acts
of the corporation; (b) act in bad faith or with gross
negligence in directing the corporate affairs; (c) are guilty
of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons; 2. When a
director or officer has consented to the issuance of watered
stocks or who, having knowledge thereof, did not forthwith
file with the corporate secretary his written objection
thereto; 3. When a director, trustee or officer has
contractually agreed or stipulated to hold himself personally
and solidarily liable with the corporation; or 4. When a
director, trustee or officer is made, by specific provision of
law, personally liable for his corporate action.
Same; Same; In labor cases, particularly, corporate
directors and officers are solidarily liable with the
corporation for the termination of employment of corporate
employees done with malice or in bad faith.In labor
cases, particularly, corporate directors and officers are
solidarily liable with the corporation for the termination of
employment of corporate employees done with malice or in
bad faith. In this case, it is undisputed that petitioners have
a direct hand in the illegal dismissal of respondent
employees. They were the ones, who as high-ranking
officers and directors of Crispa, Inc., signed the Board
Resolution retrenching the private respondents on the
feigned ground of serious business losses that had no basis
apart from an unsigned and unaudited Profit and Loss
Statement which, to repeat, had no evidentiary value
whatsoever. This is indicative of bad faith on the part of
petitioners for which they can be held jointly and severally
liable with Crispa, Inc. for all the money claims of the
illegally terminated respondent employees in this case.
Uichico vs. National Labor Relations Commission, 273 SCRA
35, G.R. No. 121434 June 2, 1997
Three-fold duty of Directors
Montelibano vs. Bacolod-Murcia Milling Co., Inc., 5
SCRA 36, No. L-15092 May 18, 1962
Corporations; Exercise of charter powers; Test to be
applied."It is a question, therefore, in each case, of the
logical relation of the act to the corporate purpose
expressed in the charter. If that act is one which is lawful in
itself, and not otherwise prohibited, is done for the purpose
of serving corporate ends, and is reasonably tributary to
the promotion of those ends, in a substantial, and not in a
remote and fanciful, sense, it may fairly be considered
within charter powers. The test to be applied is whether the
act in question is in direct and immediate furtherance of the
corporation's business, fairly incident to the express powers
and reasonably necessary to their exercise. If so, the
corporation has the power to do it; otherwise, not."
(Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)
Same; Same; Question on probable losses or decrease in
profits not reviewable by courts.Whether or not a valid
and binding resolution passed by the board of directors, will
cause losses or decrease the profits of the corporation, may
not be reviewed by the courts. Montelibano vs. Bacolod-
Murcia Milling Co., Inc., 5 SCRA 36, No. L-15092 May 18,
1962
Strong and Strong vs. Gutierrez Repide., 41 Phil.
947, No. 110 May 3, 1909
2.FRAUD; CONCEALMENT; PURCHASE OF STOCK BY
DIRECTOR.A purchase of stock in a corporation by a
director and owner of threefourths of the entire capital
stock, who was also administrator general of the company,
and engaged in the negotiations which finally led to the
sale of the company's lands to the Philippine Islands
Government at a price which greatly enhanced the value of
the stock, was fraudulent as procured by "insidious
machinations" inducing the execution of the contract of sale
within the meaning of P. I. Code, article 1269, defining
deceit where he employed an agent to make the purchase,
concealing both his own identity as the purchaser, and his
knowledge of the state of the negotiations and their
probable successful result
3.FRAUD; CONCEALMENT; PURCHASE OF STOCK.The
purchaser of cor porate stock cannot escape liability for his
fraud in concealing facts affecting its value which he was in
good faith bound to disclose, on the theory that, because of
the insistence of the seller that her agent was not
authorized to make the sale, there had never been any
consent on her part, obtained by fraud o otherwise, where
the court finds that the agent's authority was sufficient,
since, in legal effect, her consent will be deemed induced
by the fraud. Strong and Strong vs. Gutierrez Repide., 41
Phil. 947, No. 110 May 3, 1909
Self-dealing Directors
Prime White Cement Corp. vs. Intermediate
Appellate Court, 220 SCRA 103, G.R. No. 68555
March 19, 1993
Corporation Law; Contracts; When contracts signed by
corporate officers binding on corporation.Under the
Corporation Law, which was then in force at the time this
case arose, as well as under the present Corporation Code,
all corporate powers shall be exercised by the Board of
Directors, except as otherwise provided by law. Although it
cannot completely abdicate its power and responsibility to
act for the juridical entity, the Board may expressly
delegate specific powers to its President or any of its
officers. In the absence of such express delegation, a
contract entered into by its President, on behalf of the
corporation, may still bind the corporation if the board
should ratify the same expressly or impliedly. Implied
ratification may take various formslike silence or
acquiescence; by acts showing approval or adoption of the
contract; or by acceptance and retention of benefits flowing
therefrom. Furthermore, even in the absence of express or
implied authority by ratification, the President as such may,
as a general rule, bind the corporation by a contract in the
ordinary course of business, provided the same is
reasonable under the circumstances. These rules are basic,
but are all general and thus quite flexible. They apply
where the President or other officer, purportedly acting for
the corporation, is dealing with a third person, i.e., a
person outside the corporation.
Same; Same; A board director or other corporate officer
cannot readily enter into a contract with his own
corporation; Exceptions.A director of a corporation holds
a position of trust and as such, he owes a duty of loyalty to
his corporation. In case his interests conflict with those of
the corporation, he cannot sacrifice the latter to his own
advantage and benefit. As corporate managers, directors
are committed to seek the maximum amount of profits for
the corporation. This trust relationship "is not a matter of
statutory or technical law. It springs from the fact that
directors have the control and guidance of corporate affairs
and property and hence of the property interests of the
stockholders."
Same; Same; Same.On the other hand, a director's
contract with his corporation is not in all instances void or
voidable. If the contract is fair and reasonable under the
circumstances, it may be ratified by the stockholders
provided a full disclosure of his adverse interest is made.
Same; Same; Same.Granting arguendo that the
"dealership agreement" involved here would be valid and
enforceable if entered into with a person other than a
director or officer of the corporation, the fact that the other
party to the contract was a Director and Auditor of the
petitioner corporation changes the whole situation. First of
all, We believe that the contract was neither fair nor
reasonable. The "dealership agreement" entered into in
July, 1969, was to sell and supply to respondent Te 20,000
bags of white cement per month, for five years starting
September, 1970, at the fixed price of P9.70 per bag.
Respondent Te is a businessman himself and must have
known, or at least must be presumed to know, that at that
time, prices of commodities in general, and white cement in
particular, were not stable and were expected to rise. At
the time of the contract, petitioner corporation had not
even commenced the manufacture of white cement, the
reason why delivery was not to begin until 14 months later.
He must have known that within that period of six years,
there would be a considerable rise in the price of white
cement. In fact, respondent Te's own Memorandum shows
that in September, 1970, the price per bag was P 14.50,
and by the middle of 1975, it was already P37.50 per bag.
Despite this, no provision was made in the "dealership
agreement" to allow for an increase in price mutually
acceptable to the parties. Instead, the price was pegged at
P9.70 per bag for the whole five years of the contract.
Fairness on his part as a director of the corporation from
whom he was to buy the cement, would require such a
provision. In fact, this unfairness in the contract is also a
basis which renders a contract entered into by the
President, without authority from the Board of Directors,
void or voidable, although it may have been in the ordinary
course of business. We believe that the fixed price of P9.70
per bag for a period of five years was not fair and
reasonable. Respondent Te, himself, when he subsequently
entered into contracts to resell the cement to his "new
dealers" Henry Wee and Gaudencio Galang stipulated as
follows: The price of white cement shall be mutually
determined by us but in no case shall the same be less
than P14.00 per bag (94 Ibs)."
Mead vs. McCullough., 21 Phil. 95, No. 6217
December 26, 1911
1.CORPORATIONS; SALARY OF GENERAL MANAGER.
Held: That the verbal contract, entered into between the
board of directors and the plaintiff as general manager, as
to the latter's salary, was a contingent one, dependent
upon the success of the business, and that, as the
corporation was a failing concern, the plaintiff was only
entitled to his actual and necessary expenses.
2.ID.; INDUSTRIAL CIVIL PARTNERSHIP UNDER CIVIL
CODE.A corporation organized for the purpose of
engaging in general engineering and construction work, the
names of the organizers appearing in the articles of
agreement which were duly inscribed in the Commercial
Register, is an industrial civil partnership (corporation) in
the mercantile form; an anonymous partnership, legally
constituted, and must be governed by the provisions of the
Civil Code, the provisions of the Code of Commerce being
applicable subsidiarily.
3.ID.; POWER TO ACQUIRE, HOLD, SELL AND BUY
PROPERTY.A corporation, upon the execution of the
public instrument in which its articles of agreement appear,
and the contribution of funds and personal property,
becomes a juridical person, an artificial being, existing only
in contemplation of the law, with power to hold, buy, and
sell property. The inscribing of its articles of incorporation
in the mercantile register is not necessary to make such a
corporation a juridical person, the inscription operating only
to show that it partakes of the form of a commercial
concern.
4.ID.; ARTICLES OF INCORPORATION; MEETINGS;
CONDUCT OF BUSINESS BY MAJORITY VOTE.Where the
articles of incorporation prescribe that at all meetings of the
stockholders a majority of votes of those present shall be
necessary to determine any question discussed, the sale or
transfer to one of its members of the corporate property is
a matter which the majority of the stockholders can
properly consider, and, generally speaking, the voice of the
majority of the stockholders is the law of the corporation
within the limitation which is found in the essential
compacts of the articles of agreement, which have served
as a basis upon which the members united, and without
which it is not probable that they would have entered into
the corporation.
5.ID.; POWERS OF DIRECTORS AND STOCKHOLDERS;
SALE OF CORPORATE PROPERTY.A majority of the
stockholders or directors have the power to sell or transfer
to one of its members the corporate property, where the
stockholders or directors have general ordinary powers, and
where there is nothing in the articles of incorporation which
expressly prohibits such a sale.
6.ID.; ID. ; ID.A private corporation which owes no
special duty to the public and which has not been given the
right of eminent domain, has the absolute -power as
against the whole world, "except the State, to sell and
dispose of all its property, such power resting in the board
of directors or majority of the stockholders, without
reference to the assent or authority of the minority when
the corporation is in failing circumstances or insolvent, or
when it can no longer continue the business with profit and
when such action is regarded as an -imperative necessity.
7.ID.; ID.; ID.; OFFICER MAY DEAL WITH THE
CONCERN. While a private corporation remains solvent,
there is no reason why a director or officer, by authority of
the majority of its stockholders or board of managers, may
not deal with the corporation, loan it money, or buy
property from it in like manner as a stranger. This is
likewise true of an insolvent corporation, but, in all cases,
such officer or director must act in good faith and pay an
adequate consideration, their acts being at all times subject
to the most severe scrutiny.
8.ID. ; ID.; ID.; DISSOLUTION; CIVIL CODE; CODE OF
COMMERCE.There is nothing in the provisions of the Civil
Code, nor of the Code of Commerce, dealing with the
manner of dissolving a corporation, which expressly or
impliedly prohibits the sale of the corporate property to one
of its members, and the dissolution of the corporation in
such a manner.
9.ID. ; ID. ; PRESUMPTION OF ABANDONMENT OF OFFICE
BY A DIRECTOR.Where a director in a corporation
accepts a position in which his duties are incompatible with
those as such director, it is presumed that he has
abandoned his office as director of the corporation.
10.ID.; DUTY OF DIRECTORS OF INSOLVENT
CORPORATION.The directors of an insolvent corporation
become trustees for all the creditors, and a director who is
also a creditor will not be permitted to secure to himself
any personal advantage over other creditors.
11.PERSONAL EFFECTS OR PROPERTY.Where a person
abandons his personal effects or leaves them in possession
of an irresponsible person, he can not recover the value of
such effects from a party who did not contribute in any
manner to the loss of the same. Mead vs. McCullough., 21
Phil. 95, No. 6217 December 26, 1911
Derivative Suit
Pascual vs. Del Saz Orozco., 19 Phil. 82, No. 5174
March 17, 1911
1.BANKS AND BANKING; CORPORATIONS; RIGHTS OF
STOCKHOLDERS.A stockholder in a banking corporation
has a right to maintain a suit for and on behalf of the
corporation, but the extent of such right depends upon
when and f or what purpose he acquired the shares of
stock of which he is the owner.
2.ID.; ID.; ID.; LIMITATION UPON RIGHTS OF ACTION.A
stockholder in a corporation who was not such at the time
when alleged objectionable transactions took place, or
whose shares of stock have not since devolved upon him by
operation of law, can not maintain suits of this character,
unless such transactions continue and are injurious to such
stockholder or affect him especially or specifically in some
other way.
Everett vs. Asia Banking Corporation, 49 Phil. 512,
No. 25241 November 3, 1926
4.ID. ; CORPORATIONS; HOSTILE BOARD OF DIRECTORS;
ACTION BROUGHT BY STOCKHOLDERS.Where the board
of directors in a corporation is under the complete control
of the principal defendants in the case and it is obvious that
a demand upon the board of directors to institute an action
and prosecute the same effectively would be useless, the
action may be brought by one or more of the stockholders
without such demand. Everett vs. Asia Banking Corporation,
49 Phil. 512, No. 25241 November 3, 1926
Republic Bank vs. Cuaderno, 19 SCRA 671, No. L-
22399 March 30, 1967
Corporation; Banks; Derivative suit by stockholder.An
individual stockholder may institute a derivative or
representative suit on behalf of the corporation, wherein he
holds stock, in order to protect or vindicate corporate
rights, whenever the of f icials of the corporation refuse to
sue, or are the ones to be sued or hold control of the
corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the
real party in interest.
Same; When authority of corporation to bring suit is not
required.Such a suit need not be authorized by the
corporation where its objective is to nullify the action taken
by its manager and the board of directors, in which case
any demand for intra-corporate remedy would be futile.
Same; Nonjoinder of other stockholders.The fact that no
other stockholder has made common cause with the
plaintiff is irrelevant since the smallness of plaintiffs
holding is no ground for denying him relief.
Same; Joinder of corporation.Whether in a derivative suit
filed by a stockholder, the corporation should be joined as a
plaintiff or a defendant is not important. What is important
is that the corporation should be made a party in order to
make the courts judgment binding upon it and thus bar
future relitigations of the issues. Misjoinder of parties is not
a ground for dismissing an action.
Same; Derivative suit is not a quo warranto proceeding.A
derivative suit by a stockholder for the purpose of annulling
the appointment of a defendant as Chairman of the Board
of Directors is not a quo warranto proceeding. The plaintiff
is not claiming title to the position of Chairman of the Board
of Directors. His action is designed to prevent diversion of
the corporate funds for the payment of the salary of said
Chairman.
Same; Stockholders suit to annul actions of banks Board of
Directors.A stockholder has a cause of action to annul
certain actions of the Board of Directors of a bank, which
actions were considered anomalous and a breach of trust
prejudicial to the bank.
Western Institute of Technology, Inc. vs. Salas, 278
SCRA 216, G.R. No. 113032 August 21, 1997
Corporation Law; Two ways by which members of the
board can be granted compensation apart from reasonable
per diems.There is no argument that directors or
trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than
the usual and ordinary duties of their office. This rule is
founded upon a presumption that directors/trustees render
service gratuitously, and that the return upon their shares
adequately furnishes the motives for service, without
compensation. Under the foregoing section, there are only
two (2) ways by which members of the board can be
granted compensation apart from reasonable per diems:
(1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders representing
a majority of the outstanding capital stock at a regular or
special stockholders meeting agree to give it to them.
Same; Members of the board may receive compensation, in
addition to reasonable per diems, when they render
services to the corporation in a capacity other than as
directors/trustees.This proscription, however, against
granting compensation to directors/trustees of a
corporation is not a sweeping rule. Worthy of note is the
clear phraseology of Section 30 which states: x x x [T]he
directors shall not receive any compensation, as such
directors, x x x. The phrase as such directors is not
without significance for it delimits the scope of the
prohibition to compensation given to them for services
performed purely in their capacity as directors or trustees.
The unambiguous implication is that members of the board
may receive compensation, in addition to reasonable per
diems, when they render services to the corporation in a
capacity other than as directors/trustees. In the case at
bench, Resolution No. 48, s. 1986 granted monthly
compensation to private respondents not in their capacity
as members of the board, but rather as officers of the
corporation, more particularly as Chairman, Vice-Chairman,
Treasurer and Secretary of Western Institute of
Technology.
Same; Remedial Law; Action; Meaning of Derivative Suit;
For a derivative suit to prosper, it is required that the
minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper
forum that he is suing on a derivative cause of action on
behalf of the corporation and all other shareholders
similarly situated who wish to join.A derivative suit is an
action brought by minority shareholders in the name of the
corporation to redress wrongs committed against it, for
which the directors refuse to sue. It is a remedy designed
by equity and has been the principal defense of the
minority shareholders against abuses by the majority. Here,
however, the case is not a derivative suit but is merely an
appeal on the civil aspect of Criminal Cases Nos. 37097 and
37098 filed with the RTC of Iloilo for estafa and falsification
of public document. Among the basic requirements for a
derivative suit to prosper is that the minority shareholder
who is suing for and on behalf of the corporation must
allege in his complaint before the proper forum that he is
suing on a derivative cause of action on behalf of the
corporation and all other shareholders similarly situated
who wish to join. This is necessary to vest jurisdiction upon
the tribunal in line with the rule that it is the allegations in
the complaint that vests jurisdiction upon the court or
quasi-judicial body concerned over the subject matter and
nature of the action. This was not complied with by the
petitioners either in their complaint before the court a quo
nor in the instant petition which, in part, merely states that
this is a petition for review on certiorari on pure questions
of law to set aside a portion of the RTC decision in Criminal
Cases Nos. 37097 and 37098 since the trial courts
judgment of acquittal failed to impose any civil liability
against the private respondents. By no amount of equity
considerations, if at all deserved, can a mere appeal on the
civil aspect of a criminal case be treated as a derivative
suit.
San Miguel Corporation vs. Kahn, 176 SCRA 447,
G.R. No. 85339 August 11, 1989
Corporation Law; Derivative Suit; Theory that de los
Angeles has no personality to bring suit in behalf of the
corporation cannot be sustained.The theory that de los
Angeles has no personality to bring suit in behalf of the
corporationbecause his stockholding is minuscule, and
there is a conflict of interest between him and the
PCGGcannot be sustained, either.
Same; Same; Same; The implicit argument that a
stockholder to be considered as qualified to bring a
derivative suit must hold a substantial or significant block of
stock finds no support whatever in the law; Requisites for a
derivative suit.It is claimed that since de los Angeles 20
shares (owned by him since 1977) represent only
.00001644% of the total number of outstanding shares
(121,645,860), he cannot be deemed to fairly and
adequately represent the interests of the minority
stockholders. The implicit argumentthat a stockholder, to
be considered as qualified to bring a derivative suit, must
hold a substantial or significant block of stockfinds no
support whatever in the law. The requisites for a derivative
suit are as follows: a) the party bringing suit should be a
shareholder as of the time of the act or transaction
complained of, the number of his shares not being
material; b) he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed
or refused to heed his plea; and c) the cause of action
actually devolves on the corporation, the wrongdoing or
harm having been, or being caused to the corporation and
not to the particular stockholder bringing the suit.
Same; Same; Same; Same; Bona fide ownership by a
stockholder of stock in his own right suffices to invest him
with standing to bring a derivative action for the benefit of
the corporation; Number of shares is immaterial.The
bona fide ownership by a stockholder of stock in his own
right suffices to invest him with standing to bring a
derivative action for the benefit of the corporation. The
number of his shares is immaterial since he is not suing in
his own behalf, or for the protection or vindication of his
own particular right, or the redress of a wrong committed
against him, individually, but in behalf and for the benefit
of the corporation.
Same; Same; Same; Theory of conflict-of-interest cannot
be upheld.Neither can the conflict-of-interest theory be
upheld. From the conceded premise that de los Angeles
now sits in the SMC Board of Directors by the grace of the
PCGG, it does not follow that he is legally obliged to vote as
the PCGG would have him do, that he cannot legitimately
take a position inconsistent with that of the PCGG, or that,
not having been elected by the minority stockholders, his
vote would necessarily never consider the latters interests.
The proposition is not only logically indefensible, non
sequitur, but also constitutes an erroneous conception of a
directors role and function, it being plainly a directors duty
to vote according to his own independent judgment and his
own conscience as to what is in the best interests of the
company. Moreover, it is undisputed that apart from the
qualifying shares given to him by the PCGG, he owns 20
shares in his own right, as regards which he cannot from
any aspect be deemed to be beholden to the PCGG, his
ownership of these shares being precisely what he invokes
as the source of his authority to bring the derivative suit.
Same; Same; Same; Argument that the PCGG has no
power to vote sequestered shares of stock as an act of
dominion but only in pursuance of its power of
administration is strained and of no merit.It is also
theorized, on the authority of the BASECO decision, that
the PCGG has no power to vote sequestered shares of stock
as an act of dominion but only in pursuance to its power of
administration. The inference is that the PCGGs act of
voting the stock to elect de los Angeles to the SMC Board of
Directors was unauthorized and void; hence, the latter
could not bring suit in the corporations behalf. The
argument is strained and obviously of no merit. As already
more than plainly indicated, it was not necessary for de los
Angeles to be a director in order to bring a derivative
action; all he had to be was a stockholder, and that he
wasowning in his own right 20 shares of stock, a fact not
disputed by the respondents.
Same; Same; Same; Same; Nothing in the Baseco decision
which can be interpreted as ruling that sequestered stock
may not under any circumstances be voted by the PCGG to
elect a director in the company in which such stock is
held.Nor is there anything in the Baseco decision which
can be interpreted as ruling that sequestered stock may not
under any circumstances be voted by the PCGG to elect a
director in the company in which such stock is held. On the
contrary, that it held such act permissible is evident from
the context of its reference to the Presidential
Memorandum of June 26, 1986 authorizing the PCGG,
pending the outcome of proceedings to determine the
ownership of x x sequestered shares of stock, to vote
such shares x x at all stockholders meetings called for the
election of directors x x the only caveat being that the
stock is not to be voted simply because the power to do so
exists, whether it be to oust and replace directors or to
effect substantial changes in corporate policy, programs or
practice, but only for demonstrably weighty and defensible
grounds or when essential to prevent disappearance or
wastage of corporate property. San Miguel Corporation vs.
Kahn, 176 SCRA 447, G.R. No. 85339 August 11, 1989
Chase vs. Buencamino, Sr., 136 SCRA 365, No. L-
20395 May 13, 1985
Same; Corporation Law; Estoppel; Fact that a corporate
director filed suit in California, U.S.A. against an officer of a
local corporation in his personal capacity does not
constitute an estoppel in a derivative minority stockholders
suit filed by the former against another officer of the
corporation in Philippine courts. Commission of fraud on the
corporation by Dr. Buencamino is supported by evidence.
The Court having seen with its own eyes the evidence
proving the fraud, can not find it easy to refuse relief unto
Chase because of the failure of his auditor to discover the
anomalies; or because of the fact that he had filed a suit
against Cranker in California and failed to mention Dr.
Buencamino there as a guilty party, for this would only
weaken his evidence but would not be enough to put him
in estoppel for as Chase correctly says, it did not mislead
Dr. Buencamino to adopt a course of action to the latters
prejudice; and as well does the Court feel bound not to bar
the case of Chase by reason of his letter Exh. 10 wherein
he blamed Cranker not Dr. Buencamino tor his
predicament, for the same reason; the Court of course
must grant that there was inconsistency in the position
here; for there in California and in the letter Exh. 10, he
proceeded on the theory that the transaction an his plant
was between him and Cranker for $250,000.00 while here
his theory is that it was a deal between him, Cranker and
Dr. Buencamino wherein these two would pay him
$100,000.00 and they three would form Amparts with 1/3
of the shares being given to him fully paid up as part of the
purchase price; but the Court while it must admit that this
has weakened the case for Chase, must also admit that
they have not altogether destroyed that since in the first
place, the inconsistency in theory adopted in the California
Court from that adopted here as an obstacle to the present
action is as the Court takes it, obviated by the very
evidence of Dr. Buencamino since because the theory of
California was that Chase was entitled to only $250,000.00,
and nothing more and what would if true, not grant unto
Chase any personality to file this derivative suit as an
Amparts stockholder, but the evidence of defendants
proves very clearly that right from the start, Chase was by
them recognized as a stockholder and initial incorporator
with 600 paid up shares representing a 1/3 interest in
Amparts, and that would be enough for Chase to have the
correct personality to institute this derivative suit; the
second place, it also appears apparently undenied that
Chase did not win in California so that he did not recover
the $150,000.00 that he had prayed for there against
Overseas, which if he had would really in the mind of the
Court have put him in estoppel to intervene in any manner
as incorporator or stockholder of Amparts; and in the third
place and most important it should not be forgotten that
Chase has filed the present case not for his personal
benefit, but for the benefit of Amparts, so that to the Court
the argument of estoppel as against him would appear to
be out of place; the estoppel to be valid as a defense must
be an estoppel against Amparts itself; the long and short of
it is that the Court is impelled and constrained to discard all
the other defenses set up by Dr. Buencamino on the
principal complaint; the result of all these would be to
sustain so far, the position of Chase that Dr. Buencamino
must account for the P570,000,00 used to pay the second
series of payment on the subscription, the P330,000.00
used in paying the 1st series on the subscription, plus
another sum of P245,000.00 entered as loan on his favor
and against Amparts, for the sum of P434,000,00 earned in
the blackmarketing of the excess of $140,000.00 dollars on
the forwarding costs and promotional expenses, for the
sum of P391,200.00 earned in the blackmarketing of the
excess of $117,000.00 in the transaction with Bertoni and
Cotti, and all these would reach a total of P1,970,200.00;
and as the appropriation of the profits for himself was a
quasi-delict, the liability therefore assuming that it had
been done with the cooperation of Cranker would have to
be solidary, 2194 New Civil Code, because it was a quasi-
delict; but the next question is whether these findings must
justify the remedy of change of management and
dissolution; before going to this, the Court seeing that this
is a question interrelated to the counterclaims, will proceed
to examine them.
Same; Mr. Chase is guilty on two counts on the
counterclaims.The result of the foregoing will be that the
Court must find it proved on the counterclaims, that Chase
had helped a competitor contrary to his position of trust as
director of Amparts, and that Chase had also spread rumors
against Amparts, and its management; for these acts, the
Court will impose some damages which in the absence of
better proof the Court will fix at five hundred (P500.00)
pesos; We go to the most important point of debate,
namely, the final remedy that the Court must now concede.
It will above be noted that while the Court found Chase
guilty on two counts, on the counterclaims the guilt
referred to acts performed during the litigation; they do not
show that Chase had come to Court already guilty; as the
Court has found, when he came to Court on 20 August,
1960, he was an innocent party and Amparts was the
victim of fraud.
Corporation Law; Removal of a majority stockholder from
management or the dissolution of the corporation is a
drastic measure.The removal of a stockholder (in this
case a majority stockholder) from the management of the
corporation and/or the dissolution of a corporation in a suit
filed by a minority stockholder is a drastic measure. It
should be resorted to only when the necessity is clear
which is not the situation in the case at bar. Chase vs.
Buencamino, Sr., 136 SCRA 365, No. L-20395 May 13, 1985
Reyes vs. Tan, 3 SCRA 198, No. L-16982 September
30, 1961
Corporations; Appointment of a receiver; When derivative
suit may be brought.Where corporate directors are guilty
of a breach of trustnot of mere error of judgment or
abuse of discretionand intra-corporate remedy is futile or
useless, a stockholder may institute a suit in behalf of
himself and other stockholders and for the benefit of the
corporation, to bring about a redress of the wrong inflicted
directly upon the corporation and indirectly upon the
stockholders (Angeles vs. Santos, 64 Phil. 697).
Same; Failure of stockholder to take remedial steps against
the corporation within two years from commission of fraud
not fatal to suit.Although the stockholder did not take
steps to remedy the illegal importation by the corporation
for a period of two years, that act does not bar him from
bringing an action for the appointment of a receiver,
because during that period of time he had the right to
assume and expect that the directors would remedy the
anomalous situation of the corporation brought about by
their own wrong doing. Only after such period had elapsed
could he conclude that the directors were remiss in their
duty to protect the corporation property and business.
Same; When expedient is necessary.Where the directors
of the corporation permitted the fraudulent transaction to
go unpunished by allowing the importation of finished
textile instead of raw cotton for the textile mill, and nothing
appears to have been done to remove the erring
purchasing managers, the appointment of a receiver may
have been thought of by the court so that the dollar
allocation for raw material may be reviewed and the textile
mill placed on an operating basis, because it is possible that
if a receiver in which the Central Bank may have confidence
is appointed, the dollar allocation for raw material may be
restored. Reyes vs. Tan, 3 SCRA 198, No. L-16982
September 30, 1961
Gamboa vs. Victoriano, 90 SCRA 40, No. L-40620
May 5, 1979
Corporation Law; Remedial Law; Civil Procedure; Order
denying motion to dismiss complaint is an interlocutory
order not subject of petition for certiorari.The questioned
order denying the petitioners motion to dismiss the
complaint is merely interlocutory and cannot be the subject
of a petition for certiorari. The proper procedure to be
followed in such a case is to continue with the trial of the
case on the merits and, if the decision is adverse, to
reiterate the issue on appeal It would be a breach of
orderly procedure to allow a party to come before this
Court every time an order is issued with which he does not
agree.
Same; Derivative Suit; When derivative suit should be
instituted.An individual stockholder is permitted to
institute a derivative suit on behalf of the corporation
wherein he holds stock in order to protect or vindicate
corporate rights, whenever the officials of the corporation
refuse to sue, or are the ones to be sued or hold the
control of the corporation. In such actions, the suing
stockholder is regarded as a nominal party, with the
corporation as the real party in interest. In the case at bar,
however, the plaintiffs are alleging and vindicating their
own individual interests or prejudice, and not that of the
corporation.
2.PARTIES; CORPORATION; MISMANAGEMENT BY ITS
OFFICER; RIGHT OF STOCKHOLDERS TO BRING SUIT.
The plaintiff stockholders have brought the action not for
the benefit of the corporation but f or their own benefit,
since they ask that the defendant make good the losses
occasioned by his mismanagement and pay to them the
value of their respective participation in the corporate
assets on the basis of their respective holdings.
Clearly, this cannot be, done until all corporate debts, if
there be any, are paid and the existence of the corporation
terminated by the limitation of its charter or by lawful
dissolution in view of the provisions of section 16 of the
Corporation Law. Evangelista vs. Santos, 86 Phil. 387, No.
L-1721 May 19, 1950
Corporate Powers and Authority
Delta Motor Sales Corporation vs. Mangosing, 70
SCRA 598, No. L-41667 April 30, 1976
Summons; Corporations law; Strict compliance with the
mode of service of summons to a corporation is
necessary.A strict compliance with the mode of service is
necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made must
be one who is named in the statute, otherwise the service
is insufficient. x x x The purpose is to render it reasonably
certain that the corporation will receive prompt and proper
notice in an action against it or to insure that the summons
be served on a representative so integrated with the
corporation that such person will know what to do with the
legal papers served on him. In other words, to bring home
to the corporation notice of the filing of the action. In the
instant case the Manila court did not acquire jurisdiction
over Delta Motor because it was not properly served with
summons. The service of summons on Dionisia G. Miranda,
who is not among the persons mentioned in section 13 of
Rule 14 (being a mere secretary to the head of the
personnel department who was then on sick leave) was
insufficient. It did not bind Delta Motor. x x x Consequently,
the order of default, the judgment by default and the
execution in Civil Case No. 97373 are void and should be
set aside.
E.B. Villarosa & Partner Co., Ltd. vs. Benito, 312
SCRA 65, G.R. No. 136426 August 6, 1999
Remedial Law; Civil Procedure; Summons; Jurisdiction; The
designation of persons or officers who are authorized to
accept summons for a domestic corporation or partnership
is now limited and more clearly specified in Section 11, Rule
14 of the 1997 Rules of Civil Procedure.The designation of
persons or officers who are authorized to accept summons
for a domestic corporation or partnership is now limited and
more clearly specified in Section 11, Rule 14 of the 1997
Rules of Civil Procedure. The rule now states general
manager instead of only manager; corporate
secretary instead of secretary; and treasurer instead articles of incorporation to operate and otherwise deal in
of cashier. The phrase agent, or any of its directors is
conspicuously deleted in the new rule.
Same; Same; Same; Same; Strict compliance with the rules
has been enjoined; The liberal construction rule cannot be
invoked and utilized as a substitute for the plain legal
requirements as to the manner in which summons should
be served on a domestic corporation.It should be noted
that even prior to the effectivity of the 1997 Rules of Civil
Procedure, strict compliance with the rules has been
enjoined. In the case of Delta Motor Sales Corporation vs.
Mangosing, the Court held: A strict compliance with the
mode of service is necessary to confer jurisdiction of the
court over a corporation. The officer upon whom service is
made must be one who is named in the statute; otherwise
the service is insufficient. x x x. The purpose is to render it
reasonably certain that the corporation will receive prompt
and proper notice in an action against it or to insure that
the summons be served on a representative so integrated
with the corporation that such person will know what to do
with the legal papers served on him. In other words, to
bring home to the corporation notice of the filing of the
action. x x x. The liberal construction rule cannot be
invoked and utilized as a substitute for the plain legal
requirements as to the manner in which summons should
be served on a domestic corporation. x x x. (italics
supplied).
Same; Same; Same; Same; Service of summons upon
persons other than those mentioned in Section 13 of Rule
14 (old rule) has been held as improper.Service of
summons upon persons other than those mentioned in
Section 13 of Rule 14 (old rule) has been held as improper.
Even under the old rule, service upon a general manager of
a firms branch office has been held as improper as
summons should have been served at the firms principal
office. In First Integrated Bonding & Ins. Co., Inc. vs.
Dizon, it was held that the service of summons on the
general manager of the insurance firms Cebu branch was
improper; default order could have been obviated had the
summons been served at the firms principal office.
Same; Same; Same; Same; Court rules that the service of
summons upon the branch manager of petitioner at its
branch office at Cagayan de Oro, instead of upon the
general manager at its principal office at Davao City is
improper; Trial court did not acquire jurisdiction over the
person of the petitioner.Accordingly, we rule that the
service of summons upon the branch manager of petitioner
at its branch office at Cagayan de Oro, instead of upon the
general manager at its principal office at Davao City is
improper. Consequently, the trial court did not acquire
jurisdiction over the person of the petitioner.
Luneta Motor Company vs. A. D. Santos, Inc., 5
SCRA 809, No. L-17716 July 31, 1962
Corporations; Power to purchase and deal with personal or
real property; Purpose of the corporation to be
considered.Under Section 13(5) of the Corporation Law, a
corporation created thereunder may purchase, hold and
otherwise deal in such real and personal property as the
purpose for which the corporation was formed may permit,
and the transaction of its lawful business may reasonably
and necessarily require. A corporation authorized under its
automobiles and automobile accessories and to engage in
the transportation of persons by water, may not engage in
the business of land transportation, which is an entirely
different line of business, and, for this reason, may not
acquire any certificate of public convenience to operate a
taxicab service, because such acquisition would be without
purpose and would have no necessary connection with the
corporation's legitimate business. Luneta Motor Company
vs. A. D. Santos, Inc., 5 SCRA 809, No. L-17716 July 31,
1962
Director of Lands vs. Court of Appeals, 158 SCRA
568, No. L-56613 March 14, 1988
Same; Same; Public Land Act; Majority ruling in Meralco vs.
Castro-Bartolome et al., 114 SCRA 799 is no longer deemed
to be binding precedent; The correct rule x x x is that
alienable public land held by a possessor, personally or
through his predecessors-in-interest, openly, continuously
and exclusively for thirty (30) years is converted to private
property by mere lapse or completion of said period, ipso
jure.Since then, however, this Court had occasion to re-
examine the rulings in these cases vis-a-vis the earlier
cases of Carino v. Insular Government, 41 Phil. 935; Susi v.
Razon, 48 Phil. 424 and Herico v. Dar, 95 SCRA 437,
among others, Thus, in the recent case of Director of Lands
v, Intermediate Appellate Court, 146 SCRA 509, We
categorically stated that the majority ruling in Meralco is
"no longer deemed to be binding precedent", and that
"[T]he correct rule, x x x is that alienable public land held
by a possessor, personally or through his predecessorsin-
interest, openly, continuously and exclusively for the
prescribed statutory period [30 years under the Public Land
Act, as amended] is converted to private property by mere
lapse or completion of said period, ipso jure." We further
reiterated therein the time-honored principle of non-
impairment of vested rights. Director of Lands vs. Court of
Appeals, 158 SCRA 568, No. L-56613 March 14, 1988
Republic vs. Acoje Mining Co., Inc., 7 SCRA 361, No.
L-18062 February 28, 1963
Corporations; Ultra vires act defined; When corporate acts
may be performed outside the scope of powers expressly
con-ferred.While as a rule an ultra vires act is one
committed out-side the object for which a corporation is
created as defined by the law of its organization and
therefore beyond the powers conferred upon it by law (19
C.J.S., Section 965, p. 419), there are however certain
corporate acts that may be performed out-side of the scope
of the powers expressly conferred if they are necessary to
promote the interest or welfare of the corporation, such as
the establishment, in the case at bar, of a local post office
in a mining camp which is far removed from the postal
facilities or means of communications accorded to- people
living in a city or municipality.
Same; Same; Ultra vires act distinguished from illegal act;
Enforcement of ultra vires act on the ground of estoppel.
An illegal act is void and cannot be validated, while an ultra
vires act is merely voidable and can be enforced by
performance, ratifi-cation or estoppel, or on equitable
grounds. In the present case the validity of the resolution
of the Board of Directors of the corporation accepting full
responsibility in connection with funds to be received by its
postmaster, should be upheld on the ground of estoppel.
Same; Assumption of responsibility; Responsibility in
pres-ent case that of principal and not that of guarantor.
That the responsibility of the defendant corporation is not
just that of a guarantor but of a principal is clear from the
resolution of its Board of Directors in which the corporation
assumed full responsibility for all cash received by the
Postmaster. Republic vs. Acoje Mining Co., Inc., 7 SCRA
361, No. L-18062 February 28, 1963
Teresa Electric & Power Co., Inc. vs. Public Service
Commission, 21 SCRA 198, No. L-21804 September
25, 1967
Public Service Commission; Issuance of certificates of public
convenience; Municipal or legislative franchise; When not a
condition precedent; Case at bar.The requirement of a
municipal franchise under the provisions of Act No. 667 was
intended to apply exclusively to any person or corporation
who desires a franchise to construct and maintain an
electric line or power plant and line for business purposes;
it should not be made to apply to one who, like respondent,
applied for a certificate of public convenience and service to
operate and maintain an electric plant exclusively for its
own use in connection with the operation of its cement
factory and for free use of its employees living within the
compound of the factory.
National Power Corporation vs. Vera, 170 SCRA 721,
G.R. No. 83558 February 27, 1989
Same; Same; Powers of a Corporation; A corporation is not
restricted to exercise only those powers expressly conferred
upon it by its charter, it may also exercise those powers
which are reasonably necessary or proper to promote its
interests and welfare.This Court is guided by
jurisprudence in the application of the above standard. In
the 1963 case of Republic of the Philippines v. Acoje Mining
Company, Inc. [G.R. No. L-18062, February 28, 1963, 7
SCRA 361] the Court affirmed the rule that a corporation is
not restricted to the exercise of powers expressly conferred
upon it by its charter, but has the power to do what is
reasonably necessary or proper to promote the interest or
welfare of the corporation. Thus, the Court, finding that a
post office is a vital improvement in the living condition of
its employees and laborers who came to settle in its mining
camp which is far removed from the postal facilities or
means of communication accorded to people living in a city
or municipality [Id., at p. 365], held that respondent
mining corporation was empowered to operate and
maintain postal facilities servicing its employees and their
families at its mining camp in Sta. Cruz, Zambales despite
absence of a provision in the companys charter authorizing
the former to do so.
Powers vs. Marshall, 161 SCRA 176, No. L-48064
May 9, 1988
Same; Same; A valid exercise of corporate power by the
Board, binding upon all members of the corporation.Since
the collection of the development fee had been approved
by the Board of Trustees of the lnternational School, Inc., it
was a valid exercise of corporate power by the Board, and
said assessment was binding upon all the members of the
corporation. Their action to stop the collection of said fee
was correctly dismissed by the trial court for lack of a valid
cause of action against the school. Powers vs. Marshall, 161
SCRA 176, No. L-48064 May 9, 1988
Philippine Trust Co. vs. Rivera, 44 Phil. 469, No.
19761 January 29, 1923
CORPORATIONS; DIMINUTION OF CAPITAL.A
corporation has no power to release an original subscriber
to its capital stock from the obligation of paying for his
shares, without a valuable consideration. for such release;
and as against creditors a reduction of the capital stock can
take place only in the manner and under the conditions
prescribed by law. Philippine Trust Co. vs. Rivera, 44 Phil.
469, No. 19761 January 29, 1923
Madrigal & Company, Inc. vs. Zamora, 151 SCRA
355, No. L-48237, No. L-49023 June 30, 1987
Labor Law; Dividends received by the company are
corporate earnings arising from corporate investment.The
petitioner would, however, have us believe that it in fact
sustained losses. Whatever profits it earned, so it claims
were in the nature of dividends declared on its
shareholdings in other companies in the earning of which
the employees had no participation whatsoever. Cash
dividends, according to it, are the absolute property of
the stockholders and cannot be made available for
disposition if only to meet the employees economic
demands. There is no merit in this contention. We agree
with the National Labor Relations Commission that [t]he
dividends received by the company are corporate earnings
arising from corporate investment. Indeed, as found by
the Commission, the petitioner had entered such earnings
in its financial statements as profits, which it would not
have done if they were not in fact profits. Moreover, it is
incorrect to say that such profitsin the form of
dividendsare beyond the reach of the petitioners
creditors since the petitioner had received them as
compensation for its management services in favor of the
companies it managed as a shareholder thereof. As such
shareholder. the dividends paid to it were its own money,
which may then be available for wage increments. It is not
a case of a corporation distributing dividends in favor of its
stockholders, in which case, such dividends would be the
absolute property of the stockholders and hence, out of
reach by creditors of the corporation. Here, the petitioner
was acting as stockholder itself, and in that case, the right
to a share in such dividends, by way of salary increases,
may not be denied its employees.
Same; Unfair Labor Practice; Reduction of capital to evade
employees demand for salary adjustments, mass lay-off of
employees under the guise of retrenchment policy
constitute unfair labor practice.Accordingly, this court is
convinced that the petitioners capital reduction efforts
were, to begin with, a subterfuge, a deception as it were,
to camouflage the fact that it had been making profits, and
consequently, to justify the mass lay off in its employee
ranks, especially of union members. They were nothing but
a premature and plain distribution of corporate assets to
obviate a just sharing to labor of the vast profits obtained
by its joint efforts with capital through the years. Surely,
we can neither countenance nor condone this. It is an
unfair labor practice. As we observed in Peoples Bank and
Trust Company v. Peoples Bank and Trust Co. Employees
Union: xxx xxx xxx As has been held by this Court in
Insular Lumber Company vs. CA, et al., L-23875, August
29, 1969, 29 SCRA 371, retrenchment can only be availed
of if the company is losing or meeting financial reverses in
its operation, which certainly is not the case at bar.
Undisputed is the fact, that the Bank at no time incurred
losses. As a matter of fact. the net earnings of the Bank
would be in the average of P2,000,000.00 a year from 1960
to 1969 and, during this period of nine (9) years, the Bank
continuously declared dividends to its stockholders. Thus
the mass layoff or dismissal of the 65 employees under the
guise of retrenchment policy of the Bank is a lame excuse
and a veritable smoke-screen of its scheme to bust the
Union and thus unduly disturb the employment tenure of
the employees concerned, which act is certainly an unfair
labor practice. Madrigal & Company, Inc. vs. Zamora, 151
SCRA 355, No. L-48237, No. L-49023 June 30, 1987
Datu Tagoranao Benito vs. Securities & Exchange
Commission, 123 SCRA 722, No. L-56655 July 25,
1983
Corporation Law; No stockholders meeting or approval is
necessary for issuance of unsubscribed portion of capital
stock.As aptly stated by the Securities and Exchange
Commission in its decision: x x x the questioned issuance of
the unsubscribed portion of the capital stock worth
P110,980.00 is not invalid even if assuming that it was
made without notice to the stockholders as claimed by
petitioner. The power to issue shares of stocks in a
corporation is lodged in the board of directors and no
stockholders meeting is necessary to consider it because
additional issuance of shares of stocks does not need
approval of the stockholders. The by-laws of the
corporation itself states that the Board of Trustees shall, in
accordance with law, provide for the issue and transfer of
shares of stock of the Institute and shall prescribe the form
of the certificate of stock of the Institute (Art. V, Sec. 1).
Same; A stockholder enjoys no pre-emptive right to buy
unissued shares of originally authorized capital stock.
Petitioner bewails the fact that in view of the lack of notice
to him of such subsequent issuance, he was not able to
exercise his right of pre-emption over the unissued shares.
However, the general rule is that pre-emptive right is
recognized only with respect to new issue of shares, and
not with respect to additional issues of originally authorized
shares. This is on the theory that when a corporation at its
inception offers its first shares, it is presumed to have
offered all of those which it is authorized to issue. An
original subscriber is deemed to have taken his shares
knowing that they form a definite proportionate part of the
whole number of authorized shares. When the shares left
unsubscribed are later reoffered, he cannot therefore claim
a dilution of interest. (Campos and Lopez-Campos Selected
Notes and Cases on Corporation Law, p. 855, citing Yasik V.
Wachtel, 25 Del. Ch. 247, 17A. 2d 308 (1941). (pp. 33-34,
Rollo)
Islamic Directorate of the Phils. vs. Court of
Appeals, 272 SCRA 454, G.R. No. 117897 May 14,
1997
Same; Same; Same; Same; Same; Corporation Law; A
juridical person can not be considered essentially a formal
party to a case where it was not duly represented by its
legitimate governing board.In this connection, although it
is true that Civil Case No. Q-90-6937, which gave rise to
G.R. No. 107751, was entitled, Iglesia Ni Kristo, Plaintiff v.
Islamic Directorate of the Philippines, Defendant, the IDP
can not be considered essentially a formal party thereto for
the simple reason that it was not duly represented by a
legitimate Board of Trustees in that case. As a necessary
consequence, Civil Case No. Q-90-6937, a case for Specific
Performance with Damages, a mere action in personam ,
did not become final and executory insofar as the true IDP
is concerned since petitioner corporation, for want of
legitimate representation, was effectively deprived of its
day in court in said case. Res inter alios judicatae nullum
aliis praejudicium faciunt. Matters adjudged in a cause do
not prejudice those who were not parties to it. Elsewise
put, no person (natural or juridical) shall be affected by a
proceeding to which he is a stranger.
Corporation Law; Jurisdiction; Securities and Exchange
Commission; The SEC has the unquestionable authority to
pass upon the issue as to who among the different
contending groups is the legitimate governing board of a
corporate body.There can be no question as to the
authority of the SEC to pass upon the issue as to who
among the different contending groups is the legitimate
Board of Trustees of the IDP since this is a matter properly
falling within the original and exclusive jurisdiction of the
SEC by virtue of Sections 3 and 5(c) of Presidential Decree
No. 902-A: Section 3. The Commission shall have absolute
jurisdiction, supervision and control over all corporations,
partnerships or associations , who are the grantees of
primary franchises and/or a license or permit issued by the
government to operate in the Philippines x x x x x x. x x x
x x x x x x Section 5. In addition to the regulatory and
adjudicative functions of the Securities and Exchange
Commission over corpora ti ons , partnerships and other
forms of associations registered with it as expressly granted
under existing laws and decrees, it shall have original and
exclusive jurisdiction to hear and decide cases involving: x
x x x x x x x x c) Controversies in the selection or
appointment of directors, trustees, officers, or managers of
such corporations, partnerships or associations. x x x.
Same; Contracts; Sales; Where a corporate body never
gave its consent, thru a legitimate governing board, to a
deed of absolute sale, the subject sale is void and produces
no effect whatsoever.Premises considered, all acts carried
out by the Carpizo Board, particularly the sale of the
Tandang Sora property, allegedly in the name of the IDP,
have to be struck down for having been done without the
consent of the IDP thru a legitimate Board of Trustees.
Article 1318 of the New Civil Code lays down the essential
requisites of contracts: There is no contract unless the
following requisites concur: (1) Consent of the contracting
parties; (2) Object certain which is the subject matter of
the contract; (3) Cause of the obligation which is
established. All these elements must be present to
constitute a valid contract. For, where even one is absent,
the contract is void. As succinctly put by Tolentino, consent
is essential for the existence of a contract, and where it is
wanting, the contract is non-existent. In this case, the IDP,
owner of the subject parcels of land, never gave its
consent, thru a legitimate Board of Trustees, to the
disputed Deed of Absolute Sale executed in favor of INC.
This is, therefore, a case not only of vitiated consent, but
one where consent on the part of one of the supposed
contracting parties is totally wanting. Ineluctably, the
subject sale is void and produces no effect whatsoever.
Same; Same; Same; For the sale of the only property of a
corporation to be valid, the majority vote of the legitimate
board, concurred in by the vote of at least 2/3 of the bona
fide m embers of the corporation, should be obtained.The
Tandang Sora property, it appears from the records,
constitutes the only property of the IDP. Hence, its sale to
a third-party is a sale or disposition of all the corporate
property and assets of I DP falling squarely within the
contemplation of the foregoing section. For the sale to be
valid, the m a jorit y vot e of the legitimate Board of
Trustees, concurred in by the vote of at least 2/3 of the
bona fide members of the corporation should have been
obtained. These twin requirements were not met as the
Carpizo Group which voted to sell the Tandang Sora
property was a fake Board of Trustees , and those whose
names and s ignatures were affixed by the Carpizo Group
together with the sham Board Resolution authorizing the
negotiation for the sale were, from all indications, not bona
fide members of the IDP as they were ma de to appear to
be. Apparently, there are only fifteen (15) official members
of the petitioner corporation including the eight (8)
members of the Board of Trustees.
Edward J. Nell Company vs. Pacific Farms, Inc., 15
SCRA 415, No. L-20850 November 29, 1965
Corporations; Sale of assets by one corporation to another;
Liability for debts of the transferor.Generally, where one
corporation sells or otherwise transfers all of its assets to
another corporation, the latter is not liable for the debts
and liabilities of the transferor, except: (1) where the
purchaser expressly or impliedly agrees to assume such
debts; (2) where the transaction amounts to a
consolidation or merger of the corporations; (3) where the
purchasing corporation is merely a continuation of the
selling corporation; and (4) where the transaction is
entered into fraudulently in order to escape liability f or
such debts.
Same; Same; Merger of two corporations; Case at bar.
Appellant's claim that the transactions betwe the two
corporations have resulted in their consilidation or merger
is negated by its theory to the effect that one of the said
corporations is an alter ego of the other. For, a corporation
cannot be its own alter ago. Edward J. Nell Company vs.
Pacific Farms, Inc., 15 SCRA 415, No. L-20850 November
29, 1965
Steinberg vs. Velasco, 52 Phil. 953, No. 30460 March
12, 1929
1.WHAT CREDITORS MAY ASSUME.The creditors of a
corporation have the right to assume that so long as there
are debts and liabilities, the board of directors of the
corporation will not use its assets to purchase its own stock
or to declare dividends to its stockholders when the
corporation is insolvent.
2.DUTIES OF DIRECTORS.The directors of a corporation
are bound to care for its property and manage its affairs in
good faith, and for a violation of their duties resulting in
waste of its assets or injury to its property, they are liable
to account the same as any other trustee.
3.LIABILITY OF DIRECTORS.If the directors of a
corporation do acts clearly beyond their power, by reason
of which a loss ensued, or dispose of its property without
authority, they will be required to make good the loss out
of their private estate.
4.IGNORANCE IS NO DEFENSE.A director of a corporation
is bound to exercise ordinary skill and judgment and cannot
excuse his negligence or unlawf ul acts on the ground of
ignorance or inexperience. Steinberg vs. Velasco, 52 Phil.
953, No. 30460 March 12, 1929
De la Rama vs. Ma-ao Sugar Central Co., Inc., 27
SCRA 247, Nos. L-17504 February 28, 1969
Corporation Law; Investment of corporate funds in another
corporation; When not violative of Section of the
Corporation Law.Plaintiffs-appellants contend that the
investment of corporate funds by defendants-appellants in
another corporation constitutes a violation of section of
the Corporation Law. The Supreme Court held that such
an act, if done pursuance of the corporate purpose, does
not need the approval of the stockholders; but when the
purchase of shares of another corporation is done solely for
investment and not to accomplish the purpose of its
incorporation, the vote of approval of the stockholders is
necessary, and further states that when purpose or
purposes as stated in its articles of incorporation, the
approval of the stockholders is not necessary. (Guevara,
Philippine Corp. Law, 1967 ed., p. 89).
Corporation Law; Investment of corporation for other
corporations not similar with its business; Deemed proper
by Section 17 of the Corporation Law.The lower courts
order refraining the appellant corporation from making
investment in other companies whose purpose is not
connected with the sugar central business should be
reversed. This is because section 17 of the Corporation
Law allows a corporation to invest its funds in any other
corporation or business, or for any purpose other than the
main purpose for which it was organized, provided that its
board of directors has been so authorized by the affirmative
vote of stockholders holding shares entitling them to
exercise at least two-thirds of the voting power. De la
Rama vs. Ma-ao Sugar Central Co., Inc., 27 SCRA 247, Nos.
L-17504 February 28, 1969
Gokongwei, Jr. vs. Securities and Exchange
Commission, 89 SCRA 336, No. L-45911 April 11,
1979
Supreme Court; Judgments; Securities and Exchange
Commission; Corporation Law; Supreme Court always
strives to settle a legal controversy in a single
proceeding.xxx In the case at bar, there are facts which
cannot be denied, viz.: that the amended by-laws were
adopted by the Board of Directors of the San Miguel
Corporation in the exercise of the power delegated by the
stockholders ostensibly pursuant to section 22 of the
Corporation Law; that in a special meeting on February 10,
1977 held specially for that purpose, the amended by-laws
were ratified by more than 80% of the stockholders of
record; that the foreign investment in the Hongkong
Brewery and Distillery, a beer manufacturing company in
Hongkong, was made by the San Miguel Corporation in
1948; and that in the stockholders annual meeting held in
1972 and 1977, all foreign investments and operations of
San Miguel Corporation were ratified by the stockholders.
Corporation Law; While reasonableness of a by-law is a
legal question, where reasonableness of a by-law provision
is one in which reasonable minds may differ a court will not
be justified in subsisting its judgment for those authorized
to make the by-laws.The validity or reasonableness of a
by-law of a corporation is purely a question of law. Whether
the by-law is in conflict with the law of the land, or with the
charter of the corporation, or is in a legal sense
unreasonable and therefore unlawful is a question of law.
This rule is subject, however, to the limitation that where
the reasonableness of a by-law is a mere matter of
judgment, and one upon which reasonable minds must
necessarily differ, a court would not be warranted in
substituting its judgment instead of the judgment of those
who are authorized to make by-laws and who have
exercised their authority.
Same; Under the Corporation Law a corporation is
authorized to prescribe the qualification of its directors.In
this jurisdiction, under Section 21 of the Corporation Law, a
corporation may prescribed in its by-laws the
qualifications, duties and compensation of directors, officers
and employees ***. This must necessarily refer to a
qualification in addition to that specified by section 30 of
the Corporation Law, which provides that every director
must own in his right at least one share of the capital stock
of the stock corporation of which he is a director * * *.
Same; Stockholder has no vested right to be elected as
stockholder.Any person who buys stock in a corporation
does so with the knowledge that its affairs are dominated
by a majority of the stockholders and that he implied
contracts that the will of the majority shall govern in all
matters within the limits of the act of incorporation and
lawfully enacted by-laws and not forbidden by law. To this
extent, therefore, the stockholder may be considered to
have parted with his personal right or privilege to regulate
the disposition of his property which he has invested in the
capital stock of the corporation and surrendered it to the
will of the majority or his fellow incorporators. **** It can
not therefore be justly said that the contract, express or
implied, between the corporation and the stockholders is
infringed *** by any act of the former which is authorized
by a majority, ***.
Same; A director stands in a fiduciary relation to the
competition and its stockholders. The disqualification of a
competition from being elected to the board of directors is
a reasonable exercise of corporate authority. Although in
the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be
any doubt that their character is that of a fiduciary insofar
as the corporation for the collective benefit of the
stockholders, they occupy a fiduciary relation, and in these
sense the relation is one of trust.
Same; Same.It is obviously to prevent the creation of an
opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of competing
corporation, from taking advantage of the information
which he acquires as director to promote his individual or
corporate interests to the prejudice of San Miguel
Corporation and its stockholders, that the questioned
amendment of the by-laws was made. Certainly, where two
corporations are competitive in a substantial sense, it would
seem improbable, if not impossible, for the director, if he
were to discharge effectively his duty, to satisfy his loyalty
to both corporations and place the performance of his
corporate duties above his personal concerns.
Same; Same.Sound principles of corporate management
counsel against sharing sensitive information with a director
whose fiduciary duty to loyalty may well require that he
disclose this information to a competitive rival. These
dangers are enhanced considerably where the common
director such as the petitioner is a controlling stockholder of
two of the competing corporations. It would seem manifest
that in such situations, the director has an economic
incentive to appropriate for the benefit of his own
corporation the corporate plans and policies of the
corporation where he sits as director.
Same; Another reason for upholding a by-law provision that
forbids a competitor to be elected as corporate director are
the laws prohibiting cartels.There is another important
consideration in determining whether or not the amended
by-laws are reasonable. The Constitution and the law
prohibit combinations in restraint of trade or unfair
competition. Thus, Section 2 of Article XIV of the
Constitution provides: That State shall regulate or prohibit
private monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall
be allowed.
Same; Same.Basically, these anti-trust laws or laws
against monopolies or combinations in restraint of trade are
aimed at raising levels of competition by improving the
consumers effectiveness as the final arbiter in free
markets. These laws are designed to preserve free and
unfettered competition as the rule of trade. It rests on the
premise that the unrestrained interaction of competitive
forces will yield the best allocation of our economic
resources, the lowest prices and the highest quality ***.
They operate to forestall concentration of economic power.
The law against monopolies and combinations in restraint
of trade is aimed at contracts and combinations that, by
reason of the inherent nature of the contemplated acts,
prejudice the public interest by unduly restraining
competition or unduly obstructing the course of trade.
Same; Election of petitioner as San Miguel Corporation
Director may run counter to the prohibition contained in
Section 13(5) of Corporation Law on investments in
corporations engaged in agriculture.Finally, considering
that both Robina and SMC are, to a certain extent, engaged
in agriculture, then the election of petitioner to the Board of
SMC may constitute a violation of the prohibition contained
in Section 13(5) of the Corporation Law. Said section
provides in part that any stockholder of more than one
corporation organized for the purpose of engaging in
agriculture may hold his stock in such corporations solely
for investment and not for the purpose of bringing about or
attempting to bring about a combination to exercise control
of such corporations. ***.
Same; The by-law amendment of SMC applies equally to all
and does not discriminate against petitioner only.
However, the by-law, by its terms, applies to all
stockholders. The equal protection clause of the
Constitution requires only that the by-laws operate equally
upon all persons of a class. Besides, before petitioner can
be declared ineligible to run for director, there must be
hearing and evidence must be submitted to bring his case
within the ambit of the disqualification. Sound principles of
public policy and management, therefore, support the view
that a by-law which disqualifies a competitor from election
to the Board of Directors of another corporation is valid and
reasonable.
Same; Petitioner is not ipso facto disqualified to run on SMC
director. He must be given full opportunity by the SEC to
show that he is not covered by the disqualification.While
We here sustain the validity of the amended by-laws, it
does not follow as a necessary consequence that petitioner
is ipso facto disqualified. Consonant with the requirement
of due process, there must be due hearing at which the
petitioner must be given the fullest opportunity to show
that he is not covered by the disqualification. As trustees of
the corporation and of the stockholders, it is the
responsibility of directors to act with fairness to the
stockholders. Pursuant to this obligation and to remove any
suspicion that this power may be utilized by the incumbent
members of the Board to perpetuate themselves in power,
any decision of the Board to disqualify a candidate for the
Board of Directors should be reviewed by the Securities and
Exchange Commission en banc and its decision shall be
final unless reversed by this Court on certiorari.
Same; Every stockholder has the right to inspect corporate
books and records.The stockholders right of inspection of
the corporations books and records is based upon their
ownership of the assets and property of the corporation. It
is, therefore, an incident of ownership of the corporate
property, whether this ownership or interest be termed an
equitable ownership, a beneficial ownership, or a quasi-
ownership. This right is predicated upon the necessity of
selfprotection. It is generally held by majority of the courts
that where the right is granted by statute to the
stockholder, it is given to him as such and must be
exercised by him with respect to his interest as a
stockholder and for some purpose germane thereto or in
the interest of the corporation. In other words, the
inspection has to germane to the petitioners interest as a
stockholder, and has to be proper and lawful in character
and not inimical to the interest of the corporation.
Same; The right of stockholder to inspect corporate books
extends to a wholly-owned subsidiary.In the case at bar,
considering that the foreign subsidiary is wholly owned by
respondent San Miguel Corporation and, therefore, under
its control, it would be more in accord with equity, good
faith and fair dealing to construe the statutory right of
petitioner as stockholder to inspect the books and records
of the corporation as extending to books and records of
such wholly owned subsidiary which are in respondent
corporations possession and control.
Same; Purely ultra vires corporate acts of corporate officers
to invest corporate funds in another business or
corporation, i.e., acts not contrary to law, morals, public
order as public policy, may be ratified by the stockholders
holding 2/3 of the voting power.Assuming arguendo that
the Board of Directors of San Miguel Corporation had no
authority to make the assailed investment, there is no
question that a corporation, like an individual, may ratify
and thereby render binding upon it the originally
unauthorized acts of its officers or other agents. This is true
because the questioned investment is neither contrary to
law, morals, public order or public policy. It is a corporate
transaction or contract which is within the corporate
powers, but which is defective from a purported failure to
observe in its execution the requirement of the law that the
investment must be authorized by the affirmative vote of
the stockholders holding twothirds of the voting power.
This requirement is for the benefit of the stockholders. The
stockholders for whose benefit the requirement was
enacted may, therefore, ratify the investment and its
ratification by said stockholders obliterates any defect
which it may have had at the outset. Mere ultra vires
acts, said this Court in Pirovano, or those which are not
illegal and void ab initio, but are not merely within the
scope of the articles of incorporation, are merely voidable
and may become binding and enforceable when ratified by
the stockholders.
Corporation Law; Judgment; The doctrine of the law of the
case.We hold on our part that the doctrine of the law of
the case invoked by Mr. Justice Barredo has no applicability
for the following reasons: a) Our jurisprudence is quite
clear that this doctrine may be invoked only where there
has been a final and conclusive determination of an issue in
the first case later invoked as the law of the case.
Same; Same; When doctrine of the law of the case not
applicable.The doctrine of the law of the case, therefore,
has no applicability whatsoever herein insofar as the
question of the validity or invalidity of the amended by-laws
is concerned. The Courts judgment of April 11, 1979 clearly
shows that the voting on this question inconclusive with six
against four Justices and two other Justices (the Chief
Justice and Mr. Justice Fernando) expressly reserving their
votes thereon, and Mr. Justice Aquino while taking no part
in effect likewise expressly reserved his vote thereon. No
final aad conclusive determination could be reached on the
issue and pursuant to the provisions of Rule 56, section 11,
since this special civil action originally commenced in this
Court, the action was simply dismissed with the result that
no law of the case was laid down insofar as the issue of the
validity or invalidity of the questioned by-laws is concerned,
and the relief sought herein by petitioner that this Court
bypass the SEC which has yet to hear and determine the
same issue pending before it below and that this Court
itself directly resolve the said issue stands denied.
Same; Same; Reservation of the vote of the Chief Justice.
As expressly stated in the Chief Justices reservation of his
vote, the matter of the question of the applicability of the
said section 13(5) to petitioner would be heard by this
Court at the appropriate time after the proceedings below
(and necessarily the question of the validity of the
amended by-laws would be taken up anew and the Court
would at that time be able to reach a final and conclusive
vote).
Same; Same; Validity of the amended by-laws.The six
votes cast by Justices Makasiar, Antonio, Santos, Abad
Santos, De Castro and this writer in favor of validity of the
amended by-laws in question, with only four members of
this Court, namely, Justices Teehankee, Concepcion Jr.,
Fernandez and Guerrero opining otherwise, and with Chief
Justice Castro and Justice Fernando reserving their votes
thereon and Justice Aquino and Melencio Herrera not
voting, thereby resulting in the dismissal of the petition
insofar as it assails the validity of the amended by-laws . .
. . for lack of necessary votes, has no other legal
consequence than that it is the law of the case far as the
parties herein are concerned, albeit the majority opinion of
six against four Justices is not doctrinal in the sense that it
cannot be cited as necessarily a precedent for subsequent
cases. This means that petitioner Gokongwei and the
respondents, including the Securities and Exchange
Commission, are bound by the foregoing result, namely,
that the Court en banc has not found merit in the claim that
the amended by-laws in question are invalid. Indeed, it is
one thing to say that dismissal of the case is not doctrinal
and entirely another thing to maintain that such dismissal
leaves the issue unsettled.
Same; Same; Where petitioner can no longer revive the
issue validity of the amended by-laws.I reiterate,
therefore, that as between the parties herein, the issue of
validity of the challenged bylaws is already settled. From
which it follows that the same are already enforceable
insofar as they are concerned. Petitioner Gokongwei may
not hereafter act on the assumption that he can revive the
issue of validity whether in the Securities Exchange
Commission, in this Court or in any other forum, unless he
proceeds on the basis of a factual milieu different from the
setting of this case. Not even the Securities and Exchange
Commission may pass on such question anymore at the
instance of herein petitioner or anyone acting in his stead
or on his behalf. The vote of four justices to remand the
case thereto cannot alter the situation.
Same; Same; Where Court has not found merit in the claim
that the amended by-laws in question are valid.I concur
in Justice Barredos statement that the dismissal (for lack of
necessary votes) of the petition to the extent that it assails
the validity of the amended by-laws, is the law of the case
at bar, which means in effect that as far and only in so far
as the parties and the Securities and Exchange Commission
are concerned, the Court has not found merit in the claim
that the amended by-laws in question are valid.
Same; Same; Term and meaning of farming.This is my
view, even as I am for a restrictive interpretation of Section
13(5) of the Philippine Corporation Law, under which I
would limit the scope of the provision to corporations
engaged in agriculture, but only as the word agriculture
refers to its more limited meaning as distinguished from its
general and broad connotation. The term would then mean
farming or raising the natural products of the soil, such as
by cultivation, in the acquisition of agricultural land such as
by homestead, before the patent may be issued.
Same; Same; Poultry raising or piggery is included in the
term agriculture.It is my opinion that under the public
land statute, the development of a certain portion of the
land applied for a specified in the law as a condition
precedent before the applicant may obtain a patent, is
cultivation, not let us say, poultry raising or piggery, which
may be included in the term Agriculture in its broad
sense. For under Section 13(5) of the Philippine
Corporation Law, construed not in the strict way as I
believe it should because the provision is in derogation of
property rights, the petitioner in this case would be
disqualified from becoming an officer of either the San
Miguel Corporation or his own supposedly agricultural
corporations. Gokongwei, Jr. vs. Securities and Exchange
Commission, 89 SCRA 336, No. L-45911 April 11, 1979
Nielson & Company, Inc. vs. Lepanto Consolidated
Mining Company, 26 SCRA 540, No. L-21601
December 28, 1968
Corporation law; Shares of stock; Consideration for which
shares of stock may be issued; A share of stock coming
from stock dividends declared cannot be issued to one who
is not a stockholder of a corporation.From the provision
of Section 16 of the Corporation Law, the consideration for
which shares of stock may be issued are: (1) cash; (2)
property; and (3) undistributed profits. Shares of stock are
given the special name "stock dividends" only if they are
issued in lieu of undistributed profits. If shares of stocks are
issued in exchange of cash or property then those shares
do not fall under the category of "stock dividends". A
corporation may legally issue shares of stock in
consideration of services rendered to it by a person not a
stockholder, or in payment of its indebtedness. It is the
shares of stock ,that are originally issued by the corporation
and forming part of the capital that can be exchanged for
cash or services rendered, or property; that is, if the
corporation has original shares of stock unsold or
unsubscribed, either coming from the original capitalization
or from the increased capitalization. Those shares of stock
may be issued to a person who is not a stockholder, or to a
person already a stockholder in exchange for services
rendered or for cash or property. But a share of stock
coming from stock dividends declared cannot be issued to
one who is not a stockholder of a corporation.
Under Section 16 of the Corporation Law stock dividends
cannot be issued to a person who is not a stockholder in
payment of services rendered.
Same; "Stock dividend"; "Dividend"; Concept and nature.
A "stock dividend" is any dividend payable in shares of
stock of the corporation declaring or authorizing such
dividend. It is, as what the term itself implies, a distribution
of the shares of stock of the corporation among the
stockholders as dividends. A stock dividend of a corporation
is a dividend paid in shares of stock instead of cash, and is
properly payable only out of surplus profits (Sec. 16,
Corporation Law). So, a stock dividend is actually two
things: (1) a dividend, and (2) the enforced use of the
dividend money to purchase additional shares of stock at
par. (Words and Phrases, p. 270). When a corporation
issues stock dividends, it shows that the corporation's
accumulated profits have been capitalized instead of
distributed to the stockholders or retained as surplus
available f or distribution, in money or kind, should
opportunity offer. Far from being a realization of profits for
the stockholder, it tends rather ,to postpone said
realization, in ,that the fund represented by the new stock
has been transferred from surplus to assets and no longer
available for actual distribution (Fisher v. Trinidad, 43 Phil.
973). Thus, it is apparent that stock dividends are issued
only to stockholders. This is so because only stockholders
are entitled to dividends. They are the only ones who have
a right to a proportional share in that part of the surplus
which is declared as dividends. A stock dividend really adds
nothing to the interest of the stockholder; the proportional
interest of each stockholder remains the same (Towne v.
Eisner, 62 L. Ed. 372). If a stockholder is deprived of his
stock dividendsand this happens if the shares of stock f
orming part of the stock dividends are issued to a
nonstockholderthen the proportion of the stockholder's
interest changes radically. Stock dividends are civil fruits of
the original investment, and to the owners of the shares
belong the civil fruits (Art. 441, Civil Code). The term
"dividend" both in the technical sense and its ordinary
acceptation, is that part or portion of the profits of the
enterprise which the corporation, by its governing agents,
sets apart for ratable division among the holders of the
capital stock. It means the fund actually set aside, and
declared by the directors of the corporation as a dividend,
and duly ordered by the directory, or by the stockholders,
at a corporate meeting, to be divided or distributed among
the stockholders according to their respective interests (7
Thompson on Corporations 134135). Nielson & Company,
Inc. vs. Lepanto Consolidated Mining Company, 26 SCRA
540, No. L-21601 December 28, 1968
Pirovano, et al. vs. De la Rama Steamship Co., 96
Phil. 335, No. L-5377 December 29, 1954
1.CORPORATIONS; DONATIONS; DONATION GlVEN "OUT
OF GRATITUDE FOR SERVICES RENDERED" Is
REMUNERATIVE.A donation given by the corporation to
the minor children of its late president because he "was to
a large extent responsible for the rapid and very successful
development and expansion of the activities of this
company" is remunerative in nature in contemplation of
law.
2.ID.; ID.; PERFECTED DONATION CAN ONLY BE
RESCINDED ON LEGAL GROUNDS.Where the donation
made by the corporation has not only been granted in
several resolutions duly adopted by its board of directors
but also it has been formally ratified by its stockholders,
with the concurrence of its only creditor, and accepted by
the donee, the donation -has reached the stage of
perfection which is valid and binding upon the corporation
and as such cannot be rescinded unless there exist legal
grounds for doing so.
3.ID.; ID.; DONATION DISTINGUISHED FROM
GRATUITY.While a donation may technically be different
from a gratuity, in substance they are the same. They are
even similar to a pension. Thus, it was said that "A pension
is a gratuity only when it is granted for services previously
rendered, and which at the time they were rendered gave
rise to no legal obligation." (Words and Phrases, Permanent
Edition, p. 675; O'Dea vs. Ck, 169 Pac., 306, 176 Cal.,
659.)
4.ID.; POWERS OF A CORPORATION; ACTS PERFORMED
WITHIN THE POWERS GRANTED ARE NOT "ULTRA
VIRES".Where the corporation was given broad and
almost unlimited powers to carry out the purposes for
which it was organized among them, to aid in any other
manner any person in the affairs and prosperity of whom it
has a lawful interest, a donation made to the heirs of its
late president in recognition of the valuable services
rendered by the latter which had immensely contributed to
its growth, comes within this broad grant of power and can
not be considered an ultra vires act.
5.ID.; ID.; "ULTRA VIRES" ILLEGAL ACTS DISTINGUISHED;
EFFECT OF RATIFICATION BY STOCKHOLDERS.Illegal
acts of a corporation contemplate the doing of an act which
is contrary to law, morals, or public order, or contravene
some rules of public policy or public duty, and are, like
similar transactions between individuals, void. They can not
serve as basis of a court action, nor acquire validity by
performance, ratification, or estoppel. On the other hand,
ultra vires acts or those which are not illegal and void ab
initio but are merely within the scope of the article of
incorporation, are merely voidable and may become binding
and enforceable when ratified by the stockholders.
6.ID.; ID.; "ULTRA VIRES" ACTS; RATIFICATION BY
STOCKHOLDERS OF "ULTRA VIRES" ACTS CURES
INFIRMITY.The ratification by the stockholders of an ultra
vires act which is not illegal cures the infirmity of the
corporate act and makes it perfectly valid and enforceable,
specially so if it is not merely executory but executed and
consummated and no creditors are prejudiced thereby.
Carlos vs. Mindoro Sugar Co., 57 Phil., 343, No.
36207 October 26, 1932
2.Corporations; Power to Guarantee Bonds Issued by
Another Corporation.In view of the facts proved in this
case, it is held: That the Philippine Trust Company was
empowered to guarantee the bonds of the Mindoro S'ugar
Company which it acquired, and is therefore obliged to
redeem the four bonds held by the appellant, and which
have become due by reason of a violation of the conditions.
Carlos vs. Mindoro Sugar Co., 57 Phil., 343, No. 36207
October 26, 1932
Japanese War Notes Claimants Asso Inc. vs.
Securities and Exchange Com., 101 Phil. 540, No. L-
8987 May 23, 1957
PRIVATE CORPORATIONS ; JAPANESE WAR NOTES
CLAIMANTS ASSOCIATION; EXERCISE OF POWERS NOT
GRANTED IN THE ARTICLES OF INCORPORATION, EFFECT
OF.Although the articles of incorporation give petitioner
the privilege to work for the redemption of the Japanese
war notes of its members alone, it can not offer its services
to the public for a valuable consideration, because there is
nothing definite and tangible about the redemption of the
war notes and its success is speculative. Thus, when
petitioner engaged in the business of registering war notes
for deposit upon payment of fees, and of accepting and
collecting fees for reparation claims for civilian casualties
and other injuries, it acted beyond the powers embodied in
its articles of incorporation. Japanese War Notes Claimants
Asso Inc. vs. Securities and Exchange Com., 101 Phil. 540,
No. L-8987 May 23, 1957
Crisologo-Jose vs. Court of Appeals, 177 SCRA 594,
G.R. No. 80599, G.R. No. 81949 September 15, 1989
Negotiable Instruments Law; Corporations; Rule that an
accommodation party liable on the instrument to a holder
for value does not apply to corporations which are
accommodation parties; Reasons.The aforequoted
provision of the Negotiable Instruments Law which holds an
accommodation party liable on the instrument to a holder
for value, although such holder at the time of taking the
instrument knew him to be only an accommodation party,
does not include nor apply to corporations which are
accommodation parties. This is because the issue or
indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is
ultra vires. Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an
accommodation party. If the form of the instrument, or the
nature of the transaction, is such as to charge the indorsee
with knowledge that the issue or indorsement of the
instrument by the corporation is for the accommodation of
another, he cannot recover against the corporation
thereon.
Same; Same; Same; Same; Exception; An officer or agent
of a corporation shall have the power to execute or indorse
a negotiable paper in the name of the corporation for
accommodation only if specifically authorized to do so;
Personal liability of signatories in the instrument.By way
of exception, an officer or agent of a corporation shall have
the power to execute or indorse a negotiable paper in the
name of the corporation for the accommodation of a third
person only if specifically authorized to do so. Corollarily,
corporate officers, such as the president and vice-president,
have no power to execute for mere accommodation a
negotiable instrument of the corporation for their individual
debts or transactions arising from or in relation to matters
in which the corporation has no legitimate concern. Since
such accommodation paper cannot thus be enforced
against the corporation, especially since it is not involved in
any aspect of the corporate business or operations, the
inescapable conclusion in law and in logic is that the
signatories thereof shall be personally liable therefor, as
well as the consequences arising from their acts in
connection therewith.
Loyola Grand Villas Homeowners (South)
Association, Inc. vs. Court of Appeals, 276 SCRA
681, G.R. No. 117188 August 7, 1997
Corporation Law; Statutory Construction; Words and
Phrases; Ordinarily, the word must connotes an
imperative act or operates to impose a duty which may be
enforcedit is synonymous with ought which connotes
compulsion or mandatoriness though the word must in a
statute, like shall, is not always imperative and may be
consistent with an exercise of discretion.As correctly
postulated by the petitioner, interpretation of this provision
of law begins with the determination of the meaning and
import of the word must in this section. Ordinarily, the
word must connotes an imperative act or operates to
impose a duty which may be enforced. It is synonymous
with ought which connotes compulsion or mandatoriness.
However, the word must in a statute, like shall, is not
always imperative. It may be consistent with an exercise of
discretion. In this jurisdiction, the tendency has been to
interpret shall as the context or a reasonable construction
of the statute in which it is used demands or requires. This
is equally true as regards the word must. Thus, if the
language of a statute considered as a whole and with due
regard to its nature and object reveals that the legislature
intended to use the words shall and must to be
directory, they should be given that meaning.
Same; Same; By-Laws; The legislative deliberations
demonstrate that automatic corporate dissolution for failure
to file the bylaws on time was never the intention of the
legislature.This exchange of views demonstrates clearly
that automatic corporate dissolution for failure to file the
by-laws on time was never the intention of the legislature.
Moreover, even without resorting to the records of
deliberations of the Batasang Pambansa, the law itself
provides the answer to the issue propounded by petitioner.
Same; Same; Same; Taken as a whole and under the
principle that the best interpreter of a statute is the statute
itself (optima statuli interpretatix est ipsum statutum),
Section 46 of the Corporation Code reveals the legislative
intent to attach a directory, and not mandatory, meaning
for the word must in the first sentence thereof.Taken as
a whole and under the principle that the best interpreter of
a statute is the statute itself (optima statuti interpretatix est
ipsum statutum), Section 46 aforequoted reveals the
legislative intent to attach a directory, and not mandatory,
meaning for the word must in the first sentence thereof.
Note should be taken of the second paragraph of the law
which allows the filing of the by-laws even prior to
incorporation. This provision in the same section of the
Code rules out mandatory compliance with the requirement
of filing the by-laws within one (1) month after receipt of
official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission.
It necessarily follows that failure to file the by-laws within
that period does not imply the demise of the corporation.
Same; Same; Same; By-laws may be necessary for the
government of the corporation but these are subordinate
to the articles of incorporation as well as to the Corporation
Code and related statutes.By-laws may be necessary for
the government of the corporation but these are
subordinate to the articles of incorporation as well as to the
Corporation Code and related statutes. There are in fact
cases where by-laws are unnecessary to corporate
existence or to the valid exercise of corporate powers, thus:
In the absence of charter or statutory provisions to the
contrary, by-laws are not necessary either to the existence
of a corporation or to the valid exercise of the powers
conferred upon it, certainly in all cases where the charter
sufficiently provides for the government of the body; and
even where the governing statute in express terms confers
upon the corporation the power to adopt by-laws, the
failure to exercise the power will be ascribed to mere
nonaction which will not render void any acts of the
corporation which would otherwise be valid. (Italics
supplied.)
Same; Same; Same; Due Process; There can be no
automatic corporate dissolution simply because the
incorporators failed to abide by the required filing of by-
lawsthe incorporators must be given the chance to
explain their neglect or omission and to remedy the
same.Even under the foregoing express grant of power
and authority, there can be no automatic corporate
dissolution simply because the incorporators failed to abide
by the required filing of by-laws embodied in Section 46 of
the Corporation Code. There is no outright demise of
corporate existence. Proper notice and hearing are cardinal
components of due process in any democratic institution,
agency or society. In other words, the incorporators must
be given the chance to explain their neglect or omission
and remedy the same.
Same; Same; Same; Presidential Decree 902-A; Statutes in
Materia; Securities and Exchange Commission; The failure
of the Corporation Code to provide for the consequences of
the non-filing of by-laws on time has been rectified by P.D.
No. 902-A; Every statute must be so construed and
harmonized with other statutes as to form a uniform
system of jurisprudence.Although the Corporation Code
requires the filing of by-laws, it does not expressly provide
for the consequences of the non-filing of the same within
the period provided for in Section 46. However, such
omission has been rectified by Presidential Decree No. 902-
A, the pertinent provisions on the jurisdiction of the
Securities and Exchange Commission of which state: * * *
That the failure to file by-laws is not provided for by the
Corporation Code but in another law is of no moment. P.D.
No. 902-A, which took effect immediately after its
promulgation on March 11, 1976, is very much apposite to
the Code. Accordingly, the provisions abovequoted supply
the law governing the situation in the case at bar,
inasmuch as the Corporation Code and P.D. No. 902-A are
statutes in pari materia. Interpretare et concordare legibus
est optimus interpretandi. Every statute must be so
construed and harmonized with other statutes as to form a
uniform system of jurisprudence.
Same; By-Laws; Failure to file the by-laws within the period
required by law by no means tolls the automatic dissolution
of a corporation.As the rules and regulations or private
laws enacted by the corporation to regulate, govern and
control its own actions, affairs and concerns and its
stockholders or members and directors and officers with
relation thereto and among themselves in their relation to
it, by-laws are indispensable to corporations in this
jurisdiction. These may not be essential to corporate birth
but certainly, these are required by law for an orderly
governance and management of corporations. Nonetheless,
failure to file them within the period required by law by no
means tolls the automatic dissolution of a corporation.
Same; Administrative Law; Subdivisions; Home Insurance
and Guaranty Corporation; Jurisdiction; With respect to
homeowners associations, the HIGC shall exercise all the
powers, authorities and responsibilities that are vested on
the Securities and Exchange Commission.That the
corporation involved herein is under the supervision of the
HIGC does not alter the result of this case. The HIGC has
taken over the specialized functions of the former Home
Financing Corporation by virtue of Executive Order No. 90
dated December 17, 1986. With respect to homeowners
associations, the HIGC shall exercise all the powers,
authorities and responsibilities that are vested on the
Securities and Exchange Commission x x x, the provision of
Act 1459, as amended by P.D. 902-A, to the contrary
notwithstanding. Loyola Grand Villas Homeowners (South)
Association, Inc. vs. Court of Appeals, 276 SCRA 681, G.R.
No. 117188 August 7, 1997
HENRY FLEISCHER, plaintiff and appellee, vs. BOTICA
NoLASCO Co., INC., defendant and appellant., 47 Phil. 583,
No. 23241 March 14, 1925
1.CORPORATIONS; CORPORATE STOCK; RlGHT OF
CORPORATIONS TO IMPOSE A LIMITATION ON
TRANSFERS OF STOCK.A stock corporation in adopting
by-laws governing the transfer of shares of stock should
take into consideration the specific provisions of the
Corporation Law. The by-laws of corporations should be
made to harmonize with the provisions of the Corporation
Law. By-laws must not be inconsistent with the provisions
of the Corporation Law. By-laws of a corporation are valid if
they are reasonable and calculated to carry into effect the
objects of the corporation provided they are not
contradictory to the general policy of the laws of the land.
Under a statute authorizing by-laws for the transfer of stock
of a corporation, it can do no more than prescribe a general
mode of transfer on the corporate books and cannot justify
an unreasonable restriction upon the right to sell. The
shares of stock of a corporation are personal property and
the holder thereof may transfer the same without
unreasonable restrictions.
2.ID. ; TRANSFER OF SHARES OF STOCK.The power to
enact by-laws restraining the sale and transfer of stock
must be found in the governing statute or charter.
Restrictions upon the traffic in stock must have their source
in legislative enactments, as the corporation itself cannot
create such impediments. By-laws of a corporation are
intended merely for the protection of the corporation, and
prescribe regulations and not restrictions; they are always
subject to the charter of the corporation. The corporation,
in the absence of such a power, cannot ordinarily inquire
into or pass upon the legality of the transaction by which its
stock passes from one person to another, nor can it
question the consideration upon which a sale is based. A
by-law of a corporation cannot take away or abridge the
substantial rights of stockholders. Courts will carefully
scrutinize any attempt on the part of a corporation to
impose restrictions or limitations upon the right of
stockholders to sell and assign their stock. Restrictions
cannot be imposed upon a stockholder by a by-law without
statutory or charter authority. The owner of corporate stock
has the same uncontrollable right to sell or alienate, which
attaches to the ownership of any other species of property.
HENRY FLEISCHER, plaintiff and appellee, vs. BOTICA
NoLASCO Co., INC., defendant and appellant., 47 Phil. 583,
No. 23241 March 14, 1925
Board of Directors and Election Committee of SMB
Workers Savings and Loan Asso., Inc. vs. Tan, etc.,
et al., 105 Phil. 426, No. L-12282 March 31, 1959
1.CORPORATION LAW; LABOR ASSOCIATIONS;
PROVISIONS OF CONSTITUTION AND BY-LAWS SHOULD
BE COMPLIED WITH.The constitution and by-laws of the
petitioner association provide that notice of a special
meeting of members should be given at least five days
before the date of the meeting. It appears that the notice
was posted on 26 March and the election was set for 28
March. Therefore, the five days previous notice required
would not be complied with.
2.ID.; ID.; AUTHORITY OF COURTS TO APPOINT
COMMITTEE TO SUPERVISE ELECTION OF OFFICIALS.
When it appears that a fair election cannot be had, the
court in the exercise of its equity jurisdiction may appoint a
committee with the authority to call, conduct and supervise
the election of the directors of the association. Board of
Directors and Election Committee of SMB Workers Savings
and Loan Asso., Inc. vs. Tan, etc., et al., 105 Phil. 426, No.
L-12282 March 31, 1959
National Investment and Development Corp. vs.
Aquino, 163 SCRA 153, No. L-34192, No. L-34213
June 30, 1988
Remedial Law; Certiorari; Mjotion to Quash; General Rule;
An order denying a motion to quash or to dismiss is
interlocutory and cannot be subject ofa petition for
certiorari; Remedies ofthe aggrieved party; Exceptions to
the general ruJe.As a general rule, an order denying a
motion to quash or to dismiss is interlocutory and cannot
be the subject of a petition for certiorari. The remedy of the
aggrieved party in a denied motion to dismiss is to file an
answer and interpose, as defense or defenses, the
objection or objections raised by him in said motion to
dismiss, then proceed to trial and, in case of adverse
decision, to elevate the entire case by appeal in due course.
However, under certain situations, recourse to the
extraordinary legal remedies of certiorari, prohibition and
mandamus to question the denial of a motion to dismiss or
quash is considered proper, in the interest of more
enlightened and substantial justice. As the Court said in
Pineda andAmpil Manufacturing Co. vs. Bartolome, 95 Phil.
930, 938: "For analogous reasons it may be said that the
petition for certiorari interposed by the accused against the
order of the court a quo denying the motion to quash may
be entertained, not only because it was rendered in a
criminal case, but because it was rendered, as claimed,
with grave abuse of discretion, as found by the Court of
Appeals, xxx." and reiterated in Mead v. Argel citing Yap v.
Lutero (105 Phil. 1307): "However, were we to require
adherence to this pretense, the case at bar would have to
be dismissed and petitioner required to go through the
inconvenience, not to say the mental agony the torture, of
submitting himself to trial on the merits in Case No.
166443, apart from the expenses incidental thereto, despite
the fact that his trial and conviction therein would violate
one of this [sic] constitutional rights, and that, an appeal to
this Court, we would, therefore, have to set aside the
judgment of conviction of the lower court. This would,
obviously, be most unfair and unjust. Under the
circumstances obtaining in the present case, the flaw in the
procedure followed by petitioner herein may be overlooked,
in the interest of a more enlightened and substantial
justice." Thus, where there is patent grave abuse of
discretion, in denying the motion to disrniss, as in the
present case, this Court may entertain the petition for
certiorari interposed by the party against whom the said
order is issued.
Same; Same; Same; Jurisdiction; Jurisdiction of CFI to
issue a writ of preliminary or permanent injunction is
confmed within the province where the land in question is
situated.Anent the first ground, it is a well-settled rule
that the jurisdiction of a Court of First Instance to issue a
writ of preliminary permanent injunction is confmed within
the boundaries of the province where the land in
controversy is situated. The petition for mandamus of
Batjak prayed that NIDC and PNB be ordered to surrender,
relinquish and turnover to Batjak the assets, management
and operation of Batjak particularly the three (3) oil mills
located in Sasa, Davao City, Jimenez, Misamis Occidental
and Tanauan, Leyte.
Same; Same; Same; Venue; Respondent Batjak's complaint
should have been filed in the provinces where the oil mills
are located pursuajit to Sec. 2, Rule 4, par. A ofRules
ofCourt.On the matter of proper venue, Batjak's
complaint should have been filed in the provinces where
said oil mills are located. Under Rule 4, Sec. 2, paragraph A
of the Rules of Court, "actions affecting title to, or for
recovery of possession, or for partition or condemnation of,
or foreclosure of mortgage on, real property, shall be
commenced and tried in the province where the property or
any part thereof lies."
Same; Same; Same;Actions; Every action must be
prosecuted and defended in the name ofthe real party in
interest.In support of the third ground of their motion to
dismiss, PNB and NIDC contend that Batjak's complaint for
mandamus is based 011 its claim or right to recovery of
possession of the three (3) oil mills, on the ground of an
alleged breach of fiduciary relationship. Noteworthy is the
fact that, in the Voting Trust Agreement, the parties thereto
were NIDC and certain stockholders of Batjak. Batjak itself
was not a signatory thereto. Under Sec. 2, Rule 3 of the
Rules of Court, every action must be prosecuted and
defended in the name of the real party in interest. Applying
the rule in the present case, the action should have been
filed by the stockholders of Batjak, who executed the
Voting Trust Agreement with NIDC; and not by Batjak itself
which is not a party to said agreement, and therefore, not
the real party in interest in the suit to enforce the same.
Same; Same; Same; Mandamus, nature of; Legal Right,
defined in Sec. 3, Rule 65 of Rules of Court.Moreover, the
action instituted by Batjak before the respondent court was
a special civil action for mandamus with prayer for
preliminary mandatory injunction. Generally, mandamus is
not a writ of righiand its allowance or refusal is a matter of
discretion to be exercised on equitable principles and in
accordance with well-settled rules of law, and that it should
never be used to effectuate an injustice, but only to
prevent a failure of justice. The writ does not issue as a
matter of course. It will issue only where there is a clear
legal right sought to be enforced. It will not issue to
enforce a doubtful right. A clear legal right within the
meaning of Sec. 3, Rule 65 of the Rules of Court means a
right clearly founded in or granted by law, a right which is
enforceable as a matter of law.
Same; Same; Same; Same; Writ of mandamus will not
issue to give the applicant anything to which he is not
entitled by law; Case at bar. Applymg the above-cited
principles of law in the present case, the Court fmds no
clear right in Batjak to be entitled to the writ prayed for. It
should be noted that the petition for mandamus filed by it
prayed that NIDC and PNB be ordered to surrender,
relinquish and turn-over to Batjak the assets, management,
and operation of Batjak particularly the three (3) oil mills
and to make the order permanent, after trial, and ordering
NIDC and PNB to submit a complete accounting of the
assets, management and operation of Batjak from 1965. In
effect, what Batjak seeks to recover is title to, or
possession of, real property (the three (3) oil mills which
really made up the assets of Batjak) but which the records
show already belong to NIDC. It is not disputed that the
mortgages on the three (3) oil mills were foreclosed by PNB
and NIDC and acquired by them as the highest bidder in
the appropriate foreclosure sales. Ownership thereto was
subsequently consolidated by PNB and NIDC, after Batjak
failed to exercise its right of redemption. The three (3) oil
mills are now titled in the name of NIDC. From the
foregoing, it is evident that Batjak had no clear right to be
entitled to the writ prayed for. In Lamb vs. Philippines (22
Phil. 456) citing the case of Gonzales V. Salazar vs. The
Board ofPharmacy, 20 Phil. 367, the Court said that the writ
of mandamus will not issue to give to the applicant
anything to which he is not entitled by law.

Same; Same; Same; Receivership; A receiver of property

subject of the action may be appointed by the court when
the party applying for the appointment of a receiver has an
interest in said property.A receiver of real or personal
property, which is the subject of the action, may be
appointed by the court when it appears from the pleadings
that the party applying for the appointment of receiver has
an interest in said property. The right, interest, or claim in
property, to entitle one to a receiver over it, must be
present and existing.

Same; Same; Same; Same; Prevention of imminent danger

to property, the guiding principle that governs courts in
appointing receivers.Moreover, the prevention of
imminent danger to property is the guiding principle that
governs courts in the matter of appointing receivers. Under
Sec. l(b), Rule 59 of the Rules of Court, it is necessary in
granting the relief of receivership that the property or fund
be in danger of loss, removal or material injury. In the case
at bar, Batjak in its petition for receivership, or in its
amended petition therefor, failed to present any evidence
to establish the requisite condition that the property is in
danger of being lost, removed or materially injured unless a
receiver is appointed to guard and preserve it.

Corporations; Voting Trust Agreement; A voting trust

transfers only voting or other rights pertaining to the shares
subject of the agreement or control over the stock.ln any
event, a voting trust transfers only voting or other rights
pertaining to the shares subject of the agreement, or
control over the stock. The law on the matter is Section 59,
paragraph 1 of the Corporation Code (BP 68) which
provides: "Sec. 59. Voting TrustsOne or more
stockholders of a stock corporation may create a voting
trust for the purpose of confering upon a trustee or trusties
the right to vote and other rights pertaining to the shares
for a period not exceeding five (5) years at any one time: x
x x" National Investment and Development Corp. vs.
Aquino, 163 SCRA 153, No. L-34192, No. L-34213 June 30,
1988