BLISS DEVELOPMENT CORP.

EMPLOYEES UNION to register in accordance with Section 7 of executive Order

SENTRO NG DEMOKRATIKONG MANGGAGAWA No. 180 is without legal basis.
(BDCEU-SDM) vs. HON. PURA FERRER CALLEJA
G.R. No. 80887 September 30, 1994 A government-owned corporation could create several
subsidiary corporations. Conceivably, all government-owned
FACTS: or controlled corporations could be created, no longer by
special charters, but through incorporations under the general
Petitoner BDCEU-SDM is a duly registered labor union. It law.
filed with the Department of Labor, National Capital Region, a
petition for certification election of private respondent Bliss The Civil Service embraces government-owned or controlled
Development Corporation (BDC). corporations with original charter; and, therefore, by clear
implication, the Civil Service does not include government-
Med-Arbiter Fernando dismissed the petition for lack of owned or controlled corporations which are organized as
jurisdiction stating that the majority of BDC’s stocks is owned subsidiaries of government-owned or controlled corporations
by the Human Settlement Development Corporation (HSDC), under the general corporation law.
a wholly-owned government corporation. Therefore, BDC is
subject to Civil Service law, rules and regulations. Its
A corporation is created by operation of law. It acquires a
employees therefore, are prohibited to join or form labor
judicial personality either by special law or a general law. The
organization.
general law under which a private corporation may be formed
or organized is the Corporation Code, the requirements of
Petitioner then filed an appeal with Bureau of Labor Relations.
which must be complied with by those wishing to incorporate.
Only upon such compliance will the corporation come into
In the meantime, President Corazon Aquino issued Executive
being and acquire a juridical personality, thus giving rise to its
Order No. 180, extending to government employees the right
right to exist and act as a legal entity. On the other hand, a
to organize and bargain collectively.
government corporation is normally created by special law,
referred to often as a charter.
Respondent Director Calleja (BLR) issued an order dismissing
the appeal ruling that Bliss Development Corporation which is
under the then Ministry of Human Settlement, is a BDC is a government-owned corporation created under the
government Corporation where the workers are prohibited Corporation Law. It is without a charter hence, Executive
from organizing and joining labor unions. Order No. 180 does not apply to it.

However, with the issuance of EO 180 (government Consequently, public respondent committed grave abuse of
employees are now given the right to bargain), the BLR discretion in ordering petition to register under Section 7, of
enjoins the petitioner to register in accordance with the Executive Order No. 180 as a precondition for filing a petition
provisions in said executive order. for certification election.
ISSUE:

W/N BDC is a government-owned controlled

G.R. No. 111008 November 7, 1994
corporation subject to Civil Service Laws, rules and
regulations. Corollary to this issue is the question of W/N TRAMAT MERCANTILE, INC. AND
petitioner is covered by Executive Order No. 180 and must DAVID ONG, petitioners,
register as a precondition for filing a petition for certification
election. vs. HON. COURT OF APPEALS AND
RULING:
MELCHOR DE LA
CUESTA, respondents.
In determining whether a corporation created under the
Corporation Code is government owned or controlled or not, TOPIC: Corporate officers and agents -
the rule applied is the ownership test whereby a corporation
will be deemed owned by the government if the majority of Authority; Liability of corporate officers
its voting stocks are owned by the government.
FACTS:
It appearing that Human Settlement Development
Corporation (HSDC), which is a wholly-owned government 1. Melchor de la Cuesta, doing business
corporation, owns a majority of the stocks of Bliss
Development Corporation (BDC), our conclusion is that BDC
under the name and style of "Farmers
is a government-owned corporation subject to the Machineries," sold to Tramat, 1 unit
coverage of the Civil Service law, rules and HINOMOTO TRACTOR.
regulations.
2. David Ong, Tramat's president and
Section 1 of Executive Order No. 180 expressly limits its manager, issued check for P33,500
application to only government-owned or controlled payment (apparently replacing an
corporations with original charters. Hence, public
respondent's order dated August 7, 1987 requiring petitioner
 earlier postdated check for not necessarily) with the corporation may
P33,080.00). so validly attach, as a rule, only when —
3. Tramat, in turn, sold the tractor,
together with an attached lawn mower 1. He assents:
fabricated by it, to the Metropolitan (a) to a patently unlawful
Waterworks and Sewerage System
act of the corporation, or
("NAWASA") for P67,000.
4. David Ong caused a "stop payment" of (b) for bad faith, or gross
the check when NAWASA refused to negligence in directing its affairs, or
pay the tractor and lawn mower after
discovering that, aside from some (c) for conflict of interest,
stated defects of the attached lawn resulting in damages to the corporation,
mower, the engine was a its stockholders or other
reconditioned unit. persons;
5. De la Cuesta filed an action for the
recovery of P33,500. 2. He consents to the issuance of
6. ONG averred: watered stocks or who, having
- that de la Cuesta had no cause knowledge thereof, does not
of action; that the questioned forthwith file with the corporate
transaction was between secretary his written objection thereto;
plaintiff and Tramat Mercantile,
Inc., and not with Ong in his personal 3. He agrees to hold himself
capacity; and personally and solidarily liable with the
- that the payment of the check corporation; or
was stopped because the subject
4. He is made, by a specific
tractor had been priced as a brand
new, not as a reconditioned unit. provision of law, to personally answer for
7. The trial court ruled in favor of his corporate action.
petitioner. In the case at bench, there is no
8. CA affirmed. MR was denied.
indication that petitioner David Ong could
be held personally accountable under
ISSUE: WON Ong jointly and severally any of the abovementioned cases.
liable with Tramat? NO!
Petition is given due course.
HELD: Appealed decision is modified as it holds
petitioner Ong jointly and severally liable
Ong acted, not in his personal
with Tramat Mercantile, Inc. In all other
capacity, but as an officer of a
respects, the decision appealed from is
corporation, TRAMAT, with a distinct and
affirmed.
separate personality. As such, it should
only be the corporation, not the person LUIS C. CLEMENTE, LEONOR CLEMENTE
DE ELEPAÑO, HEIRS OF ARCADIO C.
acting for and on its behalf, that properly OCHOA, represented by FE O. OCHOA-
could be made liable thereon. BAYBAY, CONCEPCION, MARIANO,
ARTEMIO, VICENTE, ANGELITA, ROBERTO,
Personal liability of a corporate HERNANDO AND LOURDES, all surnamed
director, trustee or officer along (although ELEPAÑO, petitioners, vs. THE HON. COURT
OF APPEALS, ELVIRA PANDINCO-CASTRO peremptory settlement of its affairs. We might invite
AND VICTOR CASTRO, respondents. attention to the various modes provided by the
G.R. No. 82407 March 27, 1995 Corporation Code for dissolving, liquidating or
VITUG, J.: winding up, and terminating the life of the corporation.

FACTS: Petitioners sought to be declared the owners Among the causes for such dissolution are when the
of a piece of land situated in Calamba, Laguna bought corporate term has expired or when, upon a verified
by "Sociedad Popular Calambeña". The “sociedad” complaint and after notice and hearing, the SEC
was organized at the advent of the early American orders the dissolution of a corporation for its
occupation of the Philippines. It did business and held continuous inactivity for at least 5 years. The
itself out as a corporation from 1909 up to 1932. Its corporation continues to be a body corporate for 3
principal business was cockfighting or the operation years after its dissolution for purposes of prosecuting
and management of a cockpit. The "Sociedad" and defending suits by and against it and for enabling
acquired the subject parcel of land from the Friar it to settle and close its affairs, culminating in the
Lands Estate of Calamba. Patent was issued and the disposition and distribution of its remaining assets. It
Real Property Tax Register of the Office of the may, during the 3-year term, appoint a trustee or a
Treasurer of Calamba, Laguna showed that the lot was receiver who may act beyond that period. If the 3-year
declared and assessed for taxation purposes. extended life has expired without a trustee or receiver
having been expressly designated by the corporation,
Plaintiffs show that Mariano Elepaño and Pablo the board of directors (or trustees) itself may be
Clemente, now both deceased, were the original permitted to so continue as "trustees" by legal
stockholders of the "sociedad." Pablo Clemente's implication to complete the corporate liquidation. Still
shares of stocks were later distributed and apportioned in the absence of a board of directors or trustees, those
to his heirs. The "sociedad" then issued stock having any pecuniary interest in the assets, including
certificates to the heirs. On the basis of their respective not only the shareholders but likewise the creditors of
stocks certificates, they, along with the heirs of the corporation, acting for and in its behalf, might
Mariano Elepaño jointly claimed ownership over the make proper representations with the SEC for working
subject parcel of land, asserting that their fathers being out a final settlement of the corporate concerns.
the only known stockholders of the "sociedad" they, to
the exclusion of all others, are entitled to be declared CHEMPHIL EXPORT & IMPORT
owners of the lot. Private respondents, in their answer;
likewise claimed ownership of the property by virtue CORPORATION vs. Court of Appeals,
of acquisitive prescription. December 12, 1995G.R. Nos. 112438-39

The trial court dismissed the complaint on the grounds Facts: Dynetics, Inc. and Antonio M. Garcia
of insufficiency of evidence and absent a corporate filed a complaint for declaratory relief and/or
liquidation, it is the corporation, not the stockholders, injunction against the PISO, BPI, LBP, PCIB
which can assert, if at all, any title to the corporate
assets. The CA sustained the dismissal of the and RCBC or the consortium with the
complaint. Regional Trial Court seeking judicial
declaration, construction and interpretation
ISSUE: Whether or not petitioners can be held to have of the validity of the surety agreement that
succeeded in establishing for themselves a firm title to Dynetics and Garcia had entered into with the
the property in question. consortium and to perpetually enjoin the
latter from claiming, collecting and enforcing
HELD: NO. Except in showing that they are the
successors-in-interest of Elepaño and Clemente,
any purported obligations which Dynetics
petitioners have been unable to come up with any and Garcia might have undertaken in said
evidence to substantiate their claim of ownership of agreement. The consortium filed their
the corporate asset. respective answers with counterclaims
alleging that the surety agreement in question
If, indeed, the sociedad has long become defunct, it was valid and binding and that Dynetics and
should behoove petitioners, or anyone else who may
have any interest in the corporation, to take
Garcia were liable under the terms of the said
appropriate measures before a proper forum for a agreement.
A notice of garnishment covering Garcia's the notice of garnishment over the Chemphil
shares in CIP/Chemphil (including the shares of Garcia was served on the president
disputed shares) was served on Chemphil of Chemphil. Indeed, to bind third persons,
through its then President. The notice of no law requires that an attachment of shares
garnishment was duly annotated in the stock of stock be recorded in the stock and transfer
and transfer books of Chemphil on the same book of a corporation.
date.
Therefore, ruled the Court of Appeals, the
The trial court denied the application of attachment made over the Chemphil shares in
Dynetics and Garcia for preliminary the name of Garcia was made in accordance
injunction and instead granted the with law and the lien created thereby
consortium's prayer for a consolidated writ of remained valid and subsisting at the time
preliminary attachment. Hence, after the Garcia sold those shares to FCI (predecessor-
consortium had filed the required bond, a writ in-interest of appellee CEIC) in 1988. A
of attachment was issued and various real and secretary's major function is to assist his or
personal properties of Dynetics and Garcia her superior. He/she is in effect an extension
were garnished, including the disputed of the latter. Obviously, as such, one of her
shares. This garnishment, however, was not duties is to receive letters and notices for and
annotated in Chemphil's stock and transfer in behalf of her superior, as in the case at
book. bench.

The Court holds that the CONSORTIUM has The notice of garnishment was addressed to
admitted that the writ of and was actually received by Chemphil's
attachment/garnishment issued on the shares president through his secretary who formally
of stock belonging to plaintiff Antonio M. received it for him. Thus, in one case, 56 we
Garcia was not annotated and registered in ruled that the secretary of the president may
the stock and transfer books of CHEMPHIL. be considered an "agent" of the corporation
On the other hand, the prior attachment and held that service of summons on him is
issued in favor of SBTC against the same binding on the corporation.
CHEMPHIL shares of Antonio M. Garcia,
was duly registered and annotated in the Moreover, the service and receipt of the
stock and transfer books of CHEMPHIL. notice of garnishment was duly
acknowledged and confirmed by the
Issue: Whether or not the attachment of corporate secretary of Chemphil, Rolando
shares of stock, in order to bind third persons, Navarro and his successor Avelino Cruz
must be recorded in the stock and transfer through their respective certifications.We
book of the corporation? rule, therefore, that there was substantial
compliance with Sec. 7 (d), Rule 57 of the
Held: The Court of Appeals agreed with the Rules of Court.
consortium's position that the attachment of
shares of stock in a corporation need not be First Philippine International Bank vs Court of
recorded in the corporation's stock and Appeals
transfer book in order to bind third 252 SCRA 259 [GR No. 115849 January 24, 1996]
persons.Section 7(d), Rule 57 of the Rules of
Facts: In the course of its banking operations, the
Court was complied with by the consortium defendant Producer Bank of the Philippines acquired
(through the Sheriff of the trial court) when 6 parcels of land with a total area of 101 hectares
located at Don Jose, Sta. Rosa, Laguna and covered by minority in a derivative suit, cannot be allowed to trifle
TCT No. T-106932 to T-106937. The property used to with court processes particularly where, as in this case,
be owned by BYME Investment and Development the corporation itself has not been remiss in vigorously
Corporation which hd them mortgaged with the bank prosecuting or defending corporate causes and in using
as collateral for a loan. The plaintiff originals, and applying remedies available to it. To rule
Demetrio Demetria and Jose Janolo wanted to otherwise would be to encourage corporate litigants to
purchase the property and thus initiated negotiations use their shareholders as fronts to circumvent the
for that purpose. In the early part of August 1987 said stringent rules against forum shopping.
plaintiffs, upon the suggestion of BYME investment’s
legal counsel, Fajardo met with defendant Mercurio From the facts, the official bank price, at any rte, the
Rivera, manager of the property management bank placed its official, Rivera is a position of
department of the defendant bank. The meeting was authority to accept offers to buy and negotiate the sale
held in pursuant to plaintiffs’ plan to buy the property. by having the offer officially acted upon by the bank.
After the meeting, plaintiff Janolo, following the The bank cannot turn around and say, as it now does,
advice of defendant Rivera made a formal purchase that what Rivera states as the bank’s action on the
offer to the Bank through a letter dated August matter is not in fact so. It is a familiar doctrine, the
30,1987. Negotiations took place and an offer price doctrine of ostensible authority, that if a corporation
was fixed at P5.5million. During the course of the on knowingly permits one of its officers, or any other
negotiations, the defendant bank was placed under agent, to do acts within the scope of apparent
conservatorship and a new conservator was appointed authority, and thus holds him out to the public as
to which the name has been refused to recognize. A possessing power to do those acts, the corporation
derivative suit has been filed against Rivera for the will, as against any one who has in good faith dealt
damages suffered from the alleged perfect contract of with the corporation through such agent, he estopped
sale involving the 6 parcels of land. from denying his authority.

Issue: Whether or not a derivative suit may lie A bank is liable for wrongful acts of its officers done
involving the bank and its stockholders. in the interest of the bank or in he course of dealings
of the officers in their representative capacity but not
Held: No. An individual stockholder is permitted to for acts outside the scope of their authority. A bank
institute a derivative suit on behalf of the corporation holding out its officers and agents as worthy of
wherein he hold stock in order to protect or vindicate confidence will not be permitted to profit by the frauds
corporate rights, whenever the officials of the they my thus be enabled to perpetrate in the apparent
corporation refuse to sue, or are the ones, to be sued or scope of their employment; nor will it be permitted to
hold the control of the corporation. In such actions, the shrink its responsibility for such fraud even through no
suing stockholder is regarded as a nominal party with benefit may accrue to the bank therefrom.
the corporation as the real party in interest. Accordingly, a banking corporation is liable to
innocent third persons where the representation is
In the face of the damaging admissions taken from the made in the course of its business by an agent acting
complaint in the second case, petitioners, quite within the general scope of its authority even though,
strangely, sought to deny that the second case was a in the particular case, the agent is secretly abusing his
derivative suit, reasoning that it was brought not by the authority and attempting to perpetrate fraud upon his
minority shareholders, but by Henry Co. etal. who not principal or some other person, for his own ultimate
only hold or control over 80% of the outstanding benefit.
capital stock, but also constitute the majority in the
board of directors of petitioners bank. That being so, Section 28-A of BP 68 merely gives the conservator
then they really represent the bank, so whether they power to revoke contracts that are, under existing law,
sued derivatively or directly, there is undeniably an deemed not to be effective – i.e void, voidable,
identity of interest/entity represented. unenforceable or rescissible. Hence, the conservator
merely takes the place of a bank’s board of directors.
In addition to the many cases, where the corporate What the said board cannot do – such as repudiating a
fiction has been regarded, we now add the instant case, contract validly entered into under the doctrine of
and declare herewith that the corporate veil cannot be implied authority – the conservator cannot do either.
used to shield an otherwise blatant violation of the
prohibition against forum shopping. Shareholders,
whether suing as the majority in direct actions or as the
Santos vs. National Labor Relations leave pay against MMDC and its two top
Commission officials, namely, Benjamin A Santos (the
[GR 101699, 13 March 1996] President) and Rodillano A. Velasquez (the
First Division, Vitug (J): 4 concur executive vice-president). In his complaint-
affidavit (position paper), submitted on 27
Facts: Melvin D. Millena, on 1 October October 1986, Millena alleged, among other
1985, was hired to be the project accountant things, that his dismissal was merely an
for Mana Mining and Development offshoot of his letter of 12 August 1986 to
Corporation's (MMDC) mining operations in Abaño about the company's inability to pay
Gatbo, Bacon, Sorsogon. On 12 August its workers and to remit withholding taxes to
1986, Millena sent to Mr. Gil Abaño, the the BIR. On 27 July 1988, Labor Arbiter
MMDC corporate treasurer, a memorandum Fructouso T. Aurellano, finding no valid
calling the latter's attention to the failure of cause for terminating complaint's
the company to comply with the withholding employment, ruledthat a partial closure of an
tax requirements of, and to make the establishment due to losses was a
corresponding monthly remittances to, the retrenchment measure that rendered the
Bureau of Internal Revenue (BIR) on account employer liable for unpaid salaries and other
of delayed payments of accrued salaries to monetary claims. The Labor Arbiter ordered
the company's laborers and employees. In a Santos, et. al. to pay Millena the amount of
letter, dated 8 September 1986, Abaño P37,132.25 corresponding to the latter's
advised Millena that it was the board's unpaid salaries and advances: P5,400.00 for
decision that it stop porduction (operation) in petitioner's 13th month pay; P3,340.95 as
Sorsogon due to the upcoming rainy seasons service incentive leave pay; and P5, 400.00
and the deterioration of the peace and order as separation pay. Santos, et. al. were further
in the said area; that the corporation will ordered to pay Millena 10% of the monetary
undertake only necessary maintenance and awards as attorney's fees. Alleging abuse of
repair work and will keep overhead down to discretion by the Labor Arbiter, the company
the minimum manageable level; and that the and its co-respondents filed a "motion for
corporation will not need a project reconsideration and /or appeal." 8 The
accountant until the corporaton resumes full- motion/appeal was forthwith indorsed to the
scale operations. Millena expressed "shock" Executive Director of the NLRC in Manila.
over the termination of his employment. He In a resolution, dated 04 September 1989, the
complained that he would not have resigned NLRC affirmed the decision of the Labor
from the Sycip, Gores & Velayo accounting Arbiter. A writ of execution correspondingly
firm, where he was already a senior staff issued; however, it was returned unsatisfied
auditor, had it not been for the assurance of a for the failure of the sheriff to locate the
"continuous job" by MMDC's Eng. Rodillano offices of the corporation in the addressed
E. Velasquez. Millena requested that he be indicated. Another writ of execution and an
reimbursed the "advances" he had made for order of garnishment was thereupon served
the company and be paid his "accrued on Santos at his residence. Contending that
salaries/claims." The claim was not heeded. he had been denied due process, Santos filed
On October 1986, Millena filed with the a motion for reconsideration of the NLRC's
NLRC Regional Arbitration, Branch No. V, resolution along with a prayer for the quashal
in Legazpi City, a complaint for illegal of the writ of execution and order of
dismissal, unpaid salaries, 13th month pay, garnishment. He averred that he had never
overtime pay, separation pay and incentive received any notice, summons or even a copy
of the complaint; hence, he said, the Labor shown that Santos has had a direct hand in the
Arbiter at no time had acquired jurisdiction dismissal of Millena enough to attribute to
over him. On 16 August 1991, the NLRC Santos a patently unlawful act while acting
dismissed the motion for reconsideration. for the corporation. Neither can Article 289
Santos filed the petition for certiorari. of the Labor Code be applied since this
specifically refers only to the imposition of
Issue: Whether Santos should be made penalties under the Code. It is undisputed that
solidarily liable with MMDC. the termination of Millena's employment has,
instead, been due, collectively, to the need for
Held: A corporation is a judicial entity with a further mitigation of losses, the onset of the
legal personality separated and distinct from rainy season, the insurgency problem, in
those acting for and in its behalf and, in Sorsogon and the lack of funds to further
general, from the people comprising it. The support the mining operation in Gatbo. It is
rule is that obligations incurred by the basic that a corporation is invested by law
corporation, acting through its directors, with a personally separate and distinct from
officers and employees, are its sole liabilities. those of the persons composing it as well as
Nevertheless, being a mere fiction of law, from that of any, other legal entity to which it
peculiar situations or valid grounds can exist may be related. Mere ownership by a single
to warrant, albeit done sparingly, the stockholder or by another corporation of all
disregard of its independent being and the nearly all of the capital stock of a corporation
lifting of the corporate veil. As a rule, this is not of itself sufficient ground for
situation might arise a corporation is used to disregarding the separate corporate
evade a just and due obligation or to justify a personally. Similar to the case of Sunio vs.
wrong, to shield or perpetrate fraud, to carry National Labor Relations Commission,
out similar other unjustifiable aims or Santos should not have been made personally
intentions, or as a subterfuge to commit answerable for the payment of Millena's back
injustice and so circumvent the law. Without salaries.
necessarily piercing the veil of corporate
fiction, personal civil liability can also be Concept Builders Inc. vs. National Labor
said to lawfully attach to a corporate director, Relations Commission (NLRC, First
trustee or officer; to wit: When (1) He assents Division)
(a) to a patently unlawful act of the [GR 108734, 29 May 1996]
corporation, or (b) for bad faith or gross First Division, Hermosisima Jr. (J): 4 concur
negligence in directing its affairs, or (b) for
conflict of interest, resulting in damages to Facts: Concept Builders, Inc., (CBI) a
the corporation, its stockholders or other domestic corporation, with principal office at
persons; (2) He consents to the issuance of 355 Maysan Road, Valenzuela, Metro
watered stocks or who, having knowledge Manila, is engaged in the construction
thereof, does not forthwith file with the business while Norberto Marabe; Rodolfo
corporate secretary his written objection Raquel, Cristobal Riego, Manuel Gillego,
thereto; (3) He agrees to hold himself Palcronio Giducos, Pedro Aboigar, Norberto
personally and solidarily liable with the Comendador, Rogelio Salut, Emilio Garcia,
corporation; or (4) He is made, by a specific Jr., Mariano Rio, Paulina Basea, Alfredo
provision of law, to personally answer for his Albera, Paquito Salut, Domingo Guarino,
corporate action. The case of Santos is way Romeo Galve, Dominador Sabina, Felipe
of these exceptional instances. It is not even Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben P117,414.76, representing the balance of the
Robalos were employed by said company as judgment award, and to reinstate Marabe, et.
laborers, carpenters and riggers. On al. to their former positions. On 13 July 1989,
November 1981, Marabe, et. al. were served the sheriff issued a report stating that he tried
individual written notices of termination of to serve the alias writ of execution on
employment by CBI, effective on 30 petitioner through the security guard on duty
November 1981. It was stated in the but the service was refused on the ground that
individual notices that their contracts of CBI no longer occupied the premises. On 26
employment had expired and the project in September 1986, upon motion of Marabe, et.
which they were hired had been completed. al., the Labor Arbiter issued a second alias
The National Labor Relations Commission writ of execution. The said writ had not been
(NLRC) found it to be, the fact, however, that enforced by the special sheriff because, as
at the time of the termination of Marabe, stated in his progress report dated 2
et.al.'s employment, the project in which they November 1989, that all the employees inside
were hired had not yet been finished and CBI's premises claimed that they were
completed. CBI had to engage the services of employees of Hydro Pipes Philippines, Inc.
sub-contractors whose workers performed (HPPI) and not by CBI; that levy was made
the functions of Marabe, et. al. Aggrieved, upon personal properties he found in the
Marabe, et. al. filed a complaint for illegal premises; and that security guards with high-
dismissal, unfair labor practice and non- powered guns prevented him from removing
payment of their legal holiday pay, overtime the properties he had levied upon. The said
pay and thirteenth-month pay against CBI. special sheriff recommended that a "break-
On 19 December 1984, the Labor Arbiter open order" be issued to enable him to enter
rendered judgment ordering CBI to reinstate CBI's premises so that he could proceed with
Marabe et. al. and to pay them back wages the public auction sale of the aforesaid
equivalent to 1 year or 300 working days. On personal properties on 7 November 1989. On
27 November 1985, the NLRC dismissed the 6 November 1989, a certain Dennis
motion for reconsideration filed by CBI on Cuyegkeng filed a third-party claim with the
the ground that the said decision had already Labor Arbiter alleging that the properties
become final and executory. sought to be levied upon by the sheriff were
owned by HPPI, of which he is the Vice-
On 16 October 1986, the NLRC Research President. On 23 November 1989, Marabe,
and Information Department made the et. al. filed a "Motion for Issuance of a Break-
finding that Marabe, et. al.'s back wages Open Order," alleging that HPPI and CBI
amounted to P199,800.00. On 29 October were owned by the same
1986, the Labor Arbiter issued a writ of incorporator/stockholders. They also alleged
execution directing the sheriff to execute the that petitioner temporarily suspended its
Decision, dated 19 December 1984. The writ business operations in order to evade its legal
was partially satisfied through garnishment obligations to them and that Marabe, et. al.
of sums from CBI's debtor, the Metropolitan were willing to post an indemnity bond to
Waterworks and Sewerage Authority, in the answer for any damages which CBI and HPPI
amount of P81,385.34. Said amount was may suffer because of the issuance of the
turned over to the cashier of the NLRC. On 1 break-open order. On 2 March 1990, the
February 1989, an Alias Writ of Execution Labor Arbiter issued an Order which denied
was issued by the Labor Arbiter directing the Marabe, et. al.'s motion for break-open order.
sheriff to collect from CBI the sum of
Marabe, et. al. then appealed to the NLRC. books and records; and (4) Methods of
On 23 April 1992, the NLRC set aside the conducting the business. The SEC en banc
order of the Labor Arbiter, issued a break- explained the "instrumentality rule" which
open order and directed Marabe, et. al. to file the courts have applied in disregarding the
a bond. Thereafter, it directed the sheriff to separate juridical personality of corporations
proceed with the auction sale of the as "Where one corporation is so organized
properties already levied upon. It dismissed and controlled and its affairs are conducted so
the third-party claim for lack of merit. CBI that it is, in fact, a mere instrumentality or
moved for reconsideration but the motion adjunct of the other, the fiction of the
was denied by the NLRC in a Resolution, corporate entity of the "instrumentality" may
dated 3 December 1992. Hence, the petition. be disregarded. The control necessary to
invoke the rule is not majority or even
Issue: Whether the NLRC was correct in complete stock control but such domination
issuing the break-open order to levy the of instances, policies and practices that the
“HPPI properties” located at CBI amd/or controlled corporation has, so to speak, no
HPPI’s premises at 355 Maysan Road, separate mind, will or existence of its own,
Valenzuela, Metro Manila. and is but a conduit for its principal. It must
be kept in mind that the control must be
Held: It is a fundamental principle of shown to have been exercised at the time the
corporation law that a corporation is an entity acts complained of took place. Moreover, the
separate and distinct from its stockholders control and breach of duty must proximately
and from other corporations to which it may cause the injury or unjust loss for which the
be connected. But, this separate and distinct complaint is made." The test in determining
personality of a corporation is merely a the applicability of the doctrine of piercing
fiction created by law for convenience and to the veil of corporate fiction is as (1) Control,
promote justice. So, when the notion of not mere majority or complete stock control,
separate juridical personality is used to defeat but complete domination, not only of
public convenience, justify wrong, protect finances but of policy and business practice
fraud or defend crime, or is used as a device in respect to the transaction attacked so that
to defeat the labor laws, this separate the corporate entity as to this transaction had
personality of the corporation may be at the time no separate mind, will or existence
disregarded or the veil of corporate fiction of its own; (2) Such control must have been
pierced. This is true likewise when the used by the defendant to commit fraud or
corporation is merely an adjunct, a business wrong, to perpetuate the violation of a
conduit or an alter ego of another corporation. statutory or other positive legal duty or
The conditions under which the juridical dishonest and unjust act in contravention of
entity may be disregarded vary according to plaintiff's legal rights; and (3) The aforesaid
the peculiar facts and circumstances of each control and breach of duty must proximately
case. No hard and fast rule can be accurately cause the injury or unjust loss complained of.
laid down, but certainly, there are some The absence of any one of these elements
probative factors of identity that will justify prevents "piercing the corporate veil." In
the application of the doctrine of piercing the applying the "instrumentality" or "alter ego"
corporate veil, to wit: (1) Stock ownership by doctrine, the courts are concerned with reality
one or common ownership of both and not form, with how the corporation
corporations; (2) Identity of directors and operated and the individual defendant's
officers; (3) The manner of keeping corporate relationship to that operation. Thus the
question of whether a corporation is a mere There is no dispute that ITEC is a foreign
alter ego, a mere sheet or paper corporation, corporation not licensed to do business in the
a sham or a subterfuge is purely one of fact. Philippines.
Here, while CBI claimed that it ceased its
business operations on 29 April 1986, it filed ITEC entered into a contract with ASPAC
an Information Sheet with the Securities and referred to as “Representative Agreement”.
Exchange Commission on 15 May 1987, Pursuant to the contract, ITEC engaged
stating that its office address is at 355 Maysan ASPAC as its “exclusive representative” in
Road, Valenzuela, Metro Manila. On the the Philippines for the sale of ITEC’s
other hand, HPPI, the third-party claimant, products, in consideration of which, ASPAC
submitted on the same day, a similar was paid a stipulated commission. Through a
information sheet stating that its office “License Agreement” entered into by the
address is at 355 Maysan Road, Valenzuela, same parties later on, ASPAC was able to
Metro Manila. Further, both information incorporate and use the name “ITEC” in its
sheets were filed by the same Virgilio O. own name. Thus , ASPAC Multi-Trade, Inc.
Casiño as the corporate secretary of both became legally and publicly known as
corporations. Both corporations had the same ASPAC-ITEC (Philippines). One year into
president, the same board of directors, the the second term of the parties’ Representative
same corporate officers, and substantially the Agreement, ITEC decided to terminate the
same subscribers. From the foregoing, it same, because petitioner ASPAC allegedly
appears that, among other things, the CBI and violated its contractual commitment as
the HPPI shared the same address and/or stipulated in their agreements. ITEC charges
premises. Under these circumstances, it the petitioners and another Philippine
cannot be said that the property levied upon Corporation, DIGITAL BASE
by the sheriff were not of CBI's. Clearly, CBI COMMUNICATIONS, INC. (DIGITAL),
ceased its business operations in order to the President of which is likewise petitioner
evade the payment to Marabe, et. al. of back Aguirre, of using knowledge and information
wages and to bar their reinstatement to their of ITEC’s products specifications to develop
former positions. HPPI is obviously a their own line of equipment and product
business conduit of CBI and its emergence support, which are similar, if not identical to
was skillfully orchestrated to avoid the ITEC’s own, and offering them to ITEC’s
financial liability that already attached to former customer.
CBI.
The complaint was filed with the RTC-
COMMUNICATION MATERIALS AND Makati by ITEC, INC. Defendants filed a
DESIGN, INC et al vs.CA et al. G.R. No. MTD the complaint on the following
102223 August 22, 1996 FACTS: grounds: (1) That plaintiff has no legal
capacity to sue as it is a foreign corporation
Petitioners COMMUNICATION doing business in the Philippines without the
MATERIALS AND DESIGN, INC., required BOI authority and SEC license, and
(CMDI) and ASPAC MULTI-TRADE INC., (2) that plaintiff is simply engaged in forum
(ASPAC) are both domestic corporations.. shopping which justifies the application
Private Respondents ITEC, INC. and/or against it of the principle of “forum non
ITEC, INTERNATIONAL, INC. (ITEC) are conveniens”. The MTD was denied.
corporations duly organized and existing
under the laws of the State of Alabama, USA.
Petitioners elevated the case to the used scheme of defaulting local companies
respondent CA on a Petition for Certiorari which are being sued by unlicensed foreign
and Prohibition under Rule 65 of the Revised companies not engaged in business in the
ROC. It was dismissed as well. MR denied, Philippines to invoke the lack of capacity to
hence this Petition for Review on Certiorari sue of such foreign companies. Obviously,
under Rule 45. the same ploy is resorted to by ASPAC to
prevent the injunctive action filed by ITEC to
ISSUE: 1. Did the Philippine court acquire enjoin petitioner from using knowledge
jurisdiction over the person of the petitioner possibly acquired in violation of fiduciary
corp, despite allegations of lack of capacity arrangements between the parties.
to sue because of non-registration?
2. YES; Petitioner’s insistence on the
2. Can the Philippine court give due course to dismissal of this action due to the application,
the suit or dismiss it, on the principle of or non application, of the private
forum non convenience? international law rule of forum non
conveniens defies well-settled rules of fair
HELD: petition dismissed. 1. YES; We are play. According to petitioner, the Philippine
persuaded to conclude that ITEC had been Court has no venue to apply its discretion
“engaged in” or “doing business” in the whether to give cognizance or not to the
Philippines for some time now. This is the present action, because it has not acquired
inevitable result after a scrutiny of the jurisdiction over the person of the plaintiff in
different contracts and agreements entered the case, the latter allegedly having no
into by ITEC with its various business personality to sue before Philippine Courts.
contacts in the country. Its arrangements, This argument is misplaced because the court
with these entities indicate convincingly that has already acquired jurisdiction over the
ITEC is actively engaging in business in the plaintiff in the suit, by virtue of his filing the
country. original complaint. And as we have already
observed, petitioner is not at liberty to
A foreign corporation doing business in the question plaintiff’s standing to sue, having
Philippines may sue in Philippine Courts already acceded to the same by virtue of its
although not authorized to do business here entry into the Representative Agreement
against a Philippine citizen or entity who had referred to earlier.
contracted with and benefited by said
corporation. To put it in another way, a party Thus, having acquired jurisdiction, it is now
is estopped to challenge the personality of a for the Philippine Court, based on the facts of
corporation after having acknowledged the the case, whether to give due course to the
same by entering into a contract with it. And suit or dismiss it, on the principle of forum
the doctrine of estoppel to deny corporate non convenience. Hence, the Philippine
existence applies to a foreign as well as to Court may refuse to assume jurisdiction in
domestic corporations. One who has dealt spite of its having acquired jurisdiction.
with a corporation of foreign origin as a Conversely, the court may assume
corporate entity is estopped to deny its jurisdiction over the case it it chooses to do
corporate existence and capacity. so; provided, that the following requisites are
met:
In Antam Consolidated Inc. vs. CA et al. we
expressed our chagrin over this commonly
 1) That the Philippine Court is one to which P1M. However, due to financial constraints, they
the parties may conveniently resort to; were unable to settle the loan.

Producer’s Bank applied for extrajudicial

2) That the Philippine Court is in a position foreclosure of the chattel mortgage. In response,
to make an intelligent decision as to the law Acme Shoe filed a petition for injunction at the RTC.
and the facts; and, The RTC dismissed Acme Shoe’s petition, and
ordered the foreclosure of the chattel mortgage. On
3) That the Philippine Court has or is likely appeal, the Court of Appeals upheld the RTC in toto.
to have power to enforce its decision. The
aforesaid requirements having been met, and ISSUES/HELD: Is the foreclosure valid? (No)
in view of the court’s disposition to give due
course to the questioned action, the matter of RATIO: The Supreme Court discussed real
the present forum not being the “most securities (pledge, mortgage or antichresis), and
gave the general rule that real securities may
convenient” as a ground for the suit’s
secure after-incurred obligations, or future
dismissal, deserves scant consideration. obligations not yet existing at the time the security
agreement is entered into. However, the Court
pointed out that chattel mortgage is the exception
Acme Shoe, Rubber to this rule, being covered by a special law (Act No.
1508) that provides in the prescribed form:
and Plastic Corp.
"x x x (the) mortgage is made for the purpose of securing the
V. obligation specified in the conditions thereof, and for no other
purpose, and that the same is a just and valid obligation, and one

Court of Appeals not entered into for the purpose of fraud."

G.R. No. 103576. August 22, 1996 The Court interpreted this provision in the
Ponente: Vitug, J. prescribed form of a chattel mortgage to refer to an
Digest Maker: J. Ragragio
existing obligation, and not a future obligation. As
applied in this case, the chattel mortgage only
FACTS: Acme Shoe entered into a loan agreement applied to the P3M loan and was terminated when
with Producer’s Bank for P3M. This loan was that loan was fully paid. Being merely accessory in
secured by chattel mortgage (the subject property nature, the chattel mortgage could not have existed
of the chattel mortgage is never mentioned), with a independently of the principal obligation of P3M.
provision as follows: Therefore, at the time that Producer’s Bank applied
for extrajudicial foreclosure, there was no longer
"In case the MORTGAGOR executes subsequent promissory note
or notes either as a renewal of the former note, as an extension anything to foreclose, since the chattel mortgage
thereof, or as a new loan, or is given any other kind of already ceased to exist.
accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments
As to future obligations, the Court ruled that a
on Trust Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes and/or chattel mortgage may, at best, include a promise to
accommodations without the necessity of executing a new include debts that are yet to be contracted, and this
contract and this mortgage shall have the same force and effect promise can be a binding commitment that can be
as if the said promissory note or notes and/or accommodations
compelled upon. To implement this, once a new
were existing on the date thereof. This mortgage shall also stand
as security for said obligations and any and all other obligations debt is contracted, the parties must either execute
of the MORTGAGOR to the MORTGAGEE of whatever kind and a new chattel mortgage agreement including the
nature, whether such obligations have been contracted before, new debt, or must amend the old contract
during or after the constitution of this mortgage."
according to the form provided by law. Refusal on
the part of the borrower to do so under such a
Acme Shoe eventually paid the P3M loan. Acme promise may be considered an act of default.
Shoe later took out another loan for P2.7M, which Nevertheless, a foreclosure can only cover the
was also eventually fully paid. Some time later, debts extant at the time of constitution and during
Acme Shoe took out another loan, this time for the life of the chattel mortgage sought to be
foreclosed.
 Columbia et al, being foreign corporations,
DISPOSITIVE: Appealed decisions set aside, should have such license to be able to
without prejudice to to the appropriate legal
maintain an action in Philippine courts.
recourse by private respondent as may still be
warranted as an unsecured creditor.
Sunshine point to the fact that Columbia et al
Columbia Pictures vs CA, 261 SCRA 144 are the copyright owners or owners of
exclusive rights of distribution in the
Philippines of copyrighted motion pictures or
Facts: The National Bureau of Investigation
films, and also to the appointment of Atty.
has engaged in an anti-film piracy drive by
Rico V. Domingo as their attorney-in-fact, as
investigating various video establishments in
being constitutive of “doing business in the
Metro Manila involving cases violating PD
Philippines” under Section 1(f) (1) and (2),
No. 49, as amended, including Sunshine
Rule 1 of the Rules of the Board of
Home Video Inc. (“Sunshine”), owned and
Investments. As foreign corporations doing
operated by Danilo A. Pelindario with
business in the Philippines, Section 133 of
address at No. 6 Mayfair Center, Magallanes,
Batas Pambansa Blg. 68, or the Corporation
Makati, Metro Manila. On
Code of the Philippines, denies them the right
to maintain a suit in Philippine courts in the
November 14, 1987, NBI Senior Agent
absence of a license to do business.
Lauro C. Reyes applied for a search warrant
Consequently, they have no right to ask for
with the court a quo against Sunshine seeking
the issuance of a search warrant.
the seizure, among others, of pirated video
tapes of copyrighted films, which the court
Columbia et al’s contention:
granted.
Columbia et al denied that they are doing
In the course of the search of the premises
business in the Philippines and contend that
indicated in the search warrant, the NBI
Sunshine have not adduced evidence to prove
Agents found and seized various video tapes
that petitioners are doing such business here,
of duly copyrighted motion pictures/films
as would require them to be licensed by the
owned or exclusively distributed by
Securities and Exchange Commission.
Columbia Pictures, Inc. et al (Columbia et
al.)
Moreover, an exclusive right to distribute a
product or the ownership of such exclusive
Thereafter, the court has lifted the search
right does not conclusively prove the act of
warrant which it had therefore issued after a
doing business nor establish the presumption
series of motions, up until the CA. In the SC,
of doing business.
Sunshine challenged Columbia et al’s legal
standing in our courts, they being foreign
corporations not licensed to do business in Ruling: No, foreign film corporations do not
the Philippines. transact or do business in the Philippines and,
therefore, do not need to be licensed in order
to take recourse to our courts.
Issue: Whether or not Columbia et al were
“doing business” in the Philippines, thus,
needs to be licensed before having a legal As acts constitutive of “doing business,” the
standing in Philippine courts. fact that Columbia et al are admittedly
copyright owners or owners of exclusive
distribution rights in the Philippines of
Sunshine’s contention:
motion pictures or films does not convert No general rule or governing principles can
such ownership into an indicium of doing be laid down as to what constitutes “doing”
business which would require them to obtain or “engaging in” or “transacting” business.
a license before they can sue upon a cause of Each case must be judged in the light of its
action in local courts. own peculiar environmental circumstances.
The true tests, however, seem to be whether
Neither is the appointment of Atty. Rico V. the foreign corporation is continuing the
Domingo as attorney-in-fact of Columbia et body or substance of the business or
al., with express authority pursuant to a enterprise for which it was organized or
special power of attorney whether it has substantially retired from it
and turned it over to another.
Held: Based on Article 133 of the
Corporation Code and gauged by such Authorities agrees that a foreign corporation
statutory standards, Columbia et al are not is “doing,” “transacting,” “engaging in,” or
barred from maintaining the present action. “carrying on” business in the State when, and
There is no showing that, under our statutory ordinarily only when, it has entered the State
or case law, Columbia et al are doing, by its agents and is there engaged in carrying
transacting, engaging in or carrying on on and transacting through them some
business in the Philippines as would require substantial part of its ordinary or customary
obtention of a license before they can seek business, usually continuous in the sense that
redress from our courts. No evidence has it may be distinguished from merely casual,
been offered to show that petitioners have sporadic, or occasional transactions and
performed any of the enumerated acts or any isolated acts.
other specific act indicative of an intention to
conduct or transact business in the The Corporation Code does not itself define
Philippines. or categorize what acts constitute doing or
transacting business in the Philippines.
Article 125 and Article 133 of the Jurisprudence has, however, held that the
Corporation Code of the Philippines, as term implies a continuity of commercial
interpreted, says that any foreign corporation dealings and arrangements, and
not doing business in the Philippines may contemplates, to that extent, the performance
maintain an action in our courts upon any of acts or works or the exercise of some of the
cause of action, provided that the subject functions normally incident to or in
matter and the defendant are within the progressive prosecution of the purpose and
jurisdiction of the court. It is not the absence subject of its organization.
of the prescribed license but “doing business”
in the Philippines without such license which As a general rule, a foreign corporation will
debars the foreign corporation from access to not be regarded as doing business in the State
our courts. In other words, although a foreign simply because it enters into contracts with
corporation is without license to transact residents of the State, where such contracts
business in the Philippines, it does not follow are consummated outside the State. In fact, a
that it has no capacity to bring an action. Such view is taken that a foreign corporation is not
license is not necessary if it is not engaged in doing business in the state merely because
business in the Philippines. sales of its product are made there or other
business furthering its interests is transacted
there by an alleged agent, whether a
corporation or a natural person, where such (2) real estate and buildings in Makati, (b)
activities are not under the direction and two (2) real estate and improvements located
control of the foreign corporation but are in Antipolo, Rizal, (c) real estate and
engaged in by the alleged agent as an improvements located in Cainta, Rizal, and
independent business. (d) real estate and improvements in San
Mateo, Rizal. After said properties have been
It is generally held that sales made to sold or disposed of and after all the financial
customers in the State by an independent obligations of VECCI are completely paid,
dealer who has purchased and obtained title VECCI shall pay to Julieta the sum
from the corporation to the products sold are equivalent to fifty percent (50%) of the net
not a doing of business by the corporation. resulting balance of such funds.
Likewise, a foreign corporation which sells
its products to persons styled “distributing When Makati building II was sold to Sureste
agents” in the State, for distribution by them, Properties Inc., Julieta filed a motion for
is not doing business in the State so as to nullification of the sale before the trial court
render it subject to service of process therein, on the ground that VECCI is not the absolute
where the contract with these purchasers is owner of the property and that VECCI
that they shall buy exclusively from the violated the condition in the compromise
foreign corporation such goods as it agreement requiring that the sale be made
manufactures and shall sell them at trade under the terms and conditions in the
prices established by it. enabling resolutions of its Board of Directors
and stockholders. The trial court resolved in
Merely engaging in litigation has been favor of Julieta but on appeal, the Court of
considered as not a sufficient minimum Appeals reversed the lower court’s decision.
contact to warrant the exercise of jurisdiction Hence, this appeal.
over a foreign corporation.
ISSUE: Was the sale of Makati building II a
Esguerra v. CA valid exercise of corporate power?
G.R. No. 119310, February 3, 1997
RULING: Yes. The trial courts partial
FACTS: Julieta Esguerra filed a complaint
decision dated January 11, 1990 approving
for administration of conjugal partnership or
the compromise agreement clearly showed
separation of property against her husband
that the enabling resolutions of its (VECCIs)
Vicente Esguerra Jr. before the trial court.
board of directors and stockholders referred
Said complaint was later amended
to were those then already existing; to wit: (1)
impleading V. Esguerra Construction Co.
the resolution of the stockholders of VECCI
Inc. (VECCI) and other family corporations
dated November 9, 1989, (where) the
as defendants. The parties entered into a
stockholders authorized VECCI to sell and/or
compromise agreement.
disposed all or substantially all its property
and assets upon such terms and conditions
The compromise agreement provided that
and for such consideration as the board of
VECCI shall sell/alienate/transfer or dispose
directors may deem expedient.i (2) the
of in any lawful and convenient manner, and
resolution dated 9 November 1989, (where)
under the terms and conditions in the
the board of directors of VECCI authorized
resolutions of its Board of Directors and
VECCI to sell and/or dispose all or
stockholders the following properties: (a) two
substantially all the property and assets of the
corporation, at the highest available price/s Robes, who subsequently, however, endorsed
they could be sold or disposed of in cash, and his shares in favor of Adalia F. Robes.
in such manner as may be held convenient Said certificates of stock bear the following terms
under the circumstances, and authorized the and conditions: "The Preferred Stock shall have
President Vicente B. Esguerra, Jr. to the following rights, preferences, qualifications
negotiate, contract, execute and sign such and limitations, to wit: 1. Of the right to receive a
sale for and in behalf of the corporation.ii quarterly dividend of 1%, cumulative and
participating. xxx 2. That such preferred shares
VECCIs sale of all the properties mentioned may be redeemed, by the system of drawing lots,
in the judicially-approved compromise at any time after 2 years from the date of issue at
agreement was done on the basis of its the option of the Corporation." On 31 January
Corporate Secretarys Certification of these 1979, RFRDC and Robes proceeded against the
two resolutions. The partial decision did not Bank and filed a complaint anchored on their
alleged rights to collect dividends under the
require any further board or stockholder preferred shares in question and to have the bank
resolutions to make VECCIs sale of these redeem the same under the terms and conditions
properties valid. Being regular on its face, the of the stock certificates. The bank filed a Motion
Secretarys Certification was sufficient for to Dismiss 3 private respondents' Complaint on
private respondent Sureste Properties, Inc. to the following grounds: (1) that the trial court had
no jurisdiction over the subject-matter of the
rely on. It did not have to investigate the truth action; (2) that the action was unenforceable
of the facts contained in such certification. under substantive law; and (3) that the action was
Otherwise, business transactions of barred by the statute of limitations and/or laches.
corporations would become tortuously slow The bank's Motion to Dismiss was denied by the
and unnecessarily hampered. Ineluctably, trial court in an order dated 16 March 1979. The
bank then filed its Answer on 2 May 1979.
VECCIs sale of Esguerra Building II to Thereafter, the trial court gave the parties 10 days
private respondent was not ultra vires but a from 30 July 1979 to submit their respective
valid execution of the trial courts partial memoranda after the submission of which the
decision. Based on the foregoing, the sale is case would be deemed submitted for resolution.
also deemed to have satisfied the On 7 September 1979, the trial court rendered the
decision in favor of RFRDC and Robes; ordering
requirements of Section 40 of the the bank to pay RFRDC and Robes the face
Corporation Code. value of the stock certificates as redemption
price, plus 1% quarterly interest thereon until full
Republic Planters Bank vs. Agana payment. The bank filed the petition for certiorari
[GR 51765, 3 March 1997] with the Supreme Court, essentially on pure
questions of law.
Facts: On 18 September 1961, the Robes-
Francisco Realty & Development Corporation Issue:
(RFRDC) secured a loan from the Republic 1. Whether the bank can be
Planters Bank in the amount of P120,000.00. As compelled to redeem the preferred
part of the proceeds of the loan, preferred shares shares issued to RFRDC and Robes.
of stocks were issued to RFRDC through its
officers then, Adalia F. Robes and one Carlos F. 2. Whether RFRDC and Robes are
Robes. In other words, instead of giving the legal entitled to the payment of certain rate of
tender totaling to the full amount of the loan, interest on the stocks as a matter of right
which is P120,000.00, the Bank lent such amount without necessity of a prior declaration of
partially in the form of money and partially in the dividend.
form of stock certificates numbered 3204 and Held:
3205, each for 400 shares with a par value of
P10.00 per share, or for P4,000.00 each, for a 1. While the stock certificate does allow
total of P8,000.00. Said stock certificates were in redemption, the option to do so was clearly
the name of Adalia F. Robes and Carlos F. vested in the bank. The redemption therefore is
clearly the type known as "optional". Thus, except
as otherwise provided in the stock certificate, the TRADERS ROYAL BANK V CA G.R. No.
redemption rests entirely with the corporation and 93397 March 3, 1997
the stockholder is without right to either compel or
refuse the redemption of its stock. Furthermore, FACTS:
the terms and conditions set forth therein use the
word "may". It is a settled doctrine in statutory Filriters registered owner of Central Bank
construction that the word "may" denotes Certificate of Indebtedness (CBCI).
discretion, and cannot be construed as having a
Filriters transferred it to Philfinance by one
mandatory effect. The redemption of said shares
of its officers without authorization from
cannot be allowed. The Central Bank made a
finding that the Bank has been suffering from the company. Subsequently, Philfinance
chronic reserve deficiency, and that such finding transferred same CBCI to Traders Royal
resulted in a directive, issued on 31 January 1973 Bank (TRB) under a repurchase
by then Gov. G. S. Licaros of the Central Bank, to agreement. When Philfinance failed to do
the President and Acting Chairman of the Board so, The TRB tried to register in its name in
of the bank prohibiting the latter from redeeming the CBCI. The Central Bank did not want
any preferred share, on the ground that said to recognize the transfer.
redemption would reduce the assets of the Bank
to the prejudice of its depositors and creditors. Docketed as Civil Case No. 83-17966 in
Redemption of preferred shares was prohibited the Regional Trial Court of Manila, Branch
for a just and valid reason. The directive issued 32, the action was originally filed as a
by the Central Bank Governor was obviously Petition for Mandamus 5 under Rule 65 of
meant to preserve the status quo, and to prevent the Rules of Court, to compel the Central
the financial ruin of a banking institution that Bank of the Philippines to register the
would have resulted in adverse repercussions, transfer of the subject CBCI to petitioner
not only to its depositors and creditors, but also
Traders Royal Bank (TRB).
to the banking industry as a whole. The directive,
in limiting the exercise of a right granted by law to
DECISION OF LOWER COURTS: * RTC:
a corporate entity, may thus be considered as an
exercise of police power. transfer is null and void. * CA: The
appellate court ruled that the subject
2. Both Section 16 of the Corporation Law and CBCI is not a negotiable instrument.
Section 43 of the present Corporation Code Philfinance acquired no title or rights
prohibit the issuance of any stock dividend under CBCI No. D891 which it could
without the approval of stockholders, assign or transfer to Traders Royal Bank
representing not less than two-thirds (2/3) of the and which the latter can register with the
outstanding capital stock at a regular or special Central Bank. Thus, the transfer of the
meeting duly called for the purpose. These instrument from Philfinance to TRB was
provisions underscore the fact that payment of merely an assignment, and is not
dividends to a stockholder is not a matter of right governed by the negotiable instruments
but a matter of consensus. Furthermore, "interest law.
bearing stocks", on which the corporation agrees
absolutely to pay interest before dividends are APPLICABLE LAWS:
paid to common stockholders, is legal only when
construed as requiring payment of interest as
Under section 1 of Act no. 2031 an
dividends from net earnings or surplus only. In
instrument to be negotiable must conform
compelling the bank to redeem the shares and to
pay the corresponding dividends, the Trial to the following requirements: (a) It must
committed grave abuse of discretion amounting be in writing and signed by the maker or
to lack or excess of jurisdiction in ignoring both drawer; (b) Must contain an unconditional
the terms and conditions specified in the stock promise or order to pay a sum certain in
certificate, as well as the clear mandate of the money; (c) Must be payable on demand,
law. or at a fixed or determinable future time;
(d) Must be payable to order or to bearer;
and (e) Where the instrument is
addressed to a drawee, he must be
named or otherwise indicated therein with to the requirements under the Negotiable
reasonable certainty. Instrument Law. Otherwise instrument
shall not bind the parties.
Under section 3, Article V of Rules and
Regulations Governing Central Bank 2. Whether the Assignment of registered
Certificates of Indebtedness states that certificate is valid or null and void.
the assignment of registered certificates
shall not be valid unless made at the IT'S NULL AND VOID. Obviously the
office where the same have been issued Assignment of certificate from Filriters to
and registered or at the Securities Philfinance was null and void. One of
Servicing Department, Central Bank of the officers who signed the deed of
Philippines, and by the registered owner assignment in behalf of Filriters did not
thereof, in person or by his have the necessary written authorization
representative, duly authorized in writing. from the Board of Directors of Filriters. For
For this purpose, the transferee may be lack of such authority the assignment is
designated as the representative of the considered null and void.
registered owner. ISSUES & RULING: 1.
Whether the CBCI is negotiable Clearly shown in the record is the fac
instrument or not. t that
Philfinance's title over CBCI is defectiv
The pertinent portions of the subject CBCI e since it acquired the instrument from
read: Filriters fictitiously. Under 1409 of the Civil
Code those contracts which are absolutely
xxx xxx xxx simulated or fictitious are considered void
and inexistent from the beginning.
The Central Bank of the Philippines (the
Bank) for value received, hereby promises Petitioner knew that Philfinance is not
to pay bearer, of if this Certificate of registered owner of the CBCI No. D891.
indebtedness be registered, to FILRITERS The fact that a non-owner was disposing
GUARANTY ASSURANCE CORPORATION, of the registered CBCI owned by another
the registered owner hereof, the principal entity was a good reason for petitioner to
sum of FIVE HUNDRED THOUSAND verify of inquire as to the title Philfinance
PESOS. to dispose to the CBCI.

NO. The CBCI is not a negotiable OTHER NOTES:

instrument, since the instrument clearly 1. the mere ownership by a single
stated that it was payable to Filriters, and stockholder or by another corporation of
the certificate lacked the words of all or nearly all of the capital stock of a
negotiability which serve as an expression corporation is not of itself a sufficient
of consent that the instrument may be reason for disregarding the fiction of
transferred by negotiation. separate corporate personalities.

Before the instruments become negotiable

instruments, the instrument must conform