1.NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., AND 2.
2. INDIAN CHAMBER OF COMMERCE VS. FILIPINO INDIAN CHAMBER
MCARTHUR MINING, INC., Petitioners, v. REDMONT CONSOLIDATED MINES CORP., Respondent.
G.R. No. 195580, January 28, 2015
Facts:
Petitioners Narra, Tesoro and Mcarthur are opposing the decision of the CA to deny their application for
Mineral Production Sharing Agreements (MPSAs) on the ground that the CA’s application of the
grandfather rule in this case was erroneous due to undermining the result of the control test used to
determine whether an entity is entitled to enter into businesses w/c the Constitution has deemed to be
exclusive to Filipino Corporations.
The Constitution clearly provides that the exploration, development, and utilization of natural resources
is reserved to Filipino citizens and “corporations or associations at least sixty per centum of whose
capital is owned by such citizens.”
As found by the CA, MBMI w/c is a 100% Canadian-owned firm effectively owns 60% of the common
stocks of the petitioners by owning equity interest of petitioners’ other majority corporate shareholders.
This was the basis of its denial for the MPSA.
Issue: WON the grandfather rule was applied correctly in this case.
Held:
Yes. The Grandfather Rule is “the method by which the percentage of Filipino equity in a corporation
engaged in nationalized and/or partly nationalized areas of activities, provided for under the Constitution
and other nationalization laws, is computed, in cases where corporate shareholders are present, by
attributing the nationality of the second or even subsequent tier of ownership to determine the nationality
of the corporate shareholder.”
Thus, to arrive at the actual Filipino ownership and control in a corporation, both the direct and indirect
shareholdings in the corporation are determined.
The Control Test and the Grandfather Rule are not, as it were, incompatible ownership-determinant
methods that can only be applied alternative to each other. Rather, these methods can, if appropriate, be
used cumulatively in the determination of the ownership and control of corporations engaged in fully or
partly nationalized activities, as the mining operation involved in this case or the operation of public
utilities as in Gamboa or Bayantel.
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a
corporation, as it could result in an otherwise foreign corporation rendered qualified to perform nationalized or
partly nationalized activities. Hence, it is only when the Control Test is first complied with that the
Grandfather Rule may be applied. Put in another manner, if the subject corporation’s Filipino equity falls
below the threshold 60%, the corporation is immediately considered foreign-owned, in which case, the
need to resort to the Grandfather Rule disappears.
On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity requirement can be
considered a Filipino corporation if there is no doubt as to who has the “beneficial ownership” and “control” of the
corporation.
In that instance, there is no need for a dissection or further inquiry on the ownership of the corporate shareholders
in both the investing and investee corporation or the application of the Grandfather Rule. As a corollary rule,
even if the 60-40 Filipino to foreign equity ratio is apparently met by the subject or investee corporation,
a resort to the Grandfather Rule is necessary if doubt exists as to the locus of the “beneficial ownership”
and “control.” In this case, a further investigation as to the nationality of the personalities with the
beneficial ownership and control of the corporate shareholders in both the investing and investee
corporations is necessary.
FACTS:
 Filipino-Indian Chamber of Commerce of the Philippines was originally registered with SEC as Indian
Chamber of Commerce of Manila, Inc.
 It amended its corporate name into Indian Chamber of Commerce of the Philippines and further
amended it into Filipino-Indian Chamber of Commerce of the Philippines.
 On January 20, 2005, Mr. Naresh Mansukhani reserved the corporate name “Filipino
Commerce in the Philippines, Inc." for the period from January 20, 2005 to April 20, 2005,
with the Company Registration and Monitoring Department of the SEC.
 In an opposition letter dated April 1, 2005, Ram Sitaldas, claiming to be a representative of
the defunct FICCPI, alleged that the corporate name has been used by the defunct FICCPI
since 1951, and that the reservation by another person who is not its member or
representative is illegal.
 The CRMD called the parties for a conference and required them to submit their position papers.
 Subsequently, on May 27, 2005, the CRMD rendered a decision granting Mansukhani's
reservation, holding that he possesses the better right over the corporate name.
 The CRMD ruled that the defunct FICCPI has no legal personality to oppose the reservation
of the corporate name by Mansukhani. After the expiration of the defunct FICCPFs corporate
existence, without any act on its part to extend its term, its right over the name ended. Thus,
the name "Filipino Indian Chamber of Commerce in the Philippines, Inc." is free for
appropriation by any party.
 Sitaldas appealed the decision of the CRMD to the SEC En Banc, which appeal was docketed
as SEC.
 Meanwhile, on December 8, 2005, Mr. Pracash Dayacanl, who allegedly represented the
defunct FICCPI, filed an application with the CRMD for the reservation of the corporate name
"Indian Chamber of Commerce Phils., Inc." (ICCPI).
 Upon knowledge, Mansukhani, in a letter dated February 14, 2006, formally opposed the
application. Mansukhani cited the SEC En Banc decision in SEC Case No. 05-008 recognizing
him as the one possessing the better right over the corporate name "Filipino Chamber of
Commerce in the Philippines, Inc. In a letter dated April 5, 2006 the CRMD denied
Mansukhani's opposition.
 It stated that the name "Indian Chamber of Commerce Phils., Inc." is not deceptively or
confusingly similar to "Filipino Indian Chamber of Commerce in the Philippines, Inc." On the
same date, the CRMD approved and issued the Certificate of Incorporation of petitioner ICCPI.
 Thus, respondent FICCPI, through Mansukhani, appealed the CRMD's decision to the SEC En
Banc.
 Citing Section 18 of the Corporation Code, the SEC En Banc made a finding that "both from the
standpoint of their [ICCPI and FICCPI] corporate names and the purposes for which they were
established, there exists a similarity that could inevitably lead to confusion.
 It also ruled that "oppositor [FICCPI] has the prior right to use its corporate name to the exclusion of
the others. It was registered with the Commission on March 14, 2006 while respondent [ICCPI] was
registered on April 05, 2006. By virtue of oppositor's [FICCPI] prior appropriation and use of its name,
it is entitled to protection against the use of identical or similar name of another corporation.
ISSUE:
WON the Honorable Court of Appeals committed serious error when it held that there is
similarity between the petitioner and the respondent’s corporate name that would inevitably lead to
confusion and respondent’s corporate name did not acquire secondary meaning.
HELD:
Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is identical or
deceptively or confusingly similar to that of any existing corporation.
No corporate name may be allowed by the Securities and Exchange Commission if the proposed name
is identical or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change
in the corporate name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name.
In this case, FICCPI was incorporated on March 14, 2006. On the other hand, ICCPI was incorporated only on
April 5, 2006, or a month after FICCPI registered its corporate name. Thus, applying the principle in the
Refractories case, we hold that FICCPI, which was incorporated earlier, acquired a prior right over the use of the
corporate name.
ICCPI cannot argue that it first incorporated and held the "Filipino Indian Chamber of Commerce,"
The name of a dissolved firm shall not be allowed to be used by other firms within three (3) years after the
approval of the dissolution of the corporation by the Commission, unless allowed by the last stockholders
representing at least majority of the outstanding capital stock of the dissolved firm.
The CA is correct when it ruled, as correctly found by the SEC en banc, the word 'Filipino' in the corporate
name of the respondent [FICCPI] is merely descriptive and can hardly serve as an effective differentiating
medium necessary to avoid confusion. The other two words alluded to by petitioner [ICCPI] that allegedly
distinguishes its corporate name from that of the respondent are the words 'in' and 'the' in the
respondent's corporate name. To our mind, the presence of the words 'in' and 'the' in respondent's
corporate name does not, in any way, make an effective distinction to that of petitioner.
SEC En Banc made a finding that it is apparent that both from the standpoint of their corporate names
and the purposes for which they were established, there exist a I similarity that could inevitably lead to
confusion." This finding of the SEC En Bane was fully concurred with and adopted by the CA.
3. Gold Line Tours vs Heirs of Lacsa
G.R. No. 159108
June 18, 2012
Facts:
On August 2, 1993, Concepcion and Miriam Lacsa boarded a Goldline passenger bus – owned and
operated by Travel and Tours Advisers, Inc. - enroute from Sorsogon to Cubao. The bus, driven by Rene,
collided with a passenger jeepney driven by Alejandro Belbis. As a result, a metal part of the jeepney was
detached and struck Concepcion, a fresh Nursing graduate, in the chest – causing her instant death.
The heirs, represented by Teodoro, instituted a suit before the RTC to recover damages arising from
breach of contract of carriage. The heirs alleged that the collision was due to the reckless and imprudent
manner of driving the bus by Rene. Miriam also testified that Rene had been occasionally looking up the video
monitor in the front portion of the bus, despite driving his bus at a fast speed; and that the driver was overtaking
another bus during the collision; and that Miriam was helped by bystanders, and not the employees and co-
passengers of the bus who ignored Miriam’s cries for help.
William Cheng, the operator of Goldline bus, contended that he had exercised the required diligence in
the selection and supervision of his employees, with pre-training such as driving practices and
demeanor, hence making it impossible for Rene to be negligently driving the bus. Cheng also said that this
was the first accident encountered by their business, and that upon being informed, Cheng immediately instructed
his personnel to contact the family of Concepcion.
The RTC ruled in favor of the plaintiff (heirs), and held that Travel and Tours Advisers, Inc. should pay
the damages because they are duty-bound to safely transport their passengers as soon as the
passengers boarded the bus until the passenger reaches their destination, and that they have failed to
disprove their presumption of negligence under Article 1786 of the Civil Code, and lastly, rigid selection
of employees was not sufficient to exempt them from liability.
The defendants appealed to the CA. The CA dismissed the appeal for failure to pay the docket and other lawful
fees. The plaintiffs then moved for issuance of a Writ of Execution before the RTC. The sheriff then
reported that the writ has been served to Grace Miranda, the secretary; and that a tourist bus was levied
pursuant to the writ.
The RTC directed the plaintiffs to file a verified petition for indirect contempt, as Cheng failed to obey a lawful writ
of the RTC. A so-called verified third-party claim was submitted by the petitioner; alleging that the tourist
bus levied was their property and not of the Travel and Tours Advisers, Inc. It is to be noted that petitioners’
Articles of Incorporation was amended shortly after the filing of the civil case against the Travel and Tours.
Respondents opposed, claiming that the two companies were identical entities both operated and
managed by the same person, and that petitioner was attempting to defraud its creditors and the
respondents; hence, the doctrine of piercing the corporate entity will be applicable.
RTC dismissed the verified third-party claim, observing that the two companies’ identity could not be divorced
from one another. RTC denied their motion for reconsideration. Petitioner then initiated a special civil action for
certiorari before the CA which was however dismissed. CA also denied their motion for reconsideration.
Issue:
Did the CA rightly find and conclude that the RTC did not gravely abuse its discretion in denying petitioners
verified third-party claim?
Held:
Yes. The RTC had sufficient factual basis to find that petitioner and Travel and Tours Advisers, Inc. were one and
the same entity, specifically: (a) documents submitted by petitioner in the RTC showing that William Cheng, who
claimed to be the operator of Travel and Tours Advisers, Inc., was also the President/Manager and an
incorporator of the petitioner; and (b) Travel and Tours Advisers, Inc. had been known in Sorsogon as Goldline.
The RTC thus rightly ruled that petitioner might not be shielded from liability under the final judgment through the
use of the doctrine of separate corporate identity. Truly, this fiction of law could not be employed to defeat the
ends of justice.
Also, there was sufficient evidence that petitioner and Travel and Tours Advisers, Inc. were one and the same
entity. Moreover, we remind that a petition for the writ of certiorari neither deals with errors of judgment nor
extends to a mistake in the appreciation of the contending parties evidence or in the evaluation of their relative
weight.
It is timely to remind that the petitioner in a special civil action for certiorari commenced against a trial court that
has jurisdiction over the proceedings bears the burden to demonstrate not merely reversible error, but grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of the respondent trial court in issuing
the impugned order.
Petitioner did not discharge its burden because it failed to demonstrate that the CA erred in holding that the RTC
had not committed grave abuse of discretion. A review of the records shows, indeed, that the RTC correctly
rejected petitioner’s third-party claim. Hence, the rejection did not come within the domain of the writ of certiorari’s
limiting requirement of excess or lack of jurisdiction.
4.PIONEER INSURANCE SURETY CORPORATION vs. MORNING STAR TRAVEL & TOURS, INC.,
ESTELITA CO WONG, BENNY H. WONG, ARSENIO CHUA, SONNY CHUA, AND WONG YAN TAK
G.R. No. 198436
DOCTRINE: A separate corporate personality shields corporate officers acting in good faith and within their scope
of authority from personal liability except for situations enumerated by law and jurisprudence. Piercing the
corporate veil in order to hold corporate officers personally liable for the corporation’s debts requires that "the bad
faith or wrongdoing of the director must be established clearly and convincingly [as] [b]ad faith is never presumed."
FACTS: This case originated from a Complaint for Collection of Sum of Money and Damages filed by Pioneer
Insurance & Surety Corporation (Pioneer) against Morning Star Travel & Tours, Inc. (Morning Star) for the
amounts Pioneer paid the International Air Transport Association under its credit insurance policy. The amounts
of P100,479,171.59 and US$457,834.14 represent Morning Star’s overdue remittances to the International Air
Transport Association. Pioneer filed this Petition for Review assailing the Court of Appeals’ February 28, 2011
Decision "only insofar as it absolved the individual respondents of their joint and solidary liability to petitioner" and
August 31, 2011 Resolution8 denying reconsideration.
Morning Star is a travel and tours agency with Benny Wong, Estelita Wong, Arsenio Chua, Sonny Chua, and
Wong Yan Tak as shareholders and members of the board of directors. International Air Transport Association is
a Canadian corporation licensed to do business in the Philippines "to promote safe, regular and economical air
transport for all people, among others."
International Air Transport Association appointed Morning Star as an accredited travel agent. Morning Star
"availed of the privilege of getting on credit . . . air transport tickets from various airline companies [to be sold] to
passengers at prices fixed by the airline companies." Morning Star and International Air Transport Association
entered a Passenger Sales Agency Agreement such that Morning Star must report all air transport ticket sales to
International Air Transport Association and account all payments received through the centralized system called
Billing and Settlement Plan. Morning Star only holds in trust all monies collected as these belong to the airline
companies.
International Air Transport Association obtained a Credit Insurance Policy from Pioneer to assure itself of
payments by accredited travel agents for ticket sales and monies due to the airline companies under the Billing
and Settlement Plan. The policy was for the period from November 1, 2001 to December 31, 2002, renewed for
the period from January 1, 2003 to December 31, 2003.The policy was made known to the accredited travel
agents. Morning Star, through its President, Benny Wong, was among those that declared itself liable to indemnify
Pioneer for any and all claims under the policy. He executed a registration form under the Credit Insurance
Program for BSP-Philippines Agents.
Morning Star had an accrued billing of P49,051,641.80 and US$325,865.35 for the period from December 16,
2002 to December 31, 2002. It failed to remit these amounts through the Billing and Settlement Plan, prompting
the International Air Transport Association to send a letter dated January 17, 2003 advising on the overdue
remittance. International Air Transport Association again declared Morning Star in default by a letter dated
January 20, 2003 for its overdue account covering the period from January 1, 2003 to January 20, 2003.
Pursuant to the credit insurance policies, International Air Transport Association demanded from Pioneer the
sums of P109,728,051.00 and US$457,834.14 representing Morning Star’s overdue account as of April 30, 2003.
Pioneer investigated, ascertained, and validated the claims, then paid International Air Transport Association the
amounts of P100,479,171.59 and US$457,834.14. Consequently, Pioneer demanded these amounts from
Morning Star through a letter dated September 23, 2003. International Air Transport Association executed in
Pioneer’s favor a Release of Claim and Subrogation Receipt on December 23, 2003. On November 10, 2005,
Pioneer filed a Complaint for Collection of Sum of Money and Damages against Morning Star and its shareholders
and directors.
Trial court: Ruled in favor of Pioneer, ordering defendants to jointly and severally pay plaintiff.
CA: Affirmed trial court’s decision with modification in that only Morning Star was liable to pay petitioner
Pioneer’s contention: its Petition falls under the exceptions to the general rule that petitions for review may raise
only questions of law. Pioneer raises conflicting findings and conclusions by the lower courts regarding solidary
liability, and misapprehension of facts by the Court of Appeals. It argues that "the individual respondents were,
at the very least, grossly negligent in running the affairs of respondent Morning Star by knowingly allowing it to
amass huge debts to [International Air Transport Association] despite its financial distress, thus, giving sufficient
ground for the court to pierce the corporate veil and hold said individual respondents personally liable." It cites
Section 31 of the Corporation Code on the liability of directors "guilty of gross negligence or bad faith in directing
the affairs of the corporation[.]" It also cites jurisprudence on the requisites for the doctrine of piercing the
corporate veil to apply. It submits that all requisites are present, thus, the individual respondents should be held
solidarily liable with Morning Star. It contends that the abnormally large indebtedness to International Air Transport
Association was incurred in fraud and bad faith, with Morning Star having no intention to pay its debt.
ISSUES:
1. Whether this case involves an exception to the general rule that petitions for review are limited to questions of
law
2. Whether the doctrine of piercing the corporate veil applies to hold the individual respondents solidarily liable
with respondent Morning Star Travel and Tours, Inc. to pay the award in favor of petitioner Pioneer Insurance
& Surety Corporation.
HELD:
1. The Court of Appeals then enumerated the exceptional circumstances warranting solidary liabilities by
corporate agents based on jurisprudence, and found none to be present in this case.
Only questions of law may be raised in a petition for review. Factual findings of the Court of Appeals are generally
"final and conclusive, and cannot be reviewed on appeal by [this court], provided they are borne out by the record
or based on substantial evidence." Issues such as whether the separate and distinct personality of a corporation
was used for fraudulent ends, or whether the evidence warrants a piercing of the corporate veil, involve questions
of fact. Jurisprudence established exceptions from the general rule against a factual review by this court. These
exceptions include cases when the judgment appears to be based on a "patent misappreciation of facts."
2. The Court of Appeals ruled that the general rule on separate corporate personality and against personal liability
by corporate officers applies since petitioner failed to prove bad faith amounting to fraud by the corporate
officers:
“The mere fact that Morning Star has been incurring huge losses and that it has no assets at the time it contracted
large financial obligations to IATA, cannot be considered that its officers, Defendants-Appellants Estelita Co
Wong, Benny H. Wong, Arsenio Chua, Sonny Chua and Wong Yan Tak, acted in bad faith or such circumstance
would amount to fraud, warranting personal and solidary liability of its corporate officers. The same is also true
with the fact that Morning Star Management Ventures Corporation and Pic ‘N Pac Mart, Inc., corporations having
the same set of officers as Morning Star, were doing relatively well during the time that the former incurred huge
losses. Thus, only Morning Star should be held personally liable to Plaintiff- Appellee, and not its corporate
officers.”
Piercing the corporate veil in order to hold corporate officers personally liable for the corporation’s debts requires
that "the bad faith or wrongdoing of the director must be established clearly and convincingly [as] [b]ad faith is
never presumed."
A separate corporate personality shields corporate officers acting in good faith and within their scope of authority
from personal liability except for situations enumerated by law and jurisprudence, thus:
Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation
may so validly attach, as a rule, only when —
‘1. 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.
5.Roy III v. Herbosa, G.R. No. 207246 (Resolution), [April 18, 2017]
Doctrine:
The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[fJull [and legal]
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights x
x x must rest in the hands of Filipino nationals x x x." 11 And, precisely that is what SEC-MC No. 8 provides,
viz.: "x x x For purposes of determining compliance [with the constitutional or statutory ownership], the required
percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock
entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or
not entitled to vote x x x."
Facts:
Before the Court is the Motion for Reconsideration dated January 19, 2017 (the Motion) filed by petitioner Jose
M. Roy III (movant) seeking the reversal and setting aside of the Decision dated November 22, 2016 (the
Decision) which denied the movant's petition, and declared that the Securities and Exchange Commission (SEC)
did not commit grave abuse of discretion in issuing Memorandum Circular No. 8, Series of 2013 (SEC-MCNo. 8)
as the same was in compliance with, and in fealty to, the decision of the Court in Gamboa v. Finance Secretary
Teves, (Gamboa Decision) and the resolution denying the Motion for Reconsideration.
ISSUE:
Whether or not SEC commit grave abuse of discretion in issuing Memorandum Circular No. 8, Series of 2013
HELD:
NO. The Court reasoned that "in the absence of a definitive ruling by the SEC on PLDT's compliance with
the capital requirement pursuant to the Gamboa Decision and Resolution, any question relative to the
inexistent ruling is premature."
In resolving the other substantive issue raised by petitioners, the Court held that:
[E]ven if the resolution of the procedural issues were conceded in favor of
petitioners, the petitions, being anchored on Rule 65, must nonetheless fail
because the SEC did not commit grave abuse of discretion amounting to lack or
excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court
finds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and
Resolution.
To belabor the point, movant's petition is not a continuation of the Gamboa case as the Gamboa Decision
attained finality on October 18, 2012, and thereafter Entry of Judgment was issued on December 11, 2012.
The Decision has painstakingly explained why it considered as obiter dictum that pronouncement in the
Gamboa Resolution that the constitutional requirement on Filipino ownership should "apply uniformly and
across the board to all classes of shares, regardless of nomenclature and category, comprising the capital
of a corporation."
(recit) The Court stated that:
[T]he fallo or decretal/dispositive portions of both the Gamboa Decision and
Resolution are definite, clear and unequivocal. While there is a passage in the
body of the Gamboa Resolution that might have appeared contrary to the fallo of
the Gamboa Decision x x x the definiteness and clarity of thefallo of the Gamboa
Decision must control over the obiter dictum in the Gamboa Resolution regarding
the application of the 60-40 Filipino-foreign ownership requirement to "each class
of shares, regardless of differences in voting rights, privileges and restrictions."
To the Court's mind and, as exhaustively demonstrated in the Decision, the
dispositive portion of the Gamboa Decision was in no way modified by the
Gamboa Resolution.
The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution, which
provides: "No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of whose capital is owned by such citizens x x x."
The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[f]ull [and
legal] beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting
rights x x x must rest in the hands of Filipino nationals x x x." And, precisely that is what SEC-MC No. 8
provides, viz.: "x x x For purposes of determining compliance [with the constitutional or statutory ownership],
the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of
stock, whether or not entitled to vote x x x."
6. ANDAYA v. RURAL BANK OF CABADBARAN, INC.
G.R. No. 188769; August 3, 2016
FACTS: Petitioner Joseph Omar Andaya bought from Concepcion Chute 2,200 shares of stock in respondent
Rural Bank of Cabadbaran, Inc. for P220,000. Chute duly endorsed and delivered the certificates of stock to
Andaya, and requested the Bank to register the transfer and issue new stock certificates in favor of petitioner.
The Bank’s corporate secretary, respondent Demosthenes Oraiz, wrote Chute that he could not register the
transfer due to a previous stockholder’s Resolution, wherein existing stockholders were given priority (i.e. right of
first refusal) to buy the shares of others in the event that the shares would be for sale. He then asked Chute if
she, instead, wished to have her shares offered to existing stockholders.
Meanwhile, the Bank’s legal counsel, respondent Ricardo Gonzalez, informed Andaya that the latter’s request
had been referred to the bank’s board of directors for evaluation. Andaya argued that the purported restriction on
the transfer of shares of stock agreed upon during the 2001 stockholders’ meeting, citing Section 98 of the
Corporation Code, could not deprive him of his right as a transferee.
The Bank still refused the transfer arguing that it may refuse to accept a competitor as one of its stockholders as
pronounced in Gokongwei v. Securities and Exchange Commission.
Andaya instituted an action for mandamus and damages against respondent Bank, which was dismissed by the
Regional Trial Court, holding that Andaya had no standing to compel the bank to register the transfer and issue
stock certificates in his name.
Andaya directly elevated a petition for review before the Supreme Court on questions of law. Hence, the petition.
ISSUE: Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus compelling the
Rural Bank of Cabadbaran to record the transfer of shares in its stock and transfer book, as well as issue new
stock certificates in his name.
HELD: YES. According to Price v. Martin, a person who has purchased stock, and who desires to be recognized
as a stockholder, for the purpose of voting, must secure a standing by having the transfer recorded upon the
books. If the transfer is not duly made upon request, he has, as his remedy, to compel it to be made. The
registration of a transfer of shares of stock is a ministerial duty on the part of the corporation.
At the crux of this petition are the registration of the transfer and the issuance of the corresponding stock
certificates. Requiring petitioner to register the transaction before he could institute a mandamus suit is a palpable
error. It leads to an absurd, circuitous situation in which Andaya is prevented from causing the registration of the
transfer, ironically because the shares had not been registered. With the logic resorted to by the RTC, transferees
of shares of stock would never be able to compel the registration of the transfer and the issuance of new stock
certificates in their favor. They would first be required to show the registration of the transfer in their names -- the
ministerial act that is the subject of the mandamus suit in the first place.
Respondents primarily challenge the mandamus suit on the grounds that the transfer violated the Bank
stockholders’ right of first refusal, and that petitioner was a buyer in bad faith. Both parties refer to Section 98 of
the Corporation Code. It must be noted that Section 98 applies only to close corporations. Hence, before the
Court can allow the operation of this section in the case at bar, there must first be a factual determination that
respondent Bank is indeed a close corporation. In this regard, the case is remanded to the RTC.
7.) ANNA TENG vs SECURITIES AND EXCHANGE COMMISSION (SEC) AND TING PING LAY
G.R. No. 184332, February 17, 2016
DOCTRINE:
(1) It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized
representative that is the operative act of transfer of shares from the original owner to the transferee. To compel
Ting Ping to deliver to the corporation the certificates as a condition for the registration of the transfer would
amount to a restriction on the right of Ting Ping to have the stocks transferred to his name, which is not sanctioned
by law.
(2)The surrender of the original certificate of stock is necessary before the issuance of a new one so that the old
certificate may be cancelled. A corporation is not bound and cannot be required to issue a new certificate unless
the original certificate is produced and surrendered. Surrender and cancellation of the old certificates serve to
protect not only the corporation but the legitimate shareholder and the public as well, as it ensures that there is
only one document covering a particular share of stock.
FACTS: Respondent Ting Ping purchased 480 shares of TCL Sales Corporation (TCL) from Peter Chiu (Chiu);
1,400 shares from his brother Teng Ching Lay (Teng Ching), who was also the president and operations manager
of TCL; and 1,440 shares from Ismaelita Maluto (Maluto).
Upon Teng Ching's death in 1989, his son Henry Teng (Henry) took over the management of TCL. To protect his
shareholdings with TCL, Ting Ping requested TCL's Corporate Secretary, herein petitioner Teng, to enter the
transfer in the Stock and Transfer Book of TCL for the proper recording of his acquisition. Lie also demanded the
issuance of new certificates of stock in his favor. TCL and Teng, however, refused despite repeated demands.
Because of their refusal, Ting Ping filed a petition for mandamus with the SEC against TCL and Teng.
SEC- Ordered [TCL and Teng] to issue corresponding new certificates of stocks (sic) in the name of [Ting Ping]
+ damages
SEC en banc- On appeal, it affirmed above decision
CA- dismissed the petition for having been filed out of time and for finding no cogent and justifiable grounds to
disturb the findings of the SEC en banc.
After the finality of the Court's decision, the SEC issued a writ of execution addressed to the Sheriff of the Regional
Trial Court (RTC) of Manila. Teng, however filed a complaint for interpleader with the RTC of Manila, Branch 46,
where Teng sought to compel Henry and Ting Ping to interplead and settle the issue of ownership over the 1,400
shares, which were previously owned by Teng Ching. Thus, the deputized sheriff held in abeyance the further
implementation of the writ of execution pending outcome of the civil case.
RTC- Henry has better right to the shares of stocks formerly owned by Teng Ching, except those covered under
Certificate of Stocks No 11
An Ex Parte Motion for the Issuance of Alias Writ of Execution was filed by Ting Ping where he sought the partial
satisfaction of SEC en banc where it ordered CL and Teng to record the 480 shares he acquired from Chiu and
the 1,440 shares he acquired from Maluto, and for Teng's payment of the damages awarded in his favor. SEC
issued an alias writ of execution granting partial enforcement and satisfaction.
Teng and TCL filed their respective motions to quash the alias writ of execution, which was opposed by Ting
Ping, who also expressed his willingness to surrender the original stock certificates of Chiu and Maluto to facilitate
and expedite the transfer of the shares in his favor. Teng pointed out, however, that the annexes in Ting Ping's
opposition did not include the subject certificates of stock, surmising that they could have been lost or destroyed.
Ting Ping belied this, claiming that his counsel Atty. Simon V. Lao already communicated with TCL's counsel
regarding the surrender of the said certificates of stock. Teng then filed a counter manifestation where she pointed
out a discrepancy between the total shares of Maluto based on the annexes, which is only 1305 shares, as
against the 1440 shares acquired by Ting Ping based on the SEC Order.
ISSUE: Whether the surrender of the certificates of stock is a requisite before registration of the transfer may be
made in the corporate books and for the issuance of new certificates in its stead?
HELD: NO.
A certificate of stock is a written instrument signed by the proper officer of a corporation stating or acknowledging
that the person named in the document is the owner of a designated number of shares of its stock. It is prima
facie evidence that the holder is a shareholder of a corporation. A certificate, however, is merely a tangible
evidence of ownership of shares of stock. It is not a stock in the corporation and merely expresses the contract
between the corporation and the stockholder. The shares of stock evidenced by said certificates, meanwhile, are
regarded as property and the owner of such shares may, as a general rule, dispose of them as he sees fit, unless
the corporation has been dissolved, or unless the right to do so is properly restricted, or the owner's privilege of
disposing of his shares has been hampered by his own action.
Section 63 of the Corporation Code prescribes the manner by which a share of stock may be transferred. Under
the provision, certain minimum requisites must be complied with for there to be a valid transfer of stocks, to wit:
(a) there must be delivery of the stock certificate; (b) the certificate must be endorsed by the owner or his attorney-
in-fact or other persons legally authorized to make the transfer; and (c) to be valid against third parties, the transfer
must be recorded in the books of the corporation.
It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized representative
that is the operative act of transfer of shares from the original owner to the transferee. The Court even
emphatically declared in Fil-Estate Golf and Development, Inc., et al. v. Vertex Sales and Trading, Inc. that in "a
sale of shares of stock, physical delivery of a stock certificate is one of the essential requisites for the transfer of
ownership of the stocks purchased." The delivery contemplated in Section 63, however, pertains to the delivery
of the certificate of shares by the transferor to the transferee, that is, from the original stockholder named in
the certificate to the person or entity the stockholder was transferring the shares to, whether by sale or some
other valid form of absolute conveyance of ownership. "Shares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly
indorsed certificate of stock."
It is thus clear that Teng's position - that Ting Ping must first surrender Chiu's and Maluto's respective certificates
of stock before the transfer to Ting Ping may be registered in the books of the corporation -does not have legal
basis. The delivery or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is not a requisite before the
conveyance may be recorded in its books. To compel Ting Ping to deliver to the corporation the certificates as a
condition for the registration of the transfer would amount to a restriction on the right of Ting Ping to have the
stocks transferred to his name, which is not sanctioned by law. The only limitation imposed by Section 63 is when
the corporation holds any unpaid claim against the shares intended to be transferred.
To be valid against third parties and the corporation, the transfer must be recorded or registered in the books of
corporation. There are several reasons why registration of the transfer is necessary: one, to enable the transferee
to exercise all the rights of a stockholder; two, to inform the corporation of any change in share ownership so that
it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder; and three, to avoid
fictitious or fraudulent transfers, among others. In this case, given the Court's decision, registration of the transfer
of Chiu's and Maluto's shares in Ting Ping's favor is a mere formality in confirming the latter's status as a
stockholder of TCL. Upon registration of the transfer in the books of the corporation, the transferee may now then
exercise all the rights of a stockholder, which include the right to have stocks transferred to his name.
The surrender of the original certificate of stock is necessary before the issuance of a new one so that the old
certificate may be cancelled. A corporation is not bound and cannot be required to issue a new certificate unless
the original certificate is produced and surrendered. Surrender and cancellation of the old certificates serve to
protect not only the corporation but the legitimate shareholder and the public as well, as it ensures that there is
only one document covering a particular share of stock.
In the case at bench, Ting Ping manifested from the start his intention to surrender the subject certificates of stock
to facilitate the registration of the transfer and for the issuance of new certificates in his name. It would be
sacrificing substantial justice if the Court were to grant the petition simply because Ting Ping is yet to surrender
the subject certificates for cancellation instead of ordering in this case such surrender and cancellation, and the
issuance of new ones in his name.
On the other hand, Teng, and TCL for that matter, have already deterred for so long Ting Ping's enjoyment of his
rights as a stockholder. Respondent Ting Ping Lay is hereby ordered to surrender the certificates of stock covering
the shares respectively transferred by Ismaelita Maluto and Peter Chiu. Petitioner Anna Teng or the incumbent
corporate secretary of TCL Sales Corporation, on the other hand, is hereby ordered, under pain of contempt, to
immediately cancel Ismaelita Maluto's and Peter Chiu's certificates of stock and to issue new ones in the name
of Ting Ping Lay, which shall include Ismaelita Maluto's shares not covered by any existing certificate of stock but
otherwise validly transferred to Ting Ping Lay. Costs against petitioner Anna Teng.
8. JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, JESUS B. MARAMARA, JOSE T. FRONDOSO,
IGNACIO T. MACROHON, JR., and PAULINO T. LIM, acting in their capacity as individual Directors of
MAKATI SPORTS CLUB, INC., and on behalf of the Board of Directors of MAKATI SPORTS CLUB,
petitioners, vs. JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G. LIBREA, SAMUEL L.
ESGUERRA, ROLANDO P. DELA CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA. CRISTINA SIM,
ROGER T. AGUILING, JOSE B. QUIMSON, CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. GOZON,
CLAUDIO B.
G.R. Nos. 163368-69. July 1, 2015.*
DOCTRINE:: Textually, only the President and the Board of Directors are authorized by the bylaws to call a
special meeting. In cases where the person authorized to call a meeting refuses, fails or neglects to call a meeting,
then the stockholders representing at least 100 shares, upon written request, may file a petition to call a special
stockholder’s meeting.
FACTS: the MSC Oversight Committee (MSCOC), composed of the past presidents of the club, demanded from
the Bernas Group, who were then incumbent officers of the corporation, to resign from their respective positions
to pave the way for the election of new set of officers. The stockholders of the corporation representing at least
100 shares who sought the assistance of the MSCOC to call for a special stockholders meeting. Pursuant to such
request, the MSCOC called a Special Stockholders’ Meeting and sent out notices6 to all stockholders and
members stating therein the time, place and purpose of the meeting. the meeting proceeded wherein Jose A.
Bernas, Cecile H. Cheng, Victor Africa, and others were removed. Aggrieved by the turn of events, the Bernas
Group initiated an action before the Securities Investigation and Clearing Department (SICD) seeking for the
nullification of the 17 December 1997 Special Stockholders Meeting on the ground that it was improperly called
Reason: he authority to call a meeting lies with the Corporate Secretary and not with the MSCOC which functions
merely as an oversight body and is not vested with the power to call corporate meetings
For their part, the Cinco Group insisted that the 17 December 1997 Special Stockholders’ Meeting is sanctioned
by the Corporation Code and the MSC bylaws
Reason: Section 25 of the MSC bylaws merely authorized the Corporate Secretary to issue notices of meetings
and nowhere does it state that such authority solely belongs to him
Meanwhile, the newly elected directors initiated an investigation on the alleged anomalies in administering the
corporate affairs and after finding Bernas guilty of irregularities, the Board resolved to expel him from the club.
Prior to the resolution of SEC Case No. 5840, an Annual Stockholders’ Meeting was held on 20 April 1998
pursuant to Section 8 of the MSC bylaws. which was attended by 1,017 stockholders representing 2/3 of the
outstanding shares, the majority resolved to approve, confirm and ratify, among others, the calling and holding of
17 December 1997 Special Stockholders’ Meeting. The conduct of the 17 December 1997 Special Stockholders’
Meeting was likewise ratified by the stockholders during the 2000 Annual Stockholders’ Meeting which was held
on 17 April 2000
SICD: Held among others among others, that the 17 December 1997 Special Stockholders’ Meeting and the
Annual Stockholders’ Meeting conducted on 20 April 1998 and 19 April 1999 are invalid. The SICD likewise
nullified the expulsion of Bernas from the corporation and the sale of his share at the public auction
SEC en banc: reversed the findings of the SICD and validated the holding of the 17 December 1997 Special
Stockholders’ Meeting as well as the Annual Stockholders’ Meeting held on 20 April 1998 and 19 April 1999
CA: rendered a Decision declaring the 17 December 1997 Special Stockholders’ Meeting invalid for being
improperly called but affirmed the actions taken during the Annual Stockholders’ Meeting held on 20 April 1998,
19 April 1999 and 17 April 2000.
ISSUE:
a.) Whether or not the 1997 special stockholders meeting was valid
b.) Whether the removal of the petitioners were valid
HELD:
a.) No, The Corporation Code laid down the rules on the removal of the Directors of the corporation by providing,
inter alia, the persons authorized to call the meeting and the number of votes required for the purpose of removal
SEC 28- x x x x x x x
A special meeting of the stockholders or members of a corporation for the purpose of removal of directors
or trustees, or any of them, must be called by the secretary on order of the president or on the written demand of
the stockholders representing or holding at least a majority of the outstanding capital stock
Textually, only the President and the Board of Directors are authorized by the bylaws to call a special meeting.
In cases where the person authorized to call a meeting refuses, fails or neglects to call a meeting, then the
stockholders representing at least 100 shares, upon written request, may file a petition to call a special
stockholder’s meeting
In the instant case, there is no dispute that the 17 December 1997 Special Stockholders’ Meeting was called
neither by the President nor by the Board of Directors but by the MSCOC. While the MSCOC, as its name
suggests, is created for the purpose of overseeing the affairs of the corporation, nowhere in the bylaws does it
state that it is authorized to exercise corporate powers, such as the power to call a special meeting, solely vested
by law and the MSC bylaws on the President or the Board of Directors
b.) No, such Special Stockholders’ Meeting called by the Oversight Committee cannot have any legal effect. The
removal of the Bernas Group, as well as the election of the Cinco Group, effected by the assembly in that
improperly called meeting is void, and since the Cinco Group has no legal right to sit in the board, their subsequent
acts of expelling Bernas from the club and the selling of his shares at the public auction, are likewise invalid.
9. PHILIPPINE ASSOCIATED SMELTING AND REFINING CORPORATION vs. LIM
G.R. No. 172948, October 5, 2016
FACTS: Philippine Associated Smelting and Refining Corporation (PASAR) is a corporation duly organized and
existing under the laws of the Philippines and is engaged in copper smelting and refining. Pablito Lim, Manuel
Agcaoili and Consuelo Padilla were former senior officers and presently shareholders of PASAR holding 500
shares each.
An amended Petition for Injunction and Damages with prayer for Preliminary Injunction and/or TRO was
filed by PASAR seeking to restrain Lim, Agcaoili and Padilla from demanding inspection of its confidential
and inexistent records. RTC issued an Order granting PASAR’s prayer for a writ of preliminary injunction. RTC
held that the right to inspect book should not be denied to the stockholders, however, the same may be restricted.
The right to inspect should be limited to the ordinary records as identified and classified by PASAR. Thus, pending
the determination of which records are confidential or inexistent, the petitioners should be enjoined from
inspecting the books.
Lim, Agcaoili and Padilla filed a Motion for Dissolution of the Writ of Preliminary Injunction on the ground that the
petition is insufficient. They also claim that the enforcement of the right to inspect book should be on the
stockholders and not on PASAR. RTC denied the Motion to Dismiss on the ground that it is a prohibited pleading.
Lim, Agcaoili and Padilla filed before the CA a Petition for Certiorari questioning the propriety of the writ of
preliminary injunction. CA held that there was no basis to issue and injunctive writ and the proper remedy available
for the enforcement of the right of inspection in writ of mandamus to be filed by the stockholders and not a petition
for injunction filed by the corporation.
ISSUE: Whether or not injunction properly lies to prevent respondents from invoking their right to
inspect?
HELD: No.
For an action for injunction to prosper, the applicant must show the existence of a right, as well as the
actual or threatened violation of his right. Sec 3 Rule 58 of the Rules of Court provides:
Sec 3. Grounds for issuance of preliminary injunction. – A preliminary injunction may be granted when it is
established:
a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining
the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts
either for a limited period or perpetually;
b) That the commission, continuance or non-performance of the act or acts complained of during the litigation ISSUES:
would probably work injustice to the applicant; or
c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering 1. Whether respondents should be reinstated as members of ALRAI?
to be done some act or acts probably in violation of the rights of the applicant respecting the subject of the action
or proceeding, and tending to render the judgment ineffectual. 2. Whether or not the respondents were correct in fling individual suits?
A writ of preliminary injunction may be issued only upon clear showing of an actual existing right to be
protected during the pendency of the principal action. The twin requirements of a valid injunction are the 3. Whether the transfers of the donated lots are valid?
existence of a right and its actual or threatened violation. Thus, to be entitled to an injunctive writ, the
right to be protected and the violation against that right must be shown. In the absence of a clear legal HELD:
right, the issuance of the injunctive writ constitutes grave abuse of discretion.
Corporations may raise their objections to the right of inspection through affirmative defense in an ordinary civil I. Legality of respondents' termination
action for specific performance or damages, or through a comment in a petition for mandamus. The corporation
still carries the burden of proving a) that the stockholder has improperly used information before; b) lack of good Petitioners argue that respondents were validly dismissed for violation of the ALRAI Constitution particularly
faith; or c) lack of legitimate purpose. for non-payment of membership dues and absences in the meetings. Petitioners' argument is without merit.
Good faith and a legitimate purpose are presumed. It is the duty of the corporation to allege and prove with We agree with the CA's finding that respondents were illegally dismissed from ALRAI.
sufficient evidence the facts that give rise to a claim of bad faith as to the existence of an illegitimate purpose.
Courts must be convinced that the scope or manner of the request and the conditions under which it was made Section 91 of the Corporation Code of the Philippines (Corporation Code) provides that membership in a
are so frivolous that the huge cost to the business will, in equity, be unfair to the other stockholders. There is no non-stock, non-profit corporation (as in petitioner ALRAI in this case) shall be terminated in the manner and
iota of evidence that this happened here. for the cases provided in its articles of incorporation or the by-laws.

In tum, Section 5, Article II of the ALRAI Constitution states:

10. AGDAO RESIDENTS INC., THE DIRECTORS LANDLESS LANDLESS Sec. 5. - Termination of Membership - Membership may be lost in any of the following: a) Delinquent in
ASSOCIATION vs. MARAMION, G.R. Nos. 188642 & 189425, October 17, 2016 the payment of monthly dues; b) failure to [attend] any annual or special meeting of the association
for three consecutive times without justifiable cause…

DOCTRINE: Individual suits are filed when the cause of action belongs to the stockholder personally, and
not to the stockholders as a group, or to the corporation. A derivative suit, on the other hand, is one which
is instituted by a shareholder or a member of a corporation, for and in behalf of the corporation for its
protection from acts committed by directors, trustees, corporate officers, and even third persons. The whole
purpose of the law authorizing a derivative suit is to allow the stockholders/members to enforce rights which
are derivative (secondary) in nature.
FACTS: Dakudao & Sons, Inc. (Dakudao) executed six Deeds of Donation in favor of ALRAI covering 46
titled lots (donated lots). One Deed of Donation prohibits ALRAI, as donee, from partitioning or distributing
individual certificates of title of the donated lots to its members, within a period of five years from execution,
unless a written authority is secured from Dakudao. A violation of the prohibition will render the donation
void, and title to and possession of the donated lot will revert to Dakudao. The other five Deeds of Donation
do not provide for the five-year restriction.
In the board of directors and stockholders meetings, members of ALRAI resolved to directly transfer 10 of
the donated lots to individual members and non members of ALRAI. TCTs were transferred to Romeo Dela
Cruz, petitioner Javonillo, the president of ALRAI, Armentano, the secretary of ALRAI, and Alcantara, the
widow of the fanner legal counsel of ALRAI. The donated lot was sold to Lily Loy (Loy).
Respondents filed a Complaint against petitioners; that they expelled them as members of ALRAI, and that
petitioners are abusing their powers as officers. Respondents further alleged that petitioners were engaged
in the following anomalous and illegal acts, some of which are partially distributing the lands donated by
Dakudao to some officers of ALRAI and to some non-members in violation of the Deeds of Donation; and
illegally expelling them as members of ALRAI without due process.
In their Answer, petitioners alleged that ALRAI transferred lots to Alcantara as attorney's fees ALRAI owed
to her late husband. On the other hand, Javonillo and Armentano, as president and secretary of ALRAI,
respectively, made a lot of sacrifices for ALRAI, while Dela Cruz provided financial assistance to ALRAI.
Petitioners also alleged that respondents who are non-members of ALRAI have no personality to sue.
They also claimed that the members who were removed were legally ousted due to their absences in
meetings. The RTC ruled in favour of the complainants. CA affirmed.
Petitioners allege that the membership of respondents in ALRAI was terminated due to (a) non-payment of
membership dues and (b) failure to consecutively attend meetings. However, petitioners failed to
substantiate these allegations. In fact, the court a quo found that respondents submitted several receipts
showing their compliance with the payment of monthly dues.63 Petitioners likewise failed to prove that
respondents' absences from meetings were without any justifiable grounds to result in the loss of their
membership in ALRAI. Even assuming that petitioners were able to prove these allegations, the automatic
termination of respondents' membership in ALRAI is still not warranted. As shown above, Section 5 of the
ALRAI Constitution does not state that the grounds relied upon by petitioners will cause the automatic
termination of respondents' membership.
II. Individual Suit vs. Derivative Suit
At the onset, we find that the cause of action and the reliefs sought in the complaint pertaining to the
donated lands (ALRAI's corporate property) strictly call for the filing of a derivative suit, and not an
individual suit which respondents filed.
Individual suits are filed when the cause of action belongs to the stockholder personally, and not to the
stockholders as a group, or to the corporation, e.g. denial of right to inspection and denial of dividends to
a stockholder. If the cause of action belongs to a group of stockholders, such as when the rights violated
belong to preferred stockholders, a class or representative suit may be filed to protect the stockholders in
the group.
A derivative suit, on the other hand, is one which is instituted by a shareholder or a member of a corporation,
for and in behalf of the corporation for its protection from acts committed by directors, trustees, corporate
officers, and even third persons.79 The whole purpose of the law authorizing a derivative suit is to allow
the stockholders/members to enforce rights which are derivative (secondary) in nature, i.e., to enforce a
corporate cause of action.
In this case, the reliefs sought do not entail the premature distribution of corporate assets. On the contrary,
the reliefs seek to preserve them for the corporate interest of ALRAI. Clearly then, any benefit that may be
recovered is accounted for, not in favor of respondents, but for the corporation, who is the real party-in-
 interest Therefore, the occasion for the strict application of the rule that a derivative suit should be brought
in order to protect and vindicate the interest of the corporation does not obtain under the circumstances of
this case.
Even though the action should have been brought up through a derivative suit, the individual suits
are treated as individual suits based on the following:
a. The RTC, where the case was originally filed, has jurisdiction over the controversy;
b. Petitioners did not object to the institution of the case (on the ground that a derivative suit
should have been lodged instead of an individual suit) in any of the proceedings before the
court
a quo or before the CA.
c. a reading of the complaint shows that respondents do not pray for reliefs for their personal
benefit; but in fact, for the benefit of the corporation.
III. On the validity of the donated lots
Javonillo, as a director, signed the Board Resolutions confirming the transfer of the corporate
properties to himself, and to Armentano. Petitioners cannot argue that the transfer of the corporate
properties to them is valid by virtue of the Resolution by the general membership of Agdao confirming
the transfer for tJ-iree reasons.
“Sec. 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation
with one or more of its directors or trustees or officers is voidable, at the option of such corporation,
unless all of the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.”
Section 32 requires that the contract should be ratified by a vote representing at least two-thirds of
the members in a meeting called for the purpose. Records of this case do not show whether the
Resolution was indeed voted by the required percentage of membership. There is also no showing
that there was full disclosure of the adverse interest of the directors involved when the Resolution
was approved. Full disclosure is required under the aforecited Section 32 of the Corporation Code.
Section 32 requires that the contract be fair and reasonable under the circumstances. As previously
discussed, the transfer of the corporate properties to the individual petitioners is not fair and
reasonable for ( 1) want of legitimate corporate purpose, and for (2) the breach of the fiduciary nature
of the positions held by Javonillo and Armentano. Lacking any of these (full disclosure and a showing
that the contract is fair and reasonable), ratification by the two-thirds vote would be of no avail.
11. Aguirre II vs. FQB+7, Inc., 688 SCRA 242, G.R. No. 170770 January 9, 2013
Facts: This case is about FQB+7, Inc. of w/c Vitaliano Aguirre was originally a subscriber as reflected in the
Articles of Inc. To VA’s knowledge, there has been no other changes to their subscriber membership other than
the deaths of 2 subscribers. VA later discovered that a General Information Sheet was submitted to the SEC
where he was no longer listed as a subscriber and changed the date of the annual meeting. And so he filed a
case w/ the SEC for damages and right to inspect the corporate records w/c was assigned to the RTC of Manila.
The RTC ruled in VA’s favor due to the respondent’s lack of participation and so a writ of preliminary injunction
was granted stopping the corporation from proceeding w/ the corporation’s business. FQB+7 answered that the
case should be dismissed since the SEC had already revoked their Certificate of Registration due to failure to
comply w/ reportorial requirements. They claim that the case is no longer an intracorporate dispute since there
was no longer a corporation thus no w/in the jurisdiction of the RTC as a commercial court.
Issue: WON the dissolution of a corporation changes the relationship of the parties in this case as
corporate characters.
Held: No. The dissolution of the corporation simply prohibits it from continuing its business. However, despite
such dissolution, the parties involved in the litigation are still corporate actors. The dissolution does not
automatically convert the parties into total strangers or change their intra-corporate relationships. Neither does it
change or terminate existing causes of action, which arose because of the corporate ties between the parties.
Thus, a cause of action involving an intra-corporate controversy remains and must be filed as an intra-corporate
dispute despite the subsequent dissolution of the corporation.
It bears reiterating that Section 145 of the Corporation Code protects, among others, the rights and remedies of
corporate actors against other corporate actors. The statutory provision assures an aggrieved party that the
corporation’s dissolution will not impair, much less remove, his/her rights or remedies against the corporation, its
stockholders, directors or officers. It also states that corporate dissolution will not extinguish any liability already
incurred by the corporation, its stockholders, directors, or officers. In short, Section 145 preserves a corporate
actor’s cause of action and remedy against another corporate actor. In so doing, Section 145 also preserves the
nature of the controversy between the parties as an intra-corporate dispute.
12. Mary Lim vs. Moldex Land, Inc.
FACTS: On July 21, 2012 Condocor (Condominium Corporation) a non-stock, non-profit corporation, which is
the registered condominium corporation for the Golden Empire Tower held its annual general membership
meeting. Moldex became a member of Condocor on the basis of its ownership of the 220 unsold units in the
Golden Empire Tower.
During the meeting, an existence of a quorum was declared even though only 29 of the 108 unit buyers were
present. The declaration was based on the presence of the majority of the voting rights, including those pertaining
to the 220 unsold units held by Moldex through its representatives. Lim, through her attorney-in-fact, objected to
the validity of the meeting. The objection was denied. Thus, Lim and all the other unit owners present, except for
one, walked out and left the meeting.
Despite the walkout, the individual respondents and the other unit owner proceeded with the meeting and elected
the new members of the Board of Directors for 2012-2013. All four (4) individual respondents (JAMINOLA,
MACALINTAL, MILANES, and ROMAN) were voted as members of the board, together with other 3 members.
Consequently, Lim filed an election protest before the RTC. Lim claimed that herein respondents are not entitled
to be members of the Board of Directors because they are non-unit buyers. However, said court ruled in favor for
the respondents. Not in conformity, Lim filed the present petition.
ISSUES:
1) Whether or not the July 21, 2012 membership meeting was valid.
2) Whether or not Moldex can be deemed a member of Condocor.
3) Whether or not representatives of Moldex who are non-members can be elected as a member of the Board of
Directors of Condocor.
HELD:
I
No. The July 21, 2012 membership meeting was not valid.
A stockholders' or members' meeting must comply with the following requisites to be
valid:
1. The meeting must be held on the date fixed in the ByLaws or in accordance with law;
2. Prior written notice of such meeting must be sent to all stockholders/members of record;
3. It must be called by the proper party;
4. It must be held at the proper place; and
5. Quorum and voting requirements must be met.
Of these five ( 5) requirements, the existence of a quorum is crucial. Any act or transaction made during a meeting
without quorum is rendered of no force and effect, thus, not binding on the corporation or parties concerned. In
relation thereto, Section 52 of the Corporation Code of the Philippines (Corporation Code) provides:
Section 52. Quorum in meetings. - Unless otherwise provided for in this Code or in the by-laws, a quorum shall
consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members
in the case of non-stock corporations.
Thus, for stock corporations, the quorum is based on the number of outstanding voting stocks while for non-stock
corporations, only those who are actual, living members with voting rights shall be counted in determining the
existence of a quorum.
The By-Laws of Condocor has no rule different from that provided in the Corporation Code with respect the
determination of the existence of a quorum. The quorum during the July 21, 2012 meeting should have been
majority of Condocor's members in good standing. Accordingly, there was no quorum during the July 21, 2012
meeting considering that only 29 of the 108 unit buyers were present. As there was no quorum, any resolution
passed during the July 21,2012 annual membership meeting was null and void and, therefore, notbinding upon
the corporation or its members. The meeting being null andvoid, the resolution and disposition of other legal
issues emanating from the null and void July 21, 2012 membership meeting has been rendered unnecessary.
II
Yes. Moldex can be deemed a member of Condocor.
Lim asserted that only unit buyers are entitled to become members of Condocor. Respondents, for their part,
countered that a registered owner of a unit in a condominium project or the holders of duly issued condominium
certificate of title (CCT), automatically becomes a member of the condominium corporation, relying on Sections
2 and 10 of the Condominium Act, the Master Deed and Declaration of Restrictions, as well as the By-Laws of
Condocor. For said reason, respondents averred that as Moldex is the owner of 220 unsold units and the parking
slots and storage areas attached thereto, it automatically became a member of Condocor upon the latter's
creation.
On this point, respondents are correct. Section 2 of the Condominium Act states:
Sec. 2. A condominium is an interest in real property consisting of separate interest in a unit in a residential,
industrial or commercial building and an undivided interest in common, directly or indirectly, in the land on which
it is located and in other common areas of the building. A condominium may include, in addition, a separate
interest in other portions of such real property. Title to the common areas, including the land, or the appurtenant
interests in such areas, may be held by a corporation specially formed for the purpose (hereinafter known as the
"condominium corporation") in which the holders of separate interest shall automatically be members or
shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units in the
common areas
It is erroneous to argue that the ownership must result from a sale transaction between the owner-developer and
the purchaser. Such interpretation would mean that persons who inherited a unit, or have been donated one, and
properly transferred title in their names cannot become members of a condominium corporation.
III
No. Representatives of Moldex who are non-members cannot be elected as a member of the Board of Directors
of Condocor.
A corporation can act only through natural persons duly authorized for the purpose or by a specific act of its board
of directors.45 Thus, in order for
Moldex to exercise its membership rights and privileges, it necessarily has to appoint its representatives.
However, individual respondents who are non-members cannot be elected as directors and officers of the
Condocor.
While Moldex may rightfully designate proxies or representatives, the latter, however, cannot be elected as
directors or trustees of Condocor. First, the Corporation Code clearly provides that a director or trustee must be
a member of record of the corporation. Further, the power of the proxy is merely to vote. If said proxy is not a
member in his own right, he cannot be elected as a director or proxyndominium corporation.
13. AIR CANADA vs.COMMISSIONER OF INTERNAL REVENUE G.R. No. 169507
FACTS: Air Canada, a foreign corporation organized and existing under the laws of Canada, was granted
authority to operate as an offline carrier by the Civil Aeronautics Board upto April 24, 2005, subject to certain
conditions. As such, it did not have flights originating from or coming to the Philippines and did not operate any
airplanes in the Philippines.
In 1999, Air Canada engaged the services of Aerotel Ltd., Corp. (Aerotel) as its general sales agent in the
Philippines.
During the 3rd quarter of 2000 upto the 2nd quarter of 2002, Air Canada thru Aerotel filed quarterly and annual
income tax returns and paid the income tax on Gross Philippine Billings, amounting to P5,185,676.77.
In 2002, Air Canada filed a claim for refund of alleged erroneously paid income taxes, and Petition for Review
before the CTA, on the basis of the revised definition of “Gross Philippine Billings” under Section 28(A)(3)(a) of
the 1997 National Internal Revenue Code:
SEC. 28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident Foreign Corporations. -
....
(3) International Carrier. - An international carrier doing business in the Philippines shall pay a tax of
two and onehalf percent (2 1/2%) on its ‘Gross Philippine Billings’ as defined hereunder:
(a) International Air Carrier. - ‘Gross Philippine Billings’ refers to the amount of gross revenue
derived from carriage of persons, excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue
and the place of payment of the ticket or passage document: Provided, That tickets revalidated,
exchanged and/or indorsed to another international airline form part of the Gross Philippine Billings
if the passenger boards a plane in a port or point in the Philippines: Provided, further, That for a flight
which originates from the Philippines, but transshipment of passenger takes place at any port outside
the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to
the leg flown from the Philippines to the point of transshipment shall form part of Gross Philippine
Billings. (Emphasis supplied)
The CTA found that Air Canada was engaged in business in the Philippines through a local agent that sells airline
tickets on its behalf. As such, it should be taxed as a resident foreign corporation at the regular rate of 32%.
Further, according to the Court of Tax Appeals First Division, Air Canada was deemed to have established a
"permanent establishment” in the Philippines under Article V(2)(i) of the Republic of the Philippines-Canada Tax
Treaty by the appointment of the local sales agent, "in which [the] petitioner uses its premises as an outlet where
sales of [airline] tickets are made[.]"
Air Canada filed a Motion for Reconsideration, but the Motion was denied for lack of merit. The First Division held
that while Air Canada was not liable for tax on its Gross Philippine Billings under Section 28(A)(3), it was
nevertheless liable to pay the 32% corporate income tax on income derived from the sale of airline tickets within
the Philippines pursuant to Section 28(A)(1).
Air Canada appealed to the CTA En Banc, which affirmed the findings of the First Division.
ISSUE: Whether petitioner Air Canada, as an offline international carrier selling passage documents through a
general sales agent in the Philippines, is a resident foreign corporation within the meaning of Section 28(A)(1) of
the 1997 National Internal Revenue Code
RULING: Yes
Petitioner, an offline carrier, is a resident foreign corporation for income tax purposes. Petitioner falls within the
definition of resident foreign corporation under Section 28(A)(1) of the 1997 National Internal Revenue Code,
thus, it may be subject to 32%53 tax on its taxable income:
SEC. 28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident Foreign Corporations. -
(1) In General. - Except as otherwise provided in this Code, a corporation organized, authorized, or existing
under the laws of any foreign country, engaged in trade or business within the Philippines, shall be
subject to an income tax equivalent to thirty-five percent (35%) of the taxable income derived in the
preceding taxable year from all sources within the Philippines: Provided, That effective January 1, 1998, the
rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three
percent (33%); and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%54).
(Emphasis supplied)
The definition of "resident foreign corporation" has not substantially changed throughout the amendments of the
National Internal Revenue Code. All versions refer to "a foreign corporation engaged in trade or business within
the Philippines."
Commonwealth Act No. 466, known as the National Internal Revenue Code and approved on June 15, 1939,
defined "resident foreign corporation" as applying to "a foreign corporation engaged in trade or business within
the Philippines or having an office or place of business therein."
Section 24(b)(2) of the National Internal Revenue Code, as amended by Republic Act No. 6110, approved on
August 4, 1969, reads:
Sec. 24. Rates of tax on corporations. — . . .
(b) Tax on foreign corporations. — . . .
(2) Resident corporations. — A corporation organized, authorized, or existing under the laws of any foreign
country, except a foreign life insurance company, engaged in trade or business within the Philippines, shall be
taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable
year from all sources within the Philippines. (Emphasis supplied)
Presidential Decree No. 1158-A took effect on June 3, 1977 amending certain sections of the 1939 National
Internal Revenue Code. Section 24(b)(2) on foreign resident corporations was amended, but it still provides that
"[a] corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or
business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net
income received in the preceding taxable year from all sources within the Philippines[.]"
There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each case
must be judged in the light of its peculiar environmental circumstances. The term implies acontinuity of
commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works
or the exercise of some of the functions normally incident to, and in progressive prosecution of
commercial gain or for the purpose and object of the business organization. "In order that a foreign
corporation may be regarded as doing business within a State, there must be continuity of conduct and intention
to establish a continuous business, such as the appointment of a local agent, and not one of a temporary
character.
Republic Act No. 7042 or the Foreign Investments Act of 1991 also provides guidance with its definition of "doing
business" with regard to foreign corporations. Section 3(d) of the law enumerates the activities that constitute
doing business:
d. the phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether
called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who
in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any domestic business, firm, entity or corporation in
the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or works, or the exercise of some of the functions
normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of
the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include
mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business,
and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests
in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account[. (Emphasis supplied)
Petitioner is undoubtedly "doing business" or "engaged in trade or business" in the Philippines.
Aerotel performs acts or works or exercises functions that are incidental and beneficial to the purpose of
petitioner’s business. The activities of Aerotel bring direct receipts or profits to petitioner. There is nothing on
record to show that Aerotel solicited orders alone and for its own account and without interference from, let alone
direction of, petitioner. On the contrary, Aerotel cannot "enter into any contract on behalf of [petitioner Air Canada]
without the express written consent of [the latter,]" and it must perform its functions according to the standards
required by petitioner. Through Aerotel, petitioner is able to engage in an economic activity in the Philippines.
Further, petitioner was issued by the Civil Aeronautics Board an authority to operate as an offline carrier in the
Philippines for a period of five years, or from April 24, 2000 until April 24, 2005.
Petitioner is, therefore, a resident foreign corporation that is taxable on its income derived from sources within
the Philippines. Petitioner’s income from sale of airline tickets, through Aerotel, is income realized from the pursuit
of its business activities in the Philippines.
14. STEELCASE, INC., Petitioner,
vs.
DESIGN INTERNATIONAL SELECTIONS, INC., Respondent.
Facts:
Steelcase, a foreign corporation existing under the laws of Michigan, orally entered into a dealership agreement
with Design International Selections, Inc. (DISI), registered under Philippine Laws, whereby Steelcase granted
DISI the right to market, sell, distribute, install, and service its products to end-user customers within the
Philippines. The business relationship continued smoothly until it was terminated sometime in January 1999 after
the agreement was breached with neither party admitting any fault
On January 18, 1999, Steelcase filed a complaint6 for sum of money against DISI alleging, among others, that
DISI had an unpaid account of US$600,000.00. Steelcase prayed that DISI be ordered to pay actual or
compensatory damages, exemplary damages, attorney’s fees, and costs of suit.
DISI argues that (Steelcase) was doing business in the Philippines without the required license to do so and that
the complaint should be dismissed because of Steelcase’s lack of legal capacity to sue in Philippine courts.
RTC and CA ruled in favor of DISI. The CA stated that the following acts of Steelcase showed its intention to
pursue and continue the conduct of its business in the Philippines: (1) sending a letter to Phinma, informing the
latter that the distribution rights for its products would be established in the near future and directing other
questions about orders for Steelcase products to Steelcase International; (2) cancelling orders from DISI’s
customers, particularly Visteon, Phils., Inc. (Visteon); (3) continuing to send its products to the Philippines through
Modernform Group Company Limited (Modernform), as evidenced by an Ocean Bill of Lading; and (4) going
beyond the mere appointment of DISI as a dealer by making several impositions on management and operations
of DISI. Thus, the CA ruled that Steelcase was barred from access to our courts for being a foreign corporation
doing business here without the requisite license to do so.
The Issues
(1) Whether or not Steelcase is doing business in the Philippines without a license; and
(2) Whether or not DISI is estopped from challenging the Steelcase’s legal capacity to sue.
The Court’s Ruling
Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines. The appointment of a
distributor in the Philippines is not sufficient to constitute "doing business" unless it is under the full control of the
foreign corporation. DISI is independently owned and distributes products other than those of Steelcase.
The CA apparently misinterpreted the acts of Steelcase. Instead of supporting the claim that Steelcase was doing
business in the country, the said acts prove otherwise. (1) and (2) Its decision to voluntarily cease to sell its
products in the absence of a local distributor indicates its refusal to engage in activities which might be construed
as "doing business." (3) Despite the admission by Steelcase that it owns 25% of Modernform, with the remaining
75% being owned and controlled by Thai stockholders,20 it is grossly insufficient to justify piercing the veil of
corporate fiction and declare that Modernform acted as the alter ego of Steelcase to enable it to improperly
conduct business in the Philippines. (4) The imposition of minimum standards concerning sales, marketing,
finance and operations is nothing more than an exercise of sound business practice to increase sales and
maximize profits for the benefit of both Steelcase and its distributors. For as long as these requirements do not
impinge on a distributor’s independence, then there is nothing wrong with placing reasonable expectations on
them.
All things considered, it has been sufficiently demonstrated that DISI was an independent contractor which sold
Steelcase products in its own name and for its own account. As a result, Steelcase cannot be considered to be
doing business in the Philippines by its act of appointing a distributor as it falls under one of the exceptions under
R.A. No. 7042.
Even if for argument’s sake, Steelcase had been doing business in the Philippines without a license, DISI would
nonetheless be estopped from challenging the former’s legal capacity to sue. By acknowledging the corporate
entity of Steelcase and entering into a dealership agreement with it and even benefiting from it, DISI is estopped
from questioning Steelcase’s existence and capacity to sue
15. VICMAR DEVELOPMENT CORPORATION Petitioners, v. CAMILO ELARCOSA et al.
Doctrine:
Where it appears that business enterprises are owned, conducted and controlled by the same parties, law and
equity will disregard the legal fiction that these corporations are distinct entities and shall treat them as one.
This is in order to protect the rights of third persons, as in this case, to safeguard the rights of respondents.
Facts:
Respondents alleged that Vicmar, a domestic corporation engaged in manufacturing of plywood for export and
for local sale, employed them in various capacities - as boiler tenders, block board receivers, waste feeders,
plywood checkers, plywood sander, and plant maintenance. They averred that Vicmar has two branches, Top
Forest Developers, Incorporated (TFDI) and Greenwood International Industries, Incorporated (GUI) located in
the same compound where Vicmar operated.
Respondents claimed that they were illegally dismissed after "vicmar learned that they instituted the subject
Complaint through the simple expedience of not being scheduled for work. Even those persons associated with
them were dismissed. They also asserted that Vicmar did not comply with the twin notice requirement in
dismissing employees.
Furthermore, respondents contended that while Vicmar, TFDI and Gin were separately registered with the
SEC,30 they were involved in the same business, located in the same compound, owned by one person, had
one resident manager, and one and the same administrative department, personnel and finance sections. They
claimed that the employees of these companies were identified as employees of Vicmar even if they were
assigned in TFDI or GIII.
Executive Labor Arbiters dismissed the complaints in NLRC. Consequently, respondents filed a Notice of
Appeal with Motion to Consolidate Cases. the NLRC affirmed the Decisions.
Respondents filed with the CA a Petition for Certiorari maintaining that they were regular employees of Vicmar
and that the latter illegally dismissed them. They insisted that the labor contractors engaged by Vicmar were
"labor-only" contractors, as they have no equipment and facilities of their own. the CA rendered the assailed
Decision granting the Petition for Certiorari
Issue:
W/N CA Vicmar is the employer of respondents
Held:
The Court also gives merit to the finding of the CA that Vicmar is the employer of respondents despite the
allegations that a number of them were assigned to the branches of Vicmar. Petitioners failed to refute the
contention that Vicmar and its branches have the same owner and management - which included one resident
manager, one administrative department, one and the same personnel and finance sections. Notably, all
respondents were employed by the same plant manager, who signed their identification cards some of whom
were under Vicmar, and the others under TFDI.
Where it appears that business enterprises are owned, conducted and controlled by the same parties, law and
equity will disregard the legal fiction that these corporations are distinct entities and shall treat them as one.
This is in order to protect the rights of third persons, as in this case, to safeguard the rights of respondents.
16. DUTCH MOVERS, INC., CESAR LEE and YOLANDA LEE, petitioners,
vs.
EDILBERTO LEQUIN, CHRISTOPHER R. SALVADOR, REYNALDO L. SINGSING,
and RAFFY B. MASCARDO, respondents.
Doctrine:
In considering the foregoing events, the Court is not unmindful of the basic tenet that a
corporation has a separate and distinct personality from its stockholders, and from other
corporations it may be connected with. However, such personality may be disregarded, or
the veil of corporate fiction may be pierced attaching personal liability against responsible
person if the corporation's 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
FACTS:
This case is an offshoot of the illegal dismissal Complaint filed by Edilberto Lequin (Lequin),
Christopher Salvador, Reynaldo Singsing, and Raffy Mascardo (respondents) against Dutch
Movers, Inc. (DMI), and/or spouses Cesar Lee and Yolanda Lee (petitioners), its alleged
President/Owner, and Manager respectively.
DMI, a domestic corporation engaged in hauling liquefied petroleum gas, employed Lequin as truck
driver, and the rest of respondents as helpers; on December 28, 2004, Cesar Lee, through the
Supervisor Nazario Furio, informed them that DMI would cease its hauling operation for no reason;
as such, they requested DMI to issue a formal notice regarding the matter but to no avail. Later,
upon respondents' request, the DOLE NCR issued a certification revealing that DMI did not file any
notice of business closure. Thus, respondents argued that they were illegally dismissed as their
termination was without cause and only on the pretext of closure.
On October 28, 2005, LA Aliman D. Mangandog dismissed the case for lack of cause of action.
On November 23, 2007, the NLRC reversed and set aside the LA Decision. It ruled that respondents
were illegally dismissed because DMI simply placed them on standby, and no longer provide them
with work.
The NLRC Decision became final and executory on December 30, 2007. And, on February 14,
2008, the NLRC issued an Entry of Judgment on the case.
Consequently, respondents filed a Motion for Writ of Execution.
Pending resolution of these motions, respondents filed a Manifestation and Motion to Implead
stating that upon investigation, they discovered that DMI no longer operates. They, nonetheless,
insisted that petitioners — who managed and operated DMI, and consistently represented to
respondents that they were the owners of DMI — continue to work at Toyota Alabang, which they
(petitioners) also own and operate. They further averred that the Articles of Incorporation (AOI) of
DMI ironically did not include petitioners as its directors or officers; and those named directors and
officers were persons unknown to them. They likewise claimed that per inquiry with the SEC and
the DOLE, they learned that DMI did not file any notice of business closure; and the creation and
operation of DMI was attended with fraud making it convenient for petitioners to evade their legal
obligations to them.
Given these developments, respondents prayed that petitioners, and the officers named in DMI's
AOI, which included Edgar N. Smith and Millicent C. Smith (spouses Smith), be impleaded, and be
held solidarily liable with DMI in paying the judgment awards.
In their Opposition to Motion to Implead, spouses Smith alleged that as part of their services as
lawyers, they lent their names to petitioners to assist them in incorporating DMI. Allegedly, after
such undertaking, spouses Smith promptly transferred their supposed rights in DMI in favor of
petitioners.
ISSUE:
Whether or not Sps LEE may be impleaded and be held solidarily liable with DMI in paying the
judgment awards.
RULING:
The Court denies the Petition.
In considering the foregoing events, the Court is not unmindful of the basic tenet that a
corporation has a separate and distinct personality from its stockholders, and from other
corporations it may be connected with. However, such personality may be disregarded, or
the veil of corporate fiction may be pierced attaching personal liability against responsible
person if the corporation's 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
Here, the veil of corporate fiction must be pierced and accordingly, petitioners should be held
personally liable for judgment awards because the peculiarity of the situation shows that they
controlled DMI; they actively participated in its operation such that DMI existed not as a separate
entity but only as business conduit of petitioners. As will be shown below, petitioners controlled DMI
by making it appear to have no mind of its own, and used DMI as shield in evading legal liabilities,
including payment of the judgment awards in favor of respondents.
I
First, petitioners and DMI jointly filed their Position Paper, Reply, and Rejoinder in contesting
respondents' illegal dismissal. Perplexingly, petitioners argued that they were not part of DMI and
were not privy to its dealings; yet, petitioners, along with DMI, collectively raised arguments on the
illegal dismissal case against them.
If only to prove that they were not part of DMI, petitioners could have revealed who operated it, and
from whom they derived the information embodied in their pleadings. Such failure to reveal thus
gives the Court reasons to give credence to respondents' firm stand that petitioners are no strangers
to DMI, and that they were the ones who managed and operated it.
Second, the declarations made by spouses Smith further bolster that petitioners and no other
controlled DMI.
Spouses Smith categorically identified petitioners as the owners and managers of DMI. In their
Motion to Quash, however, petitioners neither denied the allegation of spouses Smith nor adduced
evidence to establish that they were not the owners and managers of DMI. They simply insisted that
they could not be held personally liable because of the immutability of the final and executory NLRC
Decision, and of the separate and distinct personality of DMI.
Clearly, petitioners should be held liable for the judgment awards as they resorted to such scheme
to countermand labor laws by causing the incorporation of DMI but without any indication that they
were part thereof. While such device to defeat labor laws may be deemed ingenious and
imaginative, the Court will not hesitate to draw the line, and protect the right of workers to security
of tenure, including ensuring that they will receive the benefits they deserve when they fall victims
of illegal dismissal.
17. Federated LPG Dealers Association vs. Ma. Cristina l. del Rosario, et al.
Doctrine - Mere membership in the Board of Directors in a corporation cannot hold such director liable for the
corporation’s probable violation of BP 33. If one is not the President, General Manager or Managing Partner, it
is imperative that it first be shown that he/she falls under the catch-all “such other officer charged with the
management of the business affairs” before he/she can be prosecuted.
Facts: On June 1, 2006, petitioner, through counsel Atty. Genesis M. Adarlo (Atty. Adarlo) of Joaquin Adarlo
and Caoile, sought assistance from the Criminal Investigation and Detection Group, Anti-Fraud and Commercial
Crimes Division (CIDG-AFCCD) of the Philippine National Police in the surveillance, investigation,
apprehension, and prosecution of certain persons and establishments within Metro Manila reportedly
committing acts violative of Batas Pambansa Blg. 33 (BP 33), as amended by Presidential Decree No. 1865
(PD 1865), to wit:
(1) refilling of Liquefied Petroleum Gas (LPG) cylinders branded as Shellane, Petron Gasul, Caltex, Totalgaz
and Superkalan Gaz without any written authorization from the companies which own the said brands in
violation of Section 2 (a), in relation to Sections 3 7 and 4;
(2) underfilling of LPG products or possession of underfilled LPG cylinders for the purpose of sale, distribution,
transportation, exchange or barter in violation of Section 2 (c), in relation to Sections 3 and 4; and,
(3) refilling LPG cylinders without giving any receipt therefor, or giving out receipts without indicating the brand
name, tare weight, gross weight and/or price thereof, among others, again in violation of Section 2 (a) in relation
to Sections 3 (b) 11 and 4.
Among the suspected violators of the said law is ACCS Ideal Gas Corporation. CIDG led by P/Supt. Esguerra
has conducted surveillance and test-buy operations against said company which found them illegally refilling
LPG cylinders belonging to Shellane, Petron Gasul, Totalgaz, and Superkalan Gaz. It was also found that the
illegally refilled cylinders were likewise underfilled.
CIDG then filed with the Regional Trial Court (RTC) of Manila applications for search warrant against the
officers of ACCS, to wit; Antonio G. Del Rosario (Antonio) and, respondents Ma. Cristina L. Del Rosario, Celso
E. Escobido II, and Shiela M. Escobido. Such warrant was granted and upon implementation, several items
such as LPG cylinders were seized. Thereafter, CIDG filed with the Department of Justice (DOJ) Complaints-
Affidavits against Antonio and respondents for illegal trading of petroleum products and for underfilling of LPG
cylinders under Section 2 (a) and 2 (c), respectively, of BP 33, as amended.
Respondents for their part averred in the DOJ that ACCS is not involved in such illegal activities filed against
the corporation. Antonio serves as the general manager, while the other respondents are mere incorporators
and does not involve themselves in the day to day operations of the corporation.
The DOJ ruled that only Antonio who shall be criminally charged as law specifies the persons to be charged in
case where violations of B.P. Blg. 33 are committed by a corporation, to wit, the president, general manager,
officer charged with the management of the business affairs thereof, or employee responsible therefor. P/Supt.
Esguerra appealed such ruling before the Secretary of Justice which only affirmed the decision of their state
prosecutors. The decision was then appealed before the Court of Appeals which just reaffirmed the decision of
the DOJ.
Issue: Can respondents, as members of the Board of Directors of ACCS, be criminally prosecuted for the
latter's alleged violation/s of BP 33 as amended?
Ruling: NO. The CA ratiocinated that by the election or designation of Antonio as General Manager of ACCS,
the daily business operations of the corporation were vested in his hands and had ceased to be the
responsibility of respondents as members of the Board of Directors. Respondents, therefore, were not officers
charged with the management of the business affairs who could be held liable pursuant to paragraph 3, Section
4 of BP 33, as amended, which states that:
When the offender is a corporation, partnership, or other juridical person, the president, the general manager,
managing partner, or such other officer charged with the management of the business affairs thereof, or
employee responsible for the violation shall be criminally liable.
Petitioner, on the other hand, insists that the Board of Directors, by law, is responsible for the general
management of the business affairs of a corporation. Conversely, respondents as members of the Board of
Directors of ACCS fall under the classification of officers charged with the management of business affairs.
As clearly enunciated in Ty v. NBI Supervising Agent De Jemil.: a member of the Board of Directors of a
corporation, cannot, by mere reason of such membership, be held liable for the corporation's probable violation
of BP 33. If one is not the President, General Manager or Managing Partner, it is imperative that it first be
shown that he/she falls under the catch-all "such other officer charged with the management of the business
affairs," before he/she can be prosecuted. However, it must be stressed, that the matter of being an officer
charged with the management of the business affairs is a factual issue which must be alleged and supported by
evidence. Here, there is no dispute that neither of the respondents was the President, General Manager, or
Managing Partner of ACCS. Hence, it becomes incumbent upon petitioner to show that respondents were
officers charged with the management of the business affairs.
Antonio, who serves as general manager of ACCS shall be the only one charged.
18. California Manufacturing Inc vs. Advanced Technology System Inc
FACTS:
Petitioner CMCI is a domestic corporation engaged in the food and beverage manufacturing business.
Respondent ATSI is also a domestic corporation that fabricates and distributes food processing machinery
and equipment, spare parts, and its allied products.
In August 200 I, CMCI leased from ATSI a Prodopak machine which was used to pack products in 20-ml.
pouches. The parties agreed to a monthly rental of ₱98,000 exclusive of tax. Upon receipt of an open
purchase order on 6 August 2001, ATSI delivered the machine to CMCI's plant at Gateway Industrial Park,
General Trias, Cavite on 8 August 2001.
In November 2003, ATSI filed a Complaint for Sum of Money against CMCI to collect unpaid rentals for the
months of June, July, August, and September 2003. ATSI alleged that CMCI was consistently paying the
rents until June 2003 when the latter defaulted on its obligation without just cause. ATSI also claimed that
CMCI ignored all the billing statements and its demand letter. Hence, in addition to the unpaid rents A TSI
sought payment for the contingent attorney's fee equivalent to 30% of the judgment award.
CMCI moved for the dismissal of the complaint on the ground of extinguishment of obligation through legal
compensation. The RTC, however, ruled that the conflicting claims of the parties required trial on the merits.
It therefore dismissed the motion to dismiss and directed CMCI to file an Answer.
In its Answer, CMCI averred that ATSI was one and the same with Processing Partners and Packaging
Corporation (PPPC), which was a toll packer of CMCI products. To support its allegation, CMCI submitted
copies of the Articles of Incorporation and General Information Sheets (GIS) of the two corporations. CMCI
pointed out that ATSI was even a stockholder of PPPC as shown in the latter's GIS.
CMCI argued that the proposal was binding on both PPPC and A TSI because Felicisima was an officer
and a majority stockholder of the two corporations. Moreover, in a letter dated 16 September 2003, she
allegedly represented to the new management of CMCI that she was authorized to request the offsetting
of PPPC's obligation with ATSI's receivable from CMCI.
The trial court ruled that legal compensation did not apply because PPPC had a separate legal
personality from its individual stockholders, the Spouses Celones, and ATSI. Moreover, there was
no board resolution or any other proof showing that Felicisima's proposal to set-off the unpaid
mobilization fund with CMCI 's rentals to A TSI for the Prodopak Machine had been authorized by
the two corporations. Consequently, the RTC ruled that CMCI's financial obligation to pay the
rentals for the Prodopak machine stood and that its claim against PPPC could be properly
ventilated in the proper proceeding upon payment of the required docket fees.
ISSUE:
WON CA erred in affirming the ruling of the RTC that legal compensation between ATSI's claim against
CMCI on the one hand, and the latter's claim against PPPC on the other hand, has not set in.
HELD:
We have reviewed the evidence on record and have found no cogent reason to disturb the findings of the
co mis a quo that A TSI is distinct and separate from PPPC, or from the Spouses Celones.
Any piercing of the corporate veil must be done with caution. As the CA had correctly observed, it must be
ce11ain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of rights. Moreover, the wrongdoing must be clearly and
convincingly established. Sarona v. NLRC instructs, thus:
Whether the separate personality of the corporation should be pierced hinges on obtaining facts
appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution,
albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the
interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives.
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2)
fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3)
alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as to make
it merely an instrumentality, agency, conduit or adjunct of another corporation.
CMCI has not presented any credible proof, or even just an exact computation, of the supposed debt of
PPPC. It claims that the mobilization fund that it had advanced to PPPC was in the amount of ₱4 million.
Yet, Felicisima's proposal to conduct offsetting in her letter dated 30 July 2001 pertained to a ₱3.2 million
debt of PPPC to CMCI. Meanwhile, in its Answer to ATSI's complaint, CMCI sought to set off its unpaid
rentals against the alleged ₱10 million debt of PPPC. The uncertainty in the supposed debt of PPPC to
CMCI negates the latter's invocation of legal compensation as justification for its non-payment of the rentals
for the subject Prodopak machine.
19. Joselito Bustos vs. Millians Shoes Inc.
FACTS:
Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by Transfer Certificate of Title
(TCT) No. N-126668. On 6 January 2004, the City Government of Marikina levied the property for nonpayment
of real estate taxes. The Notice of Levy was annotated on the title on 8 January 2004. On 14 October 2004, the
City Treasurer of Marikina auctioned off the property, with petitioner Joselito Hernand M. Bustos emerging as
the winning bidder.
Petitioner then applied for the cancellation of TCT No. N-126668. On 13 July 2006, the Regional Trial Court,
Marikina City, Branch 273, rendered a final and executory Decision ordering the cancellation of the previous
title and the issuance of a new one under the name of petitioner. Meanwhile, notices of lis pendens were
annotated on TCT No. N-126668 on 9 February 2005.
These markings indicated that SEC Corp. Case No. 036-04, which was filed before the RTC and involved the
rehabilitation proceedings for MSI, covered the subject property and included it in the Stay Order issued by the
RTC dated 25 October 2004. On 26 September 2006, petitioner moved for the exclusion of the subject property
from the Stay Order.[8] He claimed that the lot belonged to Spouses Cruz who were mere stockholders and
officers of MSL He further argued that since he had won the bidding of the property on 14 October 2004, or
before the annotation of the title on 9 February 2005, the auctioned property could no longer be part of the Stay
Order.
The RTC denied the entreaty of petitioner. It ruled that because the period of redemption up to 15 October 2005
had not yet lapsed at the time of the issuance of the Stay Order on 25 October 2004, the ownership thereof had
not yet been transferred to petitioner.
Petitioner moved for reconsideration, but to no avail. He then filed an action for certiorari before the CA. He
asserted that the Stay Order undermined the taxing powers of the local government unit. He also reiterated his
arguments that Spouses Cruz owned the property, and that the lot had already been auctioned to him.
In the assailed Decision dated 12 June 2008, the CA brushed aside the claim that the suspension orders
undermined the power to tax. As regards petitioner's main contention, the CA ruled as follows:
In the case at bar, the delinquent tax payers were the Cruz Spouses who were the registered owners of the of MSI but a holder of a claim against respondent spouses.
said parcel of land at the time of the delinquency sale. The sale was held on October 14, 2004 and the Cruz
Spouses had until October 15, 2005 within which to redeem the parcel of land. The stay order was issued on Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation, directs creditors of the debtor
October 25, 2004 and inscribed at the back of the title on February 9, 2005, which is within the redemption to file an opposition to petitions for rehabilitation within 10 days before the initial hearing of rehabilitation
period. The Cruz Spouses were still the owners of the land at the time of the issuance of the stay order. proceedings. Since petitioner does not hold any claim over the properties owned by MSI, the time-bar rule does
not apply to him.
The said parcel of land which secured several mortgage liens for the account of MSI remains to be an asset of
the Cruz Spouses, who are the stockholders and/or officers of MSI, a close corporation. Incidentally, as an 20.Lim Tong Lim v. Philippine Fishing Gear, Inc.
exception to the general rule, in a close corporation, the stockholders and/or officers usually manage the G.R. No. 136448. November 3, 1999
business of the corporation and are subject to all liabilities of directors, i.e. personally liable for corporate debts
and obligations. Thus, the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt Facts:
and obligations. On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated
February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries,
The CA maintained its ruling and even held that his prayer to exclude the property was time-barred by the 10- Inc. They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was
day reglementary period to oppose rehabilitation petitions under Rule 4, Section 6 of the Interim Rules of not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats
Procedure on Corporate Rehabilitation. worth P68,000 were also sold to the Corporation.

In their Comment, respondents do not contest that Spouses Cruz own the subject property. Rather, However, they were unable to pay PFGI and so they were sued in their own names because apparently OQFC
respondents assert that as stockholders and officers of a close corporation, they are personally liable for its is a non-existent corporation. Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim
debts and obligations. Furthermore, they argue that since the Rehabilitation Plan of MSI has been approved, Tong Lim however argued that he’s not liable because he was not aware that Chua and Yao represented
petitioner can no longer assail the same. themselves as a corporation; that the two acted without his knowledge and consent.

ISSUE:
Issues:
WON the CA correctly considered the properties of Spouses Cruz answerable for the obligations of MSI. 1. Was there a partnership amongst them?
2.Is Petitioner Lim liable?
HELD: 3.Was the seizure proper?

We set aside rulings of the CA for lack of basis. Ruling:

In finding the subject property answerable for the obligations of MSI, the CA characterized respondent spouses
as stockholders of a close corporation who, as such, are liable for its debts. This conclusion is baseless.
Here, neither the CA nor the RTC showed its basis for finding that MSI is a close corporation. The courts a quo
did not at all refer to the Articles of Incorporation of MSI. The Petition submitted by respondent in the
rehabilitation proceedings before the RTC did not even include those Articles of Incorporation among its
attachments.
In effect, the CA and the RTC deemed MSI a close corporation based on the allegation of Spouses Cruz that it
was so. However, mere allegation is not evidence and is not equivalent to proof. For this reason alone, the CA
rulings should be set aside. Furthermore, we find that the CA seriously erred in portraying the import of Section
97 of the Corporation Code. Citing that provision, the CA concluded that "in a close corporation, the
stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of
directors, i.e. personally liable for corporate debts and obligations."
However, Section 97 of the Corporation Code only specifies that "the stockholders of the corporation shall be
subject to all liabilities of directors." Nowhere in that provision do we find any inference that stockholders of a
close corporation are automatically liable for corporate debts and obligations.
We thus apply the general doctrine of separate juridical personality, which provides that a corporation has a
legal personality separate and distinct from that of people comprising it. By virtue of that doctrine, stockholders
of a corporation enjoy the principle of limited liability: the corporate debt is not the debt of the stockholder. Thus,
being an officer or a stockholder of a corporation does not make one's property the property also of the
corporation.
In rehabilitation proceedings, claims of creditors are limited to demands of whatever nature or character against
a debtor or its property, whether for money or otherwise.
Given that the true owner the subject property is not the corporation, petitioner cannot be considered a creditor
1 & 2. Yes.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a
fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus
Lim. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds
of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term “common fund” under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That
the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to Yao and Chua.
Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boats, the boat which has earlier
been proven to be an asset of the partnership. Lim, Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners.
The Court was not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and
Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the
registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own
boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No
lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a pre-existing
partnership among all three.
Also, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order
to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The
sale of the boats, as well as the division among the three of the balance remaining after the payment of their
loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an
asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the
person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus
Lim.
3. Moot and academic since it was already established that there is partnership amongst them.
21. Mindanao Savings v. Willkom
DOCTRINE:
Issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval but it also marks
the moment when the consequences of a merger take place.
FACTS: The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan
Association, Inc. (DSLAI) are domestic corporations primarily engaged in the business of granting loans and
receiving deposits from the general public, and treated as banks. In 1985, they entered into a merger, with DSLAI
as the surviving corporation. Due to incomplete documentation, it was unregistered. DSLAI changed to MSLAI
by way of an amendment, and was approved by the SEC.
The business of MSLAI, however, failed. The Monetary Board ordered the liquidation of MSLAI, with PDIC as its
liquidator. It appears that prior to the closure of MSLAI, Uy filed with the RTC, Branch 3 of Iligan City, an action
for collection of sum of money against FISLAI. RTC issued a summary decision in favor of Uy, directing
defendants therein (which included FISLAI) to pay the former the sum of ₱136,801.70, plus interest until full
payment, 25% as attorney’s fees, and the costs of suit. CA modified, further ordering the third-party defendant
therein to reimburse the payments that would be made by the defendants.
On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located in Cagayan de Oro
City, and the notice of sale was subsequently published. During the public auction on May 17, 1993, Willkom was
the highest bidder. A certificate of sale was issued and eventually registered with the Register of Deeds of
Cagayan de Oro City. Upon the expiration of the redemption period, sheriff Bantuas issued the sheriff’s definite
deed of sale. New certificates of title covering the subject properties were issued in favor of Willkom. On
September 20, 1994, Willkom sold one of the subject parcels of land to Go.
certificate of merger by the SEC. The issuance of the certificate of merger is crucial because not only does it bear
out SEC’s approval but it also marks the moment when the consequences of a merger take place. By operation
of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties,
as well as liabilities, shall be taken and deemed transferred to and vested in the surviving corporation. Thus, in
the instant case, as far as third parties are concerned, the assets of FISLAI remain as its assets and cannot be
considered as belonging to DSLAI and MSLAI, notwithstanding the Deed of Assignment wherein FISLAI assigned
its assets and properties to DSLAI, and the latter assumed all the liabilities of the former. Respondents cannot,
therefore, be faulted for enforcing their claim against FISLAI on the properties registered under its name.
Accordingly, MSLAI, as the successor-in-interest of DSLAI, has no legal standing to annul the execution sale over
the properties of FISLAI. With more reason can it not cause the cancellation of the title to the subject properties
of Willkom and Go.
2) NO. Petitioner cannot also anchor its right to annul the execution sale on the principle of novation.1avvphi1
While it is true that DSLAI (now MSLAI) assumed all the liabilities of FISLAI, such assumption did not result in
novation as would release the latter from liability, thereby exempting its properties from execution. Novation is
the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal conditions, by substituting another in
place of the debtor, or by subrogating a third person in the rights of the creditor. Article 1293 of the Civil Code is
explicit, thus: Novation which consists in substituting a new debtor in the place of the original one, may be made
even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment
by the new debtor gives him the rights mentioned in Articles 1236 and 1237. In this case, there was no showing
that Uy, the creditor, gave her consent to the agreement that DSLAI (now MSLAI) would assume the liabilities of
FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI transferred to DSLAI remained
subject to execution to satisfy the judgment claim of Uy against FISLAI. The subsequent sale of the properties by
Uy to Willkom, and of one of the properties by Willkom to Go, cannot, therefore, be questioned by MSLAI. Since
novation implies a waiver of the right which the creditor had before the novation, such waiver must be express.

On June 14, 1995, MSLAI, represented by PDIC, filed a complaint for Annulment of Sheriff’s Sale, Cancellation
of Title and Reconveyance of Properties against respondents. MSLAI alleged that the sale on execution of the
subject properties was conducted without notice to it and PDIC; also because the assets of an institution placed
under receivership or liquidation such as MSLAI should be deemed in custodia legis and should be exempt from
any order of garnishment, levy, attachment, or execution.

Respondents averred that MSLAI had no cause of action because MSLAI is a separate and distinct entity from
FISLAI. An unofficial merger did not take effect since it failed to comply with the formalities and procedure as
prescribed by the Code.

RTC dismissed for lack of jurisdiction. CA affirmed on the ground of unofficial merger. The CA went on to say that
even if there had been a de facto merger between FISLAI and MSLAI (formerly DSLAI), Willkom, having relied
on the clean certificates of title, was an innocent purchaser for value, whose right is superior to that of MSLAI.
Furthermore, the alleged assignment of assets and liabilities executed by FISLAI in favor of MSLAI was not
binding on third parties because it was not registered. Finally, the CA said that the validity of the auction sale
could not be invalidated by the fact that the sheriff had no authority to conduct the execution sale. MR was denied.
Hence, this petition.

ISSUE:
1) W/N CA refused to recognize the validity and effectivity of the merger.
2) Was there a novation of the obligation by substituting the person of the debtor?

HELD:
1) NO. The merger does not become effective upon the mere agreement of the constituent corporations. There
must be express provision of the law authorizing them (Sec. 76-79). It becomes effective upon the issuance of a